UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
(Rule 14a-101)
Information Required in Proxy Statement
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of
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☐ Soliciting Material Pursuant to § 240.14a-12
El Pollo Loco Holdings, Inc.
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy Statement, if Other than the Registrant)
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EL POLLO LOCO HOLDINGS, INC.
3535 Harbor Boulevard, Suite 100
Costa Mesa, CA 92626
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 5, 20182, 2020
Dear Stockholders of El Pollo Loco Holdings, Inc.:
The 20182020 annual meeting of stockholders of El Pollo Loco Holdings, Inc. (“we,” “us,” “our,” and the “Company”), will be held on Tuesday, June 5, 2018,2, 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 20212023 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 2018;2020;
3. ApproveApproval, on an advisory (non-binding) basis, of the 2018 Omnibus Equity Incentive Plan; andcompensation of our named executive officers;
4. TransactApproval, on an advisory (non-binding) basis, of the frequency of future advisory votes to approve the compensation of our named executive officers; and
5. Transaction of such other business as may properly come before the meeting or any adjournments or postponements thereof.
ThisIn 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/LOCO2018.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 5, 2018: The2, 2020: This Notice, the proxy statement, and the 20172019 Annual Report on Form 10-K are available at www.proxyvote.com.
Our board of directors has fixed the close of business on April 12, 2018,9, 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, 38,636,038 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, 201821, 2020 | |
EL POLLO LOCO HOLDINGS, INC.
3535 Harbor Boulevard, Suite 100
Costa Mesa, CA 92626
PROXY STATEMENT
TABLE OF CONTENTS
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About the Proxy Materials and the Annual Meeting | |
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Directors | |
Proposal 2: Ratification of Independent Registered Public Accounting Firm | |
Audit Committee Report | |
Proposal 3: Advisory Vote to Approve the Compensation of Named Executive Officers | |
Proposal 4: Advisory Vote on the Frequency of Future Advisory Votes to Approve the Compensation of our Named Executive Officers | |
Director Compensation | |
Governance of the Company | |
Board Composition | |
Board Leadership Structure | |
Code of Business Conduct and Ethics | |
Corporate Governance Guidelines | |
Role in Risk Oversight | |
Director Independence | |
Board Committees | |
Audit Committee | |
Compensation Committee | |
Compensation Committee Interlocks and Insider Participation | |
Nominating and Corporate Governance Committee | |
Board Meetings | |
Annual Meeting Attendance | |
Succession Planning | |
Executive Officers | |
Compensation Discussion and Analysis | |
Elements of Executive Compensation | |
Named Executive Officer Compensation | |
Other Compensation Policies and Description of Employment Agreements | |
Compensation Committee Report | |
Executive Compensation Tables | |
Security Ownership of Certain Beneficial Owners and Management | |
Information | |
Certain Relationships and Related Party Transactions | |
Other Matters | |
INTRODUCTION
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 5, 2018,2, 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 20212023 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 2018,2020;
3. Approval, on an advisory (non-binding) basis, of the 2018 Omnibus Equity Incentive Plan,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.
AThe 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 2017 Annual Report on Form 10-K, is being mailed to stockholders on or about April 25, 2018. 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.
QUESTIONS AND ANSWERS
ABOUT THE PROXY MATERIALS
AND THE ANNUAL MEETING
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 5, 2018.2, 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 the three director nominees named in this proxy statement as Class III directors to serve until the 20212023 annual meeting of stockholders;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 2018; and2020.
approval, on an advisory (non-binding) basis, of the 2018 Omnibus Equity Incentive Plan.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 “FOR” approvalor 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 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 2018 Omnibus Equity Incentive Plan.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 12, 2018.9, 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/LOCO2018, 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:
EnteringSubmitting a new vote online
Entering a new vote by 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,below;
Signing and returning a new proxy card bearing a later date, which will automatically revoke your earlier proxy instructions,instructions; or
Voting atelectronically 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.in the manner directed by your broker, but your shares will constitute “broker non-votes” on each of the other items at the annual meeting.
Proposal 3, 2018 Omnibus Equity Incentive Plan approval, is not routine.
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 stockholdersIf 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 5, 2019,2, 2021, and March 7, 2019)4, 2021 (i.e., 120 and 90 days before June 2, 2021, the anniversary of the preceding annual meeting (i.e., June 5, 2019), provided thatmeeting). However, if the upcomingnext year's annual meeting is not scheduled within 25 days of that anniversary (i.e., between May 11, 2019,8, 2021, and June 30, 2019)27, 2021), the notice must be received by the Corporate Secretary no later than the close of business on the 10 days after we provideth 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/1606366/000119312514275282/d714963dex32.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.card.
Regarding deadlines, under SEC regulations,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, 2019, or December 26, 2019)meeting). However, if the date of our 20192021 annual meeting has been changed by more than 30 days from the date of our 20182020 annual meeting (i.e., if it is not between May 6, 2019,3, 2021, and July 5, 2019)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, 2018) before the anniversary of the dissemination of materials for the preceding annual meeting (i.e., April 25, 2019), 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
Costa Mesa, CA 92626
(714) 599-5000
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 1
1: ELECTION OF DIRECTORS
Our business operates under the direction of our Board, which currently consists of nine 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 2020, respectively. Our Board has nominated, and stockholders are being asked to re-electelect, our Class IIII directors, Bernard Acoca, Michael G. MaselliSamuel N. Borgese, Mark Buller, and Carol (“Lili”) Lynton,John M. Roth, each for newa three-year termsterm expiring at the 20212023 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 regardThe three Class III director nominees have consented to Bernard Acocabe named in this proxy statement and Lili Lynton, bothto serve as directors if elected. If any nominee of the Board is unable to serve, or for good cause will not serve, as a director at the time of the annual meeting, the persons who are nominees standingdesignated as proxies intend to vote, in their discretion, for their first election by stockholders, and both nominees were recommendedany 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 for the role of director although we did pay a fee to Korn Ferry to assist in our search for a new Chief Executive Officer.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 election of each nominee.Class III director nominees to be elected to the Board.
INFORMATION REGARDING THE BOARD OF DIRECTORS
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF BDO USA, LLP
AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR 2018
The audit committee of our Board has appointed BDO USA, LLP, as our independent registered public accounting firm for 2018. 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. Director Biographies
The following sets forth fees billed by BDO USA, LLP, foris biographical information about our Board of Directors, including a description of the audit of our annual financial statementsexperience, qualifications and other services rendered:
|
| | | | | | |
($) | | Fiscal 2017 | | Fiscal 2016 |
Audit Fees (1) | | 425,834 |
| | 381,611 |
|
Audit-Related Fees (2) | | 13,208 |
| | 15,008 |
|
Total | | 439,042 |
| | 396,619 |
|
| |
(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” from voting when votingskills that have led the Board to determine that each director should serve on the ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for 2018. 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.
Board. The Board recommends that you vote “FOR” the ratification of the appointment of BDO USA, LLP, as our independent registered public accounting firm for 2018.
PROPOSAL 3
APPROVAL OF THE 2018 OMNIBUS EQUITY INCENTIVE PLAN
Introduction
On April 21, 2018, our board of directors adopted our 2018 Omnibus Equity Incentive Plan (the “2018 Plan”). The 2018 Plan will become effective, if at all, on the date that it is approved by the Company’s stockholders (the “Effective Date”).
We currently maintain the 2014 Omnibus Equity Incentive Plan (the “Prior Plan”). However, following the Effective Date, no further awards may be issued under the Prior Plan, but all awards under the Prior Plan that are outstanding as of the Effective Date will continue to be governed by the terms, conditions and procedures set forth in the Prior Plan and any applicable award agreement.
Under the 2018 Plan, 1,250,000 shares of Company common stock are initially available for grant.
Our Compensation Committee may grant restricted stock, incentive stock options, non-qualified stock options and stock appreciation rights to participants to acquire shares of Company common stock under the 2018 Plan. The closing price per-share of Company common stock on April 23, 2018 was $9.70. The following table sets forth, as of April 23, 2018, the approximate numberage of each class of participants eligible to participate in the 2018 Plan and the basis of such participation.
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| | | |
| | |
Class and Basis of Participation | | Approximate Number of Class |
Employees | | 5,520 |
|
Directors | | 9(1)
|
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Independent Contractors | | 5 |
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Consultants | | 3 |
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(1) One of the nine directorsdirector is an employee of the Company.
