El Pollo Loco 2015 Annual Report Download - page 96

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Table of Contents
EL POLLO LOCO HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Contingent Lease Obligations
As a result of assigning the Company’s interest in obligations under real estate leases in connection with the sale of Company-operated
restaurants to some of the Company’
s franchisees, the Company is contingently liable on four lease agreements. These leases have various terms,
the latest of which expires in 2022. As of December 31, 2014, the potential amount of undiscounted payments the Company could be required to
make in the event of non-payment by the primary lessee was $1,642,000. The present value of these potential payments discounted at the
Company’s estimated pre-tax cost of debt at December 31, 2014 was $1,515,000. The Company’s franchisees are primarily liable on the leases.
The Company has cross-default provisions with these franchisees that would put them in default of their franchise agreements in the event of
non-payment under the leases. The Company believes that these cross-default provisions reduce the risk that payments will be required to be
made under these leases. Accordingly, no liability has been recorded in the Company’s consolidated financial statements related to these
contingent liabilities.
Employment Agreements
The Company has employment agreements with four of the officers of the Company on an at will basis. These agreements provide for minimum
salary levels, possible annual adjustments for cost-of-living changes, and incentive bonuses that are payable under certain business conditions.
Indemnification Agreements
The Company has entered into indemnification agreements with each of its current directors and executive officers. These agreements require
the Company to indemnify these individuals to the fullest extent permitted under Delaware law against liabilities that may arise by reason of
their service to the Company and to advance expenses incurred as a result of any proceeding against them as to which they could be indemnified.
The Company also intends to enter into indemnification agreements with future directors and executive officers.
15. RELATED PARTY TRANSACTIONS
Trimaran Capital, L.L.C. (“Trimaran”) and Freeman Spogli & Co. (“Freeman Spogli”) indirectly beneficially own shares sufficient for majority
control over all matters requiring stockholder votes, including: the election of directors; mergers, consolidations and acquisitions; the sale of all
or substantially all of the Company’s assets and other decisions affecting the Company’s capital structure; amendments to the Company’s
certificate of incorporation or by-laws; and the Company’s winding up and dissolution. Furthermore, pursuant to the limited liability company
operating agreement of LLC, investment funds managed by Trimaran and Freeman Spogli have the right to instruct LLC to appoint certain
members of the board of directors of the Company, subject to certain conditions. Specifically, provided LLC owns a majority of the Company’s
common stock, Freeman Spogli will be able to appoint one member of the board of directors for so long as it holds 5% of the outstanding
membership interests of LLC, and Trimaran will be able to appoint the remaining members of the board of directors.
On November 18, 2005, the Company entered into a Monitoring and Management Services Agreement (the “Agreement”) with Trimaran Fund
Management, L.L.C. (“Fund Management”), an affiliate of the majority owner of the Company and of certain directors, which provides for
annual fees of $500,000 and reasonable expenses. This Agreement was amended on December 26, 2007 to add an affiliate of Freeman Spogli,
Freeman Spogli & Co. V, L.P., as a party sharing in the fees payable under the Agreement. During the years ended December 31,
2014, December 25, 2013, and December 26, 2012, $343,000, $624,000, and $612,000, respectively, were paid pursuant to this Agreement.
These amounts are included in general and administrative expenses in the accompanying consolidated statements of operations. The Agreement
terminated as of the Company’s initial public offering.
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