DEF: El Pollo Loco Holdings Seeks Stockholder Approval for Board Declassification and Equity Incentive Plan Amendment

El Pollo Loco Holdings is asking stockholders to vote on key proposals including declassifying the board, eliminating supermajority voting, and amending the equity incentive plan at the upcoming annual meeting.

Summary

• El Pollo Loco Holdings, Inc. is holding its 2025 annual meeting of stockholders virtually on May 29, 2025.
• Stockholders will vote on several proposals, including the election of three Class II directors, ratification of the appointment of BDO USA, P.C. as the independent registered public accounting firm for 2025, and advisory approval of executive compensation.
• Additionally, stockholders will vote on an amendment to the Equity Incentive Plan to increase the number of shares reserved for issuance by 1,250,000 shares, bringing the new total to 4,500,000 shares.
• Two amendments to the Amended and Restated Certificate of Incorporation are also up for vote: one to declassify the board of directors and another to eliminate supermajority voting requirements.
• The board recommends voting for all director nominees and for all proposals.
• The company repurchased 535,628 shares of common stock for approximately $5.6 million in 2024.
• A stock repurchase agreement was entered into with FS Equity Partners V, L.P. and FS Affiliates V, L.P. to purchase 1,534,303 shares at $9.785 per share, totaling $15.0 million.

Sentiment

Score: 7

Explanation: The document is primarily factual and procedural, outlining proposals for stockholder voting. The tone is professional and forward-looking, suggesting a positive outlook for the company's future.

Positives

• The company's compensation program directly links executive compensation to performance, aligning the interests of executive officers with those of its stockholders.
• The proposed amendments to the Equity Incentive Plan are expected to provide the company with flexibility to continue to grant equity awards through approximately the end of 2026.
• The board believes that declassifying the board and eliminating supermajority voting requirements would enhance the board's accountability to stockholders and align with investor community governance preferences.
• Restaurant contribution margins improved by 190 basis points year-over-year in 2024.

Negatives

• If the proposed amendments to the Equity Incentive Plan are not approved, the company may have limited flexibility to provide future incentives.
• The company may not be permitted to deduct the portion of compensation attributable to the acceleration of awards in connection with a change in control if it exceeds certain threshold limits under the U.S. Internal Revenue Code.
• The company may not be able to deduct aggregate compensation in excess of $1,000,000 payable to current or former named executive officers under Section 162(m) of the Code in certain circumstances.

Risks

• If the stockholders fail to ratify the appointment of BDO USA, P.C., as the independent registered public accounting firm, the Audit Committee may reconsider whether to retain BDO USA, P.C.
• The total number of shares that are subject to the company's award grants in any one year or from year-to-year may change based on a number of variables, including the value of the company's common stock, changes in competitors' compensation practices, and changes in the number of employees.
• The company may not be permitted to deduct the portion of compensation attributable to the acceleration of awards in connection with a change in control if it exceeds certain threshold limits under the U.S. Internal Revenue Code.

Future Outlook

The company looks forward to driving continued profitable growth as it works toward its goal of establishing El Pollo Loco as the national fire-grilled chicken brand.

Industry Context

The document provides insights into El Pollo Loco's corporate governance and executive compensation practices, which are relevant to understanding the company's strategic direction and alignment with shareholder interests within the restaurant industry.

Comparison to Industry Standards

• The document mentions a peer group of companies including BJs Restaurants Inc., CAVA, Potbelly Corporation, Chuys Holdings, Inc., Sweetgreen, Inc., Red Robin Gourmet Burgers, Inc., Dennys Corporation, Kura Sushi USA, Inc., FAT Brands, Dine Brands Global, Inc., Noodles & Company, Dutch Brothers, and Portillos, Inc.
• These companies are used for benchmarking executive compensation.
• The document does not provide specific comparisons of El Pollo Loco's financial performance or governance practices against these peers, but the selection of these companies suggests they are considered comparable in terms of industry, size, and business characteristics.

Related Party Transactions

• The company is a party to a stockholders agreement with Trimaran Pollo Partners, L.L.C. and certain third-party investors, which includes registration rights.
• The company entered into an income tax receivable agreement (TRA) with pre-IPO stockholders, calling for the company to pay 85% of the savings in cash that the company realizes in its taxes as a result of utilizing its net operating losses and other tax attributes attributable to preceding periods.
• On May 29, 2024, the company terminated most of the obligations under the TRA, with respect to any payments or obligations owed to the FS Equity Partners V, L.P. and FS Affiliates V, L.P. in exchange for a payment of $0.4 million.
• On May 23, 2024, the company entered into a new Stock Repurchase Agreement with the FS Equity Partners V, L.P. and FS Affiliates V, L.P., pursuant to which the company agreed to purchase an aggregate of 1,534,303 shares of its common stock from the Sellers at a price of $9.785 per share for a total purchase price of $15.0 million.

Stakeholder Impact

• Approval of the proposals could impact shareholders through changes in corporate governance and executive compensation.
• Employees may be affected by changes to the equity incentive plan.
• The company's performance and strategic direction could impact customers, suppliers, and creditors.

Next Steps

• Stockholders are encouraged to vote on the proposals outlined in the proxy statement.
• The company will file a Current Report on Form 8-K with the SEC within four business days after the end of the annual meeting to publish final voting results.

Key Dates

Keywords

proxy statement, annual meeting, equity incentive plan, board declassification, executive compensation, BDO USA, stockholders, corporate governance, El Pollo Loco