UNITED STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549







FORM
10-K







(Mark
One)


x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
      EXCHANGE
                ACT
      OF 1934For
      the fiscal year ended December 31,
2008


OR


o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
                EXCHANGE
      ACT OF 1934For
      the transition period from ________ to
_________




Commission
file number 333-115644











EPL
Intermediate, Inc.


(Exact name of registrant as
specified in its charter)










Delaware
              (State
      or other jurisdiction of
              Incorporation
      or organization)
            
            13-4092105
              (I.R.S.
      Employer
              Identification
      No.)3535
      Harbor Blvd., Suite 100
              Costa
      Mesa, California
              (Address
      of principal executive offices)
            
            92626
              (Zip
      Code)Registrant’s
      telephone number, including area code (714)
  599-5000










Securities
      registered pursuant to Section 12(b) or Section 12(g) of the Act:
      None







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes o No x




Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.


Yes x No o




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes o No x




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company, as
defined in Rule 12b-2 of the Exchange Act.




Large
accelerated filer o   Accelerated
filer o  
Non-accelerated filer x    Smaller
reporting company o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No x


The
common stock of the registrant is not publicly traded and is held 100% by an
affiliate.


An
aggregate of 100 shares of common stock of the registrant were outstanding as of
March 25, 2009.




Documents Incorporated By
Reference




None.










TABLE
OF CONTENTS




FORM
10-K




PageForward-Looking
      Statements
                  
                  1Non-GAAP
      Financial Measures
                  
                  1Item
      1.
                  Business.
                  
                  1Item
      1A.
                  Risk
      Factors.
                  
                  8Item
      1B.
                  Unresolved
      Staff Comments.
                  
                  16Item
      2.
                  Properties.
                  
                  16Item
      3.
                  Legal
      Proceedings.
                  
                  17Item
      4.
                  Submission
      of Matters to a Vote of Security Holders.
                  
                  18Item
      5.
                  Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities.
                  
                  18Item
      6.
                  Selected
      Financial Data.
                  
                  19Item
      7.
                  Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations.
                  
                  20Item
      7A.
                  Quantitative
      and Qualitative Disclosure About Market Risk.
                  
                  33Item
      8.
                  Financial
      Statements and Supplementary Data
                  
                  33Item
      9.
                  Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.
                  
                  34Item
      9A.
                  Controls
      and Procedures.
                  
                  34Item
      9B.
                  Other
      Information.
                  
                  34Item
      10.
                  Directors
      and Executive Officers of the Company.
                  
                  34Item
      11.
                  Executive
      Compensation
                  
                  29Item
      12.
                  Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
                  
                  51Item
      13.
                  Certain
      Relationships and Related Transactions and Director
      Independence
                  
                  51Item
      14.
                  Principal
      Accounting Fees and Services
                  
                  52Item
      15.
                  Exhibits,
      Financial Statement Schedules
                  
                  53





i





FORWARD-LOOKING
STATEMENTS




Certain
statements contained within this report constitute “forward-looking statements”
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are those that do not relate solely to historical
fact. They include, but are not limited to, any statement that may predict,
forecast, indicate or imply future results, performance, achievements or events.
They may contain words such as “believe,” “anticipate,” “expect,” “estimate,”
“intend,” “project,” “plan,” “will,” “should,” “may,” “could” or words or
phrases of similar meaning.




These
forward-looking statements reflect our current views with respect to future
events and are based on assumptions and are subject to risks and uncertainties.
Also, these forward-looking statements present our estimates and assumptions
only as of the date of this report. Except for our ongoing obligation to
disclose material information as required by federal securities laws, we do not
intend to provide any updates concerning any future revisions to any
forward-looking statements to reflect events or circumstances occurring after
the date of this report.




Factors
that could cause actual results to differ materially from those expressed or
implied by the forward-looking statements include the adverse impact of economic
conditions on our operating results and financial condition, on our ability to
comply with our debt covenants and on our ability to refinance our existing debt
or to obtain additional financing; our substantial level of indebtedness;
food-borne-illness incidents; negative publicity, whether or not valid;
increases in the cost of chicken;  our dependence upon frequent
deliveries of food and other supplies; our vulnerability to changes in consumer
preferences and economic conditions; our sensitivity to events and conditions in
the greater Los Angeles area, our largest market; our ability to compete
successfully with other quick service and fast casual restaurants; our ability
to expand into new markets; our reliance on our franchisees, who have also been
adversely impacted by the economic crisis; matters relating to labor laws and
the adverse impact of related litigation, including wage and hour class actions;
our ability to support our expanding franchise system; our ability to renew
leases at the end of their term; the impact of applicable federal, state or
local government regulations; our ability to protect our name and logo and other
proprietary information; and litigation we face in connection with our
operations. Actual results may differ materially due to these risks and
uncertainties and those discussed below. See “Item 1A. Risk
Factors.”




NON-GAAP FINANCIAL MEASURES




Restaurant-level
cash flow and restaurant-level cash flow margins, as presented in this report
are supplemental measures of our performance that are not required by, or
presented in accordance with, generally accepted accounting principles in the
United States (“GAAP”). They are not measurements of our financial performance
under GAAP and should not be considered as alternatives to net income or any
other performance measures derived in accordance with GAAP or as alternatives to
cash flow from operating activities as measures of our liquidity.




Restaurant-level
cash flow represents restaurant-level revenue less product cost, payroll and
benefits and restaurant other operating expenses. We present restaurant-level
cash flow margin, which is calculated as a percentage of restaurant revenue, as
a further supplemental measure of the performance of our company-operated
restaurants. We measure each of our company-operated restaurants relative to
other company-operated restaurants, in part on the basis of restaurant-level
cash flow. We believe that analysts and investors consider similar measures of
performance in evaluating other restaurant companies. In addition, because we do
not include general and administrative expense in our computation,
restaurant-level cash flow does not reflect all the costs of operating the
restaurants as if they were a stand-alone business unit. General and
administrative expense includes significant expenses necessary to manage a
multiple-restaurant operation, certain of which, such as financing, payroll
administration, accounting and bookkeeping, legal and tax expenses, would also
be required of a typical stand-alone restaurant operation.




PART 1




Item 1. Business.




Our
Company




EPL
Intermediate, Inc. (“EPLI” or “Intermediate”) through its wholly owned
subsidiary El Pollo Loco, Inc. (“EPL” and collectively with EPLI, the “Company,”
“we,” “us” and “our”),” is the nation’s leading restaurant specializing in
flame-grilled chicken. We strive to be the consumer’s top choice for flavor by
serving high-quality meals, featuring our authentic, marinated, flame-grilled
chicken. Our distinct menu, inspired by the kitchens of Mexico, along with our
service format and price points, serves to differentiate our unique brand. We
believe that we are strategically positioned to straddle the quick service
restaurant, or QSR, and fast casual segments of the restaurant industry. We
offer high-quality, freshly-prepared food commonly found in fast casual
restaurants while at the same time providing the value and convenience typically
available at traditional QSR chains. This positioning allows us to appeal to a
broad range of consumers and to achieve a balanced mix between lunch and dinner
sales. Our restaurants system-wide have achieved positive annual average
same-store sales growth since 2000 and system-wide same-store sales growth of
0.2%, 2.7% and 5.3% in 2008, 2007 and 2006,
respectively.  Company-operated restaurants achieved same-store sales
growth of 0.2%, 1.9%, and 3.7% in 2008, 2007 and 2006,
respectively.




1




Our menu
features our authentic flame-grilled chicken and includes approximately 50 items
ranging in price from $1.00 to $23.99, most of which we prepare from scratch
using fresh, high-quality ingredients. We serve a variety of individual and
family-size chicken meals, which include flour or corn tortillas,
freshly-prepared salsas and a variety of side orders. In addition, we offer a
wide variety of contemporary, Mexican-inspired entrees, featuring our signature
marinated, flame-grilled chicken as the central ingredient, including our
specialty Pollo Bowl®, Pollo Salads, signature burritos, chicken quesadillas,
chicken tortilla soup and chicken tacos. Our individual and family-size meals
appeal to customers for restaurant dining or take-out during dinnertime, while
our more portable entrees appeal to customers at lunchtime or on the go. Our
high-quality, flavorful food has broad appeal, and as a result, the customer
base of each of our restaurants typically reflects the demographics of its
surrounding area.




As of
December 31, 2008, our restaurant system consisted of 165 company-operated and
248 franchised restaurants located primarily in California, with additional
restaurants in Arizona, Colorado, Connecticut, Georgia, Illinois, Massachusetts,
Nevada, Oregon, Texas, Utah, Virginia and Washington. In 2008 we opened 9 new
company-operated restaurants and 21 franchised restaurants.




Industry
Overview




In 2008,
according to the National Restaurant Association (“NRA”), a restaurant industry
trade association, the U.S. restaurant industry, which represents about 4% of
the U.S. gross domestic product, marked its first decline (-1.2%) in real sales
growth since 1991.  The NRA views this as a pause, not a decline, as
the industry will remain an important pillar of the U.S. economy in terms of
sales growth and employment in coming years.  The reason for this
perspective is that restaurant industry growth is driven by consumers’ ever
expanding desire for convenience, value and socialization.  According
to the USDA Economic Research Service, or ERS, dollars spent on food consumed
away from home increased 46% between 1990 and 2007 in constant dollar
terms.  This trend is expected to continue as the percentage of
dollars spent on food away from home was 49%, almost half of all food dollars
spent, in 2007.




According
to the NRA, the U.S. economy is in its most challenging period since the early
1980’s, which creates challenges for the restaurant
industry.  Economic conditions deteriorated rapidly in 2008, as the
subprime mortgage meltdown that crippled the financial system spread throughout
the economy.  By the end of 2008, in the United States, over two
million jobs had been lost, the unemployment rate jumped to 7.3% and consumer
confidence fell to record lows.  This sharp retrenchment in household
confidence had a dramatic impact on spending.  Personal consumption
expenditures fell at a 3.8% inflation-adjusted annualized rate in the third
quarter of 2008, the first quarterly decline since 1991 and the largest decline
in 28 years.  Disposable personal income, a key indicator of
restaurant sales growth, grew only 0.8% in 2008. As a result, the restaurant
industry is experiencing an increase in bankruptcies.




Food
costs represent roughly 33 cents out of every dollar in restaurant
sales.  Large fluctuations in food costs have a significant impact on
a restaurant’s bottom line.  In 2008, wholesale food prices increased
8%, the largest jump in almost three decades.





At eating
and drinking establishments, including full-service, quick service, cafeteria
and snack outlets, the NRA calls for sales to increase 2.2%, or -1.3% when
adjusted for menu price inflation, to $395 billion this year.  Almost
all segments are expected to see declining or no growth, which will result in
restaurant operators looking to refine their competitive edge in the areas of
cost controls, menu pricing and marketing.




Consumer
awareness of the nutritional characteristics of chicken is a major factor that
we believe will continue to drive chicken consumption.  According to
ERS, per capita consumption of chicken in the U.S. increased 41% from 1990 to
2007.




Business
Strategy




Increase Same-Store Sales. We
have a strong track record of growing our same-store sales through a balanced
mix of increasing customer traffic and average check. However, the economic
downturn in 2008 negatively affected the growth in same-store sales in 2008 and
there is no assurance we will be able to achieve same-store sales growth in the
future.  See “Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” We plan to continue to drive
same-store sales by:




•
            Increasing Traffic. We
      intend to continue to focus on driving traffic and transaction volume by
      introducing new items that complement our product base and by promoting
      menu items designed to deliver value in a highly competitive marketplace.
      For example, in the third quarter of 2008 we introduced a new value-priced
      menu item, a grilled chicken tortilla roll, which is a great value at
      $1.99, is portable and drives snack
day-parts.




2




•
            Increasing Average
      Check. Our strategy to increase the average customer check includes
      selling add-on menu items, introducing new products with higher price
      points (in 2009, we may also introduce new lower price points to help stay
      competitive), selectively increasing prices on existing menu items and
      adjusting our menu board to encourage customers to select higher-priced
      menu items.




•
            Executing Our Targeted
      Marketing Plan. Our empirical, data driven approach to marketing
      helps us to determine optimal pricing strategies, introduce products that
      reflect customer taste preferences and target advertising based on
      demographic profiles.




•
            Enhancing Speed of
      Service. We have implemented several initiatives over the last few
      years to improve the speed of service for our customers, including the
      implementation of an improved labor scheduling system, enhanced drive-thru
      timing reporting system, and an additional register at each drive-thru
      location.




•
            Developing Our Catering
      Business. We have enhanced catering services throughout our system
      and have increased the number of company and franchise stores that offer
      catering delivery.




Increase Penetration of Existing
Markets. We will continue to open new company-operated and franchise
restaurants in our existing markets, including California, Nevada, and Arizona,
although at a reduced level than in prior years due to the current
economy.  We have a significant presence in the greater Los Angeles
area, and we continue to believe, on a long-term basis, that a significant
opportunity for new store growth remains in all of our markets. Our existing
market strategy is to develop new company-operated restaurants in the greater
Los Angeles area, Las Vegas, and the Central Valley of California, and to
partner with experienced operators in Arizona and the other regions of
California. Our extensive operational and site selection expertise in the
greater Los Angeles area, Las Vegas and the Central Valley create a strong
platform on which to grow our company-operated restaurant base.




In 2008
we opened 9 Company-operated restaurants and 11 franchised restaurants in
existing markets. We currently plan to open approximately five new
company-operated restaurants in fiscal 2009 with a moderately increasing number
of restaurants in subsequent years. As of December 31, 2008, a total of 12 sites
have been identified for new company-operated restaurant openings in 2009
through 2010. Historically, there is a period of time before a new El Pollo Loco
restaurant achieves its targeted level of performance due to higher operating
costs caused by start-up costs and other temporary inefficiencies. We have
experienced delays in opening some of our restaurants and may experience delays
in the future. As of December 31, 2008, we had signed franchise development
agreements with 7 franchisees to open an additional 32 restaurants in our
existing markets, which are scheduled to open at various dates through 2015. The
adverse economic and liquidity conditions have caused some franchisees to delay
the opening, or reduce the number, of new restaurants under existing development
agreements. As a result of these conditions, we estimate that as few as 20 of
those restaurants could open.




Develop Certain New Markets with a
Combination of Company Store Growth and Experienced Local Operators. We
believe that our distinct product offering and unique brand will appeal to
consumers in numerous expansion markets throughout the United States. As of
February 19, 2009, we were legally authorized to market franchises in 50 states.
Our approach to franchising developing new markets involves the identification
of an experienced, local operator, followed by a rigorous analysis of market
potential before we enter into a development agreement. By partnering with
experienced operators in new markets, we expect to be able to leverage local
operational and real estate expertise to generate high margin royalty revenue
with limited capital investment on our part. In 2008, our franchisees opened
four restaurants in Atlanta, one in New England, two in Virginia, one in
Washington, one in Oregon and one in Utah. As of December 31, 2008, we have
signed development agreements with 15 franchisees to open an additional 116
restaurants in Illinois, the New England area, Missouri, Georgia, Utah, New
York, New Jersey, North Carolina and Florida, which are scheduled to open at
various dates through 2015. The adverse economic and liquidity conditions have
caused some franchisees to delay the opening, or reduce the number, of new
restaurants under existing development agreements.  As a result of
these conditions, we estimate that as few as 25 of those restaurants could
open.  In addition to franchise growth, we plan to open company stores
outside of our existing markets with development in the Chicago area and certain
other markets that we are currently evaluating.




Increase Our Profitability.
Over the past several years we have improved our operations and implemented cost
controls in an effort to increase restaurant-level profitability. However, in
recent years gains in restaurant level profitability have been offset by rising
commodity costs and minimum wage increases. We have identified several
opportunities which we believe may increase our operational efficiency and
reduce our costs, including:




•
            Improve Restaurant
      Operations. We intend to continue to improve restaurant operations
      through the use of our rigorous scorecard system and by implementing new
      information technology initiatives.




3




•
            Leverage Our Existing
      Infrastructure. Our infrastructure is sufficient to support
      substantial growth without significant additional expense, and as a
      result, we anticipate driving increasing operating leverage over time as
      we expect our sales to grow faster than our general and administrative
      expenses.




•
            Grow High Margin Franchise
      Revenue. Our growth strategy, which emphasizes franchise
      development, is expected to increase the percentage of our total revenue
      generated from high margin franchise royalties and is expected to increase
      our profitability. In response to the credit crisis, we are adjusting our
      growth strategy to focus on a new generation (Gen3) reduced cost
      restaurant that we believe will appeal to our franchisees.  The
      Gen3 is designed to offer the same features (with fewer seats and no salsa
      bar) of a typical 2,600 square foot free-standing drive-thru restaurant,
      at about half the cost.  The Gen3, which will range from 1,800
      to 2,200 square feet, will have reduced construction costs and a shorter
      build-out period than our existing restaurant
  design.




Restaurant
Operations and Products




Restaurant Operations and
Management. Our management team places tremendous emphasis on executing
our mission, which is to “Passionately Serve Perfect Pollo Every Time.” To help
ensure that we deliver on this mission, we have 18 area leaders and three
directors of operations for our company-operated stores that report to our
senior vice president of operations. Each area leader typically oversees nine to
ten restaurants. General Managers supervise the operations of each restaurant,
and they are supported by a number of assistant managers, which varies based on
the sales volume of the respective restaurant.




We strive
to maintain quality and consistency in our restaurants through the careful
training and supervision of personnel and the establishment of standards
relating to food and beverage preparation, maintenance of facilities and conduct
of personnel. Restaurant general managers, many of whom are promoted from our
restaurant personnel, must complete a training program of typically six to
twelve weeks during which we instruct them in various areas of restaurant
management, including food quality and preparation, hospitality and employee
relations. We also provide restaurant managers with operations manuals relating
to food preparation and operation of restaurants. These manuals are designed to
ensure uniform operations, consistently high-quality products and service and
proper accounting for restaurant operations. We hold regular meetings of our
restaurant managers to discuss new menu items and efficiency initiatives and to
continue training in various aspects of business management. We have created a
set of quantitative metrics that are used to measure the performance of both the
general managers and area leaders. These metrics measure profitability, food
safety, employee safety and various customer satisfaction attributes. We make
this data “information that cannot be ignored” by producing a monthly scorecard,
holding quarterly meetings, and considering these metrics for bonus purposes and
job performance evaluations.




We have
food safety and quality assurance programs that are designed to maintain the
highest standards for food and food preparation procedures used by
company-operated and franchised restaurants. We have a team of quality assurance
managers that perform comprehensive restaurant audits. Quality assurance
managers visit each company-operated and franchised restaurant an average of two
times a year and evaluate all areas of food handling, preparation and storage.
Our quality assurance team also audits our suppliers on a frequency schedule
based on the potential food safety risk of each product. In 2008, there were
over 1,000 quality control site visits to restaurants and 69 audits of various
suppliers. We also have continuous food safety training that teaches employees
to pay detailed attention to product quality at every stage of the food
preparation cycle.




We
maintain financial and accounting controls for each of our restaurants through
the use of centralized accounting and management information systems and
reporting requirements. We collect sales, credit card, gift card, menu item
popularity and related information daily for each company-operated restaurant.
We provide general managers with operating statements for their respective
restaurants. Cash, credit card, and gift card receipts are controlled through
daily deposits to local operating accounts, which are either picked-up up by
armored car or deposited to our cash concentration accounts by our managers. At
our support center, we use a software program to reconcile on a daily basis the
sales and cash information sent electronically from our restaurants to the cash
detail electronically sent by our bank.




We devote
considerable attention to controlling product costs, which are a significant
portion of our restaurant expenses. We make extensive use of information
technology to provide us with pertinent information on ideal food cost,
inventory levels and inventory cost variances and to maintain inventory and cash
management controls.




Menu and Food Preparation. We
are committed to serving quality chicken and Mexican-inspired food. In preparing
menu items, we emphasize quality and freshness. We regularly inspect our vendors
to ensure both that the products we purchase conform to our high-quality
standards and that the prices offered are competitive. We are committed to
differentiating ourselves from other QSR competitors by utilizing fresh,
high-quality ingredients as well as by preparing most of our items from scratch.
The menu items at each of our restaurants are prepared at that restaurant from
fresh chicken and ingredients delivered several times each week. All of our
tortillas are trans fat free and we also use a trans fat free oil to prepare our
chips.




4




Our
marinated, flame-grilled chicken is the key ingredient in many of our menu
items. Fresh chickens are marinated in our restaurants twice a day, using
marinating tumblers to ensure that our proprietary marinade deeply and
consistently flavors the chicken. The cooking process on our extensive grill
system does not employ any timers, so our cooks must use acquired experience to
turn the chicken at the proper intervals in order to deliver our signature
chicken to our customers. We believe our singular focus on delivering high
quality, freshly-prepared chicken, from senior management down, creates loyalty
and enthusiasm for the brand among our customers and employees.




Our
chicken is served with flour or corn tortillas, freshly-prepared salsas and a
wide variety of side orders including Spanish rice, pinto beans, coleslaw and
mashed potatoes. In addition to individual and family chicken meals in
quantities of 8, 10 and 12 pieces, we also serve a wide variety of contemporary
Mexican entrées including specialty chicken burritos, chicken quesadillas, our
specialty Pollo Bowl®, fresh Pollo Salads, chicken tortilla soup, chicken tacos
and taquitos. To complement our menu items, a salsa bar in the majority of our
locations features four kinds of salsa prepared daily with fresh ingredients. We
also serve Fosters Freeze® brand of soft-serve ice cream products in 73
company-operated restaurants and 92 franchised restaurants.




