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El Pollo Loco Holdings, Inc.
El Pollo Loco Holdings, Inc. |
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EL POLLO LOCO HOLDINGS, INC.
3535 Harbor Boulevard, Suite 100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE
6, 20172, 2020
Dear Stockholders of El Pollo Loco Holdings, Inc.:
The
20172020 annual meeting of stockholders of El Pollo Loco Holdings, Inc. (“we,” “us,” “our,” and the “Company”), will be held on
Tuesday, June
6, 2017,2, 2020, at 1:00 p.m. Pacific Time
to:to consider and vote on the following proposals:
1.
ElectElection of the three
director nominees named in the accompanying proxy statement as Class III directors to serve until the
20202023 annual meeting of
stockholders;stockholders and until their respective successors are duly elected and qualified;
2.
RatifyRatification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for
2017;2020;
3. Consider one stockholder proposal, if properly presented atApproval, on an advisory (non-binding) basis, of the meeting;compensation of our named executive officers;
4. Approval, on an advisory (non-binding) basis, of the frequency of future advisory votes to approve the compensation of our named executive officers; and
4. Transact
5. Transaction of such other business as may properly come before the meeting or any adjournments or postponements thereof.
This
In light of the coronavirus (COVID-19) pandemic and the protocols that federal, state and local governments are currently imposing, the Company, out of an abundance of caution and an appreciation for our stockholders, customers and employees, has determined that this year’s annual meeting will be a completely virtual meeting of stockholders which will be conducted via live webcast. You will be able to participate online and submit your questions during the meeting by visiting www.virtualshareholdermeeting.com/LOCO2017.LOCO2020. You will also be able to vote electronically at the annual meeting. Details regarding how to participate in the meeting online and the business to be conducted at the annual meeting are more fully described in the accompanying proxy statement. Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting of Stockholders to Be Held on June
6, 2017: The2, 2020: This Notice, the proxy statement, and the
20162019 Annual Report on Form 10-K are available at www.proxyvote.com.
Our board of directors has fixed the close of business on April
13, 2017,9, 2020, as the record date for the determination of stockholders entitled to notice of and to vote at the annual meeting. Only stockholders of record will be entitled to notice of and to vote at the meeting or any adjournments or postponements thereof, with each share entitling its owner to one vote on each matter properly presented.
On the record date, 38,470,549 shares of common stock were outstanding.YOUR VOTE IS IMPORTANT. We hope that you will
attend.attend the annual meeting. Whether or not you do, please vote in advance online, by telephone, or by mail.
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| By Order of the Board of Directors, | |
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| /s/ Michael G. Maselli | |
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| Michael G. Maselli | |
| Chairman | |
| Costa Mesa, California | |
April 25, 201721, 2020 | |
EL POLLO LOCO HOLDINGS, INC.
3535 Harbor Boulevard, Suite 100
This proxy statement provides information for stockholders of El Pollo Loco Holdings, Inc. (“we,” “us,” “our,” and the “Company”),
as part ofin connection with the solicitation of proxies
byon behalf of the Company and its board of directors (the “Board”) from holders of the outstanding shares of the Company’s common stock, par value $0.01 per share, for use at the Company’s annual meeting of stockholders to be held at 1:00 p.m. Pacific Time, on
Tuesday, June
6, 2017,2, 2020, and at any adjournments or postponements thereof.
At the annual meeting, stockholders will be asked to vote either directly or by proxy on the following matters discussed herein:
1. Election of
the three
director nominees named in this proxy statement as Class III directors to serve until the
20202023 annual meeting of stockholders
and until their respective successors are duly elected and qualified;
2. Ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for
2017,2020;
3. ConsiderationApproval, on an advisory (non-binding) basis, of one stockholder proposal, if properly presented at the meeting,compensation of our named executive officers;
4. Approval, on an advisory (non-binding) basis, of the frequency of future advisory votes to approve the compensation of our named executive officers; and
4.
5. Such other business as may properly come before the meeting or any adjournments or postponements thereof.
A
The Notice of Annual Meeting, this proxy statement, form of proxy, and our 2019 Annual Report on Form 10-K ("Annual Report"), are being distributed to stockholders on or about April 21, 2020. These materials are also available on our website at http://investor.elpolloloco.com.
In accordance with the rules and regulations adopted by the Securities and Exchange Commission (the “SEC”), we have elected to furnish our proxy materials, including this proxy statement and our Annual Report, to stockholders over the internet. Accordingly, we are mailing a Notice of Internet Availability of Proxy Materials (the “Notice”) containingto our stockholders that did not request paper copies of our proxy materials and Annual Report or are otherwise receiving the proxy materials electronically by email. The Notice contains instructions on how tostockholders can access our proxy materials including this proxy statement and our 2016 Annual Report on Form 10-K, is being mailed to stockholders on or about April 25, 2017. The Notice also provides instructions on how to vote over the internet and vote their shares over the internet, via phone, or by mail. If you receive a Notice, by mail, you will not receive printed and mailedcopies of our proxy materials unless you specifically request them.
ABOUT THE PROXY MATERIALS
Although we encourage you to read
the enclosedthis proxy statement in its entirety, we include this Q&A section to provide some background information and brief answers to several questions you might have about the annual meeting.
Q: Why are we providing these materials?
A:
Our Board is providing theseThese materials
are provided to you in connection with our annual meeting, which will take place on
Tuesday, June
6, 2017.2, 2020 at 1:00 p.m. Pacific Time. Stockholders are invited to participate in the annual meeting and are requested to vote on the proposals described herein.
Q: What information is contained in this proxy statement?
A: This proxy statement contains information relating to the proposals to be voted on at the annual meeting, the voting process, the compensation of our directors and most highly paid officers, and other required information.
Q: What proposals will be voted on at the annual meeting?
A: There are
threefour proposals scheduled to be voted on at the annual meeting:
| ● | election of three directors to serve until the 2020 annual meeting of stockholders; |
| ● | ratification of appointment of BDO USA, LLP, as our independent registered public accounting firm for 2017; and |
| ● | a stockholder proposal concerning disclosure regarding risks from animal welfare, if properly presented at the annual meeting. |
election of the three director nominees named in this proxy statement as Class III directors to serve until the 2023 annual meeting of stockholders and until their respective successors are duly elected and qualified.
ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for 2020.
approval, on an advisory (non-binding) basis, of the compensation of our named executive officers.
approval, on an advisory (non-binding) basis, of the frequency of future advisory votes to approve the compensation of our named executive officers.
We will also consider
any other business that properly comes before the annual
meeting.meeting or any adjournment or postponement thereof.
Q: How does the Board recommend that I vote?
A: The Board recommends that you vote your shares “FOR” electionshares:
“FOR ALL” the three Class III director nominees to be elected to the Board.
“FOR” the ratification of the
Board’s nominees.The Board recommends that you vote your shares “FOR” ratification of appointment of BDO USA, LLP.
LLP, as our independent registered public accounting firm for 2020.
“FOR” the compensation of our named executive officers.
“ONE YEAR” for the frequency of future advisory votes on the compensation of our named executive officers.
Q:Can I attend the annual meeting?
A: We will be hosting the annual meeting live via the Internet. You will not be able to attend the annual meeting in person. Any stockholder can listen to and participate in the annual meeting live via the Internet at www.virtualshareholdermeeting.com/LOCO2020. Our Board annually considers the appropriate format of our annual meeting. Our virtual annual meeting allows stockholders to submit questions and comments before and during the meeting. After the meeting, we will spend up to 15 minutes answering stockholder questions that comply with the meeting rules of conduct; the rules of conduct will be posted on the virtual meeting web portal. To the extent time doesn’t allow us to answer all of the appropriately submitted questions, we will answer them in writing on our investor relations website, at www.investor.elpolloloco.com/investor-relations, soon after the meeting. If we receive substantially similar questions, we will group such questions together and provide a single response to avoid repetition.
The Board recommends thatannual meeting webcast will begin promptly at 1:00 p.m., Pacific Time. We encourage you to access the annual meeting webcast prior to the start time. Online check-in will begin, and stockholders may begin submitting written questions, at 12:45 p.m., Pacific Time, and you should allow ample time for the check-in procedures.
Q. What do I need in order to be able to participate in the annual meeting?
A. You will need the 16-digit control number included on your Notice or your proxy card or voting instruction form (if you received a printed copy of the proxy materials) or included in the email to you if you received the proxy materials by email in order to be able to vote your shares “AGAINST”or submit questions during the annual meeting. Instructions on how to connect to the annual meeting and participate via the Internet, including how to demonstrate proof of stock ownership, are posted at www.virtualshareholdermeeting.com/LOCO2020. If you do not have your 16-digit control number, you will be able to access and listen to the annual meeting but you will not be able to vote your shares or submit questions during the annual meeting.
We will have technicians ready to assist you with any technical difficulties you may have accessing the virtual meeting or submitting questions. If you encounter any difficulties accessing the virtual meeting during the check-in or meeting time, please call the technical support number that will be posted on the Virtual Shareholder Meeting log in page.
Q. Why is the Company holding the annual meeting virtually?
A. We are embracing technology to provide expanded access, improved communication, reduced environmental impact and cost savings for our stockholders and the Company. Hosting a virtual meeting enables increased stockholder
proposal.attendance and participation since stockholders can participate and ask questions from any location around the world, and provides us an opportunity to give thoughtful responses. In addition, we intend that the virtual meeting format provide stockholders a similar level of transparency to the traditional in-person meeting format and we take steps to ensure such an experience. Our stockholders will be afforded the same opportunities to participate at the virtual annual meeting as they would at an in-person annual meeting of stockholders. In addition, in light of the coronavirus (COVID-19) pandemic and the protocols that federal, state and local governments are currently imposing, we believe holding our annual meeting virtually will help to promote and protect the health and well-being of our stockholders and employees, while still enabling them to participate in this year’s annual meeting
Q: What shares can I vote?
A: You may vote all shares of common stock that you owned as of the close of business on the record date, April
13, 2017.9, 2020. You may cast one vote per share
of common stock, including shares (i) held directly in your name as the stockholder of record and (ii) held
in street name for you as the beneficial owner through a
stockbroker,broker, bank, or other nominee.
As of the record date, we had 35,103,583 shares of common stock issued and outstanding.
Q: How do I vote?
A: Stockholder of record. As a stockholder of record, you may vote your shares at the annual meeting by visiting www.virtualshareholdermeeting.com/LOCO2020 and using the 16-digit control number on the Notice or other proxy materials. You may also vote in advance of the annual meeting by submitting a proxy over the Internet by following the instructions provided in the Notice. If you received a printed copy of the proxy materials, you may vote your shares by completing, dating and signing the proxy card that was included with this proxy statement and promptly returning it in the pre-addressed, postage paid envelope provided to you, or by submitting a proxy over the internet or by telephone by following the instructions on the proxy card. If you vote by internet or telephone, then you need not return a written proxy card by mail. Even if you plan to attend the annual meeting, we recommend that you vote in advance, in case you change your mind.
Beneficial owner. If you hold your shares of common stock in street name through a broker, bank or other nominee, your broker, bank or other nominee will allow you to deliver your voting instructions over the internet and may also permit you to vote by telephone. In addition, if you received a printed copy of this proxy statement, you may submit your voting instructions by completing, dating and signing the voting instruction form that was included with this proxy statement and promptly returning it in the pre-addressed, postage paid envelope provided to you. If you vote by internet or telephone, then you need not return a written voting instruction form by mail.
Q: What is the difference between being a stockholder of record and a beneficial owner?
A:
Many of our stockholders hold their shares through stockbrokers, banks, or other nominees, rather than directly in their own names. As summarized below, there are some differences between being a stockholder of record and a beneficial owner.
Stockholder of record: If your shares are registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, LLC, you are the stockholder of record with respect to those shares, and these proxy materials are being sentmade
available directly to you. As the stockholder of record, you have the right to grant your voting proxy directly to the Company and to vote at the annual meeting.
Beneficial owner: If your shares are held inthrough a stock brokerage account or by abroker, bank or other nominee, you are the beneficial owner of shares held in street name, and these proxy materials are being forwarded to you by the organization that holds your broker or other nominee, who is considered to be the stockholder of record.shares. As the beneficial owner, you have the right to tell your nominee how to vote, and you are also invited to attend the annual meeting. However, since you are not the stockholder of record, you may not vote your shares at the annual meeting unless you obtain a legal proxy from your nominee authorizing you to do so. Your nominee has sent you instructions on how to direct the nominee’s vote. You may vote by following those instructions and the instructions on the Notice. Q: HowWhat is the deadline for voting my shares if I do I vote?not attend the annual meeting? A:
To voteIf you are a stockholder of record, your proxy must be received by telephone or the internet by 11:59 p.m. Eastern time on June 1, 2020 in
advance, follow the instructions on the Notice. To attend and potentially voteorder for your shares to be voted at the
annual meeting. If you are a stockholder of record and you received a printed set of proxy materials, you also have the option of completing, signing, dating and returning the proxy card enclosed with the proxy materials before the annual meeting
visit www.virtualshareholdermeeting.com/LOCO2017, usingin order for your shares to be voted at the
16-digit control number onmeeting. If you are a beneficial owner of shares of our common stock, please comply with the
Noticedeadlines included in the voting instructions provided by the bank, broker or other
proxy materials. Even if you plan to attend, we recommendnominee that
you vote in advance, in case you changeholds your
mind.shares.
Q: Can I change my vote or revoke my proxy?
A:
Yes,Yes. If you are a stockholder of record you can change your proxy instructions at any time before the vote at the annual meeting, by:
| ● | Entering a new vote online, |
| ● | Entering a new vote by telephone, |
| ● | Mailing a written notice of revocation to our Corporate Secretary at our address below, |
| ● | Signing and returning a new proxy card bearing a later date, which will automatically revoke your earlier proxy instructions, or |
| ● | Voting at the annual meeting. |
Submitting a new vote online or via telephone (only the latest internet or telephone voting instructions will be followed);
Mailing a written notice of revocation to our Corporate Secretary at our address below;
Signing and returning a new proxy card bearing a later date, which will automatically revoke your earlier proxy instructions; or
Voting electronically during the annual meeting.
If your shares are held in “street name,” you must contact your broker, bank or other nominee to find out how to change or revoke your voting instructions.
Q: What constitutes a quorum?
A: The holders of a majority of our
capitalcommon stock issued and outstanding
and entitled to vote,as of the record date, present in person (including through online participation) or represented by proxy
at the annual meeting and entitled to vote, shall constitute a quorum. Votes withheld, abstentions, and broker non-votes (as described below) are counted as present
and entitled to vote for the purpose of determining
the presence of a quorum.
Q: What is a broker non-vote?
A: If you hold
your shares
beneficiallyof common stock in street name
through a brokerage account and
you do not
providesubmit voting instructions to your broker,
withyour broker may generally vote your shares in its discretion on routine matters. However, a broker cannot vote shares held in street name on non-routine matters unless the broker receives voting instructions
from the street name holder. Proposal 2 (ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for 2020) is considered routine under applicable stock exchange rules, while each of the other proposals to be submitted for a vote of stockholders at the annual meeting is considered non-routine. Accordingly, if you hold your shares
of common stock in street name through a brokerage account and you do not submit voting instructions to your broker, your broker may
constitute “broker non-votes.” Brokers mayexercise its discretion to vote
these shares on
routine mattersProposal 2 at the annual meeting, but
will not
on non-routine matters. Generally, broker non-votes occur on a matter when a broker is notbe permitted to vote
your shares on
that matter withoutany of the other proposals at the annual meeting. If your
instruction. Broker non-votes arebroker exercises this discretion, your shares will be counted
as present for
determining the presence of a quorum
purposes but not in counting votes cast for, or entitled to voteat the annual meeting and will be voted on
a proposal.Proposal 1, election of directors, is not routine.
Proposal 2 accountant ratification, is routine.
Proposal 3,in the stockholder proposal, is not routine.
manner directed by your broker, but your shares will constitute “broker non-votes” on each of the other items at the annual meeting.
Q: What is a proxyholder?
A: We are designating Laurance Roberts, our Chief Financial Officer, and Edith R. Austin,Jason Weintraub, our Corporate Secretary, to hold and vote all properly-tendered proxies (except votes “withheld”). If you have properly submitted a proxy and indicated a vote,how your shares are to be voted on each of the proposals, they will so vote. If you have leftdo not indicate a vote blank,voting instruction on one or more of the proposals, they will vote as the Board recommends.recommends on those proposals. While we do not expect any other business to come up for vote at the annual meeting, if it does, they willeach properly-tendered proxy gives the named proxies authority to vote your shares on those matters in their discretion. If a director nominee
Q:What vote is unwilling or unablerequired to serve, the proxyholders will vote in their discretion for an alternative nominee.Q: What does it mean if I receive more than one Notice?
A: You may receive more than one Notice, if, for example, you hold your shares in multiple brokerage accounts. You must vote based on the instructions inapprove each Notice separately.
Q: Howproposal and how are votes counted?
A:Proposal 1. The election of directors requires a plurality vote of the shares of common stock present in person or represented at the annual meeting and entitled to vote on the proposal. The director nominees who receive the largest number of votes cast “for” will be elected as Class III directors. As a result, any shares not voted “for” a particular nominee (whether as a result of stockholder withholding or a broker non-vote) will not be counted in such nominee’s favor and will have no effect on the outcome of the election.
Other Items (Proposals 2, 3 and 4). Approval of each of the other items to be submitted for a vote by stockholders at the annual meeting requires the affirmative vote of a majority of the shares of common stock present in person or represented at the annual meeting and entitled to vote on the proposal. For Proposal 2 (ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for 2020) and Proposal 3 (advisory approval of the compensation of our named executive officers), shares voted “abstain” will have the same effect as a vote “against” the proposal. We do not expect any broker non-votes on Proposal 2, and broker non-votes will not be counted in determining the outcome of Proposal 3. For Proposal 4 (advisory approval of the frequency of future advisory votes on the compensation of our named executive officers), shares voted “abstain” and broker non-votes will not be counted in determining the frequency option receiving the highest number of affirmative votes. With respect to Proposal 4, if no frequency option receives the affirmative vote of holders of a majority of the shares of common stock present in person or represented at the annual meeting and entitled to vote on Proposal 4, our Board will consider the option receiving the highest number of affirmative votes as the preferred frequency option of our stockholders.
Q: Who will count the votes at the annual meeting?
A: A representative of Broadridge Financial Solutions, Inc.
, has been appointed to be the inspector of elections, to
actcount the votes at the meeting, to make a written report thereof,
to take charge of the polls, and to make a certificate of the result of the vote taken. We will announce preliminary results at the meeting and publish final voting results on a Current Report on Form 8-K that we expect to file with the
Securities and Exchange Commission (“SEC”)SEC within four (4) business days after the end of the annual meeting.
Q: Is my vote confidential?
A: Proxy instructions, ballots, and voting tabulations that identify individual stockholders are handled in a manner that protects your voting privacy. Your vote will not be disclosed, either within the Company or to third parties, except as necessary (i) to meet applicable legal requirements, (ii) to allow for tabulation and certification of the vote, and (iii) to facilitate successful proxy solicitation by the Board.
Q: Who bears the cost of soliciting votes for the annual meeting?
A: We bear the entire cost of preparing, assembling, printing, mailing, and distributing these proxy materials. The solicitation of proxies or votes may be made in person, by telephone, and by electronic communication by our directors, officers, and employees, who will not receive any additional compensation for these solicitation activities. In addition, we may reimburse brokerages and other entities that represent beneficial owners for their expenses in forwarding solicitation materials to beneficial owners.
Q: How can I nominate a director or propose an action for next year’s annual meeting?
A: For stockholders
If a stockholder wishes to vote onsubmit a stockholder nomination or proposal, there are three key elements. First,which will not be included in the stockholder must beCompany's proxy materials, for consideration at next year's annual meeting, a stockholder of record as of (i) the date that the stockholder giveswritten notice of his or hersuch nomination or proposal must be provided to ourthe Corporate Secretary and (ii) the meeting’s record date. Second, the stockholder must complySecretary. In accordance with the advance notice procedures inprovisions of our bylaws, (summarized below). Third, if the stockholder wishes to include his or her nomination or proposal in our proxy materials, there are additional requirements (summarized below).
Q: What are the notice procedures in the Company’s bylaws for stockholder nominations and proposals?
A: Under our bylaws, for a stockholder nomination or proposal to be raised and voted on at an annual meeting, notice to our Corporate Secretary must be timely given and in proper written form.
To be timely, a notice must be delivered to, or mailed to and received at, our headquarters between 90 and 120 days (i.e.,corporate address (provided below) between February 6, 2018,2, 2021, and March 8, 2018)4, 2021 (i.e., 120 and 90 days before June 2, 2021, the anniversary of the preceding annual meeting (i.e., June 6, 2018), provided thatmeeting). However, if the upcomingnext year's annual meeting is not scheduled within 25 days of that anniversary (i.e., between May 12, 2018,8, 2021, and July 1, 2018)June 27, 2021), the notice must be received by the Corporate Secretary no later than the close of business on the 10 days after we provide
th day following the date on which notice of the annual meeting was mailed or such alternatepublic disclosure of the date of the annual meeting date.was made, whichever first occurs.
To be in proper written form, a notice must provide certain information set forth in our bylaws,
dated July 24, 2014, which
are freely available online at https://www.sec.gov/Archives/edgar/data/1606366/000119312514332367/d779664dex32.htm.were filed as Exhibit 3.2 within our Annual Report.
Q: How can I
includesubmit a
stockholder proposal
for inclusion in the Company’s proxy
materials?materials for next year's annual meeting?
A: For a stockholder proposal (other than a director nomination) to be included in
athe Company's proxy
statement such as this one,materials for consideration at next year’s annual meeting, you must satisfy both substantive and
deadline SEC regulations.For substantiveprocedural requirements you must satisfy, and we refer you to,set forth in SEC Rule 14a-8, (i.e., 17 C.F.R. section 240.14a-8), a federal securities regulation that addresses when a company must include a stockholder’s proposal in its proxy materials, including the proxy statement and on its proxy cards.
Regarding deadlines, under SEC regulations,card.
In order for a stockholder proposal to be
includedeligible for inclusion in
athe Company's proxy
statement and form of proxy,materials for the 2021 annual meeting, it must be received at
a company’s headquartersour corporate address (provided below) by December 22, 2020 (i.e., not less than 120
calendar days before
April 21, 2021, the anniversary of the date of the company’s proxy statement released to stockholders in connection with the previous year’s annual
meeting (i.e., 120 days before April 25, 2018, or December 26, 2017)meeting). However, if the date of our
20182021 annual meeting has been changed by more than 30 days from the date of our
20172020 annual meeting (i.e., if it is not between May
7, 2018,3, 2021, and July
6, 2018)2, 2021), then the deadline is a reasonable time before we begin to print and send our proxy materials.
Q: How can I include a nomination in the Company’s proxy materials?
A: At this time, your ability to do so is substantively limited. For a director nomination to be included in a proxy statement such as this one, our bylaws provide that a stockholder must follow the final rules adopted by the SEC providing for such proxy access. Additionally, a nomination must be delivered to, or mailed to and received at, our headquarters at least 120 days (i.e., December 26, 2017) before the anniversary of the dissemination of materials for the preceding annual meeting (i.e., April 25, 2018), or by such other deadline as may be set forth in the SEC’s final proxy access rules. There are currently no final proxy access rules in place.
Q: Can I recommend director candidates directly to the
Board?Nominating and Governance Committee?