Rationale for Adoption of the 2018 Plan
Grants of options, restricted shares, restricted stock units and other share-based awards to our employees, directors, independent contractors and consultants are an important part of our long-term incentive compensation program, which we use in order to strengthen the commitment of such individuals to us, motivate them to faithfully and diligently perform their responsibilities and attract and retain competent and dedicated individuals whose efforts are expected to result in our long-term growth and profitability.
The Compensation Committee, as administrators of the Prior Plan, engaged its independent compensation consultant to perform an analysis of market and industry data, reasonable dilution guidelines used by proxy advisors and institutional shareholders, planned usage, our existing plan and outstanding awards to provide guidance on a prudent approach to the 2018 Plan and an appropriate share authorization request. The Compensation Committee then convened, along with its independent compensation consultant and its legal advisor, to discuss the recommendations and determine plan cost, plan features and grant practices, and ultimately the appropriate share authorization request.
Vote Required
You may vote “FOR” or “AGAINST” or “ABSTAIN” from voting when voting on the approval of the 2018 Plan. The 2018 Plan 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 “FOR” the 2018 Plan unless stockholders specify a contrary vote.
The Board recommends that you vote “FOR” the approval of the 2018 Plan.
Dilution, Shares Available and Historical Share Usage
Dilution. Subject to shareholder approval of the 2018 Plan, 1,250,000 shares of Company common stock will be reserved for issuance under the 2018 Plan as of April 21, 2018, which represents approximately 3.2% of our issued and outstanding shares, not including outstanding awards under the Prior Plan. The Board believes that this number of shares constitutes reasonable potential equity dilution and provides a significant incentive for employees to increase the value of the Company for all shareholders. The closing trading price of each share of Company common stock as of the record date was $9.55.
As of the record date, we had: (i) 38,636,038 shares of Company common stock outstanding; (ii) 2,158,161 stock options outstanding (vested and unvested), with a weighted average exercise price of $7.32 per share; and (iii) 168,288 shares of unvested restricted stock outstanding. The new shares available under the 2018 Plan would represent an additional potential equity dilution of approximately 3.2%, which does not include outstanding awards under the Prior Plan. Including the proposed additional shares under the 2018 Plan, the potential equity dilution from all equity incentive awards outstanding and available for grant under all of our equity plans would result in a maximum potential equity dilution of approximately 10.1%.
Shares Available; Certain Limitations. The maximum number of shares of common stock reserved and available for issuance under the 2018 Plan will be equal to the sum of (i) 1,250,000 shares of common stock and (ii) the number of shares of common stock reserved, but unissued under the Prior Plan, provided that shares of common stock issued under the 2018 Plan with respect to an Exempt Award will not count against the share limit. We use the term “Exempt Award” to mean (i) an award granted in the assumption of, or in substitution for, outstanding awards previously granted by another business entity acquired by us or any of our subsidiaries or with which we or any of our subsidiaries merges, (ii) an “employment inducement” award as described in the applicable stock exchange listing manual or (iii) an award that a participant purchases at fair market value.
New shares reserved for issuance under the 2018 Plan may be authorized but unissued shares or shares that will have been or may be reacquired by the Company in the open market, in private transactions or otherwise. If any shares subject to an award are forfeited, cancelled, exchanged or surrendered or if an award terminates or expires without a distribution of shares to the participant, the shares of Company common stock with respect to such award will, to the extent of any such forfeiture, cancellation, exchange, surrender, withholding, termination or expiration, again be available for awards under the Plan except that any shares of Company common stock surrendered or withheld as payment of either the exercise price of an award and/or withholding taxes in respect of an award will not again be available for awards under the Plan.
As exhibited by the Company's responsible use of equity over the past several years and good corporate governance practices associated with equity and executive compensation practices in general, the stock reserved under the 2018 Plan will provide the Company with the platform needed for continued Company growth, while managing program costs and share utilization levels within acceptable industry standards.
Share Usage. In determining the requested number of shares reserved for issuance under the 2018 Plan, we evaluated the dilution and historic share usage, burn rate and the existing terms of outstanding awards under the Prior Plan. The annual share usage under our equity plans for the last three fiscal years was as follows:
2020.
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| | | | | | | | | |
| | Fiscal Year 2017 | Fiscal Year 2016 | Fiscal Year 2015 | Average |
A | Total Shares Granted During Fiscal Year(1) | 316,328 |
| 376,312 |
| 7,908 |
| 233,516 |
|
B | Basic Weighted Average Common Stock Outstanding | 38,453,347 |
| 38,357,805 |
| 37,949,316 |
| 38,253,489 |
|
C | Burn Rate (A/B) | 0.82 | % | 0.98 | % | 0.02 | % | 0.61 | % |
(1) Includes the number of options and full value awards (restricted shares) granted for such year.
Description of 2018 Plan
The following is a summary of the material features of the 2018 Plan. This summary is qualified in its entirety by the full text of the 2018 Plan, a copy of which is attached to this Proxy Statement as Appendix A.
Types of Awards. The 2018 Plan provides for the issuance of options, share appreciation rights (“SARs”), restricted shares, restricted stock units (“RSUs”), other share-based awards and cash awards to our officers, employees, directors, independent contractors and consultants.
Shares of common stock subject to an award under the 2018 Plan that remain unissued upon the cancellation or
termination of the award will again become available for grant under the 2018 Plan. However, shares of common stock that are surrendered by a participant or withheld as payment of the exercise price in connection with any award under the 2018 Plan, as well as any shares of common stock exchanged by a participant or withheld to satisfy tax withholding obligations related to any award, will not be available for subsequent awards under the 2018 Plan. If an award is denominated in shares, but settled in cash, the number of shares of common stock previously subject to the award will again be available for grants under the 2018 Plan. If an award can only be settled in cash, it will not be counted against the total number of shares of common stock available for grant under the 2018 Plan. However, upon the exercise of any award granted in tandem with any other awards, such related awards will be cancelled as to the number of shares as to which the award is exercised and such number of shares will no longer be available for grant under the 2018 Plan.
No non-employee director of the Company will be granted awards during any calendar year that, when aggregated with such non-employee director’s cash fees for that calendar year, exceed $500,000 in total value, with cash-based awards and cash fees measured for this purpose at their value upon payment and any equity-based awards measured for this purpose at their grant date fair value as determined for the Company’s financial reporting purposes. In addition, any awards granted under the 2018 Plan (other than awards representing a maximum of 5% of the shares reserved for issuance under the 2018 Plan) will be granted subject to a minimum vesting period of at least 12 months, subject to acceleration in connection with a change in control, as discussed below.
Administration. The 2018 Plan will be administered by our board of directors, or if our board of directors does not administer the 2018 Plan, a committee of our board of directors that complies with the applicable requirements of Section 16 of the Exchange Act and any other applicable legal or stock exchange listing requirements (each of our board of directors or such committee, the “plan administrator”). The plan administrator may interpret the 2018 Plan and may prescribe, amend and rescind rules and make all other determinations necessary ordesirable for the administration of the 2018 Plan, provided that, subject to the equitable adjustment provisions described below, the plan administrator will not have the authority to reprice or cancel and re-grant any award at a lower exercise, base or purchase price or cancel any award with an exercise, base or purchase price in exchange for cash, property or other awards without first obtaining the approval of our stockholders.
The 2018 Plan permits the plan administrator to select the eligible recipients who will receive awards, to determine the terms and conditions of those awards, including but not limited to the exercise price or other purchase price of an award, the number of shares of common stock or cash or other property subject to an award, the term of an award and the vesting schedule applicable to an award, and to amend the terms and conditions of outstanding awards.
Restricted Shares and RSUs. Restricted shares and RSUs may be granted under the 2018 Plan. The plan administrator will determine the purchase price, vesting schedule and performance goals, if any, applicable to the grant of restricted shares. Unless otherwise determined by the plan administrator, if the restrictions, performance goals or other conditions determined by the plan administrator are not satisfied, the restricted shares and RSUs will be forfeited. Subject to the provisions of the 2018 Plan and the applicable individual award agreement, the plan administrator has the sole discretion to provide for the lapse of restrictions in installments or the acceleration or waiver of restrictions (in whole or part) under certain circumstances, including the attainment of certain performance goals, a participant’s termination of employment or service or a participant’s death or disability. The rights of restricted share and RSU holders upon a termination of employment or service will be set forth in individual award agreements.
