Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rules 13a-15 (e) of the Exchange Act) that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the required time periods, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Our disclosure controls and procedures are based on assumptions about the likelihood of future events, and even effective disclosure controls and procedures can only provide reasonable assurance of achieving their objectives. Because of their inherent limitations, we cannot guarantee that our disclosure controls and procedures will succeed in achieving their stated objectives in all cases, that they will be complied with in all cases, or that they will prevent or detect all misstatements.
Our management has evaluated, with the participation of our Chief Executive Officer and Interim Chief Financial Officer, the effectiveness of our disclosure controls and procedures, as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Interim Chief Financial Officer has concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 29, 2021.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by our Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. The design of any system of control is based upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives under all future events, no matter how remote, or that the degree of compliance with the policies or procedures may not deteriorate. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Accordingly, even effective internal control over financial reporting can only provide reasonable assurance of achieving their control objectives. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer, we carried out an evaluation of the effectiveness of our internal control over financial reporting as of December 29, 2021 based on the criteria in Internal Control — Integrated Framework (“2013 Framework”) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this evaluation, our management concluded that our internal control over financial reporting was effective as of December 29, 2021 based on the criteria established in the 2013 Framework.
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The effectiveness of our internal control over financial reporting as of December 29, 2021 has been audited by BDO USA, LLP, the independent registered public accounting firm that audited the financial statements included in this Annual Report on Form 10-K, as stated in their report included herein.
Changes in Internal Control over Financial Reporting
No changes in our internal control over financial reporting occurred during the quarter ended December 29, 2021 have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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Report of Independent Registered Public Accounting Firm
Shareholders and Board of Directors
El Pollo Loco Holdings, Inc.
Costa Mesa, California
Opinion on Internal Control over Financial Reporting
We have audited El Pollo Loco Holdings, Inc.’s (the “Company’s”) internal control over financial reporting as of December 29, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 29, 2021, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated balance sheets of the Company as of December 29, 2021 and December 30, 2020, the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 29, 2021, and the related notes and our report dated March 11, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Item 9A, Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit of internal control over financial reporting in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ BDO USA, LLP
Costa Mesa, California
March 11, 2022
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ITEM 9B. OTHER INFORMATION
As previously disclosed, Laurance Roberts was appointed Interim Chief Executive Officer of the Company, effective October 15, 2021. On March 8, 2022, our Board of Directors appointed Mr. Roberts as Chief Executive Officer, President and a Class III director on the Board of Directors of the Company, effective March 9, 2022 (the “Effective Date”). Mr. Roberts will continue to serve as the Company’s interim Chief Financial Officer and as its principal executive officer, principal accounting officer and principal financial officer. Biographical information regarding Mr. Roberts is contained in our definitive proxy statement filed with the SEC on April 29, 2021, which information is incorporated by reference into this Item 9B.
In connection with Mr. Roberts’ appointment as our Chief Executive Officer President, and a member of the Board of Directors, we entered into an employment agreement with Mr. Roberts on March 9, 2022 (the “Employment Agreement”). Pursuant to the Employment Agreement, the term of Mr. Roberts’ employment as Chief Executive Officer and President will end on the 12 th month anniversary of the Effective Date and on such date and on each subsequent anniversary of such time, the term shall, without further action by Mr. Roberts or the Company, be extended by an additional one-year period, subject to earlier termination as provided in the Employment Agreement. Mr. Roberts’ annual base salary will increase to $600,000 and his target annual bonus will be 100% of his base salary during his tenure as Chief Executive Officer. In addition, pursuant to the Employment Agreement and at the discretion of our Board of Directors, during the term of the Employment Agreement, starting in April 2022, Mr. Roberts will be eligible to receive an annual discretionary equity grant, with the amount and terms thereof determined by the Board of Directors.
During the term of the Employment Agreement, Mr. Roberts will be entitled to employee benefits on the same basis as those generally available to other senior executives. Mr. Roberts will also be entitled to at least four weeks of vacation per year and an automobile allowance substantially similar to that provided to other similarly situated senior executives.
The Employment Agreement provides that in the event that Mr. Roberts’ employment is terminated due to death or disability he will be entitled to a prorated annual bonus for the year of termination based on actual performance. The Employment Agreement also provides that in the event that Mr. Roberts’ employment is terminated without cause or for good reason, then he will be entitled to receive a prorated annual bonus for the year of termination based on actual performance and continuation of payment of base salary for twelve months, subject, in each case, to the execution of a general release and compliance with applicable restrictive covenants.
The Employment Agreement contains a perpetual confidentiality covenant, a one-year post-termination non-interference covenant applicable to the Company’s relationships with suppliers, customers and partners and a one-year post-termination non-solicitation covenant applicable to Company employees.
The foregoing description of the Employment Agreement is qualified in its entirety by reference to the full text of the Employment Agreement, which is filed as Exhibit 10.32 to this Annual Report on Form 10-K and is incorporated herein by reference.