A: Yes, you may recommend director candidates by writing to the Nominating and Corporate Governance Committee of the Board at the mailing or internet address below. We will consider
themany recommended director candidates subject to Board needs and candidate qualifications. We recommend that you include information relevant for the
committeeNominating and Corporate Governance Committee to evaluate your recommendation, including (i) your and your candidate’s names and contact information, (ii) your candidate’s principal occupation or employment, and other biographical information similar to that provided herein for directors and officers, (iii) other information of the sort required to be in a notice of nomination under our bylaws as discussed above, and (iv) a written consent by the candidate to your nomination.
Q: Can I communicate with the Board?
A: Yes, any stockholder or other interested party may write to the Board at our address below or
onlinevia email at
http://investor.elpolloloco.com/contactboard.cfm.legal@elpolloloco.com. Any interested parties desiring to communicate with the Audit Chair and other non-management directors may contact such directors by mailing communications to the same address below, but directed to the attention of the Chairman of the Audit Committee c/o the Corporate Secretary. Communications will be handled in accordance with the procedures explained on that website.
The Board has instructed the Corporate Secretary to forward such correspondence to the intended recipients; however, the Board has also instructed the Corporate Secretary, prior to forwarding any correspondence, to review such correspondence and not forward any items deemed to be of a purely commercial or frivolous nature (such as spam) or otherwise obviously inappropriate for the intended recipient’s consideration. In such cases, the Corporate Secretary may forward some of the correspondence elsewhere within our company for review and possible response.
Q: What is your corporate address for notice and Board communication purposes?
El Pollo Loco Holdings, Inc.
Attention: Corporate Secretary
3535 Harbor Boulevard, Suite 100
Q: What should I do if my household receives one copy of proxy
materialmaterials and I need an additional copy?
A: If one Notice or setThe Company has adopted a procedure called "householding," which is approved by the SEC and permits the delivery of othera single copy of the proxy materials, is deliveredincluding the Notice of Annual Meeting of Stockholders, this proxy statement and the Annual Report, to two or moremultiple stockholders who sharesharing an address unless we undertakehave received contrary instructions from a stockholder. Stockholders who participate in householding will continue to deliver promptly upon written or oral request a separate copy of such materials to a stockholder at a shared address. Please contact our agent using the information provided on the Notice or us at our offices at the address above if you wish toaccess and receive a separate copyNotice or proxy card, as applicable. If your household received a single set of any proxy materials or if one household that is currently receiving multiple copies wishesthis year, but you would prefer to receive only a single copy.your own copy, please contact Broadridge Householding Department, by calling their toll free number, 1-866-540-7095 or by writing to: Broadridge, Householding Department, 51 Mercedes Way, Edgewood, NY 11717. You will be removed from the householding program within 30 days of receipt of your instructions at which time you will then be sent separate copies of the documents.
PROPOSAL
11: ELECTION OF DIRECTORS
Our business operates under the direction of our Board, which currently consists of
eightnine directors. Our certificate of incorporation divides our Board into three classes, Classes I, II, and III, with terms expiring in
2018, 2019,2021, 2022, and
2017,2020, respectively. Our Board has nominated, and stockholders are being asked to
re-elect,elect, our
three Class III directors,
Samuel N. Borgese, Mark Buller, and John M. Roth,
Samuel N. Borgese, and Mark Buller,each for
newa three-year
termsterm expiring at the
20202023 annual
meeting.meeting of stockholders. If elected, the nominees will each hold office until
atheir respective successor is duly elected and qualified or until
their earlier death, resignation, or removal.
With regard
The three Class III director nominees have consented to
Mark Buller,be named in this proxy statement and to serve as directors if elected. If any nominee of the
sole nominee standingBoard is unable to serve, or for
his or her first election by stockholders,good cause will not serve, as a director at the
nominee was recommendedtime of the annual meeting, the persons who are designated as proxies intend to vote, in their discretion, for any other persons that may be designated by the
following categoryBoard. As of the date of this proxy statement, the Board has no reason to believe that any of the director nominees named above will be unable or
categories of personsunwilling to stand as a nominee or
entities: non-management director.We did not payto serve as a fee to any third party or parties to identify or evaluate or assist in identifying or evaluating potential nominees.
director if elected.
You may vote “FOR
ALL,”
of the nominees, “WITHHOLD” your vote from all of the nominees or “WITHHOLD”
authority toyour vote
for, each nominee. Directorsfrom any one of the nominees. The directors are elected by
a plurality
without regard forof the votes
withheldof common stock cast at the annual meeting. “Plurality” means that the individuals who receive the largest number of votes “FOR” are elected as Class III directors. As a result, any shares not voted “FOR” a particular nominee (whether as a result of stockholder withholding or a broker non-vote) will not be counted in such nominee’s favor and
broker non-votes.will have no effect on the outcome of the election.
The Board recommends that you vote “FOR”“FOR ALL” the electionClass III director nominees to be elected to the Board.
INFORMATION REGARDING THE BOARD OF DIRECTORS
Director Biographies
The following is biographical information about our Board of Directors, including a description of the experience, qualifications and skills that have led the Board to determine that each director should serve on the Board. The age of each
nominee.
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF BDO USA, LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2017
The audit committeedirector is as of our Board has appointed BDO USA, LLP, as our independent registered public accounting firm for 2017. They have served in this capacity since 2011.
We ask that you ratify this appointment. SEC and NASDAQ regulations require our audit committee to engage, retain, and supervise our auditor. However, we think that auditor selection is important to stockholders, and, as a matter of good corporate governance, we seek stockholder input.
We expect that auditor representatives will be present at the meeting, that they will have the opportunity to make a statement if they so desire, and that they will be available to respond to appropriate questions.
Pursuant to our audit committee’s charter, our audit committee is responsible for overseeing our accounting and financial reporting processes, and for overseeing our audits. The audit committee is responsible for appointing, retaining, determining the compensation of, evaluating, and terminating our independent auditors. The committee is also responsible for establishing and maintaining guidelines for the retention of our independent auditors for any non-audit services and for the fees for those services, and for determining procedures to approve audit and non-audit services in advance. The committee is further responsible for pre-approving any audit or non-audit services provided to us by our independent auditors, all as required by applicable laws and listing standards.
The audit committee has pre-approved all audit and permitted non-audit services provided by BDO USA, LLP.
The following sets forth fees billed by BDO USA, LLP, for the audit of our annual financial statements and other services rendered:
($) | | Fiscal 2016 | | | Fiscal 2015 | |
| Audit Fees (1) | | 381,611 | | | 315,608 | |
| Audit-Related Fees (2) | | 15,008 | | | 16,173 | |
| Tax Fees (3) | | — | | | 69,500 | |
All Other Fees | | — | | | — | |
| Total | | 396,619 | | | 401,281 | |
| (1) | Audits of our annual financial statements, reviews of quarterly financial statements, and services that are normally provided by independent accountants in connection with statutory and regulatory filings or engagements, including reviews of SEC filings and our Franchise Disclosure Document. |
| (2) | Audit-related fees consist of the audit of our 401(k) plan. |
| (3) | Professional services rendered for tax compliance, tax return review and preparation, and related tax advice. |
You may vote “FOR” or “AGAINST” or “ABSTAIN” from voting when voting on the ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for 2017. This proposal shall be approved if it receives the affirmative vote of a majority of the total number of votes of our capital stock represented at the meeting and entitled to vote thereon.
The Board recommends that you vote “FOR” the ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for 2017.
AUDIT COMMITTEE REPORT
The audit committee has reviewed and discussed our fiscal 2016 audited financial statements with management.
The audit committee has discussed with our independent auditors the matters required to be discussed by AS 1301: Communications with Audit Committees, issued by the Public Company Accounting Oversight Board.
The audit committee has received the written disclosures and the letter from the independent accountant required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the audit committee concerning independence, and has discussed with the independent accountant the independent accountant’s independence.
Based on these reviews and discussions, the audit committee recommended to the Board that our audited financial statements be included in our annual report on Form 10-K for 2016 for filing with the SEC.
Respectfully submitted,
Samuel N. Borgese
Mark Buller
Note: William R. Floyd, who joined the audit committee following Douglas K. Ammerman’s resignation from the Board, did not participate in the actions described above.
PROPOSAL 3
STOCKHOLDER PROPOSAL CONCERNING DISCLOSURE REGARDING RISKS FROM ANIMAL WELFARE
In accordance with SEC regulations, the text of the stockholder proposal and supporting statement set forth below appear exactly as received by the Company. The stockholder proposal may contain assertions about the Company or other matters that the Company believes are incorrect, but the Company has not attempted to refute all of those assertions. All statements contained in the stockholder proposal and supporting statement are the sole responsibility of the proponent. The Company disclaims responsibility for the content of the proposal and the supporting statement, including sources referenced in the supporting statements. The stockholder proposal is required to be submitted to a vote at the 2017 annual meeting of stockholders only if properly presented.
The Humane Society of the United States (“HSUS”), 2100 L Street, NW, Washington, D.C. 20037, beneficial owner of at least $2,000 in market value of the Company’s common stock, has informed the Company that HSUS intends to present the following proposal at the 2017 annual meeting of stockholders.
“RESOLVED, that shareholders request that El Pollo Loco (LOCO) disclose risks the company may face from animal welfare issues in its supply chain, and how it’s mitigating those risks (“animal welfare disclosure”). This should be made within six months after the 2017 annual meeting, at reasonable cost, omit proprietary information, and include:
| ● | animal abuse principles used to frame the disclosure; |
| ● | metrics used to track and measure LOCO’s impact on animal welfare; and |
| ● | actual and/or potential risks—including, but not limited to those regarding its suppliers’ methods of breeding, raising and processing poultry. |
ANALYSIS:
Contact: LOCOshareholders@gmail.com
Virtually all major U.S. food companies have disclosures about how they mitigate animal welfare risks in their supply chains—including McDonald’s, Burger King, Wendy’s and hundreds more of the largest restaurants, supermarkets, foodservice companies and food manufacturers.
Top chains are now even advertising around this. “Why are we rethinking the chicken and the egg?” asks a full page McDonald’s advertisement publicizing its animal welfare work. “In this case, the chicken comes before the egg” touts a full page ad Denny’s ran inUSA Today about its animal welfare policies.
LOCO, however, is an outlier—having disclosed no animal welfare policies or practices.
This, despite LOCO acknowledging the issue as a risk: “We are, from time to time, faced with negative publicity at one or more of our restaurants relating to... [the] welfare of chicken, which is our principal food product,” writes LOCO. “The negative impact of 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,” adds LOCO. “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.”
Indeed, experts agree that animal welfare concerns can adversely affect shareholder value:
● Citigroup concludes that “headline risks” endangering restaurants include “concerns over animal cruelty.”
● “In the case of animal welfare,” reports the World Bank’s International Finance Corporation, “failure to keep pace...could put companies and their investors at a competitive disadvantage.”
● Northern Trust—a LOCO shareholder—reports that it, “generally votes for proposals requesting increased disclosure or reporting regarding animal treatment issues that may impact a company’s operations and products...especially in relation to food production.”
● Glass Lewis reports: a company “should consider its exposure to regulatory, legal and reputational risk due to its animal welfare policies and practices.”
● The Food Marketing Institute reports: “Shoppers prioritize animal welfare second only to employment practices” and concludes that, “Animal welfare must now therefore be considered as a shopper value that retailers need to manage towards.”
Yet LOCO—unlike its competitors and despite acknowledging that animal welfare concerns present risks—lacks disclosure around how (if at all) it mitigates those risks.
This proposal would simply help LOCO identify and mitigate animal abuse in its supply chain and allow shareholders to understand its potential impact on shareholder value. As such, shareholders are urged to voteFOR this proposal.”
The Board’s Statement in Opposition to the Stockholder Proposal
After careful consideration, the Board unanimously recommends that stockholders vote “AGAINST” the stockholder proposal.
The Company is committed to the highest standards of animal welfare. The Board has carefully considered the stockholder proposal and, for the reasons described below, believes that the stockholder proposal would not enhance the Company’s existing disclosures, policies and practices regarding animal welfare. Devoting resources for additional disclosure would be inefficient and not in the best interests of the Company or the Company’s stockholders.
The Company’s principal food product is chicken. While the Company does not own, raise, breed, process or transport chickens, the Company does recognize that animal welfare is an important part of a safe and sustainable food supply chain. And like many of the Company’s stakeholders, the Company cares about the way animals, including chickens, are raised and treated.
The Company is committed to purchasing chickens from suppliers that treat their animals in accordance with applicable laws, including USDA guidelines, and in accordance with certain animal welfare guidelines established by applicable industry associations such as the National Chicken Council. The Company has a quality assurance team that monitors comprehensive supplier audits on a frequency schedule based on the potential food safety risk for each of the Company’s products, including chicken. The Company currently sources poultry from five suppliers, with two such suppliers accounting for approximately 70% of the Company’s planned purchases for fiscal 2017.
As part of our commitment to animal welfare, the Company has an established Animal Welfare Council comprised of internal quality assurance, supply chain, legal and marketing personnel as well as external subject matter experts from industry and academia including a third party consultant completing a certification as an auditor of the Professional Animal Auditor Certification Organization, Inc. in 2017. Moreover, based on multiple discussions with the Company’s suppliers, customers, stockholders and other stakeholders, on March 23, 2017, the Company adopted a comprehensive animal welfare policy that sets forth the principles and ethical standards that the Company expects its suppliers to abide by and achieve. The policy, which can be found in the “Investor Relations” section of the Company’s website at http://investor.elpolloloco.com/corporate-governance.cfm, expresses the Company’s goal of ensuring that our suppliers are committed to the raising, breeding, processing, transporting and slaughter of animals in a respectful manner that is free of cruelty, abuse and neglect. The policy will be reviewed periodically by the Company and accordingly is subject to change from time to time.
Moreover, the Company’s management team, which is involved in the day-to-day operations of sourcing our foods and serving them to our customers at our restaurants, is best situated to make careful and informed decisions regarding the requested risk assessment by the stockholder proposal, including the metrics the Company uses to track and measure the Company’s impact on animal welfare.
From a practical standpoint, it is impossible for the Company’s management team to know all potential risks and impacts related to any practice, but business risks are assessed on a regular basis and are reported to the Company’s stockholders when such risk factors rise to the level that they could most significantly affect our business, financial condition or results of operations. The Company already discloses to its stockholders the most significant risk factors related to ownership of its common stock in its Annual Report on Form 10-K and other filings with the SEC. The Company’s management team and the Board believe that preparing disclosure of the type proposed in the stockholder proposal would involve significant expense and distraction, diverting time and resources from activities that can have direct benefits on the sustainability and profitability of the Company’s business.
To reiterate, the Company strongly supports the humane treatment of animals. However, the Company believes that the stockholder proposal is not necessary and would not be an effective use of the Company’s resources. The Company continually assesses risks related to all aspects of its business and discloses risk factors that could most significantly affect the Company’s business, financial condition or results of operations. As such, the Company believes the proposed animal welfare report would neither enhance the Company’s existing policies and practices regarding animal welfare nor would it result in any material benefit to stockholders. The Board believes that the Company and its stockholders will be better served by having the Company continue its efforts to employ industry best practices and stay apprised of leading scientific research in order to make informed decisions regarding animal welfare on an ongoing basis.
You may vote “FOR” or “AGAINST” or “ABSTAIN” from voting when voting on the stockholder proposal. This stockholder proposal shall be approved if it receives the affirmative vote of a majority of the total number of votes of our capital stock represented at the annual meeting and entitled to vote thereon. Proxies solicited by the Board will be voted “AGAINST” this stockholder proposal unless stockholders specify a contrary vote.
After careful consideration, the Board unanimously recommends that you vote “AGAINST” the stockholder proposal.
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the name, age, and position of individuals who currently serve as our directors and executive officers.
Name
| Age
| Position
|
Stephen J. SatherName | 69 | Director, President, and Chief Executive Officer |
Laurance RobertsAge | 57 | Chief Financial Officer |
Edward Valle | 56 | Chief Marketing Officer |
John Dawson | 53 | Chief Development Officer |
Gustavo (“Gus”) Siade | 55 | VP, OperationsPosition |
| Michael G. Maselli | 57 | 60 | | Chairman and Director |
Dean C. KehlerBernard Acoca | 60 | 51 | | Director, Chief Executive Officer, and President |
John M. RothDouglas J. Babb | 58 | 68 | | Director |
| Samuel N. Borgese | 68 | 71 | | Director |
| Mark Buller | 52 | 55 | | Director |
| William R. Floyd | 72 | 75 | | Director |
| Dean C. Kehler | | 63 | | Director |
| Carol (“Lili”) Lynton | 55 | 58 | | Director |
| John M. Roth | | 61 | | Director |
Stephen J. Sather has been a director and our Chief Executive Officer and President since 2010. From 2006 to 2010, Mr. Sather was our Senior Vice President of Operations. From 2002 to 2005, he was Senior Vice President of Retail Operations for Great Circle Family Foods, a major California franchisee of Krispy Kreme Doughnuts stores. Mr. Sather holds a bachelor’s degree in business administration from Miami University in Oxford, Ohio. Based on his extensive industry and management experience in the casual dining and quick-service sectors, his familiarity with us, his deep understanding of restaurant operations, and his work at a franchisee organization, Mr. Sather is well-qualified to lead us and to serve on our Board.
Laurance Roberts has been our Chief Financial Officer and Treasurer since July 2013. From 2008 to 2012, he was Chief Operating Officer for KFC, a major fried chicken restaurant chain and a division of Yum! Brands. In 2008, he was also General Manager for KFC Restaurant Operating Company. Before that, he spent three years as Chief Financial Officer of KFC, and three years as Chief Financial Officer of Yum! Brands’ Pizza Hut joint venture in the United Kingdom. Mr. Roberts holds an MBA from the University of Michigan and a bachelor’s degree in economics from Bucknell University.
Edward Valle has been our Chief Marketing Officer since October 2011. From 2009 to 2010, he was Chief Marketing Strategist for Choice Hotels International, responsible for brand strategy, advertising, marketing, media, promotional, and loyalty initiatives. From 2005 to 2009, he was Vice President of Marketing at the Panera Bread Company. Before that, he held marketing leadership positions at Dunkin’ Donuts, Subway Restaurants, and Diageo. Mr. Valle holds an MBA from Fordham University and a bachelor’s degree in operations and logistics management from Michigan State University.
John Dawsonhas been our Chief Development Officer since May 2016. From 2014 to 2015, Mr. Dawson was President and Chief Executive Officer of The Coffee Bean & Tea Leaf, a major coffee and tea retailer. From 2005 to 2013, he was the Chief Development Officer for Dunkin’ Brands Group, Inc., a major franchisor that owns the Dunkin’ Donuts and Baskin-Robbins brands. From 1988 to 2005, he held various managerial positions at McDonald’s Corporation, which operates and franchises McDonald’s restaurants, culminating in Vice President, Worldwide Restaurant Development, from 2002 to 2005. Mr. Dawson has a bachelor’s degree from Claremont McKenna College, and a master’s degree in real estate development from the University of Southern California.
Gustavo (“Gus”) Siade has been our VP, Operations, since May 2016. From 2013 to May 2016, Mr. Siade was our VP, Company Operations. From 2005 to 2013, he was a Director of Operations for us. From 1998 to 2005, he was an Area Leader for us. Mr. Siade holds a bachelor’s degree from the Monterrey Institute of Technology, where he majored in Civil Engineering.Michael G. Maselli has been Chairman of our Board since 2011. Mr. Maselli is a managing director of Trimaran Fund Management, L.L.C. ("Trimaran Fund"), a position he has held since 2006, and is also currently the Vice President of Acquisitions of GX Acquisition Corp., a position he has held since May 2019. Before joining Trimaran Fund in February 2003,2006, Mr. Maselli worked in the Corporate and Leverage Finance Groups of CIBCCanadian Imperial Bank of Commerce ("CIBC") World Markets. Prior to joining CIBC in 1997, Mr. Maselli served as a Managing Director in Bear Stearns’ corporate finance group and, prior to that, as a Vice President at Kidder Peabody & Co. Incorporated. Mr. Maselli currently servesserved on the board of ChanceLight, Inc. (f/k/a Educational Services of America, Inc.). until 2018. From 2013 to 2015, he served on the board of directors of Norcraft Companies, Inc., and also served on the board of managers of its predecessor company beginning in 2003. Additionally, Mr. Maselli served on the board of directors of Standard Steel, LLC, and was director as well as Chairman of the Board of CB Holding Corp. Mr. Maselli received an MBA with distinction from The A.B. Freeman School at Tulane University and a bachelor’s degree in economics from the University of Colorado. With his extensive background in banking, finance, and private equity, his supervisory and investment experience in a variety of industries, and his knowledge of us and our affiliates, Mr. Maselli is well-qualified to serve as our Chairman.
Dean C. KehlerBernard Acoca has been a director and our Chief Executive Officer and President since March 2018. Before joining the Company, Mr. Acoca spent seven years at Starbucks Corporation (“Starbucks”) in various capacities as a member of its executive team, most recently as President of Teavana, Starbucks’ tea division from 2015 to 2018. Prior to that, he served as Vice President, Marketing and Promotions, Americas from 2010 to 2012 and as Senior Vice President, Marketing and Category, Americas from 2012 to 2014. From 2014 to 2015, Mr. Acoca served as Chief Marketing Officer for the Americas of L’Oréal S.A. Prior to Starbucks, Mr. Acoca was employed by YUM! Brands, Inc., where he held various marketing positions from 2002 to 2010. Mr. Acoca holds a Bachelor of Arts degree from Emory University in Atlanta, Georgia. Mr. Acoca brings us extensive experience in leadership, marketing and operations, as well as a proven track record of driving outstanding results at large restaurant brands.
Douglas J. Babb has been a director since 2005. In 2000,2018. From 2007 until his retirement in 2014, he co-founded Trimaran,was Chief Executive Officer of Cooper Clinic, P.A. ("Cooper"), one of our principal investors, wherethe largest multi-specialty, physician-owned clinics in the Arkansas region. Since his retirement as Chief Executive Officer, he is a Managing Partner. From 1995 to 2000, Mr. Kehler held senior positions at CIBC, including Vice Chairman of CIBC World Markets Corp. Mr. Kehler has served onas an adviser to the board of directorsCooper. Additionally, from 2010 to 2014, he served as an Adjunct Instructor for the College of KCAP Financial,Business at the University of Arkansas - Fort Smith. From 2015 to 2017, he served as Managing Director for Babb Strategic Services, L.L.P. ("Babb Strategic"), a consulting and strategic planning services company that he formed in 2006. Prior to forming Babb Strategic, he served as Executive Vice President - Chief Administrative and Legal Officer, and Secretary of Beverly Enterprises, Inc., since February 2012.a leading provider of healthcare services to the elderly in the United States, from 2000 to 2006. Prior to that he served in various roles at Burlington Northern, Inc., a diversified transportation company and Burlington Northern Santa Fe Corporation, from 1978 to 1999 and as Staff Counsel for the South Carolina Attorney General’s Office from 1977 to 1978. Mr. Babb is also the Chairman of the Board of Directors of the United States Marshals Museum and Vice-Chairman of the Board of Directors for the University of Arkansas - Fort Smith Foundation. He holds a bachelor’sbachelor's degree from the Wharton School of theMinnesota State University and a J.D. from University of Pennsylvania. Because of his strong background in banking and finance, his many years of experience overseeing this and other corporations, and his knowledge of management and strategy,South Carolina. Mr. KehlerBabb is well-qualified to serve on our Board.John M. Roth has been a director since 2007. He has been with Freeman Spogli, oneBoard on account of our principal investors, since 1988, and has been a General Partner there since 1993, where he now serves as Chief Executive Officer. From 1984 to 1988, Mr. Roth was employed by Kidder, Peabody& Co. Incorporated in the Mergers and Acquisitions Group. Mr. Roth received an MBA and a bachelor’s degree from the Wharton School of the University of Pennsylvania. Mr. Roth has served on the board of directors of Floor & Decor Holdings, Inc., since 2010. From 2005 to April 10, 2017, he served on the board of directors of hhgregg, Inc. With his extensive experience, as a board memberin particular the successful turnaround of numerous retail and consumer businesses and his experience and insights into strategic expansion opportunities, capital markets, and capitalization strategies, Mr. Roth is well-qualified to serve on our Board.Beverly Enterprises.