Unless the applicable award agreement provides otherwise, participants with restricted shares will generally have all of the rights of a stockholder during the restricted period, including the right to receive dividends declared with respect to such shares; provided, however, that dividends declared during the restricted period with respect to an award will only become payable if (and to the extent) that the underlying restricted shares vest. During the restricted period, participants with RSUs will generally not have any rights of a stockholder, but will be credited with dividend equivalent rights, unless the applicable individual award agreement provides otherwise.
Options. We may issue non-qualified stock options and “incentive stock options” (“ISOs”) (within the meaning of Section 422 of the Code) under the 2018 Plan. The terms and conditions of any options granted to a participant will be set forth in an award agreement and, subject to the provisions in the 2018 Plan, will be determined by the plan administrator. The exercise price of any option granted under our 2018 Plan must be at least equal to the fair market value of our common stock on the date the option is granted (110% of fair market value in the case of ISOs granted to ten percent stockholders). The maximum term of an option granted under our 2018 Plan is ten years. The amount of incentive stock options that become exercisable for the first time in a particular year cannot exceed a value of $100,000 per participant, determined using the fair market value of the shares on the date of grant.
Subject to our 2018 Plan, the plan administrator will determine the vesting and other terms and conditions of options
granted under our 2018 Plan and the plan administrator will have the authority to accelerate the vesting of any option in its sole discretion. Treatment of an option upon termination of employment of a participant will be provided for by the plan administrator in the applicable award agreement.
Share Appreciation Rights. SARs may be granted under the 2018 Plan either alone or in conjunction with all or part of any option granted under the 2018 Plan. A free-standing SAR granted under the 2018 Plan entitles its holder to receive, at the time of exercise, an amount per share up to the excess of the fair market value (at the date of exercise) of a share of common stock over the exercise price of the free-standing SAR multiplied by the number of shares in respect of which the SAR is being exercised. An SAR granted in conjunction with all or part of an option under the 2018 Plan entitles its holder to receive, at the time of exercise of the SAR and surrender of the related option, an amount per share up to the excess ofthe fair market value (at the date of exercise) of a share of common stock over the exercise price of the related option multiplied by the number of shares in respect of which the SAR is being exercised. Each SAR will be granted with an exercise price that is not less than 100% of the fair market value of the related shares of common stock on the date of grant. Treatment of a SAR upon termination of employment of a participant will be provided for by the plan administrator in the applicable award agreement. The maximum term of all SARs granted under the 2018 Plan will be determined by the plan administrator, but may not exceed ten years. The plan administrator may determine to settle the exercise of an SAR in shares of common stock, cash, or any combination thereof.
Each free-standing SAR will vest and become exercisable (including in the event of the SAR holder’s termination of employment or service) at such time and subject to such terms and conditions as determined by the plan administrator in the applicable individual free-standing SAR agreement. SARs granted in conjunction with all or part of an option will be exercisable at such times and subject to all of the terms and conditions applicable to the related option.
Other Share-Based Awards. Other share-based awards, valued in whole or in part by reference to, or otherwise based on, shares of common stock (including dividend equivalents) may be granted under the 2018 Plan. The plan administrator will determine the terms and conditions of such other share-based awards, including the number of shares of common stock to be granted pursuant to such other share-based awards, the manner in which such other share-based awards will be settled (e.g., in shares of common stock, cash or other property), and the conditions to the vesting and payment of such other share-based awards (including the achievement of performance goals). The rights of participants granted other share-based awards upon the termination of employment with or service to us will be set forth in the award agreement. Any dividend or dividend-equivalent award issued under the 2018 Plan will be subject to the same restrictions and conditions as apply to the underlying award.
Cash Awards. Bonuses that are payable solely in cash may also be granted under the 2018 Plan, and may be granted contingent upon the achievement of performance goals. The rights of participants granted cash awards upon the termination of employment with or service to us will be set forth in the applicable award agreement.
Equitable Adjustments. In the event of a merger, amalgamation, consolidation, reclassification, recapitalization, spin-off, spin-out,repurchase, reorganization, special or extraordinary dividend or other extraordinary distribution (whether in the form of common shares, cash or other property), combination, exchange of shares, or other change in corporate structure affecting our common stock, an equitable substitution or proportionate adjustment shall be made in (i) the aggregate number and kind of securities reserved for issuance under the 2018 Plan, (ii) the kind and number of securities subject to, and the exercise price of, any outstanding options and SARs granted under the 2018 Plan, (iii) the kind, number and purchase price of shares of common stock, or the amount of cash or amount or type of property, subject to outstanding restricted shares, RSUs and other share-based awards granted under the 2018 Plan and (iv) the terms and conditions of any outstanding awards (including any applicable performance targets). Equitable substitutions or adjustments other than those listed above may also be made as determined by the plan administrator. In addition, the plan administrator may terminate all outstanding awards for the payment of cash or in-kind consideration having an aggregate fair market value equal to the excess of the fair market value of the shares of common stock, cash or other property covered by such awards over the aggregate exercise price, if any, of such awards, but if the exercise price of any outstanding award is equal to or greater than the fair market value of the shares of common stock, cash or other property covered by such award, our board of directors may cancel the award without the payment of any consideration to the participant. With respect to awards subject to foreign laws, adjustments will be made in compliance with applicable requirements. Except to the extent determined by the plan administrator, adjustments to incentive stock options will be made only to the extent not constituting a “modification” within the meaning of Section 424(h)(3) of the Code.
Change in Control and Qualifying Termination. Unless otherwise determined by the plan administrator and evidenced in an award agreement, in the event that (i) a “change in control” (as defined below) occurs and (ii) a participant’s employment or service is terminated by us or any of our successors or affiliates without cause or by the participant for good reason (if applicable) within 12 months following the change in control, then (a) any unvested or unexercisable portion of any award carrying a right to exercise will become fully vested and exercisable, and (b) the restrictions, deferral limitations, payment
conditions and forfeiture conditions applicable to any award will lapse and such unvested awards will be deemed fully vested and any performance conditions imposed with respect to such awards will be deemed to be fully achieved at target performance levels.
Definition of Change in Control. For purposes of the 2018 Plan, a “change in control” will mean, in summary, the first to occur of the following events: (i) a person or entity becomes the beneficial owner of more than 50% of our voting power; (ii) an unapproved change in the majority membership of our board of directors; (iii) a merger or consolidation of us or any of our subsidiaries, other than (A) a merger or consolidation that results in our voting securities continuing to represent 50% or more of the combined voting power of the surviving entity or its parent and our board of directors immediately prior to the merger or consolidation continuing to represent at least a majority of the board of directors of the surviving entity or its parent or (B) a merger or consolidation effected to implement a recapitalization in which no person is or becomes the owner of our voting securities representing more than 50% of our combined voting power; or (iv) stockholder approval of a plan of complete liquidation or dissolution of us or the consummation of an agreement for the sale or disposition of substantially all of our assets, other than a sale or disposition to an entity, more than 50% of the combined voting power of which is owned by our stockholders in substantially the same proportions as their ownership of us immediately prior to such sale or a sale or disposition to an entity controlled by our board of directors. However, a change in control will not be deemed to have occurred as a result of any transaction or series of integrated transactions following which our stockholders, immediately prior thereto, hold immediately afterward the same proportionate equity interests in the entity that owns all or substantially all of our assets.
Tax Withholding. Each participant will be required to make arrangements satisfactory to the plan administrator regarding payment of up to the maximum statutory tax rates in the participant’s applicable jurisdiction with respect to any award granted under the 2018 Plan, as determined by the Company. We have the right, to the extent permitted by applicable law, to deduct any such taxes from any payment of any kind otherwise due to the participant. With the approval of the plan administrator, the participant may satisfy the foregoing requirement by either electing to have us withhold from delivery of shares of common stock, cash or other property, as applicable, or by delivering already owned unrestricted shares of common stock, in each case, having a value not exceeding the applicable taxes to be withheld and applied to the tax obligations. We may also use any other method of obtaining the necessary payment or proceeds, as permitted by applicable law, to satisfy our withholding obligation with respect to any award.
Amendment and Termination of the 2018 Plan. The 2018 Plan provides our board of directors with authority to amend, alter or terminate the 2018 Plan, but no such action may impair the rights of any participant with respect to outstanding awards without the participant’s consent. The plan administrator may amend an award, prospectively or retroactively, but no such amendment may materially impair the rights of any participant without the participant’s consent. Stockholder approval of any such action will be obtained if required to comply with applicable law.
2018 Plan Term. The 2018 Plan will terminate on the tenth anniversary of the Effective Date (although awards granted before that time will remain outstanding in accordance with their terms).
