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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
For the fiscal year ended December 27, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
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
Rights to Purchase Series A Preferred Stock, par value
$0.01 per share
Trading Symbol(s)
LOCO
Name of each exchange on which registered
The Nasdaq Stock Market LLC
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to
previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers
during the relevant recovery period pursuant to §240.10D-1(b). ☐
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 28, 2023, 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 $168.0 million.
As of March 1, 2024, there were 31,282,820 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 2024 annual meeting of stockholders to be filed not later than 120 days after the end of the
registrant’s 2023 fiscal year.
Table of Contents
Item 1. Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 1C. Cybersecurity
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 Accountant Fees and Services
Item 15. Exhibit and 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 495 restaurants, comprised of 172 company-operated and 323
franchised restaurants as of December 27, 2023. Our restaurants are located in California, Arizona, Nevada, Texas, Utah,
Colorado 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. 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 beef. 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 2023, 2022 and 2021, and our total assets as of the end of fiscal 2023 and 2022, 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.”
Market Trends and Uncertainties
On September 28, 2023, Governor Newsom signed AB 1228 into law, which repealed and replaced the Fast Food
Accountability and Standards Recovery Act (“FAST Act”) on January 1, 2024. Pursuant to AB 1228, the minimum wage at
fast food restaurants that are part of brands which have more than 60 establishments nationwide will rise to $20 an hour on
April 1, 2024, and a Fast Food Council created by AB 1228 will have limited power to approve annual wage increases until
2029. Under the law, the Fast Food Council will also have the power to develop and propose minimum standards for fast
food workers, including standards for working hours, working conditions, and health and safety. As a result of AB 1228,
we expect our labor and regulatory compliance costs will increase beginning in fiscal 2024 and that our results of
operations and profitability will be adversely affected if we are not able to implement other measures to counter these
increased costs.
We have experienced inflationary pressures affecting our operations in certain areas such as food cost, labor costs,
construction costs and other restaurant operating costs. We have been able to substantially offset these inflationary and
other cost pressures through various actions, such as increasing menu prices, managing menu mix, and productivity
improvements. However, we expect these inflationary and other cost pressures to continue into fiscal year 2024 and we
may not be able to offset cost increases in the future.
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
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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 43% and 50% of our company-operated restaurant
sales in 2023, respectively, 44% and 50%, respectively, in 2022, and 46% and 48%, respectively, in 2021. 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
families with high-quality meals without investing significant time or money. In 2023 approximately 26% of our company-
operated sales were generated from family-sized meals, compared to 28% in 2022, and 31% in 2021.
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
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our restaurant model is designed to generate strong cash flow, consistent restaurant-level financial results, and high returns
on invested capital. In 2023, our company-operated restaurants generated average annual sales per restaurant of
approximately $2.2 million and restaurant-level contribution margins of 15.5%.
Experienced Leadership. Most of our senior management team has extensive operating experience in the restaurant
industry. Members of the senior leadership team include Maria Hollandsworth as our interim President and Chief
Executive Officer and Chief Operating Officer, Ira Fils as our Chief Financial Officer, Anne Jollay as our Chief Legal and
People Officer, Brian Carmichall as our Chief Development Officer and Jill Adams 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. In 2023, 2022 and 2021, our
comparable restaurant sales grew 0.3%, 5.9% and 12.1%, respectively. We plan to continue to expand our business, drive
restaurant sales growth and increase company profits by executing our Strategic Plan, which consists of the following five
key strategies:
Attract, Hire, and Retain Top 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 that
embodies “Heart-Centered Leadership,” which is predicated on servant-led leadership, employee recognition and
community involvement. We believe that executing on our “Heart-Centered Leadership” model will result in a better and
more meaningful work experience for our employees.
We believe that the key to building sustainable, consistent restaurant operations is through the development of a strong
restaurant leader bench, including area managers, general managers, assistant managers and shift leaders. To that end, we
have put a renewed focus on leadership development, not only to benefit our current restaurant base, but also to ensure we
have the leaders necessary for the continued growth of the El Pollo Loco brand.
An important part of our culture and how our “Heart-Centered Leadership” manifests into the broader community is shown
through our local support. 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. We will continue to look for ways to expand upon the impact that El Pollo Loco Charities
can have in the communities in which we serve.
EPL Hospitality
Serving our customers and delivering on exceptional hospitality begins with having an operations and training model that
allows for consistent delivery of our products and services. 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 2023, we
continued to implement initiatives to make it easier for our employees to operate our restaurants. These included
eliminating low-volume menu items with unique ingredients or complex builds, like our Keto Burrito, as well as
purchasing pre-chopped serrano peppers and fresh cilantro to reduce prep and ensure consistency and using a new
equipment to simplify salsa production. Initiatives currently in test include a chicken holding cabinet, which improves
overall quality and chicken availability during off-peak hours. These and other initiatives are intended to enable our
restaurant employees to increase their focus on delivering exceptional hospitality and speed of service to our customers.
We believe that this continued focus will lead to higher sales over the longer term.
Be Known For Our Famous Fire-Grilled Chicken
Our chicken is our differentiator. We marinate, grill, chop, and shred chicken every day in our restaurants to deliver
delicious chicken meals, Mexican-inspired entrees, and family meals to our customers. Our grilled chicken is versatile and
is offered in bone-in and boneless options, giving our customers choice and variety. Our chicken will continue to be
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the focus of our advertising campaigns and consumer messaging, and we believe that we are positioned uniquely to be the
alternative to fried chicken in the marketplace.
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 around different forms of chicken and portability as we look to increase customer frequency and earn
share from the competition. 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 existing product platforms, like our Double
Chicken Tostadas and Stuffed Quesadillas, and limited-time offers like our Chopped Chicken Salads. 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.
Digital-Centric In Service of Improving The Customer Experience
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 27, 2023, there were 3.7 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.
We also offer digital ordering through our mobile app, mobile web, and desktop web to provide convenient, easy ordering
options for our customers. In addition to offering digital ordering through our website and mobile app, we participate in 3rd
party delivery marketplaces. We currently have partnerships with DoorDash, Postmates, Uber Eats, and Grub Hub. As of
December 27, 2023, 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 2023, all digital and delivery orders including mobile and web orders constituted 12.0% of our total
sales mix. As of December 27, 2023, all company-operated 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.
Expand As An Asset Light Company
We believe that execution of our first four 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.
During fiscal 2023, we opened five new stores, of which three were franchised and two were company-owned. One of
these locations was our second in the greater Denver-area, a new market for El Pollo Loco. This location is performing
well and provides another data point that our brand is poised to grow beyond core markets.
In addition to unit growth, we believe that remodels and refreshes to our existing fleet will keep El Pollo Loco relevant to
our customers and keep them coming back. In 2023, we completed 15 company-operated restaurant remodels, and our
franchisees completed 33 remodels. In 2024, we plan to continue our standard practices for remodels, including 15-20
company-operated and 40-50 franchised restaurants.
We expect future new unit development to be led by franchisees, through both in-fill in existing markets and expansion into
adjacent and contiguous new markets. In order to expand into new markets, we believe that we need to source new
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franchisees and, therefore, we expect to invest more resources in sourcing and onboarding them in the future, including
franchise recruitment, franchise operations, and field marketing,
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 2023, two new company-operated restaurants were opened in Nevada and three new franchised restaurants were
opened, one in California, one in Colorado, and one in Utah. In fiscal 2024, we intend to open two new company-operated
restaurants in California and five to seven new franchised restaurants.
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 Burger King, Carl’s Jr., Jimmy John’s, QDOBA, Baskin Robbins, 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 some 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 beverage station
is 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 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
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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 workplace 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 who report up to our Chief Operating
Officer. Franchise operations are supported by four directors of franchise and a Vice President, Franchise Operations, who
reports to the Chief Operating 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 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 and leaders. In a rapidly evolving landscape,
effective training depends not only on the quality of content but also on delivery methods. We believe in a blended
approach to training to capture all audiences by integrating digital technology and traditional hands-on training activities.
To engage our growing base of multi-generational employees, we employ a Learning Management System called Pollo
Zone, a tablet-based interactive 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 27, 2023, we had a total of 323 franchised restaurants. Franchisees range in size from single-restaurant operators
to our largest franchisee, which owned 70 restaurants as of December 27, 2023. Our existing franchise base consists of
many successful, longstanding, multi-unit restaurant operators. As of December 27, 2023, approximately 86% 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 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 heritage, 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. We use both traditional and digital media channels to have targeted advertising to reach our audience segments.
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, TikTok, Instagram, Threads, and X (formerly 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 Postmates, 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 two to three times per week. Our restaurants in Texas,
Louisiana and Colorado 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 36% of our total food and paper costs for 2023. 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 six suppliers, with three
accounting for approximately 70% of our purchases for fiscal 2024. More than half of our poultry purchases have a fixed
price through the end of 2024.
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, and El Pollo Loco ® in
approximately 45 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 hours and 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; and
● health and sanitation and public safety.
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.
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 in 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.
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.
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Human Capital
As of December 27, 2023, we had approximately 4,362 employees, of whom approximately 4,213 were hourly restaurant
employees comprised of 3,371 crewmembers, 183 general managers/acting general managers, 98 assistant managers, 541
shift leaders, and 20 employees in limited-time roles as acting managers or as managers in training. The remaining 149
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. We have
maintained enhanced safety measures to help protect the health and well-being of all of our employees.
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.
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
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 2023 and plan to
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open two in fiscal 2024. Our franchisees opened three new restaurants in fiscal 2023 and plan to open five to seven in fiscal
2024.
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; 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. For example, in May 2023, we announced the signing of three new development agreements covering
territories in Northern Colorado, where we currently have two restaurants, and New Mexico and El Paso, Texas, where we
currently do not have any restaurants. 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
requires 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 or are recently expanding, such as Texas and Colorado.
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.
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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 global
economic conditions or other business conditions that may affect the desire or ability of our customers to purchase our
products, including recessions or inflationary pressures, which have caused, and may continue to cause, increased labor,
commodity and other restaurant operating costs. In addition, we may be affected by higher consumer debt and interest
rates, adverse conditions in the mortgage housing markets, high unemployment levels, increases in gas prices, declines in
median income growth, lower consumer confidence, lower consumer discretionary spending and uncertainties due to
geopolitical turmoil and potential national or international security concerns. 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. 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 transactions or impose practical limits on pricing
that could harm our business, financial condition, results of operations, and cash flow. In addition, political developments
regarding U.S. relations with Mexico may harm our business. For example, 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. In addition, factors that decrease
consumer spending or increase security costs, such as social unrest, terrorist attacks or military action, may adversely affect
our business.
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.
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 71.3% of our revenue in fiscal 2023 and approximately 71.2% in fiscal 2022. 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.
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Our inability or failure to execute our business continuity and response plan following a major disaster such as a
natural disaster, terrorism, social unrest or a cybersecurity incident affecting our corporate facilities could materially
adversely affect our business.
Our corporate systems and support for our restaurant operations are handled primarily at our corporate headquarters. We
have business continuity and response plans in place to address major disasters, including natural disasters such as
earthquakes, hurricanes, flooding and wildfires, as well as man-made disasters such as terrorism, social unrest and
cybersecurity incidents. However, if we are unable or fail to fully implement such plans, we may be unable to carry out
essential corporate functions or we may be delayed in our recovery of data or required reporting and compliance, which
could have a material adverse effect on our business or expose us to legal liabilities. In addition, threats from major
disasters are constantly evolving, which may make it difficult for us to predict, plan for and protect against such threats,
and our business continuity and response plan may not adequately address or protect against all threats we face.
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, 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, or we may fail to develop, profitably operate or meet our projections
for new restaurants at such sites, 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 property and equipment 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 current macroeconomic environment, 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, supply costs, especially for chicken, labor, construction and utilities 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 the cost of food, supplies, labor,
construction and utilities. In 2023, the costs of certain commodities, labor, and other inputs necessary to operate our
restaurants have increased. In addition, we are susceptible to increases in food costs as a result of factors beyond our
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control, such as general economic conditions, seasonal economic fluctuations, weather conditions including wildfires and
flooding, global demand, food shortages, food safety concerns, infectious diseases, fluctuations in the U.S. dollar, cyber-
attacks, transportation issues, product recalls, and government regulations, including tariffs and other import restrictions on
foreign produce and other goods. In 2022 and continuing into 2023, 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, which have been exacerbated by climate change, such as freezes,
drought, wildfires, hurricanes and flooding, 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 2023, 2022, and 2021, the cost of chicken included in our product cost was
approximately 10.0%, 11.0%, and 9.9%, 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 are impacted by 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 have in the past led to increases, and
could lead to future increases in, 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, or labor, construction and utility 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.
Public health crises, including the COVID-19 pandemic have had, and may in the future have, a significant negative
impact on our business, sales, results of operations and financial condition.
Pandemics, epidemics or other public health crises, including COVID-19, have disrupted, and may continue to disrupt, our
restaurant operations, including by causing temporary closures of some restaurants, closures of dining rooms, limited
capacity restrictions and/or decreased operating hours for some restaurants due to government mandates and/or staffing
shortages.
If future public health emergencies, including 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 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.COVID-19 or other public health crises 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.
If in the event of another public health crisis or if COVID-19 conditions reemerge, our sales and operating costs may be
materially adversely affected, which could impact our asset values, including goodwill, derivative instruments and property
and equipment 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 a new public health crisis has subsided, we may continue to experience negative impacts to our financial results
due to the public health’s crisis impact on the economy in general, globally, nationally and in the locate markets in which
we operate, including the availability of credit generally, adverse impacts on our liquidity, and/or decreases in consumer
discretionary spending that depress demand for our products. In addition, the perceived risk of infection or a resurgence or
concern of a resurgence of COVID-19 or other diseases 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
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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.
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,
cybersecurity incidents 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.
We do not have a long history with our catering offering and 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.
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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 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, 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. Further, increases in fuel prices could result in increased distribution costs. 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
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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 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. (“Intermediate”), 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.
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, including inflation and increased labor and supply costs, 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.
As of December 27, 2023, approximately 65% of our restaurants were franchised restaurants, therefore, our success relies
on the financial success and cooperation of our franchisees, yet we have limited influence over their operations.
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
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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.
If we are unable to achieve our social and environmental sustainability goals, our reputation and results of operations
could be adversely affected.
In addition to financial performance, companies increasingly are being judged by their performance on a variety of
environmental, social and governance (“ESG”) factors. Investors, governmental agencies and self-regulatory organizations,
including the SEC, the NYSE and the Financial Accounting Standards Board (the “FASB”), have increasingly focused on
social and environmental sustainability achievements and disclosures, including with respect to climate change, energy use,
packaging and waste, human rights, sustainable supply chain practices, animal health and welfare and water use.
Achievement of our goals are subject to risks and uncertainties, many of which are outside of our control and may prove to
be more difficult and costly than we anticipate. These risks and uncertainties include, but are not limited to, our ability to
achieve our ESG goals within currently projected costs and expected timeframes; unforeseen operational and technological
difficulties; the success of our collaboration with our suppliers and other third parties; and competitive pressures. Failure to
achieve our goals could damage our reputation and relationships with our guests, investors and other stakeholders, which
could have an adverse effect on our business, results of operations and stock price.
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.
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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 imposed
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, including those in Colorado, Utah, and others, which may conflict with existing
legislation or future laws and regulations.
Risks Related to Intellectual Property
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.
In particular, our labor and regulatory compliance costs are expected to be adversely impacted as a result of AB 1228,
signed into law by Governor Newsom on September 28, 2023, which repealed and replaced the FAST Act on January 1,
2024. Pursuant to AB 1228, the minimum wage at fast food restaurants that are part of brands which have
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more than 60 establishments nationwide will rise to $20 an hour on April 1, 2024, and a Fast Food Council created by AB
1228 will have limited power to approve annual wage increases until 2029. Under the law, the Fast Food Council will also
have the power to develop and propose minimum standards for fast food workers, including standards for working hours,
working conditions, and health and safety. As a result of AB 1228, we expect our labor and regulatory compliance costs
will increase beginning in fiscal 2024 and that our results of operations and profitability will be adversely affected if we are
not able to implement other measures to counter these increased costs. Further, this law could prompt similar legislation in
other states. In addition, 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 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 2023, we continued to
experience a competitive and tight labor market. 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 “Public health
crises, including the COVID-19 pandemic have had, and may in the future 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 pandemics, epidemics and other public health emergencies, such as COVID-19.
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Federally-mandated, state-mandated, or locally-mandated minimum wages have recently increased in several jurisdictions,
including state and county mandates in California, and will be further raised in the future, including as a result of the AB
1228 in California. 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 and beverages, labor and employment practices and working conditions, health, sanitation, safety
and fire standards, building and zoning requirements, registration, offer, sale, termination and renewal of franchises, public
accommodations and safety conditions, environmental matters, and consumer protection and privacy obligations. 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. 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 negatively 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. In addition, a number of states, counties, and cities have enacted menu labeling laws
requiring multi-unit restaurant operators to disclose certain nutritional information to customers. Furthermore, the
Affordable Care Act requires chain restaurants to publish calorie information on their menus and menu boards. These and
other requirements may increase our expenses, slow customers’ ordering process, or negatively influence the demand for
our offerings; all of which can 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
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● 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 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 property and equipment 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.
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Delaware law, our organizational documents, our shareholder rights agreement 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 Trimaran Pollo Partners, L.L.C 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, in certain circumstances, the shareholder rights plan adopted by our Board of Directors in August 2023 would
cause dilution to a person or group that acquires a large block of our common stock and thereby make it more difficult for
such person or group to acquire the Company. See “Shareholder activism could cause us to incur significant expense,
disrupt our business, result in a proxy contest or litigation and impact our stock price” for additional information regarding
our shareholder rights plan.
Furthermore, 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
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.
These provisions, either alone or in combination with each other, give our current directors and executive officers a
substantial ability to influence the outcome of a proposed acquisition of the Company. These provisions would apply even
if an acquisition or other significant corporate transaction was considered beneficial by some of our shareholders. If a
change in control or change in management is delayed or prevented by these provisions, the market price of our securities
could decline.
Shareholder activism could cause us to incur significant expense, disrupt our business, result in a proxy contest or
litigation and impact our stock price.
We may be subject to shareholder activism in the future, which could result in substantial costs and divert management’s
and our Board’s attention and resources from our business. Such shareholder activism could give rise to perceived
uncertainties as to our future, adversely affect our relationships with our employees, customers, or suppliers and make it
more difficult to attract and retain qualified personnel. We may be required to incur significant fees and other expenses
related to activist shareholder matters, including for third party advisors. We may be subjected to a proxy contest or to
litigation by activist investors. Our stock price has been and could be subject to significant fluctuation or otherwise be
adversely affected by the events, risks and uncertainties of any shareholder activism.
In addition, in August 2023, our Board of Directors adopted a shareholder rights plan and declared a dividend of one
preferred share purchase right (a “Right”) for each share of our common stock outstanding on August 18, 2023 to the
stockholders of record on that date. In the event that a person or group of affiliated or associated persons has acquired
beneficial ownership of 12.5% or more of our outstanding common stock, subject to certain exceptions, each Right would
entitle its holder (other than such person or members of such group) to purchase additional shares of our common stock at a
substantial discount to the public market price. In addition, at any time after a person or group of affiliated or
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associated persons has acquired beneficial ownership of 12.5% or more of our outstanding common stock (and prior to the
acquisition by any person or group of a majority of the outstanding shares of our common stock), the Board of Directors
may exchange one share of our common stock for each outstanding Right (other than Rights owned by such person or
group, which would have become void). The shareholder rights plan would cause dilution to a person or group that
acquires a large block of our common stock on terms that are not approved by our Board of Directors and thereby make it
more difficult for such person or group to acquire the Company.
ITEM 1B.
UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
The Company has multi-layer processes to assess, identify and manage material risks from cybersecurity threats. These
processes are integrated into the Company’s enterprise risk management as part of its overall risk management strategy.
A cross-functional team of senior leadership assesses potential material risks to the business and the Company’s ability to
meet strategic priorities, including risks from cybersecurity threats. The Company’s senior leadership receives updates
from relevant functional heads or other subject matter specialists on these potential material risks as well as the processes
or other steps being taken to manage or mitigate the risks. The team includes senior leaders in areas of importance to
Company priorities, including the Company’s Chief Privacy Officer, who is also our Vice President of Information
Technology and the Chief Legal Officer. The Company’s senior leadership assesses and prioritizes risk based on impact to
shareholders, operations, and strategic priorities, among other factors.
The Chief Privacy Officer oversees the Company’s information security program and is responsible for the day-to-day
information risk management activities through the internal information security team, and outside resources. The VP,
Chief Privacy Officer, who has 30 years of IT and IT security experience, 20 of which are at the Company, employs a team
of information technology experts, including a dedicated Cyber Security Analyst. The VP, Chief Privacy Officer and the
Cyber Security Analyst are further supported by other members of the IT department.
The Company’s processes to assess, identify and manage material risks from cybersecurity threats include, but are not
limited to, the following:
● The VP, Chief Privacy Officer, dedicated Cyber Security Analyst, and other key members of the information
technology team actively monitor threats to the information technology environment. They work with a third
party to provide additional 24/7 monitoring of cyber threats. These internal and external cybersecurity teams are
empowered to contain network access through various application controls. Structural protections are also in
place to mitigate risks of end point failures, and provide for continuity of operations.
● The Company uses various systems to manage threats, for example, firewall protections, anti-virus protections,
vulnerability scans, among others. Such systems are regularly reviewed for adequacy and potential
enhancements.
● The Company employs an information security and training program for our employees, including mandatory
computer-based training, regular internal communications, and ongoing end-user testing to measure the
effectiveness of our information security program.
● The Company engages external third parties to advise on emerging threats to stay current and strengthen our
security capabilities.
● The Company performs penetration testing and other exercises within internal and external networks for potential
vulnerabilities.
● The Company additionally performs annual tabletop exercises with the information technology team pertaining to
infrastructure and cyber security related events, to test the Company’s incident response and business continuity
plans in the event of a cybersecurity incident.
● Bi-annually the Company engages a third party to conduct an audit of the Company's cybersecurity systems and
processes to test their adequacy and efficacy. The results are shared with senior leadership and the Audit
Committee of the Board, and incorporated into strategic security plans.
● The Company maintains cybersecurity insurance, which is assessed annually for the appropriateness of coverage
levels and emerging trends.
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The Company also has in place an Incident Response Plan that enables it to quickly categorize, respond, and escalate to
senior leadership and the Audit Committee of the Board, real or potential cybersecurity incidents in a manner designed to
mitigate overall business impact.
In connection with the Company’s review and approval for potential new vendors, the Company assesses the data types or
Personally Identifiable Information that the vendor may maintain, store or access and reviews the adequacy of their
cybersecurity procedures and legal protections. Legal counsel and the VP, Chief Privacy Officer review the cyber and
contractual protections and consider the overall risk profile considering the type of agreement, data involved, vendor, and
jurisdiction, among other factors. Vendors deemed to have insufficient controls balancing the relevant criteria will not be
approved.
The Board of Directors is kept apprised of material risks from cybersecurity threats through the Audit Committee. The
Audit Committee is responsible for overseeing threats to the Company, including those involving cyber threats, and
reviewing the Company’s protocols and procedures to mitigate those threats. On a quarterly basis, the VP, Chief Privacy
Officer, presents to the Audit Committee on the Company’s cybersecurity compliance and risk management practices.
These presentations address, among other things, the results of audits and reviews of our security information systems and
other cybersecurity measures, the current threat environment and cybersecurity trends and best practices. As applicable,
these quarterly presentations also include reports of cybersecurity incidents affecting our information systems along with
updates on the status of prior cybersecurity incidents and applicable remediation efforts. The Audit Committee discusses
the adequacy and efficacy of the controls and shares the information with the Board as part of its risk oversight function.
Outside of quarterly presentations, the Audit Committee is informed of incidents that in senior leadership’s discretion
require more immediate Audit Committee attention.