Samuel N. Borgese has been a director since 2011, and served as Chairman of our Board infrom January 2011 to December 2011, while he also served as our Executive Chairman. Since 2011,2017, Mr. Borgese has been President, Chief Executive Officer, and Director of Shari's Management Corporation and Shari's Restaurant Group, a multi-location family dining company. From 2011 to 2017, Mr. Borgese was Managing Partner of Aceneca, LLC, a capitalrestaurant investment and restaurant brand operating holding company. From October 2014 to August 2016, he was President and Chief Executive Officer, and a member of the board of directors, of LRI Holdings, Inc., and its affiliates Logan’sLogan's Roadhouse, Inc., and Roadhouse Holding Inc., collectively known as Logan’sLogan's Roadhouse, a casual dining steakhouse chain. In August 2016, the Logan’sLogan's Roadhouse entities and various of their affiliates filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code. Mr. Borgese left Logan’sLogan's Roadhouse in August 2016, following the declaration of bankruptcy. From 2011 to 2014, he was Chief Executive Officer of Max Brenner International, a chocolatier. From 2008 to 2011, he was first Interim President and Chief Executive Officer and then permanent President and Chief Executive Officer of CB Holding Corp., the parent of Charlie Brown’sBrown's Steakhouse and other chains, which was owned by Trimaran, one of our principal investors. From 2003 to 2008, he was employed by Catalina Restaurant Group, first as Chief Development Officer and later as President and Chief Executive Officer. Before that, Mr. Borgese was Chief Executive Officer of an enterprise software company that supported 300 restaurant, retail, and hospitality businesses in the lifecycle management of their real estate assets. Mr. Borgese holds a Certificate of Director Education from the National Association of Corporate Directors. With more than 30 years of senior executive and other leadership positions with public and private companies in the restaurant, retail, and hospitality sectors, Mr. Borgese is well-qualified to serve on our Board.
Mark Bullerhas been a director since 2015. FromHe was appointed Executive Chairman of Superior Cabinets in July 2018 and from 2013 to 2015, Mr. Buller was the Chairman and Chief Executive Officer of Norcraft Companies, Inc., a leading manufacturer of kitchen and bathroom cabinetry in the United States and Canada. Beginning in 2003, Mr. Buller was the Chief Executive Officer of the predecessor of Norcraft Companies, Inc., Norcraft Companies, L.P., as well as a member of the board of managers for that entity’s general partner, Norcraft GP, L.L.C. Mr. Buller’s executive experience in the home furnishings industry is longstanding. From 1988 to 1996, Mr. Buller served in various management positions at Kitchen Craft Cabinets, a Canadian cabinetry maker. From 1996 to 1999, he served as President of Kitchen Craft. Following the acquisition of Kitchen Craft by Omega Cabinets, Ltd., he continued in that position from 1999 to 2000. In 2000, Mr. Buller was appointed Chief Executive Officer of Omega. He remained in that position until 2002, leaving Omega after it was sold to Fortune Brands, Inc. In sum, Mr. Buller has over 26 years in the home furnishings industry, and spent 18 years as a chief executive officer or division president. Mr. Buller is well-qualified to serve on our Board on account ofdue to his extensive leadership, executive, managerial, and business experience, particularly in the salient areas of supply chain logistics, product design, brand management, and consumer trends. William R. Floyd has been a director since 2016. From 2012 to 2019, Mr. Floyd was a director of Korn/Ferry International, a major executive recruiting firm and talent consultancy, as well as Pivot Physical Therapy, a regional outpatient physical therapy provider. In addition, he served as a business development corporation board member of Muzinich Capital LLC and a broker-dealer affiliated with Muzinich & Co., Inc., a global institutional asset manager specializing in corporate credit from 2016 to 2019. Since October 2017, Mr. Floyd has served as Chairman of Busaba Restaurants, a U.K. based Thai restaurant concept for which
Muzinich is the principal debt holder. From 2009 to 2012, he was Chairman of the Board of Buffet Holdings, Inc., which, through its subsidiaries, owns and operates a chain of restaurants in the United States. Before his retirement as an executive, from 2007 to 2008, he was Chairman and Chief Executive Officer of Physiotherapy Associates, a leading provider of outpatient physical rehabilitation services. From 2006 to 2007, he was Chairman and Chief Executive Officer of Benchmark Medical, Inc., a predecessor to Physiotherapy Associates. From 2001 to 2006, he was Chairman and Chief Executive Officer of Beverly Enterprises, Inc., a leading provider of eldercare services. From 2000 to 2001, he was President and Chief Operating Officer of Beverly Enterprises, Inc. From 1996 to 1998, he was President and Chief Executive Officer of Choice Hotels International. From 1989 to 1996, he served in various executive positions within PepsiCo Inc.’s restaurant group, including, from 1995 to 1996, as Chief Operating Officer of Taco Bell Corp., and, from 1994 to 1995, as Chief Operating Officer of Kentucky Fried Chicken. Since 2012, Mr. Floyd has been a director of Korn/Ferry International (NYSE: KFY), a major executive recruiting firm and talent consultancy. In addition, Mr. Floyd currently serves as a board member of Muzinich Capital LLC, a broker–dealer affiliated with Muzinich & Co., Inc., a global institutional asset manager specializing in corporate credit (since 2016), and as a board member of Pivot Physical Therapy, a regional outpatient physical therapy provider (since 2012). Mr. Floyd holds a bachelor’sbachelor's degree from the University of Pennsylvania, and an MBA from the Wharton School of the University of Pennsylvania, where, since 2006, he has served as a member of the Board of Overseers of the University of Pennsylvania School of Nursing. Because of his 30-plus years of experience in marketing, management, and operations, as a director, executive, and senior manager in the service industry, with a particular focus on food service, Mr. Floyd is well-qualified to serve on our Board.
Dean C. Kehler
Carol (“Lili”) Lynton has been a director since 2005. In 1998, he co-founded Trimaran Fund, one of our principal investors, where he is a Managing Partner, and serves as a Manager of Trimaran Fund II, positions he has held since 1998. Mr. Kehler is also currently the Co-Chairman and Chief Executive Officer of GX Acquisition Corp., a position he has held since August 2018. From 1995 to 2000, Mr. Kehler held senior positions at CIBC, including Vice Chairman of CIBC World Markets Corp. Mr. Kehler currently serves on the Boards of Directors of Portman Ridge Finance Corporation (formerly KCAP Financial, Inc.), and Security First Corp., of which he is Vice Chairman. He also serves as a Member of the Board of Overseers of the University of Pennsylvania School of Nursing, and formerly served as its Chairman. Within the last five years, he has served a director of Inviva Inc. and Graphene Frontiers, LLC. He holds a bachelor's degree from the Wharton School of the University of Pennsylvania. Because of his strong background in banking and finance, his many years of experience overseeing this and other corporations, and his knowledge of management and strategy, Mr. Kehler is well-qualified to serve on our Board.
Carol (“Lili”) Lynton has been a director since 2016. In December 2019, Ms. Lynton became a director of Gaming & Leisure Properties, Inc., a gaming-focused real estate investment trust, and in September 2019, became a trustee and Chair of the Audit Committee of CIM RACR, an SEC registered interval fund. Since 1992, Ms. Lynton has been an operating partner for The Dinex Group, which operates Daniel Boulud branded restaurants, and which she co-founded. Additionally, sinceFrom 2012 to 2019, Ms. Lynton has been aserved as director and executive officer forof PR NYC, LLC, a restaurant owner and operator based in New York City. Furthermore,Also, since 1987, Ms. Lynton has served as the chief investment officer of HD American Trust, a family investment office. In 1990, Ms. Lynton co-founded Telebank, an internet banking pioneer sold to E*Trade in 1999. From 1987 to 1990, Ms. Lynton was an investment analyst at Sanford C. Bernstein. From 1983 to 1985, Ms. Lynton was an M&A analyst at Lehman Brothers. Ms. Lynton is an advisory board member for The Hamilton Project; a member of the boards of trustees for East Harlem Scholars Academy, East Harlem Scholars Academy II, and East Harlem Tutorial Program; a board member for The Bronx Defenders;Bail Project; and a board member for the New York City Hospitality Alliance. From 2009 to 2011, Ms. Lynton was a senior vice president with the New York City Investment Fund. Ms. Lynton also holds positions at other private or closely-held organizations, including Lynton Asset LP, HDA 2015 Trust, and the Lynton Foundation. Ms. Lynton holds a bachelor’s degree from Harvard College and an MBA from Harvard Business School. Ms. Lynton is well-qualified to serve on our Board on account of her extensive experience as a restaurant industry executive and investor. John M. Roth has been a director since 2007. He has been with Freeman Spogli & Co. (collectively with certain funds managed by it, “Freeman Spogli,") one of our principal investors, since 1988, and has been a General Partner there since 1993, where he now serves as Chief Executive Officer, a position he has held since 2016. From 1984 to 1988, Mr. Roth was employed by Kidder, Peabody & Co. Incorporated in the Mergers and Acquisitions Group. Mr. Roth has served on the board of directors of Floor & Decor Holdings, Inc. since 2010. From 2005 to 2017, he served on the board of directors of hhgregg, Inc. Mr. Roth received an MBA and a bachelor’s degree from the Wharton School of the University of Pennsylvania. With his extensive experience as a board member of numerous retail and consumer businesses and his experience and insights into strategic expansion opportunities, capital markets, and capitalization strategies, Mr. Roth is well-qualified to serve on our Board.
As stated above, Michael G. Maselli, chairmanChairman and director, and Dean C. Kehler and John M. Roth, directors, are a managing director of Trimaran, a managing partner of Trimaran, and a general partner and the CEOChief Executive Officer of Freeman Spogli, respectively. As described below, our largest stockholder is Trimaran Pollo Partners, L.L.C., ("LLC") and its members include affiliates of Trimaran and Freeman Spogli. Mr. Maselli, Mr. Kehler, and Mr. Roth were selected as directors of the Company pursuant to arrangements among those individuals, the stockholder,LLC., and Trimaran and Freeman Spogli, and pursuant to the limited liability company operating agreement of the stockholder,LLC, as described below under “LLC Agreement”.Agreement.”
PROPOSAL 2: RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee of our Board has appointed BDO USA, LLP, as our independent registered public accounting firm for 2020. BDO USA, LLP has served in this capacity since 2011.
We ask that you ratify this appointment. SEC and Nasdaq rules require our Audit Committee to engage, retain, and supervise our independent registered public accounting firm. However, while stockholder ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm is not required by our Bylaws or otherwise, we think that stockholder ratification of our independent registered public accounting firm is important to stockholders and is a matter of good corporate governance. If the stockholders fail to ratify the appointment, the Audit Committee may reconsider whether or not to retain BDO USA, LLP. Even if the appointment is ratified, the Audit Committee, in its discretion, may appoint a different independent registered public accounting firm at any time during the year if the Audit Committee determines that such a change would be in the best interests of the Company and our stockholders.
We expect that auditor representatives will be present at the meeting, that they will have the opportunity to make a statement if they so desire, and that they will be available to respond to appropriate questions.
Pursuant to our Audit Committee’s charter, our Audit Committee is responsible for overseeing our accounting and financial reporting processes, and for overseeing our audits. The Audit Committee e is responsible for appointing, retaining, determining the compensation of, evaluating, and terminating our independent registered public accounting firm. The Audit Committee is also responsible for establishing and maintaining guidelines for the retention of our independent registered public accounting firm for any non-audit services and for the fees for those services, and for determining procedures to approve audit and non-audit services in advance. The Audit Committee is further responsible for pre-approving any audit or non-audit services provided to us by our independent registered public accounting firm in accordance with such pre-approval policy and as required by applicable laws and listing standards.
The Audit Committee has pre-approved all audit and permitted non-audit services provided by BDO USA, LLP.
The following sets forth fees billed by BDO USA, LLP, for the audit of our annual financial statements and other services rendered for the periods presented:
|
| | | | | | |
| ($) | | Fiscal 2019 | | Fiscal 2018 |
| Audit Fees (1) | | $627,588 | | $455,284 |
| Audit-Related Fees (2) | | $16,438 | | $14,142 |
| Tax Fees | | — |
| | — |
|
| All Other Fees | | — |
| | — |
|
| Total | | $644,026 | | $469,426 |
| |
| (1) | Audits of our annual financial statements, reviews of quarterly financial statements, and services that are normally provided by independent accountants in connection with statutory and regulatory filings or engagements, including reviews of SEC filings and our Franchise Disclosure Document. |
| |
| (2) | Audit-related fees consist of the audit of our 401(k) plan. |
You may vote “FOR” or “AGAINST” or “ABSTAIN” on the ratification of the appointment of BDO USA, LLP as our independent registered public accounting firm for 2020. This proposal shall be approved if it receives the affirmative vote of a majority of the shares of common stock present in person or represented at the annual meeting and entitled to vote on this proposal.
The Board recommends that you vote “FOR” the ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for 2020.
Audit Committee Report
The Audit Committee has reviewed and discussed our fiscal 2019 audited financial statements with management.
The Audit Committee has discussed with our independent registered public accounting firm the matters required to be discussed by the applicable requirements of the Public Company Accounting Oversight Board and the SEC.
The Audit Committee has received the written disclosures and the letter from the independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with the independent registered public accounting firm the independent accountant’s independence.
Based on these reviews and discussions, the Audit Committee recommended to the Board that our audited financial statements be included in our annual report on Form 10-K for 2019 for filing with the SEC.
Respectfully submitted,
William R. Floyd
Samuel N. Borgese
Mark Buller
The foregoing report of the Audit Committee is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, whether made before or after the date of this proxy statement and irrespective of any general incorporation language in such filing.
PROPOSAL 3:ADVISORY VOTE TO APPROVE COMPENSATION OF NAMED EXECUTIVE OFFICERS
The Board believes that the Company’s long-term success depends in large measure on the talents of its employees. The Company's compensation system plays a significant role in its ability to attract, retain and motivate the highest quality workforce. The Board believes that the Company’s current compensation program directly links executive compensation to performance, aligning the interests of the Company's executive officers with those of its stockholders. The Board endorses the Company’s executive compensation program and encourages stockholders to review the Compensation, Discussion, and Analysis, tables and other disclosures included under the Section entitled “Compensation, Discussion, and Analysis” and "Executive Compensation Tables" of this proxy statement.
Section 14A of the Exchange Act requires that the Company periodically submit to the stockholder for an advisory vote a resolution to approve the compensation of its named executive officers ("NEOs") as described in this proxy statement, commonly referred to as a "say-on-pay" resolution.
The Board recommends that the stockholders vote “FOR” the following resolution:
“RESOLVED, that the Company’s stockholders approve, on an advisory basis, the compensation of the Named Executive Officers, as disclosed in the Company’s proxy statement for the 2020 annual meeting pursuant to the compensation disclosure rules of the United States Securities and Exchange Commission (which disclosure includes the Compensation Discussion and Analysis, the Summary Compensation Table and the other related tables and disclosures).”
You may vote “FOR” or “AGAINST” or “ABSTAIN” on the approval, on an advisory (non-binding) basis, of the compensation of our NEOs. This proposal shall be approved if it receives the affirmative vote of a majority of the shares of common stock present in person or represented at the annual meeting and entitled to vote on this proposal. This is a non-binding advisory vote and, therefore, its outcome does not mandate any particular action. However, our Board and our Compensation Committee will carefully consider the outcome of this vote when making future decisions regarding the compensation of our NEOs. In addition, assuming our stockholders vote for “ONE YEAR” in Proposal 4 below, we expect to hold our next advisory vote to approve the compensation of our named executive officers at the 2021 annual meeting of stockholders.
The Board recommends a vote "FOR" the approval, on an advisory (non-binding) basis,
of the compensation of our named executive officers.
PROPOSAL 4:ADVISORY VOTE ON THE FREQUENCY OF FUTURE ADVISORY VOTES TO APPROVE THE COMPENSATION OF NAMED EXECUTIVE OFFICERS
In addition to the say-on-pay vote, we are asking you to cast an advisory vote as required by Section 14A of the Exchange Act on whether future advisory votes to approve our named executive officer compensation should occur every year, every two years or every three years.
Accordingly, the following resolution will be submitted to the stockholders at the annual meeting:
RESOLVED, that the Company hold an advisory vote to approve the compensation of the Company’s named executive officers as disclosed pursuant to Item 402 of Regulation S-K with a frequency of once every one, two, or three year(s), with the frequency, if any, that receives the affirmative vote of a majority of the shares present in person or by proxy and entitled to vote at the annual meeting and on this proposal being the resolution adopted by the stockholders.
While the Company’s executive compensation programs are designed to promote a long-term connection between pay and performance, the Board recognizes that executive compensation disclosures are made annually. Holding an annual advisory vote on our named executive officer compensation provides the Company with more direct and immediate feedback on our compensation disclosures. However, stockholders should note that because the advisory vote on named executive officer compensation occurs well after the beginning of the compensation year, and because the different elements of our executive compensation programs are designed to operate in an integrated manner and to complement one another, in many cases it may not be appropriate or feasible to change our named executive officer compensation programs in consideration of any one year’s advisory vote on named executive officer compensation by the time of the following year’s annual meeting of stockholders. We believe that an annual advisory vote on named executive officer compensation is consistent with our practice of seeking input and engaging in dialogue with our stockholders on corporate governance matters and our executive compensation philosophy, policies and practices.
You may vote “ONE YEAR”, “TWO YEARS,” or “THREE YEARS” or you may “ABSTAIN” from voting on this proposal. This proposal shall be approved if it receives the affirmative vote of a majority of the shares of common stock present in person or represented at the annual meeting and entitled to vote on this proposal. If no frequency option receives the affirmative vote of holders of a majority of the shares of common stock present in person or represented at the annual meeting and entitled to vote on this proposal, our Board will consider the option receiving the highest number of affirmative votes as the preferred frequency option of our stockholders. This advisory vote on the frequency of future advisory votes on named executive officer compensation is non-binding on the Board. Although non-binding, the Board and the Compensation Committee will carefully review the voting results. Notwithstanding the Board’s recommendation and the outcome of the stockholder vote, the Board may in the future decide to conduct advisory votes on a more or less frequent basis if circumstances were to warrant it.
The Board recommends you vote “ONE YEAR” for the frequency of future advisory votes on the compensation of our named executive officers
DIRECTOR COMPENSATION
All non-employee directors received both restricted shares and cash compensation. Any directors who are also our employees do not receive compensation for their service as directors. The following table provides compensation information for fiscal 2019 for each of our non-employee directors.
|
| | | | | | |
| Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($) (1) (2) | | Total ($) |
| Michael G. Maselli | | $60,000 | | $60,011 | | $120,011 |
| Douglas J. Babb | | $113,000 | | $60,011 | | $173,011 |
| Samuel N. Borgese | | $70,000 | | $60,011 | | $130,011 |
| Mark Buller | | $72,500 | | $60,011 | | $132,511 |
| William R. Floyd | | $123,000 | | $60,011 | | $183,011 |
| Dean C. Kehler | | $60,000 | | $60,011 | | $120,011 |
| Carol ("Lili") Lynton | | $113,000 | | $60,011 | | $173,011 |
| John M. Roth | | $65,000 | | $60,011 | | $125,011 |
| |
| (1) | Represents the grant date fair value of restricted shares granted in 2019, computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (FASB ASC Topic 718). Please see Note 11 to our consolidated financial statements in our Annual Report for assumptions made in the valuation of the equity awards. |
| |
| (2) | As of December 25, 2019, Messrs. Maselli, Babb, Borgese, Buller, Floyd, Kehler, and Roth and Ms. Lynton had 8,756, 8,756, 9,951, 9,951, 9,951, 8,756, 9,620, and 9,951 unvested restricted shares in the aggregate outstanding, respectively. |
Each non-employee director received an annual grant of 5,232 restricted shares, calculated by dividing the closing price of our stock on May 7, 2019 by $60,000, [rounded up to the nearest whole share]. These grants vest ratably based on continued service over three years, and accelerate and fully vest upon a termination of the director’s service by the Company without “cause” or due to the director’s death or “disability”
In addition, each of our non-employee directors received an annual cash retainer fee of $60,000 in 2019, which was paid quarterly. Also, we provided the following annual fees for non-employee directors for committee service, which were paid quarterly:
Audit Committee chairman: $10,000
Compensation Committee chairman: $7,500
Nominating and Corporate Governance Committee chairman: $5,000
All other committee members: $5,000
In addition, on October 3, 2017, the Board appointed a Special Litigation Committee ("SLC") comprised of William R. ("Bill") Floyd and Carol ("Lili") Lynton to investigate and evaluate the allegations and issues raised in derivative litigation brought by a Company stockholder captioned Diep v. Sather, C.A. No. 12760-VCL , pending in the Court of Chancery of the State of Delaware as well as in a demand letter dated September 26, 2017, by purported Company stockholder Fred St. John demanding that the Board institute litigation on behalf of the Company relating to similar issues as those in the litigation. On January 11, 2018, Douglas J. Babb was also appointed to serve on the SLC.
The independent directors who serve on the SLC are compensated $4,000 per month for those months in which the SLC is working in earnest and its members are fully engaged. In 2019, each member of the SLC received $48,000 in compensation for service on that committee.
GOVERNANCE
OF THE COMPANY
Board Composition
and Election of DirectorsOur certificate of incorporation provides that the number of directors on our Board is to be fixed exclusively pursuant to Board resolution. The exact size of our Board shall be determined from time to time by the Board.
Our Board is currently fixed at nine directors.
Our Board is divided into three classes, with each director serving a three-year term and with one class to be elected at each year’s annual meeting of stockholders.
Stephen J. Sather, Michael G. Maselli, and Carol (“Lili”) Lynton are Class I directors serving until the 2018 annual meeting. Dean C. Kehler and William R. Floyd are Class II directors serving until the 2019 annual meeting. John M. Roth, Samuel N. Borgese, and Mark Buller are Class III directors serving until the 2017 annual meeting and standing to be re-elected until the 2020 annual meeting.
As disclosed in a Current Report on Form 8-K dated March 9, 2017, on March 7, 2017, Stephen J. Sather, our President and Chief Executive Officer, and a member of our Board, informed our Board that as part of succession planning he intends to retire from the Company on or before December 31, 2017, subject to the Company hiring his replacement. He also intends to retire from the Board contemporaneously with his retirement as President and Chief Executive Officer and, accordingly, does not intend to stand for re-election in 2018.
As disclosed in a Current Report on Form 8-K dated March 31, 2017, on March 29, 2017, Douglas K. Ammerman, a Class II director, resigned from the Board.
Samuel N. Borgese, Mark Buller,
and John M. Roth are Class III directors whose current terms expire at the annual meeting and who were nominated for re-election by our Board to serve for a three-year term expiring at the 2023 annual meeting of stockholders. Bernard Acoca, Carol (“Lili”) Lynton, and Michael G. Maselli are Class I directors whose terms expire at the 2021 annual meeting of stockholders. Douglas J. Babb, William R. Floyd, and
Carol (“Lili”) Lynton currently qualify as independentDean C. Kehler are Class II directors
under NASDAQ rules. Stephen J. Sather is our only employee director. In addition, Douglas K. Ammerman, who resigned fromwhose terms will expire at the
Board on March 29, 2017, qualified as an independent director under NASDAQ rules.2022 annual meeting of stockholders.