There are no arrangements or understandings between Mr. Roberts and any other persons pursuant to which he was selected as our Chief Executive Officer, President and a member of our Board of Directors. There are also no family relationships between Mr. Roberts and any director or executive officer of the Company and Mr. Roberts has no direct or indirect material interest in any related party transaction required to be disclosed pursuant to Item 404(a) of Regulation S-K.
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
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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 2021 fiscal year . In addition, our Board of Directors has adopted a Code of Business Conduct and Ethics that applies to all of our directors, employees and officers, including our principal executive officer, principal financial officer, principal accounting officer, controller, and any persons performing similar functions. The current version of the Code of Business Conduct and Ethics is available on our website under the Corporate Governance section at www.elpolloloco .com . To the extent required by rules adopted by the SEC and The Nasdaq Stock Market LLC, we intend to promptly disclose future amendments to certain provisions of the Code of Business Conduct and Ethics, or waivers of such provisions granted to executive officers and directors, on our website under the Corporate Governance section at www.elpolloloco .com .
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Incorporated by reference from our definitive proxy statement to be filed not later than 120 days after the end of our 2021 fiscal year.
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PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following documents are filed as a part of this report:
(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:
Incorporated by Reference
Number
Description
Filed
Herewith
Form
Period
Ended
Exhibit
Filing
Date
SEC File Number
3.1
Amended and Restated Certificate of Incorporation of El Pollo Loco Holdings, Inc.
10-Q
6/25/2014
3.1
9/5/2014
001-36556
3.2
Amended and Restated By-Laws of El Pollo Loco Holdings, Inc.
10-Q
6/25/2014
3.2
9/5/2014
001-36556
4.1
Description of El Pollo Loco Holdings, Inc. Capital Stock
10-K
12/25/2019
4.1
3/6/2020
001-36556
10.1
Income Tax Receivable Agreement, dated July 30, 2014, between El Pollo Loco Holdings, Inc., and Trimaran Pollo Partners, L.L.C.
10-Q
9/24/2014
10.1
11/7/2014
001-36556
10.2
Credit Agreement, dated as of December 11, 2014, among El Pollo Loco, Inc., as borrower, El Pollo Loco Holdings, Inc., and EPL Intermediate, Inc., as guarantors, Bank of America, N.A., as administrative agent, swingline lender and letter of credit issuer, the lenders party thereto, and the other parties thereto
8-K
N/A
10.1
12/16/2014
001-36556
10.3
Franchise Development Agreement (Exclusive), dated August 20, 2014, between El Pollo Loco, Inc., as franchisor, and Anil Yadav and Atour Eyvazian, collectively, as developer
8-K
N/A
10.1
8/22/2014
001-36556
10.4
Consent to and Assignment of Development Rights (Initial Change of Entity), dated August 20, 2014, between El Pollo Loco, Inc., as franchisor, and (i) Anil Yadav and Atour Eyvazian, collectively, as assignor, and (ii) AA Pollo, Inc., as assignee
8-K
N/A
10.2
8/22/2014
001-36556
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10.5
Franchise Development Option Agreement, dated July 11, 2014, between El Pollo Loco, Inc., and Trimaran Pollo Partners, L.L.C.
S-1/A
N/A
10.14
7/14/2014
333-197001
10.6
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
S-1
N/A
10.3
6/24/2014
333-197001
10.7
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.
S-1
N/A
10.4
6/24/2014
333-197001
10.8
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.
S-1
N/A
10.5
6/24/2014
333-197001
10.9
Second Amended and Restated Limited Liability Company Operating Agreement of Trimaran Pollo Partners, L.L.C., dated as of March 8, 2006
S-1
N/A
10.6
6/24/2014
333-197001
10.10
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
S-1
N/A
10.7
6/24/2014
333-197001
10.11
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
S-1
N/A
10.8
6/24/2014
333-197001
10.12
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
S-1
N/A
10.9
6/24/2014
333-197001
10.13
Form of Franchise Agreement
S-1
N/A
10.12
6/24/2014
333-197001
10.14*
Form of Franchise Development Agreement
S-1
N/A
10.13
6/24/2014
333-197001
10.15
Form of Franchise Agreement (2019)
10-K
12/25/2019
10.15
3/6/2020
001-36556
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10.16
Form of Franchise Development Agreement (2019)
10-K
12/25/2019
10.16
3/6/2020
001-36556
10.17
Form of Franchise Agreement (2021)
X
10.18
Form of Franchise Development Agreement (2021)
X
10.19*
Form of Indemnification Agreement between El Pollo Loco Holdings, Inc. and each of its directors and executive officers