To date, the Company has not, to its knowledge, experienced any cybersecurity threats or previous cybersecurity incidents,
that have materially affected or are reasonably likely to materially affect the Company, including its business strategy,
results of operations, or financial condition. However, we can give no assurance that we have detected or protected against
all cybersecurity incidents or cybersecurity threats. Please refer to the risk factor titled “Our inability or failure to execute
our business continuity and response plan following a major disaster such as a natural disaster, terrorism, social unrest
or a cybersecurity incident affecting our corporate facilities could materially adversely affect our business” in “Item 1A,
Risk Factors” in this report for additional information about risks related to cybersecurity matters.
ITEM 2.
PROPERTIES
As of December 27, 2023, our restaurant system consisted of 495 restaurants, comprised of 172 company-operated
restaurants and 323 franchised restaurants, located in California, Nevada, Arizona, Texas, Utah, Louisiana and Colorado. In
addition, we currently license our brand to nine restaurants in the Philippines. We have not included these licensed
restaurants 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 27, 2023.
State
California
Nevada
Arizona
Texas
Utah
Louisiana
Colorado
Total
Company-
Operated Franchised
Total
144
28
—
—
—
—
—
172
246
5
27
31
10
2
2
323
390
33
27
31
10
2
2
495
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.
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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 three to franchisees.
In addition, we operate 160 company-operated restaurants on leased real estate, we own one operating unit with additional
parking on leased real estate, and we have another 57 leased sites that are subleased or assigned to franchisees who operate
El Pollo Loco restaurants. We also have two 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
2026, plus a one-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.
PART II
ITEM 5.
AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
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 1, 2024, there were approximately 58 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
In fiscal 2022, the Board of Directors declared a special cash dividend of $1.50 per share on our common stock. The
special dividend was paid on November 9, 2022, to stockholders of record, including holders of restricted stock, at the
close of business on October 24, 2022. Our dividend is subject to the discretion and approval of our Board of Directors and
our compliance with applicable law, and depends upon, among other things, our results of operations, financial condition,
level of indebtedness, capital requirements, contractual restrictions, and other factors that our Board of Directors may deem
relevant. 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
The following table sets forth information with respect to the shares of our common stock we acquired during the fourth
quarter ended December 27, 2023.
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Total
Number of
Shares
Purchased
as Part of
Publicly
Announced
Plans or
Programs
(1)
Average
Price Paid
Per Share
-
8.37
8.40
— $
— $
$
1,500,000
1,500,000
Approximate
Dollar Value of
Shares That
May Be
Purchased
Under the Plans
or Programs
-
20,000,000
7,400,000
Total
Number of
Shares
Purchased
—
$
3,215 (2) $
1,500,000 (3) $
1,503,215
September 28, 2023 to October 25, 2023
October 26, 2023 to November 22, 2023
November 23, 2023 to December 27, 2023
Total
(1) On October 31, 2023, our Board of Directors approved a share repurchase program under which we are
authorized to repurchase up to $20.0 million of shares of our common stock. The repurchase program will
terminate on March 31, 2025, may be modified, suspended or discontinued at any time, and does not obligate us
to acquire any particular number of shares. During the fourth quarter ended December 27, 2023, we repurchased
1,500,000 shares of our common stock at a price of $8.40 per share pursuant the share repurchase program;
therefore, $7,400,000 of our common stock remained available for repurchase under the share repurchase
program at December 27, 2023.
(2) Consists of 3,215 shares acquired by the Company to satisfy employee tax withholding obligations in connection
with the vesting of previously issued restricted stock.
(3) These shares were repurchased pursuant to a Stock Repurchase Agreement entered into with FS Equity Partners
V, L.P. and FS Affiliates V, L.P. (the “Sellers”) on November 26, 2023, pursuant to which we agreed to purchase
an aggregate of 1,500,000 shares of our common stock from the Sellers at a price of $8.40 per share, representing
the closing price of such shares as listed on Nasdaq on November 29, 2023, for a total purchase price of
$12,600,000.
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Stock Performance Graph
The following graph and table illustrate the total cumulative shareholder return for (i) our common stock, (ii) the Nasdaq
Composite 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 27, 2023. The graph assumes the investment of
$100 at the beginning of the period (at the closing price of our common stock on December 26, 2018) and the reinvestment
of all dividends. Specifically, the graph assumes that the $1.50 per share special cash dividend paid to shareholders was
reinvested in 2022. 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.
Date
December 26, 2018
December 24, 2019
December 30, 2020
December 29, 2021
December 28, 2022
December 27, 2023
ITEM 6.
[RESERVED]
LOCO
100.00
99.67
120.60
92.78
65.96
59.93
$
$
$
$
$
$
$
$
$
$
$
$
Nasdaq
Composite
Index
S&P Composite
1500
Restaurants
100.00
136.69
198.10
242.03
163.28
236.17
$
$
$
$
$
$
100.00
122.86
146.90
179.28
163.44
189.14
ITEM 7.
RESULTS OF OPERATIONS
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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-
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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 2023, 2022, and 2021
ended on December 27, 2023, December 28, 2022 and December 29, 2021, 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 2023, 2022 and 2021 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 2023 refer to the fiscal year
ended December 27, 2023.
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 healthier
lifestyle of Los Angeles. 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 beef. 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.
Market Trends and Uncertainties
On September 28, 2023, Governor Newsom signed AB 1228 into law, which repealed and replaced the FAST Act on
January 1, 2024. Pursuant to AB 1228, the minimum wage at fast food restaurants that are part of brands which have more
than 60 establishments nationwide will rise to $20 an hour on April 1, 2024, and a Fast Food Council created by AB 1228
will have limited power to approve annual wage increases until 2029. Under the law, the Fast Food Council will also have
the power to develop and propose minimum standards for fast food workers, including standards for working hours,
working conditions, and health and safety. As a result of AB 1228, we expect our labor and regulatory compliance costs
will increase beginning in fiscal 2024 and that our results of operations and profitability will be adversely affected if we are
not able to implement other measures to counter these increased costs.
We have experienced inflationary pressures affecting our operations in certain areas such as food cost, labor costs,
construction costs and other restaurant operating costs. We have been able to substantially offset these inflationary and
other cost pressures through various actions, such as increasing menu prices, managing menu mix, and productivity
improvements. However, we expect these inflationary and other cost pressures to continue throughout fiscal year 2024 and
we may not be able to offset cost increases in the future.
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 five key strategies:
● attract, hire, and retain top talent;
● EPL hospitality;
● be known for our famous fire-grilled chicken;
● digital-centric in service of improving the customer experience; and
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● expand as an asset light company.
As of December 27, 2023, we had 495 locations in seven states. In fiscal 2023, we opened two new company-operated
restaurants in Nevada and our franchisees opened three new restaurants, one in California, one in Colorado and one in
Utah. In fiscal 2022, we opened four new company-operated restaurants, two in Nevada and two in California, and our
franchisees opened nine new restaurants, seven in California, one in Colorado and one in Utah.
In 2024, we intend to open two new company-operated in California and five to seven 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 2023, comparable restaurant sales system-wide decreased 0.3%. In fiscal 2022, comparable restaurant sales
system-wide increased 5.9%. In fiscal 2021, comparable restaurant sales system-wide increased 12.1%. 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 0.3%, 3.7%,
and 7.6%, respectively, in fiscal 2023, 2022 and 2021. For company-operated restaurants in 2023, the change in
comparable restaurant sales consisted of a 2.3% increase in average check size due to increases in menu prices partially
offset by a 2.0% decrease in transactions. In fiscal 2022, the increase in company-operated comparable restaurant sales
consisted of a 7.3% increase in average check size partially offset by a 3.3% decrease in transactions. In fiscal 2021, the
increase in company-operated comparable restaurant sales consisted of a 6.3% increase in average check size and a 1.2%
increase in transactions.
In fiscal 2023, comparable restaurant sales at franchised restaurants decreased 0.7%. In fiscal 2022, comparable restaurant
sales at franchised restaurants increased 7.4%, and in fiscal 2021, comparable restaurant sales at franchised restaurants
increased 15.3%.
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Restaurant Development
In fiscal 2023, we opened two company-operated restaurants, and our franchisees opened three new restaurants. From time
to time, we and our franchisees close restaurants. In fiscal 2023, we did not close any company-operated restaurants, and
our franchisees did not close any 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
2023
Fiscal Year Ended
2022
2021
188
2
(18)
—
172
302
3
18
—
323
490
5
—
495
189
4
(3)
(2)
188
291
9
3
(1)
302
480
13
(3)
490
196
2
(8)
(1)
189
283
2
8
(2)
291
479
4
(3)
480
During the year ended December 27, 2023, we completed 15 company-operated restaurant remodels and 33 franchise
remodels. In fiscal 2024, we plan to continue our standard practices for remodels, which includes completing a total of 15-
20 company and 40-50 franchise remodels. 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 million 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 points can be redeemed for multiple redemption options. If a
customer does not earn or use points within a one-year period, their account is deactivated and all points expire. 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 27, 2023, the amount of revenue deferred related to the earned points, net
of redemptions, is $0.7 million. We had more than 3.7 million members in the Loco Rewards loyalty program as of
December 27, 2023.
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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. We expect food and paper costs, particularly those items not subject
to purchasing commitments, to increase in the short-term due to current inflationary pressures.
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, state labor laws
(which, in California, include AB 1228), overtime, wage inflation, 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 (“CAM”), 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.
Gain on Recovery of Insurance Proceeds, Net
Gain on recovery of insurance proceeds includes insurance reimbursements related to the property and equipment damage,
expenses incurred, and lost profits.
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.
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.
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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 property and equipment
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 right-of-use (“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 CAM charges for closed restaurants.
(Gain) loss on Disposition of Restaurants
(Gain) loss on disposal of restaurants includes the (gain) 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.
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.
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Results of Operations
Fiscal Year 2023 Compared to Fiscal Year 2022
Our operating results for the fiscal years ended December 27, 2023 and December 28, 2022, 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:
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, net
Company restaurant expenses (1)
General and administrative expenses
Franchise expenses
Depreciation and amortization
Loss on disposal of assets
Gain on recovery of insurance proceeds, property,
equipment and expenses
Gain on disposition of restaurants
Impairment and closed-store reserves
Total expenses
Income from operations
Interest expense, net
Income tax receivable agreement expense (income)
Income before provision for income taxes
Provision for income taxes
Net income
2023
(52-Weeks)
Fiscal Year
2022
(52-Weeks)
Increase / (Decrease)
($,000)
(%)
($,000)
(%)
($,000)
(%)
$ 398,437
41,002
29,225
85.0
8.7
6.3
$ 403,218
38,225
28,516
85.8
8.1
6.1
$ (4,781)
2,777
709
(1.2)
7.3
2.5
468,664
100.0
469,959
100.0
(1,295)
(0.3)
108,250
127,244
101,398
(327)
336,565
42,025
38,404
15,235
192
(247)
(5,034)
1,732
428,872
39,792
4,811
103
34,878
9,324
$ 25,554
27.2
31.9
25.4
(0.1)
84.5
9.0
8.2
3.3
0.0
(0.1)
(1.1)
0.4
91.5
8.5
1.1
0.0
7.4
1.9
5.5
117,774
130,773
101,543
—
350,090
39,093
36,169
14,418
165
—
(848)
752
439,839
30,120
1,677
(436)
28,879
8,078
$ 20,801
29.2
32.4
25.2
—
86.8
8.3
7.7
3.1
0.0
(9,524)
(3,529)
(145)
(327)
(13,525)
2,932
2,235
817
27
(8.1)
(2.7)
(0.1)
N/A
(3.9)
7.5
6.2
5.7
16.4
—
(247) N/A
493.6
4,186
130.3
980
(2.5)
32.1
186.9
123.6
20.8
15.4
22.8
(10,967)
9,672
3,134
539
5,999
1,246
$ 4,753
(0.2)
0.2
93.6
6.4
0.4
(0.1)
6.1
1.7
4.4
(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.
Company-Operated Restaurant Revenue
In fiscal 2023, company-operated restaurant revenue decreased $4.8 million, or 1.2%. The decrease in company-operated
restaurant sales was primarily due to $10.5 million decrease in revenue from the 21 company-operated restaurants sold by
the Company to existing franchisees and the closure of two restaurants, in each case, during or subsequent to the first
quarter of 2022. This company-operated restaurant sales decrease was partially offset by an increase in company-operated
comparable restaurant revenue of $1.2 million, or 0.3%. The company-operated comparable restaurant sales increase
consisted of an approximately 2.3% increase in average check size due to increases in menu prices, partially offset by a
2.0% decrease in transactions. In addition, company-operated restaurant revenue was favorably impacted by $4.3 million
of additional sales from the opening of six restaurants during or subsequent to the first quarter of 2022.
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Franchise Revenue
In fiscal 2023, franchise revenue increased $2.8 million, or 7.3%. This increase was primarily due to revenue generated
from 21 company-operated restaurants sold by the Company to existing franchisees and the opening of 12 restaurants, in
each case, during or subsequent to the first quarter of 2022. This franchise revenue increase was partially offset by the
franchise comparable restaurant sales decrease of 0.7%.
Franchise Advertising Fee Revenue
Franchise advertising fee revenue increased $0.7 million, or 2.5% 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 and
decreases noted in franchise revenue above.
Food and Paper Costs
Food and paper costs decreased $9.5 million, or 8.1%, in fiscal 2023. The decrease in food and paper costs resulted
primarily from lower transactions including restaurant locations sold to franchisees during the current or prior year,
partially offset by commodity inflation. Food and paper costs as a percentage of company-operated restaurant revenue were
27.2% in fiscal 2023, down from 29.2% in fiscal 2022 primarily due to an increase in pricing, partially offset by
commodity inflation.
Labor and Related Expenses
Labor and related expenses decreased $3.5 million, or 2.7%, in fiscal 2023. The decrease was primarily due to a $4.0
million decrease related to the 2.0% decrease in year-over-year sales transactions, a $2.9 million decrease in overtime pay
due to improvements in operational execution and a $1.8 million decrease related to COVID-19 sick pay. The decrease in
labor and related expenses for the year was partially offset by a $4.1 million increase primarily related to higher wage rates
from minimum wage increases in California during fiscal 2023 and 2022 and other labor wage increases as a result of
competitive pressure and a $1.9 million increase in labor related costs due to due to open restaurant management staffing
positions in fiscal 2022 being filled during fiscal 2023. Labor and related expenses as a percentage of company-operated
restaurant revenue were 31.9% in fiscal 2023, down from 32.4% in fiscal 2022 primarily due to the increase in pricing, and
overtime and sick pay decreases, partially offset by the cost increases highlighted above.
Occupancy and Other Operating Expenses
Occupancy and other operating expenses decreased $0.1 million, or 0.1%, in fiscal 2023. The decrease was primarily due
to a $0.8 million decrease in utilities and a $0.3 million decrease in market place delivery fees. The decrease in occupancy
and other operating expenses was partially offset by a $1.0 million increase in occupancy cost. Occupancy and other
operating expenses as a percentage of company-operated restaurant revenue were 25.4% in fiscal 2023, up from 25.2% in
fiscal 2022 primarily due to the cost increases highlighted above.
Gain on Recovery of Insurance Proceeds, Lost Profits
During fiscal 2023 and fiscal 2022, two of our restaurants incurred damage resulting from a fire. In fiscal 2023, we
incurred costs directly related to the fire of less than $0.1 million. We recognized gains of $0.2 million, related to the
reimbursement of property and equipment and expenses incurred and $0.3 million related to the reimbursement of lost
profits. The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the related costs, is included
in the accompanying consolidated statements of income, for the year ended December 27, 2023, as a reduction of company
restaurant expenses. We received from the insurance company cash of $0.5 million, net of the insurance deductible, during
fiscal 2023.
General and Administrative Expenses
General and administrative expenses increased $2.9 million, or 7.5%, in fiscal 2023. The increase was due primarily to a
$1.4 million increase in labor related costs, primarily related to an increase in estimated management bonus expense, a $1.1
million increase in restructuring costs related to certain positions in the organization, and a $0.6 million increase in
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executive transition costs. General and administrative expenses as a percentage of total revenue were 9.0% in fiscal 2023,
up from 8.3% in fiscal 2022. This increase is primarily due to the cost increases described above.
Franchise Expenses
Franchise expenses increased $2.2 million, or 6.2%, in fiscal 2023. The increase was primarily due to an increase in
advertising expenses, primarily resulting from higher franchise revenue, higher franchise services expense and higher rent
expense for locations sub-leased to franchisees that have a portion of the rent based on a percentage of revenue generated.
Gain on Disposition of Restaurants
During fiscal 2023, we completed the sale of 18 restaurants within California, Utah and Texas to existing franchisees. 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. 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. We initially defer and subsequently recognize the franchise fees over the
term of the franchise agreement. During fiscal 2023, these sales resulted in cash proceeds of $7.7 million and a net gain on
sale of restaurants of $5.0 million. Since the date of their sale, these restaurants are now included in the total number of
franchised El Pollo Loco restaurants.
During fiscal 2022, we completed the sale of three company-operated restaurants within the Orange County 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. 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. We initially defer and subsequently recognize the
franchise fees over the term of the franchise agreement. This sale resulted in cash proceeds of $1.0 million and a net gain
on sale of restaurants of $0.8 million for the fiscal year ended December 28, 2022. These restaurants are included in the
total number of franchised El Pollo Loco restaurants.
Impairment and Closed-Store Reserves
During fiscal 2023, we recorded a $1.5 million non-cash impairment charge primarily related to the property and
equipment assets of one restaurant in Nevada and the carrying value of the ROU assets of one restaurant in California.
During fiscal 2022, we recorded a $0.5 million non-cash impairment charge primarily related to the carrying value of the
ROU assets of one restaurant in California that closed in 2021 and the property and equipment assets of two restaurants in
California.
During fiscal 2023, we recognized $0.2 million of closed-store reserve expense related to the amortization of ROU assets,
property taxes and CAM payments for our closed locations compared to $0.3 million during fiscal 2022.
Interest Expense, Net
For fiscal 2023, net interest expense, increased by $3.1 million, primarily related to higher outstanding balances on our
2022 Revolver (as defined below) as well as the higher interest rates during fiscal 2023 versus the comparable period
during the prior year.
Income Tax Receivable Agreement
On July 30, 2014, we entered into the income tax receivable agreement (the “TRA”). 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 2023 and fiscal 2022 we recognized income tax
receivable agreement expense of $0.1 million and income of $0.4 million, respectively. In fiscal 2023 and 2022, we paid
$0.3 million and $0.4 million, respectively, to our pre-IPO stockholders under the TRA.
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Provision for Income Taxes
In fiscal 2023, we recorded an income tax expense of $9.4 million, compared to income tax expense of $8.1 million in
fiscal 2022, reflecting an estimated effective tax rate of 26.7% and 28.0%, respectively. The difference between the 21.0%
statutory rate and our effective tax rate of 26.7% for the year ended December 27, 2023 is primarily a result of windfall tax
benefit related to stock options exercised, state taxes, a Work Opportunity Tax Credit benefit and the corresponding
valuation allowance release in connection with the California Enterprise Zone credits expiration.
The difference between the 21.0% statutory rate and our effective tax rate of 28.0% for the year ended December 28, 2022
is primarily a result of state taxes, the change in valuation allowance against certain state credits, a tax shortfall related to
equity compensation and non-deductible executive compensation, partially offset by a Work Opportunity Tax Credit
benefit.
Fiscal Year 2022 Compared to Fiscal Year 2021
Year-to-year comparisons of fiscal 2022 and fiscal 2021 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 28, 2022, which was filed with the SEC on March 10, 2023.
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 2023, our restaurants generated company-operated restaurant revenue of $398.4 million
and system-wide sales of $1,050.2 million, and system comparable sales decline of 0.3%, consisting of company-operated
restaurant comparable sales growth of 0.3% and franchised comparable sales decline of 0.7%. The company-operated
comparable sales increase consisted of a 2.3% increase in average check size due to increases in menu prices and partially
offset by a 2.0% decrease in transactions. In fiscal 2023, for company-operated restaurants, our annual AUV was $2.2
million, restaurant contribution margin was 15.5%, and Adjusted EBITDA was $57.8 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.
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 the presentation of system-
wide sales provides useful information to investors because it is a measure that is widely used in the restaurant industry,
including by our management, to evaluate brand scale and market penetration.
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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
Comparable Restaurant Sales
2023
(52-Weeks)
$ 398,437
41,002
29,225
468,664
(41,002)
(29,225)
651,777
$ 1,050,214
Fiscal Year
2022
(52-Weeks)
$ 403,218
38,225
28,516
469,959
(38,225)
(28,516)
635,819
$ 1,039,037
2021
(52-Weeks)
$ 394,733
33,729
25,901
454,363
(33,729)
(25,901)
578,497
$ 973,230
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 27, 2023, December 28, 2022 and December 29, 2021, there were 470, 464 and 464 comparable restaurants,
178, 184 and 187 company-operated and 292, 280 and 276 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. Because other companies may calculate this
measure differently than we do, comparable restaurant sales as presented herein may not be comparable to similarly titled
measures reported by other companies. Management believes that comparable restaurant sales is a valuable metric for
investors to evaluate the performance of our store base, excluding the impact of new stores and closed stores.
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 therefore excludes franchise revenue, franchise advertising fee revenue and franchise expenses as
well as certain other costs, such as general and administrative expenses, franchise expenses, depreciation and amortization,
impairment and closed-store reserve, loss on disposal of assets and other costs that are considered corporate-level expenses
and are not considered normal operating costs of our restaurants. 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
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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. Management further believes restaurant level operating margin is useful to investors to
highlight trends in our core business that may not otherwise be apparent to investors when relying solely on GAAP
financial measures.
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
Franchise expenses
Depreciation and amortization
Loss on disposal of assets
Gain on recovery of insurance proceeds, property, equipment and expenses
Franchise revenue
Franchise advertising fee revenue
Impairment and closed-store reserves
(Gain) loss on disposition of restaurants
Restaurant contribution
Company-operated restaurant revenue:
Total revenue
Less:
Franchise revenue
Franchise advertising fee revenue
Company-operated restaurant revenue
2023
(52-Weeks)
Fiscal Year
2022
(52-Weeks)
2021
(52-Weeks)
$ 39,792
$ 30,120
$ 41,335
42,025
38,404
15,235
192
(247)
(41,002)
(29,225)
1,732
(5,034)
$ 61,872
39,093
36,169
14,418
165
—
(38,225)
(28,516)
752
(848)
$ 53,128
39,852
32,831
15,176
289
—
(33,729)
(25,901)
1,087
1,534
$ 72,474
$ 468,664
$ 469,959
$ 454,363
(41,002)
(29,225)
$ 398,437
(38,225)
(28,516)
$ 403,218
(33,729)
(25,901)
$ 394,733
Restaurant contribution margin (%)
15.5 %
13.2 %
18.4 %
New Restaurant Openings
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
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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.
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.
Management believes 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) management believes that these
measures are frequently used by securities analysts, investors and other interested parties to evaluate companies in our
industry, (ii) management believes 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.
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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)
Impairment and closed-store reserves (c)
(Gain) loss on disposition of restaurants (d)
Income tax receivable agreement expense (income) (e)
Securities class action legal expense (f)
Special dividend (g)
Legal settlements (h)
Special legal expenses (i)
Shareholder advisory fees (j)
Gain on recovery of insurance proceeds (k)
Executive transition costs (l)
Severance (m)
Pre-opening costs (n)
Adjusted EBITDA
(a)
Includes non-cash, stock-based compensation.