Marketing
and Advertising




Marketing Strategy. We strive
to be the consumer’s top choice for flavor by serving high-quality meals,
featuring our signature flame-grilled chicken, inspired by traditional Mexican
cuisine. We seek to build long-term relationships with consumers based on a
complete brand experience. With our brand’s authentic roots and our
high-quality, tasty food, we attempt to inspire our consumers not only to
frequent the brand, but also to generate other customers by
word-of-mouth.




We
closely follow competitive trends, subscribe to secondary consumer research and
conduct primary research to prioritize opportunities and stay abreast of our
position in the market. Through our strategic marketing efforts and unique
product offerings, we believe we have positioned ourselves into the “sweet spot”
between the QSR and fast casual restaurant segments. We believe consumers find
our restaurant experience superior to traditional fast food restaurants but not
as high-priced or inconvenient as fast casual restaurants.




We have
developed and implemented an empirical, data-driven approach to marketing which
helps us to determine optimal pricing strategies, customer taste preferences and
demographic profiles. As a result of analyzing this data, we have developed a
metric that assigns all items on the menu a “piece of chicken” equivalent. Sales
per equivalent piece of chicken sold reveals pricing and promotion impact by
factoring out the impact of the bundled family meals. We use this and other
metrics to analyze potential promotions and to perform comparative
post-promotion analyses to evaluate the accuracy of the assumptions made for
each promotion.




Promotional/Discount
Strategy. We develop promotions designed to deliver value in a highly
competitive marketplace. Each year, the calendar is divided into six to seven
promotional periods of approximately eight weeks each that feature new products,
attractively-priced family meal offers and/or value-added promotions. Each
promotional period features an advertised focus and in-restaurant components. We
use internal modeling aids to assist the marketing team in developing promotions
designed to deliver incremental sales at a profit.





Advertising Strategy. We have
developed key consumer insights that define consumer segments and their
motivators. Our advertising is designed to capture our brand by stirring
consumers’ preferences for wholesome, flavorful food without compromising
convenience. Our advertising strategy is centered on our signature flame-grilled
chicken while reinforcing our authentic Mexican-flavor profile. To most
effectively execute this plan, we have developed targeted campaigns for the
Hispanic market in addition to separate campaigns for the broader general
market.




Our
target audience is 25 to 49 years old with a balanced gender mix. We use
television advertising as the primary medium in markets where there is adequate
market penetration. We use in-restaurant merchandising materials to further
convey the freshness and quality of the menu. We periodically use print media to
introduce new products and deliver brand communication along with purchase
incentives. We implement public relations activities to carry our brand
messaging into the consumer press and strengthen our ties to our customer
community.




Annual
advertising expenditures are approximately 4% of company-operated and franchised
restaurant revenue in the Los Angeles market area and 5% of company-operated and
franchised restaurant revenue in markets outside of the Los Angeles market area.
Approximately 23% of total advertising is spent on Spanish-language initiatives
in the Hispanic market.




Intellectual
Property




We have
registered El Pollo Loco®, Pollo Bowl®, The Crazy Chicken® and certain other
names used by our restaurants as trademarks or service marks with the United
States Patent and Trademark Office and in approximately 42 foreign countries. In
addition, El Pollo Loco’s logo and Web site name and address are our
intellectual property. The success of our business strategy depends on our
continued ability to use our existing trademarks and service marks in order to
increase brand awareness and further develop our branded products. If our
efforts to protect our intellectual property are unsuccessful, or if any third
party misappropriates or infringes on our intellectual property, either in
print, on the Internet or through other media, the value of our brands may be
harmed, which could have a material adverse effect on our business, including
the failure of our brands and branded products to achieve and maintain market
acceptance. Our policy is to pursue and maintain registration of our service
marks and trademarks in those countries where our business strategy requires us
to do so and to oppose vigorously any infringement or dilution of our service
marks or trademarks in such countries




5




We
maintain the recipe for our chicken marinade, as well as certain proprietary
standards, specifications and operating procedures, as trade secrets or
confidential proprietary information. We may not be able to prevent the
unauthorized disclosure or use of our trade secrets or proprietary information,
despite the existence of confidentiality agreements and other measures. If any
of our trade secrets or proprietary information were to be disclosed to or
independently developed by a competitor, our business, financial condition and
results of operations could be materially adversely affected.




Franchise
Program




We use
franchising as our strategy to accelerate new restaurant growth in certain new
markets, leveraging the ownership of entrepreneurs with specific local market
expertise and requiring a relatively minimal capital commitment by us. As of
December 31, 2008, there were a total of 248 franchised restaurants, operated by
60 franchisees and 2 licensees (operating at Universal Studios Theme Park in Los
Angeles, California and Foxwoods Casino in Connecticut). Franchisees range in
size from single restaurant operators to our largest franchisee, who currently
operates 57 restaurants. We employ three franchise consultants who work with
franchisees to maintain system-wide quality. These consultants assist
franchisees with new site proposals, new restaurant openings, marketing programs
and ongoing operations activities. To support the expected growth in franchise
restaurants, we have invested in a dedicated team of franchise management
professionals including a director of franchise sales, along with managers of
operations, field marketing, training, real estate and purchasing.




Our
standard franchise agreement gives our franchisees the right to use our
trademarks, service marks, trade dress and our proprietary recipes, systems,
manuals, processes and related items. We also provide our franchisees with
access to training, marketing, quality control, purchasing, distribution and
operations assistance. We are not obligated to and currently do not provide nor
plan to provide any direct or indirect financing or financing guarantees for our
franchisees. The franchisee is required to pay an initial franchise fee of
$40,000 for a 20-year franchise term per restaurant and in most cases, a renewal
fee for a successor franchise agreement beyond the initial term. The initial
franchise fee is reduced to $30,000 for second and subsequent restaurants opened
under a development agreement. The franchisee is also required to pay monthly
royalty fees of 4% of net sales as well as monthly advertising fees of 4% of net
sales for the Los Angeles designated market area or 5% of net sales for other
markets. Our company-operated restaurants contribute to the advertising fund on
the same basis as franchised restaurants. Under our franchise agreements, we are
obligated to use all advertising fees collected from franchisees to purchase,
develop and engage in advertising, public relations and marketing activities to
promote the brand.




Our
development agreements generally grant exclusive rights to a prospective
franchisee, who may be an existing franchisee, to develop a specified number of
restaurants in a defined territory within a specified period of time. The
development agreement typically requires the opening of three or more
restaurants, with the first restaurant to be opened within eighteen months after
execution of the development agreement and each subsequent restaurant to be
opened within twelve-month intervals thereafter. The development agreements
typically outline a schedule of requirements that the prospective franchisee
must meet, such as site selection and acquisition, and typically require the
developer to use diligent efforts to obtain government approvals and complete
construction in order to open the restaurants as scheduled. If a prospective
franchisee who has been granted an exclusive territory fails to meet the
schedule set forth in the development agreement, the prospective franchisee
could lose its exclusive rights in the defined territory and, in certain
circumstances, the development agreement and the right to open our restaurants
could terminate. Under the development agreement, we collect a development fee
of $10,000 per restaurant, which is applied to the initial franchise fee when
the franchise agreement for a restaurant is signed or, in certain circumstances,
to other amounts due from the franchisee. In some circumstances, when a
prospective franchisee does not meet the development schedule and the
development agreement is terminated or expires, the development fee may be
forfeited.




Under our
agreement with Fosters Freeze International, Inc., our franchisees in California
may also enter into a sublicense agreement with us under which they may sell a
limited Fosters Freeze® menu in their restaurants.




As a
result of an initiative beginning in the mid-1990’s to transfer certain
company-operated restaurants to new franchisees, some franchisees sublease their
restaurants from us. However, most franchisees currently either purchase the
real estate upon which the restaurants are operated or enter into direct leases
with third-party owners of real estate.




6




Purchasing




Our
ability to maintain consistent quality throughout our restaurants depends in
part upon the ability to acquire food products and related items from reliable
sources in accordance with our specifications. We have a contract with one
national distributor for substantially all of the food and supplies, including
the chicken, that our company-operated restaurants receive from our suppliers.
Fresh chicken is typically delivered every other day to each restaurant. We have
a five-year distribution agreement with our long-standing distributor, which
expires August 15, 2010. Currently, all franchisees are required to use this
distributor as the sole approved distributor and they must purchase food and
supplies only from approved suppliers.




We
regularly inspect vendors to ensure both that the products purchased conform to
our high-quality standards and that the prices offered are competitive. To
support this, we have a quality assurance team that performs comprehensive
supplier audits on a frequency schedule based on the potential food safety risk
of each product. In 2008, the quality control team conducted 69 supplier audits.
With the exception of our distributor and chicken and beverage suppliers, we
normally contract for food and paper items at fixed price contracts ranging from
one to two years.




In
February 2005, we entered into a five-year contract with our primary beverage
supplier, which provides for a marketing allowance based on gallons sold. A
portion of the marketing allowance is specifically earmarked to be used to
support our beverage product advertising programs. All franchisees are required
to purchase beverages from approved suppliers.




Historically, we have been
able to limit our exposure to chicken prices through contracts ranging in term
from one to three years and through menu price increases.In March 2008
we renewed two chicken supply contracts with two of our suppliers for a term of
one year at higher prices than the expiring contracts.  We also
contracted with a new supplier for a one-year term. We have negotiated four new
contracts for chicken at higher prices than the expiring contracts that will be
effective as of March 1, 2009.  Two of the contracts have a floor and
ceiling price for chicken and are for a term of two years.  The other
two contracts are one year in length with fixed pricing for the term of the
agreement.We
implemented menu price increases in October 2008, January 2008 and December 2007
that have partially mitigated the impact of higher chicken prices on our
profitability. Chicken makes up the largest part of our total product cost,
approximately 13.7% of our revenue from company-operated restaurants for fiscal
2008.




Competition




We
operate in the restaurant industry, which is highly competitive and fragmented.
The number, size and strength of competitors vary by region. Competition
includes a variety of locally owned restaurants and national and regional chains
that offer dine-in, carry-out and/or delivery services. Our competition in the
broadest perspective includes restaurants, pizza parlors, coffee shops, street
vendors, convenience food stores, delicatessens and supermarkets. We do not have
any direct competitors. However, we indirectly compete with chicken-specialty
QSRs and Mexican QSRs, such as KFC, Church’s Chicken, Popeye’s Chicken &
Biscuits and Taco Bell, as well as fast casual restaurants and franchisors of
other restaurant concepts. We believe that QSR competition is based primarily on
quality, taste, speed of service, value, name recognition, restaurant
location and customer service. The fast casual restaurant industry is also
highly competitive. We believe that competition within the fast casual
restaurant segment is based primarily on price, taste, quality and the freshness
of the menu items as well as the comfort and ambiance of the
restaurant environment.




In
addition, we compete with franchisors of other restaurant concepts for
prospective franchisees.




Our
greatest strength in this competitive environment is our high-quality food. We
believe we are positioned to take advantage of a number of consumer trends,
including the impact of the Hispanic culture on food and flavors, growth of the
Mexican food segment, increased interest in healthy dining and the growth of the
Hispanic population in many regions of the United States, which should each
provide us with opportunities to continue to grow our market position in
existing and new markets. We believe we can continue to increase our market
share with our marketing focus on building our brand, as well as our operations
focus on achieving improvements in all aspects of customer service.





Regulation




Our
business is subject to extensive federal, state and local government regulation,
including those relating to, among others, public health and safety, zoning and
fire codes, and franchise sales. Failure to obtain or retain food or other
licenses would adversely affect the operations of our restaurants. Although we
have not experienced and do not anticipate any significant problems in obtaining
required licenses, permits or approvals, any difficulties, delays or failures in
obtaining such licenses, permits or approvals could delay or prevent the opening
of, or adversely impact the viability of, a restaurant in a particular area. We
operate, and our franchisees are required to operate, each of our restaurants in
accordance with standards and procedures designed to comply with applicable
codes and regulations.




7




The
development and construction of additional restaurants will be subject to
compliance with applicable zoning, land use and environmental regulations. We
believe that federal and state environmental regulations have not had a material
effect on our operations, but more stringent and varied requirements of local
government bodies with respect to zoning, land use and environmental factors
could delay construction and increase development costs for new
restaurants.




We also
are subject to the Fair Labor Standards Act, the Immigration Reform and Control
Act of 1986 and various federal and state laws governing such matters as minimum
wages, overtime, unemployment tax rates, worker’s compensation rates,
citizenship requirements and other working conditions. A significant number of
our hourly staff are paid at rates consistent with the applicable federal or
state minimum wage and, accordingly, increases in the minimum wage will increase
our labor cost. We are also subject to the Americans With Disabilities Act,
which prohibits discrimination on the basis of disability in public
accommodations and employment, which may require us to design or modify our
restaurants to make reasonable accommodations for disabled persons. See “Item
1A. Risk Factors—Matters relating to employment and labor laws may adversely
affect our business” and “Item 3. Legal Proceedings.”




Many
states, including California, and the Federal Trade Commission require
franchisors to transmit specified disclosure statements to potential franchisees
when offering or modifying a franchise. Some states require us to register our
franchise offering documents and file our advertising material before we may
offer a franchise for sale. Our non-compliance could result in civil or criminal
penalty, rescission of a franchise, and suspension of our ability to offer and
sell franchises in a state. We believe that our Franchise Disclosure Document,
together with any applicable state versions or addenda, complies in all material
respects with both the Federal Trade Commission guidelines and all applicable
state laws regulating franchising. As of February 19, 2009, we were legally
authorized to market franchises in 50 states.




Environmental
Matters




Our
operations are also subject to federal, state and local laws and regulations
relating to environmental protection, including regulation of discharges into
the air and water, storage and disposal of waste and clean-up of contaminated
soil and groundwater. Under various federal, state and local laws, an owner or
operator of real estate may be liable for the costs of removal or remediation of
hazardous or toxic substances on, in or emanating from such property. Such
liability may be imposed without regard to whether the owner or operator knew
of, or was responsible for, the presence of such hazardous or toxic
substances.




Certain
of our properties may be located on sites that we know or suspect have been used
by prior owners or operators as retail gas stations. Such properties previously
contained underground storage tanks, and some of these properties may currently
contain abandoned underground storage tanks. We are aware of contamination from
a release of hazardous materials by a previous owner at two of our owned
properties and one of our leased properties. We do not believe that we have
contributed to the contamination at any of these properties. It is possible that
petroleum products and other contaminants may have been released at other
properties into the soil or groundwater. Under applicable federal and state
environmental laws, we, as the current owner or operator of these sites, may be
jointly and severally liable for the costs of investigation and remediation of
any contamination. Although we lease most of our properties, or when we own the
property we obtain certain assurances from the prior owner or often obtain
indemnity agreements from third parties, we cannot assure you that we will not
be liable for environmental conditions relating to our prior, existing or future
restaurants or restaurant sites. If we are found liable for the costs of
remediation of contamination at or emanating from any of our properties, our
operating expenses would likely increase and our operating results would be
materially adversely affected. As of December 31, 2008, we believe that the risk
of loss is remote.




Employees




As of
December 31, 2008, we had approximately 4,188 employees, of whom approximately
3,388 were hourly restaurant employees, 168 were salaried general managers
engaged in managerial capacities, 486 were assistant managers and 146 were
corporate and office personnel. Most of our restaurant employees are employed on
a part-time basis to provide services necessary during peak periods of
restaurant operations. None of our employees are covered by a collective
bargaining agreement. We believe that we generally have good relations with our
employees.




Item 1A. Risk Factors.





The
current economic crisis adversely impacted our business and financial results in
2008 and a prolonged recession could materially affect us in the
future.





The
restaurant industry is dependent upon consumer discretionary
spending.  The economic crisis has reduced consumer confidence to
historic lows, impacting the public’s ability and/or desire to spend
discretionary dollars as a result of job losses, home foreclosures,
significantly reduced home values, investment losses, bankruptcies and reduced
access to credit, resulting in lower levels of guest traffic and lower check
averages in our restaurants.  If this difficult economic situation
continues for a prolonged period of time and/or deepens in magnitude, our
business, results of operations and ability to comply with our debt covenants
could be materially adversely affected and may result in further deceleration of
the number and timing of new restaurant openings by us and our
franchisees.  Continued deterioration in customer traffic and/or a
reduction in average check amounts will negatively impact our revenues and our
profitability and could result in further reductions in staff levels, additional
impairment charges and potential restaurant closures.  There is no
assurance that the government’s stimulus plan will restore consumer confidence,
stabilize the financial markets, increase credit liquidity or result in lower
unemployment.




8




The
failure to satisfy our debt covenants, and the impact of the current United
States liquidity crisis, could have a material adverse effect on our financial
condition.





Our
ability to manage our debt is dependent on increased positive cash flow from our
growth of company and franchised stores, along with associated economies of
scale. The economic downturn has negatively impacted our cash flows and has
decelerated our growth plans. The liquidity crisis that began in 2007 has
adversely impacted global credit markets, severely constrained liquidity
conditions, and could make it more difficult for us to obtain debt financing.
Continuation of such constraints may increase the Company’s costs of borrowing
and could restrict the Company’s access to this potential source of future
liquidity. Our failure to satisfy our debt covenants, to have sufficient
liquidity to repay or repurchase outstanding debt as a means to satisfy such
covenants, or to refinance or amend the terms of our credit facilities to revise
financial covenants would have a  material adverse effect on our
financial condition.





During 2009, the maximum leverage ratio
under our senior credit facility will reduce from 4.50:1 to 4.25:1 in the
second and third quarters and to 3.75:1 in the fourth quarter.  As a
result of the leverage ratio reductions, if the adverse conditions in the
economy in general, and in California in particular, deteriorate further, and if
we are unable to take certain steps that are available to us, such as reducing
outstanding debt, it is possible that we may not be in compliance with the
leverage ratio in 2009.  Such noncompliance would constitute an event of
default under the senior credit facility. If we were to fail to satisfy our
financial covenants and we were unable to negotiate a waiver or amendment of
such covenants, the lenders under the credit facility could accelerate
repayment of the borrowings and cross-defaults could be triggered under our
outstanding bonds.







Any possible
instances of food-borne illness incidents could reduce our restaurant
sales.




We cannot
guarantee to consumers that our internal controls and training will be fully
effective in preventing all food-borne illnesses. Furthermore, our reliance on
third-party food processors makes it difficult to monitor food safety compliance
and may increase the risk that food-borne illness would affect multiple
locations rather than single restaurants. Some food-borne illness incidents
could be caused by third-party food suppliers and transporters outside of our
control, such as the peanut products contamination that occurred in early 2009
but which did not impact EPL. New illnesses resistant to our current precautions
may develop in the future, or diseases with long incubation periods could arise,
that could give rise to claims or allegations on a retroactive basis. One or
more instances of food-borne illness in one of our company-operated or
franchised restaurants could negatively affect sales at all of our restaurants
if highly publicized. This risk exists even if it were later determined that the
illness was wrongly attributed to one of our restaurants. A number of other
restaurant chains have experienced incidents related to food-borne illnesses
that have had a material adverse impact on their operations, and we cannot
assure you that we can avoid a similar impact upon the occurrence of a similar
incident at our restaurants.




Negative
publicity could reduce sales at some or all of our restaurants.




We are,
from time to time, faced with negative publicity relating to food quality, the
safety of chicken, which is our principal food product, restaurant facilities,
customer complaints or litigation alleging illness or injury, health inspection
scores, integrity of our or our suppliers’ food processing, employee
relationships or other matters at one of our restaurants. Negative publicity may
adversely affect us, regardless of whether the allegations are valid or whether
we are held to be responsible. In addition, the negative impact of adverse
publicity relating to one restaurant may extend far beyond the restaurant
involved to affect some or all of our other restaurants. The risk of negative
publicity is particularly great with respect to our franchised restaurants
because we are limited in the manner in which we can regulate them, especially
on a real-time basis. A similar risk exists with respect to food service
businesses unrelated to us, if customers mistakenly associate such unrelated
businesses with our own operations. Employee claims against us based on, among
other things, wage and hour violations, discrimination, harassment or wrongful
termination may also create negative publicity that could adversely affect us
and divert our financial and management resources that would otherwise be used
to benefit the future performance of our operations. A significant increase in
the number of these claims or an increase in the number of successful claims
could materially adversely affect our business, financial condition, results of
operations and cash flows.




The prospect of a
pandemic spread of avian flu could adversely affect our business.




9




If avian
flu were to affect our supply of chicken, our operations may be negatively
impacted, as prices may rise due to limited supply. In addition,
misunderstanding by the public of information regarding the threat of avian flu
could result in negative publicity that could adversely affect consumer spending
and confidence levels. A decrease in traffic to our restaurants as a result of
this negative publicity or as a result of health concerns, whether or not
warranted, could materially harm our business.




Increases in the
cost of chicken, including the impact on chicken prices due to the increased
price of corn because of ethanol demand, could materially adversely affect our
operating results.




