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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark one)
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 29, 2021
or
For the transition period from to
Commission file number 001-36556
EL POLLO LOCO HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
State or other jurisdiction of
incorporation or organization
3535 Harbor Blvd., Suite 100, Costa Mesa, California
(Address of principal executive offices)
20-3563182
(I.R.S. Employer
Identification No.)
92626
(Zip Code)
(714) 599-5000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, par value $0.01 per share
Trading Symbol(s)
LOCO
Name of each exchange on which registered
The Nasdaq Stock Market LLC
Securities registered pursuant to section 12(g) of the Act:
None
(Title of class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated
filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☐
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☒
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the
Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2021, the last business day of the registrant’s most recently completed second fiscal quarter, the aggregate market value of the registrant’s common equity held by non-affiliates was approximately $352 million, deeming purely for
purposes of this calculation all directors and executive officers and Trimaran Pollo Partners, L.L.C. to be affiliates. The determination of affiliate status is not necessarily a conclusive determination for any other purpose.
As of March 4, 2022, there were 36,743,863 shares of the registrant’s common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III hereof incorporates by reference certain portions of the registrant’s definitive proxy statement for its 2022 annual meeting of stockholders to be filed not later than 120 days after the end of the registrant’s 2021 fiscal year.
Table of Contents
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2. Properties
Item 3. Legal Proceedings
Item 4. Mine Safety Disclosures
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PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Item 6. [Reserved]
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8. Financial Statements and Supplementary Data
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accounting Fees and Services
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
Signatures
PART IV
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FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that are subject to risks and uncertainties. All statements other than statements of historical fact
included in this report are forward-looking statements. Forward-looking statements discuss our current expectations and projections relating to our
financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements because
they do not relate strictly to historical or current facts. These statements may include words such as “aim,” “anticipate,” “believe,” “estimate,”
“expect,” “forecast,” “outlook,” “potential,” “project,” “projection,” “plan,” “intend,” “seek,” “may,” “could,” “would,” “will,” “should,” “can,” “can
have,” “likely,” the negatives thereof and other words and terms of similar meaning in connection with any discussion of the timing or nature of
future operating or financial performance or other events. They appear in a number of places throughout this report and include statements regarding
our intentions, beliefs or current expectations concerning, among other things, our results of operations, financial condition, liquidity, prospects,
growth, strategies and the industry in which we operate. All forward-looking statements are subject to risks and uncertainties that could cause actual
results to differ materially from those that we expected.
While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and it is impossible
for us to anticipate all factors that could affect our actual results. All forward-looking statements are expressly qualified in their entirety by these
cautionary statements. You should evaluate all forward-looking statements made in this report in the context of the factors that could cause outcomes
to differ materially from our expectations. These factors include, but are not limited to, those listed under “Item 1A. Risk Factors” of this report, as
such risk factors may be amended, supplemented or superseded from time to time by other reports we file with the Securities and Exchange
Commission.
We caution you that the important factors included in this report may not contain all of the factors that are important to you. In addition, we cannot
assure you that we will realize the results or developments we expect or anticipate or, even if substantially realized, that they will result in the
consequences we anticipate or affect us or our operations in the ways that we expect. The forward-looking statements included in this report are
made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new
information, future events or otherwise, except as required by law. If we do update one or more forward-looking statements, no inference should be
made that we will make additional updates with respect to those or other forward-looking statements. We qualify all of our forward-looking
statements by these cautionary statements.
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Unless otherwise specified in this Annual Report on Form 10-K (“Annual Report”), or the context otherwise requires, terms “El Pollo Loco,” “the
Company,” “our company,” “we,” “us,” and “our” mean El Pollo Loco Holdings, Inc. (“Holdings”), together with its subsidiaries.
PART I
ITEM 1.
BUSINESS
Our Company
El Pollo Loco is Spanish for “The Crazy Chicken.” We opened our first location on Alvarado Street in Los Angeles, California, in 1980, and have
grown our restaurant system to 480 restaurants, comprised of 189 company-operated and 291 franchised restaurants as of December 29, 2021. Our
restaurants are located in California, Arizona, Nevada, Texas, Utah and Louisiana. Our typical restaurant is a free-standing building with drive-thru
service that ranges in size from 2,200 to 3,000 square feet with seating for approximately 50-70 people.
El Pollo Loco is a differentiated and growing restaurant concept that specializes in fire-grilling citrus-marinated chicken and operates in the limited
service restaurant (“LSR”) segment. We strive to offer food that integrates the culinary traditions of Mexico with the healthier lifestyle of Los
Angeles, a combination that we call “LA-Mex.” Our distinctive menu features our signature product, citrus-marinated fire-grilled chicken, as well as
a variety of Mexican and LA-inspired entrees that we create from our chicken. We serve individual and family-sized chicken meals, a variety of
Mexican and LA-inspired entrees and sides, and, throughout the year, on a limited-time basis, additional proteins like shrimp. Our entrees include
favorites such as our Chicken Avocado Burrito, Pollo Fit entrees, chicken tostada salads, and Pollo Bowls. Our famous Creamy Cilantro dressings
and salsas are prepared fresh daily, allowing our customers to create their favorite flavor profiles to enhance their culinary experience. Our distinctive
menu with better for you and more affordable healthier alternatives appeals to consumers across a wide variety of socio-economic backgrounds and
drives our balanced composition of sales throughout the day (our “day-part mix”), including at lunch and dinner.
The Company operates in one operating segment. All significant revenues relate to retail sales of food and beverages through either company or
franchised restaurants. Financial information about our operations, including our revenues and expenses for fiscal 2021, 2020 and 2019, and our total
assets as of the end of fiscal 2021 and 2020, is included in our “Audited Consolidated Financial Statements” and accompanying “Notes to
Consolidated Financial Statements” in this Annual Report. See “Item 8. Financial Statements and Supplementary Data.”
COVID-19 Impact
During the COVID-19 pandemic, we have experienced periods of significant disruption to our restaurant operations. Following the pandemic
declaration in March 2020, federal, state and local governments have periodically responded to the public health crisis by requiring social distancing,
issuing “stay at home” directives, and implementing restaurant restrictions - including government-mandated dining room closures - that limited
business to off-premise services only (take-out, drive-thru and delivery). Disruptions caused by the COVID-19 pandemic and the measures taken to
prevent its spread have adversely affected our operations and financial results, particularly during fiscal 2020 as well as periods of 2021 when
COVID-19 infections increased with the spread of new strains of the virus. The disruption in operations has led to us considering the impact of the
COVID-19 pandemic on our liquidity, debt covenant compliance, and recoverability of long-lived and right-of-use (“ROU”) assets, goodwill and
intangible assets, among others. We are continually evaluating the impact of the global crisis on our financial condition, liquidity, operations,
suppliers, industry, and workforce and will take additional actions as necessary.
While all of our restaurants had dining rooms open as of December 29, 2021, we continue to experience staffing challenges, which resulted in
reduced operating hours and service channels at some of our restaurants and resulted in higher wage inflation, overtime costs and other labor related
costs. Further, we experienced inflationary pressures due to supply chain disruptions that resulted in increased commodity prices and impacted our
business and results of operations during the year ended December 29, 2021. We expect these pressures to continue during fiscal 2022. During fiscal
2021, we incurred $3.9 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay. During fiscal 2020, we incurred
$4.9 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay. During fiscal 2021 as part of the Coronavirus Aid,
Relief and Economic Security Act (the “CARES Act”), we recognized the Employee Retention Credit in the amount of $3.4 million, which is
recorded as an offset to the
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corresponding payroll expense and is classified as part of labor and other operating expenses on the consolidated statements of income for the year
ended December 29, 2021. See additional information presented in Note 2 “Summary of Significant Accounting Policies” in the accompanying
“Notes to Consolidated Financial Statements” in this Annual Report.
Due to the rapid development and fluidity of this situation, we cannot determine the ultimate impact that the COVID-19 pandemic will have on our
consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate materiality of the adverse
impact on our consolidated financial condition, liquidity, and future results of operations is uncertain.
Our Industry
The restaurant industry is divided into two segments: full service and limited service. We operate within the broader LSR segment, and we strive to
offer the food and dining experience of a fast-casual restaurant and the speed, value, and convenience of a quick-service restaurant (“QSR”). We
strive to offer menu options that are made with fresh ingredients and provide a “better for you” alternative to typical fast food, which are also
inspired by the culinary and cultural traditions of Mexico and our hometown of Los Angeles.
Our Competitive Strengths
We believe that the following strengths differentiate us from our competitors and serve as the foundation for our continued growth:
Differentiated Restaurant Concept with Broad Appeal. We believe that our food, which combines the culinary traditions of Mexico with the healthier
lifestyle of Los Angeles, served in contemporary restaurant environments at reasonable prices, positions us well to satisfy the needs of our core
Hispanic family market and appeal to the broader general market who seek convenient and high-quality meals at reasonable prices. We provide our
customers with the opportunity to enjoy citrus-marinated, fire-grilled chicken and Mexican-inspired entrees containing distinctive ingredients such as
avocados, organic greens and serrano peppers at price points that appeal to a broad consumer base. We believe that our entree prices are typically
lower than the fast-casual segment, and a slight premium to the QSR segment. We prepare our entrees to order in approximately four minutes and
allow our customers the option to create their favorite flavor profiles using our freshly-prepared salsas before they enjoy their meals in our dining
rooms or take their meals to go from the counter or the drive-thru. We also believe that our concept, which integrates the complexity of creating real
food in real kitchens with the speed of our service model and the skill of our trained Grill Masters, provides a layer of competitive insulation around
our restaurant model. We believe that our positioning appeals to a broad customer base, and that our brand crosses over traditional age, ethnic, and
income demographics, giving consumers the best of both the fast-casual and QSR segments. We seek to position ourselves as a differentiated
restaurant concept, which we believe sources traffic from both dining segments and, as a result, we expect it to drive transaction growth in the future.
Mexican-Inspired, Fresh-Made Fire-Grilled Chicken and Entrees. Our signature product is our chicken, marinated with a proprietary recipe of citrus
juice, garlic, and spices, which serves as the foundation of our distinctive menu of flavorful bone-in chicken meals and entrees inspired by Mexico
and LA. With menu items such as our signature individual chicken meals, family dinners, Chicken Tostada Salad, Pollo Bowl®, Chicken Avocado
Burrito, and Double Chicken Avocado Salad, we believe that we offer our customers a better for you alternative to traditional food on-the-go. Our
entrees are prepared using fresh ingredients with recipes inspired by Mexican cuisine. The majority of our menu items are prepared in-restaurant
using fresh ingredients, including our bone-in chicken and chicken breast filets, rice, salsas, and cilantro dressing. These items start with our chicken,
which is marinated in our restaurants daily. From there, our Grill Masters fire-grill and hand-chop our chicken to order. Our team members create our
salsas, and cilantro dressings with fresh tomatoes, avocados, serrano peppers, and cilantro. In addition, our rice is seasoned and simmered in our
restaurants throughout each day.
Our bone-in chicken meals and Mexican-inspired entrees accounted for 46% and 48% of our company-operated restaurant sales, respectively, in
2021, and 46% and 47%, respectively, in both 2020 and 2019. Our individual and family-sized chicken meals appeal to customers looking to dine at
the restaurant or take out during dinnertime, while our Mexican-inspired entrees draw traffic from customers at lunchtime or for an afternoon snack,
thereby enabling us to generate sales split almost equally between lunch and dinner. We believe that our family-sized chicken meals provide a better
for you and more convenient alternative for families looking to solve the “dinnertime dilemma” of providing their
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families with high-quality meals without investing significant time or money. In both 2021 and 2020, approximately 31% of our company-operated
sales were generated from family-sized meals, compared to 28% in 2019.
Operations Infrastructure that Allows for Real-Time Control, Fast Feedback, and Innovation. We believe that satisfying our customers’ dining needs
is the foundation for our business, and we have an operations platform that allows us to measure our performance in meeting and exceeding those
needs. We utilize an operations dashboard that aggregates real-time, restaurant-level information for many aspects of our business. The dashboard
provides corporate and field management, as well as restaurant-level operators, with insight into how we are performing from the customer’s
perspective. In addition, all company operated restaurants utilize digital “communication boards,” which communicate sales, cost and consumer data
in real time to our restaurant managers.
Developing High Average Unit Volumes (“AUVs”) and Strong Unit Economics One Chicken at a Time. We seek to position ourselves as a
differentiated LSR business, which we believe drives restaurant operating results that are competitive with other leading restaurant concepts in both
the fast-casual and QSR industry segments. We believe that our restaurant model is designed to generate strong cash flow, consistent restaurant-level
financial results, and high returns on invested capital. In 2021, our company-operated restaurants generated average annual sales per restaurant of
approximately $2.0 million and restaurant-level contribution margins of 18.4%.
Experienced Leadership. Most of our senior management team has extensive operating experience in the restaurant industry. Members of the senior
leadership team include Larry Roberts as our Chief Executive Officer, President and Interim Chief Financial Officer, Miguel Lozano as our Chief
Operating Officer, Anne Jollay as our Chief Legal Officer, Rosanne Setoguchi as our Chief People Officer, Brian Carmichall as our Chief
Development Officer and Andy Rebhun as our Chief Marketing Officer.
Our Growth Strategy
We believe that we are well-positioned for sales growth because of our strong appeal to our core Hispanic family market, appeal to the broader
general market, disciplined business model, and strong unit economics. Through 2019, our system experienced annual comparable restaurant sales
growth for eight consecutive years. Our system comparable restaurant sales in fiscal 2020 declined 2.4%, which we believe was largely attributable
to the COVID-19 pandemic. In 2021, our comparable restaurant sales grew 12.1%. We plan to continue to expand our business, drive restaurant sales
growth and increase company profits by executing our Transformation Agenda, which consists of the following four key strategies:
Develop a People-first Culture – Invest in and Grow our Talent. We believe that success in the restaurant industry is highly correlated with employee
engagement, which is dependent upon hiring, retaining, developing and motivating employees. We invest in competitive pay and leadership training
to ensure that our managers have the tools they need to be effective leaders and motivating coaches. We continue to build a culture centered around
our mission, which is to “Feed the Love that Makes Us All Feel Like Family” and “Heart-Centered Leadership,” which is predicated on servant-led
leadership, employee recognition and community involvement. We believe that executing on our mission will result in a better and more meaningful
work experience for our employees.
In 2004, we created El Pollo Loco Charities, a non-profit charity, to support the communities surrounding our restaurants. El Pollo Loco Charities,
together with the Company, have provided over 15,000 meals per year to underprivileged families, through organizations like Food on Foot, Habitat
for Humanity, Children’s Institute, and Court Appointed Special Advocates. For example, in 2019 we enhanced our community outreach through
several initiatives, including (i) implementing a food donation program with Food Donation Connection and donating 75,000 tacos as part of our
“Buy One, Feed Many” initiative, (ii) celebrating Caesar Chavez Day by recruiting 500 company employees, franchisees and customers to refresh a
high school located in south Los Angeles and (iii) entering into a relationship with an Orange County-based organization to provide job opportunities
for the homeless. In 2020, we provided funds to 13 Latina owned businesses that were heavily impacted by the COVID-19 pandemic. In 2021, we
launched a campaign called ValenKIND’s Day, which provided 10,000 meals to community members in our hometown of Los Angeles who are
struggling with hunger and homelessness. For Mother’s Day, we issued $80,000 in grants to help moms in our communities and moms who are
restaurant team members pursue their dreams in our “Strong Like A Madre” campaign. We also continued a 2019 commitment to street artists in our
communities by commissioning three new murals on the exterior walls of select Los Angeles area El Pollo Loco locations. We believe that our focus
on leadership and culture will result in highly engaged and motivated employees, which will lead to a better experience for our customers.
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Differentiate the Brand – Accentuate our Strengths and Build Upon Them. We believe that we are uniquely positioned within the LSR restaurant
space. We will continue to adapt our menu to create family-sized dinner options and lunch entrees that complement our signature fire-grilled chicken,
and are inspired by the culinary and cultural traditions of Mexico and our hometown of Los Angeles. We believe that we have opportunities for menu
innovation as we look to increase customer frequency and target the dinner segment. In addition, we will continue to tap into the need for healthier
offerings by building on the success of our fire-grilled chicken and “better for you” products. Our marketing and operations teams collaborate to
ensure that the items developed in our test kitchen can be executed to our high standards in our restaurants with the convenience and value that our
customers have come to expect.
We engage customers through our seasonal product calendar, which features new, unique limited time offers and variations of menu items like our
Chicken Tostada Salads and Stuffed Burritos. Our key points of differentiation are communicated through our advertising campaign, which
highlights the brand’s authenticity, “better for you” menu options and dedication to high-quality ingredients. We tailor our message from television
and direct mail, which garners broad exposure, to our Loco Rewards loyalty program and social media platform where we engage in more
personalized marketing.
We believe that investing in consumer-facing technology is critical to further differentiating our brand and reaching customers for whom convenience
and value are key decision factors. Our Loco Rewards loyalty program offers rewards that incentivize customers to visit our restaurants more
each month. As of December 29, 2021, there were 2.8 million members in the Loco Rewards loyalty program, whom we target with segmented,
dynamic campaigns with special offers tailored to each customer segment with the goals of increasing visit frequency and growing overall spend.
In June 2018, we implemented delivery through DoorDash, a third-party delivery provider. In September 2019, we added Postmates and Uber Eats,
and in February 2020 we added GrubHub, as additional marketplace delivery providers. For meals ordered through these market place platforms,
restaurants incur a fee based on a percentage of the ticket. As of December 29, 2021, DoorDash maintained exclusivity for delivery orders placed
directly with our restaurants. For orders placed directly from the restaurant, no fee is charged to the restaurant as the full delivery cost is borne by the
customer.
In total, during fiscal 2021, delivery orders constituted 7.0% of our total sales mix. As of December 29, 2021, all Corporate and franchise restaurants
offered integrated delivery through a third-party service.
We plan to continue investing in our loyalty and delivery programs as well as other technology platforms to continue making it easier for customers
to access our food.
Simplify Operations – Make It Easier for Employees and Franchisees to Run Our Restaurants. We believe that simplifying our restaurant operations
will further enhance our ability to attract and retain the best employees and further improve customer service. In 2021, we continued to implement
several initiatives to make it easier for our employees to operate our restaurants. These included a systemized restaurant cleaning process and revised
drive thru operating procedures. These and other initiatives are intended to enable our restaurant employees to increase their focus on customers and
speed of service. We believe that this continued focus, combined with renewed emphasis on providing an exceptional customer experience, will lead
to higher sales over the longer term.
Accelerate new restaurant development. We believe that execution of our first three strategies will enable us to grow our restaurant base. Our
restaurant model is designed to generate strong cash flow, attractive restaurant-level financial results and high returns on invested capital. In 2020, we
finalized a new restaurant design that we believe will clearly differentiate and communicate our brand, both on the exterior and interior. In addition,
we redesigned the back-of-house to make it easier for employees to operate the restaurant. We believe that our remodels using this new design will
result in higher restaurant revenue and a strengthened brand. As of the end of fiscal 2021, we have completed 12 company-operated restaurants
remodels using the new design, including 10 during 2021. In 2021, our franchisees completed five remodels, two of which used the new design. In
2022, we plan to continue our standard practices for remodels, including 10-15 company-operated and 20-30 franchised restaurants.
We expect future new unit development to be led by franchisees, with company development being focused on existing markets. In order to expand
into new markets, we believe that we need to source new franchisees and, therefore, we expect to invest more resources in sourcing and onboarding
them in the future.
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Site Selection and Expansion
Restaurant Development
We believe that our restaurant model is designed to generate strong cash flow, attractive restaurant-level financial results, and high returns on
invested capital, which we believe provide us with a strong foundation for unit growth over the long-term. In 2021, two new company-operated
restaurants were opened, one in Nevada and one in California, and two new franchised restaurants were opened, one in Texas and one in Louisiana.
In fiscal 2022, we intend to open three to six new company-operated and six to 10 new franchised restaurants. There is no guarantee that we will be
able to open new company-operated or franchised restaurants, or to increase the overall number of our restaurants. We may be unsuccessful in
expanding within existing or into new markets for a variety of reasons as described below in “Item 1A. Risk Factors,” including competition for
customers, sites, franchisees, employees, licenses, and financing.
Site Selection Process
We consider the location of a restaurant to be a critical variable in its long-term success and as such, we devote significant effort to the investigation
and evaluation of potential restaurant locations. Our in-house development team has extensive experience building such brands as Taco Bell, The
Habit Burger Grill, Carl’s Jr., Baskin Robbins, Wendy’s, Denny’s and Dunkin’ Brands. We use a combination of our in-house development team and
outside real estate consultants to locate, evaluate, and negotiate new sites using various criteria, including demographic characteristics, daytime
population thresholds, and traffic patterns, along with the potential visibility of, and accessibility to, the restaurant. The process for selecting
locations incorporates management’s experience and expertise and includes extensive data collection and analysis. Additionally, we use information
and intelligence gathered from managers and other restaurant personnel that live in or near the neighborhoods that we are considering.
Based on our experience and results, we are currently focused on developing freestanding sites with drive-thrus along with select in-line locations.
Our restaurants perform well in a variety of neighborhoods, which gives us greater flexibility and lowers operating risk when selecting new
restaurant locations.
We approve new restaurants only after formal review by our real estate site approval committee, which includes most of our senior management, and
we monitor restaurants’ on-going performances to inform future site selection decisions.
Restaurant Construction
After identifying a lease site, we commence our restaurant build-out. Our new restaurants are either ground-up prototypes or retail space conversions.
On average, it takes approximately 12 to 24 months from specific site identification to restaurant opening. Our restaurants are constructed in
approximately 10 to 15 weeks. In order to maintain consistency of food and customer service, as well as our colorful, bright, and contemporary
restaurant environment, we have set processes and timelines to follow for all restaurant openings.
Restaurant Management and Operations
Service
We are extremely focused on customer service. We aim to provide fast, friendly service on a solid foundation of dedicated, driven team members and
managers. Our cashiers are trained on the menu items that we offer and offer customers thoughtful suggestions to enhance the ordering process. Our
team members and managers are responsible for our service and dining room environment with a focus on hospitality. Team members seek to engage
in conversation with our customers to ensure satisfaction. In addition, constant monitoring of the dining room occurs to ensure the fresh salsa bar and
beverage station are clean and supplied with products.
Operations
We utilize systems that are aimed at measuring our ability to deliver a “best in class” experience for our customers. These systems include customer
surveys, social media ratings and speed-of-service performance trends. The operational
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results from all of these sources are then presented on an operations dashboard that displays the measures in an easy-to-read online format that
corporate and restaurant-level management and franchisees can utilize in order to develop specific plans for continuous performance improvement.
In addition, all company operated restaurants utilize digital “communication boards”, which communicate sales, costs and consumer data in real time
to our restaurant managers.
We have food safety and quality assurance programs designed to maintain the highest standards for the food and the food preparation procedures that
are used by both company-operated and franchised restaurants. We have a quality assurance team and employ third-party auditors that perform our
work place and food safety restaurant audits.
Managers and Team Members
Each of our restaurants typically has a general manager and two to three shift leaders and some restaurants have an assistant manager. There are
between 15 and 35 team members per restaurant who prepare our food fresh daily and provide customer service. To lead our restaurant management
teams, we have area leaders, each of whom is responsible for 7 to 9 restaurants. Overseeing the area leaders are three Regional Directors of
Operations and a Vice President of Operations, who reports up to our Chief Operating Officer. Franchise operations are supported by three directors
of franchise and a Senior Vice President, Franchise, who reports to the Chief Development Officer. The restaurant development team is supported by
four directors who also currently report to the Chief Development Officer.
Training
Our team members are the heart of El Pollo Loco and it is our responsibility to equip them with the skills and knowledge necessary to deliver on our
high standards and commitments to the customer and team member experience. We strive to find ways to simplify our methodology and invest in
elevating our team members. In a rapidly evolving landscape, effective training depends not only on the quality of content but also on delivery
methods. To engage our growing base of multi-generational employees, we employ a Learning Management System called Pollo Zone, our tablet-
based learning tool. This platform is a central hub for all training efforts and features individual learner profiles to support engagement and
accountability on our path toward investing in our people and their growth.
Franchise Program
We use a franchising strategy to increase new restaurant growth in certain markets, leveraging the ownership of entrepreneurs with specific local
market expertise and requiring a relatively minimal capital commitment by us. As of December 29, 2021, we had a total of 291 franchised
restaurants. Franchisees range in size from single-restaurant operators to our largest franchisee, which owned 68 restaurants as of
December 29, 2021. Our existing franchise base consists of many successful, longstanding, multi-unit restaurant operators. As of
December 29, 2021, approximately 89% of franchised restaurants were owned and operated by franchisees that had been with us for over 20 years.
We believe that the franchise revenue generated from our franchise base has historically served as an important source of stable and recurring cash
flows to us, and we accordingly plan to expand our base of franchised restaurants. In existing markets, we encourage growth from current
franchisees. In our expansion markets, we seek highly-qualified and experienced new franchisees for multi-unit development opportunities.
We believe that creating a foundation of initial and on-going support is important for future success, both for our franchisees and for our brand.
Therefore, we have structured our corporate staff, programs, and communication systems to ensure that we are delivering high-quality support to our
franchisees.
Our franchise training program is a key element in ensuring our franchise owners and their managers are equipped with the knowledge and skills
necessary for success. The program introduces new franchise members to El Pollo Loco with hands-on training in the operation and management of
our restaurants. This foundational training is conducted by a general training manager who has been certified by our operations group. Training must
be successfully completed before a trainee can be assigned to a restaurant as a manager.
Once introductory training has been completed, we offer a path toward constant learning for all crew members by providing instructional materials
that span management training, operations, new product introductions, food safety and a number of other essential restaurant functions. Many of
these programs are distributed through Pollo Zone that provides our franchise owners with real-time access to the progress of learning in their
restaurants.
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Marketing and Advertising
We strive to distinguish the El Pollo Loco brand by building a brand equity that we believe not only accentuates our strengths but also deepens the
strong emotional connections we have with our customers. We promote our restaurants and products by emphasizing our points of differentiation,
which include our Mexican and LA heritages, our fresh ingredients and made-from-scratch preparation, and the cooking of our citrus-marinated
chicken on open fire grills in our kitchens, as well as the convenience and quality we offer for families.
We use multiple marketing channels, including television, radio and digital. We advertise on local broadcast and cable television. Over the past year,
we have significantly increased our percentage of media dedicated towards digital advertising.
Through our public relations efforts, we engage notable food editors, influencers and bloggers on a range of topics to help promote our products. In
addition, we engage in one-on-one conversations using a portfolio of social media platforms, including Facebook, Instagram and Twitter. We also use
social media as a research and customer service tool, and apply insights gained to future marketing efforts.
Our Loco Rewards loyalty program uses points, rewards, and offers to build engagement with our customers. Customers access the program on
elpolloloco.com and the El Pollo Loco iOS Apple and Android app. We build segmented dynamic campaigns with special offers tailored to each
customer segment with the goals of increasing visit frequency and growing overall spend. To keep customers engaged with the program,
unannounced offers, called “Surprise and Delights” are awarded based on that customer’s transaction history. We communicate offers, loyalty
updates and other Loco Rewards campaigns to customers via in-app messaging, mobile phone push notifications and email.
Our online ordering program makes it easy for customers to skip the line and order ahead. Available at every location and accessible from
elpolloloco.com or the El Pollo Loco mobile app, any order can be placed and paid for before arriving at the restaurant. El Pollo Loco has partnered
with DoorDash, UberEats and Grubhub as additional methods for ordering. El Pollo Loco also operates direct delivery via elpolloloco.com or the
Loco Rewards App, which is exclusively fulfilled by DoorDash.
Purchasing and Distribution
Maintaining a high degree of quality in our restaurants depends in part on our ability to acquire fresh ingredients, and other necessary supplies that
meet our specifications, from reliable suppliers. We regularly inspect our vendors to ensure that products purchased conform to our standards and
that prices offered are competitive. We have a quality assurance team and third-party accredited auditors that perform comprehensive supplier audits
on a frequency schedule based on the potential food safety risk for each product. We contract with McLane Company (our “primary distributor”), a
major foodservice distributor, for substantially all of our food and supplies, including the poultry that our restaurants receive from suppliers. Our
primary distributor delivers supplies to most of our restaurants three times per week. Our restaurants in Texas utilize regional distributors for
produce. Our franchisees are required to use our primary distributor or an approved regional distributor, and franchisees must purchase food and
supplies from approved suppliers. Poultry is our largest product cost item and represented approximately 38% of our total food and paper costs for
2021. Fluctuations in supply and in price can significantly impact our restaurant service and profit performance. We actively manage cost volatility
for poultry by negotiating with multiple suppliers and entering into what we believe are the most favorable contract terms given existing market
conditions. In the past, we have entered into contracts ranging from one to two years depending on current and expected market conditions. We
currently source poultry from five suppliers, with two accounting for approximately 75% of our purchases for fiscal 2021. More than half of our
poultry purchases have a fixed price through the end of 2022.
Intellectual Property
We have registered El Pollo Loco ® , Pollo Bowl ® , The Crazy Chicken ® , and certain other names used by our restaurants as trademarks or
service marks with the U.S. Patent and Trademark Office (the “PTO”), and El Pollo Loco ® in approximately 43 foreign countries and the European
Union. In addition, the El Pollo Loco logo, website name and address, Facebook, Twitter, Instagram and YouTube accounts are our intellectual
property. Our policy is to pursue and maintain registration of service marks and trademarks in those countries where business strategy requires us to
do so, and to oppose vigorously any infringement or dilution of the service marks or trademarks in those countries. We
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maintain the recipe for our chicken marinade, as well as certain proprietary standards, specifications, and operating procedures, as trade secrets or as
confidential proprietary information.
Competition
We operate in the restaurant industry, which is highly competitive and fragmented. The number, size, and strength of competitors varies by region.
Our competition includes a variety of locally-owned restaurants and national and regional chains that offer dine-in, carry-out, and delivery services.
We believe that competition within the fast-casual restaurant segment is based primarily on ambience, price, taste, quality, and freshness of menu
items, as well as on the convenience of drive-thru service. We also believe that QSR competition is based primarily on quality, taste, speed of service,
value, brand recognition, restaurant location, and customer service. In addition, we compete with franchisors of other restaurant concepts for
prospective franchisees.
Environmental Matters
Our operations are subject to federal, state, and local laws and regulations relating to environmental protection, including regulation of discharges
into the air and water, storage and disposal of liquid and solid waste, and clean-up of contaminated soil and groundwater. Under various federal,
state, and local laws, an owner or operator of real property may be liable for the cost of removal or remediation of hazardous or toxic substances on,
in, or emanating from that property. Such liability may be imposed without regard to whether the owner or operator knew of, or was responsible for,
the presence of such hazardous or toxic substances.
Certain of our properties may be located on sites that we know or suspect have been used by prior owners or operators as retail gasoline stations.
Such properties previously contained underground storage tanks (“USTs”) for gasoline storage, and while we are not aware of any sites with USTs
remaining, it is possible that some of these properties may currently contain abandoned USTs. We are aware of contamination from a release of
hazardous materials by a previous owner or operator at two of our owned properties and one of our leased properties. We do not believe that we have
contributed to the pre-existing contamination at any of these properties. The appropriate state agencies have been notified, and these issues are being
handled without disruption to our business. It is possible that petroleum products and other contaminants may have been released at other properties
into the soil or groundwater. Under applicable federal and state environmental laws, we, as the current owner or operator of these sites, may be
jointly and severally liable for the costs of investigation and remediation for certain contamination. Although we lease most of our properties, and,
when we own, we obtain certain assurances from the prior owner or often obtain indemnity agreements from third parties, we may nonetheless be
liable for environmental conditions relating to our prior, current, or future restaurants or restaurant sites. If we were found liable for the cost of
remediation of contamination at, or emanating from, any of our properties, our operating expenses would likely increase and our operating results
would likely be adversely affected and, in extraordinary circumstances, our operating results could be materially affected.
Since 2000, we have obtained “Phase One” Environmental Site Assessments (assessing whether current or historical property uses have impacted
soil or groundwater beneath the property, posing a threat to the environment and/or human health) for new restaurants. Where warranted, we obtain
updated reports, and, if necessary, in rare cases, we obtain “Phase Two” Environmental Site Assessments (evaluating the presence or absence of
petroleum products or hazardous substances via soil and/or groundwater sampling). We have not conducted a comprehensive subsurface
environmental review of all of our properties or operations. No assurance can be given that we have identified all of the potential environmental
liabilities at our properties or that such liabilities will not have a material adverse effect on our financial condition.
Regulation and Compliance
We and our franchisees are subject to various federal, state and local laws and regulations that govern our business operations, including those
governing:
● employment and wage and hour practices, including, but not limited to, minimum wage rates, overtime, meal and rest periods,
prevention of discrimination, harassment, and retaliation, employment of minors, paid and family leave, unemployment tax rates,
workers’ compensation rates, suitable seating, and citizen requirements, and other working conditions;
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● privacy and data security, including the collection, maintenance and use of information regarding employees and guests;
● compliance with the Americans with Disabilities Act and similar laws affording various protections and accommodations to employees
and guests with disabilities;
● environmental practices, including the discharge, storage, handling, release and disposal of hazardous or toxic substances; regulation
of discharges into the air, water and soils, storage and disposal of liquid and solid waste, and clean-up of contaminated soil and
groundwater, and regulations restricting the use of straws, utensils and the certain packaging materials;
● compliance with Federal Trade Commission and laws that govern the franchisor-franchisee relationship, including the offer and sale of
franchises and certain disclosures to franchisees;
● the preparation, sale and labeling of food, including regulations of the Food and Drug Administration, which oversees the safety of the
entire food system, including inspections and mandatory food recalls, menu labeling and nutritional content;
● working conditions, health, sanitation, safety and fire standards, building and zoning requirements, public accommodations and safety
conditions, environmental matters, and data privacy;
● building and zoning requirements, including state and local licensing and regulation governing the design and operation of facilities
and land use;
● health and sanitation and public safety; and
● restaurant operations related to COVID-19.
We require each of our franchise partners to comply with all federal, state and local laws and regulations. We have processes in place to monitor our
own compliance with the numerous, complex, applicable laws and regulations governing our operations.
We are subject to new, varied and ever-changing rules and regulations regarding the current COVID-19 pandemic, which have materially
impacted our earnings and resulted in significant capital expenditures. New federal, state and local government regulations regarding COVID-19
are issued and existing regulations are frequently revised, which materially affected, and continues to affect, our operations. Such regulations
govern, for example, employee leave, opening and closing of restaurants and dining rooms, business hours, sanitation practices, guest spacing
within dining rooms and other social distancing practices and personal protective equipment.
Other than as described above, the Company’s compliance with federal, state or local laws and regulations, including environmental laws, is not
expected to materially affect our earnings or competitive position or result in material capital expenditures. However, we cannot predict what
laws will be enacted in the future, or how existing or future laws will be administered, interpreted or enforced. We also cannot predict the
amount of future expenditures that we may need to make to comply with, or to satisfy claims and lawsuits relating to, these various laws and
regulations. Further, more stringent and varied requirements of local government bodies with respect to zoning, land use and environmental
factors could delay construction and increase development costs for new restaurants. Moreover, although we have not experienced, and do not
anticipate, any significant problems in obtaining required licenses, permits, or approvals, any difficulties, delays, or failures in obtaining such
licenses, permits, registrations, exemptions, or approvals could delay or prevent the opening of, or adversely impact the viability of, a restaurant
in a particular area. Additionally, a significant portion of our hourly staff is paid at minimum wage rates consistent with the applicable federal,
state, or local laws and, accordingly, increases in the applicable minimum wage will increase our labor costs. We are also subject to the
Americans with Disabilities Act, which prohibits discrimination on the basis of disability in public accommodations and employment, and which
may require us to design or modify our restaurants to make reasonable accommodations for disabled individuals.
See Item 1A “Risk Factors” and “Environmental Matters” above of this Form 10-K for a discussion of risks relating to federal, state, local and
regulation of our business.
Management Information Systems
All of our company-operated and franchised restaurants use computerized point-of-sale and back-office systems, which we believe can scale to
support our long-term growth plans. Our point-of-sale system provides a touch-screen interface and is integrated with segmented Europay,
Mastercard and Visa tokenized high speed credit and gift card processing hardware. Our point-of-sale system is used to collect daily transaction data,
which provides daily sales and product mix information that we actively analyze.
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Our in-restaurant back-office computer system is designed to assist in the management of our restaurants and to provide labor and food cost
management tools. The system also provides corporate headquarters and restaurant operations management quick access to detailed business data,
and reduces the time spent by restaurant managers on administrative needs. The system further provides sales, bank deposit, and variance data to our
accounting department on a daily basis. For company-operated restaurants, we use this data to generate weekly consolidated reports regarding sales
and other key measures, as well as preliminary weekly profit and loss statements for each location, with final reports following the end of each
period.
Human Capital
As of December 29, 2021, we had approximately 4,626 employees, of whom approximately 4,470 were hourly restaurant employees comprised of
3,651 crewmembers, 220 general managers/acting general managers, 105 assistant managers, 456 shift leaders, and 38 employees in limited-time
roles as acting managers or as managers in training. The remaining 156 employees were corporate and office personnel. None of our employees are
part of a collective bargaining agreement, and we believe that our relationships with our employees are satisfactory.
We believe our efforts to maintain solid relationships with our employees are effective and are grounded in our company values. Our primary human
capital objective is employee engagement, which is dependent upon hiring, retaining, developing and motivating employees. We strive to build a
culture centered around our mission, which is to “Feed the Love that Makes Us All Feel Like Family” and “Heart-Centered Leadership.” We believe
this mission is predicated on servant-led leadership, employee recognition and community involvement. We offer our employees both online and on-
the-job training. Restaurant management trainees participate in comprehensive, multi-week training programs touching on all aspects of the
operations, including restaurant leadership. We provide key restaurant leadership roles with a quarterly cash-based performance bonus awards. Our
corporate employees are provided an annual performance bonus award. We also have an equity incentive compensation plan to provide
certain management-level or other key employees with stock-based awards. We monitor our progress with metrics such as employee performance
measures, turnover rates and restaurant customer surveys.
The health and well-being of our employees and guests have always been and continues to be our top priority. To help protect the health and well-
being of all of our employees during the COVID-19 pandemic, during 2020 and continuing through 2021 we invested in creating a safe work
environment for our employees by taking additional safety measures. We encourage our corporate office employees to work remotely unless business
needs require them to work in the office. For our restaurant employees, we continue to implement actions to help protect them from COVID-19 while
working in our restaurants. These actions include pre-shift health assessments, enhanced cleaning procedures in our restaurants, providing gloves and
masks to all system restaurant employees, plexiglass shields at company restaurant cashier stations and initiating other social distancing measures.
We are also providing extended sick leave benefits to employees impacted by COVID-19.
Seasonality
Seasonal factors, including weather and the timing of holidays, cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is
typically lower in the first and fourth quarters due to reduced January and December transactions and higher in the second and third quarters. As a
result of seasonality, our quarterly and annual results of operations and key performance indicators such as company restaurant revenue and
comparable restaurant sales may fluctuate.
Available Information
We make available free of charge on our Internet website our Annual Reports, quarterly reports on Form 10-Q, current reports on Form 8-K, and
amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange
Commission (“SEC”). Our Internet address is www.elpolloloco.com. The contents of our Internet website are not part of this annual report, and are
not incorporated by reference. Our Internet address is provided as an inactive textual reference only.
The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers, including
us, that file electronically with the SEC, at http://www.sec.gov.
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ITEM 1A.
RISK FACTORS
You should carefully consider the following risk factors, as well as other information contained in this report, including our financial statements and
the notes related to those statements. The occurrence of any of the following risks could materially and adversely affect our business, prospects,
financial condition, results of operations, and cash flow.
Risks Related to Our Operations
The COVID-19 pandemic and measures intended to prevent its spread may have a significant negative impact on our business, sales, results of
operations and financial condition.
The global pandemic resulting from the outbreak of COVID-19 disrupted our restaurant operations beginning in March 2020. In response to federal,
state and local mandates (subject to exceptions for certain state and local mandates) aimed at limiting the spread of COVID-19, or due to staffing
shortages, we and our franchisees have from time to time experienced temporary closures of some restaurants, closures of dining rooms, limited
capacity restrictions and/or decreased operating hours for some restaurants.
If additional surges of COVID-19 at a significant number of our locations require us to temporarily close those locations for disinfection or result in a
large number of our employees becoming ill with COVID-19 or quarantined and being unable to work, our business and results of operations could
be further adversely affected, which may also impact our financial condition. Further, any shutdowns, closures or disruptions in the operations of our
suppliers caused by COVID-19 outbreaks or federal, state or local mandates to limit the spread of COVID-19 could limit ability of suppliers to
supply us and our franchisees with the products needed to operate our business, which would negatively impact our business. COVID-19 may also
adversely affect our ability to implement our growth plans, including delays in the opening or construction of new restaurants or the remodel of
existing restaurants. As this situation is ongoing and the duration and severity of the COVID-19 pandemic, including the severity and transmission
rates of COVID-19 variants, resurgences of COVID-19 that may continue to occur, and the distribution and efficacy of COVID-19 vaccines,
continues to be uncertain at this time, it is difficult to forecast any long-term impacts on our future operating results. However, if the COVID-19
pandemic continues for a sustained period of time or if conditions worsen, our sales and operating costs may be materially adversely affected, which
could impact our asset values, including goodwill, derivative instruments and long-lived assets, as well as our ability to meet certain covenant
provisions in our debt arrangements in future periods, and have a material adverse effect on our financial results, future operations and liquidity.
Even after the COVID-19 pandemic has subsided, we may continue to experience negative impacts to our financial results due to COVID-19’s global
economic impact, including the availability of credit generally, adverse impacts on our liquidity, and/or decreases in consumer discretionary spending
that depress demand for our products. The global effects of the pandemic may also contribute to a prolonged economic slowdown or recession. In
addition, even after the COVID-19 pandemic has subsided, the perceived risk of infection or a resurgence or concern of a resurgence of the COVID-
19 outbreak may continue to adversely affect traffic to our restaurants and, in turn, may have a material adverse effect on our business, liquidity,
financial condition and results of operations. We are also subject to all of the foregoing risks in connection with the outbreak of other diseases,
epidemics or pandemics, or similar public threats or fear of such events.
We may be unsuccessful in opening new company-operated or franchised restaurants or in establishing new markets, which could adversely
affect our growth.
One of the key means to achieving our growth strategy is and will be through opening new restaurants and operating those restaurants on a profitable
basis. We opened two new company-operated restaurants in fiscal 2021 and plan to open three to six in fiscal 2022. Our franchisees opened two new
restaurants in fiscal 2021 and plan to open six to 10 in fiscal 2022.
The ability to open new restaurants is dependent upon a number of factors, many of which are beyond our control, including our and our franchisees’
abilities to: identify available and suitable restaurant sites; compete for restaurant sites; reach acceptable agreements regarding the lease or purchase
of locations; obtain or have available the financing required to acquire and operate a restaurant, including construction and opening costs; respond to
unforeseen engineering or environmental problems with leased premises; avoid the impact of inclement weather and natural and man-made disasters;
hire, train, and retain the skilled management and other employees necessary to meet staffing needs; obtain, in a timely manner and for an acceptable
cost, required licenses, permits, and regulatory approvals;
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respond effectively to any changes in local, state, and federal law and regulations that adversely affect our and our franchisees’ costs or abilities to
open new restaurants; and control construction and equipment cost increases for new restaurants.
If we are unable to successfully manage these risks and open new restaurants or sign new franchisees as anticipated, or if restaurant openings are
significantly delayed, we could face increased costs and lower than anticipated sales and earnings in future periods.
As part of our longer-term growth strategy, we may enter into geographic markets in which we have little or no prior operating or franchising
experience, including through company-operated restaurant growth and franchise development agreements. The challenges of entering new markets
include (i) difficulties in hiring and training experienced personnel, (ii) unfamiliarity with local real estate markets and demographics, (iii) consumer
unfamiliarity with our brand, and (iv) competitive and economic conditions, consumer tastes, and discretionary spending patterns that are different
from and more difficult to predict or satisfy than in our existing markets. Any failure on our part to recognize or respond to these challenges may
adversely affect the success of any new restaurants. Expanding our franchise system could require the implementation, expense, and successful
management of enhanced business support systems, management information systems, and financial controls, as well as additional staffing, franchise
support, and capital expenditures and working capital.
Due to brand recognition and logistical synergies, as part of our growth strategy, we also intend to open new restaurants in areas where we have
existing restaurants. The operating results and comparable restaurant sales for our restaurants could be adversely affected due to increasing proximity
among our restaurants and due to market saturation.
We may not be able to compete successfully, including with other quick-service and fast casual restaurants.
The food service industry, and particularly its QSR and fast casual segments, is intensely competitive. Competition in our industry is primarily based
on price, convenience, quality of service, brand recognition, restaurant location, and type and quality of food, and our market position is based on
balancing price and quality. These competitive factors are particularly applicable in markets in which we have expanded relatively rapidly and
relatively recently, such as Texas. In addition, the greater Los Angeles area, the primary market in which we compete, consists of what we believe to
be the most competitive Mexican-inspired QSR and fast casual market in the United States. We expect competition in this market and in each of our
other markets to continue to be intense, because consumer trends are favoring LSRs that offer healthier menu items made with better-quality
products, and many LSRs are responding to these trends. Moreover, we may also compete with companies outside the QSR and fast casual segment
of the restaurant industry. For example, competitive pressures can come from deli sections and in-store cafés of several major grocery store chains,
including those targeted at consumers who want higher-quality food, as well as from convenience stores, cafeterias and other dining outlets. Meal kit
delivery companies and other eat-at-home options also present some degree of competition for our restaurants. If our company-operated and
franchised restaurants cannot compete successfully, especially with other QSR and fast casual restaurants, in new and existing markets, we could lose
customers and our revenue could decline, which may materially and adversely affect our business, financial condition, and results of operations.
We are vulnerable to changes in political and economic conditions and consumer preferences.
The restaurant industry is dependent upon consumer discretionary spending, which may be affected by general economic conditions, including
recessions or inflationary pressures, higher consumer debt and interest rates, adverse conditions in the mortgage housing markets, lower consumer
confidence and uncertainties due to geopolitical turmoil and potential national or international security concerns, including the conflict between
Russia and Ukraine. If the economy experiences a significant decline, our business, results of operations, our ability to access the capital markets and
our ability to comply with the terms of our secured revolving credit facility could be materially and adversely affected, and we and our franchisees
might decelerate the number and timing of new restaurant openings and/or the number of planned restaurant remodels. In addition, political
developments regarding U.S. relations with Mexico may harm our business. Increases in tariffs, restrictions on trade, or deterioration in American
political or economic relations with Mexico could harm our brand and profitability. Changes in trade, labor, or immigration policy could raise our
input prices, or reduce the supply of immigrants, who are in many cases our customers or employees, diminishing our sales and increasing our labor
costs. An actual or feared outbreak of disease, epidemic or pandemic, changes to regional or local economic conditions affecting consumer spending,
or increased food or energy costs could also reduce consumer
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transactions or impose practical limits on pricing that could harm our business, financial condition, results of operations, and cash flow.
Additionally, changes in consumer health perceptions or trends in eating habits may also adversely affect our business if we are unable to effectively
adapt our menu offerings. Our success is dependent upon continued customer acceptance of our Mexican-inspired food and customer health
perceptions regarding our products. A decrease in American consumers’ interest in Mexican-inspired food or chicken-based food, or changes in
customer health perceptions of our food could harm our brand and profitability. We cannot make any assurances regarding our ability to effectively
respond to changes in consumer preferences or our ability to develop new products that appeal to consumer preferences.
If we are unable to attract, develop, assimilate, and retain employees, we may not be able to grow or successfully operate our business.
Our success depends in part upon our ability to attract, train, assimilate, and retain a sufficient number of employees, including crewmembers,
managers and shift leaders, who understand and appreciate our culture, are able to represent our brand effectively and establish credibility with our
customers. If we are unable to hire and retain restaurant employees capable of consistently providing a high level of customer service, understanding
of our customers, and knowledge of our offerings, our ability to open new restaurants may be impaired, the performance of our existing and new
restaurants could be adversely affected, and our brand image may be negatively impacted. Our growth strategy will require us to attract, train, and
assimilate even more restaurant employees. Our ability to do so may be adversely affected by labor shortages due to, among other things, the
COVID-19 pandemic.
Our business could be negatively affected by regional geographic concentrations.
Our company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate, approximately 70.9% of our revenue in
fiscal 2021 and approximately 71.3% in fiscal 2020. Adverse changes in demographic, unemployment, economic, or regulatory conditions in the
greater Los Angeles area or in the State of California, including, enforcement policies for and changes in immigration law, have had and may
continue to have material adverse effects on our business.
We also may be negatively affected by weather conditions specific to the Los Angeles region, including fires, earthquakes, or other natural disasters.
Additionally, outside of Los Angeles, many of our restaurants are clustered around major cities in Northern California, Texas, and elsewhere, and
prolonged or severe inclement weather could affect our sales at restaurants in locations that experience such conditions. Localized disasters,
especially exacerbated by climate change, including wildfires, hurricanes, and flooding, could impair our assets and operations in those areas. Any
other events disrupting businesses, consumer discretionary spending or our employee population in the greater Los Angeles area could also have an
outsized negative impact on our business or results of operations. For example, near the end of fiscal 2021, the Los Angeles market was impacted by
a spike in COVID-19 cases, which disproportionately impacted our business due to our high concentration in this market. If the Los Angeles or other
markets experience another severe outbreak of COVID-19 or its variants, we may experience further disruptions to our business that could be
material.
Our long-term success depends in part on our ability to effectively identify and secure appropriate sites for new restaurants.
In order to build new restaurants, we must first identify markets where we can enter or expand our footprint, taking into account numerous factors,
including the location of our current restaurants, local economic trends, population density, area demographics, cost of construction and real estate
and geography. Then we must secure appropriate restaurant sites, which is one of our biggest challenges. There are numerous factors involved in
identifying and securing an appropriate restaurant site, including: evaluating size of the site, traffic patterns, local retail, residential and business
attractions and infrastructure that will drive high levels of customer traffic and sales; competition in new markets, including competition for
restaurant sites; financial conditions affecting developers and potential landlords, such as the effects of macro-economic conditions and the credit
market (including the potential for rising interest rates), which could lead to these parties delaying or canceling development projects (or renovations
of existing projects), in turn reducing the number of appropriate restaurant sites available; developers and potential landlords obtaining licenses or
permits for development projects on a timely basis; proximity of potential restaurant sites to existing restaurants; anticipated commercial,
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residential and infrastructure development near the potential restaurant site; and availability of acceptable lease terms and arrangements, including
construction costs.
In addition, competition for restaurant sites in our target markets can be intense, and development and leasing costs are increasing. Given the
numerous factors involved, we may not be able to successfully identify and secure attractive restaurant sites in existing, adjacent or new markets,
which could have a material adverse effect on our business, financial condition and results of operations.
We have incurred, and may continue to incur, significant impairment of certain of our assets, in particular in our new markets.
The recognition of impairment charges may adversely affect our future operations and results. In assessing the recoverability of our long-lived assets,
we consider changes in economic conditions and make assumptions regarding estimated future cash flows and other factors. There is uncertainty in
the projected undiscounted future cash flows used in our impairment review analysis, which requires the use of estimates and assumptions. If actual
performance does not achieve the projections, or if the assumptions used change in the future, we may be required to recognize impairment charges
in future periods, and such charges could be material. Given the difficulty in projecting results for newer restaurants in newer markets, as well as the
impact of the COVID-19 pandemic, we monitor the recoverability of the carrying value of the assets of several restaurants on an ongoing basis. Asset
impairments to new units or future capital expenditures could present additional exposure. Closures could also require additional expenditures.
Furthermore, franchised unit closings could result in the loss of franchise revenue and have other adverse effects on us.
Changes in food and supply costs, especially for chicken, could adversely affect our business, financial condition, and results of operations.
Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs. We are susceptible to increases in food
costs as a result of factors beyond our control, such as general economic conditions, seasonal economic fluctuations, weather conditions, global
demand, food shortages, food safety concerns, infectious diseases, fluctuations in the U.S. dollar, product recalls, and government regulations,
including tariffs and other import restrictions on foreign produce and other goods. In 2021 and continuing into 2022, for example, we experienced
inflationary pressures due to supply chain disruptions that adversely impacted and may continue to adversely impact our business and results of
operations. Environmental and weather-related issues, such as freezes, drought and climate change, may also lead to increases, temporary or
permanent, or spikes in the prices of some ingredients, such as produce and meat. Any increase in the prices of the ingredients most critical to our
menu, in particular chicken, as well as corn, cheese, avocados, beans, rice, and tomatoes, could adversely compress our margins, or cause us to raise
our prices, reducing customer demand. Alternatively, in the event of cost increases with respect to one or more of our raw ingredients, we might
choose to temporarily suspend serving menu items, such as guacamole or one or more of our salsas, rather than pay the increased cost. Additionally,
as a substantial volume of produce and other items are procured from Mexico, and occasionally other countries including Chile and Peru, any new or
increased import duties, tariffs or taxes, or other changes in U.S. trade or tax policy could result in higher food and supply costs that would adversely
impact our financial results. Any such changes to our menu prices or available menu could negatively impact our restaurant transactions, business,
and comparable restaurant sales during the shortage and thereafter.
Our principal food product is chicken. In fiscal 2021, 2020, and 2019, the cost of chicken included in our product cost was approximately 9.9%,
10.5%, and 10.9%, respectively, of our revenue from company-operated restaurants. Material increases in the cost of chicken could materially and
adversely affect our business, operating results, and financial condition. Changes in the cost of chicken can result from a number of factors, including
seasonality, increases in the cost of grain, disease, and other factors that affect domestic and international supply of and demand for chicken products.
Additionally, environmental and animal rights regulations or voluntary programs could increase the cost or supply of chicken and other foods. We
often ask our suppliers to use fixed price contracts or other financial risk management strategies to reduce potential price fluctuations in the cost of
chicken and other commodities. We have implemented menu price increases in the past to significantly offset increased chicken prices, due to
competitive pressures and compressed profit margins. We may not be able to offset all or any portion of increased food and supply costs through
higher menu prices in the future. If we implement further menu price increases in the future to protect our margins, average check size and restaurant
transactions could be materially and adversely affected, at both company-operated and franchised restaurants.
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Social media and negative publicity could have a material adverse impact on our business.
Negative publicity, including information posted on social media platforms, at one or more of our restaurants relating to food safety, sanitation,
employee relationships or other matters can adversely affect us, regardless of whether an allegation is valid or whether we are held to be responsible.
Adverse information posted on social media platforms can quickly reach a wide audience and resulting harm to our reputation may be immediate,
without affording us an opportunity to correct or otherwise respond to the information. It is challenging to monitor and anticipate developments on
social media in order to respond in an effective and timely manner. As a result, social media may exacerbate the risks we face related to negative
publicity. In addition, the negative impact of any adverse publicity relating to one restaurant may extend far beyond the restaurant involved to affect
some or all of our other restaurants, including our franchised restaurants. The risk of negative publicity is particularly great with respect to our
franchised restaurants, because we are limited in the manner in which we can regulate them, especially on a real-time basis. A similar risk exists with
respect to food service businesses unrelated to us, if customers mistakenly associate those unrelated businesses with our operations.
A variety of additional risks associated with our use of social media include the possibility of improper disclosure of proprietary information,
exposure of personally identifiable information of our employees or guests, fraud, or the publication of out-of-date information, any of which may
result in material liabilities or reputational damage. Furthermore, any inappropriate use of social media platforms by our employees could also result
in negative publicity that could damage our reputation, or lead to litigation that increases our costs.
Our ability to continue to expand our digital business, delivery orders and catering is uncertain, and these new business lines are subject to risks.
We rely on third-party providers to fulfill delivery orders, and the ordering and payment platforms used by these third parties, or our mobile app or
online ordering system, could be damaged or interrupted by technological failures, user errors, cyber-attacks or other factors, which may adversely
impact our sales through these channels and could negatively impact our brand. Additionally, our delivery partners may make errors or fail to make
timely deliveries, leading to customer disappointment that may negatively impact our brand. We also incur additional costs associated with using
third-party service providers to fulfil these digital orders. Moreover, the third-party restaurant delivery business is intensely competitive, with a
number of players competing for market share, online traffic, capital, and delivery drivers and other people resources. The third-party delivery
services with which we work may struggle to compete effectively, and if they were to cease or curtail operations or fail to provide timely delivery
services in a cost-effective manner, or if they give greater priority on their platforms to our competitors, our delivery business may be negatively
impacted. We have also introduced catering offerings on both a pick-up and delivery basis, and customers may choose our competitors’ catering
offerings over ours, be disappointed with their experience with our catering, or experience food safety problems if they do not serve our food in a
safe manner, which may negatively impact us. Such delivery and catering offerings also increase the risk of illnesses associated with our food
because the food is transported and/or served by third parties in conditions we cannot control.
Because all of these offerings are relatively new, it is difficult for us to anticipate the level of sales they may generate. In addition, using third party
providers to fulfill delivery orders may result in operational challenges, both in fulfilling orders made through these channels and in operating our
restaurants as we balance fulfillment of these orders with service of our traditional in-restaurant guests. Any such operational challenges may
negatively impact the customer experience associated with our digital, delivery or catering orders, the guest experience for our traditional in-
restaurant business, or both. These factors may adversely impact our sales and our brand reputation.
Food-borne illness and other food safety and quality concerns may negatively impact our business and profitability.
Incidents or reports of food- or water-borne illness or other food safety issues, food contamination or tampering, employee hygiene or cleanliness
failures, or improper employee conduct at our restaurants could lead to product liability or other claims. Such incidents or reports could negatively
affect our brand and reputation as well as our business, revenues, and profits.
Furthermore, our reliance on third-party food processors makes it difficult to monitor food safety compliance, and may increase the risk that a food-
borne illness would affect multiple locations rather than a single restaurant. Some food-borne illness incidents could be caused by third-party food
suppliers and transporters outside of our control. New illnesses resistant to our current precautions may develop in the future, or diseases with long
incubation periods could
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arise that could cause claims or allegations on a retroactive basis. One or more instances of food-borne illness in one of our company-operated or
franchised restaurants could negatively affect sales at all of our restaurants if highly publicized. This risk would exist even if it were later determined
that an illness had been wrongly attributed to one of our restaurants.
Additionally, even if food or water-borne illnesses or other food safety issues or incidents were not identified at El Pollo Loco restaurants, our
restaurant sales could be adversely affected, both financially and otherwise, if instances of similar incidents or reports at other QSRs or restaurant
chains were highly publicized. In addition, our restaurant sales could be adversely affected by publicity regarding other high-profile illnesses such as
avian flu that customers may associate with our food products.
Failure to receive timely deliveries of food or other supplies could result in a loss of revenue and materially and adversely impact our operations.
Our and our franchisees’ ability to maintain consistent quality menu items and prices significantly depends upon our ability to acquire fresh food
products, including the highest-quality chicken and related items, from reliable sources, in accordance with our specifications and on a timely basis.
Shortages or interruptions in the supply of fresh food products, caused by unanticipated demand, problems in production, distribution or otherwise in
the supply chain, including as a result of the COVID-19 pandemic and restrictions implemented to counter its spread, contamination of food
products, an outbreak of poultry disease, inclement weather, or other conditions, could materially and adversely affect the availability, quality, and
cost of ingredients, which would adversely affect our business, financial condition, results of operations, and cash flows. We have contracts with a
limited number of suppliers for the chicken and other food and supplies for our restaurants. In addition, one company distributes substantially all of
the products that we receive from suppliers to company-operated and franchised restaurants. If that distributor or any supplier fails to perform as
anticipated or seeks to terminate agreements with us, or if there is any disruption in any of our supply or distribution relationships for any reason,
including our ability to replace any lost distributor or supplier, our business, financial condition, results of operations, and cash flows could be
materially and adversely affected. If we or our franchisees temporarily close a restaurant or remove popular items from a restaurant’s menu as a result
of such a disruption, that restaurant may experience a significant reduction in revenue if our customers change their dining habits as a result.
Our level of indebtedness, and restrictions under our credit facility, could materially and adversely affect our business, financial condition, and
results of operations.
Our level of indebtedness could have significant effects on our business, such as: limiting our ability to borrow additional amounts to fund working
capital, capital expenditures, acquisitions, debt service requirements, execution of our growth strategy, and other purposes; requiring us to dedicate a
portion of our cash flow from operations to pay interest on our debt, which could reduce availability of our cash flow to fund working capital, capital
expenditures, acquisitions, execution of our growth strategy, and other general corporate purposes; making us more vulnerable to adverse changes in
general economic, industry, government regulatory, and competitive conditions in our business by limiting our ability to plan for and react to
changing conditions; placing us at a competitive disadvantage compared with our competitors with less debt; and exposing us to risks inherent in
interest rate fluctuations, because our borrowings are at variable rates of interest, which could result in higher interest expense in the event of
increases in interest rates.
In addition, we may not be able to generate sufficient cash flow from our operations to repay our indebtedness when it becomes due and to meet our
other cash needs. If we are not able to pay our debts as they become due, we will be required to pursue one or more alternative strategies, such as
selling assets, refinancing or restructuring our indebtedness, or selling additional debt or equity securities. We may not be able to refinance our debt
or sell additional debt or equity securities or our assets on favorable terms, if at all, and if we have to sell our assets, that sale may negatively affect
our ability to generate revenue.
Our secured revolving credit facility contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability to
(i) incur additional indebtedness, (ii) issue preferred stock, (iii) create liens on assets, (iv) engage in mergers or consolidations, (v) sell assets,
(vi) make investments, loans, or advances, (vii) make certain acquisitions, (viii) engage in certain transactions with affiliates, (ix) authorize or pay
dividends, and (x) change our lines of business or fiscal year. In addition, our secured revolving credit facility requires us (i) to maintain, on a
consolidated basis, a minimum consolidated fixed charge coverage ratio and (ii) not to exceed a maximum lease adjusted consolidated leverage ratio.
Our ability to borrow under our secured revolving credit facility depends on our compliance with these
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tests. Events beyond our control, including changes in general economic and business conditions, may affect our ability to meet these tests. We
cannot guarantee that we will meet these tests in the future, or that our lenders will waive any failure to meet these tests.
Further, we are a holding company with no material direct operations. Our principal assets are the equity interests that we indirectly hold in our
operating subsidiary, El Pollo Loco, Inc. (“EPL”), which owns our operating assets. As a result, we are dependent on loans, dividends, and other
payments from EPL, our operating company and indirect wholly owned subsidiary, and from EPL Intermediate, Inc., our direct wholly owned
subsidiary, to generate the funds necessary to meet our financial obligations and to pay dividends on our common stock. Our subsidiaries are legally
distinct from us and may be prohibited or restricted from paying dividends or otherwise making funds available to us under certain conditions.
Although we do not expect to pay dividends on our common stock for the foreseeable future, if we are unable to obtain funds from our subsidiaries,
we may be unable to, or our board may exercise its discretion not to, pay dividends.
Our marketing programs may not be successful, and our new menu items, advertising campaigns, and restaurant designs and remodels may not
generate increased sales or profits.
We incur costs and expend other resources in our marketing efforts on new menu items, advertising campaigns, and restaurant designs and remodels,
to raise brand awareness and to attract and retain customers. Our initiatives may not be successful, resulting in expenses incurred without the benefit
of higher revenues. Further, if our marketing and advertising strategies are not successful, we may be forced to engage in additional promotional
activities to attract and retain customers, including offers for free or discounted food, and any such additional promotional activities could adversely
impact our profitability. Additionally, some of our competitors have greater financial resources than we do, enabling them to spend significantly
more on marketing, advertising, and other initiatives. Should our competitors increase spending on marketing, advertising, and other initiatives, or
our marketing funds decrease for any reason, or should our advertising, promotions, new menu items, and restaurant designs and remodels be less
effective than those of our competitors or not resonate with our customers, there could be a material adverse effect on our results of operations and
financial condition.
Adverse changes in the economic environment may affect our franchisees, with adverse consequences to us.
Adverse changes in the economic environment could result in our franchisees filing for bankruptcy or becoming delinquent in their payments to us,
which could have significant adverse impacts on our business, due to loss or delay in payments of (i) royalties, (ii) information technology (“IT”)
support service fees, (iii) contributions to our advertising funds, and (iv) other fees. Bankruptcies by our franchisees could (i) prevent us from
terminating their franchise agreements, so that we could offer their territories to other franchisees, (ii) negatively impact our market share and
operating results, as we might have fewer well-performing restaurants, and (iii) adversely impact our ability to attract new franchisees.
Franchisees may not have access to the financial or management resources that they need to open the restaurants contemplated by their agreements
with us, or be able to find suitable sites on which to develop those restaurants. Franchisees may not be able to negotiate acceptable lease or purchase
terms for restaurant sites, obtain necessary permits and government approvals, or meet construction schedules. Any of these problems could slow our
growth and reduce our franchise revenue. Additionally, our franchisees typically depend on financing from banks and other financial institutions,
which may not always be available to them, in order to construct and open new restaurants. For these reasons, franchisees operating under
development agreements may not be able to meet the new restaurant opening dates required under those agreements. Also, we sublease certain
restaurants to some existing California franchisees. If any such franchisees cannot meet their financial obligations under their subleases, or otherwise
fail to honor or default under the terms of their subleases, especially where state franchise laws may limit our ability to terminate or modify these
franchise arrangements, we will be financially obligated under a master lease and could be materially and adversely affected. In the past, franchisees
have entered bankruptcy or receivership, which can lead to sale or closure of franchises, cause underperformance or underinvestment in capital
expenditures, or lead to nonpayment of us or other creditors, and these circumstances could recur in the future.
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We have limited control with respect to the operations of our franchisees, which could have a negative impact on our business.
Franchisees are independent business operators. They are not our employees, and we do not exercise control over the day-to-day operations of their
restaurants. We provide training and support to franchisees, and set and monitor operational standards, but the quality of franchised restaurants may
be diminished by any number of factors beyond our control. Consequently, franchisees may fail to operate their restaurants in fashions consistent
with our standards and requirements, or to hire and train qualified managers and other restaurant personnel. If franchisees do not operate to our
expectations, our image and reputation, and the images and reputations of other franchisees, may suffer materially, and system-wide sales could
decline significantly.
If our relations with existing or potential franchisees deteriorate, restaurant performance and our development pipeline could suffer.
Our growth depends on maintaining amicable relations with our franchisees, including their participation in and adherence to our restaurant operating
guidelines. Because our ability to control our franchisees is limited, disagreement may lead to inaction by our franchisees with respect to our
initiatives, or even disputes with our franchisees, in court, arbitration or otherwise, including disputes related to an actual or alleged violation of
contractual, statutory or common law obligations. Such disputes occur from time to time as we continue to offer franchises due to our size and the
general nature of the franchisor-franchisee relationship. Unfavorable judgments, awards or settlements relating to franchisee disputes could result in
monetary or injunctive relief against us, including the voiding of non-compete, territorial exclusivity, or other development-related provisions upon
which we rely to protect our brand, that could have a material adverse effect on our business and results of operations. Disputes with franchisees also
divert the attention, time, and financial resources of our management and our franchisees from our restaurants, which could have a material adverse
effect on our (and our franchisees’) business, financial condition, results of operations, and cash flows, as well as our ability to attract new
franchisees. Even our success in franchisee disputes could damage our (or our franchisees’) finances or operations, as well as our relationships with
our franchisees and our ability to attract new franchisees given the negative connotations of any franchisor-franchisee disputes.
Our self-insurance programs may expose us to significant and unexpected costs and losses.
We currently maintain employee health insurance coverage on a self-insured basis. We do maintain stop loss coverage which sets a limit on our
liability for both individual and aggregate claim costs.
We currently record a liability for our estimated cost of claims incurred and unpaid as of each balance sheet date. Our estimated liability is recorded
on an undiscounted basis and includes a number of significant assumptions and factors, including historical trends, expected costs per claim, actuarial
assumptions, and current economic conditions. Our history of claims activity for all lines of coverage is closely monitored, and liabilities are adjusted
as warranted based on changing circumstances. It is possible, however, that our actual liabilities may exceed our estimates of loss. We may also
experience an unexpectedly large number of claims that result in costs or liabilities in excess of our projections, and therefore we may be required to
record additional expenses. For these and other reasons, our self-insurance reserves could prove to be inadequate, resulting in liabilities in excess of
our available insurance and self-insurance. If a successful claim is made against us and is not covered by our insurance or exceeds our policy limits,
our business may be negatively and materially impacted.
We are locked into long-term and non-cancelable leases, and may be unable to renew leases at the ends of their terms.
Many of our restaurant leases are non-cancelable and typically have initial terms of up to 20 years with up to four renewal terms of five years that we
may exercise at our option. Even if we close a restaurant, we may remain committed to perform our obligations under the applicable lease, which
could include, among other things, payment of the base rent for the balance of the lease term. In addition, in connection with leases for restaurants
that we will continue to operate, we may, at the end of the lease term and any renewal period for a restaurant, be unable to renew the lease without
substantial additional cost, if at all. As a result, we may close or relocate the restaurant, which could subject us to construction and other costs and
risks. Additionally, the revenue and profit, if any, generated at a relocated restaurant might not equal the revenue and profit generated at its prior
location.
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Risks Related to Information Technology and Data Security
Information technology system failures or breaches of our network security could interrupt our operations and adversely affect our business.
From time to time, we experience security events within our networks and systems. These security events have included, and, may in the future
include, those caused by physical or electronic break-ins, computer viruses, malware, worms, attacks by hackers or foreign governments,
unauthorized access through the use of compromised credentials and tampering, including through social engineering such as phishing attacks,
coordinated denial-of-service attacks, exploitation of design flaws, bugs or security vulnerabilities and similar breaches, or intentional or
unintentional acts by employees or other insiders with access privileges. In the past, these events have resulted in, and in the future could result in,
among other things, temporary system disruptions or shutdowns or unauthorized access to confidential information. These events could in the future
also result in misappropriation of our or our customers’ proprietary or confidential information, breach of our legal, regulatory or contractual
obligations, delays in our operations, or inability to access or rely upon critical business records or systems. In some cases, it may be difficult to
anticipate or immediately detect such incidents and the damage they cause. We may be required to expend significant financial resources to protect
against or to remediate such security breaches. In addition, our operations depend upon our ability to protect our computer equipment and systems
against damage from physical theft, fire, power loss, telecommunications failure, and other catastrophic events and disruptive problems. Any
unauthorized access of our systems or the information stored on such systems, damage or failure of our computer systems or network infrastructure
that causes an interruption in our operations could damage our reputation, subject us to litigation or to actions by regulatory authorities, harm our
business relations or increase our security and insurance costs, which could have a material adverse effect on our business, financial condition and
results of operations. Moreover, these systems, infrastructures, and operations rely upon third-party software and vendors, and we may therefore have
a limited ability to guard against, learn about, or remedy problems that could harm us, including bugs and glitches, system outages, and hacks that
exploit security vulnerabilities to obtain information.
If we are unable to protect our customers’ payment method data or personal information, we could be exposed to data loss, litigation, liability,
and reputational damage.
We collect and retain internal and customer data, including personally identifiable information of our employees and customers. It is possible that
measures we have taken to prevent the occurrence of security breaches may not be adequate and we may in the future become subject to claims or
proceedings for purportedly fraudulent transactions arising out of the actual or alleged theft of credit/debit card information. Any such claims or
proceedings could distract our management team members from running our business, adversely affect our reputation, and cause us to incur
significant unplanned losses and expenses.
We are also subject to federal and state laws regulating the collection and use of personal information of our employees and customers, including the
California Consumer Privacy Act (“CCPA”), which took effect January 1, 2020, and the California Privacy Rights Act (“CPRA”), which was
approved in November 2020, and beginning in January 2023 will impose additional data protection obligations on companies doing business in
California. In addition, our ability to accept credit/debit cards as payment in our restaurants and online depends on us maintaining our compliance
status with standards set by the PCI Security Standards Council, which require certain levels of system security and procedures to protect our
customers’ credit/debit card information as well as other personal information. Compliance with these standards and regulations may impose
significant costs on us. Further, while we have implemented policies and procedures to ensure compliance with the CCPA, the manner in which the
California Attorney General may interpret and enforce the CCPA is uncertain. The potential effects of the CCPA and CRPA are far-reaching and may
require us to modify our data processing practices and policies and incur substantial costs and expenses in an effort to comply with these regulations.
There is also the potential for increased regulatory enforcement by the state agencies empowered to enforce these laws. Noncompliance with the
CCPA, CRPA and other privacy laws could result in injunctions, fines and/or proceedings against us by governmental agencies or others. There could
also be uncertainty surrounding compliance with privacy laws in other jurisdictions such as state-specific laws which may conflict with existing
legislation or future laws and regulations.
Risks Related to Intellectual Property
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The failure to enforce and maintain our trademarks and protect our other intellectual property could materially and adversely affect our
business, including our ability to establish and maintain brand awareness.
The success of our business strategy depends on our ability to use our existing trademarks and service marks in order to increase brand awareness
and further develop our branded products. If our efforts to protect our intellectual property are inadequate, or if any third-party misappropriates or
infringes upon our intellectual property, whether in print, on the Internet, or through other media, our brands and branded products could fail to
maintain or achieve market acceptance and the value of our brands could be harmed, materially and adversely affecting our business. In addition, the
laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the United States. Any litigation to
enforce our intellectual property rights will likely be costly and may not be successful.
We maintain the recipe for our chicken marinade, as well as certain proprietary standards, specifications, and operating procedures, as trade secrets or
confidential proprietary information. We may not be able to prevent the unauthorized disclosure or use of our trade secrets or proprietary
information, despite the existence of confidentiality agreements and other measures. While we try to ensure that the quality of our brands and
branded products is maintained by all of our franchisees, we cannot be certain that these franchisees will not take actions that adversely affect the
value of our intellectual property or reputation. If any of our trade secrets or proprietary information were to be disclosed to or independently
developed by a competitor, our business, financial condition, and results of operations could be materially and adversely affected.
In addition, we may face claims of infringement that could interfere with our ability to market our restaurants and promote our brand. Any such
litigation may be costly and could divert resources from our business. Moreover, if we are unable to successfully defend against such claims, we may
be prevented from using our trademarks or service marks in the future and may be liable for damages, which in turn could have a material adverse
effect on our business, financial condition and results of operations.
Risks Related to Government Regulation and Litigation
Matters relating to employment and labor law may adversely affect our business.
Various federal, state and local labor laws govern our relationships with our employees and affect operating costs. These laws include employee
classifications as exempt or non-exempt, minimum wage requirements, unemployment tax rates, workers’ compensation rates, citizenship
requirements, and other wage and benefit requirements for employees classified as non-exempt. Significant additional government regulations and
new laws mandating increases in minimum wages or benefits such as health insurance could materially affect our business, financial condition,
operating results, and cash flow. Furthermore, the unionization of our employees and of the employees of our franchisees could materially affect our
business, financial condition, operating results, and cash flow.
Employee claims against us or our franchisees based on, among other things, wage and hour violations, discrimination, harassment, or wrongful
termination may also create not only legal and financial liability but negative publicity that could adversely affect us and divert our financial and
management resources that could otherwise be used to benefit the future performance of our operations. These types of employee claims could also
be asserted against us, on a co-employer theory, by employees of our franchisees. A significant increase in the number of these claims, or an increase
in the number of successful claims, could materially and adversely affect our business, brand image, employee recruitment, financial condition,
results of operations, or cash flows.
We are from time to time the target of class action lawsuits and other claims proceedings, which could adversely affect our business and results of
operations.
Our business is subject to the risk of litigation by employees, customers, suppliers, stockholders, and others through private actions, class actions,
administrative proceedings, regulatory actions, and other litigation, including actions regarding workplace and employment conditions,
discrimination, and similar matters, and we are currently a party to wage and hour class action lawsuits. See additional information presented in
Note 13 “Commitments and Contingencies—Legal Matters” in the accompanying “Notes to Consolidated Financial Statements” in this Annual
Report. Occasionally, our customers file complaints or lawsuits against us alleging that we are responsible for some illnesses or injuries that they
suffered at or after a visit to one of our restaurants, including actions seeking damages resulting from food-borne illnesses or accidents in our
restaurants. We are also subject to a variety of other claims from
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third parties arising in the ordinary course of our business, including contract claims. The restaurant industry has also been subject to a growing
number of claims that the menus and actions of restaurant chains have led to the obesity of certain of their customers. We may also be subject to
lawsuits from our employees, the U.S. Equal Employment Opportunity Commission, or others alleging violations of federal or state laws regarding
workplace and employment conditions, discrimination, and similar matters.
Regardless of whether any claims against us are valid and whether we are liable, claims may be expensive to defend against and divert time and
money away from operations. In addition, claims may generate negative publicity, which could reduce customer traffic and sales. Insurance may not
be available at all or in sufficient amounts to cover any liabilities with respect to these or other matters. A judgment or other liability in excess of our
insurance coverage for any claims, or any adverse publicity resulting from claims, could adversely affect our business and results of operations.
If we or our franchisees face labor shortages or increased labor costs, our results of operations and growth could be adversely affected.
Labor is a primary component in the cost of operating our company-operated and franchised restaurants. Labor shortages and increased labor costs
are subject to numerous internal and external factors, including higher employee-turnover rates, changes in immigration policy including barriers to
immigrants entering, working in, or remaining in the United States, regulatory changes, prevailing wage rates, including increases in federal, state, or
local minimum wages or in other employee benefit costs (including costs associated with health insurance coverage or workers’ compensation
insurance), and increased competition we face from other companies for qualified employees. During 2021, we experienced an increasingly
competitive and overall tightening of the labor market. This was attributed to, among other things, increased federal unemployment subsidies,
including unemployment benefits offered in response to the ongoing COVID-19 pandemic, and other government regulations. A sustained labor
shortage could lead to increased costs, such as increased overtime incurred to meet the demands of our customers and increased wage rates to attract
and retain employees. Any failure to meet our staffing needs or any material increases in employee turnover rates could adversely affect our business
and results of operations, including our ability to grow our restaurant base. See also our risk factor titled “The COVID-19 pandemic and measures
intended to prevent its spread may have a significant negative impact on our business, sales, results of operations and financial condition”
above for labor shortage risks we may face in connection with the COVID-19 pandemic.
Federally-mandated, state-mandated, or locally-mandated minimum wages have recently increased in several jurisdictions, including the State of
California and Los Angeles County, and may be further raised in the future. We may be unable to sufficiently increase our menu prices in order to
pass future increased labor costs on to our customers, in which case our margins would be negatively affected. Also, reduced margins of franchisees
could make it more difficult to sell franchises. In addition, increases in menu prices by us and our franchisees to cover increased labor costs could
have the effect of lowering sales, which would thereby reduce our margins and the royalties that we receive from franchisees.
We are subject to extensive laws, government regulation, and other legal requirements and our failure to comply with existing or new laws and
regulations could adversely affect our operational efficiencies, ability to attract and retain talent and results of operations.
Our business is subject to extensive federal, state and local laws and regulations, including those relating to the preparation, sale and labeling of food,
employment practices and working conditions, health, sanitation, safety and fire standards, building and zoning requirements, public
accommodations and safety conditions, environmental matters, and data privacy. See Item 1 “Business—Regulation and Compliance” for further
information. We are also subject to laws and regulations concerning our compliance as a public company, including disclosure and governance
matters, including accounting and tax regulations, SEC and The Nasdaq Stock Market LLC (“Nasdaq”) disclosure requirements.
Compliance with these laws and regulations, and future new laws or changes in these laws or regulations that impose additional requirements, can be
costly. Any failure or perceived failure to comply with these laws or regulations could result in, among other things, revocation of required licenses,
administrative enforcement actions, fines and civil and criminal liability.
Changes in health, safety, construction, labor, environmental, or other laws or regulations, including changes to or repeal of the Patient Protection and
Affordable Care Act (“PPACA”), could impose costs upon us, including transition costs.
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Such transition costs could include uncertainties about how the new laws or regulations might be interpreted, enforced, or litigated by either
regulators or private parties. Such changes could also have economic implications for our customers. For example, changes to health insurance law
could diminish our customers’ disposable incomes and thus reduce their frequency of eating or ordering out, even from QSR or fast casual
restaurants, including us.
Legislation and regulations regarding certain of our menu offerings, new information or attitudes regarding diet and health, or adverse opinions
about the health effects of consuming our menu offerings, could affect consumer preferences and negative impact our results of operations.
Further, certain government authorities have adopted or may adopt laws and regulations regarding trans-fats, sodium, sodas or other ingredients or
products used or sold by our restaurants. While only a small number of our ingredients contain trans-fats in trace amounts, these regulations may
require us to limit or remove ingredients from our products, which could affect product tastes, customer satisfaction levels, and sales volumes.
Transitioning to higher-cost ingredients may also hinder our ability to operate in certain markets and proposed tax increases on certain products, such
as sodas, may affect sales volumes of those products. The imposition of additional menu labeling laws could affect consumer preferences and have
an adverse effect on our results of operations and financial position, as well as on the restaurant industry in general.
We may become subject to liabilities arising from environmental laws that could likely increase our operating expenses and materially and
adversely affect our business and results of operations.
We are subject to federal, state, and local laws, regulations, and ordinances that:
● govern activities or operations that may have adverse environmental effects, such as discharges into the air, water and soils, as well as waste
handling and disposal practices for solid and hazardous wastes and waste water; and
● impose liability for the costs of remediating, and the damage resulting from, past spills, disposals, or other releases of petroleum products
and hazardous materials.
In particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and subject to associated
liabilities, including liabilities for cleanup costs, personal injury, or property damage, relating to our restaurants and the land on which our restaurants
are located, regardless of whether we lease or own the restaurants or land in question and regardless of whether such environmental conditions were
created by us or by a prior owner or tenant. If we are found liable for the costs of remediation of contamination at any of our properties, our operating
expenses would likely increase and our results of operations could be materially and adversely affected. See above under “Item 1. Business—
Environmental Matters.”
Risks Related to Certain of our Stockholders
If the ownership of our common stock continues to be highly concentrated, it may prevent minority stockholders from influencing significant
corporate decisions and may result in conflicts of interest.
Trimaran Pollo Partners, L.L.C. (“LLC”), owns approximately 45.8% of our outstanding common stock as of December 29, 2021. This large position
means that LLC and its majority owners—predecessors and affiliates of, and certain funds managed by, Trimaran Capital Partners and Freeman
Spogli & Co. (collectively, “Trimaran” and “Freeman Spogli,” respectively)—possess significant influence when stockholders vote on matters such
as election of directors, mergers, consolidations and acquisitions, the sale of all or substantially all of our assets, decisions affecting our capital
structure, amendments to our certificate of incorporation or our by-laws, and our winding up and dissolution. So long as LLC maintains at least 40%
ownership, (i) any member of the board of directors may be removed at any time without cause by affirmative vote of a majority of our common
stock, and (ii) stockholders representing 40% or greater ownership may cause special stockholder meetings to be called.
Currently, three of our eleven directors, including our chairman, are affiliated with Trimaran or Freeman Spogli. While our board has determined that
director John Roth, a general partner of Freeman Spogli and its CEO, satisfies the criteria for an independent director under applicable Nasdaq rules,
the interests of Trimaran and Freeman Spogli may not always coincide with our interests or the interests of our other stockholders. This concentration
of ownership may also have the
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effect of delaying, deterring, or preventing acts that would be favored by our other stockholders, including a change in control of us. Also, Trimaran
and Freeman Spogli may seek to cause us to take courses of action that, in their judgments, could enhance their investments in us, but that might
involve risks to our other stockholders or adversely affect us or our other stockholders. As a result, the market price of our common stock could
decline, or stockholders might not receive a premium over the then-current market price of our common stock upon a change in control. In addition,
this concentration of ownership may adversely affect the trading price of our common stock, because investors may perceive disadvantages in
owning shares of a company with significant stockholders.
The interests of Trimaran and Freeman Spogli may conflict with ours or our stockholders’ in the future.
Trimaran and Freeman Spogli engage in a range of investing activities, including investments in restaurants and other consumer-related companies in
particular. In the ordinary course of their business activities, Trimaran and Freeman Spogli may engage in activities where their interests conflict with
our interests or those of our stockholders. Our amended and restated certificate of incorporation provides that none of LLC or any of its officers,
directors, employees, agents, shareholders, members, partners, principals, affiliates and managers (including, inter alia, Trimaran and Freeman
Spogli) has a duty to refrain from engaging, directly or indirectly, in the same business activities or similar business activities or lines of business in
which we operate. For example, in the third quarter of 2017, Cafe Rio, a high-growth, fast-casual Mexican restaurant company, announced that
Freeman Spogli had acquired a majority interest in it. Trimaran and Freeman Spogli also may pursue acquisition opportunities that may be
complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, Trimaran and Freeman Spogli
may have an interest in pursuing acquisitions, divestitures, and other transactions that, in their judgment, could enhance their investment in us, even
though those transactions might involve risks to you, such as debt-financed acquisitions.
We are required to pay our pre-IPO owners for certain tax benefits, which amounts are expected to be material.
We entered into an income tax receivable agreement (the “TRA”) with the stockholders of the Company immediately prior to the initial public
offering (“IPO”), which provides for payment by us to our pre-IPO stockholders of 85% of the amount of cash savings, if any, in federal, state, local,
and foreign income tax that we and our subsidiaries actually realize (or are deemed to realize in the case of an early termination by us or a change of
control) as a result of the utilization of our net operating losses and other tax attributes attributable to periods prior to July 2014 together with interest
accrued from the date the applicable tax return is due (without extension) until paid.
Our payments under the TRA may be material. As of December 29, 2021, we had an accrued payable related to this agreement of approximately $1.5
million. In fiscal 2021, we paid $1.7 million to our pre-IPO stockholders under the TRA.
TRA payment obligations are obligations of Holdings and not of its subsidiaries. The actual amounts and utilization of net operating losses and other
tax attributes, as well as the amounts and timing of any payments under the TRA, will vary depending upon a number of factors, including the
amount, character, and timing of Holdings’ and its subsidiaries’ taxable income in the future.
Our counterparties under the TRA will not reimburse us for any benefits that are subsequently disallowed, although any future payments would be
adjusted to the extent possible to reflect the result of such disallowance. As a result, in such circumstances, we could make payments under the TRA
greater than our actual cash tax savings.
If we undergo a change of control as defined in the TRA, the TRA will terminate, and we will be required to make a payment equal to the present
value of expected future payments under the TRA, which payment would be based on certain assumptions, including assumptions related to our
future taxable income. Additionally, if we or a direct or indirect subsidiary transfer any asset to a corporation with which we do not file a
consolidated tax return, we will be treated as having sold that asset for its fair market value in a taxable transaction for purposes of determining the
cash savings in income tax under the TRA. Any such payment resulting from a change of control or asset transfer could be substantial and could
exceed our actual cash tax savings.
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Risks Related to Ownership of Our Common Stock
Our quarterly operating results may fluctuate significantly due to seasonality and other factors, some of which are beyond our control, which
could adversely affect the market price of our common stock.
Our quarterly operating results may fluctuate significantly because of several factors, including but not limited to: increases and decreases in sales;
profitability of our restaurants; labor availability and costs for personnel; changes in interest rates; macroeconomic conditions, both nationally and
locally; negative publicity relating to the consumption of products we serve; changes in consumer preferences and competitive conditions;
impairment of long-lived assets and any loss on and exit costs associated with restaurant closures; expansion to new markets; the timing of new
restaurant openings and related expense; restaurant operating costs for our newly-opened restaurants; increases in infrastructure costs; and
fluctuations in commodity prices.
Seasonal factors, including weather disruptions, and the timing of holidays also cause our revenue to fluctuate from quarter to quarter. Our revenue
per restaurant is typically lower in the first and fourth quarters due to reduced January and December transactions and higher in the second and third
quarters. As a result of seasonality, our quarterly and annual results of operations and key performance indicators such as company restaurant
revenue and comparable restaurant sales may fluctuate. Accordingly, results for any one quarter are not necessarily indicative of results to be
expected for any other quarter or for any year and comparable restaurant sales for any particular future period may decrease. In the future, operating
results may fall below the expectations of securities analysts and investors. In that event, the price of our common stock would likely decrease.
Future offerings of debt or equity securities by us may adversely affect the market price of our common stock.