2023
Fiscal Year
2022
(52-Weeks)
$ 25,554
(52-Weeks)
$ 20,801
2021
(52-Weeks)
$ 29,121
9,324
4,811
15,235
$ 54,924
3,337
192
1,732
(5,034)
103
—
129
—
137
293
(399)
618
1,055
269
$ 57,356
8,078
1,677
14,418
$ 44,974
3,491
165
752
(848)
(436)
443
350
(541)
—
—
—
—
—
326
$ 48,676
10,332
1,824
15,176
$ 56,453
3,220
289
1,087
1,534
58
495
—
—
—
—
—
—
—
259
$ 63,395
(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)
Includes costs related to impairment of property and equipment and ROU assets and closing restaurants. During fiscal
2023, we recorded non-cash impairment charges of $1.5 million, primarily related to the property and equipment
assets of one restaurant in Nevada and the carrying value of the ROU assets of one restaurant in California. During
fiscal 2023, we recognized $0.2 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 2022, we recorded non-cash impairment charges of $0.5 million for the year ended December 28, 2022,
primarily related to the carrying value of the ROU assets of one restaurant in California that closed in 2021
and the property and equipment assets of two restaurants in California. During fiscal 2022, we recognized $0.3 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 2021, we recorded non-cash impairment charges of $0.7 million for the year ended December 29, 2021,
primarily related to the carrying value of one restaurant in Texas that closed in 2019, the ROU assets of one restaurant
in California closed in 2021, and the property and equipment 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.
(d) During fiscal 2023, we completed the sale of 18 company-operated restaurants within California, Utah and Texas to
existing franchisees. These sales during 2023 resulted in cash proceeds of $7.7 million and a net gain on sale of
restaurants of $5.0 million for the year ended December 27, 2023. During fiscal 2022, we completed the sale of three
company-operated restaurants within the Orange County area to an existing franchisee. This sale during 2022 resulted
in cash proceeds of $1.0 million and a net gain on sale of restaurants of $0.8 million for the year ended December 28,
2022. During fiscal 2021, we completed the sale of our eight restaurants within Sacramento area to an
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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.
(e) 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 27, 2023, December 28, 2022 and December 29,
2021, income tax receivable agreement (income) expense consisted of the amortization of interest expense and
changes in estimates for actual tax returns filed, related to our total expected TRA payments.
(f) 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.
(g) During fiscal 2023 and fiscal 2022, we encountered costs related to a special dividend declaration. On October 11,
2022, the Board of Directors declared a special dividend of $1.50 per share on our common stock. The special
dividend was paid on November 9, 2022, to stockholders of record, including holders of restricted stock, at the close
of business on October 24, 2022.
(h) Includes $0.5 million received from legal settlements, net of legal expenses.
(i) Consists of legal costs related to the share distribution that occurred on March 28, 2023. Refer to Note 14, “Related
Party Transactions” for further details on the share distribution.
(j) Consists of advisory fees pertaining to a Shareholder Rights Agreement adopted in connection with a shareholder’s
accumulation of a significant amount of shares of our common stock. Refer to Note 16, “Shareholder Rights
Agreement” for further details on the Shareholder Rights Agreement.
(k) During fiscal 2023 and fiscal 2022, two of our restaurants incurred damage resulting from a fire. In fiscal 2023, we
incurred costs directly related to the fire of less than $0.1 million. We recognized gains of $0.2 million, related to the
reimbursement of property and equipment and expenses incurred and $0.3 million related to the reimbursement of lost
profits. The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the related costs is
included in the accompanying consolidated statements of income, for fiscal 2023, as a reduction of company
restaurant expenses. We received from the insurance company cash of $0.5 million, net of the insurance deductible,
during fiscal 2023.
(l)
Includes costs associated with the transition of our CEO, such as severance, executive recruiting costs and stock-based
compensation costs associated with the transition of our former CEO.
(m) On April 13, 2023 the Company made the decision to eliminate and restructure certain positions in the organization,
which resulted in one-time costs of approximately $1.1 million.
(n) 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.
Liquidity and Capital Resources
Our primary sources of liquidity and capital resources have been cash provided from operations, cash and cash equivalents,
and the 2022 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
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continued operations, including planned capital expenditures, for at least the next 12 months and beyond from the issuance
of the consolidated financial statements.
However, depending on macroeconomic conditions, our financial performance and liquidity could be further impacted and
could impact our ability to meet certain financial covenants required in our 2022 Credit Agreement (as defined in Note 6
“Long-Term Debt”), 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 (used in) provided by
Operating activities
Investing activities
Financing activities
Net (decrease) increase in cash
Operating Activities
2023
(52-Weeks)
Fiscal Year
2022
(52-Weeks)
2021
(52-Weeks)
$
$
$ 52,099
$ 38,549
40,688
(12,485)
(18,915)
(13,447)
(40,446)
(22,787)
(29,187)
(13,205) $ (9,553) $ 16,827
In fiscal 2023, net cash provided by operating activities increased by $2.1 million compared to fiscal 2022. This increase
was due primarily to an increase in profitability and favorable working capital fluctuations during fiscal 2023.
In fiscal 2022, net cash provided by operating activities decreased by $13.6 million compared to fiscal 2021. This decrease
was due primarily to lower profitability and unfavorable working capital fluctuations during fiscal 2022.
Investing Activities
In fiscal 2023, net cash used in investing activities decreased by $5.5 million compared to fiscal 2022. This decrease was
due primarily to cash proceeds of $7.7 million received during fiscal 2023 related to the sale of nine company-operated
restaurants within Texas to an existing franchisee, eight company-operated restaurants within California to existing
franchisees and one company-operated restaurant in Utah to another existing franchisee.
In fiscal 2022, net cash used in investing activities increased by $6.4 million compared to fiscal 2021. This increase was
due primarily to opening four new company-operated restaurants during fiscal 2022 compared to opening two new
company-operated restaurants during fiscal 2021. This was partially offset by cash proceeds of $1.0 million received
during fiscal 2022 related to the sale of three restaurants within the Orange County area to an existing franchisee compared
to cash proceeds of $4.6 million received during fiscal 2021 related to the sale of eight restaurants within the Sacramento
area to an existing franchisee.
Financing Activities
In fiscal 2023, net cash used in financing activities increased by $11.3 million compared to fiscal 2022. The increase was
due primarily to repurchases of common stock of $59.2 million during fiscal 2023. This increase was partially offset by
$18.0 million in net borrowings on the 2022 Revolver during fiscal 2023 compared to the net pay downs of $26.0 million
on the 2022 Revolver during fiscal 2022.
In fiscal 2022, net cash used in financing activities increased by $6.4 million compared to fiscal 2021. This change was due
primarily to a special dividend payout of $56.0 million during fiscal 2022 partially offset by net borrowings on the 2022
Revolver of $26.0 million, compared to net pay downs of $22.8 million in fiscal 2021. Additionally, this change was due to
a $1.7 million cash inflow related to option exercises during the year ended December 28, 2022, compared to a $0.9
million cash inflow during the year ended December 29, 2021.
Debt and Other Obligations
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The Company, as a guarantor, is a party to a credit agreement (the “2022 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 “2022 Revolver”). The 2022 Revolver, which is available pursuant to the 2022 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 2022 Revolver and 2022 Credit Agreement will mature on July 27, 2027. The obligations under the 2022 Credit
Agreement and related loan documents are guaranteed by Holdings and Intermediate. The obligations of Holdings, EPL
and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority lien on
substantially all of their respective assets.
The special dividend announced by the Company’s Board of Directors on October 11, 2022 was permitted under the terms
of 2022 Revolver pursuant to both subclause (iii)(d) and (iii)(e) of the following sentence. Under the 2022 Revolver,
Holdings is restricted from making 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 our past or present officers,
directors, or employees (or their estates) 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 2022 Revolver.
Borrowings under the 2022 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at
rates based upon either the secured overnight financing rate (“SOFR”) 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) Term SOFR
with a term of one-month SOFR plus 1.00%. For Term SOFR loans, the margin is in the range of 1.25% to 2.25%, and for
base rate loans the margin is in a range of 0.25% to 1.25%. Borrowings under the 2022 Revolver may be repaid and
reborrowed. For borrowings under the 2022 Revolver during fiscal 2023, the interest rate range was 5.7% to 7.0%. For
borrowings under the 2022 Revolver and 2018 Revolver during fiscal 2022, the interest rate range was 1.4% to 6.0%. The
interest rate under the 2022 Revolver was 7.0% at December 27, 2023 and 5.7% under the 2022 Revolver at
December 28, 2022.
The 2022 Credit Agreement contains certain financial covenants. We were in compliance with the financial covenants as of
December 27, 2023.
At December 27, 2023, $9.8 million of letters of credit and $84.0 million of the revolving line of credit were outstanding.
The amount available under the revolving line of credit was $56.2 million at December 27, 2023.
During the year ended December 28, 2022, we refinanced and terminated our credit agreement (the “2018 Credit
Agreement”) among EPL, as borrower, the Company and Intermediate, 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,
which provided for a $150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”) and entered
into the 2022 Credit Agreement. See Note 6, “Long-Term Debt” in the accompanying “Notes to Consolidated Financial
Statements” in this Annual Report for additional information.
Material Cash Requirements
Our total capital expenditures for 2023 were $21.3 million. In 2023, we spent approximately $5.1 million on the
development and construction of our new restaurants. The remaining $16.2 million of capital expenditures during 2023
were related to investments in existing restaurants, including new equipment and hardware, technology to optimize
efficiencies, remodeling and similar improvements. In 2024, we expect to incur between $25.0 million and $28.0 million in
total capital expenditures, of which we expect $4.0 million to $6.0 million will be related to our construction of new
restaurants, and $19.0 million to $21.0 million will be related to investments in existing restaurants, including new
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equipment and hardware, technology to optimize efficiencies, remodeling and similar improvements. Finally, we expect a
portion of our incurred capital expenditures in 2024 to be for additional corporate initiatives, including investments in
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 27, 2023,
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
$ 243,888
2,155
101,245
422
31,298
$ 379,008
2024
$ 28,328
191
5,682
422
31,298
$ 65,921
Payments Due by Period
2025 -
2026
$ 52,169
341
11,275
2027 -
2028
$ 44,965
247
84,288
—
—
—
—
$ 63,785
$ 129,500
2029 and
thereafter
$ 118,426
1,376
—
—
—
$ 119,802
(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 27, 2023. 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.
Share Repurchase Programs
On October 11, 2022, our Board of Directors approved the 2022 Stock Repurchase Plan under which we were authorized to
repurchase up to $20.0 million of shares of our common stock through March 28, 2024.
Under the 2022 Stock Repurchase Plan, we were permitted to repurchase our common stock from time to time, in amounts
and at prices that we deemed appropriate, subject to market conditions and other considerations. Pursuant to the 2022 Stock
Repurchase Plan, we were authorized to repurchase shares of our common stock using open market purchases, including
pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions. As of September 27, 2023, the
program was completed.
Further, on October 31, 2023, our Board of Directors approved another share repurchase program under which we are
authorized to repurchase up to $20.0 million of shares of our common stock. The repurchase program will terminate on
March 31, 2025, may be modified, suspended or discontinued at any time, and does not obligate us to acquire any
particular number of shares.
Repurchase Agreements
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On August 7, 2023, we entered into a Stock Repurchase Agreement with FS Equity Partners V, L.P. and FS Affiliates V,
L.P. (together, the “Sellers”), pursuant to which we agreed to purchase an aggregate of 2,500,000 shares of our common
stock from the Sellers at a price of $10.63 per share for a total purchase price of $26.6 million. The repurchase was
completed in August 2023.
Prior to the repurchase, Freeman Spogli & Co. (“Freeman Spogli”), collectively with the Sellers and certain other funds
managed by Freeman Spogli, was our largest stockholder. In addition, John Roth, a director of the Company until his
resignation on August 16, 2023, is a general partner of Freeman Spogli and its chief executive officer.
Further, on November 29, 2023, we entered into a second Stock Repurchase Agreement with the Sellers (the “Repurchase
Agreement”), pursuant to which we agreed to purchase an aggregate of 1,500,000 shares of our common stock from the
Sellers at a price of $8.40 per share, representing the closing price of such shares as listed on Nasdaq on November 29,
2023, for a total purchase price of $12,600,000. The repurchase was completed on December 4, 2023. Following
completion of this repurchase, approximately $7.4 million of our common stock remained available for repurchase under
the share repurchase program at December 27, 2023.
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 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
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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.
Upon the sale or refranchising of a restaurant, we evaluate 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 fair value of the portion of the
reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future cash flows
expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the anticipated,
future royalties the franchisee will pay us associated with the franchise agreement entered into simultaneously with the
refranchising transition. The fair value of the reporting unit retained is based on the price a willing buyer would pay for the
reporting unit and includes the value of franchise agreements. As such, the fair value of the reporting unit retained can
include expected cash flows from future royalties from those restaurants currently being refranchised, future royalties from
existing franchise businesses and company restaurant operations. We determined that, in connection with the sale of 18
units, there were indicators of potential impairment of our goodwill and indefinite-lived intangible assets during fiscal
2023. After completing the impairment analysis, we did not record any decrement to goodwill related to the disposition of
restaurants in fiscal 2023, 2022 and 2021.
Property and Equipment 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 review our property and equipment 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. We consider 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 we conclude 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. Further, the projected undiscounted
future cash flows require management to develop estimates and assumptions about future revenue transaction growth rates,
menu pricing changes, and restaurant operating margins, which are made more uncertain by the impact of the current
inflationary pressures on our business. 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 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
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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 27, 2023, we had no federal and less than $0.1 million state net operating loss (“NOL”) carryforwards. These
State NOLs expire beginning 2029.
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.
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.
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 December 27, 2023, we released the corresponding valuation allowance since the ten-year carryover
period for the California Enterprise Zone credit has expired at the end of fiscal 2023. In fiscal 2023, the Company did not
record any additional valuation allowance.
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ITEM 7A.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
On July 27, 2022, we refinanced the 2018 Revolver and entered into the 2022 Credit Agreement, which provides for a
$150 million five-year senior secured revolving facility. In connection with the refinancing, the 2018 Credit Agreement
was terminated. We are exposed to market risk from changes in interest rates on our debt, which bears interest
at SOFR plus a margin between 1.25% and 2.25%. As of December 27, 2023, we had outstanding borrowings of $84.0
million under our 2022 Revolver, $9.8 million of letters of credit in support of our insurance programs, and the applicable
margin on outstanding borrowings under 2022 Revolver was 1.5%. A 1.0% increase in the effective interest rate applied to
our 2022 Revolver borrowings would result in a pre-tax interest expense increase of $0.8 million on an annualized basis.
During the year ended December 27, 2023, we borrowed $18.0 million net of pay downs of $21.0 million on our 2022
Revolver and the outstanding balance as of December 27, 2023 was $84.0 million. Borrowings under the 2022 Credit
Agreement (other than any swingline loans) bear interest, at the borrowers’ option, at rates based upon either SOFR or a
base rate, plus, for each rate, a margin determined in accordance with a lease-adjusted consolidated leverage ratio-based
pricing grid. If future rates based upon SOFR are higher than SOFR rates as currently determined, 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.
During the year ended December 28, 2022, in connection with our entry into the 2022 Credit Agreement, we terminated the
interest rate swap previously used to hedge interest rate risk. In settlement of this swap, we received approximately $0.6
million. The remaining amount in AOCI related to the hedging relationship will be reclassified into earnings when the
hedged forecasted transaction is reported in earnings.
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. 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. In addition, 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.
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, P.C.; Costa Mesa, California; PCAOB ID
#243)
Consolidated Balance Sheets – December 27, 2023 and December 28, 2022
Consolidated Statements of Income—For the years ended December 27, 2023, December 28, 2022, and
December 29, 2021
Consolidated Statements of Comprehensive Income—For the years ended December 27, 2023, December 28,
2022, and December 29, 2021
Consolidated Statements of Changes in Stockholders’ Equity—For the years ended December 27,
2023, December 28, 2022, and December 29, 2021
Consolidated Statements of Cash Flows—For the years ended December 27, 2023, December 28, 2022, and
December 29, 2021
Notes to Consolidated Financial Statements
54
56
57
58
59
60
61
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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 27, 2023 and December 28, 2022, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the three years in the period ended December 27, 2023, 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 27, 2023 and
December 28, 2022, and the results of its operations and its cash flows for each of the three years in the period ended
December 27, 2023, 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 27, 2023, 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 8, 2024 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 the 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 a separate opinion 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 related to
restaurants held and used in the business, including property and equipment, for impairment whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. The net balance of property and equipment was
$84.0 million as of December 27, 2023. 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 flows to
the carrying value to determine whether an impairment loss should be measured.
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We identified the Company’s estimation of undiscounted future cash flows for certain restaurants to determine the
recoverability of the carrying value of restaurant property and equipment as a critical audit matter. The future cash flows
requires management to develop estimates and assumptions about future revenue transaction growth rates, menu pricing
changes, and restaurant operating margins, which are made more uncertain by the impact of the current inflationary
pressures on the Company’s business. Auditing these significant assumptions involved especially challenging and
subjective auditor judgment due to the nature and extent of audit effort required to addresses these matters.
The primary procedures we performed to address this critical audit matter included:
● Evaluating the reasonableness of management’s assumption over the future revenue transaction growth rates for
select restaurants by (i) comparing them to historical information for both company-owned and franchised
restaurants, and (ii) comparing them to restaurant industry data to determine if contradictory evidence existed.
● Evaluating the reasonableness of management’s assumption over the menu pricing changes for select restaurants
by (i) comparing them to historical information for company-owned restaurants, and (ii) comparing them to
market and industry data.
● Evaluating the reasonableness of management’s assumption over the restaurant operating margin for select
restaurants by comparing them to market and industry data.
/s/ BDO USA, P.C.
We have served as the Company’s auditor since 2011.
Costa Mesa, California
March 8, 2024
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EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share data)
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
Accrued interest
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; 100,000 shares designated as
Series A Preferred Stock; none issued or outstanding
Common stock, $0.01 par value, 200,000,000 shares authorized; 31,353,223 and 37,008,061
shares issued and outstanding as of December 27, 2023 and December 28, 2022, respectively
Additional paid-in-capital
Retained earnings (accumulated deficit)
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
See notes to consolidated financial statements.
$
$
$
$
December 27,
2023
December 28,
2022
$
7,288
10,148
1,911
5,634
153
25,134
84,027
1,528
168,007
248,674
61,888
—
$
$
3,043
592,301
140
19,490
12,541
9,332
11,831
70
394
422
18,361
72,581
84,000
1,617
168,084
8,878
—
6,445
341,605
20,493
10,084
2,442
3,662
768
37,449
78,644
1,532
165,584
248,674
61,888
512
2,935
597,218
110
19,995
12,741
8,873
11,120
—
291
263
15,120
68,513
66,000
1,626
165,149
8,517
409
5,856
316,070
—
—
313
236,421
13,962
—
250,696
592,301
$
370
292,244
(11,592)
126
281,148
597,218
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EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share data)
December 27, 2023 December 28, 2022 December 29, 2021
For the Fiscal Years Ended
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, net
Company restaurant expenses
General and administrative expenses
Franchise expenses
Depreciation and amortization
Loss on disposal of assets
Gain on recovery of insurance proceeds, property, equipment and
expenses
(Gain) loss on disposition of restaurants
Impairment and closed-store reserves
Total expenses
Income from operations
Interest expense, net
Income tax receivable agreement expense (income)
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
$
$
$
$
398,437
41,002
29,225
468,664
108,250
127,244
101,398
(327)
336,565
42,025
38,404
15,235
192
(247)
(5,034)
1,732
428,872
39,792
4,811
103
34,878
9,324
25,554
0.75
0.74
$
$
$
$
$
403,218
38,225
28,516
469,959
117,774
130,773
101,543
—
350,090
39,093
36,169
14,418
165
—
(848)
752
439,839
30,120
1,677
(436)
28,879
8,078
20,801
0.57
0.57
$
$
$
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
34,253,542
34,374,706
36,350,579
36,575,904
35,973,892
36,446,756
See notes to consolidated financial statements.
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EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Amounts in thousands)
Net income
Other comprehensive (loss) income
Changes in derivative instruments
For the Fiscal Years Ended
December 27, December 28, December 29,
2023
25,554
$
2022
20,801
2021
29,121
$
$
Unrealized net gains arising during the period from interest rate swap
Reclassifications of (losses) gains into net income
Income tax benefit (expense)
Other comprehensive (loss) income, net of taxes
Comprehensive income
—
(170)
44
(126)
25,428
$
862
(296)
(150)
416
21,217
$
257
486
(200)
543
29,664
$
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 30, 2020
Stock-based compensation
Issuance of common stock related to
restricted shares, net
Issuance of common stock upon exercise of
stock options, net
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 29, 2021
Stock-based compensation
Issuance of common stock related to
restricted shares, net
Issuance of common stock upon exercise of
stock options, net
Shares repurchased for employee tax
withholdings
Forfeiture of common stock related to
restricted shares
Other comprehensive income, net of
income tax
Common stock cash dividends ($1.50 per
share)
Net income
Balance, December 28, 2022
Stock-based compensation
Issuance of common stock related to
restricted shares, net
Issuance of common stock upon exercise of
stock options, net
Shares repurchased for employee tax
withholdings
Repurchase of common stock
Repurchase of common stock - excise tax
Forfeiture of common stock related to
restricted shares
Other comprehensive income, net of
income tax
Net income
Balance, December 27, 2023
Common Stock
Amount
Shares
36,423,505
$
—
Additional
Paid-in
Capital
$ 339,561
3,220
364
—
(Accumulated Accumulated
Deficit)
Retained
Earnings
Other
Total
Comprehensive Stockholders’
Income (Loss)
Equity
$
(61,514) $
—
(833) $ 277,578
3,220
—
246,780
132,760
2
1
(2)
865
(40,384)
—
(705)
(161,013)
(2)
2
—
—
36,601,648
—
356,610
185,798
—
—
365
—
4
2
—
—
342,941
3,491
(4)
1,711
(30,128)
—
(322)
(105,867)
—
—
—
37,008,061
—
454,081
219,960
(26,344)
(6,030,850)
—
(1)
—
1
—
—
—
370
—
(55,574)
—
292,244
2,964
5
2
(5)
1,169
—
(61)
—
(243)
(59,155)
(556)
(271,685)
(3)
3
—
—
$
31,353,223
—
—
313
—
—
$
$ 236,421
—
—
—
—
—
29,121
(32,393)
—
—
—
—
—
—
—
—
866
—
(705)
—
—
543
—
(290)
—
543
29,121
310,623
3,491
—
—
—
1,713
—
(322)
—
—
416
—
416
—
20,801
(11,592)
—
—
—
—
—
—
—
—
—
126
—
(55,574)
20,801
281,148
2,964
—
—
—
1,171
—
—
—
—
(243)
(59,216)
(556)
—
—
(126)
(126)
25,554
$ 250,696
—
-
25,554
13,962
$
See notes to consolidated financial statements.
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EL POLLO LOCO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
For the Fiscal Years Ended
December 27, December 28, December 29,
2022
2021
2023
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization
Stock-based compensation expense
Income tax receivable agreement (income) expense
Fire insurance proceeds for expenses paid and lost profit
(Gain) loss on disposition of restaurants
Loss on disposal of assets
Gain on recovery of insurance proceeds, property, equipment and expenses, net
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 (receivable) 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
Proceeds from fire insurance for property and equipment
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
Common stock dividends paid
Proceeds from issuance of common stock upon exercise of stock options, net of expenses
Payment of obligations under finance leases
Deferred financing costs for revolver loan
Repurchases of common stock
Net cash flows used in by financing activities
(Decrease) 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
Unpaid repurchases of common stock
$
25,554
$
20,801
$
29,121
15,235
2,964
103
327
(5,034)
192
(247)
1,536
201
906
(216)
531
(1,972)
838
(309)
(3,965)
459
711
(350)
3,224
40,688
7,722
163
(21,332)
(13,447)
39,000
(21,000)
(243)
—
1,171
(158)
—
(59,216)
(40,446)
(13,205)
20,493
7,288
$
$
14,418
3,491
(436)
—
(848)
165
—
481
340
4,600
3,323
(125)
71
(1,657)
(240)
3,977
(2,667)
(73)
(430)
(6,642)
38,549
1,002
—
(19,917)
(18,915)
46,000
(20,000)
(322)
(55,574)
1,713
(162)
(842)
—
(29,187)
(9,553)
30,046
20,493
$
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
For the Fiscal Years Ended
December 27, December 28, December 29,
2023
2022
2021
$
$
$
$
4,819
7,721
5,098
$
$
$
— $
1,450
5,100
1,333
$
$
$
— $
1,066
5,968
2,454
—
See notes to consolidated financial statements.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
El Pollo Loco Holdings, Inc. (“Holdings”) is a Delaware corporation headquartered in Costa Mesa, California. Holdings
and its direct and indirect subsidiaries are collectively referred to herein as 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, Colorado, 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 the Company’s Pollo
Bowl®, Pollo Salads and Pollo Fit entrees. At December 27, 2023, the Company operated 172 (138 in the greater Los
Angeles area) and franchised 323 (141 in the greater Los Angeles area) El Pollo Loco restaurants. In addition, the
Company currently licenses five restaurants in the Philippines.