We are a party to a stockholders agreement with Trimaran Pollo Partners, L.L.C. (“LLC”),the LLC, whose members are investment funds managed by affiliates of Trimaran Capital Partners (with its predecessors and affiliates and certain funds managed by it, collectively, “Trimaran”) and Freeman Spogli, & Co. (collectively with certain funds managed by it, “Freeman Spogli”), certain members of our management, and other third-party investors. The stockholders agreement provides certain rights to LLC, including registration rights for common stock owned by LLC. The limited liability company operating agreement of LLC also provides rights to Trimaran and Freeman Spogli, including certain registration rights.Our certificate of incorporation provides that directors may only be removed See
“Certain Relationships and Related Party Transactions - Stockholders Agreement” for cause by a majorityadditional information. Board Leadership Structure
Two individuals serve as our Chairman and our Chief Executive Officer. Mr. Acoca currently serves as our President and Chief Executive Officer and Mr. Maselli currently serves as the Chairman of the voting powerBoard. We do not have a policy requiring the separation of these positions. Rather, as our corporate governance guidelines explain, the Board is free to choose its Chairman in any way that it deems best for the Company at any given point in time. Under the circumstances, we currently believe that this separation is appropriate given that it allows our Chief Executive Officer to focus on operational and day-to-day issues and our Chairman to focus on oversight and long-term strategy. Given our growing business, and the daily operational demands and complexities thereof, we believe that this division of labor helps our Chief Executive Officer’s focus and productivity. In parallel, given the growing complexity of our then-outstanding stock voting asbusiness and the increased burdens on our Board, we believe that this division of labor helps our Chairman and our Board to remain focused on their respective core responsibilities and competencies, and provides a single classgreater role for non-management director participation than would be the case if the Chairman and Chief Executive Officer positions were combined.
Among others, the Chairman’s duties and responsibilities include:
presiding at a meeting of stockholders. However, if LLC beneficially owns more than 40% of our common stock, directors may be removed with or without cause, by a majority of the voting power of our outstanding stock voting as a single class. The certificate also provides that if a director is removed or if a vacancy occurs due to either an increase in the sizemeetings of the Board and stockholders;
facilitating communication between the Board and the Company’s management;
directing oversight of the Company's performance;
formulating and approving long-term strategy;
coordinating agendas and schedules for Board meetings, information flow to the Board and other matters pertinent to the Company and the Board; and
being available for consultation and communication with major stockholders as appropriate.
Code of Business Conduct and Ethics
The Board has adopted a code of business conduct and ethics that applies to our directors, executive officers, and employees, available at http://investor.elpolloloco.com/corporate-governance. We expect that any amendments to the code, or dueany waivers thereto granted to death, resignation, disqualification,a director or other cause, the vacancyexecutive officer requiring disclosure under applicable SEC or Nasdaq rules, will be filled solelyposted on our website.
Corporate Governance Guidelines
The Board has adopted corporate governance guidelines to assist it in the exercise of its fiduciary duties and responsibilities to us and to promote the effective functioning of the Board and its committees. Our corporate governance guidelines cover, among other topics:
director independence and qualification requirements;
board leadership and executive sessions;
limitations on other board and committee service;
director responsibilities;
director compensation;
director orientation and continuing education;
board and committee resources, including access to officers and employees;
succession planning; and
board and committee self-evaluations.
Our corporate governance guidelines are available on our website, at http://investor.elpolloloco.com/corporate-governance. We expect that any amendments to the guidelines will be disclosed on our website.
Role in Risk Oversight
The Board oversees a company-wide approach to risk management that is carried out by management, which is designed to enhance stockholder value, support the achievement of strategic objectives and improve long-term organizational performance. The Board determines the appropriate risk levels for the Company generally, assesses the specific risks faced by the affirmative voteCompany, and reviews the steps taken by management to manage those risks. The Board’s involvement in setting the Company’s business strategy facilitates these assessments and reviews, culminating in the development of a majoritystrategy that reflects both the Board’s and management’s consensus as to appropriate levels of risk and the appropriate measures to manage those risks. Pursuant to this structure, risk is assessed throughout the enterprise, focusing on risks arising out of various aspects of the remaining directors thenCompany’s strategy and the implementation of that strategy, including financial, legal/compliance, operational/strategic, health and safety, and compensation risks. The Board also considers risk when evaluating proposed transactions and other matters presented to the Board, including acquisitions and financial matters.
While the Board maintains ultimate oversight responsibility for the risk management process, its committees oversee risk in
office, even if less than a quorum remains.specific areas. Our Audit Committee oversees management of risks involving accounting and financial reporting, including internal controls. In addition, the Audit Committee oversees the Company’s compliance program with respect to legal and regulatory requirements, including the Company’s codes of conduct and policies and procedures for monitoring compliance. The Audit Committee also receives regular reports on the Company’s cybersecurity compliance and risk management practices.
The Compensation Committee periodically reviews compensation practices and policies to determine whether they encourage excessive risk taking, including an annual review of management’s assessment of the risk associated with the Company’s compensation programs covering its employees, including executives. The Compensation Committee also has responsibilities regarding risk related to succession planning. Our Nominating and Corporate Governance Committee oversees management of risks associated with corporate governance and conflicts of interest. At the timeBoard’s instruction, management regularly reports on applicable risks to the Board or to a relevant committee, with additional review or reporting on risks conducted as needed or as requested by the Board and by its committees.
Our Board believes that the process it has established to administer the Board’s risk oversight function would be effective under a variety of leadership frameworks and, therefore, does not have a material effect on our initial public offering, we were majority-owned by LLC, classifying us as a controlled company under NASDAQ rules. NASDAQ rules exempt controlled companies from rules that require (i) the majoritychoice of the membersBoard’s leadership structure described above under “Board Leadership Structure.”
Director Independence
Under the applicable listing requirements and rules of their boards ofNasdaq, independent directors to be independent and (ii) compensation committees, and nominating and corporate governance committees, to be comprised entirely of independent directors.
On May 19, 2015, LLC sold enough stock to drop below 50% but remain above 40% ownership of our common stock. Accordingly, we are no longer a controlled company under NASDAQ rules. A company that has ceased to be a controlled company is permitted to phase in its independent nomination and compensation committees and majority independent board on the same schedule as companies listing in conjunction with their initial public offerings. Accordingly, (i) at the time of the sale, one member of each committee was required to be independent, (ii) within 90 days of the sale (i.e., by August 17, 2015), a majority of each committee was required to be independent, (iii) within one year of the sale (i.e., by May 19, 2016), all committee members were required to be independent, and (iv) within one year of the sale,must comprise a majority of our Board, was requiredsubject to certain specified exceptions. In addition, applicable Nasdaq rules require that, subject to specified exceptions, each member of our Audit, Compensation and Nominating and Corporate Governance Committees must be independent. Withindependent within the election tomeaning of applicable Nasdaq rules. Audit Committee members must also satisfy the independence criteria set forth in Rule 10A-3 under the Securities Exchange Act of 1934 (the “Exchange Act”). The Board has reviewed the independence of our directors under the applicable rules of Nasdaq. Based on this review, the Board determined that each of William R.Messrs. Babb, Borgese, Buller, Floyd, and Carol (“Lili”) Lynton on April 1, 2016, we completed this phase-in.
Our controlled company status did not modify the independence requirements for our audit committee, and we comply with the requirements of the Sarbanes–Oxley Act and the NASDAQ by having an audit committee comprised entirely of independent directors.
Former director Douglas K. Ammerman qualified as an independent director under NASDAQ rules. Additionally, he was a member of the compensation committee, and was the chairman of the audit committee and its designated audit committee financial expert. Accordingly, in order to maintain compliance with NASDAQ rules requiring the audit committee to have at least three members, and for all members to be independent, following Mr. Ammerman’s resignation from the Board on March 29, 2017, on March 31, 2017, the Board appointed Mr. Floyd to the audit committee and designated him as committee chairman. The Board also designated Mr. Floyd as the audit committee financial expert.
Because of Mr. Ammerman’s resignation, currently, four of the Company’s eight directors qualify as independent. Therefore, as disclosed in a Current Report on Form 8-K dated April 5, 2017, the Company is relying on the NASDAQ’s cure period under NASDAQ Stock Market Rule 5605(b) to regain compliance with the NASDAQ’s rule requiring a majority-independent board. The Company concluded that this cure period is applicable because, per the terms of the rule, the Company’s noncompliance relates to a single Board vacancy. Per the terms of the rule and correspondence with the NASDAQ as disclosed in the aforesaid Current Report, the Company expects the cure period to run through September 25, 2017.
All audit, compensation, and nominating and corporate governance committee members are independent. Prior to the election of Mr. FloydRoth and Ms. Lynton are independent under the applicable listing standards of Nasdaq. In making this determination, our Board considered its relationship and other related transactions with each of these non-employee directors (as more fully described in
"Certain Relationships and Related Transactions" pages 40 to 42 herein) and all other facts and circumstances our Board deemed relevant in determining their independence, including the Board on April 1, 2016, and their appointments to the nominating and corporate governance committee, and the compensation committee, respectively, Dean C. Kehler and Michael G. Maselli served on those respective committees without qualifying asbeneficial ownership of our capital stock held by each non-employee director. As required under applicable Nasdaq rules, we anticipate that our independent directors
under NASDAQ rules, due to the controlled company phase-in discussed above.will meet in regularly scheduled executive sessions at which only independent directors are present. Our independent directors held executive sessions four times in 2019 in conjunction with our Board meetings.
Our Board has established standing committees in connection with the discharge of its responsibilities. These committees include an Audit Committee (established in accordance with section 3(a)(58)(A) of the Exchange Act), a Compensation Committee, and a Nominating and Corporate Governance Committee. All Audit, Compensation, and Nominating and Corporate Governance Committee members are independent. Our Board has adopted written charters for each of these committees, current copies of which are available at http://investor.elpolloloco.com/corporate-governance.cfm.corporate-governance. Our Board may establish other committees as it deems necessary or appropriate from time to time. Our Audit Committee is
currently comprised of William R. Floyd (chairman), Samuel N. Borgese, and Mark Buller. The committee met
5six times in
2016.2019. The functions of the committee, among other things, include:
| ● | reviewing our financial statements, including any significant financial items and changes in accounting policies, with our senior management and our independent registered public accounting firm; |
| ● | reviewing our financial risk and control procedures, our compliance programs, and significant tax, legal, and regulatory matters; |
| ● | appointing and determining the compensation for our independent auditors; |
| ● | establishing procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, and auditing matters; and |
| ● | reviewing and overseeing our independent registered public accounting firm. |
reviewing our financial statements, including any significant financial items and changes in accounting policies, with our senior management and our independent registered public accounting firm;
reviewing our financial risk and control procedures, our compliance programs, and significant tax, legal, and regulatory matters;
appointing and determining the compensation for our independent auditors;
establishing procedures for the receipt, retention, and treatment of complaints regarding accounting, internal accounting controls, and auditing matters; and
reviewing and overseeing our independent registered public accounting firm.
Our Board has determined that
William R.Mr. Floyd qualifies as an
“audit committee“Audit Committee financial expert” as such term is defined in Item 407(d)(5) of Regulation
S-K, including due to his past experience as a chief executive officer, a role that includes supervising chief financial officers, and his experience as a member of the audit committee of Korn/Ferry International. Accordingly, the Board has determined that the Company has at least one audit committee financial expert serving on its Audit Committee.S-K.
Additionally, our Board has determined that
William R.each of Messrs. Floyd,
isBorgese, and Buller are independent as independence for
audit committeeAudit Committee members is defined under
NASDAQNasdaq listing standards, and under Rule 10A-3 of the Exchange Act.
Our Compensation Committee is
currently comprised of Mark Buller (chairman)
, Douglas J. Babb, and Carol (“Lili”) Lynton. The committee met
3seven times in
2016.2019. The functions of the committee, among other things, include:
| ● | reviewing and approving corporate goals and objectives relevant to the compensation of certain of our key executives, evaluating the performance of these executives in light of those goals and objectives, and determining the compensation of these executives based on that evaluation; |
| ● | reviewing and approving executive officer and director compensation; |
| �� | reviewing and approving overall compensation programs; and |
| ● | administering our incentive compensation and equity-based plans. |
overseeing the Company’s overall compensation philosophy, policies and programs, and assessing whether the Company’s compensation philosophy establishes appropriate incentives for management and employees;
reviewing and approving corporate goals and objectives relevant to the compensation of certain of our key executives, evaluating the performance of these executives in light of those goals and objectives, and determining the compensation of these executives based on that evaluation;
reviewing and approving director compensation for service on the Board and Committees;
approving the terms and grant of equity awards;
reviewing and approving overall compensation programs;
reviewing and recommending to the Board employment and severance arrangements for executive officers, including employment agreements and change-in-control provisions, plans or agreements;
administering our incentive compensation and equity-based plans
overseeing the assessment of risks related to the Company’s compensation policies and programs; and
annually reviewing an assessment of any potential conflicts of interest raised by the work of any compensation consultants.
In order to comply with certain SEC
and tax law requirements, the committee (or a subcommittee thereof) must consist of at least two directors that qualify as “non-employee directors” for the purposes of Rule 16b-3 under the Exchange
Act and satisfy the requirements of an “outside director” for purposes of section 162(m) of the Internal Revenue Code.Act. The Board has determined that
MarkMessrs. Buller and
Carol (“Lili”)Babb, and Ms. Lynton each
qualifyqualifies as
a “non-employee
directors” and “outside directors.director.”
Our processes and procedures for considering and determining executive and director compensation begin with the compensation guidelines in our corporate governance guidelines, which are developed and reviewed by the Nominating and Corporate Governance Committee, and approved by the Board. These guidelines state that directors who are also Company officers are not to receive additional compensation for director service, and that compensation for non-employee directors should be competitive and encourage stock ownership through payment of a portion of compensation in the form of stock, options, or similar securities. Our guidelines also task the Compensation Committee with periodically reviewing the level and form of director compensation, including compared to companies of similar size, industry, and complexity, with changes to director compensation to be proposed to the full Board for consideration.
In accordance with the principles set forth in the guidelines, the committee’s charter tasks it:
| ● | To review at least annually the goals and objectives of our executive compensation plans, and amend, or recommend that the Board amend, these goals and objectives if the committee deems it appropriate. |
| ● | To review at least annually our executive compensation plans in light of our goals and objectives with respect to such plans, and, if the committee deems it appropriate, adopt, or recommend that the Board adopt, new or amended executive compensation plans. |
| ● | To evaluate annually the performance of the Chief Executive Officer in light of the goals and objectives of our executive compensation plans, and determine and approve the Chief Executive Officer’s compensation level based on this evaluation. In determining the long-term incentive component of the Chief Executive Officer’s compensation, the committee shall consider factors as it determines relevant, which may include, for example, the Company’s performance and relative stockholder return, the value of similar awards to chief executive officers of comparable companies, and the awards given to the Chief Executive Officer of the Company in past years. |
| ● | To evaluate annually the performance of the other executive officers of the Company in light of the goals and objectives of the Company’s executive compensation plans, and make recommendations to the Board with respect to the compensation of such other executive officers. To the extent that long-term incentive compensation is a component of such executive officer’s compensations, the committee shall consider all relevant factors in determining the appropriate level of such compensation, including the factors applicable with respect to the Chief Executive Officer. |
| ● | To evaluate annually the appropriate level of compensation for Board and committee service by non-employee directors. |
| ● | To review and approve any severance, change-in-control or termination arrangements to be made with any executive officer of the Company. |
| ● | To perform such duties and responsibilities as may be assigned to the Board or the committee under the terms of any executive compensation plan. |
| ● | To review perquisites or other personal benefits to the Company’s executive officers and directors and recommend any changes to the Board. |
| ● | To review and discuss with management the Company’s compensation discussion and analysis and any other compensation disclosure prepared in response to the requirements of SEC rules, and to recommend to the Board based on that review and discussion that the compensation discussion and analysis and any other compensation disclosure be included as applicable in any annual proxy statement, annual report on Form 10-K, information statement, registration statement, or similar document. |
| ● | To prepare the Compensation Committee Report in accordance with the rules and regulations of the SEC for inclusion in our annual proxy statement or annual report on Form 10-K. |
| ● | To perform such other functions as assigned by law, by our certificate of incorporation or bylaws, or by the Board. |
The charter further elaborates that while the Chief Executive Officer may make, and the committee may consider, recommendations to the committee regarding our compensation and employee benefit plans and practices, including our executive compensation plans, our incentive-compensation and equity-based plans with respect to executive officers other than the Chief Executive Officer, and our director compensation arrangements, the Chief Executive Officer may not be present during voting or deliberations on his or her compensation.
Moreover, regarding delegation of authority, under its charter, the committee may form subcommittees for any purpose that the committee deems appropriate, and may delegate to such subcommittees such power and authority as the committee deems appropriate; provided, however, that the committee shall not delegate to a subcommittee any power or authority required by any law, regulation, or listing standard to be exercised by the committee as a whole.
In particular, the committee may delegate the approval of award grants and other transactions and responsibilities regarding the administration of compensatory programs to a subcommittee consisting solely of members of the committee who are (i) “non-employee directors” for the purposes of Rule 16b-3 under the Exchange Act, and (ii) “outside directors” for
the purposes of section 162(m) of the Internal Revenue Code; provided, however, that no such subcommittee shall consist of fewer than two members.
In addition, the committee may delegate to one or more of our officers the authority to make grants and awards of stock rights or options to any non-section 16 officer of the Company under such of our incentive-compensation or other equity-based plans as the committee deems appropriate and in accordance with the terms of such plans.
Under its charter, our committee may conduct or authorize investigations into or studies of matters within its scope of responsibilities, and may retain or obtain the advice of a compensation consultant, legal counsel, or other advisor in its sole discretion. The committee is directly responsible for the appointment, compensation, and oversight of the work of any compensation consultant, legal counsel, or other advisor that it retains. The Company bears all expenses. The committee may select, or receive advice from, a compensation consultant, legal counsel, or other advisor to the committee, other than in-house legal counsel, only after conducting an assessment of, and determining, the advisor’s independence, including whether the advisor’s work has raised any questions of independence or conflicts of interest, taking into consideration the Exchange Act, the factors set forth in the rules of the
NASDAQ,Nasdaq, and any other factors that the committee deems relevant.
In each of 2014, 2015, and 2016,2019, the committee engaged Semler Brossy Consulting Group, LLC (the “compensation consultant”), to advise the committee on an ongoing basis as an independent compensation consultant. The compensation consultant reports directly to the committee. While conducting assignments, the compensation consultant interacts with our management when appropriate. Specifically, our Senior Vice President, Chief People Officer and Senior Vice President, Chief Legal Officer, worked with the compensation consultant to provide information regarding the Company, and its executive compensation policies and practices. In addition, the compensation consultant may seek feedback from the committee chairman and other Board members regarding its work before presenting study results or recommendations to the committee. The compensation consultant may be invited to attend committee meetings. The committee determines when to hire, terminate, or replace the compensation consultant, and the projects to be
performed by the compensation consultant. In
2016,2019, as in prior years, the committee
again requested the compensation consultant to assist in
developing equityreview of Board compensation
guidelines for its C-suite executives and
vice presidents, taking into account competitive pay benchmarks, pool availabilityexecutive compensation review and
limits, current equity ownership, and other grant considerations.Inbenchmarking against the future, the committee may engageCompany's peers. Except as described in this paragraph, the compensation consultant did not perform any other services to the Company or a different compensation consultant, to review our seniorits management and independent director compensation programs.
during fiscal 2019.
After review and consultation with the compensation consultant, the committee determined that there was no conflict of interest resulting from retaining the consultant in fiscal
2016.2019. The committee is retaining the compensation consultant to advise the committee on certain compensation matters in
2017,2020, but under its charter the committee has the discretion to retain, or not to retain, compensation consultants and other advisors in its sole discretion.
Compensation Committee Interlocks and Insider Participation
During 2019, Compensation Committee members included Douglas J. Babb, Mark Buller, and Carol (“Lili”) Lynton. None of these individuals during that year or otherwise formerly was our officer or employee or had any relationship requiring disclosure under Item 404 of Regulation S-K. None of our executive officers serves or has served as a member of the board of directors, compensation committee, or other board committee performing equivalent functions, of any entity that has one or more executive officers serving as one of our directors or on our Compensation Committee.
Nominating and Corporate Governance Committee Our Nominating and Corporate Governance Committee is
currently comprised of Samuel N. Borgese (chairman),
Mark Buller, and William R.
Floyd.Floyd, and John M. Roth. The committee met
2 timesonce in
2016.2019. The duties, responsibilities, and processes of the committee for identifying and evaluating nominees for director, among other things, include:
| ● | identifying, recruiting, and, if appropriate, interviewing candidates to fill positions on the Board, including persons suggested by stockholders or others; |
| ● | reviewing the backgrounds and qualifications of individuals being considered as director candidates; |
| ● | reviewing and recommending to the Board the director nominees for election by the stockholders or appointment by the Board, as the case may be, pursuant to our bylaws; |
| ● | reviewing the suitability for continued service as a director of each director when his or her term expires and when he or she has a change in status, including, but not limited to, an employment change, and to recommend whether or not the director should be re-nominated; |
| ● | recommending director nominees and Board members for committee membership; |
| ● | reviewing our corporate governance guidelines; and |
identifying, recruiting, and, if appropriate, interviewing candidates to fill positions on the Board, including persons suggested by stockholders or others;
| ● | overseeing the evaluation of the Board and its committees. |
reviewing the backgrounds and qualifications of individuals being considered as director candidates;
reviewing and recommending to the Board the director nominees for election by the stockholders or appointment by the Board, as the case may be, pursuant to our bylaws;
reviewing the suitability for continued service as a director of each director when his or her term expires and when he or she has a change in status, including, but not limited to, an employment change, and to recommend whether or not the director should be re-nominated;
recommending director nominees and Board members for committee membership;
reviewing our corporate governance guidelines; and
overseeing the evaluation of the Board and its committees.
As discussed above in the Q&A, the committee will consider director candidates recommended by stockholders. The committee does not have any specific requirements for candidates and nominees, but is tasked by its charter to consider:
| ● | Personal and professional integrity, |
| ● | Time availability in light of other commitments, |
| ● | Conflicts of interest, and |
| ● | Such other relevant factors as the committee considers appropriate in the context of the needs of the Board. |
Experience,
Skills,
Expertise,
Personal and professional integrity,
Character,
Business judgment,
Diversity,
Time availability in light of other commitments,
Dedication,
Conflicts of interest, and
Such other relevant factors as the committee considers appropriate in the context of the needs of the Board.
As a practical matter, the committee seeks candidates who contribute complimentary and relevant strengths, including diverse perspectives, diverse personal backgrounds, and diverse professional backgrounds encompassing retail, real estate, management, operations, finance, accounting, marketing, and law.