In the future, we may attempt to obtain financing, or to further increase our capital resources, by issuing additional shares of our common stock or by
offering other equity securities, or debt, including senior or subordinated notes, debt securities convertible into equity, or shares of preferred stock.
Opening new company-operated restaurants in existing and new markets could require substantial additional capital in excess of cash from
operations. We would expect to finance the capital required for new company-operated restaurants through a combination of additional issuances of
equity, corporate indebtedness, and cash from operations.
Issuing additional shares of our common stock or other equity securities or securities convertible into equity may dilute the economic and voting
rights of our existing stockholders, reduce the market price of our common stock, or both. In a liquidation, holders of any such debt securities or
preferred stock, and lenders with respect to other borrowings, could receive distributions of our available assets prior to the holders of our common
stock. Debt securities convertible into equity could be subject to adjustments in their conversion ratios under certain circumstances, increasing the
number of equity securities issuable upon conversion. Preferred stock, if issued, could have a preference with respect to liquidating distributions, or a
preference with respect to dividend payments that could limit our ability to pay dividends to the holders of our common stock. Our decision to issue
securities in any future offering will depend on market conditions and other factors beyond our control that may adversely affect the amount, timing,
or nature of our future offerings. Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our
common stock and dilute their stockholdings in us.
The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets,
including shares of our common stock currently held by the LLC.
The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the
perception that such sales could occur. LLC presently owns approximately 45.8% of our outstanding common stock and could sell stock publicly
either if the stock were registered or if the exemption requirements of Rule 144 were satisfied. No lock-up agreements presently are in effect.
Pursuant to our stockholders’ agreement, LLC and, in certain instances, Freeman Spogli, may require us to file registration statements under the
Securities Act at our expense, covering resales of our common stock held by them or LLC or piggyback on a registration statement in certain
circumstances. Any such sales, or the prospect of any such sales, could materially impact the market price of our common stock.
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Further, pursuant to the terms of the LLC’s limited liability company operating agreement (the “LLC Agreement”), the LLC Agreement can
terminate, in which case the LLC will begin the process of dissolving and winding up its affairs, at the earlier of (i) the election of the managing
member, or (ii) six years following the completion of our IPO, or July 27, 2020. If the process of winding up the LLC and distribution of shares of
our common stock begins and all or a substantial portion of these shares are sold into the public markets, or if it is perceived that they will be resold,
the trading price of our common stock could decline.
Delaware law, our organizational documents, and our existing and future debt agreements may impede or discourage a takeover, depriving our
investors of the opportunity to receive a premium for their shares.
We are a Delaware corporation, and the anti-takeover provisions of Delaware law impose various impediments to the ability of a third-party to
acquire control of us, even if a change of control would be beneficial to our existing stockholders. In addition, provisions of our amended and
restated certificate of incorporation and by-laws may make it difficult for, or prevent, a third-party from acquiring control of us without the approval
of our board of directors. Among other things, these provisions: provide for a classified board of directors with staggered three-year terms; do not
permit cumulative voting in the election of directors, which would allow a minority of stockholders to elect director candidates; delegate the sole
power to a majority of the board of directors to fix the number of directors; provide the power to our board of directors to fill any vacancy on our
board of directors, whether such vacancy occurs as a result of an increase in the number of directors or otherwise; authorize the issuance of “blank
check” preferred stock without any need for action by stockholders; eliminate the ability of stockholders to call special meetings of stockholders;
establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted on by
stockholders at stockholder meetings; and provide that, on or after the date that LLC ceases to beneficially own at least 40% of the total votes eligible
to be cast in the election of directors, a 75% supermajority vote will be required to amend or repeal provisions relating to, among other things, the
classification of the board of directors, the filling of vacancies on the board of directors, and the advance notice requirements for stockholder
proposals and director nominations.
In addition, our secured revolving credit facility imposes, and we anticipate that documents governing our future indebtedness may impose,
limitations on our ability to enter into change of control transactions. Under our secured revolving credit facility, the occurrence of a change of
control transaction can constitute an event of default permitting acceleration of the debt, thereby impeding our ability to enter into change of control
transactions.
The foregoing factors, as well as significant common stock ownership by Trimaran and Freeman Spogli, could impede a merger, takeover, or other
business combination, or discourage a potential investor from making a tender offer for our common stock, which, under certain circumstances,
could reduce the market value of our common stock.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
As of December 29, 2021, our restaurant system consisted of 480 restaurants, comprised of 189 company-operated restaurants and 291 franchised
restaurants, located in California, Nevada, Arizona, Texas, Utah and Louisiana. In addition, we currently license our brand to one restaurant in the
Philippines. We have not included this licensed restaurant as part of our unit count as presented in this annual report. The table below sets forth the
locations (by state) for all restaurants in operation as of December 29, 2021.
State
California
Nevada
Arizona
Texas
Utah
Louisiana
Total
Company-
Operated
Franchised
Total
155
24
—
9
1
—
189
227
5
27
23
7
2
291
382
29
27
32
8
2
480
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Our restaurants are either free-standing facilities, typically with drive-thru capability, or in-line. A typical restaurant generally ranges from 2,200 to
3,000 square feet, with seating for approximately 50-70 people. For a majority of our company-operated restaurants, we lease land on which our
restaurants are built. Our leases generally have terms of 20 years, with up to four renewal terms of five years.
Restaurant leases provide for a specified annual rent, and some leases call for additional or contingent rent based on revenue above specified levels.
Generally, our leases are “net” leases that require us to pay a pro rata share of taxes, insurance, and maintenance costs. We own 15 properties, of
which we currently operate 12 and license 3 to franchisees. In addition, we operate 177 company-operated restaurants on leased real estate, we own
one operating unit with additional parking on leased real estate, and we have another 37 leased sites that are subleased or assigned to franchisees who
operate El Pollo Loco restaurants. We also have three closed units two of which are subleased for uses other than El Pollo Loco. We also sublease a
surplus property of an operating location to a third party.
We lease our headquarters, consisting of approximately 29,880 square feet in Costa Mesa, California, for a term expiring in 2023, plus one three-year
extension option. We believe that our current office space is suitable and adequate for its intended purposes and our near-term expansion plans.
ITEM 3.
LEGAL PROCEEDINGS
For information regarding our material legal proceedings, see “Note 13. Commitments and Contingencies—Legal Matters” in the accompanying
“Notes to Consolidated Financial Statements” in this Annual Report, which information is incorporated herein by reference.
ITEM 4.
MINE SAFETY DISCLOSURES
None.
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PART II
ITEM 5.
PURCHASES OF EQUITY SECURITIES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
Market Information
Our common stock has been listed on The Nasdaq Stock Market LLC under the symbol “LOCO” since July 25, 2014.
As of March 4, 2022, there were approximately 50 holders of record of our common stock. The number of holders of record is based upon the actual
number of holders registered at such date and does not include holders of shares in “street name” or persons, partnerships, associates, corporations, or
other entities in security position listings maintained by depositories.
Dividends
We do not currently pay cash dividends to our holders of common stock and we do not anticipate paying any such dividends for the foreseeable
future. Any determination to pay dividends in the future will be at the discretion of our Board of Directors and will depend upon our results of
operations, financial condition, restrictions imposed by applicable law and our financing agreements and other factors that our Board of Directors
deems relevant.
Issuer Purchases of Equity Securities
During the quarterly period ended December 29, 2021, we did not repurchase any shares of our common stock, including shares of our common
stock held by our employees to satisfy tax withholding obligations in connection with the vesting of previously issued restricted stock.
Stock Performance Graph
The following graph and table illustrate the total cumulative shareholder return for (i) our common stock, (ii) the Nasdaq Composite Total Return
Index and (iii) the Standard and Poor’s Composite 1500 Restaurants Index (formerly called the S&P Supercomposite Restaurants Index), for the
five years ended December 29, 2021. The graph assumes the investment of $100 at the beginning of the period (at the closing price of our common
stock on December 28, 2016) and the reinvestment of all dividends. Stockholder returns over the indicated period should not be considered indicative
of future stockholder returns.
The stock performance graph shall not be deemed soliciting material or to be filed with the SEC or subject to Regulation 14A or 14C under the
Exchange Act or to the liabilities of Section 18 of the Exchange Act, nor shall it be incorporated by reference into any past or future filing under the
Securities Act of 1933, as amended (the “Securities Act”) or the Exchange Act, except to the extent we specifically request that it be treated as
soliciting material or specifically incorporate it by reference into a filing under the Securities Act or the Exchange Act.
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Date
December 28, 2016
December 27, 2017
December 26, 2018
December 24, 2019
December 30, 2020
December 29, 2021
ITEM 6.
[RESERVED]
LOCO
Nasdaq
Composite
S&P Composite
1500
Restaurants
100.00
79.37
119.84
119.44
144.52
111.19
$
$
$
$
$
$
100.00
127.60
120.52
164.62
236.64
289.90
$
$
$
$
$
$
100.00
121.72
131.04
160.49
186.99
226.33
$
$
$
$
$
$
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our "Audited Consolidated Financial Statements" and accompanying "Notes to
Consolidated Financial Statements" included elsewhere in this Annual Report. In addition to historical information, this discussion contains
forward-looking statements that involve risks, uncertainties, and assumptions that could cause actual results to differ materially from management’s
expectations. See “Forward-Looking Statements” and "Item 1A. Risk Factors” included elsewhere in this Annual Report. We assume no obligation to
update any of these forward-looking statements.
Basis of Presentation
We use a 52- or 53-week fiscal year ending on the last Wednesday of each calendar year. Fiscal 2021, 2020, and 2019 ended on December 29, 2021,
December 30, 2020 and December 25, 2019, respectively. In a 52-week fiscal year, each quarter includes 13 weeks of operations. In a 53-week
fiscal year, the first, second and third quarters each include 13 weeks of operations, and the fourth quarter includes 14 weeks of operations.
Approximately every six or seven years a 53-week fiscal year occurs. Fiscal 2020 was a 53-week fiscal year. Fiscal 2021 and 2019 were 52-week
fiscal years. 53-week years may cause revenues, expenses, and other results of operations to be higher due to the additional week of operations.
Fiscal years are identified in this report according to the calendar years in which they ended. For example, references to fiscal 2021 refer to the
fiscal year ended December 29, 2021.
Overview
El Pollo Loco is a differentiated and growing restaurant concept that specializes in fire-grilling citrus-marinated chicken and operates in the LSR
segment. We strive to offer food that integrates the culinary traditions of Mexico with the
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healthier lifestyle of Los Angeles, a combination that we call “LA-Mex.” Our distinctive menu features our signature product--citrus-marinated fire-
grilled chicken--and a variety of Mexican and LA-inspired entrees that we create from our chicken. We serve individual and family-sized chicken
meals, a variety of Mexican and LA-inspired entrees, and sides, and, throughout the year, on a limited-time basis, additional proteins like shrimp. Our
entrees include favorites such as our Chicken Avocado Burrito, Pollo Fit entrees, chicken tostada salads, and Pollo Bowls. Our famous Creamy
Cilantro dressings and salsas are prepared fresh daily, allowing our customers to create their favorite flavor profiles to enhance their culinary
experience. Our distinctive menu with better for you and more affordable alternatives appeals to consumers across a wide variety of socio-economic
backgrounds and drives our balanced composition of sales throughout the day (our “day-part mix”), including at lunch and dinner.
COVID-19 Impact
During the COVID-19 pandemic, we have experienced periods of significant disruption to our restaurant operations. Following the pandemic
declaration in March 2020, federal, state and local governments have periodically responded to the public health crisis by requiring social distancing,
issuing “stay at home” directives, and implementing restaurant restrictions - including government-mandated dining room closures - that limited
business to off-premise services only (take-out, drive-thru and delivery). COVID-19 pandemic and the measures taken to prevent its spread have
adversely affected our operations and financial results, particularly during fiscal 2020 as well as periods of 2021 when COVID-19 infections
increased with the spread of new strains of the virus. The disruption in operations has led to us considering the impact of the COVID-19 pandemic on
our liquidity, debt covenant compliance, and recoverability of long-lived and right-of-use (“ROU”) assets, goodwill and intangible assets, among
others. We are continually evaluating the impact of the global crisis on our financial condition, liquidity, operations, suppliers, industry, and
workforce and will take additional actions as necessary.
While all of our restaurants had dining rooms open as of December 29, 2021, we continue to experience staffing challenges, which resulted in
reduced operating hours and service channels at some of our restaurants and resulted in higher wage inflation, overtime costs and other labor related
costs. Further, we experienced inflationary pressures due to supply chain disruptions that resulted in increased commodity prices and impacted our
business and results of operations during the year ended December 29, 2021. We expect these pressures to continue during fiscal 2022. During fiscal
2021, we incurred $3.9 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay. During fiscal 2020, we incurred
$4.9 million in COVID-19 related expenses, primarily due to leaves of absence and overtime pay. During fiscal 2021 as part of the CARES Act, we
recognized the Employee Retention Credit (“ERC”) in the amount of $3.4 million, which is recorded as an offset to the corresponding payroll
expense and is classified as part of the labor and other operating expenses on the consolidated statements of income for the year ended December 29,
2021. See additional information presented in Note 2 “Summary of Significant Accounting Policies” in the accompanying “Notes to Consolidated
Financial Statements” in this Annual Report.
Due to the rapid development and fluidity of this situation, we cannot determine the ultimate impact that the COVID-19 pandemic will have on our
consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate materiality of the adverse
impact on our consolidated financial condition, liquidity, and future results of operations is uncertain.
Growth Strategies and Outlook
We plan to continue to expand our business, drive restaurant sales growth, and enhance our competitive positioning, by executing the following
strategies:
● develop a people-first culture;
● differentiate the brand;
● simplify operations; and
● accelerate new restaurant development.
As of December 29, 2021, we had 480 locations in six states. In fiscal 2021, we opened two new company-operated restaurants, one in Nevada and
one in California, and our franchisees opened two new restaurants, one in Texas and one
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in Louisiana. In fiscal 2020, we opened one new company-operated restaurant in Nevada and our franchisees opened three new restaurants, two in
California and one in Arizona.
In 2022, we intend to open three to six new company-operated and six to 10 new franchised restaurants. To increase comparable restaurant sales, we
plan to increase customer frequency, attract new customers, and improve per-person spend.
Highlights and Trends
Comparable Restaurant Sales
In fiscal 2021, comparable restaurant sales system-wide increased 12.1%. In fiscal 2020, comparable restaurant sales system-wide decreased 2.4%.
In fiscal 2019, comparable restaurant sales system-wide increased 2.0%. Comparable restaurant sales growth/decline reflects the change in year-over-
year sales for the comparable restaurant base. A restaurant enters our comparable restaurant base the first full week after its 15-month anniversary.
System-wide comparable restaurant sales include restaurant sales at all comparable company-operated restaurants and at all comparable franchised
restaurants, as reported by franchisees. Comparable restaurant sales at company-operated restaurants increased 7.6% in fiscal 2021, decreased 3.0%
in fiscal 2020, and increased 1.9% in fiscal 2019. For company-operated restaurants, the change in comparable restaurant sales consisted of a 6.3%
increase in average check size and a 1.2% increase in transactions. In fiscal 2020, the decrease in company-operated comparable restaurant sales was
primarily the result of a decrease in transactions of 15.8%, partially offset by a 15.3% increase in average check size. In fiscal 2019, the increase in
company-operated comparable restaurant sales was primarily the result of an increase in average check size of 2.9%, partially offset by a decrease in
transactions of 1.0%. In fiscal 2021, comparable restaurant sales at franchised restaurants increased 15.3%. In fiscal 2020, comparable restaurant
sales at franchised restaurants decreased 2.0%, and in fiscal 2019, comparable restaurant sales at franchised restaurants increased 2.0%.
Restaurant Development
In fiscal 2021, we opened two company-operated restaurants, and our franchisees opened two new restaurants. From time to time, we and our
franchisees close restaurants. In fiscal 2021, we closed one company-operated restaurant. Our franchisees closed two restaurants. Our restaurant
counts at the beginning and end of each of the last three years were as follows:
Company-operated restaurant activity:
Beginning of period
Openings
Restaurant sale to franchisee
Closures
Restaurants at end of period
Franchised restaurant activity:
Beginning of period
Openings
Restaurant sale to franchisee
Closures
Restaurants at end of period
System-wide restaurant activity:
Beginning of period
Openings
Closures
Restaurants at end of period
2021
Fiscal Year Ended
2020
2019
196
2
(8)
(1)
189
283
2
8
(2)
291
479
4
(3)
480
195
1
—
—
196
287
3
—
(7)
283
482
4
(7)
479
213
2
(16)
(4)
195
271
2
16
(2)
287
484
4
(6)
482
In 2020, we finalized a new restaurant design that we believe will clearly differentiate and communicate our brand, both on the exterior and interior.
We believe that our remodels using this new design will result in higher restaurant revenue and a strengthened brand. As of December 29, 2021, we
have completed 12 company-operated restaurants remodels using the new design, including 10 during fiscal 2021. During 2021, our franchisees
completed five remodels, two of
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which used the new design. In fiscal 2022, we plan to continue our standard practices for remodels, which includes completing a total of 10-15
company and 20-30 franchise remodels using the new design. Remodeling is a use of cash and has implications for our net property and depreciation
line items on our consolidated balance sheets and statements of income, among others. The cost of our restaurant remodels varies depending on the
scope of work required, but on average the investment is $0.3 to $0.4 million per restaurant.
Loco Rewards
Our Loco Rewards loyalty program offers rewards that incentivize customers to visit our restaurants more often each month. Customers earn points
for each dollar spent and as of August 4, 2020, 50 points can be redeemed for a $5 reward to be used for a future purchase. Prior to August 4, 2020,
100 points could be redeemed for a $10 reward. If a customer does not earn or use points within a one-year period, their account is deactivated and
all points expire. Additionally, if a reward is not used within six months, it expires. When a customer is part of the rewards program, the obligation to
provide future discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is
allocated. The performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is
recognized as revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption
is remote. A portion of the transaction price is allocated to loyalty points on a pro-rata basis, based on stand-alone selling price, as determined by
menu pricing and loyalty point’s terms.
In addition, customers can earn additional points and free entrées for a variety of engagement activities. As points are available for redemption past
the quarter earned, a portion of the revenue associated with the earned points will be deferred until redemption or expiration. As of December 29,
2021, the amount of revenue deferred related to the earned points, net of redemptions, is $0.7 million. We had more than 2.8 million members in the
Loco Rewards loyalty program as of December 29, 2021.
Key Financial Definitions
Revenue
Our revenue is derived from three primary sources: (i) company-operated restaurant revenue, (ii) franchise revenue, which is comprised primarily of
franchise royalties and, to a lesser extent, franchise fees and sublease rental income, and (iii) franchise advertising fee revenue. See Note 15
“Revenue from Contracts with Customers” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further
details regarding our revenue recognition policy.
Food and Paper Costs
Food and paper costs include the direct costs associated with food, beverage and packaging of our menu items. The components of food and paper
costs are variable in nature, change with sales volume, are impacted by menu mix, and are subject to increases or decreases in commodity costs.
Labor and Related Expenses
Labor and related expenses include wages, payroll taxes, workers’ compensation expense, benefits, and bonuses paid to our restaurant management
teams. Like other expense items, we expect labor costs to grow proportionately as our restaurant revenue grows. Factors that influence labor costs
include minimum wage and payroll tax legislation, the frequency and severity of workers’ compensation claims, health care costs, and the
performance of our restaurants.
Occupancy Costs and Other Operating Expenses
Occupancy costs include rent, common area maintenance, and real estate taxes. Other restaurant operating expenses include the costs of utilities,
advertising, credit card processing fees, restaurant supplies, repairs and maintenance, and other restaurant operating costs.
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General and Administrative Expenses
General and administrative expenses are comprised of expenses associated with corporate and administrative functions that support the development
and operations of our restaurants, including compensation and benefits, travel expenses, stock compensation costs, legal and professional fees, and
other related corporate costs. Also included are pre-opening costs, and expenses above the restaurant level, including salaries for field management,
such as area and regional managers, and franchise field operational support.
Legal Settlements
Legal settlements include expenses such as judgments or settlements related to legal matters, legal claims and class action lawsuits.
Franchise Expenses
Franchise expenses are primarily comprised of rent expenses incurred on properties leased by us and then sublet to franchisees, and expenses
incurred in support of franchisee information technology systems. Additionally, franchise expenses also include all expenses of the advertising fund
representing the franchised restaurants portion of advertising expenses.
Depreciation and Amortization
Depreciation and amortization primarily consist of the depreciation of property and equipment, including leasehold improvements and equipment.
Loss on Disposal of Assets
Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements or
equipment.
Impairment and Closed-Store Reserves
We review long-lived assets such as property, equipment, and intangibles on a unit-by-unit basis for impairment when events or circumstances
indicate the carrying value of the assets may not be recoverable. We determine if there is impairment at the restaurant level by comparing
undiscounted future cash flows from the related long-lived assets to their respective carrying values and record an impairment charge when
appropriate. In determining future cash flows, significant estimates are made by us with respect to future operating results of each restaurant over its
remaining lease term, including sales trends, labor rates, commodity costs and other operating cost assumptions. If assets are determined to be
impaired, the impairment charge is measured by calculating the amount by which the assets’ carrying amount exceeds its fair value. This process of
assessing fair values requires the use of estimates and assumptions, including our ability to sell or reuse the related assets and market conditions,
which are subject to a high degree of judgment. If these assumptions change in the future, we may be required to record impairment charges for these
assets and these charges could be material.
When we close a restaurant, we will evaluate the ROU asset for impairment, based on anticipated sublease recoveries. The remaining value of the
ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense, in addition to property tax and common
area maintenance (“CAM”) charges for closed restaurants.
Loss on Disposition of Restaurants
Loss on disposal of restaurants includes the loss on the sale of restaurants to franchisees, or other third parties, and includes the difference between
carrying value and sales price of leasehold improvements, equipment and other assets included in the sale.
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Interest Expense, Net
Interest expense, net, consists primarily of interest on our outstanding revolving debt. Debt issuance costs are amortized on a straight-line basis over
the life of the related debt.
Provision for Income Taxes
Provision for income taxes consists of federal and state tax expense on our income, and changes to our deferred tax asset and deferred tax liability.
Results of Operations
Fiscal Year 2021 Compared to Fiscal Year 2020
Our operating results for the fiscal years ended December 29, 2021 and December 30, 2020, in absolute terms and expressed as a percentage of total
revenue, with the exception of cost of operations and company restaurant expenses, which are expressed as a percentage of company-operated
restaurant revenue, are compared below:
2021
(52-Weeks)
Fiscal Year
2020
(53-Weeks)
($,000)
(%)
($,000)
(%)
Increase / (Decrease)
(%)
($,000)
Statements of Income Data:
Revenue
Company-operated restaurant revenue
Franchise revenue
Franchise advertising fee revenue
Total revenue
Cost of operations
Food and paper costs (1)
Labor and related expenses (1)
Occupancy and other operating expenses (1)
Gain on recovery of insurance proceeds,
lost profits (1)
Company restaurant expenses (1)
General and administrative expenses
Legal settlements
Franchise expenses
Depreciation and amortization
Loss on disposal of assets
Recovery of securities lawsuits related legal expenses and other
insurance claims
Impairment and closed-store reserves
Loss on disposition of restaurants
Total expenses
Income from operations
Interest expense, net
Income tax receivable agreement expense
Income before provision for income taxes
Provision for income taxes
Net income
$ 394,733
33,729
25,901
454,363
104,394
120,308
97,557
—
322,259
39,852
—
32,831
15,176
289
—
1,087
1,534
413,028
41,335
1,824
58
39,453
10,332
29,121
$
$ 374,064
29,418
22,605
426,087
$ 20,669
4,311
3,296
28,276
86.9
7.4
5.7
100.0
26.4
30.5
24.7
—
81.6
8.8
—
7.2
3.3
0.1
—
0.2
0.3
90.9
9.1
0.4
0.0
8.7
2.3
6.4
$
98,774
114,455
92,422
(2,000)
303,651
35,918
2,566
28,761
16,878
189
(123)
4,691
—
392,531
33,556
3,292
139
30,125
5,651
24,474
87.8
6.9
5.3
100.0
26.4
30.6
24.7
(0.5)
81.2
8.4
0.6
6.8
4.0
—
—
1.1
—
92.1
7.9
0.8
—
7.1
1.3
5.7
$
5,620
5,853
5,135
2,000
18,608
3,934
(2,566)
4,070
(1,702)
100
123
(3,604)
1,534
20,497
7,779
(1,468)
(81)
9,328
4,681
4,647
5.5
14.7
14.6
6.6
5.7
5.1
5.6
N/A
6.1
11.0
N/A
14.2
(10.1)
52.9
N/A
(76.8)
N/A
5.2
23.2
(44.6)
(58.3)
31.0
82.8
19.0
(1) Percentages for line items relating to cost of operations and company restaurant expenses are calculated with company-operated restaurant
revenue as the denominator. All other percentages use total revenue.
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Company-Operated Restaurant Revenue
In fiscal 2021, company-operated restaurant revenue increased $20.7 million, or 5.5%. The increase in company-operated restaurant sales was
primarily due to an increase in company-operated comparable restaurant revenue of $25.6 million, or 7.6%. The company-operated comparable
restaurant sales increase consisted of an approximately 6.3% increase in average check size and a 1.2% increase in transactions. In addition,
company-operated restaurant revenue was favorably impacted by $3.7 million of additional sales from restaurants that had not been open the
fifteen months required to be included in comparable restaurant sales and a $1.7 million increase in revenue from restaurants that were temporarily
closed due to the COVID-19 pandemic during the prior year. This company-operated restaurant sales increase was partially offset by a $5.1 million
decrease in revenue from the eight company-operated restaurants sold by the Company to an existing franchisee during 2021 and a $0.5 million
decrease in revenue recognized for our loyalty points program. Company-operated restaurant revenue was also negatively impacted by $4.6 million
for the additional week of operations in 2020 as it was a 53-week fiscal year. See above under “COVID-19 Impact” for additional information related
to the impact of the COVID-19 pandemic on our business.
Franchise Revenue
In fiscal 2021, franchise revenue increased $4.3 million, or 14.7%. This increase was primarily due to a franchise comparable restaurant sales
increase of 15.3%, the opening of five restaurants during or subsequent to the first quarter of 2020 and revenue generated from eight company-
operated restaurants sold by the Company to an existing franchisee during the year. This franchise revenue increase was partially offset by the closure
of nine franchise locations during the same period.
Franchise Advertising Fee Revenue
Franchise advertising fee revenue increased $3.3 million, or 14.6% from the comparable period in the prior year. As advertising fee revenue is
a percentage of franchisees’ revenue, the year-to-date fluctuation was due to the increases noted in franchise revenue above.
Food and Paper Costs
Food and paper costs increased $5.6 million, or 5.7%, in fiscal 2021, due to a $2.8 million increase in food costs and a $2.8 million increase in paper
costs. The increase in food and paper costs resulted primarily from a $0.9 million increase from restaurants opened during the current or prior year,
higher company transactions and commodity inflation. These increases were partially offset by a reduction of $1.4 million for restaurant locations
sold to franchisees during fiscal 2021 and $1.2 million for the additional week of operations in 2020 which was a 53-week fiscal year. Food and
paper costs as a percentage of company-operated restaurant revenue were 26.4% in fiscal 2021, consistent with the prior year.
Labor and Related Expenses
Labor and related expenses increased $5.9 million, or 5.1% in fiscal 2021. The increase was due to a $4.0 million increase primarily related to
minimum wage increases in California during fiscal 2020 and 2021 and other labor wage increases as a result of competitive pressure, a $3.0 million
increase in overtime, a $1.3 million increase related to the 1.2% increase in year-over-year sales transactions, a $1.2 million increase from restaurants
opened during or after the first quarter of the prior year, a $0.8 million increase in employee medical costs, $0.6 million in higher payroll taxes, a
$0.7 million increase primarily related to employee training and a $1.9 million increase in other labor related expenses.
This labor and related expense increase was partially offset by recognizing a $3.4 million ERC, which is recorded as an offset to the corresponding
payroll expense and is classified as part of the labor and other operating expenses on the consolidated statements of income for the year ended
December 29, 2021. See additional information presented in Note 2 “Summary of Significant Accounting Policies” in the accompanying “Notes to
Consolidated Financial Statements” in this Annual Report. In addition, the labor and related expenses increase was partially offset by a reduction of
$1.8 million in labor for restaurant locations sold to franchisees during fiscal 2021, a reduction of $1.6 million for the additional week of operations
in 2020 which was a 53-week fiscal year and a reduction of COVID-19 related expenses of $0.8 million.
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Labor and related expenses as a percentage of company-operated restaurant revenue were 30.5% in fiscal 2021, consistent with the prior year.
Occupancy and Other Operating Expenses
Occupancy and other operating expenses increased $5.1 million, or 5.6%, in fiscal 2021. The increase was primarily due to a $1.4 million increase in
market place delivery fees, a $1.0 million increase in utilities costs, a $0.8 million increase in advertising expenses, a $0.8 million increase in repair
and maintenance costs, a $0.3 million increase in operating supplies primarily related to COVID-19 and a $1.1 million increase in other operating
expenses. These increases were partially offset by a $0.3 million decrease in occupancy costs, primarily related to a reduction in rent expense from
restaurants sold to franchisees during 2021. Occupancy and other operating expenses as a percentage of company-operated restaurant revenue were
24.7% in fiscal 2021, consistent with the prior year.
Gain on Recovery of Insurance Proceeds, Lost Profits
In fiscal 2020, we received business interruption insurance proceeds of $2.0 million, primarily related to restaurant sales losses and expenses related
to the COVID-19 pandemic and resulting dining room closures.
General and Administrative Expenses
General and administrative expenses increased $3.9 million, or 11.0%, in fiscal 2021. The increase was due primarily to a $1.4 million increase in
legal expenses, a $0.9 million increase in labor related costs, primarily related to an increase in management bonus expense, a $1.2 million increase
in recruiting costs and other outside services fees and a $0.5 million increase in other general and administrative expenses. These increases were
partially offset by a $0.5 million impact from an additional week of operations in fiscal 2020, which was a 53-week fiscal year.
General and administrative expenses as a percentage of total revenue were 8.8% in fiscal 2021, up from 8.4% in fiscal 2020. This increase is
primarily due to the cost increases described above, partially offset by higher revenue.
Legal Settlements
Legal settlements were $2.6 million in fiscal 2020, related to resolution of the longstanding lawsuit involving a contract dispute with one of the
Company’s franchisees concerning asserted territory rights, as well as amounts incurred related to the payment of the final settlement amounts for
consolidated wage and hour class action lawsuits resolved during fiscal 2020.
Franchise Expenses
Franchise expenses increased $4.1 million, or 14.2%, in fiscal 2021. The increase was primarily due to an increase in advertising expenses, primarily
resulting from higher franchise revenue and rent expense for locations sub-leased to franchisees that have a portion of the rent based on a percentage
of revenue generated.
Recovery of Securities Class Action Legal Expenses and Other Insurance Claims
During fiscal 2020, we received insurance proceeds of $0.1 million related to a property claim. See Note 13, “Commitments and Contingencies—
Legal Matters” in the accompanying "Notes to Consolidated Financial Statements" in this Annual Report.
Impairment and Closed-Store Reserves
During fiscal 2021, we recorded a $0.7 million non-cash impairment charge primarily related to the carrying value of the ROU assets
of one restaurant in Texas that closed in 2019, the carrying value of one restaurant in California that closed in 2021 and the long-lived assets
of three restaurants in California.
During fiscal 2020, we recorded a $3.5 million non-cash impairment charge primarily related to the carrying value of the ROU assets of one
restaurant in Texas and the long-lived assets of four restaurants in California.
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During fiscal 2021, we recognized $0.4 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM
payments for our closed locations.
During fiscal 2020, we recognized $1.2 million of closed-store reserve expense related to the amortization of ROU assets, property taxes and CAM
payments for our closed locations.
Given the inherent uncertainty in projecting results for newer restaurants in newer markets, as well as the impact of the COVID-19 pandemic, we are
monitoring the recoverability of the carrying value of the assets of several restaurants on an ongoing basis. For these restaurants, if expected
performance is not realized, an impairment charge may be recognized in future periods, and such charge could be material.
Loss on Disposition of Restaurants
During fiscal 2021, we completed the sale of eight company-operated restaurants within the Sacramento area to an existing franchisee. We
determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated
to the separate elements based on their relative standalone selling price. Cash proceeds included upfront consideration for the sale of the restaurants
and franchise fees, as well as
future cash consideration for royalties. The cash consideration per restaurant related to franchise fees is consistent with the amounts stated in the
related franchise agreements, which are charged for separate standalone arrangements. The Company initially defers and subsequently recognizes the
franchise fees over the term of the franchise agreement. Future royalty income is also recognized in revenue as earned.
This sale resulted in cash proceeds of $4.6 million and a net loss on sale of restaurants of $1.5 million for the fiscal year ended December 29, 2021.
These restaurants are included in the total number of franchised El Pollo Loco restaurants.
Interest Expense, Net
For fiscal 2021, net interest expense, decreased by $1.5 million, primarily related to lower interest rates and lower outstanding balances on our 2018
Revolver (as defined below).
Income Tax Receivable Agreement
On July 30, 2014, we entered into the tax receivable agreement (the “TRA”) liability. The TRA calls for us to pay to our pre-IPO stockholders 85%
of the savings in cash that we realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding
periods. In fiscal 2021 and fiscal 2020, we recognized income tax receivable agreement expense of less than $0.1 million and $0.1 million,
respectively. In fiscal 2021 and 2020, we paid $1.7 million and $5.2 million, respectively, to our pre-IPO stockholders under the TRA.
Provision for Income Taxes
In fiscal 2021, we recorded an income tax expense of $10.3 million, compared to income tax expense of $5.7 million in fiscal 2020, reflecting an
estimated effective tax rate of 26.2% and 18.8%, respectively. The difference between the 21.0% statutory rate and the Company’s effective tax rate
of 26.2% for the year-to-date ended December 29, 2021 is primarily a result of windfall tax benefit related to stock options exercised and state taxes,
a Work Opportunity Tax Credit benefit and the change in valuation allowance against certain state credits as a result of future forecasted income
apportioned to the state jurisdiction.
The difference between the 21.0% statutory rate and the Company’s effective tax rate of 18.8% for the year ended December 30, 2020 is primarily a
result of state taxes, windfall tax benefit related to stock options exercised and state taxes, a Work Opportunity Tax Credit benefit and the change in
valuation allowance against certain state credits as a result of future forecasted income apportioned to the state jurisdiction.
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Fiscal Year 2020 Compared to Fiscal Year 2019
Year-to-year comparisons of fiscal 2020 and fiscal 2019 that are not included in this Form 10-K can be found in “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” in Part II, Item 7 on our Annual Report on Form 10-K for the year ended December 30,
2020, which was filed with the SEC on March 15, 2021.
Key Performance Indicators
To evaluate the performance of our business, we utilize a variety of financial and performance measures. These key measures include company-
operated restaurant revenue, system-wide sales, comparable restaurant sales, company-operated average unit volumes ("AUV"), restaurant
contribution, restaurant contribution margin, new restaurant openings, EBITDA, and Adjusted EBITDA. In fiscal 2021, our restaurants generated
company-operated restaurant revenue of $394.7 million and system-wide sales of $973.2 million, and system comparable sales growth of 12.1%,
consisting of company-operated restaurant comparable sales growth of 7.6% and franchised comparable sales growth of 15.3%. The company-
operated comparable sales increase consisted of a 6.3% increase in average check size. In fiscal 2021, for company-operated restaurants, our annual
AUV was $2.0 million, restaurant contribution margin was 18.4%, and Adjusted EBITDA was $63.4 million.
Company-Operated Restaurant Revenue
Company-operated restaurant revenue consists of sales of food and beverages in company-operated restaurants net of promotional allowances,
employee meals, and other discounts. Company-operated restaurant revenue in any period is directly influenced by the number of operating weeks in
such period, the number of open restaurants, and comparable restaurant sales.
Seasonal factors and the timing of holidays cause our revenue to fluctuate from quarter to quarter. Our revenue per restaurant is typically lower in the
first and fourth quarters due to reduced January and December transactions and higher in the second and third quarters. As a result of seasonality, our
quarterly and annual results of operations and key performance indicators such as company-operated restaurant revenue and comparable restaurant
sales may fluctuate. In addition, we expect our company-operated restaurant revenue and comparable restaurant sales to continue to fluctuate
significantly due to the current COVID-19 pandemic. See above under “COVID-19 Impact” for additional information related to the impact of the
COVID-19 pandemic on our business.
System-Wide Sales
System-wide sales are neither required by, nor presented in accordance with, accounting principles generally accepted in the United States of
America (“GAAP”). System-wide sales are the sum of company-operated restaurant revenue and sales from franchised restaurants. Our total revenue
in our consolidated statements of income is limited to company-operated restaurant revenue and franchise revenue from our franchisees.
Accordingly, system-wide sales should not be considered in isolation or as a substitute for our results as reported under GAAP. Management believes
that system-wide sales are an important figure for investors, because they are widely used in the restaurant industry, including by our management, to
evaluate brand scale and market penetration.
The following table reconciles system-wide sales to company-operated restaurant revenue and total revenue:
(Dollar amounts in thousands)
Company-operated restaurant revenue
Franchise revenue
Franchise advertising fee revenue
Total Revenue
Franchise revenue
Franchise advertising fee revenue
Sales from franchised restaurants
System-wide sales
2021
(52-Weeks)
Fiscal Year
2020
(53-Weeks)
2019
(52-Weeks)
$
$
394,733
33,729
25,901
454,363
(33,729)
(25,901)
578,497
973,230
$
$
374,064
29,418
22,605
426,087
(29,418)
(22,605)
505,559
879,623
$
$
391,112
28,819
22,399
442,330
(28,819)
(22,399)
503,413
894,525
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Comparable Restaurant Sales
Comparable restaurant sales reflect year-over-year sales changes for comparable company-operated, franchised, and system-wide restaurants. A
restaurant enters our comparable restaurant base the first full week after it has operated for fifteen months. Comparable restaurant sales exclude
restaurants closed during the applicable period. At December 29, 2021, December 30, 2020 and December 25, 2019, there were 464, 465 and 460
comparable restaurants, 187, 190 and 195 company-operated and 276, 275 and 265 franchised, respectively. Comparable restaurant sales indicate the
performance of existing restaurants, since new restaurants are excluded. Comparable restaurant sales growth can be generated by an increase in the
number of meals sold and/or by increases in the average check size, resulting from a shift in menu mix and/or higher prices resulting from new
products or price increases.
Company-Operated Average Unit Volumes
We measure company-operated AUVs on both a weekly and an annual basis. Weekly AUVs consist of comparable restaurant sales over a seven-day
period from Thursday to Wednesday. Annual AUVs are calculated using a step process. First, we divide our total net sales for all company-operated
restaurants for the fiscal year by the total number of restaurant operating weeks during the same period. Second, we annualize that average weekly
per-restaurant sales figure by multiplying it by 52. An operating week is defined as a restaurant open for business over a seven-day period from
Thursday to Wednesday. This measurement allows management to assess changes in consumer spending patterns at our restaurants and the overall
performance of our restaurant base.
Restaurant Contribution and Restaurant Contribution Margin
Restaurant contribution and restaurant contribution margin are neither required by, nor presented in accordance with, GAAP. Restaurant contribution
is defined as company-operated restaurant revenue less company restaurant expenses which includes food and paper cost, labor and related expenses
and occupancy and other operating expenses, where applicable. Restaurant contribution excludes certain costs, such as general and administrative
expenses, depreciation and amortization, impairment and closed-store reserve and other costs that are considered normal operating costs and
accordingly, restaurant contribution is not indicative of overall Company results and does not accrue directly to the benefit of shareholders because of
the exclusion of certain corporate-level expenses. Restaurant contribution margin is defined as restaurant contribution as a percentage of net
company-operated restaurant revenue.
Restaurant contribution and restaurant contribution margin are supplemental measures of operating performance of our restaurants, and our
calculations thereof may not be comparable to those reported by other companies. Restaurant contribution and restaurant contribution margin have
limitations as analytical tools, and you should not consider them in isolation or as substitutes for analysis of our results as reported under GAAP.
Management uses restaurant contribution and restaurant contribution margin as key metrics to evaluate the profitability of incremental sales at our
restaurants, to evaluate our restaurant performance across periods, and to evaluate our restaurant financial performance compared with our
competitors. Management believes that restaurant contribution and restaurant contribution margin are important tools for investors, because they are
widely-used metrics within the restaurant industry to evaluate restaurant-level productivity, efficiency, and performance. Restaurant contribution and
restaurant contribution margin may also assist investors in evaluating our business and performance relative to industry peers and provide greater
transparency with respect to the Company’s financial condition and results of operation.
A reconciliation of restaurant contribution and restaurant contribution margin to company-operated restaurant revenue is provided below:
(Dollar amounts in thousands)
Restaurant contribution:
Income from operations
Add (less):
General and administrative expenses
Legal settlements
Franchise expenses
Depreciation and amortization
Loss on disposal of assets
2021
(52-Weeks)
Fiscal Year
2020
(53-Weeks)
2019
(52-Weeks)
$
41,335
$
33,556
$
38,326
39,852
—
32,831
15,176
289
35,918
2,566
28,761
16,878
189
40,389
—
27,612
17,855
266
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Franchise revenue
Franchise advertising fee revenue
Recovery of securities lawsuits related legal expenses and other insurance claims
Impairment and closed-store reserves
Loss on disposition of restaurants
Restaurant contribution
Company-operated restaurant revenue:
Total revenue
Less:
Franchise revenue
Franchise advertising fee revenue
Company-operated restaurant revenue
Restaurant contribution margin (%)
New Restaurant Openings
(33,729)
(25,901)
—
(29,418)
(22,605)
(123)
4,691
1,087
1,534
72,474
$
—
$
70,413
$
(28,819)
(22,399)
(10,000)
4,852
5,058
73,140
$ 454,363
$ 426,087
$
442,330
(33,729)
(25,901)
$ 394,733
(29,418)
(22,605)
$ 374,064
(28,819)
(22,399)
391,112
$
18.4 %
18.8 %
18.7 %
The number of restaurant openings reflects the number of new restaurants opened by us and our franchisees during a particular reporting period.
Before a new restaurant opens, we and our franchisees incur pre-opening costs, as described below. New restaurants often open with an initial start-
up period of higher than normal sales volumes, which subsequently decrease to stabilized levels. New restaurants typically experience normal
inefficiencies in the form of higher food and paper, labor, and other direct operating expenses and, as a result, restaurant contribution margins are
generally lower during the start-up period of operation. The average start-up period after which our new restaurants’ revenue and expenses normalize
is approximately fourteen weeks. When we enter new markets, we may be exposed to start-up times and restaurant contribution margins that are
longer and lower than reflected in our average historical experience.
EBITDA and Adjusted EBITDA
EBITDA represents net income (loss) before interest expense, provision (benefit) for income taxes, depreciation, and amortization. Adjusted
EBITDA represents net income (loss) before interest expense, provision (benefit) for income taxes, depreciation, amortization, and items that we do
not consider representative of our on-going operating performance, as identified in the reconciliation table below.
EBITDA and Adjusted EBITDA as presented in this Annual Report are supplemental measures of our performance that are neither required by, nor
presented in accordance with, GAAP. EBITDA and Adjusted EBITDA are not measurements of our financial performance under GAAP and should
not be considered as alternatives to net income, operating income, or any other performance measures derived in accordance with GAAP, or as
alternatives to cash flow from operating activities as a measure of our liquidity. In addition, in evaluating EBITDA and Adjusted EBITDA, you
should be aware that in the future we will incur expenses or charges such as those added back to calculate EBITDA and Adjusted EBITDA. Our
presentation of EBITDA and Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or
nonrecurring items.
EBITDA and Adjusted EBITDA have limitations as analytical tools, and you should not consider them in isolation, or as substitutes for analysis of
our results as reported under GAAP. Some of these limitations are (i) they do not reflect our cash expenditures, or future requirements for capital
expenditures or contractual commitments, (ii) they do not reflect changes in, or cash requirements for, our working capital needs, (iii) they do not
reflect interest expense, or the cash requirements necessary to service interest or principal payments, on our debt, (iv) although depreciation and
amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and EBITDA and Adjusted
EBITDA do not reflect any cash requirements for such replacements, (v) they do not adjust for all non-cash income or expense items that are
reflected in our statements of cash flows, (vi) they do not reflect the impact of earnings or charges resulting from matters we consider not to be
indicative of our on-going operations, and (vii) other companies in our industry may calculate these measures differently than we do, limiting their
usefulness as comparative measures.
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We compensate for these limitations by providing specific information regarding the GAAP amounts excluded from such non-GAAP financial
measures. We further compensate for the limitations in our use of non-GAAP financial measures by presenting comparable GAAP measures more
prominently.
We believe that EBITDA and Adjusted EBITDA facilitate operating performance comparisons from period to period by isolating the effects of some
items that vary from period to period without any correlation to core operating performance or that vary widely among similar companies. These
potential differences may be caused by variations in capital structures (affecting interest expense), tax positions (such as the impact on periods or
companies of changes in effective tax rates or net operating losses) and the age and book depreciation of facilities and equipment (affecting relative
depreciation expense). We also present EBITDA and Adjusted EBITDA because (i) we believe that these measures are frequently used by securities
analysts, investors and other interested parties to evaluate companies in our industry, (ii) we believe that investors will find these measures useful in
assessing our ability to service or incur indebtedness, and (iii) we use EBITDA and Adjusted EBITDA internally as benchmarks to compare our
performance to that of our competitors.
The following table sets forth reconciliations of our net income to EBITDA and Adjusted EBITDA:
(Amounts in thousands)
Net income
Non-GAAP adjustments:
Provision for income taxes
Interest expense, net of interest income
Depreciation and amortization
EBITDA
Stock-based compensation expense (a)
Loss on disposal of assets (b)
Recovery of securities lawsuits related legal expense and other insurance claims (c)
Impairment and closed-store reserves (d)
Loss on disposition of restaurants (e)
Income tax receivable agreement expense (f)
Securities class action legal expense (g)
Legal settlements (h)
Pre-opening costs (i)
Executive transition costs (j)
Adjusted EBITDA
2021
(52-Weeks)
Fiscal Year
2020
(53-Weeks)
2019
(52-Weeks)
$
29,121
$
24,474
$
24,900
10,332
1,824
15,176
56,453
3,220
289
—
1,087
1,534
58
495
—
259
—
63,395
$
$
5,651
3,292
16,878
50,295
3,093
189
(123)
4,691
$
—
139
604
2,566
141
—
61,595
$
9,682
3,687
17,855
56,124
2,474
266
(10,000)
4,852
5,058
57
3,181
—
366
151
62,529
$
$
(a)
Includes non-cash, stock-based compensation, excluding stock-based compensation costs associated with the transition of our former CEO in
fiscal 2019.
(b) Loss on disposal of assets includes the loss on disposal of assets related to retirements and replacement or write-off of leasehold improvements
or equipment.
(c)
In fiscal 2020, we received insurance proceeds of $0.1 million related to a property claim, and in fiscal 2019 we received insurance proceeds of
$10.0 million related to the settlement of the securities class action lawsuit. See Note 13 “Commitments and Contingencies—Legal Matters" in
the accompanying "Notes to Consolidated Financial Statements" in this Annual Report.
(d) Includes costs related to impairment of long-lived and ROU assets and closing restaurants. During fiscal 2021, we recorded non-cash
impairment charges of $0.7 million, primarily related to the carrying value of the ROU assets of one restaurant in Texas closed in 2019, the ROU
assets of one restaurant in California closed in 2021, and the long-lived assets of three restaurants in California. During fiscal 2021, we
recognized $0.4 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments
for our closed locations.
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In fiscal 2020, we recorded non-cash impairment charges of $3.5 million for the year ended December 30, 2020, primarily related to the carrying
value of the ROU assets of one restaurant in Texas and the long-lived assets of four restaurants in California. During fiscal 2020, we recognized
$1.2 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for our
closed locations.
In fiscal 2019, we recorded impairment charges of $3.6 million, primarily related to the carrying value of the ROU assets of four restaurants sold
to franchisees and one restaurant closed during fiscal 2019, and the long-lived assets of one restaurant in California. Additionally, during fiscal
2019, we closed two restaurants in California and two restaurants in Texas and recognized $1.3 million of closed-store reserve expense,
primarily related to the amortization, property taxes and CAM payments for our closed locations.
(e) During fiscal 2021, we completed the sale of our eight restaurants within Sacramento area to an existing franchisee. This sale resulted in cash
proceeds of $4.6 million during the year ended December 29, 2021 and a net loss on sale of restaurants of $1.5 million for the year
ended December 29, 2021. During fiscal 2019, we completed the sale of four company-operated restaurants within the San Francisco area to an
existing franchisee, seven company-operated restaurants in the Phoenix area to another existing franchisee and five company-operated
restaurants in Texas to a third franchisee. The three sales during 2019 resulted in cash proceeds of $4.8 million and a net loss on sale of
restaurants of $5.1 million for the year ended December 25, 2019.
(f) On July 30, 2014, we entered into the TRA. This agreement calls for us to pay to our pre-IPO stockholders 85% of the savings in cash that we
realize in our taxes as a result of utilizing our net operating losses and other tax attributes attributable to preceding periods. For the years ended
December 29, 2021, December 30, 2020 and December 25, 2019, income tax receivable agreement expense consisted of the amortization of
interest expense and changes in estimates for actual tax returns filed, related to our total expected TRA payments.
(g) Consists of costs related to the defense of securities lawsuits. During the year ended December 29, 2021, we received $0.5 million in insurance
proceeds, net of legal expenses, related to the derivative complaint. See Note 13 “Commitments and Contingencies—Legal Matters" in the
accompanying "Notes to Consolidated Financial Statements" in this Annual Report.
(h) Fiscal 2020 consists of an expense of $2.6 million related to resolution of the longstanding lawsuit involving a contract dispute with one of the
Company’s franchisees concerning asserted territory rights, as well as amounts incurred related to the payment of the final settlement amounts
for consolidated wage and hour class action lawsuits resolved during fiscal 2020. For additional information on legal settlements, see Note 13
“Commitments and Contingencies—Legal Matters" in the accompanying "Notes to Consolidated Financial Statements" in this Annual Report.
(i) Pre-opening costs are a component of general and administrative expenses, and consist of costs directly associated with the opening of new
restaurants and incurred prior to opening, including management labor costs, staff labor costs during training, food and supplies used during
training, marketing costs, and other related pre-opening costs. These are generally incurred over the three to five months prior to opening. Pre-
opening costs also include occupancy costs incurred between the date of possession and the opening date for a restaurant.
(j)
Includes costs associated with the transition of our former CEO, such as executive recruiting costs and stock-based compensation.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources have been cash provided from operations, cash and cash equivalents, and the 2018 Revolver
(as defined below). Our primary requirements for liquidity and capital are new restaurants, existing restaurant capital investments (remodels and
maintenance), legal defense costs, lease obligations, interest payments on our debt, working capital and general corporate needs. Our working capital
requirements are not significant, since our customers pay for their purchases in cash or by payment card (credit or debit) at the time of sale. Thus, we
are able to sell many of our inventory items before we have to pay our suppliers. Our restaurants do not require significant inventories or receivables.
We believe that these sources of liquidity and capital are sufficient to finance our continued operations, including planned capital expenditures, for at
least the next 12 months from the issuance of the consolidated financial statements.
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However, depending on the severity and longevity of the COVID-19 pandemic, the efforts taken to reduce its spread and the possibility of a
subsequent resurgence of the COVID-19 outbreak, our financial performance and liquidity could be further impacted and could impact our ability to
meet certain financial covenants required in our 2018 Credit Agreement (as defined below), specifically the lease-adjusted coverage ratio and fixed-
charge coverage ratio.
Cash Flows
The following table presents summary cash flow information for the years indicated:
(Amounts in thousands)
Net cash provided by (used in)
Operating activities
Investing activities
Financing activities
Net increase in cash
Operating Activities
2021
(52-Weeks)
Fiscal Year
2020
(53-Weeks)
2019
(52-Weeks)
$
$
52,099
(12,485)
(22,787)
16,827
$
$
40,547
(6,690)
(28,708)
5,149
$
$
36,135
(10,669)
(24,365)
1,101
In fiscal 2021, net cash provided by operating activities increased by $11.6 million compared to fiscal 2020. This increase was due primarily to an
increase in profitability after non-cash items and favorable working capital fluctuations for the year ended December 29, 2021.
In fiscal 2020, net cash provided by operating activities increased by $4.4 million compared to fiscal 2019. This increase was due primarily to
favorable working capital fluctuations, partially offset by a decline in profitability after non-cash items for the year ended December 30, 2020
compared to the prior year, which we believe related to the COVID-19 pandemic.
Investing Activities
In fiscal 2021, net cash used in investing activities increased by $5.8 million compared to fiscal 2020. This increase was due primarily to opening
two new company-operated restaurants and remodeling 10 restaurants during the year ended December 29, 2021 compared to opening one new
company-operated restaurant and completing two new remodels during the year ended December 30, 2020. This was partially offset by cash
proceeds of $4.6 million received during the year ended December 29, 2021 related to the sale of eight restaurants within the Sacramento area to an
existing franchisee.
In fiscal 2020, net cash used in investing activities decreased by $4.0 million compared to fiscal 2019. This was due primarily to purchases of
property and equipment of $6.7 million in fiscal 2020 compared to $15.4 million in fiscal 2019. This was partially offset by cash proceeds of $4.8
million received during the year ended December 25, 2019 related to the sale of four company-operated restaurants within the San Francisco area to
an existing franchisee and seven company-operated restaurants in the Phoenix area to another existing franchisee. Capital expenditures for these
periods exclude unpaid purchases of property and equipment.
Financing Activities
In fiscal 2021, net cash used in financing activities decreased by $5.9 million compared to fiscal 2020. This decrease was due primarily to $22.8
million of net pay downs on the 2018 Revolver (as defined below) during fiscal 2021, compared to net pay downs of $34.2 million in fiscal 2020.
The change was partially offset by a decrease of $5.0 million in proceeds received from the issuance of common stock upon exercise of stock options
in fiscal 2021 compared to fiscal 2020.
In fiscal 2020, net cash used in financing activities increased by $4.3 million compared to fiscal 2019. This increase was due primarily to $34.2
million of net pay downs on the 2018 Revolver (as defined below) during fiscal 2020, compared to net borrowings of $23.0 million in fiscal 2019.
This was partially offset by $48.4 million of cash outflow related to
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stock buybacks in fiscal 2019 and an increase of $4.4 million of proceeds received from the issuance of common stock upon exercise of stock options
in fiscal 2020 compared to fiscal 2019.
Debt Obligations
The Company, as a guarantor, is a party to a credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, Intermediate, as a guarantor,
Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto,
which provides for a $150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”). The 2018 Revolver, which is available
pursuant to the 2018 Credit Agreement, includes a sub limit of $15.0 million for letters of credit and a sub limit of $15.0 million for swingline loans.
The 2018 Revolver and 2018 Credit Agreement will mature on July 13, 2023. The obligations under the 2018 Credit Agreement and related loan
documents are guaranteed by the Company and Intermediate. The obligations of the Company, EPL and Intermediate under the 2018 Credit
Agreement and related loan documents are secured by a first priority lien on substantially all of their respective assets.
At December 29, 2021, $10.0 million of letters of credit and $40.0 million of the revolving line of credit were outstanding. The amount available
under the revolving line of credit was $100.0 million at December 29, 2021.
Borrowings under the 2018 Revolver (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either LIBOR or a
base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is
calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the published Bank of America prime rate, or (c) LIBOR plus 1.00%. For
LIBOR loans, the margin is in the range of 1.25% to 2.25%, and for base rate loans the margin is in the range of 0.25% to 1.25%. For borrowings
under the 2018 Revolver during fiscal 2021, the interest rate range was 1.3% to 1.6%. For borrowings under the 2018 Revolver during fiscal 2020,
the interest rate range was 1.6% to 3.3%. The interest rate under the 2018 Revolver was 1.4% at December 29, 2021 and 1.6% under the 2018
Revolver at December 30, 2020.
Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million
per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates) of
the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has
occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers
and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up
to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-
owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans,
employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted
payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the
financial covenants applicable to the 2018 Revolver. The 2018 Credit Agreement contains certain financial covenants. The Company was in
compliance with all such covenants at December 29, 2021.
During the year ended December 25, 2019, we entered into an interest rate swap with a notional amount of $40.0 million, related to the outstanding
borrowings under our 2018 Revolver. The interest rate swap was designated as a cash flow hedge and effectively converted a portion of our
outstanding borrowings to a fixed rate of 1.31%, plus the applicable margin spread, which is currently 1.5%. The interest rate swap matures in
June 2023.
Material Cash Requirements
Our total capital expenditures for 2021 were $17.0 million. In 2021, we spent approximately $7.0 million on the development and construction of our
new restaurants. The remaining $10.0 million of capital expenditures during 2021 were related to investments in existing restaurants, including new
equipment and hardware, technology to optimize efficiencies, remodeling and similar improvements. In 2022, we expect to incur between $20.0
million and $25.0 million in total capital expenditures, of which we expect $10.0 million to $12.0 million will be related to our construction of new
restaurants, and $10.0 million to $13.0 million will be related to investments in existing restaurants, including new equipment and hardware,
technology to optimize efficiencies, remodeling and similar improvements. Finally, we expect a portion of our incurred capital expenditures in 2022
to be for additional corporate initiatives, including investments in
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technology for support centers to boost innovation, enhancing the customer experience, and improving operations. We expect to fund these capital
expenditures primarily with operating cash flows.
The following table summarizes our other current and long-term material cash requirements as of December 29, 2021, which we expect to fund
primarily with operating cash flows:
(Amounts in thousands)
Operating leases (1)
Finance leases (1)
Long-term debt (2)
Income tax receivable agreement (3)
Purchasing commitments—chicken(4)
Total
Total
$ 246,619
2,311
40,845
1,538
38,681
$ 329,994
Payments Due by Period
2023 -
2024
$ 50,128
290
40,270
1,101
—
$ 91,789
$
2025 -
2026
$ 41,319
249
—
—
—
$
$ 41,568
2027 and
thereafter
127,306
1,582
—
—
—
128,888
2022
$ 27,866
190
575
437
38,681
$ 67,749
(1) Operating and Finance Leases — Represents future minimum lease payments for our restaurants and the principal payments during the
lease terms, respectively. Refer to Note 5 “Leases” in the accompanying “Notes to Consolidated Financial Statements” in this Annual
Report for further details regarding our obligations and the timing of expected payments.
(2) Long-Term Debt — Represents our contractual debt obligations. Includes expected interest expenses, calculated based on applicable
interest rates at December 29, 2021. Refer to Note 6 “Long-Term Debt” in the accompanying “Notes to Consolidated Financial Statements”
in this Annual Report for further details regarding our obligations and the timing of expected payments.
(3) Income Tax Receivable Agreement — Represents payments to our pre-IPO stockholders under the TRA. Refer to Note 9 “Income Taxes”
in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for further details regarding our obligations and
the timing of expected payments.
(4) Purchasing Commitments (Chicken) — Reflects contractual purchase commitments for goods related to restaurant operations. Refer to
Note 13 “Commitments and Contingencies” in the accompanying “Notes to Consolidated Financial Statements” in this Annual Report for
further details regarding our obligations.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements in accordance with GAAP requires us to make estimates and judgments that affect our
reported amounts of assets, liabilities, revenue, and expenses, and related disclosure of contingent assets and liabilities. We base our estimates on
historical experience and on various other assumptions that we believe to be reasonable under current circumstances in making judgments about the
carrying value of assets and liabilities that are not readily available from other sources. We evaluate our estimates on an on-going basis. Actual
results may differ from these estimates under different assumptions or conditions.
Accounting policies are an integral part of our financial statements. A thorough understanding of these accounting policies is essential when
reviewing our reported results of operations and our financial position. Management believes that the critical accounting policies and estimates
discussed below involve the most difficult management judgments, due to the sensitivity of the methods and assumptions used. Our significant
accounting policies are described in Note 2 “Summary of Significant Accounting Policies" in the accompanying “Notes to Consolidated Financial
Statements” in this Annual Report.
Revenue Recognition
We record revenue from company-operated restaurants as food and beverage products are delivered to customers and payment is tendered at the time
of sale. We present sales net of sales-related taxes and promotional allowances. In the case of gift card sales, we record revenue when the gift card is
redeemed by the customer. We record royalties from
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franchised restaurant sales based on a percentage of restaurant revenues in the period that the related franchised restaurants’ revenues are earned. The
initial franchise services, or exclusivity of the development agreements, are not distinct from the continuing rights or services offered during the term
of the franchise agreement and are, therefore, treated as a single performance obligation. As such, initial franchise and development fees received,
and subsequent renewal fees, are recognized over the franchise, or renewal, term, which is typically 20 years.
Goodwill and Indefinite-Lived Intangible Assets, Net
Intangible assets consist primarily of goodwill and trademarks.
We do not amortize our goodwill and indefinite-lived intangible assets. We perform an annual impairment test for goodwill during the fourth fiscal
quarter of each year, or more frequently if impairment indicators arise.
We perform an annual impairment test for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently if
impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset
with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is its impairment loss.
These assumptions used in our estimates of fair value are generally consistent with past performance and are also consistent with the projections and
assumptions that we use in our forward-looking operating plans. These assumptions are subject to change as a result of changing economic and
competitive conditions. Changes in these estimates and assumptions could materially affect our determinations of fair value and impairment.
We determined that there were no indicators of potential impairment of our goodwill and indefinite-lived intangible assets during fiscal 2021.
Accordingly, we did not record any impairment to goodwill or indefinite-lived intangible assets during the year ended December 29, 2021. The
ultimate severity and longevity of the COVID-19 pandemic and the extent and duration of any economic downturn is unknown, and therefore, it is
possible that impairments could be identified in future periods, and such amounts could be material.
Long-Lived and ROU Assets
We state the value of our property and equipment, including primarily leasehold improvements and restaurant equipment, furniture, and fixtures, at
cost, minus accumulated depreciation and amortization. We calculate depreciation using the straight-line method of accounting over the estimated
useful lives of the related assets. We amortize our leasehold improvements using the straight-line method of accounting over the shorter of the lease
term (including reasonably assured renewal periods) or the estimated useful lives of the related assets. We expense repairs and maintenance as
incurred, but capitalize major improvements and betterments. We make judgments and estimates related to the expected useful lives of those assets
that are affected by factors such as changes in economic conditions and changes in operating performance. If we change our assumptions in the
future, we may be required to record impairment charges for these assets.
The Company reviews its long-lived and ROU assets for impairment on a restaurant-by-restaurant basis whenever events or changes in
circumstances indicate that the carrying value of certain assets may not be recoverable. The Company considers a triggering event to have occurred
related to a specific restaurant if the restaurant’s AUV for the last twelve months are less than a minimum threshold or if consistent levels of
undiscounted cash flows for the remaining lease period are less than the carrying value of the restaurant’s assets. If the Company concludes that the
carrying value of certain assets will not be recovered based on expected undiscounted future cash flows, an impairment write-down is recorded to
reduce the assets to their estimated fair value. The fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs. There is
uncertainty in the projected undiscounted future cash flows used in our impairment review analysis. If actual performance does not achieve the
projections, we may recognize impairment charges in future periods, and such charges could be material.
Insurance Reserves
We are responsible for workers’ compensation, general, and health insurance claims up to a specified amount. We maintain a reserve for estimated
claims both reported and incurred but not reported, based on historical claims experience and other assumptions. In estimating our insurance
accruals, we utilize independent actuarial estimates of
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expected losses, which are based on statistical analyses of historical data. Our actuarial assumptions are closely monitored and adjusted when
warranted by changing circumstances. Should claims occur or medical costs increase in greater amounts than we have expected, accruals may not be
sufficient, and we may record additional expenses.
Accounting for Lease Obligations
We lease a substantial number of our restaurant properties. At the inception of each lease, we evaluate the property and the lease to determine
whether the lease is an operating lease or a finance lease. This lease accounting evaluation may require significant judgment in determining the fair
value and useful life of the leased property and the appropriate lease term. The lease term used for the evaluation includes renewal option periods
only in instances in which the exercise of the renewal option can be reasonably assured because failure to exercise such an option would result in an
economic penalty. Such an economic penalty would typically result from our having to abandon a building or fixture with remaining economic value
upon vacating a property.
We make significant assumptions and judgments related to determination of whether a contract contains a lease and the discount rate used for the
lease. In determining if any of our contracts contain a lease, we make assumptions and judgments related to our ability to direct the use of any assets
stated in the contract and the likelihood of renewing any short-term contracts for a period extending past twelve months. We also make significant
assumptions and judgments in determining an appropriate discount rate for property leases. These include using a consistent discount rate for a
portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options, and using the total minimum lease
payments. We utilize a third-party valuation firm to assist in determining the discount rate, based on the above assumptions. For all other leases, we
use the discount rate implicit in the lease, or the Company’s incremental borrowing rate.
Income Taxes
We use the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are determined based on temporary
differences between the financial carrying amounts and the tax basis of assets and liabilities using enacted tax rates in effect in the years in which the
temporary differences are expected to reverse. As of December 29, 2021, we had no federal and less than $0.1 million state net operating loss
(“NOL”) carryforwards. These State NOLs expire beginning 2028.
A valuation allowance is required when there is significant uncertainty as to whether certain deferred tax assets can be realized. The ability to realize
deferred tax assets is dependent upon our ability to generate sufficient taxable income within the carryforward periods provided for in the tax law for
each tax jurisdiction. We have considered the following possible sources of taxable income when assessing the realization of our deferred tax assets:
● future reversals of existing taxable temporary differences;
● future taxable income or loss, exclusive of reversing temporary differences and carryforwards;
● tax-planning strategies; and
● taxable income in prior carryback years.
We will continue to reevaluate the continued need for a valuation allowance. Relevant factors include:
● current financial performance;
● our ability to meet short-term and long-term financial and taxable income projections;
● the overall market environment; and
● the volatility and trends in the industry in which we operate.
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All of the factors that we consider in evaluating treatment of a deferred tax asset valuation allowance involve significant judgment. For example,
there are many different interpretations of “cumulative losses in recent years” that can be used. Also, significant judgment is involved in making
projections of future financial and taxable income, especially because our financial results are significantly dependent upon industry trends. Any
change in our valuation allowance will significantly impact our financial results in the period of that change.
When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position we take has to have at least a
“more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the responsible authorities. The term
“more likely than not” means a likelihood of more than 50%. Otherwise, we may not recognize any of the potential tax benefits associated with that
position. We recognize a benefit for a tax position that meets the “more likely than not” criterion as the largest amount of tax benefit that is greater
than 50% likely to be realized upon its effective resolution. Unrecognized tax benefits involve our judgment regarding the likelihood of a benefit
being sustained. The final resolutions of uncertain tax positions could result in adjustments to recorded amounts and affect our results of operations,
financial position, and cash flows. However, we anticipate that any such adjustments would not materially impact our financial statements.
On July 30, 2014, we entered into the TRA. The TRA calls for us to pay our pre-IPO stockholders 85% of the cash savings that we realize in our
taxes as a result of utilizing our NOLs and other tax attributes attributable to preceding periods. The TRA charge expense (benefit) is a permanent
add-back to our taxable income. TRA resulted in less than $0.1 million of expense in fiscal 2021 as a result of the amortization of interest expense
related to the total expected TRA payments and changes in estimates for actual tax returns filed and future forecasted taxable income, $0.1 million of
expense in fiscal 2020 as a result of changes to future forecasted results and deduction on 2018 legal settlement accrual and $0.1 million of expense
in fiscal 2019 as a result of changes to future forecasted results. In fiscal 2021, 2020 and 2019, we paid $1.7 million, $5.2 million and $5.8 million,
respectively, to our pre-IPO stockholders under the TRA.
In addition, in fiscal 2014, we applied for various tax credits that resulted in $6.7 million of additional deferred tax assets and tax benefits. As of
fiscal 2021, the deferred asset balance related to these various tax credits, net of valuation allowance was $1.3 million. The fiscal 2021 provision
includes a $6.2 million valuation allowance against our deferred tax asset, resulting from certain tax credits that may not be realizable prior to the
time the credits expire.
During fiscal 2020, we received a Notice of Proposed Adjustment for the years ended December 27, 2017 and December 28, 2016, related to our
methodology regarding our ordering of NOL. Resolution of this NOPA resulted in a payment of $0.4 million, and the audit is closed. As a result of
the CARES Act, this amount was immediately refundable upon filing of a Form 1139. We filed the Form 1139 during the year ended
December 30, 2020 and received a refund totaling $0.5 million.
Stock-Based Compensation
We measure and recognize compensation expense for the estimated fair value of equity instruments for employees and non-employee directors based
on the grant-date fair value of the award. For awards that are based on a service requirement, the cost is recognized on a straight-line basis over the
requisite service period, usually the vesting period. We granted 256,172 options during fiscal 2021. In fiscal 2021, we granted 222,741 restricted
stock awards, with an exercise price equal to the fair market value of the common stock on the date of grant. The awards granted in fiscal 2021, 2020
and 2019 had a four-year vesting period for employees and three-year vesting period for directors. In order to calculate the grant date fair value for
our stock options, we utilize the Black–Scholes option pricing model. The model involves several assumptions including the expected term of the
option, expected volatility and risk-free interest rate. The volatility and the expected life assumptions were based on our historical data. If we
changed our assumptions of stock price volatility or expected lives of our stock options, our stock-based compensation expense and results of
operations may be materially different.
Recent Accounting Pronouncements
Recent accounting pronouncements are described in Note 2 “Summary of Significant Accounting Policies” in our accompanying “Notes to
Consolidated Financial Statements” in this Annual Report.
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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We are exposed to market risk from changes in interest rates on our debt, which bears interest, at USD LIBOR plus a margin between 1.25% and
2.25%. As of December 29, 2021, we had outstanding borrowings of $40.0 million under our 2018 Revolver, $10.0 million of letters of credit in
support of our insurance programs, and the applicable margin on outstanding borrowings under 2018 Revolver was 1.5%. In addition, certain tenors
of LIBOR were phased out as of December 31, 2021 and the remaining tenors of LIBOR will be phased out as of June 30, 2023. Organizations are
currently working on industry wide and company specific transition plans as it relates to financial and other derivative contracts exposed to LIBOR.
Prior to LIBOR phasing out, we are likely to enter into an amendment to the 2018 Credit Agreement and we cannot predict what alternative index
would be negotiated with our lenders. If future rates based upon a successor rate are higher than LIBOR rates as currently determined or if our
lenders have increased costs due to changes in LIBOR, we may experience potential increases in interest rates on our variable rate debt, which could
adversely impact our interest expense, results of operations and cash flows. After giving effect to the $40.0 million of interest rate swaps described
below, we effectively did not have any long-term debt subject to variations in interest rates as of December 29, 2021 and as such, a one percent
increase in the variable rate of interest would not result in a material increase in annual interest expense.
We manage our interest rate risk through normal operating and financing activities and, when determined appropriate, through the use of derivative
financial instruments. To balance our portfolio, we entered into an interest rate swap during the year ended December 25, 2019 with a notional
amount of $40.0 million, related to the outstanding borrowings under our 2018 Revolver. The interest rate swap was designated as a cash flow hedge
and effectively converted a portion of our outstanding borrowings to a fixed rate of 1.31%, plus applicable margin, which was 1.5% for the year
ended December 29, 2021. The interest rate swap matures in June 2023.
Inflation
Inflation has an impact on food, paper, construction, utility, labor and benefits, general and administrative, and other costs, all of which can
materially impact our operations. We have a substantial number of hourly employees who are paid wage rates at or based on the applicable federal,
state, or local minimum wage, and increases in the minimum wage will increase our labor costs. In general, we have been able to substantially offset
cost increases resulting from inflation by increasing menu prices, managing menu mix, improving productivity, or making other adjustments. We
may not be able to offset cost increases in the future.
Commodity Price Risk
We are exposed to market price fluctuation in food product prices. Given the historical volatility of certain of our food product prices, including
chicken, other proteins, grains, produce, dairy products, and cooking oil, these fluctuations can materially impact our food and beverage costs. While
our purchasing commitments partially mitigate the risk of such fluctuations, there is no assurance that supply and demand factors such as disease or
inclement weather will not cause the prices of the commodities used in our restaurant operations to fluctuate. In periods when the prices of
commodities drop, we may pay higher prices under our purchasing commitments. In rapidly fluctuating commodities markets, it may prove difficult
for us to adjust our menu prices in accordance with input price fluctuations. Therefore, to the extent that we do not pass along cost increases to our
customers, our results of operations may be adversely affected. At this time, we do not use financial instruments to hedge our commodity risk.
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ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
EL POLLO LOCO HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO THE CONSOLIDATED FINANCIAL STATEMENTS
Audited Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (BDO USA, LLP; Costa Mesa, California; PCAOB ID #243)
Consolidated Balance Sheets – December 29, 2021 and December 30, 2020
Consolidated Statements of Income—For the years ended December 29, 2021, December 30, 2020, and December 25, 2019
Consolidated Statements of Comprehensive Income—For the years ended December 29, 2021, December 30, 2020, and December 25,
2019
Consolidated Statements of Changes in Stockholders’ Equity—For the years ended December 29, 2021, December 30, 2020, and
December 25, 2019
Consolidated Statements of Cash Flows—For the years ended December 29, 2021, December 30, 2020, and December 25, 2019
Notes to Consolidated Financial Statements
51
53
54
55
56
57
58
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Shareholders and Board of Directors
El Pollo Loco Holdings, Inc.
Costa Mesa, California
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of El Pollo Loco Holdings, Inc. (the “Company”) as of December 29, 2021 and
December 30, 2020, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the
three years in the period ended December 29, 2021, and the related notes (collectively referred to as the “consolidated financial statements”). In our
opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 29, 2021 and
December 30, 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 29, 2021, in
conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
Company's internal control over financial reporting as of December 29, 2021, based on criteria established in Internal Control – Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and our report dated March 11,
2022 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the
Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the
Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error
or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts
and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a
reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was
communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the
consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit
matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the
critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Impairment of Restaurant Property and Equipment
As discussed in Notes 2 and 3 to the consolidated financial statements, the Company reviews its long-lived assets including property and equipment,
related to restaurants held and used in the business, for impairment whenever events or changes in circumstances indicate that the carrying value may
not be recoverable. For certain restaurants, indicators of impairment of the related property and equipment were present. As such, for these
restaurants, management compared the projected undiscounted cash flow to the carrying value. Total property and equipment, net of accumulated
depreciation was $75.7 million as of December 29, 2021.
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We identified the Company’s evaluation of impairment of restaurant property and equipment as a critical audit matter. The future cash flows used in
the Company's restaurant property and equipment impairment analysis requires management to develop estimates and assumptions about future
revenue transaction growth rates, pricing changes, and restaurant operating margins, which are made more uncertain by the significant and evolving
impact of COVID-19 on the Company’s business. Auditing these significant judgments and assumptions involved especially challenging auditor
judgment and increased effort in performing procedures.
The primary procedures we performed to address this critical audit matter included:
● Evaluating the completeness and accuracy of data used in the projected cash flow models, including recalculating the projected cash flows
for selected restaurants with impairment indicators.
● Evaluating the reasonableness of management’s assumptions over the future revenue transaction growth rates, pricing changes, and
restaurant operating margin assumptions for select restaurants by (i) comparing them to historical information for both company-owned and
franchised restaurants in the same market, (ii) comparing them to recent trends by restaurant, considering the changes in the Company’s
business model and uncertainties related to the COVID-19 pandemic, and (iii) comparing them to restaurant industry revenue growth rates
based on market data to determine if contradictory evidence existed.
/s/ BDO USA, LLP
We have served as the Company’s auditor since 2011.
Costa Mesa, California
March 11, 2022
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Table of Contents
EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
December 29,
2021
December 30,
2020
Assets
Current assets:
Cash and cash equivalents
Accounts and other receivables, net
Inventories
Prepaid expenses and other current assets
Income tax receivable
Total current assets
Property and equipment, net
Property and equipment held under finance lease, net
Property and equipment held under operating leases, net ("ROU asset")
Goodwill
Trademarks
Deferred tax assets
Other assets
Total assets
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of obligations under finance leases
Current portion of obligations under operating leases
Accounts payable
Accrued salaries and vacation
Accrued insurance
Accrued income taxes payable
Current portion of income tax receivable agreement payable
Other accrued expenses and current liabilities
Total current liabilities
Revolver loan
Obligations under finance leases, net of current portion
Obligations under operating leases, net of current portion
Deferred taxes
Income tax receivable agreement payable, net of current portion
Other noncurrent liabilities
Total liabilities
Commitments and contingencies (Note 13)
Stockholders’ equity
Preferred stock, $0.01 par value, 100,000,000 shares authorized; none issued or outstanding
Common stock, $0.01 par value, 200,000,000 shares authorized; 36,601,648 and 36,423,505 shares issued and
outstanding as December 29, 2021 and December 30, 2020, respectively
Additional paid-in-capital
Accumulated deficit
Accumulated other comprehensive loss
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
$
$
$
$
53
30,046
13,407
2,318
3,732
—
49,503
75,668
1,635
171,981
248,674
61,888
2,245
2,192
613,786
143
19,959
10,626
11,539
11,193
889
437
19,796
74,582
40,000
1,712
171,651
5,464
1,101
8,653
303,163
—
365
342,941
(32,393)
(290)
310,623
613,786
$
$
$
$
13,219
9,963
2,100
3,865
2,522
31,669
79,642
1,661
177,129
248,674
61,888
3,166
1,392
605,221
70
19,907
7,472
10,166
10,416
—
1,577
16,804
66,412
62,800
1,692
178,658
5,227
1,562
11,292
327,643
—
364
339,561
(61,514)
(833)
277,578
605,221
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EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share data)
Revenue
Company-operated restaurant revenue
Franchise revenue
Franchise advertising fee revenue
Total revenue
Cost of operations
Food and paper cost
Labor and related expenses
Occupancy and other operating expenses
Gain on recovery of insurance proceeds, lost profits
Company restaurant expenses
General and administrative expenses
Legal settlements
Franchise expenses
Depreciation and amortization
Loss on disposal of assets
Recovery of securities lawsuits related legal expenses and other insurance
claims
Loss on disposition of restaurants
Impairment and closed-store reserves
Total expenses
Income from operations
Interest expense, net
Income tax receivable agreement expense
Income before provision for income taxes
Provision for income taxes
Net income
Net income per share
Basic
Diluted
Weighted-average shares used in computing net income per share
Basic
Diluted
For the Fiscal Years Ended
December 29, 2021 December 30, 2020
December 25, 2019
$
$
$
$
$
394,733
33,729
25,901
454,363
104,394
120,308
97,557
—
322,259
39,852
—
32,831
15,176
289
—
1,534
1,087
413,028
41,335
1,824
58
39,453
10,332
29,121
0.81
0.80
$
$
$
374,064
29,418
22,605
426,087
98,774
114,455
92,422
(2,000)
303,651
35,918
2,566
28,761
16,878
189
(123)
—
4,691
392,531
33,556
3,292
139
30,125
5,651
24,474
0.70
0.68
$
$
$
$
391,112
28,819
22,399
442,330
109,264
116,703
92,005
—
317,972
40,389
—
27,612
17,855
266
(10,000)
5,058
4,852
404,004
38,326
3,687
57
34,582
9,682
24,900
0.68
0.67
35,973,892
36,446,756
35,193,325
35,796,406
36,739,209
37,441,503
See notes to consolidated financial statements.
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Table of Contents
Net income
Other comprehensive income (loss)
Changes in derivative instruments
EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
December 29,
2021
For the Fiscal Years Ended
December 30,
2020
December 25,
2019
$
29,121
$
24,474
$
24,900
Unrealized net (losses) gains arising during the period from interest rate swap
Reclassifications of losses (gains) into net income
Income tax (expense) benefit
Other comprehensive income (loss), net of taxes
Comprehensive income
257
486
(200)
543
29,664
$
(1,762)
278
398
(1,086)
23,388
$
430
(84)
(93)
253
25,153
$
See notes to consolidated financial statements.
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EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Amounts in thousands, except share data)
Balance, December 26, 2018
Stock-based compensation
Issuance of common stock related to restricted shares,
net
Issuance of common stock upon exercise of stock
options
Shares repurchased for employee tax withholdings
Repurchase of common stock
Other comprehensive income, net of income tax
Net income
Balance, December 25, 2019
Stock-based compensation
Issuance of common stock related to restricted shares,
net
Issuance of common stock upon exercise of stock
options
Shares repurchased for employee tax withholdings
Forfeiture of common stock related to restricted shares
Other comprehensive loss, net of income tax
Net income
Balance, December 30, 2020
Stock-based compensation
Issuance of common stock related to restricted shares,
net
Issuance of common stock upon exercise of stock
options
Shares repurchased for employee tax withholdings
Forfeiture of common stock related to restricted shares
Other comprehensive income, net of income tax
Net income
Balance, December 29, 2021
Common Stock
Amount
Additional
Paid-in
Capital
390
$
—
375,734
2,474
$
Accumulated
Deficit
(110,888)
$
—
Accumulated
Other
Comprehensive
Income (Loss)
Shares
39,009,451
$
—
309,404
234,728
(31,397)
(4,395,604)
—
—
35,126,582
—
2
2
—
(43)
—
—
351
—
(2)
—
1,448
(365)
(48,339)
—
—
330,950
3,093
—
—
—
—
24,900
(85,988)
—
439,061
4
(4)
—
970,736
(23,407)
(89,467)
—
—
36,423,505
—
246,780
132,760
(40,384)
(161,013)
—
—
$
36,601,648
10
—
(1)
—
—
364
—
2
1
—
(2)
—
—
$
365
5,856
(335)
1
—
—
339,561
3,220
(2)
865
(705)
2
—
—
$
342,941
—
—
—
—
24,474
(61,514)
—
—
—
—
—
—
29,121
(32,393)
$
See notes to consolidated financial statements.
56
Total
Stockholders’
Equity
265,236
2,474
—
1,450
(365)
(48,382)
253
24,900
245,566
3,093
—
5,866
(335)
—
(1,086)
24,474
277,578
3,220
— $
—
—
—
—
—
253
—
253
—
—
—
—
—
(1,086)
—
(833)
—
—
—
—
—
—
543
—
$
(290)
866
(705)
—
543
29,121
310,623
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EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization
Bad debt expense
Stock-based compensation expense
Income tax receivable agreement expense
Loss on disposition of restaurants
Loss on disposal of assets
Impairment of property and equipment
Amortization of deferred financing costs
Deferred income taxes, net
Changes in operating assets and liabilities:
Accounts and other receivables
Inventories
Prepaid expenses and other current assets
Income taxes payable
Other assets
Accounts payable
Accrued salaries and vacation
Accrued insurance
Payment related to tax receivable agreement
Other accrued expenses and liabilities
Net cash flows provided by operating activities
Cash flows from investing activities:
Proceeds from disposition of restaurants
Purchase of property and equipment
Net cash flows used in investing activities
Cash flows from financing activities:
Proceeds from borrowings on revolver and swingline loans
Payments on revolver and swingline loan
Minimum tax withholdings related to net share settlements
Proceeds from issuance of common stock upon exercise of stock options, net of expenses
Payment of obligations under finance leases
Repurchases of common stock
Net cash flows used in financing activities
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
Supplemental cash flow information
Cash paid during the period for interest
Cash paid during the period for income taxes
Unpaid purchases of property and equipment
For the Fiscal Years Ended
December 29,
December 30,
December 25,
2021
2020
2019
$
29,121
$
24,474
$
24,900
15,176
—
3,220
58
1,534
289
711
251
957
(3,444)
(218)
133
3,410
(1,052)
2,533
1,373
777
(1,658)
(1,072)
52,099
4,556
(17,041)
(12,485)
—
(22,800)
(705)
866
(148)
—
(22,787)
16,827
13,219
30,046
$
$
16,878
190
3,093
139
—
189
3,498
252
4,008
(1,155)
(92)
1,853
(2,145)
(13)
666
1,548
976
(5,237)
(8,575)
40,547
—
(6,690)
(6,690)
59,500
(93,700)
(335)
5,866
(39)
—
(28,708)
5,149
8,070
13,219
$
17,855
—
2,474
57
5,058
266
3,559
251
9,578
1,094
338
(2,727)
(448)
(412)
(3,192)
1,044
2,364
(5,764)
(20,160)
36,135
4,770
(15,439)
(10,669)
42,000
(19,000)
(365)
1,450
(68)
(48,382)
(24,365)
1,101
6,969
8,070
December 29,
2021
For the Fiscal Years Ended
December 30,
2020
December 25,
2019
$
$
$
1,066
5,968
2,454
$
$
$
2,956
4,225
1,925
$
$
$
3,649
558
746
See notes to consolidated financial statements.
57
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1. DESCRIPTION OF BUSINESS
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings and its direct and indirect
subsidiaries are collectively known as “we,” “us” or the “Company.” The Company’s activities are conducted principally through its indirect wholly-
owned subsidiary, El Pollo Loco, Inc. (“EPL”), which develops, franchises, licenses and operates quick-service restaurants under the name El Pollo
Loco ®. The restaurants, which are located principally in California but also in Arizona, Nevada, Texas, Utah and Louisiana, specialize in fire-
grilling citrus-marinated chicken in a wide variety of contemporary Mexican and LA-inspired entrees, including specialty chicken burritos, chicken
quesadillas, chicken tostada salads, chicken tortilla soup, variations on our Pollo Bowl®, Pollo Salads and our Pollo Fit entrees. At December 29,
2021, the Company operated 189 (141 in the greater Los Angeles area) and franchised 291 (135 in the greater Los Angeles area) El Pollo Loco
restaurants. In addition, the Company currently licenses one restaurant in the Philippines. The Company’s largest stockholder is Trimaran Pollo
Partners, L.L.C. (“LLC”), which is controlled by affiliates of Trimaran Capital, L.L.C. LLC acquired Chicken Acquisition Corp. (“CAC”), a
predecessor of Holdings, on November 17, 2005 (the “Acquisition”) and has a 45.8% ownership interest as of December 29, 2021. LLC’s only
material asset is its investment in Holdings.
On April 22, 2014, CAC, the LLC’s wholly owned subsidiary, Chicken Subsidiary Corp (“CSC”) and CSC’s wholly owned subsidiary, the former El
Pollo Loco Holdings, Inc. (“Old Holdings”) entered into the following reorganization transactions: (i) Old Holdings merged with and into CSC with
CSC continuing as the surviving corporation; (ii) CSC merged with and into CAC with CAC continuing as the surviving corporation and (iii) CAC
renamed itself El Pollo Loco Holdings, Inc.
Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc. (“Intermediate”), guarantee EPL’s
2018 Revolver (see Note 6, “Long-Term Debt”) on a full and unconditional basis and Intermediate has no subsidiaries other than EPL. EPL is a
separate and distinct legal entity, and has no obligation to make funds available to Intermediate. EPL and Intermediate may pay dividends to
Intermediate and to Holdings, respectively.
The Company operates in one operating segment. All significant revenues relate to retail sales of food and beverages through either company or
franchised restaurants.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Liquidity
The Company’s principal liquidity and capital requirements are new restaurants, existing restaurant capital investments (remodel and maintenance),
interest payments on its debt, lease obligations and working capital and general corporate needs. At December 29, 2021, the Company’s total debt
was $40.0 million. The Company’s ability to make payments on its indebtedness and to fund planned capital expenditures depends on available cash
and its ability to generate adequate cash flows in the future, which, to a certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond the Company’s control. Based on current operations, the Company believes that its cash
flows from operations, available cash of $30.0 million at December 29, 2021, and available borrowings under the 2018 Revolver (as defined in
Note 6) will be adequate to meet the Company’s liquidity needs for the next twelve months from the issuance of the consolidated financial
statements. However, depending on the severity and longevity of the COVID-19 pandemic, the Company’s financial performance and liquidity could
be further impacted and could impact the Company’s ability to meet certain covenants required in its 2018 Credit Agreement (as defined in Note 6),
specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.
