What changed in this filing

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Item 1A. Risk Factors

2023-03-10 compared with 2022-03-11 · 82 added, 70 removed, 336 unchanged (31% of the section changed)

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Risks Related to Our Operations

The COVID-19 pandemic and measures intended to prevent its spread may have a significant negative impact on our business, sales, results of operations and financial condition.

The global pandemic resulting from the outbreak of COVID-19 disrupted our restaurant operations beginning in March 2020.

In response to federal, state and local mandates (subject to exceptions for certain state and local mandates) aimed at limiting the spread of COVID-19, or due to staffing shortages, we and our franchisees have from time to time experienced temporary closures of some restaurants, closures of dining rooms, limited capacity restrictions and/or decreased operating hours for some restaurants.

The COVID-19 pandemic and measures intended to prevent its spread has had, and may continue to have, a significant negative impact on our business, sales, results of operations and financial condition, and any future pandemic, epidemic or public health emergency may result in similar adverse effects.

COVID-19 has 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.

Any future pandemic, epidemic or public health emergency may result in similar closures or restrictions that negatively impact our business.

If additional surges of COVID-19 at a significant number of our locations require us to temporarily close those locations for disinfection or result in a large number of our employees becoming ill with COVID-19 or quarantined and being unable to work, our business and results of operations could be further adversely affected, which may also impact our financial condition.

Further, any shutdowns, closures or disruptions in the operations of our suppliers caused by COVID-19 outbreaks or federal, state or local mandates to limit the spread of COVID-19 could limit ability of suppliers to supply us and our franchisees with the products needed to operate our business, which would negatively impact our business.

COVID-19 may also adversely affect our ability to implement our growth plans, including delays in the opening or construction of new restaurants or the remodel of existing restaurants.

As this situation is ongoing and the duration and severity of the COVID-19 pandemic, including the severity and transmission rates of COVID-19 variants, resurgences of COVID-19 that may continue to occur, and the distribution and efficacy of COVID-19 vaccines, continues to be uncertain at this time, it is difficult to forecast any long-term impacts on our future operating results.

Further, any shutdowns, closures or disruptions in the operations of our suppliers caused by COVID-19 outbreaks or federal, state or local mandates to limit the spread of outbreaks of COVID-19 or other diseases could limit the ability of suppliers to supply us and our franchisees with the products needed to operate our business, which would negatively impact our business.

COVID-19 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.

As the duration and severity of the COVID-19 pandemic, including the severity and transmission rates of COVID-19 variants, resurgences of COVID-19 that may continue to occur, and the efficacy of COVID-19 vaccines, continues to be uncertain at this time, it is difficult to forecast any long-term impacts on our future operating results.

However, if the COVID-19 pandemic continues for a sustained period of time or if conditions worsen, our sales and operating costs may be materially adversely affected, which could impact our asset values, including goodwill, derivative instruments and long-lived assets, as well as our ability to meet certain covenant provisions in our debt arrangements in future periods, and have a material adverse effect on our financial results, future operations and liquidity.

Even after the COVID-19 pandemic has subsided, we may continue to experience negative impacts to our financial results due to COVID-19’s global economic impact, including the availability of credit generally, adverse impacts on our liquidity, and/or decreases in consumer discretionary spending that depress demand for our products.

Even after the COVID-19 pandemic has subsided, we may continue to experience negative impacts to our financial results due to COVID-19’s 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.

The global effects of the pandemic may also contribute to a prolonged economic slowdown or recession.

In addition, even after the COVID-19 pandemic has subsided, the perceived risk of infection or a resurgence or concern of a resurgence of the COVID-19 outbreak may continue to adversely affect traffic to our restaurants and, in turn, may have a material adverse effect on our business, liquidity, financial condition and results of operations.

In addition, even after the COVID-19 pandemic has subsided, 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 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.

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One of the key means to achieving our growth strategy is and will be through opening new restaurants and operating those restaurants on a profitable basis.

We opened two new company-operated restaurants in fiscal 2021 and plan to open three to six in fiscal 2022.

Our franchisees opened two new restaurants in fiscal 2021 and plan to open six to 10 in fiscal 2022.

We opened four new company-operated restaurants in fiscal 2022 and plan to

open four to six in fiscal 2023.