Holdings has no material assets or operations. Holdings and Holdings’ direct subsidiary, EPL Intermediate, Inc.
(“Intermediate”), guarantee EPL’s 2022 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 27, 2023, the Company’s total debt was $84.0 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 $7.3 million at December 27, 2023, and available borrowings under the 2022
Revolver (as defined in Note 6 “Long-Term Debt”) will be adequate to meet the Company’s liquidity needs for the next
twelve months from the issuance of the consolidated financial statements.
Basis of Presentation
The Company uses a 52- or 53-week fiscal year ending on the last Wednesday of each calendar year. Fiscal 2023, 2022,
and 2021 ended on December 27, 2023, December 28, 2022 and December 29, 2021, 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 2023, 2022 and 2021 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.
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.
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Use of Estimates
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, contingent liabilities and income tax valuation
allowances.
Market Trends and Uncertainties
On September 28, 2023, Governor Newsom signed AB 1228 into law, which repealed and replaced the Fast Food
Accountability and Standards Recovery Act (“FAST Act”) on January 1, 2024. Pursuant to AB 1228, the minimum wage at
fast food restaurants that are part of brands which have more than 60 establishments nationwide will rise to $20 an hour on
April 1, 2024, and a Fast Food Council created by AB 1228 will have limited power to approve annual wage increases until
2029. Under the law, the Fast Food Council will also have the power to develop and propose minimum standards for fast
food workers, including standards for working hours, working conditions, and health and safety. As a result of AB 1228,
the Company expects its labor and regulatory compliance costs will increase beginning in fiscal 2024 and that its results of
operations and profitability will be adversely affected if it is not able to implement other measures to counter these
increased costs.
The Company has experienced inflationary pressures affecting its operations in certain areas such as food cost, labor costs,
construction costs and other restaurant operating costs. The Company has been able to substantially offset these
inflationary and other cost pressures through various actions, such as increasing menu prices, managing menu mix, and
productivity improvements. However, the Company expects these inflationary and other cost pressures to continue
throughout fiscal year 2024 and it may not be able to offset cost increases in the future.
Cash and Cash Equivalents
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
Subsequent to year-end, on February 13, 2024, the Company announced that its Board of Directors has appointed Elizabeth
Williams as the new Chief Executive Officer of the Company and as a member of the Board, effective March 11, 2024. Ms.
Williams will succeed Maria Hollandsworth, who has served as the Company’s interim Chief Executive Officer since
November 3, 2023.
Further, the Company paid down $3.0 million on its 2022 Revolver resulting in outstanding borrowings as of March 7,
2024 of $81.0 million.
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 27, 2023 totaled 15.14% of the Company’s accounts
payable. As of December 28, 2022, the Company had one supplier for which the amount due totaled 41.7% of the
Company’s accounts payable. Purchases from the Company’s largest supplier totaled 26.6% of the Company’s purchases
for fiscal 2023, 28.5% for fiscal 2022 and 27.1% for fiscal 2021 with no amounts payable at December 27, 2023 or
December 28, 2022.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In fiscal 2023, 2022 and 2021, Company-operated and franchised restaurants in the greater Los Angeles area generated, in
the aggregate, approximately 71.3%, 71.2%, and 70.9%, respectively, of total revenue. One franchisee accounted for 11.4%
of total accounts receivable as of December 27, 2023, and one franchisee accounted for 12.9% of total accounts receivable
as of December 28, 2022.
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 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 $0.2 million for the year ended December 27, 2023 and less
than $0.1 million for each of the years ended December 28, 2022 and December 29, 2021. The Company capitalized
internal costs related to site selection and construction activities of $1.8 million, $1.5 million and $1.4 million for the years
ended December 27, 2023, December 28, 2022 and December 29, 2021, respectively.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Impairment of Property and Equipment and ROU Assets
The Company reviews its property and equipment 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 property and
equipment and ROU assets may not be recoverable. The Company considers a triggering event, related to property and
equipment assets or ROU assets in a net asset position, to have occurred related to a specific restaurant if the restaurant’s
Average Unit Volume (“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 27, 2023 and December 28, 2022, ROU assets related to closed or subleased restaurant locations totaled $42.8
million and $30.7 million, respectively. If the Company concludes that the carrying value of certain property and
equipment and ROU assets will not be recovered based on expected undiscounted future cash flows, an impairment loss is
recorded to reduce the property and equipment 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 27, 2023 that required an impairment
review of the Company’s property and equipment and ROU assets. Based on the results of this analysis, the Company
recorded non-cash impairment charges of $1.5 million for the year ended December 27, 2023, primarily related to the
carrying value of the ROU assets of one restaurant in California and the property and equipment assets of one restaurant in
Nevada.
In fiscal 2022, the Company recorded non-cash impairment charges of $0.5 million primarily related to the carrying value
of the ROU assets of one restaurant in California that closed in 2021 and the property and equipment assets of two
restaurants in California. In fiscal 2021, the Company recorded a non-cash impairment charge of $0.7 million 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 property and equipment assets of three restaurants in California. Given
the inherent uncertainty in projecting results for newer restaurants in newer markets, 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.
Closed-Store Reserves
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 2023, 2022 and 2021, the Company recognized $0.2 million, $0.3 million and $0.4 million, respectively, of
closed-store reserve expense 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 of certain
franchise locations.
Upon the sale or refranchising 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 fair value of the
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
portion of the reporting unit disposed of in a refranchising is determined by reference to the discounted value of the future
cash flows expected to be generated by the restaurant and retained by the franchisee, which includes a deduction for the
anticipated, future royalties the franchisee will pay the Company associated with the franchise agreement entered into
simultaneously with the refranchising transition. The fair value of the reporting unit retained is based on the price a willing
buyer would pay for the reporting unit and includes the value of franchise agreements. As such, the fair value of the
reporting unit retained can include expected cash flows from future royalties from those restaurants currently being
refranchised, future royalties from existing franchise businesses and company restaurant operations. The Company did not
record any decrement to goodwill related to the disposition of restaurants in fiscal 2023, 2022 and 2021.
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 2023. Accordingly, the Company did not record any impairment to its goodwill or indefinite-
lived intangible assets during the year ended December 27, 2023.
Deferred Financing Costs
Deferred financing costs are capitalized and amortized over the period of the loan on a straight-line basis. Included in other
assets are deferred financing costs (net of accumulated amortization), related to the revolver, of $0.7 million and $0.9
million as of December 27, 2023 and December 28, 2022, respectively. Amortization expense for deferred financing costs
was approximately $0.2 million for the year ended December 27, 2023 and $0.3 million for both of the years ended
December 28, 2022, and December 29, 2021, 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 27, 2023 and December 28, 2022, the Company
had accrued $11.8 million and $11.1 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 27, 2023,
December 28, 2022 and December 29, 2021, totaled $9.2 million, $8.7 million, and $9.0 million, respectively. These
amounts are included in labor and related expenses and general and administrative expenses on the accompanying
consolidated statements of income.
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Restaurant Revenue
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 $8.7 million, $7.5 million and $7.7 million
during the years ended December 27, 2023, December 28, 2022, and December 29, 2021, respectively.
The Company offers a loyalty rewards program, which awards a customer points for dollars spent. Customers earn points
for each dollar spent and points can be redeemed for multiple redemption options. If a customer does not earn or use points
within a one-year period, their account is deactivated and all points expire. 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 27, 2023 and December 28, 2022, the
revenue allocated to loyalty points that have not been redeemed was $0.7 million and $0.5 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 net basis within the consolidated 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 27, 2023,
the Company had executed development agreements that represent commitments to open 107 franchised restaurants at
various dates through 2036.
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
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 27, 2023, 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 $16.2 million, $16.4 million and $16.1 million for the years ended December 27, 2023, December 28, 2022 and
December 29, 2021, respectively. In addition, there was $29.2 million, $28.5 million and $25.9 million for the years ended
December 27, 2023, December 28, 2022 and December 29, 2021, 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 $3.0 million and $0.8 million at December 27, 2023 and December 28, 2022, respectively. Company-
operated restaurants contribute to the advertising fund on the same basis as franchised restaurants. At December 27, 2023,
the Company was obligated to spend $3.0 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. For each of
the years ended December 27, 2023, December 28, 2022, and December 29, 2021, preopening costs, which are included in
general and administrative expenses on the accompanying consolidated statements of income were $0.3 million.
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Leases
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
During fiscal 2023 and fiscal 2022, two of the Company’s restaurants incurred damage resulting from a fire. In fiscal 2023,
the Company incurred costs directly related to the fire of less than $0.1 million. The Company recognized gains of
$0.2 million, related to the reimbursement of property and equipment and expenses incurred and $0.3 million related to the
reimbursement of lost profits. The gain on recovery of insurance proceeds and reimbursement of lost profits, net of the
related costs, is included in the accompanying consolidated statements of income, for the year ended December 27, 2023,
as a reduction of Company restaurant expenses. The Company received from the insurance company cash of $0.5 million,
net of the insurance deductible, during fiscal 2023.
Gain (Loss) on Disposition of Restaurants
During fiscal 2023, the Company completed the sale of 18 restaurants within California, Utah and Texas to existing
franchisees. During fiscal 2022, the Company completed the sale of three company-operated restaurants within the Orange
County area to an existing franchisee. During fiscal 2021, the Company completed the sale of eight restaurants within the
Sacramento area to an existing 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. During 2023, these sales resulted in
cash proceeds of $7.7 million and a net gain on sale of restaurant of $5.0 million. The Orange County sale during 2022
resulted in cash proceeds of $1.0 million and a net gain on sale of restaurants of $0.8 million for the year ended
December 28, 2022. 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. Since the date of their sale, these restaurants are now included in the
total number of franchised El Pollo Loco restaurants.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Derivative Financial Instruments
The Company used an interest rate swap, a derivative instrument, to hedge interest rate risk and not for trading purposes.
The derivative contract was entered into with a financial institution. In connection with the Company’s entry into the 2022
Credit Agreement (as defined in Note 6 “Long-Term Debt”), it terminated the interest rate swap on July 28, 2022. The
Company recorded the derivative instrument on its consolidated balance sheets at fair value. The derivative instrument
qualified as a hedging instrument in a qualifying cash flow hedge relationship, and the gain or loss on the derivative
instrument was 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.
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 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 the Company’s 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 27, 2023 or December 28, 2022. During fiscal 2023, fiscal
2022 and fiscal 2021, 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 the 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 27, 2023 and December 28, 2022, the Company
had accrued $0.4 million and $0.7 million, respectively, relating to expected TRA payments. In fiscal 2023, 2022 and 2021,
the Company paid $0.3 million, $0.4 million and $1.7 million, respectively, to its pre-IPO stockholders under the TRA.
Under the CARES Act, the Company was able to defer its 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
was $4.9 million, of which 50% was due by December 31, 2021 and another 50% was due by December 31, 2022. As of
December 28, 2022, the Company made all deferred payroll tax payments and did not have any corresponding balances
included in other non-current liabilities on the Company’s consolidated balance sheet.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 was initially recorded as a receivable as part of the accounts and other
receivable 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. During fiscal 2022, the Company received $3.1 million in ERC and the
remaining $0.3 million was received and recorded during fiscal 2023.
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.
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 27, 2023 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 Property and Equipment and ROU
Assets (in thousands):
Certain property and equipment, net
Certain ROU assets, net
Total
Level 1 Level 2
Level 3
$ — $ — $ — $
$ — $ — $
$
244
— $
$
244
Impairment Losses
1,497
39
The following non-financial assets were measured at fair value, on a nonrecurring basis, as of and for the year ended
December 28, 2022 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 Property and Equipment and ROU
Assets" (in thousands):
Certain property and equipment, net
Certain ROU assets, net
Total
Level 1 Level 2
Level 3
$ — $ — $ — $
$ — $ — $
$
327
— $
$
327
Impairment Losses
442
39
The following non-financial assets were measured at fair value, on a nonrecurring basis, as of and for the year ended
December 29, 2021 for which an impairment loss was recognized during the corresponding periods, as discussed above
under "Impairment of Property and Equipment and ROU Assets" (in thousands):
70
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Certain property and equipment, net
Certain ROU assets, net
Fair Value of Financial Instruments
Total
$ — $ — $ — $
$ — $ — $
$
Level 1 Level 2 Level 3 Impairment Losses
304
407
— $
$
411
411
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 Issued Accounting Pronouncements
In November 2023, the FASB issued ASU No. 2023-07, “Segment Reporting (Topic 280): Improvements to Reportable
Segment Disclosure.” The ASU updates reportable segment disclosure requirements, primarily through requiring enhanced
disclosures about significant segment expenses and information used to assess segment performance. These disclosures are
required quarterly. The ASU is effective for fiscal years beginning after December 15, 2023 and interim periods beginning
after December 15, 2024, with early adoption permitted. It is required to be adopted retrospectively for all prior periods
presented in the financial statements The Company is currently evaluating the impact of adopting this ASU on its
disclosures.
In December 2023, the FASB issued ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax
Disclosures.” The ASU includes amendments requiring enhanced income tax disclosures, primarily related to
standardization and disaggregation of rate reconciliation categories and income taxes paid by jurisdiction. The guidance is
effective for fiscal years beginning after December 15, 2024, with early adoption permitted, and should be applied
prospectively with the option of retrospective application. The Company is currently evaluating the impact of adopting this
ASU on its disclosures.
The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not
applicable or not expected to have a significant impact to the consolidated financial statements.
71
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Franchise Development Option Agreement with Related Party
On July 11, 2014, EPL and Trimaran Pollo Partners, L.L.C (“Trimaran”) 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 Trimaran 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. Trimaran 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 27, 2023, no stores have been opened in the Territory.
On March 28, 2023, Trimaran and certain of Trimaran’s affiliates, (collectively, the “Trimaran Group,”) distributed
substantially all of the shares of the Company’s common stock held by the Trimaran Group to their respective investors,
members and limited partners.
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
$
$
December 27, 2023 December 28, 2022
12,323
153,377
83,035
3,196
251,931
(173,287)
78,644
12,323
148,259
86,423
7,270
254,275
(170,248)
84,027
$
$
Depreciation and amortization expense was $15.2 million, $14.4 million and $15.2 million for the years ended
December 27, 2023, December 28, 2022, and December 29, 2021, respectively.
Based on the Company’s review of its property and equipment assets for impairment, the Company recorded non-cash
impairment charges of $1.5 million, $0.4 million and $0.3 million for the years ended December 27, 2023,
December 28, 2022, and December 29, 2021, respectively. See “Impairment of Property and Equipment and ROU Assets”
in Note 2 “Summary of Significant Accounting Policies” for additional information.
4. TRADEMARKS AND OTHER INTANGIBLE ASSETS
Domestic trademarks consist of the following (in thousands):
Cost
Accumulated impairment charges
Trademarks, net
72
December 27,
2023
120,700
(58,812)
61,888
$
$
December 28,
2022
120,700
(58,812)
61,888
$
$
Table of Contents
5. LEASES
Nature of leases
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 27, 2023, the Company had no leases that it had entered into, but had not yet commenced.
Building and facility leases
The majority of the Company’s building and facilities leases are classified as operating leases; however, the Company
currently has one facility and 13 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 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 27, 2023, the Company reassessed the lease terms on 36 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 $21.5 million of ROU assets and lease liabilities for
the year ended December 27, 2023 were recognized, and will be amortized over the new lease term.
During the year ended December 28, 2022, 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
decision to renew. As a result of the reassessment, an additional $13.0 million of ROU assets and lease liabilities for
the year ended December 28, 2022 were recognized, and will be amortized over the new lease term.
There were no reassessments that impacted the original lease classification during the year ended December 27, 2023. The
reassessments had an impact on the original lease classification of one property during the year ended December 28, 2022
which represented $0.7 million of the $13.0 million total additional ROU asset and lease liabilities for fiscal 2022.
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 2023, the Company determined that the carrying value of an ROU assets at one restaurant was not
recoverable. As a result, the Company recorded a less than $0.1 million non-cash impairment charge for the year ended
73
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 27, 2023 related to one restaurant in California. During fiscal 2022, the Company determined that the carrying
value of an ROU assets at one restaurant was not recoverable. As a result, the Company recorded a less than $0.1 million
non-cash impairment charge for the year ended December 28, 2022 related to one restaurant closed in California. 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.
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.
74
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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 27, 2023
Property Equipment
December 28, 2022
December 29, 2021
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:
Fixed rent cost
Short-term
lease cost
Variable lease
cost
Sublease
income
Total lease cost
$
73
$
40
2
5
$
75
$
73
$
45
42
2
3
$
75
$
78
$
45
58
$
2
1
80
59
27,597
387
27,984
26,537
1,005
27,542
26,501
1,122
27,623
—
8
8
—
18
18
—
21
546
1,279
1,825
597
677
1,274
539
354
21
893
(5,570)
$ 22,686
— (5,570)
$ 24,367
$ 1,681
(4,555)
$ 22,694
—
(4,555)
$ 24,399
(3,823)
$ 23,353
$ 1,705
—
(3,823)
$ 24,853
$ 1,500
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
75
$
December 27, 2023 December 28, 2022 December 29, 2021
24,020
413
78
59
283
24,853
23,736 $
492
75
45
19
24,367 $
23,730 $
465
73
45
86
24,399 $
$
Table of Contents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company had the following cash and non-cash activities associated with its leases (dollar amounts in thousands):
December 27, 2023
Property Equipment
Leases
Leases
December 28, 2022
Property Equipment
Total
Leases
Leases
Total
Property
Leases
December 29, 2021
Equipment
Leases
Total
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:
$ 27,835
$
93
$
$
321
$ 28,156 $ 27,221
65
$
158 $
106
$
$
953
$ 28,174 $ 26,414
56
$
162 $
102
$
$
1,084
$ 27,498
46
$
148
Operating lease ROU assets
$ 21,448
$
54
$ 21,502 $ 12,978
$
92
$ 13,070 $ 17,763
$
— $ 17,763
Finance lease ROU assets obtained
in exchange for lease liabilities:
Finance lease ROU assets
Derecognition of ROU assets due
to terminations, impairment or
modifications
$
$
Other Information
Weighted-average remaining
years in lease term—finance
leases
Weighted-average remaining
years in lease term—operating
leases
Weighted-average discount rate
—finance leases
Weighted-average discount rate
—operating leases
— $
135
(40)
$
(4)
$
$
135 $
— $
28
(44) $
(39)
$
(35)
$
$
28 $
— $
196
$
196
(74)$ (4,513)
$
(99)
$ (4,612)
16.87
10.42
3.15
3.33
17.87
10.73
3.19
1.73
18.42
11.27
4.02
1.44
2.57 %
5.68 %
2.57 %
1.53 %
2.78 %
1.54 %
5.00 %
4.52 %
4.54 %
3.80 %
4.45 %
3.89 %
Information regarding the Company’s minimum future lease obligations at December 27, 2023 is as follows (in thousands):
Finance Leases
Operating Leases
For the Years Ending
December 25, 2024
December 31, 2025
December 30, 2026
December 29, 2027
December 27, 2028
Thereafter
Total
Less: imputed interest (2.57% - 5.68%)
Present value of lease obligations
Less: current maturities
Noncurrent portion
Short-Term Leases
Minimum Minimum Minimum
Sublease
Income
Lease
Payments
$
$
$
191
187
154
144
103
1,376
2,155
(398)
1,757
(140)
1,617
Lease
Payments
$ 28,328
27,126
25,043
23,581
21,384
118,426
$ 243,888
(56,314)
187,574
(19,490)
$ 168,084
$
$
5,886
5,518
5,034
4,858
4,484
27,854
53,634
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
76
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
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 27, 2023, December 28, 2022, and December 29, 2021, the Company received $0.3 million,
$0.4 million and $0.4 million, respectively, of lease income from company-owned locations.
6. LONG-TERM DEBT
On July 27, 2022, the Company refinanced and terminated its credit agreement (the “2018 Credit Agreement”) among
EPL, as borrower, the Company and Intermediate, 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, which provided for a
$150.0 million five-year senior secured revolving credit facility (the “2018 Revolver”). The 2018 Revolver was refinanced
pursuant to a credit agreement (the “2022 Credit Agreement”) among EPL, as borrower, the Company and Intermediate, 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, which provides for a $150.0 million five-year senior secured revolving credit facility
(the “2022 Revolver”). In connection with the refinancing, the 2018 Credit Agreement was terminated.
The 2022 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 2022 Revolver and 2022 Credit Agreement will mature on July 27, 2027. The obligations under the 2022 Credit
Agreement and related loan documents are guaranteed by Holdings and Intermediate. The obligations of Holdings, EPL
and Intermediate under the 2022 Credit Agreement and related loan documents are secured by a first priority lien on
substantially all of their respective assets.
The special dividend announced by the Company’s Board of Directors on October 11, 2022 was permitted under the terms
of 2022 Revolver pursuant to both subclause (iii)(d) and (iii)(e) of the following sentence. Under the 2022 Revolver,
Holdings is restricted from making 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 2022 Revolver.
Borrowings under the 2022 Credit Agreement (other than any swingline loans) bear interest, at the borrower’s option, at
rates based upon either the secured overnight financing rate (“SOFR”) 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
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) Term SOFR with a term of one-month SOFR plus 1.00%. For Term SOFR loans, the margin is in the range of 1.25%
to 2.25%, and for base rate loans the margin is in a range of 0.25% to 1.25%. Borrowings under the 2022 Revolver may be
repaid and reborrowed. For borrowings under the 2022 Revolver during fiscal 2023, the interest rate range was 5.7% to
7.0%. For borrowings under the 2022 Revolver and the 2018 Revolver during fiscal 2022, the interest rate range was 1.4%
to 6.0%. The interest rate under the 2022 Revolver was 7.0% at December 27, 2023 and 5.7% at December 28, 2022. For
the year ended December 27, 2023, the Company had interest expense of $4.4 million under the 2022 Revolver. For
the years ended December 28, 2022 and December 29, 2021, the Company had interest expense of $0.9 million and $1.2
million, respectively, under the 2022 Revolver and the 2018 Revolver.
The 2022 Credit Agreement contains certain financial covenants. The Company was in compliance with all such covenants
at December 27, 2023.
At December 27, 2023, $9.8 million of letters of credit and $84.0 million of borrowings were outstanding under the 2022
Revolver. The amount available under the 2022 Revolver was $56.2 million at December 27, 2023. At December 28,
2022, $9.8 million of letters of credit and $66.0 million of borrowings were outstanding under the 2022 Revolver. The
amount available under the 2022 Revolver was $74.2 million at December 28, 2022.
Maturities
On July 27, 2022, the Company refinanced and terminated the 2018 Revolver pursuant to the 2022 Credit Agreement. The
2022 Revolver and 2022 Credit Agreement will mature on July 27, 2027. During the year ended December 27, 2023, the
Company borrowed $18.0 million net of pay downs of $21.0 million on its 2022 Revolver. During the year ended
December 28, 2022, the Company borrowed $26.0 million net of pay downs of $20.0 million on its 2022 Revolver. There
are no required principal payments prior to maturity for the 2022 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 was 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. 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 Accounting Standards Codification (“ASC”) 815 “Derivatives and Hedging.”