Basis of Presentation
The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of each calendar year. Fiscal 2021, 2020, and 2019 ended on
December 29, 2021, December 30, 2020 and December 25, 2019, respectively. In a 52-week fiscal year, each quarter includes 13 weeks of
operations. In a 53-week fiscal year, the first, second and third quarters each include 13 weeks of operations and the fourth quarter includes 14 weeks
of operations. Approximately every six or
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
seven years a 53-week fiscal year occurs. Fiscal 2021 and 2019 were 52-week fiscal years. Fiscal 2020 was a 53-week fiscal year. 53-week years
may cause revenues, expenses, and other results of operations to be higher due to the additional week of operations.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Holdings and its wholly owned subsidiaries. All intercompany balances
and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America
(“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the consolidated financial statements and revenue and expenses during the period reported. Actual
results could materially differ from those estimates. The Company’s significant estimates include estimates for impairment of goodwill, intangible
assets and property and equipment, insurance reserves, lease accounting matters, stock-based compensation, tax receivable agreement (the “TRA”)
liability, contingent liabilities and income tax valuation allowances.
COVID-19
During the COVID-19 pandemic, the Company has experienced periods of significant disruption to its restaurant operations. Following the pandemic
declaration in March 2020, federal, state and local governments have periodically responded to the public health crisis by requiring social distancing,
issuing “stay at home” directives, and implementing restaurant restrictions - including government-mandated dining room closures - that limited
business to off-premise services only (take-out, drive-thru and delivery). The COVID-19 pandemic and the measures taken to prevent its spread have
adversely affected the Company’s operations and financial results, particularly during fiscal 2020 as well as periods of 2021 when COVID-19
infections increased with the spread of new strains of the virus. The disruption in operations has led to the Company considering the impact of the
COVID-19 pandemic on its liquidity, debt covenant compliance, and recoverability of long-lived and right-of-use (“ROU”) assets, goodwill and
intangible assets, among others. The Company is continually evaluating the impact of the global crisis on its financial condition, liquidity, operations,
suppliers, industry, and workforce and will take additional actions as necessary.
While all of the Company’s restaurants had dining rooms open as of December 29, 2021, the Company continues to experience staffing challenges,
which resulted in reduced operating hours and service channels at some of the Company’s restaurants and resulted in higher wage inflation, overtime
costs and other labor related costs. Further, the Company experienced inflationary pressures due to supply chain disruptions that resulted in increased
commodity prices and impacted the Company’s business and results of operations during the year ended December 29, 2021. The Company expects
these pressures to continue during fiscal 2022. During fiscal 2021, the Company incurred $3.9 million in COVID-19 related expenses, primarily due
to leaves of absence and overtime pay. During fiscal 2020, the Company incurred $4.9 million in COVID-19 related expenses, primarily due to
leaves of absence and overtime pay. During fiscal 2021 as part of the CARES Act, the Company recognized the Employee Retention Credit (“ERC”)
in the amount of $3.4 million, which is recorded as an offset to the corresponding payroll expense and is classified as part of the labor and other
operating expenses on the consolidated statements of income for the year ended December 29, 2021. See additional information presented in Note 2
“Summary of Significant Accounting Policies” below.
Due to the rapid development and fluidity of this situation, the Company cannot determine the ultimate impact that the COVID-19 pandemic will
have on the Company’s consolidated financial condition, liquidity, and future results of operations, and therefore any prediction as to the ultimate
materiality of the adverse impact on the Company’s consolidated financial condition, liquidity, and future results of operations is uncertain.
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Cash and Cash Equivalents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company considers all liquid instruments with a maturity of three months or less at the date of purchase to be cash equivalents.
Subsequent Events
On March 8, 2022, the Company’s Board of Directors appointed Mr. Roberts as Chief Executive Officer, President and a Class III director on the
Board of Directors of the Company, effective March 9, 2022. Mr. Roberts will continue to serve as the Company’s interim Chief Financial Officer
and as its principal executive officer, principal accounting officer and principal financial officer. Refer to Item 9B below for additional information.
Concentration of Risk
Cash and cash equivalents are maintained at financial institutions and, at times, balances may exceed federally-insured limits. The Company has
never experienced any losses related to these balances.
The Company had one supplier for which amounts due at December 29, 2021 totaled 26.1% of the Company’s accounts payable. As of
December 30, 2020, the Company had two suppliers for which amounts due totaled 24.2% and 11.4% of the Company’s accounts payable. Purchases
from the Company’s largest supplier totaled 27.1% of the Company’s purchases for fiscal 2021, 26.9% for fiscal 2020 and 29.0% for fiscal 2019 with
no amounts payable at December 29, 2021 or December 30, 2020.
In fiscal 2021, 2020 and 2019, Company-operated and franchised restaurants in the greater Los Angeles area generated, in the aggregate,
approximately 70.9%, 71.3%, and 70.5%, respectively, of total revenue. One franchisee accounted for 10.6% of total accounts receivable as of
December 29, 2021, and one franchisee accounted for 11.5% of total accounts receivable as of December 30, 2020.
Management believes the loss of the significant supplier or franchisee could have a material adverse effect on the Company’s consolidated results of
operations and financial condition.
Accounts and Other Receivables, Net
Accounts and other receivables consist primarily of royalties, advertising and sublease rent and related amounts receivable from franchisees. Such
receivables are due on a monthly basis, which may differ from the Company’s fiscal month-end dates. Accounts and other receivables also include
credit/debit card receivables. The need for an allowance for doubtful accounts is reviewed on a specific identification basis and takes into
consideration past due balances and the financial strength of the obligor.
Inventories
Inventories consist principally of food, beverages and supplies and are valued at the lower of average cost or net realizable value.
Property and Equipment, Net
Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the assets.
Expenditures for reimbursements and improvements that significantly add to the productivity capacity or extend the useful life are capitalized, while
expenditures for maintenance and repairs are expensed as incurred. Leasehold improvements and property held under finance leases are amortized
over the shorter of their estimated useful lives or the remaining lease terms. For leases with renewal periods at the Company’s option, the Company
generally uses the original lease term, excluding the option periods, to determine estimated useful lives; if failure to exercise a renewal option
imposes an economic penalty on the Company, such that management determines at the inception of the
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
lease that renewal is reasonably assured, the Company may include the renewal option period in the determination of appropriate estimated useful
lives.
The estimated useful service lives are as follows:
Buildings
Land improvements
Building improvements
Restaurant equipment
Other equipment
Property/equipment held under finance leases
Leasehold improvements
20 years
3—30 years
3—10 years
3—10 years
2—10 years
Shorter of useful life or lease term
Shorter of useful life or lease term
The Company capitalizes certain directly attributable internal costs in conjunction with the acquisition, development and construction of future
restaurants. The Company also capitalizes certain directly attributable costs, including interest, in conjunction with constructing new restaurants.
These costs are included in property and amortized over the shorter of the life of the related buildings and leasehold improvements or the lease term.
Costs related to abandoned sites and other site selection costs that cannot be identified with specific restaurants are charged to general and
administrative expenses in the accompanying consolidated statements of income, and were less than $0.1 million for each of the years ended
December 29, 2021, December 30, 2020 and December 25, 2019. The Company capitalized internal costs related to site selection and construction
activities of $1.4 million, $1.0 million and $1.1 million for the years ended December 29, 2021, December 30, 2020 and December 25, 2019,
respectively.
Impairment of Long-Lived and ROU Assets
The Company reviews its long-lived and right-of-use assets (“ROU assets”) for impairment on a restaurant-by-restaurant basis whenever events or
changes in circumstances indicate that the carrying value of certain long-lived and ROU assets may not be recoverable. The Company considers a
triggering event, related to long-lived assets or ROU assets in a net asset position, to have occurred related to a specific restaurant if the restaurant’s
AUV for the last twelve months are less than a minimum threshold or if consistent levels of undiscounted cash flows for the remaining lease period
are less than the carrying value of the restaurant’s assets. Additionally, the Company considers a triggering event related to ROU assets, to have
occurred related to a specific lease if the location has been closed or subleased and future estimated sublease income is less than current lease
payments. As of December 29, 2021 and December 30, 2020, ROU assets related to closed or subleased restaurant locations totaled $21.9 million
and $27.7 million, respectively. If the Company concludes that the carrying value of certain long-lived and ROU assets will not be recovered based
on expected undiscounted future cash flows, an impairment loss is recorded to reduce the long-lived or ROU assets to their estimated fair value. The
fair value is measured on a nonrecurring basis using unobservable (Level 3) inputs. There is uncertainty in the projected undiscounted future cash
flows used in the Company’s impairment review analysis, which requires the use of estimates and assumptions. If actual performance does not
achieve the projections, or if the assumptions used change in the future, the Company may be required to recognize impairment charges in future
periods, and such charges could be material. The Company determined that triggering events occurred for certain stores during the year ended
December 29, 2021 that required an impairment review of the Company’s long-lived and ROU assets. Based on the results of this analysis, the
Company recorded non-cash impairment charges of $0.7 million for the year ended December 29, 2021, primarily related to the carrying value of the
ROU assets of one restaurant in Texas that closed in 2019, the carrying value of one restaurant in California that closed in 2021 and the long-lived
assets of three restaurants in California.
In fiscal 2020, the Company recorded non-cash impairment charges of $3.5 million primarily related to the carrying value of the ROU assets
of one restaurant in Texas and the long-lived assets of four restaurants in California. In fiscal 2019, the Company recorded a non-cash impairment
charge of $3.6 million primarily related to the carrying value of the ROU assets of four restaurants sold to franchisees and one restaurant closed
during fiscal 2019, and the long-lived assets of one restaurant in California. Given the inherent uncertainty in projecting results for newer restaurants
in newer markets, as well as the impact of the COVID-19 pandemic, the Company is monitoring the recoverability of the carrying value of the assets
of several restaurants on an ongoing basis. For these restaurants, if expected performance is not realized, an impairment charge may be recognized in
future periods, and such charge could be material.
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Closed-Store Reserves
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
When a restaurant is closed, the Company will evaluate the ROU asset for impairment, based on anticipated sublease recoveries. The remaining
value of the ROU asset is amortized on a straight-line basis, with the expense recognized in closed-store reserve expense. Additionally, any property
tax and common area maintenance (“CAM”) payments relating to closed restaurants are included within closed-store expense.
During fiscal 2021, the Company recognized $0.4 million of closed-store reserve expense related to the amortization of ROU assets, property taxes
and CAM payments for its closed locations.
During fiscal 2020, the Company recognized $1.2 million of closed-store reserve expense related to the amortization of ROU assets, property taxes
and CAM payments for its closed locations. During fiscal 2019, the Company closed two restaurants in California and two in Texas and recognized
$1.3 million of closed-store reserve expense, primarily related to the amortization of ROU assets, property taxes and CAM payments for its closed
locations.
Goodwill and Indefinite-Lived Intangible Assets
The Company’s indefinite-lived intangible assets consist of trademarks. Goodwill represents the excess of cost over fair value of net identified assets
acquired in business combinations accounted for under the purchase method. The Company does not amortize its goodwill and indefinite-lived
intangible assets. Goodwill resulted from the Acquisition and from the acquisition of certain franchise locations.
Upon the sale of a restaurant, the Company evaluates whether there is a decrement of goodwill. The amount of goodwill included in the cost basis of
the asset sold is determined based on the relative fair value of the portion of the reporting unit disposed of compared to the fair value of the reporting
unit retained. The Company determined there was no decrement of goodwill related to the disposition of restaurants in fiscal 2021, 2020 and 2019.
The Company performs annual impairment tests for goodwill during the fourth fiscal quarter of each year, or more frequently if impairment
indicators arise.
The Company reviews goodwill for impairment utilizing either a qualitative assessment or a fair value test by comparing the fair value of a reporting
unit with its carrying amount. If the Company decides that it is appropriate to perform a qualitative assessment and concludes that the fair value of a
reporting unit more likely than not exceeds its carrying value, no further evaluation is necessary. If the Company performs the fair value test, the
Company will compare the fair value of a reporting unit with its carrying amount, including goodwill. If the fair value of a reporting unit exceeds its
carrying amount, goodwill of the reporting unit is considered not impaired. If the carrying amount of a reporting unit exceeds its fair value, the
Company will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the
loss recognized cannot exceed the total amount of goodwill allocated to that reporting unit.
The Company performs annual impairment tests for indefinite-lived intangible assets during the fourth fiscal quarter of each year, or more frequently
if impairment indicators arise. An impairment test consists of either a qualitative assessment or a comparison of the fair value of an intangible asset
with its carrying amount. The excess of the carrying amount of an intangible asset over its fair value is its impairment loss.
The assumptions used in the estimate of fair value are generally consistent with the past performance of the Company’s reporting segment and are
also consistent with the projections and assumptions that are used in current operating plans. These assumptions are subject to change as a result of
changing economic and competitive conditions.
The Company determined that there were no indicators of potential impairment of its goodwill and indefinite-lived intangible assets during fiscal
2021. Accordingly, the Company did not record any impairment to its goodwill or indefinite-lived intangible assets during the year ended
December 29, 2021. The ultimate severity and longevity of the COVID-19 pandemic and the extent and duration of any economic downturn is
unknown, and therefore, it is possible that impairments could be identified in future periods, and such amounts could be material.
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Deferred Financing Costs
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred financing costs are capitalized and amortized over the period of the loan on a straight-line basis, which approximates the effective interest
method. Included in other assets are deferred financing costs (net of accumulated amortization), related to the revolver, of $0.4 million and $0.6
million as of December 29, 2021 and December 30, 2020, respectively. Amortization expense for deferred financing costs was approximately $0.3
million for each of the three years ended December 29, 2021, December 30, 2020, and December 25, 2019, and is reflected as a component of
interest expense in the accompanying consolidated statements of income.
Insurance Reserves
The Company is responsible for workers’ compensation, general and health insurance claims up to a specified aggregate stop loss amount. The
Company maintains a reserve for estimated claims both reported and incurred but not reported, based on historical claims experience and other
assumptions. At December 29, 2021 and December 30, 2020, the Company had accrued $11.2 million and $10.4 million, respectively, and such
amounts are reflected as accrued insurance in the accompanying consolidated balance sheets. The expense for such reserves for the years ended
December 29, 2021, December 30, 2020 and December 25, 2019, totaled $9.0 million, $8.4 million, and $9.6 million, respectively. These amounts
are included in labor and related expenses and general and administrative expenses on the accompanying consolidated statements of income.
Restaurant Revenue
Revenues from the operation of company-operated restaurants are recognized as food and beverage products are delivered to customers and payment
is tendered at the time of sale. The Company presents sales net of sales-related taxes and promotional allowances. Promotional allowances amounted
to approximately $7.7 million, $7.5 million and $8.0 million during the years ended December 29, 2021, December 30, 2020, and December 25,
2019, respectively.
The Company offers a loyalty rewards program, which awards a customer points for dollars spent. Customers earn points for each dollar spent and,
as of August 4, 2020, 50 points can be redeemed for a $5 reward to be used for a future purchase. Prior to August 4, 2020, 100 points could be
redeemed for a $10 reward. If a customer does not earn or use points within a one-year period, their account is deactivated and all points expire.
Additionally, if a reward is not used within six months, it expires. When a customer is part of the rewards program, the obligation to provide future
discounts related to points earned is considered a separate performance obligation, to which a portion of the transaction price is allocated. The
performance obligation related to loyalty points is deemed to have been satisfied, and the amount deferred in the balance sheet is recognized as
revenue, when the points are transferred to a reward and redeemed, the reward or points have expired, or the likelihood of redemption is remote. A
portion of the transaction price is allocated to loyalty points, if necessary, on a pro-rata basis, based on stand-alone selling price, as determined by
menu pricing and loyalty points terms. As of December 29, 2021 and December 30, 2020, the revenue allocated to loyalty points that have not been
redeemed was $0.7 million and $0.9 million, respectively, which is reflected in the Company’s accompanying consolidated balance sheets within
other accrued expenses and current liabilities. The Company expects the loyalty points to be redeemed and recognized over a one-year period.
The Company sells gift cards to its customers in the restaurants and through selected third parties. The gift cards sold to customers have no stated
expiration dates and are subject to actual and/or potential escheatment rights in several of the jurisdictions in which the Company operates.
Furthermore, due to these escheatment rights, the Company does not recognize breakage related to the sale of gift cards due to the immateriality of
the amount remaining after escheatment. The Company recognizes income from gift cards when redeemed by the customer. Unredeemed gift card
balances are deferred and recorded as other accrued expenses on the accompanying consolidated balance sheets.
Franchise Revenue
Franchise revenue consists of franchise royalties, initial franchise fees, license fees due from franchisees and IT support services. Rental income for
subleases to franchisees are outside of the scope of the revenue standard and are within the scope of lease guidance. Under Topic 842, sublease
income is recorded on a gross basis within the consolidated
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
statements of income. Franchise royalties are based upon a percentage of net sales of the franchisee and are recorded as income as such sales are
earned by the franchisees.
For franchise and development agreement fees, the initial franchise services, or exclusivity of the development agreements, are not distinct from the
continuing rights or services offered during the term of the franchise agreement and are, therefore, treated as a single performance obligation. As
such, initial franchise and development fees received, and subsequent renewal fees, are recognized over the franchise or renewal term, which is
typically twenty years. As of December 29, 2021, the Company had executed development agreements that represent commitments to open 67
franchised restaurants at various dates through 2031.
This revenue stream is made up of the following performance obligations:
● Franchise License – inclusive of advertising services, development agreements, training, access to plans and help desk services;
● Discounted renewal option; and
● Hardware services.
The Company satisfies the performance obligation related to the franchise license over the term of the franchise agreement, which is typically 20
years. Payment for the franchise license consists of three components, a fixed-fee related to the franchise/development agreement, a sales-based
royalty fee and a sales-based advertising fee. The fixed fee, as determined by the signed development and/or franchise agreement, is due at the time
the development agreement is entered into, and/or when the franchise agreement is signed, and does not include a finance component.
The sales-based royalty fee and sales-based advertising fee are considered variable consideration and are recognized as revenue as such sales are
earned by the franchisees. Both sales-based fees qualify under the royalty constraint exception, and do not require an estimate of future transaction
price. Additionally, the Company is utilizing the practical expedient available under ASC Topic 606, “Revenue from Contracts with Customers”
(“Topic 606”) regarding disclosure of the aggregate amount of the transaction price allocated to the performance obligations that are unsatisfied for
sales-based royalties.
In certain franchise agreements, the Company offers a discounted renewal to incentivize future renewals after the end of the initial franchise term. As
this is considered a separate performance obligation, the Company allocated a portion of the initial franchise fee to this discounted renewal, on a pro-
rata basis, assuming a 20 year renewal. This performance obligation is satisfied over the renewal term, which is typically 10 or 20 years, while
payment is fixed and due at the time the renewal is signed.
The Company purchases hardware, such as scanners, printers, cash registers and tablets, from third-party vendors, which it then sells to franchisees.
As the Company is considered the principal in this relationship, payment received for the hardware is considered revenue, and is received upon
transfer of the goods from the Company to the Franchisee. As of December 29, 2021, there were no performance obligations, related to hardware
services that were unsatisfied or partially satisfied.
Franchise Advertising Fee Revenue
The Company presents advertising contributions received from franchisees as franchise advertising fee revenue and records all expenses of the
advertising fund within franchise expenses.
Advertising Costs
Advertising expense is recorded as the obligation to contribute to the advertising fund and is accrued, generally when the associated revenue is
recognized. Advertising expense, which is a component of occupancy and other operating expenses, was $16.1 million, $15.3 million and $16.1
million for the years ended December 29, 2021,
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 30, 2020 and December 25, 2019, respectively. In addition, there was $25.9 million, $22.6 million and $22.4 million for the years ended
December 29, 2021, December 30, 2020 and December 25, 2019, respectively, funded by the franchisees’ advertising fees.
Franchisees pay a monthly fee to the Company that ranges from 4% to 5% of their restaurants’ net sales as reimbursement for advertising, public
relations and promotional services the Company provides, which is included within franchise advertising fee revenue. Fees received in advance of
provided services are included in other accrued expenses and current liabilities and were $3.6 million and $0.1 million at December 29, 2021 and
December 30, 2020, respectively. Company-operated restaurants contribute to the advertising fund on the same basis as franchised restaurants. At
December 29, 2021, the Company was obligated to spend $3.6 million more in future periods to comply with this requirement.
Production costs of commercials, programming and other marketing activities are charged to the advertising funds when the advertising is first used
for its intended purpose. Total contributions and other marketing expenses are included in general and administrative expenses in the accompanying
consolidated statements of income.
Preopening Costs
Preopening costs incurred in connection with the opening of new restaurants are expensed as incurred. Preopening costs, which are included in
general and administrative expenses on the accompanying consolidated statements of income, were $0.3 million, $0.1 million and $0.4 million for
the years ended December 29, 2021, December 30, 2020, and December 25, 2019, respectively.
Leases
The Company’s operations utilize property, facilities, equipment and vehicles. Buildings and facilities leased from others are primarily for restaurants
and support facilities. Restaurants are operated under lease arrangements that generally provide for a fixed base rent and, in some instances,
contingent rent based on a percentage of gross operating profit or net revenues more than a defined amount. Initial terms of land and restaurant
building leases generally have terms of 20 years, exclusive of options to renew. ROU assets and operating and finance lease liabilities are recognized
at the lease commencement date, which is the date the Company takes possession of the property. Operating and finance lease liabilities represent the
present value of lease payments not yet paid. ROU assets represent the Company’s right to use an underlying asset and are based upon the operating
and finance lease liabilities adjusted for prepayments or accrued lease payments, lease incentives, and impairment of ROU assets. To determine the
present value of lease payments not yet paid, the Company estimates incremental borrowing rates corresponding to the lease term including
reasonably certain renewal periods.
The Company’s leases generally have escalating rents over the term of the lease, and are recorded on a straight-line basis over the expected lease
term. Additionally, tenant incentives used to fund leasehold improvements are recognized when earned and reduce the right-of-use asset related to the
lease. These are amortized through the operating lease asset as reductions of expense over the lease term.
Operating and finance lease liabilities that are based on an index or rate are calculated using the prevailing index or rate at lease commencement.
Subsequent escalations in the index or rate and contingent rental payments are recognized as variable lease expenses. The Company’s lease
agreements do not contain any material residual value guarantees or material restrictive covenants.
Leases of equipment primarily consist of restaurant equipment, computer systems and vehicles. The Company subleases facilities to certain
franchisees and other non-related parties which are recorded on a straight-line basis.
Gain on Recovery of Insurance Proceeds, Lost Profits
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
During the year ended December 30, 2020, the Company received business interruption insurance proceeds of $2.0 million, primarily related to
restaurant sales losses and expenses related to the COVID-19 pandemic and resulting dining room closures.
Recovery of Securities Class Action Legal Expense and Other Insurance Claims
During fiscal 2020 the Company received insurance proceeds of $0.1 million related to a property claim. During fiscal 2019, the Company received
insurance proceeds of $10.0 million related to the reimbursement of certain legal expenses paid in prior years for the defense of securities lawsuits.
See Note 13 “Commitments and Contingencies—Legal Matters.”
Loss on Disposition of Restaurants
During fiscal 2021, the Company completed the sale of eight restaurants within the Sacramento area to an existing franchisee. During fiscal 2019, the
Company completed the sale of four company-operated restaurants within the San Francisco area to an existing franchisee, seven company-operated
restaurants in the Phoenix area to another existing franchisee and five company-operated restaurants in Texas to a third franchisee. The Company has
determined that these restaurant dispositions represent multiple element arrangements, and as a result, the cash consideration received was allocated
to the separate elements based on their relative standalone selling price. Cash proceeds included upfront consideration for the sale of the restaurants
and franchise fees, as well as future cash consideration for royalties. The cash consideration per restaurant related to franchise fees is consistent with
the amounts stated in the related franchise agreements, which are charged for separate standalone arrangements. The Company initially defers and
subsequently recognizes the franchise fees over the term of the franchise agreement. Future royalty income is also recognized in revenue as earned.
The Sacramento sale resulted in cash proceeds of $4.6 million and a net loss on sale of restaurants of $1.5 million for the year ended December 29,
2021. The three sales during 2019 resulted in cash proceeds of $4.8 million and a net loss on sale of restaurants of $5.1 million for the year ended
December 25, 2019. Since the date of their sale, these restaurants are now included in the total number of franchised El Pollo Loco restaurants.
Derivative Financial Instruments
The Company uses an interest rate swap, a derivative instrument, to hedge interest rate risk and not for trading purposes. The derivative contract is
entered into with a financial institution.
The Company records the derivative instrument on its consolidated balance sheets at fair value. The derivative instrument qualifies as a hedging
instrument in a qualifying cash flow hedge relationship, and the gain or loss on the derivative instrument is reported as a component of accumulated
other comprehensive (loss) income (“AOCI”) and reclassified into earnings in the same period or periods during which the hedged transaction affects
earnings. For any derivative instruments not designated as hedging instruments, the gain or loss will be recognized in earnings immediately. If a
derivative previously designated as a hedge is terminated, or no longer meets the qualifications for hedge accounting, any balances in AOCI will be
reclassified to earnings immediately.
As a result of the use of an interest rate swap, the Company is exposed to risk that the counterparty will fail to meet their contractual obligations. To
mitigate the counterparty credit risk, the Company will only enter into contracts with major financial institutions, based upon their credit ratings and
other factors, and will continue to assess the creditworthiness of the counterparty. As of December 29, 2021, the counterparty to the Company’s
interest rate swap has performed in accordance with their contractual obligation.
Income Taxes
The provision for income taxes, income taxes payable and deferred income taxes is determined using the asset and liability method. Deferred tax
assets and liabilities are determined based on temporary differences between the financial carrying amounts and the tax bases of assets and liabilities
using enacted tax rates in effect in the years in which the temporary differences are expected to reverse. On a periodic basis, the Company assesses
the probability that its net deferred tax assets, if any, will be recovered. If, after evaluating all of the positive and negative evidence, a conclusion is
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
made that it is more likely than not that some portion or all of the net deferred tax assets will not be recovered, a valuation allowance is provided by
charging to tax expense a reserve for the portion of deferred tax assets which are not expected to be realized.
The Company reviews its filing positions for all open tax years in all U.S. federal and state jurisdictions where it is required to file.
When there are uncertainties related to potential income tax benefits, in order to qualify for recognition, the position the Company takes has to have
at least a “more likely than not” chance of being sustained (based on the position’s technical merits) upon challenge by the respective authorities. The
term “more likely than not” means a likelihood of more than 50%. Otherwise, the Company may not recognize any of the potential tax benefit
associated with the position. The Company recognizes a benefit for a tax position that meets the “more likely than not” criterion as the largest
amount of tax benefit that is greater than 50% likely of being realized upon its effective resolution. Unrecognized tax benefits involve management’s
judgment regarding the likelihood of the benefit being sustained. The final resolution of uncertain tax positions could result in adjustments to
recorded amounts and may affect our results of operations, financial position and cash flows.
The Company’s policy is to recognize interest or penalties related to income tax matters in income tax expense. The Company had no accrual for
interest or penalties at December 29, 2021 or December 30, 2020. During fiscal 2020, the Company recognized interest of $0.1 million related to the
Notice of Proposed Adjustment (“NOPA”), discussed below. The Company did not recognize any interest or penalties during fiscal 2021 and 2019.
During fiscal 2021, fiscal 2020 and fiscal 2019, there were no material unrecognized tax benefits. Management believes no significant change to the
amount of unrecognized tax benefits will occur within the next twelve months.
On July 30, 2014, the Company entered into a TRA, which calls for the Company to pay to its pre-IPO stockholders 85% of the savings in cash that
the Company realizes in its income taxes as a result of utilizing its net operating losses (“NOLs”) and other tax attributes attributable to preceding
periods. As of December 29, 2021 and December 30, 2020, the Company had accrued $1.5 million and $3.1 million, respectively relating to expected
TRA payments. In fiscal 2021, 2020 and 2019, the Company paid $1.7 million, $5.2 million and $5.8 million, respectively, to its pre-IPO
stockholders under the TRA.
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law as a stimulus package, and
contained several tax provisions, including a correction of a previous drafting error related to quality improvement property (“QIP”) and immediate
refundability of all remaining alternative minimum tax (“AMT”) credits. The new provisions did not have a material impact on the Company’s
consolidated financial statements.
During fiscal 2020, the Company received a NOPA for the years ended December 27, 2017 and December 28, 2016, related to the Company’s
methodology regarding its ordering of utilization of AMT NOLs. Resolution of this NOPA resulted in a payment of $0.4 million, and the audit is
closed. As a result of the CARES Act, this amount was immediately refundable upon filing of a Form 1139. The Company filed the Form 1139
during the year ended December 30, 2020 and received a refund totaling $0.5 million.
The CARES Act also provides for the deferral of employer Social Security taxes that are otherwise owed for wage payment and the creation of
refundable employee retention credits. The total amount deferred as of December 30, 2020 is $4.9 million, of which 50% is due by December 31,
2021 and another 50% is due by December 31, 2022. As of December 29, 2021, deferred payroll tax payments of $2.4 million were included in other
non-current liabilities on the Company’s consolidated balance sheet.
Additionally, the Company assessed its eligibility for the business relief provision under the CARES Act known as the Employee Retention Credit
(“ERC”), a refundable payroll tax credit for 50% of qualified wages paid during 2020. The American Rescue Plan passed into law on March 11, 2021
extended the ERC through September 30, 2021, and the credit was increased to 70% of qualified wages paid from January 1, 2021 through
September 30, 2021. During fiscal 2021, the Company recognized the ERC credit in the amount of $3.4 million as income as it is probable that it will
comply with the ERC eligibility requirements. The Company has elected an accounting policy to present government assistance as a reduction of the
related expense. The ERC credit is recorded as a receivable as part of the accounts and other receivable
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
on the consolidated balance sheet for the year ended December 29, 2021 and as an offset to the corresponding payroll expense which is classified as
part of the labor and other operating expenses on the consolidated statements of income for the year ended December 29, 2021.
Fair Value Measurements
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the
measurement date. Financial assets and liabilities carried at fair value are classified and disclosed in one of the following three categories:
● Level 1: Quoted prices for identical instruments in active markets.
● Level 2: Observable prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are
not active; and model-derived valuations whose inputs or significant value drivers are observable.
● Level 3: Unobservable inputs used when little or no market data is available.
During the year ended December 25, 2019, the Company entered into an interest rate swap, which is required to be measured at fair value on a
recurring basis. The fair value was determined based on Level 2 inputs, which include valuation models, as reported by the Company’s counterparty.
These valuation models use a discounted cash flow analysis on the cash flows of the derivative based on the terms of the contract and the forward
yield curves adjusted for our credit risk. The key inputs for the valuation models are observable market prices, discount rates, and forward yield
curves. See Note 6 “Long-Term Debt” for further discussion regarding the Company’s interest rate swaps. The following table presents fair value for
the interest rate swap at December 29, 2021 (in thousands):
Other non-current liabilities - Interest rate swap
Level 1
Fair Value Measurements Using
Level 2
Level 3
$
—
$
396
$
—
The following table presents fair value for the interest rate swap at December 30, 2020 (in thousands):
Other non-current liabilities - Interest rate swap
Level 1
Fair Value Measurements Using
Level 2
Level 3
$
—
$
1,139
$
—
Certain assets and liabilities are measured at fair value on a nonrecurring basis. In other words, they are not measured at fair value on an ongoing
basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
The following non-financial assets were measured at fair value, on a nonrecurring basis, as of and for the year ended December 29, 2021 reflecting
certain property and equipment and ROU assets, for which an impairment loss was recognized during the corresponding periods, as discussed above
under Impairment of Long-Lived and ROU Assets (in thousands):
Certain property and equipment, net
Certain ROU assets, net
Total
Level 1
Level 2
Level 3
Impairment Losses
$
$
— $
$
411
— $
— $
— $
— $
— $
$
411
304
407
The following non-financial assets were measured at fair value, on a nonrecurring basis, as of and for the year ended December 30, 2020 reflecting
certain property and equipment and ROU assets for which an impairment loss was
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
recognized during the corresponding periods, as discussed above under "Impairment of Long-Lived and ROU Assets" (in thousands):
Certain property and equipment, net
Certain ROU assets, net
Total
Level 1
Level 2
Level 3
Impairment Losses
$
$
— $
$
902
— $
— $
— $
— $
— $
$
902
2,955
543
The following non-financial assets were measured at fair value, on a nonrecurring basis, as of and for the year ended December 25, 2019 for which
an impairment loss was recognized during the corresponding periods, as discussed above under "Impairment of Long-Lived and ROU Assets" (in
thousands):
Certain property and equipment, net
Certain ROU assets, net
Fair Value of Financial Instruments
Total
$
$
— $
$
6,196
Fair Value Measurements Using
Level 2
Level 1
Level 3
Impairment
Losses
— $
— $
— $
— $
— $
$
6,196
339
3,220
The carrying amounts of cash and cash equivalents, accounts receivable, accounts payable and certain accrued expenses approximate fair value due
to their short-term maturities. The recorded value of the TRA approximates fair value, based on borrowing rates currently available to the Company
for debts with similar terms and remaining maturities (Level 3 measurement).
Stock-Based Compensation
Stock-based compensation expense is recognized using a fair-value based method for costs related to all share-based payments including stock
options and restricted stock issued under the Company’s employee stock plans. The fair value of stock option awards is estimated on the date of grant
using an option pricing model, which require the input of subjective assumptions. The Company is required to use judgment in estimating the amount
of stock-based awards that are expected to be forfeited. If actual forfeitures differ significantly from the original estimate, stock-based compensation
expense and the results of operations could be affected. The cost is recognized on a straight-line basis over the period during which an employee is
required to provide service, usually the vesting period. For options or restricted shares that are based on a performance requirement, the cost is
recognized on an accelerated basis over the period to which the performance criteria relate.
Earnings per Share
Earnings per share (“EPS”) is calculated using the weighted average number of common shares outstanding during each period. Diluted EPS
assumes the conversion, exercise or issuance of all potential common stock equivalents unless the effect is to reduce a loss or increase the income per
share. For purposes of this calculation, options and restricted stock awards are considered to be common stock equivalents and are only included in
the calculation of diluted earnings per share when their effect is dilutive. The shares used to compute basic and diluted net income per share represent
the weighted-average common shares outstanding.
Recently Adopted Accounting Pronouncements
In November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, “Government
Assistance (Topic 832): Disclosures by Business Entities about Government Assistance” which requires business entities to disclose in notes to their
financial statements information about certain types of government assistance that they receive. The Company adopted this ASU during the fourth
quarter of 2021 and made appropriate disclosures in accordance with this standard. The adoption of ASU 2021-10 did not have a significant impact
on the Company’s consolidated financial position or results of operations. For additional information on the impact of the adoption of ASU 2021-10,
see above under “Income Taxes” in this Note 2, “Summary of Significant Accounting Policies.”
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In July 2021, the FASB issued ASU No. 2021-05, “Leases (Topic 842): Lessors – Certain Leases with Variable Lease Payments” which no longer
requires a lessor to recognize a selling loss upon commencement of a lease with variable lease payments that prior to the amendment would have
been classified as a sales-type or direct financing lease. The Company adopted this ASU during the third quarter of 2021. The adoption of ASU
2021-05 did not have a significant impact on the Company’s consolidated financial position or results of operations.
In January 2021, the FASB issued ASU No. 2021-01, “Reference Rate Reform (Topic 848): Scope” which clarifies the FASB’s recent rate reform
guidance in Topic 848, Reference Rate Reform, that optional expedients and exceptions therein for contract modification and hedge accounting apply
to derivatives that are affected by the discontinuation of the London Interbank Offered Rate (“LIBOR”) and the use of new interest rate benchmarks.
ASU 2021-01 is effective immediately. Entities may choose to apply the amendments retrospectively as of any date from the beginning of an interim
period that includes or is subsequent to March 12, 2020, or prospectively to new modifications from any date within an interim period that includes
or is subsequent to January 7, 2021, up to the date that financial statements are available to be issued. The Company adopted this ASU on January 7,
2021. The adoption of ASU 2021-01 did not have a significant impact on the Company’s consolidated financial position or results of operations.
In October 2020, the FASB issued ASU No. 2020-10, “Codification Improvements,” which improve the consistency of the codification by including
all disclosure guidance in the appropriate Disclosure Section (Section 50). ASU 2020-10 is effective for annual periods beginning after December 15,
2020, and for interim periods within annual periods beginning after December 15, 2020. The Company adopted this ASU during the first quarter of
2021. The adoption of ASU 2020-10 did not have a significant impact on the Company’s consolidated financial position or results of operations.
In December 2019, the FASB issued ASU No. 2019-12, “Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes”, which modifies
Topic 740 to simplify the accounting for income taxes. ASU 2019-12 is effective for financial statements issued for annual periods beginning after
December 15, 2020, and for the interim periods therein. The Company adopted this ASU during the first quarter of 2021. The adoption of ASU 2019-
12 did not have a significant impact on the Company’s consolidated financial position or results of operations.
Franchise Development Option Agreement with Related Party
On July 11, 2014, EPL and LLC entered into a Franchise Development Option Agreement relating to development of restaurants in the New York–
Newark, NY–NJ–CT–PA Combined Statistical Area (the “Territory”). EPL granted LLC the exclusive option to develop and open 15 restaurants in
the Territory over five years (the “Initial Option”), and, provided that the Initial Option is exercised, the exclusive option to develop and open up to
an additional 100 restaurants in the Territory over ten years. The Franchise Development Option Agreement terminates (i) ten years after execution,
or (ii) if the Initial Option is exercised, five years after that exercise. LLC may only exercise the Initial Option if EPL first determines to begin
development of company-operated restaurants in the Territory or support the development of the Territory. The Company has no current intention to
begin development in the Territory and as of December 29, 2021, no stores have been opened in the Territory.
3. PROPERTY AND EQUIPMENT
The costs and related accumulated depreciation and amortization of major classes of property are as follows (in thousands):
Land
Buildings and improvements
Other property and equipment
Construction in progress
Less: accumulated depreciation and amortization
70
$
$
December 29, 2021 December 30, 2020
12,323
147,939
77,177
3,567
241,006
(161,364)
79,642
12,323
144,631
78,383
5,333
240,670
(165,002)
75,668
$
$
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Depreciation and amortization expense was $15.2 million, $16.9 million and $17.9 million for the years ended December 29, 2021, December 30,
2020, and December 25, 2019, respectively.
Based on the Company’s review of its long-lived assets for impairment, the Company recorded non-cash impairment charges of $0.3 million, $3.0
million and $0.3 million for the years ended December 29, 2021, December 30, 2020, and December 25, 2019, respectively. Depending on the
severity and longevity of the COVID-19 pandemic and the extent and duration of any economic downturn, the Company’s financial performance
could be further impacted and it is possible that material impairments could be identified in future periods. See “Impairment of Long-Lived and ROU
Assets” in Note 2, “Summary of Significant Accounting Policies” for additional information.
4. TRADEMARKS, OTHER INTANGIBLE ASSETS AND LIABILITIES
Domestic trademarks consist of the following (in thousands):
Cost
Accumulated impairment charges
Trademarks, net
5. LEASES
Nature of leases
December 29,
2021
December 30,
2020
$
$
120,700
(58,812)
61,888
$
$
120,700
(58,812)
61,888
The Company’s operations utilize property, facilities, equipment and vehicles leased from others. Additionally, the Company has various contracts
with vendors that have been determined to contain an embedded lease in accordance with Topic 842.
As of December 29, 2021, the Company had two leases that it had entered into, but had not yet commenced. The Company does not have control of
the property until lease commencement.
Building and facility leases
The majority of the Company’s building and facilities leases are classified as operating leases; however, the Company currently has two facility and
nine equipment leases that are classified as finance leases.
Restaurants are operated under lease arrangements that generally provide for a fixed base rent and, in some instances, contingent rent based on
a percentage of gross operating profit or net revenues in excess of a defined amount. Additionally, a number of the Company’s leases have payments,
which increase at pre-determined dates based on the change in the consumer price index. For all leases, the Company also reimburses the landlord for
non-lease components, or items that are not considered components of a contract, such as common area maintenance, property tax and insurance
costs. While the Company determined not to separate lease and non-lease components, these payments are based on actual costs, making them
variable consideration and excluding them from the calculations of the ROU asset and lease liability.
The initial terms of land and restaurant building leases are generally 20 years, exclusive of options to renew. These leases typically have four 5-year
renewal options, which have generally been excluded in the calculation of the ROU asset and lease liability, as they are not considered reasonably
certain to be exercised, unless (1) the renewal had already occurred as of the time of adoption of Topic 842, or (2) there have been significant
leasehold improvements that have a useful life that extend past the original lease term. Furthermore, there are no residual value guarantees and no
restrictions imposed by the lease.
During the year ended December 29, 2021, the Company reassessed the lease terms on 22 restaurants due to certain triggering events, such as the
addition of significant leasehold improvements, the decision to terminate a lease, or the
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
decision to renew. As a result of the reassessment, an additional $17.8 million of ROU assets and lease liabilities for the year ended December 29,
2021 were recognized, and will be amortized over the new lease term.
During the year ended December 30, 2020, the Company reassessed the lease terms on 12 restaurants due to certain triggering events, such as the
addition of significant leasehold improvements, the decision to terminate a lease, or the decision to renew. As a result of the reassessment, an
additional $3.9 million of ROU assets and lease liabilities for the year ended December 30, 2020 were recognized, and will be amortized over the
new lease term.
The reassessments did not have any impact on the original lease classification. Additionally, as the Company adopted all practical expedients
available under Topic 842, no reallocation between lease and non-lease components was necessary.
The Company also subleases facilities to certain franchisees and other non-related parties which are also considered operating leases. Sublease
income also includes contingent rental income based on net revenues. The vast majority of these leases have rights to extend terms via fixed rental
increases. However, none of these leases have early termination rights, the right to purchase the premises or any residual value guarantees. The
Company does not have any related party leases.
During fiscal 2021, the Company determined that the carrying value of ROU assets at two restaurants were not recoverable. As a result, the
Company recorded a $0.4 million non-cash impairment charge for the year ended December 29, 2021 related to one restaurant closed in Texas in
2019 and one restaurant closed in California. During fiscal 2020, the Company determined that the carrying value of ROU assets at one restaurant
was not recoverable. As a result, the Company recorded a $0.5 million non-cash impairment charge for the year ended December 30, 2020 related
to one restaurant in Texas, which was sold to a franchisee in the prior year. During fiscal 2019, the Company determined that the carrying value of
ROU assets at certain restaurants was not recoverable. As a result, we recorded a $3.2 million impairment expense for the year ended
December 25, 2019. The impairment primarily related to four restaurants sold to franchisees and one restaurant closed during fiscal 2019.
Equipment
Leases of equipment primarily consist of restaurant equipment, copiers and vehicles. These leases are fixed payments with no variable component.
Additionally, no optional renewal periods have been included in the calculation of the ROU Asset, there are no residual value guarantees and no
restrictions imposed.
Significant Assumptions and Judgments
In applying the requirements of Topic 842, the Company made significant assumptions and judgments related to determination of whether a contract
contains a lease and the discount rate used for the lease.
In determining if any of the Company’s contracts contain a lease the Company made assumptions and judgments related to its ability to direct the use
of any assets stated in the contract and the likelihood of renewing any short-term contracts for a period extending past twelve months.
The Company also made significant assumptions and judgments in determining an appropriate discount rate for property leases. These included
using a consistent discount rate for a portfolio of leases entered into at varying dates, using the full 20-year term of the lease, excluding any options,
and using the total minimum lease payments. For all other leases, the Company uses the discount rate implicit in the lease, or the Company’s
incremental borrowing rate.
As the Company has adopted the practical expedient not to separate lease and non-lease components, no significant assumptions or judgments were
necessary in allocating consideration between these components, for all classes of underlying assets.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table presents the Company’s total lease cost, disaggregated by underlying asset (in thousands):
December 29, 2021
December 30, 2020
December 25, 2019
Property
Equipment
Property
Equipment
Property
Equipment
Leases
Leases
Total
Leases
Leases
Total
Leases
Leases
Total
Finance lease cost:
Amortization of right-of-use
assets
Interest on lease liabilities
Operating lease cost
Short-term lease cost
Variable lease cost
Sublease income
Total lease cost
$
$
$
78
58
26,501
—
539
(3,823)
23,353
$
$
2
1
1,122
21
354
—
$
1,500
80 $
59
27,623
21
893
(3,823)
24,853 $
$
11
27
26,578
—
444
(3,251)
23,809
$
— $
—
1,227
23
191
—
$
1,441
11 $
27
27,805
23
635
(3,251)
25,250 $
9 $
27
26,212
—
455
(2,430)
24,273 $
— $
—
1,273
34
186
—
1,493 $
9
27
27,485
34
641
(2,430)
25,766
The following table presents the Company’s total lease cost on the consolidated statement of income (in thousands):
Lease cost – Occupancy and other operating expenses
Lease cost – General & administrative
Lease cost – Depreciation and amortization
Lease cost – Interest expense
Lease cost - Closed-store reserve
Total lease cost
December 29, 2021 December 30, 2020
$
$
24,020
414
78
58
283
24,853
$
$
23,972 $
464
11
27
776
25,250 $
December 25, 2019
24,540
463
9
27
727
25,766
73
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had the following cash and non-cash activities associated with its leases (in thousands):
Cash paid for amounts included in the measurement of lease
liabilities
Operating cash flows used for operating leases
Financing cash flows used for finance leases
Non-cash investing and financing activities:
Operating lease ROU assets obtained in exchange for lease liabilities:
December 29, 2021
Property Equipment
Leases
Leases
Total
Property
Leases
December 30, 2020
Equipment
Leases
Total
Property
Leases
December 25, 2019
Equipment
Leases
Tota
$26,414
102
$
$ 1,084
46
$
$27,498 $23,683
34
$
148 $
$ 1,230
5
$
$24,913 $25,168
68
39 $
$
$ 1,282
$ — $
$26,4
Operating lease ROU assets
$17,763
$ —
$17,763 $ 5,850
Finance lease ROU assets obtained in exchange for lease liabilities:
Finance lease ROU assets
$ — $
196
$
196 $ 1,623
Derecognition of ROU assets due to terminations, impairment or
modifications
$ (4,513)
$
(99)
$ (4,612)$ (543)
$
$
$
13
54
$ 5,863 $10,339
$
256
$10,5
$ 1,677 $ — $ — $
(26)
$ (569)$ (4,574)
$
(157)
$ (4,7
Other Information
Weighted-average remaining lease term—finance leases
Weighted-average remaining lease term—operating leases
Weighted-average discount rate—finance leases
Weighted-average discount rate—operating leases
18.42
11.27
2.78 %
4.45 %
4.02
1.44
1.54 %
3.89 %
18.98
11.45
2.50 %
4.29 %
4.52
2.31
1.68 %
3.93 %
2.83
12.08
11.10 %
4.38 %
—
3.20
— %
3.96 %
74
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Information regarding the Company’s minimum future lease obligations at December 29, 2021 is as follows (in thousands):
For the Years Ending
December 28, 2022
December 27, 2023
December 25, 2024
December 31, 2025
December 30, 2026
Thereafter
Total
Less: imputed interest (1.54% - 4.45%)
Present value of lease obligations
Less: current maturities
Noncurrent portion
Short-Term Leases
Finance
Operating Leases
Minimum Minimum
Lease
Payments
Lease
Payments
Minimum
Sublease
Income
$
$
3,588
3,571
3,456
3,106
2,789
23,165
39,675
$
$
$
190
145
145
141
108
1,582
2,311
(456)
1,855
(143)
1,712
$
$
$
27,866
26,115
24,013
21,773
19,546
127,306
246,619
(55,009)
191,610
(19,959)
171,651
The Company has multiple short-term leases, which have terms of less than 12 months, and thus were excluded from the recognition requirements of
Topic 842. The Company has recognized these lease payments in its consolidated statement of income on a straight-line basis over the lease term and
variable lease payments in the period in which the obligation for those payments is incurred.
In April 2020, the FASB issued guidance allowing entities to make a policy election whether to account for lease concessions related to the COVID-
19 pandemic as lease modifications. The election applies to any lessor-provided lease concession related to the impact of the COVID-19 pandemic,
provided the concession does not result in a substantial increase in the rights of the lessor or in the obligations of the lessee. During the fiscal year
ended December 30, 2020, the Company received non-substantial concessions from certain landlords in the form of rent deferrals and abatements.
The Company elected to not account for these rent concessions as lease modifications. The rent concessions were recorded as part of other accrued
expenses. The recognition of rent concessions did not have a material impact on our consolidated financial statements as of December 30, 2020. For
the year ended December 29, 2021, there were no rent concessions.
Lessor
The Company is a lessor for certain property, facilities and equipment owned by the Company and leased to others, principally franchisees, under
non-cancelable leases with initial terms ranging from 3 to 20 years. These lease agreements generally provide for a fixed base rent and, in some
instances, contingent rent based on a percentage of gross operating profit or net revenues. All leases are considered operating leases.
For the leases in which the Company is the lessor, there are options to extend the lease. However, there are no terms and conditions to terminate the
lease, no right to purchase premises and no residual value guarantees. Additionally, there are no related party leases.
For the years ended December 29, 2021, December 30, 2020, and December 25, 2019, the Company received $0.4 million, $0.6 million and $0.5
million, respectively, of lease income from company-owned locations.
6. LONG-TERM DEBT
The Company, as a guarantor, is a party to a credit agreement (the “2018 Credit Agreement”) among EPL, as borrower, Intermediate, as a guarantor,
Bank of America, N.A., as administrative agent, swingline lender, and letter of credit issuer, the lenders party thereto, and the other parties thereto,
which provides for a $150.0 million five-year senior
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
secured revolving credit facility (the “2018 Revolver”). The 2018 Revolver includes a sub limit of $15.0 million for letters of credit and a sub limit of
$15.0 million for swingline loans. The obligations under the 2018 Credit Agreement and related loan documents are guaranteed by the Company and
Intermediate. The obligations of the Company, EPL and Intermediate under the 2018 Credit Agreement and related loan documents are secured by a
first priority lien on substantially all of their respective assets.
Under the 2018 Revolver, Holdings may not make certain payments such as cash dividends, except that it may, inter alia, (i) pay up to $1.0 million
per year to repurchase or redeem qualified equity interests of Holdings held by past or present officers, directors, or employees (or their estates) of
the Company upon death, disability, or termination of employment, (ii) pay under its TRA, and (iii) so long as no default or event of default has
occurred and is continuing, (a) make non-cash repurchases of equity interests in connection with the exercise of stock options by directors, officers
and management, provided that those equity interests represent a portion of the consideration of the exercise price of those stock options, (b) pay up
to $0.5 million in any 12 month consecutive period to redeem, repurchase or otherwise acquire equity interests of any subsidiary that is not a wholly-
owned subsidiary from any holder of equity interest in such subsidiary, (c) pay up to $2.5 million per year pursuant to stock option plans,
employment agreements, or incentive plans, (d) make up to $5.0 million in other restricted payments per year, and (e) make other restricted
payments, subject to its compliance, on a pro forma basis, with (x) a lease-adjusted consolidated leverage ratio not to exceed 4.25 times and (y) the
financial covenants applicable to the 2018 Revolver.
Borrowings under the 2018 Revolver (other than any swingline loans) bear interest, at the borrower’s option, at rates based upon either LIBOR or a
base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based pricing grid. The base rate is
calculated as the highest of (a) the federal funds rate plus 0.50%, (b) the published Bank of America prime rate, or (c) LIBOR plus 1.00%. For
LIBOR loans, the margin is in the range of 1.25% to 2.25%, and for base rate loans the margin is in the range of 0.25% to 1.25%. For borrowings
under the 2018 Revolver during fiscal 2021, the interest rate range was 1.3% to 1.6%. For borrowings under the 2018 Revolver during fiscal 2020,
the interest rate range was 1.6% to 3.3%. The interest rate under the 2018 Revolver was 1.4% at December 29, 2021 and 1.6% under the 2018
Revolver at December 30, 2020. For the year ended December 29, 2021, the Company had interest expense of $1.2 million under the 2018 Revolver.
For the year ended December 30, 2020, the Company had interest expense of $2.7 million under the 2018 Revolver, and for the year ended
December 25, 2019, the Company had interest expense of $3.1 million under the 2018 and 2014 Revolver.
The 2018 Credit Agreement contains certain financial covenants. The Company was in compliance with all such covenants at December 29, 2021.
However, depending on the severity and longevity of the COVID-19 pandemic and the extent and duration of any economic downturn, the
Company’s financial performance and liquidity could be further impacted and could impact the Company’s ability to comply with certain financial
covenants required in the 2018 Credit Agreement, specifically the lease-adjusted coverage ratio and fixed-charge coverage ratio.
At December 29, 2021, $10.0 million of letters of credit and $40.0 million of borrowings were outstanding under the 2018 Revolver. The amount
available under the 2018 Revolver was $100.0 million at December 29, 2021. At December 30, 2020, $8.4 million of letters of credit and $62.8
million of borrowings were outstanding under the 2018 Revolver. The amount available under the 2018 Revolver was $78.8 million at December 30,
2020.
Maturities
The 2018 Revolver and 2018 Credit Agreement will mature on July 13, 2023. During the year ended December 29, 2021, the Company elected to
pay down $22.8 million on its 2018 Revolver. During the year ended December 30, 2020, the Company paid down $34.2 million, net of borrowings
of $59.5 million on its 2018 Revolver. There are no required principal payments prior to maturity for the 2018 Revolver.
Interest Rate Swap
During the year ended December 25, 2019, the Company entered into a variable-to-fixed interest rate swap agreement with a notional amount of
$40.0 million that matures in June 2023. The objective of the interest rate swap is to reduce the Company’s exposure to interest rate risk for a portion
of its variable-rate interest payments on its borrowings under the 2018 Revolver. Under the terms of the swap agreement, the variable LIBOR-based
component of interest payments
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
was converted to a fixed rate of 1.31%, plus applicable margin, which was 1.5% for the year ended December 29, 2021. The interest rate swap was
designated as a cash flow hedge, as the changes in the future cash flows of the swap were expected to offset changes in expected
future interest payments on the related variable-rate debt, in accordance with ASC 815 “Derivatives and Hedging.”
The changes in the fair value of the interest rate swap are not included in earnings, but are included in other comprehensive (loss) income (“OCI”).
These changes in fair value are subsequently reclassified into net earnings as a component of interest expense as the hedged interest payments are
made on the variable rate borrowings.
For the year ended December 29, 2021 and December 30, 2020, the swap was a highly effective cash flow hedge.
As of December 29, 2021, the estimated net gain included in AOCI related to the Company’s cash flow hedge that will be reclassified into earnings
in the next 12 months is $0.6 million, based on current LIBOR interest rates.
The following table shows the financial statement line item and amount of the Company’s cash flow hedge accounting on the consolidated balance
sheet (in thousands):
Other liabilities - Interest rate swap
December 29, 2021
December 30, 2020
Notional
$
40,000
Fair value
396
$
Notional
Fair value
$
40,000
$
1,139
The following table summarizes the effect of the Company’s cash flow hedge accounting on the consolidated statements of income (in thousands):
Interest expense on hedged portion of debt
Interest expense on interest rate swap
Interest expense on debt and derivatives, net
December 29, 2021 December 30, 2020
December 25, 2019
$
$
568
486
1,054
$
$
979 $
278
1,257 $
461
(84)
377
The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the years ended December 29, 2021,
December 30, 2020 and December 25, 2019 (in thousands):
December 29, 2021
Net Gain (Loss) Recognized in OCI
December 30, 2020
December 25, 2019
December 29, 2021
December 25, 2019
Gain (Loss) Reclassified from
AOCI into Interest expense
December 30, 2020
Interest rate swap
$
257 $
(1,762) $
430 $
486 $
278 $
(84)
See Note 2 “Summary of Significant Accounting Policies” for the fair value of the Company’s derivative asset.
7. OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES
Other accrued expenses and current liabilities consist of the following (in thousands):
Accrued sales and property taxes
Gift card liability
Loyalty rewards program liability
Accrued advertising
Accrued legal settlements and professional fees
Deferred franchise and development fees
Current portion of lease payment deferrals
Other
Total other accrued expenses and current liabilities
77
$
$
December 29, 2021 December 30, 2020
5,216
4,008
900
—
321
503
1,793
4,063
16,804
4,726
4,622
687
3,635
771
637
—
4,718
19,796
$
$
Table of Contents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
Deferred franchise and development fees
Derivative liability
Employer social security tax deferral
Other
Total other noncurrent liabilities
9. INCOME TAXES
The provision for income taxes is based on the following components (in thousands):
For the Years Ended
Current income taxes:
Federal
State
Total current
Deferred income taxes:
Federal
State
Total deferred
Tax provision for income taxes
$
$
December 29, 2021 December 30, 2020
5,125
1,139
4,853
175
11,292
5,691
396
2,426
140
8,653
$
$
December 29,
December 30,
December 25,
2021
2020
2019
$
$
7,163
2,158
9,321
93
918
1,011
10,332
$
$
520
1,123
1,643
3,350
658
4,008
5,651
$
$
—
104
104
5,991
3,587
9,578
9,682
The provision for income taxes differs from the amount computed by applying the federal income tax rate of 21.0% for fiscal 2021, 2020 and 2019 as
follows:
For the Years Ended
Statutory federal income tax rate applied to earnings before income taxes and extraordinary
items
State income tax expense (net of federal benefit)
Change in valuation allowance
162(m)
WOTC Credit
Stock option exercises
Other
Total
December 29,
2021
December 30,
2020
December 25,
2019
21.0 %
5.9
0.1
0.8
(0.5)
(1.4)
0.3
26.2 %
21.0 %
4.3
0.4
0.2
(0.9)
(6.6)
0.4
18.8 %
21.0 %
6.0
2.4
0.3
(0.8)
(1.0)
—
27.9 %
As of December 29, 2021, the Company had no federal and less than $0.1 million state NOL carryforwards. These State NOLs expire beginning
2028. The Company also has state enterprise zone credits of approximately $9.5 million, which expire in 2023. The utilization of NOL carryforwards
may be subject to limitation under section 382 of the Internal Revenue Code of 1986 (the “Code”) and similar state law provisions.
Deferred income tax assets and liabilities are recorded for differences between the financial statement and tax basis of the assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted laws and rates applicable to the periods in which the differences are
expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be
realized.
The Company has evaluated the available evidence supporting the realization of its gross deferred tax assets. After evaluating all of the positive and
negative evidence, including the Company’s continued income from operations, the
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company concluded that it is more likely than not that its deferred tax assets except from certain state credits will be realized. In fiscal 2020 and
2019, the Company recorded a valuation allowance of approximately $0.1 million and $0.9 million, respectively, against its deferred tax asset
resulting from certain tax credits that may not be realizable prior to the time the credits expire. In fiscal 2021, the Company recorded an additional
less than $0.1 million to the valuation allowance. As of December 29, 2021, the total valuation allowance was $6.2 million.
On July 30, 2014, the Company entered into the TRA. The TRA calls for the Company to pay its pre-IPO stockholders 85% of the cash savings that
the Company realizes in its taxes as a result of utilizing its NOLs and other tax attributes attributable to preceding periods. The TRA charge expense
(benefit) is a permanent add-back to the Company’s taxable income. TRA resulted in less than $0.1 million of expense in fiscal 2021 as a result of
the amortization of interest expense related to the total expected TRA payments and changes in estimates for actual tax returns filed and future
forecasted taxable income, $0.1 million of expense in fiscal 2020 as a result of changes to future forecasted results and deduction on 2018 legal
settlement accrual and $0.1 million of expense in fiscal 2019 as a result of changes to future forecasted results. In fiscal 2021, 2020 and 2019, the
Company paid $1.7 million, $5.2 million and $5.8 million, respectively, to its pre-IPO stockholders under the TRA.
As of December 29, 2021 and December 30, 2020, the deferred tax assets related to California Enterprise Zone credits, net of valuation allowances
are $1.3 million and $2.5 million, respectively.
The Company’s deferred tax assets and liabilities as of December 29, 2021 and December 30, 2020 are summarized below.
Deferred assets:
Capital leases
Accrued vacation
Accrued workers’ compensation
Enterprise zone and other credits
Net operating losses
Fixed assets
ROU assets
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred liabilities:
Goodwill
Trademark
Prepaid expense
ROU liabilities
Other
Deferred tax liabilities
Net deferred tax liability
December 29,
2021
December 30,
2020
$
$
60
503
2,616
7,524
5
4,393
51,864
5,694
72,659
(6,181)
66,478
(6,349)
(16,727)
(498)
(46,484)
361
(69,697)
(3,219)
$
$
27
506
1,894
8,579
5
4,643
53,875
6,349
75,878
(6,127)
69,751
(6,218)
(16,773)
(720)
(48,005)
(96)
(71,812)
(2,061)
The net deferred tax asset amounts above as of December 29, 2021 and December 30, 2020 have been classified in the accompanying consolidated
balance sheets as noncurrent assets and are as follows (in thousands):
Noncurrent:
Assets - state
Liabilities - federal
Net deferred tax liability
79
December 29,
2021
December 30,
2020
$
$
2,245
(5,464)
(3,219)
$
$
3,166
(5,227)
(2,061)
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 29, 2021 and December 30, 2020, the Company had no accrual for unrecognized tax benefits. Consequently, no interest or penalties
have been accrued by the Company. The Company believes that no significant changes to the amount of unrecognized tax benefits will occur within
the next twelve months. The Company is subject to taxation in the United States and in various state jurisdictions.
The Company is no longer subject to U.S. examination for years before 2018 by the federal taxing authority, and for years before 2017 by state
taxing authorities.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors a defined contribution employee benefit plan that permits its employees, subject to certain eligibility requirements, to
contribute up to 25% of their qualified compensation to the plan. The Company matches 100% of the employees’ contributions of the first 3% of the
employees’ annual qualified compensation, and 50% of the employees’ contributions of the next 2% of the employees’ annual qualified
compensation. The Company’s matching contribution immediately fully vests. The Company’s contributions to the plan were $0.8 million for
the years ended December 29, 2021, December 30, 2020 and December 25, 2019.
11. STOCK-BASED COMPENSATION
Pursuant to the 2018 Omnibus Equity Incentive Plan the Company grants stock options (“options”), restricted stock units, performance-based stock
units and restricted stock. The Company has authorized 5,652,240 shares of common stock for issuance in connection with stock awards. On June 8,
2021, our stockholders approved amending the Equity Incentive Plan, formerly the 2018 Omnibus Equity Incentive Plan, under which the new
aggregate share limit was increased to be 2,000,000 shares. As of December 29, 2021, 721,924 shares were available for grant.
During the years ended December 29, 2021, December 30, 2020 and December 25, 2019, the Company recognized stock-based compensation
expense of $3.2 million, $3.1 million and $2.5 million, respectively. These expenses were included in general and administrative expenses consistent
with the salary expense for the related optionees in the accompanying consolidated statements of income.
Stock Options
At December 29, 2021, options to purchase 978,078 shares of common stock of the Company were outstanding, including 699,170 vested and
278,908 unvested. Unvested options vest over time, or upon our achieving annual financial goals. However, the compensation committee of the
board of directors, as administrator of the Company’s 2018 Omnibus Equity Incentive Plan, has the power to accelerate the vesting schedule of
stock-based compensation, and, generally, in the event of an employee termination in connection with a change in control of the Company, any
unvested portion of an award under the plan shall become fully vested. At December 29, 2021, 212,196 premium options, options granted above the
stock price at date of grant, remained outstanding. In fiscal 2021, the Company granted 256,172 options, with an exercise price equal to the fair
market value of the common stock on the date of grant. The options granted in fiscal 2021 had a four year vesting period. Stock options generally
expire 10 years from the date of grant. In fiscal 2020, the Company did not grant any options. Changes in options for the years ended
December 29, 2021 and December 30, 2020, are as follows:
Outstanding - December 25, 2019
Exercised
Forfeited, cancelled or expired
Outstanding - December 30, 2020
Grants
Exercised
Forfeited, cancelled or expired
Outstanding - December 29, 2021
80
Weighted-Average
$
Shares
2,077,570
(970,736)
(75,968)
1,030,866
256,172
(132,760)
(176,200) $
$
978,078
$
Exercise Price
8.14
6.04
12.14
9.82
17.55
6.52
14.48
11.45
Weighted-Average
Contractual Life
Life (Years)
Aggregate
Intrinsic Value
(in thousands)
4.59
$
3,165
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Vested and expected to vest at December 29, 2021
Exercisable at December 29, 2021
974,133
699,170
$
$
11.43
10.01
4.57
3.05
$
$
3,162
2,869
The intrinsic value of options exercised, calculated as the difference between the market value on the date of exercise and the exercise price, was
$1.6 million, $9.9 million and $2.1 million for fiscal years 2021, 2020 and 2019, respectively.
The Company measures and recognizes compensation expense for the estimated fair value of stock options for employees and non-employee
directors and similar awards based on the grant-date fair value of the award. For options that are based on a service requirement, the cost is
recognized on a straight-line basis over the requisite service period, usually the vesting period. For options that were based on performance
requirements, costs were recognized over periods to which the performance criteria related. In order to calculate our stock options’ fair values and
the associated compensation costs for share-based awards, the Company utilizes the Black–Scholes option pricing model and has developed
estimates of various inputs including forfeiture rate, expected term, expected volatility, and risk-free interest rate. The forfeiture rate is based on
historical rates and reduces the compensation expense recognized. The expected term for options granted is derived using the “simplified” method, in
accordance with SEC guidance. The Company calculates the risk-free interest rate using the implied yield for a U.S. Treasury security with constant
maturity and a remaining term equal to the expected term of the Company’s employee stock options. The Company does not anticipate paying any
cash dividends for the foreseeable future and therefore uses an expected dividend yield of zero for option valuation purposes. Expected volatility is
based on the Company’s historical data. Volatility is calculated by taking the historical daily closing equity prices of the Company, prior to the grant
date, over a period equal to the expected term.
In fiscal 2020, the Company did not grant any employee stock options. The weighted-average estimated fair value of employee stock options granted
in fiscal 2021 was $8.10 per share using the Black–Scholes model with the following weighted-average assumptions used to value the option grants:
Expected volatility
Risk-free interest rate
Expected term (years)
Expected dividends
December 29, 2021
46.9 %
1.1 %
6.25
—
As of December 29, 2021, the Company had total unrecognized compensation expense of $1.4 million related to unvested stock options, which the
Company expects to recognize over a weighted average period of 2.9 years.
The above assumptions generally require significant judgment. If in the future the Company determines that another method is more reasonable, or if
another method for calculating these input assumptions is prescribed by authoritative guidance, and, therefore, should be used to estimate volatility or
expected term, the fair value calculated for our stock options could change significantly. Higher volatility and longer expected lives result in an
increase to stock-based compensation expense determined at the date of grant.
The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the appropriateness of the
forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. Changes in the estimated forfeiture
rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense
amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously-estimated
forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the financial statements. If
a revised forfeiture rate is lower than the previously-estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based
compensation expense recognized in the financial statements. The effect of forfeiture adjustments was insignificant in fiscal 2021, 2020 and 2019.
The Company will continue to use significant judgment in evaluating the expected term, volatility, and forfeiture rate related to its stock-based
compensation.
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Restricted Shares
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 2021 and 2020, 222,741 and 415,022 restricted share awards were granted, respectively, at the fair market value on the date of grant. These
grants vest based on continued service over three years for directors and four years for employees.
Changes in restricted shares for the years ended December 29, 2021 and December 30, 2020, are as follows:
Unvested shares at December 25, 2019
Granted
Released
Forfeited, cancelled, or expired
Unvested shares at December 30, 2020
Granted
Released
Forfeited, cancelled, or expired
Unvested shares at December 29, 2021
Shares
Weighted-Average
Fair Value
588,008
415,022
(158,748)
(101,878)
742,404
222,741
(248,255)
(221,110)
495,780
$
$
$
$
$
$
$
$
$
11.23
12.50
11.73
12.32
11.68
17.13
11.99
11.80
13.92
As of December 29, 2021, there was total unrecognized compensation expense of $5.3 million related to unvested restricted share awards, which the
Company expects to recognize over a weighted-average period of 2.49 years. As of December 29, 2021, all remaining performance stock units and
restricted units were forfeited, cancelled, expired, or released.
12. EARNINGS PER SHARE
Basic EPS is calculated using the weighted-average number of shares of common stock outstanding during the years ended December 29, 2021,
December 30, 2020, and December 25, 2019. Diluted EPS is calculated using the weighted-average number of shares of common stock outstanding
and potentially dilutive during the period, using the treasury stock method.
On August 2, 2018, the Company announced that the Board of Directors had authorized a stock repurchase program. The Company entered into a
stock repurchase plan on August 28, 2018 (the “2018 Stock Repurchase Plan”), which allowed for the repurchase of up to $20.0 million of the
Company’s common stock. The 2018 Stock Repurchase Plan commenced on November 6, 2018 and terminated on June 26, 2019.
On April 30, 2019, as part of the Company’s focus on stockholder returns, the Board of Directors approved a new stock repurchase program. The
Company entered into a stock repurchase plan on May 17, 2019 (the “2019 Stock Repurchase Plan”), which allowed for the repurchase of up
to $30.0 million of the Company’s common stock. The 2019 Stock Repurchase Plan commenced on June 27, 2019, and was exhausted on
September 26, 2019.
Under the 2018 Stock Repurchase Plan and the 2019 Stock Repurchase Plan, the Company was permitted to repurchase its common stock from time
to time, in amounts and at prices that the Company deemed appropriate, subject to market conditions and other considerations. The Company’s
repurchases were executed using open market purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated
transactions.
For the year ended December 25, 2019, the Company repurchased 1,558,836 and 2,836,768 shares of common stock under the 2018 Stock
Repurchase Plan and the 2019 Stock Repurchase Plan, respectively, executed using open market purchases, for total consideration of approximately
$18.4 million and $30.0 million, respectively. The common stock repurchased under both the 2018 Stock Repurchase Plan and the 2019 Stock
Repurchase Plan was retired upon repurchase.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Below are basic and diluted EPS data for the periods indicated, which are in thousands except for per share data.
Numerator:
Net income
Denominator:
Weighted-average shares outstanding—basic
Weighted-average shares outstanding—diluted
Net income per share—basic
Net income per share—diluted
Anti-dilutive securities not considered in diluted EPS calculation
Below is a reconciliation of basic and diluted share counts.
Weighted-average shares outstanding—basic
Dilutive effect of stock options and restricted shares
Weighted-average shares outstanding—diluted
13. COMMITMENTS AND CONTINGENCIES
Legal Matters
December 29,
2021
For the Years Ended
December 30,
2020
December 25,
2019
29,121
$
24,474
$
24,900
35,973,892
36,446,756
0.81
0.80
136,397
$
$
35,193,325
35,796,406
0.70
0.68
81,041
$
$
36,739,209
37,441,503
0.68
0.67
526,295
$
$
$
For the Years Ended
December 29,
December 30,
December 25,
2021
35,973,892
472,864
36,446,756
2020
35,193,325
603,081
35,796,406
2019
36,739,209
702,294
37,441,503
On or about February 24, 2014, a former employee filed a class action in the Superior Court of the State of California, County of Orange, under the
caption Elliott Olvera, et al v. El Pollo Loco, Inc., et al (Case No. 30-2014-00707367-CU-OE-CXC) on behalf of all putative class members (all
hourly employees from 2010 to the present) alleging certain violations of California labor laws, including failure to pay overtime compensation,
failure to provide meal periods and rest breaks, and failure to provide itemized wage statements. The parties reached a settlement in principle on
January 24, 2019 of all claims brought on behalf of the 32,000+ putative class members in Olvera, as well as all claims for failure to pay overtime
compensation, failure to provide meal periods and rest breaks, and failure to provide itemized wage statements brought in the class actions
captioned Martha Perez v. El Pollo Loco, Inc. (Los Angeles Superior Court Case No. BC624001), Maria Vega, et al. v. El Pollo Loco, Inc. (Los
Angeles Superior Court Case No. BC649719), and Gonzalez v. El Pollo Loco, Inc. (Los Angeles Superior Court Case No. BC712867). The
settlement reached in principle in the Olvera, Perez, Vega, and Gonzalez actions resolves all potential claims from April 12, 2010 through April 1,
2019 that El Pollo Loco restaurant employees may have against El Pollo Loco for failure to pay for all compensation owed, failure to pay overtime
compensation, failure to provide meal periods and rest breaks and failure to provide itemized wage statements, among other wage and hour related
claims. A $16.3 million accrual of an expected settlement amount related to this matter was recorded as of December 26, 2018, and the court
formally approved the settlement on January 31, 2020. The settlement payment was made on February 28, 2020. Purported class actions alleging
wage and hour violations are commonly filed against California employers. The Company fully expects to have to defend against similar lawsuits in
the future.
On or about November 5, 2015, a purported Holdings shareholder filed a derivative complaint on behalf of Holdings in the Court of Chancery of the
State of Delaware against certain Holdings officers, directors and Trimaran Pollo Partners, L.L.C., under the caption Armen Galustyan v. Sather, et
al. (Case No. 11676-VCL). The derivative complaint alleges that these defendants breached their fiduciary duties to Holdings and were unjustly
enriched when they sold shares of Holdings at artificially inflated prices due to alleged misrepresentations and omissions regarding EPL’s
comparable store sales in the second quarter of 2015. The Holdings shareholder’s requested remedies include an award of compensatory damages to
Holdings, as well as a court order to improve corporate governance by putting forward for stockholder vote certain resolutions for amendments to
Holdings’ Bylaws or Certificate of Incorporation. The Holdings shareholder voluntarily dismissed the action on October 7, 2020. A second purported
Holdings shareholder filed a derivative
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
complaint on or about September 23, 2016, under the caption Diep v. Sather, CA 12760-VCL in the Delaware Court of Chancery. The Diep action is
also purportedly brought on behalf of Holdings, names the same defendants and asserts substantially the same claims on substantially the same
alleged facts as does Galustyan. Defendants moved to stay or dismiss the Diep action.
On March 17, 2017, the Delaware court granted in part, and denied in part, the motion to stay the Diep action. The court denied defendants’ motion
to dismiss the complaint for failure to state a claim. On January 17, 2018, the court entered an order granting the parties’ stipulation staying all
proceedings in the Diep action for five months or until the completion of an investigation of the allegations in the action by a special litigation
committee of the Holdings board of directors (the “SLC”). On September 25, 2020, after concluding its investigation, the SLC filed a motion to
dismiss the Diep action and filed its investigative report under seal as an exhibit to the motion to dismiss.
On May 21, 2021, while the SLC’s motion to dismiss the Diep action was pending, the Company filed a notice of proposed partial settlement of
the Diep action with respect to defendants Kay Bogeajis, Laurance Roberts, Stephen J. Sather, Edward J. Valle, Douglas K. Ammerman, and Samuel
N. Borgese (collectively, the “Settling Defendants”). Defendant Trimaran Pollo Partners, LLC (“Trimaran”) was not a party to the settlement. The
court approved the settlement of $625,000, less Plaintiffs’ fees of $156,250, on September 10, 2021, and dismissed all claims brought, or that could
have been brought, against Settling Defendants. In connection with this settlement, the Company received $469,000 in insurance proceeds, which
was recorded within general and administrative expenses in the Company’s statement of income for the year ended December 29, 2021.
On July 30, 2021, the court granted the SLC’s motion to dismiss with respect to the claims asserted against remaining defendant Trimaran. On
October 4, 2021, Plaintiffs filed a notice of appeal of the court’s granting of the motion to dismiss against defendant Trimaran. Plaintiff filed its
opening brief on December 6, 2021. SLC filed its answering brief on December 20, 2021 and the public version of the brief was filed on January 7,
2022. Plaintiffs filed the reply brief on January 4, 2022. The hearing on the appeal is scheduled for March 30, 2022.
Janice P. Handlers-Bryman and Michael D. Bryman v. El Pollo Loco, Inc., Los Angeles Superior Court (Case No. MC026045) (the “Lancaster
Lawsuit”) was filed on February 9, 2016. Existing El Pollo Loco franchisees, Janice P. Handlers-Bryman and Michael D. Bryman, as individuals and
in their capacities as trustees of the Handlers Bryman Trust (collectively, “Plaintiffs”), filed suit against us alleging, among other things, that we
“imposed unreasonable time limitations” on their development of additional restaurant locations in Lancaster, California, and that we thereafter
developed company-operated El Pollo Loco restaurants in the “market area” of Plaintiffs’ existing El Pollo Loco restaurant in Lancaster.
During fiscal 2020, the Company reached an agreement with the Plaintiffs to resolve the lawsuit for a payment by the Company of $2.5 million,
which was recorded within operating expenses in the Company’s statement of income for the fiscal year ended December 30, 2020. Additionally,
during fiscal 2020, the matter was formally resolved. On September 2, 2020, the California Court of Appeals entered an order, following a motion for
stipulated reversal of the trial court’s judgment jointly filed by the parties, reversing the trial court’s judgment in the case and instructing the trial
court to dismiss the matter with prejudice. On September 10, 2020, the trial court entered an order reversing its judgment and dismissing the case
with prejudice. The settlement payment of $2.5 million has been made in the third quarter of 2020.
The Company is also involved in various other claims such as wage and hour and other legal actions that arise in the ordinary course of business. The
outcomes of these actions are not predictable but the Company does not believe that the ultimate resolution of these other actions will have a material
adverse effect on its financial position, results of operations, liquidity, or capital resources. A significant increase in the number of claims, or an
increase in amounts owing under successful claims, could materially and adversely affect its business, consolidated financial condition, results of
operations, and cash flows.
Purchase Commitments
The Company has long-term beverage supply agreements with certain major beverage vendors. Pursuant to the terms of these arrangements,
marketing rebates are provided to the Company and its franchisees from the beverage vendors based upon the dollar volume of purchases for system-
wide restaurants which will vary according to their demand for beverage
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
syrup and fluctuations in the market rates for beverage syrup. These contracts have terms extending through the end of 2024.
At December 29, 2021, the Company’s total estimated commitment to purchase chicken was $38.7 million.
Contingent Lease Obligations
As a result of assigning the Company’s interest in obligations under real estate leases in connection with the sale of company-operated restaurants to
some of the Company’s franchisees, the Company is contingently liable on four lease agreements. These leases have various terms, the latest of
which expires in 2036. As of December 29, 2021, the potential amount of undiscounted payments the Company could be required to make in the
event of non-payment by the primary lessee was $2.6 million. The present value of these potential payments discounted at the Company’s estimated
pre-tax cost of debt at December 29, 2021 was $2.4 million. The Company’s franchisees are primarily liable on the leases. The Company has cross-
default provisions with these franchisees that would put them in default of their franchise agreements in the event of non-payment under the leases.
The Company believes that these cross-default provisions reduce the risk that payments will be required to be made under these leases. During fiscal
2020, due to the current uncertainty related to the COVID-19 pandemic and the impact it has had on the ability of the Company’s franchisees to
make their lease payments, the Company recorded a $0.1 million liability in the Company’s consolidated financial statements related to these
contingent liabilities. During fiscal 2021, the Company reversed the initially recorded liability of $0.1 million due to the Company’s franchisees
continuing to make their lease payments without any delays.
Employment Agreements
As of December 29, 2021, the Company had employment agreements with three of the officers of the Company. These agreements provide for
minimum salary levels, possible annual adjustments for cost-of-living changes, and incentive bonuses that are payable under certain business
conditions.
Indemnification Agreements
The Company has entered into indemnification agreements with each of its current directors and officers. These agreements require the Company to
indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of their service to the
Company and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified. The Company also
intends to enter into indemnification agreements with future directors and officers.
14. RELATED PARTY TRANSACTIONS
LLC owns approximately 45.8% of the Company’s outstanding common stock as of December 29, 2021. This large position means that LLC and its
majority owners—predecessors and affiliates of, and certain funds managed by, Trimaran Capital Partners and Freeman Spogli & Co. (collectively,
“Trimaran” and “Freeman Spogli,” respectively)—possess significant influence when stockholders vote on matters such as election of directors,
mergers, consolidations and acquisitions, the sale of all or substantially all of the Company’s assets, decisions affecting the Company’s capital
structure, amendments to the Company’s certificate of incorporation or by-laws, and the Company’s winding up and dissolution. So long as LLC
maintains at least 40% ownership, (i) any member of the board of directors may be removed at any time without cause by affirmative vote of a
majority of the Company’s common stock, and (ii) stockholders representing 40% or greater ownership may cause special stockholder meetings to be
called.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. REVENUE FROM CONTRACTS WITH CUSTOMERS
Revenue Recognition
Nature of products and services
The Company has two revenue streams, company-operated restaurant revenue and franchise related revenue. See Note 2 “Summary of Significant
Accounting Policies” for a description of the revenue recognition policies.
Franchise and franchise advertising revenue
Franchise revenue consists of franchise royalties, initial franchise fees, license fees due from franchisees, IT support services, and rental income for
subleases to franchisees. Franchise advertising revenue consists of advertising contributions received from franchisees.
Disaggregated revenue
The following table presents the Company’s revenues for the years ended December 29, 2021, December 30, 2020 and December 25, 2019
disaggregated by revenue source and market (in thousands):
Core Market(1):
Company-operated restaurant revenue
Franchise revenue
Franchise advertising fee revenue
Total core market
Non-Core Market(2):
Company-operated restaurant revenue
Franchise revenue
Franchise advertising fee revenue
Total non-core market
Total revenue
December 29,
2021
December 30,
2020
December 25,
2019
$
$
$
$
$
371,067
16,062
12,017
399,146
23,666
17,667
13,884
55,217
454,363
$
$
$
$
$
346,662 $
14,216
10,632
371,510 $
27,402 $
15,202
11,973
54,577 $
426,087 $
351,624
14,918
11,049
377,591
39,488
13,901
11,350
64,739
442,330
(1) Core Market includes markets with existing company-operated restaurants at the time of the Company’s Initial Public Offering ("IPO") on
July 28, 2014.
(2) Non-Core Market includes markets entered into by the Company subsequent to the IPO date.
The following table presents the Company’s revenues disaggregated by geographic market for the years ended December 29, 2021,
December 30, 2020 and December 25, 2019:
Greater Los Angeles area market
Other markets
Total
December 29, 2021
December 30, 2020
December 25, 2019
70.9 %
29.1 %
100 %
71.3 %
28.7 %
100 %
70.5 %
29.5 %
100 %
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Contract balances
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table provides information about the change in the franchise contract liability balances during the year ended December 29, 2021 and
December 30, 2020 (in thousands):
December 25, 2019
Revenue recognized - beginning balance
Additional contract liability
Revenue recognized - additional contract liability
December 30, 2020
Revenue recognized - beginning balance
Additional contract liability
December 29, 2021
$
$
$
6,317
(1,082)
398
(5)
5,628
(680)
1,380
6,328
The Company’s franchise contract liability includes development fees, initial franchise and license fees, franchise renewal fees, lease subsidies and
royalty discounts and is included within other accrued expenses and current liabilities and other noncurrent liabilities within the accompanying
consolidated balance sheets. The Company receives area development fees from franchisees when they execute multi-unit area development
agreements. Initial franchise and license fees, or franchise renewal fees, are received from franchisees upon the execution of, or renewal of, a
franchise agreement. Revenue is recognized from these agreements as the underlying performance obligation is satisfied, which is over the term of
the agreement.
For the year ended December 29, 2021, there was an increase to the contract liability balance due to the Company’s completion of the sale of eight
company-operated restaurants within the Sacramento area to an existing franchisee. This resulted in an additional contract liability of $0.7 million,
relating to allocation of the transaction price to various performance obligations under the applicable contracts of the sale.
The following table illustrates the estimated revenue to be recognized in the future related to performance obligations that are unsatisfied as of
December 29, 2021:
Franchise revenues:
2022
2023
2024
2025
2026
Thereafter
Total
$
$
641
569
477
433
410
3,798
6,328
Changes in the loyalty rewards program liability included in other within other accrued expenses and current liabilities on the consolidated balance
sheets were as follows (in thousands):
Loyalty rewards liability, beginning balance
Revenue deferred
Revenue recognized
Loyalty rewards liability, ending balance
December 29,
December 30,
December 25,
2021
2020
2019
$
$
900
2,677
(2,890)
687
$
$
1,084
2,463
(2,647)
900
$
$
1,048
2,395
(2,359)
1,084
The Company expects all loyalty points revenue related to performance obligations unsatisfied as of December 29, 2021 to be recognized within one
year.
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Gift Cards
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The gift card liability included in other accrued expenses and current liabilities on the consolidated balance sheets was as follows (in thousands):
Gift card liability
December 29,
December 30,
2021
2020
$
4,622
$
4,008
Revenue recognized from the redemption of gift cards that was included in other accrued expenses and current liabilities at the beginning of the year
was as follows (in thousands):
Revenue recognized from gift card liability balance at the beginning of the year
$
1,218
$
1,028
$
871
December 29,
December 30,
December 25,
2021
2020
2019
Contract Costs
The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under Topic 606.
88
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ITEM 9.
DISCLOSURE
None.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
ITEM 9A.
CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15 (e) of the Exchange Act) that are designed to ensure that information
required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within
the required time periods, and that such information is accumulated and communicated to our management, including our Chief Executive Officer
and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our disclosure controls and procedures are based on assumptions about the likelihood of future events, and even effective disclosure controls and
procedures can only provide reasonable assurance of achieving their objectives. Because of their inherent limitations, we cannot guarantee that our
disclosure controls and procedures will succeed in achieving their stated objectives in all cases, that they will be complied with in all cases, or that
they will prevent or detect all misstatements.
Our management has evaluated, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, the effectiveness of our
disclosure controls and procedures, as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and
Interim Chief Financial Officer has concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of
December 29, 2021.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act
Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and
principal financial officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those
policies and procedures that (i) pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. The design of any
system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed
in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may
not deteriorate. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly,
even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or
that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we
carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 29, 2021 based on the criteria in Internal
Control — Integrated Framework (“2013 Framework”) issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of
December 29, 2021 based on the criteria established in the 2013 Framework.
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The effectiveness of our internal control over financial reporting as of December 29, 2021 has been audited by BDO USA, LLP, the independent
registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, as stated in their report included
herein.
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting occurred during the quarter ended December 29, 2021 have materially affected, or are
reasonably likely to materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
El Pollo Loco Holdings, Inc.
Costa Mesa, California
Opinion on Internal Control over Financial Reporting
We have audited El Pollo Loco Holdings, Inc.’s (the “Company’s”) internal control over financial reporting as of December 29, 2021, based on
criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial
reporting as of December 29, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the
consolidated balance sheets of the Company as of December 29, 2021 and December 30, 2020, the related consolidated statements of income,
comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 29, 2021, and the related notes
and our report dated March 11, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over
Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are
a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also
included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis
for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts
and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Costa Mesa, California
March 11, 2022
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ITEM 9B.
OTHER INFORMATION
As previously disclosed, Laurance Roberts was appointed Interim Chief Executive Officer of the Company, effective October 15, 2021. On March 8,
2022, our Board of Directors appointed Mr. Roberts as Chief Executive Officer, President and a Class III director on the Board of Directors of the
Company, effective March 9, 2022 (the “Effective Date”). Mr. Roberts will continue to serve as the Company’s interim Chief Financial Officer and
as its principal executive officer, principal accounting officer and principal financial officer. Biographical information regarding Mr. Roberts is
contained in our definitive proxy statement filed with the SEC on April 29, 2021, which information is incorporated by reference into this Item 9B.
In connection with Mr. Roberts’ appointment as our Chief Executive Officer President, and a member of the Board of Directors, we entered into an
employment agreement with Mr. Roberts on March 9, 2022 (the “Employment Agreement”). Pursuant to the Employment Agreement, the term of
Mr. Roberts’ employment as Chief Executive Officer and President will end on the 12th month anniversary of the Effective Date and on such date
and on each subsequent anniversary of such time, the term shall, without further action by Mr. Roberts or the Company, be extended by an additional
one-year period, subject to earlier termination as provided in the Employment Agreement. Mr. Roberts’ annual base salary will increase to $600,000
and his target annual bonus will be 100% of his base salary during his tenure as Chief Executive Officer. In addition, pursuant to the Employment
Agreement and at the discretion of our Board of Directors, during the term of the Employment Agreement, starting in April 2022, Mr. Roberts will
be eligible to receive an annual discretionary equity grant, with the amount and terms thereof determined by the Board of Directors.
During the term of the Employment Agreement, Mr. Roberts will be entitled to employee benefits on the same basis as those generally available to
other senior executives. Mr. Roberts will also be entitled to at least four weeks of vacation per year and an automobile allowance substantially similar
to that provided to other similarly situated senior executives.