Our franchisees opened nine new restaurants in fiscal 2022 and plan to open eight to twelve in fiscal 2023.

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:

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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 economic conditions, including recessions or inflationary pressures, higher consumer debt and interest rates, adverse conditions in the mortgage housing markets, lower consumer confidence and uncertainties due to geopolitical turmoil and potential national or international security concerns, including the conflict between Russia and Ukraine.

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 utilities 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, including the conflict between Russia and Ukraine.

If the economy experiences a significant decline, our business, results of operations, our ability to access the capital markets and our ability to comply with the terms of our secured revolving credit facility could be materially and adversely affected, and we and our franchisees might decelerate the number and timing of new restaurant openings and/or the number of planned restaurant remodels.

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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.

transactions or impose practical limits on pricing that could harm our business, financial condition, results of operations, and cash flow.

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.

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.

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Our growth strategy will require us to attract, train, and assimilate even more restaurant employees.

Our ability to do so may be adversely affected by labor shortages due to, among other things, the COVID-19 pandemic.

Our ability to do so may be adversely affected by labor shortages due to, among other things, the COVID-19 pandemic and the cost of related overtime pay requirements.

Our business could be negatively affected by regional geographic concentrations.

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Any other events disrupting businesses, consumer discretionary spending or our employee population in the greater Los Angeles area could also have an outsized negative impact on our business or results of operations.

For example, near the end of fiscal 2021, the Los Angeles market was impacted by a spike in COVID-19 cases, which disproportionately impacted our business due to our high concentration in this market.

For example, near the end of fiscal 2021 and the beginning of 2022, the Los Angeles market was impacted by a spike in COVID-19 cases, which disproportionately impacted our business due to our high concentration in this market.

If the Los Angeles or other markets experience another severe outbreak of COVID-19 or its variants, we may experience further disruptions to our business that could be material.

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proximity of potential restaurant sites to existing restaurants;

anticipated commercial,

residential and infrastructure development near the potential restaurant site;

anticipated commercial, residential and infrastructure development near the potential restaurant site;

and availability of acceptable lease terms and arrangements, including construction costs.

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Furthermore, franchised unit closings could result in the loss of franchise revenue and have other adverse effects on us.

Changes in food and supply costs, especially for chicken, could adversely affect our business, financial condition, and results of operations.

Our profitability depends in part on our ability to anticipate and react to changes in food and supply costs.

We are susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal economic fluctuations, weather conditions, global demand, food shortages, food safety concerns, infectious diseases, fluctuations in the U.S.

dollar, product recalls, and government regulations, including tariffs and other import restrictions on foreign produce and other goods.

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 2022, the costs of commodities, labor, energy and other inputs necessary to operate our restaurants have significantly increased.

In addition, we are susceptible to increases in food costs as a result of factors beyond our control, such as general economic conditions, seasonal economic fluctuations, weather conditions, global demand, food shortages, food safety concerns, infectious diseases, fluctuations in the U.S.

dollar, cyber-attacks, transportation issues, product recalls, and government regulations, including tariffs and other import restrictions on foreign produce and other goods.

In 2021 and continuing into 2022, for example, we experienced inflationary pressures due to supply chain disruptions that adversely impacted and may continue to adversely impact our business and results of operations.

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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.

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.

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We have implemented menu price increases in the past to significantly offset increased chicken prices, due to competitive pressures and compressed profit margins.

We may not be able to offset all or any portion of increased food and supply costs through higher menu prices in the future.

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.

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Such delivery and catering offerings also increase the risk of illnesses associated with our food because the food is transported and/or served by third parties in conditions we cannot control.

Because all of these offerings are relatively new, it is difficult for us to anticipate the level of sales they may generate.

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.

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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.

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.

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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.

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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;

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;

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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

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.

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(“EPL”), which owns our operating assets.

As a result, we are dependent on loans, dividends, and other payments from EPL, our operating company and indirect wholly owned subsidiary, and from EPL Intermediate, Inc., our direct wholly owned subsidiary, to generate the funds necessary to meet our financial obligations and to pay dividends on our common stock.

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.

Although we do not expect to pay dividends on our common stock for the foreseeable future, if we are unable to obtain funds from our subsidiaries, we may be unable to, or our board may exercise its discretion not to, pay dividends.