Our
principal food product is chicken. During fiscal 2006, 2007 and 2008, the cost
of chicken included in our product cost was approximately 13.2%, 13.4% and
13.7%, respectively, of our revenue from company-operated restaurants. Material
increases in the cost of chicken could materially adversely affect our business,
operating results and financial condition. Changes in the cost of chicken can
result from a number of factors, including seasonality, increases in the cost of
grain, disease and other factors that affect availability and greater
international demand for domestic chicken products. Pilgrim’s Pride, which is
the largest supplier of chicken in the United States and supplies approximately
20% of our chicken, filed for bankruptcy reorganization in late 2008. This
filing has not impacted our supply of chicken, but there could be an adverse
impact on the overall supply of chicken (and corresponding price increases)
depending on its ability to emerge from bankruptcy.  Also, chicken
suppliers have recently reduced egg sets (fertile eggs placed in incubators),
which decreases the supply of chicken in the marketplace and has the effect of
keeping chicken prices higher.   A major driver in the price of
corn, which is the primary feed source for chicken, is the increasing demand for
corn by the ethanol industry as an alternative fuel source. There have been many
new ethanol plants opening in the United States, and most of these plants use
corn as the primary source of grain to make ethanol. This increased demand on
the nation’s corn crop has had and may continue to have an adverse impact on
chicken prices. Even though corn prices have decreased from their all time highs
in mid-2008, due to all the above factors, the price of chicken has not
decreased.  We currently do not engage in futures contracts or other
financial risk management strategies with respect to potential price
fluctuations in the cost of chicken or other food and supplies, which we
purchase at prevailing market or contracted prices. We seek to limit our
exposure to chicken price fluctuations through contracts with suppliers ranging
in term from one to three years. Although we have implemented menu price
increases in the past to significantly offset the higher prices of chicken, due
to competitive pressures and the declining economic environment, there is no
assurance we can do so in the future. If we do implement menu price increases in
the future to protect our margins, check averages and restaurant traffic could
be materially adversely affected.




We rely on only
one company to distribute substantially all of our products to company-operated
and franchised restaurants, and on a limited number of companies as our
principal chicken suppliers. Failure to receive timely deliveries of food or
other supplies could result in a loss of revenue and materially and adversely
impact our operations.




Our and
our franchisees’ ability to maintain consistent quality menu items significantly
depends upon our ability to acquire fresh food products, including the highest
quality chicken and related items, from reliable sources in accordance with our
specifications on a timely basis. Shortages or interruptions in the supply of
fresh food products caused by unanticipated demand, problems in production or
distribution, contamination of food products, an outbreak of poultry diseases,
inclement weather or other conditions could materially adversely affect the
availability, quality and cost of ingredients, which would adversely affect our
business, financial condition, results of operations and cash flows. We have
contracts with a limited number of suppliers of most chicken, food and other
supplies for our restaurants. In addition, one company distributes substantially
all of the products we receive from suppliers to company-operated and franchised
restaurants. If that distributor or any supplier fails to perform as anticipated
or seeks to terminate agreements with us, or if there is any disruption in any
of our supply or distribution relationships for any reason, our business,
financial condition, results of operations and cash flows could be materially
adversely affected. For example, one of our chicken suppliers filed for
bankruptcy in 2008 and the economic situation could adversely affect other
suppliers.  Our inability to replace our suppliers in a short period
of time on acceptable terms could increase our costs and cause shortages at our
restaurants that may cause our company-operated or franchised restaurants to
remove certain items from a restaurant’s menu or temporarily close a restaurant.
If we or our franchisees temporarily close a restaurant or remove popular items
from a restaurant’s menu, that restaurant may experience a significant reduction
in revenue during the time affected by the shortage and thereafter if our
customers change their dining habits as a result.




As most of our
restaurants are concentrated in the greater Los Angeles area, our business is
highly sensitive to events and conditions in the greater Los Angeles
area.




Our
company-operated and franchised restaurants in the greater Los Angeles area
generated, in the aggregate, approximately 85% of our revenue in fiscal 2007 and
approximately 80% in fiscal 2008. Our business will be materially adversely
affected if we experience a significant decrease in revenue from these
restaurants. Adverse changes in the demographic or economic conditions or an
adverse regulatory climate in the greater Los Angeles area or the state of
California could have a material adverse effect on our business. As of January
2009, unemployment in California was 9.1% compared to 7.2% nationally. We
believe that increases in unemployment will have a negative impact on traffic in
our restaurants. Additionally, California, Nevada, and Arizona, where we have
over 90% of our restaurants, are among the areas most impacted by declining home
prices and increased foreclosures.  We may suffer unexpected losses
resulting from natural disasters or other catastrophic events affecting these
areas, such as earthquakes, fires, explosions, or other natural or man-made
disasters. The incidence and severity of catastrophes are inherently
unpredictable and our losses from catastrophes could be
substantial.




10




Our growth
strategy depends in part on opening restaurants in new and existing markets and
expanding our franchise system. We may be unsuccessful in opening new
restaurants or establishing new markets, which could adversely affect our
growth.




Our
ability to open new restaurants is dependent upon a number of factors, many of
which are beyond our control, including our or our franchisees’ ability
to:




•
            identify
      available and suitable restaurant
sites;




•
            compete
      for restaurant sites;




•
            reach
      acceptable agreements regarding the lease or purchase of
      locations;





•
            obtain
      or have available the financing required to acquire and operate a
      restaurant, including construction and opening
  costs;




•
            timely
      hire, train and retain the skilled management and other employees
      necessary to meet staffing needs;




•
            obtain,
      for an acceptable cost, required permits and regulatory approvals;
      and




•
            control
      construction and equipment cost increases for new
    restaurants.




If we are
unable to open new restaurants or sign new franchisees, or if restaurant
openings are significantly delayed, our earnings or revenue growth could be
adversely affected and our business negatively affected as we expect a portion
of our growth to come from new locations.




As part
of our growth strategy, we expect to enter into new geographic markets in which
we have no prior operating or franchising experience through company store
growth and through franchise development agreements. Since fiscal 2003, we
executed development agreements for new restaurants in California, Washington,
Arizona, Missouri, Illinois, Georgia, Virginia, Utah, New York, New Jersey,
Oregon, North Carolina, and the six New England states. The challenges of
entering new markets include: difficulties in hiring experienced personnel;
unfamiliarity with local real estate markets and demographics; consumer
unfamiliarity with our brand; and different competitive and economic conditions,
consumer tastes and discretionary spending patterns than our existing
markets.   Consumer recognition of our brand has been important
in the success of company-operated and franchised restaurants in our existing
markets. Any failure on our part to recognize or respond to these challenges may
adversely affect the success of our new restaurants. Expanding our franchise
network could require the implementation of enhanced business support systems,
management information systems, financial controls as well as additional
management, franchise support and financial resources. At the end of 2008, we
had 16 restaurants open in new markets east of the Rockies. In 2008, three
stores in these areas closed due to low sales. The 16 open stores are
experiencing a wide range of sales, and a majority of them have sales volumes
that are significantly less than the chain average due to lack of brand
awareness in the new markets. The failure of a significant number of restaurants
that open in new markets, or the failure to provide our franchisees with
adequate support and resources, could materially adversely affect our business,
financial condition, results of operations and cash flows.




As part
of our growth strategy, we also intend to open new restaurants in areas where we
have existing restaurants. Since we typically draw customers from a relatively
small geographic area around each of our restaurants, the operating results and
comparable restaurant sales for our restaurants could be adversely affected due
to close proximity with our other restaurants and market
saturation.




The current
economic crisis has adversely affected our franchisees, on whom we rely to
successfully develop and operate new restaurants.




We rely
in part on our franchisees and the manner in which they operate their locations
to develop and promote our business. Our top ten franchisees operate
approximately half of our franchised restaurants. A loss of, or the failure of,
one or more of these franchisees could have a material adverse effect on our
results of operations. Additionally, if one or more of these franchisees were to
become insolvent or otherwise were unwilling or unable to pay us their fees, our
business could be adversely affected.




As of
December 31, 2008, we have executed development agreements that represent
commitments to open 148 restaurants at various dates through 2015. These
franchised restaurants will be located in California, Washington, Arizona,
Missouri, Illinois, Georgia, Virginia, Utah, New York, New Jersey, Oregon, North
Carolina, Florida and the six New England states. The adverse economic and
liquidity conditions have caused some franchisees to delay the opening of new
restaurants under existing development agreements.  As a result of
these conditions, we estimate that as few as 45 of those restaurants could open.
Although we have developed criteria to evaluate and screen prospective
franchisees, we cannot be certain that the franchisees we select will have the
business acumen or financial resources necessary to operate successful
franchises in their franchise areas, and state franchise laws may limit our
ability to terminate or modify these franchise arrangements. Moreover,
franchisees may not successfully operate restaurants in a manner consistent with
our standards and requirements, or may not hire and train qualified managers and
other restaurant personnel. The failure of franchisees to operate franchises
successfully could have a material adverse effect on us, our reputation, our
brands and our ability to attract prospective franchisees and could materially
adversely affect our business, financial condition, results of operations and
cash flows.




11




Franchisees
may not have access to the financial or management resources that they need to
open the restaurants contemplated by their agreements with us, or be able to
find suitable sites on which to develop them. Franchisees may not be able to
negotiate acceptable lease or purchase terms for restaurant sites, obtain the
necessary permits and government approvals or meet construction schedules. Any
of these problems could slow our growth and reduce our franchise revenue.
Additionally, our franchisees typically depend on financing from banks and other
financial institutions, which may not always be available to them, in order to
construct and open new restaurants. Due to the recession and associated
liquidity crisis, most of our developing franchisees are having a difficult time
obtaining financing for new restaurants. Additionally, some of our franchisees
who have other restaurant concepts have incurred significant loss of cash flow
due to declining sales in these other concepts and one has filed bankruptcy.
This has had the effect of slowing development of new El Pollo Loco restaurants
and we expect that many of the franchisees who have development agreements will
not be able to meet the new unit opening dates required under the agreements. We
expect these trends to continue at least through 2009. Also, we sublease certain
restaurants to some existing California franchisees. If any such franchisees
cannot meet their financial obligations under the sublease, or otherwise fail to
honor or default under the terms of the sublease, we would be financially
obligated under the master lease and could be materially adversely
affected.




Our franchisees
could take actions that could harm our business.




Franchisees
are independent business operators and are not our employees and we do not
exercise control over their day-to-day operations of the restaurants. We provide
training and support to franchisees, and set and monitor operational standards,
but the quality of franchised restaurant operations may be diminished by any
number of factors beyond our control. Consequently, franchisees may not
successfully operate restaurants in a manner consistent with our standards and
requirements, or may not hire and train qualified managers and other restaurant
personnel. If franchisees do not, our image and reputation, and the image and
reputation of other franchisees, may suffer materially and system-wide sales
could decline significantly.




Franchisees,
as independent business operators, may from time to time disagree with us and
our strategies regarding the business or our interpretation of our respective
rights and obligations under the franchise agreement. This may lead to disputes
with our franchisees and we expect such disputes to occur from time to time in
the future as we continue to offer franchises. To the extent we have such
disputes, the attention of our management and our franchisees will be diverted
from our restaurants, which could have a material adverse effect on our
business, financial condition, results of operations or cash flows.




We are vulnerable
to changes in consumer preferences and economic conditions that could harm our
business, financial condition, results of operations and cash flow.




Food
service businesses are often affected by changes in consumer tastes, national,
regional and local economic conditions and demographic trends. Factors such as
traffic patterns, weather, fuel prices, local demographics and the type, number
and location of competing restaurants may adversely affect the performance of
individual locations. In addition, inflation and increased food or energy costs
may harm the restaurant industry in general and our locations in particular.
Adverse changes in any of these factors could reduce consumer traffic or impose
practical limits on pricing that could harm our business, financial condition,
results of operations and cash flow. As discussed above and in the Industry
Overview in Item 1, the economic downturn has negatively impacted the restaurant
industry and our financial results. There can be no assurance that consumers
will continue to regard chicken-based or Mexican-inspired food favorably or that
we will be able to develop new products that appeal to consumer preferences. Our
continued success depends in part on our ability to anticipate, identify and
respond to changing consumer preferences and economic conditions.




We may not be
able to compete successfully with other quick service and fast casual
restaurants.




The food
service industry, and particularly the quick service and fast casual segments,
is intensely competitive. In addition, the greater Los Angeles area, the primary
market in which we compete, consists of what we believe is the most competitive
Mexican-inspired quick service and fast casual market in the country. We expect
competition in this market to continue to be intense because consumer trends are
favoring QSRs that offer healthier menu items made with better quality products.
Competition in our industry is primarily based on price, convenience, quality of
service, brand recognition, restaurant location and type and quality of food. If
our company-operated and franchised restaurants cannot compete successfully with
other quick service and fast casual restaurants in new and existing markets, we
could lose customers and our revenue may decline. Our company-operated and
franchised restaurants compete with national and regional quick service and fast
casual restaurant chains for customers, restaurant locations and qualified
management and other restaurant staff. Compared with us, some of our competitors
have substantially greater financial and other resources, have been in business
longer, have greater name recognition and are better established in the markets
where our restaurants are located or are planned to be located.




12




Our substantial
level of indebtedness could materially and adversely affect our business,
financial condition and results of operations.




We have
substantial debt service obligations. At December 31, 2008, our total debt was
approximately $241.5 million, which represented approximately 61% of our total
capitalization, and we had approximately $12.6 million of available revolving
credit facility borrowings under our existing senior secured credit
facilities.




Our high
level of indebtedness could have significant effects on our business, such
as:




•
            limiting
      our ability to borrow additional amounts to fund working capital, capital
      expenditures, acquisitions, debt service requirements, execution of our
      growth strategy and other purposes;




•
            requiring
      us to dedicate a substantial portion of our cash flow from operations to
      pay principal and interest on our debt, which was approximately 121% of
      our operating cash flow in fiscal 2008 (including 26% of our operating
      cash flow, which comprised repayments of borrowings under the revolving
      credit facility of our existing senior secured credit facilities), which
      would reduce availability of our cash flow to fund working capital,
      capital expenditures, acquisitions, execution of our growth strategy and
      other general corporate purposes;




•
            making
      us more vulnerable to adverse changes in general economic, industry and
      competitive conditions, in government regulation and in our business by
      limiting our ability to plan for and react to changing
      conditions;




•
            placing
      us at a competitive disadvantage compared with our competitors that have
      less debt; and




•
            exposing
      us to risks inherent in interest rate fluctuations because some of our
      borrowings at variable rates of interest, which could result in higher
      interest expense in the event of increases in interest
    rates.




In
addition, we may not be able to generate sufficient cash flow from our
operations to repay our indebtedness when it becomes due and to meet our other
cash needs. If we are not able to pay our debts as they become due, we will be
required to pursue one or more alternative strategies, such as selling assets,
refinancing or restructuring our indebtedness or selling additional debt or
equity securities. We may not be able to refinance our debt or sell additional
debt or equity securities or our assets on favorable terms, if at all, and if we
must sell our assets, it may negatively affect our ability to generate
revenue.




Our
senior secured credit facilities contain a number of covenants that, among other
things, limit or restrict our ability to dispose of assets, incur additional
indebtedness, incur guarantee obligations, prepay other indebtedness, pay
dividends, create liens, make equity or debt investments, make acquisitions,
engage in mergers, make capital expenditures, engage in certain transactions
with affiliates, enter into sale-leaseback transactions, amend documents
relating to other material indebtedness and other material documents and redeem
or repurchase equity interests. In addition, our senior secured credit
facilities require us to comply with a minimum interest coverage ratio test and
a maximum leverage ratio test. Our ability to borrow under our revolving credit
facility depends, among other things, on our compliance with these tests. Events
beyond our control, including changes in general economic and business
conditions, may affect our ability to meet these financial ratios and financial
condition tests. We cannot assure you that we will meet these tests in the
future, or that the lenders will waive any failure to meet those tests. See “The
failure to satisfy our debt covenants, and the impact of the liquidity crisis,
could have a material adverse effect on our financial condition”
above.




Matters relating
to employment and labor law, including wage and hour class action lawsuits, may
adversely affect our business.




Various
federal and state labor laws govern the relationship with our employees and
affect operating costs. These laws include employee classifications as exempt or
non-exempt, minimum wage requirements, unemployment tax rates, workers’
compensation rates, citizenship requirements and other wage and benefit
requirements for employees classified as non-exempt. Significant additional
government regulations or increases in minimum wages or mandated benefits could
materially affect our business, financial condition, operating results or cash
flow.




We are
also subject to employee claims against us based, among other things, on
discrimination, harassment, wrongful termination, or violation of wage and labor
laws in the ordinary course of business.  These claims may divert our
financial and management resources that would otherwise be used to benefit our
operations. In recent years a number of restaurant companies have been subject
to wage and hour class action lawsuits alleging violations of federal and state
labor laws.  A number of these lawsuits have resulted in the payment
of substantial damages by the defendants.  We are currently a
defendant in several wage and hour class action lawsuits.  Since our
insurance carriers have denied coverage of these claims, a significant judgment
against us could adversely affect our financial condition and adverse publicity
resulting from these allegations could adversely affect our business. In an
effort to mitigate these adverse consequences, we could seek to settle certain
of these lawsuits.  The on-going expense of these lawsuits, and any
substantial settlement payment or damage award against us, could adversely
affect our business, financial condition, operating results or cash
flows.  We have not recorded any reserves for any litigation in our
financial statements.  See “Item 3. Legal Proceedings.”




13




If we or our
franchisees face labor shortages or increased labor costs, our growth and
operating results could be adversely affected.




Labor is
a primary component in the cost of operating our company-operated and franchised
restaurants. If we or our franchisees face labor shortages or increased labor
costs because of increased competition for employees, higher employee-turnover
rates or increases in the federal minimum wage or other employee benefits costs
(including costs associated with health insurance coverage), our operating
expenses could increase and our growth could be adversely affected.




In
addition, our success depends in part upon our and our franchisees’ ability to
attract, motivate and retain a sufficient number of well-qualified restaurant
operators and management personnel, as well as a sufficient number of other
qualified employees, including guest service and kitchen staff, to keep pace
with our expansion schedule. Qualified individuals needed to fill these
positions are in short supply in some geographic areas. In addition, QSRs have
traditionally experienced relatively high employee turnover rates. Although we
have not yet experienced any significant problems in recruiting or retaining
employees, our and our franchisees’ ability to recruit and retain such
individuals may delay the planned openings of new restaurants or result in
higher employee turnover in existing restaurants, which could increase our and
our franchisees’ labor costs and have a material adverse effect on our business,
financial condition, results of operations or cash flows. If we or our
franchisees are unable to recruit and retain sufficiently qualified individuals,
our business and our growth could be adversely affected. Competition for these
employees could require us or our franchisees to pay higher wages, which could
also result in higher labor costs.




We have a
substantial number of hourly employees who are paid wage rates at or based on
the applicable federal or state minimum wage and increases in the minimum wage
will increase our labor costs. The state of California (where most of our
restaurants are located) increased the minimum wage from $6.75 per hour to $7.50
per hour effective January 1, 2007 and to $8.00 per hour effective January 1,
2008. The federal minimum wage increased from $5.85 to $6.55 per hour effective
July 24, 2008 and will increase to $7.25 per hour effective July 24, 2009. We
may be unable to increase our menu prices in order to pass these increased labor
costs on to our guests, in which case our margins would be negatively
affected.




We and
our franchisees have been affected by the increasing healthcare and workers’
compensation expenses impacting businesses in most industries, including ours.
To manage premium increases we have been required to self-insure through higher
deductibles or otherwise. If we are exposed to material liabilities that are not
insured it could materially adversely affect our financial condition, results of
operations and cash flows.




We are locked
into long-term and non-cancelable leases and may be unable to renew leases at
the end of their terms.




Many of
our restaurant leases are non-cancelable and typically have initial terms of 20
years and two or three renewal terms of five years that we may exercise at our
option. Even if we close a restaurant, we may remain committed to perform our
obligations under the applicable lease, which could include, among other things,
payment of the base rent for the balance of the lease term. We have obligations
under leases for closed restaurants that had a net present value of $0.3 million
at December 31, 2008. In addition, in connection with leases for restaurants
that we will continue to operate, we may, at the end of the lease term and any
renewal period for a restaurant, be unable to renew the lease without
substantial additional cost, if at all. As a result, we may close or relocate
the restaurant, which could subject us to construction and other costs and
risks. Additionally, the revenue and profit, if any, generated at a relocated
restaurant may not equal the revenue and profit generated at the existing
restaurant. We maintain a reserve for restaurant closures, but there can be no
assurance that this reserve will cover our actual full exposure from all
restaurant closures.




We and our
franchisees are subject to extensive government regulations that could result in
claims leading to increased costs and restrict our ability to operate or sell
franchises.




We and
our franchisees are subject to extensive government regulation at the federal,
state and local government levels. These include, but are not limited to,
regulations relating to the preparation and sale of food, zoning and building
codes, franchising, land use and employee, health, sanitation and safety
matters. We and our franchisees are required to obtain and maintain a wide
variety of governmental licenses, permits and approvals. Difficulty or failure
in obtaining them in the future could result in delaying or canceling the
opening of new restaurants. Local authorities may suspend or deny renewal of our
governmental licenses if they determine that our operations do not meet the
standards for initial grant or renewal. This risk would be even higher if there
were a major change in the licensing requirements affecting our types of
restaurants.