The Employment Agreement provides that in the event that Mr. Roberts’ employment is terminated due to death or disability he will be entitled to a
prorated annual bonus for the year of termination based on actual performance. The Employment Agreement also provides that in the event that Mr.
Roberts’ employment is terminated without cause or for good reason, then he will be entitled to receive a prorated annual bonus for the year of
termination based on actual performance and continuation of payment of base salary for twelve months, subject, in each case, to the execution of a
general release and compliance with applicable restrictive covenants.
The Employment Agreement contains a perpetual confidentiality covenant, a one-year post-termination non-interference covenant applicable to the
Company’s relationships with suppliers, customers and partners and a one-year post-termination non-solicitation covenant applicable to Company
employees.
The foregoing description of the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement,
which is filed as Exhibit 10.32 to this Annual Report on Form 10-K and is incorporated herein by reference.
There are no arrangements or understandings between Mr. Roberts and any other persons pursuant to which he was selected as our Chief Executive
Officer, President and a member of our Board of Directors. There are also no family relationships between Mr. Roberts and any director or executive
officer of the Company and Mr. Roberts has no direct or indirect material interest in any related party transaction required to be disclosed pursuant to
Item 404(a) of Regulation S-K.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
PART III
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year. In addition, our
Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all of our directors, employees and officers, including our
principal executive officer, principal financial officer, principal accounting officer, controller, and any persons performing similar functions. The
current version of the Code of Business Conduct and Ethics is available on our website under the Corporate Governance section
at www.elpolloloco.com. To the extent required by rules adopted by the SEC and The Nasdaq Stock Market LLC, we intend to promptly disclose
future amendments to certain provisions of the Code of Business Conduct and Ethics, or waivers of such provisions granted to executive officers and
directors, on our website under the Corporate Governance section at www.elpolloloco.com.
ITEM 11.
EXECUTIVE COMPENSATION
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year.
ITEM 12.
STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year.
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ITEM 15.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this report:
PART IV
(1) Financial Statements: Consolidated financial statements filed as part of this report are listed under Item 8. Financial Statements and
Supplementary Data.
(2) Financial Statement Schedules: None.
(3) Exhibits:
Number
3.1
3.2
4.1
10.1
10.2
10.3
10.4
Description
Amended and Restated Certificate of
Incorporation of El Pollo Loco
Holdings, Inc.
Amended and Restated By-Laws of El
Pollo Loco Holdings, Inc.
Description of El Pollo Loco
Holdings, Inc. Capital Stock
Income Tax Receivable Agreement,
dated July 30, 2014, between El Pollo
Loco Holdings, Inc., and Trimaran
Pollo Partners, L.L.C.
Credit Agreement, dated as of
December 11, 2014, among El Pollo
Loco, Inc., as borrower, El Pollo Loco
Holdings, Inc., and EPL
Intermediate, Inc., as guarantors, Bank
of America, N.A., as administrative
agent, swingline lender and letter of
credit issuer, the lenders party thereto,
and the other parties thereto
Franchise Development Agreement
(Exclusive), dated August 20, 2014,
between El Pollo Loco, Inc., as
franchisor, and Anil Yadav and Atour
Eyvazian, collectively, as developer
Consent to and Assignment of
Development Rights (Initial Change of
Entity), dated August 20, 2014,
between El Pollo Loco, Inc., as
franchisor, and (i) Anil Yadav and
Atour Eyvazian, collectively, as
assignor, and (ii) AA Pollo, Inc., as
assignee
Filed
Herewith
Form
10-Q
Incorporated by Reference
Period
Ended
6/25/2014
Exhibit
3.1
Filing
Date
9/5/2014
SEC File Number
001-36556
10-Q
6/25/2014
10-K
12/25/2019
3.2
4.1
9/5/2014
001-36556
3/6/2020
001-36556
10-Q
9/24/2014
10.1
11/7/2014
001-36556
8-K
N/A
10.1
12/16/2014
001-36556
8-K
N/A
10.1
8/22/2014
001-36556
8-K
N/A
10.2
8/22/2014
001-36556
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10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14*
10.15
Franchise Development Option
Agreement, dated July 11, 2014,
between El Pollo Loco, Inc., and
Trimaran Pollo Partners, L.L.C.
Stockholders Agreement, dated as of
November 18, 2005, by and among El
Pollo Loco Holdings, Inc. (formerly
Chicken Acquisition Corp.) and the
stockholders listed therein
Amendment No. 1 to Stockholders
Agreement, dated as of April 20, 2006,
by and between El Pollo Loco
Holdings, Inc. (formerly Chicken
Acquisition Corp.) and Trimaran Pollo
Partners, L.L.C.
Amendment No. 2 to Stockholders
Agreement, dated as of December 26,
2007, by and between El Pollo Loco
Holdings, Inc. (formerly Chicken
Acquisition Corp.) and Trimaran Pollo
Partners, L.L.C.
Second Amended and Restated Limited
Liability Company Operating
Agreement of Trimaran Pollo Partners,
L.L.C., dated as of March 8, 2006
Amendment No. 1 to Second Amended
and Restated Limited Liability
Company Operating Agreement of
Trimaran Pollo Partners, L.L.C., dated
as of December 26, 2007
Amendment No. 2 to Second Amended
and Restated Limited Liability
Company Operating Agreement of
Trimaran Pollo Partners, L.L.C., dated
as of January 30, 2008
Amendment No. 3 to Second Amended
and Restated Limited Liability
Company Operating Agreement of
Trimaran Pollo Partners, L.L.C., dated
as of July 14, 2011
Form of Franchise Agreement
Form of Franchise Development
Agreement
Form of Franchise Agreement (2019)
S-1/A
N/A
10.14
7/14/2014
333-197001
S-1
N/A
10.3
6/24/2014
333-197001
S-1
N/A
10.4
6/24/2014
333-197001
S-1
N/A
10.5
6/24/2014
333-197001
S-1
N/A
10.6
6/24/2014
333-197001
S-1
N/A
10.7
6/24/2014
333-197001
S-1
N/A
10.8
6/24/2014
333-197001
S-1
N/A
10.9
6/24/2014
333-197001
S-1
S-1
N/A
N/A
10.12
10.13
6/24/2014
6/24/2014
333-197001
333-197001
10-K
12/25/2019
10.15
3/6/2020
001-36556
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Table of Contents
10.16
10.17
10.18
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
10.28*
10.29*
10.30*
10.31*
10.32*
Form of Franchise Development
Agreement (2019)
Form of Franchise Agreement (2021)
Form of Franchise Development
Agreement (2021)
Form of Indemnification Agreement
between El Pollo Loco Holdings, Inc.
and each of its directors and executive
officers
2014 Omnibus Equity Incentive Plan
Form of Option Award Agreement (Fair
Market Value Options) under 2014
Omnibus Equity Incentive Plan
Form of Non-Officer Director
Restricted Share Agreement under 2014
Omnibus Equity Incentive Plan
Form of Option Award Agreement (Fair
Market Value Options) under 2014
Omnibus Equity Incentive Plan (Time
Vesting Only)
Form of Employee Restricted Share
Agreement under 2014 Omnibus Equity
Incentive Plan
2018 Omnibus Equity Incentive Plan
Form of Restricted Stock Agreement
under 2018 Omnibus Equity Incentive
Plan
Form of Restricted Stock Agreement
under 2018 Omnibus Equity Incentive
Plan (Non-Employee Directors)
Form of Restricted Stock Unit
Agreement under 2018 Omnibus Equity
Incentive Plan
Form of Stock Option Awards
Agreement under 2018 Omnibus Equity
Incentive Plan
El Pollo Loco Holdings, Inc. Equity
Incentive Plan
Form of Stock Option Awards
Agreement under 2021 Equity
Incentive Plan
Form of Restricted Share Agreement
under 2021 Equity Incentive Plan
10-K
12/25/2019
10.16
3/6/2020
001-36556
X
X
S-1/A
N/A
10.27
7/22/2014
333-197001
S-1/A
S-1/A
N/A
N/A
10.22
10.25
7/22/2014
7/22/2014
333-197001
333-197001
S-1/A
N/A
10.26
7/22/2014
333-197001
10-Q
6/29/2016
10.27
8/5/2016
001-36556
10-Q
9/28/2016
10.28
11/4/2016
001-36556
S-8
10-K
N/A
12/25/2019
4.3
10.24
8/6/2018
3/6/2020
333-226621
001-36556
10-K
12/25/2019
10.25
3/6/2020
001-36556
10-K
12/25/2019
10.26
3/6/2020
001-36556
10-K
12/25/2019
10.27
3/6/2020
001-36556
8-K
N/A
10.1
6/14/2021
001-36556
X
X
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10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
10.40*
21.1
23.1
24.1
31.1
32.1
101.INS
101.SCH
Form of Restricted Stock Agreement
under 2021 Equity Incentive Plan (Non-
Employee Directors)
El Pollo Loco Holdings, Inc. Equity
Incentive Plan
Employment Agreement between
Bernard Acoca and El Pollo Loco, Inc.
Release and Consulting Agreement,
dated October 14, 2021, between El
Pollo Loco, Inc. and Bernard Acoca
Employment Agreement, dated March
9, 2022, between El Pollo Loco, Inc.
and Laurance Roberts
Employment Agreement between
Miguel Lozano and El Pollo Loco, Inc.
Form of Restricted Share Unit Award
Agreement between El Pollo Loco
Holdings, Inc. and Bernard Acoca
Form of Performance Share Unit Award
Agreement between El Pollo Loco
Holdings, Inc. and Bernard Acoca
Subsidiaries of El Pollo Loco
Holdings, Inc.
Consent of BDO USA, LLP
Power of Attorney (included on
signature page hereto)
Certification of Chief Executive Officer
and Interim Chief Financial Officer
under section 302 of the Sarbanes–
Oxley Act of 2002
Certification of Chief Executive Officer
and Interim Chief Financial Officer
under 18 U.S.C. section 1350, adopted
by section 906 of the Sarbanes–Oxley
Act of 2002
XBRL Instance Document - the
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X
X
X
X
X
**
X
X
8-K
N/A
10.1
6/14/2021
001-36556
10-K
12/27/2017
10.29
3/9/2018
001-36556
8-K
N/A
10.2
10/15/2021
001-36556
10-Q
3/27/2019
10.31
5/3/2019
001-36556
S-8
S-8
S-1
N/A
4.4
5/8/2018
333-224730
N/A
4.5
5/8/2018
333-224730
N/A
21.1
6/24/2014
333-197001
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101.CAL
101.DEF
101.LAB
101.PRE
104
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X
X
X
X
*
**
This exhibit is a management contract or a compensatory plan or arrangement.
Furnished herewith.
ITEM 16.
FORM 10-K SUMMARY
None.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
EL POLLO LOCO HOLDINGS, INC.
By:
/s/ Laurance Roberts
Laurance Roberts
Chief Executive Officer, President and Interim Chief Financial
Officer
Date: March 11, 2022
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name
/s/ Laurance Roberts
Laurance Roberts
/s/ Michael G. Maselli
Michael G. Maselli
/s/ Dean C. Kehler
Dean C. Kehler
/s/ John M. Roth
John M. Roth
/s/ Douglas J. Babb
Douglas J. Babb
/s/ Samuel N. Borgese
Samuel N. Borgese
/s/ Mark Buller
Mark Buller
/s/ William R. Floyd
William R. Floyd
/s/ Nancy Faginas-Cody
Nancy Faginas-Cody
/s/ Deborah Gonzalez
Deborah Gonzalez
/s/ Carol Lynton
Carol Lynton
Title
Chief Executive Officer, President, Interim Chief Financial Officer and
Director (principal executive officer; principal financial and accounting
officer)
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
Director
Director
99
Date
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
March 11, 2022
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EL POLLO LOCO® FRANCHISE AGREEMENT
Dated: ____________________
Location:
Franchisee:
Franchisee Notice Address:
Franchisee Notice Facsimile Number:
(Disclosure Document Control No. 033021)
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 1 of 128
TABLE OF CONTENTS:
1. SCOPE AND PURPOSE OF AGREEMENT
2. THE EL POLLO LOCO® MARKS & SYSTEM
3. TERM
4. SITE DEVELOPMENT
5.
IMPROVEMENTS, FIXTURES AND EQUIPMENT
6. FEES, TAXES AND OTHER CHARGES
7. FINANCIAL REPORTING, BILLING AND PAYMENT
8. ADVERTISING AND MARKETING
9.
INSURANCE AND INDEMNIFICATION
10. VENDING MACHINES
11. COMPLIANCE WITH MANUAL AND WITH SYSTEM STANDARDS
12. RESTAURANT MAINTENANCE AND REPAIR
13. HOURS OF OPERATION
14. PERSONNEL STANDARDS
15.
INSPECTIONS
16. TRAINING
17. ASSIGNMENT
18. DEFAULT AND TERMINATION
19. RIGHTS AND OBLIGATIONS UPON TERMINATION
20. RIGHTS TO A SUCCESSOR FRANCHISE
21. PROPRIETARY RIGHTS AND UNFAIR COMPETITION
22. DISPUTE RESOLUTION
23. MISCELLANEOUS PROVISIONS
24. EFFECTIVE DATE
25. ACKNOWLEDGMENTS
26. ANTI-TERRORISM LAW
27. SIGNATURES
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 2 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
4
6
7
8
9
12
13
20
22
26
26
30
31
31
32
34
36
43
46
48
50
55
56
61
61
63
63
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EXHIBITS AND SCHEDULES:
EXHIBIT 1: MEMORANDUM OF OPENING DATE
EXHIBIT 2: PERSONAL GUARANTEE OF FRANCHISE AGREEMENT
EXHIBIT 3: INVESTOR COVENANTS REGARDING CONFIDENTIALITY AND NON-COMPETITION
EXHIBIT 4: AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS (ACH)
EXHIBIT 5: ADVERTISING ASSOCIATION DOCUMENTS
EXHIBIT 6: EL POLLO LOCO® FINANCIAL REPORTING FORM
EXHIBIT 7: IT SUPPORT SERVICES AGREEMENT
EXHIBIT 8: GENERAL RELEASE
EXHIBIT 9: CONSENT TO AND ASSIGNMENT OF FRANCHISE RIGHTS
EXHIBIT 10: AMENDMENT TO FRANCHISE AGREEMENT TO APPLY DEVELOPMENT FEE
EXHIBIT 11: AMENDMENT TO SUCCESSOR FRANCHISE AGREEMENT
EXHIBIT 12: REMODEL SCHEDULE PARTICIPATION AGREEMENT
EXHIBIT 13: AMENDMENT TO FRANCHISE AGREEMENT
EL POLLO LOCO® FRANCHISE AGREEMENT SCHEDULE 1: STATEMENT OF OWNERSHIP OF
FRANCHISEE
64
65
69
72
73
94
95
108
110
120
122
125
129
131
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 3 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EL POLLO LOCO® FRANCHISE AGREEMENT
This Franchise Agreement ("Agreement"), dated for identification purposes only as of ____, 20__, is made
and entered into by and between EL POLLO LOCO, INC., a Delaware corporation (the "Franchisor"), and
, a__________ ("Franchisee").
A.
Franchisor operates and franchises others to operate a number of retail outlets for the sale of fire-
grilled food items and related products, in connection with the "El Pollo Loco" name and Franchisor's
distinctive plan of food service operation.
Franchisee desires to operate a restaurant under Franchisor's name and to utilize Franchisor's plan of
B.
food service operation, all in accordance with the terms, covenants and conditions of this Agreement.
C.
Franchisee understands that the success of the business contemplated by this Agreement is subject
to substantial risks and depends in large part on the business ability of Franchisee and its active participation
in the development and management of the franchise business.
Franchisor and Franchisee (as Developer) entered
D.
into a Development Agreement dated
________________ (“Development Agreement”) for the Territory set forth on Exhibit A of the Development
Agreement, and for restaurants to be developed per the Development Schedule set forth on Exhibit B of the
Development Agreement.
1.
SCOPE AND PURPOSE OF AGREEMENT
1.1.
Franchisee desires and agrees to operate and manage an "El Pollo Loco" (or “EPL”)
restaurant to be located at ____________________________ City of , County of ___________,
State of (the "Location"). Franchisor owns certain proprietary and other property rights and
interests in and to the "El Pollo Loco" trademark and service mark, and such other trademarks, service
marks, logo types, insignias, trade dress designs and commercial symbols as Franchisor may from time to
time authorize or direct Franchisee to use in connection with the operation of a "El Pollo Loco" Restaurant
(the "El Pollo Loco® Marks"). Franchisor has a distinctive plan for the operation of retail outlets for the sale
of fire-grilled food items and related products, which plan includes but is not limited to the El Pollo Loco®
Marks and the El Pollo Loco® Operations Manual (the "Manual"), policies, standards, procedures, recipes,
employee uniforms, signs (including traditional or digital menu boards) and related items, and the reputation
and goodwill of Franchisor's chain of restaurants (collectively, the "El Pollo Loco® System") which may be
periodically modified from time to time, and as provided in this Agreement. Therefore, in entering into this
Agreement, Franchisee fully understands and agrees that this Agreement is conditioned upon the continued
strict adherence by Franchisee to, and Franchisee agrees to comply with, all standards, policies, procedures
and requirements published or which may from time to time be published or otherwise brought to
Franchisee's attention by Franchisor for the operation, maintenance or improvement of
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 4 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
"El Pollo Loco" restaurants under the El Pollo Loco® System and the El Pollo Loco® Marks. Franchisee
understands and agrees that strict adherence to these standards, policies, procedures and requirements is
essential to the value of the El Pollo Loco® System and the El Pollo Loco® Marks.
1.2.
Franchisee represents that it is experienced in and has independent knowledge of the nature
and specifics of the restaurant business. Franchisee understands that there is not, nor can there be, any
assurance or guarantee of success in the franchise business and that Franchisee's business ability and
attitude are primary in determining Franchisee's success. Franchisee represents that, in entering into this
Agreement, it has relied solely on its personal knowledge and understanding and has not relied on any
representation of Franchisor or any of its officers, directors, employees or agents, except those
representations contained in any legally required Franchise Disclosure Document delivered to Franchisee.
a.
In consideration of the foregoing representations and agreements of Franchisee and
other consideration as set forth herein, and subject to all of the terms, covenants and conditions of this
Agreement, Franchisor hereby grants to Franchisee, and Franchisee hereby accepts from Franchisor, the
right and franchise to operate one (1) “El Pollo Loco” restaurant under the El Pollo Loco® Marks and in
accordance with the El Pollo Loco® System (the “Restaurant”) at the Location.
1.3. Except as otherwise provided in this Agreement, after the date of this Agreement and during
the term of this Agreement, and so long as Franchisee is in compliance with its obligations under this
Agreement, Franchisor shall not, without Franchisee’s prior written consent, establish or franchise any other
person to establish, a standalone or traditional inline El Pollo Loco restaurant at any location within the
“Protected Area” of one-half (0.5) mile radiating from your Restaurant. No Protected Area exists with
respect to “Ghost kitchens” which we define as a professional food preparation and cooking facility set up for
the preparation of delivery-only meals whether or not the facility produces menu items for multiple brands or
just for EPL Restaurants. Additionally, no Protected Area exists for EPL Restaurants located in “Non-
Traditional Venues,” which we define as any of the following types of venues: regional shopping malls,
airports, mass transit stations, professional sports stadiums and arenas, hotels and other types of lodging
facilities, military bases, entertainment centers, amusement parks, casinos, universities and other types of
schools, hospitals and other types of health care institutions, and similar types of captive market locations
that we may designate. We will determine and designate those shopping malls that in our judgment qualify
as a regional shopping mall based on the size of the shopping complex, number of anchor tenants,
existence of dedicated parking space, existence of unrelated merchandisers, and prevailing consumer and
industry perceptions. Franchisor and Franchisee retain all other rights and obligations in this Agreement
including Franchisor’s absolute right to establish or franchise any other person to establish and operate El
Pollo Loco restaurants at any location outside the Protected Territory. Franchisor expressly retains all other
rights and may, among other things, on any terms and conditions Franchisor deems advisable, and
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 5 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
without granting Franchisee any right therein:
a.
Merchandise and distribute goods and services identified by the El Pollo Loco® Marks
(including the same or similar products as sold by Franchisee at the Restaurant) to customers at any retail
location, regardless of its proximity to the Location, through any method or channel of distribution, including,
without limitation, at retail locations such as grocery or convenience stores and via the Internet,
telemarketing, and direct marketing means, or through other non-El Pollo Loco restaurants having the same
or similar menu items or through any other distribution channel; and
b.
Establish and operate and franchise other restaurants (not using the Marks) having the
same or similar menu items, whether within or outside of the Protected Area.
1.4.
It is expressly understood and agreed by the parties that Franchisee is and shall be an
independent contractor, that Franchisee is not for any purpose an employee or agent of Franchisor, and that
all of the personnel employed by Franchisee at the Restaurant will be employees or agents of Franchisee as
an independent contractor and will not be employees or agents of Franchisor. Franchisee understands and
agrees that, as an independent contractor, it does not have the authority to do anything for or on behalf of
Franchisor including, but not limited to, holding itself out as Franchisor; signing contracts, notes or other
instruments; purchasing, acquiring or disposing of any property; or incurring any other obligation or liability.
It is further understood and agreed by the parties hereto that no fiduciary relationship is intended or created
by this Agreement.
2.
THE EL POLLO LOCO® MARKS & SYSTEM
2.1. Upon the terms, covenants and conditions contained herein and during the term hereof,
Franchisee shall have the right to display and use the El Pollo Loco® Marks, but only for use in connection
with retail sales and service of certain food products which Franchisee is required to prepare and sell to the
general public in and at the Restaurant.
2.2. Nothing contained herein shall be construed as authorizing or permitting Franchisee to use the
El Pollo Loco® Marks or the El Pollo Loco® System at any location other than the Location or for any purpose
or in any manner other than that authorized herein; or in connection with the sale of any products for resale,
or any products not required or approved by Franchisor, or any products prepared at any place other than at
the Location; provided, however, that catering and special event sales may be undertaken by Franchisee in
strict adherence with the limitations and procedures set forth in the Manual. Notwithstanding anything to the
contrary contained herein, Franchisor may require Franchisee to discontinue the preparation, offer or sale of
any product or item which, in the opinion of Franchisor or any of its representatives, does not conform to the
quality standards or image of Franchisor and its products.
2.3. Nothing contained herein shall give Franchisee any right, title or interest in or to any of the El
Pollo Loco® Marks excepting only the privilege and license, during the
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 6 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
term hereof, to display and use the same according to the foregoing limitations. Any and all goodwill arising
in connection with Franchisee's use of the El Pollo Loco® Marks and the El Pollo Loco® System shall belong
to Franchisor.
2.4.
The business franchised hereunder shall be named "El Pollo Loco" without any suffix or prefix
attached thereto. Franchisee shall use signs (including traditional or digital menu boards) (“Signs”) and other
advertising which denote that the Restaurant is named "El Pollo Loco" and which are approved by
Franchisor in advance. If Franchisee is transferred to an Entity (as defined below), the name of such
corporation shall not contain any of the El Pollo Loco® Marks.
2.5. Except as Franchisor may otherwise permit in writing, Franchisee shall not display or use the
trademark, trade name, service mark, logo types, label, design or other identifying symbol or name of any
other person, or Entity in, on or at the Restaurant or the Location.
2.6.
In all public records, in Franchisee’s relationship with other persons or companies, and in any
offering document, prospectus or similar document, Franchisee shall indicate clearly that Franchisee's
business is independently owned and that the operations of said business are separate and distinct from the
operation of Franchisor's business. Franchisee shall display at the Restaurant, in such locations as may be
specified by Franchisor and in all correspondence and forms, a notification that the Restaurant is operated
by an independent operator and not by Franchisor.
2.7.
Franchisee shall not develop, create, generate, own, license, lease or use in any manner any
computer medium or electronic medium (including, without limitation, any Internet home page, e-mail
address, website, domain name, bulletin board, newsgroup or other Internet-related medium) which in any
way uses or displays, in whole or in part, the El Pollo Loco® Marks, or any of them, or any words, symbols or
terms confusingly similar thereto without Franchisor’s express written consent, and then only in such manner
and in accordance with such procedures, policies, standards and specifications as Franchisor may establish
from time to time.
2.8.
Franchisor is the owner of, and will retain all right, title and interest in and to the domain names
“elpolloloco” and “crazychicken;” the URLs and/or websites: www.elpolloloco.com, www.elpolloloco.net,
www.elpolloloco.org, www.myepl.net, www.crazychicken.com, www.eplmarketing.com, www.eplportal.com,
www.eplfranchisee.com, and www.orderelpolloloco.com; all existing and future domain names, URLs,
websites, future addresses and subaddresses using the El Pollo Loco® Marks in any manner; all software; all
content prepared for, or used on, the above Websites; and all intellectual property rights in and to any of
them.
2.9.
Franchisor reserves all rights to use the El Pollo Loco ® Marks in any manner.
3.
TERM
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 7 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
3.1.
The term of this Agreement shall commence on the date Franchisee first opens the Restaurant
to the public (the “Opening Date”) and shall end on the date which is the 20th anniversary of the Opening
Date, unless sooner terminated as provided herein (“Initial Term”). Should Franchisee lease the site of the
Restaurant, the lease or sublease must be for a term which with renewal options is not less than the Initial
Term of the Franchise Agreement, and contain the provisions required in Section 2 of the Development
Agreement. Should Franchisee be unable to lease the site of the Restaurant for a term equal to the Initial
Term, then as our sole and absolute right to determine, the Initial Term of the Franchise Agreement may be
reduced to match the term of the lease or sublease and the initial franchise fee will be appropriately pro-
rated. Promptly following the Opening Date, the parties shall execute a Memorandum of Opening Date
attached as Exhibit 1 which shall confirm the Opening Date; provided, however, if the parties fail to execute
such Memorandum of Opening Date, the Opening Date shall be as determined in good faith by Franchisor.
Upon the expiration or earlier termination of this Agreement, Franchisee shall have no right or option to
extend the term of this Agreement. The sole conditions under which Franchisee will have the opportunity to
obtain a successor Franchise Agreement upon the expiration of the term of this Agreement are set forth at
Section 20.
4.
SITE DEVELOPMENT
4.1. After execution of this Agreement, Franchisee will be required to achieve certain milestones to
assure the timely development of the Restaurant
a.
Within six (6) months following the date of Franchisor’s execution of this Agreement,
Franchisee must have completed all of the site development work (including, but not limited to, engineering,
architectural/design, entitlements, and permitting) and commence construction of the Restaurant.
b.
Within twelve (12) months following the date of Franchisor’s execution of this
Agreement, or the date specified in the Development Agreement, if earlier, Franchisee must have completed
construction of the Restaurant at the Location and the Restaurant shall be open to the public.
4.2.
Franchisee understands and acknowledges that in accepting Franchisee’s Location, or by
granting a franchise for a Location (whether or not formerly operated as a Franchisor or franchisee-owned
Restaurant), Franchisor does not in any way endorse, warrant or guarantee either directly or indirectly the
suitability of such Location or the success of the franchise business to be operated by Franchisee at such
Location. The suitability of the Location and the success of the franchise business depends upon a number
of factors outside of Franchisor's control including, but not limited to, Franchisee’s operational abilities, site
location, consumer trends and such other factors that are within the direct control of Franchisee. Franchisor
may require, as a condition to its approval of a site, a “Market Study”, which shall include a site description
and analysis, traffic and other demographic information and an analysis of the impact of the proposed site on
other
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 8 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
franchise restaurants surrounding or within the vicinity of such proposed site all in such format as the
Franchisor may require. All such analyses, information and studies shall be prepared at the sole cost and
expense of Franchisee.
4.3.
If Franchisee purchases a currently operating Restaurant from Franchisor (a “Turnkey
Restaurant”), then Franchisee shall begin operation of the Restaurant on the date possession of the
Restaurant is transferred to Franchisee pursuant to the agreement entered into between Franchisee and
Franchisor for the purchase of the Restaurant. Failure to do so shall constitute a material default hereunder.
With respect to non-Turnkey Restaurants, failure to reach each milestone described in Section 4.1 above
within the specified time frames shall constitute a material default hereunder. Prior to opening the
Restaurant, Franchisee shall obtain and thereafter maintain throughout the term of this Agreement all
necessary business licenses, permits and other documentation necessary for the operation of an El Pollo
Loco® restaurant.
5.
IMPROVEMENTS, FIXTURES AND EQUIPMENT
5.1.
If the Location is other than a Turnkey Restaurant, then this Section 5 will apply to the building,
reconstruction, remodeling, or other changes necessary to conform the Location to the requirements set
forth in this Section or as provided and updated by Franchisor from time to time in accordance with this
Section.
5.2.
Franchisee, at its sole expense, shall construct or, in the case of an existing building, remodel
the Location and install such Signs, fixtures, furniture and equipment at the Location as are required in
accordance with Franchisor's current requirements and specifications for same. Franchisee shall be
responsible for obtaining all zoning classifications and clearances which may be required by state or local
laws, ordinances or regulations. Franchisee shall obtain from applicable governmental authorities all
permits, licenses and certifications required for lawful construction or remodeling work and for the operation
of the Restaurant. If requested by Franchisor, Franchisee shall submit to Franchisor a copy of all such
required permits, licenses and certifications for the construction or remodeling work prior to commencing the
construction or remodeling of the Location.
5.3.
Franchisor shall provide Franchisee with standard plans and a sample layout for a typical El
Pollo Loco® restaurant and a set of typical construction, equipment and decor specifications (the "Plans").
At all times, Franchisee shall use its best efforts to treat and keep the Plans and the information contained
therein as confidential as possible and limit access to the Plans to employees and independent contractors
of Franchisee on a need to know basis only (including preferred development professionals). Franchisee
acknowledges that the unauthorized use or disclosure of Franchisor's Plans and the confidential information
contained therein will cause irreparable injury to Franchisor and that damages are not an adequate remedy.
Franchisee accordingly covenants that without Franchisor's prior written consent, Franchisee shall not
disclose (except to such employees, agents, contractors or subcontractors as must have access to such
Plans in order to construct the Restaurant
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 9 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
at the Location) or use or permit the use of such Plans (except as may be required by applicable law or
authorized by this Agreement), or copy, duplicate, record or otherwise reproduce such Plans, in whole or in
part, or otherwise make the same available to any person or source not authorized in writing by Franchisor to
receive such Plans or the information contained therein at any time during the term of this Agreement or
thereafter.
5.4.
Franchisee, at its sole expense, shall employ licensed architects, designers, engineers,
development consultants or others as may be necessary to complete, substitute, adapt or modify the Plans
for the Restaurant so as to create a set of final plans and specifications. Creating a set of final plans and
specifications may include, but is not limited to, adapting plans for structural engineering, architectural
requirements, interior and exterior materials, locally available building materials, local weather requirements
and federal, state and local code requirements. In some cases, these can lead to substantial changes and
costs in the provided plans. FRANCHISEE SHALL SUBMIT TO FRANCHISOR A COMPLETE SET OF
FINAL PLANS AND SPECIFICATIONS, INCLUDING A SITE PLAN, AND OBTAIN FRANCHISOR'S
WRITTEN APPROVAL OF SUCH PLANS AND SPECIFICATIONS PRIOR TO COMMENCING THE
CONSTRUCTION OF THE RESTAURANT OR, IN THE CASE OF AN EXISTING BUILDING, THE
REMODELING WORK FOR THE RESTAURANT. Franchisor shall review such final plans and specifications
promptly and approve or disapprove the same, and Franchisor may provide comments on the plans and
specifications to Franchisee. Such review and approval by Franchisor will be limited to items and issues
relating to the El Pollo Loco® System only and is not intended to be a verification or approval of the structure
of the building, mechanical systems or document accuracy. Examples of conceptual areas related to the El
Pollo Loco® System include Signs, logos, finishes, decor and aesthetics, guest comfort, and ability to serve
food within Franchisor's standards for quality, timeliness and cleanliness.
5.5.
Franchisee shall use a qualified licensed general contractor to perform the construction or
remodeling work at the Restaurant. Franchisees general contractor shall provide a schedule to Franchisor
before the start of construction. Franchisor shall not be responsible for delays in the construction, equipping
or decoration of the Restaurant or for any loss resulting from the Restaurant design or construction. All
changes in the Restaurant plans relating to the El Pollo Loco® System, as described in Section 5.4 above, to
the construction or remodeling of the Restaurant or the implementation of such changes are subject to
Franchisor’s prior written approval. FRANCHISEE SHALL PROVIDE WRITTEN NOTICE TO FRANCHISOR
OF THE DATE UPON WHICH CONSTRUCTION OF THE RESTAURANT COMMENCED WITHIN SEVEN
(7) DAYS AFTER COMMENCEMENT AND THEREAFTER SHALL PROVIDE TO FRANCHISOR MONTHLY
PROGRESS REPORTS OF THE STATUS OF THE CONSTRUCTION WORK SIGNED BY FRANCHISEE'S
ARCHITECT OR GENERAL CONTRACTOR. Franchisee's failure to commence the design, construction or
remodeling, equipping and opening of the Restaurant promptly and with due diligence shall be grounds for
the termination of this Agreement. Franchisor shall make a final inspection of the completed Restaurant and
Location and may require such corrections and modifications as it deems necessary to bring the Restaurant
and the Location into compliance with approved final
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 10 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
plans and specifications. FRANCHISEE SHALL NOTIFY FRANCHISOR OF THE DATE OF COMPLETION
OF CONSTRUCTION AND, WITHIN A REASONABLE TIME THEREAFTER, FRANCHISOR SHALL
CONDUCT THE FINAL INSPECTION OF THE RESTAURANT AND ITS PREMISES. Franchisee
acknowledges and agrees that Franchisee shall not open the Restaurant for business without the express
written authorization of Franchisor and that Franchisor's authorization to open shall be conditioned upon
Franchisee's furnishing to Franchisor:
a.
A letter from the general contractor responsible for the construction or remodeling of the
Restaurant indicating that the Restaurant has been constructed or remodeled in substantial conformance
with the approved final plans and specifications, including any changes thereto approved by Franchisor, and
in accordance with all applicable state and local governmental laws, statutes and ordinances regulating such
construction including, without limitation, building, fire, health and safety codes; and
b.
A temporary or final Certificate of Occupancy issued by the applicable local
governmental entity.
5.6.
Franchisee shall, at its sole expense, purchase all required Signs, fixtures, furniture and
equipment for the Restaurant and Location from a distributor listed on the Approved Brands and Distributors
List (as defined below) or another distributor approved pursuant to Section 11.4. The items purchased shall
be installed in strict accordance with the specifications of Franchisor and erected and displayed in the
manner and at such locations as are approved and authorized by Franchisor in writing. Franchisee shall
maintain and display Signs which reflect the current image of El Pollo Loco® restaurants and shall not place
additional Signs at the Restaurant without the prior written consent of Franchisor. Franchisee shall
discontinue the use of and remove, or modify, as applicable, such Signs that are declared obsolete by
Franchisor within thirty (30) days after Franchisee’s receipt of Franchisor’s written request, subject to
reasonable extension if Franchisee is unable after using reasonable diligence to obtain required
governmental approvals for modification of such Signs. Proper signage is fundamental to the El Pollo Loco®
System and Franchisee hereby grants to Franchisor the right to enter the Location, including the Restaurant
and any nearby areas where Signs are displayed, in order to remove and de-identify any unapproved or
obsolete Signs in the event Franchisee has failed to do so within the above-specified time frame.
5.7.
Franchisee is solely responsible for the acts or omissions of its contractors regarding
compliance with all of the provisions of this Section 5, and Franchisor shall have no responsibility for such
acts or omissions. Franchisor shall not be liable for any loss or damage arising from the design or plan of
the Restaurant by reason of its approval of plans and specifications, or otherwise. Franchisee shall
indemnify Franchisor for any loss, cost or expense, including attorneys' fees, that may be sustained by
Franchisor because of the acts or omissions of Franchisee's contractors or arising out of the design,
construction or remodeling of the Restaurant, except to the extent that any such loss, cost or expense arises
as a result of the grossly negligent acts or omissions of Franchisor, its
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 11 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
employees and/or agents.
5.8.
Franchisee shall give to Franchisor at least thirty (30) days prior written notice of the
anticipated Opening Date. Franchisee shall not open the Restaurant to the public until it has received
written approval from Franchisor to open. If Franchisee did not deliver to Franchisor a final Certificate of
Occupancy prior to the Opening Date, Franchisee shall deliver to Franchisor a copy of an unconditional final
Certificate of Occupancy issued by the applicable local governmental entity no later than ninety (90) days
following the Opening Date.
6.
FEES, TAXES AND OTHER CHARGES
6.1.
Franchisee shall pay to Franchisor during the term of this Agreement the following:
a.
An initial franchise fee of Forty Thousand Dollars ($40,000.00), in full within 30 days of
delivery of execution copies of this Agreement to Franchisee; provided, however, if the Restaurant is a
Turnkey Restaurant the initial franchise fee shall be payable upon execution of this Agreement. As our sole
and absolute right to determine, you may be offered an Initial Term of less than 20 years and as such, the
initial franchise fee will be appropriately pro-rated. All such payments shall be made by cashier's check or
other form of payment acceptable to Franchisor. Franchisee hereby acknowledges and agrees that the
grant of this franchise constitutes the sole and only consideration for the payment of the initial franchise fee
and the initial franchise fee shall be fully earned by Franchisor upon execution of this Agreement. In that
regard, upon the payment of any portion of the initial franchise fee, the entire initial franchise fee shall be
deemed fully earned and non-refundable in consideration of the administrative and other expenses incurred
by Franchisor in granting this franchise and for Franchisor's lost or deferred opportunity to franchise to
others.
b.
A monthly royalty fee equal to five percent (5%) of Franchisee's immediately prior
month’s Gross Sales (as defined in Section 7.1).
c.
A monthly advertising fee, which shall be used in accordance with Section 8, for
advertising, public relations and promotion and for the creation and development of advertising, public
relations and promotional campaigns (“Advertising Fee”), in the amount of: (i) five percent (5%) of
Franchisee's immediately prior month’s Gross Sales, as defined in Section 7.1 if the Restaurant is located
outside of the Los Angeles (“LA”) Designated Market Area ("DMA") or (ii) four percent (4%) of Franchisee's
immediately prior month’s Gross Sales, as defined in Section 7.1 if the Restaurant is located within the Los
Angeles DMA. If the Restaurant is located within the LA DMA, the Advertising Fee may be increased, as our
sole and absolute right to determine, to not more than one percent (1%) above your original Advertising Fee
during the Initial Term of your Franchise Agreement and upon 90 days written notice to you. Some existing
franchisees may pay lower Advertising Fees. Restaurants owned and operated by us will contribute on the
same basis as those existing franchisees within the same DMA.
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 12 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Franchisor also reserves the right to increase the Advertising Fee in the future by a voting mechanism.
Except as otherwise provided in existing franchise agreements, each operating restaurant (both company-
owned and franchised restaurants) located in the geographical area that would be affected by such an
increase in the Advertising Fee shall be entitled to one vote. Franchisor must gain an approval vote of fifty-
one percent (51%) of all such operating restaurants within the applicable geographical area. The minimum
geographical area that would be affected by such an increase would be no smaller than a local DMA,
although, multiple local DMAs may be involved.
d.
The amount of all sales taxes, use taxes and similar taxes imposed upon or required to
be collected or paid by Franchisor on account of goods or services furnished to Franchisee by Franchisor,
whether such goods or services are furnished by sale, lease or otherwise. Franchisee shall reimburse
Franchisor for the invoice amount within seven (7) days after the invoice has been delivered to Franchisee.
e.
f.
Monthly POP Fees for in-restaurant and drive-thru point-of-purchase materials.
Monthly Gift Card Discount Fees associated with the sale of gift cards (charged to the
restaurant that redeemed the gift cards and earned the sales revenue)
g.
Franchisee’s pro-rata share of costs for the Customer Feedback Program(s).
h.
Re-inspection fees per re-inspection of Franchisee’s Restaurant, (required if a deficiency
or unsatisfactory condition is noted and a subsequent re-inspection is necessary to determine if the
deficiency or unsatisfactory condition has been cured) and coaching fees (required if coaching sessions are
required as determined by Franchisor in our sole and absolute right in certain circumstances).
i.
A surcharge for each case of chicken (Whole Birds and Saddles) ordered by franchise
and company operators as contributions to the obsolete inventory fund used to pay for pertinent, unsold
inventory of qualified suppliers at the conclusion of limited time promotions and to expedite the delivery of
products for situations in which sales exceed prior forecasts. We periodically review the added cost per case
and as our sole and absolute right, determine whether to increase or decrease the cost per case.
6.2.
Franchisee shall pay interest to Franchisor on any amounts which may become due to
Franchisor from Franchisee, if such are not paid when due, at the rate of fifteen percent (15%) per annum
(pro-rated) or the maximum interest rate permitted by law, whichever is less.
7.
FINANCIAL REPORTING, BILLING AND PAYMENT
7.1.
The term "Gross Sales" as used in this Agreement shall mean the total
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 13 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
revenues derived by Franchisee in and from the Restaurant from all sales of food, goods, wares,
merchandise and all services, rights, and anything else of value, made in, upon, or from the Restaurant,
whether for cash, check, credit or otherwise, without reserve or deduction for inability or failure to collect the
same, including, without limitation, all revenues derived from delivery, curbside pickup orders, catering, and
special event sales, such sales and services where the orders therefor originate at and are accepted by
Franchisee into the Restaurant but delivery or performance thereof is made from or at any other place, or
other similar orders are received or billed at or from the Restaurant, and any sums or receipts derived from
the sale of meals to employees of the Restaurant. Gross Sales shall not include rebates or refunds to
customers; or the amount of any sales taxes or other similar taxes that Franchisee collects from customers
and that are actually paid to any federal, state or local taxing authority.
7.2.
Franchisee shall deliver to Franchisor on or before the sixth (6th) calendar day after each close
of the sales month, a monthly Gross Sales statement ("Monthly T-Sheet"), in the form specified by
Franchisor, setting forth the amount of Gross Sales for the preceding month and a calculation of the monthly
fees payable on such sales. Monthly fees, such as Royalty Fees and Advertising Fees, in addition to other
fees such as POP Fees, Gift Card Discount Fees, Customer Feedback Costs and Re-Inspection Fees
(hereinafter collectively will be referred to as “Fees”) shall be due and payable on the tenth (10th) day after
the close of the sales month, which closing shall be designated by El Pollo Loco® as its sole and absolute
right upon ten (10) days advance written notice to Franchisee (“Sales Month Closing”). Franchisee shall
make all payments due hereunder by pre-arranged draft or sweep of Franchisee’s business bank operating
account (“ACH”). Franchisee will give Franchisor authorization in the format set forth in the Authorization
Agreement for Prearranged Payments, Exhibit 4 attached hereto for direct debits from Franchisee’s
business bank operating account (the “Operating Account”). Franchisee acknowledges it is Franchisee’s
responsibility to notify Franchisor of any changes to the bank operating account in a timely fashion.
Franchisor may choose, as its sole and absolute right, to accept other forms of payment including check,
cashier’s check and Electronic Funds Transfer (“EFT”). Franchisee will contribute to the Obsolete Inventory
Fund as described above. Contributions are payable to the vendor at the time of inventory purchase.
7.3.
If Franchisee is delinquent in any payment of such Fees, or if Franchisee has not submitted the
Monthly T-Sheet for more than a two-month period when due, Franchisor may, as its sole and absolute right
initiate an ACH or/and EFT transfer from the Operating Account an estimated amount of Fees due
Franchisor for such period which shall be based on the average of the immediately preceding three (3)
months’ Gross Sales. If, at any time, Franchisor determines that Franchisee has under-reported the monthly
Gross Sales of the Restaurant, or underpaid the monthly royalty, advertising Fees, DMA Advertising Fee, or
other amounts due to Franchisor under this Agreement, or any other agreement, Franchisor may, in addition
to exercising all other rights and remedies available to it under this Agreement, initiate an immediate transfer
from the Operating Account in the amount equal to the unpaid Fees in accordance with the foregoing
procedure, including interest as provided in Section 6.2 above. Any
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 14 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
overpayment of Fees will be credited to the Operating Account effective as of the first Due Date after
Franchisor and Franchisee determine that such credit is due.
7.4.
In connection with payment of the monthly Fees by ACH or EFT, Franchisee shall: (1) comply
with procedures specified by Franchisor relating to ACH or EFT transfers; (2) perform those acts and sign
and deliver those documents as may be necessary to accomplish payment by ACH or EFT as described in
Section 7.2 and 7.4; (3) give Franchisor an authorization in the form designated by Franchisor to initiate
debit entries and/or credit correction entries to the Operating Account for payments of the monthly royalty
and advertising Fees, or other amounts due to Franchisor under this Agreement, or any other agreement,
including any interest charges; and (4) make sufficient funds available in the Operating Account for
withdrawal by ACH or EFT of Fees due no later than each Due Date.
7.5.
In addition to the sales data required to be provided in the Monthly T-Sheet to be delivered
pursuant to Section 7.2, Franchisee shall deliver (in the manner prescribed by Franchisor) to Franchisor on
or before the tenth (10th) day after the end of each sales month during the term of this Agreement any other
sales and menu mix data reasonably requested by Franchisor with respect to the preceding sales month,
whether specified in the Manual or otherwise.
7.6.
Thirty (30) days after the end of each calendar quarter and one hundred twenty (120) days
after the end of each calendar year during the term of this Agreement, Franchisee shall provide to
Franchisor a financial statement of the franchise business which shall include such information and data as
specified in the financial reporting format set forth in Exhibit 6 attached hereto or in such other format
reasonably approved by Franchisor. Such fiscal year-end financial statements must be signed by
Franchisee, Franchisee's treasurer or Franchisee's chief financial officer and contain a representation that
the financial statements present fairly the financial position of Franchisee and the results of operations of the
franchise business during the period covered.
7.7.
Franchisee shall make all payments when due to third parties for obligations arising out of or in
any way connected with the existence, operation or maintenance of the Restaurant, including, but not limited
to, rental and mortgage payments and payments for utilities, services, products, equipment, supplies, goods,
inventory, materials, taxes, labor and other matters. In the event that Franchisee fails to make any such
payment in accordance with the foregoing and the nonpayment results or may reasonably result in a
condition or event which threatens public safety or health or which may materially and adversely affect the
ownership, condition or operation of the Restaurant, in either case in the reasonable judgment of Franchisor,
Franchisor shall have the sole and absolute right, after five (5) days written notice to Franchisee, but not the
obligation, to make such payment on behalf of Franchisee. Such payment shall be without prejudice and in
addition to all other available rights and remedies. Any payment made by Franchisor pursuant to this
Section 7.7 shall be paid by Franchisee to Franchisor as an additional amount for the monthly billing period
in which such payment is made by Franchisor.
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 15 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
7.8.
Franchisee shall maintain accurate and complete books and records pertaining to the operation
and maintenance of the Restaurant as required by the standards, policies and procedures established by
Franchisor in accordance with the Manual. Franchisee shall be solely responsible for performing all record
keeping duties, and the cost for all such services shall be borne solely by Franchisee.
7.9.
Franchisee shall obtain, install, and use the computer system that Franchisor requires or
approves in writing. The term “Computer System” means communications, computer systems, and
hardware to be used by the Restaurant, including (a) back office and point of sale systems, (b) cash register
systems; (c) physical, electronic, and other security systems; (d) printers and other peripheral devices; (e)
archival back-up systems; and (f) internet access mode (for example, Franchisee’s telecommunications
connection). In connection with the Computer System:
a.
Franchisee must obtain, install, and use the computer software programs required by
Franchisor (the “Required Software”) from time to time. Franchisee must utilize any proprietary software
program that Franchisor has developed or may develop, internally or with the assistance of outside suppliers
or consultants, or that Franchisor may license for use by the El Pollo Loco® System.
b.
Franchisor may modify specifications for and components of the Computer System and
Required Software. The Computer System and Required Software must be purchased or leased from
Franchisor or from suppliers approved by Franchisor and must be installed by Franchisor or by suppliers
approved by Franchisor at Franchisee’s expense. (Franchisor may be the only approved supplier of the
Computer System and Required Software.) Franchisee is responsible to ensure that all Computer System
components and Required Software are: (i) installed in accordance with Franchisor’s standards and
procedures; (ii) functioning properly with timely upgrades and maintenance; and (iii) can interface with
Franchisor’s computer system. Franchisee has sole and complete responsibility for any and all
consequences if the Computer System and Required Software is not properly operated, maintained, and
upgraded. Franchisor’s modification of specifications for the Computer System and Required Software may
require Franchisee, at Franchisee’s expense, to purchase, lease, and/or license new or modified computer
hardware and/or software and/or communications capabilities and to obtain service and support for such.
Franchisee will not be required to replace the Computer System more than once every four (4) years during
the term of this Agreement. Franchisee shall be required to enter into an El Pollo Loco® IT Support Services
Agreement (a “Support Agreement”) in connection with the operation of the Computer System. The
Support Agreement is attached to this Agreement as Exhibit 7. Franchisee agrees that Franchisor may
condition any license of proprietary software to Franchisee, or your use of technology that Franchisor
develops or maintains, on your signing the software license agreement or similar document Franchisor
provides to regulate your use of, and our and your respective rights and responsibilities with respect to, the
software or technology. Franchisor may charge Franchisee up-front and ongoing weekly or monthly fees for
any proprietary software or technology Franchisor licenses to Franchisee and for
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 16 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
other maintenance and support services provided during this Agreement's term.
c.
The Computer System is for use by Franchisee only in connection with operational and
management tasks of the Restaurant. Franchisee may not use the Computer System for email, word
processing, spreadsheets, web surfing, or any other personal application or purpose not approved in writing
by Franchisor (“Personal Applications”). However, Franchisee may run such Personal Applications on a
separate personal computer and network provided by Franchisee, but the personal computer and network
must run in “stand alone, isolated mode” and Franchisee must not interconnect such computer(s) with the
Computer System. Franchisor reserves the right require Franchisee to shut down Personal Applications
interfaces if Franchisor determines that such interfaces interfere with the Computer System operations, or
the operation of the Restaurant. In addition, Franchisee will only install Franchisor approved Wi-Fi hardware
to ensure security and controls are in place to protect and segment networks.
d.
Franchisor shall have the right from time to time, and at any time, to retrieve data and
information from Franchisee’s Computer System, by modem or other means, and use it for any reasonable
business purpose both during and after the term of this Agreement. Franchisor may, from time to time,
specify in the Manual or otherwise in writing the information that Franchisee shall collect and maintain on the
Computer System, and Franchisee shall provide to Franchisor such reports as Franchisor may reasonably
request from the data so collected and maintained.
7.10. All of the accounts, books, records and federal, state and local tax returns and reports of
Franchisee, so far as they pertain to the business transacted under this Agreement, shall be open to
inspection, examination and audit by Franchisor and its authorized representatives at any and all times, and
copies thereof may be made by Franchisor and retained for its own use. All of such records shall be
maintained and retained by Franchisee for seven (7) years, and following the termination or expiration of this
Agreement, the books and records for the preceding seven (7) years shall be maintained and retained by
Franchisee for five (5) years. Franchisor may inspect, examine audit and copy any and all books and records
of the Franchisee’s business. Any such inspection, examination and audit shall be at Franchisee's cost and
expense as a result of Franchisee's failure to prepare and deliver its transmittal reports to Franchisor as
required herein, or to maintain books and records as hereinabove provided, or unless any such transmittal
report is determined to be in error to an extent of two percent (2%) or more for the period audited. Any such
cost and expense shall be set forth in a written invoice delivered to Franchisee by Franchisor. Franchisee
shall reimburse Franchisor for the invoice amount within seven (7) days after the invoice has been delivered
to Franchisee.
7.11. Franchisee shall sell or otherwise issue the stored value cards or gift cards and certificates
(together “Gift Cards”) that have been prepared utilizing the standard form of Gift Card provided or
designated by Franchisor, and only in the manner specified by Franchisor in the Manual or otherwise in
writing. Franchisee shall fully honor all Gift Cards that are in the form provided or approved by Franchisor
regardless of whether a
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 17 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Gift Card was issued by Franchisee or another Restaurant or purchased at any other location including
without limitation, retail stores, internet sales or other means of distribution. Franchisee shall sell, issue, and
redeem (without any offset against any royalty fees) Gift Cards in accordance with procedures and policies
specified by Franchisor in the Manual or otherwise in writing (the “Gift Card Program”), including those
relating to procedures by which Franchisee shall request reimbursement for Gift Cards issued by other
Restaurants and for making timely payment to Franchisor, other operators of Restaurants, or a third-party
service provider for Gift Cards issued from the Restaurant that are honored by Franchisee, Franchisor or
other Restaurant operators. Franchisee acknowledges and agrees that, in connection with the Gift Card
Program, Franchisee may be required to:
a.
Enter into a separate agreement with a third-party provider of Gift Card services under
the terms and conditions as may reasonably be required by such third party for participation in the Gift Card
Program;
b.
Purchase and maintain a sufficient number of Gift Cards, in a form approved by
Franchisor, as may reasonably be required for participation in the Gift Card Program;
c.
Purchase or upgrade, as applicable, such hardware, software and equipment as shall be
necessary to participate in the Gift Card Program;
d.
Promote and sell the Gift Cards in Franchisee’s Restaurants using only marketing
methods and materials approved by Franchisor;
e.
Comply in all material respects with all applicable laws, statutes and regulations in
performing Franchisee’s obligations under this Agreement and otherwise in connection with Franchisee’s
participation in the Gift Card Program; and
f.
Execute such forms or documents or take such other actions reasonably necessary or
requested by Franchisor to effectuate Franchisee’s participation in the Gift Card Program.
7.12. Franchisee acknowledges and agrees that Franchisor reserves the right to discontinue or
modify the Gift Card Program at any time, as its sole and absolute right. Upon receipt of written notice from
Franchisor of its intent to discontinue or modify the Gift Card Program, Franchisee shall, as applicable,
immediately cease offering and accepting Gift Cards and/or make such modifications as Franchisor shall
require.
7.13. Franchisee shall participate in the Remote Ordering System (including, but not limited to,
website and mobile application ordering and payment), Loyalty Program, Third Party Delivery Program,
Digital Menu Boards Program, and Curbside Pickup Program (collectively referred to as “Programs”).
Franchisee shall comply with procedures and policies of the Programs specified by Franchisor in the Manual
or otherwise in writing, including those relating to making timely payment to third-party
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 18 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
service providers for such Programs. Franchisee acknowledges and agrees that, in connection with the
Programs, Franchisee may be required to:
a.
Enter into a separate agreement with third party service providers of the Programs
under the terms and conditions as may reasonably be required by such third parties for participation in the
Programs;
b.
Purchase or upgrade, as applicable, such hardware, software and equipment as shall be
necessary to participate in the Programs;
c.
Comply in all material respects with all applicable laws, statutes and regulations in
performing Franchisee’s obligations under this Agreement and otherwise in connection with Franchisee’s
participation in the Programs; and
d.
Execute such forms or documents or take such other actions reasonably necessary or
requested by Franchisor to effectuate Franchisee’s participation in the Programs; and
e.
Accept credit cards and mobile payments for orders made through these and other
programs or product distribution channels, not imposing any minimum amount for the acceptance of any
payment method.
7.14. We may discontinue or modify the Programs at any time, and upon receiving notice from us
that we intend to do so, you must immediately cease the Programs or make the modifications that we
require.
7.15. Franchisee acknowledges and agrees that it is in the best interest of the business conducted at
the Restaurant and the System as a whole, to participate in the Payment Card Industry (“PCI”) Data Security
Standard (“DSS”) Program offered through a third party vendor. This is a set of security requirements that
uses current technology and physical security best practices to protect credit cardholder data. The size of
Franchisee’s business and the number of transactions processed by Franchisee will determine Franchisee’s
specific requirements for achieving PCI compliance. Currently, the monthly cost of quarterly firewall scans is
included with the Micros Platinum service monthly fees, however such monthly cost may increase as
detailed in the El Pollo Loco® IT Support Services Agreement, attached and incorporated herein as Exhibit
7. If Franchisee is found to be non-compliant with the PCI/DSS and remediation is required, a third party
vendor will work directly with Franchisee to resolve any outstanding issues and Franchisee may have to pay
additional fees. All franchisees are required to participate in this program from a third party vendor as to
which we, as our sole and absolute right, may require approval. Franchisee further promises that the results
of the PCI review of Franchisee’s operations, in so far as they pertain to the business transacted under this
Agreement, shall be open to inspection, examination and audit by Franchisor and its authorized
representatives at any and all times, and copies thereof may be made by Franchisor and retained for its own
use. All of such records shall be maintained and retained by Franchisee as required by the PCI DSS.
Franchisee understands and agrees
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 19 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
that Franchisee is solely responsible for meeting the requirements for the PCI DSS Program. Failure to do so
shall be considered grounds for termination of this Agreement as provided in Section 18 hereof.
8.
ADVERTISING AND MARKETING
8.1. Recognizing the value of marketing and advertising to the goodwill and public image of the El
Pollo Loco® System, Franchisor administers funds for advertising, public relations, marketing research and
promotion into which franchisees contribute an “Advertising Fee”. El Pollo Loco® restaurants owned and
operated by Franchisor contribute on the same basis as franchisees within the same DMA.
8.2.
The entire Advertising Fee will be deposited into the Advertising Fund to be allocated as
Franchisor’s sole and absolute right.
8.3.
Franchisor shall have the sole and absolute right to determine the expenditures, investments
and all aspects of activities funded by the Advertising Fund, including media plans and buying, creative
concepts, materials, endorsements and agency relationships. The Advertising Fund may be used to pay for
production costs for materials and programs Franchisor chooses, including advertising agency fees, market
research, concept development, design development (store prototypes and advertising), product research
and development, video, audio, electronic, written advertising materials, media and public relations
programs, reimbursement for Franchisor’s direct overhead and personnel costs to fulfill our obligations to
Franchisee in connection to the Advertising Fund and other uses that Franchisor determine to be appropriate
and beneficial for some or all El Pollo Loco restaurants. The Advertising Fund will be accounted for
separately from Franchisor’s other funds. Although it has been Franchisor’s practice to spend all advertising
funds in the fiscal year in which they are collected, Franchisor reserves the right to spend such advertising
funds in the next fiscal year to the extent Franchisor deems appropriate. Franchisor may spend in any fiscal
year an amount greater or less than the aggregate contributions made by El Pollo Loco® restaurants to the
Advertising Fund in that year, and the Advertising Fund may borrow from Franchisor or from other lenders to
cover deficits in the Advertising Fund or cause the Advertising Fund to invest any surplus for future use by
the Advertising Fund. Upon request, but not more frequently than annually, Franchisor will provide
Franchisee with a written description of the expenditures made by the Advertising Fund during the fiscal year
immediately preceding the request of the advertising fees received from franchisees. The statement of
expenditures is not required to be audited.
8.4.
If Franchisee’s Restaurant is located outside the Los Angeles DMA, Franchisor may allocate a
portion of Franchisee’s Advertising Fee, in the amount that we determine in our discretion, to a Local
Advertising Fund (“LAF”) and control all decisions regarding the use of the LAF. Franchisee will be required
to pay the Advertising Fee to Franchisor at the same time as Franchisee’s royalty payments pursuant to the
Authorization Agreement for Prearranged Payments (Exhibit 4 to the Franchise Agreement). Franchisee
must use current approved vendors for Franchisee’s advertising
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 20 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
order, and Franchisor will pay the approved vendor directly upon approval of the order and confirmation of
receipt of the order with Franchisee. The LAF monies will also be used to reimburse Franchisee for the cost
of implementing local marketing plans developed by Franchisee and approved by Franchisor (up to an
amount not to exceed the LAF contributions collected). The LAF monies will be used to reimburse
Franchisee for the cost of implementing local marketing plans developed by Franchisee and approved by
Franchisor in writing. For these purposes, qualifying LAF expenditures include, but are not limited to: (a)
amounts contributed to Advertising Associations (defined below); and (b) amounts spent for advertising
media, such as television, radio, newspaper, billboards, posters, direct mail, collateral and promotional items,
advertising on vehicles (excluding the cost of any vehicle), and, if not provided by Franchisor, the cost of
producing approved materials necessary to participate in such media. Non-qualifying LAF expenditures
include amounts spent for items which Franchisor, in its reasonable judgment, deems inappropriate for
meeting the minimum advertising requirement, including, but not limited to: permanent on-premises Signs
and traditional or digital menu boards, transportation vehicles, marketing personnel salaries, public relations
or advertising agency retainer, highway signs or any other signage for directional purposes only, store labor
costs associated with the execution of any marketing program, lighting, administrative costs, Yellow Pages
advertising, discounts/coupons offers, free offers, employee incentive programs, and any unapproved
marketing or advertising materials.
8.5.
Franchisee shall not engage in any advertising activities without Franchisor’s prior written
consent. Should Franchisee submit advertising that is not approved by Franchisor, Franchisee will be
required to revise and resubmit such advertising again for written approval, prior to use of such advertising.
Franchisee shall submit to Franchisor for Franchisor’s prior approval, at least thirty (30) days prior to the
beginning of each fiscal year, a marketing plan for Franchisee’s DMA. This marketing plan may be
submitted by all franchisees in Franchisee’s DMA through an area advertising association. If Franchisee is
using materials not prepared by Franchisor and which vary from Franchisor’s standard advertising and
promotional materials, such materials must be submitted to Franchisor for approval no less than forty-five
(45) days prior to the beginning of such promotion or program. Franchisor will review any materials
submitted for Franchisor’s approval within ten (10) business days of receipt of such materials. Franchisee
shall not use any advertising or promotional materials that Franchisor has disapproved, or that Franchisor
has not approved.
8.6.
Franchisor shall have the right to establish local and/or regional advertising associations
(“Advertising Associations”) for El Pollo Loco® restaurants in Franchisee’s local or regional area, covering
the geographic areas Franchisor may designate from time to time. Franchisor has the right to form, change,
dissolve or merge the Advertising Associations. If Franchisor has established an Advertising Association in
Franchisee’s DMA, Franchisee must participate in the Advertising Association and its programs and abide by
its by-laws. Each El Pollo Loco® restaurant located within the area governed by the Advertising Association
will have one (1) vote. Franchisee must contribute the amounts to the Advertising Association(s) as
determined by the Advertising Association members from time to time in accordance with their bylaws. Any
El Pollo Loco®
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 21 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Restaurant owned by Franchisor in Franchisee’s DMA or regional market area(s) will contribute to the
Advertising Association on the same basis as Franchisee contributes for its Restaurant. Contributions to the
local and regional Advertising Associations are credited toward the LAF advertising expenditures required
pursuant to Section 8.4 above; however, if Franchisor provides Franchisee and Franchisee’s Advertising
Association ninety (90) days’ notice of a special promotion, including, but not limited to, any regional
promotions, Franchisee must participate in the promotion and also pay Franchisor any special promotion
advertising fees assessed in connection with the program, beginning on the effective date of the notice and
continuing until the special promotion is concluded. Any special promotion advertising fees will be in addition
to, and not credited towards, the LAF advertising expenditure required pursuant to Section 8.4 above. The
Advertising Association Membership Agreement is attached to this Agreement as Exhibit 5. Franchisor may
administer the Advertising Associations and collect Franchisee’s Advertising Association contributions by
automatic electronic withdrawal.
8.7.
Franchisor shall be under no obligation to use the Advertising Fund to advertise equally for all
markets or for all DMAs. All advertising fee contributions from Franchisor-operated restaurants shall be
deposited in the Advertising Fund. Franchisor shall be under no obligation to determine the incremental cost
of franchise sales advertising and investor relations sections of any internet web sites established by
Franchisor and funded in whole or in part by the Advertising Fund.
8.8.
In addition to Advertising Fees payable pursuant to Section 6.1 of this Agreement, Franchisee
shall expend $5,000.00 per Restaurant to conduct grand opening advertising and local store marketing and
promotion programs for Franchisee’s Restaurant, utilizing advertising and promotional materials approved by
Franchisor. Such grand opening advertising shall be conducted in accordance with Franchisor’s
specifications and standards and in accordance with a grand opening plan (which will cover advertising and
promotion for the 15 days prior to the Opening Date and 45 days following the Opening Date) which
Franchisee prepares and submits to Franchisor for approval at least 30 days prior to the anticipated Opening
Date. Franchisee shall submit to Franchisor not later than 15 days following the conclusion of such grand
opening promotion, written receipts and other evidence reasonably satisfactory to Franchisor evidencing all
amounts spent by Franchisee to conduct the grand opening promotion.
9.
INSURANCE AND INDEMNIFICATION
9.1.
Throughout the term hereof, Franchisee shall obtain and maintain insurance coverage with
insurance carriers acceptable to Franchisor in accordance with Franchisor's current insurance requirements
as modified from time to time. The coverage shall commence when the Location is secured by Franchisee
by executed deed or (sub)lease. As proof of such insurance, a certificate of insurance shall be submitted by
Franchisee for Franchisor's approval prior to Franchisee's commencement of any activities or services to be
performed under this Agreement. Franchisee shall deliver a complete copy of Franchisee's then-prevailing
policies of insurance to Franchisor within thirty (30) days following the delivery of the certificate of insurance.
The coverage shall
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 22 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
include the following:
a.
Full compliance with the insurance requirements of Franchisee's (sub)lease, if any; and
b.
Commercial general and product liability insurance written on an occurrence form that
includes but is not limited to, premises-operations, property damage (including fire and extended coverage,
vandalism and malicious mischief insurance for replacement value of the restaurant and its contents),
products/completed operations, contractual liability, independent contractors, personal injury and advertising
injury and liability assumed under an insured contract with coverage no less than a minimum $1,000,000 per
occurrence and $2,000,000 general aggregate; and
c.
Automobile liability with at least $1,000,000 combined single limit; and
d.
occurrence; and
Umbrella excess liability insurance with a minimum limit of $5,000,000 limit per
e.
Property and extended coverage insurance with a maximum deductible of $10,000.00
and with endorsements for vandalism and malicious mischief, covering the building, structures, equipment,
improvements and the contents thereof in and at the Restaurant, on a full replacement cost basis, insuring
against all risks of direct physical loss (except for unusual perils such as nuclear attack, earth movement and
war), and business interruption insurance sustained form covering the rental of the Location, previous profit
margins, maintenance of competent personnel and other fixed expenses; and
f.
Such worker's compensation insurance as may be required by applicable workers
compensation and/or occupational disease law; and
g.
In connection with and prior to commencing any construction, reimage or remodeling of
the Restaurant, Franchisee shall maintain Builder's All Risks Insurance and performance and completion
bonds in forms and amounts, and written by a carrier or carriers, acceptable to Franchisor; and
h.
An additional insured endorsement naming Franchisor. The endorsement shall state the
above-described insurance shall be primary and not contributory, as to Franchisor; with a waiver of
subrogation in favor of Franchisor. All policies must contain provisions waiving rights of recovery against any
named insured by subrogation; and
i.
Commercial liability and umbrella/excess policies shall not contain: (i) mold, fungi,
viruses, or bacteria exclusions applying to a good or product intended for consumption, or (ii) property
damage or bodily injury caused by the ingestion of food. There may be other insurance policies (not
mentioned here) required to cover potential
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 23 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
losses due to your particular business operations.
j.
All public liability and property damage policies shall contain a provision that Franchisor,
although named as an additional insured, shall nevertheless be entitled to recover under such policies on
any loss occasioned to it, its affiliates, officers, agents and employees by reason of the negligence of
Franchisor, Franchisee, or their respective principals, contractors, agents or employees; and
k.
All policies shall extend to and provide indemnity for all obligations assumed by
Franchisee hereunder and all other items for which Franchisee is required to indemnify Franchisor under the
provisions of this Agreement, whether or not the liability arose from the negligence of Franchisor, its
principals, contractors, agents or employees, and shall provide Franchisor with at least thirty (30) days prior
written notice of cancellation, termination or material reduction of coverage.
9.2.
Franchisor shall be named as an additional insured on all of such policies referenced in Section
9.1 above to the extent of its interests and shall be provided by Franchisee with certificates of insurance
evidencing such coverage prior to the Opening Date and promptly following the date any policy of insurance
is renewed, modified or replaced during the term of this Agreement. All coverages shall be placed with a
financially stable insurer with a minimum AM Best Ratings of A-VII. Franchisor reserves the right to specify
reasonable changes (which may include increases) in the types and amounts of insurance coverage
required by this Section 9. Should Franchisee fail or refuse to procure the required insurance coverage from
an insurance carrier acceptable to Franchisor or to maintain it throughout the term of this Agreement,
Franchisor may as its sole and absolute right, but without any obligation to do so, obtain such coverage for
Franchisee, in which event Franchisee shall pay on demand the required premiums and any related fees or
costs (such as, but not limited to, broker’s fees, taxes or service fees) or reimburse Franchisor therefore.
The amount of such premiums and any related fees or costs shall be set forth in a written invoice delivered
to Franchisee by Franchisor. Franchisee shall reimburse Franchisor for the invoice amount within seven (7)
days after the invoice has been delivered to Franchisee pursuant to Section 23.3 of this Agreement. Failure
to maintain the required insurance or to promptly reimburse Franchisor for any premiums and any related
fees or costs paid on behalf of Franchisee by Franchisor shall constitute a default hereunder. Should
Franchisor elect to obtain such coverage for Franchisee, then Franchisee will assist Franchisor by providing
the necessary information and access to enable Franchisor to obtain coverage for Franchisee. In the event
of any claim, lawsuit, complaint, cross complaint, arbitration, demand, allegation, or liens and damages
(collectively “Claim”), Franchisee shall immediately notify Franchisor in writing of the Claim and the facts
surrounding such Claim pursuant to Section 23.3 of this Agreement.
9.3.
Franchisee shall defend immediately upon tender of defense, at its own cost, Franchisor, its
subsidiaries, parent and affiliates, shareholders, directors, officers, employees and agents (collectively
referred to, for this Sections 9.3 and 9.4 only, as “Franchisor”), from and against any and all claims,
lawsuits, complaints, cross
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 24 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
complaints, arbitrations, demands, allegations, costs embraced by indemnity, loss, costs, expenses
(including attorneys’ fees), liens and damages (collectively referred to, for Sections 9.3 and 9.4 only, as
“Losses”), however caused, and reimburse Franchisor for all costs and expenses (including attorneys’ fees)
incurred by Franchisor in defense of any Losses, resulting directly or indirectly from or pertaining to or arising
out of, or alleged to arise out of, or in connection with the use, operation, maintenance, condition,
construction, equipment, decorating, signage (including traditional or digital menu boards), sidewalks,
exterior, interior, parking lot, food preparation, sales and service of Franchisee’s restaurant, including any
labor, any employee related claims whatsoever, including, without limitation any claims made by an
employee of Franchisee resulting from the employee’s training in a Franchisor operated facility or restaurant,
and including Franchisee’s failure for any reason to fully inform any third party of Franchisee’s lack of
authority to bind Franchisor for any purpose. Such Losses shall include, without limitation, those arising from
latent or other defects in the restaurant whether or not discoverable by Franchisor, and those arising from
the death of or injury to any person or arising from damage to the property of Franchisee or Franchisor, or
any third person, firm or corporation, whether or not resulting from any strict liability imposed by fact, law,
statute, or ordinance, on Franchisor. Franchisee further agrees that Franchisee’s duty to defend Franchisor
is separate from, independent of and free-standing of Franchisee’s duty to indemnify Franchisor and applies
whether the issue of Franchisee’s negligence, breach of contract, or other fault or obligation has been
determined. Franchisee’s duty to defend is regardless of the outcome of liability even if Franchisee is
ultimately found not negligent and not dependent on the ultimate resolution of issues arising out of any
claims, lawsuits, complaints, cross complaints, arbitration, demands, allegations, costs embraced by
indemnity, loss, costs, expenses (including attorneys’ fees), liens or damages.
9.4.
Franchisee shall indemnify and hold harmless Franchisor from and against any and all Losses,
however caused, resulting directly or indirectly from or pertaining to or arising out of or in connection with the
use, operation, maintenance, condition, construction, equipment, decorating, signage (including traditional or
digital menu boards), sidewalks, exterior, interior, parking lot, food preparation, sales and service of
Franchisee’s restaurant, including any labor, any employee related claims whatsoever, including, without
limitation any claims made by an employee of Franchisee resulting from the employee’s training in a
Franchisor operated facility or restaurant, and including Franchisee’s failure for any reason to fully inform any
third party of Franchisee’s lack of authority to bind Franchisor for any purpose. Such Losses shall include,
without limitation, those arising from latent or other defects in the restaurant whether or not discoverable by
Franchisor, and those arising from the death of or injury to any person or arising from damage to the property
of Franchisee or Franchisor, or any third person, firm or corporation, whether or not resulting from any strict
liability imposed by fact, law, statute, or ordinance, on Franchisor. Franchisee further shall indemnify and
hold harmless Franchisor from all said Losses and shall pay for and be responsible for all said Losses,
however caused, whether by any individual, employee, third person or party, vendor, visitor, invitee,
trespasser or any firm or corporation whatsoever, whether caused by or contributed to by Franchisor, the
combined conduct of Franchisee and Franchisor, or active or passive negligence of Franchisor, but for the
sole negligence or willful
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 25 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
misconduct of Franchisor.
10.
VENDING MACHINES
10.1. Franchisee shall not install a video game machine, juke box, cigarette machine, public
telephone or other type of vending machine or device, whether or not coin operated in the Restaurant, or on
its premises, without prior written approval of Franchisor, which approval will be granted or denied as
Franchisor’s sole and absolute right. The revenues received by Franchisee from any approved machines
shall be included in Franchisee's Gross Sales.
11.
COMPLIANCE WITH MANUAL AND WITH SYSTEM STANDARDS
11.1. Franchisee acknowledges and agrees that strict and continued adherence by Franchisee to
Franchisor's standards, policies, specifications, procedures, requirements, menu items policies, and the
Manual comprising the El Pollo Loco® System (collectively, the “System Standards”), as set forth in this
Section 11, in the Manual, and in other standards, policies, and procedures documents created or modified
by Franchisor from time to time, is required and that failure on the part of Franchisee to so adhere will be
grounds for termination of this Agreement as provided in Section 18 hereof. Franchisee acknowledges that
changes, modifications, deletions and additions to the System Standards may be necessary and desirable
from time to time. Franchisor may make such modifications, revisions, deletions and additions, including
without limitation, modifications, revisions, deletions and additions to the Manual and to the menu items
required to be offered by Franchisee, which Franchisor, in good faith and exercising its judgment believes to
be desirable. Franchisee agrees to comply with any such modification, revision, deletion or addition as of
the date that such modification, revision, deletion or addition becomes effective, whether they involve
refurbishing or remodeling the Restaurant, buying new operating assets, adding new menu items and
services, initiating new programs, or otherwise modifying the nature of your operations, as if they were part
of this Agreement as of the Effective Date. Franchisee acknowledges that it shall receive one (1) copy of the
Manual for the Restaurant on loan from Franchisor and that the Manual shall at all times remain the sole
property of Franchisor. Franchisee understands that Franchisor has entered into this Agreement in reliance
upon Franchisee's representation that it will strictly comply with all the provisions of the Manual. For
purposes of this Agreement, the Manual shall be deemed to include all written directions delivered to
Franchisee by Franchisor from time to time setting forth standards, specifications and procedures for the
operation of Franchisee's El Pollo Loco® restaurant.
11.2. Franchisee acknowledges and agrees that it is in the best interest of the business conducted at
the Restaurant to prepare and serve food in the Restaurant only from ingredients which meet the product
specifications as communicated by Franchisor to Franchisee from time to time (the "Specifications"), and
Franchisee further promises that all products, equipment, goods, inventory and supplies used in connection
with the Restaurant will comply with the Specifications. Furthermore, Franchisee shall not offer or sell any
product, service or other item at the Restaurant except those prior approved
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 26 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
in writing by Franchisor.
a.
All menu items shall be made in strict compliance with Franchisor's written recipes and
requirements, which Franchisor may change from time to time by amendments to the Manual.
b.
Franchisee acknowledges and agrees that all proprietary El Pollo Loco® marinades,
marinade mixes and marinated ingredients used in the preparation of the required and approved El Pollo
Loco® food products are unique. Their formulae and the process of their manufacture constitute trade
secrets. Franchisee shall purchase such marinades, marinade mixes and marinated ingredients exclusively
from Franchisor or, as Franchisor's sole and absolute right to determine, from Franchisor's designated
distributor. The right to purchase and use such marinades, marinade mixes and marinated ingredients is
licensed to Franchisee pursuant to this Agreement, and such right is restricted to use in the franchise
business at the Restaurant and solely for the term of this Agreement.
11.3. Throughout the term of this Agreement, Franchisee shall be actively engaged in the
management and day-to-day operation of the Restaurant. Franchisee may appoint an Operations Director
to supervise all franchise activities. If Franchisee appoints an Operations Director, such appointment is
subject to Franchisor’s prior written approval and the Operations Director must satisfactorily complete the
EPL management training program and have received the ServSafe® certification; and Franchisee must
complete either the EPL management training program or the Executive Franchisee Training Program. The
Operations Director shall be actively engaged in the management and day to day operations of the
restaurant and devote full time and best efforts to the supervision of EPL Restaurant(s) owned by
Franchisee. If at any time, for any reason, the Operations Director ceases to perform those duties on behalf
of the Restaurant(s), Franchisee shall appoint a new Operations Director within 30 days subject to
Franchisor’s prior written approval, and the newly appointed Operations Director must satisfactorily complete
the EPL management training program within 90 days of appointment and have received the ServSafe®
certification at Franchisee’s expense; or, Franchisee shall assume the duties of the Operations Director and
complete the EPL management training program within 120 days (if not previously completed). Franchisee
must also comply with any applicable transfer provisions of this Agreement if the change in Franchisee’s
Operations Director results in a change in the equity ownership of the Restaurant.
11.4. Franchisee acknowledges that it has received a copy of Franchisor's list of approved brands
and distributors (the "Approved Brands and Distributors List"). Franchisor has consulted with the
distributors set forth on such list and each distributor has agreed to offer products, services, equipment,
goods, inventory, supplies or paper products which will comply with Franchisor’s Specifications. Such
Approved Brands and Distributors List is furnished to Franchisee and Franchisee must purchase only those
products, equipment, goods, inventory, supplies and paper products that comply with the Specifications and
only those brands, and only from those distributors, that are on the Approved Brands and Distributors List. If
Franchisee desires to purchase any brands
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 27 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
and/or products from any distributor not named on the Approved Brands and Distributors List (or any brand
and/or product not on the Approved Brands and Distributors List from a distributor on that list), Franchisee
shall first submit to Franchisor a written request for approval of any such brand, product and/or distributor
whichever is applicable, prior to Franchisee's purchase of such product from such distributor. Franchisor
shall have the right to require that its representatives be permitted to inspect the distributor's facilities and
that samples from the distributor be delivered either to Franchisor or to an independent laboratory
designated by Franchisor for testing. Upon completion of Franchisor’s inspection or evaluation of the
proposed distributor (including samples provided by such distributor), and upon submission of any additional
information or data required by Franchisor, Franchisor shall promptly approve or reject such proposed
distributor or services and goods. Franchisor reserves the right, at its option, to re-inspect the facilities and
products of any such approved distributor or of any distributor on Franchisor's Approved Brands and
Distributors List and to revoke its approval upon the distributor's failure to continue to meet any of
Franchisor's then-current Specifications and criteria. Nothing in the foregoing shall require Franchisor to
approve any distributor. Franchisor agrees to evaluate any item which Franchisee is considering procuring
to determine whether such item complies with the Specifications. No charge shall be made by Franchisor for
the services of Franchisor's employees in connection with such evaluation; however, Franchisee shall
reimburse Franchisor for its reasonable cost and expenses in connection with such evaluation, including any
amounts paid to independent laboratories or consultants chosen by Franchisor as its sole and absolute right
to assist in such evaluation. All such amounts shall be set forth in a written invoice delivered to Franchisee
by Franchisor. Franchisee shall reimburse Franchisor for the invoice amount within seven (7) days after the
invoice has been delivered to Franchisee pursuant to Section 23.3 of this Agreement. The Approved Brands
and Distributors List and any guide containing such list are proprietary information of El Pollo Loco® and
must be kept strictly confidential by Franchisee. Franchisee shall not copy, distribute, release or otherwise
provide any third party with all or any part of the information contained in the Approved Brands and
Distributors List or guide without first obtaining the prior written approval of Franchisor, which approval may
be withheld as Franchisor’s sole and absolute right. (Notwithstanding anything in this Agreement to the
contrary, Franchisor may designate itself the only approved distributor of some or all of the brands and/or
products. Franchisor’s proprietary products must be purchased from Franchisor or its designated distributor
pursuant to Section 11.2.b.
11.5. As uniformity of appearance and public recognition are important to the El Pollo Loco® brand
recognition and success of Franchisee and Franchisor hereunder, Franchisee shall:
a.
Use only uniforms, Signs, cards, posters, notices, displays, decorations, table tents and
other such advertising materials which are identical in appearance and quality to those furnished or
approved by Franchisor. Franchisor may make available its menu-stock (pre-printed as to all matters other
than menu prices), including specials and featured items, to Franchisee for printing in the event that
Franchisee elects to charge prices not provided for in Franchisor's menu codes.
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 28 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Notwithstanding anything in this Agreement to the contrary, Franchisor reserves the right, to the fullest extent
allowed by applicable law, to: establish maximum, minimum or other pricing requirements with respect to the
prices Franchisee may charge; recommend retail prices; advertise specific retail prices for some or all
products sold by Franchisee, which prices Franchisee will be compelled to observe; engage in marketing,
promotional and related campaigns, which Franchisee must participate in and which may directly or indirectly
impact Franchisee’s retail prices; and otherwise mandate, directly or indirectly, the prices which Franchisee
may charge.) Franchisee agrees that all specials or featured items designated by Franchisor shall be
included as part of the menu and shall be made available on the days and times designated by Franchisor;
and
b.
Not authorize or permit in the Restaurant, or on behalf of the Restaurant, any
advertising, Signs, cards, posters, notices, displays, decorations or table tents other than those described in
Section 11.5(a), nor authorize or permit in or around the Restaurant any products or services which are not
authorized by Franchisor, without the prior written consent of Franchisor.
c.
Receive written approval from Franchisor’s Marketing Department to employ delivery
companies as described in the Manual. Notwithstanding the foregoing, under the System, and as described
in Section 7.13 above, Franchisor requires Franchisee’s participation in the Remote Ordering System,
Loyalty Program, Third-Party Delivery Program, and Curbside Pickup Order Program. Franchisee shall be
required to participate, offer and conduct such programs.
d.
Comply with our customer complaint resolution procedures and our commitment to
customer satisfaction policy. Franchisee must reimburse Franchisor promptly if Franchisor resolves a
customer complaint because you fail to resolve the matter as or when required.
e.
Cooperate with Franchisor to maintain a single voice for the El Pollo Loco® brand
across all social media platforms, including your agreement to refrain from creating, posting, or maintaining
your own social media pages related to the El Pollo Loco® brand.
11.6. Franchisor shall have the right to remove any unauthorized material at Franchisee’s expense.
11.7. At all times during this Agreement’s term, Franchisee must secure and maintain all licenses,
permits, and certificates required for the Restaurant’s operation and operate the Restaurant in full
compliance with all applicable laws, ordinances, and regulations, including government regulations relating
to occupational hazards, health, environment, employment, workers’ compensation and unemployment
insurance, and withholding and payment of federal and state income taxes, social security taxes, and sales
and service taxes. Your advertising and promotion must be completely factual and conform to the highest
standards of ethical advertising. The Restaurant must in all dealings with customers, suppliers, Franchisor,
and the public adhere to the highest standards of honesty, integrity, fair dealing, and ethical conduct.
Franchisee agrees not
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 29 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
to engage in any business or advertising practice that could injure El Pollo Loco® Restaurants. Franchise
must notify us in writing immediately if (a) any legal charge is asserted against Franchisee or the Restaurant
(even if there is no formal proceeding), (b) any action, suit, or proceeding is commenced against Franchisee
or the Restaurant, (c) you receive any report, citation, or notice regarding the Restaurant’s failure to comply
with any licensing, health, cleanliness, or safety standard, or (d) any bankruptcy or insolvency proceeding or
an assignment for the benefit of creditors is commenced by or against Franchise, your owners, or the
Restaurant. Franchisee shall submit copies of all government health inspections and food borne illness
investigation reports of the Restaurant to Franchisor, or Franchisor’s designated agent. Additionally, should
Franchisee be subject to Restaurant closure by health officials or receive a “B” or equivalent restaurant
rating, Franchisee will immediately notify Franchisor by the fastest means available.
12.
RESTAURANT MAINTENANCE AND REPAIR
12.1. Maintenance and repair of the Restaurant are the sole responsibility and shall be done at the
expense of Franchisee. For the term of this Agreement, Franchisee, at its sole cost and expense, shall
maintain the Restaurant and the Location, including, but not limited to, the Restaurant building, the Location
and parking lot, equipment, decor, furnishings, fixtures, wares, utensils, supplies, and inventory, in good
working order and condition and in compliance with all laws. Franchisee shall make all repairs within a
reasonable time period not to exceed thirty (30) days of the date such repairs are identified as needed to
bring the Restaurant into a first-class condition. Franchisee shall replace any of the Restaurant's
equipment, furnishings and fixtures and repaint the Restaurant as necessary to satisfy this Section 12.
Without limiting the generality of the foregoing, upon notice from Franchisor of any change required or
recommended by applicable law, rule or regulation, or if Franchisor discovers any circumstance which is or
may result in a danger to public health, Franchisee shall promptly, remove, repair, replace or modify any
equipment or fixtures used in the Restaurant necessary to satisfy or rectify the same. All replacement
equipment, furnishings and fixtures shall comply with Franchisor's then-current requirements and
specifications.
12.2. Franchisee shall not make any addition to or change in the physical appearance, decor,
characteristics or style of the Restaurant without the prior written consent of Franchisor which consent may
be withheld or granted as Franchisor’s sole and absolute right.
12.3. During the term of this Agreement, Franchisor may require Franchisee, at Franchisee's
expense, to remodel the Restaurant to then current El Pollo Loco® standards, format, design and image, as
designated pursuant to plans and specifications provided by Franchisor; provided, however, Franchisee shall
not be required to undertake such remodeling more than once every seven (7) years during the term of this
Agreement, except if such remodeling is required in connection with a transfer of the Restaurant under
Section 17.6.c of this Agreement or granting of a successor franchise under Section 20
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 30 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
below.
12.4. All Signs to be used in connection with the Restaurant, both exterior and interior, must conform
to Franchisor's Sign criteria as to type, color, design and location and be approved in writing by Franchisor
prior to installation or display. Franchisee shall change its Signs to conform with updated or revised
requirements of Franchisor when Franchisor commits to implementing such revisions at twenty-five percent
(25%) of the Franchisor's then-operated El Pollo Loco® restaurants and at such times as Franchisee is
required to perform remodeling work pursuant to Section 12.3.
12.5. Franchisee shall at all times operate its Restaurant as a clean, safe, sanitary, orderly, legal and
respectable place of business in accordance with the Manual, the lease or sublease, if any, for the Location
and all applicable federal, state or local laws, rules, or regulations, including but not limited to, OSHA related
safety training and compliance. Franchisee shall not cause or allow any part of its Location to be used for
any immoral or illegal purpose. Any citations or penalties issued shall be the sole responsibility of
Franchisee.
13.
HOURS OF OPERATION
13.1. Franchisee shall keep the Restaurant fully operational and open to the public upon such days
and during such minimum number of hours as Franchisor shall prescribe from time to time in the Manual.
Franchisee shall supply to Franchisor prior to the commencement of the construction or remodeling work of
the Restaurant proof that the Restaurant is allowed to be open to the public during such required hours and
days by the applicable local governmental authorities and by the landlord under the lease for the Location.
In the event that the Restaurant is closed for reasons beyond Franchisee's control, Franchisee will
immediately notify Franchisor by the fastest means available of the closing.
14.
PERSONNEL STANDARDS
14.1. Franchisee shall hire, train and supervise Restaurant employees in accordance with the
applicable provisions of the Manual. Franchisee shall do everything necessary to ensure that all employees
are, at all times during employment in the Restaurant, neat, clean and adequately trained and supervised in
connection with the performance of their duties.