Our marketing programs may not be successful, and our new menu items, advertising campaigns, and restaurant designs and remodels may not generate increased sales or profits.

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Adverse changes in the economic environment may affect our franchisees, with adverse consequences to us.

Adverse changes in the economic environment could result in our franchisees filing for bankruptcy or becoming delinquent in their payments to us, which could have significant adverse impacts on our business, due to loss or delay in payments of (i) royalties, (ii) information technology (“IT”) support service fees, (iii) contributions to our advertising funds, and (iv) other fees.

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.

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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 28, 2022, approximately 62% 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.

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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.

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.

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Any such claims or proceedings could distract our management team members from running our business, adversely affect our reputation, and cause us to incur significant unplanned losses and expenses.

We are also subject to federal and state laws regulating the collection and use of personal information of our employees and customers, including the California Consumer Privacy Act (“CCPA”), which took effect January 1, 2020, and the California Privacy Rights Act (“CPRA”), which was approved in November 2020, and beginning in January 2023 will impose additional data protection obligations on companies doing business in California.

impose additional data protection obligations on companies doing business in California.

In addition, our ability to accept credit/debit cards as payment in our restaurants and online depends on us maintaining our compliance status with standards set by the PCI Security Standards Council, which require certain levels of system security and procedures to protect our customers’ credit/debit card information as well as other personal information.

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Significant additional government regulations and new laws mandating increases in minimum wages or benefits such as health insurance could materially affect our business, financial condition, operating results, and cash flow.

Furthermore, the unionization of our employees and of the employees of our franchisees could materially affect our business, financial condition, operating results, and cash flow.

In particular, our labor and regulatory compliance costs could be adversely impacted as a result of the FAST Act, which was signed into law in September 2022.

The FAST Act, which will take effect if approved by voters in November 2024, authorizes the creation of a council to set minimum standards for workers in the industry, including for wages, working hours, and other health and safety conditions.

The implementation of the FAST Act could result in increased labor cost at our California restaurants thereby potentially impacting the profitability of our California restaurants.

Further, this bill 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.

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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.

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.

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Labor shortages and increased labor costs are subject to numerous internal and external factors, including higher employee-turnover rates, changes in immigration policy including barriers to immigrants entering, working in, or remaining in the United States, regulatory changes, prevailing wage rates, including increases in federal, state, or local minimum wages or in other employee benefit costs (including costs associated with health insurance coverage or workers’ compensation insurance), and increased competition we face from other companies for qualified employees.

During 2021, we experienced an increasingly competitive and overall tightening of the labor market.

This was attributed to, among other things, increased federal unemployment subsidies, including unemployment benefits offered in response to the ongoing COVID-19 pandemic, and other government regulations.

During 2022, 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 “ The COVID-19 pandemic and measures intended to prevent its spread may have a significant negative impact on our business, sales, results of operations and financial condition” above for labor shortage risks we may face in connection with the COVID-19 pandemic.

Federally-mandated, state-mandated, or locally-mandated minimum wages have recently increased in several jurisdictions, including the State of California and Los Angeles County, and may be further raised in the future.

We may be unable to sufficiently increase our menu prices in order to pass future increased labor costs on to our customers, in which case our margins would be negatively affected.

See also our risk factor titled “ The COVID-19 pandemic and measures intended to prevent its spread has had, and may continue to have, a significant negative impact on our business, sales, results of operations and financial condition , and any future pandemic, epidemic or public health emergency may result in similar adverse effects ” above for labor shortage risks we may face in connection with the COVID-19 pandemic.

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.

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We are subject to extensive laws, government regulation, and other legal requirements and our failure to comply with existing or new laws and regulations could adversely affect our operational efficiencies, ability to attract and retain talent and results of operations.

Our business is subject to extensive federal, state and local laws and regulations, including those relating to the preparation, sale and labeling of food, employment practices and working conditions, health, sanitation, safety and fire standards, building and zoning requirements, public accommodations and safety conditions, environmental matters, and data privacy.

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.

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For example, changes to health insurance law could diminish our customers’ disposable incomes and thus reduce their frequency of eating or ordering out, even from QSR or fast casual restaurants, including us.

Legislation and regulations regarding certain of our menu offerings, new information or attitudes regarding diet and health, or adverse opinions about the health effects of consuming our menu offerings, could affect consumer preferences and negative impact our results of operations.