Clawback. If the Company is required to prepare a financial restatement due to the material non-compliance with any financial reporting requirement, then the plan administrator may require any Section 16 officer to repay or forfeit to the Company that part of the cash or equity incentive compensation received by that Section 16 officer during the preceding three years that the plan administrator determines was in excess of the amount that such Section 16 officer would have received had such cash or equity incentive compensation been calculated based on the financial results reported in the restated financial statement. The plan administrator may take into account any factors it deems reasonable in determining whether to seek recoupment of previously paid cash or equity incentive compensation and how much of such compensation to recoup from each Section 16 officer (which need not be the same amount or proportion for each Section 16 officer).
Indemnification. To the extent allowable pursuant to applicable law, each member of our board of directors and the plan administrator and any officer or other employee to whom authority to administer any component of the 2018 Plan is delegated shall be indemnified and held harmless by the Company from any loss or expense that may be reasonably incurred by such member in connection with any claim, action or proceeding in which he or she may be involved by reason of any action or failure to act pursuant to the 2018 Plan and against all amounts paid by him or her in satisfaction of judgment in such claim, action or proceeding against him or her, provided, however, that he or she gives the Company an opportunity, at its own expense, to handle and defend the same before he or she undertakes to handle and defend it on his or her own behalf.
US Federal Income Tax Consequences
The following is a summary of certain United States federal income tax consequences of awards under the 2018 Plan. It does not purport to be a complete description of all applicable rules, and those rules (including those summarized here) are
subject to change.
Non-Qualified Stock Options. A participant who has been granted a non-qualified stock option will not recognize taxable income upon the grant of a non-qualified stock option. Rather, at the time of exercise of such non-qualified stock option, the participant will recognize ordinary income for income tax purposes in an amount equal to the excess of the fair market value of the shares purchased over the exercise price. We generally will be entitled to a tax deduction at such time and in the same amount that the participant recognizes ordinary income. If shares acquired upon exercise of a non-qualified stock option are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of such shares on the date of such exercise will generally be taxable as long-term or short-term capital gain or loss (if the shares are a capital asset of the participant) depending upon the length of time such shares were held by the participant.
Incentive Stock Options. In general, no taxable income is realized by a participant upon the grant of an ISO. If shares of common stock are purchased by a participant, or option shares, pursuant to the exercise of an ISO granted under the 2018 Plan and the participant does not dispose of the option shares within the two-year period after the date of grant or within one year after the receipt of such option shares by the participant, such disposition a disqualifying disposition, then, generally (1) the participant will not realize ordinary income upon exercise and (2) upon sale of such option shares, any amount realized in excess of the exercise price paid for the option shares will be taxed to such participant as capital gain (or loss). The amount by which the fair market value of the common stock on the exercise date of an ISO exceeds the purchase price generally will constitute an item which increases the participant’s “alternative minimum taxable income.” If option shares acquired upon the exercise of an ISO are disposed of in a disqualifying disposition, the participant generally would include in ordinary income in the year of disposition an amount equal to the excess of the fair market value of the option shares at the time of exercise (or, if less, the amount realized on the disposition of the option shares), over the exercise price paid for the option shares. Subject to certain exceptions, an option generally will not be treated as an ISO if it is exercised more than three months followingtermination of employment. If an ISO is exercised at a time when it no longer qualifies as an ISO, such option will be treated as a nonqualified stock option as discussed above. In general, we will receive an income tax deduction at the same time and in the same amount as the participant recognizes ordinary income.
Share Appreciation Rights. A participant who is granted an SAR generally will not recognize ordinary income upon receipt of the SAR. Rather, at the time of exercise of such SAR, the participant will recognize ordinary income for income tax purposes in an amount equal to the value of any cash received and the fair market value on the date of exercise of any shares received. We generally will be entitled to a tax deduction at such time and in the same amount, if any, that the participant recognizes as ordinary income. The participant’s tax basis in any common shares received upon exercise of an SAR will be the fair market value of the shares of common stock on the date of exercise, and if the shares are later sold or exchanged, then the difference between the amount received upon such sale or exchange and the fair market value of such shares on the date of exercise will generally be taxable as long-term or short-term capital gain or loss (if the shares are a capital asset of the participant) depending upon the length of time such shares were held by the participant.
Restricted Shares. A participant generally will not be taxed upon the grant of restricted shares, but rather will recognize ordinary income in an amount equal to the fair market value of the shares at the earlier of the time the shares become transferable or are no longer subject to a substantial risk of forfeiture (within the meaning of the Code). We generally will be entitled to a deduction at the time when, and in the amount that, the participant recognizes ordinary income on account of the lapse of the restrictions. A participant’s tax basis in the shares will equal their fair market value at the time the restrictions lapse, and the participant’s holding period for capital gains purposes will begin at that time. Any cash dividends paid on the shares before the restrictions lapse will be taxable to the participant as additional compensation and not as dividend income, unless the individual has made an election under Section 83(b) of the Code. Under Section 83(b) of the Code, a participant may elect to recognize ordinary income at the time the restricted shares are awarded in an amount equal to their fair market value at that time, notwithstanding the fact that such shares are subject to restrictions or transfer and a substantial risk of forfeiture. If such an election is made, no additional taxable income will be recognized by such participant at the time the restrictions lapse, the participant will have a tax basis in the shares equal to their fair market value on the date of their award, and the participant’s holding period for capital gains purposes will begin at that time. We generally will be entitled to a tax deduction at the time when, and to the extent that, ordinary income is recognized by such participant.
RSUs. In general, the grant of RSUs will not result in income for the participant or in a tax deduction for us. Upon the settlement of such an award in cash or shares, the participant will recognize ordinary income equal to the aggregate value of the payment received, and we generally will be entitled to a tax deduction at the same time and in the same amount.
Other Awards. With respect to other awards granted under the 2018 Plan, including other share-based award and cash awards, generally when the participant receives payment with respect to an award, the amount of cash and/or the fair market value of any common shares or other property received will be ordinary income to the participant, and we generally will be
entitled to a tax deduction at the same time and in the same amount.
New Plan Benefits
Future grants under the 2018 Plan will be made at the discretion of the plan administrator and, accordingly, are not yet determinable. In addition, benefits under the 2018 Plan will depend on a number of factors, including the fair market value of our common stock on future dates and the exercise decisions made by participants. Consequently, at this time, it is not possible to determine the future benefits that might be received by participants receiving discretionary grants under the 2018 Plan. The following table reflects awards made under the Prior Plan in 2017, which is the awards that would have been made in 2017 under the 2018 Plan if the 2018 Plan had been in effect.
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NEW PLAN BENEFITS |
2014 Omnibus Equity Incentive Plan |
Name and Position | Dollar Value ($) | Number of Units |
Stephen J. Sather (1) | — |
| — |
|
Laurance Roberts | 379,323 |
| 47,408 |
|
Edward Valle | 379,323 |
| 47,408 |
|
Current Executive Officers as a Group | 1,308,697 |
| 163,560 |
|
Current Non-Employee Directors as a Group(2) | 255,963 |
| 16,932 |
|
All Employees as a Group | 1,527,818 |
| 135,836 |
|
(1) Mr. Sather did not receive an equity grant in 2017 due to his pending retirement. His successor, Mr. Acoca, also will not receive a grant in 2018 under the 2018 Plan, as his sign-on grant will be granted outside of the 2018 Plan.
(2) Messrs. Ammerman, Babb, Kehler and Maselli did not receive equity grants in 2017. Messrs. Babb, Kehler and Maselli will all receive equity grants as part of their compensation in 2018.
Audit Committee Report
The audit committee has reviewed and discussed our fiscal 2017 audited financial statements with management.
The audit committee has discussed with our independent auditors the matters required to be discussed by Auditing Standard No. 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 2017 for filing with the SEC.
Respectfully submitted,
Samuel N. Borgese
Mark Buller
William R. Floyd
NOTE: THE LISTED DIRECTORS WERE THE MEMBERS OF THE AUDIT COMMITTEE WHEN THE
FISCAL 2017 AUDITED FINANCIAL STATEMENTS WERE APPROVED.
