El Pollo Loco 2015 Annual Report Download - page 31

Table of Contents
We may become subject to liabilities arising from environmental laws that could likely increase our operating expenses and materially and
adversely affect our business and results of operations.
We are subject to federal, state, and local laws, regulations, and ordinances that:
In particular, under applicable environmental laws, we may be responsible for remediation of environmental conditions and subject to associated
liabilities, including liabilities for clean-up costs, personal injury, or property damage, relating to our restaurants and the land on which our
restaurants are located, regardless of whether we lease or own the restaurants or land in question and regardless of whether such environmental
conditions were created by us or by a prior owner or tenant. If we are found liable for the costs of remediation of contamination at any of our
properties, our operating expenses would likely increase and our results of operations would be materially and adversely affected. See Item 1,
“Business—Environmental Matters.”
We are required to pay our pre-IPO owners for certain tax benefits, which amounts are expected to be material.
We have entered into an income tax receivable agreement (the “TRA”) with our pre-IPO stockholders, 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 under Item 13, “Certain
Relationships and Related Transactions, and Director Independence—Income Tax Receivable Agreement”) as a result of the utilization of our
net operating losses and other tax attributes attributable to periods prior to July 2014 together with interest accrued at a rate of LIBOR plus 200
basis points from the date the applicable tax return is due (without extension) until paid.
Our payments under the TRA may be material. As of December 31, 2014, we had an accrued payable related to this agreement of approximately
$41 million.
TRA payment obligations are obligations of Holdings and not of its subsidiaries. The actual amounts and utilization of net operating losses and
other tax attributes, as well as the amounts and timing of any payments under the TRA, will vary depending upon a number of factors, including
the amount, character, and timing of Holdings’ and its subsidiaries’ taxable income in the future.
Our counterparties under the TRA will not reimburse us for any benefits that are subsequently disallowed, although any future payments would
be adjusted to the extent possible to reflect the result of such disallowance. As a result, in such circumstances, we could make payments under
the TRA greater than our actual cash tax savings.
If we undergo a change of control as defined in the TRA, the TRA will terminate, and we will be required to make a payment equal to the
present value of expected future payments under the TRA, which payment would be based on certain assumptions, including assumptions related
to our future taxable income. Additionally, if we or a direct or indirect subsidiary 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.
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• govern activities or operations that may have adverse environmental effects, such as discharges into the air and water, as well as waste
handling and disposal practices for solid and hazardous wastes; and
• impose liability for the costs of cleaning up, and the damage resulting from, sites of past spills, disposals, or other releases of hazardous
materials.