Further, certain government authorities have adopted or may adopt laws and regulations regarding trans-fats, sodium, sodas or other ingredients or products used or sold by our restaurants.

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Transitioning to higher-cost ingredients may also hinder our ability to operate in certain markets and proposed tax increases on certain products, such as sodas, may affect sales volumes of those products.

The imposition of additional menu labeling laws could affect consumer preferences and have an adverse effect on our results of operations and financial position, as well as on the restaurant industry in general.

Changes in government regulation and consumer eating habits may require us to disclose the nutritional content of our menu offerings.

For example, 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.

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If the ownership of our common stock continues to be highly concentrated, it may prevent minority stockholders from influencing significant corporate decisions and may result in conflicts of interest.

Trimaran Pollo Partners, L.L.C.

(“LLC”), owns approximately 45.8% of our outstanding common stock as of December 29, 2021.

This large position means that LLC and its majority owners—predecessors and affiliates of, and certain funds managed by, Trimaran Capital Partners and Freeman Spogli & Co.

(collectively, “Trimaran” and “Freeman Spogli,” respectively)—possess significant influence when stockholders vote on matters such as election of directors, mergers, consolidations and acquisitions, the sale of all or substantially all of our assets, decisions affecting our capital structure, amendments to our certificate of incorporation or our by-laws, and our winding up and dissolution.

So long as LLC maintains at least 40% ownership, (i) any member of the board of directors may be removed at any time without cause by affirmative vote of a majority of our common stock, and (ii) stockholders representing 40% or greater ownership may cause special stockholder meetings to be called.

Currently, three of our eleven directors, including our chairman, are affiliated with Trimaran or Freeman Spogli.

While our board has determined that director John Roth, a general partner of Freeman Spogli and its CEO, satisfies the criteria for an independent director under applicable Nasdaq rules, the interests of Trimaran and Freeman Spogli may not always coincide with our interests or the interests of our other stockholders.

This concentration of ownership may also have the

effect of delaying, deterring, or preventing acts that would be favored by our other stockholders, including a change in control of us.

Also, Trimaran and Freeman Spogli may seek to cause us to take courses of action that, in their judgments, could enhance their investments in us, but that might involve risks to our other stockholders or adversely affect us or our other stockholders.

As of December 28, 2022, Trimaran Pollo Partners, L.L.C.

(“LLC”) owns approximately 30.3% of our outstanding common stock.

This large position means that LLC and its majority owners—which are predecessors and affiliates of, and certain funds managed by, Trimaran Capital Partners (collectively, “Trimaran”)—possess significant influence when stockholders vote on matters such as election of directors, mergers, consolidations and acquisitions, the sale of all or substantially all of our assets, decisions affecting our capital structure, amendments to our certificate of incorporation or our by-laws, and our winding up and dissolution.

In addition, as of December 28, 2022, certain affiliates of Freeman Spogli & Co., FS Equity Partners V, L.P.

and FS Affiliates V, L.P.

(“Freeman Spogli”), own collectively approximately 15.0% of our outstanding common stock, which they received in August 2022 following a distribution by the LLC of a portion of its shares to Freeman Spogli.

Further, two of our eleven directors, including our chairman, are affiliated with Trimaran and one of our directors is affiliated with Freeman Spogli.

The interests of Trimaran and Freeman Spogli, either individually or collectively, may not always coincide with our interests or the interests of our other stockholders.

While Trimaran and Freeman Spogli act separately with respect to their respective ownership of our shares, their significant ownership may have the effect of delaying, deterring, or preventing acts that would be favored by our other stockholders, including a change in control of us.

Also, Trimaran and/or Freeman Spogli may seek to cause us to take courses of action that, in their judgments, could enhance their investments in us, but that might involve risks to our other stockholders or adversely affect us or our other stockholders.

As a result, the market price of our common stock could decline, or stockholders might not receive a premium over the then-current market price of our common stock upon a change in control.

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In addition, Trimaran and Freeman Spogli may have an interest in pursuing acquisitions, divestitures, and other transactions that, in their judgment, could enhance their investment in us, even though those transactions might involve risks to you, such as debt-financed acquisitions.

We are required to pay our pre-IPO owners for certain tax benefits, which amounts are expected to be material.