In connection with the Company’s entry into the 2022 Credit Agreement, on July 28, 2022, the Company terminated the
interest rate swap, which was previously used to hedge interest rate risk. Prior to the interest rate swap termination,
the swap was a highly effective cash flow hedge. In settlement of this swap, the Company received
approximately $0.6 million and derecognized the corresponding interest rate swap asset. The remaining amount in AOCI
related to the hedging relationship will be reclassified into earnings when the hedged forecasted transaction is reported in
earnings.
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 (income) expense on interest rate swap
Interest (income) expense on debt and derivatives, net
December 27, 2023 December 28, 2022 December 29, 2021
$
$
— $
(170)
(170) $
439
(296)
143
$
$
568
486
1,054
78
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following table summarizes the effect of the Company’s cash flow hedge accounting on AOCI for the years ended
December 27, 2023, December 28, 2022 and December 29, 2021 (in thousands):
Net Gain Recognized in OCI
(Gain) Loss Reclassified from
AOCI into Interest Income
Interest rate swap
December 27, 2023 December 28, 2022 December 29, 2021 December 27, 2023 December 28, 2022 December 29, 2021
$
(170) $
862 $
(296)$
257 $
— $
486
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
Other
Total other accrued expenses and current liabilities
8. OTHER NONCURRENT LIABILITIES
Other noncurrent liabilities consist of the following (in thousands):
Deferred franchise and development fees
Other
Total other noncurrent liabilities
9. INCOME TAXES
The provision for income taxes is based on the following components (in thousands):
$
$
December 27, 2023 December 28, 2022
5,270
4,667
526
831
1,303
610
1,913
15,120
5,229
4,877
687
3,010
720
586
3,252
18,361
$
$
$
December 27, 2023 December 28, 2022
5,767
89
5,856
6,411
34
6,445
$
$
$
For the Years Ended
Current income taxes:
Federal
State
Total current
Deferred income taxes:
Federal
State
Total deferred
Tax provision for income taxes
December 27, December 28, December 29,
2022
2021
2023
$
$
6,572
1,846
8,418
(29)
935
906
9,324
$
$
2,366
1,112
3,478
2,958
1,642
4,600
8,078
$
$
7,163
2,158
9,321
93
918
1,011
10,332
The provision for income taxes differs from the amount computed by applying the federal income tax rate of 21.0% for
fiscal 2023, 2022 and 2021 as follows:
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
State credit expiration
TRA expense (income)
162(m)
WOTC Credit
Stock option exercises
Deferred tax liability true up
Other
Total
December 27,
2023
December 28,
2022
December 29,
2021
21.0 %
6.4
(19.3)
19.1
0.1
0.6
(0.7)
0.1
(1.1)
0.5
26.7 %
21.0 %
7.7
—
—
(0.3)
0.5
(0.9)
0.3
—
(0.3)
28.0 %
21.0 %
5.9
0.1
—
—
0.8
(0.5)
(1.4)
—
0.3
26.2 %
As of December 27, 2023, the Company had no federal and less than $0.1 million state NOL carryforwards. These State
NOLs expire beginning 2029. The utilization of NOL carryforwards and state enterprise zone credits 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
Company concluded that it is more likely than not that its deferred tax assets except for certain state credits will be
realized. In fiscal 2021 and 2022, the Company recorded a valuation allowance of approximately $0.1 million and $0.5
million, respectively, against its deferred tax asset resulting from certain tax credits that may not be realizable prior to the
time the credits expire. As of December 27, 2023, the Company released the corresponding valuation allowance since the
ten-year carryover period for California Enterprise Zone credits expired at the end of fiscal 2023. As of
December 28, 2022, the deferred tax assets related to the California Enterprise Zone credits, net of valuation allowances
are $0.5 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. In fiscal 2023, 2022 and 2021, TRA resulted in $0.1 million of expense, $0.4 million of income and less than $0.1
of expense, respectively, in each case 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. In fiscal 2023, 2022
and 2021, the Company paid $0.3 million, $0.4 million and $1.7 million, respectively, to its pre-IPO stockholders under the
TRA.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company’s deferred tax assets and liabilities as of December 27, 2023 and December 28, 2022 are summarized below.
Deferred assets:
Capital leases
Accrued vacation
Accrued workers’ compensation
Enterprise zone and other credits
Net operating losses
Fixed assets
ROU liabilities
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred liabilities:
Goodwill
Trademark
Prepaid expense
ROU assets
Fixed assets
Other
Deferred tax liabilities
Net deferred tax liability
December 27, December 28,
2023
2022
$
$
$
62
470
2,352
—
5
2,705
50,735
5,560
61,889
—
61,889
(5,938)
(16,740)
(1,128)
(45,445)
(1,470)
(46)
(70,767)
(8,878)
$
55
508
2,201
7,258
5
2,392
50,112
4,397
66,928
(6,727)
60,201
(6,420)
(16,721)
(595)
(44,737)
—
267
(68,206)
(8,005)
The net deferred tax asset/(liability) amounts above as of December 27, 2023 and December 28, 2022 have been classified
in the accompanying consolidated balance sheets as noncurrent assets/(liabilities) and are as follows (in thousands):
Noncurrent:
(Liabilities) assets - state
Liabilities - federal
Net deferred tax liability
December 27, December 28,
2023
2022
$
$
(416)
(8,462)
(8,878)
$
$
512
(8,517)
(8,005)
As of December 27, 2023 and December 28, 2022, 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 2020 by the federal taxing authority, and for years
before 2019 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 27, 2023, December 28, 2022 and December 29, 2021.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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, the Company’s 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 27, 2023, 610,098 shares were available for grant.
During the years ended December 27, 2023, December 28, 2022 and December 29, 2021, the Company recognized stock-
based compensation expense of $3.0 million, $3.5 million and $3.2 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 27, 2023, options to purchase 843,320 shares of common stock of the Company were outstanding, including
380,896 vested and 462,424 unvested. Unvested options vest over time, or upon the Company’s achievement of annual
financial goals. However, the compensation committee of the board of directors, as administrator of the Company’s 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 27, 2023, there were no premium options that were granted above
the stock price at date of grant. In fiscal 2023, the Company granted 562,344 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 2023 had a four year vesting
period. Stock options generally expire ten years from the date of grant. In fiscal 2022, the Company
granted 372,958 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 2022 had a four year vesting period. Stock options generally expire 10 years from the date of
grant. Changes in options for the years ended December 27, 2023 and December 28, 2022, are as follows:
Weighted-Average Aggregate
Weighted-Average Contractual Life Intrinsic Value
(in thousands)
Exercise Price
Life (Years)
Outstanding - December 29, 2021
Grants
Exercised
Forfeited, cancelled or expired
Outstanding – December 28, 2022
Grants
Exercised
Forfeited, cancelled or expired
Outstanding – December 27, 2023
Vested and expected to vest at December 27, 2023
Exercisable at December 27, 2023
$
Shares
978,078
372,958
(185,798)
(97,059)
1,068,179
562,344
(219,960)
(567,243) $
$
843,320
$
835,581
$
380,896
$
11.45
10.54
9.22
12.06
9.92
9.15
5.32
10.63
10.13
10.14
11.09
6.73
6.71
3.90
33
$
32
$
$ —
The intrinsic value of options exercised, calculated as the difference between the market value on the date of exercise and
the exercise price, was $0.9 million, $0.8 million and $1.6 million for fiscal years 2023, 2022 and 2021, 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 the Company’s 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
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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.
The weighted-average estimated fair value of employee stock options granted in fiscal 2023 and 2022 was $4.41 and $4.89
per share, respectively, 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 27, 2023 December 28, 2022
43.8 %
3.7 %
6.20
—
43.0 %
2.9 %
6.25
—
As of December 27, 2023, the Company had total unrecognized compensation expense of $1.8 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 the Company’s
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 2023, 2022 and 2021. The Company will continue to use significant judgment in
evaluating the expected term, volatility, and forfeiture rate related to its stock-based compensation.
Restricted Shares
In fiscal 2023 and 2022, 454,081 and 356,610 restricted share awards were granted, respectively, at the fair market value
on the date of grant. These grants vest based on continued service over one year for directors and four years for employees.
Changes in restricted shares for the years ended December 27, 2023 and December 28, 2022, are as follows:
Unvested shares at December 29, 2021
Granted
Released
Forfeited, cancelled, or expired
Unvested shares at December 28, 2022
Granted
83
Weighted-Average
Shares
$
495,780
356,610
$
(201,043) $
(105,867) $
$
545,480
$
454,081
Fair Value
13.92
10.37
13.32
12.91
12.02
9.08
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Released
Forfeited, cancelled, or expired
Unvested shares at December 27, 2023
(190,415) $
(271,685) $
537,461
$
12.25
11.06
9.94
As of December 27, 2023, there was total unrecognized compensation expense of $3.5 million related to unvested
restricted share awards, which the Company expects to recognize over a weighted-average period of 2.48 years and
unrecognized compensation expense of $0.3 million related to unvested restricted units, which it expects to recognize over
a weighted-average period of 0.87 years.
12. EARNINGS PER SHARE
Basic EPS is calculated using the weighted-average number of shares of common stock outstanding during the years ended
December 27, 2023, December 28, 2022, and December 29, 2021. 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 October 11, 2022, the Company’s Board of Directors approved a share repurchase program (the “2022 Stock
Repurchase Plan”) under which the Company was authorized to repurchase up to $20.0 million of shares of its common
stock through March 28, 2024.
Under the 2022 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.
Pursuant to the 2022 Stock Repurchase Plan, the Company was authorized to effect repurchases using open market
purchases, including pursuant to Rule 10b5-1 trading plans, and/or through privately negotiated transactions.
For the year ended December 27, 2023, the Company repurchased 2,030,850 shares of common stock under the 2022 Stock
Repurchase Plan, using open market purchases, for total consideration of approximately $20.0 million. The common stock
repurchased under 2022 Stock Repurchase Plan were retired upon repurchase. The 2022 Stock Repurchase Plan
commenced on January 9, 2023, and was completed on July 12, 2023.
On August 7, 2023, the Company entered into a Stock Repurchase Agreement with FS Equity Partners V, L.P. and FS
Affiliates V, L.P. (together, the “Sellers”), pursuant to which the Company agreed to purchase an aggregate of 2,500,000
shares of the Company’s common stock from the Sellers at a price of $10.63 per share, representing the closing price of
such shares as listed on Nasdaq on August 7, 2023, for a total purchase price of $26.6 million. The repurchase was
completed in August 2023.
Prior to the repurchase, Freeman Spogli & Co. (“Freeman Spogli”), collectively with the Sellers and certain other funds
managed by Freeman Spogli, was the Company’s largest stockholder. In addition, John Roth, a director of the Company
until his resignation on August 16, 2023, is a general partner of Freeman Spogli and its chief executive officer.
On November 2, 2023, the Company announced that its Board of Directors approved a share repurchase program under
which the Company is authorized to repurchase up to $20,000,000 of shares of the Company’s common stock. Shares may
be repurchased from time to time on the open market, in block trades, pursuant to structured or derivative transactions or in
privately negotiated transactions. The amount and timing of any shares repurchased under the program will be determined
at the discretion of management and will depend on a number of factors, including the market price of the Company’s
stock, trading volume, general market and economic conditions, the Company’s capital position, legal requirements, and
other factors. The Company may also from time to time establish one or more plans under Rule 10b5-1 of the Securities
Exchange Act of 1934, as amended, for the repurchase of shares of its common stock under the program. The repurchase
program does not obligate the Company to acquire any particular number of shares. The repurchase program will terminate
on March 31, 2025 and may be modified, suspended or discontinued at any time.
On November 29, 2023, in accordance with the board approved share repurchase program, the Company entered into a
second Stock Repurchase Agreement with the Sellers (the “Repurchase Agreement”), pursuant to which the Company
agreed to purchase an aggregate of 1,500,000 shares of the Company’s common stock from the Sellers at a price of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
$8.40 per share, representing the closing price of such shares as listed on Nasdaq on November 29, 2023, for a total
purchase price of $12,600,000. The repurchase was completed on December 4, 2023. Following completion of this
repurchase, approximately $7.4 million of our common stock remained available for repurchase under the share repurchase
program at December 27, 2023. John Roth, a former director of the Company until his resignation effective August 16,
2023, is a general partner and chief executive officer of Freeman Spogli, which manages the Sellers.
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 27,
2023
For the Years Ended
December 28,
2022
December 29,
2021
$
25,554
$
20,801
$
29,121
34,253,542
34,374,706
0.75
$
0.74
$
972,181
36,350,579
36,575,904
0.57
$
0.57
$
535,574
35,973,892
36,446,756
0.81
$
0.80
$
136,397
For the Years Ended
December 27, December 28, December 29,
2023
2022
2021
34,253,542 36,350,579 35,973,892
472,864
34,374,706 36,575,904 36,446,756
225,325
121,164
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, 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 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.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
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 took place on March 30, 2022. On June 28, 2022, the court’s granting of the
motion to dismiss against Trimaran was affirmed.
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
syrup and fluctuations in the market rates for beverage syrup. These contracts have terms extending through the end of
2024.
At December 27, 2023, the Company’s total estimated commitment to purchase chicken was $31.3 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 three lease
agreements. These leases have various terms, the latest of which expires in 2038. As of December 27, 2023, the potential
amount of undiscounted payments the Company could be required to make in the event of non-payment by the primary
lessee was $3.8 million. The present value of these potential payments discounted at the Company’s estimated pre-tax cost
of debt at December 27, 2023 was $2.6 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.
Employment Agreements
As of December 27, 2023, the Company had employment agreements with two 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.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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
On March 28, 2023, Trimaran Group distributed substantially all of the shares of the Company’s common stock held by the
Trimaran Group to their respective investors, members and limited partners.
Additionally, on November 29, 2023, the Company entered into the Stock Repurchase Agreement with the Sellers. The
Company previously repurchased 2,500,000 shares of its common stock from the Sellers pursuant to a Stock Repurchase
Agreement, dated August 7, 2023, as previously reported on Current Report on Form 8-K filed with the Securities and
Exchange Commission on August 8, 2023. John Roth, a former director of the Company until his resignation effective
August 16, 2023, is a general partner and chief executive officer of Freeman Spogli, which manages the Sellers. See Note
12 “Earnings per Share” for additional information.
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 fee 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 fee revenue consists of advertising
contributions received from franchisees.
Disaggregated revenue
The following table presents the Company’s revenues for the years ended December 27, 2023, December 28, 2022 and
December 29, 2021 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 27, 2023 December 28, 2022 December 29, 2021
$
$
$
$
$
381,319
19,805
13,520
414,644
17,118
21,197
15,705
54,020
468,664
$
$
$
$
$
384,504
17,953
13,223
415,680
18,714
20,272
15,293
54,279
469,959
$
$
$
$
$
371,067
16,062
12,017
399,146
23,666
17,667
13,884
55,217
454,363
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 27, 2023, December 28, 2022 and December 29, 2021:
Greater Los Angeles area market
Other markets
Total
Contract balances
December 27, 2023 December 28, 2022 December 29, 2021
70.9 %
29.1 %
100 %
71.3 %
28.7 %
100 %
71.2 %
28.8 %
100 %
The following table provides information about the change in the franchise contract liability balances during the year ended
December 27, 2023 and December 28, 2022 (in thousands):
December 29, 2021
Revenue recognized - beginning balance
Additional contract liability
December 28, 2022
Revenue recognized - beginning balance
Additional contract liability
December 27, 2023
$
$
$
6,328
(744)
793
6,377
(791)
1,411
6,997
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 27, 2023, there was an increase to the contract liability balance due to the Company’s
completion of the sale of 18 company-operated restaurants within the California, Utah and Texas to an existing franchisee.
This resulted in a net gain on sale of restaurant of $5.0 million including an additional contract liability of $0.3 million,
relating to allocation of the transaction price to various performance obligations under the applicable contracts of the sale.
For the year ended December 28, 2022, there was an increase to the contract liability balance due to the Company’s
completion of the sale of three company-operated restaurants within the Orange County area to an existing franchisee. This
resulted in additional contract liability of $0.8 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 27, 2023 (in thousands):
Franchise revenues:
2024
2025
2026
2027
2028
Thereafter
Total
$
$
600
555
533
513
484
4,312
6,997
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in the loyalty rewards program liability included in 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 27, 2023 December 28, 2022
December 29, 2021
$
$
526
2,065
(1,904)
687
$
$
687
2,754
(2,915)
526
$
$
900
2,677
(2,890)
687
The Company expects all loyalty points revenue related to performance obligations unsatisfied as of December 27, 2023 to
be recognized within one year.
Gift Cards
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 27, 2023
4,877
$
December 28, 2022
4,667
$
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
$
1,064 $
1,145 $
1,218
December 27, 2023 December 28, 2022
December 29, 2021
Contract Costs
The Company does not currently incur costs to obtain or fulfill a contract that would be considered contract assets under
Topic 606.
16. SHAREHOLDER RIGHTS AGREEMENT
On August 8, 2023, the Company’s Board of Directors declared a dividend of one preferred share purchase right (a
“Right”) for each share of common stock, par value $0.01 per share, of the Company (the “Common Shares”) outstanding
on August 18, 2023 to the stockholders of record on that date. In connection with the distribution of the Rights, the
Company entered into a Rights Agreement (the “Rights Agreement”), dated as of August 8, 2023, between the Company
and Equiniti Trust Company, LLC, as rights agent. Each Right entitles the registered holder to purchase from the Company
one one-thousandth of a share of Series A Preferred Stock, par value $0.01 per share, of the Company (the “Preferred
Shares”) at a price of $53.75 per one one-thousandth of a Preferred Share represented by a Right, subject to adjustment.
Under the Rights Agreement, the Rights will generally be exercisable only in the event that a person or group of affiliated
or associated persons (such person or group being an “Acquiring Person”), other than certain exempt persons, acquires (or
commences a tender offer or exchange offer the consummation of which would result in) beneficial ownership of 12.5% or
more of the outstanding Common Shares. In such case (with certain limited exceptions), each holder of a Right (other than
the Acquiring Person, whose Rights shall become void) will have the right to receive, upon exercise at the then current
exercise price of the Right, Common Shares (or, if the Board so elects, cash, securities, or other property) having a value
equal to two times the exercise price of the Right.
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EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
At any time after any person or group becomes an Acquiring Person, the Board may exchange the Rights at an exchange
ratio of one Common Share per Right (subject to adjustment).
If, at any time after a person or group becomes an Acquiring Person, (i) the Company engages in a consolidation or merger
and, in connection there with all or part of the Common Shares are or will be changed into or exchanged for stock or other
securities of any other person or cash or any other property; or (ii) 50% or more of the Company’s consolidated assets or
earning power are sold, then each holder of a Right will thereafter have the right to receive, upon exercise at the then
current exercise price of the Right, that number of shares of common stock of the acquiring company having a market
value of two times the exercise price of the Right.
At any time prior to the time any person or group becomes an Acquiring Person, the Board may redeem the Rights at a
price of $0.001 per Right (the “Redemption Price”). Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption Price.
Until a Right is exercised, the holder thereof, as such, will have no rights as a stockholder of the Company, including,
without limitation, the right to vote or to receive dividends. The Rights will expire at the close of business on August 7,
2024.
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ITEM 9.
FINANCIAL DISCLOSURE
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
None.
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 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 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 Chief Financial Officer have concluded that our disclosure controls and
procedures were effective at the reasonable assurance level as of December 27, 2023.
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 Chief
Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of
December 27, 2023 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 27, 2023 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 27, 2023 has been audited by BDO USA,
P.C., 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 27, 2023 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
27, 2023, 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 27, 2023, 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 27, 2023 and December 28, 2022, the
related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the
three years in the period ended December 27, 2023, and the related notes and our report dated March 8, 2024, 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, P.C.
Costa Mesa, California
March 8, 2024
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ITEM 9B.
OTHER INFORMATION
None.
ITEM 9C.
DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
94
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PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2023
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 2023
fiscal year.
ITEM 12.
RELATED STOCKHOLDER MATTERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2023
fiscal year.
ITEM 13.
INDEPENDENCE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2023
fiscal year.
ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2023
fiscal year.
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ITEM 15.
EXHIBIT AND 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
3.3
4.1
4.2
10.1
10.2
10.3
Description
Amended and Restated
Certificate of Incorporation of
El Pollo Loco Holdings, Inc.
Certificate of Designations of
Series A Preferred Stock of El
Pollo Loco Holdings, Inc., as
filed with the Secretary of State
of the State of Delaware on
August 9, 2023
Amended and Restated By-
Laws of El Pollo Loco
Holdings, Inc.
Description of El Pollo Loco
Holdings, Inc. Capital Stock
Rights Agreement, dated as of
August 8, 2023, between El
Pollo Loco Holdings, Inc. and
Equiniti Trust Company, LLC,
as rights agent
Income Tax Receivable
Agreement, dated July 30, 2014,
between El Pollo Loco
Holdings, Inc., and Trimaran
Pollo Partners, L.L.C.
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
Incorporated by Reference
Filed
Herewith
Form
10-Q
Period
Ended
6/25/2014
Exhibit
3.1
Filing
Date
9/5/2014
SEC File Number
001-36556
8-K
N/A
3.1
8/9/2023
001-36556
8-K
N/A
3.1
2/2/2024
001-36556
X
8-K
N/A
4.1
8/9/2023
001-36556
10-Q
9/24/2014
10.1
11/7/2014
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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Table of Contents
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
assignor, and (ii) AA Pollo, Inc.,
as assignee
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
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 10.12
N/A 10.13
6/24/2014
6/24/2014
333-197001
333-197001
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10.14
10.15
10.16
10.17
10.18
10.19
10.20
10.21
10.22*
10.23*
10.24*
10.25*
10.26*
10.27*
Form of Franchise Agreement
(2019)
Form of Franchise Development
Agreement (2019)
Form of Franchise Agreement
(2021)
Form of Franchise Development
Agreement (2021)
Form of Franchise Agreement
(2022)
Form of Franchise Development
Agreement (2022)
Credit Agreement, dated as of
July 27, 2022, among El Pollo
Loco, Inc., as borrower, El Pollo
Loco Holdings, Inc., as
guarantor, the other guarantors
party thereto, the lenders party
thereto and Bank of America, as
administrative agent, swingline
lender and letter of credit issuer
Supplemental Agreement, dated
as of August 31, 2022, by and
among El Pollo Loco Holdings,
Inc., FS Equity Partners V, L.P.,
and FS Affiliates V, L.P.