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 |
Bernard Acoca | | 48 | | Director, President, and Chief Executive Officer |
Laurance Roberts | | 58 | | Chief Financial Officer |
Edward Valle | | 57 | | Chief Marketing Officer |
Gustavo (“Gus”) Siade | | 56 | | Senior Vice President, Operations |
Michael G. Maselli | | 5860 | | Chairman and Director |
Dean C. KehlerBernard Acoca | | 6151 | | Director, Chief Executive Officer, and President |
John M. RothDouglas J. Babb | | 5968 | | Director |
Samuel N. Borgese | | 6971 | | Director |
Mark Buller | | 5355 | | Director |
William R. Floyd | | 7375 | | Director |
Dean C. Kehler | | 63 | | Director |
Carol (“Lili”) Lynton | | 5658 | | Director |
Douglas J. BabbJohn M. Roth | | 6661 | | Director |
Bernard Acoca has been a director and our Chief Executive Officer and President since March 2018. Before joining the Company, Mr. Acoca spent 7 years at Starbucks Corporation (“Starbucks”) in various capacities as a member of its executive team, most recently as President of Teavana, Starbucks’ tea division since 2015. Prior to that, he served as Vice President, Marketing and Promotions, Americas from 2010-2012 and as Senior Vice President, Marketing and Category, Americas from 2012-2014. From 2014-2015, 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.
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.
Gustavo (“Gus”) Siade has been our Senior Vice President, Operations, since May 2017. Prior to that, Mr. Siade served as our VP, Operations from 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 Canadian 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 2017, Mr. Borgese has been President, Chief Executive Officer, and Director of Shari's Management Corporation and Shari's Restaurant Group, a multi locationmulti-location family dining company. From 2011 to 2017, Mr. Borgese was Managing Partner of Aceneca, LLC, a restaurant 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 Buller has 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). 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. 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 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.
Douglas J. BabbJohn M. Roth has been a director since 2018. From 2007 to 2014,2007. 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 wasnow serves as Chief Executive Officer, of Cooper Clinic, P.A., one of the largest multi-specialty, physician-owned clinicsa position he has held since 2016. From 1984 to 1988, Mr. Roth was employed by Kidder, Peabody & Co. Incorporated in the Arkansas region. Since his retirement as CEO, heMergers and Acquisitions Group. Mr. Roth has served as an advisor toon the board of Cooper. Additionally, from 2010-2014,directors of Floor & Decor Holdings, Inc. since 2010. From 2005 to 2017, he served ason the board of directors of hhgregg, Inc. Mr. Roth received an Adjunct Instructor for the College of Business at the University of Arkansas - Fort Smith. From 2015-2017, he served as Managing Director for Babb Strategic Services, L.L.P., ("Babb Strategic") a consultingMBA 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., a leading provider of healthcare services to the elderly in the United States, from 2000-2006. Prior to that he served in various roles at Burlington Northern, Inc., a diversified transportation company and Burlington Northern Santa Fe Corporation, from 1978-1999 and as Staff Counsel for the South Carolina Attorney General’s Office from 1977-1978. Mr. Babb holds a bachelor’s degree from Minnesota State University and a J.D. fromthe Wharton School of the University of South Carolina.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. BabbRoth is well-qualified to serve on our Board on account of his extensive experience, in particular the successful turnaround of Beverly Enterprises.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.”
CORPORATE GOVERNANCEPROPOSAL 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.
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| | | | | | |
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 Directors
Our 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.
John M. Roth, Samuel N. Borgese, and Mark Buller are Class III directors serving until the 2020 annual meeting. Dean C. Kehler, William R. Floyd, and Douglas J. Babb are Class II directors serving until the 2019 annual meeting. Bernard Acoca, Michael G. Maselli, and Carol (“Lili”) Lynton are Class I directors serving until the 2018 annual meeting and standing to be re-elected until the 2021 annual meeting.
Samuel N. Borgese, Mark Buller, William R. Floyd,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, John M. Roth and Michael G. Maselli are Class I directors whose terms expire at the 2021 annual meeting of stockholders. Douglas J. Babb, currently qualify as independentWilliam R. Floyd, and Dean C. Kehler are Class II directors under NASDAQ rules. Bernard Acoca is our only employee director.whose terms will expire at the 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. See “Certain Relationships and Related Party Transactions - Stockholders Agreement” for additional information.
Our certificate of incorporation provides that directors may only be removed for cause by a majorityBoard 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 solely by the affirmative vote of a majority of the remaining directors then in office, even if less than a quorum remains. posted on our website.
As disclosed by the Company in its Current Reports on Form 8-K filed on March 9, April 5, and September 13, 2017, on March 29, 2017, due
Corporate Governance Guidelines
The Board has adopted corporate governance guidelines to the resignation of former independent director Douglas K. Ammerman, a compliance deficiency occurred with NASDAQ Stock Market Rule 5605(b)(1) requiring a majority independent board. The Company considered four of its eight remaining directors to be independent. The Company notified The Nasdaq Stock Market LLC (the "NASDAQ") of the deficiency, and pursuant to Rule 5605(b)(1)(A) had until September 25, 2017 to cure.
On September 8, 2017, the Board found, upon consideration of the facts and circumstances, andassist it in the exercise of its reasonable business judgment, that existing director John M. Roth did not have any relationship which would interfere with his exercisefiduciary duties and responsibilities to us and to promote the effective functioning of independent judgment in carrying out the responsibilities of a director, and therefore determined that he met the definition for independence under Rule 5605(a)(2). In reaching its conclusion, the Board consideredand 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 relationship between John Rothguidelines 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 Freeman Spogli, andimprove long-term organizational performance. The Board determines the relationship between Freeman Spogli andappropriate risk levels for the Company generally, assesses the specific risks faced by the Company, and specificallyreviews the steps taken by management to manage those risks. The Board’s involvement in setting the Company’s income tax receivable agreementbusiness strategy facilitates these assessments and reviews, culminating in the development of a strategy 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 Company’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 franchise development option agreement,committees oversee risk in 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 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.
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 choice of the Board’s leadership structure described above under “Board Leadership Structure.”
Director Independence
Under the applicable listing requirements and rules of Nasdaq, independent directors must comprise a majority of our Board, subject to certain specified exceptions. In addition, applicable Nasdaq rules require that, subject to specified exceptions, each asmember of our Audit, Compensation and Nominating and Corporate Governance Committees must be independent within the meaning 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 Messrs. Babb, Borgese, Buller, Floyd, Roth 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 under “Certainin "Certain Relationships and Related Transactions,Transactions" pages 40 to 42 herein) and Director Independence.”
Accordingly,all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of the registrant’s eight directors at the time, five were considered independent, and the Company cured its deficiency within the cure period. On September 12, 2017, the registrant notified the NASDAQ and on September 13, 2017, the NASDAQ confirmed that the registrant had regained compliance with the rule.
Effective January 3, 2018, the Board elected Douglas J. Babb as aour capital stock held by each non-employee director. Mr. Babb qualifies as an independent director under the NASDAQ rules.
As a result, currently six ofrequired under applicable Nasdaq rules, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are independent. All audit, compensation, and nominating and corporate governance committee members are independent.present. Our independent directors held executive sessions four times in 20172019 in conjunction with our Board meetings.
Board Committees
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.
Audit Committee
Our Audit Committee is currently comprised of William R. Floyd (chairman), Samuel N. Borgese, and Mark Buller. The committee met foursix times in 2017.2019. 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.
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.
Compensation Committee
Our Compensation Committee is currently comprised of Mark Buller (chairman), Douglas J. Babb, and Carol (“Lili”) Lynton. The committee met sixseven times in 2017.2019. The functions of the committee, among other things, include:
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 executive officerdirector compensation for service on the Board and director compensation;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.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. 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;Act, and (ii) “outside directors” for 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 2015, 2016, and 2017,2019, 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 2017,2019, 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 market data, pool availabilityexecutive compensation review and limits, current equity ownership, and other grant considerations. The committee further requestedbenchmarking against the Company's peers. Except as described in this paragraph, the compensation consultant did not perform any other services to conduct an analysis of compensation related to non-employee directors serving on the Board andCompany or its authorized committees. In addition, the compensation consultant assisted the committee in connection with the committee’s structuring of the compensation package for the incoming President and Chief Executive Officer, Bernard Acoca.
In the future, the committee may engage the compensation consultant, or a different compensation consultant, to review our senior 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 2017.2019. The committee is retaining the compensation consultant to advise the committee on certain compensation matters in 2018,2020, 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 four timesonce in 2017.2019. 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
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:
Experience,
Skills,
Expertise,
Diversity,
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,
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.
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 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.cfm. We expect that any amendments to the guidelines will be disclosed on our website. Board Meetings
The Board held 10eight meetings in 2017.2019. 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 2017,2019, all nine directors then on the Board attended our annual meeting.