14




We are
also subject to regulation by the Federal Trade Commission and subject to state
and foreign laws that govern the offer, sale, renewal and termination of
franchises and our relationship with our franchisees. The failure to comply with
these laws and regulations in any jurisdiction or to obtain required approvals
could result in a ban or temporary suspension on franchise sales, fines or the
requirement that we make a rescission offer to franchisees, any of which could
affect our development agreements for new restaurants that we expect to open in
the future and thus could materially adversely affect our business and operating
results. Any such failure could also subject us to liability to our
franchisees.




The failure to
enforce and maintain our trademarks and protect our other intellectual property
could materially adversely affect our business, including our ability to
establish and maintain brand awareness.




We have
registered the names El Pollo Loco®, Pollo Bowl® and certain other names used by
our restaurants as trademarks or service marks with the United States Patent and
Trademark Office and in approximately 42 foreign countries. The success of our
business strategy depends on our continued ability to use our existing
trademarks and service marks in order to increase brand awareness and further
develop our branded products. If our efforts to protect our intellectual
property are not adequate, or if any third party misappropriates or infringes on
our intellectual property, either in print, on the Internet or through other
media, the value of our brands may be harmed, which could have a material
adverse effect on our business, including the failure of our brands and branded
products to achieve and maintain market acceptance.




We
maintain as trade secrets or otherwise confidential certain proprietary
standards, specifications and operating procedures. We may not be able to
prevent the unauthorized disclosure or use of our trade secrets or proprietary
information, despite the existence of confidentiality agreements and other
measures. If any of our trade secrets or proprietary information were to be
disclosed to or independently developed by a competitor, our business, financial
condition and results of operations could be materially adversely
affected.




We
franchise our restaurants to various franchisees. While we try to ensure that
the quality of our brands and branded products is maintained by all of our
franchisees, we cannot be certain that these franchisees will not take actions
that adversely affect the value of our intellectual property or
reputation.




There can
be no assurance that all of the steps we have taken to protect our intellectual
property in the United States and foreign countries will be adequate. In
addition, the laws of some foreign countries do not protect intellectual
property rights to the same extent as the laws of the United
States.




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 to 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 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 may be subject to associated
liabilities, including liabilities for clean-up costs and 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 operating results would be materially
adversely affected. See “Item 1. Business - Environmental Matters.”




We are a holding
company and there may be limitations on our ability to receive distributions
from our subsidiaries.




As a
holding company, we have no direct operations and substantially no assets other
than ownership of 100% of the stock of EPL. EPL conducts all of our consolidated
operations and owns substantially all of our consolidated operating assets. Our
principal source of the cash required to pay our obligations is the cash that
EPL generates from its operations. EPL is a separate and distinct legal entity,
has no obligation to make funds available to us and currently has restrictions
that limit its ability to make distributions or dividends to us. Furthermore,
EPL is permitted under the terms of its senior secured credit facilities,
subject to certain restrictions, to incur additional indebtedness that could
severely restrict or prohibit its ability to make distributions or loans, or pay
dividends to us. EPL may not have sufficient earnings or resources to pay
dividends or make distributions or loans to enable us to meet our obligations.
In addition, even if such earnings were sufficient, we cannot assure you that
the agreements governing the current and future indebtedness of EPL will permit
EPL to provide us with sufficient dividends, distributions or loans, if any, to
meet our obligations.




15




We are controlled
by affiliates of Trimaran, and their interests as equity holders may conflict
with the interests of the Company’s noteholders.




Certain
private equity funds affiliated with Trimaran Capital, LLC (“Trimaran”)
indirectly beneficially own a majority of our equity. The Trimaran affiliates
are able to control the election of a majority of our directors and the
directors of our parent and subsidiary companies, the appointment of new
management and the approval of any action requiring the vote of our outstanding
common stock, including amendments of our certificate of incorporation, mergers
or sales of substantially all our assets. The directors elected by the Trimaran
affiliates are able to make decisions affecting our capital structure, including
decisions to issue additional capital stock and incur additional debt. The
interests of our equity holders may not in all cases be aligned with the
interests of our noteholders. For example, if we encounter financial
difficulties or are unable to pay our debts as they mature, the interest of our
equity holders might conflict with the interests of our noteholders. In
addition, our equity holders may have an interest in pursuing acquisitions,
divestitures, financings or other transactions that, in their judgment, could
enhance their equity investments, even though such transaction might involve
risks to our business and financial condition or to our
noteholders.




Item
1B. Unresolved Staff Comments.




Not
applicable.




Item 2. Properties.




Our
restaurants are either free-standing facilities, typically with drive-thru
capability, or attached restaurants. The average free-standing restaurant
provides seating for approximately 60 customers while the average attached
restaurant provides seating for approximately 40 customers. A typical restaurant
generally ranges from 2,200 to 2,600 square feet. For a majority of our
company-operated restaurants, we lease land on which our restaurants are built.
Our leases generally have terms of 20 years, with two or three renewal terms of
five years. Restaurant leases provide for a specified annual rent, and some
leases call for additional or contingent rent based on revenue above specified
levels. Generally, leases are “net leases” that require us to pay a pro rata
share of taxes, insurance and maintenance costs. We own 18 properties and
currently operate or license to franchisees the right to operate restaurants on
all of these properties. All 18 of these owned properties are subject to
mortgages that secure our existing senior secured credit facilities. In
addition, we lease 151 properties on which we operate restaurants.




On May
18, 2007, the Company entered into a new corporate office lease. The lease
commenced in October of 2007 and has a term of 10 1⁄2 years at an annual expense
for financial statement purposes of approximately $271,000.




Locations




As of
December 31, 2008, we and our franchisees operated 413 restaurants as
follows:




Designated
      Market Area
                        
                        Number
      of
                          Company-
                          Operated
                          Restaurants
                        
                        
                        Number
      of
                          Franchised
                          Restaurants
                        
                        
                        Total
                          Number
      of
                          RestaurantsLos
      Angeles, CA
                        
                        
                        130
                        
                        
                        
                        140
                        
                        
                        
                        270San
      Diego, CA
                        
                        
                        —
                        
                        
                        
                        21
                        
                        
                        
                        21Phoenix,
      AZ
                        
                        
                        —
                        
                        
                        
                        21
                        
                        
                        
                        21San
      Francisco/San Jose, CA
                        
                        
                        —
                        
                        
                        
                        13
                        
                        
                        
                        13Sacramento/Stockton/Modesto,
      CA
                        
                        
                        —
                        
                        
                        
                        12
                        
                        
                        
                        12Las
      Vegas, NV
                        
                        
                        14
                        
                        
                        
                        —
                        
                        
                        
                        14San
      Antonio, TX
                        
                        
                        6
                        
                        
                        
                        —
                        
                        
                        
                        6Fresno/Merced,
      CA
                        
                        
                        9
                        
                        
                        
                        1
                        
                        
                        
                        10Bakersfield,
      CA
                        
                        
                        —
                        
                        
                        
                        5
                        
                        
                        
                        5Palm
      Springs, CA
                        
                        
                        4
                        
                        
                        
                        1
                        
                        
                        
                        5Reno,
      NV
                        
                        
                        —
                        
                        
                        
                        4
                        
                        
                        
                        4Rio
      Grande Valley, TX
                        
                        
                        —
                        
                        
                        
                        2
                        
                        
                        
                        2Santa
      Barbara, CA
                        
                        
                        —
                        
                        
                        
                        3
                        
                        
                        
                        3Salinas,
      CA
                        
                        
                        —
                        
                        
                        
                        3
                        
                        
                        
                        3El
      Centro, CA
                        
                        
                        —
                        
                        
                        
                        3
                        
                        
                        
                        3Tucson,
      AZ
                        
                        
                        —
                        
                        
                        
                        1
                        
                        
                        
                        1Chicago,
      IL
                        
                        
                        1
                        
                        
                        
                        1
                        *
                        
                        
                        2Denver,
      CO
                        
                        
                        —
                        
                        
                        
                        1
                        
                        
                        
                        1Foxwoods,
      CT
                        
                        
                        —
                        
                        
                        
                        1
                        
                        
                        
                        1Massachusetts
                        
                        
                        —
                        
                        
                        
                        1
                        
                        
                        
                        1Utah
                        
                        
                        1
                        
                        
                        
                        1
                        
                        
                        
                        2Portland,
      OR
                        
                        
                        —
                        
                        
                        
                        2
                        
                        
                        
                        2Norfolk,
      VA
                        
                        
                        —
                        
                        
                        
                        2
                        
                        
                        
                        2Georgia
                        
                        
                        —
                        
                        
                        
                        9
                        
                        
                        
                        9Total
                        
                        
                        165
                        
                        
                        
                        248
                        
                        
                        
                        413




16





* The
company entered into a management agreement and assumed operations of the
franchise-owned store in December 2008. Results of operations of the restaurants
are included in the Company’s financial statements beginning as of the agreement
date.





We use a
combination of in-house development staff and outside real estate consultants to
find, evaluate and negotiate new sites using predetermined site criteria
guidelines. Sites must be qualified based on surrounding population density,
median household income, location, traffic, access, visibility, potential
restaurant size, parking and signage capability. We use in-house demographic
software to assist in our evaluation. We also selectively use outside
consultants who specialize in site evaluation to provide independent validation
of the sales potential of new sites. Our franchisees employ a similar process
using primarily outside consultants.





The cost
of opening an El Pollo Loco restaurant varies, depending upon, among other
things, the location of the site and construction required. We generally lease
the land upon which we build our restaurants, operating both free-standing and
attached restaurants. At times, we receive landlord development and/or rent
allowances for leasehold improvements, furniture, fixtures and equipment. The
standard decor and interior design of each of our restaurant concepts can be
readily adapted to accommodate different types of locations.




We
believe that the locations of our restaurants are critical to our long-term
success, and we devote significant time and resources to analyzing each
prospective site. As we have expanded, we have developed specific criteria by
which we evaluate each prospective site. Potential sites generally are in major
metropolitan areas. Our ability to open new restaurants, in the Los Angeles area
and elsewhere, depends upon, among other things, locating satisfactory sites,
negotiating favorable lease terms, securing appropriate government permits and
approvals, recruiting or transferring additional qualified management personnel
and access to financing. For these and other reasons, we cannot assure you that
our expansion plans will be successfully achieved or that new restaurants will
meet with consumer acceptance or can be operated profitably.




Item 3. Legal Proceedings.




On or
about April 16, 2004, former managers Haroldo Elias, Marco Ramirez and Javier
Rivera filed a purported class action lawsuit in the Superior Court of the State
of California, County of Los Angeles, against EPL on behalf of all putative
class members (former and current general managers and restaurant managers from
April 2000 to present) alleging certain violations of California labor laws,
including alleged improper classification of general managers and restaurant
managers as exempt employees. Plaintiffs’ requested remedies include
compensatory damages for unpaid wages, interest, certain statutory penalties,
disgorgement of alleged profits, punitive damages and attorneys’ fees and costs
as well as certain injunctive relief. Plaintiffs’ motion for class certification
is expected to be filed in April 2009, and briefing completed and a hearing set
in June 2009.  While we intend to defend against this action
vigorously, the ultimate outcome of this case is presently not determinable as
it is in a preliminary phase. Thus, we cannot at this time determine the
likelihood of an adverse judgment or a likely range of damages in the event of
an adverse judgment




On or
about October 18, 2005, Salvador Amezcua, on behalf of himself and all others
similarly situated, filed a purported class action complaint against EPL in the
Superior Court of the State of California, County of Los Angeles. Carlos Olvera
replaced Mr. Amezcua as the named class representative on August 16, 2006. This
action alleges certain violations of California labor laws and the California
Business and Professions Code, based on, among other things, failure to pay
overtime compensation, failure to provide meal periods, unlawful deductions from
earnings and unfair competition. Plaintiffs’ requested remedies include
compensatory and punitive damages, injunctive relief, disgorgement of profits
and reasonable attorneys’ fees and costs. The court denied EPL’s motion to
compel arbitration, and the Company has appealed that decision. This matter is
subject to an automatic stay while it is pending before the Court of Appeal.
While we intend to defend against this action vigorously, the ultimate outcome
of this case is presently not determinable as it is in a preliminary phase.
Thus, we cannot at this time determine the likelihood of an adverse judgment or
a likely range of damages in the event of an adverse judgment.




17




On June
22, 2006, the Company filed a complaint for declaratory relief, breach of
written contract and bad faith against Arch Specialty Insurance Company
(Arch), seeking damages and equitable relief for Arch’s refusal to carry
out the obligations of its insurance contract to defend and indemnify, among
other things, the Company in the EPL-Mexico v. EPL-USA trademark litigation
settled in June 2008. Following a trial on the merits, the Court issued a final
decision on March 2, 2009 in favor of EPL, which Arch promptly
appealed.




In April
2007, Dora Santana filed a purported class action in state court in Los Angeles
County on behalf of all “Assistant Shift Managers.” Plaintiff alleges wage and
hour violations including working off the clock, failure to pay overtime, and
meal break violations on behalf of the purported class, currently defined as all
Assistant Managers from April 2003 to present. Written discovery is completed on
the limited issue of class certification.  The Court has ordered that
plaintiffs file their motion for class certification no later than August 15,
2009.  While we intend to defend against this action vigorously, the
ultimate outcome of this case is presently not determinable as it is in a
preliminary phase. Thus, we cannot at this time determine the likelihood of an
adverse judgment or a likely range of damages in the event of an adverse
judgment.




On or
about October 4, 2007, Robyn James, a former General Manager, filed a lawsuit in
Superior Court for the County of Los Angeles. EPL was served on January 31,
2008. Plaintiff alleges race discrimination as well as retaliation and negligent
hiring and supervision. In addition to suing EPL, plaintiff has named as
individual defendants, the Area Leader of the two stores where she was assigned
and an Assistant Manager. Discovery is completed and we are awaiting assignment
of a trial date.  While we intend to defend against this action
vigorously, the ultimate outcome of this case is presently not determinable.
Thus, we cannot at this time determine the likelihood of an adverse judgment or
a likely range of damages in the event of an adverse judgment.




On May
30, 2008, Jeannette Delgado, a former Assistant Manager filed a purported class
action on behalf of all hourly (i.e. non-exempt) employees of EPL in state court
in Los Angeles County alleging violations of certain California labor laws and
the California Business and Professions Code including failure to pay overtime,
failure to provide meal periods and rest periods and unfair business practices.
By statute, the purported class extends back four years, to May 30, 2004.
Plaintiff’s requested remedies include compensatory and punitive damages,
injunctive relief, disgorgement of profits and reasonable attorneys’ fees and
costs. This lawsuit was served on the Company in early September 2008 and
discovery has begun. Thus, we cannot at this time determine the likelihood of an
adverse judgment or a likely range of damages in the event of an adverse
judgment.





On or
about February 2, 2009, Sunset & Westridge, LLC, landlord of a restaurant
site in St. George, Utah, filed suit against EPL in Superior Court for the
County of Orange seeking declaratory relief for alleged breach of a commercial
lease.  Plaintiff alleges that the Company wrongfully terminated the lease
in question, citing force majeure delays as justification for missing the
delivery date on the property.  While we intend to defend against this
action vigorously, the ultimate outcome of this case is presently not
determinable as it is in a preliminary phase. Thus, we cannot at this time
determine the likelihood of an adverse judgment or a likely range of damages in
the event of an adverse judgment.





We are
also involved in various other claims and legal actions that arise in the
ordinary course of business. We do not believe that the ultimate resolution of
these other actions will have a material adverse effect on our financial
position, results of operations, liquidity and capital resources. A significant
increase in the number of claims or an increase in amounts owing under
successful claims could materially adversely affect our business, financial
condition, results of operation and cash flows.




Item 4. Submission of Matters to a Vote of Security
Holders.




No
matters were submitted to a vote of security holders in the fourth quarter of
the fiscal year ended December 31, 2008.




PART II




Item 5. Market for Registrant’s Common Equity, Related
Stockholder Matters and Issuer Purchases of Equity Securities.




Our
common stock is not registered under the Securities Exchange Act of 1934, as
amended. There is no established public trading market for our common stock. On
December 31, 2008, there was one holder of record of our common stock, El Pollo
Loco Holdings, Inc.




In fiscal
year 2007 and 2008, Intermediate paid no cash dividends. The indentures
governing the 2013 and 2014 Notes contain covenants that, among other things,
limit our ability to pay dividends on our capital stock, subject to certain
exceptions. EPL is also prohibited from paying cash dividends under the terms of
EPL’s senior secured credit facility, except in certain circumstances. See Notes
11, 12 and 13 to our Consolidated Financial Statements.




18




None of
our equity securities are authorized for issuance under any equity compensation
plan.




Item
6. Selected Financial Data.




The
following table sets forth selected consolidated financial data and is qualified
by reference to and should be read in conjunction with the consolidated
financial statements and the notes thereto and “Item 7. Management’s Discussion
and Analysis of Financial Condition and Results of Operations” included
elsewhere in this Annual Report on Form 10-K. The selected consolidated
financial data is derived from our audited consolidated financial
statements.




Predecessor
      (1)
                                                                                              
                                                                                              
                                                                                              Successor
      (1)Fiscal
      Year (2)
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              Fiscal
      Years (2)December
      30, 2004 to
                                                                                              
                                                                                              
                                                                                              November
      18, 2005 to2004
                                                                                              
                                                                                              
                                                                                              November
      17, 2005
                                                                                              
                                                                                              
                                                                                              December
      28, 2005
                                                                                              
                                                                                              
                                                                                              2006
                                                                                              
                                                                                              
                                                                                              2007
                                                                                              
                                                                                              
                                                                                              2008Income Statement
      Data:(Amounts in
      thousands)Restaurant
      revenue
                                                                                              
                                                                                              $
                                                                                              204,820
                                                                                              
                                                                                              
                                                                                              $
                                                                                              197,267
                                                                                              
                                                                                              
                                                                                              $
                                                                                              24,527
                                                                                              
                                                                                              
                                                                                              $
                                                                                              242,571
                                                                                              
                                                                                              
                                                                                              $
                                                                                              259,987
                                                                                              
                                                                                              
                                                                                              $
                                                                                              278,343Franchise
      revenue
                                                                                              
                                                                                              
                                                                                              14,216
                                                                                              
                                                                                              
                                                                                              
                                                                                              13,661
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,742
                                                                                              
                                                                                              
                                                                                              
                                                                                              17,317
                                                                                              
                                                                                              
                                                                                              
                                                                                              19,038
                                                                                              
                                                                                              
                                                                                              
                                                                                              20,587Total
      operating revenue
                                                                                              
                                                                                              
                                                                                              219,036
                                                                                              
                                                                                              
                                                                                              
                                                                                              210,928
                                                                                              
                                                                                              
                                                                                              
                                                                                              26,269
                                                                                              
                                                                                              
                                                                                              
                                                                                              259,888
                                                                                              
                                                                                              
                                                                                              
                                                                                              279,025
                                                                                              
                                                                                              
                                                                                              
                                                                                              298,930Product
      cost
                                                                                              
                                                                                              
                                                                                              64,595
                                                                                              
                                                                                              
                                                                                              
                                                                                              62,638
                                                                                              
                                                                                              
                                                                                              
                                                                                              7,958
                                                                                              
                                                                                              
                                                                                              
                                                                                              76,151
                                                                                              
                                                                                              
                                                                                              
                                                                                              81,233
                                                                                              
                                                                                              
                                                                                              
                                                                                              89,442Payroll
      and benefits
                                                                                              
                                                                                              
                                                                                              55,200
                                                                                              
                                                                                              
                                                                                              
                                                                                              50,325
                                                                                              
                                                                                              
                                                                                              
                                                                                              6,746
                                                                                              
                                                                                              
                                                                                              
                                                                                              61,601
                                                                                              
                                                                                              
                                                                                              
                                                                                              67,545
                                                                                              
                                                                                              
                                                                                              
                                                                                              73,139Depreciation
      and amortization
                                                                                              
                                                                                              
                                                                                              13,894
                                                                                              
                                                                                              
                                                                                              
                                                                                              12,743
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,203
                                                                                              
                                                                                              
                                                                                              
                                                                                              10,333
                                                                                              
                                                                                              
                                                                                              
                                                                                              11,947
                                                                                              
                                                                                              
                                                                                              
                                                                                              13,007Other
      operating expenses
                                                                                              
                                                                                              
                                                                                              65,979
                                                                                              
                                                                                              
                                                                                              
                                                                                              65,340
                                                                                              
                                                                                              
                                                                                              
                                                                                              7,958
                                                                                              
                                                                                              
                                                                                              
                                                                                              81,281
                                                                                              
                                                                                              
                                                                                              
                                                                                              90,074
                                                                                              
                                                                                              
                                                                                              
                                                                                              106,304Goodwill
      and intangible asset impairment
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              42,093Operating
      income (loss)
                                                                                              
                                                                                              
                                                                                              19,368
                                                                                              
                                                                                              
                                                                                              
                                                                                              19,882
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,404
                                                                                              
                                                                                              
                                                                                              
                                                                                              30,522
                                                                                              
                                                                                              
                                                                                              