We entered into an income tax receivable agreement (the “TRA”) with the stockholders of the Company immediately prior to the initial public offering (“IPO”), which provides for payment by us to our pre-IPO stockholders of 85% of the amount of cash savings, if any, in federal, state, local, and foreign income tax that we and our subsidiaries actually realize (or are deemed to realize in the case of an early termination by us or a change of control) as a result of the utilization of our net operating losses and other tax attributes attributable to periods prior to July 2014 together with interest accrued from the date the applicable tax return is due (without extension) until paid.

Our payments under the TRA may be material.

As of December 29, 2021, we had an accrued payable related to this agreement of approximately $1.5 million.

In fiscal 2021, we paid $1.7 million to our pre-IPO stockholders under the TRA.

TRA payment obligations are obligations of Holdings and not of its subsidiaries.

The actual amounts and utilization of net operating losses and other tax attributes, as well as the amounts and timing of any payments under the TRA, will vary depending upon a number of factors, including the amount, character, and timing of Holdings’ and its subsidiaries’ taxable income in the future.

Our counterparties under the TRA will not reimburse us for any benefits that are subsequently disallowed, although any future payments would be adjusted to the extent possible to reflect the result of such disallowance.

As a result, in such circumstances, we could make payments under the TRA greater than our actual cash tax savings.

If we undergo a change of control as defined in the TRA, the TRA will terminate, and we will be required to make a payment equal to the present value of expected future payments under the TRA, which payment would be based on certain assumptions, including assumptions related to our future taxable income.

Additionally, if we or a direct or indirect subsidiary transfer any asset to a corporation with which we do not file a consolidated tax return, we will be treated as having sold that asset for its fair market value in a taxable transaction for purposes of determining the cash savings in income tax under the TRA.

Any such payment resulting from a change of control or asset transfer could be substantial and could exceed our actual cash tax savings.

Risks Related to Ownership of Our Common Stock

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Thus, holders of our common stock bear the risk that our future offerings may reduce the market price of our common stock and dilute their stockholdings in us.

The market price of our common stock could be negatively affected by sales of substantial amounts of our common stock in the public markets, including shares of our common stock currently held by the LLC.

The market price of our common stock could decline as a result of sales of a large number of shares of our common stock in the market or the perception that such sales could occur.

LLC presently owns approximately 45.8% of our outstanding common stock and could sell stock publicly either if the stock were registered or if the exemption requirements of Rule 144 were satisfied.

As of December 28, 2022, LLC, FS Equity Partners V, L.P.

and FS Affiliates V, L.P.

own approximately 30.3%, 14.8% and 0.2%, respectively, of our outstanding common stock.

FS Equity V and FS Affiliates V, which previously indirectly held shares of our common stock through LLC, received shares directly on August 31, 2022, upon LLC’s pro rata distribution in kind of shares of our common stock to FS Equity V and FS Affiliates V.

LLC, FS Equity Partners V, L.P.

and FS Affiliates V, L.P.

could sell stock publicly either if the stock were registered or if the exemption requirements of Rule 144 were satisfied.

No lock-up agreements presently are in effect.

Pursuant to our stockholders’ agreement, LLC and, in certain instances, Freeman Spogli, may require us to file registration statements under the Securities Act at our expense, covering resales of our common stock held by them or LLC or piggyback on a registration statement in certain circumstances.

Any such sales, or the prospect of any such sales, could materially impact the market price of our common stock.

LLC or piggyback on a registration statement in certain circumstances.

Pursuant to the stockholders’ agreement, on December 29, 2022, LLC exercised these demand registration rights with respect to the shares of our common stock held by it.

On February 15, 2023, we filed a registration statement on Form S-3 with the SEC allowing for the resale of the shares of our common stock held by LLC, which registration statement was declared effective on March 1, 2023.

Any such sales by the LLC or Freeman Spogli, or the prospect of any such sales, could materially impact the market price of our common stock.

Further, pursuant to the terms of the LLC’s limited liability company operating agreement (the “LLC Agreement”), the LLC Agreement can terminate, in which case the LLC will begin the process of dissolving and winding up its affairs, at the earlier of (i) the election of the managing member, or (ii) six years following the completion of our IPO, or July 27, 2020.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1A. Risk Factors