Similarly, under its corporate governance guidelines, the Board in evaluating nominees may apply all criteria it deems appropriate, including:
| ● | Whether a nominee has the experience, knowledge and skills necessary to make a meaningful contribution to the Board’s oversight of the Company’s business and affairs, |
| ● | A nominee’s reputation for honesty and ethical conduct in his or her personal and professional activities, |
| ● | A candidate’s time availability in light of other commitments, |
| ● | Potential conflicts of interest, |
| ● | Material relationships with the Company, |
| ● | Independence from the Company and its management, and |
| ● | A diversity of backgrounds and experiences. |
Whether a nominee has the experience, knowledge and skills necessary to make a meaningful contribution to the Board’s oversight of the Company’s business and affairs,
A nominee’s reputation for honesty and ethical conduct in his or her personal and professional activities,
A candidate’s time availability in light of other commitments,
Age,
Potential conflicts of interest,
Material relationships with the Company,
Independence from the Company and its management, and
A diversity of backgrounds and experiences.
As indicated, diversity in its many forms is important to the committee and to the Board in director selection as part of the holistic process of candidate and nominee evaluation. The committee’s responsibilities under its charter include (i) reviewing annually with the Board the composition of the Board as a whole and recommending, if necessary, measures to be taken so that the Board reflects the appropriate balance of knowledge, experience, skills, expertise, and diversity required for the Board as a whole, and (ii) annually evaluating the committee’s performance. Similarly, the Board is tasked under its corporate governance guidelines with conducting annual self-assessments of the performance of the Board and of each of its committees, the results of which will be discussed with the full Board and with each committee, including reviews of any areas where Board members or management believe that the Board can better contribute to the Company. The Board will use the results to determine the characteristics and skills required of prospective Board members and for committee assignments. Therefore, at both the committee and at the Board level, feedback mechanisms help assessment of diversity, recruitment, and other policies.
Board Leadership Structure and Role in Risk Oversight
The Board oversees a company-wide approach to risk management that is carried out by management. The Board determines the appropriate risk levels for us generally, assesses the specific risks faced by us, and reviews the steps taken by management to manage those risks.
While the Board maintains ultimate oversight responsibility for the risk management process, its committees oversee risk in specific areas. Our audit committee oversees management of risks involving accounting and financial reporting. Our compensation committee oversees management of risks related to executive compensation plans and arrangements, and the incentives created by the compensation awards that it administers, as well as having responsibilities regarding succession planning. Our nominating and corporate governance committee oversees management of risks associated with corporate governance and conflicts of interest. At the Board’s instruction, management regularly reports on applicable risks to the Board or to a relevant committee, with additional review or reporting on risks conducted as needed or as requested by the Board and by its committees.
Two individuals serve as our Chairman and our Chief Executive Officer. Our certificate of incorporation and bylaws do not require separation of these positions. Rather, as our corporate governance guidelines explain, the Board is free to choose its Chairman in any way that it deems best for the Company at any given point in time. Under the circumstances, we currently believe that this separation is appropriate given that it allows our Chief Executive Officer to focus on operational and day-to-day issues and our Chairman to focus on oversight and long-term strategy. Given our growing business, and the daily operational demands and complexities thereof, we believe that this division of labor helps our Chief Executive Officer’s focus and productivity. In parallel, given the growing complexity of our business and the increased burdens on our Board as we have been moving from a private corporation to a controlled company and an emerging growth company and beyond, we believe that this division of labor helps our Chairman and our Board to remain focused on their core responsibilities and competencies, and provides a greater role for non-management director participation than would be the case if the Chairman and Chief Executive Officer positions were combined.
As discussed above, on March 9, 2017, we filed a Current Report on Form 8-K disclosing our Chief Executive Officer’s intention to retire as a director and officer. The continuity afforded to us in the chairmanship of our Board because of the separation of these positions illustrates the utility of separating these positions, and will allow the selection of Mr. Sather’s successor to focus on operational rather than governance experience.
Compensation Committee Interlocks and Insider Participation
During the last completed fiscal year, compensation committee members included Michael G. Maselli, Mark Buller, Douglas K. Ammerman, and Carol (“Lili”) Lynton. None of these individuals during that year or otherwise formerly was our officer or employee or had any relationship requiring disclosure under Item 404 of Regulation S-K. None of our executive officers serves or has served as a member of the board of directors, compensation committee, or other board committee performing equivalent functions, of any entity that has one or more executive officers serving as one of our directors or on our compensation committee.
Code of Business Conduct and Ethics
The Board has adopted a code of business conduct and ethics that applies to our directors, officers, and employees, available at http://investor.elpolloloco.com/corporate-governance.cfm. We expect that any amendments to the code, or any waivers of its requirements, will be disclosed on our website.
Corporate Governance Guidelines
The Board has adopted corporate governance guidelines to assist it in the exercise of its fiduciary duties and responsibilities to us and to promote the effective functioning of the Board and its committees. Our corporate governance guidelines cover, among other topics:
| ● | director independence and qualification requirements; |
| ● | board leadership and executive sessions; |
| ● | limitations on other board and committee service; |
| ● | director responsibilities; |
| ● | director orientation and continuing education; |
| ● | board and committee resources, including access to officers and employees; |
| ● | succession planning; and |
| ● | board and committee self-evaluations. |
Our corporate governance guidelines are available on our website, at http://investor.elpolloloco.com/corporate-governance.cfm. We expect that any amendments to the guidelines will be disclosed on our website.
Board Meetings
The Board held
7eight meetings in
2016.2019. Each incumbent director attended at least 75% of the aggregate of the total number of board meetings and the total number of committee meetings
applicable toheld in 2019 while that director
basedserved on
timing ofthe board
service and on
committee service.those committees.
This behavior is in accordance with our corporate governance guidelines, which state that directors are expected to spend the time and effort necessary to properly discharge their responsibilities, by regularly attending Board and committee meetings, and by reviewing, prior to meetings, material distributed in advance for those meetings.
Annual MeetingsMeeting Attendance Pursuant to our corporate governance guidelines, directors are expected to attend our annual meeting of stockholders, and a director who is unable to attend, which it is understood will occur on occasion, is expected to notify our Chairman. In
2016,2019, all nine directors then on the Board attended our annual meeting.
EXECUTIVE COMPENSATION
We
Succession Planning
The Board, led by the Compensation Committee, plans for Chief Executive Officer succession. To assist the Board and the Compensation Committee, the Chief Executive Officer prepares and distributes to the Compensation Committee an annual assessment of each officer’s performance and his or her ability to succeed the Chief Executive Officer or another senior officer, which assessments are providing compensation disclosure that satisfiesused for succession planning purposes. In addition, the requirements applicable to emerging growth companies, as definedChief Executive Officer prepares and maintains a short-term succession plan delineating temporary delegations of authority in the Jumpstart Ourevent that one or more senior officers unexpectedly become unavailable or incapacitated. This short-term succession plan is approved by the Board and effective in an emergency unless and until the Board takes other action.
EXECUTIVE OFFICERS
Executive Officers
In addition to Bernard Acoca, our Chief Executive Officer and President, whose biography is included under the heading “Director Biographies,” our executive officers as of April 21, 2020, are as follows:
|
| | | | |
| Name | | Age | | Position |
| Laurance Roberts | | 60 | | Chief Financial Officer |
| Miguel Lozano | | 56 | | Chief Operating Officer |
Miguel Lozano was appointed as our Chief Operating Officer on April 1, 2019. Before joining the Company, Mr. Lozano, spent twenty-three years at Starbucks in various capacities, most recently as Regional Vice President of Operations for Los Angeles, Central, and Coastal California from 2011 to April 2019. Prior to that he served as Director of Operations, from 1996 to 2011, leading stores in the Orange County, California area, as well as Director of Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we have optedSystems Transformation from 2005 to comply2009. Mr. Lozano also held positions with Carlton Restaurants Worldwide and began his career as a Restaurant General Manager and Area Leader with the Company.
Laurance Roberts has been our Chief Financial Officer and Treasurer since July 2013. From 2008 to 2012, he was Chief Operating Officer of KFC, a major fried chicken restaurant chain and a division of Yum! Brands. In 2008, he was also General Manager of KFC Restaurant Operating Company. Before that, he spent three years as Chief Financial Officer of KFC, and three years as Chief Financial Officer of Yum! Brands’ Pizza Hut joint venture in the United Kingdom. Mr. Roberts holds an MBA from the University of Michigan and a bachelor’s degree in economics from Bucknell University.
COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis ("CD&A") provides an overview of our overall executive compensation
rules applicable to “smaller reporting companies,” as such term is defined underprogram, including the
Securities Act, which require compensation disclosure for our principal executive officerphilosophy and goals, main components of pay and the
two most highly compensated executive officers other than our principal executive officer. The table below sets forth the annual compensation earned in fiscal 2015 and 2016 by our principal executive officer and our next two most highly compensated executive officers (our “named executive officers” or “NEOs”).Summary Compensation Table
Name and
Principal
Position | | Year | | Salary ($) | | Stock Awards
($) (2) | | Option
Awards ($)
(3) | | Non-Equity
Incentive Plan Compensation
($) (4) | | All Other Compensation
($) (5) | | Total ($) |
| Stephen J. Sather (1) | | 2016 | | 500,785 | | — | | 459,909 | | 69,845 | | 26,792 | | 1,057,331 |
President & Chief Executive Officer | | 2015 | | 499,370 | | — | | — | | 255,000 | | 26,615 | | 780,985 |
| Laurance Roberts | | 2016 | | 343,176 | | 70,007 | | 301,226 | | 48,167 | | 24,711 | | 787,287 |
Chief Financial Officer | | 2015 | | 333,074 | | — | | — | | 171,290 | | 26,649 | | 531,013 |
| Edward Valle | | 2016 | | 342,780 | | 70,007 | | 287,443 | | 48,119 | | 21,420 | | 769,769 |
| Chief Marketing Officer | | 2015 | | 331,143 | | — | | — | | 171,288 | | 23,729 | | 526,160 |
| (1) | Mr. Sather has indicated to us that he intends to retire in 2017. |
| (2) | The value in this column represents the aggregate grant date fair value of restricted share awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic 718 (FASB ASC Topic 718). For a discussion of valuation assumptions used in calculation of these amounts, see Note 12 to our audited financial statements, included within our 2016 Annual Report on Form 10-K. Our named executive officers did not receive any restricted share awards in 2015. |
| (3) | Except for Mr. Roberts, the value in this column represents the aggregate grant date fair value of our stock option awards computed in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in calculation of these amounts, see Note 12 to our audited financial statements, included within our 2016 Annual Report on Form 10-K. For Mr. Roberts, amounts in this column solely include the incremental fair value computed as of the modification date in accordance with FASB ASC Topic 718 of certain vesting modifications made to outstanding stock option awards that are more fully described below in the description of Equity Grants. Our named executive officers did not receive any option awards in 2015. |
| (4) | Represents performance-based bonuses earned by our NEOs in respect of our performance in fiscal years 2015 and 2016. The material terms of the non-equity incentive plan compensation paid to our named executive officers in our last completed fiscal year are described below in the section entitled “Elements of Compensation—2016 Bonus Arrangements.” |
| (5) | For Messrs. Sather, Roberts, and Valle, includes the following perquisites and benefits: |
| ● | Gas Card Benefits: Messrs. Sather, Roberts, and Valle had amounts of $3,954, $1,657, and $1,758, respectively, in fiscal 2016. |
| ● | 401(k) Plan Matching Contribution: Messrs. Sather, Roberts, and Valle had amounts of $10,500, $8,182, and $7,324, respectively, in fiscal 2016. |
| ● | Auto Allowance: Messrs. Sather, Roberts, and Valle had amounts of $7,200, $7,200, and $7,200, respectively, in fiscal 2016. |
| ● | Other Benefits (including health and welfare benefits): Messrs. Sather, Roberts, and Valle had amounts of $5,138, $7,672, and $5,138, respectively, in fiscal 2016. |
Employment Agreements
Each of our NEOs is a party to an employment agreement. The employment agreements are substantially similar. We entered into an employment agreement in 2006 with Mr. Sather (which was amended and restated in 2011), in 2011 with Mr. Valle and in 2013 with Mr. Roberts. The employment agreements provide that Messrs. Sather, Roberts, and Valle will receive salaries equal to $350,000, $300,000, and $250,000, respectively, which may be adjusted in our sole discretion (and,decision making process with respect to alleach of our Named Executive Officers (“NEOs”) for 2019. We believe our compensation programs reflect our commitment to adhere to best practices and only reward positive performance.
For 2019 our NEOs has been adjusted upwere:
Bernard Acoca, President and Chief Executive Officer
Laurance Roberts, Chief Financial Officer
Hector Muñoz, Former Chief Marketing Officer*
Miguel Lozano, Chief Operating Officer
*Note: Hector Muñoz left the organization on March 18, 2020
Executive Summary
Fiscal 2019 - Year in Review
Fiscal 2019 was a year of growth, with our transformation agenda laying the groundwork for accelerated comparable sales performance. We continued to focus as shown in “Summary Compensation Table”). Each employment agreement also provides that each executive willa business and a leadership team on the key pillars of driving a people-first culture, differentiating the brand through culinary innovation, simplifying operations by making it easier to be eligiblean employee and franchisee, and growingthe business for responsibly and profitably for the long-term. These pillars and subsequent strategies were designed to earn annual bonus awards withimprove operating and financial results and to better position us for future expansion.
As a target of 75%result of the executive’s then current base salarytransformation agenda and that eachadditional Company strategies, we achieved:
Solid adjusted EBITDA and revenue results, which were the performance metrics used to determine the NEO’s annual non-equity incentive compensation plan ("Annual Incentive Plan") award and such performance resulted in a Company performance factor under the Annual Incentive Plan at 74.4% of target, which we believe demonstrates the rigor of our performance metrics.
Same store sales of 2.0%, the highest level of system-wide sales comps since 2015. This brings us to six consecutive quarters of positive same store sales growth.
Leadership Transitions. As we continued to build out the senior leadership team, in April 2019, Miguel Lozano joined the Company as our Chief Operating Officer.
Overall Compensation Philosophy
We believe our compensation programs serve three primary purposes.
To successfully execute our organizational strategy, it is critical to attract, retain, and motivate our employees.
We hold our executive is entitled to receive certain other benefits and perquisites as more fully described in the “Elements of Compensation—Other Benefits” section. The employment agreements provide that the NEOs’ employment with us is “at will” and may be terminated at any time by either party, provided the NEOs are required to provide us with 90-day advance notice in case of resignation. If we terminate an NEO’s employment without “cause,” as defined in the respective employment agreement, or if the agreement is terminated by the NEOofficers accountable for “good reason,” as defined in the respective employment agreement, and provided that the NEO signs a general release of claims, the NEO will be entitled to receive continuation of base salary for 12 months following termination of employment. In addition, in case of any termination of employment, except termination by us for “cause” or voluntary resignation by the NEO, each NEO will be entitled to receive a pro-rata bonus for the year of termination based on our actual performance. Finally, in case of any termination of employment, the NEO will be entitled to receive certain accrued obligations (including base salaryCompany performance through the dateuse of termination, reimbursementperformance-based incentive compensation.
We align the interests of unreimbursed business expenses,management with our stockholders through the use of equity incentives that vest over time and any earned but unpaid annual bonus forstock ownership requirements.
At the
previously completed year). The employment agreements contain 12-month post-termination covenants relating to non-interference and non-solicitationheart of
employees.
Elements of Compensation
our compensation programs is a pay-for-performance philosophy. Our named executive officers were providedhave a significant percentage of their compensation “at risk,” meaning that if the Company performs at, above, or below its target goals, the named executive officer will be paid at above or below his or her target compensation. If the Company performs below its target goals, the named executive officer will be paid below his or her target compensation.
|
| |
| WHAT WE DO |
| þ | Pay-for-Performance Philosophy: A significant portion of our NEO’s target compensation is variable tied to achievement of performance goals or stock price appreciation. |
| þ | Emphasize Long-Term Performance: Our long term incentive ("LTI") program focuses on achieving strategic objectives with vesting over a four-year period. |
| þ | Independent Compensation Consultant: The consultant isretained by and reports directly to the Compensation Committee and does not have any other consulting engagements with management or the Company. |
| þ | Provide Limited Perquisites: Our NEOs receive perquisites consistent with industry practices and participate in the same plans generally at the same level and offering made available to other employees. |
| þ | Mitigate Risk: The Compensation Committee reviews our compensation programs annually and makes revisions to mitigate undue risk and align with market best practices. |
| þ | Clawback Policy: Clawback provisions provide the ability to recover equity-based incentive compensation or awards based on fraud or material misconduct. |
| |
| WHAT WE DON’T DO |
| ý | No Tax Gross-Ups: We do not provide any tax gross-ups on perquisites or benefits. |
| ý | Reprice or buyout of underwater stock options: We do not allow the repricing of stock options without stockholder approval. |
| ý | No Short Sale Transactions. Hedging and Pledging transactions are not permitted: We do not permit any director or officer to engage in short sales, put or call transactions, hedging, or other similar transactions. Directors or officers may not margin or borrow against any Company stock. |
We believe these practices, along with our pay-for-performance philosophy, combine to create a compensation program aligned with the interests of our stockholders.
Elements of Executive Compensation
The following primarytable provides information regarding the elements of our executive compensation program.
|
| | | | |
| ELEMENT | | FORM | | OBJECTIVE AND BASIS |
| Base Salary | | Cash | | • Attract and retain highly qualified executives. • Determined based on skills, experience, contribution, external benchmarking and performance when reviewed on an annual basis. |
| Annual Incentive Plan | | Cash | | • Linked to the Company’s annual financial and strategic performance. • Target Annual Incentive Plan award is a percentage of base salary. • Actual payout based on financial performance against established EBITDA and revenue targets and an individual performance factor as a modifier. |
| Long-Term Incentive | | Restricted Share Awards ("RSAs") and Stock Options | | • Align the interests of our NEOs with those of our stockholders; motivate them to create value in the Company over a longer term. • Options provide value only if share price increases. • RSAs supplement options and promote long-term retention and alignment with stockholders. |
Stockholder Advisory (Non-Binding) Vote on Executive Compensation
For the first time as a public company, we are seeking a stockholder advisory (non-binding) vote to approve our executive compensation program in fiscal years 20152019 (this vote is commonly referred to as a “say on pay” vote). In this proxy statement, shareholders are being asked to cast an advisory (non-binding) vote on how frequently we should conduct say on pay votes in the future (this vote is commonly referred to as a “say on pay frequency” vote). Our Board believes that going forward our stockholders should have the opportunity to cast a say on pay vote on an annual basis so that our shareholders may annually express their views on our executive compensation program. The Compensation Committee intends to consider the outcome of stockholders’ votes on our executive compensation program when making future compensation decisions for our NEOs.
Our Executive Compensation Process
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| Compensation Committee | | • The Compensation Committee oversees and approves key aspects of executive compensation with input from our Board and its independent compensation consultant. This includes our Chief Executive Officer's and other executive officers’ salaries, targets and payouts under the Annual Incentive Plan, LTI structure and awards and any executive perquisites or other benefits. • The Compensation Committee considers the factors above, consults with its independent compensation consultant, as well as data provided by the Chief Executive Officer regarding the performance of executive officers who report to him in determining compensation for our NEOs. The Compensation Committee also reviews the Chief Executive Officer’s performance against his Board-approved Company and business objectives. (He is not present during any deliberations or determinations regarding his compensation.) • The Compensation Committee considers competitive market and peer data to align the Company’s total pay opportunities and outcomes. |
| Management | | • The Chief Executive Officer and Chief People Officer work closely with the Compensation Committee in managing the executive compensation program, provide input and attend meetings of the Compensation Committee. • The Chief Executive Officer makes recommendations to the Compensation Committee regarding compensation for each executive officer (other than his own). • The Chief People Officer presents recommendations supported by market data to the Compensation Committee on the full range of annual executive compensation decisions, including (i) annual and long-term incentive compensation plans, (ii) target competitive positioning of executive compensation, and (iii) target total direct compensation for each executive officer. |
| Independent Compensation Consultant | | • The Compensation Committee’s independent compensation consultant, Semler Brossy, provides research, survey information and analysis, incentive design expertise and other analyses related to compensation levels and design. Semler Brossy also updates the Compensation Committee on trends and developments related to executive compensation design and provides its views to the Compensation Committee on best practices, including competitiveness when evaluating executive pay programs and policies. • Semler Brossy has been retained by and reports directly to the Compensation Committee and does not have any other consulting engagements with management or the Company. |
Use of Quantitative and 2016:Qualitative Measurements
. We believe compensation should be based on factors that can be objectively determined, such as how well we have attained our earnings goals. For 2019, our Annual Incentive Plan awards were determined based 60% on our EBITDA and 40% on our revenue achieved against target goals for the year. In addition, the Compensation Committee may adjust the payout under the Annual Incentive Plan from 0% to 140% of the amount attributable to the Company performance metrics based on an individual performance factor. This individual performance factor is assessed based on an individual’s contribution to the Company’s objectives. Market Data. As part of the annual executive compensation process, the Compensation Committee reviews compensation levels, practices, and pay of executives serving in comparable positions at peer group companies. In 2019, both peer group proxy data and industry-comparative compensation surveys were reviewed.
The Compensation Committee reviews the composition of the peer group on an annual basis in consultation with its independent compensation consultant. In selecting our peer group, we focus on companies that are similar to us in terms of industry, size and business characteristics.
Our Compensation Committee compared our compensation with that of the following companies considered as a group (collectively the “Peer Group”):
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| PEER GROUP | | | | |
| BJ’s Restaurants Inc. | | The Habit Restaurant, Inc. | | Potbelly Corporation |
| Chuy’s Holdings, Inc. | | Jamba Juice Co. | | Red Robin Gourmet Burgers, Inc. |
| Denny’s Corporation | | Krispy Kreme Doughnuts Inc. | | Sonic Corp. |
| Dine Brands Global, Inc. | | Noodles & Company | | Zoe's Kitchen, Inc. |
| Fiesta Restaurant Group, Inc. | | | | |
Named Executive Officer Compensation
Compensation to our named executive officers consists of four elements: base salary, annual cash incentive awards, long-term incentive awards, and “other” compensation items (including perquisites, benefits and severance).
Distribution of Compensation
We weight a greater proportion of total compensation toward performance-based components such as annual cash incentive awards, which can increase or decrease to reflect changes in corporate and individual performance on an annual basis, and long-term compensation, which can reinforce management’s commitment to enhancing profitability and stockholder value over the long-term.
A significant percentage of our named executive officers’ total direct compensation is variable based on performance factors (including our share price, in the case of long-term incentive awards). We believe this type of variable compensation supports our pay-for-performance philosophy. For 2019, 71% of Mr. Acoca’s total direct compensation as Chief Executive Officer was variable, based on performance factors, and for all of our named executive officers as a group, between 63-67% of their total direct compensation as named executive officers was variable, based on performance factors.
Base salaries are intended to provide a base level of compensation and are paid in recognition of the skills, experience, and business contribution of our named executive officers. Salaries for our named executive officers are reviewed on an annual basis. In setting base salary, we consider the performance of the named executive officer, Company performance, tenure of the named executive officer, prior changes to the named executive officer’s compensation, internal equity, and external benchmarking of similarly situated executives in our Peer Group described above. For newly hired executives, we also consider the level of compensation necessary to attract the executive to the Company. The base salaries for each of the NEOs during fiscal 2019 and 2018 are set forth below.
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Base Salary Annualized Rate |
| Named Executive Officer | | Fiscal 2019 | | Fiscal 2018 | | % Change |
| Bernard Acoca | | $597,000 | | $563,000 | | 6% |
| Laurance Roberts | | $379,000 | | $375,000 | | 1% |
| Hector Muñoz | | $375,000 | | $375,000 | | 0% |
| Miguel Lozano* | | $325,000 | | N/A | | N/A |
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| * | Mr. Lozano joined the Company on April 1, 2019 |
Annual Incentive Plan
Our named executive officers participate in an annual cash incentive plan which provides them an opportunity to earn a cash award based on the attainment of certain pre-determined goals of the Company. For 2019 these goals were based on: (i) adjusted EBITDA, and (ii) revenue comprised of company sales (95% of revenue target) and franchisee royalty income (5% of revenue target). Payouts are also subject to an individual performance factor (“IPF”). The individual performance factor can adjust the achievement of the Company performance metrics range from 0% to 140% of the amount attributable to the Company performance metric.