14.2. Franchisee acknowledges that adequate training and supervision are necessary in order to
ensure that the Restaurant personnel provide service to the public in a courteous, efficient and skilled
manner and in accordance with the standards set forth in the Manual. Franchisee understands and agrees
that Franchisee is solely responsible for the performance of its Operations Manager and all other of its
employees and that the acts and omissions of such employees which are inconsistent with the provisions of
this Agreement shall be considered grounds for termination of this Agreement as provided in
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 31 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Section 18 hereof.
14.3. Franchisee shall maintain wages, hours, working conditions and other benefits for all of its
employees in accordance with all federal, state and local laws and regulations.
14.4. Franchisee shall maintain all employee time, payroll and tax records and to file required reports
thereon in accordance with all federal, state and local laws and regulations.
14.5.
It is mutually understood and agreed by the parties that Franchisee retains the responsibility
and independent authority, notwithstanding any provision of this Agreement, to maintain and enforce
personnel policies and procedures, including, but not limited to, hiring, firing and disciplining its employees.
Nothing contained in this Agreement shall be construed or interpreted so that any employee of Franchisee
becomes or is deemed to be an employee or agent of Franchisor. Franchisee shall be solely responsible for
the maintenance and handling of all employee matters and Franchisee shall indemnify and hold Franchisor
and its affiliates and subsidiaries harmless from any claims, losses, or liabilities resulting from any failure by
Franchisee to act in such a manner.
15.
INSPECTIONS
15.1. Franchisor and its authorized representatives shall have the right to inspect the Restaurant and
the supplies and inventory of Franchisee. Franchisor's personnel and representatives shall have the right to
enter the Restaurant at any reasonable time, and from time to time, with or without notice, for the purposes
of examination, conferences with Franchisee and personnel of Franchisee, observation and evaluation of the
operations being conducted at the Restaurant, and for all other purposes in connection with a determination
that the Restaurant is being operated in accordance with the terms of this Agreement, the Specifications and
Manual and other applicable laws and regulations.
15.2. Franchisor may conduct quality control and evaluation programs, as Franchisor shall determine
(including a “accuracy guarantee” program, social media monitoring, or other similar programs). Franchisee
shall allow and participate in such program(s), as required by Franchisor. Franchisor shall have the right to
require Franchisee to pay its pro-rata share of the costs incurred in establishing and maintaining such
program(s) and Franchisee shall promptly pay such charges. Franchisee acknowledges that Franchisor
shall have the right, in any manner Franchisor may deem appropriate, to publish or disclose any information
that is collected, produced or maintained under any program(s) implemented pursuant to this section to other
franchisees under the El Pollo Loco® System on a named basis, or to third parties outside the El Pollo Loco®
System on an anonymous basis.
15.3.
In connection with inspections conducted pursuant to Sections 15.1 and
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 32 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
15.2 above, Franchisor and its authorized representatives may deliver to Franchisee an inspection report in
such form(s) as may be adopted by Franchisor from time to time (the "Inspection Report(s)"). The
Inspection Report(s) shall indicate the principal items inspected, observed and evaluated.
15.4.
In the event that any such Inspection Report indicates a deficiency or unsatisfactory condition
with respect to any item listed thereon, Franchisee shall promptly commence to correct or repair such
deficiency or unsatisfactory condition and thereafter diligently pursue the same to completion. In the event
of a failure by Franchisee to comply with the foregoing obligation to correct or repair, Franchisor, in addition
to all other available rights and remedies, including the right to terminate this Agreement pursuant to Section
18 below, shall have the sole and absolute right, but not the obligation, to forthwith make or cause to be
made such correction or repair, and the expenses thereof, including, without limitation, meals, lodging,
wages and transportation for Franchisor's personnel, if so utilized as Franchisor's sole and absolute right to
determine, shall be promptly reimbursed by Franchisee. Should any deficiency or unsatisfactory condition
be reported more than once within any thirty (30) day period, Franchisor shall have the right, in addition to all
other available rights and remedies, to place a Franchisor representative in charge of the Restaurant for a
period of up to thirty (30) days in each such instance, and the wages and expenses of meals, lodging and
transportation of said representative, which shall be commensurate with that provided for managers of other
Franchisor-owned El Pollo Loco® restaurants, shall promptly be reimbursed by Franchisee. All such
expenses incurred by Franchisor pursuant to this Section shall be set forth in a written invoice delivered to
Franchisee by Franchisor. Franchisee shall reimburse Franchisor for the invoice amount within seven (7)
days after the invoice has been delivered to Franchisee upon demand.
15.5. Notwithstanding Section 15.4 above, should the Inspection Report indicate a deficiency or
unsatisfactory condition with respect to any item listed thereon, and Franchisor or Franchisor’s agent are
required to return to the Restaurant to re-inspect the Restaurant, Franchisor will charge Franchisee for each
subsequent visit to Franchisee’s restaurant after the initial inspection. Franchisee will give Franchisor
authorization to pay the re-inspection visit charge as a direct debit from Franchisee’s Operating Account.
Should there be two (2) consecutive Inspection Reports both indicating a deficiency or unsatisfactory
condition with respect to any item listed thereon, and Franchisor or Franchisor’s agent are required to return
to the Restaurant to provide a Coaching session to Franchisee; or should Franchisor determine in our sole
and absolute right that a Coaching session is required at the Restaurant due to certain circumstances,
Franchisor will charge Franchisee for each Coaching session at Franchisee’s restaurant. Franchisee will
give Franchisor authorization to pay each Coaching session visit charge as a direct debit from Franchisee’s
Operating Account.
15.6.
In the event that the Restaurant operations threatened health or public safety or materially
adversely affected the ownership, condition or operation of the Restaurant or adversely affect the El Pollo
Loco brand or goodwill, Franchisee must (i) immediately report such issue to Franchisor by immediately
contacting the assigned
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 33 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Director, Franchise Business (or equivalent) and if unable to speak directly with the assigned Director, by
immediately contacting the Support Center and (ii) compensate Franchisor, or reimburse Franchisor for all
fees, costs or expenses, use of internal and external resources, taxes or other types of charges which
Franchisor pays on Franchisee’s behalf to third parties or that Franchisor directly incurs, including payments
to taxing authorities, governmental agencies, suppliers, contractors and insurance carriers, for products,
services, loss in sales or revenue, supplies, equipment, goods, materials or inventory when Franchisee’s
Restaurant operations or nonpayment threatens health or public safety or materially adversely affects
Franchisee’s ownership, condition or operation of your Restaurant or materially adversely affects the El Pollo
Loco brand or goodwill. While Franchisor has the sole and absolute right to make such payments as
described above on behalf of Franchisee, it is not Franchisor’s obligation to do so. Franchisor’s decision to
make payments on behalf of Franchisee is not in lieu of Franchisor’s right to terminate your Franchise
Agreement.
16.
TRAINING
16.1. Franchisee acknowledges and agrees that it is important to the operation of the Restaurant that
Franchisee and its employees receive such training as Franchisor may require from time to time. Therefore:
a.
The Restaurant must be managed by not less than four (4) individuals as a General
Manager or Assistant Manager who have successfully completed the EPL management training program; or
a Shift Leader trained by your General Manager and Assistant Manager at your Restaurant and such
Restaurant is certified as a training restaurant prior to any training taking place; and who have received the
ServSafe® certification and who will assume responsibility for the day to day management of the operations
of the Restaurant, including the preparation of food products, accounting, and the supervision and training of
personnel (“Managers”) The Managers may consist of a combination of the following: a General Manager or
Assistant Manager, each who has successfully completed the EPL management training program or a Shift
Leader. The Managers may be required to sign a confidentiality agreement in a form approved by
Franchisor. Each and every shift during operating hours must have a Manager in charge that is certified and
trained in Franchisor’s initial training program and is ServSafe® certified.
b.
If at any time, for any reason, the General Manager ceases to perform those duties on
behalf of the Restaurant, Franchisee must promptly designate a substitute General Manager who does meet
the above-stated qualifications.
c.
If this is Franchisee’s first EPL Restaurant, Franchisee must also attend and
satisfactorily complete the EPL management training program provided by Franchisor. If Franchisee
appoints an Operations Director to oversee franchise activities, this Operations Director is subject to
Franchisor’s prior written approval and must satisfactorily complete the EPL management training program
and Franchisee must complete either the EPL management training program or the Executive Franchisee
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 34 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Training Program. Such training shall be completed prior to the opening of the restaurant.
d.
Franchisee’s Operations Director shall be actively engaged in the management and day
to day operations of the restaurant and devote full time and best efforts to the supervision of EPL
Restaurant(s) owned by Franchisee. If at any time, for any reason, the Operations Director ceases to
perform those duties on behalf of the Restaurant(s), Franchisee shall appoint a new Operations Director
within 30 days, and the newly appointed Operations Director must satisfactorily complete the EPL
management training program within 90 days of appointment at Franchisee’s expense; or, Franchisee shall
assume the duties of the Operations Director and complete the EPL management training program within
120 days (if not previously completed).
e.
Franchisee shall implement a training program for Franchisee's employees in
accordance with training standards and procedures prescribed by Franchisor and shall staff the Restaurant
at all times during the term of this Agreement with a sufficient number of trained employees.
f.
Franchisor may provide continuing operations training from time to time to reinforce
operational standards, and new product roll-outs. The required frequency, duration, subject matter and
required attendees shall be as determined by Franchisor from time to time.
g.
In addition to the initial management training session described above, Franchisor may,
at Franchisor's sole option (and if the Restaurant is Franchisee's or its affiliate's first El Pollo Loco®
restaurant, Franchisor shall) assist Franchisee in the initial opening of the Restaurant by sending to the
Restaurant a member of Franchisor's personnel who shall assist in the scheduled opening of the Restaurant.
h.
The Restaurant shall not be opened until Franchisor is satisfied that Franchisee and
Franchisee's Managers and other restaurant personnel have been adequately trained in the El Pollo Loco®
System.
16.2. Franchisor shall provide training as described in Section 16.1 without additional charge to
Franchisee, provided that Franchisee does not request Franchisor to provide the EPL management training
program to more than four Managers for the first, second and third Restaurants owned by Franchisee, or
more than one Executive Franchisee Training Program, or more than one EPL management training
program for franchisee or Operations Director in total. Franchisor shall charge franchisee a training fee of
$2,000 per Manager for the fifth and each subsequent Manager for the first, second and third Restaurants
owned by Franchisee and for each Manager trained for the fourth and subsequent Restaurants owned by
Franchisee, and up to $2,000 per Executive Franchisee Training Program beyond one executive in total, or
EPL management training program for franchisee or Operations Director beyond one franchisee or
Operations Directors in total. Franchisee understands and agrees that Franchisee and any Manager shall
be solely responsible for any and all costs incurred by them with respect to such training, including costs for
compensation, wages (including compensation of and
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 35 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
worker’s compensation insurance), lodging, travel expenses or any other expenses incurred in connection
with any initial training sessions, EPL management training program, Executive Franchisee Training
Program, refresher courses or optional or required training program, and any such Manager shall not be
considered an employee or agent of Franchisor.
17.
ASSIGNMENT
17.1. Assignment by Franchisor. Franchisor shall have the right to assign or transfer any of its rights
or delegate any of its obligations under this Agreement in whole or in part to any person, firm or corporation
without any consent or approval from Franchisees; provided, however, that with respect to any assignment
resulting in the subsequent performance by the assignee of the obligations of Franchisor hereunder:
a.
The assignee shall expressly assume and agree to perform such obligations of
Franchisor in writing; and
b.
From and after the date of any such assignment, Franchisor shall have no further
obligation or liability under this Agreement.
17.2. Assignment by Franchisee. The rights and duties created by this Agreement are personal to
Franchisee. Franchisee acknowledges that Franchisor has entered into this Agreement in reliance on the
individual or collective character, skill, aptitude, business ability, and financial capacity of Franchisee and its
owners. Franchisee and each owner of an interest in this Agreement represent, warrant, and agree that all
“Interests” in Franchisee are owned in the amount and manner in which Franchisee has disclosed them to
Franchisor, as more particularly set forth in Schedule 1 to this Agreement. (An “Interest” means any shares
or partnership interests in Franchisee and any other legal or equitable right in any of Franchisee’s stock,
revenues, profits, rights or assets. When referring to Franchisee’s rights or assets, an “Interest” also
includes this Agreement and Franchisee’s rights under and interest in this Agreement, the Restaurant and
the revenues, profits or assets of the Restaurant.) Franchisee and each owner also represent, warrant and
agree that no change will be made in the ownership of an Interest other than as permitted by this Agreement
or as Franchisor may otherwise approve in writing. Franchisee and each owner agree to furnish Franchisor
with evidence as Franchisor may request from time to time to assure that the Interests of Franchisee and
each owner remain as permitted by this Agreement, including a list of all persons or entities owning any
Interest. If Franchisee is a Business Organization, Franchisee shall cause each of the owners of any equity
ownership in Franchisee to execute an agreement granting Franchisor an option to purchase each of such
owner’s Interest in Franchisee upon an Assignment as provided in this Section 17.
17.3. Neither this Agreement nor any Interest herein nor any Interest of Franchisee or any owner
may be indirectly or directly, sold, transferred, assigned, conveyed, gifted, pledged, mortgaged, or otherwise
encumbered (“Assignment”) without Franchisor’s prior written approval. Any such purported Assignment
occurring by
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 36 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
operation of law or otherwise without Franchisor’s prior written consent shall constitute a default of this
Agreement by Franchisee and shall be null and void. Except in the instance of Franchisee advertising to sell
its Restaurant and assigning this Agreement in accordance with the terms thereof, Franchisee shall not,
without Franchisor’s prior written consent, offer for sale or transfer at public or private auction or advertise
publicly for sale or transfer, the furnishings, interior and exterior décor, items, supplies, fixtures, equipment,
Franchisee’s lease or the real or personal property used in connection with the Restaurant. This Agreement
may not be transferred by Franchisee to a publicly-held entity, or to any entity whose direct or indirect
parent’s securities are publicly traded and no shares of Franchisee or any direct or indirect owner of
Franchisee may be offered for sale through the public offering of securities.
17.4.
In the event that Franchisee desires to make an Assignment including assigning all or any part
of its rights, privileges and interests under this Agreement, Franchisee shall first offer such Assignment to
Franchisor by notifying Franchisor in writing of the material terms and conditions, including price and identity
of transferee upon which Franchisee would be willing to make such an Assignment. Franchisee shall also
concurrently provide Franchisor with the estoppel certificate identified in Section 17.7 below and such other
information as determined by Franchisor to enable Franchisor to evaluate the offer. Franchisor shall have
the first right to acquire said rights, privileges and interests of Franchisee by accepting the offer in
accordance with said terms and conditions or equivalent cash, as determined by Franchisor in its reasonable
business judgment.
a.
If the Assignment will be in the aggregate more than fifty percent (50%) of any one class
of outstanding capital stock, the voting power, membership interests, partnership interest or other Interest in
Franchisee occurring within thirty-six (36) months prior to the date of the Assignment, (a “Majority Interest”),
then Franchisor shall have the option to purchase not only the Majority Interest being transferred, but also
the remaining Interest, so that the ownership of Franchisor will be one hundred percent (100%). Any
purchase of such remaining Interest shall be valued on a basis proportionate to the price of the Interest
initially being offered.
b.
If, within thirty (30) days after receipt of Franchisee's notice, Franchisor advises
Franchisee of its acceptance of the offer as stated in the notice, Franchisee shall promptly make the
Assignment to Franchisor on the stated terms and conditions. Should Franchisor elect to exercise its right of
first refusal, Franchisee shall, if requested by Franchisor, cause Franchisee's lease or sublease, if any, with
the lessor for the Location to be assigned to Franchisor (or, if the Location is owned by Franchisee,
Franchisee shall lease the Location to Franchisor on commercially reasonable terms applicable in that
market). Notwithstanding the foregoing, Franchisor shall have at least sixty (60) days from the date of its
notice of exercise to Franchisee to close the transaction and Franchisor shall also be entitled to all
customary and reasonable representations and warranties from Franchisee regarding the Franchisee’s
business or any other interest being conveyed.
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 37 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
c.
Notwithstanding the provisions of this Section 17.4, Franchisor will waive Franchisor’s
right of first refusal if the assignee is a revocable family trust for which Franchisee is the controlling trustee
and Franchisee’s immediate family members are beneficiaries provided such Assignment is not considered a
Majority Interest. An immediate family member is defined as a parent; sibling; child by blood, adoption, or
marriage; spouse or significant other; grandparent or grandchild.
17.5.
If, within thirty (30) days after receipt of Franchisee's notice, Franchisor does not indicate its
acceptance of the offer as stated in the notice, Franchisee shall thereafter have the right, subject to the prior
written consent of Franchisor, to make the Assignment to the proposed transferee on the same terms and
conditions as stated in the notice. Should Franchisor not exercise its right of first refusal and should the
contemplated Assignment not be completed within one hundred (120) days from the date of Franchisee's
notice, or should the terms and conditions thereof (including the proposed transferee or the ownership
therein) be altered in any material way, this right of first refusal shall be reinstated and any such subsequent
proposed Assignment or altered terms and conditions of the current transaction must again be offered to
Franchisor in accordance with the terms of these Sections 17.4 and 17.5.
17.6. Franchisee shall notify Franchisor in writing of any proposed assignee and shall promptly
furnish Franchisor with such other information and documentation as Franchisor may request for the purpose
of considering whether to grant its written consent. Franchisee acknowledges and agrees that Franchisor
shall be entitled, at its election and without liability to Franchisee, to provide assignee with information
relating to the Restaurant, including information in Franchisor's possession relating to operations and sales.
Franchisor shall not unreasonably withhold its consent to an Assignment provided that Franchisee and the
assignee satisfy such reasonable terms and conditions which may be imposed by Franchisor as a condition
to obtaining Franchisor's consent, which may include, without limitation, the following:
a.
The assignee (and its partners or the officers, directors, principal shareholders, or
members of the assignee, as the case may be) shall be subject to the determination by Franchisor:
experience, reputation, character, and aptitude necessary to operate and maintain the Restaurant;
i.
To have
the appropriate business qualifications,
restaurant operations
maintaining the Restaurant;
ii.
To have the ability to devote full time and best efforts to operating and
To be financially responsible, possess a favorable credit rating, be economically
capable of carrying on the Restaurant business and have sufficient net worth as required by Franchisor for
new franchisees;
iii.
iv.
To not have been convicted of criminal misconduct that is
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 38 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
relevant to the operation or ownership of the Restaurant or of any felony;
Shall neither directly nor indirectly own, operate, control or have any financial
interest in any other business which would constitute a "Competitive Business" (as such term is defined in
Section 21.7 of this Agreement); and
v.
Shall have demonstrated to Franchisor’s satisfaction that assignee meets all of
Franchisor’s then-current requirements for new El Pollo Loco® franchisees, which requirements are subject
to change by Franchisor from time to time as its sole and absolute right.
vi.
b.
The assignee shall expressly assume in writing, via the Consent to and Assignment of
Franchise Rights attached hereto as Exhibit 9 of the Franchise Agreement, all of the obligations and
liabilities of and enter into Franchisor's then-current form of Franchise Agreement, which may contain
provisions including royalty and advertising fees, materially different from those contained herein; provided,
however, that the term of such new agreement shall be equal to the then-remaining term of this Agreement
and assignee shall not be required to pay a new initial franchise fee. If the assignee is a partnership,
corporation, limited liability company or other legal entity, then all partners, shareholders, and members of
assignee that (i) hold at least a ten percent (10%) interest in assignee and/or (ii) upon whose net worth
Franchisor is relying in determining that the assignee has met Franchisor’s financial minimum requirements
for approval must sign the Personal Guarantee and any related documents in their individual capacity,
agreeing to guarantee the obligations and liabilities of the assignee under the Franchise Agreement and to
be individually bound by the terms of the Franchise Agreement as if they were a party to the Franchise
Agreement. If a new partnership, corporation, limited liability company or other legal entity, at any time
(including after an assignment), becomes the Franchisee or part of the Franchisee, that partnership,
corporation, limited liability company or legal entity, as well as all holders of ten percent (10%) interest or
more in assignee, as applicable, shall execute a Personal Guarantee, guaranteeing each of Franchisee’s
obligations and liabilities under the Franchise Agreement and agreeing to be individually bound by the terms
of the Franchise Agreement as if they were a party to the Franchise Agreement. If the assignee is a
corporation, partnership or limited liability company, it also shall demonstrate to the reasonable satisfaction
of Franchisor that it has established transfer instructions prohibiting the transfer on its records of any equity
securities, partnership interests or ownership interests in violation of the requirements set forth in this
Section 17 and that each stock, partnership or ownership certificate of Franchisee shall have conspicuously
endorsed upon its face a statement in form satisfactory to Franchisor that the assignment or transfer is
subject to all of the restrictions imposed upon assignments by this Agreement;
c.
The assignee or the assignor agrees to the reimage and/or remodel of the Restaurant to
Franchisor's then-current standards, format, design and image, as designated pursuant to plans and
specifications provided by Franchisor. Franchisee will have a specified period of time to complete the
required reimage and/or remodel of the
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 39 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Restaurant. The required reimage and/or remodel of the Restaurant must be completed to Franchisor’s
satisfaction. Should the required reimage and/or remodel of the Restaurant not be completed to
Franchisor’s satisfaction, then Franchisor may terminate the Franchise Agreement under Section 18, entitled
Default and Termination;
d.
A copy of the Personal Guarantee required to be executed pursuant to this Section 17 is
attached hereto as Exhibit 2. All other individuals with an ownership interest in the entity (who are not
required to execute the Personal Guarantee) will be considered “Investors” and will be required to execute
the “Investor Covenants Regarding Confidentiality and Non-Competition” which is attached hereto as Exhibit
3;
e.
The assignee shall represent and warrant to Franchisor in writing that the assignee:
i.
Has conducted an independent study of the Restaurant and the business therein;
Has not in any way relied upon statements or representations of Franchisor or its
employees or agents except as may be contained in a Disclosure Document or other comparable Disclosure
Document which may be required to be delivered to such assignee in accordance with applicable law; and
ii.
Acknowledges and understands that the assignee's rights upon assignment are
conditioned on full performance of Franchisee's obligations hereunder and are limited to those expressly
provided for in this Agreement.
iii.
f.
As of the date of such assignment, Franchisee shall have fully performed and complied
with all of its obligations to Franchisor, whether under this Agreement or any other agreement, arrangement
or understanding with Franchisor;
g.
Franchisee shall pay and discharge all outstanding obligations to Franchisor and to third
parties arising from the existence, operation or maintenance of the Restaurant including, without limitation,
amounts owing under this Agreement, the lease, if any, for the Location or to employees, suppliers, taxing
authorities, utility companies and others as of the assignment date;
h.
Franchisee shall pay to Franchisor a transfer fee to reimburse Franchisor for costs and
expenses incurred in connection with such Assignment, including, without limitation, the cost of credit
investigations and the preparation of Assignment agreements and Franchise Disclosure Documents which
may be required to be delivered to such assignee under applicable federal or state law. If the Assignment is
to a new franchisee under the El Pollo Loco® System, the transfer fee shall be forty percent (40%) of the
then-current Initial Fee being charged to new franchisees entering the El Pollo Loco® System. If the
Assignment is to an existing franchisee under the El Pollo Loco® System, the transfer fee shall be twenty-five
percent (25%) of the then-current Initial Fee being charged to new franchisees entering the El Pollo Loco®
System. If the
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 40 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
assignee is a revocable family trust for which Franchisee is the controlling trustee and Franchisee’s
immediate family members are beneficiaries, no transfer fee will be payable to Franchisor, although
Franchisee must reimburse Franchisor for Franchisor’s reasonable expenses in the amount of $500.00; and
i.
In conjunction with granting the consent of Franchisor to any Assignment, Franchisee
shall execute a general release, in form and substance satisfactory to Franchisor, of all claims against
Franchisor and any affiliates of Franchisor.
17.7. Upon Franchisor’s request, Franchisee shall, concurrently with any offer submitted to
Franchisor by Franchisee regarding a transfer or purported Assignment or at any other time at Franchisor’s
request, furnish Franchisor with an estoppel agreement indicating any and all claims, demands and causes
of action, if any that Franchisee may have against Franchisor or if none so exist, so stating, and a list of all
owners having an interest in this Agreement or in Franchisee, the percentage interest of each owner and a
list of all officers, directors, members and/or shareholders in such form as Franchisor may require.
17.8. Any Assignment including any encumbrance, assignment or purported encumbrance or
assignment of Franchisee's rights, privileges or interests under this Agreement without Franchisor's written
consent shall be null and void, of no force and effect, and shall constitute grounds for termination of this
Agreement as provided in Section 18 hereof.
17.9. Any assignment based upon the legal incapacity of Franchisee, whether by operation of law or
otherwise, shall be subject to Franchisor's written consent and right of first refusal as provided herein.
17.10. If this Agreement is assigned, Franchisee shall remain liable to Franchisor for the obligations
under this Agreement and the obligations of the assignee hereunder and which arise as a result of acts,
events or omissions which occur prior to the effective date of the assignment or within the initial term of this
Agreement; provided, however, that the foregoing limitation on liability shall not reduce Franchisee's
continuing liability to the extent that Franchisee is a partner, shareholder or owner of an interest in the
assignee. Franchisor's consent to any transfer hereunder shall not constitute a waiver or release of any
claims it may have against Franchisee as of the date of the assignment.
17.11. Any transfer of this Agreement, or any interest in this Agreement, or franchisee by will or
intestate succession, or the sale of this franchise, or any interest in Franchisee constituting a Majority
Interest by the executor or administrator of Franchisee's or such shareholder's or person's estate, shall be
considered to be a transfer requiring compliance with the provisions of this Section 17, including the
requirements concerning Franchisor's written approval of the assignee, the assignee's qualifications and
training, and the execution of agreements. In the event Franchisor does not approve the qualifications of
any heir or beneficiary to operate the Restaurant, the executor or administrator of Franchisee's estate shall
have a period of twelve (12) months following
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 41 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
written disapproval to sell the franchise business to an assignee acceptable to Franchisor, during which
twelve (12) month period the Restaurant shall be operated in accordance with all the terms and provisions of
this Agreement. Such sale shall be subject to Franchisor's right of first refusal pursuant to this Section 17. If
such a sale is not concluded within that period, Franchisor may terminate this Agreement.
17.12. If, for convenience of ownership, Franchisee desires to assign this Agreement to a Business
Organization to hold its interest in this Agreement, Franchisor will consent to the assignment of this
Agreement to a Business Organization, provided that (i) none of the securities of an Business Organization
shall be traded on any public exchange or over the counter market; (ii) the certificates or other evidence of
ownership held by the owner thereof shall contain a restriction on transfer referencing this Franchise
Agreement, in a form required by Franchisor; (iii) the ownership of the assignee Business Organization shall
be in the same proportion as the ownership of Franchisee immediately prior to the transfer; and (iv) none of
the shares of stock, membership interests, voting power, equity or ownership interests in the assignee
Business Organization shall be held by or for the benefit of a business competitor of Franchisor. Franchisee
shall pay an administrative fee of Five Hundred Dollars ($500) per transfer for each transfer to a Business
Organization, or for each transfer of ownership amongst existing owners where such transfer is for the
convenience of ownership only. At the time of request for a transfer for the convenience of ownership,
Franchisee shall submit the following documents to Franchisor and Franchisor shall review, approve and/or
disapprove such documents within thirty (30) days thereafter:
a.
For an assignment to a corporation, Franchisee shall provide to Franchisor a (i) file
stamped copy of the Articles of Incorporation (or comparable organizational document) and By-laws of the
proposed assignee corporation, (ii) a sample stock certificate, (iii) a Certificate of Good Standing in the state
in which the corporation is authorized to do business and the state in which the corporation will conduct the
restaurant business pursuant to this Franchise Agreement, and (iv) a list of directors, shareholders and
officers and their percentage ownership of the stock of the corporation. Each share certificate of a
corporation shall contain a restriction on transfer in a form designated by Franchisor.
b.
For an assignment to a partnership, Franchisee shall provide to Franchisor a (i) file
stamped copy of the Certificate of Limited Partnership (if applicable) or the Statement of Partnership, and (ii)
a copy of the fully executed Partnership Agreement, containing an exhibit showing the percentage of
ownership in the partnership by all partners. The partnership agreement shall contain a restriction on
transfer in a form designated by Franchisor.
c.
For an assignment to a limited liability company, Franchisee shall provide to Company
(i) Certificate of Formation (or comparable organizational document) of Limited Liability Company; (ii) a fully
executed copy of the Operating Agreement, containing an exhibit showing the percentage of ownership of all
members in the limited liability company; and (iii) the name of the Manager or Managers of the limited liability
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 42 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
company. The operating agreement shall contain a restriction on transfer in a form designated by
Franchisor.
d.
Franchisee acknowledges that the purpose of the restrictions on transfer referenced in
Sections 17.12(a) through 17.12(c) above is to protect Franchisor’s trademarks, service marks, trade
secrets, and operating procedures as well as the Franchisor’s general high reputation and image, and is for
the mutual benefit of Franchisor, Franchisee and other franchisees of the Franchisor. Franchisor shall not
unreasonably restrict the issuance or transfer of stock or interests in a partnership or limited liability
company, provided that, in no event, shall any share of stock of such assignee corporation, or an interest in a
partnership or limited liability be sold, assigned or transferred to a business of a competitor of Franchisor or
anyone of ill repute.
17.13. Where Franchisee desires to add new principals to the Franchisee entity, Franchisee shall pay
to Franchisor an additional Two Thousand Five Hundred Dollars ($2,500) per new principal to cover
Franchisor’s administrative costs for reviewing the application and suitability of each new principal as
participants in the franchise business.
17.14. In connection with a sale by Franchisee of all or substantially all of the assets relating to the
Restaurant business, Franchisee may take a security interest in the Restaurant and the purchaser’s rights
under this Agreement in order to secure any financing that Franchisee provides to the purchaser for the
purchase of the Restaurant. In the event of a default under such financing arrangement and the exercise by
Franchisee of its rights under such security interest, Franchisee or the individual(s) purchasing the
Restaurant out of a foreclosure sale may become the franchisee under this Agreement, subject to its
compliance with each of the requirements set forth in this Section 17.
18.
DEFAULT AND TERMINATION
18.1.
In addition to all other available rights and remedies, Franchisor shall have the right to
terminate this Agreement only for "cause". "Cause" is hereby defined as a material breach of this
Agreement, including but not limited to any of the facts or circumstances specified in Sections 18.2, 18.3, or
18.4.
18.2.
In addition to all other available rights and remedies, Franchisor shall have the right upon the
occurrence of any of the following events to immediately terminate this Agreement by giving written notice to
Franchisee.
a.
Abandonment of the Restaurant by Franchisee by failing to operate the Restaurant
business for five (5) consecutive days or any shorter period of time after which Franchisor reasonably
determines that Franchisee does not intend to continue to operate the business, unless such failure is due to
fire, flood, earthquake or other similar cause beyond Franchisee's control, in which case Franchisee shall
comply with each of the requirements set forth in Section 23.17;
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 43 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
b.
Franchisee admits to an inability to pay its debts as the same become due, is declared
bankrupt or judicially determined to be insolvent, or all or a substantial part of the assets thereof are
assigned to or for the benefit of any creditor, or Franchisee admits its inability to pay its debts as they come
due;
c.
A levy of execution is made upon the Restaurant, the license granted by this Agreement
or upon any property used in the Restaurant business, and it is not discharged within five (5) days of such
levy;
d.
The Restaurant business, equipment or premises are seized, taken over or foreclosed
by a creditor, lienholder or lessor, or a final judgment rendered against Franchisee remains unsatisfied for at
least thirty (30) days and a supersedeas or other appeal bond has not been filed;
e.
The right to occupy or lease the Location is lost or terminated and Franchisee has not
relocated the Restaurant, if permitted, pursuant to Section 23.17;
f.
Franchisee or any of its partners, officers, directors or principal shareholders is
convicted of any criminal misconduct that is relevant to the operation or ownership of the Restaurant or any
felony;
g.
The failure of Franchisee to reach each milestone and to open and operate the
Restaurant in accordance with and by the time set forth in Section 4.1;
h.
Any purported Assignment, including the transfer or sublicense of this franchise, or any
right hereunder, without the prior written consent of Franchisor;
i.
Any material misrepresentation is made by Franchisee in connection with the acquisition
of the franchise herein;
j.
Franchisee engages in conduct which reflects materially and unfavorably upon the
operation, the reputation of the Restaurant business, the El Pollo Loco® System, or the goodwill associated
with the El Pollo Loco® Marks;
k.
Franchisee on three or more occasions fails to comply with one (1) or more material
standards or requirements of this Agreement (or as specified in the Manual), whether or not corrected after
notification thereof;
l.
A repetition within a one-year period of any default (whether or not that earlier default
was corrected after notification thereof) shall justify Franchisor in terminating this Agreement upon written
notice to Franchisee without allowance for any curative period;
m.
Failure of Franchisee, for a period of ten (10) days after notification of noncompliance, to
comply with any federal, state or local law or regulation applicable to the operation and maintenance of the
Restaurant, including, but not limited to, public
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 44 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
health and safety requirements;
n.
Reasonable determination on the part of Franchisor that continued operation of the
Restaurant by Franchisee will result in an imminent danger to public health or safety;
o.
Except for noncompliance otherwise covered by Section 18.2.k above, failure of
Franchisee to correct a deficiency or unsatisfactory condition referred to in an Inspection Report (discussed
in Section 15 hereof) which Franchisor reasonably determines may have a material adverse effect on the
ownership or operation of the Restaurant after having received a reasonable opportunity to cure such
deficiency or unsatisfactory condition, which in no event need be more than thirty (30) days;
p.
In the event that Franchisee leases or subleases the Location and/or the leasehold
improvements thereon from a third party, the failure of Franchisee to cure any and all defaults under the
terms and provisions of any such lease or sublease within the time provided for the curing of any such
default(s) in any such lease or sublease;
q.
Any misrepresentation by Franchisee or any violation of the Anti-Terrorism Laws by
Franchisee or its employees shall constitute grounds for immediate termination of this Agreement and any
other agreement Franchisee has entered into with Franchisor or one of Franchisor's Affiliates.
18.3. Except for any default by Franchisee under Section 18.2, or as otherwise expressly provided in
this Agreement, Franchisee shall have 10 days (5 days in the case of any default in the timely payment of
sums due to Franchisor or its affiliates or to vendors for any products, services or required fees due to such
vendors), after Franchisor's written notice of a material default within which to remedy any material default
under this Agreement, and to provide evidence of such remedy to Franchisor. If any such default is not
cured within that time period, or such longer time period as applicable law may require or as Franchisor may
specify in the notice of default, this Agreement and all rights granted by it shall thereupon automatically
terminate without further notice or opportunity to cure.
18.4. Franchisee shall be in material default under this Section for any failure to comply with any of
the requirements imposed by this Agreement. Such material defaults shall include, but are not limited to, the
occurrence of any one or more of the following events:
a.
Failure of Franchisee to pay to Franchisor, its affiliates or any third parties any fees,
costs, charges or other amounts due;
b.
Failure of Franchisee to pay when due any rent, taxes or other payments required under
any sublease with Franchisor for the Location;
c.
Failure of Franchisee to cure any default by Franchisee under any loan, note or other
obligation which is obtained to assist Franchisee to make any payment
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 45 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
due Franchisor hereunder or which is secured by all or any part of Franchisee's interest in the Restaurant,
the Location, and/or the improvements or furniture, fixtures or equipment therein;
d.
The attachment of any involuntary lien in the sum of One Thousand Dollars ($1,000.00)
or more upon any of the business assets or property of Franchisee, which lien is not removed, or for which
Franchisee does not post a bond sufficient to satisfy such lien, within thirty (30) days of the filing of such lien;
e.
The failure of Franchisee and/or its affiliates to cure any and all defaults under the terms
and provisions of any other agreement with Franchisor, or any third party relating to this franchise or the
operation or ownership of the Restaurant, including any other Franchise Agreement, lease or promissory
note between Franchisor or its affiliate and Franchisee within the time provided for the curing of any such
defaults in any such other agreement, lease or promissory note;
f.
g.
Franchisee’s misuse or unauthorized use of the El Pollo Loco® Marks;
Failure of Franchisee to comply with any standard or requirement of this Agreement
which is not otherwise covered in this Section 18.
18.5. Notwithstanding anything to the contrary contained in this Section 18, in the event any valid,
applicable law of a competent governmental authority having jurisdiction over this Agreement and the parties
hereto shall limit Franchisor’s rights of termination hereunder or shall require longer notice periods than
those set forth above, this Agreement shall be deemed amended to conform to the minimum notice periods
or restrictions upon termination required by such laws and regulations. Franchisor shall not, however, be
precluded from contesting the validity, enforceability or application of such laws or regulations in any action,
hearing or dispute relating to this Agreement or the termination thereof.
18.6. Franchisor shall not, and cannot be held in breach of this Agreement until (i) Franchisor has
received written notice from Franchisee describing in detail any alleged breach; and (ii) Franchisor has failed
to remedy the breach within a reasonable period of time after such notice, which period shall not be less
than 60 days plus such additional time as reasonably required by Franchisor if because of the nature of the
alleged breach it cannot reasonably be cured within said 60 days, provided Franchisor promptly commences
and continues diligently to cure such alleged breach. Except for breach hereof by Franchisor (subject to the
preceding sentence) or as permitted under Section 23.17 hereof, Franchisee shall have no right to terminate
this Agreement.
19.
RIGHTS AND OBLIGATIONS UPON TERMINATION
19.1.
In the event of expiration or earlier termination of this Agreement:
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 46 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
a.
Franchisee shall promptly cease to use, in any manner and for any purpose, directly or
indirectly, the El Pollo Loco® Marks, the El Pollo Loco® System, Franchisor’s trade secrets, proprietary
information, policies, procedures, techniques, methods and materials used by Franchisee in connection with
the franchise relationship and shall immediately return to Franchisor, or certify as destroyed any and all
(including electronic) copies of any of the foregoing, including, but not limited to:
thereto;
i.
ii.
iii.
iv.
Specifications, recipes and descriptions of food products;
The Manual, memoranda, bulletins, forms, reports, instructions and supplements
Training methods and materials provided by Franchisor hereunder;
Brochures, posters and other advertising materials; and
All items bearing or containing the El Pollo Loco® Marks, including without
limitation, all trademarks, trade names, service marks, logotypes, designs and other identifying symbols and
names pertaining thereto.
v.
b.
Franchisee shall immediately remove, obliterate or destroy all Signs and advertisements
identifiable in any way with Franchisor's name and perform such reasonable redecoration and remodeling of
the Restaurant and the Location as may be necessary, in Franchisor's judgment, to distinguish it from an El
Pollo Loco® restaurant. To the extent that Franchisor is required under applicable law to repurchase certain
goods from Franchisee, Franchisee hereby grants to Franchisor the option to purchase all paper goods,
containers and all other items containing Franchisor's name or the El Pollo Loco® Marks which are in re-
saleable or reusable condition at the lower of their cost or fair market value at the time of termination;
c.
Franchisor may retain all fees paid pursuant to this Agreement;
d.
On any termination or expiration of this Agreement, whether due to a default of
Franchisee or otherwise, Franchisor shall have the right, at its option, for thirty (30) days after such
termination or expiration to elect to purchase Franchisee's interest in the leasehold improvements and
furniture, fixtures, equipment, and any or all of the other tangible Restaurant assets (collectively, “Assets”) at
a purchase price equal to the lesser of Franchisee's cost or the fair market value of such Assets, and to
purchase Franchisee's inventory at Franchisee's cost thereof. If the parties hereto cannot agree on the fair
market value for the Assets within forty-five (45) days of any such date of termination or expiration,
Franchisor shall designate an independent appraiser whose determination shall be binding. If Franchisor
elects to exercise any option to purchase as herein provided, it shall have the right to set off all amounts due
from Franchisee and the costs of the appraisal, if any, against any payment therefor;
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 47 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
e.
Should Franchisee fail to perform any of these tasks, the Franchisor’s personnel and
representative shall have the right to enter the Restaurant at any time, with or without notice, for the
purposes of removing all trademarks, trade names, service marks, logotypes, designs and other identifying
symbols and names pertaining to El Pollo Loco brand and to remove, obliterate or destroy all Signs and
advertisements identifiable in any way with Franchisor's name and perform such reasonable redecoration
and remodeling of the Restaurant and the Location as may be necessary, in Franchisor's judgment, to
distinguish it from an El Pollo Loco® restaurant. The cost of performing this will be billed to Franchisee and
payable within five (5) days of receipt of invoice; and
f.
Franchisee shall comply with the covenants set forth in Section 21.7 of this Agreement.
19.2. Upon the expiration or termination of this Agreement, Franchisee shall promptly pay all sums
owing to Franchisor and its subsidiaries and affiliates. In the event of termination by reason of any default of
Franchisee, such sums shall include all damages (including, but not limited to, any lost future royalties and
advertising fees), costs and expenses (both internal and external), including reasonable attorneys' fees
(both internal and external), incurred by Franchisor as a result of the default, which obligation to pay all such
sums shall give rise to and remain, until paid in full, a lien in favor of Franchisor against any and all of the
personal property, furnishings, equipment, Signs, fixtures, and inventory owned by Franchisee located in the
Restaurant operated hereunder at the time of any such default. Franchisee shall pay interest to Franchisor
on any amounts which may become due to Franchisor from Franchisee, if such are not paid when due, at
the rate of fifteen percent (15%) per annum or the maximum interest rate permitted by law, whichever is less.
19.3. The expiration or termination of this Agreement shall be without prejudice to the rights and
remedies of Franchisor against Franchisee. Furthermore, such expiration or termination shall neither
release Franchisee or any of its obligations and liabilities to Franchisor existing at the time thereof nor
terminate those obligations and liabilities of Franchisee which, by their nature, survive the expiration or
termination of this Agreement.
19.4. Upon expiration or termination of this Agreement, Franchisor may remove all references to the
Franchise and/or to the Restaurant from its website(s).
19.5. Franchisee expressly agrees that the existence of any claims it may have against Franchisor,
whether or not arising from this Agreement, shall not constitute a defense to the enforcement by Franchisor
of any of the provisions of this Section 19, including the covenants in Section 21.7. Franchisee agrees to
pay all costs and expenses (both internal and external ), including reasonable attorneys’ fees (both internal
and external) incurred by Franchisor in connection with the enforcement of this Section 19.
20.
RIGHTS TO A SUCCESSOR FRANCHISE
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 48 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
20.1. Franchisee shall have the right, subject to the conditions contained in this Section 20.1, to
acquire a successor franchise for the Restaurant on the terms and conditions of Franchisor's then-current
form of Franchise Agreement and for a term of ten (10) years (a "Successor Term") commencing on the
expiration of the term of this Agreement. The then-current form of franchise agreement may have different
terms and conditions such as a different protected area, higher royalty and/or advertising fees, no additional
successor or renewal term upon expiration and other modifications to reflect that the then-current form of
franchise agreement relates to the grant of a renewal. Franchisee's right to a successor franchise shall be
conditioned upon the satisfaction of each of the following conditions prior to the expiration of the term of this
Agreement: (a) Franchisee is in compliance with this Agreement in all respects including financial and
operational compliance and has been in substantial compliance with this Agreement throughout the term; (b)
Franchisee meets Franchisor’s then-current criteria for renewing franchisees, which includes but is not
limited to financial and operational standards; (c) Franchisor has not notified Franchisee of its decision that
any federal or applicable state legislation, regulation or rule which is enacted, promulgated or amended after
the date hereof may have an adverse effect on Franchisor's rights, remedies or discretion in franchising El
Pollo Loco® restaurants; (d) Franchisee maintains the right to possession of the Location for the term of the
successor Franchise Agreement; (e) Franchisee shall have paid the renewal fee described in the final
sentence of this Section 20.1; and (f) Franchisee satisfies each of the conditions and executes and delivers
the agreement described in Sections 20.2, 20.3 and 20.4 below. At the time of exercise, Franchisee will be
obligated to pay a renewal fee equal to 50% of Franchisor's then-current standard initial franchise fee if
Franchisee elects a Successor Term. Solely as Franchisor’s sole and absolute right to determine,
Franchisee may be offered a successor franchise for a term different than the standard ten (10) years to run
concurrent with the remaining term of the (sub)lease for where the Restaurant is located. This pro-rated
term successor Franchise Agreement (“Pro-rated Successor Franchise Agreement”) will use the then-
current form of Franchise Agreement (modified as described above). In order to qualify for the Pro-rated
Successor Franchise Agreement, Franchisee must meet the same conditions listed above from (a) to (f) and
Franchisee will be obligated to pay a renewal fee equal to 50% of Franchisor’s then-current standard initial
franchise fee pro-rated to the remaining (sub)lease term.
20.2. Franchisee must give Franchisor written notice of Franchisee's desire to acquire a successor
franchise at least three hundred sixty (360) days prior to the expiration of this Agreement. Franchisor will
give Franchisee notice, not later than sixty (60) days after receipt of notice, of Franchisor's decision as to
whether or not Franchisee has the right to acquire a successor franchise pursuant to Section 20.1.
Notwithstanding notice of Franchisor's decision that Franchisee has the right to acquire a successor
franchise for the Restaurant, Franchisee's right to acquire a successor franchise will be subject to
Franchisee's continued compliance with all of the terms of this Agreement up to the date of its expiration.
20.3.
If Franchisee exercises the right to acquire a successor franchise in accordance with Section
20.2 above, Franchisee shall enter into an agreement with
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 49 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Franchisor within sixty (60) days following delivery of the written notice pursuant to Section 20.2, agreeing to
remodel the Restaurant, add or replace improvements, fixtures, furnishings, equipment and Signs, and
otherwise modify to upgrade the Restaurant to the specifications, image and standards then applicable for
new El Pollo Loco® restaurants. All such remodeling, additions and replacements must be completed prior
to the effective date of such successor Franchise Agreement.
20.4.
If Franchisee has the right to acquire a successor franchise in accordance with Section 20.1
and exercises that right in accordance with Section 20.2, the parties must execute the form of Franchise
Agreement (which may contain provisions, including royalty and advertising fees, materially different from
those contained herein) and all ancillary agreements which Franchisor then customarily uses in granting
renewal franchises for the operation of El Pollo Loco® restaurants, and Franchisee must execute general
releases, in form and substance satisfactory to Franchisor, of any and all claims against Franchisor and its
affiliates, officers, directors, employees, agents, successors and assigns. Failure by Franchisee to sign such
agreements and releases within thirty (30) days after delivery thereof to Franchisee shall be deemed an
election by Franchisee not to acquire a successor franchise.
21.
PROPRIETARY RIGHTS AND UNFAIR COMPETITION
21.1.
In the event of any claim of or challenge to Franchisee's use of the El Pollo Loco® Marks
licensed under this Agreement, Franchisee shall immediately notify Franchisor in writing of the facts of such
claim or challenge.
a.
Franchisor shall protect and defend Franchisee against any claims or challenges arising
out of Franchisee's proper use of the El Pollo Loco® Marks licensed hereunder.
b.
Franchisor shall reimburse Franchisee for all damages for which it is held liable in any
such proceeding; however, the foregoing obligations of Franchisor to protect, defend and reimburse
Franchisee will exist only if Franchisee has used the name or mark which is the subject of the controversy in
strict accordance with the provisions of this Agreement and the rules, regulations, procedures, requirements
and instructions of Franchisor and has notified Franchisor of the challenge as set forth above.
c.
Any action to be taken in the event of a claim or challenge to any of the El Pollo Loco®
Marks shall be solely and absolutely within Franchisor’s right to determine. Franchisor shall have the sole
and absolute right to control any legal actions or proceedings resulting therefrom. Any actions taken to
protect the El Pollo Loco® Marks shall also be within the sole and absolute right to determine and control of
Franchisor. Franchisee shall cooperate fully with Franchisor in the prosecution or defense of any claim or
challenge concerning any of the El Pollo Loco® Marks.
21.2.
If it becomes advisable at any time, as the sole and absolute right of Franchisor, to modify or
discontinue the use of any one or more of the El Pollo Loco®
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 50 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Marks or to use one or more additional or substitute names, marks or copyrights, Franchisee shall
immediately comply with the instructions of Franchisor in that regard. In such event, the sole obligation of
Franchisor will be to reimburse Franchisee for the actual costs, such as replacing sign faces, of physically
complying with this obligation.
21.3. Franchisee acknowledges and agrees that at all times and in all respects, the El Pollo Loco®
Marks are the sole property of Franchisor and that Franchisee has only a license to use such rights and
marks according to the provisions hereof. Franchisee shall make no application for registration of any
identifying name or mark licensed herein or similar thereto without the prior written consent of, and upon
terms and conditions satisfactory to, Franchisor. Franchisee shall not register any of the El Pollo Loco®
Marks, part thereof, or anything confusingly similar thereto, as a domain name, or use, or permit the usage
of, any of the same in connection with any Internet web site or web page. Franchisee shall indicate the
required trademark, service mark or copyright notices in the form specified by Franchisor in connection with
its use of the El Pollo Loco® Marks. Franchisee shall take no action which will interfere with any of
Franchisor's rights in and to the El Pollo Loco® Marks. Franchisee shall not, without Franchisor's prior
written consent, sell, dispense or otherwise provide Franchisor's products or any El Pollo Loco products
bearing the El Pollo Loco® Marks, except by means of retail sales in, or delivered from, the Restaurant.
21.4.
Intranet.
a.
Franchisor may, at its option, establish and maintain an Intranet through which
franchisees of Franchisor may communicate with each other, and through which Franchisor and Franchisee
may communicate with each other and through which Franchisor may disseminate the Manuals, updates
thereto and other confidential information. Franchisor shall have sole and absolute right to determine and
control all aspects of the Intranet, including the content and functionality thereof. Franchisor will have no
obligation to maintain the Intranet indefinitely and may dismantle it at any time without Franchisor having any
liability to Franchisee. (As used herein, the term “Intranet” shall mean an intranet, extranet or other
communication network between and among Franchisor and Franchisee that is accessed by the Internet. As
used herein, the term “Internet” shall mean collectively the myriad of computer and telecommunications
facilities, including equipment and software, which comprise the interconnected worldwide network of
networks that employ the TCP/IP [Transmission Control Protocol/Internet Protocol], or any predecessor or
successor protocols to such protocol, to communicate information of all kinds by fiber optics, wire, radio or
other methods of electronic communication.)
b.
If Franchisor establishes an Intranet, Franchisee shall have the privilege to use the
Intranet, subject to Franchisee’s strict compliance with the standards and specifications, protocols and
restrictions that Franchisor may establish from time to time. Such standards and specifications, protocols
and restrictions may relate to, among other things, (i) use of abusive, slanderous or otherwise offensive
language in electronic communications; (ii) confidential treatment of materials that Franchisor transmits via
the
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 51 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Intranet; (iii) password protocols and other security precautions; (iv) grounds and procedures for Franchisor’s
suspending or revoking a franchisee’s access to the Intranet; and (v) a privacy policy governing Franchisor’s
access to and use of electronic communications that franchisees post to the Intranet. Franchisee
acknowledges that, as administrator of the Intranet, Franchisor can technically access and view any
communication that any person posts on the Intranet. Franchisee further acknowledges that the Intranet
facility and all communications that are posted to it will become Franchisor’s property, free of any claims of
privacy or privilege that Franchisee or any other person may assert.
c.
Upon receipt of notice from Franchisor that Franchisor has established the Intranet,
Franchisee shall establish and continually maintain (during all times that the Intranet shall be established
and until the termination of this Agreement) an electronic connection (the specifications of which shall be
specified in the Manuals) with the Intranet that allows Franchisor to send messages to and receive
messages from Franchisee, subject to the standards and specifications.
d.
Franchisee shall contribute a reasonable amount, not to exceed $1,000.00 per year
(which maximum amount shall increase at a rate of 3% per calendar year during the term of this Agreement,
toward the cost of the Intranet’s maintenance. Such contribution shall be established by Franchisor by not
later than March 1 of each calendar year and shall be payable thirty (30) days thereafter.
e.
If Franchisee shall breach this Agreement or any other agreement with Franchisor or its
Affiliates, Franchisor may disable or terminate Franchisee’s access to the Intranet without Franchisor having
any liability to Franchisee, and in which case Franchisor shall only be required to provide Franchisee a paper
copy of the Manuals and any updates thereto, if none have been previously provided to Franchisee, unless
not otherwise entitled to the Manuals.
21.5. Franchisor has established a Website. As used herein, the term “Website” shall mean one or
more Internet websites that may, among other things, provide marketing development operations and
training materials, facilitate catering, take-out, curbside pickup and delivery orders, provide information about
the System and the products and services which are offered on such Website and at restaurants operated
under the El Pollo Loco® Marks.
a.
Franchisor may, as its sole and absolute right to determine, from time to time, without
prior notice to Franchisee: (i) change, revise, or eliminate the design, content and functionality of the
Website; (ii) make operational changes to the Website; (iii) change or modify the URL and/or domain name
of the Website; (iv) substitute, modify, or rearrange the Website, at Franchisor’s sole option, including in any
manner that Franchisor considers necessary or desirable to, among other things, (1) comply with applicable
laws, (2) respond to changes in market conditions or technology, and (3) respond to any other
circumstances; (v) limit or restrict end-users access (in whole or in part) to the Website; and (vi) disable or
terminate the Website without Franchisor having
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 52 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
any liability to Franchisee.
b.
The Website may include one or more interior pages that identifies restaurants operated
under the El Pollo Loco® Marks, including the Restaurant, by among other things, geographic region,
address, telephone number(s), and menu items. The Website may also include one or more interior pages
dedicated to franchise sales by Franchisor and/or relations with Franchisor’s investors.
c.
Franchisor may, from time to time, establish a Franchisee Page. As used herein, the
term “Franchisee Page” shall mean one or more interior pages of the Website dedicated in whole or in part
to Franchisee’s Restaurant. Franchisor may permit Franchisee to customize or post certain information to
the Franchisee Page, subject to Franchisee’s execution of Franchisor’s then-current participation agreement,
and Franchisee’s compliance with the procedures, policies, standards and specifications that Franchisor may
establish from time to time. Such participation agreement may require Franchisee to pay a reasonable fee
(not to exceed $1,000.00 per year, which maximum shall increase at a rate of 3% per year for the term of this
Agreement) for the privilege of having a Franchisee Page, and may include, without limitation, specifications
and limitations for the data or information to be posted to the Franchisee Page, customization specifications,
the basic template for design of the Franchisee Page, parameters and deadlines specified by Franchisor,
disclaimers, and such other standards and specifications and rights and obligations of the parties as
Franchisor may establish from time to time. Any modifications (including customizations, alterations,
submissions or updates) to the Content made by Franchisor for any purpose will be deemed to be a “work
made for hire” under the copyright laws, and therefore, Franchisor shall own the intellectual property rights in
and to such modifications. To the extent any modification does not qualify as a work made for hire as
outlined above, Franchisee hereby assigns those modifications to Franchisor for no additional consideration
and with no further action required and shall execute such further assignment(s) as Franchisor may request.
d.
Without limiting Franchisor’s general unrestricted right to permit, deny and regulate
Franchisee’s participation on the Website as Franchisor’s sole and absolute right to determine, if Franchisee
shall breach this Agreement, or any other agreement with Franchisor or its Affiliates, Franchisor may disable
or terminate the Franchisee Page and remove all references to the Restaurant on the Website until said
breach is cured.
21.6. Franchisee acknowledges that, in connection with the operation of the franchise business,
Franchisor will be disclosing confidential information and trade secrets to Franchisee. Franchisee further
acknowledges that its knowledge of, and access to, Franchisor's formulae, recipes, processes, products,
techniques, know-how and other proprietary information, including without limitation the Manual and the El
Pollo Loco® System (collectively referred to as the "Confidential Information"), are derived entirely from the
material disclosed to Franchisee by Franchisor. Franchisee acknowledges and agrees that at all times and
in all respects, the Confidential Information is a trade secret of Franchisor and that Franchisee has only a
license to use the
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 53 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Confidential Information according to the provisions of this Agreement.
a.
Franchisee, and each officer, director, shareholder, member, manager, partner, and
other equity owner, as applicable, of Franchisee, if Franchisee is a Business Organization, shall maintain
fully and strictly the secrecy of all the Confidential Information and to exercise the highest degree of diligence
in safeguarding the Confidential Information during and after the term of this Agreement. Franchisee shall
divulge the Confidential Information only to Franchisee's employees and only to the extent necessary to
permit the efficient operation of the Restaurant during the effective term of this Agreement. After the
expiration or termination of this Agreement, Franchisee shall not divulge the Confidential Information to any
person or entity, nor shall Franchisee use the Confidential Information in any manner.
b.
It is expressly agreed that the ownership of all of the El Pollo Loco® Marks and the
Confidential Information is and shall remain vested solely in Franchisor. Nothing contained in this
Agreement shall be construed to require Franchisor to divulge to Franchisee any secret processes, formulae,
ingredients or other information, except the material contained in Franchisor's Manual and training materials.
c.
Franchisee shall fully and promptly disclose to Franchisor, all ideas, concepts, formulas,
recipes, methods, techniques, and other possible improvements (each an “Improvement”) relating to the
development or operation of a quick service flame-grilled food product and/or related service, conceived or
developed by Franchisee or Franchisee’s employees during the Term. Any and all such Improvements will
automatically be deemed to be Franchisor’s sole and exclusive property and works made-for-hire; provided,
however, for any such improvements that do not qualify as work made-for-hire for Franchisor, Franchisee
hereby assigns ownership of that or those Improvements to Franchisor and covenants to execute whatever
assignment or other documentation Franchisor requests in order to evidence such assignment and to assist
Franchisor in securing intellectual property rights in the Improvement. Franchisee may not test, offer, or sell
any new products without Franchisor’s prior written consent, which may be withheld as Franchisor’s sole and
absolute right.
21.7. To further protect the El Pollo Loco® System while this Agreement is in effect, Franchisee and
each officer, director, shareholder, member, manager, partner, and other equity owner, as applicable, of
Franchisee, if Franchisee is a Business Organization, shall neither directly nor indirectly, for itself, himself or
herself, or through or on behalf of, or in conjunction with any person, partnership, corporation or other entity,
consult, work for, be employed by, own any equity interest in, own, operate, control, engage in, provide
assistance to, or have any interest (financial or otherwise) in any other business which would constitute a
"Competitive Business" (as hereinafter defined) without the prior written consent of Franchisor; provided
further, that Franchisor may, as its sole and absolute right, consent to Franchisee's continued operation of
any business already in existence and operating at the time of execution of this Agreement. In addition,
Franchisee covenants that, except as otherwise approved in writing by Franchisor, Franchisee shall not, for a
continuous, uninterrupted period commencing upon the
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 54 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
expiration, termination or assignment of this Agreement, regardless of the cause for termination, and
continuing for two (2) years thereafter, either directly or indirectly, for itself, or through or on behalf of, or in
conjunction with any person, partnership, corporation or other entity, consult, work for, be employed by, own
equity interest in, own, operate, control, engage in, provide assistance to, or have any interest (financial or
otherwise) in any Competitive Business which is located or has outlets or restaurant units within a radius of
five (5) miles of the location of the Restaurant. The foregoing shall not apply to operation of an El Pollo
Loco® restaurant by Franchisee pursuant to another Franchise Agreement with Franchisor or the ownership
by Franchisee of less than five percent (5%) of the issued or outstanding stock of any company whose
shares are listed for trading on any public exchange or on the over-the-counter market, provided that
Franchisee does not control or become involved in the operations of any such company. For purposes of
this Section 21.7, a Competitive Business shall mean a quick-service restaurant or fast-food business which
sells chicken and/or Mexican food products, which products individually or collectively represent more than
twenty percent (20%) of the revenues from such quick-service restaurant or fast-food business operated at
any one location during any calendar quarter. A “Competitive Business” shall not include a full-service
restaurant.
21.8.
In the event that any provision of this Section 21 shall be determined by a court of competent
jurisdiction to be invalid or unenforceable, this Agreement shall not be void, but such provision shall be
limited to the extent necessary to make it valid and enforceable.
21.9. Franchisee understands and acknowledges that Franchisor shall have the right to reduce the
scope of any obligation imposed on Franchisee by Section 21.7, without Franchisee’s consent, and that such
modified provision shall be effective upon Franchisee’s receipt of written notice thereof.
21.10. Franchisee acknowledges that violation of the covenants not to compete contained in this
Agreement would result in immediate and irreparable injury to Franchisor for which no adequate remedy at
law will be available. Accordingly, Franchisee hereby consents to the entry of a preliminary and permanent
injunction prohibiting any conduct by Franchisee in violation of the terms of those covenants not to compete
set forth in this Agreement. Franchisee expressly agrees that it may conclusively be presumed that any
violation of the terms of said covenants not to compete was accomplished by and through Franchisee’s
unlawful utilization of Franchisor’s Confidential Information, know-how, methods and procedures.
22.
DISPUTE RESOLUTION
22.1.
Initial Meeting and Mediation – Except as otherwise provided in this Agreement, before any
legal action involving any claim or controversy between Franchisor and Franchisee (including its affiliates)
relating to (a) this Agreement, (b) the parties’ business activities conducted as a result of this Agreement, or
(c) the parties’ relationship or business dealings with each other generally is filed, the following
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 55 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
procedures shall be complied with:
a.
The party wishing to resolve a dispute shall initiate negotiation proceedings by first
requesting in writing a meeting. Within forty-five (45) days of receipt of the initial request for such a meeting,
the parties shall meet, discuss and negotiate toward a resolution of the controversy at a location within the
county in which Franchisor is then located.
b.
If negotiation efforts do not succeed, the parties shall engage in mandatory but non-
binding mediation by a mediator jointly chosen by the parties or if the parties cannot agree upon a mediator,
appointed by, and in accordance with the procedures of, JAMS or, if JAMS is no longer in existence, an
organization of similar quality.
c.
A mediation meeting will be held at a place and at a time mutually agreeable to the
parties and the mediator. The Mediator will determine and control the format and procedural aspects of the
mediation meeting which will be designed to ensure that both the mediator and the parties have an
opportunity to present and hear an oral presentation of each party’s views regarding the matter in
controversy. The parties will act in good faith to resolve the controversy in mediation.
d.
e.
The mediation will be held as soon as practicable after the negotiation meeting is held.
The mediator will be free to meet and communicate separately with each party either
before, during or after the mediation meeting within 60 days of demand by either party.
22.2. At the election of Franchisor, the provisions of this Section 22 shall not apply to controversies
relating to any fee due Franchisor by Franchisee or its affiliates, any promissory note payments due
Franchisor by Franchisee, or any trade payables due Franchisor by Franchisee as a result of the purchase of
equipment, goods or supplies. The provisions of this Section 22 shall also not apply to any controversies
relating to the use and protection of the El Pollo Loco Marks, the Manual or the El Pollo Loco System,
including without limitation, Franchisor’s right to apply to any court of competent jurisdiction for appropriate
injunctive relief for the infringement of the El Pollo Loco Marks or the El Pollo Loco System.
23. MISCELLANEOUS PROVISIONS
23.1.
In the event that Franchisee is comprised of more than one person, firm, corporation or other
entity, Franchisee's rights, privileges, interests, obligations and liabilities under this Agreement shall be joint
and several with respect to such persons, firms, corporations or other entities.
23.2.
If Franchisee is a Business Organization, Franchisor will require, as a
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 56 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
condition to the effectiveness hereof, the written guarantee and assumption of Franchisee's obligations
hereunder by any or all of the shareholders, members, partners, other equity owners, as applicable, of a
Business Organization and/or some other natural persons associated with Franchisee, the form of which is
attached hereto as Exhibit 2. Franchisor may also require that Franchisee maintain transfer instructions
restricting a transfer on its records of any securities, partnership interests or other ownership interests in
violation of the restrictions set forth in Section 17 and that each stock, partnership or other ownership
certificate of Franchisee shall have conspicuously endorsed upon its face a statement in form satisfactory to
Franchisor that further assignment or transfer thereof is subject to each of the restrictions imposed upon
assignments by this Agreement.
23.3. All notices required under this Agreement shall be in writing and shall be either (i) served
personally; (ii) sent by certified or registered United States mail to the party to be charged with receipt
thereof; (iii) by reputable overnight delivery service or (iv) sent via facsimile. Notices served personally are
effective immediately on delivery, and those served by mail shall be deemed given forty-eight (48) hours
after deposit of such notice in a United States post office with postage prepaid and duly addressed to the
party to whom such notice or communication is directed. Notices served by overnight delivery shall be
deemed to have been given the day after deposit of such notice with such service. Notices served via
facsimile shall be deemed to have been given the day of faxing such notice. The address for Franchisor
shall be: Attention: Chief Legal Officer re EPL #_____, El Pollo Loco, Inc., 3535 Harbor Blvd, Suite 100,
Costa Mesa, California 92626, and the address and facsimile number for Franchisee shall be the address
and facsimile number listed on the cover page of this Agreement. Any notice that we send to you may be
sent only to the first person identified on Schedule 1, Statement of Ownership Interest of Franchisee, even if
you have multiple owners. Franchisor or Franchisee may from time to time change its address for notice
pursuant to this Section by giving a written notice of such change to the other party in the manner provided
herein. Notwithstanding anything to the contrary contained herein, Franchisor may deliver bulletins and
updates to the Manual by electronic means, such as by the internet (e-mail) or an intranet, if any, established
by Franchisor.
23.4. Notwithstanding the above, Franchisor may elect to utilize email or similar communications to
Franchisee for the purpose of communicating System modifications, operations, marketing and other
bulletins, menu changes, product or equipment safety or recall alerts, or any other message Franchisor
determines, and Franchisee hereby acknowledges that such communications will constitute actionable
communication under this Agreement and shall ensure that Franchisee’s communications system includes
the capability, and is set or programmed, to receive such communications from Franchisor on a continual
basis throughout the Term. Franchisee must never opt out or refuse to accept any of such Franchisor
communications at any time during the Term.
23.5. The receipt and acceptance by either party of any delinquent payment due hereunder shall not
constitute a waiver of any other default. No delay or omission in the exercise of any right or remedy of either
party upon any default by the other hereunder shall impair such right or remedy or be construed as a waiver
of any term, covenant or
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 57 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
condition of this Agreement to be performed by the other party. To be effective, any waiver of any other
default must be in writing and shall not constitute a waiver of any other default concerning the same or any
other term, covenant or condition of this Agreement.
23.6. Franchisor's consent to or approval of any act or conduct of Franchisee requiring such consent
or approval shall not be deemed to waive or render unnecessary Franchisor's consent to or approval of any
subsequent act or conduct hereunder.
23.7. The provisions of this Agreement are intended by the parties to be a complete and exclusive
expression of their agreement. No other agreements, representations, promises, commitments or the like, of
any nature, exist between the parties except as set forth or referenced herein. Notwithstanding the
foregoing, nothing in this Agreement shall disclaim or require Franchisee to waive reliance on any
representation that Franchisor made in the most recent disclosure document (including its exhibits and
amendments) that Franchisor delivered to Franchisee or its representative, subject to any agreed-upon
changes to the contract terms and conditions described in that disclosure document and reflected in this
Agreement (including any riders or addenda signed at the same time as this Agreement). The provisions of
this Agreement may not be contradicted by any other statement concerning the subject matter herein.
Subject to our right to modify the Manual and other documents related to the System Standards, this
Agreement may not be amended or modified except by a written agreement signed by the parties hereto.
23.8.
In the event of the bringing of any action by either party against the other arising out of or in
connection with this Agreement or the enforcement thereof, or by reason of the breach of any term, covenant
or condition of this Agreement on the part of either party, the party in whose favor final judgment is entered
shall be entitled to have and recover from the other party reasonable attorneys' fees (internal and external)
plus costs and expenses (internal and external) reasonably incurred from commencing, and prosecuting the
legal proceeding and until the proceeding has come to a complete end (including appeals and settlements),
the amount to be fixed by the court rendering such judgment.
23.9. This Agreement shall be governed by and construed in accordance with the laws of the state in
which Franchisor’s then-current headquarters is located (i.e., currently, the State of California); provided
however that: (i) the provisions in Section 21.7 covering competition following the expiration, termination or
assignment of this Agreement shall be governed by the laws of the state in which the breach occurs; (ii) the
provisions of any law of a state regarding franchises (including registration, disclosure or relationship issues,
and the regulations promulgated thereunder) shall not apply unless such state’s jurisdictional, definitional
and other requirements are met independently of, and without reference to, this Section; and (iii) if any
matter related to this Agreement would be unenforceable under the laws of the state where Franchisor’s
then-current headquarters is located, but would be enforceable under the laws of the state in which the
Franchisee is based, then the laws of the state in which the Franchisee is based shall apply to such matter.
ANY ACTION BROUGHT BY EITHER PARTY AGAINST THE OTHER IN ANY
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 58 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
COURT, WHETHER FEDERAL OR STATE, SHALL BE BROUGHT WITHIN THE STATE IN WHICH
FRANCHISOR’S HEADQUARTERS (CURRENTLY THE STATE OF CALIFORNIA) IS THEN LOCATED.
THE ACTION SHALL BE BROUGHT IN FEDERAL COURT IF FEDERAL COURT JURISDICTION IS
AVAILABLE AND, IF NOT, IN STATE COURT. THE PARTIES HEREBY WAIVE ANY RIGHT TO DEMAND
OR HAVE TRIAL BY JURY IN ANY ACTION RELATING TO THIS AGREEMENT IN WHICH FRANCHISOR
IS A PARTY. THE PARTIES CONSENT TO THE EXERCISE OF PERSONAL JURISDICTION OVER
THEM BY SUCH COURTS IN CALIFORNIA AND TO THE PROPRIETY OF VENUE OF SUCH COURTS
FOR THE PURPOSE OF CARRYING OUT THIS PROVISION, AND EACH PARTY WAIVES ANY
OBJECTION THAT IT WOULD OTHERWISE HAVE TO THE SAME. ANY ACTION BETWEEN
FRANCHISEE AND FRANCHISOR SHALL INVOLVE ONLY THE INDIVIDUAL CLAIMS OF FRANCHISEE
AND SHALL NOT INVOLVE ANY CLASS, GROUP, JOINT, CONSOLIDATED, REPRESENTATIVE OR
ASSOCIATIONAL ACTION.
23.10. Except with respect to Franchisee's obligation to indemnify Franchisor pursuant to Sections 9.3
and 9.4 of this Agreement, the parties waive to the fullest extent permitted by the law any right to or claim for
any punitive or exemplary damages against the other and agree that, in the event of a dispute between
them, the party making a claim shall be limited to recovery of any actual damages it sustains and injunctive
relief. Any and all claims and actions arising out of or relating to this Agreement, the relationship of
Franchisee and Franchisor, or Franchisee’s operation of the Restaurant, brought by either party hereto
against the other, whether in mediation, or a legal action, shall be commenced within one (1) year from the
occurrence of the facts giving rise to such claim or action, or such claim or action shall be barred.
23.11. Any provision of this Agreement which may be determined by competent authority to be
prohibited or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of the
prohibition or unenforceability without invalidating the remaining provisions of this Agreement. Any
prohibition against or unenforceability of any provision of this Agreement in any jurisdiction, including the
state whose law governs this Agreement, shall not invalidate the provision or render it unenforceable in any
other jurisdiction. To the extent permitted by applicable law, Franchisee waives any provision of law which
renders any provision of this Agreement prohibited or unenforceable in any respect.
23.12. Franchisee recognizes the unique value and secondary meaning attached to the El Pollo
Loco® System, the El Pollo Loco® Marks, the Confidential Information and the associated standards of
operation and trade practices, and Franchisee agrees that any noncompliance with the terms of this
agreement or any unauthorized or improper use will cause irreparable damage to Franchisor and its
franchisees. Franchisee therefore agrees that if it should engage in any such unauthorized or improper use,
during or after the term of this Agreement, Franchisor shall be entitled to both permanent and temporary
injunctive relief from any court of competent jurisdiction in addition to any other remedies prescribed by law.
Franchisee agrees and acknowledges that in such event, Franchisee
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 59 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
may be required to post a bond while Franchisor shall not be required to post a bond.
23.13. Franchisee shall grant no security interest in the franchise or in any of the tangible assets of
the business including the furniture, fixtures and equipment located in the Restaurants, unless the secured
party agrees that in the event of any default by Franchisee and exercise of its right to take and sell such
assets under any documents relating to such security interests, Franchisor shall have the right and option to
exercise a right of first refusal to purchase such assets on the same terms and conditions offered by the
secured party. If, within thirty (30) days after receipt of the offer, which would include information and
documentation as Franchisor may need or require for the purpose of considering whether to exercise its right
of first refusal to purchase such assets, Franchisor does not indicate its acceptance of the offer as stated in
the notice, secured party shall thereafter have the right to make the sale to the proposed transferee on the
same terms and conditions as stated in the notice. Should Franchisor not exercise its right of first refusal
and should the contemplated sale not be completed within one hundred (120) days from the date of the
notice, or should the terms and conditions thereof (including the proposed transferee or the ownership
therein) be altered in any material way, this right of first refusal shall be reinstated and any such subsequent
proposed sale or altered terms and conditions of the current transaction must again be offered to Franchisor
in accordance with the terms listed above.
23.14. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their
permitted heirs, successors and assigns.
23.15. This Agreement shall not be binding upon Franchisor unless and until it shall have been
accepted and signed by authorized officers of Franchisor. This Agreement may be executed in one or more
counterparts, each of which will constitute an original, but all of which together will constitute but a single
document. A signature on this Agreement transmitted via facsimile or electronic mail/PDF or equivalent,
electronic signature (such as DocuSign or equivalent), shall be considered an original for all purposes
hereunder.
23.16. The parties intend to confer no benefit or right on any person or entity not a party to this
Agreement, and no third party shall have the right to claim the benefit of any provision hereof as a third party
beneficiary of any such provision. Franchisee may not make any express or implied agreements, warranties,
guarantees, or representations, or incur any debt, in the name or on behalf of Franchisor. Franchisor will not
be obligated for any damages to any person or property directly or indirectly arising out of the Restaurant.
23.17. If following commencement of business at the Restaurant, the Restaurant is damaged or
destroyed to the extent that Franchisor determines that the Restaurant must be closed for repairs for more
than sixty (60) days, or if the Location is taken by condemnation proceedings or Franchisee's lease is
terminated through no act or failure to act on its part (except the failure to utilize any available options to
extend such lease, or Franchisee’s willful truncation of such lease), then at Franchisor’s option, Franchisor
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 60 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
may elect to:
a.
terminate this Agreement, require Franchisee to relocate the Restaurant, or in the case
of a casualty, require Franchisee to rebuild the Restaurant.
b.
require Franchisee to rebuild the Restaurant, Franchisee shall, at its own expense,
repair or reconstruct the Restaurant, and such construction shall be completed, and the Restaurant shall
reopen for business not later than twelve (12) months following the date the triggering event occurred. The
minimum acceptable appearance for the reconstructed Restaurant will be that which existed just prior to the
casualty; however, every effort shall be made to have the reconstructed Restaurant reflect the then-current
image, design and specifications of new El Pollo Loco® restaurants.
c.
require Franchisee to relocate the Restaurant, Franchisee must execute Franchisor’s
then-current form of Development Agreement within thirty (30) days of the date Franchisor notifies
Franchisee of Franchisor’s election. Franchisee must follow the site selection and approval procedures
associated with the Development Agreement; provided, however, that no development fee shall be required
to be paid. Upon approval by Franchisor of a new site, Franchisee must execute Franchisor’s then-current
form of Franchise Agreement; provided, however, that the term of such new agreement shall be equal to the
remaining term of this Agreement and Franchisee shall not be required to pay a new initial franchise fee.
Franchisee will submit a replacement site for the new Restaurant, in accordance with the time frames
indicated in the then-current form of Development Agreement, and which replacement site shall be located in
an area defined as a radius surrounding the existing site of the Restaurant, the exact dimensions of which
shall be reasonably negotiated between Franchisee and Franchisor taking into consideration the rights of
other then-existing and potential franchisees. If Franchisor approves the new site, Franchisee shall either
acquire or lease the site and design, construct and furnish the Restaurant in conformance with the design
and construction requirements imposed by Franchisor for new El Pollo Loco® restaurants. The new
Restaurant must be open for business not later than twelve (12) months following the date of the casualty or
loss of possession of the original Location.
d.
terminate the Franchise Agreement, Franchisee shall promptly comply with the
requirements set forth at Sections 19.1 and 19.2.
24.
EFFECTIVE DATE
24.1. This Agreement shall be effective as of the date it is executed by Franchisor.
25.
ACKNOWLEDGMENTS
25.1. Franchisee acknowledges that Franchisee has received a complete copy of the El Pollo Loco®
Disclosure Document, together with all exhibits, issuance date March 30, 2021 (Control Number 033021), at
least 14 calendar days prior to the date on which this Agreement was executed by Franchisee or payment of
any monies to Franchisor.
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 61 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
25.2. Franchisee acknowledges that it has read and understands this Agreement, the attachments
thereto and the agreements relating thereto, if any, contained in the Disclosure Document received by
Franchisee on ____________, 2021, and that Franchisor has accorded Franchisee ample opportunity and
has encouraged Franchisee to consult with advisors of Franchisee's own choosing about the potential
benefits and risks of entering into this Agreement.
25.3. The execution of this Agreement by Franchisee will not constitute or violate any other
agreement or commitment to which Franchisee is a party.
25.4. Each individual executing this Agreement on behalf of Franchisee is duly authorized to do so,
and this Agreement constitutes a valid and binding obligation of Franchisee.
25.5. Franchisee has entered into this Agreement in reliance on information in this Agreement, the
Disclosure Document, and its own investigations, and did not rely on any promise, representation, statement,
or undertaking made by Franchisor or Franchisor’s representatives that is not included in this Agreement or
the Disclosure Document or that is in conflict with any statement or representation in this Agreement or the
Disclosure Document; in particular, Franchisee has not received or relied on any data, representation,
projection, forecast, estimate, warranty, assurance, or other communication, expressed or implied, as to
actual or potential sales volume, profit, or success of the Restaurant.
25.6. Franchisee understands and acknowledges the value to the System and to the uniform and
ethical standards of quality, consistency, appearance, and service described in and required by the Manual
(which may be periodically modified, as provided in this Agreement) and the necessity of operating the
franchised business under the standards set forth in the Manual; and, Franchisee has the capabilities,
professionally, financially and otherwise, to comply with the standards of Franchisor.
25.7. Franchisee has carefully read this Agreement and all other related documents to be executed
by Franchisee concurrently or in conjunction with the execution hereof, has obtained, or had the opportunity
to obtain, the advice of legal, financial, and business advisors in connection with the execution and delivery
of this Agreement, understands the nature of this Agreement and the considerable effort to be expended on
the part of Franchisee in order to satisfactorily perform their respective obligations hereunder, and
Franchisee intends to comply herewith and be bound thereby.
25.8. Franchisee acknowledges and fully appreciates that the business contemplated by this
Agreement involves significant risks and that any particular results depend largely on Franchisee’s business
abilities and efforts as well as external economic forces outside Franchisor’s control; and, Franchisee
acknowledges and fully appreciates that neither Franchisor nor any other person can assure any particular
results.
25.9.
Incorporated herein by this reference is all of the additional information provided by Franchisee
to Franchisor as part of the application process pertinent to the grant of franchise evidenced by this
Agreement. Franchisee acknowledges that
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 62 of 128
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Franchisor has relied on each item of such information in granting this franchise.
26.
ANTI-TERRORISM LAW
26.1. Franchisee certifies that neither Franchisee or its employees, or anyone associated with
Franchisee is listed in the Annex to Executive Order 132241. Franchisee promises not to hire or have any
dealings with a person listed in the Annex. Franchisee certifies that it has no knowledge or information that,
if generally known, would result in Franchisee, its employees, or anyone associated with Franchisee being
listed in the Annex to Executive Order 13224. Franchisee promises to comply with and assist Franchisor to
the fullest extent possible in Franchisor's efforts to comply with the Anti-Terrorism Laws (as defined below).
In connection with such compliance, Franchisee certifies, represents, and warrants that none of its property
or interests is subject to being "blocked" under any of the Anti-Terrorism Laws, and that Franchisee are not
otherwise in violation of any of the Anti-Terrorism Laws. Franchisee is solely responsible for ascertaining
what actions must be taken by Franchisee to comply with all such Anti-Terrorism Laws. Franchisee
specifically acknowledges and agrees that Franchisee's indemnification responsibilities as provided in this
Agreement pertain to Franchisee's obligations under this Section. Any misrepresentation by Franchisee
under this Section or any violation of the Anti-Terrorism Laws by Franchisee or its employees shall constitute
grounds for immediate termination of this Agreement and any other agreement Franchisee has entered into
with Franchisor or one of Franchisor's Affiliates. "Anti-Terrorism Laws" means Executive Order 13224
issued by the President of the United States, the Terrorism Sanctions Regulations (Title 31, Part 595 of the
U.S. Code of Federal Regulations), the Foreign Terrorist Organizations Sanctions Regulations (Title 31, Part
597 of the U.S. Code of Federal Regulations) the Cuban Assets Control Regulations (Title 31, Part 515 of
the U.S. Code of Federal Regulations), the USA PATRIOT Act, and all other present and future federal, state
and local laws, ordinances, regulations, policies, lists and any other requirements of any Governmental
Authority (including the United States Department of Treasury Office of Foreign Assets Control) addressing
or in any way relating to terrorist acts and acts of war.
27.
SIGNATURES
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of the date(s)
first set forth below.
FRANCHISOR:
EL POLLO LOCO, INC., a Delaware Corporation
By:
Name:
Title:
Date:
1
Exhibit D of Multi-State Disclosure Document Control No. 033021
Franchise Agreement - Page 63 of 128
FRANCHISEE:
____________________________,
a_______________
By:
Name:
Title:
Date:
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EXHIBIT 1: MEMORANDUM OF OPENING DATE
On or about _________________, 20__ EL POLLO LOCO, INC., a Delaware corporation (“Franchisor”),
and ____________________________, a _____________ (“Franchisee”), entered into a Franchise
Agreement (the “Franchise Agreement”) for an “El Pollo Loco” Restaurant Unit No. _______ located at
____________________________________(the “Location”).
The parties hereby agree
____________________, 20___.
that
the Opening Date of
the Restaurant at
the Location was
The term of the Franchise Agreement shall expire on ________________, 20___, unless sooner terminated
as provided in the Franchise Agreement.
This Memorandum of Opening Date may be executed in two or more counterparts, each of which shall be
deemed an original but all of which together shall constitute a single instrument. A signature on this
Memorandum of Opening Date transmitted via facsimile or electronic mail/PDF or equivalent, electronic
signature (such as DocuSign or equivalent), shall be considered an original for all purposes hereunder.
IN WITNESS WHEREOF, the parties hereto have caused this Memorandum of Opening Date to be executed
as of the date(s) below.
FRANCHISOR:
EL POLLO LOCO, INC., a Delaware Corporation
FRANCHISEE:
____________________________,
a___________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Exhibit 1 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Memorandum of Opening Date - Page 64 of 62
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EXHIBIT 2: PERSONAL GUARANTEE OF FRANCHISE AGREEMENT
The undersigned hereby unconditionally guarantees, absolutely and irrevocably the performance and
payment by Franchisee (as defined below) of, and expressly agrees to adopt and be individually bound by
as if the undersigned were a party to each and all of the terms, covenants and conditions of that certain
Franchise Agreement dated _______________, 20___ (the “Agreement”) between EL POLLO LOCO, INC.,
a Delaware corporation (“Franchisor”) whose address is 3535 Harbor Blvd, Suite 100, Costa Mesa, CA
92626 and _________________, a _________ (“Franchisee”) whose address is ____________________.
The undersigned further agrees as follows:
This guarantee will continue unchanged by any bankruptcy, reorganization or insolvency of
1.
Franchisee or by any disaffirmance or abandonment by a trustee of Franchisee.
2.
This covenant and agreement on the part of the undersigned shall continue in favor of Franchisor
notwithstanding any extension, modification or alteration of the Agreement entered into by and between the
parties thereto, or their successors or assigns, and no extension, modification, alteration or assignment of
the Agreement shall in any manner release or discharge the undersigned and the undersigned does hereby
consent thereto.
3.
The liability of the undersigned under this guarantee shall be primary and in any right of action which
shall accrue to Franchisor under the Agreement, Franchisor may, at its option, proceed against the
undersigned without having commenced any action or having obtained any judgment against Franchisee.
4.
The undersigned shall pay Franchisor’s reasonable attorneys’ fees (both internal and external) and all
costs and other expenses (both internal and external) incurred in any collection or attempted collection or in
any negotiations relative to the obligations hereby guaranteed or enforcing this guarantee against the
undersigned, individually and jointly from commencing and prosecuting the legal proceeding and until the
proceeding has come to a complete end (including appeals and settlements), only if final judgment is
entered in favor of Franchisor.
The undersigned hereby waives notice of any demand by Franchisor as well as any notice of default
5.
in the payment of any and all amounts contained or reserved in the Agreement.
6.
All sums due under this guarantee shall bear interest from the date due until the date paid at the
maximum contract rate permitted by law. The obligations under this guarantee include, without limitation,
payment when due of any and all sums due under the Agreement and all damages to which Franchisor is or
may be entitled whether under applicable law, indemnification payments and payment of any and all legal
fees, courts costs and litigation expenses incurred by Franchisor in endeavoring to collect or enforce any of
the foregoing against Franchisee, the undersigned, or in connection with any property securing any or all of
the foregoing or this guarantee.
Exhibit 2 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Personal Guarantee of Franchise Agreement - Page 65 of 66
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
7.
The undersigned agrees that one or more successive or concurrent actions may be brought on this
guarantee, in the same action in which Franchisee may be sued or in separate actions, as often as deemed
advisable by Franchisor. The obligations under this guarantee are joint and several, and independent of the
obligations of Franchisee.
8.
No election in one form of action or proceeding, or against any party, or on any obligation, shall
constitute a waiver of Franchisor’s right to proceed in any other form of action or proceeding or against any
other party. The failure of Franchisor to enforce any of the provisions of this guarantee at any time or for a
period of time shall not be construed to be a waiver of any such provision or the right thereafter to enforce
the same. All remedies under this guarantee shall be cumulative and shall be in addition to all rights, powers
and remedies given to Franchisor by law or under any other instrument or agreement.
9.
All rights, benefits and privileges under this guarantee shall inure to the benefit of and be enforceable
by Franchisor and its successors and assigns and shall be binding upon the undersigned and his heirs,
representatives, successors and assigns. Neither the death of the undersigned nor notice thereof to
Franchisor shall terminate this guarantee as to his estate, and, notwithstanding the death of the undersigned
or notice thereof to Franchisor, this guarantee shall continue in full force and effect. The provisions of this
guarantee may not be waived or amended except in writing executed by the undersigned and a duly
authorized representative of Franchisor.
The undersigned represents and warrants that (i) it is in the undersigned’s direct interest to assist
10.
Franchisee in procuring the Agreement, because Franchisee has a direct or indirect corporate or business
relationship with the undersigned, (ii) this guarantee has been duly and validly authorized executed and
delivered and constitutes the binding obligation of the undersigned, enforceable in accordance with its terms,
and (iii) the execution and delivery of this guarantee does not violate (with or without the giving of notice, the
passage of time, or both) any order, judgment, decree, instrument or agreement to which the undersigned is
a party or by which it or its assets are affected or bound.
11.
If any provision of this guarantee or the application thereof to any party or circumstance is held invalid,
void, inoperative, or unenforceable, the remainder of this guarantee and the application of such provision to
other parties or circumstances shall not be affected thereby, the provisions of this guarantee being severable
in any such instance. This guarantee is the entire and only agreement between the undersigned and
Franchisor respecting the guarantee of the Agreement, and all representations, warranties, agreements, or
undertakings heretofore or contemporaneously made, which are not set forth in this guarantee, are
superseded.
12.
Any notice which a party shall be requested or shall desire to give to the other under this guarantee
shall be given by personal delivery or by depositing the same in the United States mail, first class postage
pre-paid, addressed to Franchisor at its address
Exhibit 2 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Personal Guarantee of Franchise Agreement - Page 66 of 66
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
set forth above and to the undersigned at its address set forth above, and such notices shall be deemed duly
given on the date of personal delivery or three (3) days after the date of mailing as aforesaid. Either party
may change their address for purposes of receiving notices under this guarantee by giving written notice
thereof to the other party in accordance with this section.
13.