                                                                                              28,226
                                                                                              
                                                                                              
                                                                                              
                                                                                              (25,055
                                                                                              )Interest
      expense, net
                                                                                              
                                                                                              
                                                                                              18,025
                                                                                              
                                                                                              
                                                                                              
                                                                                              38,726
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,385
                                                                                              
                                                                                              
                                                                                              
                                                                                              28,813
                                                                                              
                                                                                              
                                                                                              
                                                                                              29,167
                                                                                              
                                                                                              
                                                                                              
                                                                                              26,003Other
      expense
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,043Other
      income
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              (1,570
                                                                                              )Income
      (loss) before income taxes
                                                                                              
                                                                                              $
                                                                                              1,343
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (18,844
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (981
                                                                                              )
                                                                                              
                                                                                              
                                                                                              1,709
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (941
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (51,531
                                                                                              )Net
      income (loss)
                                                                                              
                                                                                              $
                                                                                              1,315
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (11,193
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (588
                                                                                              )
                                                                                              
                                                                                              
                                                                                              637
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (4,034
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (39,481
                                                                                              )Supplementary
      Income Statement Data:Restaurant
      other operating expense
                                                                                              
                                                                                              $
                                                                                              39,900
                                                                                              
                                                                                              
                                                                                              $
                                                                                              38,153
                                                                                              
                                                                                              
                                                                                              
                                                                                              4,623
                                                                                              
                                                                                              
                                                                                              
                                                                                              51,039
                                                                                              
                                                                                              
                                                                                              
                                                                                              56,138
                                                                                              
                                                                                              
                                                                                              
                                                                                              62,861Franchise
      expense
                                                                                              
                                                                                              
                                                                                              3,410
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,794
                                                                                              
                                                                                              
                                                                                              
                                                                                              352
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,429
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,747
                                                                                              
                                                                                              
                                                                                              
                                                                                              4,135General
      and administrative expense
                                                                                              
                                                                                              
                                                                                              22,669
                                                                                              
                                                                                              
                                                                                              
                                                                                              24,393
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,983
                                                                                              
                                                                                              
                                                                                              
                                                                                              26,813
                                                                                              
                                                                                              
                                                                                              
                                                                                              30,189
                                                                                              
                                                                                              
                                                                                              
                                                                                              39,308Total
      other operating expenses
                                                                                              
                                                                                              $
                                                                                              65,979
                                                                                              
                                                                                              
                                                                                              $
                                                                                              65,340
                                                                                              
                                                                                              
                                                                                              
                                                                                              7,958
                                                                                              
                                                                                              
                                                                                              
                                                                                              81,281
                                                                                              
                                                                                              
                                                                                              
                                                                                              90,074
                                                                                              
                                                                                              
                                                                                              
                                                                                              106,304Balance
      Sheet Data:Cash
      and cash equivalents
                                                                                              
                                                                                              $
                                                                                              5,636
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,552
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,955
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,841
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,076Net
      property (3)
                                                                                              
                                                                                              
                                                                                              64,103
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              71,307
                                                                                              
                                                                                              
                                                                                              
                                                                                              75,476
                                                                                              
                                                                                              
                                                                                              
                                                                                              83,322
                                                                                              
                                                                                              
                                                                                              
                                                                                              85,053Total
      assets
                                                                                              
                                                                                              
                                                                                              167,238
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              505,919
                                                                                              
                                                                                              
                                                                                              
                                                                                              509,048
                                                                                              
                                                                                              
                                                                                              
                                                                                              516,428
                                                                                              
                                                                                              
                                                                                              
                                                                                              469,765Total
      debt (4)
                                                                                              
                                                                                              
                                                                                              169,582
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              260,314
                                                                                              
                                                                                              
                                                                                              
                                                                                              262,187
                                                                                              
                                                                                              
                                                                                              
                                                                                              262,267
                                                                                              
                                                                                              
                                                                                              
                                                                                              241,453Total
      stockholder’s equity (deficiency)
                                                                                              
                                                                                              
                                                                                              (38,875
                                                                                              )
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              
                                                                                              171,691
                                                                                              
                                                                                              
                                                                                              
                                                                                              172,714
                                                                                              
                                                                                              
                                                                                              
                                                                                              172,311
                                                                                              
                                                                                              
                                                                                              
                                                                                              156,580Other Financial
      Data:Depreciation
      and amortization
                                                                                              
                                                                                              
                                                                                              13,894
                                                                                              
                                                                                              
                                                                                              
                                                                                              12,743
                                                                                              
                                                                                              
                                                                                              
                                                                                              1,203
                                                                                              
                                                                                              
                                                                                              
                                                                                              10,333
                                                                                              
                                                                                              
                                                                                              
                                                                                              11,947
                                                                                              
                                                                                              
                                                                                              
                                                                                              13,007Capital
      expenditures (5)
                                                                                              
                                                                                              
                                                                                              14,849
                                                                                              
                                                                                              
                                                                                              
                                                                                              13,270
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,891
                                                                                              
                                                                                              
                                                                                              
                                                                                              14,022
                                                                                              
                                                                                              
                                                                                              
                                                                                              29,105
                                                                                              
                                                                                              
                                                                                              
                                                                                              17,455





(1)
            We
      refer to ourselves as the Predecessor for all periods before Chicken
      Acquisition Corp. (CAC) acquired us on November 17, 2005 (the
      “Acquisition”) and as the Successor for all periods subsequent to the
      Acquisition.





(2)
            We
      use a 52- or 53-week fiscal year ending on the last Wednesday of the
      calendar year. In a 52-week fiscal year, each quarter includes 13 weeks of
      operations; in a 53-week fiscal year, the first, second and third quarters
      each include 13 weeks of operations and the fourth quarter includes 14
      weeks of operations. Approximately every six or seven years a 53-week
      fiscal year occurs. Fiscal 2008, which ended December 31, 2008, was a
      53-week fiscal year. Fiscal years 2004, 2005, 2006 and 2007 were 52-week
      fiscal years.




(3)
            Net
      property consists of property owned and property held under capital
      leases.




(4)
            Total
      Predecessor debt consists of 2009 notes, 2010 notes, notes payable and
      capital lease obligations. Total Successor debt consists of untendered
      2009 Notes, the 2013 notes, the 2014 notes, borrowings under the existing
      senior secured credit facilities, and capital lease
      obligations.




19




(5)
            Capital
      expenditures consist of cash paid for the purchase of property as well as
      cash paid for the purchase of restaurants from franchisees. The amount
      paid for the purchase of restaurants from franchisees was $8,358,000 in
      2007.


Item
7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.




The following discussion and
analysis of our financial condition and results of operations contains
forward-looking statements. These forward-looking statements are subject to
numerous risks and uncertainties, including, but not limited to, the risks and
uncertainties described in the “Risk Factors” section. Our actual results may
differ materially from those contained in any forward-looking statements. You
should read the following discussion together with the sections entitled “Risk
Factors” and “Selected Financial Data,” and our consolidated financial
statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K.




Overview




We own,
operate and franchise restaurants specializing in marinated, flame-grilled
chicken. Our restaurants are located principally in California, with additional
restaurants in Arizona, Colorado, Connecticut, Georgia, Illinois, Massachusetts,
Nevada, Oregon, Texas, Utah, Virginia and Washington. Our typical restaurant is
a freestanding building ranging from approximately 2,200 to 2,600 square feet
with seating for approximately 40 to 60 customers and offering drive-thru
convenience.




Our
restaurant counts at the end of each of the last three fiscal years are as
follows:




El
      Pollo Loco Restaurants
                        Fiscal-Year
      End2006
                      
                      
                      2007
                      
                      
                      2008Company-operated
                      
                      
                      151
                      
                      
                      
                      157
                      
                      
                      
                      165Franchised
                      
                      
                      208
                      
                      
                      
                      232
                      
                      
                      
                      248System-wide
                      
                      
                      359
                      
                      
                      
                      389
                      
                      
                      
                      413




During
2008, we opened 9 new company-operated restaurants and franchisees opened 21 new
restaurants. During 2008 we closed one company-operated restaurant and
franchisees closed five restaurants.  The Company entered into a
management agreement and assumed operations of one franchisee-owned store in
December 2008.




We plan
to open approximately five company-operated restaurants in fiscal 2009. We
believe our franchisees will open approximately 7 new restaurants in fiscal
2009. The growth in new restaurant openings has been, and is expected to
continue to be, negatively impacted by the economic climate, as discussed
below.  In response to the credit crisis, we are adjusting our growth
strategy to focus on a new generation (Gen3) reduced cost restaurant that we
believe will appeal to both single unit and multi-unit
franchisees.  The Gen3 is designed to offer the same features (with
fewer seats and no salsa bar) of a typical 2,600 square foot free-standing
drive-thru restaurant, at about half the cost.  The Gen3, which will
range from 1,800 to 2,200 square feet, will have reduced construction costs and
a shorter build-out period than our existing restaurant design.





At the
end of 2008, we had 16 restaurants open in new markets east of the Rockies.
Additionally, three stores were closed in 2008 in these areas due to low sales.
The 16 open stores are experiencing a wide range of sales volumes, and a
majority of them have sales volumes that are significantly less than the chain
average due to the lack of brand awareness in the new markets.




Our
revenue is derived from two primary sources, company-operated restaurant revenue
and franchise revenue, the latter of which is comprised principally of franchise
royalties and to a lesser extent franchise fees and sublease rental income. A
common measure of financial performance in the restaurant industry is
“same-store sales.” A restaurant enters the comparable restaurant base for the
calculation of same-store sales the first full week after the 15-month
anniversary of its opening. From 2007 to 2008, same-store sales for restaurants
system-wide increased 0.2%, compared to a 2.7% increase in 2007 over 2006 and a
5.3% increase in 2006 over 2005. System-wide same-store sales include same-store
sales at all company-owned stores and franchise-owned stores, as reported by
franchisees. We use system-wide sales information in connection with store
development decisions, planning and budgeting analyses. This information is
useful in assessing consumer acceptance of our brand and facilitates an
understanding of financial performance as our franchisees pay royalties
(included in franchise revenues) and contribute to advertising pools based on a
percentage of their sales.  Same-store sales at company-operated
restaurants increased 0.2%, 1.9% and 3.7% for 2008, 2007 and 2006,
respectively.




20




Increases
in company-operated restaurant revenue are due to growth in new company-operated
restaurants and to increases in same store sales, which may include price and
transaction volume increases. We implemented menu price increases in October
2008, January 2008, January 2007 and January 2006. The depressed economy and
increased unemployment, especially in California, negatively impacted our
transaction volume and average check in 2008. Consumers are eating out less, and
when they do eat out, are more sensitive to price increases and are looking for
specials and promotions. This has an impact on both same-store sales and on
restaurant margins. We believe 2009 will be a more challenging year than 2008
from an economic standpoint and will make it difficult to achieve same-store
sales growth. Many factors can influence sales at all or specific restaurants,
including increased competition, strength of marketing promotions, the
restaurant manager’s operational execution and changes in local market
conditions and demographics. In California, our largest market, at January
2009, unemployment was 9.1% compared to 7.2% nationally.





Franchise
revenue consists of royalties, initial franchise fees, help desk revenue and
franchise rental income. Royalties average 4% of the franchisees’ net sales. We
believe that new franchise restaurant growth will increase as we sign
development agreements with experienced franchisees in new and existing markets,
although at a reduced level than in previous years.   As of
December 31, 2008, we had commitments to open 148 restaurants at various dates
through 2015. The adverse economic and liquidity conditions have caused some
franchisees to delay the opening of new restaurants under existing development
agreements.  As a result of these conditions, we estimate that as few
as 45 of those restaurants could open. As of February 19, 2009 we were legally
authorized to market franchises in 50 states. We have entered into development
agreements that usually result in area development fees being recognized as the
related restaurants open. Due to the recession and associated liquidity crisis,
most of our developing franchisees are having a difficult time obtaining
financing for new restaurants. Additionally, some of our franchisees who have
other restaurant concepts have incurred significant loss of cash flow due to
declining sales in these other concepts and one developing franchisee has filed
for bankruptcy. This has had the effect of slowing development of new El Pollo
Loco restaurants, especially in new markets.   In addition, the
economic conditions have had a negative effect on our ability to recruit and
financially qualify new single-unit and developing franchisees. We expect these
trends to continue at least through 2009. We expect that many of the franchisees
who have development agreements will not be able to meet the new unit opening
dates required under the agreements.





We
sublease facilities to certain franchisees and the sublease rent is included in
our franchise revenue. This revenue exceeds rent payments made under the leases
that are included in franchise expense. Since we do not expect to lease or
sublease new properties to our franchisees as we expand our franchise
restaurants, we expect the portion of franchise revenue attributable to
franchise rental income to decrease over time.




Product
cost, which includes food and paper costs, is our largest single expense.
Chicken accounts for the largest part of product cost, approximately 13.7% of
revenue from company-owned restaurants in 2008.  These costs are
subject to increase or decrease based on commodity cost changes and depend in
part on the success of controls we have in place to manage product cost in the
restaurants. In March 2008 we renewed two
chicken supply contracts with two of our suppliers for a term of one year at
higher prices than the expiring contracts.  We also contracted with a
new supplier for a one-year term. We have negotiated four new contracts for
chicken at higher prices than the expiring contracts that will be effective as
of March 1, 2009.  Two of the contracts have a floor and ceiling price
for chicken and are for a term of two years.  The other two contracts
are one year with fixed pricing for the term of the
agreement.  We implemented price increases in October 2008,
January 2008 and January 2007 that have partially mitigated the impact of higher
chicken prices on our profitability. We expect that the cost of chicken will
continue to be negatively affected by the reduced supply and by the bankruptcy
of the largest chicken supplier; there is no assurance that we will be able to
increase menu prices in the future to offset these increased costs. Overall
commodity prices increased significantly in 2007 and 2008. Aside from chicken,
we have recently seen most commodity prices begin to decline from their mid-2008
highs.




Payroll
and benefits make up the next largest single expense. Payroll and benefits have
been and remain subject to inflation, including minimum wage increases and
expenses for health insurance and workers’ compensation insurance. A significant
number of our hourly staff are paid at rates consistent with the applicable
federal or state minimum wage and, accordingly, increases in the minimum wage
will increase our labor cost. The state of California (or largest market)
increased the minimum wage from $6.75 per hour to $7.50 per hour effective
January 1, 2007and to $8.00 per hour effective January 1, 2008. The federal
minimum wage increased from $5.85 to $6.55 per hour effective July 24, 2008 and
will increase to $7.25 per hour effective July 24, 2009. The Company implemented
a menu price increase of approximately 2% at the beginning of 2007 and
approximately 2.5% at the beginning of 2008 in order to mitigate the impact on
profits of the minimum wage increase and commodity increases. There is no
assurance that we will be able to increase menu prices in the future to offset
these increased costs. Workers’ compensation insurance costs are subject to a
number of factors, including the impact of legislation. We have seen an overall
reduction in the number of workers’ compensation claims due to employee safety
initiatives that we began implementing in 2002. This has resulted in lower
workers’ compensation expense in 2008 and 2007 compared to previous
years.





Depreciation and amortization expense
consists primarily of depreciation of property and equipment of our restaurants
and amortization of our franchise network intangible asset..




21




Other
operating expenses include restaurant other operating expense, franchise
expense, and general and administrative expense.




Restaurant
other operating expense includes occupancy, advertising and other costs such as
utilities, repair and maintenance, janitorial and cleaning and operating
supplies.




Franchise
expense consists primarily of rent expense that we pay to landlords associated
with leases under restaurants we are subleasing to franchisees. Franchise
expense usually fluctuates primarily as subleases expire and is to some degree
based on rents that are tied to a percentage of sales calculation. Because we do
not expect to lease or sublease new properties to our franchisees as we expand
our franchise restaurants, we expect franchise expense as a percentage of
franchise revenue to decrease over time. Expansion of our franchise operations
does not require us to incur material additional capital
expenditures.




General
and administrative expense includes all corporate and administrative functions
that support existing operations and provide the infrastructure to facilitate
our growth. These expenses have been impacted by litigation costs, rating agency
fees, directors and officers insurance, compliance with laws relating to
corporate governance and public disclosure, and audit fees. Included in general
and administrative expense is a $500,000 annual fee and reimbursable expenses
due Trimaran Fund Management, LLC (an affiliate of Jay Bloom and Dean Kehler,
directors of the Company) and $415,000 in net fees paid to Trimaran Fund II, LLC
(an affiliate of Jay Bloom, Dean Kehler and John Roth, directors of the Company)
in 2008 pursuant to a Fee Agreement relating to a litigation appeal bond, which
was terminated following settlement of the lawsuit in June 2008.  See
“Item 11. Executive Compensation – Compensation Committee Interlocks and Insider
Participation.” Since we did not achieve our budget goals in 2008, bonus expense
was much lower in 2008 than in previous years, which had a favorable impact on
general and administrative expenses. Since we expect a difficult economic
environment to continue in 2009, in late 2008 / early 2009 we took some measures
to reduce general and administrative expenses by reducing the number of
corporate support employees, lowering salary increases, deferring promotions,
and reducing travel and meeting costs. We do expect that litigation expenses
will be high in 2009 due to the ongoing wage and hour class action
lawsuits.




Our
company-operated restaurant-level cash flow margins (representing
restaurant-level revenue less product cost, payroll and benefits and restaurant
other operating expense, which is calculated as a percentage of restaurant
revenue), which were 22%, 21% and 19% for years 2006, 2007 and 2008,
respectively, are influenced by many factors. Changes in same-store sales have a
significant impact on restaurant-level cash flow (restaurant-level revenue less
product cost, payroll and benefits, and restaurant other operating expense) due
to the fixed component of certain restaurant costs that do not fluctuate as
sales change. The addition of new restaurants period over period will lead to
increased restaurant-level revenue and costs, and may have an impact on
restaurant-level cash flow margins over time as their occupancy expense will
likely be higher than stores that have been open for a number of years. We
present restaurant-level cash flow margin, which is calculated as a percentage
of restaurant revenue, as a further supplemental measure of the performance of
our company-operated restaurants. Restaurant-level cash flow and
restaurant-level cash flow margin are both financial measures that are not
required by or presented in accordance with GAAP. For a discussion of our use of
restaurant-level cash flow and restaurant-level cash flow margin and their
limitations, see “Non-GAAP Financial Measures” on page 1 above. The following
table reconciles net income (loss) to restaurant-level cash flow for years 2006,
2007 and 2008:




Fiscal
    Year2006
                        
                        
                        2007
                        
                        
                        2008Net
      income (loss)
                        
                        $
                        637
                        
                        
                        $
                        (4,034
                        )
                        
                        $
                        (39,481
                        )Provision
      (benefit) for income taxes
                        
                        
                        1,072
                        
                        
                        
                        3,093
                        
                        
                        
                        (12,050
                        )Interest
      expense, net
                        
                        
                        28,813
                        
                        
                        
                        29,167
                        
                        
                        
                        26,003Other
      expense
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,043Goodwill
      and domestic trademarks impairment
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        42,093Other
      income
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        (1,570
                        )Depreciation
      and amortization
                        
                        
                        10,333
                        
                        
                        
                        11,947
                        
                        
                        
                        13,007General
      and administrative expense
                        
                        
                        26,813
                        
                        
                        
                        30,189
                        
                        
                        
                        39,308Franchise
      expense
                        
                        
                        3,429
                        
                        
                        
                        3,747
                        
                        
                        
                        4,135Franchise
      revenue
                        
                        
                        (17,317
                        )
                        
                        
                        (19,038
                        )
                        
                        
                        (20,587
                        )Restaurant-level
      cash flow
                        
                        $
                        53,780
                        
                        
                        $
                        55,071
                        
                        
                        $
                        52,901





Critical
Accounting Policies and Estimates




22




This
section discusses our financial statements, which have been prepared in
accordance with GAAP. The preparation of these financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenue and expenses
during the reporting period. On an ongoing basis, we evaluate our estimates and
judgments, including those related to recoverability of fixed assets, intangible
assets, closed restaurants, insurance and contingent liabilities. We base our
estimates and judgments on historical experience and on various other factors
that we believe to be reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or
conditions.




We
believe the following critical accounting policies affect the significant
judgments and estimates used in the preparation of our financial
statements.




Litigation
Reserves




We are
involved in litigation in the ordinary course of our business, such as claims
asserting violations of wage and hour laws in our employment practices. In
preparing our financial statements we account for these contingencies pursuant
to the provisions of Financial Accounting Standards Board (“FASB”) Statement No.
5,Accounting for
Contingencies and FASB Interpretation No. 14, Reasonable Estimation of the Amount
of a Loss an interpretation of FASB Statement No. 5, which require that
we accrue for losses that are both probable and reasonably estimable. Because we
believe that these potential losses are not probable or estimable, we have not
recorded any reserves or contingencies related to these legal
matters.  In the event that the assumptions we used to evaluate these
matters as neither probable nor estimable change in future periods, we may be
required to record a liability for an adverse outcome, which could have a
material adverse effect on our results of operations and financial position. See
“Litigation Contingency” below.




