El Pollo Loco 2016 Annual Report Download - page 25

Wecannotmakeanyassurancesregardingourabilitytoeffectivelyrespondtochangesinconsumerhealthperceptions,tosuccessfullyimplementnutritional
contentdisclosurerequirements,ortoadaptourmenuofferingstotrendsineatinghabits.Theimpositionofadditionalmenulabelinglawscouldhaveanadverse
effectonourresultsofoperationsandfinancialposition,aswellasontherestaurantindustryingeneral.
We may become subject to liabilities arising from environmental laws that could likely increase our operating expenses and materially and adversely affect our
business and results of operations.
Wearesubjecttofederal,state,andlocallaws,regulations,andordinancesthat:
·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.
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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30,2015,wehadanaccruedpayablerelatedtothisagreementofapproximately$41.5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transferanyassettoacorporationwithwhichwedonotfileaconsolidatedtaxreturn,wewillbetreatedashavingsoldthat
assetforitsfairmarketvalueinataxabletransactionforpurposesofdeterminingthecashsavingsinincometaxundertheTRA.Anysuchpaymentresultingfrom
achangeofcontrolorassettransfercouldbesubstantialandcouldexceedouractualcashtaxsavings.
Risks Related to Ownership of Our Common Stock
If the ownership of our common stock continues to be highly concentrated, it may prevent you and other minority stockholders from influencing significant
corporate decisions and may result in conflicts of interest.
TrimaranPolloPartners,L.L.C.(“LLC”),ownsapproximately43.7%ofouroutstandingcommonstock.ThislargepositionmeansthatLLCanditsmajority
owners—predecessorsandaffiliatesof,andcertainfundsmanagedby,TrimaranCapitalPartnersandFreemanSpogli&Co.(collectively,“Trimaran”and
“FreemanSpogli,”respectively)—possesssignificantinfluencewhenstockholdersvoteonmatterssuchaselectionofdirectors,mergers,consolidationsand
acquisitions,thesaleofallorsubstantiallyallofourassets,decisionsaffectingourcapitalstructure,amendmentstoourcertificateofincorporationorourby-laws,
andourwindingupanddissolution.SolongasLLCmaintainsatleast40%ownership,(i)anymemberoftheboardofdirectorsmayberemovedatanytime
withoutcauseby
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