Goals are established by the Board in the first quarter of the applicable fiscal year and range from a minimum (or threshold) level to a maximum level, with a target level in between. Each named executive officer receivedhas a fixedtargeted award potential expressed as a percentage of salary. Notwithstanding such targets, our Board has discretion to reduce the size of any award if it believes the interests of our stockholders would be better served thereby.
For fiscal year 2019, our named executive officers' target Annual Incentive Plan award (as a percentage of their base
salary in an amount determined in accordance with the executive’s employment agreement and based on a number of factors, including:salary) were as follows: | ● | The nature, responsibilities, and duties of the officer’s position; |
| ● | The officer’s expertise, demonstrated leadership ability, and prior performance; |
Annual Incentive Plan Target Percentage of Base Salary |
| Named Executive Officer | | Fiscal 2019 |
| Bernard Acoca | | 100% |
| Laurance Roberts | | 75% |
| Hector Muñoz | | 75% |
| Miguel Lozano | | 75% |
| ● | The officer’s salary history and total compensation, including annual cash bonuses and long-term incentive compensation; and |
| ● | The competitiveness of the market for the officer’s services. |
Each named executive officer’s base salaries
For fiscal year 2019, the threshold, target and maximum Company Annual Incentive Plan targets were weighted at 60% for
2015achievement of EBITDA targets and
2016 are listed in “Summary Compensation Table.”2016 Bonus Arrangements
Each named executive officer was eligible to earn an annual cash incentive in 2016. Our practice with respect to annual incentive compensation has historically been to provide an opportunity to earn bonus awardsat 40% for revenue based on the achievementfollowing performance target amounts, and the Company’s actual results.
The Annual Incentive Plan percentage payout for Company performance are as follows:
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Fiscal Year 2019 Annual Incentive Plan Company Performance Factor |
| | EBITDA | | Revenue | | % Payout |
| Threshold | | $59.1 million | | $420.3 million | | 25% |
| Target | | $65.7 million | | $433.3 million | | 100% |
| Maximum | | $74.9 million | | $452.8 million | | 180% |
| Actual* | | $63.1 million | | $420.0 million | | 74.4% |
* The Company achieved 82.2% of companythe EBITDA target and 62.7% of the revenue target
The Annual Incentive Plan payout achieved by each NEO based on the Company’s performance,
measures, specifically EBITDA adjustedthe adjustment for
various items (“Adjusted EBITDA”an individual performance factor ("IPF")
.For a calculation of for each NEO, and additional information regarding Adjusted EBITDA, please see pages 35 to 37 of ourthe actual 2019 Annual Report on Form 10-KIncentive Plan payout received by each NEO are set forth in the table below.
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Fiscal Year 2019 Annual Incentive Plan 2019 Payout |
| Named Executive Officer | | Fiscal 2019 Salary | | Fiscal 2019 Annual Incentive Plan Target
(%) | | Fiscal 2019 Annual Incentive Plan ($) 74.4% Payout | | IPF | | Actual Fiscal 2019 Annual Incentive Plan payout ($) | | Rationale for IPF Adjustment |
| Bernard Acoca | | $597,000 | | 100% | | $444,178 | | 110% | | $488,596 | | • Mr. Acoca led the Company to the highest level of system-wide sales comps since 2015; Guiding the organization to execute across the multi-faceted, transformation agenda impacting both business priorities and company culture. • Mr. Acoca continued to build a highly-functioning leadership team, with expertise both from within and outside the industry. • Mr. Acoca has provided meaningful leadership, deeper in the organization. He has leaned in to guide marketing significantly, including the relaunch of the brand in early 2019. |
| Laurance Roberts | | $379,000 | | 75% | | $211,343 | | 100% | | $211,343 | | • Mr. Roberts continues to demonstrate strong and consistent oversight of financial operations and performance, helping to drive best in class restaurant operating margins. |
| Hector Muñoz | | $375,000 | | 75% | | $209,250 | | 70% | | $146,475 | | •Mr. Muñoz made some key hires, strengthening the performance of the marketing department. • Mr. Muñoz fell short on deadlines to complete certain departmental process improvements. |
| Miguel Lozano* | | $325,000 | | 75% | | $133,252 | | 110% | | $146,874 | | • Mr. Lozano led the acceleration of operations performance in several key areas.
• Mr. Lozano drove meaningful results in improving sales momentum and overall customer service. |
*The Annual Incentive Plan payout for Mr. Lozano was prorated for the
fiscal year ended December 28, 2016.Our El Pollo Loco Support Centerperiod of time he was employed by the Company
Long-Term Incentive Plan is adopted on an annual basis subjectAwards
We provide long-term incentive compensation to
approval by our
Board and provides the opportunity for each ofnamed executive officers pursuant to our
NEOs to earn a bonus equal to 75% of their annual base salary at target for each year, based on our achievement of Adjusted EBITDA targets. The Adjusted EBITDA targets are set each year based on achievement of strategic goals and financial results. The cash incentive plan for 2016 (which was paid in 2017) also provided for no bonus to be paid if Adjusted EBITDA achievement was less than or equal to 90.0% of target and for a cap equal to 200% of the target bonus amount to be paid if Adjusted EBITDA achievement was 125% of target or greater. Based on our performance, bonuses for 2016 were paid out at 18.6% of target.Equity Grants
Our 20142018 Omnibus Equity Incentive Plan (the “2014 Plan”"2018 Incentive Plan") governs all. We believe that long-term incentive awards help to align the interests of our outstandingnamed executive officers with those of our stockholders, motivate them to create value in the Company over a longer term than annual cash incentive awards, and encourage our named executive officers to avoid taking excessive risks. We have four types of long-term incentive awards applicable to our named executive officers: restricted stock awards, restricted stock unit awards, stock option awards, and in the case of Mr. Acoca, performance-based restricted stock awards.
In determining the aggregate amount of long-term incentive awards to grant each named executive officer, we consider the individual’s performance, the expense recognized by the Company for equity awards. Priorgrants, the potential dilutive effect equity grants may have on existing stockholders, the number of shares available for grant in our 2018 Incentive Plan, comparisons to our Peer Group and the accumulated wealth prior equity awards have created. In considering which type of equity grant to make our named executive officers, we consider the motivational effect each award will have. While stock options motivate our named executive officers by providing potential gain if our stock price increases, our stock awards, both time-based and performance-based, more directly expose our named executive officers to the adoptioneffects of a decrease in our stock price.
Non-Qualified Stock Options
The Compensation Committee believes stock option grants are a useful tool to motivate our named executive officers to focus on overall corporate performance over the long-term and to align their interests with those of our stockholders. This occurs because our stock option grants provide economic value to our named executive officers only if our stock price increases from the date of the
2014 Plan, we maintained certain other equity plans. Upongrant to the
adoptiondate the stock option is exercised. All of our stock option grants to our named executive officers are considered “non-qualified” for tax purposes, which generally provide a more favorable tax benefit to the Company than “incentive” stock options. Generally, 25% of the
2014 Plan, allshares subject to our stock option
awards granted undergrants vest one year from the
prior plans became governed byeffective date of grant and the
2014 Plan and their respective award or exchange agreements, to the extent that the terms of such agreements are not inconsistent with the 2014 Plan.Our option awards generallyremainder vest in four equal annual installments commencing on the one-year anniversary of grant. In order to provide further incentives to our employees, allthereafter. The options held by employees on November 15, 2016 which were (i) scheduled to vest in 2015 based on performance targets related to our financial performance were deemed vested as of November 15, 2016, (ii) scheduled to vest in 2016 based on performance targets related to our financial performance were converted into time-vesting options which were scheduled to vest at fiscal year-end 2016, and (iii) initially scheduled to vest in 2017 based on performance targets related to our financial performance were converted into time-vesting options which were scheduled to vest at fiscal year-end 2017, in each case, subject to all other terms and conditions of the 2014 Plan and award agreements. The only named executive officer whose stock options were so modified was Mr. Roberts.
All options held by our NEOs will expire no later than the 10th anniversary after grant. Generally, upon an employee’s termination of employment with us, the employee will have 90 days followinggenerally terminate ten years from the date of such terminationgrant.
In fiscal year 2019, the Board granted stock options to exercise any portion of the options. If the employee’s termination is due to his/her total and permanent disability or death, the employee or his/her estate,our named executive officers as applicable, may exercise any portion of the options for six months. In no event will an employee be entitled to exercise the option after its original expiration date. All options will be forfeited if an employee’s employment is terminated for cause.In the past, we also granted options with strike prices in excess of the fair market value of our stock on the date of grant. These premium options were intended as a further stretch incentive to encourage growth that meets or exceeds the premium level.
In 2016, we alsofollows:
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| Stock Options |
| Named Executive Officer | | # of Shares | | Grant Date Fair Value |
| Bernard Acoca | | 85,472 | | $327,862 |
| Laurance Roberts | | 42,736 | | $163,931 |
| Hector Muñoz | | 42,736 | | $163,931 |
| Miguel Lozano | | 17,096 | | $65,579 |
Restricted Share Awards
We granted restricted shares to our named executive officers. All restricted shares generally vest in four equal annual installments commencing on the one-year anniversary of grant. During the period
untilwhile the restricted shares
vest,remain unvested, the grantees have all the rights of a
shareholderstockholder with respect to the restricted shares
save onlyexcept the right to transfer the restricted shares (including the right to vote restricted shares and to receive ordinary dividends paid to or made with respect to the restricted shares, if any).
Other Benefits
In 2016, our NEOs were provided with certain limited fringe benefits that we believe are commonly provided to similarly situated executives infiscal year 2019, the market in which we compete for talent and therefore are importantBoard granted restricted shares to our abilitynamed executive officers as follows:
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| Restricted Shares |
| Named Executive Officer | | # of Shares | | Grant Date Fair Value |
| Bernard Acoca | | 43,592 | | $500,000 |
| Larry Roberts | | 21,796 | | $250,000 |
| Hector Muñoz | | 30,516 | | $350,019 |
| Miguel Lozano | | 21,796 | | $250,000 |
New Hire Equity Awards
In connection with Mr. Lozano’s commencement of employment, we granted Mr. Lozano a new hire equity award in May 2019 with an aggregate grant date value of approximately $350,000. Mr. Lozano’s equity award consisted of approximately $100,000 worth of time-vested 10-year options that will vest 25% each year and approximately $250,000 worth of time-vested restricted shares that will vest 25% each year from the date of grant.
Other Compensation
Perquisites & Benefits. In fiscal 2019, we provided our named executive officers certain perquisites and benefits, generally at the same level and offering made available to attractother employees, including our 401(k) Plan, health care plans, life insurance plans, and retain top-levelother welfare benefit programs. In addition, each of our named executive management. These benefits include a monthlyofficers was entitled to an automobile allowance and a gas card allowance. The amounts paid to NEOs in 2016 in respect of these benefits are reflected above in the “Summary Compensation Table” section under the “All Other Compensation” heading.All employees are eligible to participate in broad-based and comprehensive employee benefit programs, including medical, dental, vision, life, andfuel costs. Each named executive officer also received supplemental disability insurance coverage and reimbursement of certain out-of-pocket medical expenses.
The Company sponsors a 401(k) plan that permits its employees, subject to certain eligibility requirements, to contribute up to 25% of their qualified compensation to the plan. Our named executive officers are eligible to participate in these plans generally onThe Company matches 100% of the same basis as our other employees. We do not sponsor or maintain any deferred compensation or supplemental retirement plans in addition to our 401(k) plan. Our 401(k) plan provides substantially all employees with the ability to make pre- or post-tax retirementemployees’ contributions in accordance with applicable IRS limits. Matching contributions are provided in an amount equal to 100% of the first 3% of the employees’ annual qualified compensation, that was electively contributed and 50% of the employees’ contributions of the next 2% of the employees’ annual qualified compensation. The Company’s matching contribution immediately fully vests.
Sign-on Bonuses, New Hire Equity Awards and Relocation Payments. The Company occasionally provides sign-on bonuses, new hire equity awards, and relocation payments when the Compensation Committee determines it necessary and appropriate to attract top executive talent. These awards are utilized to help offset compensation an executive forfeits from their previous company to join the Company. We typically require the newly hired executive to return the full award amount of any sign-on bonuses and relocation payments if they voluntarily leave the Company within a certain period of time after hire and new hire equity awards are subject to a time-based vesting period.
In fiscal 2019, as part of Mr. Lozano’s hire as Chief Operating Officer, in addition to the new hire equity awards described above, the Compensation Committee approved and a sign-on bonus of $20,000. These awards were meant to provide meaningful retention incentive and offset awards Mr. Lozano forfeited upon his resignation from his previous employer.
As part of Mr. Muñoz hire as Chief Marketing Officer in fiscal 2018, a relocation payment was included as part of his compensation package. A portion of that award in the amount of $125,000 was electively contributed bypaid to him in fiscal 2019 to assist with his relocation expenses.
Other Compensation Policies
Policy on Hedging and Pledging Transactions
We do not permit any director or officer of the employee. The 401(k) plan matching contributions providedCompany to engage in short sales, transactions in put or call options, hedging transactions or other similar transactions designed to allow an individual to “lock in” appreciation in value or hold securities of the Company without the full risks and rewards of ownership. In addition, no director or officer of the Company may margin, or make any offer to margin, any of the Company’s stock, or borrow against such stock, at any time.
Description of Employment Agreements
We have entered into employment agreements with each of our named executive officersofficers. Each of the employment agreements provides for an initial term ranging from one year to eighteen months, and automatically renews for an additional one-year term, unless either party provides 60 days’ notice prior to the end of the term. We have also entered into indemnification agreements with each of our named executive officers.
Bernard Acoca
In connection with his appointment as the Company’s President and Chief Executive Officer in 2016 are reflected2018, we entered into an employment agreement with Bernard Acoca. Mr. Acoca receives an initial annual base salary of $550,000, a target annual cash incentive award equal to 100% of base salary and, starting in 2019, an annual discretionary equity grant, as determined by the Board, and certain other benefits and perquisites as more fully described above in the “Summary Compensation Table” section“Perquisites & Benefits” section. Mr. Acoca’s employment with us may be terminated at any time by either party, provided that Mr. Acoca is required to provide us with 90-day advance notice in case of resignation. The employment agreement provides that in the event that Mr. Acoca’s employment is terminated due to death or disability he will be entitled to a prorated annual cash incentive award for the year of termination based on actual performance. The employment agreement also provides that in the event that Mr. Acoca’s employment is terminated without "cause" or for "good reason" (as such terms are defined in Mr. Acoca's employment agreement), then he will be entitled to a prorated annual cash incentive award for the year of termination based on actual performance (the "Pro-Rata Annual Cash Incentive") and continuation of payment of base salary for eighteen months, subject, in each case, to the execution of a general release and compliance with applicable restrictive covenants. In the event that Mr. Acoca’s employment is terminated by the Company without "cause" by Mr. Acoca for "good reason" (as such terms are defined in Mr. Acoca's employment agreement), or due to a non-renewal of the term of the agreement by the Company, then he will be entitled to the Pro-Rata Annual Cash Incentive and continuation of base salary for eighteen months (or for the remaining term of the agreement, in the case of a non-renewal), subject, in each case, to the execution of a general release and compliance with applicable restrictive covenants. In the event that Mr. Acoca’s employment is terminated by the Company without cause, by Mr. Acoca for good reason, or due to a non-renewal of the term of the agreement by the Company, within two years following a change in control of the Company, in addition to the severance described in the preceding sentence, Mr. Acoca will be entitled to accelerated vesting of his outstanding equity awards (other than certain performance vesting awards), with performance vesting conditions deemed achieved at target, subject to the execution of a general release and compliance with applicable restrictive covenants. Mr. Acoca’s employment agreement contains
an indefinite confidentiality covenant and 12-month post-termination covenants relating to non-interference with the Company’s business relationships and non-solicitation of the Company’s employees and consultants.
Laurance Roberts
We entered into an employment agreement in 2013 with Mr. Roberts. The employment agreement provides that Mr. Roberts will receive a salary equal to $300,000, which may be increased in our sole discretion, will receive a $600 per month transportation allowance, will be eligible to earn annual cash incentive awards with a target of 75% of his then current base salary, will be eligible to participate in the Company’s equity-based compensation plan, and will be entitled to certain other benefits and perquisites as more fully described above in the “Perquisites & Benefits” section. Mr. Roberts’ employment with us may be terminated at any time by either party, provided that Mr. Roberts is required to provide us with 90-day advance notice in case of resignation. If we terminate Mr. Roberts’ employment without “cause” or he resigns for “good reason” (as such terms are defined in Mr. Roberts’ employment agreement), and provided that he signs a general release of claims, Mr. Roberts will be entitled to continuation of base salary for 12 months following termination of employment. In addition, in case of any termination of employment, except termination by us for cause or voluntary resignation by Mr. Roberts without good reason, Mr. Roberts will be entitled to a Pro-Rata Annual Cash Incentive for the year of termination based on our actual performance. Mr. Roberts’ employment agreement contains an indefinite confidentiality covenant and 12-month post-termination covenants relating to non-interference with the Company’s business relationships and non-solicitation of the Company’s employees and consultants.
Hector Muñoz
We entered into an employment agreement in 2018 with Mr. Muñoz. The employment agreement provided that Mr. Muñoz will receive a salary equal to $375,000, which may be increased at the sole discretion of the Board, will be eligible to earn annual cash incentive awards with a target of 75% of his then current base salary, and will be entitled to certain other benefits and perquisites as more fully described above in the “Perquisites & Benefits” section. Mr. Muñoz received relocation assistance payments equal to $150,000, which were required to be repaid if Mr. Muñoz’s employment was terminated by the Company for “cause” or by Mr. Muñoz without “good reason” (as such terms were defined in the employment agreement) within 18 months of the commencement of his employment. Mr. Muñoz’s employment agreement entitled him to 2019 equity grants of approximately $250,000 worth of time-vested 10-year options that vest 25% per year and $350,000 worth of time-vested restricted stock shares that vest 25% per year. These awards were forfeited in connection with Mr. Muñoz’s termination of employment in March 2020. Mr. Muñoz’s employment may be terminated at any time by either party, provided that Mr. Muñoz was required to provide us with 90-day advance notice in case of resignation. The employment agreement provided that in the event that Mr. Muñoz’s employment is terminated due to death or disability he will be entitled to a Pro-Rata Annual Cash Incentive for the year of termination based on actual performance. If we terminated Mr. Muñoz’s employment without “cause” or he resigned for “good reason” (as such terms were defined in Mr. Muñoz’s employment agreement), and provided that he signed a general release of claims, Mr. Muñoz would have been entitled to the Pro-Rata Annual Cash Incentive and continuation of base salary for 12 months following termination of employment. Mr. Muñoz’s employment agreement contained an indefinite confidentiality covenant and 12-month post-termination covenants relating to non-interference with the Company’s business relationships and non-solicitation of the Company’s employees and consultants.
In connection with his departure from the Company, Mr. Muñoz entered into a Severance Agreement and General Release (the "Severance Agreement") on March 18, 2020. Pursuant to the terms of the Severance Agreement, Mr. Muñoz became eligible to receive a total amount of $111,057.57, less applicable taxes and withholdings. Mr. Muñoz was also eligible to receive the annual cash incentive award he earned under the
“All Other Compensation” heading.Company's 2019 Annual Incentive Plan, in this case $146,475, and $9,133 for COBRA payments. Mr. Muñoz's Severance Agreement provides that he will comply with all the restrictive covenants in the Severance Agreement, which includes confidentiality and non-disparagement obligations, and that he will provide the Company with ongoing cooperation in certain matters. As a part of his agreement he was not required to repay his relocation payment. Miguel Lozano
In 2019, we entered into an employment agreement with Mr. Lozano. The employment agreement provides that Mr. Lozano will receive a salary equal to $325,000, which may be increased at the sole discretion of the Board, will be eligible to earn annual cash incentive awards with a target of 75% of his then current base salary, will be eligible to participate in the Company’s equity-based compensation plan and will be entitled to certain other benefits and perquisites as more fully described above in the “Perquisites & Benefits” section. Additionally, Mr. Lozano’s employment agreement entitled him to a one-time sign-on bonus payment of $20,000 and a one-time sign-on equity grant of approximately $350,000. The 2019 equity grant consisted of approximately $100,000 worth of time-vested 10-year options that will vest 25% per year and approximately $250,000 worth of time-vested restricted stock shares that will vest 25% per year in lieu of the equity he would have received from his former employer. Mr. Lozano’s employment with us may be terminated at any time by either party, provided that Mr. Lozano is required to provide us
with 90-day advance notice in case of resignation. The employment agreement provides that in the event that Mr. Lozano’s employment is terminated due to death or disability he will be entitled to a Pro-Rata Annual Cash Incentive for the year of termination based on actual performance. If we terminate Mr. Lozano’s employment without “cause” or he resigns for “good reason” (as such terms are defined in Mr. Lozano’s employment agreement), and provided that he signs a general release of claims, Mr. Lozano will be entitled to the Pro-Rata Annual Cash Incentive and continuation of base salary for 12 months following termination of employment. Mr. Lozano’s employment agreement contains an indefinite confidentiality covenant and 12-month post-termination covenants relating to non-interference with the Company’s business relationships and non-solicitation of the Company’s employees and consultants.
Change in Control Provisions in Equity Awards
The 2018 Incentive Plan provides that, except as otherwise provided in an award agreement, if a “change in control” of the Company occurs (as such term is defined in the 2018 Incentive Plan) and the award holder’s employment or service is terminated by the Company without “cause” or by the award holder for “good reason” (as such terms are defined in the 2018 Incentive Plan) within 12 months following the change in control, then the outstanding and unvested equity awards will fully vest (with any performance conditions deemed to be achieved at target performance levels). The Compensation Committee, who administers the 2018 Incentive Plan, may also provide for the acceleration of outstanding and unvested equity awards upon a change in control of the Company.
Compensation Policies and Practices as They Relate to Risk Management
In 2019, our Compensation Committee reviewed our compensation policies and practices and concluded that the mix and design of these policies and practices are not reasonably likely to encourage our employees to take excessive risks. In connection with its evaluation, our Compensation Committee considered, among other things, the structure, philosophy and design characteristics of our primary incentive compensation plans and programs in light of our risk management and governance procedures, as well as other factors that may calibrate or balance potential risk-taking incentives. Based on this assessment, our Compensation Committee concluded that risks arising from our compensation policies and practices for all employees, including executive officers, are not reasonably likely to have a material adverse effect on us.
Tax Considerations
Prior to its amendment by the Tax Cuts and Jobs Act (“Tax Legislation”), which was enacted December 22, 2017, Section 162(m) of the Internal Revenue Code disallowed a tax deduction to public companies for compensation paid in excess of $1 million to "covered employees" (generally, such company's chief executive officer and its three other highest paid executive officers other than its chief financial officer). Prior to the Tax Legislation, there was an exception to this $1 million limitation for performance-based compensation if certain requirements were met.