S-1/A
N/A
10.27
7/22/2014
333-197001
10.20*
2014 Omnibus Equity Incentive Plan
S-1/A
N/A
10.22
7/22/2014
333-197001
10.21*
Form of Option Award Agreement (Fair Market Value Options) under 2014 Omnibus Equity Incentive Plan
S-1/A
N/A
10.25
7/22/2014
333-197001
10.22*
Form of Non-Officer Director Restricted Share Agreement under 2014 Omnibus Equity Incentive Plan
S-1/A
N/A
10.26
7/22/2014
333-197001
10.23*
Form of Option Award Agreement (Fair Market Value Options) under 2014 Omnibus Equity Incentive Plan (Time Vesting Only)
10-Q
6/29/2016
10.27
8/5/2016
001-36556
10.24*
Form of Employee Restricted Share Agreement under 2014 Omnibus Equity Incentive Plan
10-Q
9/28/2016
10.28
11/4/2016
001-36556
10.25*
2018 Omnibus Equity Incentive Plan
S-8
N/A
4.3
8/6/2018
333-226621
10.26*
Form of Restricted Stock Agreement under 2018 Omnibus Equity Incentive Plan
10-K
12/25/2019
10.24
3/6/2020
001-36556
10.27*
Form of Restricted Stock Agreement under 2018 Omnibus Equity Incentive Plan (Non-Employee Directors)
10-K
12/25/2019
10.25
3/6/2020
001-36556
10.28*
Form of Restricted Stock Unit Agreement under 2018 Omnibus Equity Incentive Plan
10-K
12/25/2019
10.26
3/6/2020
001-36556
10.29*
Form of Stock Option Awards Agreement under 2018 Omnibus Equity Incentive Plan
10-K
12/25/2019
10.27
3/6/2020
001-36556
10.30*
El Pollo Loco Holdings, Inc. Equity Incentive Plan
8-K
N/A
10.1
6/14/2021
001-36556
10.31*
Form of Stock Option Awards Agreement under 2021 Equity Incentive Plan
X
10.32*
Form of Restricted Share Agreement under 2021 Equity Incentive Plan
X
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10.33*
Form of Restricted Stock Agreement under 2021 Equity Incentive Plan (Non-Employee Directors)
X
10.34*
El Pollo Loco Holdings, Inc. Equity Incentive Plan
8-K
N/A
10.1
6/14/2021
001-36556
10.35*
Employment Agreement between Bernard Acoca and El Pollo Loco, Inc.
10-K
12/27/2017
10.29
3/9/2018
001-36556
10.36*
Release and Consulting Agreement, dated October 14, 2021, between El Pollo Loco, Inc. and Bernard Acoca
8-K
N/A
10.2
10/15/2021
001-36556
10.37*
Employment Agreement, dated March 9, 2022, between El Pollo Loco, Inc. and Laurance Roberts
X
10.38*
Employment Agreement between Miguel Lozano and El Pollo Loco, Inc.
10-Q
3/27/2019
10.31
5/3/2019
001-36556
10.39*
Form of Restricted Share Unit Award Agreement between El Pollo Loco Holdings, Inc. and Bernard Acoca
S-8
N/A
4.4
5/8/2018
333-224730
10.40*
Form of Performance Share Unit Award Agreement between El Pollo Loco Holdings, Inc. and Bernard Acoca
S-8
N/A
4.5
5/8/2018
333-224730
21.1
Subsidiaries of El Pollo Loco Holdings, Inc.
S-1
N/A
21.1
6/24/2014
333-197001
23.1
Consent of BDO USA, LLP
X
24.1
Power of Attorney (included on signature page hereto)
X
31.1
Certification of Chief Executive Officer and Interim Chief Financial Officer under section 302 of the Sarbanes–Oxley Act of 2002
X
32.1
Certification of Chief Executive Officer and Interim Chief Financial Officer under 18 U.S.C. section 1350, adopted by section 906 of the Sarbanes–Oxley Act of 2002
**
101.INS
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X
101.SCH
XBRL Taxonomy Extension Schema Document
X
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101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
X
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
X
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
X
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
X
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*
This exhibit is a management contract or a compensatory plan or arrangement.
**
Furnished herewith.
ITEM 16. FORM 10-K SUMMARY
None.
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SIGNATURES
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.
EL POLLO LOCO HOLDINGS, INC.
By:
/s/ Laurance Roberts
Laurance Roberts
Chief Executive Officer, President and Interim Chief Financial Officer
Date:
March 11, 2022
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
Title
Date
/s/ Laurance Roberts
Chief Executive Officer, President, Interim Chief Financial Officer and Director (principal executive officer; principal financial and accounting officer)
March 11, 2022
Laurance Roberts
/s/ Michael G. Maselli
Chairman and Director
March 11, 2022
Michael G. Maselli
/s/ Dean C. Kehler
Director
March 11, 2022
Dean C. Kehler
/s/ John M. Roth
Director
March 11, 2022
John M. Roth
/s/ Douglas J. Babb
Director
March 11, 2022
Douglas J. Babb
/s/ Samuel N. Borgese
Director
March 11, 2022
Samuel N. Borgese
/s/ Mark Buller
Director
March 11, 2022
Mark Buller
/s/ William R. Floyd
Director
March 11, 2022
William R. Floyd
/s/ Nancy Faginas-Cody
Director
March 11, 2022
Nancy Faginas-Cody
/s/ Deborah Gonzalez
Director
March 11, 2022
Deborah Gonzalez
/s/ Carol Lynton
Director
March 11, 2022
Carol Lynton
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