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 used for succession planning purposes. In addition, the Chief Executive Officer prepares and maintains a short-term succession plan delineating temporary delegations of authority in the event 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 Systems Transformation from 2005 to 2009. 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 program, including the philosophy and goals, main components of pay and the decision making process with respect to each 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 were:
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 a 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 an employee and franchisee, and growing the business for responsibly and profitably for the long-term. These pillars and subsequent strategies were designed to improve operating and financial results and to better position us for future expansion.
As a result of the transformation agenda and additional 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 are providingbelieve our compensation disclosureprograms serve three primary purposes.
To successfully execute our organizational strategy, it is critical to attract, retain, and motivate our employees.
We hold our executive officers accountable for Company performance through the use of performance-based incentive compensation.
We align the interests of management with our stockholders through the use of equity incentives that satisfiesvest over time and stock ownership requirements.
At the requirements applicable to emerging growth companies, as defined inheart of our compensation programs is a pay-for-performance philosophy. Our named executive officers have a significant percentage of their compensation “at risk,” meaning that if the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As an emerging growth company, we have opted to comply withCompany performs at, above, or below its target goals, the executive compensation rules applicable to “smaller reporting companies,” as such term is defined under the Securities Act, which require compensation disclosure for our principalnamed executive officer andwill be paid at above or below his or her target compensation. If the two most highly compensated executive officers other than our principal executive officer. The tableCompany performs below sets forthits target goals, the annual compensation earned in fiscal 2016 and 2017 by our principalnamed executive officer and our next two most highly compensated executive officers (our “named executive officers”will be paid below his or “NEOs”).
Summary Compensation Tableher target compensation.
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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) | | 2017 | | 500,680 |
| | — |
| | — |
| | 184,000 |
| | 27,184 |
| | 711,864 |
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President & Chief Executive Officer | | 2016 | | 500,785 |
| | — |
| | 459,909 |
| | 69,845 |
| | 26,792 |
| | 1,057,331 |
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Laurance Roberts | | 2017 | | 351,588 |
| | 250,040 |
| | 129,283 |
| | 130,063 |
| | 25,377 |
| | 886,351 |
|
Chief Financial Officer | | 2016 | | 343,176 |
| | 70,007 |
| | 301,226 |
| | 48,167 |
| | 24,711 |
| | 787,287 |
|
Edward Valle | | 2017 | | 351,238 |
| | 250,040 |
| | 129,283 |
| | 129,933 |
| | 22,031 |
| | 882,525 |
|
Chief Marketing Officer | | 2016 | | 342,780 |
| | 70,007 |
| | 287,443 |
| | 48,119 |
| | 21,420 |
| | 769,769 |
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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. |
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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 table provides information regarding the elements of our executive compensation program.
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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 2019 (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 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 Salary
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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(1)* | Mr. Sather retired from his positions as Chief Executive Officer and President ofLozano joined the Company and as a member of the board of directors of the Company, in each case effective as of March 12, 2018 and as an employee on March 31, 2018. Effective March 12, 2018, the Board appointed Bernard Acoca as the Company’s President and Chief Executive Officer, and elected him as director to fill the vacancy created by Mr. Sather's retirement from the board.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 has a targeted 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) were as follows:
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(2)Annual Incentive Plan Target Percentage of Base Salary |
Named Executive Officer | 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 11 to our audited financial statements, included within our 2017 Annual Report on Form 10-K. | Fiscal 2019 |
Bernard Acoca | | 100% |
Laurance Roberts | | 75% |
Hector Muñoz | | 75% |
Miguel Lozano | | 75% |
For fiscal year 2019, the threshold, target and maximum Company Annual Incentive Plan targets were weighted at 60% for achievement of EBITDA targets and at 40% for revenue based on the following 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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(3) | Except for Mr. Roberts' fiscal 2016 option awards, 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 11 to our audited financial statements, included within our 2017Fiscal Year 2019 Annual Report on Form 10-K. For Mr. Roberts, fiscal 2016 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. |
| Incentive Plan Company Performance Factor |
(4) | Represents performance-based bonuses earned by our NEOs in respect of our performance in fiscal years 2016 and 2017. 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—2017 Bonus Arrangements.” |
| EBITDA | | Revenue | | % Payout |
(5)Threshold | For Messrs. Sather, Roberts, and Valle, includes the following perquisites and benefits: | $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% |
Gas Card Benefits: Messrs. Sather, Roberts,* The Company achieved 82.2% of the EBITDA target and Valle had amounts62.7% of $4,088, $2,037, and $1,966, respectively, in fiscal 2017.
401(k) Plan Matching Contribution: Messrs. Sather, Roberts, and Valle had amounts of $10,490, $8,074, and $7,459, respectively, in fiscal 2017.
Auto Allowance: Messrs. Sather, Roberts, and Valle had amounts of $7,200, $7,200, and $7,200, respectively, in fiscal 2017.the revenue target
Other Benefits (including healthThe Annual Incentive Plan payout achieved by each NEO based on the Company’s performance, the adjustment for an individual performance factor ("IPF") for each NEO, and welfare benefits): Messrs. Sather, Roberts, and Valle had amountsthe actual 2019 Annual Incentive Plan payout received by each NEO are set forth in the table below.
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Fiscal Year 2019 Annual Incentive Plan 2019 Payout |
Named Executive Officer | | Fiscal 2019 Salary | | Fiscal 2019 Annual Incentive Plan Target (%) | | Fiscal 2019 Annual Incentive Plan ($) 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 period of $5,406, $8,066, and $5,406, respectively, in fiscal 2017. time he was employed by the Company
Employment Agreements
EachLong-Term Incentive Awards
We provide long-term incentive compensation to our named executive officers pursuant to our 2018 Omnibus Equity Incentive Plan (the "2018 Incentive Plan"). We believe that long-term incentive awards help to align the interests of our NEOsnamed 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 grants, 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 effects 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 grant to the date 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 partymore favorable tax benefit to the Company than “incentive” stock options. Generally, 25% of the shares subject to our stock option grants vest one year from the effective date of grant and the remainder vest in equal annual installments thereafter. The options generally terminate ten years from the date of grant.
In fiscal year 2019, the Board granted stock options to our named executive officers as follows:
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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 while the restricted shares remain unvested, the grantees have all the rights of a stockholder with respect to the restricted shares except 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).
In fiscal year 2019, the Board granted restricted shares to our named 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 other employees, including our 401(k) Plan, health care plans, life insurance plans, and other welfare benefit programs. In addition, each of our named executive officers was entitled to an employment agreement, exceptautomobile allowance and fuel 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. The Company matches 100% of the employees’ contributions of the first 3% of the employees’ annual qualified compensation, and 50% of the employees’ contributions of the next 2% of the employees’ annual qualified compensation. The Company’s matching contribution immediately fully vests.
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. Sather’s employment agreement terminated, effective February 28, 2018Lozano’s hire as Chief Operating Officer, in connection withaddition 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 positionsprevious employer.
As part of Mr. Muñoz hire as Chief ExecutiveMarketing 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 paid to him in fiscal 2019 to assist with his relocation expenses.
Other Compensation Policies
Policy on Hedging and PresidentPledging Transactions
We do not permit any director or officer of the Company and as a member of the board of directorsto 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 in each case effective aswithout the full risks and rewards of March 12, 2018. Theownership. 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 are substantially similarwith each of our named executive officers. Each of the employment agreements provides for an initial term ranging from one year to each other.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 an employment agreement in 2006indemnification agreements 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 during their termseach of active employment 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, with respect to all NEOs, has been adjusted up as shown in “Summary Compensation Table”). Each employment agreement also provides that during their terms of active employment eachnamed executive will be eligible to earn annual bonus awards with a target of 75% of the executive’s then current base salary and that each 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 NEO 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 salary through the date of termination, reimbursement of unreimbursed business expenses, and any earned but unpaid annual bonus for the previously completed year). The employment agreements contain 12-month post-termination covenants relating to non-interference and non-solicitation of employees.officers.