The Tax Legislation generally amended Section 162(m) to eliminate the exception for performance-based compensation. The $1 million compensation limit was also expanded to apply to a public company's chief financial officer and apply to certain individuals who were covered employees in years other than the then-current taxable year. The Tax Legislation provides for "grandfathering" of awards in effect as of November 2, 2017 if certain conditions are met, including lack of modification of the terms of the awards. As in prior years the Company will continue to take into account the tax and accounting implications (including with respect to the expected lack of deductibility under the revised Section 162(m)) when making compensation decisions, but reserves its right to continue to make compensation decisions based on other factors if it determines that it is in the best interests of the Company and its stockholders to do so. Further, the Company may determine to make changes or amendments to the Company's existing compensation programs in order to revise aspects of our executive compensation programs that were initially designed to comply with Section 162(m) but that may no longer serve as an appropriate incentive measure for our executive officers.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed our Compensation Discussion and Analysis section with management and, based on the review and discussions, recommended to the Board that the Compensation Discussion and Analysis section be included in this proxy statement on Schedule 14A.
Compensation Committee
Douglas Babb
Mark Buller
Carol (“Lili”) Lynton
The foregoing report of the Compensation Committee is not soliciting material, is not deemed filed with the SEC and is not incorporated by reference in any filing of the Company under the Securities Act or the Exchange Act, whether made before or after the date of this proxy statement and irrespective of any general incorporation language in such filing.
EXECUTIVE COMPENSATION TABLES
2019 Summary Compensation Table
The following table summarizes the compensation for 2019 and 2018 awarded to, earned by or paid to our NEOs.
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| | | | | | | | | | | | | | | | |
| Name and Principal Position | | Year | | Salary ($) | | Bonus
($) (1) | | Stock Awards
($) (2) | | Option
Awards
($) (3) | | Non-Equity
Incentive Plan Compensation
($) (4) | | All Other
Compensation
($) (5) | | Total
($) |
| Bernard Acoca | | 2019 | | $597,014 | | — | | $500,000 | | $327,862 | | $488,596 | | $23,029 | | $1,936,501 |
| President & Chief Executive Officer | | 2018 | | $437,869 | | $250,000 | | $1,398,824 | | $431,831 | | $319,109 | | $115,182 | | $2,952,815 |
| Laurance Roberts | | 2019 | | $378,750 | | — | | $250,000 | | $163,931 | | $211,343 | | $26,314 | | $1,030,338 |
| Chief Financial Officer | | 2018 | | $360,378 | | — | | $250,018 | | $155,305 | | $200,813 | | $25,902 | | $992,416 |
| Hector Muñoz | | 2019 | | $375,000 | | — | | $350,019 | | $163,931 | | $146,475 | | $155,159 | | $1,190,584 |
| Former Chief Marketing Officer | | 2018 | | — | | — | | — | | — | | — | | — | | — |
| Miguel Lozano (6) | | 2019 | | $241,250 | | $20,000 | | $250,000 | | $65,579 | | $146,874 | | $21,174 | | $744,877 |
| Chief Operating Officer | | 2018 | | — | | — | | — | | — | | — | | — | | — |
| |
| (1) | For 2019, Mr. Lozano received a cash sign-on bonus of $20,000 pursuant to his employment agreement entered into in March 2019 in connection with his appointment as Chief Operating Officer. |
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| (2) | Amounts shown in this column represent the aggregate grant date fair value of restricted share awards and restricted share unit awards computed in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in calculation of these amounts, see Note 11 to our audited financial statements, included within our Annual Report. |
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| (3) | Amounts shown in this column represent the aggregate grant date fair value of stock option awards computed in accordance with FASB ASC Topic 718. For a discussion of valuation assumptions used in calculation of these amounts, see Note 11 to our audited financial statements, included within our Annual Report. |
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| (4) | Amounts shown in this column represent performance-based compensation earned by our NEOs pursuant to achievement of performance criteria set by the Board under our Annual Incentive Plan. The material terms of the Annual Incentive Plan compensation paid to our named executive officers with respect to the 2019 fiscal year are described above in the section entitled “Named Executive Officer Compensation - Annual Incentive Plan. |
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| (5) | For Messrs. Acoca, Roberts, Muñoz, and Lozano, “All Other Compensation” includes the following perquisites and benefits with respect to fiscal 2019: |
Relocation Stipend: Mr. Muñoz employment agreement provided for a relocation payment of $125,000.
Gas Card Benefits: Messrs. Acoca, Roberts, Muñoz, and Lozano received amounts of $2,435, $2,237, $1,172, and $2,852, respectively.
401(k) Plan Matching Contribution: Messrs. Acoca, Roberts, Muñoz, and Lozano received amounts of $7,898, $8,681, $12,115, and $6,500, respectively.
Auto Allowance: Messrs. Acoca, Roberts, Muñoz and Lozano received amounts of $7,200, $7,200, $7,200, and $5,206 respectively.
Other Benefits (including health and welfare benefits): Messrs. Acoca, Roberts, Muñoz, and Lozano received amounts of $5,496, $8,196, $9,672, and $6,616, respectively.
| |
| (6) | Mr. Lozano’s employment by the Company commenced on April 1, 2019. |
Outstanding Equity Awards at 2019 Fiscal Year End Table The following table sets forth outstanding equity option awards as of December 28, 2016:| | | | | | | | | | | | | | | | | | | | | |
| | | Option Awards | | Stock Awards | |
| | | Number of Securities Underlying Unexercised Options (1) | | | | | | | | | | | | | | | |
| Name | | Exercisable | | | Unexercisable (2) | | | Equity Incentive Plan Awards; Number of Securities Underlying Unexercised Unearned Options | | | Option Exercise Price ($) | | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | | Market Value of Shares or Units of Stock That Have Not Vested ($)(3) | |
| Stephen J. Sather | | | 1,085,499 | | | | — | | | | — | | | | 5.84 | | | April 16, 2022 | | | | | | | | |
| | | | — | | | | 134,181 | | | | — | | | | 11.94 | | | May 11, 2026 | | | | | | | | |
| Laurance Roberts | | | 63,673 | | | | 12,310 | | | | — | | | | 4.09 | | | July 15, 2023 | | | | | | | | |
| | | | 172,347 | | | | 24,620 | | | | — | | | | 5.84 | | | July 15, 2023 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | 5,178 | | | | 65,243 | |
| Edward Valle | | | 207,159 | | | | — | | | | — | | | | 5.84 | | | April 15, 2022 | | | | | | | | |
| | | | — | | | | 83,863 | | | | — | | | | 11.94 | | | May 11, 2026 | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | 5,178 | | | | 65,243 | |
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| | | | | | | | | | | | | | | | | | | | |
| | | | | Option Awards | | | | Stock Awards |
| Name | | Grant Date | | Number of Securities Underlying Unexercised Options
Exercisable
(#) | | Number of Securities Underlying Unexercised Options
Unexercisable
(#) (1) | | Equity Incentive Plan Awards; Number of Securities Underlying Unexercised Unearned Options
(#) | | Option Exercise Price
($) | | Option Expiration Date | | Number of Shares or Units of Stock That Have Not Vested | | Market Value of Shares or Units of Stock That Have Not Vested
($)(2)(3) | | Equity Incentive Plan Awards: Number of Unearned Shares, Units, or other Rights that have not Vested
(#) (4) | | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights that have not vested
($) (4) |
| Bernard Acoca | | 5/9/2018 | | 30,188 | | 90,564 | | — | | $10.40 | | 5/9/2028 | | — | | — | | — | | — |
| | | 5/8/2019 | | — | | 85,472 | | — | | $11.47 | | 5/8/2029 | | — | | — | | — | | — |
| | | 5/9/2018 | | — | | — | | — | | — | | — | | — | | — | | 36,058 | | $542,673 |
| | | 5/9/2018 | | — | | — | | — | | — | | — | | 72,117 | | $1,085,361 | | — | | — |
| | | 5/8/2019 | | — | | — | | — | | — | | — | | 43,592 | | $656,060 | | — | | — |
| Laurance Roberts | | 7/15/2013 | | 75,983 | | — | | — | | $4.09 | | 7/15/2023 | | — | | — | | — | | — |
| | | 7/15/2013 | | 196,967 | | — | | — | | $5.84 | | 7/15/2023 | | — | | — | | — | | — |
| | | 5/10/2017 | | 14,742 | | 14,742 | | — | | $13.95 | | 5/10/2027 | | — | | — | | — | | — |
| | | 8/8/2018 | | 9,921 | | 29,763 | | — | | $11.35 | | 8/8/2028 | | — | | — | | — | | — |
| | | 5/8/2019 | | — | | 42,736 | | — | | $11.47 | | 5/8/2029 | | — | | — | | — | | — |
| | | 8/10/2016 | | — | | — | | — | | — | | — | | 1,294 | | $19,475 | | — | | — |
| | | 5/10/2017 | | — | | — | | — | | — | | — | | 8,962 | | $134,878 | | — | | — |
| | | 8/8/2018 | | — | | — | | — | | — | | — | | 16,521 | | $248,641 | | — | | — |
| | | 5/8/2019 | | — | | — | | — | | — | | — | | 21,796 | | $328,030 | | — | | — |
| Hector Muñoz | | 5/8/2019 | | — | | 42,736 | | — | | $11.47 | | 5/8/2029 | | — | | — | | — | | — |
| | | 12/4/2018 | | — | | — | | — | | — | | — | | 30,516 | | $459,266 | | — | | — |
| | | 5/8/2019 | | — | | — | | — | | — | | — | | 12,411 | | $186,786 | | — | | — |
| Miguel Lozano | | 5/8/2019 | | — | | 17,096 | | — | | $11.47 | | 5/8/2029 | | — | | — | | — | | — |
| | | 5/8/2019 | | — | | — | | — | | — | | — | | 21,796 | | $328,030 | | — | | — |
| (1) | On November 15, 2016, our Board approved the modification of the remaining performance-based stock options granted in 2013 and 2014 to vest based solely on time, as more fully described above in the description of Equity Grants. |
| (2)(1) | All options vest 25% per year starting with the first anniversary of grant. As a result, Mr. Sather’sMessrs. Acoca's, Roberts’, Muñoz’s, and Mr. Valle’sLozano's unexercisable options willgranted in fiscal 2019 at an exercise price of $11.47 are scheduled to vest ratably on May 11,8, 2020, 2021, 2022, and 2023. Mr. Acoca's options granted in fiscal 2018 at an exercise price of of $10.40 are scheduled to vest ratably on May 9, 2019, 2020, 2021and 2022. The unvested portion of Mr. Roberts’ options granted in fiscal 2018 at an exercise price of $11.35 are scheduled to vest ratably on August 8, 2019, 2020, 2021 and 2022. The unvested portion of Mr. Roberts’ options granted in fiscal 2017 2018, 2019, andat an exercise price of $13.95 are scheduled to vest ratably on May 10, 2020 and 2021. Mr. Roberts’s unexercisableMuñoz’s remaining unvested options will vestwere forfeited in full on July 15, 2017.connection with his separation from the Company in March 2020. |
| (3) |
| (2) | All restricted shares and restricted share units vest 25% per year starting with the first anniversary of grant.grant Mr. Muñoz’s unvested restricted shares were forfeited in connection with his separation from the Company in March 2020. |
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| (3) | The amounts shown in this column is determined by multiplying the number of unvested shares or units reported in the preceding column by $15.05 (the closing price of the Company’s common stock on December 24, 2019, the last trading day of fiscal 2019). |
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| (4) | Amounts shown in this column include 36,058 performance share units held by Mr. Acoca, which will vest, subject to Mr. Acoca’s continued employment by the Company through the vesting date, if the Company’s common stock achieves a $20 per-share price either (i) over twenty consecutive trading days or (ii) upon a change in control of the Company, in either case prior to May 9, 2023. |
Director CompensationGrants of Plan-based Awards TableThe following table
provides compensationsummarizes information
regarding grants of plan-based awards for
the NEOs during the fiscal
2016 for each of our independent directors. Only those directors designated as independent receive compensation for their services as directors.| Name | | Fees Earned or Paid in Cash ($) | | | Stock Awards ($) (3) (4) | | | Total ($) | |
| Samuel N. Borgese | | | 60,000 | | | | 50,010 | | | | 110,010 | |
| Douglas K. Ammerman (1) | | | 65,000 | | | | 50,010 | | | | 115,010 | |
| Mark Buller | | | 65,625 | | | | 50,010 | | | | 115,635 | |
| William R. Floyd (2) | | | 41,250 | | | | 49,997 | | | | 91,247 | |
| Carol (“Lili”) Lynton (2) | | | 41,250 | | | | 49,997 | | | | 91,247 | |
1. Mr. Ammerman resigned from the Board on March 29, 2017.
2. Mr. Floyd and Ms. Lynton were elected to the Board in April 2016 as new independent directors.
3. Represents the grant date fair value of restricted shares granted in 2016, computed in accordance with FASB ASC Topic 718. Please see Note 12 to our consolidated financial statements in our 2016 Annual Report on Form 10-K for assumptions made in the valuation of the equity awards.
4. As ofyear ended December 28, 2016, Messrs. Borgese, Ammerman, Buller, and Floyd, and Ms. Lynton, had 6,567, 6,567, 5,457, 3,903, and 3,903 shares of unvested restricted stock awards in the aggregate outstanding, respectively.
Each independent director receives an annual grant of restricted shares with a grant date value of $50,000. These grants vest based on continued service over three years. As a result, Messrs. Borgese, Ammerman, and Buller each received a grant of 3,699 restricted shares under the 2014 Plan, equivalent to $50,000 per capita divided by the closing price of our stock on August 9, 2016. Mr. Floyd and Ms. Lynton each received a grant of 3,903 restricted shares under the 2014 Plan, equivalent to $50,000 per capita divided by the closing price of our stock on April 7, 2016.
In addition, each of our independent directors receives an annual cash retainer fee of $50,000, which is paid quarterly. Also, we provide the following annual fees for independent directors for committee service, which are paid quarterly:
25, 2019. |
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| Name | | Grant Date | | | | Estimated future payouts under non-equity incentive plan awards (1) | | All other stock awards: Number of shares of stock or units (#) | | All other option awards: Number of securities underlying options (#) | | Exercise or base price of option awards ($/Sh) | | Grant date fair value of stock and option awards ($)(2) |
| | Award Type | | Threshold ($) | | Target ($) | | Maximum ($) | |
| Bernard Acoca | | — | | ICP | | $0 | | $597,014 | | $1,504,475 | | — | | — | | — | | — |
| | | 5/8/2019 | | RSA | | — | | — | | — | | 43,592 | | — | | — | | $500,000 |
| | | 5/8/2019 | | Stock Options | | — | | — | | — | | — | | 85,472 | | $11.47 | | $327,862 |
| Laurance Roberts | | — | | ICP | | $0 | | $284,063 | | $715,839 | | — | | — | | — | | — |
| | | 5/8/2019 | | RSA | | — | | — | | — | | 21,796 | | — | | — | | $250,000 |
| | | 5/8/2019 | | Stock Options | | — | | — | | — | | — | | 42,736 | | $11.47 | | $163,931 |
| Hector Muñoz | | — | | ICP | | $0 | | $281,250 | | $708,750 | | — | | — | | — | | — |
| | | 5/8/2019 | | RSA | | — | | — | | — | | 30,516 | | — | | — | | $350,019 |
| | | 5/8/2019 | | Stock Options | | — | | — | | — | | — | | 42,736 | | $11.47 | | $163,931 |
| Miguel Lozano | | — | | ICP | | $0 | | $179,464 | | $452,249 | | — | | — | | — | | — |
| | | 5/8/2019 | | RSA | | — | | — | | — | | 21,796 | | — | | — | | $250,000 |
| | | 5/8/2019 | | Stock Options | | — | | — | | — | | — | | 17,096 | | $11.47 | | $65,579 |
| ● |
| (1) | AuditEach executive officer was entitled to a cash award to be paid under our 2019 Annual Incentive Plan as described under the section entitled “Compensation Discussion and Analysis - Annual Incentive Plan.” Annual Incentive Plan awards were based on achievement of the Company performance metric, modified by an individual performance factor. Actual awards attributable to the Company performance metric component may range from 0% to 180% for achievement of adjusted EBITDA and 0 to 180% for achievement of Company revenue. The individual performance factor, which adjusts the achievement of the Company performance metrics range from 0% to 140% of the amount attributable to the Company performance metric as determined by the Compensation Committee chairman: $10,000in its discretion. The “Threshold” column reflects amounts that would be paid under the Annual Incentive Plan if each executive officer achieved the lowest amount payable which would be 0% regardless of Company payout. Amounts under Target reflect the target Annual Incentive Plan award that would have been paid to the executive officer if each of the company performance factors and individual performance factor under the Annual Incentive Plan had been set at 100 percent. Amounts under Maximum reflect the Annual Incentive Plan award that would have been payable had each of the Company performance factors been achieved at the maximum level of 180% and the individual performance factor been at the maximum level of 140%. Actual Annual Incentive Plan awards paid are reflected in the “Non-Equity Incentive Plan Compensation” column of the table labeled 2019 Summary Compensation Table above. |
| ● |
| (2) | Compensation Committee chairman: $7,500See Note 11 to our audited consolidated financial statements for the year ended December 25, 2019, which are included in our Annual Report filed with the SEC on March 6, 2020, for descriptions of the methodologies and assumptions we used to value equity awards pursuant to FASB Topic 718. |
Option Exercises and Stock Vested Table
The following table sets forth information regarding option exercises and stock vesting for the NEOs for the fiscal year ended December 25, 2019:
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| | | | | | | | | | | |
| Name | | Option Awards | | Stock Awards |
| | Number of shares acquired on exercise (#) | | Value realized on exercise ($) | | Number of shares acquired on vesting (#) | | Value realized on vesting ($) |
| Bernard Acoca | | — |
| | — |
| | 60,097 |
| | $690,214 |
| Laurance Roberts | | — |
| | — |
| | 11,283 |
| | $128,289 |
| Hector Muñoz | | — |
| | — |
| | 4,137 |
| | $66,109 |
| ● |
| (1) | NominatingReflects the number of shares of the company's common stock acquired on vesting of restricted stock and Corporate Governance Committee chairman: $5,000restricted stock units. |
| ● |
| (2) | All other committee members: $5,000Equals closing price the company's common stock on the vesting date multiplied by the number of shares vested. |
Mr. Floyd and Ms. Lynton commenced their services as our directors on April 1, 2016.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERSBeneficial Ownership
The table below sets forth the beneficial ownership information for our common stock
as of the record date for: (i) each of our named executive officers, (ii) each of our directors, (iii) all of our executive officers and directors as a group, and (iv) each person known to us to be the beneficial owner of more than 5% of our shares of common stock.
Except as otherwise disclosed, the information in the table set forth below is as of the record date.
Unless otherwise noted below, the address for each person listed below is 3535 Harbor Boulevard, Suite 100, Costa Mesa, California 92626. We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons named below have sole voting and investment power with respect to all shares of common stock that they beneficially own, subject to applicable community property laws.
In computing the number of shares of common stock beneficially owned by a person and the percentage ownership of that person, we deemed outstanding shares subject to options or restricted
stockshare units held by that person exercisable or vesting within 60 days of the record date. We did not deem these shares outstanding, however, for the purpose of computing the percentage ownership of any other person.
| Name | | Shares | | | Vested but Unexercised | | | Acquirable Within 60 Days | | | Total | | | Percent of Class | |
| Named Executive Officers and Directors: | | | | | | | | | | | | | | | | | | | | |
| Stephen J. Sather | | | — | | | | 1,085,499 | | | | 33,546 | | | | 1,119,045 | | | | 2.8 | % |
| Laurance Roberts(1) | | | 5,178 | | | | 236,020 | | | | — | | | | 241,198 | | | | * | |
| Edward Valle(1) | | | 5,178 | | | | 207,159 | | | | 20,966 | | | | 233,303 | | | | * | |
| Michael G. Maselli | | | — | | | | — | | | | — | | | | — | | | | — | |
| Dean C. Kehler(2) | | | 16,746,544 | | | | — | | | | — | | | | 16,746,544 | | | | 43.5 | % |
| John M. Roth | | | — | | | | — | | | | — | | | | — | | | | — | |
| Samuel N. Borgese(1) | | | 9,668 | | | | — | | | | — | | | | 9,668 | | | | * | |
| Mark Buller(1) | | | 6,335 | | | | — | | | | — | | | | 6,335 | | | | * | |
| William R. Floyd(1) | | | 3,903 | | | | — | | | | — | | | | 3,903 | | | | * | |
Carol (“Lili”) Lynton(1) | | | 3,903 | | | | — | | | | — | | | | 3,903 | | | | * | |
| All directors and executive officers as a group (12 people) | | | 16,780,709 | | | | 1,562,979 | | | | 71,845 | | | | 18,415,533 | | | | 45.9 | % |
| 5% Stockholders: | | | | | | | | | | | | | | | | | | | | |
| Trimaran Pollo Partners, L.L.C.(2) | | | 16,746,544 | | | | — | | | | — | | | | 16,746,544 | | | | 43.5 | % |
| BlackRock, Inc.(3) | | | 2,499,716 | | | | — | | | | — | | | | 2,499,716 | | | | 6.5 | % |
|
| | | | | | | | | | | | | | | |
| Name | | Shares | | Vested but Unexercised | | Acquirable within 60 Days of the Record Date | | Total | | Percent of Class |
| Named Executive Officers and Directors: (1) | | | | | | | | | | |
| Bernard Acoca | | 82,890 |
| | 30,188 |
| | 75,595 |
| | 188,673 |
| | * |
|
| Laurance Roberts | | 60,829 |
| | 284,013 |
| | 18,055 |
| | 362,897 |
| | * |
|
| Hector Muñoz | | 4,137 |
| | — |
| | — |
| | 4,137 |
| | * |
|
| Miguel Lozano | | 21,796 |
| | — |
| | 4,274 |
| | 26,070 |
| | * |
|
| Michael G. Maselli | | 10,518 |
| | — |
| | — |
| | 10,518 |
| | * |
|
| Douglas J. Babb | | 10,518 |
| | — |
| | — |
| | 10,518 |
| | * |
|
| Samuel N. Borgese | | 23,771 |
| | — |
| | — |
| | 23,771 |
| | * |
|
| Mark Buller | | 20,438 |
| | — |
| | — |
| | 20,438 |
| | * |
|
| William R. Floyd | | 18,006 |
| | — |
| | — |
| | 18,006 |
| | * |
|
Dean C. Kehler (2) | | 16,757,062 |
| | — |
| | — |
| | 16,757,062 |
| | 47.7 | % |
| Carol ("Lili") Lynton | | 18,006 |
| | — |
| | — |
| | 18,006 |
| | * |
|
| John M. Roth | | 13,110 |
| | — |
| | — |
| | 13,110 |
| | * |
|
| All directors and executive officers as a group (11 people) | | 17,036,944 |
| | 314,201 |
| | 97,924 |
| | 17,449,069 |
| | 49.7 | % |
| 5% Stockholders: | | | | | | | | | | |
Trimaran Pollo Partners, L.L.C. (2) | | 16,746,544 |
| | — |
| | — |
| | 16,746,544 |
| | 47.7 | % |
| AllianceBernstein L.P (3) | | 2,456,752 |
| | — |
| | — |
| | 2,456,752 |
| | 7.0 | % |
| BlackRock, Inc. (4) | | 3,176,388 |
| | — |
| | — |
| | 3,176,388 |
| | 9.0 | % |
| Dimensional Fund Advisors LP (5) | | 1,973,968 |
| | — |
| | — |
| | 1,973,968 |
| | 5.6 | % |
| The Vanguard Group (6) | | 1,864,587 |
| | — |
| | — |
| | 1,864,587 |
| | 5.3 | % |
| |
| (1) | Shares held reflect grants of restricted shares, including shares still subject to vesting periods. |
| |
| (2) | Based solely on a Schedule 13G13G/A filed on February 12, 2016, by (i) Trimaran Pollo Partners, L.L.C., (ii) Trimaran Capital, L.L.C., (iii) Jay R. Bloom, and (iv) Dean C. Kehler. Trimaran Pollo Partners, L.L.C., is the stockholder of record. Trimaran Capital, L.L.C., is its managing member. Mr. Bloom and Mr. Kehler are the managing members of Trimaran Capital, L.L.C. All have an address of 1325 Avenue of the Americas, 25th Floor, New York, New York 10019. |
| |
| (3) | Based solely on a Schedule 13G filed on January 30, 2017,February 18, 2020, by AllianceBernstein L.P, as a majority owned subsidiary of AXA Equitable Holdings, Inc. ("EXH"), and is as of December 31, 2019. AllianceBernstein operates under independent management and makes independent decisions from EXH and its respective subsidiaries, and EXH calculates and reports beneficial ownership separately from AllianceBernstein pursuant to guidance provided by the SEC. The Schedule 13G indicated that AllianceBernstein L.P. has sole dispositive power for 2,456,752 shares and and sole voting power for 1,905,093 shares. AllianceBernstein L.P. has an address of 1345 Avenue of the Americas, New York, New York 10105. |
| |
| (4) | Based solely on a Schedule 13G/A filed on February 5, 2020, by BlackRock, Inc., as a parent holding company or control person, relating to stock held directly, or indirectly by certain subsidiaries, as of December 31, 2016.2019. The Schedule 13G13G/A indicated that BlackRock, Inc., had sole dispositive power for 3,176,388 shares and aggregate ownership of 2,499,716 shares, sole voting power for 2,470,091 shares, and shared voting or dispositive power for no3,118,581 shares. BlackRock, Inc., has an address of 55 East 52nd Street, New York, NYNew York 10055. |
Equity Compensation Plan Information
| |
| (5) | Based solely on a Schedule 13G/A filed on February 12, 2020, by Dimensional Fund Advisors LP, as an investment adviser who furnishes investment advice to four investment companies and serves as investment manager or sub-adviser to certain other commingled funds, group trusts and separate accounts (such investment companies, trusts and accounts, collectively, the “Funds”). The Funds own the shares of our common stock and Dimensional may be deemed beneficial owner as a result of its serving as investment advisor or investment manager. Dimensional Fund Advisors LP or its subsidiaries have sole dispositive power for 1,973,968 shares, and sole voting power for 1,895,207 shares. Dimensional Fund Advisors LP has an address of Building One, 6300 Bee Cave Road, Austin, Texas 78746. |
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| (6) | Based solely on a Schedule 13G/A filed on February 12, 2020, by The Vanguard Group relating to stock held directly, or indirectly as of December 31, 2019. The Schedule 13G/A indicated that The Vanguard Group had sole dispositive power for 1,846,120 shares, sole voting power for 19,320 shares, shared dispositive power for 18,467 shares, and shared voting power for 2,000 shares. The Schedule 13G/A also disclosed that Vanguard Fiduciary Trust Company (“VFTC”) is the beneficial owner of 16,467 shares and Vanguard Investments Australia, Ltd. ("VIA”) is the beneficial owner of 4,853 shares. VFTC and VIA are each wholly owned subsidiaries of The Vanguard Group and serve as its investment manager of collective trust accounts and investment manager of Australian investment offerings, respectively. The Vanguard Group has an address of 100 Vanguard Blvd., Malvern, PA 19355. |
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information, as of December
28, 2016,25, 2019, about outstanding awards and shares of common stock available for future awards under our
equity compensation plans under2018 Incentive Plan and our 2014 Omnibus Equity Incentive Plan (the “2014 Incentive Plan”), which
our equity securities are
authorized. We have not made any grants of common stock outside of ourthe Company’s only equity compensation plans. All
awardsour equity compensation plans have been approved by our security holders.