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
10-K
12/25/2019
10.15
3/6/2020
001-36556
10-K
12/25/2019
10.16
3/6/2020
001-36556
10-K
10-K
N/A 10.17
3/11/2022
001-36556
N/A 10.18
3/11/2022
001-36556
X
X
8-K
N/A
10.1
8/2/2022
001-36556
10-Q
N/A
10.4
11/4/2022
001-36556
S-1/A
N/A 10.27
7/22/2014
333-197001
S-1/A
S-1/A
N/A 10.22
7/22/2014
333-197001
N/A 10.25
7/22/2014
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
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10.28*
10.29*
10.30*
10.31*
10.32*
10.33*
10.34*
10.35*
10.36*
10.37*
10.38*
10.39*
10.40*
10.41*
10.42*
10.43
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
Form of Restricted Stock
Agreement under 2021 Equity
Incentive Plan (Non-Employee
Directors)
Form of Restricted Stock
Agreement under 2023 Equity
Incentive Plan (Non-Employee
Directors)
Employment Agreement, dated
March 9, 2022, between El
Pollo Loco, Inc. and Laurance
Roberts
Release and Consulting
Agreement, dated November 1,
2023, between El Pollo Loco
Holdings, Inc. and Laurance
Roberts
Employment Agreement, dated
June 28, 2022, between El Pollo
Loco Holdings, Inc. and Ira Fils
Employment Agreement, dated
November 1, 2023, between El
Pollo Loco Holdings, Inc and
Maria Hollandsworth
Retention Award Agreement,
dated November 2, 2023,
between El Pollo Loco
Holdings, Inc. and Ira Fils
Stock Repurchase Agreement,
dated November 29, 2023,
between El Pollo Loco
S-8
N/A
4.3
8/6/2018
333-226621
10-K
12/25/2019
10.24
3/6/2020
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
10-K
N/A
10.1
6/14/2021
001-36556
N/A 10.31
3/11/2022
001-36556
10-K
N/A 10.32
3/11/2022
001-36556
10-K
N/A 10.33
3/11/2022
001-36556
X
10-K
3/9/2022
10.37
3/11/2022
001-36556
8-K
N/A
10.2
11/2/2023
001-36556
8-K
N/A
10.1
7/1/2022
001-36556
8-K
N/A
10.1
11/2/2023
001-36556
8-K
N/A
10.3
11/2/2023
001-36556
8-K
N/A
99.1
12/4/2023
001-36556
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32.1
31.2
21.1
23.1
31.1
Holdings, Inc., FS Equity
Partners V, L.P. and FS
Affiliates V, L.P.
Subsidiaries of El Pollo Loco
Holdings, Inc.
Consent of BDO USA, P.C.
Certification of Chief Executive
Officer under section 302 of the
Sarbanes–Oxley Act of 2002
Certification of Chief Financial
Officer under section 302 of the
Sarbanes–Oxley Act of 2002
Certification of Chief Executive
Officer and Chief Financial
Officer under 18 U.S.C. section
1350, adopted by section 906 of
the Sarbanes–Oxley Act of 2002
El Pollo Loco Holdings, Inc.
Clawback Policy
XBRL Instance Document - the
instance document does not
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101.SCH XBRL Taxonomy Extension
101.INS
97.1
Schema Document
101.CAL XBRL Taxonomy Extension
Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension
Definition Linkbase Document
101.LAB XBRL Taxonomy Extension
Label Linkbase Document
101.PRE XBRL Taxonomy Extension
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Presentation Linkbase
Document
Cover Page Interactive Data File
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within the Inline XBRL
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S-1
N/A
21.1
6/24/2014
333-197001
X
X
X
**
X
X
X
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.
100
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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/ Maria Hollandsworth
Maria Hollandsworth
President, Interim Chief Executive Officer and Chief
Operating Officer
Date: March 8, 2024
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
Title
/s/ Maria Hollandsworth
Maria Hollandsworth
President and Interim Chief Executive Officer and Chief
Operating Officer (principal executive officer)
/s/ Ira Fils
Ira Fils
/s/ William R. Floyd
William R. Floyd
/s/ Douglas J. Babb
Douglas J. Babb
/s/ Samuel N. Borgese
Samuel N. Borgese
/s/ Mark Buller
Mark Buller
/s/ Michael G. Maselli
Michael G. Maselli
/s/ Nancy Faginas-Cody
Nancy Faginas-Cody
/s/ Deborah Gonzalez
Deborah Gonzalez
/s/ Carol Lynton
Carol Lynton
Chief Financial Officer (principal financial and accounting
officer)
Chairman and Director
Director
Director
Director
Director
Director
Director
Director
101
Date
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
March 8, 2024
Exhibit 4.1
DESCRIPTION OF CAPITAL STOCK OF EL POLLO LOCO HOLDINGS, INC.
References to “we,” “us” and “our” refer to El Pollo Loco Holdings, Inc.
The following is a summary of the rights and preferences of our capital stock and preferred stock, related provisions of our
certificate of incorporation and bylaws, and certain applicable provisions of Delaware law. While we believe that the following
description covers the material terms of our capital stock, the description may not contain all of the information that is important to you.
The following description is qualified by reference to our certificate of incorporation, our bylaws and the Certificate of Designations of
our Series A Preferred Stock, which are filed as exhibits to our Annual Report on Form 10-K for the year ended December 27, 2023 filed
with the Securities and Exchange Commission.
General
Our authorized capital stock consists of 200,000,000 shares of common stock, par value $0.01 per share, and 100,000,000 shares of
preferred stock, par value $0.01 per share. We have two classes of securities registered pursuant to Section 12(b) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”): (i) common stock and (ii) Rights to Purchase Series A Preferred Stock. As of
March 1, 2024, we had 31,282,820 shares of common stock outstanding, and no shares of preferred stock outstanding.
Common Stock
Under our certificate of incorporation, each outstanding share of common stock is entitled to one vote on all matters submitted to a
vote of stockholders. In the event of our liquidation, dissolution or winding up, holders of common stock will be entitled to share ratably
in all assets remaining after payment of liabilities and any amounts due to the holders of preferred stock. Holders of our common stock
have no preemptive, conversion or subscription rights. No redemption or sinking fund provisions apply to our common stock. Holders of
our common stock do not have the right of cumulative voting in elections of directors, which means that holders of a majority of the
outstanding shares of our common stock can elect all of the directors standing for election at any annual meeting of stockholders.
Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of our common stock are
entitled to receive ratably such dividends as may be declared from time to time by our board of directors out of legally available funds.
Preferred Stock
Our certificate of incorporation authorizes our board of directors, without stockholder approval, to issue up to 100,000,000 shares
of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions granted to or imposed upon each
such series of preferred stock, including voting rights, dividend rights, conversion rights, terms of redemption, liquidation preference,
sinking fund terms, subscription rights and the number of shares constituting any series or the designation of a series.
Our board of directors is able to issue, without stockholder approval, preferred stock with voting and conversion rights that could
adversely affect the voting power of the holders of common stock and reduce the likelihood that such holders will receive dividend
payments or payments upon liquidation. Such issuance could have the effect of decreasing the market price of the common stock.
Rights to Purchase Series A Preferred Stock
On August 8, 2023, our board of directors declared a dividend of one preferred share purchase right (a “Right”) for each share of
our common stock (the “Common Shares”) outstanding on August 18, 2023 (the “Record Date”) to the stockholders of record on that
date. In connection with the distribution of the Rights, we entered into a
Rights Agreement (the “Rights Agreement”), dated as of August 8, 2023, between us and Equiniti Trust Company, LLC, as rights agent.
Each Right entitles the registered holder to purchase from us one one-thousandth of a share of our Series A Preferred Stock, par value
$0.01 per share (the “Preferred Shares”), at a price of $53.75 per one one-thousandth of a Preferred Share represented by a Right (the
“Purchase Price”), subject to adjustment.
Distribution Date; Exercisability; Expiration
Initially, the Rights will be attached to all Common Share certificates and no separate certificates evidencing the Rights (“Right
Certificates”) will be issued. Until the Distribution Date (as defined below), the Rights will be transferred with and only with the
Common Shares. As long as the Rights are attached to the Common Shares, we will issue one Right with each new Common Share so
that all such Common Shares will have Rights attached.
The Rights will separate and begin trading separately from the Common Shares, and Right Certificates will be caused to evidence
the Rights, on the earlier to occur of (i) the Close of Business (as such term is defined in the Rights Agreement) on the tenth day
following a public announcement, or the public disclosure of facts indicating (or our board of directors becoming aware), that a Person
(as such term is defined in the Rights Agreement) or group of affiliated or associated Persons has acquired Beneficial Ownership (as
defined below) of 12.5% or more of the outstanding Common Shares (an “Acquiring Person”) (or, in the event our board of directors
determines to effect an exchange in accordance with Section 24 of the Rights Agreement and our board of directors determines that a
later date is advisable, then such later date) or (ii) the Close of Business on the tenth Business Day (as such term is defined in the Rights
Agreement) (or such later date as may be determined by action of our board of directors prior to such time as any Person becomes an
Acquiring Person) following the commencement of a tender offer or exchange offer the consummation of which would result in the
Beneficial Ownership by a Person or group of 12.5% or more of the outstanding Common Shares (the earlier of such dates, the
“Distribution Date”). As soon as practicable after the Distribution Date, unless the Rights are recorded in book-entry or other
uncertificated form, we will prepare and cause the Right Certificates to be sent to each record holder of Common Shares as of the
Distribution Date.
An “Acquiring Person” will not include (i) us, (ii) any Subsidiary (as such term is defined in the Rights Agreement) of us, (iii) any
employee benefit plan of us or of any Subsidiary of us, (iv) any entity holding Common Shares for or pursuant to the terms of any such
employee benefit plan or (v) any Person who or which, together with all Affiliates and Associates (as such terms are defined in the
Rights Agreement) of such Person, at the time of the first public announcement of the Rights Agreement, is a Beneficial Owner of 12.5%
or more of the Common Shares then outstanding (a “Grandfathered Stockholder”). However, if a Grandfathered Stockholder becomes,
after such time, the Beneficial Owner of any additional Common Shares (regardless of whether, thereafter or as a result thereof, there is
an increase, decrease or no change in the percentage of Common Shares then outstanding Beneficially Owned (as such term is defined in
the Rights Agreement) by such Grandfathered Stockholder) then such Grandfathered Stockholder shall be deemed to be an Acquiring
Person unless, upon such acquisition of Beneficial Ownership of additional Common Shares, such person is not the Beneficial Owner of
12.5% or more of the Common Shares then outstanding. In addition, upon the first decrease of a Grandfathered Stockholder’s Beneficial
Ownership below 12.5%, such Grandfathered Stockholder will no longer be deemed to be a Grandfathered Stockholder. In the event that
after the time of the first public announcement of the Rights Agreement, any agreement, arrangement or understanding pursuant to which
any Grandfathered Stockholder is deemed to be the Beneficial Owner of Common Shares expires, is settled in whole or in part,
terminates or no longer confers any benefit to or imposes any obligation on the Grandfathered Stockholder, any direct or indirect
replacement, extension or substitution of such agreement, arrangement or understanding with respect to the same or different Common
Shares that confers Beneficial Ownership of Common Shares shall be considered the acquisition of Beneficial Ownership of additional
Common Shares by the Grandfathered Stockholder and render such Grandfathered Stockholder an Acquiring Person for purposes of the
Rights Agreement unless, upon such acquisition of Beneficial Ownership of additional Common Shares, such person is not the
Beneficial Owner of 12.5% or more of the Common Shares then outstanding.
“Beneficial Ownership” is defined in the Rights Agreement to include any securities (i) which a Person or any of such Person’s
Affiliates or Associates beneficially owns, directly or indirectly, within the meaning of Rules 13d-3 or 13d-5 promulgated under the
Securities Exchange Act of 1934, as amended, or has the right or ability to vote, or the right to acquire, pursuant to any agreement,
arrangement or understanding (except under limited circumstances),
(ii) which are directly or indirectly Beneficially Owned by any other Person with which a Person has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of such securities, or cooperating in changing, obtaining or
influencing control of us, or (iii) which are the subject of, or reference securities for, or that underlie, certain derivative positions of any
Person or any of such Person’s Affiliates or Associates.
The Rights are not exercisable until the Distribution Date. The Rights will expire on the Close of Business on August 7, 2024 (the
“Final Expiration Date”).
Exempt Persons and Transactions
Our board of directors may, in its sole and absolute discretion, determine that a Person is exempt from the Rights Agreement (an
“Exempt Person”), so long as such determination is made prior to such time as such Person becomes an Acquiring Person. Any Person
will cease to be an Exempt Person if our board of directors makes a contrary determination with respect to such Person regardless of the
reason therefor. In addition, our board of directors may, in its sole and absolute discretion, exempt any transaction from triggering the
Rights Agreement, so long as the determination in respect of such exemption is made prior to such time as any Person becomes an
Acquiring Person.
Flip-in Event
If a Person or group becomes an Acquiring Person at any time after the date of the Rights Agreement (with certain limited
exceptions), the Rights will become exercisable for Common Shares having a value equal to two times the exercise price of the Right.
From and after the announcement that any Person has become an Acquiring Person, if the Rights evidenced by a Right Certificate are or
were acquired or Beneficially Owned by an Acquiring Person or any Associate or Affiliate of an Acquiring Person, such Rights shall
become void, and any holder of such Rights shall thereafter have no right to exercise such Rights. If our board of directors so elects, we
may deliver upon payment of the exercise price of a Right an amount of cash, securities, or other property equivalent in value to the
Common Shares issuable upon exercise of a Right.
Exchange
At any time after any Person becomes an Acquiring Person, our board of directors may exchange the Rights (other than Rights
owned by any Person which have become void), in whole or in part, at an exchange ratio of one Common Share per Right (subject to
adjustment). We may issue, transfer or deposit such Common Shares (or other property as permitted under the Rights Agreement) to or
into a trust or other entity created upon such terms as our board of directors may determine and may direct that all holders of Rights
receive such Common Shares or other property only from the trust. In the event our board of directors determines, before the Distribution
Date, to effect an exchange, our board of directors may delay the occurrence of the Distribution Date to such time as it deems advisable.
Flip-over Event
If, at any time after a Person becomes an Acquiring Person, (i) we consolidate with, or merge with, any other Person (or any
Person consolidates with, or merges with, us) and, in connection with such consolidation or merger, all or part of the Common Shares are
or will be changed into or exchanged for stock or other securities of any other Person or cash or any other property; or (ii) 50% or more
of our consolidated assets or Earning Power (as defined in the Rights Agreement) are sold, then proper provision will be made so that
each holder of a Right will thereafter have the right to receive, upon the exercise thereof at the then current exercise price of the Right,
that number of shares of common stock of the acquiring company which at the time of such transaction will have a market value of two
times the exercise price of the Right.
Redemption
At any time prior to the time any Person becomes an Acquiring Person, our board of directors may redeem the Rights in whole, but
not in part, at a price of $0.001 per Right (the “Redemption Price”). The redemption of the Rights may be made effective at such time, on
such basis and with such conditions as our board of directors in its sole discretion may establish. Immediately upon any redemption of
the Rights, the right to exercise the Rights will terminate and the only right of the holders of Rights will be to receive the Redemption
Price.
Amendment
The terms of the Rights may be amended by our board of directors without the consent of the holders of the Rights, except that
from and after such time as any Person becomes an Acquiring Person no such amendment may adversely affect the interests of the
holders of the Rights (other than the Acquiring Person and its Affiliates and Associates).
Preferred Stock Rights
Each one-thousandth of a Preferred Share will entitle the holder thereof to the same dividends and liquidation rights as if the holder
held one Common Share and will be treated the same as a Common Share in the event of a merger, consolidation or other share
exchange.
Rights of Holders
Until a Right is exercised, the holder thereof, as such, will have no rights as our stockholder, without limitation, the right to vote or
to receive dividends.
Anti-Takeover Provisions of Delaware Law and Certain Charter and Bylaw Provisions
The following is a summary of certain provisions of the Delaware General Corporation Law (the “DGCL”), and our certificate of
incorporation and bylaws that may be deemed to have an anti-takeover effect and may delay, deter or prevent a tender offer or takeover
attempt that a stockholder might consider to be in its best interest, including those attempts that might result in a premium over the
market price for the shares held by stockholders.
Classified Board of Directors
Our certificate of incorporation provides for our board of directors to be divided into three classes of directors, as nearly equal in
number as possible, serving staggered terms. Approximately one-third of our board of directors is to be elected each year. Under Section
141 of the DGCL, unless the certificate of incorporation provides otherwise, directors serving on a classified board can only be removed
for cause. Our certificate of incorporation provides that our directors may only be removed for cause, by a majority of the voting power
of the outstanding voting stock voting as a single class to remove the director at an annual or special meeting. The provision for our
classified board of directors may be amended, altered or repealed only upon the affirmative vote of the holders of a majority of our
outstanding voting stock.
Number of Directors; Vacancies
Our certificate of incorporation provides that the number of directors on our board of directors is to be fixed exclusively pursuant
to resolution adopted by our board of directors. The exact number of members on our board of directors is to be determined from time to
time by resolution of a majority of our full board of directors.
Pursuant to our certificate of incorporation, each director is to serve until his or her successor is duly elected and qualified, unless
he or she resigns, dies, becomes disqualified or is removed. Our certificate of incorporation further provides that, generally, vacancies or
newly created directorships in our board of directors may only be filled by a resolution approved by a majority of our board of directors
and any director so chosen will hold office until the next election of the class for which such director was chosen.
Stockholder Meetings
Our certificate of incorporation prohibits our stockholders from calling special meetings, which may be called only (i) by the
Chairman of our board of directors, (ii) by our Chief Executive Officer (or, in the absence of a Chief Executive Officer, our President) or
(iii) pursuant to a resolution duly adopted by a majority of our board of directors.
Action by Stockholders Without a Meeting
The DGCL permits stockholder action by written consent unless otherwise provided by a corporation’s certificate of incorporation.
Our certificate of incorporation prohibits stockholder action by written consent.
No Cumulative Voting
The DGCL provides that stockholders are not entitled to the right to cumulate votes in the election of directors unless a
corporation’s certificate of incorporation provides otherwise. Our certificate of incorporation does not provide for cumulative voting in
the election of directors.
Stockholder Proposals and Nominations
Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders or to nominate
candidates for election as directors at an annual meeting of stockholders must provide timely notice of such proposed business in writing.
To be timely, a stockholder’s notice generally must be delivered to or mailed and received at our principal executive office not less than
90 days or more than 120 days prior to the first anniversary of the preceding year’s annual meeting.
Our bylaws also provide certain requirements as to the form and content of a stockholder’s notice. These provisions may preclude
stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual
meeting of stockholders. A stockholder’s notice must set forth, among other things, as to each business matter or nomination the
stockholder proposes to bring before the meeting:
·
·
·
·
the name and address of the stockholder and the beneficial owner, if any, on whose behalf the proposal or nomination is made;
the class and number of shares that are owned of record and beneficially by the stockholder proposing the business or
nominating the nominee;
a representation that the stockholder giving the notice is a holder of record of shares of our voting stock entitled to vote at such
annual meeting and intends to appear in person or by proxy at the annual meeting to propose the business or nominate the
person or persons specified in the notice, as applicable; and
whether such stockholder or beneficial owner intends to deliver a proxy statement and forms of proxy to holders of at least the
percentage of shares of our voting stock required to approve such proposal or nominate such nominee or nominees.
If the stockholder is nominating a candidate for director, the stockholder’s notice must also include the name, age, business
address, residence address and occupation of the nominee proposed by the stockholder and the signed consent of the nominee to serve as
a director on our board of directors if so elected. The candidate may also be required to present certain information and make certain
representations and agreements at our request.
In addition, a stockholder must also comply with all applicable requirements of the Exchange Act and the rules and regulations
under the Exchange Act with respect to matters relating to nomination of candidates for directors.
Supermajority provisions
The DGCL generally provides that the affirmative vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation’s certificate of incorporation or bylaws, unless the corporation’s certificate of incorporation or bylaws require a
greater percentage. Our amended and restated certificate of incorporation and bylaws require that the affirmative votes of holders of at
least 75% of the total votes eligible to be cast in the election of directors are required to amend, alter, change or repeal specified
provisions of our amended and restated certificate of incorporation, including:
·
·
·
·
·
·
·
·
·
·
classified board of directors (the election and term of our directors);
the provisions regarding director liability;
the provisions regarding director and officer indemnification;
the provisions regarding competition and corporate opportunities;
the provisions regarding entering into business combinations with interested stockholders;
the provisions regarding stockholder action by written consent;
the provisions regarding calling special meetings of stockholders;
filling vacancies on our board of directors;
the advance notice requirements for stockholder proposals and director nominations; and
the amendment provision requiring that the above provisions be amended only with a 75% supermajority vote.
This requirement of a supermajority vote to approve amendments to our amended and restated certificate of incorporation and
bylaws could enable a minority of our stockholders to exercise veto power over any such amendments.
Delaware Anti-Takeover Statute
Section 203 of the DGCL, subject to certain exceptions, prohibits a publicly-held Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three years following the date that such person or entity became an
interested stockholder, unless:
·
·
·
prior to such date, the board of directors of the corporation approved either the business combination or the transaction which
resulted in the stockholder becoming an interested stockholder;
upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested
stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced,
excluding specified shares; or
at or subsequent to such date of the transaction that resulted in a person or entity becoming an interested stockholder, the
business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders, and
not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock that is not owned by the
interested stockholder.
In general, Section 203 defines an “interested stockholder” as any person that is:
·
owner of 15% or more of the outstanding voting stock of the corporation;
·
·
an affiliate or associate of the corporation and was the owner of 15% or more of the outstanding voting stock of the
corporation at any time within three years immediately prior to the relevant date; or
an affiliate or associate of the above.
A Delaware corporation may “opt out” of these provisions with an express provision in its original certificate of incorporation or
an express provision in its certificate of incorporation or bylaws resulting from a stockholders’ amendment approved by at least a
majority of the outstanding voting stock. We have opted out of these provisions. However, pursuant to our certificate of incorporation,
when Trimaran Pollo Partners, L.L.C. ceased to beneficially own more than 15% of our common stock, we automatically became subject
to Section 203 of the DGCL.
Limitations on Liability and Indemnification of Directors and Officers
Section 145 of the DGCL provides that a Delaware corporation may indemnify any persons who are, or are threatened to be made,
parties to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of such corporation), by reason of the fact that such person was an officer, director, employee or agent of
such corporation, or is or was serving at the request of such person as an officer, director, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by such person in connection with such action, suit or proceeding, provided that such person acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the corporation’s best interests and, with respect to any criminal
action or proceeding, had no reasonable cause to believe that his or her conduct was illegal.
A Delaware corporation may indemnify any persons who are, or are threatened to be made, a party to any threatened, pending or
completed action or suit by or in the right of the corporation by reason of the fact that such person was a director, officer, employee or
agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another
corporation or enterprise. The indemnity may include expenses (including attorneys’ fees) actually and reasonably incurred by such
person in connection with the defense or settlement of such action or suit provided such person acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the corporation’s best interests except that no indemnification is permitted without
judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the corporation must indemnify him or her against the expenses that
such officer or director has actually and reasonably incurred. Our certificate of incorporation provides for the indemnification of our
directors and officers to the fullest extent permitted under the DGCL.
Expenses incurred by any officer or director in defending any such action, suit or proceeding in advance of its final disposition
shall be paid by us upon delivery to us of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if
it shall ultimately be determined that such director or officer is not entitled to be indemnified by us.
Section 102(b)(7) of the DGCL permits a corporation to provide in its certificate of incorporation that a director or officer of the
corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duties as a
director or officer, except that such provision shall not eliminate or limit the liability of:
·
·
·
a director or officer for any breach of the director’s or officer’s duty of loyalty to the corporation or its stockholders;
a director or officer for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of
law;
a director under Section 174 of the DGCL;
·
·
a director or officer for any transaction from which the director or officer derived an improper personal benefit; or
an officer in any action by or in the right of the corporation.
Our certificate of incorporation includes such a provision with respect to directors only.
Section 174 of the DGCL provides, among other things, that a director who willfully or negligently approves of an unlawful
payment of dividends or an unlawful stock purchase or redemption may be held liable for such actions. A director who was either absent
when the unlawful actions were approved, or dissented at the time, may avoid liability by causing his or her dissent to such actions to be
entered in the books containing minutes of the meetings of the board of directors at the time such action occurred or immediately after
such absent director receives notice of the unlawful acts.
Indemnification Agreements
We have entered into indemnification agreements with each of our current directors and executive officers. These agreements
require us to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of
their service to us and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.
We also intend to enter into indemnification agreements with our future directors and executive officers.
Transfer Agent
The registrar and transfer agent for our common stock is American Stock Transfer & Trust Company, LLC.
Listing
Our common stock trades on The Nasdaq Stock Market LLC under the symbol “LOCO.”