Recoverability of
Property and Equipment




We assess
recoverability of property and equipment in accordance with FASB Statement No.
144, Accounting for Impairment
or Disposal of Long-Lived Assets. Certain events or changes in
circumstances may indicate that the recoverability of the carrying amount of
property should be assessed for impairment. Such events or changes may include a
significant change in the business climate in a particular market or trade area
or a current-period operating or cash flow loss combined with historical loss or
projected future losses. If an event occurs or changes in circumstances are
present, we estimate the future cash flows expected to result from the use of
the asset and its eventual disposition. If the sum of the expected future cash
flows (undiscounted and without interest charges) is less than the carrying
amount, we recognize an impairment loss.





We
recognized non-cash impairment losses in fiscal 2008 of $1.9 million for three
under-performing Company-operated stores that will continue to operate. This
amount is included in other operating expenses on our consolidated statement of
operations. There were no impairment losses recognized in 2007. The impairment
loss recognized is the amount by which the carrying amount exceeds the fair
value. Our assessments of cash flows represent our best estimate as of the time
of the impairment review and are consistent with our internal planning. If
different cash flows had been estimated in the current period, the property and
equipment balances could have been materially impacted. Factors that we must
estimate when performing impairment tests include, among other items, sales
volume, prices, inflation, marketing spending, and capital spending. With
respect to closed restaurants, assets, if any, are reflected at their estimated
net realizable value; liabilities of closed restaurants, which consist
principally of lease obligations, are recognized at their contractual obligation
amount, reduced by estimated future sublease income. We closed one restaurant
during 2008 and recorded a reserve for the remainder of the lease
obligation.




Goodwill and
other Intangible Assets




Intangible
assets consist primarily of goodwill and the value allocated to our trademarks
and franchise network. Goodwill represents the excess of cost over fair value of
net identified assets acquired in business combinations accounted for under the
purchase method. Goodwill resulted principally from the Acquisition by CAC in
2005 and our acquisition by a previous shareholder in 1999 for the Predecessor
periods.




In
accordance with SFAS 142, “Goodwill and Other Intangible Assets,” we do not
amortize goodwill and certain intangible assets with an indefinite life,
including domestic trademarks. We perform an impairment test annually at our
fiscal year end, or more frequently if impairment indicators arise. No
impairment was recorded in 2006 and 2007. Due to the downturn in the economy and
its effect on expected future cash flows, and based on an independent
valuation of the Company,  in fiscal 2008, we recorded a non-cash
impairment of goodwill of $24.5 million and recorded a non-cash impairment of
domestic trademarks of $17.6 million in accordance with the evaluation described
below.





The
evaluation of the carrying amount of other intangible assets with indefinite
lives is made annually coinciding with our fiscal year-end by comparing the
carrying amount of these assets to their estimated fair value. The estimated
fair value is generally determined on the basis of discounted future cash flows.
If the estimated fair value is less than the carrying amount of the other
intangible assets with indefinite lives, then an impairment charge is recorded
to reduce the asset to its estimated fair value.




23




The
impairment evaluation for goodwill is conducted annually coinciding with our
fiscal year-end using a two-step process. In the first step, the fair value of
our reporting unit is compared with the carrying amount of the reporting unit,
including goodwill. The estimated fair value of the reporting unit is generally
determined on the basis of discounted future cash flows or in consideration of
recent transactions involving stock sales with independent third parties. If the
estimated fair value of the reporting unit is less than the carrying amount of
the reporting unit, a second step must be completed in order to determine the
amount of the goodwill impairment that should be recorded. In the second step,
the implied fair value of the reporting unit’s goodwill is determined by
allocating the reporting unit’s fair value to all of its assets and liabilities
other than goodwill (including any unrecognized intangible assets) in a manner
similar to a purchase price allocation. The resulting implied fair value of the
goodwill that results from the application of this second step is then compared
with the carrying amount of the goodwill and an impairment charge is recorded
for the difference.




The
assumptions used in the estimate of fair value are generally consistent with the
past performance of our reporting unit and are also consistent with the
projections and assumptions that are used in current operating plans. These
assumptions are subject to change as a result of changing economic and
competitive conditions.




Intangible
assets with a definite life are amortized using the straight-line method over
their estimated useful lives as follows:




Franchise
      network
              17.5
      yearsFavorable
      leasehold interest
              1
      to 18 years (remaining lease term)Unfavorable
      leasehold interest
              1
      to 20 years (remaining lease
term)




Accrued
Liabilities




We
self-insure a significant portion of our workers’ compensation and general
liability insurance obligations.  Beginning in late 2008 we also
self-insure our health insurance obligations.  The Company is
responsible for workers’ compensation insurance and health insurance claims up
to a specified aggregate stop loss amount. The full extent of certain claims, in
many cases, may not become fully determined for several years. We therefore
estimate the potential obligation for both known claims and for liabilities that
have been incurred but not yet reported based upon historical data and
experience and use an outside consulting firm to assist us in developing these
estimates. Although management believes that the amounts accrued for these
obligations are sufficient, any significant increase in the number of claims or
costs associated with claims made under these plans could have a material
adverse effect on our financial results.




Share-Based
Compensation




All of
our options were granted by CAC and represent the right to purchase CAC common
stock. CAC’s only material asset is our stock and CAC has no other material
operations. In December 2004, the FASB issued Statement No. 123 (R), Share-Based Payment, which
requires companies to expense the estimated fair value of employee stock options
and similar awards based on the grant-date fair value of the award. The cost is
recognized over the period during which an employee is required to provide
service in exchange for the award, usually the vesting period. We adopted the
provisions of FASB Statement No. 123(R) on December 29, 2005 for fiscal year
2006 using a prospective application. Under the prospective application, FASB
Statement No. 123(R) applies to new awards and any awards that are modified or
cancelled subsequent to the date of our adoption of FASB Statement No. 123(R).
Prior periods are not revised for comparative purposes. As we used the minimum
value method for pro forma disclosures under FASB Statement No. 123, the 277,608
options outstanding at December 28, 2005, will continue to be accounted for in
accordance with Accounting Principle Board (“APB”) Opinion No. 25, Accounting for Stock Issued to
Employees, unless such options are modified, repurchased or cancelled
after December 28, 2005.




Of the
197,023 options we granted in 2005, 195,773, or 99.4%, were granted on December
15, 2005, which was 28 days after the Acquisition. The exercise price of these
options to purchase common stock of CAC was equal to the fair market value of
the underlying shares. The fair market value of the underlying shares was
determined by using the price a third-party purchaser, CAC, had paid in an
independent, arm’s-length transaction to acquire all of our outstanding shares
of common stock on November 18, 2005. We did not obtain a contemporaneous
valuation of our common stock by a third party because we believe this
arm’s-length transaction most appropriately reflected the fair market value of
the underlying stock on December 15, 2005. We did not obtain a contemporaneous
valuation by a third party upon grant of the remaining 1,250 options granted
earlier in 2005 due to the nominal size of the grant.




The terms
of the 171,281 options granted on December 15, 2005 (that are outstanding at
December 31, 2008), provided that if an initial public offering of at least
$50,000,000 occurred before November 18, 2007, one-half of the then unvested
options would have become exercisable and the remaining unvested options would
have been exchanged for restricted stock. In the event of a change in control at
any time or an initial public offering after November 18, 2007, the options will
become 100% vested. We accounted for unvested options that would have been
cancelled and replaced with restricted stock upon completion of an initial
public offering before and until November 18, 2007 using variable accounting,
which required us to recognize expense in each reporting period based on the
change in incremental value of the award at each fiscal quarter. As the Company
did not undertake an initial public offering prior to November 18, 2007, the
future compensation expense is calculated based on the fair market value of the
underlying stock as of this date.




24





For the
year ended December 31, 2008, we recognized compensation expense of $307,000,
which caused a decrease to net income of $235,000. As of December 31, 2008, the
total unamortized compensation expense related to these options was
approximately $1.2 million, which will be amortized over the remaining vesting
period of approximately 4.0 years, or earlier in the event of an initial public
offering of our common stock or a change in control.




Beginning
in 2006, pursuant to FASB Statement No. 123(R), we began to use the
Black-Scholes option-pricing model to value compensation expense for share-based
awards granted and developed estimates of various inputs, including, expected
term of the option grants, expected volatility of CAC common stock, comparable
risk-free interest rate and expected dividend rate. The forfeiture rate is based
on historical rates of option grants and reduces the compensation expense
recognized. The expected term of options granted is derived from the simplified
method per Staff Accounting Bulletin No. 107 “SAB 107”. The comparable risk-free
interest rate is based on the implied yield on a U.S. Treasury constant maturity
with a remaining term equal to the expected term of stock options. Expected
volatility is based on the stock price volatility for public companies in our
industry. We do not anticipate paying any cash dividends in the foreseeable
future and therefore we use an expected dividend rate of zero. Under the
prospective method of FASB Statement No. 123(R), compensation expense was
recognized during the years ended December 26, 2007 and December 31, 2008 for
all stock-based payments granted after December 28, 2005 based on the grant date
fair value estimated in accordance with the provisions of FASB Statement No.
123(R).




The fair
market value of CAC’s common stock during the fiscal year ended December 31,
2008 was determined by using a valuation prepared by an independent third party
valuation firm.




Results
of Operations




Our
operating results for 2006, 2007 and 2008 are expressed as a percentage of
restaurant revenue below:




Fiscal
      Years2006
                    
                    
                    2007
                    
                    
                    2008Income
      Statement Data:Restaurant
      revenue
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %Product
      cost
                    
                    
                    31.4
                    
                    
                    
                    31.2
                    
                    
                    
                    32.1Payroll
      and benefits
                    
                    
                    25.4
                    
                    
                    
                    26.0
                    
                    
                    
                    26.3Depreciation
      and amortization
                    
                    
                    4.3
                    
                    
                    
                    4.6
                    
                    
                    
                    4.7Other
      operating expenses
                    
                    
                    33.5
                    
                    
                    
                    34.6
                    
                    
                    
                    38.2Operating
      income (loss)
                    
                    
                    12.6
                    
                    
                    
                    10.9
                    
                    
                    
                    (9.0
                    )Interest
      expense
                    
                    
                    11.9
                    
                    
                    
                    11.2
                    
                    
                    
                    9.3Income
      (loss) before income taxes
                    
                    
                    0.7
                    
                    
                    
                    (0.4
                    )
                    
                    
                    (18.5
                    )Net
      income (loss)
                    
                    
                    0.3
                    
                    
                    
                    (1.6
                    )
                    
                    
                    (14.2
                    )Supplementary
      Income Statement Data:Restaurant
      other operating expense
                    
                    
                    21.0
                    
                    
                    
                    21.6
                    
                    
                    
                    22.6Franchise
      expense
                    
                    
                    1.4
                    
                    
                    
                    1.4
                    
                    
                    
                    1.5General
      and administrative expense
                    
                    
                    11.1
                    
                    
                    
                    11.6
                    
                    
                    
                    14.1Total
      other operating expenses
                    
                    
                    33.5
                    
                    
                    
                    34.6
                    
                    
                    
                    38.2




Fiscal
Year Ended December 31, 2008 Compared to Fiscal Year Ended December 26,
2007





Fiscal
year 2008 consisted of 53 weeks, compared to 52 weeks in fiscal year
2007.  Accordingly, the extra week of operations was a factor in the
2008 increase in revenue and a majority of our operating expenses in comparison
to the 2007 results of operations.




Restaurant
revenue increased $18.3 million, or 7.1%, to $278.3 million for 2008 from $260.0
million from 2007. The increase in restaurant revenue was mainly due in part to
$6.7 million in current year revenue from fourteen restaurants opened in 2006
and 2007, $6.9 million from ten additional company-operated restaurants in 2008,
$4.5 million in revenue generated in the 53rd week of fiscal 2008, $4.3 million
from three restaurants acquired from a franchisee in 2007 and sales of $1.0
million from a restaurant that was temporarily closed due to a fire in 2007,
partially offset by lost sales of $5.7 million due to the sale of eight company
restaurants to franchisees in 2007 and the closure of three company-operated
restaurants in 2008. This increase was also due to an additional $0.6 million in
restaurant revenue resulting from a 0.2% increase in company-operated same-store
sales for 2008 from 2007. Restaurants enter the comparable restaurant base for
same-store sales the first full week after that restaurant’s fifteen-month
anniversary. The components of the company-operated comparable sales growth
increase were price increases of 2.0%, 1.2%, and 0.5% in January, October, and
various times throughout 2008, respectively, a transaction decrease of 1.9%, and
a menu mix decrease of 1.6%. The transaction decrease reflects intense
competition and a general sales softness in the QSR industry, in part due to
higher gas prices, recession fears, higher unemployment and other economic
factors that occurred 2008 and are expected to continue through at least
2009.




25




Franchise
revenue increased $1.6 million, or 8.1%, to $20.6 million for 2008 from $19.0
million for 2007. This increase is primarily due to an increase in royalties
resulting from a 0.2% increase in franchise same-store sales and increased store
count and also to an increase of $0.3 million in franchise help desk revenue
partially due to the increased number of franchise stores supported by our help
desk. Franchise revenue has been, and will continue to be, negatively impacted
by the economic factors described above.




Product
costs increased $8.2 million, or 10.1%, to $89.4 million for 2008 from $81.2
million for 2007. This increase resulted primarily from more restaurants opened
and increases in commodity costs.





Product
cost as a percentage of restaurant revenue was 32.1% for 2008 compared to 31.2%
for 2007. This 0.9% increase resulted primarily from increases in commodity
cost, partially offset by the menu price increases taken in January and October
2008. We expect continued pressure on commodity costs in 2009. See “Inflation”
below.




Payroll
and benefit expenses increased $5.6 million, or 8.3%, to $73.1 million for 2008
from $67.5 million for 2007. This increase is primarily attributed to more
restaurants opened, the additional week of salaries of approximately $1.1
million in 2008 since it was a 53-week year, and the increase in the California
minimum wage effective January 1, 2008. Payroll expenses for restaurants outside
of California will be negatively impacted in 2009 due to the increase in the
federal minimum wage from $6.55 to $7.25 in July 2009. See “Inflation”
below.




As a percentage of restaurant revenue,
payroll and benefit expenses increased 0.3% to 26.3% for 2008 from 26.0% for
2007 for the reasons noted above.





Depreciation
and amortization increased $1.1 million, or 8.9% to $13.0 million for 2008 from
$11.9 million for 2007.  This increase is attributed to depreciation
expense for new company-operated restaurants, capital expenditures on existing
restaurants to comply with the federal Americans with Disabilities Act remodels
and capitalized repairs for existing company restaurants.





Depreciation
and amortization as a percentage of restaurant revenue was basically flat at
4.7% for 2008 compared to 4.6% for 2007.




Other
operating expenses include restaurant other operating expense, franchise
expense, and general and administrative expense.




Restaurant
other operating expense, which includes utilities, repair and maintenance,
advertising, property taxes, occupancy and other operating expenses, increased
$6.8 million, or 12.0%, to $62.9 million for 2008 from $56.1 million for
2007.  This increase is mainly attributed to new restaurants and the
reasons noted below.





Restaurant
other operating expense as a percentage of revenue increased by 1.0% to 22.6%
for 2008 from 21.6% for 2007. The increase in operating costs as a percentage of
revenue was due in part to an increase in occupancy costs as a percentage of
revenue, which was primarily due to rent increases at existing stores and higher
rents in new locations, and increased property tax expense due to increased
assessments from tax audits in the current year. The increase in operating costs
was also due to increased utilities expense primarily due to higher natural gas
prices in the current period, an increase in credit card fees as a percentage of
revenue of 0.1% attributed primarily to higher transaction fees, and increased
janitorial expenses as a percentage of revenue of 0.1%.




Franchise
expense consists primarily of rent expense that we pay to landlords associated
with leases under restaurants we are subleasing to franchisees. This expense
usually fluctuates primarily as subleases expire and is to some degree based on
rents that are tied to a percentage of sales calculation. Franchise expense
increased $0.4 million, or 10.4%, to $4.1 million for 2008 compared to $3.7
million for 2007. This increase is primarily attributed to increased help desk
costs for the franchise stores partially due to the increased number of
franchise stores supported by our help desk; there is a corresponding increase
in franchise income for help desk revenue.




26




Included
in general and administrative expense for the 2008 period is a $10.7 million
expense to settle the Mexico Litigation described in Note 19 to the Consolidated
Financial Statements in this report.  Excluding this settlement
expense, general and administrative expense decreased $1.6 million, or 5.3%, to
$28.6 million for 2008 from $30.2 million from 2007. The decrease in general and
administrative expenses (excluding the settlement expense) was due to a $2.8
million loss recognized in the 2007 period from the sale of eight company
restaurants that did not occur in the 2008 period, lower bonus expense of $1.9
million due to not achieving our budget goals in 2008 and decreased expense for
outside services of $0.6 million which is attributed primarily to decreased
spending on Sarbanes-Oxley compliance.  The decrease in expense was
partially offset by a non-cash impairment charge in the current period of $1.9
million, which was recorded by the Company for three under-performing
company-operated stores that will continue to operate and higher salaries and
wages of $1.5 million due to increased headcount and an additional week of
salaries of $0.3 million in 2008.





Excluding
the settlement expense, general and administrative expense as a percentage of
revenue was 10.3% and 11.6% for 2008 and 2007, respectively.  This
decrease was attributed to the reasons noted above.





In
accordance with FASB Statement No. 142, Goodwill and Other Intangible
Assets, we do not amortize goodwill and certain intangible assets with an
indefinite life, including domestic trademarks. We perform an impairment test
annually at our fiscal year end, or more frequently if impairment indicators
arise. No impairment was recorded in 2007. Due to the downturn in the economy
and its effect on expected future cash flows, and based on an independent
valuation of the Company, we recorded a non-cash impairment of goodwill of $24.5
million and recorded a non-cash impairment of domestic trademarks of $17.6
million in 2008.





Interest
expense, net of interest income, decreased $3.2 million, or 10.9%, to $26.0
million in 2008 from $29.2 million for 2007. Our average debt balances for 2008
decreased to $251.9 million compared to $262.2 million for 2007 and our average
interest rate decreased to 9.81% for 2008 compared to 10.61% for
2007.





The
Company had $2.0 million in other expense in the 2008 period related to the
change in the fair value of the interest rate swap agreement.  The
fixed rate that the Company agreed to pay under the swap agreement was higher
than the floating rate estimated for the life of the agreement that it will
receive, resulting in the expense.





The
Company had $1.6 million in other income in the 2008 period attributed to a net
gain on the repurchase of a portion of the 2013 and 2014 Notes.  This
gain is net of the portion of the deferred finance costs associated with the
notes.




Our
provision for income taxes consisted of an income tax benefit of $12.1 million
in 2008 compared with income tax expense of $3.1 million in 2007 for an
effective tax rate of 23.38% for 2008 and (328.6%) for 2007. The 2008 period’s
effective tax rate was impacted by an adjustment for the non-deductible portion
of goodwill written-off, in the amount of $7.7 million, related to goodwill
impairment. The 2007 period’s effective tax rate was impacted by an adjustment
to recognize an interest deduction related to the EPL Intermediate Discount
Notes in the amount of $0.5 million that we determined not to be subject to
Applicable High Yield Discount Obligation (AHYDO) rules in Section 163(i) of the
Internal Revenue Code. The effective tax rate was also impacted by an adjustment
for the non-deductible portion of goodwill written-off, in the amount of $2.8
million, related to the sale of eight company restaurants.




As a
result of $42.1 million in goodwill and domestic trademark impairment charges,
the $10.7 million settlement expense and the other factors noted above, we had a
net loss of $39.5 million for 2008 compared to a net loss of $4.0 million for
2007.




Fiscal
Year Ended December 26, 2007 Compared to Fiscal Year Ended December 27,
2006




Restaurant
revenue increased $17.4 million, or 7.2%, to $260.0 million for 2007 from $242.6
million from 2006. This increase was partially due to an additional $4.4 million
in restaurant revenue resulting from a 1.9% increase in company-operated
same-store sales for 2007 from 2006. Restaurants enter the comparable restaurant
base for same-store sales the first full week after that restaurant’s
fifteen-month anniversary. The components of the company-operated comparable
sales growth increase were a price increase of 2.2%, a transaction decrease of
1.4%, and a menu mix increase of 1.1%. The increase in restaurant revenue was
also due in part to $6.4 million in current year revenue from twelve restaurants
opened in 2005 and 2006, $6.7 million from eleven restaurants opened in 2007 and
$3.2 million from three restaurants acquired from a franchisee in 2007 partially
offset by lost sales of $1.0 million due to the temporary closure of a
restaurant due to a fire in 2007 and $2.3 million due to the sale of eight
company restaurants to franchisees in 2007. The transaction decrease reflects
intense competition and a general sales softness in the QSR industry, in part
due to higher gas prices, recession fears and other economic factors that are
expected to continue in 2008.




Franchise
revenue increased $1.7 million, or 9.9%, to $19.0 million for 2007 from $17.3
million for 2006. This increase is primarily due to an increase in royalties
resulting from a 3.4% increase in franchise same-store sales and also to an
increase of $0.2 million in franchise fees due to the increase in franchise
store openings.




27




Product
cost increased $5.0 million, or 6.7%, to $81.2 million for 2007 from $76.2
million for 2006. These costs as a percentage of restaurant revenue were 31.2%
for 2007 compared to 31.4% for 2006. This 0.2% decrease resulted primarily from
the menu price increases taken in January 2007, offset partially by increases in
commodity costs. See “Inflation” below.