In connection with his retirement, Mr. Sather entered into a retirement agreement on February 28, 2018 pursuant to which he agreed to remain as our employee in the capacity as Special Advisor through March 31, 2018 in order to assist us with the transition to the new CEO, Bernard Acoca. Pursuant to the terms of his retirement agreement, Mr. Sather continued to receive his standard compensation and benefits through March 31, 2018. In consideration for his long service, his agreement to provide transition services and his execution of a general release of claims, our Board agreed to accelerate the vesting of Mr. Sather’s options that would have otherwise vested in May 2018 (options with respect to 33,545 shares) and to extend the exercise ability of all of his vested and outstanding options until the expiration of the original term of such options. Mr. Sather’s retirement agreement provides that he will continue to abide by all of his restrictive covenants and that Mr. Sather will provide us with ongoing cooperation in certain matters for which he has knowledge prior to his termination.Acoca
In connection with his appointment as the Company’s President and Chief Executive Officer in 2018, we entered into an employment agreement with Bernard Acoca. Mr. Acoca will receivereceives an initial annual base salary of $550,000, a target annual bonuscash incentive award equal to 100% of base salary and, starting in 2019, an annual discretionary equity grant, as determined by the Board. TheBoard, and certain other benefits and perquisites as more fully described above in the “Perquisites & Benefits” section. Mr. Acoca’s employment agreement provideswith us may be terminated at any time by either party, provided that in connection with his hiring Mr. Acoca will receive a one-time sign-on grantis required to provide us with 90-day advance notice in case of approximately $750,000 worth of time-vested options, approximately $1,000,000 worth of time-vested restricted stock units or restricted shares and approximately $750,000 worth of performance-vested restricted stock units or restricted shares. Mr. Acoca's sign-on grant will be granted outside of the 2018 Plan. Mr. Acoca will also be entitled to a one-time lump sum payment equal to $250,000, subject to certain repayment provisions in the event of a termination of employment without good reason or for cause, as such terms are defined in the employment agreement. Mr. Acoca will also receive to a $100,000 lump sum payment in order to assist with relocation expenses.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 bonuscash 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"cause" or for good reason,"good reason" (as such terms are defined in Mr. Acoca's employment agreement), then he will be entitled to receive a prorated annual bonuscash 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, orby 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 except for certain performance vesting awards,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. TheMr. Acoca’s employment agreement contains a perpetual confidentiality covenant, a one-year post-termination non-interference covenant applicable to our relationships with suppliers, customers and partners and a one-year post-termination non-solicitation covenant applicable to our employees.
Elements of Compensation
Our named executive officers were provided with the following primary elements of compensation in fiscal years 2016 and 2017:
Base Salary
Each named executive officer received a fixed base salary in an amount determined in accordance with the executive’s employment agreement and based on a number of factors, including:
The nature, responsibilities, and duties of the officer’s position;
The officer’s expertise, demonstrated leadership ability, and prior performance;
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 2016 and 2017 are listed in “Summary Compensation Table.”
2017 Bonus Arrangements
Each named executive officer was eligible to earn an annual cash incentive in 2017. Our practice with respect to annual incentive compensation has historically been to provide an opportunity to earn bonus awards based on the achievement of company performance measures, specifically EBITDA adjusted for certain discrete items (“Adjusted EBITDA”).
For a calculation of and additional information regarding Adjusted EBITDA, please see pages 37 to 39 of our Annual Report on Form 10-K for the fiscal year ended December 27, 2017.
Our El Pollo Loco Support Center Incentive Plan is adopted on an annual basis subject to approval by our Board and provides the opportunity for each of 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 2017 (which was paid in 2018) also provided for no bonus to be paid if Adjusted EBITDA achievement was less than or equal to 92.5% 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, which included add back of franchise related litigation expenses, bonuses for 2017 were paid out at 49% of target.
Equity Grants
Our 2014 Omnibus Equity Incentive Plan (the “2014 Plan”) governs all of our outstanding equity awards. Prior to the adoption of the 2014 Plan, we maintained certain other equity plans. Upon the adoption of the 2014 Plan, all option awards granted under the prior plans became governed by 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 generally vest in four equal annual installments commencing on the one-year anniversary of grant. In order to provide further incentives to our employees, all 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 following the date of such termination 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, 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 2017, we also 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 until the restricted shares vest, the grantees have all the rights of a shareholder with respect to the restricted shares save only 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 2017, our NEOs were provided with certain limited fringe benefits that we believe are commonly provided to similarly situated executives in the market in which we compete for talent and therefore are important to our ability to attract and retain top-level executive management. These benefits include a monthly automobile allowance and a gas card allowance. The amounts paid to NEOs in 2017 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, and disability insurance, and a 401(k) plan. Our named executive officers are eligible to participate in these plans generally on 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 retirement contributions in accordance with applicable IRS limits. Matching contributions are provided in an amount equal to 100% of the first 3% of compensation that was electively contributed and 50% of the next 2% of compensation that was electively contributed by the employee. The 401(k) plan matching contributions provided to our named executive officers in 2017 are reflected above in the “Summary Compensation Table” section under the “All Other Compensation” heading.
Outstanding Equity Awards at Fiscal Year End Table
The following table sets forth outstanding equity option awards as of December 27, 2017:
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| | | | | | | | | | | | | | | | | | | | |
| | 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 | | |
| | |
|
| | 33,546 |
| | 100,635 |
| | — |
| | 11.94 |
| | May 11, 2026 | | |
| | |
|
Laurance Roberts | | 75,983 |
| | | | — |
| | 4.09 |
| | July 15, 2023 | | |
| | |
|
| | 196,967 |
| | | | — |
| | 5.84 |
| | July 15, 2023 | | |
| | |
|
| | — |
| | 29,484 |
| | | | 13.95 |
| | May 10, 2027 | | | | |
| | |
| | |
| | |
| | |
| | | | 21,807 |
| | 218,070 |
|
Edward Valle | | 207,159 |
| | — |
| | — |
| | 5.84 |
| | April 15, 2022 | | |
| | |
|
| | 20,966 |
| | 62,897 |
| | — |
| | 11.94 |
| | May 11, 2026 | | |
| | |
|
| | — |
| | 29,484 |
| | | | 13.95 |
| | May 10, 2027 | | | | |
| | |
| | |
| | |
| | |
| | | | 21,807 |
| | 218,070 |
|
| |
(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. |
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 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. |
| |
(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. |
| |
(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 $6,616, respectively.
| |
(6) | Mr. Lozano’s employment by the Company commenced on April 1, 2019. |
Outstanding Equity Awards at 2019 Fiscal Year End
The following table sets forth outstanding equity awards as of December 25, 2019. For more information on the equity awards granted in fiscal 2019, see the “Named Executive Officer Compensation - Long-Term Incentive Awards” section above.
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| | | | | | | | | | | | | | | | | | | | |
| | | | Option Awards | | | | Stock Awards |
Name | | Grant Date | | Number of Securities Underlying Unexercised Options Exercisable (#) | | Number of Securities Underlying Unexercised Options Unexercisable (#) (1) | | Equity Incentive Plan Awards; Number of Securities Underlying Unexercised Unearned Options (#) | | Option Exercise Price ($) | | 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 | | — | | — |
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(1) | All options vest 25% per year starting with the first anniversary of grant. As a result, Mr. Valle’sMessrs. Acoca's, Roberts’, Muñoz’s, and Lozano's unexercisable options granted in fiscal 2019 at an exercise price of $11.94, will$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, and 2020, and2021and 2022. The unvested portion of Mr. Roberts’ and Mr. Valle's unexercisable 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 at an exercise price of $13.95 willare scheduled to vest ratably on May 10, 2018, 2019, 2020 and 2021. Additionally, as part of his retirement agreement, 33,545 of Mr. Sather's unexercisable options, which were set to vest on May 11, 2018, were accelerated and vested on March 31, 2018. Mr. Sather'sMuñoz’s remaining unvested options were forfeited.forfeited in connection with his separation from the Company in March 2020. |
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(3)(2) | All restricted shares and restricted share units vest 25% per year starting with the first anniversary of grant.grant Mr. Muñoz’s unvested restricted shares were forfeited in connection with his separation from the Company in March 2020. |
Director Compensation
The following table provides compensation information for fiscal 2017 for each of our non-employee directors. Only those non-employee directors receive compensation for their services as directors.