This guarantee is governed by and construed according to the laws of the State of California
applicable to contracts made and to be performed in such state. In order to induce Franchisor to accept this
guarantee, and as a material part of the consideration therefore, the undersigned (i) agrees that all actions or
proceedings relating directly or indirectly to this guarantee shall, at the option of the Franchisor, be litigated
in courts located within the State of California, and (ii) consents to the jurisdiction of any such court and
consents to the service of process in any such action or proceeding by personal delivery or any other
method permitted by law.
The undersigned waives and relinquishes any rights it may have under California Civil Code 2845,
2849 and 2850 or otherwise to require Franchisor to (a) proceed against Franchisee or any other guarantor,
pledgor or person liable under the Agreement; (b) proceed against or exhaust any security for the
Franchisee or this guarantee; or (c) pursue any other remedy in Franchisor’s power whatsoever. In other
words, Franchisor may proceed against the undersigned for the obligations guaranteed without first taking
any action against Franchisee or any other guarantor, pledgor or person liable under the Agreement and
without proceeding against any security. The undersigned shall not have, and herby waives (a) any right of
subrogation, contribution, indemnity and any similar right that the undersigned may otherwise have, (b) any
right to any remedy which Franchisor now has or may hereafter have against Franchisee, and (c) any benefit
of any security now or hereafter held by Franchisor. The undersigned waives (a) all presentments, demands
for performance, notices of non-performance, protests, notices of protests and notices of dishonor; (b) all
other notices and demands to which the undersigned might be entitled, including without limitation notice of
all the following: the acceptance hereof; any adverse change in Franchisee’s financial position; any other
fact which might increase the undersigned’s risk; any default, partial payment or non-payment under the
Franchisee and any changes, modifications, or extensions thereof; and any revocation, modification or
release of any guarantee of any or all of the Agreement by any person (including without limitation any other
person signing this guarantee): (c) any defense arising by reason of any failure of Franchisor to obtain,
perfect, maintain or keep in force any security interest in any property of Franchisee or any other person; (d)
any defense based upon or arising out of any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced by or against Franchisee or any
other guarantor or any person liable under the Agreement.
Without limiting the generality of the foregoing or any other provision of this guarantee, the undersigned
expressly waives any and all benefits which might otherwise be available to it under California Civil Code
2839 (which provides that a surety is exonerated by the performance or the offer of performance of the
principal obligation), 2899 (which provides for the order of resort to different funds held by the creditor) and
3433 (which provides for
Exhibit 2 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Personal Guarantee of Franchise Agreement - Page 67 of 66
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
the right of a creditor to require that another creditor entitled to resort to several sources of payments first
resort to sources not available to the first creditor). The undersigned waives the rights and benefits under
California Civil Code 2819 and agrees that by doing so its liability shall continue even if Franchisor alters any
obligations under the Agreement in any respect or Franchisor’s rights or remedies against Franchisee are in
any way impaired or suspended without the undersigned’s consent. Franchisor may without notice assign
this guarantee in whole or in part.
The undersigned has had the opportunity to review this guarantee with its counsel and such counsel
14.
has explained to it the meaning and significance of the provisions of this guarantee, including but not limited
to the waivers and consents contained in this guarantee, and answered any questions that it had regarding
the meaning, significance and effect of the provisions of this guarantee.
15.
This guarantee of the Agreement may be executed in two or more counterparts, each of which shall
be deemed an original but all of which together shall constitute a single instrument. A signature on this
guarantee of the Agreement transmitted via facsimile or electronic mail/PDF or equivalent, electronic
signature (such as DocuSign or equivalent), shall be considered an original for all purposes hereunder.
The use of the singular herein shall include the plural. The obligations of two or more parties shall be joint
and several. The terms and provisions of this guarantee of the Agreement shall be binding upon and inure
to the benefit of the respective successors and assigns of the parties herein named.
IN WITNESS WHEREOF, the undersigned executed this guarantee on the date(s) set forth below.
By:
Name:
Title:
Date:
An individual
Exhibit 2 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Personal Guarantee of Franchise Agreement - Page 68 of 66
EXHIBIT 3: INVESTOR COVENANTS REGARDING CONFIDENTIALITY AND NON-COMPETITION
Statement of Ownership of Franchisee:
Name of Principal/Investor
Percentage of Ownership Interest
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
In conjunction with your investment in __________ a ____________("Franchisee") you (Investor" or "you"),
acknowledge and agree as follows:
Franchisee owns and operates, or is developing, pursuant to a Franchise Agreement dated
1)
_______________ ("Franchise Agreement") with El Pollo Loco, Inc. (“EPL”), which Franchise Agreement
requires persons with legal or beneficial ownership interests in Franchisee under certain circumstances to be
personally bound by the confidentiality and non-competition covenants contained in the Franchise
Agreement. All capitalized terms contained herein shall have the same meaning set forth in the Franchise
Agreement.
2)
You own or intend to own a certain percentage of legal or beneficial ownership interest in Franchisee
(as described above) and acknowledge and agree that your execution of this Agreement is a condition to
such ownership interest and that you have received good and valuable consideration for executing this
Agreement. EPL may enforce this Agreement directly against you and your Owners (as defined below).
If you are a corporation, partnership, limited liability company or other entity, all persons who have a
3)
legal or beneficial interest in you ("Owners") must also execute this Agreement.
4)
You and your Owners, if any, may gain access to parts of EPL’s Confidential Information as a result of
investing in Franchisee. The Confidential Information is proprietary and includes EPL's trade secrets. You
and your Owners hereby agree that while you and they have a legal or beneficial ownership interest in
franchise and thereafter you and they: (a) will not use the Confidential Information in any other business or
capacity (such use being an unfair method of competition); (b) will exert best efforts to maintain the
confidentiality of the Confidential Information; and (c) will not make unauthorized copies of any portion of the
Confidential Information disclosed in written, electronic or other form. If you or your Owners cease to have
an interest in franchisee, you and our Owners, if any, must deliver to EPL any such Confidential Information
in your or their possession.
5)
During the term of the Franchise Agreement and during such time as you and your Owners, if any,
have any legal or beneficial ownership interest in Franchisee, you and your Owners, if any, agree that you
and they will not, without EPL's consent (which consent may be withheld as EPL's sole and absolute right)
directly or indirectly (such as
Exhibit 3 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Investor Covenants Regarding Confidentiality and Non-Competition - Page 69 of 69
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
through an Affiliate or through your or their Immediate Families) own any legal or beneficial interest in, or
render services or give advice in connection with: (a) any Competitive Business located anywhere, or (b) any
entity located anywhere that grants franchises or licenses interest to others to operate any Competitive
Business.
6)
For a period of two (2) years, starting on the earlier to occur of the date you or your Owners cease to
have any legal or beneficial ownership interest in Franchisee and the effective date of termination or
expiration of the Franchise Agreement, neither you nor any of your Owners directly or indirectly (such as
through an Affiliate or through your or their Immediate Families) shall own a legal or beneficial interest in, or
render services or give advice to: (a) any Competitive Business operating at or within a radius of five (5)
miles of the Restaurant and/or any El Pollo Loco Restaurant then in operation or under construction; or (b)
any entity that grants franchises or license other interest to others to operate any Competitive Business. If
you or any of your Owners fail to or refuse to abide by any of the foregoing covenants and EPL. obtains
enforcement in a judicial or arbitration proceeding, the obligations under the breached covenant will continue
in effect for a period of time ending two (2) years after the date such person commences compliance with the
order enforcing the covenant.
7)
You and each of your Owners expressly acknowledge the possession of skills and abilities of a
general nature and the opportunity to exploit such skills in other ways, so that enforcement of the covenants
contained in Sections 5 and 6 will not deprive any of you of your personal goodwill or ability to earn a living.
If any covenant herein, which restricts competitive activity, is deemed unenforceable by virtue of its scope or
in terms of geographic area, type of business activity prohibited and/or length of time, but could be rendered
enforceable by reducing any part of all of it, you and we agree that it will be enforce to the fullest extent
permissible under applicable law and public policy. EPL may obtain in any court of competent jurisdiction
any injunctive relief, including temporary restraining orders and preliminary injunctions, against conduct or
threatened conduct for which no adequate remedy at law may be available or which may cause it irreparable
harm. You and each of your Owners acknowledges that any violation of Section 4, 5, or 6 hereof would
result in irreparable injury for which no adequate remedy at law may be available. If EPL files a claim to
enforce this Agreement and prevails in such proceeding, you agree to reimburse EPL for all its cost and
expense, including reasonable attorneys' fees.
8)
This Investor Covenants regarding Confidentiality and Non-Competition Agreement (“Investor
Agreement”) may be executed in two or more counterparts, each of which shall be deemed an original but
all of which together shall constitute a single instrument. A signature on this Investor Agreement transmitted
via facsimile or electronic mail/PDF or equivalent, electronic signature (such as DocuSign, or equivalent),
shall be considered an original for all purposes hereunder.
Exhibit 3 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Investor Covenants Regarding Confidentiality and Non-Competition - Page 70 of 69
IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement on the date(s) set
forth below.
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
INVESTOR:
If an Individual:
By:
Name:
Title:
Date:
An individual
By:
Name:
Title:
Date:
An individual
If a corporation, partnership, limited liability company or other legal entity:
_______________________________, a ___________________________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
OWNERS:
By:
Name:
Title:
Date:
An individual
By:
Name:
Title:
Date:
An individual
Exhibit 3 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Investor Covenants Regarding Confidentiality and Non-Competition - Page 71 of 69
EXHIBIT 4: AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS (ACH)
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
On _____________,_______ and going forth, the undersigned depositor (“Depositor”) hereby authorizes El
Pollo Loco, Inc. (“El Pollo Loco”) to initiate debit entries and/or credit correction entries to the Depositor’s
checking and/or savings account(s) indicated below and the depository (“Depository”) to debit such account
pursuant to El Pollo Loco’s instructions (“Authorization”).
Depository:
Branch:
Street Address, City, State, Zip Code:
Bank Transit/ABA Number:
Account Number:
This authority is to remain in full force and effect until Depository has received joint written notification from
El Pollo Loco® and Depositor of the Depositor’s termination of such authority in such time and in such
manner as to afford Depository a reasonable opportunity to act on it. Notwithstanding the foregoing,
Depository shall provide El Pollo Loco® and Depositor with thirty (30) days’ prior written notice of the
termination of this authority. If an erroneous debit entry is initiated to Depositor’s account, Depositor shall
have the right to have the amount of such entry credited to such account by Depository, if within fifteen (15)
calendar days following the date on which Depository sent to Depositor a statement of account or a written
notice pertaining to such entry or forty five (45) days after posting, whichever occurs first, Depositor shall
have sent to Depository a written notice identifying such entry, stating that such entry was in error and
requesting Depository to credit the amount thereof to such account. These rights are in addition to any rights
Depositor may have under federal and state banking laws.
This Authorization may be executed in two or more counterparts, each of which shall be deemed an original
but all of which together shall constitute a single instrument. A signature on this Authorization transmitted via
facsimile or electronic mail/PDF or equivalent, electronic signature (such as DocuSign, or equivalent) shall
be considered an original for all purposes hereunder.
Depositor: ________________________, a _______________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
ATTACH VOID CHECK
Exhibit 4 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Authorization Agreement for Prearranged Payments (ACH) - Page 72 of 70
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EXHIBIT 5: ADVERTISING ASSOCIATION DOCUMENTS
ADVERTISING ASSOCIATION MEMBERSHIP AGREEMENT
THE [NAME OF AREA] EL POLLO LOCO® RESTAURANT ADVERTISING ASSOCIATION
MEMBERSHIP AGREEMENT
THIS [NAME OF AREA] EL POLLO LOCO® RESTAURANT ADVERTISING ASSOCIATION
MEMBERSHIP AGREEMENT is effective as of _____________________, 20___, by and between the
[NAME OF AREA] EL POLLO LOCO® RESTAURANT ADVERTISING ASSOCIATION, INC. a
______________ Nonprofit Corporation [the “Association”] and ________________________________,
a________________(the “Member”).
BACKGROUND INFORMATION:
EL POLLO LOCO, INC. (the “Franchisor”) owns, operates and franchises quick service restaurants which
specialize in the sale of retail marinated ________ grilled chicken and Mexican food items related to the El
Pollo Loco® concept (“Restaurants”). The Member owns and operates one or more Restaurants within the
____________________________[described geographic area]____________________ (the “Association
Area”). The Association was organized by the Franchisor and its franchisees that own Restaurants in the
Association Area in order to pool advertising funds.
OPERATIVE TERMS:
1. Bylaws. The Association has adopted Bylaws and may amend, modify or replace them from time
to time in accordance with its governing documents, subject to the written consent of the Franchisor (the
“Bylaws”). Unless the context requires otherwise, terms used in this Agreement will have the meanings as
defined in the Bylaws.
2. Membership. By signing this Agreement:
(a) The Member agrees to become a member of the Association and agrees to be bound by and
adhere to the Bylaws, and to observe any administrative rules, regulations and policy statements adopted by
the Association in accordance with the Bylaws; and
(b) The Association accepts and enrolls the Member as a member in good standing with full rights
and Benefits of membership.
3. Scope. This Agreement is applicable to all of the Member’s Restaurants located in the
Association Area, whether currently existing, or opened or acquired after
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 73 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
the signing of this Agreement.
4. Contributions.
(a) Obligation to Pay: The Member agrees to make such contributions to the Association, and at
such time and in such manner, as are determined by the Association from time to time in accordance with
the Bylaws. Contributions are non-refundable.
(b) Reports: Each contribution must be accompanied by a report containing such information as
the Association may determine from time to time, showing the amount of the contribution the Member is
required to pay with respect to the Member’s Restaurants located in the Association Area. The Member
authorizes and instructs the Franchisor to furnish to the Association, on request, copies of the Member’s
reports and records in Franchisor’s possession for the purpose of verifying contributions due. The
Association may review reports and other information available to the Franchisor to verify that the proper
amount of contributions have been made by the Member.
(c) Collection by Franchisor: The Member acknowledges and agrees that the Association may
authorize Franchisor to receive and collect contributions and related reports on behalf of the Association. In
such case, the Member shall make contributions to Franchisor, and shall report to Franchisor, at such times
and in such manner as Franchisor may determine to be appropriate from time to time.
5. Benefits. The Association agrees that it will operate on a not-for-profit basis in accordance with
governing documents and that all contribution will be spent solely for the purposes permitted in its Articles of
Incorporation and Bylaws.
6. Effective Date and Term. The Agreement becomes effective on the date signed by both Parties
and will continue until the earlier of:
(a) The Association discontinues operations or is dissolved; or
(b) Until the Member no longer owns and operates a Restaurant located in the Association Area
under a valid Franchise Agreement with Franchisor, or until the Member no longer owns or operates a
Restaurant located in the Association Area, if the Member is the Franchisor or an affiliate of Franchisor.
In the event this Agreement terminates pursuant to Section 6(b), the Member’s voting and other membership
rights in the Association automatically terminate on the effective date of termination of the Franchise
Agreement (or closure of the Restaurant, if the Franchisor or its affiliate is the Member), provided however, if
the Member owes contributions at the time of such termination (or closure), then it will still be obligated and
responsible for all contributions that accrued prior to the date of such termination (or closure).
7.
Franchise Transfers. The parties recognize that the timing of payment of contributions may not
always coincide with the consummation of the sale of a Restaurant.
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 74 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Accordingly, the parties agree as follows:
(a) Timing: The Member will remain responsible to the Association for all contributions due
through the date of the consummation of any sale of an El Pollo Loco® restaurant owned by the Member that
is subject to this Agreement.
(b) Credit Balances: If the Member sells or closes an El Pollo Loco® restaurant subject to this
Agreement at a time when the Member has a credit balance with the Association, the credit balance will not
be refunded, but will be: (i) retained for the benefit of other members of the Association, if the transaction
involves a closing of the Member’s El Pollo Loco® restaurant or the termination or expiration of the Member’s
Franchise Agreement; or (ii) credited to the Restaurants of the purchaser that are subject to this Agreement,
if a sale, transfer or assignment is involved; or (iii) credited to the Member’s other Restaurants that are still
subject to this Agreement.
8.
Delinquencies. The Member agrees to abide by all rules and regulations regarding delinquent
contributions, including the payment of interest and late payment fees, adopted by the Association from time
to time. The Member acknowledges and agrees that delinquent contributions (a) constitute a breach of the
Franchise Agreement; (b) may result in loss of voting rights and other privileges with the Association; and/or
(c) may result in cancellation of membership with the Association.
9.
Entity Participation. If the Member is a corporation, limited liability company, partnership or
other business entity, the Member will duly authorize one (1) person to represent its interests at Association
meetings (the “Representative”). The Representative must be a: (i) shareholder, partner, member (in case
of an LLC), director or officer of the Member; or (ii) the Member’s Operating Partner, as defined in the
Member’s Franchise Agreement; or (iii) in the event the Member is Franchisor or one of its affiliates, an
officer or other designated representative of the Franchisor or it affiliate. The Association shall be entitled to
rely on any written authorization appointing the Representative that the Association in good faith believes to
be valid unless and until the Association shall have received an authorization for a successor
Representative’s decisions, votes and consents to bind the Member at any such meeting without any further
inquiry. The same person can be a Representative for more than one (1) Member.
10. Program Participation. The Member will not be required, as a condition of membership in this
Association or otherwise, to participate in any advertising or promotion that contains a specified retail price,
or a minimum retail price, for any product or service furnished by Restaurant in the Association Area.
However, the Member’s obligation to pay contributions pursuant to this Agreement will not be affected in any
way by the Member’s decision not to participate.
11. Miscellaneous.
(a) Severability: If any part of this Agreement is held invalid for any reason, the remainder of this
Agreement will not be affected and will remain in full force and effect in
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 75 of 91
Exhibit 10.17
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Location Test, CA
accordance with its terms.
(b) Costs of Collection: Member agrees to reimburse the Association (or, if applicable, Franchisor)
for all costs and expenses, including attorneys’ fees and expenses, incurred in connection with collecting
delinquent contributions. Reimbursement is due within thirty (30) days of written notice.
(c) Waivers: No waiver of any provision of this Agreement will be valid unless in writing and
signed by the person signed by the person against whom it is sought to be enforced. The failure by either
party to insist upon strict performance of any provision will not be construed as a waiver or relinquishment of
the right to insist upon strict performance of the same provision at any other time or to insist on strict
performance of any other provision of this Agreement.
(d) Liabilities and Beneficiaries: Neither party will be liable to any other person who is not Party to
this not a Party to this not a party to this Agreement by virtue of their relationship to each other. No other
person has any rights because of this Agreement, except for the parties. However, notwithstanding the
foregoing, although the Franchisor may not be a party to this Agreement, and is not bound by it, Franchisor
is a third-party intended beneficiary.
(e) Entire Agreement: This Agreement reflects the entire understanding of the parties with respect
to the subject matter hereof and supersedes all prior oral or written agreements, communications or
understandings with respect to the matters provided for herein. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which together shall constitute a
single instrument. A signature on this Agreement transmitted via facsimile or electronic mail/PDF or
equivalent, electronic signature (such as DocuSign, or equivalent) shall be considered an original for all
purposes hereunder.
[NAME OF AREA] EL POLLO LOCO® RESTAURANT
By:
Name:
Title:
Date:
ADVERTISING ASSOCIATION, INC.
[Name of Member]
By:
Name:
Title:
Date:
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 76 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
BYLAWS OF _____[NAME OF AREA]_____EL POLLO LOCO® RESTAURANT ADVERTISING
ASSOCIATION, INC.
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 77 of 91
Adopted as of _______________, 20___
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
TABLE OF CONTENTS
ARTICLE
ARTICLE 1 OFFICES
SECTION 1.1 REGISTERED AND PRINCIPAL OFFICE
SECTION 1.2 OTHER OFFICES
SECTION 1.3 REGISTERED AGENT FOR SERVICE OF PROCESS
ARTICLE 2 POWERS AND PURPOSE
SECTION 2.1
SECTION 2.2
SECTION 2.3 USE OF TRADEMARKS
POWERS
PURPOSES
ARTICLE 3 MEMBERS
ANNUAL AND QUARTERLY MEETINGS OF THE MEMBERS
SPECIAL MEETINGS
PLACE OF MEETING
ENROLLMENT
ENTITY MEMBERSHIP
SECTION 3.1 MEMBERS
SECTION 3.2
SECTION 3.3
SECTION 3.4 MEMBERS IN GOOD STANDING
SECTION 3.5
SECTION 3.6
SECTION 3.7
SECTION 3.8 NOTICE OF MEETINGS
SECTION 3.10 CLOSURE OF BOOKS AND FIXING OF RECORD DATE
SECTION 3.11 QUORUM
SECTION 3.12 VOTING
SECTION 3.13 REPRESENTATIVES
SECTION 3.14 ACTION WITHOUT MEETING
SECTION 3.15 ORGANIZATION
SECTION 3.16 MEMBER MEETINGS BY TELEPHONE
ARTICLE 4 DIRECTORS
TERMS
SECTION 4.1 NUMBER
SECTION 4.2
VACANCIES
SECTION 4.3 REMOVAL OF DIRECTORS
SECTION 4.4 QUALIFICATION
SECTION 4.5
SECTION 4.6 RESIGNATION
SECTION 4.7
SECTION 4.8 MEETINGS
SECTION 4.9 NOTICE OF SPECIAL MEETING
SECTION 4.10 ACTION WITHOUT A MEETING
SECTION 4.11 QUORUM AND VOTING
SECTION 4.12 ORGANIZATION
SECTION 4.13 COMPENSATION
SECTION 4.14 ATTENDANCE BY TELEPHONE
POWERS
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 78 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
ARTICLE 5 OFFICERS
TERM OF OFFICE; VACANCIES
SECTION 5.1 OFFICES
SECTION 5.2
SECTION 5.3 REMOVAL OF OFFICERS
SECTION 5.4 RESIGNATIONS
SECTION 5.5 COMPENSATION
SECTION 5.6 REFUND OF PAYMENT
SECTION 5.7
POWERS AND DUTIES
SECTION 5.8 DELEGATION OF DUTIES
ARTICLE 6 CONTRIBUTIONS
SECTION 6.1 CONTRIBUTIONS
SECTION 6.2
SESTION 6.3
PAYMENT OF CONTRIBUTIONS
PAYMENT IN PAYMENTS
ARTICLE 7 NOTICES
SECTION 7.1 RECORDING
SECTION 7.2 WAIVER
ARTICLE 8 DESIGNATED FINANCIAL AGENTS, SIGNATURES AND SEAL
SECTION 8.1 DESIGNATED FINANCIAL AGENTS
SECTION 8.2 OTHER AGREEMENTS
ARTICLE 9 AMENDMENTS OF BYLAWS
ARTICLE 10 INDEMNIFICATION
SECTION 10.1 INDEMNIFICATION IN PROCEEDINGS OTHER THAN ACTIONS BY, OR IN THE RIGHT OF
SECTION 10.2 INDEMNIFICATION OF PERSONS PARTIES TO A PROCEEDING BY OR IN THE RIGHT
THE CORPORATION
OF CORPORATION
SECTION 10.3 MANDATORY INDEMNIFICATION
SECTION 10.4 AUTHORIZATION OF INDEMNIFICATION IS REQUIRED
SECTION 10.5 ADDITIONAL CONDITIONS TO INDEMNIFICATION
SECTION 10.6 PREPAYMENT OF EXPENSES
SECTION 10.7 INDEMNIFICATION DISALLOWED IN CERTAIN CIRCUMSTANCES
SECTION 10.8 NONEXCLUSIVITY
ARTICLE 11 GENERAL PROVISIONS
SECTION 11.1 FISCAL YEAR
SECTION 11.2 GENDER AND NUMBER
SECTION 11.3 ARTICLES AND OTHER HEADINGS
SECTION 11.4 MINUTES, BOOKS AND RECORDS OF ACCOUNT
SECTION 11.5 STATUTORY CITES
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 79 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
BYLAWS OF _______[NAME OF AREA]_______EL POLLO LOCO® RESTAURANT ADVERTISING
ASSOCIATION, INC.
ARTICLE 1 - Officers
Section 1.1 - Registered and Principal Office. The initial registered office of the _______ ______ [NAME
OF AREA] El Pollo Loco® restaurant Advertising Association, Inc. (the “Corporation”) will be located at
_________________________. The initial principal office of the Corporation will be located at
__________________________________.
Section 1.2 - Other Offices. The Corporation may have offices at such other place or places within or
without the State of Delaware as the Board of Directors may from time to tie establish.
Section 1.3 - Registered Agent for Service of Process. The Corporation’s Board of Directors will have
the right to designate a registered agent for service of process, who may be an individual or a corporation.
The registered agent so designated will serve until a successor is elected by the Board of Directors.
ARTICLE 2 - Powers and Purposes
Section 2.1 - Powers. The Corporation will have all of the powers accorded nonprofit corporations under
the Missouri Nonprofit Corporation Act (the “Act”). The Corporation will utilize such powers to engage in any
lawful activity which is consistent with its purposes as set forth in the Articles of Incorporation.
Section 2.2 - Purposes. The purposes for which the Corporation is formed are to establish, maintain,
administer and operate a promotional and advertising fund (the “Fund”) for the benefit of the El Pollo Loco®
restaurants
geographic
area]_______________ (the “Association Area”) and to further any and all purposes consistent with the
objectives of the Corporation.
_____________[describe
its members
(“EPL’s”)
located
of
in
Section 2.3 - Use of Trademarks. The Corporation recognizes that its activities will necessarily involve
advertising and promotional programs that contain the intellectual property rights, including copyrights,
trademarks, service marks, logos, and designs derived from El Pollo Loco, Inc. (the “Franchisor”). As such,
the Corporation has entered into, or will enter into, the [NAME OF AREA] ______El Pollo Loco® restaurant
Advertising Association Authorization Agreement.
ARTICLE 3 - Members
Section 3.1 - Members. The members will consist of (a) owners of franchised Restaurants located in the
Association Area operating under valid and effective Franchise Agreements with Franchisor; and (b) the
Franchisor or any of its affiliates, to the extent that it or any of its affiliates owns or operates any Restaurants
located within the Association Area.
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 80 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Any Franchisee who ceases to be a party to any valid and effective Franchise Agreement with the
Franchisor for a El Pollo Loco® restaurant located in the Association Area, whether due to transfer, expiration
or termination, will automatically cease to be a member of the Corporation, but will continue to remain liable
to the Corporation for past due unpaid contributions or other amounts payable to the Corporation at the time
membership ceases. However, if a Franchisee operates under multiple Franchise Agreements and ceases
to be bound by one or more Franchise Agreements, whether due to transfer, expiration or termination, but
continues to be bound by other Franchise Agreements for Restaurants located in the Association Area, the
Franchisee shall continue to be a member, but its voting rights shall be reduced to reflect the number of
remaining Restaurants that the Franchisee owns in the Association Area. Likewise, to the extent the
Franchisor or an affiliate of Franchisor owns or operates one or more Bakery Cafes in the Association Area
and has been a member of the Corporation and ceases to own or operate any such Restaurants in the
Association Area, then its membership with respect to such Restaurants will automatically terminate.
In accordance with the terms of the ________[NAME OF AREA]_________El Pollo Loco® restaurant
Advertising Association Authorization Agreement, a representative of Franchisor shall be entitled to notice of
all regular and special meetings of the Members of the corporation and shall have the right to attend all
meetings, either in person or in any other manner of attendance authorized in these Bylaws. However,
unless the Franchisor is a Member of the Corporation by virtue to vote at a meeting of the Members in
accordance with Section 3.12 of these Bylaws.
Section 3.2 – Enrollment. Notwithstanding any of the foregoing, no person will be enrolled as a Member of
the Corporation nor will it have any rights as a Member unless and until it has signed a Membership
Agreement with the Corporation. Notwithstanding the foregoing, Members shall be required to make
contributions as required by their Franchise Agreements, regardless of whether they have signed
Membership Agreements.
Section 3.3 - Entity Membership. For all membership purposes, any business entity (corporation,
partnership, limited liability company, etc.), together with its owners, is deemed a single Member.
Section 3.4 - Members in Good Standing. A Member will be in good standing as long as: (a) the Member
is not delinquent in the payment of any contribution or other monetary obligation to the Corporation; and (b)
Member shall not have received a notice of default from Franchisor with respect to one or more Restaurants
located in the Association Area which default remains uncured to the satisfaction of Franchisor. Loss of
good standing will not relieve the Member of the obligation to make contributions, when due.
Section 3.5 - Annual and Quarterly Meetings of the Members. The annual meeting of the Members shall
be held for the election of directors, consideration and approval of the succeeding year’s advertising budget
and the transaction of such other business as may properly come before the meeting. The annual meeting
will be held at such time
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 81 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
within the first quarter of the Corporation’s fiscal year as the Board of Directors may determine. Quarterly
meetings of the Members shall be held for consideration and approval of advertising and promotional
programs and the transaction of such other business as may properly come before the meeting. In addition,
at the final quarterly meeting of the fiscal year, the Members shall consider and approve the level(s) of
Member contributions for the succeeding fiscal year. Quarterly meetings will be held at times within the
second, third and fourth quarters of the Corporation’s fiscal year as the Board of Directors may determine.
The notice of annual or quarterly meetings of Members, except as otherwise required by law, need not state
the matters to be considered at such meetings.
Section 3.6 - Special Meetings. Special meetings of the Members, for any purpose or purposes, unless
otherwise prescribed by applicable law, may be called on the written request of (i) a majority of the Board of
Directors, or (ii) Members constituting 25% of the voting rights of the Members in good standing, or (iii)
Franchisor. Requests for a special meeting must state the purpose or purposes of the proposed meeting.
The notice of any special meeting of the Members must state the purpose or purposes for which the
meeting is called.
Section 3.7 - Place of Meeting. All meetings of the Members will be at such places as will be determined
from time to time by the Board of Directors of the Corporation.
Section 3.8 - Notice of Meetings. Written notice of each meeting of the Members stating the Place, day
and hour thereof, must be delivered to each Member of record entitled to vote at such meeting, personally or
by telephone, telegram, cablegram, e-mail, first class mail, confirmed facsimile transmission or any other
means of personal delivery providing evidence of actual delivery; and if mailed, the notice shall be deemed
to be given when deposited in the United States mail addressed to the Members at the Members’ addresses,
as they appear in the records of the Corporation, with postage thereon prepaid. Notice must be given by or
under the direction of the Secretary, or the officer or persons calling the meeting not more than sixty (60) not
less than ten (10) days before the date of the meeting; provided that oral notice to the Member may be given
in lieu of written notice so long as the party giving the notice to the Member files with the Corporation a
written statement of the date, time, place and manner of the oral notice. No notice need be given of the time
and place of reconvening of any adjourned meeting, if the time and place to which the meeting is adjourned
are announced at the adjourned meeting.
Section 3.9 - Waiver of Notice. A written waiver of notice signed by any Member, whether before or after
any meeting, shall be equivalent to the giving of timely notice to said Member. Attendance of a Member at a
meeting shall constitute a waiver of notice of such meeting and waiver of any and all objections to the place
of the meeting, the time of the meeting, or the manner in which it has been called or convened, except when
a Member attends a meeting for the express purpose, as stated at the beginning of the meeting, of objecting
to the transaction of business because the meeting is not lawfully called or convened. Neither the business
to be transacted at, not the purpose of, any
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 82 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
meeting of the Member need be specified in any written waiver of notice.
Section 3.10 - Closure of Books and Fixing of Record Date. For the purpose of determining Members
entitled to notice of, or to vote at, any meeting of the Members or any adjournment thereof, the Board of
Directors may provide that the books will be closed for a period of not less than three (3) and not more than
thirty (30) days immediately preceding such meeting. If the books are not closed and no record date is fixed
by the Board of Directors, the date on which notice of the meeting is mailed will be the record date for the
determination of Members entitled to notice and to vote.
Section 3.11 – Quorum. Except as otherwise required by the Act, the Articles of Incorporation or these
Bylaws, the presence of Members holding a majority of the votes will constitute a quorum at all meetings of
the Members. In case a quorum is not present at any meeting, a majority of the Members present will have
the power to adjourn the meeting from time to time, without notice other than announcement at the meeting
of the time and place to which the meeting is adjourned, until a quorum is present. At any such adjourned
meeting at which a quorum is present, any business may be transacted which might have been transacted at
the meeting as originally noticed; but only those Members entitled to vote at the meeting as originally noticed
will be entitled to vote at any adjournment or adjournments thereof.
Section 3.12 – Voting. Each Member will be entitled at each Members’ meeting and upon each matter
presented at such meeting to one vote for each El Pollo Loco® restaurant located in the Association Area
that the Member owns, or, in the case of Franchisor, owns or operates. Notwithstanding the fixing of the
record date in Section 3.10, Members may only participate in and vote at meetings subject to being in good
standing, in accordance with the Bylaws, both on the record date and at the time of the meeting.
Furthermore, in the event that a meeting is postponed or continue, a Member must be in good standing at
the time the meeting is reconvened in order to participate and vote at the meeting.
Any Member who is not in good standing pursuant to Section 3.4(a) hereof shall have all rights and
privileges of membership (including the right to vote and participate as a Member, director or officer in any
meeting) suspended. Any Member who is not in good standing pursuant to Section 3.4(b) hereof shall have
its right to vote (but not its right to participate) suspended at any meeting of the members or the board of
directors of the Corporation. Any dispute regarding the good standing of a Member and its right to vote at a
membership meeting will be determined conclusively by the Chairman of the meeting, in conjunction with the
representative of the Franchisor present at the meeting, which determination will be final and binding. Any
such suspension shall continue until the Member is in good standing again.
The list of Members must be produced at any Member’s meeting upon the request of any Member. Upon
the demand of any Member, the note upon any question before the meeting must be by written ballot.
Except as otherwise provided by these bylaws, by the Act, or by the Articles of Incorporation, all matters will
be decided by a majority of the votes of Members present at the meeting. There is no cumulative voting for
directors or
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 83 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
on any other matter.
Section 3.13 – Representatives. If a Member is a corporation, limited liability company, partnership or
other business entity, the Member will duly authorize one (1) person to represent its interests at Association
meetings (the “Representative”). The Representative must be a: (i) shareholder, partner, member (in case
of an LLC), director or officer of the Member; or (ii) the Member’s Operating Partner, as defined in the
Member’s Franchise Agreement; or (iii) in the event the Member is Franchisor or one of its affiliates, an
officer or other designated representative of Franchisor or its affiliate. The Corporation shall be entitled to
rely on any written authorization appointing the Representative that the Corporation in good faith believes to
be valid unless and until the Corporation shall have received an authorization for a successor
Representative that the Corporation in good faith believes to be valid. The Corporation shall be entitled to
rely on the Representative’s decisions, votes and consents to bind the Member at any such meeting without
any further inquiry. The same person can be a Representative for more than one (1) Member.
Section 3.14 - Action Without Meeting. Any action of the Members of the Corporation may be taken
without a meeting, without prior notice and without a vote, if one or more consents in writing, setting forth the
action so taken, are signed by the Members having not less than two-thirds (2/3) of the votes that would be
necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were
present and voted. Such consents must be delivered to the Corporation in the manner required by the Act.
Neither the Articles of Incorporation nor these Bylaws will be construed, interpreted or deemed to have, in
any way, limited or prevented the utilization of the ability to take written action in lieu of formal meetings as
may be permitted by the Act.
Section 3.15 – Organization. Meeting of the Members must be presided over by the President, or if he is
not present, by the Vice President, if a Vice President has been elected, or if neither the President not the
Vice President is present, then by a chairman to be chosen by a majority of the Members entitled to vote
who are present in person at the meeting. The Secretary of the Corporation, or in his absence, the Assistant
Secretary, will act as secretary of every meeting, but if neither is present, the Members entitled to vote who
are present in person may choose any person present to act as secretary of the meeting.
At all meetings of the Members the order of business will be as follows:
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
Calling meeting to order.
Proof of notice of meeting and determination of quorum.
Reading and disposing of minutes of previous meeting.
Announcement of purposes for the meeting.
Reports of officers.
Unfinished business.
New business, including election of directors if an annual meeting.
Adjournment.
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 84 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Section 3.16 - Member Meetings by Telephone. Any Member may participate in a Members’ meeting or
may conduct a Members’ meeting through the use of, any means of communication enabling all persons
participating in the meeting to hear each other at the same time during the meeting. Participating by such
means will constitute presence in person at a meeting.
ARTICLE 4 - Directors
Section 4.1 – Number. There will be at least three (3) directors on the Board. From time to time, the exact
number of directors may be determined by vote of the Members at any time, but never less than three (3)
and never an amount less than as otherwise required by the Act.
Section 4.2 – Vacancies. Whenever a vacancy occurs on the Board of Directors, including a vacancy
resulting from an increase in the number of directors or the removal of one (1) or more directors, it may be
filled by the affirmative vote of a majority of the remaining directors even if the remaining directors constitute
less than a quorum.
Section 4.3 - Removal of Directors. Any director may be removed with or without cause by vote of a
majority of the Members at a membership meeting, or by written action in lieu of meeting signed by the
Members having not less than two-thirds (2/3) of the votes that would be necessary to authorize or take such
action at a meeting at which all Members entitled to vote thereon were present an voted.
Section 4.4 – Qualification. Each director must be either a Member (if the Member is an individual) or the
Member’s Representative. If there are less than three (3) Members at any time, then the franchisor, through
Franchisor’s representative designated as its “Member’s Representative”, shall have the right to designate
two (2) directors one of which shall be the Member’s Representative and the other shall be an officer of
Franchisor. However, any director serving on the Board of Directors will be automatically suspended at any
time during which he or she, or the business organization for which he or she is the Representative, is not in
good standing. In addition, directors will be automatically removed as directors if, at any time, the Member
with which they are associated is expelled from membership or is no longer a franchise of the Franchisor
either because the Franchise Agreement has expired, or it has been terminated or transferred.
Section 4.5 – Terms. Directors will hold office until their respective successors are duly elected and
qualified or until there is a decrease in the number of directors.
Section 4.6 – Resignation. Any director may resign at any time. Such resignation will be made in writing
and will take effect upon its delivery to the President or the Board of Directors or its Chairman.
Section 4.7 – Powers. Except for those rights reserved to the Members under these bylaws, the business
of the Corporation will be managed by its Board of Directors, which may exercise all such powers of the
Corporation and do all such lawful acts and things as are not prohibited by the Act, by the Articles of
Incorporation or by these Bylaws. The
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 85 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Board of Directors will determine the compensation, if any, to be paid to each officer and director of the
Corporation, including those officers who may also be directors.
Section 4.8 – Meetings. The Board of Directors of the Corporation may hold meetings, whether annual or
special, either within or without the State of Missouri, The annual meeting of the Board of Directors for the
purpose of electing officers and transacting such other business as may be brought before the meeting will
be held at such time and place as the Board of Directors may determine. The Board of Directors may by
resolution provide for the time and place of other regular meetings, and no notice of such regular meetings
need to be given.
All other meetings of the Board may be called on the written request of (i) any director or (ii) Members with
25% of the voting rights of Members in good standing, at such time and place as may be stated in such
request.
In accordance with the terms of the ___[NAME OF AREA]_ El Pollo Loco® restaurant Advertising
Association Authorization Agreement, a representative of Franchisor shall be entitled to notice of all regular
an special meetings of the Board of Directors of the Corporation and shall have the right to attend all
meetings, either in person or in any other manner of attendance authorized in these Bylaws. However,
unless the Franchisor is a Director of the Corporation, the Franchisor representative shall have no right to
participate in any action of the Board of Directors in accordance with Sections 4.10 and 4.11 of these
Bylaws.
Section 4.9 - Notice of Special Meetings. Written notice of the place, day and hour of any special meeting
of the Board of Directors must be given by or under direction of the Secretary, to each director at least two
(2) days before the meeting; provided, however, that oral notice may be given to directors in lieu of written
notice so long as the party giving the notice to the directors files with the Corporation a written statement of
the date, time, place and manner of the oral notices. Neither the business to be transacted at, nor the
purpose of, any meeting of the Board of Directors, need be stated in the notice or waiver of notice of such
meeting.
Section 4.10 - Action Without a Meeting. Any action required to be taken, or which may be taken, at a
meeting of the Board of Directors may be taken without a meeting, if a consent in writing, setting forth the
action so to be taken, is signed by all of the directors entitled to vote. Such consent will have the same effect
as a unanimous vote.
Section 4.11 - Quorum and Voting. At all meetings of the Board, a majority of the directors then in office
will constitute a quorum for the transaction of business. The act of a majority of directors present at a
meeting where a quorum is present will be the act of the Board of Directors, except as may be otherwise
specifically provided by law, the Articles of Incorporation or these Bylaws. If at any meeting of the Board of
Directors there is less than a quorum present, a majority of those present may adjourn the meeting, without
further notice, from time to time and place to place until a quorum will have been obtained.
Section 4.12 – Organization. The President of the Corporation will act as Chairman and
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 86 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
the Secretary will act as Secretary at all meetings of the Board.
Section 4.13 – Compensation. Directors must not receive any stated salary for their services as directors
or as members of committees, but by resolution of the Board a fixed fee and /or expenses of attendance
may be allowed for attendance at each meeting.
Section 4.14 - Attendance by Telephone. Any member or members of the Board of Directors will be
deemed present and voting at a meeting of the Board if said member or members participate in the meeting
by means of a conference telephone or other communications equipment enabling all persons participating
in the meeting to hear other at the same time. Participation by such means will constitute presence in
person at a meeting.
ARTICLE 5 - Officers
Section 5.1 – Officers. The officers of this Corporation will consist of a President, a Secretary and a
Treasurer, and may consist of such other officers, including but not limited to one (1) or more Vice
Presidents, Assistant Secretaries and Assistant Treasurers with such titles, powers and duties as may be
prescribed from time to time by the Board of Directors. They will be elected by the Board of Directors at its
annual meeting.
Section 5.2 - Term of Office; Vacancies. Each officer shall hold office for one (1) year and until such
officer’s successor is duly elected and qualified. A vacancy in any office arising from any cause may be filled
for the unexpired portion of the term by the Board of Directors.
Section 5.3 - Removal of Officers. Any officer may be removed at any time with or without cause by action
of the Board of Directors by the affirmative vote of a majority of the directors then in office. Election or
appointment of an officer will not of itself create contract rights.
Section 5.4 – Resignations. An officer may resign at any time by delivering notice to the Corporation. A
resignation is effective when the notice is delivered unless the notice specifies a later effective date. If a
resignation is made effective at a later date and the Corporation accepts the future effective date, the Board
of Directors may fill the pending vacancy before the effective date if the Board of Directors provides that the
successor does not take office until the effective date of the pending vacancy.
Section 5.5 – Compensation. No compensation will be paid to any officer of the Corporation, except the
Board of Directors may determine a fixed fee or other reimbursement for expenses.
Section 5.6 - Refund of Payment. In the event that the Internal Revenue Service disallows, in whole or in
part, the deduction by the Corporation as an ordinary and necessary business expense of any payment
made to an officer of the Corporation, whether as salary, commission, bonus or other form of compensation
or as interest, rent or reimbursement of expenses incurred by such officer, such officer must reimburse the
Corporation to the full extent of such disallowance. The Board of Directors of the
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 87 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Corporation will have the duty to require each such officer to make such reimbursement, and it will be the
legal duty of each such officer thus to reimburse the Corporation.
Section 5.7 - Powers and Duties.
A.
In General. The officers of the Corporation will have such powers and duties as generally
pertain to their respective offices, including the powers and duties provided by these Bylaws, as well as such
powers and duties as from time to time may be conferred by the Board of Directors.
B.
President. The President will:
(1) preside at all meetings of the Board of Directors in the absence of the Chairman of the
Board, if any;
(2) present at each annual meeting of the directors a report of the condition of the business of
the Corporation;
(3) cause to be called regular and special meetings of the directors in accordance with these
Bylaws;
(4) jointly with the Treasurer, sign and make contracts and agreements in the name of the
Corporation;
(5) see that the books, reports, statements and certificates required by statute are properly kept
and filed according to law;
(6) jointly with the Treasurer, sign notes, drafts or bills of exchange, warrants or other orders for
the payment of money duly drawn on behalf of the Corporation;
(7) supervise all employees of the Corporation including the hiring and firing of such employees
as he or she deems advisable;
(8) jointly with the Treasurer, purchase on behalf of the Corporation, tangible or intangible
assets; and
(9) have general charge of and control over the affairs of the Corporation and perform the
entire duties incident to such position and office, the enforcement of these Bylaws and all other things
which the President is required to do by law.
C. Vice President. The Vice President, if any will;
(1) in the absence or disability of the President, perform the duties and exercise the powers of
the President;
(2) perform such other duties and have such other powers as the Board of Directors may from
time to time prescribe.
D. Secretary. The Secretary will:
(1) prepare the minutes of the meetings of the Board of Directors and keep the minutes in
appropriate permanent books of record;
(2) give and serve all notices of the Corporation;
(3) be the custodian of the records and of the seal, and affix the latter when required, and
authenticate records of the Corporation when required; and
(4) attend to all correspondence and perform all the duties incident to the
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 88 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
office of the Secretary.
E. Treasurer. The Treasurer will:
(1) keep accounts of and have the care and custody of and responsible for all the funds and
securities of the Corporation;
(2) deposit all such funds in the name of the Corporation in such back or banks, trust company
or trust companies, or safe deposit vaults as the Board of Directors may designate;
(3) exhibit, at times required by law or these Bylaws, the corporate financial books and
accounts to any director upon application at the office of the Corporation during business hours;
(4) render a statement of the condition of the finances of the Corporation (at each regular
meeting of the Board of Directors, and at such other times as it will be required of the Treasurer) and
a full financial report at the annual meeting of the directors;
(5) keep at the office of the Corporation current books of account of all its business
transactions and such other books of account that the Board of Directors may require;
(6) jointly with the President, sign and make contracts and agreements in the name of the
Corporation;
(7) jointly with the President, sign notes, drafts or bills of exchange, warrants or other orders
for the payment of money duly drawn on behalf of the Corporation;
(8) jointly with the President, purchase on behalf of the corporation, tangible or intangible
assets, and
(9) do and perform all other duties pertaining to the office of the Treasurer.
F. Assistant Secretary and Assistant Treasurer. The Assistant Secretary or Assistant Secretaries
and the Assistant Treasurer will, in the absence or disability of the Secretary, or Treasurer, respectively,
perform the duties of such officer and generally assist, in the case of an Assistant Secretary, the Secretary,
or an Assistant Treasurer, the Treasurer.
Section 5.8 - Delegation of Duties. In the case of the absence or disability of any officer of the Corporation
or for any other reason deemed sufficient by a majority of the Board, the Board of Directors may delegate
such officer’s respective powers or duties to any other officer or to any director or agent of the Corporation
for a specified period or until said delegation is revoked by the Board of Directors, provided that such
delegation is otherwise permitted by law and by the Articles of Incorporation and these Bylaws.
ARTICLE 6 - Contributions
Section 6.1 – Contributions. The Members will determine at the final quarterly Member meeting of the
fiscal year the amount of contributions to be paid to the Corporation by its Members during the succeeding
fiscal year. The amount of the contributions will generally be a percentage of Gross Sales, as defined in the
most recent Disclosure
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 89 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Document issued by the Franchisors, uniform among Members on a per El Pollo Loco® restaurant basis.
The Members may, subject to Franchisor’s approval, vary the level of benefits and/or contributions for any El
Pollo Loco® restaurant that is located in a geographical area in which broadcast coverage is less than eighty-
five percent (85%), according to the most recent A.C. Nielsen or Arbitron coverage study, in order to achieve
approximate equivalence in contributions and benefits of Members. If any Restaurants of a Member are
located in geographical areas covered, according to the most recent A.C. Nielsen or Arbitron coverage study,
by more than one regional advertising association, the variation in benefits and/or contribution may be
coordinated with such other regional advertising association.
Section 6.2 Payment of Contributions
Subject to the terms of the ________[NAME OF AREA] El Pollo Loco® restaurant
Advertising Association Authorization Agreement, the Board of Directors will set the dates and method of
payment for contributions. However, Members will not have to pay their contributions for new Restaurants
until after their El Pollo Loco® restaurant have opened for business.
Section 6.3 - Default in Payments. The Board of Directors will establish policies and procedures for
dealing with situations in which Members have not timely paid contributions. The Board of Directors may set
interest rates and fees to offset administrative expenses, collection costs, etc. for delinquent payments.
ARTICLE 7- Notices
Section 7.1 – Recording. Whenever these Bylaws require notice to be given to Members, directors, or
committee members, proof of such notice whether given by mail, e-mail, telecopy, telephone, telegraph,
cablegram or by personal contact will be recorded and filed by the Secretary in the minute book and
incorporated into the minutes for the meeting to which such notice pertains.
Section 7.2 – Waiver. Whenever any notice of a meeting is required to be given under the provisions of the
Act, of the Articles of Incorporation, or of these bylaws, a waiver thereof in writing, signed by the person or
persons entitled to such notice either before, at, or after the meeting, will be deemed equivalent to such
required notice. Attendance of a person entitled to notice at a meeting will also constitute a waiver of notice
of such meeting; provided, however, that such attendance will not constitute such a waiver if said person
attends said meeting solely for the purpose of, and limits his participation at the meeting to, objecting to the
transaction of any business because the meeting is not lawfully called or convened and states such
objection at the beginning of the meeting.
ARTICLE 8 - Designated Financial Agents, Signatures and Seal
Section 8.1 - Designated Financial Agents. All funds of the Corporation will be deposited in the name of
the Corporation in such bank or other financial institutions as the Board of Directors may from time to time
designate and will be drawn out on checks, drafts or other order signed on behalf of the Corporation by such
person or persons as
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 90 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
the Board of Directors may from time to time designate.
Section 8.2 - Other Agreements. Except as otherwise specifically provided by these Bylaws, all
contacts, agreements, deeds, bonds, mortgages and other obligations and instruments must be signed on
behalf of the Corporation by the President and Treasurer or by such other officers or agents as the Board of
Directors may from time to time by resolution provide.
ARTICLE 9 - Amendments of Bylaws
The Bylaws may be altered, amended or repealed only by the Members at a meeting of Members, provided
that the notice of the meeting contains a written proposal to amend these Bylaws along with the text of the
amendments, and subject to the prior written approval of Franchisor in accordance with the _______[NAME
OF AREA]________El Pollo Loco®
restaurant Advertising Association Authorization Agreement.
Nevertheless, the amendment of any Bylaw or replacement of these Bylaws will not be effective unless it has
been approved by a voting requirement that is in excess of the voting requirement that it is replacing. In
other words, voting requirement specifying approval by two-thirds (2/3) can only be changed by a vote of at
least that number.
ARTICLE 10 - Indemnification
Section 10.1 - Indemnification in Proceedings Other Than Actions by, or in the Right of, the
Corporation. The Corporation will indemnify any person who was or is a party to any proceedings (other
than an action by, or in the right of, the Corporation), by reason of the fact that he or she is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at the request of the Corporation as a
director, committee member, officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise against liability incurred in connection with such proceeding, including any appeal
thereof, if the indemnitee acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had
no reasonable cause to believe his conduct was unlawful.
Section 10.2 - Indemnification of Persons Parties to a Proceeding by or in the Right of the
Corporation. The Corporation will indemnify any person who was or is a party to any proceeding by or in
the right of the Corporation to procure a judgment in its favor by reason of the fact that he or she is or was a
director, officer, employee, or agent of the Corporation or is or was serving at the request of the Corporation
as the director, officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses and amounts paid in settlement not exceeding, in the judgment of the Board of
Directors, the estimated expense of litigating the proceeding to conclusion, actually and reasonably incurred
in connection with the defense or settlement of such proceeding, including any appeal thereof. Such
indemnification may be authorized if such person acted in good faith and in a manner he or she reasonably
believed to be in, or not opposed to, the best interests of the Corporation. Provided, however, that no
indemnification may be made hereunder in respect of any claim, issue,
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 91 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
or matter as to which such person has been adjudged to be liable, unless, and only to the extent that, the
court in which such proceeding was brought, or any other court of competent jurisdiction, determines upon
application that, despite the adjudication of liability, but in view of all circumstances of the case, such person
is fairly and reasonably entitled to indemnity for such expenses which such court deems proper.
Section 10.3 - Mandatory Indemnification. To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any proceeding referred to in
Sections 10.0 and 10.2 above, or in defense of any claim, issue or matter therein, he or she must be
indemnified against expenses actually and reasonably incurred by him or her in connection therewith.
Section 10.4 - Authorized of Indemnification is Required. Any indemnification under Sections 10.1 and
10.2, unless pursuant to a determination by a court, may be made by the Corporation only as authorized in
the specific case upon a determination that indemnification of the director, officer, employee, or agent is
proper in the circumstances because he or she has met the applicable standard of conduct set forth in
Section 10.1 or 10.2. Such determination must be made pursuant to any procedures outlined by the Act, if
any.
Section 10.5 - Additional Conditions to Indemnification. The Board, by a majority vote of a quorum
consisting of directors who were not parties to the action, suit or proceeding to which the indemnification
relates, may impose such additional conditions upon any form of indemnification as the Board may deem
appropriate, including, but not limited to, the right to assume the defense in appropriate circumstances, the
right to select the attorney representing the indemnified person and the right to settle.
Section 10.6 - Prepayment of Expenses. Expenses (including attorneys’ fees and expenses) incurred in
defending a civil or criminal action, suit or proceeding must be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon a preliminary determination following the procedures set
forth in Section 10.04 that such indemnified person meets the applicable standard of conduct referred to
therein and subject to any conditions imposed by the Board pursuant to this Article and the prior receipt by
the Corporation of an undertaking satisfactory in form and substance to the Corporation that such person will
promptly repay such amount unless it is ultimately determined that the person is entitled to be indemnified by
the Corporation as authorized in this Article 10.
Section 10.7 - Indemnification Disallowed in Certain Circumstances. The indemnification provided
pursuant to this article may not be made to or on behalf of any director, officer, employee, or agent if a
judgment or other final adjudication establishes that his or her actions, or omissions to act, were material to
the cause of action so adjudicated and constitute:
A. a violation of the criminal law, unless the director, officer, employee or agent had reasonable
cause to believe his or her conduct was lawful or had no reasonable cause to believe his or her
conduct was unlawful;
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 92 of 91
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
B. a transaction from which the director, officer, employee or agent directly or indirectly
derived an improper personal benefit;
C. in the case of a director, a circumstance under which the director would be liable to the
Corporation under the Act; or
D. willful misconduct or a conscious disregard for the best interests of the Corporation in a
proceeding by or in the right of the Corporation to procure a judgment in its favor.
Section 10.8 – Nonexclusively. The Corporation has the power to make any other or further
indemnification of any of its directors, officers, members of any committee, or any other person that the
Corporation has the power by law to indemnify, including without limitation, employees or agents of the
Corporation, under any bylaw, agreement, vote of disinterested directors, or otherwise, both as to action in
any official capacity and as to action in another capacity while holding such office, except an indemnification
against gross negligence or willful misconduct. The indemnification as provided in this Article will continue
as to any person who has ceased to be a director, officer, or agent and will insure to the benefit of such
person’s heirs and personal representatives.
ARTICLE 11 - General Provisions
Section 11.1 - Fiscal Year. The fiscal year of the Corporation shall be either fifty-two (52) or fifty-three (53)
weeks and end on the last Saturday in December of each year.
Section 11.2 - Gender and Number. Whenever the context requires, the gender of all words used herein
includes the masculine, feminine and neuter, and the number of all words includes the singular and plural
thereof.
Section 11.3 - Articles and Other Headings. The Articles and other headings contained in these Bylaws
are for reference purposes only and will not affect the meaning or interpretation of these Bylaws.
Section 11.4 - Minutes, Books and Records of Account. The Corporation will keep correct and complete
books and records of account and will keep minutes of the proceedings of its Board of Directors and other
records as required by the Act.
Section 11.5 - Statutory Cites. Any reference in these Bylaws to the Act will include all revisions and
amendments to the Act.
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Advertising Association Documents - Page 93 of 91
EXHIBIT 6: EL POLLO LOCO® FINANCIAL REPORTING FORM
You will be required to submit quarterly and year-end financial statements electronically in the following
format. The financials should be comparative showing the prior year amounts for the same periods. There
should be columns for both the recently completed quarter and a Year-to-date column, if applicable. Do not
include officer’s salary, auto expenses, or any other above restaurant expenses should not be included.
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Gross Sales
Net Sales
Food Cost
Paper Cost
Total Food & Paper
Gross Profit
Hourly and Manager labor
Fringe Benefits (a)
Total Labor
Utilities
Repair and Maintenance
Cash Over/Short
Controllable Costs (b)
Restaurant Controllable Profit
Advertising
Royalties
Indirect Costs (c )
Occupancy Costs (d)
Amount
%
$ 0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
100.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
Restaurant Operating Profit
$____
____%
(a) To include payroll taxes, health benefits, vacation, and workers compensation expense
(b) To include trash, store security, uniforms, laundry, cleaning/janitorial, operating supplies, music and
plant service, landscape, and other misc. restaurant costs not captured elsewhere.
(c) To include credit card fees, bank charges, licenses, permits, fees, and pre-opening costs
(d) To include minimum and percentage rent, property taxes and insurance.
Exhibit 6 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
El Pollo Loco® Financial Reporting Form - Page 94 of 92
EXHIBIT 7: IT SUPPORT SERVICES AGREEMENT
Customer:
Franchise Store Number(s) Covered:
Customer Site(s):
Date of Franchise Agreement(s):
Effective Date:
Customer’s Authorized Representative(s)/Contacts:
Invoices to Customer to be sent to:
Notices, if to Customer, to be sent to:
El Pollo Loco IT:
Notices, if to El Pollo Loco IT, to be sent to:
Term Commencement Date:
Term Expiration Date:
Service Level Description
Annual Fees:
Special Terms:
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
El Pollo Loco, Inc.
3535 Harbor Blvd., Suite 100
Costa Mesa, CA 92626
Upon expiration of the Franchise Agreement(s),
unless sooner terminated as provided by the
Franchise Agreement(s)
See Attached EPL IT Standard Platinum Service
Description
See Attached Franchise Support Options
See Website
The authorized representatives of Customer and El Pollo Loco, intending to be legally bound, agree
to the terms and conditions of this IT Support Services Agreement (“Agreement”), including without
limitation documents incorporated by reference, as of the Effective Date.
o o oco
El Pollo Loco, Inc., a Delaware corporation
___________________
_________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Exhibit 7 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
IT Support Services Agreement - Page 95 of 93
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
TERMS AND CONDITIONS
1.
Performance. El Pollo Loco Informational Technology (“EPL IT”) shall make available to
Customer certain operations support services for the Service Level designated on the first page of this
Agreement (“Services”) based on EPL IT’s standard description of services for such Service Level in
accordance with the terms and conditions of this Agreement. The Services are limited to the standard EPL
franchise store configuration unless otherwise agreed upon in writing by EPL IT (“Standard Store
Configuration”). The Services are limited to those listed in the Services Descriptions in this Agreement and
will be performed for the stated pricing. EPL IT shall perform additional services as detailed and mutually
agreed to by the Parties upon additional payment by Customer, Services will be performed during EPL IT’s
normal business hours as listed in the Services Descriptions. EPL IT reserves the right to restrict access to
the Services during periods of routine back-up, maintenance, scheduled downtime and other activities
outside such normal business hours. Information relevant to Services may be posted on the EPL internal
Customer website (“Website”). Information in the Website or other EPL documents, may be changed or
updated without notice. EPL may also make improvements and/or changes in the Services or pricing at any
time without notice.
2.
Customer Obligations. As a condition precedent to EPL IT performing its obligations
hereunder, and in addition to Customer's other obligations as set forth in EPL IT’s standard description of
services for the applicable Service Level, Customer shall timely provide the following at no charge to EPL IT:
(a) access to and use of reasonable working space, facilities and utilities, (b) any information, software,
equipment, data and/or documentation (collectively, “Data”) that EPL IT reasonably requests from Customer
that is necessary for EPL IT to properly perform its obligations hereunder; and (c) all components in the
Standard Store Configuration and all updates, enhancements, upgrades and replacements thereto
recommended or otherwise identified in writing by EPL IT. Customer represents to EPL IT that it has the
right to grant EPL IT access to such facilities and Data for the performance of the Services. Such Data shall
be kept confidential by EPL IT in accordance with Section 4. In the event that there are any delays by
Customer in the timely providing of facilities, access, Data, or the Standard Store Configuration or there are
errors or inaccuracies in the Data or the Standard Store Configuration provided, and such delays, errors or
inaccuracies require additions, corrections or modifications related to EPL IT's performance hereunder, then
any costs associated therewith shall be the responsibility of Customer, and EPL IT shall be entitled to
appropriate adjustments. Customer shall designate two points of contact who shall be the only people to
make inquiries to EPL IT under this Agreement, as set forth on the first page of this Agreement. Each
Customer contact must possess, or at Customer’s expense acquire the necessary familiarity, expertise and
training on the Standard Store Configuration with direction by EPL IT. Prior to requesting support, Customer
will comply with all published operating and troubleshooting procedures for the components of the Standard
Store Configuration and, if such efforts are unsuccessful in eliminating the malfunction, Customer shall
promptly notify EPL IT of any problems discovered in the operation of the Standard Store Configuration.
Customer must identify the Franchise Store Number when accessing the Services. Customer must
cooperate with EPL IT to
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 96 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
maintain a site activity log. Customer will perform routine preventive maintenance and cleaning of the
Standard Store Configuration Customer shall be solely responsible for the accuracy of all Data collected and
submitted to third party suppliers for credit card processing. Customer shall comply with such reasonable
policies, procedures and rules relating to the Services as EPL IT may from time to time publish on its
Website or designate in writing to Customer. Customer shall educate and train their restaurant managers in
how to run their point of sales. Customer will ensure that all third parties, including its employees or
contractors, using the Services or any components of Customer’s Standard Store Configuration abide by
Customer’s obligations under this Agreement in their use thereof. Any act or omission of any third party
related to Customer’s obligations hereunder or the use of any Services, Reports or Standard Store
Configuration shall be deemed to be the act or omission of Customer for all purposes whether or not
Customer had knowledge of or had authorized such act or omission.
3.
Price and Payment Terms. In consideration for the Services performed pursuant to this
Agreement, Customer shall pay EPL IT based upon the fees specified on the first page of this Agreement
(“Fees”) and any Other Fees as defined below. EPL IT reserves the right to increase the Fees at any time,
which would take effect upon the first day of the following month by providing Customer with thirty (30) days
prior written notice setting forth the adjustment to the Fees. EPL IT shall automatically debit Fees from
Customer’s account via ACH funds transfer in accordance with the terms indicated on the first page of this
Agreement. The first installment is due and payable on the first day of this Agreement. Subsequent
payments or account ACH funds transfers will be made according to the schedule specified under the terms
indicated on the first page of this Agreement. Customer shall reimburse EPL IT the following fees
collectively defined as (“Other Fees”) should they be incurred by Customer: (a) any reasonable and properly
documented out-of-pocket travel and living expenses incurred by EPL IT personnel during their performance
of the Services; (b) any reasonable and properly documented services and/or equipment, which EPL IT, or
their designated representative, determines, as its sole and absolute right, to be outside the scope of the
Services including, but is not limited to, (i) software license fees, (ii) software updates, (iii) hardware updates
associated with software updates, (iv) onsite services, (v) consulting services, (vi) equipment and any
associated shipping and handling charges incurred by EPL IT; and (c) the Professional service rates
described under Complete I.T. Operations Support plus materials charges incurred in the performance of
such services or if an outside designated representative is used, at the rate they charge plus materials
charges incurred in the performance of such services. Invoices for Other Fees shall be submitted to
Customer by EPL IT on a per incident basis. Customer may not withhold or set off any amounts due. EPL IT
shall automatically direct debit Other Fees from Customer’s account via ACH funds transfer upon advance
written notice via electronic mail to Customer. All sums payable to EPL IT shall be made in United States
dollars and due ten (10) days from the date of EPL IT's invoice should EPL IT be unable to direct debit Fees
from Customer’s account via ACH funds transfer. All amounts past due shall accrue interest from their due
dates at the rate of one and one-half percent (1.5%) per month or the maximum percentage allowable by law
(whichever is less). All amounts due (including the Fees) do not include any federal, state or local sales, use
or excise taxes or other charges assessed against or payable by
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 97 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EPL IT in connection with this Agreement, and Customer shall pay to EPL IT the amount of any such taxes
that EPL IT may be required to pay on account of its performance under this Agreement except for any
franchise tax or tax based upon EPL IT's net income or personal property. EPL IT reserves the right to
cease performance and assert appropriate liens if all amounts are not paid in full when due.
4.
Confidential & Proprietary Information. Each party shall maintain in strict confidence, and not
disclose or distribute to any third person any Confidential Information of the other party for a period of three
(3) years from the date of disclosure (except with respect to trade secrets, which shall be kept confidential
until no longer qualifying as a trade secret). “Confidential Information” shall mean the information disclosed
by either party pursuant to this Agreement that is (a) stamped or otherwise marked as being confidential by
the disclosing party, (b) if disclosed in oral form, identified as confidential at the time of oral disclosure and is
summarized by the disclosing party in a written memorandum marked as confidential and delivered within
ten (10) business days after such disclosure, or (c) of such a nature as to put a reasonable party on notice
as to the confidentiality of the information disclosed. Confidential Information does not include any
information that: (i) entered the public domain through no fault of the receiving party; (ii) is rightfully received
by the receiving party from a third party without similar non-disclosure obligations; (iii) is already known to
the receiving party prior to disclosure by the disclosing party; (iv) is independently developed by the
receiving party without reference to the Confidential Information of the disclosing party, or (v) is required to
be disclosed by law, provided that the party intending to make such required disclosure shall promptly notify
the other party of such intended disclosure in order to allow such party to seek a protective order or other
remedy. The obligations set forth above in this Section shall not affect EPL IT's ownership of Inventions (as
defined in Section 5) and all intellectual property rights therein, or EPL IT's full exercise of those Inventions
and intellectual property rights, so long as EPL IT does not disclose Customer's Confidential Information. All
Inventions shall constitute EPL IT’s Confidential Information.
5.
Proprietary Rights. EPL IT or its subcontractors or suppliers, as applicable, retain sole
ownership of all designs, engineering details, data, methodologies, ideas, concepts, discoveries, inventions,
improvements, works of authorship, technology or information. and all enhancements, modifications and
derivative works thereof (collectively, “Inventions”), and all intellectual property rights therein, used or
created by EPL IT or such subcontractors in the performance of the Services, and shall have the exclusive
right to determine how to protect the Inventions. Reports or other work product delivered by EPL IT to
Customer under this Agreement are provided to Customer with Limited Rights. “Reports” means the written
reports or work product specifically produced by EPL IT in performing the Services and specified to be an
item delivered to Customer. “Limited Rights” means the right of Customer to use the Reports in operating
Customer’s Standard Store Configuration for Customer’s own internal business purposes only, but in no
event the right to make copies, modifications, enhancements or derivative works thereof or resell, distribute,
exploit or sublicense such Reports or any portion thereof. EPL IT retains for itself, its parent company,
affiliates and subsidiaries, the right to retain and make copies of the Reports and to make use of the contents
thereof for its
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 98 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
and their business use and, as to any portion of such contents that is not Customer’s Confidential
Information, to make use thereof for any purpose, whether internal or otherwise.
6.
Limited Warranty. EPL IT warrants to Customer only that: (i) for a period of thirty (30) days
from the date of completion of its performance of a particular task under the Services, the particular task will
be performed in a good and workmanlike manner consistent with standard industry practices employed by
persons knowledgeable in the field of computers and within the limits of the technology embodied in the
Standard Store Configuration; and (ii) for a period of thirty (30) days from the date of delivery of a particular
Report, that Report will be free from material defects in workmanship and materials, and will conform in all
material respects to the applicable descriptions or specifications provided by EPL IT to Customer In the
event of a breach by EPL IT of the foregoing warranty of which Customer notifies EPL IT in writing during the
warranty period, EPL IT's sole obligation and Customer’s exclusive remedy shall be for EPL IT to use
commercially reasonable efforts to re-perform the task or to correct the portion of the Report that does not
conform to such warranty. In the event EPL IT is unable to re-perform such task or to make such
corrections, as applicable, the sole remedy of Customer and EPL IT' sole obligation shall be to recover the
compensation actually paid to EPL IT for the Service or the Report giving rise to such warranty failure. This
limited warranty with respect to any Services or Reports shall be voided in the event Customer: (i) makes
additions to, alters, modifies, enhances, changes, repairs or disassembles or reverse engineers the
Standard Store Configuration, or fails to maintain the Standard Store Configuration (or any component
thereof or any equipment or facilities upon which such component depends) in good working order or the
environmental conditions within the operating range specified by the manufacturer of the components in the
Standard Software Configuration or EPL IT; (ii) uses the Standard Store Configuration or any Report in a
manner for which it was not designed, or in an incompatible operating environment; or (iii) mishandles,
abuses, misuses or damages the Standard Store Configuration. THE LIMITED WARRANTY STATED IN
THIS SECTION AND THE REMEDIES FOR A FAILURE OR BREACH OF SUCH LIMITED WARRANTY
ARE EXCLUSIVE. THEY ARE GIVEN TO CUSTOMER IN LIEU OF ALL OTHER WARRANTIES, WRITTEN
OR ORAL, STATUTORY, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, THE IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ACCURACY,
QUIET ENJOYMENT, NON-INFRINGEMENT, OR COURSE OF PERFORMANCE OR DEALING, WHICH
EPL IT SPECIFICALLY DISCLAIMS.
7.
Limitation of Damages. IN NO EVENT SHALL EPL IT (OR ITS SUPPLIERS) BE LIABLE TO
CUSTOMER FOR LOST PROFITS, LOSS OR INTERRUPTION OF BUSINESS, LOSS OF DATA OR ANY
SPECIAL, INCIDENTAL, EXEMPLARY, PUNITIVE, CONSEQUENTIAL OR OTHER DAMAGES, HOWEVER
CAUSED, AND WHETHER BASED IN CONTRACT, TORT (INCLUDING NEGLIGENCE) OR ANY OTHER
THEORY OF LIABILITY. THE FOREGOING LIMITATION SHALL APPLY EVEN IF EPL IT (OR ITS
SUPPLIERS) KNOW OR HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE AND
NOTWITHSTANDING ANY FAILURE OR
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 99 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
ESSENTIAL PURPOSE OF ANY LIMITED REMEDY PROVIDED FOR HEREIN. EXCEPT IN RESPECT
OF INJURY TO OR DEATH OF ANY PERSON RESULTING FROM THE GROSS NEGLIGENCE OR
WILLFUL MISCONDUCT OF EPL IT, ITS EMPLOYEES, AGENTS OR SUBCONTRACTORS (FOR WHICH
NO LIMIT APPLIES), IN NO EVENT WILL EPL IT'S ENTIRE LIABILITY UNDER THIS AGREEMENT
EXCEED THE GREATER OF (A) THE FEES PAID TO EPL IT FOR THE AFFECTED SERVICE OR
REPORT UNDER THIS AGREEMENT OR (B) $5,000.00. IN NO EVENT SHALL EPL IT HAVE ANY
LIABILITY FOR ANY COMPONENT OF THE STANDARD STORE CONFIGURATION (AS DESCRIBED IN
THE EPL IT STANDARD SERVICES DESCRIPTION). IN ADDITION, EPL IT SHALL NOT BE LIABLE
UNDER ANY CLAIM BROUGHT UNDER ANY THEORY OF LAW THAT AROSE MORE THAN ONE (1)
YEAR PRIOR TO THE INSTITUTION OF SUIT THEREON. EPL IT SHALL NOT BE LIABLE FOR ANY
LOSS OR DAMAGE CAUSED BY DELAY IN FURNISHING ANY COMPONENT OF THE STANDARD
NETWORK OPERATING ENVIRONMENT, ANY REPORTS, ANY SERVICES, OR ANY OTHER
PERFORMANCE UNDER OR PURSUANT TO THIS AGREEMENT. EACH PARTY ACKNOWLEDGES
AND AGREES THAT THE FOREGOING LIMITATIONS ON LIABILITY ARE ESSENTIAL ELEMENTS OF
THE BASIS OF THE BARGAIN BETWEEN THE PARTIES AND THAT IN THE ABSENCE OF SUCH
LIMITATIONS, THE MATERIAL AND ECONOMIC TERMS OF THIS AGREEMENT WOULD BE
SUBSTANTIALLY DIFFERENT.
8.
Term & Termination. This Agreement shall commence on the term commencement date set
forth above and continue in effect through the expiration of the Franchise Agreement(s) or the earlier
termination of the Franchise Agreement(s) listed on Exhibit “A” attached hereto and incorporated herein by
reference.
9.
Default. If any material breach of this Agreement continues uncorrected for more than thirty
(30) days after written notice from the aggrieved party describing the breach, the aggrieved party shall be
entitled to declare a default, suspend performance, terminate this Agreement, and pursue any and all other
remedies available at law or equity, except as specifically limited elsewhere in this Agreement.
10.
Notices. Notices, authorizations and other official communications under this Agreement shall
be transmitted in writing by prepaid United States certified mail, return receipt requested, or overnight
receipted courier, to EPL IT, at the address and attention of the person set forth on the first page of this
Agreement for EPL IT and to Customer, to the billing address and attention of the person set forth on the first
page of this Agreement for Customer. Any notice given pursuant to this Section shall be deemed to have
been received, in the case of certified mail, on the date of receipt as evidenced by the U.S. Postal Service
return receipt card, and, in the case of overnight courier, on the next business day after sending, unless
documented otherwise by recipient. All notices must be in the English language.
11.
Assignment. Neither this Agreement nor any of the rights or obligations hereunder may be
assigned by either party, in whole or in part, without the prior written consent of the other party, such consent
not to be unreasonably withheld.
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 100 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Notwithstanding the preceding sentence, either party may assign this Agreement to its parent company or
another affiliated company without the consent of the other party but upon written notice to the other party;
provided that the successor unconditionally agrees in writing to be bound by the terms and conditions of this
Agreement.
12.
Subcontracting. EPL IT reserves the right to subcontract such portions of the Services to
subcontractors of EPL IT's choice as it deems appropriate, provided that no such subcontract shall relieve
EPL IT of primary responsibility for performance of such Services.
13.
Reserved Rights. EPL IT’s service offerings are continually evolving. Accordingly, EPL IT
reserves the right to make service substitutions and modifications and to modify or amend its standard
description of services for each Service Level at any time by publication including posting on its Website or
written notice to Customer. All Services will be delivered in English. EPL IT reserves the rights to charge
Customer if dispatch is required, or if the restaurant support center receives excessive training calls as
described under Franchise Support Options – Fee Schedule.
14.
Indemnification. Each party shall indemnify, defend and hold harmless the other with respect
to any third party claim alleging bodily injury, including death, or damage to tangible property, to the extent
such injury or damage is caused by the gross negligence or willful misconduct of the indemnifying party.
Customer shall indemnify, defend and hold harmless EPL IT, at Customer’s expense, from and against any
action brought against EPL IT by a third party, to the extent that such action is based on a claim relating to
Customer’s Standard Store Configuration, Data or the performance of Services hereunder. A condition
precedent to any obligation of a party to indemnify shall be for the other party to promptly advise in writing
the indemnifying party of the claim and turn over its defense. The party being indemnified must cooperate in
the defense or settlement of the claim, but the indemnifying party shall have sole control over the defense or
settlement. If the defense is properly and timely tendered to the indemnifying party, then the indemnifying
party must pay all litigation costs, reasonable attorney's fees, settlement payments agreed to by the
indemnifying party and any damages finally awarded by a court; provided, however, that this shall not be
construed to require the indemnifying party to reimburse attorney's fees or related costs that the indemnified
party incurs either to fulfill its obligation to cooperate, or to monitor litigation being defended by the
indemnifying party.
15.
Independent Contractor. Nothing in this Agreement shall be interpreted or construed so as to
create any relationship between the parties other than that of independent contracting entities. Neither party
shall be authorized to obligate, bind or act in the name of the other party, except to the extent EPL IT is
expressly authorized to do so in this Agreement.
16.
Non-Solicitation. Customer shall not solicit or otherwise seek, directly or indirectly, to induce
any of EPL IT’s employees or contractors to work for Customer for a period of one (1) year after the
employee or contractor ceases to be employed or
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 101 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
otherwise utilized by EPL IT or one (1) year after the termination of this Agreement, whichever is greater.
Prohibited solicitation includes, but is not limited to, the direct solicitation of any individual or contracting with
a third party to intentionally solicit an individual covered by this Section.
17.
Similar Services. Customer acknowledges that EPL IT is free to offer services or work product
similar to the Services or Reports to other EPL IT customers or third parties without restriction or royalty to
Customer.
18.
Applicable Law. The rights and obligations of the parties and all interpretations and
performance of this Agreement shall be governed in all respects by the laws of the State of California except
for its rules with respect to the conflict of laws.
19.
Force Majeure. In no event shall either party have any liability for failure to comply with this
Agreement if such failure results from the occurrence of any contingency beyond the reasonable control of
the party and which delays, interrupts or prevents such party from performing its obligations under this
Agreement, including, without limitation, strike or other labor disturbance or shortage, riot, theft, flood,
lightning, storm, any act of God, power failure, war, delays or failure of third party equipment, software or
service suppliers, national emergency, interference by any government or governmental agency, embargo or
seizure. The party affected by a force majeure event shall give notice thereof to the other party within ten
days following the occurrence thereof and shall apprise the other party of the probable extent to which the
affected party will be unable to perform or will be delayed in performing its obligations hereunder. The
affected party shall exercise due diligence to eliminate or remedy the force majeure cause and shall give the
other party prompt notice when that has been accomplished. Except as provided herein, if performance of
this Agreement by either party is delayed, interrupted or prevented by reason of any event of force majeure,
both parties shall be excused from performing hereunder while and to the extent that the force majeure
condition exists after which the parties’ performance shall be resumed.
20. Waiver. Failure by either party to require performance by the other party or to claim a breach
of any provision of this Agreement will not be construed as a waiver of any right accruing hereunder or of
any subsequent breach, and will not affect the effectiveness of this Agreement or any part hereof, or
prejudice either party regarding any subsequent action.
21.
Invalidity. If any provision of this Agreement is held invalid, the remaining provisions shall
continue in full force and effect and the parties shall substitute for the invalid provision a valid provision which
most closely approximates the economic effect and intent of the invalid provision.
22.
Attorneys’ Fees. In any dispute or litigation between the parties, the prevailing party shall be
entitled to reasonable attorneys’ fees and all costs of proceedings incurred in enforcing this Agreement.
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 102 of 105
23.
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Entire Agreement. This Agreement constitutes the entire agreement between EPL IT and
Customer with respect to the subject matter hereof and supersedes all previous negotiations, proposals,
commitments, writings, advertisements, publications and understandings of any nature and in any manner
whatsoever relating thereto but does not amend or supersede any Franchise Agreement between EPL and
Customer. No agent, employee or representative of EPL IT has any authority to bind EPL IT to any
affirmation, representation, or warranty concerning the Services and unless such affirmation, representation
or warranty is specifically included within this Agreement, it shall not be enforceable by Customer or any
assignee or sublicensee of Customer. Any terms and conditions on any Customer purchase order form or
other document issued by Customer to implement this Agreement that are in addition to or in conflict with the
terms and conditions of this Agreement shall be null and void, even if acknowledged in writing by EPL IT.
This Agreement may be executed in two or more counterparts, each of which shall be deemed an original
and all of which together shall constitute one instrument. A signature on this Agreement transmitted via
facsimile or electronic mail/PDF or equivalent, electronic signature (such as DocuSign, or equivalent), shall
be treated as originals.
EPL IT STANDARD SERVICES DESCRIPTIONS
(Date: March 30, 2021)
For a current/updated EPL IT Standard Services Descriptions, click on:
Platinum Service Descriptions
Unlimited number of calls per month per store
Standard Store Configuration includes:
● Back of house system
● Two front counter POS terminals with receipt printers
● Two drive thru POS terminals with receipt printer
● Four KDS systems (four monitors and four controllers)
● BROADBAND Wide Area Network connection, router and firewall
● All local area network components including equipment rack, UPS, patch panel, patch cords,
cabling infrastructure and data jacks
● Normal Business Hours are 8:00 A.M. to 5:00 P.M., Pacific Time Monday through Friday
excluding EPL IT’s normal published holidays and schedule downtimes for maintenance and
support*
● Backup internet
● WIFI (Consumer/Guest and Internal)
● Android Tablet (e.g., Samsung Galaxy Tab A)
● Optional - Three (3) digital menu boards (three (3) panels and three (3) controllers)
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 103 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
COMPLETE I.T. OPERATIONS SUPPORT
Hardware Service and Support:
Restaurant POS Equipment: Helpdesk will initiate advance depot repair and/or replacement for all POS
hardware, including back of house server, KDS system, front of house terminals and cash drawers, receipt
printers, network switch, UPS, (digital menu boards and controllers if requested by Customer) and line
conditioners will be supported through an approved depot partner. Customer may enroll in the depot
warranty program offered. Customer must notify EPL IT in writing at least 30 days prior to any changes in
hardware support agreements Customer has established. Equipment replaced via our current approved
depot partner “Washburn” is covered against breakage for 90 days after replacement depot processing.
Customer is responsible for all costs associated with depot or any other hardware provider. All depot
payments are processed directly to Customer accounts setup with the depot company directly. Customer
may opt to maintain hardware support agreements with Micros or any other hardware provider at their own
discretion. The EPL helpdesk will support full dispatch and implementation management of Customer that
opt into the Washburn depot program. The EPL helpdesk will NOT support any hardware related issues for
Customers that are not using an approved depot partner.
Software Service and Support includes:
● Micros Enterprise Management, currently version 5.7
● Patching of installed MyEpl.Net Web Based Portal
● Patching of critical security updates for installed operating system, currently version Windows
10 Professional
● Current updates on antivirus software
● Current updates on anti-malware software
● Endpoint DLP (data loss protection) which includes white listing
● Software disaster recovery tool
● Proactive monitoring via EPL Alerts program
● LMS (EDUonGO learning management solution)
● WIFI Cloud Management / Consumer WIFI
● Digital Menu Board management / price integration
Credit Card Processing includes:
● Acceptance of Visa, MasterCard, American Express and Discover
● Secure high speed credit card authorization as primary
● Secure low speed credit card authorization as backup
● NFC Payments (Apple Pay/Android Pay/Samsung Pay)
● Gift card Processing
Payment Card Industry (“PCI”) Program includes:
● Educating EPL Franchisees about cardholder data security, the Payment Card Industry (“PCI”)
Data Security Standard (“DSS”) and PCI DSS
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 104 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
compliance
● Providing Automated Quarterly Network Scanning of stores for potential security issues.
● Executing a compliance strategy that helps to:
o Eliminate the storage of prohibited data
o Protect stored data
o Secure the merchant network environment via compliance with the PCI DSS
o Identify the payment applications used and ensures merchants use or switch to Payment
Application (“PA”) that comply with the PA-DSS
● Tracking and reporting on the program’s progress each month
Firewall Service and Support includes:
● Repair and/or replacement cost of firewall
● Software maintenance on firewall
● Remote monitoring of up/down state
● Latest security updates to prevent unauthorized intrusion attacks
● Quarterly PCI Scanning
● WIFI Firewall / SSID Configuration
Broadband WAN Service and Support includes:
● High speed access to all credit card processing
● High speed access to MyEpl.net Portal
● Does not include unrestricted Internet access
● 24x7 active monitoring and alerting
Helpdesk includes:
● 7:00 am to 12:00 am** Helpdesk via a toll free number 1-888-POLLO-IT
● Single point of contact for hardware and cabling dispatch
● Menu changes***
● Pricing adjustments***
● Full portal support
● WAN troubleshooting and support
● Support on all IT and POS issues
MyEpl.Net Portal Service and Support includes:
● Access to standard corporate reporting
● Near real time sales performance data for all stores
Professional Service includes:
● Any service outside of the scoop of this Agreement will be billing at the following rates:
● Helpdesk rate $60 per hour
● Networking rate $120 per hour
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 105 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
● Development rate $120 per hour
* Business hours are subject to change
** Helpdesk hours are subject to change
*** Does not include Tax changes. Customer acknowledges and agrees that the data entered by EPL IT is
on behalf of Customer. Customer acknowledges and agrees that it is their responsibility to verify the
accuracy of the data inputted by EPL IT and also to maintain and update the data as needed. Any
maintenance and/or updates Customer wishes EPL IT to perform must be communicated to EPL IT in writing
in order for EPL IT to perform the maintenance and/or updates.
Franchise Support Options – Fee Schedule*
Service Description
Oracle Micros SEL
Quarterly PCI Scanning
Unlimited Number of Calls for Helpdesk Support
including Credit Card Support
MyEpl.Net
Backup Internet (3G or LTE)
Network Management Fee
Mobile Device Management (Per Tablet)
Firewall Licensing 1
WIFI Controller (2 Access Points)
Learning Management Platform
Monthly Cost per Store 2
Broadband WAN 3
Digital Menu Board 4
Annual Cost*
$324
$300**
$2,004
$600
$300
$300
$36
$462
$135
$228
$1,188
$672
Monthly
Cost*
$27
$25**
$167
$50
$25
$25
$3
$40
$11.25
$19
$365.25
$99
$56
Beyond Software 5
$720
$60
Platinum
Support
Option
Yes
Yes
Payable to:
EPL
EPL
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
EPL
EPL
EPL
EPL
EPL
EPL
EPL
EPL
EPL
EPL
NOTE: Mixed services not allowed. All service levels must be the same for all stores per Franchisee.
*All fees listed in this Fee Schedule may change depending on vendor price changes.
**The Annual Cost/Monthly Cost listed for Complete Firewall Service and Support and Quarterly PCI
Scanning. However, this fee may range up to $20 depending on vendor price increases. There may be
additional charges if any remediation is required.
1 Cloud hosted and managed firewalls require licensing fees. These costs are pass-
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 106 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
through costs from the EPL approved licensing provider. The costs may actually be different than the
amount shown due to price changes by vendor.
2 Monthly rate based on standard store configuration. Support cost for non-standard configuration subject to
change, based on actual hardware deployed.
3 BROADBAND service cost is approximate and subject to increase if 2Mx1M Broadband is not available.
Services subject to additional costs are wireless broadband, business class cable, and Fractional or full T1.
These costs are pass-through costs from the EPL approved broadband provider. The costs may actually be
different than the amount shown due to price changes by vendor.
4 Optional Digital Menu Board fees are determined by the count of digital menu panels. Each digital
menu/preview board carries a vendor fee of $14 per panel. The costs may actually be different than the
amount shown due to price changes by vendor and depending on the number of panels used.
5 Beyond software fees are $60 per month per restaurant location for application hosting and support. The
fees will increase to $75 per month per restaurant location in 2022; $90 per month per restaurant location in
2023 and $110 per month per restaurant location in 2026. Beyond offers inventory, ordering, temperature
line checks, log scheduling, and reports. The costs may actually be different than the amount shown due to
price changes by vendor.
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 107 of 105
EXHIBIT 8: GENERAL RELEASE
This General Release (“General Release”) is made effective _________________, 20__, by the
undersigned, ____________________________________, a _______________ (referred herein after as
the “Franchisee”).
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
of
El
Pollo
Loco,
corporation
consideration
a Delaware
In
(“Franchisor”):
Inc.,
__________________________________; and other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, Franchisee hereby waives, releases, and forever discharges
Franchisor, and all Franchisor’s affiliates, and all the respective directors, officers, employees, attorneys,
representatives and agents of said corporations, as well as parent corporations, subsidiaries, affiliates and
any other legal entities which it owns or controls, individually or jointly, from any and all obligations, liabilities,
claims, demands, actions and causes of action in law or in equity of whatsoever kind or nature arising prior
to and including the date hereof, which Franchisee now has or may hereafter have by reason of any act,
omission, event, deed or course of action having taken place, or which should have taken place, or on
account of or arising out of any claimed violation of the Franchise Agreement, any claim for breach of any
other express or implied agreement, claim for breach of any implied violation of the covenant of good faith
and fair dealing or any other claims which relate or refer in any way to the relationship between Franchisor
and Franchisee which arises on or before the date hereof insofar as said claims relate to the Franchise
Agreement or any other agreement between Franchisee and Franchisor, any claim arising under or alleged
violation of the California Franchise Relations Act, any Federal antitrust law or State antitrust law except as
prohibited by law.