Payroll
and benefit expenses increased $5.9 million, or 9.6%, to $67.5 million for 2007
from $61.6 million for 2006. As a percentage of restaurant revenue, these costs
increased by 0.6 percentage points to 26.0% for 2007 from 25.4% for 2006. This
increase is primarily attributed to increased spending on manager training and
the increase in the California minimum wage effective January 1, 2007. Payroll
expenses will be negatively impacted in 2008 due to the California minimum wage
increase from $7.50 to $8.00 per hour on January 1, 2008 and the increase in the
federal minimum wage from $5.85 to $6.55 in July 2008. See “Inflation”
below.




Depreciation
and amortization increased $1.6 million, or 15.6% to $11.9 million for 2007 from
$10.3 million for 2006. These costs as a percentage of restaurant revenue
increased to 4.6% for 2007 from 4.3% for 2006. The increase in depreciation
expense as a percentage of restaurant revenue is due to capital expenditures on
existing restaurants to comply with the federal Americans with Disabilities Act
remodels.




Other
operating expenses include restaurant other operating expense, franchise
expense, and general and administrative expense.




Restaurant
other operating expense, which includes utilities, repair and maintenance,
advertising, property taxes, occupancy and other operating expenses, increased
$5.1 million, or 10.0%, to $56.1 million for 2007 from $51.0 million for 2006.
These costs as a percentage of revenue increased by 0.6 percentage points to
21.6% for 2007 from 21.0% for 2006. The increase in operating costs as a
percentage of revenue was due in part to a 0.4% increase in occupancy costs as a
percentage or revenue, which was primarily due to higher rent costs, a reduction
in the annual amortization of the unfavorable leasehold interest liability and
increased common area maintenance costs. The increase in operating costs was
also due to increased advertising expense as a percentage of revenue of 0.2%, an
increase in credit card fees as a percentage of revenue of 0.1%, and increased
repair and maintenance fees as a percentage of revenue of 0.1%, partially due to
a higher general run rate of equipment repairs and refrigeration. The increase
in other operating expense was partially offset by insurance proceeds received
in 2007 for a fire at one of our restaurants which decreased other operating
expense by 0.2% as a percentage of revenue.




Franchise
expense consists primarily of rent expense that we pay to landlords associated
with leases under restaurants we are subleasing to franchisees. This expense
usually fluctuates primarily as subleases expire and is to some degree based on
rents that are tied to a percentage of sales calculation. Franchise expense
increased $0.3 million, or 9.3%, to $3.7 million for 2007 compared to $3.4
million for 2006. This increase is primarily attributed to increased occupancy
expenses as a result of the change in amortization of the favorable leasehold
interest subsequent to the Acquisition by CAC.




General
and administrative expense increased $3.4 million, or 12.6%, to $30.2 million
for 2007 from $26.8 million from 2006. General and administrative expense as a
percentage of revenue was 11.6% and 11.1% for the 2007 and 2006, respectively.
The increase in general and administrative expenses was due to a $0.8 million
increase in salary and fringe expense, primarily due to increased headcount, a
$2.5 million non-cash loss recognized in the current period primarily attributed
to the sale of eight company restaurants to franchisees, increased legal fess of
$1.5 million and an increase in stock option expense of $0.3 million, partially
offset by $1.8 million in IPO expenses in 2006 that did not recur in the current
year.




Interest
expense, net of interest income, increased $0.4 million, or 1.2%, to $29.2
million in 2007 from $28.8 million for 2006. Our average debt balances for 2007
increased to $262.2 million compared to $261.3 million for 2006 and our average
interest rate decreased to 10.61% for 2007 compared to 10.62% for
2006.




Our
provision for income taxes consisted of income tax expense of $3.1 million in
2007 compared with $1.1 million in 2006 for an effective tax rate of (328.6)%
for 2007 and 62.7% for 2006. The 2007 period’s effective tax rate was impacted
by an adjustment to recognize an interest deduction related to the EPL
Intermediate Discount Notes in the amount of $0.5 million that we determined not
to be subject to Applicable High Yield Discount Obligation (AHYDO) rules in
Section 163(i) of the Internal Revenue Code. The effective tax rate was also
impacted by an adjustment for the non-deductible portion of goodwill
written-off, in the amount of $2.8 million, related to the sale of eight company
restaurants.




As a
result of the factors above, we had a net loss of $4.0 million, or (1.6%) as a
percentage of restaurant revenue, for 2007 compared to net income of $0.6
million, or 0.3% of restaurant revenue, for 2006.




Liquidity
and Capital Resources




28




Our
principal liquidity requirements are to service our debt and meet our capital
expenditure needs. At December 31, 2008, our total debt was $241.5 million. See
“Debt and Other Obligations” below. Our ability to make payments on and to
refinance our indebtedness, and to fund planned capital expenditures will depend
on our ability to generate adequate cash flows in the future, which, to a
certain extent, is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based on
our current level of operations, we believe our cash flow from operations,
available cash (including approximately $17 million available as capital
contributions from CAC) and the approximately $12.6 million that EPL had
available at December 31, 2008, under the revolving portion of its senior
secured credit facilities will be adequate to meet our liquidity needs for at
least the next 12 months. The current economic crisis and resulting severely
constrained liquidity conditions however, could make it more difficult or costly
for us to obtain debt financing or to refinance our existing debt if it becomes
necessary, and could make sources of liquidity unavailable. See “Debt and Other
Obligations” below.





The
credit facility requires the prepayment of the term loan in an amount equal to
50% of the Excess Operating Cash Flow, if at the end of the fiscal year, the
Consolidated Leverage Ratio is less than 5.0:1.0.  Excess Operating
Cash Flow is defined as an amount equal to Consolidated EBITDA minus
Consolidated Financial Obligations and other specific payments and
adjustments.  The Excess Operating Cash Flow for 2008 was $9.8
million.  The Company will make the payment of $4.9 million in April
2009.




In
December 2007, our parent company, CAC, received a capital infusion of $45.0
million. On December 26, 2007, CAC made a $3.0 million capital contribution to
EPL through intermediary subsidiaries which was used for normal operating
purposes and capital expenditures. On January 25, 2008, CAC made an $8 million
capital contribution to the Company. The Company used $7.9 million of these
proceeds to repurchase a portion of the outstanding 14.5% senior discount
notes due 2014 (see Note 13 to our Consolidated Financial Statements) at a price
that approximated their accreted value. In May of 2008, CAC made a $4.0 million
capital contribution to the Company that was used for normal operating
purposes.  On June 18, 2008 we settled the Mexico Litigation as
described in Note 19 to our Consolidated Financial Statements.  The
settlement payment of $10,722,860 was paid by CAC on behalf of
EPL.  This payment is accounted for as a capital contribution by CAC
to EPL.  The Company expects that CAC will make future capital
contributions to the Company and EPL for general corporate
purposes.





In 2008,
our capital expenditures totaled $17.5 million, consisting of $11.9 million for
new restaurants, $1.7 million for capitalized repairs of existing sites, $0.4
million for remodels and $3.5 million for miscellaneous capital projects. Due to a
reduced number of new stores for 2009, we expect our capital expenditures for
2009 to be approximately $8.0 to $10.0 million.




Cash and
cash equivalents decreased $2.7 million from $3.8 million at December 26, 2007
to $1.1 million at December 31, 2008. During 2008, we made $2.1 million in
principal repayments on EPL’s term loan, $6.5 million in payments to pay off
borrowings under our revolving credit facility, and $21.6 million in interest
payments. The interest payments related primarily to the 2013 Notes and the term
loan, $14.5 million and $6.0 million, respectively. We also used $21.5 million
of cash to repurchase a portion of our 2014 and 2013 Notes.  We may in
the future make additional repurchases of these Notes to help facilitate
compliance with our
credit facility financial covenants or to take advantage of favorable
prices. There is no assurance that our business will generate sufficient
cash flow from operations or that future borrowings will be available to EPL
under EPL’s senior secured credit facilities in an amount sufficient to enable
us to service our indebtedness or to fund our other liquidity needs. If we
acquire restaurants from franchisees, our debt service requirements could
increase. In addition, we may fund restaurant openings through credit received
by trade suppliers and landlord contributions. If our cash flow from operations
is inadequate to meet our obligations under our indebtedness we may need to
refinance all or a portion of our indebtedness, including the notes, on or
before maturity. There is no assurance that we will be able to refinance any of
our indebtedness on commercially reasonable terms or at all.





As
discussed in Item 3, Legal Proceedings, we are involved in various lawsuits,
including wage and hour class action lawsuits.  In order to mitigate
the adverse effects of these cases, such as on-going legal expense, diversion of
management time, and the risk of substantial judgment against us (which could
occur even if we believe we have a strong legal basis for our position), we may
seek to settle these cases.  Any substantial settlement payments or
damage awards against us if the cases go to trial could have a material adverse
effect on our liquidity and financial results.




As a
holding company, the stock of EPL constitutes our only material asset.
Consequently, EPL conducts all of our consolidated operations and owns
substantially all of our consolidated operating assets. Our principal source of
the cash required to pay our obligations is the cash that EPL generates from its
operations. EPL is a separate and distinct legal entity, has no obligation to
make funds available to us and currently has restrictions that limit
distributions or dividends to be paid by EPL to us. Furthermore, subject to
certain restrictions, EPL is permitted under the terms of EPL’s senior secured
credit facilities and the indenture governing the 2013 Notes and 2014 Notes to
incur additional indebtedness that may severely restrict or prohibit EPL from
making distributions or loans, or paying dividends to us.




Working
Capital and Cash Flows




We
presently have, in the past have had, and may have in the future, negative
working capital balances. The working capital deficit principally is the result
of our investment to build new restaurants, remodel and replace or improve
equipment in company-operated restaurants, and to acquire new restaurant
information systems. We do not have significant receivables or inventories and
we receive trade credit based upon negotiated terms in purchasing food and
supplies. Funds available from cash sales and franchise revenue not needed
immediately to pay for food and supplies or to finance receivables or
inventories typically have been used for the capital expenditures referenced
above and/or debt service payments under our existing indebtedness. We expect
our negative working capital balances to continue to increase, based on the
continuation of the economic downturn and our plan to continue to open new
restaurants.




29




Operating Activities. Net
cash provided by operating activities increased $0.6 million to $23.7 million
for 2008 compared with $23.1 million for 2007.  Excluding the goodwill
and domestic trademarks impairment, the litigation settlement, the change in the
fair value of the interest rate swap agreement and the change in the deferred
income taxes balances, net income increased $4.5 million over the 2007
period.  Net cash provided by operating activities also increased due
to changes in accrued insurance balances which was attributed to
timing.  These increases were partially offset by the changes in our
accounts payable balances due to timing and changes in gains and losses on asset
disposals.





Investing Activities. We had
net cash used in investing activities of $16.4 million for 2008 compared with
$21.1 million for 2007. The decrease in cash used in investing activities of
$4.7 million was related to $3.3 million in decreased expenditures, primarily
attributed to lower spending on new store construction due to fewer restaurants,
and by $8.4 million spent in the prior period for the purchase of franchise
restaurants partially offset by proceeds of $8.0 million received in the prior
period for the sale of eight company restaurants to franchisees.




Financing Activities. We had
net cash used in financing activities of $10.1 million for 2008 compared with
$1.2 million for 2007. The increase in cash used in financing activities in 2008
was primarily attributable to the $21.5 million used to repurchase a portion of
the 2014 Notes and the 2013 Notes and $8.0 million less in borrowings under our
revolving credit facility in the current period.  These increases in
cash used in financing activities were partially offset by an $11.2 million
decrease in debt payments in the current period and an increase in capital
contributions of $9.0 million that were received in the current
period.




Debt
and Other Obligations




On
November 18, 2005, EPL entered into senior secured credit facilities with
Intermediate, as parent guarantor, Merrill Lynch Capital Corporation, as
administrative agent, the other agents identified therein, Merrill Lynch &
Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated and Bank of America,
N.A., as lead arrangers and book managers, and a syndicate of financial
institutions and institutional lenders. The senior secured credit facilities
provide for an $104.5 million term loan and $25.0 million in revolving
availability. In March 2007 we amended the credit facility to reduce the
interest rate and to modify in our favor the terms of certain restrictive
covenants. Due to the effect of the current economic downturn on our cash flows
and financial results, there is no assurance that we will continue to be in
compliance with our debt covenants.





As of
December 31, 2008, EPL was in compliance with all of the financial covenants
contained in its senior credit facility. As of such date we calculated all
relevant ratios under its senior credit facility as follows:




•
            EPL’s
      “fixed charge coverage ratio” (as such term is defined in the senior
      credit agreement) was 1.17 to 1;
and




•
            EPL’s
      “leverage ratio” (as such term is defined in the senior credit agreement)
      was 4.37 to 1.




These two
ratios were permitted to be no less than 1.0 to 1, and no greater than 4.50 to
1, respectively, as of such date. During 2009, the maximum leverage ratio
under the senior credit facility will reduce to 4.25:1 in the second and
third quarters and to 3.75:1 in the fourth quarter. As a result of the
leverage ratio reductions, if the adverse conditions in the economy in general,
and in California in particular, deteriorate further, and if we are unable to
take certain steps that are available to us, such as reducing outstanding debt,
it is possible that we may not be in compliance with the leverage ratio in
2009.  Such noncompliance would constitute an event of default under the
senior credit facility. If we were to fail to satisfy our financial covenants
and we were unable to negotiate a waiver or amendment of such
covenants, the lenders under the credit facility could accelerate repayment
of the borrowings and cross-defaults could be triggered under our outstanding
bonds.




We have
certain land and building leases for which the building portion is treated as a
capital lease. These assets are amortized over the life of the respective
lease.




At
December 31, 2008, we had $26.0 million outstanding in aggregate principal
amount of 141⁄2% Senior Discount Notes due 2014. No cash interest will accrue on
the 2014 Notes prior to November 15, 2009. Instead, the principal value of the
2014 Notes will increase (representing accretion of original issue discount)
from the date of original issuance until but not including November 15, 2009 at
a rate of 14 1⁄2 % per
annum compounded annually, so that the accreted value of the 2014 Notes on
November 15, 2009 will be equal to the full principal amount of $29.3 million at
maturity. Beginning on November 15, 2009, interest will accrue on the 2014 Notes
at an annual rate of 14 1⁄2 % per annum payable
semi-annually in arrears on May 15 and November 15 of each year, beginning May
15, 2010. Principal is due on November 15, 2014. On January 25, 2008, CAC made
an $8.0 million capital contribution to the Company. The Company used $7.9
million of these proceeds to repurchase a portion of these notes at a price that
approximated their accreted value. See Note 13 to our Consolidated Financial
Statements.




30




As of
December 31, 2008, we calculated our “fixed charge coverage ratio” and our
“consolidated leverage ratio” (as defined in the indenture governing the
2014 Notes) at 1.32 to 1 and 7.23 to 1, respectively. Similar ratios exist in
the indenture governing the 2013 Notes. The indenture permits us to incur
indebtedness that (a) is contractually subordinated to the 2014 Notes, (b) has a
maturity date after November 15, 2014, and (c) does not provide for payment of
cash interest prior to November 15, 2014. The indenture also permits us to incur
indebtedness if our fixed charge coverage ratio for the most recently ended four
full fiscal quarters would have been at least 2.0 to 1, and if our consolidated
leverage ratio would have been equal to or less than 7.5 to 1, all as determined
on a pro forma basis as if such indebtedness had been incurred at the beginning
of such four-quarter period. Since EPL does not currently meet the fixed charge
coverage ratio, EPL is not permitted to incur additional indebtedness under the
terms of the 2013 and 2014 Notes.




As of
December 31, 2008, we had $250,000 and $108.2 million outstanding in aggregate
principal amount under our 2009 Notes and 2013 Notes, respectively. The Company
used $13.6 million of proceeds from operations to repurchase a portion of these
notes in 2008.  See Notes 10 and 11 to our Consolidated Financial
Statements.




The
following table represents our contractual commitments (which includes expected
interest expense) to make future payments pursuant to our debt and other
obligations disclosed above and pursuant to our restaurant operating leases
outstanding as of December 31, 2008 (amounts in thousands):




2009
                          
                          
                          2010
                          
                          
                          2011
                          
                          
                          2012
                          
                          
                          2013
                          
                          
                          Thereafter
                          
                          
                          TotalExisting
      Senior Secured Credit
                            Facilities—Term
      Loan
                          
                          $
                          12,753
                          
                          
                          $
                          7,679
                          
                          
                          $
                          98,374
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          —
                          
                          
                          $
                          118,8062009
      Notes
                          
                          
                          273
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          2732013
      Notes
                          
                          
                          12,808
                          
                          
                          
                          12,808
                          
                          
                          
                          12,808
                          
                          
                          
                          12,808
                          
                          
                          
                          121,808
                          
                          
                          
                          —
                          
                          
                          
                          173,0402014
      Notes
                          
                          
                          —
                          
                          
                          
                          4,255
                          
                          
                          
                          17,381
                          
                          
                          
                          4,255
                          
                          
                          
                          4,255
                          
                          
                          
                          20,470
                          
                          
                          
                          50,616Capital
      leases (see Note 6 to our
                            consolidated
      financial statements)
                          
                          
                          948
                          
                          
                          
                          627
                          
                          
                          
                          457
                          
                          
                          
                          436
                          
                          
                          
                          417
                          
                          
                          
                          1,615
                          
                          
                          
                          4,500Purchase
      obligations (2)
                          
                          
                          14,498
                          
                          
                          
                          15,704
                          
                          
                          
                          3200
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          33,402Subtotal
                          
                          
                          41,280
                          
                          
                          
                          41,073
                          
                          
                          
                          132,220
                          
                          
                          
                          17,499
                          
                          
                          
                          126,480
                          
                          
                          
                          22,085
                          
                          
                          
                          380,637Restaurant
      operating leases (1)
                          
                          
                          18,614
                          
                          
                          
                          18,662
                          
                          
                          
                          18,514
                          
                          
                          
                          18,328
                          
                          
                          
                          17,940
                          
                          
                          
                          128,847
                          
                          
                          
                          220,905Total
                          
                          $
                          59,894
                          
                          
                          $
                          59,735
                          
                          
                          $
                          150,734
                          
                          
                          $
                          35,827
                          
                          
                          $
                          144,420
                          
                          
                          $
                          150,932
                          
                          
                          $
                          601,542




(1)
            Does
      not reflect the impact of renewals of operating leases that are scheduled
      to expire during the periods
indicated.




(2)
            In
      determining purchase obligations for this table we used the definition set
      forth in the SEC Final Rule, Disclosure in Management’s
      Discussion and Analysis about Off-Balance Sheet Arrangements and Aggregate
      Contractual Obligations , which states, “a ‘purchase obligation’ is
      defined as an agreement to purchase goods or services that is enforceable
      and legally binding on the registrant and that specifies all significant
      terms, including: fixed minimum quantities to be purchased; fixed, minimum
      or variable/price provisions, and the approximate timing of the
      transaction.”




At
December 31, 2008, we had outstanding letters of credit totaling $7.4 million,
which serve as collateral for our various workers’ compensation insurance
programs.




Franchisees
pay a monthly advertising fee of 4% of net sales for the Los Angeles designated
market area or 5% of net sales for other markets. Pursuant to our Franchise
Disclosure Document, we contribute, where we have company-operated restaurants,
to the advertising fund on the same basis as franchised restaurants. Under our
franchise agreements, we are obligated to use all advertising fees collected
from franchisees to purchase, develop and engage in advertising, public
relations and marketing activities to promote the El Pollo Loco ®
brand.




Litigation
Contingency





As
discussed in Item 3, Legal Proceedings, we are subject to employee claims
against us based, among other things, on discrimination, harassment, wrongful
termination, or violation of wage and labor laws in the ordinary course of
business.  These claims may divert our financial and management
resources that would otherwise be used to benefit our operations. In recent
years a number of restaurant companies have been subject to wage and hour class
action lawsuits alleging violations of federal and state labor
laws.  A number of these lawsuits have resulted in the payment of
substantial damages by the defendants.  We are currently a defendant
in several wage and hour class action lawsuits.  Since our insurance
carriers have denied coverage of these claims, a significant judgment against us
could adversely affect our financial condition and adverse publicity resulting
from these allegations could adversely affect our business. In an effort to
mitigate these adverse consequences, we could seek to settle certain of these
lawsuits.  The on-going expense of these lawsuits, and any substantial
settlement payment or judgment against us, could adversely affect our business,
financial condition, operating results or cash flows.  We have not
recorded any reserves for any litigation in our financial
statements.




31




Recent
Accounting Pronouncements





In April
2008, the Financial Accounting Standards Board (the “FASB”) issued FASB Staff
Position 142-3, Determination
of the Useful
Lives of Intangible Assets(“FSP 142-3”), which amends the factors that
should be considered in developing renewal or extension assumptions used to
determine the useful life of a recognized intangible asset under FASB Statement
No. 142, Goodwill and Other
Intangible Assets. The intent of FSP 142-3 is to improve the consistency
between the useful life of a recognized intangible asset under FASB Statement
No. 142 and the period of expected cash flows used to measure the fair value of
the asset under FASB Statement No. 141(R) and other U.S. generally accepted
accounting principles. FSP 142-3 is effective for fiscal years beginning after
December 15, 2008 and for interim periods within those fiscal years. The Company
does not expect the adoption of FSP 142-3 to have a material effect on its
consolidated financial position or results of operations.