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| | | | | | | | | |
Name | | Fees Earned or Paid in Cash ($) | | Stock Awards ($) (3) (4) | | Total ($) |
Michael G. Maselli | | — |
| | — |
| | — |
|
Dean C. Kehler | | — |
| | — |
| | — |
|
John M. Roth (1) | | 12,500 |
| | 25,013 |
| | 37,513 |
|
Samuel N. Borgese | | 60,000 |
| | 50,011 |
| | 110,011 |
|
Mark Buller | | 67,500 |
| | 50,011 |
| | 117,511 |
|
William R. Floyd | | 62,500 |
| | 50,011 |
| | 112,511 |
|
Carol (“Lili”) Lynton | | 55,000 |
| | 50,011 |
| | 105,011 |
|
Douglas K. Ammerman (2) | | 16,250 |
| | 13,274 |
| | 29,524 |
|
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1.(3) | As previouslyThe amounts shown in this column is determined by multiplying the number of unvested shares or units reported on September 8, 2017,in the Board evaluated the independence of John Roth, who had not previously been considered independent. The Board found, upon considerationpreceding column by $15.05 (the closing price of the facts and circumstances, and inCompany’s common stock on December 24, 2019, the exerciselast trading day of its reasonable business judgment, that existing director, John M. Roth did not have any relationship which would interfere with his exercise of independent judgment in carrying out the responsibilities of a director, and therefore determined that he met the definition for independence under NASDAQ Stock Market Rule 5605(a)(2)fiscal 2019). |
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2.(4) | Amounts shown in this column include 36,058 performance share units held by Mr. Ammerman resigned fromAcoca, which will vest, subject to Mr. Acoca’s continued employment by the Board on March 29, 2017. In consideration for Mr. Ammerman's long tenure onCompany through the Board as well as Chairmanvesting 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 Audit Committee, our Board agreedCompany, in either case prior to extend the exercise ability of all of his vested and outstanding options until the expiration of the original term of such options. This extension was considered a stock modification and resulted in additional stock compensation expense of $13,274, which is included in stock awards above.May 9, 2023. |
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3. | Represents the grant date fair value of restricted shares granted in 2017, computed in accordance with FASB ASC Topic 718. Please see Note 12 to our consolidated financial statements in our 2017 Annual Report on Form 10-K for assumptions made in the valuation of the equity awards. |
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4. | As of December 27, 2017, Messrs. Borgese, Buller, Floyd, and Roth and Ms. Lynton, had 6,929, 6,929, 6,187, 2,592, and 6,187 shares of unvested restricted stock awards in the aggregate outstanding, respectively. |
Except for Messrs. Maselli, Kehler, Roth and Ammerman, each non-employee director received an annual grant of restricted shares with a grant date value of $50,000 in 2017. These grants vest based on continued service over three years. As a result, Messrs. Borgese, Buller, Floyd and Ms. Lynton each received a grant of 3,585 restricted shares under the 2014 Plan, equivalent to $50,000 per capita divided by the closing price of our stock on May 9, 2017. Mr. Roth received a grant of 2,592 restricted shares under the 2014 Plan, equivalent to $25,000 per capita divided by the closing price of our stock on November 7, 2017. All non-employee directors will receive an annual grant of restricted shares with a grant date value of $60,000 starting in 2018.
In addition, except for Messrs. Maselli and Kehler each of our non-employee directors received an annual cash retainer fee of $50,000 in 2017. Mr. Roth received payment of one quarter of the annual cash retainer, or $12,500 for the fourth quarter of 2017. All non-employee directors will receive $60,000 in 2018, which is paid quarterly. Also, we provide the following annual fees for non-employee directors for committee service, which are paid quarterly:
Audit Committee chairman: $10,000
Compensation Committee chairman: $7,500
Nominating and Corporate Governance Committee chairman: $5,000
All other committee members: $5,000Grants of Plan-based Awards Table
In 2017 and prior, only independent directors received compensation. Starting in 2018 all non-employee directors will receive both restricted shares and cash compensation. As a result in 2018 Michael G. Maselli, Dean C. Kehler, and recently-appointed Douglas J. Babb will receive compensation.The following table summarizes information regarding grants of plan-based awards for the NEOs during the fiscal year ended December 25, 2019.
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Name | | Grant Date | | | | Estimated future payouts under non-equity incentive plan awards (1) | | All other stock awards: Number of shares of stock or units (#) | | All other option awards: Number of securities underlying options (#) | | Exercise or base price of option awards ($/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) | Each 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 in 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) | See 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:
|
| | | | | | | | | | | |
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) | Reflects the number of shares of the company's common stock acquired on vesting of restricted stock and restricted stock units. |
| |
(2) | Equals closing price the company's common stock on the vesting date multiplied by the number of shares vested. |
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Beneficial 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: | | |
| | |
| | |
| | |
| | |
|
Bernard Acoca | | — |
| | — |
| | — |
| | — |
| | — | % |
Stephen J. Sather | | — |
| | 1,152,590 |
| | — |
| | 1,152,590 |
| | 2.9 | % |
Laurance Roberts(1) | | 23,102 |
| | 272,950 |
| | 7,371 |
| | 303,423 |
| | * |
|
Edward Valle(1) | | 23,102 |
| | 228,125 |
| | 28,337 |
| | 279,564 |
| | * |
|
Michael G. Maselli | | — |
| | — |
| | — |
| | — |
| | — | % |
Dean C. Kehler(2) | | 16,746,544 |
| | — |
| | — |
| | 16,746,544 |
| | 43.3 | % |
John M. Roth | | 2,592 |
| | — |
| | — |
| | 2,592 |
| | * |
|
Samuel N. Borgese(1) | | 13,253 |
| | — |
| | — |
| | 13,253 |
| | * |
|
Mark Buller(1) | | 9,920 |
| | — |
| | — |
| | 9,920 |
| | * |
|
William R. Floyd(1) | | 7,488 |
| | — |
| | — |
| | 7,488 |
| | * |
|
Carol (“Lili”) Lynton(1) | | 7,488 |
| | — |
| | — |
| | 7,488 |
| | * |
|
Gustavo ("Gus") Siade(1) | | 8,068 |
| | 51,376 |
| | 6,671 |
| | 66,115 |
| | * |
|
Douglas J. Babb | | — |
| | — |
| | — |
| | — |
| | — | % |
All directors and executive officers as a group (11 people) | | 16,841,557 |
| | 1,705,041 |
| | 42,379 |
| | 18,588,977 |
| | 46.0 | % |
5% Stockholders: | | |
| | |
| | |
| | |
| | |
|
Trimaran Pollo Partners, L.L.C.(2) | | 16,746,544 |
| | — |
| | — |
| | 16,746,544 |
| | 43.3 | % |
BlackRock, Inc.(3) | | 2,869,119 |
| | — |
| | — |
| | 2,869,119 |
| | 7.4 | % |
The Vanguard Group(4) | | 2,040,660 |
| | — |
| | — |
| | 2,040,660 |
| | 5.3 | % |
|
| | | | | | | | | | | | | | | |
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 29, 2018,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, 2017.2019. The Schedule 13G13G/A indicated that BlackRock, Inc., had sole dispositive power for 3,176,388 shares and aggregate ownership of 2,869,119 shares, sole voting power for 2,822,663 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. |
| |
(4)(5) | Based solely on a Schedule 13G13G/A filed on February 8, 2018,12, 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. |
| |
(6) | Based solely on a Schedule 13G/A filed on February 12, 2020, by The Vanguard Group as a parent holding company or control person, relating to stock held directly, or indirectly by certain subsidiaries, as of December 31, 2017.2019. The Schedule 13G13G/A indicated that The Vanguard Group had sole dispositive power for and aggregate ownership of 2,017,9511,846,120 shares, sole voting power for 22,20819,320 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 shared dispositive power for 22,709Vanguard 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
EQUITY COMPENSATION PLAN INFORMATION
The following table sets forth information, as of December 27, 2017,25, 2019, about outstanding awards and shares of common stock available for future awards under our 2018 Incentive Plan and our 2014 Omnibus Equity Incentive Plan (the “2014 Incentive Plan”), which are the Company’s only equity compensation plans. All our equity compensation plans under which our equity securities are authorized. All awards have been approved by our security holders.
| | | | (a) |
| | (b) |
| | (c) |
| | (a) | | (b) | | (c) |
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)) |
| | 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 | | 2,309,103 |
| | $ | 7.65 |
| | 359,642 |
| | 2,077,570 |
| | $ | 8.14 |
| | 1,040,703 |
|
Equity compensation plans not approved by security holders | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Total | | 2,309,103 |
| | $ | 7.65 |
| | 359,642 |
| | 2,077,570 |
| | $ | 8.14 |
| | 1,040,703 |
|
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:
involves or will involve, directly or indirectly, any related party identified above and is in an amount greater than $120,000;
would present the appearance of a conflict of interest between us and the related party; or
We are a party to a stockholders agreement with LLC and certain third-party investors. The stockholders agreement permits (i)
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.
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.
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.
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.
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.
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.
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, 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.
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.