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Plan Category | | | Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants, and Rights | | | | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights | | | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) | |
| Equity compensation plans approved by security holders | | | 2,191,728 | | | $ | 7.26 | | | | 665,095 | |
| Equity compensation plans not approved by security holders | | | — | | | | — | | | | — | |
Total | | | 2,191,728 | | | $ | 7.26 | | | | 665,095 | |
Section 16(a) Beneficial Ownership Reporting Compliance
Our directors, our executive officers, and stockholders owning more than 10% of our common stock are required under section 16(a) of the Exchange Act to file reports of ownership of our common stock and changes thereto with the SEC. Based solely on our review of those reports that have been furnished to us pursuant to SEC regulations, and any written representations referred to in 17 C.F.R. section 229.405(b)(1), we believe that in 2017, and before, all such people complied with their section 16(a) filing requirements, with the following exceptions:
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| Plan Category | | Number of Securities to Be Issued upon Exercise of Outstanding Options, Warrants, and Rights | | Weighted-Average Exercise Price of Outstanding Options, Warrants, and Rights (1) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) (2) |
| Equity compensation plans approved by security holders | | 2,077,570 |
| | $ | 8.14 |
| | 1,040,703 |
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| Equity compensation plans not approved by security holders | | — |
| | — |
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| Total | | 2,077,570 |
| | $ | 8.14 |
| | 1,040,703 |
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| (1) | In May 2016, Mr. Sather, Mr. Valle,Outstanding restricted share unit awards do not have an exercise price and Mr. Dawson were each one business day lateare therefore not included in filing one Form 4 per individual, each regarding one transaction, in each case a stock option grant.calculating the weighted-average exercise price of outstanding options. |
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| (2) | Mr. AmmermanAll of these common shares remain available for future issuance under our 2018 Incentive Plan and may be considered to have been late in filing one Form 4 in connection with one transaction, namely the disposition of unvestedgranted as options, share appreciation rights, restricted shares, that occurred as a consequence of his resignation fromrestricted share units, and other share-based awards authorized under the Board. |
| ● | Each of Mr. Roberts and Mr. Siade2018 Incentive Plan. No new awards may be considered to have been late in filing one Form 4 per individual, each regarding one transaction, namelygranted under the modification on November 15, 2016, by the Company of previously granted performance-based stock option awards to time-based stock option awards, which modifications may be considered to result in reportable acquisitions.2014 Incentive Plan. |
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS AND DIRECTOR INDEPENDENCE
Policy Concerning Related Party Transactions We have adopted a written policy relating to the approval of related party transactions. Our
audit committeeAudit Committee is to review certain financial transactions, arrangements, and relationships between us and any of the following related parties to determine whether any such transaction, arrangement, or relationship is a related party transaction:
| ● | any of our directors, director nominees, or executive officers; |
| ● | any beneficial owner of more than 5% of our outstanding stock; and |
| ● | any immediate family member of any of the foregoing. |
any of our directors, director nominees, or executive officers;
any beneficial owner of more than 5% of our outstanding stock;
any immediate family member of any of the foregoing; and
any firm, corporation or other entity in which any of the foregoing persons is employed or is a partner or principal in a similar position or on which such person has a 5% or greater beneficial ownership interest.
Our
audit committeeAudit Committee will review any financial transaction, arrangement, or relationship that:
| ● | involves or will involve, directly or indirectly, any related party identified above and is in an amount greater than $120,000; |
| ● | would cast doubt on the independence of a director; |
| ● | would present the appearance of a conflict of interest between us and the related party; or |
| ● | is otherwise prohibited by law, rule, or regulation. |
involves or will involve, directly or indirectly, any related party identified above and is in an amount greater than $120,000;
would cast doubt on the independence of a director;
would present the appearance of a conflict of interest between us and the related party; or
is otherwise prohibited by law, rule, or regulation.
The
audit committeeAudit Committee will review each such transaction, arrangement, or relationship to determine whether a related party has, has had, or expects to have, a direct or indirect material interest. Following its review, the
audit committeeAudit Committee will take such action as it deems necessary and appropriate under the circumstances, including approving, disapproving, ratifying, canceling, or recommending to management how to proceed if it determines that a related party has a direct or indirect material interest in a transaction, arrangement, or relationship with us. Any member of the
audit committeeAudit Committee who is a related party with respect to a transaction under review will not be permitted to participate in the discussions or evaluations of the transaction; however, the
audit committeeAudit Committee member will provide all material information concerning the transaction to the
audit committee.Audit Committee. The
audit committeeAudit Committee will report its action with respect to any related party transaction to the Board.
We are a party to a stockholders agreement with LLC and certain third-party investors. The stockholders agreement permits (i)
LLC to make an unlimited number of requestsdemands that we use our best efforts to register our shares under the Securities Act and (ii) Freeman Spogli to make two requestsdemands that we use our best efforts to register its shares under the Securities Act, for so long as they own 10% or more of the membership interests of LLC, two years after the completion of our initial public offering. LLC.
Pursuant to the stockholders agreement, LLC may also preempt any demand request by Freeman Spogli, in which case
(i) participation in such demand registration by LLC and Freeman Spogli shall be on a pro rata
basis.basis, and (ii) Freeman Spogli shall not be deemed to have exercised a demand notice. By exercising these registration rights, and selling a large number of shares of our common stock, the price of our common stock could decline. Approximately 16,746,544 shares of common stock were subject to registration rights on the record date. In demand registrations, subject to certain exceptions, the parties to the stockholders agreement have certain rights to participate on a pro rata basis, subject to certain conditions. In addition, if we decide to sell our common stock, LLC and the other parties to the stockholders agreement, including members of our management, will also have certain rights to participate on a pro rata basis, subject to certain conditions.
The LLC agreement, described below, provides that, to the extent that LLC does not exercise these “piggyback” rights, any member of LLC may require us to include in any registered offering the pro rata portion of securities owned by such member through LLC.
LLC and its members are entitled, under the stockholders agreement, subject to certain exceptions, to exercise demand registration rights to register their shares of our common stock under the Securities Act. By exercising these registration rights, and selling a large number of shares of our common stock, the price of our common stock could decline. Approximately 16,746,544 shares of common stock were subject to registration rights on the record date.
At least 10 days prior to the anticipated filing date of any registration statement, notice is to be given to all holders of registrable securities party to the stockholders agreement outlining their rights to include their shares in that registration statement, and we must use our best efforts to register any securities which such holders request, within 10 days of receipt of notice, to be registered. A stockholder may, until seven7 days prior to the effectiveness of a registration statement, withdraw any securities that it has previously elected to include such registration statement pursuant to these piggyback registration rights. Any sales of registrable securities pursuant to demand rights must be on the same terms and conditions as those applying to us or any selling stockholder.
We are required to bear substantially all costs incurred in these registrations
of securities, other than underwriting discounts and
commissions.commissions and transfer taxes. These registration rights could result in substantial future expenses for us and adversely affect any future equity or debt offerings.
Affiliates of Trimaran, Freeman Spogli, and certain other third-party investors have entered into a limited liability company operating agreement (the “LLC agreement”) for LLC. The LLC agreement generally restricts the transfer of interests in LLC owned by the parties other than affiliates of Trimaran. Exceptions to this restriction include transfers to affiliates. In addition, the third-party investors have “tag-along” rights to sell their interests on a pro rata basis with Trimaran affiliates in significant sales to third parties. Similarly, Trimaran affiliates have “drag-along” rights to cause Freeman Spogli and the third-party investors to sell their interests, on a pro rata basis with Trimaran affiliates, in significant sales to third parties. The members of LLC have preemptive rights in order to maintain their respective percentage ownership interests in LLC in the event of an issuance of additional membership interests.
The LLC agreement permits a member of LLC who holds more than 15% of LLC’s outstanding membership units following the later of 270 days after completion of our initial public offering and the time we become eligible to register securities on Form S-3, to cause LLC to exercise one of its demand registration rights (as described under “—“Stockholders Agreement”) with respect to the pro rata portion of securities owned by such member through LLC, subject to certain exceptions. To the extent that LLC does not exercise the “piggyback” registration rights described under “—Stockholders “Stockholders Agreement,” any member of LLC may require us to include in any registered offeringregistration the pro rata portion of securities owned by such member through LLC. Under the terms of the LLC agreement, LLC is solely managed by a Trimaran affiliate. Through the LLC agreement, Trimaran affiliates also have the right to designate at least a majority of the directors on our Board, and other investors (including Freeman Spogli) holding at least 15% of the outstanding interests have the right to designate one director to our Board, provided that Freeman Spogli has the right to designate one director to our Board for so long as it owns 5% or more of LLC. LLC and its managing member shall take all necessary action to cause the election of any persons properly designated as Trimaran directors or non-Trimaran directors under the LLC agreement.
Mr. Maselli, Mr. Kehler, and Mr. Roth were designated as directors of the Company pursuant to the LLC agreement, and each has since been re-elected to the Board. The LLC agreement terminates and LLC will
be dissolvedbegin the process of dissolving and
winding up its affairs
wound up at the earlier of (i) the election of the managing member or (ii) six years following the completion of our initial public
offering.offering, or July 27, 2020.
Income Tax Receivable Agreement
We expect to be able to utilize net operating losses and other tax attributes that arose prior to our initial public offering, assuming generation of future income. These net operating loss carryforwards and other tax attributes will reduce the amount of tax that we and our subsidiaries would otherwise be required to pay in the future.
We have entered into an income tax receivable agreement (the “TRA”) with our pre-IPO stockholders,
including LLC, 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 discussed below) as a result of the utilization of our net operating losses and other tax attributes attributable to periods prior to our initial public offering together with interest accrued at a rate of LIBOR plus 200 basis points from the date that the applicable tax return is due (without extension) until paid.
For purposes of the TRA, cash savings in income tax is computed by comparing our actual income tax liability to the amount of such taxes that we would have been required to pay had we not been able to utilize the tax benefits subject to the TRA. The term of the TRA will continue until all relevant tax benefits have been utilized or have
expired.expired, subject to earlier termination pursuant to the terms of the TRA.
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.
While the actual amount and timing of any payments under the TRA will vary depending upon a number of factors, including the amount, character, and timing of our and our subsidiaries’ taxable income in the future, we expect that during the term of the TRA, the payments that we may make could be material. As of December
28, 2016,25, 2019, we had an accrued payable related to this agreement of approximately
$38.7$8.2 million.
In fiscal 2019, we paid $5.8 million to our pre-IPO stockholders under the TRA. Over 99% of this
was to LLC, of which Freeman Spogli would have accrued approximately one-third of the benefit. Certain of our directors who are affiliated with LLC and Freeman Spogli may benefit from such payments.
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 (the “valuation assumptions”), including assumptions related to our future taxable income. Additionally, if we or a direct or indirect subsidiary transfers 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.
The Board may take action that leads to such payments under the TRA and certain of our directors who are affiliated with LLC, a party to the TRA, could receive such payments.
The TRA provides that in the event that we breach any of our material obligations under it, whether as a result of our failure to make any payment when due (subject to a specified cure period), failure to honor any other material obligation under the TRA, or by operation of law as a result of the rejection of the TRA in a case commenced under the U.S. Bankruptcy Code or otherwise, then all our payment and other obligations under the TRA will be accelerated and will become due and payable, applying the same valuation assumptions discussed above, including those relating to our future taxable income. Such payments could be substantial and could exceed our actual cash tax savings. Additionally, we generally have the right to terminate the TRA. If we terminate the TRA, our payment and other obligations under the TRA will be accelerated and will become due and payable, also applying the valuation assumptions discussed above. Such payments could be substantial and could exceed our actual cash tax savings.
Because we are a holding company with no operations of our own, our ability to make payments under the TRA is dependent on the ability of our subsidiaries to make distributions to us. Under our revolving credit agreement, our subsidiaries may make dividends and distributions to us, and we are permitted to make payments under the TRA. To the extent that we are unable to make payments under the TRA for any reason, such payments will be deferred and will accrue interest at a rate of LIBOR plus 200 basis points per annum until paid.
Franchise Development Option Agreement On July 11, 2014, EPL and LLC entered into a Franchise Development Option Agreement (the “Franchise Development Option Agreement”) in connection with the development of El Pollo Loco restaurants in the New York–Newark, NY–NJ–CT–PAYork-Newark, NY-NJ-CT-PA Combined Statistical Area (the “Territory”). Pursuant to the terms of the Franchise Development Option Agreement, EPL has granted LLC the exclusive option (the “Initial Option”) to develop and open 15 restaurants within the Territory over 5within five years of the execution of the Company’s then current form of franchise development agreement (the “Initial Option”Development Agreement”), and, provided. The Initial Option expires 10 years from the date of entering into the Franchise Development Option Agreement. If the Initial Option is exercised, the LLC will have the exclusive option (the “Additional Option”) to develop and open up to an additional 100 restaurants within the Territory over 10 years (the “Additional Option”).of the execution of the Company’s then current form of franchise development agreement. The Franchise DevelopmentAdditional Option Agreement will terminate (i) ten years from the date of its execution or (ii) if the Initial Option is exercised,expires five years from the date of the exercise ofentering into the Initial Option.Development Agreement. LLC may only exercise the Initial Option if it satisfies certain financial and operational criteria and after EPL has made the determination to begin development of Company-operated restaurants within the Territory or support the development of the Territory.Territory, however, certain of our board members are associated with LLC. We have no current intention to begin such development within the Territory.
The Board does not know of any other matters that are to be presented for action at the annual meeting. If any other matters properly come before the annual meeting or any adjournments or postponements thereof, the people named as proxies will have discretion to vote thereon.
A copy of our Annual Report has been posted, and is available without charge, on our website athttp://investor.elpolloloco.com. For stockholders receiving a Notice, such Notice will contain instructions on how to request a printed copy of our Annual Report. For stockholders receiving a printed copy of this proxy statement, a copy of our Annual Report has also been provided to you. In addition, a copy of our Annual Report (including the financial statements and schedules thereto), which we filed with the SEC on March 6, 2020, will be provided without charge to any person to whom this proxy statement is mailed upon the written request of any such person to El Pollo Loco Holdings, Inc., Attention: Corporate Secretary, 3535 Harbor Boulevard, Suite 100, Costa Mesa, CA 92626.
By Order of the Board of Directors,
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/s/ Edith R. AustinJason Weintraub | |
Edith R. Austin
Jason Weintraub
Senior Vice President,
Chief Legal
Officer
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EL POLLO LOCO HOLDINGS, INC.
3535 HARBOR BLVD., SUITE 100
| VOTE BY INTERNET
Before The Meeting- Go towww.proxyvote.com Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. During The Meeting - Go towww.virtualshareholdermeeting.com/LOCO2017
LOCO2020 You may attend the Meeting via the Internet and vote during the Meeting. Have the information that is printed in the box marked by the arrow available and follow the instructions.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 p.m. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign, and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. |
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| TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS: | | |
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| E27840-P92555 | KEEP THIS PORTION FOR YOUR RECORDS |
| DETACH AND RETURN THIS PORTION ONLY |
| THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED. |
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| EL POLLO LOCO HOLDINGS, INC. | | For | For | Withhold | | For All | | To withhold authority to vote for any individual nominee(s), mark “For All Except” and write the number(s) of the nominee(s) on the line below. | | | | | | |
| | The Board of Directors recommends you vote FOR ALL the following: | All | All | Except | | | | | | | |
| | All | | All | | | | ☐ | ☐ | ☐ | | | | | | | | |
| | | 1. | Election of Directors | | | Except | | | | | | | | | | | |
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| | | Nominees: | | | | | | | | | | | | | | |
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| | | 01)
| John M. Roth | | | | | | | | | | | |
| | | 02) | Samuel N. Borgese | | | | | | | | | | | |
| | | 03) | Mark Buller | | | | | | | | | | | |
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| 1. | | Election of Directors | | | | | | | | | | | | | | | |
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| | The Board of Directors recommends you vote FOR the following proposal: | | | | For | Against | Abstain | |
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| | 2. | Proposal to ratify the appointment of BDO USA, LLP as the Company’s independent registered public accounting firm for 2017. | | ☐ | ☐ | ☐ | | |
| Nominees: | | | | | | | | | |
| | The Board of Directors recommends you vote AGAINST the following proposal: | | | | | | |
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| | 3. | Stockholder proposal concerning disclosure regarding risks from animal welfare, if properly presented at the annual meeting. | | ☐ | ☐ | ☐ | | |
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| | The shares represented by this proxy when properly executed will be voted in the manner directed herein by the undersigned Shareholder(s).If no direction is made, this proxy will be voted FOR items 1 and 2 and AGAINST item 3.If any other matters properly come before the meeting, or if cumulative voting is required, the persons named in this proxy will vote in their discretion.
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| | | | 01) | | Samuel N. Borgese | | | | | | | | | |
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| | | | 02) | | Mark Buller | | | | | | | | | |
| | For address changes and/or comments, please check this box and write them on the back where indicated. | ☐ | | | | | | | | |
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| | | | 03) | | John M. Roth | | | | | | | | | | | | | | | |
| The Board of Directors recommends you vote FOR Proposal 2 and Proposal 3 and ONE YEAR on Proposal 4: | | | For | | Against | | Abstain |
| 2. | | Proposal to Ratify the Appointment of BDO USA, LLP as the Company’s Independent Registered Public Accounting Firm for 2020. | | | ☐ | | ☐ | | ☐ |
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| 3. | | Advisory Vote on the Compensation of Named Executive Officers. | | | ☐ | | ☐ | | ☐ |
| One Year | | Two Years | | Three Years | | Abstain |
| 4. | | Advisory Vote on the Frequency of Future Advisory Votes to Approve the Compensation of Named Executive Officers. | ☐ | | ☐ | | ☐ | | ☐ |
| For address changes and/or comments, please check this box and write them on the back where indicated. | | ☐ | | | | | | | | | |
| | Please sign your name exactly as it appears hereon. When signing as attorney, executor, administrator, trustee or guardian, please add your title as such. When signing as joint tenants, all parties in the joint tenancy must sign. If a signer is a corporation, please sign in full corporate name by duly authorized officer. | | | | | | | | |
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| | Signature [PLEASE SIGN WITHIN BOX] | | Date | | | | | | | | Signature (Joint Owners) | Date | | | | |
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V.1.2
Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Notice and Proxy Statement and Form 10-K are available at www.proxyvote.com.
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| | EL POLLO LOCO HOLDINGS, INC. | |
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| | THIS PROXY IS SOLICITED BYON BEHALF OF THE BOARD OF DIRECTORS | |
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| | ANNUAL MEETING OF SHAREHOLDERS
STOCKHOLDERS JUNE 6, 20172, 2020 1:00 PM PDTPT
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| | The shareholder(s)stockholder(s) hereby appoint(s) Laurance Roberts and Edith R. Austin,Jason Weintraub, or either of them, as proxies, each with the power to appoint his/her substitute, and hereby authorize(s) them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of Common Stock of EL POLLO LOCO HOLDINGS, INC. that the shareholder(s)stockholder(s) is/are entitled to vote at the Annual Meeting of ShareholdersStockholders to be held at 1:00 PM PDT,PT, on June 6, 2017,2, 2020, at www.virtualshareholdermeeting.com/LOCO2017,LOCO2020, and any adjournment or postponement thereof. | |
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| | THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN.HEREIN BY THE UNDERSIGNED. IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED FOR"FOR ALL" THE ELECTION OF EACH OF THE NOMINEES LISTED ON THE REVERSE SIDE, FOR THE BOARD OF DIRECTORS, FOR"FOR" PROPOSAL 2 AND AGAINST PROPOSAL 3. 3, and "ONE YEAR" ON PROPOSAL 4. | |
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| | PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY USING THE ENCLOSED REPLY ENVELOPE | |
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| (If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.) | |
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| Continued and to be signed on reverse side | |
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V.1.2