This General Release extends to claims arising from representations made by the Franchisor in the
Franchise Disclosure Document except as prohibited by law. Furthermore, it is expressly acknowledged by
each of the undersigned that any and all rights granted under Section 1542 of the California Civil Code are
hereby expressly waived. Such statute reads as follows:
“Section 1542.
A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release which if known by him
must have materially affected the settlement with the debtor.”
Releasors voluntarily waive all benefits and protections of Civil Code Section 1542, and any comparable law,
and intend the release above to apply to known and unknown claims alike.
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 108 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
This General Release may be executed in two or more counterparts, each of which shall be deemed an
original but all of which together shall constitute a single instrument. A signature on this General Release
transmitted via facsimile or electronic mail/PDF or equivalent, electronic signature (such as DocuSign, or
equivalent), shall be considered an original for all purposes hereunder.
IN WITNESS WHEREOF each of the parties either personally or through its duly authorized signatory, as
applicable, has executed this General Release effective as of the date(s) written below.
FRANCHISEE:
If an entity:
___________________, a ______________
By:
Name:
Title:
Date:
If an individual:
________________________, an Individual
By:
Name:
Title:
Date:
An Individual
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
General Release - Page 109 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EXHIBIT 9: CONSENT TO AND ASSIGNMENT OF FRANCHISE RIGHTS
A: To be Used for a Change of Ownership Interests in Franchisee
This Consent to and Assignment of Franchise Rights (the "Consent Agreement") is made as of this day
of ____________, 20___ by and between EL POLLO LOCO, INC., a Delaware corporation (“Franchisor”),
________________________, a ___________ (the "Assignor") and ________________________, a
_________ (the "Assignee").
RECITALS
A.
Franchisor and Assignor are parties
that certain Franchise Agreement dated
_________________________ (the "Franchise Agreement") pertaining to the operation of the El Pollo
Loco restaurant located at _____________________ (the "Restaurant").
to
B.
Assignor desires to assign all of his title, rights, privileges and interests and obligations under
the Franchise Agreement to Assignee and to sell, transfer, and convey all of his title, rights, privileges, and
interests to the Assets of the Restaurant to Assignee, all in accordance with the assignment provisions of the
Franchise Agreement.
C.
The Franchise Agreement requires that Assignor first obtain written consent of Franchisor
before undertaking any assignment of the Franchise Agreement or sale of the assets of the Restaurant.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as
follows:
1.
Recitals A through C above are incorporated herein and by this reference made a part of this
Consent Agreement.
2.
Subject to the terms and conditions set forth herein, and upon the payment to Franchisor of a
transfer fee of __________________ Dollars ($____,000.00), Franchisor does hereby consent to the
assignment by Assignor to Assignee of all of Assignor's rights, privileges, interests, and obligations under the
Franchise Agreement.
3.
Assignee shall execute the current form of Franchise Agreement (the "Current Franchise
Agreement") for a term which coincides with the initial term of the Franchise Agreement and for which there
shall be no initial franchise fee; and Assignee covenants, warrants and agrees that, as of the date hereof, all
of the obligations, liabilities and provisions of the Current Franchise Agreement shall be fully performed and
complied with by Assignee in its capacity as "Franchisee" under the Current Franchise Agreement, including,
but not limited to, payment in full of all obligations to Franchisor and to third parties arising from the
existence, operation, or maintenance of the Restaurant.
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 110 of 105
4.
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
If there are remodel requirements the following language will be used: “Assignee
covenants, warrants and agree that the required reimage and/or remodel requirements, will be completed to
the satisfaction of Franchisor no later than ninety (90) days after the date of transfer of the Restaurant
operation from Assignor to Assignee ("Changeover Date"). Assignee agrees that such required reimage
and/or remodel requirements will not be considered complete until Franchisor has agreed to the final
completion in writing. Should the required reimage and/or remodel of the Restaurant not be completed to
Franchisor’s satisfaction, then Franchisor may terminate the Current Franchise Agreement under Section 18,
entitled Default and Termination”. If there are no remodel requirements the above language will be
replaced with: “Franchisor acknowledges and agrees that as of the date of this Consent Agreement, there
are no remodel requirements to be completed prior to the transfer of the Restaurant from Assignor to
Assignee.”
5.
Assignee acknowledges and warrants:
a.
that the Current Franchise Agreement and any related franchise disclosure documents,
manuals, lists, forms and other documents previously transmitted to Assignee have been fully read and
understood;
b.
that Assignee is knowledgeable and experienced in regard to the operation of an El
Pollo Loco restaurant and the Franchisor operating system;
c.
that Assignee agrees to undertake, in accordance with the terms of the Current
Franchise Agreement, such training as Franchisor may deem appropriate in connection with the operation
and maintenance of the Restaurant;
d.
that Assignee is fully aware that the initial term of the Current Franchise Agreement will
expire on _____________________, and has no renewal option periods and the Current Franchise
Agreement does not grant Assignee any territorial right or licenses, exclusive or otherwise; and
e.
that as of the date of this Consent Agreement, the ownership interest in Assignee is
divided as follows:
(i) ____________ - ____%
(ii) ____________ - ____%
f.
that Assignee has conducted an independent study of the Restaurant, including
consideration of any sales, profits or earnings figures that may have been made available to Assignee by or
on behalf of Assignor, and in entering into this Agreement, Assignee relies solely upon such independent
knowledge and in no respect has Assignee relied upon any representation, statement, endorsement or
promise, either oral or written, by or on behalf of Franchisor.
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 111 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
6.
Release.
a.
In consideration of the consent by Franchisor granted herein, Assignor and Assignee
(collectively “Releasors”) do each hereby waive, release and forever discharge Franchisor, and all of
Franchisor's affiliates, and all the respective directors, officers, employees, attorneys, representatives, and
agents of said corporations, as well as parent corporations, subsidiaries, affiliates and any other legal entities
which it owns or controls, individually or jointly, from any and all obligations, liabilities, claims, demands,
actions and causes of action in law or in equity of whatsoever kind or nature arising prior to and including the
date hereof, which Releasors now have or may hereafter have by reason of any act, omission, event, deed
or course of action having taken place, or which should have taken place, or on account of or arising out of
any claimed violation of the Franchise Agreement or the Current Franchise Agreement, any claim for breach
of any other express or implied agreement, claim for breach of any implied violation of the covenant of good
faith and fair dealing or any other claims which relate or refer in any way to the relationship between
Franchisor and Assignee or Franchisor and Assignor or Assignor and Assignee which arises on or before the
date hereof insofar as said claims relate to the Franchise Agreement, or the Current Franchise Agreement,
or the Consent Agreement, and to the extent allowed by law, any claim for breach of the assignment of
Assignor's title, rights, privileges, interests, and obligations under the Franchise Agreement as contemplated
in this Consent Agreement, or any other agreement between Releasors (or any of them) and Franchisor, any
claim arising under or alleged violation of the California Franchise Relations Act, any Federal antitrust law or
State antitrust law except as prohibited by law.
b.
This general release does not extend to claims arising from representations made by the
Franchisor in the Franchise Disclosure Document. Furthermore, it is expressly acknowledged by each of the
undersigned that any and all rights granted under Section 1542 of the California Civil Code are hereby
expressly waived. Such statute reads as follows:
"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if known by him
must have materially affected his settlement with the debtor."
c.
Releasors voluntarily waive all benefits and protections of Civil Code Section 1542, and
any comparable law, and intend the release above to apply to known and unknown claims alike.
7.
Assignor and Assignee understand and agree that Assignor shall remain secondarily liable in
the event of any default by the Assignee under the Current Franchise Agreement, and that by entering into
this Consent Agreement, Assignor and Assignee fully and unconditionally guarantee the Assignee's
performance and compliance in all respects with the obligations, liabilities and provisions thereunder;
provided, however, that this guarantee shall not extend to any default of non-compliance with the obligations,
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 112 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
liabilities, and provisions of the Current Franchise Agreement by Assignee during any extension of the initial
term of the Current Franchise Agreement. Assignor further understands and agrees that, to the extent
principals of Assignor have personally guaranteed the performance of Assignor under the terms and
conditions of the Current Franchise Agreement, such personal guarantee shall NOT be modified by this
Consent Agreement and any such guarantors shall not be released from liability of any kind or nature by the
terms of this Consent Agreement. Franchisor agrees that a copy of any notice of default given to Assignee
by Franchisor shall also be concurrently given to Assignor.
8.
Unless Assignee is currently the franchisee of another El Pollo Loco restaurant, Assignor shall
train, at Assignor's expense, Assignee and up to two (2) of Assignee's managers prior to Assignee's
takeover of the operation of the Restaurant from Assignor, in order to train Assignee in the Franchisor
operating system. Such training must be completed to Franchisor's satisfaction prior to turning over the
running of the Restaurant to Assignee. In the event that Assignor wishes Franchisor to train Assignee's
personnel in the Franchisor operating system, Assignor shall reimburse Franchisor for the cost of such
training.
9.
Assignor agrees to grant permission to Assignee for Assignee to access the historical sales
and transactional information belonging to Assignor as stored in Assignor’s Point of Sale system (“POS”)
prior to the effective date of this Consent Agreement.
10.
Franchisor's consent to the assignment of Assignor's rights and obligations under the
Franchise Agreement and the assets of the Restaurant is expressly contingent upon Assignor paying and
discharging all obligations incurred in Assignor's operation of the Restaurant prior to the Changeover Date
including, but not limited to, the following:
a.
to
Any unpaid amounts owed Franchisor under monthly franchise billing statements for
to be
periods up
_____________Dollars ($_____) and shall be payable through escrow, by cashier's check or by direct debit
(ACH) to Franchisor. If the Changeover Date is not ______________, 20___, the estimate should be
adjusted by _____________Dollars ($_____) per diem;
through __________, 20___ are estimated
the Changeover Date which,
b.
Taxes due or accrued and unpaid, including, but not limited to, the sales tax on food and
consumables sold in the Restaurant;
c.
Any federal, state or local taxes required to be withheld from employees' salaries and
wages; and
d.
Any and all amounts due suppliers and vendors to the Restaurant.
11. Within thirty (30) days following the Changeover Date, Franchisor shall prepare and submit to
Assignor a final accounting for sums due together with a check for
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 113 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
any sums due Assignor or a statement for any sums due Franchisor. In connection with such accounting,
Franchisor shall have the right, without the obligation, to pay any bills incurred by Assignor prior to the
Changeover Date and to add amounts so paid to amounts charged Assignor in such accounting. As of the
Changeover Date, Assignee shall assume total responsibility for the operation of, and shall be solely
responsible for, any obligations incurred in connection with the Restaurant prior to the Changeover Date in
the event that such obligations have not been satisfied by Assignor.
12.
This Consent Agreement shall inure to the benefit of the successors and assigns of Franchisor,
and to any and all of its affiliates, parents and subsidiaries, and shall be binding upon the heirs,
representatives, successors and assigns of Assignor and Assignee.
13.
Except as modified herein, all the terms and conditions of the Franchise Agreement shall be
unaffected and remain in full force and effect.
14.
The parties hereto acknowledge that they have read and fully understand the provisions of this
Consent Agreement and that said provisions constitute a complete and exclusive expression of its terms and
conditions.
15.
The parties executing this Consent Agreement on behalf of Assignee or Assignor hereby
represent and warrant that: (a) they have the full power, right and authority to enter into and execute this
Consent Agreement; and (b) those persons whose signatures are hereinafter evidenced on this Consent
Agreement on behalf of Assignee or Assignors are duly authorized signatories of Assignee or Assignors,
fully empowered to commit and bind Assignee or Assignors to those certain terms, covenants and conditions
set forth herein.
16.
If either party is a business organization, the party is duly organized and qualified to do
business in the state and any other applicable jurisdiction within which the Restaurant is located.
17.
This Consent Agreement shall not be binding upon Franchisor unless and until it shall have
been accepted and signed by an authorized officer of Franchisor.
18.
This Consent Agreement may be executed in one or more counterparts, each of which will
constitute an original, but all of which together will constitute but a single document. It shall not be
necessary for Franchisor, Assignors and Assignee to execute the same counterpart(s) of this Consent
Agreement for this Consent Agreement to become effective. A signature on this Consent Agreement
transmitted via facsimile or electronic mail/PDF or equivalent, electronic signature (such as DocuSign, or
equivalent), shall be considered an original for all purposes hereunder.
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 114 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
IN WITNESS WHEREOF, the parties hereto have executed this Consent Agreement as of the date(s) written
below.
FRANCHISOR:
EL POLLO LOCO, INC., a Delaware Corporation
ASSIGNOR:
____________________________,
a___________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
ASSIGNEE:
__________________, a ____________
By:
Name:
Title:
Date:
B: To be Used for an Entity Change by Franchisee
This Consent to and Assignment of Franchise Rights (the "Consent Agreement") is made as of this day
of ____________, 20___ by and between EL POLLO LOCO, INC., a Delaware corporation (“Franchisor”),
________________________, a _________ (the "Assignor") and ___________________, a ________ (the
"Assignee").
RECITALS
A.
Franchisor and Assignor are parties
that certain Franchise Agreement dated
_________________________ (the "Franchise Agreement") pertaining to the operation of the El Pollo
Loco restaurant located at _____________________ (the "Restaurant").
to
B.
Assignor desires to assign all of his title, rights, privileges and interests and obligations under
the Franchise Agreement to Assignee and to sell, transfer, and convey all of his title, rights, privileges, and
interests to the Assets of the Restaurant to Assignee, all in accordance with the assignment provisions of the
Franchise Agreement.
C.
The Franchise Agreement requires that Assignor first obtain written consent of Franchisor
before undertaking any assignment of the Franchise Agreement or sale of the assets of the Restaurant.
NOW, THEREFORE, in consideration of the mutual covenants contained herein, the parties agree as
follows:
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 115 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
1.
Recitals A through C above are incorporated herein and by this reference made a part of this
Consent Agreement.
2.
Subject to the terms and conditions set forth herein, and upon the payment to Franchisor of an
entity fee of Five Hundred Dollars ($500.00), Franchisor does hereby consent to the assignment by
Assignor to Assignee of all of Assignor's rights, privileges, interests, and obligations under the Franchise
Agreement.
3.
Assignee covenants, warrants and agrees that, as of the date hereof, all of the obligations,
liabilities and provisions of the Franchise Agreement shall be fully performed and complied with by Assignee
in its capacity as "Franchisee" under the Franchise Agreement, including, but not limited to, payment in full of
all obligations to Franchisor and to third parties arising from the existence, operation, or maintenance of the
Restaurant.
4.
Assignee acknowledges and warrants:
a.
that the Franchise Agreement and any related franchise disclosure documents,
manuals, lists, forms and other documents previously transmitted to Assignee have been fully read and
understood;
b.
that Assignee is knowledgeable and experienced in regard to the operation of an El
Pollo Loco restaurant and the Franchisor operating system;
c.
that Assignee is fully aware that the initial term of the Franchise Agreement will expire
on _____________________, and has no renewal option periods and the Franchise Agreement does not
grant Assignee any territorial right or licenses, exclusive or otherwise; and
d.
that as of the date of this Consent Agreement, the ownership interest in Assignee is
divided as follows:
(i) ____________ - ____%
(ii) ____________ - ____%
5.
Release.
a.
In consideration of the consent by Franchisor granted herein, Assignor and Assignee
(collectively “Releasors”) do each hereby waive, release and forever discharge Franchisor, and all of
Franchisor's affiliates, and all the respective directors, officers, employees, attorneys, representatives, and
agents of said corporations, as well as parent corporations, subsidiaries, affiliates and any other legal entities
which it owns or controls, individually or jointly, from any and all obligations, liabilities, claims, demands,
actions and causes of action in law or in equity of whatsoever kind or nature arising prior to and including the
date hereof, which Releasors now have or may hereafter have by reason of any act, omission, event, deed
or course of action
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 116 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
having taken place, or which should have taken place, or on account of or arising out of any claimed
violation of the Franchise Agreement or the Current Franchise Agreement, any claim for breach of any other
express or implied agreement, claim for breach of any implied violation of the covenant of good faith and fair
dealing or any other claims which relate or refer in any way to the relationship between Franchisor and
Assignee or Franchisor and Assignor or Assignor and Assignee which arises on or before the date hereof
insofar as said claims relate to the Franchise Agreement, or the Current Franchise Agreement, or the
Consent Agreement, and to the extent allowed by law, any claim for breach of the assignment of Assignor's
title, rights, privileges, interests, and obligations under the Franchise Agreement as contemplated in this
Consent Agreement, or any other agreement between Releasors (or any of them) and Franchisor, any claim
arising under or alleged violation of the California Franchise Relations Act, any Federal antitrust law or State
antitrust law except as prohibited by law.
b.
This general release does not extend to claims arising from representations made by the
Franchisor in the Franchise Disclosure Document. Furthermore, it is expressly acknowledged by each of the
undersigned that any and all rights granted under Section 1542 of the California Civil Code are hereby
expressly waived. Such statute reads as follows:
"A general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if known by him
must have materially affected his settlement with the debtor."
c.
Releasors voluntarily waive all benefits and protections of Civil Code Section 1542, and
any comparable law, and intend the release above to apply to known and unknown claims alike.
6.
Assignor and Assignee understand and agree that Assignor shall remain secondarily liable in
the event of any default by the Assignee under the Franchise Agreement, and that by entering into this
Consent Agreement, Assignor and Assignee fully and unconditionally guarantee the Assignee's performance
and compliance in all respects with the obligations, liabilities and provisions thereunder; provided, however,
that this guarantee shall not extend to any default of non-compliance with the obligations, liabilities, and
provisions of the Franchise Agreement by Assignee during any extension of the initial term of the Franchise
Agreement. Assignor further understands and agrees that, to the extent principals of Assignor have
personally guaranteed the performance of Assignor under the terms and conditions of the Franchise
Agreement, such personal guarantee shall NOT be modified by this Consent Agreement and any such
guarantors shall not be released from liability of any kind or nature by the terms of this Consent Agreement.
Franchisor agrees that a copy of any notice of default given to Assignee by Franchisor shall also be
concurrently given to Assignor.
7.
Assignor agrees to grant permission to Assignee for Assignee to access the historical sales
and transactional information belonging to Assignor as stored in
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 117 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Assignor’s Point of Sale system (“POS”) prior to the effective date of this Consent Agreement.
8.
Franchisor's consent to the assignment of Assignor's rights and obligations under the
Franchise Agreement and the assets of the Restaurant to Assignee is expressly contingent upon: (i)
Assignor paying and discharging all obligations incurred in Assignor's operation of the Restaurant prior to the
date of transfer of the Restaurant operation from Assignor to Assignee (“Changeover Date”); and (ii)
Assignee shall assume total responsibility for the operation of, and shall be solely responsible for, any
obligations incurred in connection with the Restaurant prior to the Changeover Date in the event that such
obligations have not been satisfied by Assignor.
9.
This Consent Agreement shall inure to the benefit of the successors and assigns of Franchisor,
and to any and all of its affiliates, parents and subsidiaries, and shall be binding upon the heirs,
representatives, successors and assigns of Assignor and Assignee.
10.
Except as modified herein, all the terms and conditions of the Franchise Agreement shall be
unaffected and remain in full force and effect.
11.
The parties hereto acknowledge that they have read and fully understand the provisions of this
Consent Agreement and that said provisions constitute a complete and exclusive expression of its terms and
conditions.
12.
The parties executing this Consent Agreement on behalf of Assignee or Assignor hereby
represent and warrant that: (a) they have the full power, right and authority to enter into and execute this
Consent Agreement; and (b) those persons whose signatures are hereinafter evidenced on this Consent
Agreement on behalf of Assignee or Assignors are duly authorized signatories of Assignee or Assignors,
fully empowered to commit and bind Assignee or Assignors to those certain terms, covenants and conditions
set forth herein.
13.
If either party is a business organization, the party is duly organized and qualified to do
business in the state and any other applicable jurisdiction within which the Restaurant is located.
14.
This Consent Agreement shall not be binding upon Franchisor unless and until it shall have
been accepted and signed by authorized officers of Franchisor.
15.
This Consent Agreement may be executed in one or more counterparts, each of which will
constitute an original, but all of which together will constitute but a single document. It shall not be
necessary for Franchisor, Assignors and Assignee to execute the same counterpart(s) of this Consent
Agreement for this Consent Agreement to become effective. A signature on this Consent Agreement
transmitted via facsimile or electronic mail/PDF or equivalent, electronic signature (such as DocuSign, or
equivalent), shall be considered an original for all purposes hereunder.
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 118 of 105
IN WITNESS WHEREOF, the parties hereto have executed this Consent Agreement as of the date(s) written
below.
FRANCHISOR:
EL POLLO LOCO, INC., a Delaware Corporation
ASSIGNOR:
____________________________,
a_____________
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
ASSIGNEE:
__________________, a ____________
By:
Name:
Title:
Date:
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Consent to and Assignment of Franchise Rights - Page 119 of 105
EXHIBIT 10: AMENDMENT TO FRANCHISE AGREEMENT TO APPLY DEVELOPMENT FEE
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
This Amendment to the Franchise Agreement to Apply Development Fee (“Amendment”) is made on
_____________,____ by and among EL POLLO LOCO, INC., a Delaware corporation (“Franchisor”) and
____________________, a__________ ("Franchisee").
RECITALS:
A.
Franchisor and Franchisee are simultaneously entering into this Amendment to Franchise Agreement
and a Franchise Agreement (“Franchise Agreement”) for an El Pollo Loco® restaurant located at
_____________________________ (“Restaurant”).
B.
Franchisor and _________________________ (“Developer”) entered into Franchise Development
Agreement (#_____________) dated ______________ (“Development Agreement”) for the Territory as set
forth on Exhibit A to be developed as set forth in the Development Schedule as set forth on Exhibit B of the
Development Agreement. Developer is an affiliate of Franchisee.
Franchisor and Franchisee wish to modify the terms of the Franchise Agreement as described in this
C.
Amendment.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises and covenants of the parties hereto, the
parties agree as follows:
Recitals. Franchisor and Franchisee acknowledge and agree with all of the above listed recitals
1.
which are incorporated herein to this Amendment.
2.
Application of Development Fee towards the Initial Franchise Fee for the Franchise Agreement
for the Restaurant. Per the Development Agreement, Developer paid Twenty Thousand Dollars ($20,000)
in Development Fees to be applied towards the Initial Franchise Fee for the Franchise Agreement for the
Restaurant developed under the Development Agreement. This payment has been applied to the Initial
Franchise Fee for this Franchise Agreement. Franchisee will pay the balance of _______ Thousand Dollars
($_________) in full within thirty (30) days of delivery of execution copies of this Agreement to Franchisee.
3.
Entire Agreement. This Amendment and the Franchise Agreement embody the entire understanding
between Franchisor and Franchisee with respect to the modifications set forth above and can be changed
only by a writing signed by Franchisor and Franchisee. Except as modified herein, all the terms and
conditions of the Franchise Agreement shall be unaffected and remain in full force and effect. In the event of
any
Exhibit 10 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Amendment to Franchise Agreement to Apply Development Fee - Page 120 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
inconsistency between the terms of this Amendment and the terms of the Franchise Agreement, the terms of
this Amendment shall control.
Miscellaneous. All capitalized terms not otherwise defined in this Amendment shall have the
4.
meanings given them in the Franchise Agreement. Titles and captions are for convenience only and shall
not constitute a portion of this Amendment. The parties hereto acknowledge that they have read and fully
understand the provisions of this Amendment and that said provisions constitute a complete and exclusive
expression of its terms and conditions. The parties executing this Amendment on behalf of Franchisor and
Franchisee are duly authorized to do so. This Amendment shall not be binding upon Franchisor unless and
until it shall have been accepted and signed by an authorized officer of Franchisor. This Amendment may be
executed in one or more counterparts, each of which will constitute an original, but all of which together will
constitute but a single document. A signature on this Amendment transmitted via facsimile or electronic
mail/PDF or equivalent, electronic signature (such as DocuSign, or equivalent), shall be considered an
original for all purposes hereunder.
IN WITNESS WHEREOF, this Amendment to the Franchise Agreement has been executed by the
parties hereto as of the dates set forth below.
FRANCHISOR:
EL POLLO LOCO, INC., a Delaware Corporation
FRANCHISEE:
____________________________,
a_____________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Exhibit 10 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Amendment to Franchise Agreement to Apply Development Fee - Page 121 of 105
EXHIBIT 11: AMENDMENT TO SUCCESSOR FRANCHISE AGREEMENT
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
This Amendment to the Successor Franchise Agreement (“Amendment”) is made on _____________,____
(“Franchisor”) and
by and among EL POLLO LOCO,
____________________, a___________ ("Franchisee").
INC., a Delaware
corporation
RECITALS:
A.
Franchisor and Franchisee are simultaneously entering into this Amendment to Successor Franchise
Agreement and a Successor Franchise Agreement (“Successor Franchise Agreement”) for an El Pollo
Loco® restaurant located at _____________________________ (“Restaurant”).
Franchisor and _________________________ entered into that certain Franchise Agreement dated
B.
________________,____ (“Original Franchise Agreement”). The Original Franchise Agreement will expire
on ________________,____.
Franchisee and ______________
that certain Lease dated
C.
________________,____ (“Lease”). The Lease expires on ________________,____ and has ______
option(s) to extend the term of the Lease for a period of ____ years (each).
(“Landlord”), entered
into
Per the terms of the Original Franchise Agreement, Franchisee has requested a new El Pollo Loco®
D.
franchise agreement for a term of ________(___) years for the Restaurant (“Successor Franchise
Agreement”).
Franchisor and Franchisee wish to modify the terms of the Successor Franchise Agreement as
E.
described in this Amendment.
The effectiveness of the Successor Franchise Agreement and this Amendment are contingent upon
F.
Franchisee being in good standing as of the date first written above.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises and covenants of the parties hereto, the
parties agree as follows:
Recitals. Franchisor and Franchisee acknowledges and agrees with all of the above listed recitals
1.
which are incorporated herein to this Amendment.
2.
Commencement Date and Expiration Date of Successor Franchise Agreement. Paragraph 3.1
of the Successor Franchise Agreement is hereby deleted in it’s entirely and replaced with the following: “The
term of this Successor Franchise Agreement shall commence on ________________,____ and shall
expire on ________________,____ (“Term”), unless sooner terminated as provided herein. Should
Franchisee lease the site of the Restaurant, the lease or sublease must be for a
Exhibit 11 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Amendment to Successor Franchise Agreement - Page 122 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
term which with renewal options is not less than the Term of the Successor Franchise Agreement, and
contain the following terms and conditions set forth below and in a form approved by Franchisor:
(a)
(b)
(c)
The tenant entity on the lease must match the franchise entity on the successor franchise
agreement; and
The term (with renewal options) of the lease must match at least the initial term of the
successor franchise agreement; and
The landlord consents to your use of the premises as an El Pollo Loco® restaurant which will
be open during the required days and hours set out in the El Pollo Loco® Manual.
Should Franchisee be unable to lease the site of the Restaurant for a term equal to the Term, then as
our sole and absolute right to determine, the Term of the Successor Franchise Agreement may be reduced
to match the term of the lease or sublease and the renewal franchise fee will be appropriately pro-rated.
Upon the expiration or earlier termination of this Successor Franchise Agreement, Franchisee shall have no
right or option to extend the term of this Successor Franchise Agreement.”
Amendment (Site Development, Improvements, Fixtures and Equipment, and Grand Opening
3.
Advertising). Sections 4.1, 5.8 and 8.8 of the Successor Franchise Agreement are hereby deleted in their
entirety; provided however, that Sections 4.1, 5.8 and 8.8 shall be reinstated in the event that Franchisor
grants Franchisee the right to relocate the Restaurant under Section 23.17.a, 23.17.b and 23.17.c of the
Successor Franchise Agreement.
4.
Successor Franchise Fee. The first sentence of Section 6.1.a of the Successor Franchise
Agreement is hereby deleted and replaced with the following: “Per the renewal fee described in the Original
Franchise Agreement, Franchisee will pay in full a renewal franchise fee of ___________________Dollars
($__________) (“Renewal Franchise Fee”). The Renewal Franchise Fee will be paid within thirty (30) days
of delivery of execution copies of this Amendment and Successor Franchise Agreement to Franchisee;
provided, however, if the Restaurant is a Turnkey Restaurant the Renewal Franchise Fee shall be payable
upon execution of this Successor Franchise Agreement.”
Restaurant Remodel. The following language will be added to Section 12.3 of the Successor
5.
Franchise Agreement regarding remodeling the Restaurant: Notwithstanding the above, Franchisee
covenants, warrants and agrees that the required remodel requirements will be completed to the satisfaction
of Franchisor no later than ________________,____. Franchisee agrees that such required remodel
requirements will not be considered complete until Franchisor has agreed to the final completion in writing.
Should the required remodel of the Restaurant not be completed to Franchisor’s satisfaction, then
Franchisor may terminate the Successor Franchise Agreement under Section 18, entitled Default and
Termination.
Exhibit 11 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Amendment to Successor Franchise Agreement - Page 123 of 105
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
6.
Rights to a Successor Franchise. Section 20 of the Successor Franchise Agreement is hereby
deleted and replaced with the following: “Franchise shall have no right or option to extend the Successor
Term of this Successor Franchise Agreement. In order for Franchisee to operate beyond the Successor
Term, Franchisee must meet the then-current criteria to become an El Pollo Loco franchisee and enter into a
then current form of Franchise Agreement and ancillary agreements, the terms of which may vary
substantially from this Amendment and Successor Franchise Agreement.”
Entire Agreement. This Amendment and the Successor Franchise Agreement embodies the entire
7.
understanding between Franchisor and Franchisee with respect to the modifications set forth above and can
be changed only by a writing signed by Franchisor and Franchisee. Except as modified herein, all the terms
and conditions of the Successor Franchise Agreement shall be unaffected and remain in full force and effect.
In the event of any inconsistency between the terms of this Amendment and the terms of the Successor
Franchise Agreement, the terms of this Amendment shall control.
8.
Miscellaneous. All capitalized terms not otherwise defined in this Amendment shall have the
meanings given them in the Successor Franchise Agreement. Titles and captions are for convenience only
and shall not constitute a portion of this Amendment. The parties hereto acknowledge that they have read
and fully understand the provisions of this Amendment and that said provisions constitute a complete and
exclusive expression of its terms and conditions. The parties executing this Amendment on behalf of
Franchisor and Franchisee are duly authorized to do so. This Amendment shall not be binding upon
Franchisor unless and until it shall have been accepted and signed by an authorized officer of Franchisor.
This Amendment may be executed in one or more counterparts, each of which will constitute an original, but
all of which together will constitute but a single document. A signature on this Amendment transmitted via
facsimile or electronic mail/PDF or equivalent, electronic signature (such as DocuSign, or equivalent), shall
be considered an original for all purposes hereunder.
IN WITNESS WHEREOF, this Amendment to the Successor Franchise Agreement has been
executed by the parties hereto as of the date(s) set forth below.
FRANCHISOR:
EL POLLO LOCO, INC., a Delaware Corporation
FRANCHISEE:
____________________________,
a__________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Exhibit 11 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Amendment to Successor Franchise Agreement - Page 124 of 105
EXHIBIT 12: REMODEL SCHEDULE PARTICIPATION AGREEMENT
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
THIS REMODEL SCHEDULE PARTICIPATION AGREEMENT (“Remodel Agreement”) is made and
entered into as of _____________,______ (“Effective Date”), by and between EL POLLO LOCO, INC., a
Delaware corporation (the “Franchisor”) and ____________________________, a _____________
(“Franchisee”).
RECITALS:
A.
Franchisor and Franchisee are parties to the El Pollo Loco Franchise Agreements referenced
hereto and incorporated herein as Exhibit A. The Franchise Agreements listed on Exhibit A shall be
referred to collectively herein as “Franchise Agreements” and individually as “Franchise Agreement”. The
Restaurants listed on Exhibit A shall be referred to collectively herein as “Restaurants” and individually as
“Restaurant”.
B.
Franchisor and Franchisee desire to set forth the terms and conditions whereby Franchisee will
remodel all the Restaurants as set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained in this
Remodel Agreement the parties agree as follows:
AGREEMENT:
1.
The Recitals listed above are incorporated herein and by this reference made a part of this
Remodel Agreement.
2.
Franchisee, at Franchisee's expense, will remodel all Restaurants as described in Exhibit A to
then current El Pollo Loco® standards, format, design and image, as designated pursuant to plans and
specifications provided by Franchisor (“Remodel Requirements”). All signs to be used in connection with
the Restaurant, both exterior and interior, must conform to Franchisor's sign criteria as to type, color, design
and location and be approved in writing by Franchisor prior to installation or display.
3.
Franchisee covenants, warrants and agrees that the required Remodel Requirements will be
completed in each of Franchisee’s Restaurants, to the satisfaction of Franchisor no later than the dates listed
on Exhibit A. Franchisee agrees that such required Remodel Requirements will not be considered complete
until Franchisor has agreed to the final completion in writing. Should the required Remodel Requirements
of any or all Restaurants not be completed to Franchisor’s satisfaction, then such violation of this
Remodel Agreement and/or the Franchise Agreements is deemed to be a material breach and
Franchisor hereby reserves all rights and remedies available under this Remodel Agreement and the
operative Franchise Agreement. In addition, Franchisee acknowledges and agrees that Franchisor will
inspect the first Restaurant to ensure the Remodel Requirements have been complied with. Only after
Exhibit 12 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Remodel Schedule Participation Agreement - Page 125 of 126
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Franchisor’s approval of the remodel of the first Restaurant, then Franchisee may remodel any or all of the
remaining Restaurants, more than one at a time. Should Franchisor not approve the remodel of the first
Restaurant, Franchisee will have to finalize the remodel of that Restaurant and seek Franchisor’s re-
inspection and approval of that Restaurant before continuing onto the remodel of any or all of the remaining
Restaurants.
4.
In consideration of Franchisor’s consent to Franchisee’s participation in the remodel deadlines
granted herein, Franchisee hereby waives, releases and forever discharges Franchisor, all Franchisor’s
affiliates, and all the respective directors, officers, employees, attorneys, representatives, and agents of said
entities, from all obligations, liabilities, claims, actions and causes of action of whatever kind or nature,
including, but not limited to, any alleged violation of the California Franchise Relations Act or any other
similar state statute or regulation, any Federal or State antitrust claims, any claimed violation of the
Franchise Agreement, any claim for breach of any implied covenant of good faith and fair dealing or any
other claims which relate or refer in any way to the relationship between Franchisor and Franchisee which
arose on or before the date hereof, it is understood and agreed that any and all rights granted to Franchisee
under Section 1542 of the California Civil Code are hereby expressly waived. Such statute reads as follows:
"A general release does not extend to claims which the creditor does not know or suspect to
exist in his favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor."
5.
Franchisee hereby agrees to indemnify and defend the Franchisor, its officers, directors,
shareholders, employees, agents and affiliates against and hold them harmless from any loss, liability, claim,
damage, award, settlement, cost or expense (including reasonable legal fees and expenses) incurred in
connection with any suit or claim of action brought against any such indemnified party in connection with
Franchisee’s participation in the remodel and/or the services or goods provided by Franchisor in connection
therewith, including but not limited to, any breach by Franchisee of this Remodel Agreement.
6.
This Remodel Agreement embodies the entire understanding between Franchisor and
Franchisee with respect to the matters set forth herein and can be changed only by a writing signed by
Franchisor and Franchisee. Except as otherwise modified by this Remodel Agreement, the terms and
conditions of the Franchise Agreements shall remain unchanged and in full force and effect. In the event of
any inconsistency between the terms of this Remodel Agreement and the terms of the Franchise Agreement,
the terms of this Remodel Agreement shall control.
7.
The parties executing this Remodel Agreement on behalf of Franchisor and Franchisee are
duly authorized to do so. This Remodel Agreement shall not be binding upon Franchisor unless and until it
shall have been accepted and signed by an authorized officer of Franchisor. This Remodel Agreement may
be executed in counterparts, each
Exhibit 12 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Remodel Schedule Participation Agreement - Page 126 of 126
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
of which shall be deemed an original, but all of which together shall constitute one and the same Remodel
Agreement. A signature on this Remodel Agreement transmitted via facsimile or electronic mail/PDF or
equivalent , electronic signature (such as DocuSign, or equivalent), shall be considered an original for all
purposes hereunder.
8.
Should any party hereto institute any action or proceeding at law or in equity, or in connection
with an arbitration, to enforce any provision of this Remodel Agreement, including an action for declaratory
relief, or for damages by reason of an alleged breach of any provision of this Remodel Agreement, or
otherwise in connection with this Remodel Agreement, or any provision thereof, the prevailing party shall be
entitled to recover from the losing party or parties reasonable attorneys' fees and costs for services rendered
to the prevailing party in such action or proceeding or in connection with the collection of any judgment
thereby obtained.
9.
Nothing contained herein shall be construed so as to require the commission of any act
contrary to law, and wherever there is any conflict between any provisions contained herein and any present
or future statute, law, ordinance or regulation, the latter shall prevail; but the provision of this Remodel
Agreement which is affected shall be curtailed and limited only to the extent necessary to bring it within the
requirements of the law. In the event any portion of this Remodel Agreement is determined to be invalid or
unenforceable, the balance of all other provisions shall remain in full force and effect.
10.
All of the terms and provisions contained herein shall inure to the benefit of and shall be
binding upon the parties hereto and their respective heirs, legal repre sentatives, successors and assigns.
IN WITNESS WHEREOF, Franchisor and Franchisee have duly executed this Remodel Agreement as
of the date(s) set forth below.
FRANCHISOR:
EL POLLO LOCO, INC., a Delaware Corporation
By:
Name:
Title:
Date:
FRANCHISEE:
____________________________,
_________________
By:
Name:
Title:
Date:
a
Exhibit 12 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Remodel Schedule Participation Agreement - Page 127 of 126
EXHIBIT A
FRANCHISE AGREEMENTS & REMODEL DEADLINES
Location No
Address
City
State
ZIP
Agreement Signed
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
Next Remodel
Due
Exhibit 12 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Remodel Schedule Participation Agreement - Page 128 of 126
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EXHIBIT 13: AMENDMENT TO FRANCHISE AGREEMENT
(To be offered if you qualify for the Development Incentive Program and provided you have sign a Franchise
Development Agreement for a New Market)
THIS AMENDMENT TO FRANCHISE AGREEMENT (“Amendment”) is made and entered into this
___ day of ______________, by and between EL POLLO LOCO, INC., a Delaware corporation
(“Franchisor”), with its principal place of business at 3535 Harbor Blvd, Suite 100, Costa Mesa, California
92626 and _____________________________, a ____________________, with its principal place of
business at __________________________________________ (“Franchisee”).
RECITALS:
Franchisor and Franchisee entered into a Franchise Agreement dated ________________
A.
(“Franchise Agreement).
Franchisor and Franchisee (as Developer) entered into a Franchise Development Agreement
B.
#________ dated ___________ (“Development Agreement”).
C.
Franchisor and Franchisee wish to modify the terms of the Franchise Agreement to include the
Development Incentive Program from the Development Agreement to apply to the Franchise Agreement
provided Franchisee meet certain criteria described below.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein contained, the
parties hereto agree as follows:
1. Recitals. Recitals listed above are incorporated herein and by this reference made a part of this
Amendment.
2.
Development Incentive Program.
a.
Reduced Royalty. If the Opening Date of the Restaurant is on or before the date shown
on the Development Schedule on Exhibit B of the Development Agreement (“Restaurant’s
Compliance Opening Date”), Franchisor will reduce the monthly royalty rate according to the
schedule below (“Reduced Royalty”). If Franchisee closes the Restaurant at the Location, the
reduced royalty will end even if Franchisee relocates the Restaurant to another location in accordance
with Franchisor’s site selection and approval procedures.
Reduced Royalty
2%
3%
4%
5%
Applicable Time Period (Measured from the
Opening Date)
Year 1
Year 2
Year 3
Year 4 and subsequent years
Exhibit 13 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Amendment to Franchise Agreement (Development Incentive Program) - Page 129 of 126
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
b.
Refund of Fifty percent (50%) of the Initial Fee. If the Opening Date of the Restaurant is
at least one hundred eighty (180) days before the Restaurant’s Compliance Opening Date, Franchisor
will refund fifty percent (50%) of the Initial Fee (“Partial Initial Fee Refund”) no later than thirty (30)
days after the Opening Date.
3.
Entire Agreement. This Amendment and the Franchise Agreement embodies the entire
understanding between Franchisor and Franchisee with respect to the modifications set forth above and can
be changed only by a writing signed by Franchisor and Franchisee. Except as modified herein, all the terms
and conditions of the Franchise Agreement shall be unaffected and remain in full force and effect. In the
event of any inconsistency between the terms of this Amendment and the terms of the Franchise Agreement,
the terms of this Amendment shall control.
4.
Miscellaneous. All capitalized terms not otherwise defined in this Amendment shall have the
meanings given them in the Franchise Agreement. Titles and captions are for convenience only and shall
not constitute a portion of this Amendment. The parties hereto acknowledge that they have read and fully
understand the provisions of this Amendment and that said provisions constitute a complete and exclusive
expression of its terms and conditions. The parties executing this Amendment on behalf of Franchisor and
Franchisee are duly authorized to do so. This Amendment may be executed in one or more counterparts,
each of which will constitute an original, but all of which together will constitute but a single document. A
signature on this Amendment transmitted via facsimile or electronic mail/PDF or equivalent, electronic
signature (such as DocuSign, or equivalent) shall be considered an original for all purposes hereunder
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this
Amendment in duplicate original as of the date(s) set forth below.
FRANCHISOR:
EL POLLO LOCO, INC.,
a Delaware corporation
By:
Name:
Title:
Date:
FRANCHISEE:
________________________,
a _______________
By:
Name:
Title:
Date:
Exhibit 13 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Amendment to Franchise Agreement (Development Incentive Program) - Page 130 of 126
Exhibit 10.17
El Pollo Loco Unit #3###
Location Test, CA
EL POLLO LOCO® FRANCHISE AGREEMENT SCHEDULE 1: STATEMENT OF OWNERSHIP OF
FRANCHISEE
Name of Party to Franchisee Entity
Ownership Percent of
Franchisee
______________________________________
(This Party will be the Only Party to Receive Notice on behalf of
Franchisee)
%
%
Statement 1 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 033021)
Statement of Ownership of Franchisee - Page 131 of 126
Exhibit 10.18
Development Agreement # _________
EL POLLO LOCO® FRANCHISE DEVELOPMENT AGREEMENT
Dated: ____________________
Territory:
Developer:
(Disclosure Document Control No. 033021)
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 1 of 25
Exhibit 10.18
Development Agreement # _________
TABLE OF CONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
DEVELOPMENT RIGHTS IN TERRITORY.
LIMITATION ON DEVELOPMENT RIGHTS.
DEVELOPMENT FEE.
TERM OF DEVELOPMENT AGREEMENT.
TERRITORY CONFLICTS.
PROPRIETARY RIGHTS OF EL POLLO LOCO.
INSURANCE AND INDEMNIFICATION.
TRANSFER OF RIGHTS.
ACKNOWLEDGMENT OF SELECTED TERMS AND PROVISIONS OF THE FRANCHISE
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
AGREEMENT.
TERMINATION BY DEVELOPER; EXPIRATION DATE.
EVENTS OF DEFAULT.
EFFECT OF TERMINATION.
NON-WAIVER.
INDEPENDENT CONTRACTOR AND INDEMNIFICATION.
ENTIRE AGREEMENT.
DISPUTE RESOLUTION
SEVERABILITY.
APPLICABLE LAW; CHOICE OF FORUM; WAIVER OF JURY TRIAL.
DOCUMENT INTERPRETATION.
COVENANT NOT TO COMPETE.
NOTICES.
SECTION HEADINGS.
ACKNOWLEDGMENTS.
COUNTERPARTS.
COMPLIANCE WITH LAWS, RULES OR REGULATIONS.
4
5
10
10
10
11
12
14
15
15
15
17
18
18
18
19
20
20
20
21
22
22
22
23
23
EXHIBITS
EXHIBIT "A" TERRITORY
EXHIBIT "B" DEVELOPMENT SCHEDULE
EXHIBIT “C” EXISTING EL POLLO LOCO® RESTAURANTS IN THE TERRITORY
EXHIBIT “D” AMENDMENT TO DEVELOPMENT AGREEMENT (DEVELOPMENT INCENTIVE PROGRAM
25
26
26
28
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 2 of 25
EL POLLO LOCO® FRANCHISE DEVELOPMENT AGREEMENT
(Non-exclusive/Exclusive)
Exhibit 10.18
Development Agreement # _________
THIS FRANCHISE DEVELOPMENT AGREEMENT (“Agreement”) dated for identification purposes only as
of _____________________, is made and entered into by and between EL POLLO LOCO, INC., a
Delaware corporation, with its principal place of business at 3535 Harbor Blvd, Suite 100, Costa Mesa,
and
California
__________________a___________,
at
_____________________________________ (“Developer”).
“Franchisor”)
business
“El Pollo
principal
herein
with
(referred
92626
Loco”
place
as
its
or
of
to
Recitals.
A.
Franchisor owns certain proprietary and other property rights and interests in and to the “El Pollo
Loco®” trademark and service mark, and such other trademarks, service marks, logo types, insignias, trade
dress designs and commercial symbols as Franchisor may from time to time authorize or direct Developer to
use in connection with the operation of a(n) “El Pollo Loco®” restaurant (the “El Pollo Loco® Marks”).
Franchisor has a distinctive plan for the operation of retail outlets for the sale of fire-grilled food items and
related products, which plan includes but is not limited to the El Pollo Loco® Marks and the Operations
Manual (the “Manual”), policies, standards, procedures, employee uniforms, signs, menu boards and related
items, and the reputation and goodwill of the El Pollo Loco® chain of restaurants (collectively, the “El Pollo
Loco® System”).
B.
Developer represents that it is experienced in and has independent knowledge of the nature and
specifics of the restaurant business. Developer represents that in entering into this Agreement it has relied
solely on its personal knowledge and has not relied on any representations of Franchisor or any of its
officers, directors, employees or agents, except those representations contained in any legally required
Franchise Disclosure Document delivered to Developer.
Developer desires to obtain development rights for multiple restaurants under the El Pollo Loco®
C.
System (each, an “El Pollo Loco® Restaurant”) from Franchisor within a specified geographical (the
“Territory”) specified in Exhibit “A” attached hereto and made a part hereof (or if single unit, replace with
“Developer desires to obtain development rights for a single restaurant under the El Pollo Loco®
System (each, an “El Pollo Loco® Restaurant”) from Franchisor within a specified address (the
“Territory”) specified in Exhibit “A” attached hereto and made a part hereof.”)
Franchisor is willing to grant the (non-exclusive/exclusive) right to develop and open El Pollo Loco®
D.
Restaurant(s) within the Territory referenced in Exhibit “A.”
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein contained, the parties
hereto agree as follows:
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 3 of 25
1.
Development Rights in Territory.
Exhibit 10.18
Development Agreement # _________
1.1.
Franchisor hereby grants to Developer, subject to the terms and conditions of this Agreement
(if Section 2.20 is applicable add “, and specifically Section 2.20 hereof,”) and as long as Developer
shall not be in default of this Agreement or any other development, franchise or other agreement between
Developer and Franchisor, (non-exclusive/exclusive) development rights to establish and operate ____
franchised restaurant(s) within the Territory, and to use the El Pollo Loco® System solely in connection
therewith, at these specific locations to be designated in separate Franchise Agreement(s) (the “Franchise
Agreements”). (If exclusive agreement, add “Developer expressly acknowledges that the exclusive
rights granted herein apply only to the right to develop new restaurants in the Territory, and no
exclusive territory or radius protection for the term of any Franchise Agreement is granted herein
and any such protection shall be set forth in the particular Franchise Agreement to be signed.”) The
Franchise Agreements (and all ancillary documents attached as Exhibits to the Franchise Agreement,
including the Personal Guarantee) executed in accordance with this Agreement shall be in the form currently
in use by Franchisor at the time of execution of the Franchise Agreement and shall be executed individually
by each person, partner, member or shareholder.
1.2.
(Only applies if exclusive Agreement. Delete if non-exclusive Agreement.) Except as
otherwise provided in this Agreement and subject to the terms and conditions of Section 2.20 hereof, after
the date of this Agreement and during the term of this Agreement, and so long as Developer is in compliance
with its obligations under this Agreement, Franchisor shall neither, without Developer’s prior written consent:
(i) grant development rights to anyone else with respect to the Territory or any part of the Territory; nor (ii)
establish or franchise any person to establish an El Pollo Loco restaurant under the Marks and System at
any location within the Territory. Franchisor expressly retains all other rights and may, among other things,
on any terms and conditions Franchisor deems advisable, and without granting Developer any rights therein:
a.
Establish and operate or franchise others to establish and operate an El Pollo Loco
restaurant located outside of the Territory;
b.
Sell the same or similar products (whether or not using the Marks), as will be sold by
Developer in a developed El Pollo Loco restaurant, to customers at any retail location (whether within
or outside of the Territory), through any method or channel of distribution, including, without limitation,
at retail locations such as grocery or convenience stores and via the Internet, telemarketing and direct
marketing means, through other non-El-Pollo Loco restaurants having the same or similar menu
items, or through any other distribution channel or through “Ghost Kitchens” which we define as a
professional food preparation and cooking facility set up for the preparation of delivery-only meals
whether of not the facility produces menu items for multiple brands or just for EPL Restaurants.
Additionally, no Protected Area exists for EPL Restaurants located in “Non Traditional Venues,” which
we define as any of the following types of venues: regional shopping malls,
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 4 of 25
Exhibit 10.18
Development Agreement # _________
airports, mass transit stations, professional sports stadiums and arenas, hotels and other types of
lodging facilities, military bases, entertainment centers, amusement parks, casinos, universities and
other types of schools, hospitals and other types of health care institutions, or similar types of captive
market locations that we may designate. We will determine and designate those shopping malls that
in our judgment qualify as a regional shopping mall based on the size of the shopping complex,
number of anchor
tenants, existence of dedicated parking space, existence of unrelated
merchandisers, and prevailing consumer and industry perceptions. Franchisor and Developer retain
all other rights and obligations in this Agreement;
c.
Establish and operate or franchise others to establish and operate restaurants (not using
the Marks) having the same or similar menu items whether within or outside of the Territory; and
d.
Any continued operation by Franchisor, or the allowance of any continued operation by a
franchisee of Franchisor, of an El Pollo Loco restaurant within the Territory which was opened on or
before the date of this Agreement shall not be considered to constitute a breach of this Agreement.
1.3.
(Only applies to multi-unit Development Agreement – delete if single-unit Development
Agreement). Prior to or concurrent with the execution of this Agreement, Developer shall meet with
Franchisor’s development representatives and prepare a market development plan for the units to be
constructed and opened by Developer in the Territory (identifying specific key areas, key intersections and
trade areas in the Territory) and all development pursuant to this Agreement shall be in accordance with this
plan (the “Market Plan”). The Market Plan shall include proposed areas where sites may be located,
ranking and prioritization of site locations and other information customarily used by market planners in the
restaurant industry. Developer and Franchisor shall jointly approve the Market Plan.
2.
Limitation on Development Rights.
2.1. Developer must submit one or more site(s) for approval, enter into binding leases or purchase
agreements and open to the public the number of El Pollo Loco® Restaurant(s) on such approved sites each
calendar year as required on the Development Schedule, all as set forth on Exhibit “B” attached hereto and
made a part hereof.
2.2.
For purposes of the Development Schedule in Exhibit “B”, no credit will be given for the
development of El Pollo Loco® Restaurant(s) outside the Territory, regardless of the fact that Developer may,
upon proper application, obtain from Franchisor an El Pollo Loco® Franchise Agreement (“Franchise
Agreement”) for any such development.
2.3. Although this Agreement affords the Developer the right to develop and
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 5 of 25
Exhibit 10.18
Development Agreement # _________
open El Pollo Loco® restaurant(s) within the Territory, as set forth on Exhibit “A”, all Restaurant(s)
developed under this Agreement must be duly licensed through individual Franchise Agreement(s).
Developer will execute El Pollo Loco’s then standard Franchise Agreement in use at the time of execution
for each restaurant developed under this Agreement, and agrees to pay Franchisor the current fees,
royalties and other required payments in accordance with the Franchise Agreement and Franchise
Disclosure Document then in effect. Execution of the appropriate Franchise Agreement and payment of the
initial franchise fee and/or any other required fees must be accomplished prior to the commencement of
construction at any site.
2.4. Developer must satisfy all Franchisor’s financial and operational criteria then in effect and in
addition, if Developer is also a Franchisee of one or more El Pollo Loco Restaurants, Franchisee must also
be in good standing with Franchisor and satisfy all Franchisor’s financial and operational criteria then in
effect prior to El Pollo Loco's execution of each standard Franchise Agreement issued pursuant to this
Agreement. Developer shall provide Franchisor with current information pertaining to Developer's financial
condition and the financial condition of the majority and managing members/partners/shareholders of
Developer at any time upon El Pollo Loco's request and in no event less than once annually. Developer
acknowledges that, among other things, it will be required to submit annual financial statements of
Developer and personal financial statements of each of its principal owners and Managing Members to be
eligible for financial approval by El Pollo Loco. In the event any of the majority owners of Developer shall
also be the Managing Members and/or majority owners of any other entity which is a franchisee of El Pollo
Loco, then each such franchisee entity must be operationally and financially approved by Franchisor before
approval for expansion will be granted to any one franchisee entity. “Managing Members” shall be any
individuals who are designated as the primary decision makers or general managers of the franchisee entity
and those individuals who (individually or collectively) own at least 51% interest in the franchisee entity.
2.5. Developer shall use its best efforts to retain qualified real estate professionals (including
licensed brokers) to locate proposed sites for the El Pollo Loco® Restaurant(s). Developer shall submit
proposed sites for each El Pollo Loco® Restaurant unit to be developed under this Agreement for
acceptance by Franchisor’s Real Estate Site Approval Committee (“RESAC”), together with such site
information as may be reasonably required by Franchisor to evaluate the proposed site, no later than the
dates set forth in Exhibit “B” as RESAC Submittal Dates, the first of which shall be approximately ninety
(90) days after execution of this Agreement. Should the site be accepted by RESAC, it will be referred to as
the “Approved Site”. Such acceptance will expire one (1) year from the RESAC approval date. Franchisor
may require, as a condition to its approval of a site, a “Market Study”, which shall include a site description
and analysis, traffic and other demographic information and an analysis of the impact of the proposed site on
other company owned and franchised El Pollo Loco restaurants surrounding or within the vicinity of such
proposed site all in such format as the Franchisor may require. All such analyses, information and studies
shall be prepared at the sole cost and expense of Developer.
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 6 of 25
Exhibit 10.18
Development Agreement # _________
2.6.
Franchisor shall send representatives to evaluate proposed site(s) for each El Pollo Loco®
Restaurant to be developed under this Agreement, and Franchisor will do so at its own expense for the first
two (2) proposed sites for each El Pollo Loco® Restaurant. If Developer proposes, and Franchisor
evaluates, more than two (2) sites for each El Pollo Loco® Restaurant, then Developer shall reimburse
Franchisor for the reasonable costs and expenses incurred by Franchisor’s representatives in connection
with the evaluation of such additional proposed site(s), including, without limitation, the costs of lodging,
travel, meals and wages.
2.7. Provided there exists no default by Developer under this Agreement or any other development,
franchise or other agreement between Franchisor and Developer, Franchisor shall evaluate each site
proposed for which Developer has provided all necessary evaluation information, and shall promptly after
receipt of Developer’s proposal, send to Developer written notice of acceptance or non-acceptance of the
site.
2.8.
If RESAC determines through its evaluation of the proposed site that the proposed site may
impact sales at any company-owned El Pollo Loco® Restaurant, Franchisor has the sole and absolute right
to accept or reject the proposed site, without any obligation to discuss a possible resolution with Developer.
However, Franchisor may elect to discuss with Developer a possible resolution with regards to the proposed
site; however, if such an agreement cannot be reached, Franchisor has the sole and absolute right to reject
the proposed site. If RESAC determines through its evaluation of the proposed site that the proposed site
may potentially impact sales at any existing El Pollo Loco® franchisee’s restaurant, Franchisor shall notify
Developer of the existing El Pollo Loco® franchisees’ location(s) and contact information. If nevertheless
Developer wishes to try to proceed with that site, Developer must obtain a written waiver from those existing
El Pollo Loco® franchisees of any claims they might have against Developer and Franchisor with respect to
the proposed new El Pollo Loco® Restaurant. Such waiver, if obtained, must be submitted along with the
evaluation information required pursuant to this Section.
2.9. No later than the Site Commitment Dates set forth in Exhibit “B”, Developer shall submit for
the Approved Site to Franchisor for its review and approval of:
a.
A fully negotiated but unexecuted lease, which may only subject to obtaining necessary
governmental permits. The unexecuted form of the lease must be submitted to Franchisor to review
for the required terms and conditions listed in Sections 2.9, 2.10, 2.11 and 2.12 below prior to full
execution of the lease. Franchisor will promptly notify Developer upon their approval of the inclusion
of such required terms and conditions. Developer will promptly then provide a final executed copy of
the lease to Franchisor; or
b.
A purchase agreement. Should Developer purchase the site using another entity other
than the franchise entity, Developer must then enter into a lease with the Franchise entity as the
lessee and the purchasing entity as the
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 7 of 25
lessor and must comply with all the requirements of this Sections 2.9, 2.10, 2.11 and 2.12 below).
Exhibit 10.18
Development Agreement # _________
2.10. Any lease to be entered into by Developer shall include the terms and conditions set forth
below and shall be in a form approved by Franchisor:
a.
agreement; and
The tenant entity on the lease must match the franchise entity on the franchise
b.
The term (with renewal options) of the lease must match at least the initial term of the
franchise agreement; and
c.
The landlord consents to your use of the premises as an El Pollo Loco® restaurant
which will be open during the required days and hours set out in the Operations Manual.
2.11. Franchisor shall have no liability under any lease or purchase agreement for any El Pollo
Loco® Restaurant location developed under this Agreement and shall not guarantee Developer’s obligations
thereunder. Upon approval by Franchisor of the form of Developer’s lease and execution of a lease for a site
by Developer, Developer shall furnish to Franchisor a fully executed copy of such lease and any
amendments thereto within fifteen (15) calendar days of such execution. Franchisor shall have no obligation
to assist Developer to negotiate its leases.
2.12. The lease or deed may not contain a non-competition covenant which restricts Franchisor or
any franchisee or licensee of Franchisor, from operating an El Pollo Loco® Restaurant or any other retail
restaurant, unless such covenant is approved by Franchisor in writing prior to the execution by Developer of
the lease.
2.13. Each subsequent site to be developed pursuant to the Development Schedule shall be
submitted for approval by RESAC by the date set forth in Exhibit “B”. Similarly, each fully executed lease
(executed upon prior review and approval by Franchisor) or purchase agreement (with all contingencies to
Developer’s obligations waived or satisfied, except permitting contingencies) relating to each subsequent
Approved Site shall: (1) be delivered to Franchisor on or before the Site Commitment Date for each
respective El Pollo Loco® Restaurant as set forth in Exhibit “B” and (2) prior to the execution of your
Franchise Agreements (3) prior to the payment of your initial Franchise Fees for each site and (4) prior to the
commencement of construction of the El Pollo Loco® Restaurant.
2.14. RESAC site approval does not assure that a Franchise Agreement will be executed. Execution
of the Franchise Agreement is contingent upon Developer completing the purchase or lease of the proposed
site within sixty (60) days after approval of the site by the Franchisor or no later than the dates set forth in
Exhibit “B” as Site Commitment Dates.
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 8 of 25
Exhibit 10.18
Development Agreement # _________
2.15. Developer acknowledges that time is of the essence in this Agreement. If Developer has not
obtained approval and entered into a binding lease or purchase agreement for each site for El Pollo Loco®
Restaurant(s) to be developed under this Agreement by the applicable Site Commitment Date, Developer
shall be in default of its obligations under the Development Schedule and Franchisor shall be entitled to
exercise its rights and remedies under this Agreement, up to and including termination of this Agreement.
2.16. Developer also acknowledges that it is required pursuant to this Agreement to open El Pollo
Loco® Restaurants in the future pursuant to dates set forth in the Development Schedule attached as
Exhibit “B”. If Developer fails to meet the opening date for any El Pollo Loco® Restaurant to be developed
under this Agreement, Developer shall be in default and Franchisor shall be entitled to exercise all rights and
remedies available to Franchisor set forth in Section 11. Developer acknowledges that if Developer fails to
open El Pollo Loco® Restaurants in a timely manner pursuant to the Development Schedule, Franchisor will
suffer lost revenues, including royalties and other fees which would be difficult to calculate and which
Franchisor would have received had Developer met the agreed schedule or had Franchisor had the right to
grant development rights to others in the Territory.
2.17. Developer acknowledges that the estimated initial investment and estimated expenses set forth
in Items 6 and 7 of our Franchise Disclosure Document are subject to and likely to increase over time, and
that future El Pollo Loco® Restaurants will likely involve a greater initial investment and operating capital
requirements than those stated in the Franchise Disclosure Document provided to you prior to your
execution of this Agreement.
2.18. Developer understands and acknowledges that in accepting Developer’s proposed site or by
granting a franchise for each approved site, Franchisor does not in any way, endorse, warrant or guarantee
either directly or indirectly the suitability of such site or the success of the franchise business to be operated
by Developer at such site. The suitability of the site and the success of the franchise business depend upon
a number of factors outside of Franchisor’s control, including, but not limited to, the Developer’s operational
abilities, site location, consumer trends and such other factors that are within the direct control of the
Developer.
2.19. The purpose of this Agreement is to promote orderly incremental growth within the El Pollo
Loco® System. The acquisition of existing El Pollo Loco® restaurants by Developer does not represent
incremental growth and, therefore, does not satisfy the terms of this Agreement pertaining to development.
2.20.
(To be added where there are existing restaurants in the Territory) Developer
acknowledges that Franchisor (i) is operating or has franchised another to operate, one (1) or more
restaurants in the Territory or (ii) has granted franchise rights to another in the Territory or (iii)
approved a new site for development for those locations identified in Exhibit “C” attached hereto and
incorporated herein
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 9 of 25
Exhibit 10.18
Development Agreement # _________
by this reference. Developer further acknowledges that Franchisor retains the sole and absolute
right to approve or disapprove any proposed location for development under this Agreement if, in
Franchisor’s reasonable judgment: (i) such proposed location is not suitable for an El Pollo Loco®
Restaurant or (ii) such proposed location will have a material adverse effect on the profitability of
another existing El Pollo Loco® location (or approved site) in the Territory. Developer covenants to
use its reasonable best efforts to avoid selecting proposed locations that would adversely impact
pre-existing locations in the Territory.
3.
Development Fee.
3.1. Developer shall pay to Franchisor upon execution of this Agreement a non-refundable
Development Fee (the “Development Fee”) equal to Twenty Thousand Dollars ($20,000) in immediately
available funds, for each El Pollo Loco® Restaurant to be developed under this Agreement. The
Development Fee is consideration for this Agreement. The Development Fee is not consideration for any
Franchise Agreement and is non-refundable. The $20,000 Development Fee for each El Pollo Loco®
Restaurant shall be applied against the initial franchise fee payable upon the execution of the Franchise
Agreement applicable to such El Pollo Loco® Restaurant. As a benefit of signing the Development
Agreement, the Initial Fee for the second and each subsequent restaurant developed under the same
Development Agreement will be reduced by us to $30,000. As an example, the Initial Fee for the first
restaurant developed under a Development Agreement would be $40,000 to which $20,000 (from the
Development Fee will be credited. The Initial Fee for the second and remaining restaurants developed
under the same Development Agreement would be $30,000, to which $20,000 from the Development Fee
will be credited. If this Agreement is terminated pursuant to Sections 10 or 11 below, Developer will lose its
right to develop and any and all Development Fees.
4.
Term of Development Agreement.
4.1.
This Agreement shall commence on the date specified in Exhibit "B". Unless terminated
pursuant to Section 10 or 11 below, it shall expire upon the earlier of the date specified in Exhibit "B" or
upon the opening of the last El Pollo Loco® Restaurant listed in the Development Schedule.
5.
Territory Conflicts.
5.1.
The rights granted Developer in this Agreement are subject to any prior territorial rights of other
franchisees which may now exist in the Territory, whether or not those rights are currently being enforced. In
the event of a conflict in territorial rights, whether under a Franchise Agreement or separate territorial or
development agreement, Developer shall be free to negotiate with any person, corporation or other entity,
which claims territorial rights adverse to the rights granted under this Agreement, for the assignment of those
prior territorial rights. For this purpose, Franchisor agrees to approve any such assignment not in conflict with
the other terms of this Agreement, subject to the condition of any Franchise Agreements involved, and
current policies pertaining to
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 10 of 25
Exhibit 10.18
Development Agreement # _________
assignments, including, but not limited to, satisfaction of all past due debts owed to Franchisor and the
execution of a General Release.
5.2.
In the event of third-party claims of the right to develop the Territory, it is the sole responsibility
of El Pollo Loco, where the right granted herein is exclusive, to protect and maintain Developer's right to the
development of the Territory. However, if it appears to El Pollo Loco, as its sole and absolute right to
determine, that protection of the Territory by legal action is not advisable, whether due to the anticipation of,
or the actual protracted nature of the action, the costs involved, the uncertainty of outcome, or otherwise,
Franchisor has the right to terminate this Agreement, provided that it refunds to Developer the balance, if
any, of the Development Fee made pursuant to Section 3, which has not been applied against the initial
franchise fees for Franchise Agreement(s) to be acquired under this Agreement.
6.
Proprietary Rights of El Pollo Loco.
6.1. Developer expressly acknowledges El Pollo Loco's exclusive right, title, and interest in an to
the trade name, service mark and trademark "El Pollo Loco", and such other trade names, service marks,
and trademarks which are designated as part of the El Pollo Loco® System (the "Marks"), and Developer
agrees not to represent in any manner that Developer has any ownership in El Pollo Loco® Marks. This
Agreement is not a Franchise Agreement. Developer may not open an El Pollo Loco® Restaurant or use the
El Pollo Loco® Marks at a particular site until it executes a Franchise Agreement for that site. Developer's
use of the El Pollo Loco® Marks shall be limited to those rights granted under each individual Franchise
Agreement. Notwithstanding the foregoing, El Pollo Loco® may authorize Developer in writing to use the
Marks in connection with advertising and marketing activities in connection with this Agreement. Developer
expressly agrees that such usage is limited to those specific activities or promotional materials approved by
El Pollo Loco’s marketing department in advance. Developer further agrees that its use of the Marks shall
not create in its favor any right, title, or interest in or to El Pollo Loco® Marks, but that all of such use shall
inure to the benefit of El Pollo Loco, and Developer has no rights to the Marks except to the degree
specifically granted by the individual Franchise Agreement(s). Building designs and specifications, color
schemes and combinations, sign design specifications, and interior building layouts (including equipment,
equipment specification, equipment
interior color schemes and combinations) are
acknowledged by Developer to comprise part of the El Pollo Loco® System. Developer shall have no right to
license or franchise others to use the Marks by virtue of this Agreement.
layouts, and
6.2. Developer acknowledges that, in connection with its execution of this Agreement, it may
receive confidential and proprietary information regarding the El Pollo Loco® System, including but not
limited to the El Pollo Loco Operational Manual. Developer recognizes the unique value and secondary
meaning attached to the El Pollo Loco® Marks and the El Pollo Loco® System, and Developer agrees that
any noncompliance with the terms of this Agreement or any unauthorized or improper use will cause
irreparable damage to Franchisor and its franchisees. Developer, therefore, agrees
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 11 of 25
Exhibit 10.18
Development Agreement # _________
that if it should engage in any such unauthorized or improper use during, or after, the term of this Agreement,
Franchisor shall be entitled to both seek temporary and permanent injunctive relief from any court of
competent jurisdiction in addition to any other remedies prescribed by law.
6.3. Developer acknowledges that it will receive one (1) copy of the Operations Manual on loan
from Franchisor and that the Operations Manual shall at all times remain the sole property of the Franchisor.
7.
Insurance and Indemnification.
7.1.
Throughout the term of this Agreement, Developer shall obtain and maintain insurance
coverage with insurance carriers acceptable to Franchisor in accordance with Franchisor's current insurance
requirements as modified from time to time. A certificate of insurance will be issued to Franchisor evidencing
the required insurance coverage detailed in this Section. Such insurance coverage shall commence upon
execution of this Agreement. Promptly following the date any policy of insurance is renewed, modified or
replaced during the term of this Agreement, Developer will issue to Franchisor certificates of insurance
evidencing such coverage. Developer shall insure for public liability, including products liability, in the amount
of at least One Million Dollars ($1,000,000) combined single limit. Developer also shall carry such worker's
compensation insurance as may be required by applicable law. All policies must contain provisions waiving
rights of recovery against any named insured by subrogation. All coverages shall be placed with a financially
stable insurer with a minimum AM Best Ratings of A-VII.
7.2.
For the benefit of Franchisor, Developer shall obtain an additional insured endorsement naming
Franchisor. The endorsement shall state the above described insurance shall be primary and not
contributory, as to Franchisor; with a waiver of subrogation in favor of Franchisor. All public liability and
property damage policies shall contain a provision that El Pollo Loco, although named as an insured, shall
nevertheless be entitled to recover under such policies on any loss incurred by El Pollo Loco, its affiliates,
officers, agents and/or employees, by reason of the negligence of Developer, its principals, contractors,
agents and/or employees. All policies shall extend to and provide indemnity for all obligations assumed by
Developer hereunder and all other items for which Developer is required to indemnify Franchisor under the
provisions of this Agreement, whether or not the liability arose from the negligence of Franchisor, its
principals, contractors, agents or employees, and shall provide Franchisor with at least thirty (30) days’
notice of cancellation, termination of coverage or material reduction of coverage.
7.3.
Franchisor reserves the right to specify reasonable changes in the types and amounts of
insurance coverage required by this Section 7. In the event that Developer fails or refuses to obtain or
maintain the required insurance coverage from an insurance carrier acceptable to Franchisor, or to maintain
it throughout the term of this Agreement, Franchisor may, as its sole and absolute right and without any
obligations to do so, procure such coverage for Developer. In such event, Developer shall pay the
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 12 of 25
Exhibit 10.18
Development Agreement # _________
required premiums or reimburse Franchisor for such premiums and any related fees or costs upon written
demand. The amount of such premiums and any related costs shall be set forth in a written invoice
delivered to Developer by Franchisor. Developer shall reimburse Franchisor for the invoice amount within
seven (7) days after the invoice has been delivered to Developer pursuant to Section 21.1 of this Agreement.
Failure to maintain the required insurance or to promptly reimburse Franchisor for any premiums and any
related fees or costs paid on behalf of Developer by Franchisor shall constitute a default hereunder. Should
Franchisor elect to obtain such coverage for Developer, then Developer will assist Franchisor by providing
the necessary information and access to enable Franchisor to obtain coverage for Developer.
7.4. Developer shall defend immediately upon tender of defense, at its own cost, the Franchisor, its
subsidiaries, parent and affiliates, shareholders, directors, officers, employees and agents (collectively for
this Section only known as “Franchisor”), from and against any and all claims, lawsuits, complaints, cross
complaints, arbitrations, demands, allegations, costs embraced by indemnity, loss, costs, expenses, internal
and external (including internal and external attorneys’ fees), liens and damages (collectively for this Section
only known as “Losses”), however caused, and reimburse Franchisor for all costs and expenses, internal
and external (including internal and external attorneys’ fees) incurred by the Franchisor in defense of any
Losses, resulting directly or indirectly from or pertaining to or arising out of, or alleged to arise out of, or in
connection with Developer’s activities under the Development Agreement, including any labor, any employee
related claims whatsoever, including, without limitation any claims made by an employee of Developer
resulting from the employee’s training in a Franchisor operated facility or restaurant, and including
Developer’s failure for any reason to fully inform any third party of Developer’s lack of authority to bind the
Franchisor for any purpose. Such Losses shall include, without limitation, those arising from the death of or
injury to any person or arising from damage to the property of Developer or the Franchisor, or any third
person, firm or corporation, whether or not resulting from any strict liability imposed by fact, law, statute, or
ordinance, on the Franchisor. Developer further agrees that Developer’s duty to defend the Franchisor is
separate from, independent of and free-standing of Developer’s duty to indemnify the Franchisor and applies
whether the issue of Developer’s negligence, breach of contract, or other fault or obligation has been
determined. Developer’s duty to defend is regardless of the outcome of liability even if Developer is
ultimately found not negligent and not dependent on the ultimate resolution of issues arising out of any
claims, lawsuits, complaints, cross complaints, arbitration, demands, allegations, costs embraced by
indemnity, loss, costs, expenses, internal and external (including internal and external attorneys’ fees), liens
or damages.
7.5. Developer shall indemnify and hold harmless the Franchisor (as defined above) from and
against any and all Losses (as defined above), however caused, resulting directly or indirectly from or
pertaining to or arising out of or in connection with Developer’s activities under the Development Agreement,
including any labor, any employee related claims whatsoever, including, without limitation any claims made
by an employee of Developer resulting from the employee’s training in a Franchisor operated facility or
restaurant, and including Developer’s failure for any reason to fully inform any
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 13 of 25
Exhibit 10.18
Development Agreement # _________
third party of Developer’s lack of authority to bind the Franchisor for any purpose. Such Losses shall include,
without limitation, those arising from latent or other defects in the restaurant whether or not discoverable by
Franchisor, and those arising from the death of or injury to any person or arising from damage to the property
of Developer or the Franchisor, or any third person, firm or corporation, whether or not resulting from any
strict liability imposed by fact, law, statute, or ordinance, on the Franchisor. Developer further agrees to
indemnify and hold harmless Franchisor from all said Losses and shall pay for and be responsible for all said
Losses, however caused, whether by any individual, employee, third person or party, vendor, visitor, invitee,
trespasser or any firm or corporation whatsoever, whether caused by or contributed to by Franchisor, the
combined conduct of Developer and Franchisor, or active or passive negligence of Franchisor, but for the
sole negligence or willful misconduct of Franchisor.
7.6.
The provisions of this Section 7 shall expire as to each El Pollo Loco® Restaurant to be
developed under this Agreement upon execution of a Franchise Agreement for such El Pollo Loco®
Restaurant. The provision of the Franchise Agreement, in particular, Section 9 thereof (insurance and
Indemnification) shall supersede this Section 7 and govern the rights and obligations of the parties
prospectively.
8.
Transfer of Rights.
8.1.
This Agreement shall inure to the benefit of Franchisor and its successors and assigns, and it
is fully assignable by El Pollo Loco.
8.2.
The parties acknowledge and agree that this Agreement is personal in nature with respect to
Developer, being entered into by Franchisor in reliance upon and in consideration of the personal skills,
qualifications and trust and confidence reposed in Developer and Developer's present partners, managing
members or officers if Developer is a partnership, a limited liability company or a corporation. Therefore, the
rights, privileges and interests of Developer under this Agreement shall not be assigned, sold, transferred,
leased, divided or encumbered, voluntarily or involuntarily, in whole or in part, by operation of law or
otherwise without the prior written consent of El Pollo Loco, which consent may be given or withheld as El
Pollo Loco’s sole and absolute right. For purposes of this Section, a sale of stock, or any membership or
partnership interest in Developer, or a merger or other combination of Developer shall be considered a
transfer of Developer's interest prohibited hereunder. Notwithstanding the foregoing, Developer shall be
permitted to assign business organizations to serve as Franchisee after Developer individually executes the
Franchise Agreements, provided the ownership mirrors that of Developer (e.g., Developer consists of
persons A (50%), B (25%) and C (25%). Franchisee also must be owned and controlled by the same three
(3) persons with each retaining the same percentage of ownership). All other entity structures shall require
the prior written approval of Franchisor. Developer shall pay an administrative fee of Five Hundred Dollars
($500) per transfer for each permitted transfer to an Entity where such transfer is for the convenience of
ownership only and does not involve a change of principals of the business. Where Developer desires to
add new principals to
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 14 of 25
Exhibit 10.18
Development Agreement # _________
the Developer or any Franchisee entity, Developer shall pay to Franchisor an additional Two Thousand Five
Hundred Dollars ($2,500) per new principal to cover Franchisor’s administrative costs for reviewing the
application and suitability of each new principal as participants in the franchise business.
9.
Acknowledgment of Selected Terms and Provisions of the Franchise Agreement.
9.1. Developer represents that it has read each of the terms and provisions of the current form of
Franchise Agreement and acknowledges and is willing to agree to each and every obligation of Franchisee
thereunder (as they may be modified in then-current forms of Franchise Agreement) including, but not limited
to:
a.
The obligation to deliver executed Personal Guarantees or Investor Covenants
Regarding Confidentiality and Non-Competition in connection with the execution of each franchise
agreement for El Pollo Loco® Restaurants to be developed under this Agreement;
b.
The obligation to obtain the consent of Franchisor to any security interests to be granted
by Developer in the assets or business of the El Pollo Loco® Restaurant to lenders or other financing
sources in advance of any agreement to provide those security interests to such third parties;
c.
d.
All in-term and post-term restrictive covenants; and
All territorial rights, options and rights of first refusal retained by Franchisor under the
franchise agreement.
10.
Termination by Developer; Expiration Date.
10.1. This Agreement shall terminate immediately upon El Pollo Loco's receipt of Developer's notice
to terminate. In such event, the Development Fee shall be forfeited to Franchisor in consideration of the
rights granted in the Territory up to the time of termination. Notwithstanding any provision to the contrary
contained herein, unless earlier terminated by either party, this Agreement shall expire on ______, 20___,
and all rights of Developer herein shall cease and all unapplied or unused Development Fees paid pursuant
to Section 3 hereof shall be forfeited to Franchisor.
11.
Events of Default.
11.1. The following events shall constitute a default by Developer, which shall result in El Pollo
Loco's right to declare the immediate termination of this Agreement.
a.
Failure by Developer to meet the requirements of the Development Schedule within the
time periods specified therein, including failure by Developer to meet the Site Commitment Date or
Opening Date for each site for an El Pollo
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 15 of 25
Loco® Restaurant in a timely manner as set forth in Exhibit “B” and Section 2 above.
Exhibit 10.18
Development Agreement # _________
b.
Any assignment, transfer or sublicense of this Agreement by Developer without the prior
written consent of El Pollo Loco.
c.
Any violation by Developer of any covenant, term, or condition of any note or other
agreement (including any El Pollo Loco® Franchise Agreement) between Developer and Franchisor
(or an affiliate of El Pollo Loco), the effect of which is to allow Franchisor to terminate (or accelerate
the maturity of) such agreement before its stated termination (or maturity) date.
d.
Developer's assignment for the benefit of creditors or admission in writing of its inability
to pay its debts generally as they become due.
e.
Any order, judgment, or decree entered adjudicating Developer bankrupt or insolvent.
f.
Any petition, or application, by Developer to any tribunal for the appointment of a
trustee, receiver, or liquidator of Developer (or a substantial part of Developer's assets), or
commencement by Developer of any proceedings relating to Developer under any bankruptcy,
reorganization, compromise, arrangement, insolvency, readjustment of debt, dissolution, or liquidation
law of any jurisdiction, whether now or hereinafter in effect.
g.
Any filing of a petition or application against Developer, or the commencement of such
proceedings, in which Developer, in any way, indicates its approval thereof, consent thereto, or
acquiescence therein; or the entry of any order, judgment, or decree appointing any trustee, receiver,
or liquidator, or approving the petition in any such proceedings, where the order, judgment, or decree
remains unstayed and in effect for more than thirty (30) days.
h.
Any entry in any proceeding against the Developer of any order, judgment, or decree,
which requires the dissolution of Developer, where such order, judgment, or decree remains unstayed
and in effect for more than thirty (30) days.
i.
Developer's voluntary abandonment of any of Developer's restaurants.
11.2. The following events shall constitute a default by Developer, which shall result in El Pollo
Loco's right to declare the termination of this Agreement, if such default is not cured within thirty (30) days
after written notice by Franchisor to Developer:
a.
Developer's default in the performance or observance of any
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 16 of 25
Exhibit 10.18
Development Agreement # _________
covenant, term, or condition contained in this Agreement not otherwise specified in Section 11.1
above.
b.
The creation, incurrence, assumption, or sufferance to exist of any lien, encumbrance,
or option whatsoever upon any of Developer's property or assets, whether now owned or hereafter
acquired, the effect of which substantially impairs Developer's ability to perform or observe any
covenant, term, or condition of this Agreement.
c.
Refusal by Developer or Developer’s partners, members, or shareholders to enter
individually into the then-current form of Franchise Agreements and Personal Guarantee as provided
in Section 1 above.
d.
Any change, transfer or conveyance (“Transfer”) in the ownership of Developer, which
Transfer has not been approved in advance by Franchisor. Franchisor reserves the right to approve
or disapprove any Transfer as its sole and absolute right.
11.3.
If Franchisor is entitled to terminate this Agreement in accordance with Sections 11.1 or 11.2
above, Franchisor shall also have the right to undertake the following action instead of terminating this
Agreement:
a.
Franchisor may terminate or modify any rights that Developer may have with respect to
protected exclusive rights in the Territory, as granted under Section 1.1 above, effective ten (10) days
after delivery of written notice thereof to Developer.
11.4.
If any of Developer’s rights are terminated or modified in accordance with Section 11.3, such
action shall be without prejudice to Franchisor’s right to terminate this Agreement in accordance with
Sections 11.1 or 11.2 above, and/or to terminate any other rights, options or arrangements under this
Agreement at any time thereafter for the same default or as a result of any additional defaults of the terms of
this Agreement.
12.
Effect of Termination.
12.1.
Immediately upon termination or expiration of this Agreement, for any reason, all of
Developer's development rights granted pursuant to this Agreement shall revert to El Pollo Loco. At the time
of termination, only restaurants operating or to be operated under the El Pollo Loco® System by virtue of a
fully executed Franchise Agreement shall be unaffected by the termination of this Agreement. Franchisor
shall have no duty to execute any Franchise Agreement with Developer after the termination of this
Agreement. The foregoing remedies are nonexclusive, and nothing stated in this Section 12 shall prevent El
Pollo Loco's pursuit of any other remedies available to Franchisor in law or at equity due to the termination of
this Agreement.
12.2. Developer understands and agrees that upon the expiration or termination
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 17 of 25
Exhibit 10.18
Development Agreement # _________
of this Agreement (or in the event of an exclusive development agreement, the failure of Developer to meet
the Development Schedule and the resulting loss of exclusive development rights), Franchisor or its
subsidiaries or affiliates, as their sole and absolute right, may open and/or operate restaurants in the
Territory, or may authorize or franchise others to do the same, whether it is in competition with or in any other
way affects the sales of Developer at the restaurants. In addition, upon termination or expiration of this
Agreement, or if Developer’s rights herein are terminated or modified pursuant to Section 11.1 or Section
11.2, above, all unapplied or unused Development Fees paid pursuant to Section 3 hereof shall be forfeited
to Franchisor and Developer shall have no claim or right to any such Development Fees.
13.
Non-Waiver.
13.1. El Pollo Loco's consent to or approval of any act or conduct of Developer requiring such
consent or approval shall not be deemed to waive or render unnecessary El Pollo Loco's consent to or
approval of any subsequent act or conduct hereunder.
14.
Independent Contractor and Indemnification.
14.1. This Agreement does not constitute Developer an agent, legal representative, joint venturer,
partner, employee or servant of Franchisor for any purpose whatsoever, and it is understood between the
parties hereto that Developer shall be an independent contractor and is in no way authorized to make any
contract, agreement, warranty or representation on behalf of El Pollo Loco. The parties agree that this
Agreement does not create a fiduciary relationship between them.
14.2. Under no circumstances shall Franchisor be liable for any act, omission, contract, debt, or any
other obligation of Developer arising out of or in any way related to this Agreement. Developer shall
indemnify, defend and hold harmless Franchisor against any such claim and the cost of defending it arising
directly or indirectly from or as a result of, or in connection with, Developer's actions pursuant to this
Agreement.
15.
Entire Agreement.
15.1. This Agreement, including Exhibits "A", "B", “C” and “D” attached hereto, constitutes the
entire full and complete agreement between Franchisor and Developer concerning the subject matter hereof
and supersedes any and all prior written agreements. No other representations have induced Developer to
execute this Agreement, and there are no representations, inducements, promises, or agreements, oral or
otherwise, between the parties, not embodied herein, which are of any force or effect with reference to this
Agreement or otherwise. Notwithstanding the foregoing, nothing in this Agreement shall disclaim or require
Developer to waive reliance on any representation that Franchisor made in the most recent disclosure
document (including its exhibits and amendments) that Franchisor delivered to Developer or its
representative, subject to any agreed-upon changes to the contract terms and conditions described in that
disclosure document and reflected in this Agreement (including any riders or addenda
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 18 of 25
Exhibit 10.18
Development Agreement # _________
signed at the same time as this Agreement). The provisions of this Agreement may not be contradicted by
any other statement concerning the subject matter herein. No amendment or modification of this Agreement
shall be binding on either party unless written and fully executed.
16.
Dispute Resolution
16.1.
Initial Meeting and Mediation - Except as otherwise provided in this Agreement, before any
legal action is filed involving any claim or controversy between Franchisor and Developer (including its
affiliates, investors, and Owners) relating to (a) this Agreement, (b) the parties business activities conducted
as a result of this Agreement, or (c) the parties’ relationship or business dealings with each other generally,
the following procedure shall be complied with:
a.
The party wishing to resolve a dispute shall initiate negotiation proceedings by first
requesting in writing a meeting with the other party or parties. Within forty-five (45) days of receipt of
the initial request for a meeting, the parties shall meet within the county in which Developer is then
located, to discuss and negotiate toward a resolution of the controversy.
b.
If negotiation efforts do not succeed, the parties shall engage in mandatory but non-
binding mediation by a mediator jointly chosen by the parties or if the parties cannot agree upon a
mediator, appointed by, and in accordance with the procedures of, JAMS or, if JAMS is no longer in
existence, an organization of similar quality
c.
A mediation meeting will be held at a place and at a time mutually agreeable to the
parties and the mediator. The Mediator will determine and control the format and procedural aspects
of the mediation meeting which will be designed to ensure that both the mediator and the parties have
an opportunity to present and hear an oral presentation of each party’s views regarding the matter in
controversy. The parties act in good faith to resolve the controversy in mediation.
d.
The mediation will be held as soon as practicable after the negotiation meeting is held.
The mediator will be free to meet and communicate separately with each party either before, during
or after the mediation meeting within 60 days of demand by either party.
16.2. At the election of the Franchisor, the provisions of this Section 16 shall not apply to
controversies relating to any fee due the Franchisor by Developer or its affiliates, any promissory note
payments due the Franchisor by Developer, or any trade payables due the Franchisor by Developer as a
result of the purchase of equipment, goods or supplies. The provisions of this Section 16 shall also not apply
to any controversies relating to the use and protection of the El Pollo Loco Marks, the Manual or the El Pollo
Loco System, including without limitation, the Franchisor’s right to apply to any court of competent
jurisdiction for appropriate injunctive relief for the infringement of the El Pollo
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 19 of 25
Loco Marks or the El Pollo Loco System.
17.
Severability.
Exhibit 10.18
Development Agreement # _________
17.1. Each section, part, term and/or provision of this Agreement shall be considered severable, and
if, for any reason, any section, part, term and/or provision herein is determined to be invalid, contrary to, or in
conflict with, any existing or future law or regulation, by any court or agency having valid jurisdiction, then
such shall be deemed not to be a part of this Agreement, but such shall not impair the operation of, or affect
the remaining portions, sections, parts, terms and/or provisions of this Agreement, which will continue to be
given full force and effect and bind the parties hereto.
18.
Applicable Law; Choice of Forum; Waiver of Jury Trial.