Exhibit 10.18
El Pollo Loco Unit # ______
Location ________________
EL POLLO LOCO® FRANCHISE AGREEMENT
Dated: ____________________
Location:
Franchisee:
Franchisee Notice Address:
Franchisee Notice Facsimile Number:
(Disclosure Document Control No. 032922)
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 1 of 134
TABLE OF CONTENTS:
El Pollo Loco Unit # ______
Location ________________
SCOPE AND PURPOSE OF AGREEMENT
THE EL POLLO LOCO® MARKS & SYSTEM
TERM
SITE DEVELOPMENT
IMPROVEMENTS, FIXTURES AND EQUIPMENT
FEES, TAXES AND OTHER CHARGES
FINANCIAL REPORTING, BILLING AND PAYMENT
ADVERTISING AND MARKETING
INSURANCE AND INDEMNIFICATION
1.
2.
3.
4.
5.
6.
7.
8.
9.
10. VENDING MACHINES
11. COMPLIANCE WITH MANUAL AND WITH SYSTEM STANDARDS
12. RESTAURANT MAINTENANCE AND REPAIR
13. HOURS OF OPERATION
14. PERSONNEL STANDARDS
15.
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
INSPECTIONS
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 2 of 134
4
6
8
8
9
12
14
20
23
26
26
30
31
32
32
34
36
44
47
49
51
56
57
62
62
63
64
El Pollo Loco Unit # ______
Location ________________
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
65
66
70
73
75
97
98
111
113
124
126
129
133
135
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 3 of 134
El Pollo Loco Unit # ______
Location ________________
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” or “you”).
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 (each, an “EPL Restaurant”).
Franchisee desires to operate a restaurant under Franchisor’s name and to utilize Franchisor’s plan of food
B.
service operation, all in accordance with the terms, covenants and conditions of this Agreement.
Franchisee understands that the success of the business contemplated by this Agreement is subject to
C.
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
into a Development Agreement dated
D.
________________ (“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.
(as Developer) entered
1.
SCOPE AND PURPOSE OF AGREEMENT
1.1.
Franchisee desires and agrees to operate and manage an “El Pollo Loco” 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 EPL 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 4 of 134
El Pollo Loco Unit # ______
Location ________________
Franchisor for the operation, maintenance or improvement of EPL 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) EPL 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 5 of 134
El Pollo Loco Unit # ______
Location ________________
may, among other things, on any terms and conditions Franchisor deems advisable, and 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 6 of 134
El Pollo Loco Unit # ______
Location ________________
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 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 an entity or if Agreement is transferred to an entity, the name of such entity 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.
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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 7 of 134
El Pollo Loco Unit # ______
Location ________________
2.8.
Franchisor reserves all rights to use the El Pollo Loco ® Marks in any manner.
3.
TERM
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 8 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 9 of 134
El Pollo Loco Unit # ______
Location ________________
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 who must have access to such Plans in order to construct the Restaurant 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 10 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 11 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Net 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 Net 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 Net Sales, as defined in Section 7.1 if the Restaurant is located within the LA 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 12 of 134
El Pollo Loco Unit # ______
Location ________________
Agreement and upon 90 days written notice to you. Some existing franchisees may pay a lower Advertising Fee.
Restaurants owned and operated by us will contribute on the same basis as those existing franchisees within the
same DMA. 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) (“Customer
Feedback Costs”).
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 (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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 13 of 134
El Pollo Loco Unit # ______
Location ________________
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 “Net Sales” as used in this Agreement shall mean the total 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. Net Sales is calculated after any
rebates, discounts, coupons or refunds to customers, any employee meal discounts; any Loyalty Reward points or
discounts. Net Sales do not include any sales taxes or other similar taxes that Franchisee collects from customers
and pay to any federal, state or local taxing authority. We reserve the right to modify our policies and practices
regarding revenue recognition, revenue reporting, and the inclusion or exclusion of certain revenue from “Net
Sales” as circumstances, business practices, and technology change.
7.2.
Franchisee shall deliver to Franchisor on or before the sixth (6th) calendar day after each close of
the sales month, a monthly Net Sales statement (“Monthly T-Sheet”), in the form specified by Franchisor, setting
forth the amount of Net 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, Re-Inspection Fees and Coaching 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,
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 14 of 134
El Pollo Loco Unit # ______
Location ________________
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’ Net Sales. If, at any time, Franchisor determines that Franchisee has under-reported
the monthly Net Sales of the Restaurant, or underpaid the monthly Royalty Fees, Advertising Fees, 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 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 Fees 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 applicable 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. Within thirty (30) days after the end of each calendar quarter and within 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,
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 15 of 134
El Pollo Loco Unit # ______
Location ________________
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.
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 solely at Franchisee’s expense. Franchisor may be the only approved supplier of the Computer System
and Required Software. Franchisee is responsible, at Franchisee’s expense, 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, updates, modifications, 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, updated, modified, 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 16 of 134
El Pollo Loco Unit # ______
Location ________________
support for such modifications. 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
you 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 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 if any such transmittal report is determined to be in error to an extent of two percent
(2%) or
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 17 of 134
El Pollo Loco Unit # ______
Location ________________
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
Gift Card was issued by Franchisee or another EPL 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 EPL
Restaurants and for making timely payment to Franchisor, other operators of EPL Restaurants, or a third-party
service provider for Gift Cards issued from the EPL Restaurant that are honored by Franchisee, Franchisor or
other EPL Restaurant operators. Franchisee acknowledges and agrees that, in connection with the Gift Card
Program, Franchisee may be required to:
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;
a.
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 Restaurant 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 18 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 19 of 134
El Pollo Loco Unit # ______
Location ________________
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 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 EPL
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 EPL 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 20 of 134
El Pollo Loco Unit # ______
Location ________________
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 LA 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 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 in writing by Franchisor (up to an amount not to exceed the LAF contributions collected). 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 21 of 134
El Pollo Loco Unit # ______
Location ________________
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 EPL 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 EPL
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 22 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 23 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 24 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 25 of 134
El Pollo Loco Unit # ______
Location ________________
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
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 Net 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 26 of 134
El Pollo Loco Unit # ______
Location ________________
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 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 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 Franchisor’s management training
program and have received the ServSafe® certification; and Franchisee must complete either Franchisor’s
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 Franchisor’s 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 27 of 134
El Pollo Loco Unit # ______
Location ________________
Franchisor’s 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
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 28 of 134
El Pollo Loco Unit # ______
Location ________________
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. 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 29 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 30 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 31 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 32 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 33 of 134
El Pollo Loco Unit # ______
Location ________________
Restaurant, Franchisor will charge Franchisee a Re-Inspection Fee for each subsequent visit to Franchisee’s
restaurant after the initial inspection. Franchisee will give Franchisor authorization to pay the Re-Inspection Fee
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 a Coaching Fee 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 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 Franchisor’s management training program; or a Shift
Leader trained by your General Manager and Assistant Manager at your Restaurant if your 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,
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 34 of 134
El Pollo Loco Unit # ______
Location ________________
each who has successfully completed Franchisor’s 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 Franchisor’s management training program. 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 Franchisor’s management training program and Franchisee must complete either
Franchisor’s management training program or the Executive Franchisee 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 Franchisor’s management training program within 90
days of appointment at Franchisee’s expense; or, Franchisee shall assume the duties of the Operations Director
and complete Franchisor’s 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 EPL 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 35 of 134
El Pollo Loco Unit # ______
Location ________________
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.
h.
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 Franchisor’s 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 Franchisor’s 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 Franchisor’s 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 worker’s compensation insurance), lodging, travel expenses or any other expenses incurred
in connection with any initial training sessions, Franchisor’s 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.
or liability under this Agreement.
From and after the date of any such assignment, Franchisor shall have no further obligation
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 36 of 134
El Pollo Loco Unit # ______
Location ________________
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
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 37 of 134
El Pollo Loco Unit # ______
Location ________________
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.
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 38 of 134
El Pollo Loco Unit # ______
Location ________________
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:
reputation, character, and aptitude necessary to operate and maintain the Restaurant;
i.
To have the appropriate business qualifications, restaurant operations experience,
the Restaurant;
ii.
To have the ability to devote full time and best efforts to operating and maintaining
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.
or ownership of the Restaurant or of any felony;
To not have been convicted of criminal misconduct that is relevant to the operation
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 39 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 40 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 41 of 134
El Pollo Loco Unit # ______
Location ________________
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 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:
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 42 of 134
El Pollo Loco Unit # ______
Location ________________
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
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)
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 43 of 134
El Pollo Loco Unit # ______
Location ________________
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;
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;
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 44 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 45 of 134
El Pollo Loco Unit # ______
Location ________________
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.
charges or other amounts due;
Failure of Franchisee to pay to Franchisor, its affiliates or any third-parties any fees, costs,
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 46 of 134
El Pollo Loco Unit # ______
Location ________________
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:
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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 47 of 134
El Pollo Loco Unit # ______
Location ________________
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;
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,
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 48 of 134
El Pollo Loco Unit # ______
Location ________________
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
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 49 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 50 of 134
El Pollo Loco Unit # ______
Location ________________
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® 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 51 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 52 of 134
El Pollo Loco Unit # ______
Location ________________
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
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 53 of 134
El Pollo Loco Unit # ______
Location ________________
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
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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 54 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 55 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 56 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 57 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 58 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 59 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 60 of 134
El Pollo Loco Unit # ______
Location ________________
(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 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
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 61 of 134
El Pollo Loco Unit # ______
Location ________________
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 (the “Effective
Date”).
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 29, 2022 (Control Number 032922), at least
14 calendar days prior to the date on which this Agreement was executed by Franchisee or payment of any monies
to Franchisor.
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
____________, 20_____, 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.
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 62 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
1
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 63 of 134
El Pollo Loco Unit # ______
Location ________________
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
FRANCHISEE:
____________________________,
a_______________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Exhibit D of Multi-State Disclosure Document Control No. 032922
Franchise Agreement - Page 64 of 134
El Pollo Loco Unit # ______
Location ________________
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”)
located at
____________________________________(the “Location”).
for an “El Pollo Loco” Restaurant Unit No. _______
The parties hereby agree that the Opening Date of the Restaurant at the Location was ____________________,
20___.
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. 032922)
Memorandum of Opening Date - Page 65 of 134
El Pollo Loco Unit # ______
Location ________________
EXHIBIT 2: PERSONAL GUARANTEE OF FRANCHISE AGREEMENT
As of ______________, 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 Franchisee or
1.
by any disaffirmance or abandonment by a trustee of Franchisee.
This covenant and agreement on the part of the undersigned shall continue in favor of Franchisor
2.
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 in the
5.
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. 032922)
Personal Guarantee of Franchise Agreement - Page 66 of 134
El Pollo Loco Unit # ______
Location ________________
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.
No election in one form of action or proceeding, or against any party, or on any obligation, shall constitute
8.
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 the undersigned’s heirs,
representatives, successors and assigns. Neither the death of the undersigned nor notice thereof to Franchisor
shall terminate this guarantee as to the undersigned’s 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.
10.
The undersigned represents and warrants that (i) it is in the undersigned’s direct interest to assist
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.
All notices given under this guarantee shall be in writing and shall be either (i) served personally; (ii) sent
12.
by certified or registered United States mail to the party to be
Exhibit 2 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Personal Guarantee of Franchise Agreement - Page 67 of 134
El Pollo Loco Unit # ______
Location ________________
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 either party shall be the address listed
on the above in the first paragraph of this guarantee. Either party 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.
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.
Exhibit 2 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Personal Guarantee of Franchise Agreement - Page 68 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
14.
The undersigned has had the opportunity to review this guarantee with its counsel and such counsel 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. 032922)
Personal Guarantee of Franchise Agreement - Page 69 of 134
EXHIBIT 3: INVESTOR COVENANTS REGARDING CONFIDENTIALITY AND NON-
COMPETITION
Statement of Ownership of Franchisee:
Name of Principal/Investor
Percentage of Ownership Interest
El Pollo Loco Unit # ______
Location ________________
In conjunction with your investment in __________ a ____________(“Franchisee”) you (“Investor” or “You”),
acknowledge and agree as follows:
Franchisee owns and operates, or
1)
to a Franchise Agreement dated
_______________ (“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.
is developing, pursuant
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 legal
3)
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. 032922)
Investor Covenants Regarding Confidentiality and Non-Competition - Page 70 of 134
El Pollo Loco Unit # ______
Location ________________
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. 032922)
Investor Covenants Regarding Confidentiality and Non-Competition - Page 71 of 134
IN WITNESS WHEREOF, the undersigned have executed and delivered this Agreement on the date(s) set forth
below.
El Pollo Loco Unit # ______
Location ________________
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. 032922)
Investor Covenants Regarding Confidentiality and Non-Competition - Page 72 of 134
El Pollo Loco Unit # ______
Location ________________
EXHIBIT 4: AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS (ACH)
On _____________, 20_______ 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 attached as Exhibit A and the depository (“Depository”) to debit
such account pursuant to El Pollo Loco’s instructions (“Authorization”).
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: ___________________________________________________________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Exhibit 4 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Authorization Agreement for Prearranged Payments (ACH) - Page 73 of 134
EXHIBIT A to
AUTHORIZATION AGREEMENT FOR PREARRANGED PAYMENTS (ACH)
(to be completed by Depositor)
El Pollo Loco Unit # ______
Location ________________
Depository:
Branch:
Street Address, City, State, Zip Code:
Bank Transit/ABA Number:
Account Number:
ATTACH VOID CHECK
Exhibit 4 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Authorization Agreement for Prearranged Payments (ACH) - Page 74 of 134
El Pollo Loco Unit # ______
Location ________________
EXHIBIT 5: ADVERTISING ASSOCIATION DOCUMENTS
ADVERTISING ASSOCIATION MEMBERSHIP AGREEMENT
THE [NAME OF AREA] EL POLLO LOCO® RESTAURANT ADVERTISING ASSOCIATION
MEMBERSHIP AGREEMENT
[NAME OF AREA]
THIS
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.
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 75 of 134
El Pollo Loco Unit # ______
Location ________________
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 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).
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 76 of 134
El Pollo Loco Unit # ______
Location ________________
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. 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.
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 77 of 134
El Pollo Loco Unit # ______
Location ________________
(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 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. 032922)
Advertising Association Documents - Page 78 of 134
El Pollo Loco Unit # ______
Location ________________
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. 032922)
Advertising Association Documents - Page 79 of 134
Adopted as of _______________, 20___
El Pollo Loco Unit # ______
Location ________________
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
SPECIAL MEETINGS
PLACE OF MEETING
SECTION 3.1 MEMBERS
SECTION 3.2 ENROLLMENT
SECTION 3.3 ENTITY MEMBERSHIP
SECTION 3.4 MEMBERS IN GOOD STANDING
SECTION 3.5 ANNUAL AND QUARTERLY MEETINGS OF THE MEMBERS
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
SECTION 4.1 NUMBER
SECTION 4.2 VACANCIES
SECTION 4.3 REMOVAL OF DIRECTORS
SECTION 4.4 QUALIFICATION
SECTION 4.5 TERMS
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. 032922)
Advertising Association Documents - Page 80 of 134
El Pollo Loco Unit # ______
Location ________________
ARTICLE 5 OFFICERS
SECTION 5.1 OFFICES
SECTION 5.2 TERM OF OFFICE; VACANCIES
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 THE CORPORATION
INDEMNIFICATION OF PERSONS PARTIES TO A PROCEEDING BY OR IN THE RIGHT
OF CORPORATION
SECTION 10.2
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. 032922)
Advertising Association Documents - Page 81 of 134
BYLAWS OF _______[NAME OF AREA]_______EL POLLO LOCO® RESTAURANT ADVERTISING
ASSOCIATION, INC.
ARTICLE 1 - Officers
El Pollo Loco Unit # ______
Location ________________
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
located at
__________________________________.
initial principal office of
the Corporation will be
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
(“EPL’s”) of its members located in _____________[describe geographic area]_______________ (the
“Association Area”) and to further any and all purposes consistent with the objectives of the Corporation.
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. 032922)
Advertising Association Documents - Page 82 of 134
El Pollo Loco Unit # ______
Location ________________
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. 032922)
Advertising Association Documents - Page 83 of 134
El Pollo Loco Unit # ______
Location ________________
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
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 84 of 134
El Pollo Loco Unit # ______
Location ________________
called or convened. Neither the business to be transacted at, not the purpose of, any 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
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 85 of 134
El Pollo Loco Unit # ______
Location ________________
votes of Members present at the meeting. There is no cumulative voting for directors or 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 the President
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 the Secretary’s 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. 032922)
Advertising Association Documents - Page 86 of 134
El Pollo Loco Unit # ______
Location ________________
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 the director, or the business organization for which the director 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
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 87 of 134
El Pollo Loco Unit # ______
Location ________________
as are not prohibited by the Act, by the Articles of Incorporation or by these Bylaws. The 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.
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 88 of 134
El Pollo Loco Unit # ______
Location ________________
Section 4.12 – Organization. The President of the Corporation will act as Chairman and 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
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 89 of 134
El Pollo Loco Unit # ______
Location ________________
Corporation to the full extent of such disallowance. The Board of Directors of the 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
the President 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
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 90 of 134
El Pollo Loco Unit # ______
Location ________________
(4) attend to all correspondence and perform all the duties incident to the 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
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 91 of 134
El Pollo Loco Unit # ______
Location ________________
generally be a percentage of Net Sales, as defined in the most recent Disclosure 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 that person’s 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
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 92 of 134
El Pollo Loco Unit # ______
Location ________________
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 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 that person 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 the indemnitee 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 the
indemnitee’s 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 person 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 that person reasonably
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 93 of 134
El Pollo Loco Unit # ______
Location ________________
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, 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, such director, officer, employee or agent
must be indemnified against expenses actually and reasonably incurred by such director, officer, employee or
agent 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 the director, officer, employee, or agent 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 such director’s, officer’s, employee’s, or agent’s actions, or omissions to act,
were material to the cause of action so adjudicated and constitute:
Exhibit 5 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Advertising Association Documents - Page 94 of 134
El Pollo Loco Unit # ______
Location ________________
A.
a violation of the criminal law, unless the director, officer, employee or agent had
reasonable cause to believe that such conduct was lawful or had no reasonable cause to believe such
conduct was unlawful;
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. 032922)
Advertising Association Documents - Page 95 of 134
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.
El Pollo Loco Unit # ______
Location ________________
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
Third-Party Delivery Fees
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
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 %
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. 032922)
El Pollo Loco® Financial Reporting Form - Page 96 of 134
EXHIBIT 7: IT SUPPORT SERVICES AGREEMENT
El Pollo Loco Unit # ______
Location ________________
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:
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 EPL IT, 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.
EPL IT:
El Pollo Loco, Inc., a Delaware
corporation
Customer:
___________________, a _________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Exhibit 7 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
IT Support Services Agreement - Page 97 of 134
El Pollo Loco Unit # ______
Location ________________
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. 032922)
General Release - Page 98 of 134
El Pollo Loco Unit # ______
Location ________________
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. 032922)
General Release - Page 99 of 134
El Pollo Loco Unit # ______
Location ________________
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. 032922)
General Release - Page 100 of 134
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.
El Pollo Loco Unit # ______
Location ________________
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,
IMPLIED
STATUTORY, EXPRESS OR
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.
INCLUDING WITHOUT LIMITATION, THE
IMPLIED,
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. 032922)
General Release - Page 101 of 134
El Pollo Loco Unit # ______
Location ________________
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) as listed above.
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. 032922)
General Release - Page 102 of 134
El Pollo Loco Unit # ______
Location ________________
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. 032922)
General Release - Page 103 of 134
El Pollo Loco Unit # ______
Location ________________
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. 032922)
General Release - Page 104 of 134
El Pollo Loco Unit # ______
Location ________________
23.
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 29, 2022)
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)
● Four (4)) digital menu boards Four (4)) panels and Four (4)) controllers)
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
General Release - Page 105 of 134
El Pollo Loco Unit # ______
Location ________________
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
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
General Release - Page 106 of 134
El Pollo Loco Unit # ______
Location ________________
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 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:
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
General Release - Page 107 of 134
El Pollo Loco Unit # ______
Location ________________
● Helpdesk rate $60 per hour
● Networking rate $120 per hour
● 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 Schedule1
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 Licensing3
WIFI Controller (2 Access Points)
Learning Management Platform
Digital Menu Board and Preview Board4
Beyond Software5
Monthly Cost per Store6
Broadband WAN7
Radius Networks Curbside8
Annual
Cost1
$324
$3002
Monthly
Cost1
$27
$252
Platinum
Support
Option
Yes
Yes
Payable
to:
EPL
EPL
$2,004
$600
$300
$300
$36
$480
$135
$228
$912
$1,080
$1,188
$600
$167
$50
$25
$25
$3
$40
$11.25
$19
$76
$90
$558.25
$99
n/a
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
EPL
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.
1 All fees listed in this Fee Schedule may change depending on vendor price changes.
2 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.
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
General Release - Page 108 of 134
El Pollo Loco Unit # ______
Location ________________
3 Cloud hosted and managed firewalls require licensing fees. These costs are pass-through costs from the EPL
approved licensing provider. The costs may actually be different than the amount shown due to price changes by
vendor.
4 Digital Menu Board and Preview Board fees are determined by the count of digital menu panels. Each digital
menu/preview board carries a vendor license fee of $14 per panel plus $5 per panel content management fee
(minimum $15/month), with a standard configuration consisting of 4 panels. 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 $90 per month per restaurant location for application hosting and support. The fees
will increase to $110 per month per restaurant location in 2023. 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.
6 Monthly rate based on standard store configuration. Support cost for non-standard configuration subject to
change, based on actual hardware deployed.
7 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.
8 Radius Network Curbside cost is billed annually. This cost is pass-through cost which 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. 032922)
General Release - Page 109 of 134
EXHIBIT 8: GENERAL RELEASE
This General Release (“General Release”) is made effective _________________, 20__, by the undersigned,
____________________________________, a _______________ (referred herein after as the “Franchisee”).
El Pollo Loco Unit # ______
Location ________________
of
El
Pollo
Loco,
corporation
consideration
a Delaware
(“Franchisor”):
Inc.,
In
__________________________________; 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 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 the settlement with the debtor or
released party.”
Franchisee 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. 032922)
General Release - Page 110 of 134
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.
El Pollo Loco Unit # ______
Location ________________
FRANCHISEE:
If an entity:
___________________, a ______________
By:
Name:
Title:
Date:
If an individual:
________________________, an Individual
By:
Name:
Title: An Individual
Date:
Exhibit 8 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
General Release - Page 111 of 134
El Pollo Loco Unit # ______
Location ________________
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”) dated ____________, 20___
(the “Effective Date”) by and between El Pollo Loco, Inc., a Delaware corporation (“Franchisor”), located at
3535 Harbor Blvd., Suite 100, Costa Mesa, CA 92626, Attn: Legal Dept
re EPL #____,
________________________, a ___________ (the “Assignor”), located at _______________________ , and
________________________, a _________, (the “Assignee”), located at _______________________.
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/her/its title, rights, privileges and interests and obligations
under the Franchise Agreement to Assignee and to sell, transfer, and convey all of his/her/its 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,
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 112 of 134
El Pollo Loco Unit # ______
Location ________________
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.
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. 032922)
Consent to and Assignment of Franchise Rights - Page 113 of 134
El Pollo Loco Unit # ______
Location ________________
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 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 the settlement with the
debtor or released party.”
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
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 114 of 134
El Pollo Loco Unit # ______
Location ________________
this guarantee shall not extend to any default of non-compliance with the obligations, 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;
wages; and
c.
d.
Any federal, state or local taxes required to be withheld from employees’ salaries and
Any and all amounts due suppliers and vendors to the Restaurant.
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 115 of 134
El Pollo Loco Unit # ______
Location ________________
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 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.
All notices required under this Consent 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, Assignor and Assignee shall be the address listed
on the above in the first paragraph of this Consent Agreement. Franchisor, Assignor or Assignee 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. This notice provision supersedes any notice provision contained in the Franchise
Agreement.
13.
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.
14.
Except as modified herein, all the terms and conditions of the Franchise Agreement shall be
unaffected and remain in full force and effect.
15.
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.
16.
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
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 116 of 134
El Pollo Loco Unit # ______
Location ________________
to commit and bind Assignee or Assignors to those certain terms, covenants and conditions set forth herein.
17.
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.
18.
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.
19.
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.
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:
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 117 of 134
El Pollo Loco Unit # ______
Location ________________
B: To be Used for an Entity Change by Franchisee
This Consent to and Assignment of Franchise Rights (the “Consent Agreement”) dated ____________, 20___
(the “Effective Date”) by and between El Pollo Loco, Inc., a Delaware corporation (“Franchisor”), located at
3535 Harbor Blvd., Suite 100, Costa Mesa, CA 92626, Attn: Legal Dept
re EPL # _____,
________________________, a _________ (the “Assignor”), located at _______________________ and
___________________, a ________, located at _______________________ (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 Assignor’s title, rights, privileges and interests and obligations
under the Franchise Agreement to Assignee and to sell, transfer, and convey all of such 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 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:
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 118 of 134
El Pollo Loco Unit # ______
Location ________________
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 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
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 119 of 134
El Pollo Loco Unit # ______
Location ________________
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 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 the settlement with the
debtor or released party.”
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 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.
All notices required under this Consent 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,
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 120 of 134
El Pollo Loco Unit # ______
Location ________________
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, Assignor and Assignee shall be the address listed on the above in the first
paragraph of this Consent Agreement. Franchisor, Assignor or Assignee 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. This notice provision supersedes any notice provision contained in the Franchise Agreement.
10.
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.
11.
Except as modified herein, all the terms and conditions of the Franchise Agreement shall be
unaffected and remain in full force and effect.
12.
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.
13.
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.
14.
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.
15.
This Consent Agreement shall not be binding upon Franchisor unless and until it shall have been
accepted and signed by authorized officers of Franchisor.
16.
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
Exhibit 9 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Consent to and Assignment of Franchise Rights - Page 121 of 134
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 executed this Consent Agreement as of the date(s) written
below.
El Pollo Loco Unit # ______
Location ________________
FRANCHISOR:
El Pollo Loco, Inc., a Delaware
Corporation
ASSIGNOR:
____________________________,
a_____________
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. 032922)
Consent to and Assignment of Franchise Rights - Page 122 of 134
EXHIBIT 10: AMENDMENT TO FRANCHISE AGREEMENT TO APPLY DEVELOPMENT FEE
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:
El Pollo Loco Unit # ______
Location ________________
Franchisor and Franchisee are simultaneously entering into this Amendment to Franchise Agreement and a
located at
for an El Pollo Loco®
(“Franchise Agreement”)
A.
Franchise Agreement
_____________________________ (“Restaurant”).
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 which are
1.
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. 032922)
Amendment to Franchise Agreement to Apply Development Fee - Page 123 of 134
El Pollo Loco Unit # ______
Location ________________
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 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. 032922)
Amendment to Franchise Agreement to Apply Development Fee - Page 124 of 134
El Pollo Loco Unit # ______
Location ________________
EXHIBIT 11: AMENDMENT TO SUCCESSOR FRANCHISE AGREEMENT
This Amendment to the Successor Franchise Agreement (“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 Successor Franchise
Agreement and a Successor Franchise Agreement (“Successor Franchise Agreement”) for an El Pollo Loco®
restaurant located at _____________________________ (“Restaurant”).
B.
Franchisor and _________________________ entered into that certain Franchise Agreement dated
________________,____ (“Original Franchise Agreement”). The Original Franchise Agreement will expire on
________________,____.
Franchisee
C.
certain Lease dated
(“Landlord”),
________________,____ (“Lease”). The Lease expires on ________________,____ and has ______ option(s) to
extend the term of the Lease for a period of ____ years (each).
and ______________
entered
into
that
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 described in
E.
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 which
1.
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. 032922)
Amendment to Successor Franchise Agreement - Page 125 of 134
El Pollo Loco Unit # ______
Location ________________
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.”
3.
Amendment (Site Development, Improvements, Fixtures and Equipment, and Grand Opening
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.”
Rights to a Successor Franchise. Section 20 of the Successor Franchise Agreement is hereby deleted and
5.
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.”
6.
Entire Agreement. This Amendment and the Successor 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
Exhibit 11 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Amendment to Successor Franchise Agreement - Page 126 of 134
El Pollo Loco Unit # ______
Location ________________
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.
7.
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. 032922)
Amendment to Successor Franchise Agreement - Page 127 of 134
El Pollo Loco Unit # ______
Location ________________
EXHIBIT 12: REMODEL SCHEDULE PARTICIPATION AGREEMENT
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. 032922)
Remodel Schedule Participation Agreement - Page 128 of 134
El Pollo Loco Unit # ______
Location ________________
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 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 the settlement with the
debtor or released party.”
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
Exhibit 12 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Remodel Schedule Participation Agreement - Page 129 of 134
El Pollo Loco Unit # ______
Location ________________
officer of Franchisor. This Remodel Agreement may be executed in counterparts, each 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:
____________________________,
a _________________
By:
Name:
Title:
Date:
Exhibit 12 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Remodel Schedule Participation Agreement - Page 130 of 134
El Pollo Loco Unit # ______
Location ________________
EXHIBIT A
FRANCHISE AGREEMENTS & REMODEL DEADLINES
Location No
Address
City
State
ZIP
Agreement
Signed
Next
Remodel Due
Exhibit 12 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Remodel Schedule Participation Agreement - Page 131 of 134
El Pollo Loco Unit # ______
Location ________________
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 ________________ (“Franchise
A.
Agreement”).
Franchisor and Franchisee (as Developer) entered into a Franchise Development Agreement #________
B.
dated ___________ (“Development Agreement”).
Franchisor and Franchisee wish to modify the terms of the Franchise Agreement to include the
C.
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.
2.
Recitals. Recitals listed above are incorporated herein and by this reference made a part of this
Amendment.
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. 032922)
Amendment to Franchise Agreement (Development Incentive Program) - Page 132 of 134
El Pollo Loco Unit # ______
Location ________________
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:
________________________,
a _______________
By:
Name:
Title:
Date:
Exhibit 13 to Franchise Agreement (Exhibit D of Multi-State Disclosure Document Control No. 032922)
Amendment to Franchise Agreement (Development Incentive Program) - Page 133 of 134
EL POLLO LOCO® FRANCHISE AGREEMENT SCHEDULE 1: STATEMENT OF OWNERSHIP OF
FRANCHISEE
El Pollo Loco Unit # ______
Location ________________
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. 032922)
Statement of Ownership of Franchisee - Page 134 of 134
Exhibit 10.19
Development Agreement #618_________
EL POLLO LOCO® FRANCHISE DEVELOPMENT AGREEMENT
Dated: ____________________
Territory:
Developer:
(Disclosure Document Control No. 032922)
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 1 of 29
Development Agreement #618_________
TABLE OF CONTENTS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
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 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.
EXHIBITS
EXHIBIT A
EXHIBIT B
EXHIBIT C
EXHIBIT D
TERRITORY
DEVELOPMENT SCHEDULE
EXISTING EL POLLO LOCO® RESTAURANTS IN THE TERRITORY
AMENDMENT TO DEVELOPMENT AGREEMENT (DEVELOPMENT INCENTIVE
PROGRAM
4
5
10
10
10
11
12
14
15
15
16
17
18
18
18
19
20
20
21
21
22
23
23
23
23
25
26
27
27
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 2 of 29
Development Agreement #618_________
EL POLLO LOCO® FRANCHISE DEVELOPMENT AGREEMENT
(Non-exclusive/Exclusive)
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, California 92626
(referred to herein as “El Pollo Loco” or “Franchisor”) and __________________a___________, with its
principal place of business at _____________________________________ (“Developer”).
Recitals.
Franchisor owns certain proprietary and other property rights and interests in and to the “El Pollo Loco®”
A.
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” or “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” or
“Operations 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”).
Developer represents that it is experienced in and has independent knowledge of the nature and specifics
B.
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.
C.
Developer desires to obtain development rights for multiple restaurants under the El Pollo Loco® 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 ( “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. 032922)
Franchise Development Agreement - Page 3 of 29
Development Agreement #618_________
1.
Development Rights in Territory.
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 El Pollo
Loco® 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 El Pollo Loco® restaurants. Additionally, no
Protected Area exists for El Pollo Loco® restaurants located in
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 4 of 29
Development Agreement #618_________
“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, 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 aFranchise Agreement for any such development.
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 5 of 29
Development Agreement #618_________
2.3.
Although this Agreement affords the Developer the right to develop and open El Pollo Loco®
Restaurant(s) within the Territory, as set forth on Exhibit A, all El Pollo Loco® 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.
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 6 of 29
Development Agreement #618_________
All such analyses, information and studies shall be prepared at the sole cost and expense of Developer.
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® franchisee’s (or 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® franchisee(s)
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
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 7 of 29
Development Agreement #618_________
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 lessor and must comply with all the requirements of this Sections 2.9, 2.10, 2.11
and 2.12 below).
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:
and
a.
b.
The tenant entity on the lease must match the franchise entity on the franchise agreement;
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 any 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
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 8 of 29
Development Agreement #618_________
of the site by the Franchisor or no later than the dates set forth in Exhibit B as Site Commitment Dates.
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
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 9 of 29
Development Agreement #618_________
to operate, one (1) or more El Pollo Loco®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 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 franchise 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 franchise Ffee 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 franchise 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,
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 10 of 29
Development Agreement #618_________
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 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 and 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 , 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 layouts, and 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.
6.2.
Developer acknowledges that, in connection with its execution of this Agreement, it may receive
confidential and proprietary information regarding the El Pollo
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 11 of 29
Development Agreement #618_________
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 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 (general) 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.
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 12 of 29
Development Agreement #618_________
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 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.
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 13 of 29
Development Agreement #618_________
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 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
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 14 of 29
Development Agreement #618_________
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 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.
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 15 of 29
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.
Development Agreement #618_________
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 Loco® Restaurant in a timely manner as set forth in Exhibit B
and Section 2 above.
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 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.
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 16 of 29
Development Agreement #618_________
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 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
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 17 of 29
Development Agreement #618_________
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 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 Developer’s El
Pollo Loco® 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
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 18 of 29
Development Agreement #618_________
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 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.
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 19 of 29
Development Agreement #618_________
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 Loco Marks or the El Pollo Loco System.
16.3.
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.
17.
Severability.
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
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 20 of 29
Development Agreement #618_________
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 Franchise Agreement issued pursuant to this
Agreement, the Franchise Agreement shall control.
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-
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 21 of 29
Development Agreement #618_________
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
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 (i) sent by certified or registered United States mail, or
(ii) 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# 618_____
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
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 22 of 29
Development Agreement #618_________
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 29, 2022 (Control No. 032922) and the Supplemental Disclosure
Document, issuance date June 30, 2022 (Control No. 063022) 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.
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 the Supplemental Disclosure Document 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.
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 23 of 29
IN WITNESS WHEREOF, the parties hereto have duly executed, sealed and delivered this Agreement in
Development Agreement #618_________
duplicate original as of the dates set forth below.
FRANCHISOR:
El Pollo Loco, Inc., a Delaware Corporation
By:
Name:
Title:
Date:
Brian Carmichall
Chief Development Officer
DEVELOPER:
____________________________, a ____________
By:
Name:
Title:
Date:
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 24 of 29
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Laurance Roberts
Chief Executive Officer
EXHIBIT A TO EL POLLO LOCO® FRANCHISE DEVELOPMENT AGREEMENT - TERRITORY
Development Agreement #618_________
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 25 of 29
EXHIBIT B TO EL POLLO LOCO® FRANCHISE DEVELOPMENT AGREEMENT - DEVELOPMENT
SCHEDULE
Development Agreement #618_________
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
Restaurant #1
Restaurant #2
Restaurant #3
$40,000.00
$30,000.00
$30,000.00
SITE
COMMITMENT
DATES
(Date for delivery
of signed leases or
purchase
agreements)
OPENING DATE
OF RESTAURANT
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. 032922)
Franchise Development Agreement - Page 26 of 29
EXHIBIT C TO EL POLLO LOCO® FRANCHISE DEVELOPMENT AGREEMENT - EXISTING EL
POLLO LOCO® RESTAURANTS IN THE TERRITORY
Development Agreement #618_________
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 27 of 29
EXHIBIT D TO EL POLLO LOCO® FRANCHISE DEVELOPMENT AGREEMENT - FIRST
AMENDMENT TO EL POLLO LOCO® FRANCHISE 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)
Development Agreement #618_________
THIS FIRST AMENDMENT TO EL POLLO LOCO® 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
a
Blvd, Suite
at
____________________,
__________________________________________ (“Developer”).
_____________________________,
place
100, Costa Mesa, California
with
92626
principal
business
and
its
of
RECITALS:
Franchisor and Developer entered into a El Pollo Loco® Franchise Development Agreement
A.
#___________ dated ________________ (“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 this
C.
Amendment.
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 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%
Applicable Time Period (Measured
from the Opening Date)
Year 1
Year 2
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 28 of 29
Development Agreement #618_________
4%
5%
Year 3
Year 4 and subsequent years
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 First
Amendment to El Pollo Loco® Franchise Development Agreement in duplicate original as of the date(s) set forth
below.
FRANCHISOR:
El Pollo Loco, Inc.,
a Delaware corporation
DEVELOPER:
________________________,
a _______________
By:
Name:
Title:
Date:
By:
Name:
Title:
Date:
Exhibit G of Multi-State Disclosure Document (Control No. 032922)
Franchise Development Agreement - Page 29 of 29
Exhibit 10.37
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 May
9, 2023 (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 such term is defined in Section 6(a)) set forth in this Section 2 shall lapse with respect to all of the Restricted
Shares on the first anniversary of the Date of Grant (the “Vesting Date”), subject to the continued service of the
Non-Officer Director on the Board of Directors of the Company from the date hereof through the Vesting Date,
and provided that the Non-Officer Director has not given notice of resignation as of the 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, 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:
(i)
in the event that the Non-Officer Director’s service with the Company is
terminated 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
(ii)
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)
Stock Ownership Guidelines Compliance. Notwithstanding anything herein to the
contrary, if as of the Vesting Date the Non-Officer Director is not in compliance with applicable stock ownership
guideline requirements set forth the Company’s Stock Ownership Guidelines, as may be in effect from time to
time (the “Ownership Guidelines”), after giving effect to the timeframe in which to achieve compliance as set
forth in the Ownership Guidelines, then the Non-Officer Director shall continue to retain beneficial ownership (as
defined in Rule 16a-1(a)(2) under the Exchange Act) of the Restricted Shares following the Vesting Date (net of
any shares surrendered for withholding tax requirements) until the Non-Officer Director is in compliance with the
applicable requirements of the Ownership Guidelines.
(d)
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.
-2-
6.
Protections Against Violations of Agreement.
(a)
Until such time as the Restricted Shares are fully vested in accordance with Section 2
and any applicable stock ownership requirements set forth in Section 2(c) have been satisfied, 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 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 RESPONSIBILITY 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
-3-
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.
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
-4-
“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 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
-5-
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
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
-6-
understands the terms and provisions of the Plan and this Restricted Share Agreement, and The Non-Officer
Director 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]
-7-
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
NON-OFFICER DIRECTOR
Director Name
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:
2.
The property with respect to which the election is made is described as follows:
shares of Common Stock, par value $0.01 per share, of El Pollo Loco Holdings, Inc., a Delaware corporation (the
“Company”).
3.
4.
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.
5.
The fair market value at the time of transfer, determined without regard to any restriction
other than a restriction which by its terms will never lapse, of such property is: $ ______________.
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
Consent of Independent Registered Public Accounting Firm
We hereby consent to the incorporation by reference in the Registration Statements on Form S-3 (No. 333-269807) and Form S-8 (No.
333-259661, No. 333-226621, No. 333-224730 and No. 333-197698) of El Pollo Loco Holdings, Inc. (the “Company”) of our reports
dated March 8, 2024, relating to the consolidated financial statements, and the effectiveness of the Company’s internal control over
financial reporting, which appear in this Annual Report on Form 10-K.
Exhibit 23.1
/s/ BDO USA, P.C.
Costa Mesa, California
March 8, 2024
Exhibit 31.1
I, Maria Hollandsworth, 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 8, 2024
/s/ Maria Hollandsworth
Maria Hollandsworth
Interim Chief Executive Officer, President and Chief Operating
Officer
(Principal Executive Officer)
Exhibit 31.2
I, Ira Fils, 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 8, 2024
/s/ Ira Fils
Ira Fils
Chief Financial Officer
(Principal Financial Officer)
CERTIFICATION
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 officers of El Pollo Loco Holdings, Inc. (the “Company”) each certify 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.
Exhibit 32.1
Date: March 8, 2024
/s/ Maria Hollandsworth
Maria Hollandsworth
Interim Chief Executive Officer, President and Chief Operating
Officer
/s/ Ira Fils
Ira Fils
Chief Financial Officer
Exhibit 97.1
El Pollo Loco Holdings, Inc. Clawback Policy
As Amended and Restated by the Board of Directors Effective as of October 31, 2023.
Mandatory Clawback Policy
In the event El Pollo Loco Holdings, Inc. (the “Company”) is required to prepare an
accounting restatement due to the material noncompliance of the Company with any
financial reporting requirement under the securities laws (including any required
accounting restatement to correct an error in previously issued financial statements that is
material to the previously issued financial statements or that would result in a material
misstatement if the error were corrected in the current period or left uncorrected in the
current period), the Company shall recover reasonably promptly the amount of any
erroneously awarded Incentive-Based Compensation from each Covered Individual
unless an exception (set forth below) applies.
listing
Incentive-Based Compensation shall be considered “erroneously awarded” under
this policy to the extent such Incentive-Based Compensation (1) is received by the
Covered Individual on or after the effective date of Rule 5608 of The Nasdaq Stock
Market LLC (“Nasdaq”) Rules and while the Company has a class of securities listed on a
national securities exchange or a national securities association, (2) is received by the
Covered Individual during the three completed fiscal years immediately preceding the
date that the Company is required to prepare the accounting restatement (and any
transition period applicable to a change in the Company’s fiscal year as required by
Nasdaq
Incentive-Based
Compensation exceeds the amount of the Incentive-Based Compensation that would
have been received by the Covered Individual had it been determined based on the
restated financial results (with such Incentive-Based Compensation computed in each
case without regard to any taxes paid). For purposes of this policy, the date that the
Company is required to prepare the accounting restatement is the earlier to occur of (A)
the date the Company’s Board of Directors (the “Board”), or a committee of the Board, or
the officer or officers of the Company authorized to take such action if Board action is not
required, concludes, or reasonably should have concluded, that the Company is required
to prepare such accounting restatement, or (B) the date a court, regulator, or other legally
authorized body directs the Company to prepare such accounting restatement.
the amount of such
rules), and
received
(3)
this policy,
For purposes of
Incentive-Based Compensation
is considered
“received” by a Covered Individual in the Company’s fiscal period during which the
Financial Reporting Measure applicable to the Incentive-Based Compensation is attained,
even if the payment or grant of the Incentive-Based Compensation occurs after the end of
that fiscal period. For Incentive-Based Compensation based on stock price or total
shareholder return, where the amount of erroneously awarded compensation is not
subject to mathematical recalculation directly from the information in an accounting
restatement, the amount of erroneously awarded compensation will be determined by the
Board based on a reasonable estimate of the effect of the accounting restatement on the
stock price or total shareholder return upon which the Incentive-Based Compensation
Exhibit 97.1
was received. The Company must maintain documentation of the determination of that
reasonable estimate and provide such documentation to Nasdaq as required by Nasdaq
listing rules. If the erroneously awarded Incentive-Based Compensation consists of
shares (including share-denominated equity awards) or options that are still held by the
Covered Individual at the time of recovery, the recoverable amount is the number of
shares or options received in excess of the number of shares or options that would have
been received based on the accounting restatement (or the value of that excess number).
If the options have been exercised but the underlying shares have not been sold, the
recoverable amount is the number of shares underlying the excess options based on the
restatement (or the value thereof). If the shares have been sold, the recoverable amount
is the proceeds that were received in connection with the sale of the excess number of
shares. Amounts credited under plans (other than tax-qualified plans for which the
exception set forth below applies) based on erroneously awarded Incentive-Based
Compensation and any accrued earnings thereon are also recoverable under this policy.
The Company shall not be required under this policy to recover erroneously
awarded Incentive-Based Compensation if the Committee has made a determination that
recovery would be impracticable and either of the following conditions are met: (1) after
making a reasonable attempt to recover such erroneously awarded Incentive-Based
Compensation, the Committee determines that the direct expense paid to a third party to
assist in enforcing this policy would exceed the amount to be recovered (documentation
evidencing the reasonable attempt to recover the erroneously awarded Incentive-Based
Compensation must be maintained and provided to Nasdaq as required by Nasdaq listing
rules), or (2) the recovery would likely cause an otherwise tax-qualified retirement plan,
under which benefits are broadly available to employees of the Company, to fail to meet
the requirements of Internal Revenue Code Section 401(a)(13) or Internal Revenue Code
Section 411(a) and the regulations thereunder.
For purposes of this policy, the following definitions will apply:
● “Covered Individual” means any current or former officer of the Company who
is or was subject to Section 16 of the Securities Exchange Act of 1934, as
amended, at any time during the applicable performance period for the relevant
Incentive-Based Compensation,
individual
continues to hold such position or continues to be employed by the Company or
any of its subsidiaries.
regardless of whether such
● “Incentive-Based Compensation” means any compensation that is granted,
earned, or vested based wholly or in part upon the attainment of a Financial
Reporting Measure.
● “Financial Reporting Measures” means measures that are determined and
presented in accordance with the accounting principles used in preparing the
Company’s financial statements, and any measures that are derived wholly or
in part from such measures (including, for purposes of this policy, stock price
and total shareholder return). A Financial Reporting Measure need not be
Exhibit 97.1
presented within the Company’s financial statements or included in a filing with
the Securities and Exchange Commission.
Discretionary Clawback Policy
If the Board (or a duly established committee thereof), in its sole discretion,
determinates that a Covered Individual engages in the commission of an act of fraud or
material misconduct during the course of his or her employment with the Company that
causes financial or reputational harm to the Company (“Detrimental Conduct”), the Board
may, to the extent permitted by law and to the extent it determines that it is in the
Company’s best interests to do so, in addition to all other remedies available to the
Company, require reimbursement or payment by the Covered Individual to the Company
of the amount of any erroneously awarded Incentive-Based Compensation from each
Covered Individual (and treating the date the Board determines that Detrimental Conduct
exists as the date the Company is required to prepare the accounting restatement for
these purposes).
General
The mandatory clawback provisions in this policy are intended to comply with the
requirements of Rule 10D-1 promulgated by the Securities and Exchange Commission
and the related listing rules of Nasdaq, and the terms hereof shall be construed consistent
with that intent. The discretionary clawback provisions in this policy are not intended to
comply with the requirements of Rule 10D-1 promulgated by the Securities and Exchange
Commission and the related listing rules of Nasdaq.
This policy does not limit any other remedies the Company may have available to it
in the circumstances, which may include, without limitation, dismissing an employee or
initiating other disciplinary procedures. The provisions of this policy are in addition to
(and not in lieu of) any rights to repayment the Company may have under Section 304 of
the Sarbanes-Oxley Act of 2002 (applicable to the Chief Executive Officer and Chief
Financial Officer only) and other applicable laws. The Company shall not indemnify any
Incentive-Based
Covered
Compensation that is recovered by the Company pursuant to the mandatory clawback
provisions of this policy. The Board shall have the sole authority to construe and interpret
this policy and to make all determinations required to be made pursuant to this policy.
Any such construction, interpretation or determination by the Board shall be final and
binding.
loss of erroneously-awarded
Individual against
the
The Board may revise this policy from time to time.