18.1. This Agreement, after review by Developer and El Pollo Loco, was accepted in the state in
which Franchisor’s then-current headquarters (currently the State of California) is located and shall be
governed by and construed in accordance with the laws of such state, except that the provisions in Section
20.1 covering competition following the expiration, termination or assignment of this Agreement shall be
governed by the laws of the state in which the breach occurs. THE PARTIES AGREE THAT ANY ACTION
BROUGHT BY EITHER PARTY AGAINST EACH OTHER IN ANY COURT, WHETHER FEDERAL OR
STATE, WILL BE BROUGHT WITHIN THE STATE IN WHICH FRANCHISOR’S HEADQUARTERS
(CURRENTLY THE STATE OF CALIFORNIA) IS THEN LOCATED. THE PARTIES HEREBY WAIVE ANY
RIGHT TO DEMAND OR HAVE TRIAL BY JURY IN ANY ACTION RELATING TO THIS AGREEMENT IN
WHICH THE FRANCHISOR IS A PARTY. THE PARTIES CONSENT TO THE EXERCISE OF PERSONAL
JURISDICTION OVER THEM BY SUCH COURTS AND TO THE PROPRIETY OF VENUE OF SUCH
COURTS FOR THE PURPOSE OF CARRYING OUT THE PROVISION, AND THEY WAIVE ANY
OBJECTION THAT THEY WOULD OTHERWISE HAVE TO THE SAME. ANY ACTION BETWEEN
DEVELOPER AND FRANCHISOR SHALL INVOLVE ONLY THE INDIVIDUAL CLAIMS OF DEVELOPER
AND SHALL NOT
INVOLVE ANY CLASS, GROUP, CONSOLIDATED, REPRESENTATIVE OR
ASSOCIATIONAL ACTION. NOTHING IN THIS SECTION 18.1 IS INTENDED BY THE PARTIES TO
SUBJECT THIS AGREEMENT TO ANY FRANCHISE OR SIMILAR LAW, RULE OR REGULATION TO
WHICH THIS AGREEMENT WOULD NOT OTHERWISE BE SUBJECT.
19.
Document Interpretation.
19.1. All terms and words used in this Agreement, regardless of the number and gender in which
they are used, shall be deemed and construed to include the singular or plural tense, and any gender,
whether masculine, feminine or neuter, as the context or sense of this Agreement or any paragraph or
clause may require, the same as if such words had been fully and properly written in the appropriate number
or gender. In the event of a conflict in the language, terms, or conditions between this Agreement and any
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 20 of 25
Franchise Agreement issued pursuant to this Agreement, the Franchise Agreement shall control.
Exhibit 10.18
Development Agreement # _________
20.
Covenant Not to Compete.
20.1. To further protect the El Pollo Loco® System while this Agreement is in effect, Developer and
each officer, director, shareholder, member, manager, partner and other equity owner, as applicable, of
Developer, if Developer is an entity, shall neither directly nor indirectly own, operate, control or any financial
interest in any other business which would constitute a “Competitive Business” (as hereinafter defined)
without the prior written consent of Franchisor; provided further, that Franchisor may, as its sole and absolute
right, consent to the Developer’s continued operation of any business already in existence and operating at
the time of execution of this Agreement. In addition, Developer covenants that, except as otherwise
approved in writing by the Franchisor, Developer shall not, for a continuous, uninterrupted period
commencing upon the expiration, termination or assignment of this Agreement, regardless of the cause for
termination, and continuing for two (2) years thereafter, either directly or indirectly, for itself, or through or on
behalf of, or in conjunction with any person, partnership, corporation or other entity, own, operate, control or
have any financial interest in any Competitive Business which is located or has outlets or restaurant units
within the Territory. The foregoing shall not apply to operation of an El Pollo Loco® restaurant by Developer
pursuant to a Franchise Agreement with Franchisor or the ownership by Developer of less than five percent
(5%) of the issued or outstanding stock of any company whose shares are listed for trading on any public
exchange or on the over-the-counter market, provided that Developer does not control or become involved in
the operations of any such company. For purposes of this Section 20.1, a Competitive Business shall mean
a self-service restaurant or fast-food business which sells chicken and/or Mexican food products, which
products individually or collectively represent more than twenty percent (20%) of the revenues from such
self-service restaurant or fast-food business operated at any one location during any calendar quarter. A
“Competitive Business” shall not include a full-service restaurant.
20.2.
In the event that any provision of Section 20.1 above shall be determined by a court of
competent jurisdiction to be invalid or unenforceable, this Agreement shall not be void, but such provision
shall be limited to the extent necessary to make it valid and enforceable.
20.3. Developer understands and acknowledges that Franchisor shall have the right to reduce the
scope of any obligation imposed on Developer by Section 20.1, without Developer’s consent, and that such
modified provision shall be effective upon Developer’s receipt of written notice thereof.
20.4. Developer acknowledges that violation of the covenants not to compete contained in this
Agreement would result in immediate and irreparable injury to Franchisor for which no adequate remedy at
law will be available. Accordingly, Developer hereby consents to the entry of a preliminary and permanent
injunction prohibiting any conduct by Developer in violation of the terms of those covenants not to compete
set forth in this
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 21 of 25
Exhibit 10.18
Development Agreement # _________
Agreement. Developer expressly agrees that it may conclusively be presumed that any violation of the terms
of said covenants not to compete was accomplished by and through Developer’s unlawful utilization of
Franchisor’s Confidential Information, know-how, methods and procedures
21.
Notices.
21.1. For the purpose of this Agreement, all notices shall be in writing and shall be sent to the party
to be charged with receipt thereof either (i) served personally, or (ii) sent by certified or registered United
States mail, or (iii) sent by reputable overnight delivery service, or (iv) sent by facsimile. Notices served
personally are effective immediately on delivery, and those served by mail shall be deemed given forty-eight
(48) hours after deposit of such notice in a United States post office with postage prepaid and duly
addressed to the party to whom such notice or communication is directed. Notices served by overnight
delivery shall be deemed to have been given the day after deposit of such notice with such service. Notices
served via facsimile shall be deemed to have been given the day of faxing such notice. All notices to El
Pollo Loco® shall be addressed as follows:
El Pollo Loco, Inc.
Attn: Legal Department re. DA# _____
3535 Harbor Blvd, Suite 100
Costa Mesa, CA 92626
(714) 599-5503 (fax)
21.2. All notices to Developer shall be faxed and mailed or sent via overnight service to the
Developer's number and address shown on Exhibit "B". Either party may from time to time change its
address for the purposes of this Section by giving written notice of such change to the other party in the
manner provided in this Section. Notwithstanding anything to the contrary contained herein, the Franchisor
may deliver bulletins and updates to the Developer by electronic means, such as by the internet (e-mail) or
an intranet, if any, established by Franchisor.
22.
Section Headings.
22.1. The section headings appearing in this Agreement are for reference purposes only and shall
not affect, in any way, the meaning or interpretation of this Agreement.
23.
Acknowledgments.
23.1. Developer acknowledges that it has received a complete copy of the El Pollo Loco® Franchise
Disclosure Document, issuance date March 30, 2021 (Control No. 033021) at least fourteen (14) calendar
days prior to the date on which this Agreement was executed by Developer or payment of any monies to the
Franchisor.
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 22 of 25
Exhibit 10.18
Development Agreement # _________
23.2. Developer acknowledges that it has read and understands this Agreement, the Franchise
Agreement, the attachments thereto and the agreements relating thereto contained in the Franchise
Disclosure Document received by Developer on _____,20__, and that Franchisor has accorded Developer
ample opportunity and has encouraged Developer to consult with advisors of Developer's own choosing
about the potential benefits and risks of entering into this Agreement.
24.
Counterparts.
24.1. This Agreement may be executed in two or more counterparts, each of which shall be deemed
an original but all of which together shall constitute a single instrument. A signature on this Agreement
transmitted via facsimile or electronic mail/PDF or equivalent, electronic signature (such as DocuSign, or
equivalent) shall be considered an original for all purposes hereunder.
25.
Compliance with Laws, Rules or Regulations.
25.1. Developer shall at all times develop El Pollo Loco restaurant(s) in the Territory in accordance
with the lease or sublease, if any, for the El Pollo Loco restaurant(s) and in accordance with all applicable
federal, state or local laws, rules, or regulations, including but not limited to, OSHA related safety training
and compliance. Any citations or penalties issued shall be the sole responsibility of Developer.
SIGNATURE PAGE(S) TO FOLLOW
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 23 of 25
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this Agreement
in duplicate original as of the dates set forth below.
Exhibit 10.18
Development Agreement # _________
FRANCHISOR:
EL POLLO LOCO, INC., a Delaware Corporation
By:
Name:
Title:
Date:
DEVELOPER:
____________________________, a
____________
By:
Name:
Title:
Date:
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 24 of 25
EXHIBIT "A" TO DEVELOPMENT AGREEMENT - TERRITORY
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 25 of 25
Exhibit 10.18
Development Agreement # _________
EXHIBIT "B" TO DEVELOPMENT AGREEMENT - DEVELOPMENT SCHEDULE
Exhibit 10.18
Development Agreement # _________
DEVELOPER NAME:
NOTICE ADDRESS:
OFFICE PHONE:
OFFICE FAX:
PRINCIPAL1:
PRINCIPAL1 MOBILE & EMAIL:
PRINCIPAL2:
PRINCIPAL2 MOBILE & EMAIL:
COMMENCEMENT DATE:
EXPIRATION DATE:
TOTAL DEVELOPMENT FEE:
DEVELOPMENT SCHEDULE:
RESTAURANT
NUMBER
INITIAL FRANCHISEE
AMOUNT1
RESAC SUBMITTAL
DATES
SITE COMMITMENT
DATES
(Date for delivery of
signed leases or
purchase
agreements)
OPENING DATE
OF RESTAURANT
Restaurant #1
Restaurant #2
Restaurant #3
$40,000.00
$30,000.00
$30,000.00
1 Initial Franchise Fee is the total amount applicable to this unit, without applying the Development Fee
deposited with Franchisor at the time of execution of this Agreement.
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 26 of 25
Exhibit 10.18
Development Agreement # _________
EXHIBIT “C” TO DEVELOPMENT AGREEMENT - EXISTING EL POLLO LOCO® RESTAURANTS IN THE
TERRITORY
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 27 of 25
Exhibit 10.18
Development Agreement # _________
EXHIBIT “D” TO DEVELOPMENT AGREEMENT - AMENDMENT TO DEVELOPMENT AGREEMENT
(To be offered if you qualify for the Development Incentive Program and provided you have sign a Franchise
Development Agreement for a New Market)
THIS AMENDMENT TO FRANCHISE DEVELOPMENT AGREEMENT (“Amendment”) is made and
entered into this ___ day of ______________, by and between EL POLLO LOCO, INC., a Delaware
corporation (“Franchisor”), with its principal place of business at 3535 Harbor Blvd, Suite 100, Costa Mesa,
California 92626 and _____________________________, a ____________________, with its principal
place of business at __________________________________________ (“Developer”).
RECITALS:
Franchisor and Developer entered into a Franchise Development Agreement #___________ dated
A.
________________ (“Development Agreement).
B.
Developer has met the conditions to be eligible for the Development Incentive Program.
Franchisor and Developer wish to modify the terms of the Development Agreement as described in
C.
this Amendment.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein contained, the
parties hereto agree as follows:
1.
this Amendment.
Recitals. Recitals listed above are incorporated herein and by this reference made a part of
2.
Development Incentive Program.
a.
Reduced Royalty. If the Opening Date of Restaurant that was developed under the
Development Agreement, is on or before the Opening Date shown on the Development Schedule on
Exhibit B of the Development Agreement (“Restaurant Compliance Opening Date”), Franchisor will
reduce the monthly royalty fee rate according to the schedule below (“Reduced Royalty”). If
Developer closes the Restaurant at the Location, the Reduced Royalty will end even if Developer as
franchisee relocates the Restaurant to another location in accordance with Franchisor’s site selection
and approval procedures.
Reduced Royalty
2%
3%
4%
5%
Applicable Time Period (Measured from the
Opening Date)
Year 1
Year 2
Year 3
Year 4 and subsequent years
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 28 of 25
Exhibit 10.18
Development Agreement # _________
b.
Refund of Fifty percent (50%) of the Initial Fee. If the Opening Date of the Restaurant to
be developed under the Development Agreement, is at least one hundred eighty (180) days before
the Restaurant’s Compliance Opening Date, Franchisor will refund fifty percent (50%) of the Initial Fee
(“Partial Initial Fee Refund”) no later than thirty (30) days after the Opening Date.
3.
Entire Agreement. This Amendment and the Development Agreement embodies the entire
understanding between Franchisor and Developer with respect to the modifications set forth above and can
be changed only by a writing signed by Franchisor and Developer. Except as modified herein, all the terms
and conditions of the Development Agreement shall be unaffected and remain in full force and effect. In the
event of any inconsistency between the terms of this Amendment and the terms of the Development
Agreement, the terms of this Amendment shall control.
4.
Miscellaneous. All capitalized terms not otherwise defined in this Amendment shall have the
meanings given them in the Development Agreement. Titles and captions are for convenience only and
shall not constitute a portion of this Amendment. The parties hereto acknowledge that they have read and
fully understand the provisions of this Amendment and that said provisions constitute a complete and
exclusive expression of its terms and conditions. The parties executing this Amendment on behalf of
Franchisor and Developer are duly authorized to do so. This Amendment may be executed in one or more
counterparts, each of which will constitute an original, but all of which together will constitute but a single
document. A signature on this Amendment transmitted via facsimile or electronic mail/PDF or equivalent,
electronic signature (such as DocuSign, or equivalent) shall be considered an original for all purposes
hereunder
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this
Amendment in duplicate original as of the date(s) set forth below.
FRANCHISOR:
EL POLLO LOCO, INC.,
a Delaware corporation
________________________,
a _______________
By:
Name:
Title:
Date:
Exhibit G of Multi-State Disclosure Document (Control No. 033021)
Franchise Development Agreement - Page 29 of 25
By:
Name:
Title:
Date:
Exhibit 10.31
EL POLLO LOCO HOLDINGS, INC.
EQUITY INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
THIS AWARD AGREEMENT (this “Option Agreement”), is made effective as of ___________,
_______ (the “Date of Grant”), by and between El Pollo Loco Holdings, Inc., a Delaware corporation (the
“Company”), and__________________ (the “Participant”):
R E C I T A L S:
WHEREAS, the Company has adopted the El Pollo Loco Holdings, Inc. Equity Incentive Plan formerly
the El Pollo Loco Holdings, Inc. 2018 Omnibus Equity Incentive Plan (the “Plan”), which Plan is incorporated herein
by reference and made a part of this Option Agreement. Capitalized terms used but not otherwise defined herein shall
have meanings ascribed to such terms in the Plan; and
WHEREAS, the Administrator has determined that it would be in the best interests of the Company and
its stockholders to grant the Option provided for herein to the Participant pursuant to the Plan and the terms set forth
herein.
NOW THEREFORE, in consideration of the mutual covenants hereinafter set forth, the parties agree as
follows:
1.
Grant of the Option. The Company hereby grants to the Participant the right and option (the
“Option”) to purchase, on the terms and conditions hereinafter set forth, all or any part of an aggregate of ________
shares of Common Stock (each a “Share” and collectively, the “Shares”). The purchase price of the Shares subject to
the Option shall be equal to $_______ per Share as of the Date of Grant (the “Option Price”). The Option is intended
to be a non-qualified stock option, and is not intended to be treated as an option that complies with Section 422 of the
Code.
2.
Vesting. The Option granted hereunder shall vest and become exercisable with the passage of
time. The Option shall vest and become exercisable in four (4) equal installments on each of the first four (4)
anniversaries of the Date of Grant. Any portion of the Option which has become vested and exercisable in accordance
with this section shall hereinafter be referred to as the “Vested Portion.”
3.
Exercise of Option.
Period of Exercise. Subject to the provisions of the Plan and this Option Agreement, the
Participant may exercise all or any part of the Vested Portion of the Option at any time prior to the earliest to occur of:
(a)
(i)
(ii)
the tenth (10th) anniversary of the Date of Grant; or
ninety (90) days following the date of the Participant’s termination of employment
with the Company and its Affiliates for any reason other than for Cause or due to the Participant’s death or Disability;
or
with the Company and its Affiliates due to the Participant’s death or Disability.
(iii)
six (6) months following the date of the Participant’s termination of employment
The entire Option (whether vested or unvested) held by the Participant immediately prior to the cessation of the
Participant’s employment shall immediately terminate upon such cessation if such cessation of employment was for
Cause.
(b)
Method of Exercise.
(i)
Each election to exercise the Vested Portion shall be subject to the terms and
conditions of the Plan and shall be in writing, signed by the Participant or by his or her executor, administrator, or
permitted transferee (subject to any restrictions provided under the Plan), made pursuant to and in accordance with the
terms and conditions set forth in the Plan and received by the Company at its principal offices, accompanied by
payment in full as provided in the Plan or in this Option Agreement.
(ii)
The Option Price may be paid by (A) the delivery of cash or check acceptable to
the Administrator, including an amount to cover the applicable withholding taxes with respect to such exercise, or (B)
any other method, if any, approved by the Administrator, including (X) by means of consideration received under any
cashless exercise procedure, if any, approved by the Administrator (including the withholding of Shares otherwise
issuable upon exercise) or (Y) any other form of consideration approved by the Administrator and permitted by
Applicable Laws.
(c)
Notwithstanding any of the foregoing, the Company shall have the right to specify all
conditions of the manner of exercise, which conditions may vary by country and which may be subject to change from
time to time. Upon the Company’s determination that the Vested Portion of the Option has been validly exercised as to
any of the Shares, the Company may issue certificates in the Participant’s name for such Shares. However, the
Company shall not be liable to the Participant for damages relating to any reasonable delays in issuing the certificates to
such Participant, any loss of the certificates, or any mistakes or errors in the issuance of the certificates or in the
certificates themselves which it promptly undertakes to correct.
(d)
In the event of the Participant’s death, the Option shall remain exercisable by the
Participant’s executor or administrator, or the person or persons to whom the Participant’s rights under this Option
Agreement shall pass by will or by the laws of descent and distribution as the case may be, to the extent set forth in
Section 3(a). Any heir or legatee of the Participant shall take rights herein granted subject to the terms and conditions
hereof.
4.
Termination of Employment.
(a)
General. If the Participant’s employment with the Company and its Affiliates is
terminated for any reason, the Option shall, to the extent not then vested, terminate upon such termination of
employment and the Vested Portion of the Option shall remain exercisable for the period set forth in Section 3(a) and
shall thereafter terminate.
-2-
immediately upon the Participant’s termination of employment with the Company and its Affiliates for Cause.
(b)
For Cause. The Option (including any Vested Portion thereof) shall terminate
5.
Conditions to Issuance of Stock Certificates. The Shares deliverable upon the exercise of the
Option, or any portion thereof, may be either previously authorized but unissued Shares, treasury Shares or issued
Shares which have then been reacquired by the Company. Such Shares shall be fully paid and nonassessable.
6.
Adjustments. Pursuant to Section 5 of the Plan, in the event of a Change in Capitalization, the
Administrator shall make such equitable changes or adjustments to the number and kind of securities or other property
(including cash) issued or issuable in respect of the Option as it determines to be necessary in its sole discretion.
7.
No Right to Continued Employment. The granting of the Option evidenced hereby and this
Option Agreement shall impose no obligation on the Company or any Affiliate to continue the employment of the
Participant and shall not lessen or affect the Company’s or any Affiliate’s right to terminate the employment of such
Participant.
8.
Legend on Certificates. The certificates representing the Shares purchased by exercise of the
Vested Portion shall be subject to such stop transfer orders and other restrictions as the Administrator reasonably deem
advisable under the Plan or the rules, regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which such Shares are listed, and any applicable Federal or state laws, and the Administrator
may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.
9.
Transferability.
(a)
The Option may not be assigned, alienated, pledged, attached, sold or otherwise
transferred or encumbered by the Participant otherwise than by will or by the laws of descent and distribution, and any
such purported assignment, alienation, pledge, attachment, sale, transfer or encumbrance in contravention of the
foregoing shall be void and unenforceable against the Company or any Affiliate; provided, that the designation of a
beneficiary shall not constitute an assignment, alienation, pledge, attachment, sale, transfer or encumbrance. No such
permitted transfer of the Option to heirs or legatees of the Participant shall be effective to bind the Company unless the
Administrator shall have been furnished with written notice thereof and a copy of such evidence as the Administrator
may deem necessary to establish the validity of the transfer and the acceptance by the transferee or transferees of the
terms and conditions hereof. During the Participant’s lifetime, the Vested Option is exercisable only by the Participant.
(b)
The Option shall not be liable for the debts, contracts or engagements of the Participant or
the Participant's successors in interest or shall not be subject to disposition by transfer, alienation, anticipation, pledge,
hypothecation, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by
operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including
bankruptcy) unless and until the Option has been exercised, and any attempted
-3-
disposition thereof prior to exercise shall be null and void and of no effect, except to the extent that such disposition is
permitted by Section 9(a).
10. Withholding. Subject to Section 3(b)(ii), the Participant may be required to pay to the Company
or any Affiliate and the Company shall have the right and is hereby authorized to withhold from any payment due or
transfer made under the Option or under the Plan or from any compensation or other amount owing to the Participant
the amount (in cash, Shares, other securities or other property) of any applicable withholding taxes in respect of the
Option, its exercise or any payment or transfer under or with respect to the Option or the Plan and to take such other
action as may be necessary in the opinion of the Administrator to satisfy all obligations for the payment of such
withholding taxes, calculated up to the maximum statutory tax rates in the Participant’s jurisdiction, as determined by
the Company.
11.
Securities Laws. The issuance of any Shares hereunder shall be subject to the Participant making
or entering into such written representations, warranties and agreements as the Administrator may reasonably request in
order to comply with applicable securities laws and government regulations.
12.
Notices. Any notice necessary under this Option Agreement shall be addressed to the Company
in care of its Chief Legal Officer at the principal executive office of the Company and to the Participant at the address
appearing in the personnel records of the Company for the Participant or to either party at such other address as either
party hereto may hereafter designate in writing to the other. Any such notice shall be deemed effective upon receipt
thereof by the addressee.
13.
Governing Law/Jurisdiction. This Option Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed therein.
Any suit, action or proceeding with respect to this Option Agreement, or any judgment entered by any court in respect
of any thereof, shall be brought in any court of competent jurisdiction in the State of Delaware, and the Company and
the Participant hereby submit to the exclusive jurisdiction of such courts for the purpose of any such suit, action,
proceeding or judgment. The Participant and the Company hereby irrevocably waive (i) any objections which it may
now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating to this Option
Agreement brought in any court of competent jurisdiction in the State of Delaware, (ii) any claim that any such suit,
action or proceeding brought in any such court has been brought in any inconvenient forum and (iii) any right to a jury
trial.
14.
Option Subject to Plan. By entering into this Option Agreement, the Participant agrees and
acknowledges that the Participant has received and read a copy of the Plan. The Option is subject to the Plan, as may
be amended from time to time, and the terms and provisions of the Plan are hereby incorporated herein by reference. In
the event of any inconsistency between the Plan and this Option Agreement, the terms of the Plan shall control.
15.
Section 409A. It is intended that the terms of this Option Agreement be exempt from or comply
with Section 409A of the Code. If it is determined that the terms of this Option Agreement have been structured in a
manner that would result in adverse tax treatment
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under Section 409A of the Code, the parties agree to cooperate in taking all reasonable measures to restructure the
arrangement to minimize or avoid such adverse tax treatment without materially impairing Participant’s economic
rights.
16.
Signature in Counterparts. This Option Agreement may be signed in counterparts, each of which
shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
17.
Amendments and Termination. To the extent permitted by the Plan, this Option Agreement may
be wholly or partially amended, altered or terminated at any time or from time to time by the Administrator or the
Board, but no amendment, alteration or termination shall be made that would materially impair the rights of the
Participant under the Option without such Participant’s consent.
18.
Entire Agreement. The Plan and this Option Agreement (including all Exhibits thereto, if any)
constitute the entire agreement of the parties and supersede in their entirety all prior undertakings and agreements of the
Company and the Participant with respect to the subject matter hereof.
19.
Electronic Signature; Electronic Delivery and Acceptance. The Participant’s electronic signature
of this Option Agreement shall have the same validity and effect as a signature affixed by hand. The Company may, in
its sole discretion, decide to deliver any documents related to the Participant’s current or future participation in the Plan
by electronic means. The Participant hereby consents to receive such documents by electronic delivery and agrees to
participate in the Plan through an on-line or electronic system established and maintained by the Company or a third
party designated by the Company.
20. Waiver. The Participant acknowledges that a waiver by the Company of a breach of any
provision of this Option Agreement shall not operate or be construed as a waiver of any other provision of this Option
Agreement, or of any subsequent breach by the Participant.
21.
Severability. The provisions of this Option Agreement are severable and if any one or more
provisions are determined to be illegal or otherwise unenforceable, in whole or in part, the remaining provisions shall
nevertheless be binding and enforceable.
22.
Clawback. The Option is subject to such recoupment policies of the Company as may be in
effect from time to time pursuant to Section 28 the Plan.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed this Award Agreement as of the date and year first above
written.
EL POLLO LOCO HOLDINGS, INC.
____________________________________
Name:
Title:
PARTICIPANT
___________________________________
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Exhibit 10.32
EL POLLO LOCO HOLDINGS, INC.
EQUITY INCENTIVE PLAN
RESTRICTED SHARE AGREEMENT
EMPLOYEE
This Restricted Share Award Agreement (this “Restricted Share Agreement”), dated as of
___________, ______ (the “Date of Grant”), is made by and between El Pollo Loco Holdings, Inc., a Delaware
corporation (the “Company”) and ________________ (the “Employee”). Capitalized terms not defined herein shall
have the meaning ascribed to them in the El Pollo Loco Holdings, Inc. Equity Incentive Plan formerly the El Pollo Loco
Holdings, Inc. 2018 Omnibus Equity Incentive Plan (as amended from time to time, the “Plan”). Where the context
permits, references to the Company shall include any successor to the Company.
1.
Grant of Restricted Shares. The Company hereby grants to the Employee __________ Shares
(such shares, the “Restricted Shares”), subject to all of the terms and conditions of this Restricted Share Agreement
and the Plan.
2.
Lapse of Restrictions.
(a)
Vesting. Except as otherwise set forth in this Section 2(a), the restrictions on Transfer (as
defined in Section 6(a)) set forth in Section 2(b) shall lapse with respect to 1/4 of the Restricted Shares on each of the
first four anniversaries of the Date of Grant (each anniversary of the Date of Grant, a “Vesting Date”), subject to the
continued employment of the Employee with the Company from the date hereof through the applicable Vesting Date,
and provided that the Employee has not given notice of resignation as of such Vesting Date.
(b)
Restrictions. Until the restrictions on Transfer of the Restricted Shares lapse as provided
in Section 2(a), or as otherwise provided in the Plan, no Transfer of the Restricted Shares or any of the Employee’s
rights with respect to the Restricted Shares, whether voluntary or involuntary, by operation of law or otherwise, shall be
permitted. Unless the Administrator determines otherwise, upon any attempt to Transfer Restricted Shares or any rights
in respect of Restricted Shares, before the lapse of such restrictions, such Restricted Shares, and all of the rights related
thereto, shall be immediately canceled and forfeited.
(c)
Termination of Service. Upon termination of the Employee’s service with the Company
and its Affiliates for any reason (including the death or Disability of the Employee), any Restricted Shares in respect of
which the restrictions on Transfer described in this Section 2 shall not already have lapsed shall be immediately
canceled and forfeited and neither the Employee nor any of the Employee’s successors, heirs, assigns, or personal
representatives shall thereafter have any further rights or interests in such Restricted Shares.
3.
Adjustments. Pursuant to Section 5 of the Plan, in the event of a Change in Capitalization, the
Administrator shall make such equitable changes or adjustments to the number and kind of securities or other property
(including cash) issued or issuable in respect of out standing Restricted Shares as it determines to be necessary in its
sole discretion.
4.
Certain Changes. The Administrator may accelerate the date on which the restrictions on transfer
set forth in Section 2(a) shall lapse or otherwise adjust any of the terms of the Restricted Shares; provided that, subject
to Section 5 of the Plan, no action under this Section shall adversely affect the Employee’s rights hereunder.
5.
Notices. All notices and other communications under this Restricted Share Agreement shall be in
writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall
be deemed to have been duly given three days after mailing or 24 hours after transmission by facsimile to the respective
parties, as follows: (i) if to the Company, addressed to the Company in care of its Chief Legal Officer at the principal
executive office of the Company and (ii) if to the Employee, using the contact information on file with the Company.
Either party hereto may change such party’s address for notices by notice duly given pursuant hereto.
6.
Transferability.
(a)
Until such time as the Restricted Shares are fully vested in accordance with Section 2(a),
no purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust
(voting or other) or other disposition of, or creation of a security interest in or lien on, any of the Restricted Shares or
any agreement or commitment to do any of the foregoing (each a “Transfer”) by any holder thereof in violation of the
provisions of this Restricted Share Agreement will be valid, except with the prior written consent of the Administrator
(such consent shall be granted or withheld in the sole discretion of the Administrator).
(b)
In addition to Section 2(b), any purported Transfer of Restricted Shares or any economic
benefit or interest therein in violation of this Restricted Share Agreement shall be null and void ab initio, and shall not
create any obligation or liability of the Company, and any person purportedly acquiring any Restricted Shares or any
economic benefit or interest therein transferred in violation of this Restricted Share Agreement shall not be entitled to
be recognized as a holder of such Shares.
7.
Withholding Taxes. The Company shall be entitled to require a cash payment by or on behalf of
the Employee and/or to deduct from any compensation payable to the Employee the amount of any sums required by
federal, state or local tax law to be withheld with respect to the Restricted Shares, up to the maximum statutory tax rates
in the Employee’s jurisdiction, as determined by the Company.
8.
Section 83(b) Election. If the Employee makes an election under Section 83(b) of the Code, or
any successor section thereto, to be taxed with respect to the Restricted Shares as of the Date of Grant, the Employee
shall deliver a copy of such election to the Company immediately after filing such election with the Internal Revenue
Service, together with any required tax withholding. The Employee hereby acknowledges that it is the Employee’s sole
responsibility, and not the Company’s, to file timely the election under Section 83(b) of the Code. A form of such
election is attached hereto as Exhibit A.
THE EMPLOYEE ACKNOWLEDGES THAT IT IS THE EMPLOYEE’S SOLE
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RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY THE ELECTION UNDER
SECTION 83(b) OF THE CODE, EVEN IF THE EMPLOYEE REQUESTS THE COMPANY OR ITS
REPRESENTATIVE TO MAKE THIS FILING ON THE EMPLOYEE’S BEHALF.
9.
Governing Law. This Restricted Share Award Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed
therein. Any suit, action or proceeding with respect to this Restricted Share Agreement, or any judgment entered by
any court in respect of any thereof, shall be brought in any court of competent jurisdiction in the State of Delaware, and
the Company and the Employee hereby submit to the exclusive jurisdiction of such courts for the purpose of any such
suit, action, proceeding or judgment. The Employee and the Company hereby irrevocably waive (i) any objections
which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising out of or relating
to this Restricted Share Agreement brought in any court of competent jurisdiction in the State of Delaware, (ii) any
claim that any such suit, action or proceeding brought in any such court has been brought in any inconvenient forum
and (iii) any right to a jury trial.
10.
Incorporation of Plan. The Plan is hereby incorporated by reference and made a part hereof, and
the Restricted Shares and this Restricted Share Agreement shall be subject to all terms and conditions of the Plan and
this Restricted Share Agreement.
11.
Amendments; Construction. The Administrator may amend the terms of this Restricted Share
Agreement prospectively or retroactively at any time, but no such amendment shall impair the rights of the Employee
hereunder without his or her consent. Headings to Sections of this Restricted Share Agreement are intended for
convenience of reference only, are not part of this Restricted Share Agreement and shall have no effect on the
interpretation hereof.
12.
Survival of Terms. This Restricted Share Agreement shall apply to and bind the Employee and
the Company and their respective permitted assignees and transferees, heirs, legatees, executors, administrators and
legal successors.
13.
Rights as a Shareholder. During the period until the restrictions on Transfer of the Restricted
Shares lapse as provided in Section 2(a), the Employee shall have all the rights of a shareholder with respect to the
Restricted Shares save only the right to Transfer the Restricted Shares. Accordingly, the Employee shall have the right
to vote the Restricted Shares and to receive any ordinary dividends paid to or made with respect to the Restricted
Shares.
14.
Agreement Not a Contract for Services. Neither the Plan, the granting of the Restricted Shares,
this Restricted Share Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any
agree ment or understanding, express or implied, that the Employee has a right to continue to be employed as an officer,
director, employee, consultant or advisor of the Company or any Subsidiary or Affiliate for any period of time or at any
specific rate of compensation.
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15.
Authority of the Administrator; Disputes. The Administrator shall have full authority to interpret
and construe the terms of the Plan and this Restricted Share Agreement. The determination of the Administrator as to
any such matter of interpretation or construction shall be final, binding and conclusive.
16. Waiver. The Employee acknowledges that a waiver by the Company of a breach of any
provision of this Restricted Share Agreement shall not operate or be construed as a waiver of any other provision of this
Restricted Share Agreement, or of any subsequent breach by the Employee.
17.
Severability. Should any provision of this Restricted Share Agreement be held by a court of
competent jurisdiction to be unenforceable, or enforceable only if modified, such holding shall not affect the validity of
the remainder of this Restricted Share Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification (if any) to become a part hereof and treated as though contained in this Restricted
Share Agreement.
18.
Acceptance. The Employee hereby acknowledges receipt of a copy of the Plan and this
Restricted Share Agreement. The Employee has read and understands the terms and provisions of the Plan and this
Restricted Share Agreement, and accepts the Restricted Shares subject to all the terms and conditions of the Plan and
this Restricted Share Agreement. The Employee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions arising under this Restricted Share Agreement.
19.
Clawback. The Restricted Shares are subject to such recoupment policies of the Company as
may be in effect from time to time pursuant to Section 28 the Plan.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this Restricted Share
Agreement on the day and year first above written.
EL POLLO LOCO HOLDINGS, INC.
By
Name ANNE E. JOLLAY
Title SVP, Chief Legal Officer
EMPLOYEE
___________________________________
EXHIBIT A
ELECTION UNDER SECTION 83(b)
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in
taxpayer’s gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with taxpayer’s
receipt of the property described below:
1.
The name address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME OF TAXPAYER:
NAME OF SPOUSE:
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER:
IDENTIFICATION NUMBER OF SPOUSE:
TAXABLE YEAR:
Stock, par value $0.01 per share, of El Pollo Loco Holdings, Inc., a Delaware corporation (the “Company”).
2.
The property with respect to which the election is made is described as follows: _______ shares of Common
3.
The date on which the property was transferred is: ________________, 20__.
The property is subject to the following restrictions: The property may not be transferred and is subject to
forfeiture under the terms of an agreement between the taxpayer and the Company. These restrictions lapse upon the satisfaction of
certain conditions in such agreement.
4.
restriction which by its terms will never lapse, of such property is: $ ______________.
5.
The fair market value at the time of transfer, determined without regard to any restriction other than a
6.
The amount (if any) paid for such property is: $ ______________.
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the
undersigned’s receipt of the above-described property. The transferee of such property is the person performing the services in
connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner.
Dated: _________________, 20__
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________, 20__
Spouse of Taxpayer
Exhibit 10.33
EL POLLO LOCO HOLDINGS, INC.
EQUITY INCENTIVE PLAN
RESTRICTED SHARE AGREEMENT
NON-OFFICER DIRECTOR
This Restricted Share Award Agreement (this “Restricted Share Agreement”), dated as of
______________, ________ (the “Date of Grant”), is made by and between El Pollo Loco Holdings, Inc., a Delaware
corporation (the “Company”) and ______________ (the “Non-Officer Director”). Capitalized terms not defined
herein shall have the meaning ascribed to them in the El Pollo Loco Holdings, Inc. Equity Incentive Plan formerly the
El Pollo Loco Holdings, Inc. 2018 Omnibus Equity Incentive Plan (as amended from time to time, the “Plan”). Where
the context permits, references to the Company shall include any successor to the Company.
1.
Grant of Restricted Shares. The Company hereby grants to the Non-Officer Director
____________ Shares (such shares, the “Restricted Shares”), subject to all of the terms and conditions of this
Restricted Share Agreement and the Plan.
2.
Lapse of Restrictions.
(a)
General. Except as otherwise set forth in this Section 2, the restrictions on Transfer (as
defined in Section 6(a)) set forth in Section 2 shall lapse with respect to 1/3 of the Restricted Shares on each of the first
three anniversaries of the Date of Grant (each anniversary of the Date of Grant, a “Vesting Date”), subject to the
continued service of the Non-Officer Director for the Company from the date hereof through the applicable Vesting
Date, and provided that the Non-Officer Director has not given notice of resignation as of such Vesting Date.
(b)
Following Certain Terminations of Service. Subject to the next sentence, upon termination
of the Non-Officer Director’s service with the Company and its Affiliates for any reason (including the death or
Disability of the Non-Officer Director), any Restricted Shares in respect of which the restrictions on Transfer described
in this Section 2 shall not already have lapsed shall be canceled and immediately forfeited and neither the Non-Officer
Director nor any of the Non-Officer Director’s successors, heirs, assigns, or personal representatives shall thereafter
have any further rights or interests in such Restricted Shares. Notwithstanding the foregoing:
in the event that the Non-Officer Director’s service with the Company is terminated
(x)
without Cause, then 100% of the Restricted Shares that are not vested as of the date of such termination
shall immediately vest on the date of such termination of service, and the restrictions on Transfer of such
Restricted Shares set out in this Section 2 shall lapse; provided that if such termination occurs prior to a
Change in Control, then such vesting will be subject to the Non-Officer Director’s execution of a
separation agreement prepared by the Company (or any Subsidiary of Affiliate) which includes, inter
alia, a general release of claims; and
(y)
in the event that the Non-Officer Director’s service with the Company is terminated as a
result of the death or Disability of the Non-Officer Director, then 100% of the Restricted Shares that are
not vested as of the date of such termination shall immediately vest, and the restrictions on Transfer of
such Restricted Shares set out in this Section 2 shall lapse.
(c)
Restrictions. Until the restrictions on Transfer of the Restricted Shares lapse as provided
in this Section 2, or as otherwise provided in the Plan, no Transfer of the Restricted Shares or any of the Non-Officer
Director’s rights with respect to the Restricted Shares, whether voluntary or involuntary, by operation of law or
otherwise, shall be permitted. Unless the Administrator determines otherwise, upon any attempt to Transfer Restricted
Shares or any rights in respect of Restricted Shares, before the lapse of such restrictions, such Restricted Shares, and all
of the rights related thereto, shall be immediately canceled and forfeited.
3.
Adjustments. Pursuant to Section 5 of the Plan, in the event of a Change in Capitalization, the
Administrator shall make such equitable changes or adjustments to the number and kind of securities or other property
(including cash) issued or issuable in respect of outstanding Restricted Shares as it determines to be necessary in its sole
discretion.
4.
Certain Changes. The Administrator may accelerate the date on which the restrictions on transfer
set forth in Section 2 shall lapse or otherwise adjust any of the terms of the Restricted Shares; provided that, subject to
Section 5 of the Plan, no action under this Section shall adversely affect the Non-Officer Director’s rights hereunder.
5.
Notices. All notices and other communications under this Restricted Share Agreement shall be in
writing and shall be given by facsimile or first class mail, certified or registered with return receipt requested, and shall
be deemed to have been duly given three days after mailing or 24 hours after transmission by facsimile to the respective
parties, as follows: (i) if to the Company, addressed to the Company in care of its Chief Legal Officer at the principal
executive office of the Company and (ii) if to the Non-Officer Director, using the contact information on file with the
Company. Either party hereto may change such party’s address for notices by notice duly given pursuant hereto.
6.
Protections Against Violations of Agreement.
(a)
Until such time as the Restricted Shares are fully vested in accordance with Section 2, no
purported sale, assignment, mortgage, hypothecation, transfer, charge, pledge, encumbrance, gift, transfer in trust
(voting or other) or other disposition of, or creation of a security interest in or lien on, any of the Restricted Shares or
any agreement or commitment to do any of the foregoing (each a “Transfer”) by any holder thereof in violation of the
provisions of this Restricted Share Agreement will be valid, except with the prior written consent of the Administrator
(such consent shall be granted or withheld in the sole discretion of the Administrator).
(b)
In addition to Section 2, any purported Transfer of Restricted Shares or any economic
benefit or interest therein in violation of this Restricted Share Agreement shall be null and void ab initio, and shall not
create any obligation or liability of the
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Company, and any person purportedly acquiring any Restricted Shares or any economic benefit or interest therein
transferred in violation of this Restricted Share Agreement shall not be entitled to be recognized as a holder of such
Shares.
7.
Taxes.
The Non-Officer Director understands that he or she (and not the Company) shall be
responsible for any tax liability that may arise as a result of the transactions contem plated by this Restricted Share
Agreement. The Company shall not be required to withhold any amounts in respect of any such taxes.
(a)
pursuant to Section 83(b) of the Code. A form of such election is attached hereto as Exhibit A.
(b)
The Non-Officer Director shall promptly notify the Company of any election made
THE NON-OFFICER DIRECTOR ACKNOWLEDGES THAT IT IS THE NON-OFFICER
DIRECTOR’S SOLE RESPONSIBILITY AND NOT THE COMPANY’S TO FILE TIMELY THE
ELECTION UNDER SECTION 83(b) OF THE CODE, EVEN IF THE NON-OFFICER DIRECTOR
REQUESTS THE COMPANY OR ITS REPRESENTATIVE TO MAKE THIS FILING ON THE NON-
OFFICER DIRECTOR’S BEHALF.
(c)
The Non-Officer Director acknowledges that the tax laws and regulations applicable to
the Restricted Shares and the disposition of the Restricted Shares following vesting are complex and subject to change,
and it is the sole responsibility of the Non-Officer Director to obtain his or her own advice as to the tax treatment of the
terms of this Restricted Share Agreement.
BY SIGNING THIS RESTRICTED SHARE AGREEMENT, THE NON-OFFICER DIRECTOR
REPRESENTS THAT HE OR SHE HAS REVIEWED WITH HIS OR HER OWN TAX ADVISORS
THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
TRANSACTIONS CONTEMPLATED BY THIS RESTRICTED SHARE AGREEMENT AND THAT
HE OR SHE IS RELYING SOLELY ON SUCH ADVISORS AND NOT ON ANY STATEMENTS OR
REPRESENTATIONS OF THE COMPANY OR ANY OF ITS AGENTS. THE NON-OFFICER
DIRECTOR UNDERSTANDS AND AGREES THAT HE OR SHE (AND NOT THE COMPANY)
SHALL BE RESPONSIBLE FOR ANY TAX LIABILITY THAT MAY ARISE AS A RESULT OF
THE TRANSACTIONS CONTEMPLATED BY THIS RESTRICTED SHARE AGREEMENT.
8.
Failure to Enforce Not a Waiver. The failure of the Company to enforce at any time any
provision of this Restricted Share Agreement shall in no way be construed to be a waiver of such provision or of any
other provision hereof.
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9.
Confidentiality.
(a)
The Non-Officer Director acknowledges that during the period of the Non-Officer
Director’s service with the Company the Non-Officer Director shall have access to the Company’s Confidential
Information (as defined below). All books of account, records, systems, correspondence, documents, and any and all
other data, in whatever form, concerning or containing any reference to the works and business of the Company or its
affiliated companies shall belong to the Company and shall be given up to the Company whenever the Company
requires the Non-Officer Director to do so. The Non-Officer Director agrees that the Non-Officer Director shall not at
any time during the term of the Non-Officer Director’s service or thereafter, without the Company’s prior written
consent, disclose to any person (individual or entity) any information or any trade secrets, plans or other information or
data, in whatever form, (including, without limitation, (i) any financing strategies and practices, pricing information and
methods, training and operational procedures, advertising, marketing, and sales information or methodologies or
financial information and (ii) any Proprietary Information (as defined below)), concerning the Company’s or any of its
affiliated companies’ or customers’ practices, businesses, procedures, systems, plans or policies (collectively,
“Confidential Information”), nor shall the Non-Officer Director utilize any such Confidential Information in any way
or communicate with or contact any such customer other than in connection with the Non-Officer Director’s service by
the Company. The Non-Officer Director hereby confirms that all Confidential Information constitutes the Company’s
exclusive property, and that all of the restrictions on the Non-Officer Director’s activities contained in this Restricted
Share Agreement and such other nondisclosure policies of the Company are required for the Company’s reasonable
protection. Confidential Information shall not include any information that has otherwise been disclosed to the public
not in violation of this Restricted Share Agreement. This confidentiality provision shall survive the termination of this
Restricted Share Agreement and shall not be limited by any other confidentiality agreements entered into with the
Company or any of its affiliates.
(b) With respect to any Confidential Information that constitutes a “trade secret” pursuant to
applicable law, the restrictions described above shall remain in force for so long as the particular information remains a
trade secret or for the two-year period immediately following termination of the Non-Officer Director’s service for any
reason, whichever is longer. With respect to any Confidential Information that does not constitute a “trade secret”
pursuant to applicable law, the restrictions described above shall remain in force during the Non-Officer Director’s
service and for the two-year period immediately following termination of Non-Officer Director’s service for any reason.
(c)
The Non-Officer Director agrees that the Non-Officer Director shall promptly disclose to
the Company in writing all information and inventions generated, conceived or first reduced to practice by the Non-
Officer Director alone or in conjunction with others, during or after working hours, while in the employ of the
Company (all of which is collectively referred to in this Restricted Share Agreement as “Proprietary Information”);
provided, however, that such Proprietary Information shall not include (i) any information that has otherwise been
disclosed to the public not in violation of this Restricted Share Agreement and (ii) general business knowledge and
work skills of the Non-Officer Director, even if developed or improved by the Non-Officer Director while in the
employ of the Company. All such
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Proprietary Information shall be the exclusive property of the Company and is hereby assigned by the Non-Officer
Director to the Company. The Non-Officer Director’s obligation relative to the disclosure to the Company of such
Proprietary Information anticipated in this Section shall continue beyond the Non-Officer Director’s termination of
service and the Non-Officer Director shall, at the Company’s expense, give the Company all assistance it reasonably
requires to perfect, protect and use its right to the Proprietary Information.
(d)
Defend Trade Secrets Act. Pursuant to Section 1833(b) of the Defend Trade Secrets Act of
2016, the Non-Officer Director acknowledges that the Non-Officer Director shall not have criminal or civil liability
under any federal or State trade secret law for the disclosure of a trade secret that is made in confidence to a federal,
state, or local government official, either directly or indirectly, or to an attorney and solely for the purpose of reporting
or investigating a suspected violation of law; or that is made in a complaint or other document filed in a lawsuit or other
proceeding, if such filing is made under seal. Nothing in this Restricted Share Agreement is intended to conflict with
Section 1833(b) of the Defend Trade Secrets Act of 2016 or create liability for disclosures of trade secrets that are
expressly allowed by such Section. Notwithstanding anything set forth in this Restricted Share Agreement to the
contrary, the Non-Officer Director shall not be prohibited from reporting possible violations of federal or state law or
regulation to any governmental agency or entity or making other disclosures that are protected under the whistleblower
provisions of federal or state law or regulation, nor is the Non-Officer Director required to notify the Company
regarding any such reporting, disclosure or cooperation with the government.
10.
Governing Law. This Restricted Share Award Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of Delaware applicable to contracts made and to be performed
therein. Any suit, action or proceeding with respect to this Restricted Share Agreement, or any judgment entered by
any court in respect of any thereof, shall be brought in any court of competent jurisdiction in the State of Delaware, and
the Company and the Non-Officer Director hereby submit to the exclusive jurisdiction of such courts for the purpose of
any such suit, action, proceeding or judgment. The Non-Officer Director and the Company hereby irrevocably waive
(i) any objections which it may now or hereafter have to the laying of the venue of any suit, action or proceeding arising
out of or relating to this Restricted Share Agreement brought in any court of competent jurisdiction in the State of
Delaware, (ii) any claim that any such suit, action or proceeding brought in any such court has been brought in any
inconvenient forum and (iii) any right to a jury trial.
11.
Incorporation of Plan. The Plan is hereby incorporated by reference and made a part hereof, and
the Restricted Shares and this Restricted Share Agreement shall be subject to all terms and conditions of the Plan and
this Restricted Share Agreement.
12.
Amendments; Construction. The Administrator may amend the terms of this Restricted Share
Agreement prospectively or retroactively at any time, but no such amendment shall impair the rights of the Non-Officer
Director hereunder without his or her consent. To the extent the terms of Section 9 conflict with any prior agreement
between the parties related to such subject matter, the terms of Section 9 shall supersede such conflicting terms and
control. Headings to Sections of this Restricted Share Agreement are intended for
-5-
convenience of reference only, are not part of this Restricted Share Agreement and shall have no effect on the
interpretation hereof.
13.
Survival of Terms. This Restricted Share Agreement shall apply to and bind the Non-Officer
Director and the Company and their respective permitted assignees and transferees, heirs, legatees, executors,
administrators and legal successors.
14.
Rights as a Shareholder. During the period until the restrictions on Transfer of the Restricted
Shares lapse as provided in Section 2, the Non-Officer Director shall have all the rights of a shareholder with respect to
the Restricted Shares save only the right to Transfer the Restricted Shares. Accordingly, the Non-Officer Director shall
have the right to vote the Restricted Shares and to receive any ordinary dividends paid to or made with respect to the
Restricted Shares.
15.
Agreement Not a Contract for Services. Neither the Plan, the granting of the Restricted Shares,
this Restricted Share Agreement nor any other action taken pursuant to the Plan shall constitute or be evidence of any
agree ment or understanding, express or implied, that the Non-Officer Director has a right to continue to provide
services as an officer, director, employee, consultant or advisor of the Company or any Subsidiary or Affiliate for any
period of time or at any specific rate of compensation.
16.
Authority of the Administrator; Disputes. The Administrator shall have full authority to interpret
and construe the terms of the Plan and this Restricted Share Agreement. The determination of the Administrator as to
any such matter of interpretation or construction shall be final, binding and conclusive.
17.
Severability. Should any provision of this Restricted Share Agreement be held by a court of
competent jurisdiction to be unenforceable, or enforceable only if modified, such holding shall not affect the validity of
the remainder of this Restricted Share Agreement, the balance of which shall continue to be binding upon the parties
hereto with any such modification (if any) to become a part hereof and treated as though contained in this Restricted
Share Agreement.
18.
Acceptance. The Non-Officer Director hereby acknowledges receipt of a copy of the Plan and
this Restricted Share Agreement. The Non-Officer Director has read and understands the terms and provisions of the
Plan and this Restricted Share Agreement, and accepts the Restricted Shares subject to all the terms and conditions of
the Plan and this Restricted Share Agreement. The Non-Officer Director hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Administrator upon any questions arising under this Restricted Share
Agreement.
[Signature Page Follows]
-6-
IN WITNESS WHEREOF, the parties hereto have executed and delivered this Restricted Share
Agreement on the day and year first above written.
EL POLLO LOCO HOLDINGS, INC.
By
Name:
Title:
NON-OFFICER DIRECTOR
___________________________________
Signature Page to Restricted Share Agreement
EXHIBIT A
ELECTION UNDER SECTION 83(b)
The undersigned taxpayer hereby elects, pursuant to Section 83(b) of the Internal Revenue Code of 1986, as amended, to include in
taxpayer’s gross income for the current taxable year the amount of any compensation taxable to taxpayer in connection with taxpayer’s
receipt of the property described below:
1.
The name address, taxpayer identification number and taxable year of the undersigned are as follows:
NAME OF TAXPAYER:
NAME OF SPOUSE:
ADDRESS:
IDENTIFICATION NO. OF TAXPAYER:
IDENTIFICATION NUMBER OF SPOUSE:
TAXABLE YEAR:
Stock, par value $0.01 per share, of El Pollo Loco Holdings, Inc., a Delaware corporation (the “Company”).
2.
The property with respect to which the election is made is described as follows: _______ shares of Common
3.
The date on which the property was transferred is: ________________, 20__.
The property is subject to the following restrictions: The property may not be transferred and is subject to
forfeiture under the terms of an agreement between the taxpayer and the Company. These restrictions lapse upon the satisfaction of
certain conditions in such agreement.
4.
restriction which by its terms will never lapse, of such property is: $ ______________.
5.
The fair market value at the time of transfer, determined without regard to any restriction other than a
6.
The amount (if any) paid for such property is: $ ______________.
The undersigned has submitted a copy of this statement to the person for whom the services were performed in connection with the
undersigned’s receipt of the above-described property. The transferee of such property is the person performing the services in
connection with the transfer of said property.
The undersigned understands that the foregoing election may not be revoked except with the consent of the Commissioner.
Dated: _________________, 20__
Taxpayer
The undersigned spouse of taxpayer joins in this election.
Dated: _________________, 20__
Spouse of Taxpayer
EMPLOYMENT AGREEMENT
Laurance Roberts
Exhibit 10.37
This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of March 8, 2022 and is entered into by
and between El Pollo Loco, Inc. (the “Company”) and Laurance Roberts (the “Executive”).
WHEREAS, the Company desires to continue to employ Executive as the Company’s [Title]; and
WHEREAS, Executive is willing to accept such continued employment on the terms hereinafter set forth in this
Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants herein and for other good and
valuable consideration, the parties agree as follows:
1.
Term of Employment Executive Representation.
(a)
Employment Term. Subject to the terms and conditions set forth in this Agreement, the term of
Executive’s employment under this Agreement shall commence on March 9, 2022 (the “Effective Date”)
and end on the 12th month anniversary of the Effective Date (the “Initial Employment Term”) and on
such date and on each subsequent anniversary of such date, the term shall, without further action by
Executive or Company, be extended by an additional one-year period (each such one year term, the
“Renewal Employment Term”) subject to earlier termination as provided in this Agreement; provided,
however, that either Company or Executive may, by written notice to the other given not less than 60
days prior to the scheduled expiration of the Initial Employment Term or Renewal Employment Term (a
“Non-Renewal Notice”), as applicable, cause the term not to extend (the period during which Executive
is employed under the terms of this Agreement, including the Initial Employment Term and all Renewal
Employment Terms, is referred to herein as the “Employment Term”). The Employment Term shall also
terminate earlier upon termination of Executive’s employment as set forth in Section 6.
(b)
Executive Representation. Executive hereby represents to the Company that the execution and delivery
of this Agreement by Executive and the Company and the performance by Executive of the Executive’s
duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any employment
agreement or other agreement or policy to which Executive is a party or otherwise bound.
2.
Position.
(a)
During the Employment Term, Executive shall serve as the Company’s Chief Executive Officer and shall
principally perform Executive’s duties to the Company and its affiliates from the Company’s offices in
the Orange County, California metropolitan area, subject to normal and customary travel requirements in
the conduct of the Company’s business. Executive shall have such authorities, duties and responsibilities
as the Board of Directors may from time to time assign to
Page 1 of 17
Exhibit 10.37
Executive and reasonably consistent with those customarily performed by a Chief Executive Officer of a
company having a similar size and nature of the Company, and the Executive shall report directly to the
Board of Directors.
(b)
During the Employment Term, Executive will devote Executive’s full business time and best efforts to
the performance of Executive’s duties hereunder and will not engage in any other business, profession or
occupation (including in an advisory capacity, consulting capacity, or otherwise) for compensation or
otherwise which would conflict with the rendition of such services either directly or indirectly, without
the prior written consent of the Board of Directors of the Company (the “Board”).
3.
Compensation.
(a)
During the Employment Term, the Company shall pay Executive a base salary (the “Base Salary”) at the
annual rate of $600,000 (less applicable withholding taxes), payable in regular installments in
accordance with the Company’s usual payment practices. Executive shall be entitled to such increases in
Executive’s Base Salary, if any, as may be determined from time to time in the sole discretion of the
Board.
(b) With respect to each full calendar year during the Employment Term, Executive shall be eligible to earn
an annual bonus award (an “Annual Bonus”) based on the achievement of specified performance goals,
which shall be determined by the Board in its sole discretion within ninety (90) days following the
commencement of each calendar year, with a targeted bonus equal to one hundred percent percent
(100%) of Executive’s then current Base Salary (the “Target Bonus”). The Annual Bonus, if any, will be
paid between January 1 and April 1 of the year following the year to which it relates.
(c)
At the discretion of the Board, during the Employment Term, starting in April 2022, Executive will be
eligible to receive an annual discretionary equity grant, with the amount and terms thereof determined by
the Board.
Employee Benefits. During the Employment Term, Executive shall be provided, in accordance with the terms of
the Company’s employee benefit plans as in effect from time to time, health insurance, retirement benefits and
fringe benefits (collectively “Employee Benefits”) on the same basis as those benefits are generally made
available to other senior executives of the Company. Executive shall be provided with annual vacation of four
(4) weeks per each twelve (12) month period and additional weeks on a basis consistent with Company policy.
During the Employment Term, the Company shall provide Executive with an automobile allowance
substantially similar to the allowance provided by the Company to other similarly situated senior executives of
the Company.
Business Expenses. During the Employment Term, reasonable, documented business expenses incurred by
Executive in the performance of Executive’s duties hereunder shall be reimbursed by the Company in
accordance with Company policies.
4.
5.
Page 2 of 17
Exhibit 10.37
6.
Termination. The Employment Term and Executive’s employment hereunder may be terminated early by either
party at any time and for any reason; provided that, unless the Company determines a shorter notice period in its
sole discretion, Executive will be required to give the Company at least ninety (90) days advance written notice
of any resignation of Executive’s employment. Notwithstanding any other provision of this Agreement, the
provisions of this Section 6 shall exclusively govern Executive’s rights upon termination of employment with
the Company and its affiliates prior to expiration of the Employment Term.
(a)
By the Company For Cause; By Executive’s Resignation without Good Reason or upon Non-Renewal of
the Employment Term.
(i)
(ii)
The Employment Term and Executive’s employment hereunder may be terminated by the
Company for Cause (as defined below) or by Executive’s resignation without Good Reason (as
defined below).
For purposes of this Agreement, “Cause” shall mean (a) action by the Executive that constitute
acts of (1) fraud; (2) embezzlement; (3) gross insubordination; (4) gross misconduct; (5) material
dishonesty which causes material harm to the Company; (b) the Executive’s inability, failure, or
refusal to perform any duty, responsibility, or obligation of Executive’s position, which (to the
extent such inability, failure, or refusal to perform is curable in the judgment of the Company) is
not cured by the Executive within five (5) days after receiving written notice from the Company
of such inability, failure, or refusal; (c) Executive’s commission of a felony; (d) Executive’s
substance abuse or alcohol abuse which renders the Executive unfit to perform Executive’s
duties; or (e) any breach of the covenants set forth in Section 7 of this Agreement by Executive;
(6) any violation of the Company’s Policy Against Discrimination, Harassment and Retaliation;
or (7) any violation of the Company’s Insider Trading Policy. Any voluntary termination of
employment by the Executive in anticipation of an involuntary termination of the Executive’s
employment by the Company for Cause shall be deemed to be a termination for Cause.
(iii)
If Executive’s employment is terminated by the Company for Cause, if Executive resigns without
Good Reason or if the Employment Term expires as a result of the Company delivering to the
Executive the Non-Renewal Notice or Executive delivering to the Company the Non-Renewal
Notice (such event, the “Non-Renewal”), Executive shall be entitled to receive:
(A)
the Base Salary through the date of termination;
(B)
except in the case of termination for Cause, any Annual Bonus earned but unpaid as of
the date of termination for any previously completed calendar year;
Page 3 of 17
Exhibit 10.37
(C)
(D)
(E)
reimbursement for any unreimbursed business expenses properly incurred by Executive in
accordance with Company policy prior to the date of Executive’s termination; and
such Employee Benefits, if any, as to which Executive may be entitled under the
employee benefit plans of the Company;
any additional amounts or benefits due under any applicable plan, program, agreement or
arrangement of the Company or its affiliates or pursuant to applicable law (the amounts
described in clauses (A) through (E) hereof being referred to as the “Accrued Rights”).
The Accrued Rights under this Section 6 shall in all events be paid in accordance with
the Company’s normal payroll procedures, expense reimbursement procedures or plan
terms, as applicable.
Following such termination of Executive’s employment by Non-Renewal, the Company for Cause or resignation
by Executive without Good Reason, except as set forth in this Section 6(a), Executive shall have no further
rights to any contract damages, other compensation or any other benefits under this Agreement.
(b)
Disability or Death.
(i)
The Employment Term and Executive’s employment hereunder shall terminate upon Executive’s
death or if Executive (A) is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to result in death
or can be expected to last for a continuous period of not less than twelve (12) months, or (B) is,
by reason of any medically determinable physical or mental impairment which can be expected
to result in death or can be expected to last for a continuous period of not less than twelve (12)
months, receiving income replacement benefits for a period of not less than three (3) months
under an accident and health plan, or disability plan, covering employees of the Company or an
affiliate of the Company (such incapacity is hereinafter referred to as “Disability”).
Any question as to the existence of the Disability of Executive as to which Executive and the Company cannot agree
shall be determined in writing by a qualified independent physician mutually acceptable to Executive and the Company.
If Executive and the Company cannot agree as to a qualified independent physician, each shall appoint such a
physician and those two physicians shall select a third who shall make such determination in writing. The
determination of Disability made in writing to the Company and Executive shall be final and conclusive for all purposes
of the Agreement.
(ii)
Upon termination of Executive’s employment hereunder for either Disability or death, Executive
or Executive’s estate (as the case may be) shall be entitled to receive:
(A)
the Accrued Rights; and
Page 4 of 17
Exhibit 10.37
(B)
the Annual Bonus, if any, that the Executive would have been entitled to receive pursuant
to Section 3(b) hereof in respect of the year in which such termination occurs based upon
the actual achievement of the performance goals, multiplied by a fraction the numerator
of which is the number of days Executive is employed by the Company in such year and
the denominator of which is the total number of days in such year, payable when such
Annual Bonus would have otherwise been payable in accordance with Section 3(b) had
the Executive’s employment not terminated (the “Pro-Rata Bonus”).
Following Executive’s termination of employment due to death or Disability, except as set forth in this Section 6(b),
Executive or Executive’s estate (as the case may be) shall have no further rights to any contract damages, other
compensation or any other benefits under this Agreement.
(c)
By the Company Without Cause or by Executive’s Resignation with Good Reason.
(i)
The Employment Term and Executive’s employment hereunder may be terminated by the
Company without Cause or by Executive with Good Reason.
(ii)
For purposes of this Agreement, “Good Reason” shall mean:
(A)
(B)
(C)
(D)
(E)
Executive’s relocation, without Executive’s consent and other than for a temporary work
assignment, by the Company outside Orange County, California;
a material diminution of Executive’s authority, duties, title or responsibilities as set forth
in Section 2(a) hereof;
a reduction of Executive’s Base Salary (as increased from time to time) as set forth in
Section 3(a) hereof;
the material failure of the Company to provide or cause to be provided to Executive any
of the Employee Benefits described in Section 4 hereof; or
a requirement that Executive report to anyone other than the Board; provided that none of
the events described in clauses (A) through (E) of this Section 6(c)(ii) shall constitute
Good Reason unless Executive shall have notified the Company in writing describing the
event which constitutes Good Reason within thirty (30) days of the initial occurrence of
such event and then only if the Company shall have failed to cure such event within thirty
(30) days after the Company’s receipt of such written notice.
Page 5 of 17
Exhibit 10.37
(iii)
If Executive’s employment is terminated by the Company without Cause (other than by reason of
death or Disability), or by Executive with Good Reason, Executive shall be entitled to receive:
(A)
the Accrued Rights;
(B)
(C)
subject to Executive’s execution of a general release of claims in substantially the form
attached hereto as Exhibit A (with any such changes so that the release is enforceable to
the fullest extent permissible under then applicable law, the “Release”), the expiration of
the applicable revocation period with respect to such Release within sixty (60) days
following the date of Termination, and Executive’s continued compliance with the
provisions of Section 7 and 8, the Pro-Rata Bonus;
subject to Executive’s execution of a Release, the expiration of the applicable revocation
period with respect to such Release within sixty (60) days following the date of
termination, and Executive’s continued compliance with the provisions of Section 7 and
8, continued payment of the Base Salary in accordance with the Company’s normal
payroll practices for a period of twelve (12) months following the date of such
termination, which shall commence on the sixtieth (60th) day following such termination
(with the first payment equal to the cumulative amount that would have been paid in such
initial sixty (60) day period); and
Following Executive’s termination of employment by the Company without Cause (other than by reason of Executive’s
death or Disability) or by Executive’s resignation with Good Reason, except as set forth in this Section 6(c), Executive
shall have no further rights to any contract damages, other compensation or any other benefits under this Agreement or
under any other plans, programs or arrangements of the Company or its affiliates.
(d)
Notice of Termination. Any purported termination of employment by the Company or by Executive
(other than due to Executive’s death) shall be communicated by written Notice of Termination to the
other party hereto in accordance with Section 11(g) hereof. For purposes of this Agreement, a “Notice
of Termination” shall mean a notice which shall indicate the specific termination provision in this
Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of employment under the provision so indicated.
7.
Non-Interference/Non-Solicitation. Executive acknowledges and recognizes that in the course of performing
services for the Company, Executive will have access to certain confidential and proprietary information of the
Company and its affiliates that is extremely valuable to the Company and its affiliates and is not known to the
general public. Accordingly, Executive agrees as follows:
Page 6 of 17
Exhibit 10.37
(a)
(b)
(c)
Executive agrees that during the term of employment and until the first anniversary of the date of
termination of Executive’s employment with the Company or any subsidiary of the Company, as the case
may be (the “Restricted Period”), the Executive will not directly or indirectly, use any Company
Confidential Information (as defined in Section 8) to interfere with business relationships (whether
formed before or after the date of this Agreement) between the Company or any of its affiliates and
customers, suppliers, partners, members or investors of the Company or its affiliates.
Executive further agrees that during the Restricted Period, Executive will not, directly or indirectly, (i)
solicit or encourage any employee of the Company or its affiliates to leave the employment of the
Company or its affiliates, or (ii) solicit or encourage to cease to work with the Company or its affiliates
any consultant then under contract with the Company or its affiliates; provided, however, that general
advertising not directed specifically at employees of the Company or any affiliate shall not be deemed to
violate this Section 7(b).
It is expressly understood and agreed that although Executive and the Company consider the restrictions
contained in this Section 7 to be reasonable, if a final judicial determination is made by a court of
competent jurisdiction that any restriction contained in this Agreement is an unenforceable restriction
against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction
finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be
amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other
restrictions contained herein.
8.
Confidentiality and Cooperation. Executive will not at any time (whether during or after Executive’s
employment with the Company) disclose or use for Executive’s own benefit or purposes or the benefit or
purposes of any other person, firm, partnership, joint venture, association, corporation or other business
organization, entity or enterprise other than the Company and any of its subsidiaries or affiliates, any trade
secrets, information, data, or other confidential information relating to customers, development programs, costs,
marketing, trading, investment, sales activities, promotion, credit and financial data, manufacturing processes,
financing methods, plans, or the business and affairs of the Company generally, or of any subsidiary or affiliate
of the Company (“Company Confidential Information”); provided that the foregoing shall not apply to
information which is not unique to the Company or which is generally known to the industry or the public other
than as a result of Executive’s breach of this covenant; provided further that the foregoing shall not apply when
Executive is required to divulge, disclose or make accessible such information by a court of competent
jurisdiction or an individual duly appointed thereby, by any administrative body or legislative body (including a
committee thereof) having supervisory authority over the business of the Company, or by any administrative
body or legislative body (including a committee thereof) with jurisdiction to order Executive to divulge, disclose
or make accessible such information. Executive
Page 7 of 17
Exhibit 10.37
agrees that upon termination of Executive’s employment with the Company for any reason, he will return to the
Company immediately all memoranda, books, papers, plans, information, letters and other data, and all copies
thereof or therefrom, in any way relating to the business of the Company and its affiliates and/or containing any
Company Confidential Information, except that he may retain personal notes, notebooks and diaries that do not
contain Company Confidential Information of the type described in the preceding sentence. Executive further
agrees that he will not retain or use for Executive’s account at any time any trade names, trademark or other
proprietary business designation used or owned in connection with the business of the Company or its affiliates.
Except to the extent that it could reasonably be expected to materially and unreasonably interfere with the
Executive’s professional and personal responsibilities and commitments, upon reasonable notice from the
Company to the Executive, Executive agrees to cooperate, both during and after the Employment Term, at the
Company’s sole cost and expense (including reasonable, necessary and documented legal fees to the extent not
otherwise paid by insurance), with respect to matters of which Executive has knowledge.
9.
Defend Trade Secrets Act.
(a)
(b)
Notwithstanding anything set forth in this Agreement to the contrary, Executive shall not be prohibited
from reporting possible violations of federal or state law or regulation to any governmental agency or
entity or making other disclosures that are protected under the whistleblower provisions of federal or
state law or regulation, nor is Executive required to notify the Company regarding any such reporting,
disclosure or cooperation with the government.
Pursuant to Section 1833(b) of the Defend Trade Secrets Act of 2016, Executive acknowledges that he
shall not have criminal or civil liability under any federal or State trade secret law for the disclosure of a
trade secret that (i) is made (A) in confidence to a federal, state, or local government official, either
directly or indirectly, or to an attorney and (B) solely for the purpose of reporting or investigating a
suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other
proceeding, if such filing is made under seal. Nothing in this Agreement is intended to conflict with
Section l833(b) of the Defend Trade Secrets Act of 2016 or create liability for disclosures of trade
secrets that are expressly allowed by such section.
10.
Specific Performance. Executive acknowledges and agrees that the Company’s remedies at law for a breach or
threatened breach of any of the provisions of Section 7 or Section 8 would be inadequate and, in recognition of
this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at
law, the Company shall be entitled to cease making any payments or providing any benefit otherwise required
by this Agreement and obtain equitable relief in the form of specific performance, temporary restraining order,
temporary or permanent injunction or any other equitable remedy which may then be available.
Page 8 of 17
Exhibit 10.37
11.
Limitation on Benefits.
(a) Notwithstanding anything contained in this Agreement to the contrary, to the extent that the payments and
benefits provided under this Agreement and benefits provided to, or for the benefit of, Executive under any
other Company plan or agreement (such payments or benefits are collectively referred to as the “Benefits”)
would be subject to the excise tax (the “Excise Tax”) imposed under Section 4999 of the Internal Revenue
Code of 1986, as amended (the “Code”), the Benefits shall be reduced (but not below zero) if and to the
extent that a reduction in the Benefits would result in Executive retaining a larger amount, on an after-tax
basis (taking into account federal, state and local income taxes and the Excise Tax), than if the Executive
received all of the Benefits (such reduced amount is referred to hereinafter as the “Limited Benefit
Amount”). In order to effectuate the Limited Benefit Amount, the Company shall reduce or eliminate the
Benefits by first reducing or eliminating amounts which are payable from any cash severance, then from
any payment in respect of any equity award that is not covered by Treas. Reg. Section 1.280G-1 Q/A 24(b)
or (c), then from any payment in respect of an equity award that is covered by Treas. Reg. Section 1.280G-
1 Q/A 24(c), in each case in reverse order beginning with payments or benefits which are to be paid the
farthest in time from the Determination (as hereinafter defined).
(b) A determination as to whether the Benefits shall be reduced to the Limited Benefit Amount pursuant to this
Agreement and the amount of such Limited Benefit Amount shall be made by the Company’s independent
public accountants or another certified public accounting firm or executive compensation consulting firm
of national reputation designated by the Company (the “Firm”) at the Company’s expense. The Firm shall
provide its determination (the “Determination”), together with detailed supporting calculations and
documentation to the Company and Executive within ten (10) business days of the date of termination of
the Executive’s employment, if applicable, or such other time as reasonably requested by the Company or
Executive.
12.
Release. By signing this agreement and for the consideration set forth herein, Executive waives and releases the
Company and its owners, shareholders, directors, officers, employees, and agents from all claims, known or
unknown, arising up to and including the execution of this Agreement, relating to or arising out of Executive’s
employment with the Company, including but not limited to any claims of breach of express or implied contract,
fraud, misrepresentation, defamation, liability in tort, claims regarding the payment of wages, employee
benefits, claims under any anti-discrimination statute, or any other claim arising out of or relating to Executive’s
employment with the Company.
Executive understands and agrees that this Agreement includes a release of all claims under the Age
Discrimination in Employment Act (“ADEA”) and, therefore, pursuant to the requirements of the ADEA,
Executive acknowledges that he has been and hereby is advised: (i) that this release includes, but is not limited
to, all claims under the ADEA arising up to and including the date of execution of this release; (ii) to consult
with an attorney and/or other advisor of his choosing concerning his rights and obligations under this release;
(iii) to consider fully this release before executing it; (iv) that he has been
Page 9 of 17
Exhibit 10.37
offered ample time and opportunity, in excess of twenty-one days, to consider this release before executing it;
(v) that this release shall become effective and enforceable seven days following its execution by Executive; and
(vi) that during the seven day period following execution by Executive, Executive may revoke this acceptance
of this Agreement by delivering written notice via email to rsetoguchi@elpolloloco.com.
To effect a full and complete release as described above, Executive expressly waives and relinquishes all rights
and benefits afforded by California Civil Code § 1542, or any similar provision of any other state or federal law
or common law, and does so understanding and acknowledging the significance of such a specific waiver of
Section 1542. Executive understands that Executive 's waiver under Section 1542 extends to the Company and
other released parties. Section 1542 of the Civil Code states: A general release does not extend to claims that
the creditor or releasing party does not know or suspect to exist in his or her favor at the time of
executing the release, and that, if known by him or her, would have materially affected his or her
settlement with the debtor or released party. So that this Agreement provides a full and complete waiver and
release, Executive assumes the risk that Executive may later discover facts different from those Executive now
knows or believe to be true.
13. Miscellaneous.
(a)
(b)
(c)
(d)
(e)
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the
State of California, without regard to conflicts of laws principles thereof.
Entire Agreement/Amendments. This Agreement contains the entire understanding of the parties with
respect to the employment of Executive by the Company. There are no restrictions, agreements,
promises, warranties, covenants or undertakings between the parties with respect to the subject matter
herein other than those expressly set forth herein. This Agreement supersedes any other agreements or
representations, oral or otherwise, express or implied, with respect to the subject matter hereof which
have been made by either party. This Agreement may not be altered, modified, or amended except by
written instrument signed by the parties hereto.
No Waiver. The failure of a party to insist upon strict adherence to any term of this Agreement on any
occasion shall not be considered a waiver of such party’s rights or deprive such party of the right
thereafter to insist upon strict adherence to that term or any other term of this Agreement.
Severability. In the event that any one or more of the provisions of this Agreement shall be or become
invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining
provisions of this Agreement shall not be affected thereby.
Assignment. This Agreement shall not be assignable by Executive. This Agreement may be assigned by
the Company to a company which is a successor in
Page 10 of 17
Exhibit 10.37
(f)
(g)
interest to substantially all of the business operations of the Company. Such assignment shall become
effective when the Company notifies the Executive of such assignment or at such later date as may be
specified in such notice. Upon such assignment, the rights and obligations of the Company hereunder
shall become the rights and obligations of such successor company, provided that any assignee expressly
assumes the obligations, rights and privileges of this Agreement.
Successors Binding Agreement. This Agreement shall inure to the benefit of and be binding upon
personal or legal representatives, executors, administrators, successors, heirs, distributes, devises and
legatees.
Notice. For the purpose of this Agreement, notices and all other communications provided for in the
Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by
United States registered mail, return receipt requested, postage prepaid, addressed to the respective
addresses set forth below, or to such other address as either party may have furnished to the other in
writing in accordance herewith, except that notice of change of address shall be effective only upon
receipt.
If to the Company:
El Pollo Loco, Inc.
3535 Harbor Boulevard, Suite 100
Costa Mesa, CA 92626
Attn: President and Chief Executive Officer
Attn: Chief Legal Officer.
If to Executive: To the most recent address of Executive set forth in the personnel records of the Company.
(h) Withholding Taxes. The Company may withhold from any amounts payable under this Agreement such
Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or
regulation.
(i)
Section 409A. The intent of the parties is that payments and benefits under this Agreement comply with
Section 409A of the Code, to the extent subject thereto, and accordingly, to the maximum extent
permitted, this Agreement shall be interpreted and administered to be in compliance therewith.
Notwithstanding anything contained herein to the contrary, Executive shall not be considered to have
terminated employment with the Company for purposes of any payments under this Agreement which
are subject to Section 409A of the Code until the Executive has incurred a “separation from service”
from the Company within the meaning of Section 409A of the Code. Each amount to be paid or benefit
to be provided under this Agreement shall be construed as a separate identified payment for purposes of
Section 409A of the Code. Without limiting the foregoing and notwithstanding anything contained
herein to the contrary, to the extent required in order to avoid accelerated taxation and/or tax penalties
under Section 409A of the Code, amounts
Page 11 of 17
Exhibit 10.37
that would otherwise be payable and benefits that would otherwise be provided pursuant to this
Agreement during the six-month period immediately following an Executive’s separation from service
shall instead be paid on the first business day after the date that is six months following the Executive’s
separation from service (or, if earlier, the Executive’s date of death). To the extent required to avoid an
accelerated or additional tax under Section 409A of the Code, amounts reimbursable to Executive under
this Agreement shall be paid to Executive on or before the last day of the year following the year in
which the expense was incurred and the amount of expenses eligible for reimbursement (and in kind
benefits provided to Executive) during one year may not affect amounts reimbursable or provided in any
subsequent year. The Company makes no representation that any or all of the payments described in this
Agreement will be exempt from or comply with Section 409A of the Code and makes no undertaking to
preclude Section 409A of the Code from applying to any such payment.
(j)
Counterparts. This Agreement may be signed in counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same instrument.
[signature page follows]
Page 12 of 17
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of the day and year first
above written.
Exhibit 10.37
By:
Laurance Roberts
EL POLLO LOCO, INC.
By:
Name:
Title:
Page 13 of 17
Exhibit 10.37
Exhibit A
Form of Release
1. Release by the Executive. [____________] (the “Executive”), on his or her own behalf and on behalf of his
or her descendants, dependents, heirs, executors, administrators, assigns and successors, and each of them, hereby
acknowledges full and complete satisfaction of and releases and discharges and covenants not to sue El Pollo Loco, Inc.
(the “Company”), its divisions, subsidiaries, parents, or affiliated corporations, past and present, and each of them, as
well as its and their assignees, successors, directors, officers, stockholders, partners, representatives, attorneys, agents or
employees, past or present, or any of them (individually and collectively, “Releasees”), from and with respect to any
and all claims, agreements, obligations, demands and causes of action, known or unknown, suspected or unsuspected,
arising out of or in any way connected with the Executive’s employment or any other relationship with or interest in the
Company or the termination thereof, including without limiting the generality of the foregoing, any claim for severance
pay, profit sharing, bonus or similar benefit, equity-based compensation, pension, retirement, life insurance, health or
medical insurance or any other fringe benefit, or disability, or any other claims, agreements, obligations, demands and
causes of action, known or unknown, suspected or unsuspected resulting from any act or omission by or on the part of
Releasees committed or omitted prior to the date of this General Release Agreement (this “Agreement”) set forth below,
including, without limiting the generality of the foregoing, any claim under Title VII of the Civil Rights Act of 1964,
the Americans with Disabilities Act, the Family and Medical Leave Act, or any other federal, state or local law,
regulation or ordinance (collectively, the “Claims”); provided, however, that the foregoing release does not apply to any
obligation of the Company to the Executive pursuant to any of the following: (1) Section 6 of the Employment
Agreement dated as of [__________, 20__] by and between the Company and the Executive (the “Employment
Agreement”); (2) any equity-based awards previously granted by the Company to the Executive, to the extent that such
awards continue after the termination of the Executive’s employment with the Company in accordance with the
applicable terms of such awards; (3) any right to indemnification that the Executive may have pursuant to the
Company’s bylaws, its corporate charter or under any written indemnification agreement with the Company (or any
corresponding provision of any subsidiary or affiliate of the Company) with respect to any loss, damages or expenses
(including but not limited to attorneys’ fees to the extent otherwise provided) that the Executive may in the future incur
with respect to his or her service as an employee, officer or director of the Company or any of its subsidiaries or
affiliates; (4) with respect to any rights that the Executive may have to insurance coverage for such losses, damages or
expenses under any Company (or subsidiary or affiliate) directors and officers liability insurance policy; (5) any rights
to continued medical and dental coverage that the Executive may have under COBRA; (6) any rights to payment of
benefits that the Executive may have under a retirement plan sponsored or maintained by the Company that is intended
to qualify under Section 401(a) of the Internal Revenue Code of 1986, as amended; or (7) any rights to accrued benefits
under the Company’s employee benefits plans. In addition, this release does not cover any Claim that cannot be so
released as a matter of applicable law. The Executive acknowledges and agrees that he or she has received any and all
leave and other benefits that he or she has been and is entitled to pursuant to the Family and Medical Leave Act of
1993.
Page 14 of 17
Exhibit 10.37
2. Acknowledgement of Payment of Wages. Except for accrued vacation (which the parties agree totals
approximately [__] days of pay) and salary for the current pay period, the Executive acknowledges that he or she has
received all amounts owed for his or her regular and usual salary, and usual benefits through the date of this Agreement.
3. Waiver of Civil Code Section 1542. This Agreement is intended to be effective as a general release of and bar
to each and every Claim hereinabove specified. Accordingly, the Executive hereby expressly waives any rights and
benefits conferred by Section 1542 of the California Civil Code and any similar provision of any other applicable state
law as to the Claims. Section 1542 of the California Civil Code provides:
“A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR OR RELEASING PARTY
DOES NOT KNOW OR SUSPECT TO EXIST IN HIS OR HER FAVOR AT THE TIME OF EXECUTING THE
RELEASE AND THAT, IF KNOWN BY HIM OR HER, WOULD HAVE MATERIALLY AFFECTED HIS OR HER
SETTLEMENT WITH THE DEBTOR OR RELEASED PARTY.”
The Executive acknowledges that he or she later may discover claims, demands, causes of action or facts in addition to
or different from those which the Executive now knows or believes to exist with respect to the subject matter of this
Agreement and which, if known or suspected at the time of executing this Agreement, may have materially affected its
terms. Nevertheless, the Executive hereby waives, as to the Claims, any claims, demands, and causes of action that
might arise as a result of such different or additional claims, demands, causes of action or facts.
4. ADEA Waiver. The Executive expressly acknowledges and agrees that by entering into this Agreement, he or
she is waiving any and all rights or claims that he or she may have arising under the Age Discrimination in Employment
Act of 1967, as amended (“ADEA”), which have arisen on or before the date of execution of this Agreement. The
Executive further expressly acknowledges and agrees that:
(a) He or she is hereby advised in writing by this Agreement to consult with an attorney before signing this
Agreement;
(b) He or she was given a copy of this Agreement on [____________] and informed that he or she had twenty-
one (21) days within which to consider this Agreement and that if he or she wished to execute this Agreement prior to
expiration of such 21-day period, he or she should execute the Acknowledgement and Waiver attached hereto as Exhibit
A-1;
(c) Nothing in this Agreement prevents or precludes the Executive from challenging or seeking a determination in
good faith of the validity of this waiver under the ADEA, nor does it impose any condition precedent, penalties or costs
from doing so, unless specifically authorized by federal law; and
(d) He or she was informed that he or she has seven (7) days following the date of execution of this Agreement in
which to revoke this Agreement, and this Agreement will become
Page 15 of 17
Exhibit 10.37
null and void if the Executive elects revocation during that time. Any revocation must be in writing, addressed to the
Company’s Chief Executive Officer and delivered in accordance with the notice provisions of the Employment
Agreement, and must be received by the Company during the seven-day revocation period. In the event that the
Executive exercises his or her right of revocation, neither the Company nor the Executive will have any obligations
under this Agreement.
5. No Transferred Claims. The Executive represents and warrants to the Company that he or she has not
heretofore assigned or transferred to any person not a party to this Agreement any released matter or any part or portion
thereof.
6. Miscellaneous. The following provisions shall apply for purposes of this Agreement:
(a) Number and Gender. Where the context requires, the singular shall include the plural, the plural shall include
the singular, and any gender shall include all other genders.
(b) Section Headings. The section headings of, and titles of paragraphs and subparagraphs contained in, this
Agreement are for the purpose of convenience only, and they neither form a part of this Agreement nor are they to be
used in the construction or interpretation thereof.
(c) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State
of California, without giving effect to any choice of law or conflicting provision or rule (whether of the State of
California or any other jurisdiction) that would cause the laws of any jurisdiction other than the State of California to be
applied. In furtherance of the foregoing, the internal law of the State of California will control the interpretation and
construction of this agreement, even if under such jurisdiction’s choice of law or conflict of law analysis, the
substantive law of some other jurisdiction would ordinarily apply.
(d) Severability. It is the desire and intent of the parties hereto that the provisions of this Agreement be enforced
to the fullest extent permissible under the laws and public policies applied in each jurisdiction in which enforcement is
sought. Accordingly, if any particular provision of this Agreement shall be adjudicated by a court of competent
jurisdiction to be invalid, prohibited or unenforceable under any present or future law, and if the rights and obligations
of any party under this Agreement will not be materially and adversely affected thereby, such provision, as to such
jurisdiction, shall be ineffective, without invalidating the remaining provisions of this Agreement or affecting the
validity or enforceability of such provision in any other jurisdiction, and to this end the provisions of this Agreement
are declared to be severable; furthermore, in lieu of such invalid or unenforceable provision there will be added
automatically as a part of this Agreement, a legal, valid and enforceable provision as similar in terms to such invalid or
unenforceable provision as may be possible. Notwithstanding the foregoing, if such provision could be more narrowly
drawn (as to geographic scope, period of duration or otherwise) so as not to be invalid, prohibited or unenforceable in
such jurisdiction, it shall, as to such jurisdiction, be so narrowly drawn, without invalidating the remaining provisions of
this Agreement or affecting the validity or enforceability of such provision in any other jurisdiction.
Page 16 of 17
Exhibit 10.37
(e) Modifications. This Agreement may not be amended, modified or changed (in whole or in part), except by a
formal, definitive written agreement expressly referring to this Agreement, which agreement is executed by both of the
parties hereto.
(f) Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or
privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right,
remedy, power or privilege preclude any other or further exercise of the same or of any right, remedy, power or
privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a
waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective
unless it is in writing and is signed by the party asserted to have granted such waiver.
(g)
Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed
an original as against any party whose signature appears thereon, and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of all of the parties reflected hereon as the signatories. Photographic copies of such
signed counterparts may be used in lieu of the originals for any purpose.
[Remainder of page intentionally left blank]
Page 17 of 17
The undersigned have read and understand the consequences of this Agreement and voluntarily sign it. The
undersigned declare under penalty of perjury under the laws of the State of California that the foregoing is true and
correct.
EXECUTED this ________ day of ________ 20___, at ______________________ County, __________.
Exhibit 10.37
“EXECUTIVE”
[___________]
EXECUTED this ________ day of ________ 20___, at ______________________ County, __________.
“COMPANY”
EL POLLO LOCO, INC.
By:
[Name]
[Title]
Page 18 of 17
Consent of Independent Registered Public Accounting Firm
Exhibit 23.1
El Pollo Loco Holdings, Inc.
Costa Mesa, California
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-259661, No. 333-226621, No. 333-224730 and No. 333-
197698) of El Pollo Loco Holdings, Inc. of our reports dated March 11, 2022, relating to the consolidated financial statements and the effectiveness of El Pollo Loco
Holdings, Inc.’s internal control over financial reporting, which appear in this Form 10-K.
/s/ BDO USA, LLP
Costa Mesa, California
March 11, 2022
Exhibit 31.1
I, Laurance Roberts, certify that:
1. I have reviewed this annual report on Form 10-K of El Pollo Loco Holdings, Inc.;
CERTIFICATIONS
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made,
in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules
13a–15(e) and 15d–15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material
information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in
which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the
disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the
registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control
over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely
affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial
reporting.
Date: March 11, 2022
/s/ Laurance Roberts
Laurance Roberts
Chief Executive Officer and Interim Chief Financial Officer
(Principal Executive Officer and Principal Financial Officer)
Under 18 U.S.C. section 1350, adopted by section 906 of the Sarbanes-Oxley Act of 2002, in connection with the accompanying Annual Report on Form 10-K (the
“Report”), the undersigned officer of El Pollo Loco Holdings, Inc. (the “Company”) certifies that (i) the Report fully complies with the requirements of section 13(a)
or 15(d) of the Securities Exchange Act of 1934, as amended and (ii) the information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
CERTIFICATION
Exhibit 32.1
Date: March 11, 2022
/s/ Laurance Roberts
Laurance Roberts
Chief Executive Officer and Interim Chief Financial Officer