In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement No.
133. The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company is currently evaluating
the impact of adopting FASB Statement No. 161 on its financial
statements.





In
February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”),
which deferred the effective date for certain portions of FASB Statement No. 157
related to nonrecurring measurements of nonfinancial assets and liabilities.
That provision of FASB Statement No. 157 will be effective for the Company’s
fiscal year 2009. The Company is currently evaluating the effect, if any, that
the adoption of FSP No. 157-2 will have on its consolidated results of
operations, financial position and cash flows.





In
December 2007, the FASB issued Statement No. 141(R), Business Combinations. FASB
Statement No. 141(R) requires reporting entities to record fair value
estimates of contingent consideration and certain other potential liabilities
during the original purchase price allocation, expense acquisition costs as
incurred and does not permit certain restructuring activities previously allowed
under Emerging Issues Task Force 95-3 to be recorded as a component of
purchase accounting. FASB Statement No. 141(R) is effective for fiscal
periods beginning after December 15, 2008 and should be applied
prospectively for all business acquisitions entered into after the date of
adoption. We are currently evaluating the impact the adoption of FASB
Statement No. 141(R) will have on our consolidated financial position
or results of operations.





In
December 2007, the FASB issued Statement No. 160, Noncontrolling Interest in
Consolidated Financial Statements — an amendment of ARB No. 51.
FASB Statement No. 160 requires (i) that noncontrolling
(minority) interests be reported as a component of shareholders’ equity,
(ii) that net income attributable to the parent and to the noncontrolling
interest be separately identified in the consolidated statement of operations,
(iii) that changes in a parent’s ownership interest while the parent
retains its controlling interest be accounted for as equity transactions,
(iv) that any retained noncontrolling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair value, and
(v) that sufficient disclosures are provided that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. FASB Statement No. 160 is effective for fiscal
periods beginning after December 15, 2008. We are currently evaluating the
impact the adoption of FASB Statement No. 160 will have on our
consolidated financial position or results of operations.




Inflation




Over the
five years prior to 2007, inflation did not significantly affect our operating
results. However, the impact of inflation on labor, food and occupancy costs in
2007 and 2008 had a significant affect on our operations. In March 2007, March
2008, and March 2009 we renewed certain chicken supply contracts with terms
ranging from one to two years at higher prices than the expiring contracts. In
2007 and 2008, corn prices, which are a primary feed source for chicken,
increased dramatically. Corn prices have declined in the last half of 2008 and
in early 2009 from its all time highs, but still remains above historical
averages.  A major driver of this increase is rapidly increasing
demand for corn from the ethanol industry. There have been many new ethanol
plants opening in the United States, and most of these plants use corn as the
primary source of grain to make ethanol. We have seen other commodity costs,
including paper and plastic, decline from mid-2008 highs. However chicken prices
remain high due to declining egg sets and due to the bankruptcy of Pilgrim’s
Pride, a major U.S. supplier of chicken and one of our suppliers.




32





We pay
many of our employees hourly rates related to the applicable federal or state
minimum wage. The State of California increased the minimum wage from $6.75 per
hour to $7.50 per hour effective January 1, 2007 and to $8.00 per hour effective
January 1, 2008. The federal minimum wage increased from $5.85 to $6.55 per hour
effective July 24, 2008 and will increase to $7.25 per hour effective July 24,
2009. Costs for construction, taxes, repairs, maintenance and insurance all
impact our occupancy costs. Costs of construction and new store rents increased
significantly in 2007 and 2008. We have begun to see an easing in both these
areas due to the recession, but we cannot predict whether this recent trend will
continue.





We
implemented price increases in 2007 and 2008 to partially mitigate the impact of
higher chicken prices and labor costs on our profitability. We believe that our
current practice of maintaining operating margins through a combination of menu
price increases, cost controls, careful evaluation of property and equipment
needs, and efficient purchasing practices is our most effective tool for dealing
with inflation. Due to intense competition, there is no assurance we will be
able to implement menu price increases in the future. If inflationary pressures
require aggressive menu price increases in the future to protect our margins our
restaurant traffic could be materially, adversely affected.





Off-Balance
Sheet and Other Arrangements





As of December 31, 2008 and December
26, 2007, we had approximately $7.4 million and $14.0 million of borrowing
capacity on the revolving portion of our senior credit facility pledged as
collateral to secure outstanding letters of credit.




Item 7A. Quantitative and Qualitative Disclosure About
Market Risk.




The
inherent risk in market risk sensitive instruments and positions primarily
relates to potential losses arising from adverse changes in interest rates. We
are subject to market risk from exposure to changes in interest rates based on
our financing activities. This exposure relates to borrowings under EPL’s senior
secured credit facilities that are payable at floating rates of
interest.




A
hypothetical 10% fluctuation in the variable interest rate on our existing debt
of $54.4 million (current debt balance including revolver less $50.0 million
covered by an interest rate swap agreement) as of December 31, 2008 would result
in an increase in interest expense of approximately $0.5 million in a given
year. We do not consider the change in the fair value of our long-term fixed
rate debt resulting from a hypothetical 10% fluctuation in interest rates as of
December 31, 2008 to be material.





To manage
or reduce the interest rate risk, the Company may periodically enter into
interest rate swap transactions. The Company enters into these contracts with
major financial institutions, which may minimize its risk of credit loss. On
June 26, 2008, the Company entered into an interest rate swap agreement with an
effective date of September 24, 2008 and a maturity date of June 30, 2010. The
agreement is based on the notional amount of $50.0 million. Under the terms of
the agreement, the Company agreed to make fixed rate payments on the notional
amount on a quarterly basis at increasing interest rates ranging from 3.17% to
4.61%, in exchange for receiving payments on the notional amount at a floating
rate based on the three-month LIBOR rate, on a quarterly basis. The interest
rate swap agreement is intended to reduce interest rate risk associated with
variable interest rate debt. At December 31, 2008, the fair value of the
interest rate swap was approximately $2.0 million and is included in other
noncurrent liabilities on the accompanying consolidated balance
sheet.  The fixed interest rate that the Company agreed to pay was
higher than the floating rate estimated for the life of the agreement that it
will receive, resulting in a $2.0 million liability. The amount of the liability
will increase or decrease over the term of the swap agreement based on increases
or decreases to the Libor rate.





We
purchase food and other commodities for use in our operations based on market
prices established with our suppliers.  Many of the commodities purchased
by us can be subject to volatility due to market supply and demand factors
outside of our control.  To manage this risk in part, we attempt to enter
into fixed price or floor/ceiling purchase commitments, with terms typically of
one to two years, for our chicken requirements.  Substantially all of our
food and supplies are available from several sources, which helps to diversify
our overall commodity cost risk.  In addition, we have the ability to
increase certain menu prices, or vary certain menu items offered, in response to
food commodity price increases.   We do not use financial instruments
to hedge commodity prices, since our purchase arrangements with suppliers, to
the extent that we can enter into such arrangements, help control the ultimate
cost that we pay.




Item 8. Financial Statements and Supplementary
Data




Our
Consolidated Financial Statements, including the Independent Registered Public
Accounting Firm’s Report thereon, are listed under Item 15(a) and filed as part
of this Annual Report on Form 10-K. See Item 15.




33




Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.




None.




Item 9A(T). Controls and Procedures.




Our Chief
Executive Officer and Senior Vice President of Finance have concluded that the
design and operation of our disclosure controls and procedures are effective as
of December 31, 2008. This conclusion is based on an evaluation conducted under
the supervision and with the participation of Company management. Disclosure
controls and procedures are those controls and procedures which are designed to
ensure that information required to be disclosed in our SEC filings and
submissions is accumulated and communicated to management and is recorded,
processed, summarized and reported in a timely manner and in accordance with SEC
rules and regulations.




There
have been no changes in our internal control over financial reporting that
occurred during our year ended December 31, 2008, that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.




Management’s
Report on Internal Control over Financial Reporting immediately precedes the
Report of Independent Registered Public Accounting Firm.




Item 9B. Other Information.




On
March 30, 2009, the Company issued a press release reporting results of
operations for the fourth quarter and year ended December 31, 2008. A copy of
the press release is being furnished as Exhibit 99 hereto and is incorporated
herein by this reference. We do not intend for this exhibit to be incorporated
by reference into any other filings we make with the SEC. This information is
provided in this report in response to Item 2.02, Results of Operations and
Financial Condition, and Item 9.01, Financial Statements and Exhibits, of Form
8-K in lieu of filing a Form 8-K.





In March
2009, EPL executed chicken supply contracts with Koch Foods, Inc., Tyson Foods,
Simmons Prepared Foods, Inc.and Pilgrim's Pride Corporation.  The
agreements provide for prices and minimum quantities of chicken that EPL must
purchase from each supplier.  Each agreement is effective March 1, 2009 and
extends for one year, in the case of Koch and Tyson, or two years, in the case
of Simmons and Pilgrim's.  This information is provided in this report in
response to Item 1.01 of Form 8-K in lieu of filing a Form 8-K.




PART
III




Item 10. Directors and Executive Officers of the
Company.




The
following table sets forth certain information regarding our board of directors
and executive officers:




Name
                      
                      Age (1)
                      
                      PositionStephen
      E. Carley
                      
                      56
                      
                      President,
      Chief Executive Officer and DirectorKaren
      B. Eadon
                      
                      55
                      
                      Senior
      Vice President of Marketing and Chief Marketing OfficerJoseph
      N. Stein
                      
                      48
                      
                      Senior
      Vice President of Strategy and InnovationGary
      Campanaro
                      
                      48
                      
                      Senior
      Vice President of Finance, Chief Financial Officer and
      TreasurerJeanne
      A. Scott
                      
                      61
                      
                      Senior
      Vice President of Human Resources and Training and Assistant
      SecretaryJerry
      Lovejoy
                      
                      55
                      
                      Senior
      Vice President, General Counsel and SecretaryStephen
      J. Sather
                      
                      61
                      
                      Senior
      Vice President of OperationsDouglas
      K. Ammerman (2)
                      
                      57
                      
                      DirectorJay
      R. Bloom
                      
                      53
                      
                      DirectorAndrew
      R. Heyer (3)
                      
                      51
                      
                      DirectorDean
      C. Kehler (2)
                      
                      52
                      
                      DirectorDennis
      Lombardi (2)(3)
                      
                      61
                      
                      DirectorAlberto
      Robaina
                      
                      44
                      
                      DirectorJohn
      M. Roth (3)
                      
                      50
                      
                      DirectorGriffin
      Whitney
                      
                      33
                      
                      DirectorPeter
      A. Bassi
                      
                      59
                      
                      DirectorSteven
      Shulman
                      
                      67
                      
                      Director





(1)
            As
      of March 1, 2009.(2)
            Member
      of Audit Committee.(3)
            Member
      of Compensation Committee.




34




Stephen E. Carley has been
the President, Chief Executive Officer and a director of EPL since April 2001.
He has been our President since June 2004 and was elected a director of the
Company in February 2007. Mr. Carley has over 25 years of experience in the
restaurant and food-service industries, including from 1993 to November 1996
when Mr. Carley served in various capacities, including National Vice President
of Development, for Taco Bell Corporation. From November 1996 to October 1998,
Mr. Carley was President of Universal Studios Hollywood Theme Park and Citywalk,
a division of Universal Studios, Inc. From January 1999 to April 2001, Mr.
Carley served as President of OnRadio.com, a website hosting and design
business, Chief Executive Officer of JoePix.com, and President of PhotoPoint
Corporation, two digital-imaging companies. Previously in his career, Mr. Carley
spent 13 years in brand management and operations with General Mills, Inc., the
Pillsbury Company and PepsiCo, Inc.




Karen B. Eadon has been
Senior Vice President of Marketing and Chief Marketing Officer of EPL since
January 2006, previously serving as Vice President and Chief Marketing Officer
from October 2002 to January 2006. She was elected our Senior Vice President of
Marketing in February 2007. From November 2000 to October 2002, Ms. Eadon served
as Vice President, U.S. Marketing for McDonald’s Corporation. From March 1999 to
October 2000, she served as Senior Vice President, Marketing, for Applebee’s
International, Inc. From April 1995 to March 1999, she served as Vice President,
Retail Marketing for Arco Products Company, the refining and marketing division
of ARCO.




Joseph N. Stein was appointed
Senior Vice President of Strategy and Innovation in January 2009.  He
previously served as our Senior Vice President of Finance and Chief Financial
Officer since February 2007 and he held those positions at EPL since January
2006. Mr. Stein served as Vice President of Finance and Chief Financial Officer
of EPL from April 2002 to January 2006 and as our Treasurer and Vice President
since 2002 and 2004, respectively. From April 1999 to April 2002, Mr. Stein
served as Vice President and Chief Strategic and Financial Officer for Rubio’s
Restaurants, Inc. From January 1997 to April 1999, he served as Executive Vice
President and Chief Administrative Officer for Checkers Drive-In Restaurants,
Inc.




Gary Campanarowas appointed
Senior Vice President of Finance, Chief Financial Officer and Treasurer of the
Company in January 2009.  Mr. Campanaro is a Certified Public
Accountant who served as Chief Financial Officer and Secretary of Claim Jumper
Restaurants Holdings Corp. from 2006 until joining the Company.  He
served as Chief Financial Officer and Secretary of The Keith Companies, Inc., a
civil engineering firm, from 1998 to 2005, and he held executive positions at CB
Richard Ellis, a real estate company, from 1992 to 1998, and at CKE Restaurants,
Inc. from 1988 to 1992.




Jeanne A. Scott was elected
our Senior Vice President of Human Resources and Training in February 2007 and
has held that position at EPL since January 2006. She served as Vice President
of Human Resources and Training of EPL from February 2003 to January 2006. From
January 1999 to January 2003, Ms. Scott served as Senior Vice President, Human
Resources at Alliance for Sodexho, a worldwide food service management company.
From December 1995 to November 1998, she served as Vice President Human
Resources and Training for Koo Koo Roo, Inc.




Jerry Lovejoy has been the
Senior Vice President and General Counsel for the Company and EPL since July
2007. From November 1999 to May 2003, he served as Division Counsel for
McDonald’s Corporation in San Diego, California and from August 2003 to July
2006, he served as Vice President and General Counsel of Men’s Wearhouse in
Fremont, California.




Stephen J. Sather was elected
our Senior Vice President of Operations in February 2007 and has held that
position at EPL since January 2006. From March 2002 to December 2005, he served
as Senior Vice President Retail Operations for Great Circle Family Foods, LLC
and from December 1996 to December 2001, he served as Chief Operating Officer
for Rubios Restaurants Inc.




Douglas K. Ammerman has been
a director of the Company since September 2006. He held numerous positions with
KPMG, LLP, an international accounting firm, including Managing Partner, from
1973 until his retirement in 2002. Mr. Ammerman holds a Masters in Business
Taxation from the University of Southern California, is a Certified Public
Accountant and is a member of the California Society of CPAs. He is a director
and Chairman of the Audit Committee of Fidelity National Financial, Inc. and
Quiksilver, Inc.




Jay R. Bloom was elected a
director of the Company and EPL in December 2007. Mr. Bloom has been a Managing
Partner of Trimaran Capital, L.L.C. since 2000 and a member of the Investment
Committee of Trimaran Advisors, L.L.C., the investment advisor to Caravelle
Investment Fund L.L.C., since 1998. Prior to co-founding Trimaran Capital, Mr.
Bloom was a vice chairman of CIBC World Markets Corp. and co-head of the CIBC
Argosy Merchant Banking Funds from 1995 to 2006. Prior to joining CIBC World
Markets Corp., Mr. Bloom was a founder and Managing Director of the Argosy Group
L.P. Mr. Bloom currently serves on the Board of Directors of Norcraft Companies,
L.P., Educational Services of America, Inc., PrimeCo Wireless Communications
LLC, NSP Holdings LLC, Standard Steel, LLC and Source Financial
Corporation.




Andrew R. Heyer has been a
director of the Company since February 2007 and of EPL since November 2005. Mr.
Heyer has been the Chief Executive Officer and a Managing Director of Mistral
Capital Management, LLC, a private equity fund, since 2007. Mr. Heyer was a
Managing Partner of Trimaran Capital, L.L.C. from 2000 until 2007 and he has
been a member of the Investment Committee of Trimaran Advisors, L.L.C., the
investment advisor to Caravelle Investment Fund, L.L.C. since 1997. From 1995 to
2006, Mr. Heyer served as vice chairman of CIBC World Markets Corp. and as
co-head of the CIBC Argosy Merchant Banking Funds (Fund I). Prior thereto, Mr.
Heyer was a founder and Managing Director of The Argosy Group L.P. Mr. Heyer
currently serves on the Boards of Directors of Hain Celestial Group, Inc.,
Village Voice Media, LLC, Brite Media Group LLC and Charlie Brown’s Acquisition
Corp.




35




Dean C. Kehler was elected a
director of the Company in February 2007 and has served as a director of EPL
since November 2005. He has been a Managing Partner of Trimaran Capital, L.L.C.
since 2000 and a member of the Investment Committee of Trimaran Advisors, L.L.C.
From 1995 to 2006, Mr. Kehler served as vice chairman of CIBC World Markets
Corp. and as co-head of the CIBC Argosy Merchant Banking Funds (Fund I). Prior
thereto, Mr. Kehler was a founder and Managing Director of The Argosy Group L.P.
Mr. Kehler currently serves on the Boards of Directors of Inviva, Inc., Urban
Brands, Inc., Charlie Brown’s Acquisition Corp. and Jefferson National Financial
Corp.




Dennis Lombardi was elected a
director of the Company in February 2007 and has been a director of EPL since
February 2000. He has been Executive Vice President of WD Partners, a multi-unit
design and development company, since January 2005. He served as Executive Vice
President of Technomic Inc., a leading food service consulting and research
firm, from February 1991 through December 2004. Mr. Lombardi serves on the Board
of Directors of Abuelo’s Mexican Food Embassy, a casual dining
concept.




Alberto Robaina was elected a
director in December 2007. Since May 2007, Mr. Robaina has been a Managing
Director and General Counsel of Trimaran Capital, L.L.C., where he is
responsible for legal and administrative matters for the firm’s private equity
business and for Trimaran Advisors, L.L.C., the firm’s fixed income management
business. Prior to joining Trimaran, Mr. Robaina spent ten years as General
Counsel and Assistant Secretary for the New York City Investment
Fund.




John M. Roth was elected a
director in December 2007. Mr. Roth joined Freeman Spogli & Co., a private
equity investment firm, in 1988 and became a general partner in 1993. From 1984
to 1988, Mr. Roth was employed by Kidder, Peabody & Co. Incorporated in the
Mergers and Acquisitions Group. Mr. Roth also serves on the board of directors
of hhgregg, Inc., a retailer of video products and appliances.




Griffin Whitney has been a
director of the Company since September 2006. Mr. Whitney has been a Senior
Associate with Mistral Capital Management LLC, a private equity firm, since
January 2008. He was an Associate at Trimaran Capital, L.L.C. from June 2005
through December 2007. From August 2003 to May 2005, Mr. Whitney attended the
University of Pennsylvania Wharton School of Business, where he received a
Masters in Business Administration. Prior thereto he was an Associate at AEA
Investors, LLC and an analyst in the mergers and acquisitions group at JP
Morgan/The Beacon Group.





Peter A. Bassiwas elected a
director of the Company in October 2008.  Mr. Bassi retired in 2005
after more than 30 years at Yum! Brands, Inc. (which operates KFC, Pizza Hut and
Taco Bell restaurants) and PepsiCo, where he most recently served as Chairman
and President of Yum Restaurants International.





Steven Shulmanwas elected a
director of the Company in October 2008. For over 20 years, Mr.
Shulman has been the managing director of Hampton Group, a company engaged in
the business of making private investments. Mr. Shulman serves as a
director of Ark Restaurants Corp. and various private companies.  Mr.
Shulman also serves as Vice Chairman of the Board of Trustees of Stevens
Institute of Technology.




Directors
serve until the next annual meeting of stockholders or until their successors
are elected. Officers serve at the pleasure of the Board of
Directors.




Audit
Committee Financial Expert




Our Board
of Directors has determined that Douglas K. Ammerman qualifies as an “audit
committee financial expert” as defined in the SEC’s rules and that Mr. Ammerman
is independent under the applicable rules of The Nasdaq Stock Market. See “Item
13. Certain Relationships and Related Transactions and Director Independence -
Director Independence.”




EPL
Code of Ethics




EPL has
adopted a Code of Business Ethics & Conduct that applies to all of EPL’s
employees, including our executive officers since they are also employees of
EPL. The Code of Business Ethics & Conduct is filed as an exhibit to this
Annual Report on Form 10-K.




Item
11. Executive Compensation.




Compensation
Discussion and Analysis




Overview
of Compensation Program




36




The
primary responsibilities of the Compensation Committee (the “Committee”) of our
Board of Directors are: (1) to establish and maintain fair, reasonable and
competitive compensation practices designed to attract and retain key management
employees throughout the Company and to establish appropriate incentives to
motivate and reward key management employees for achieving or exceeding
established corporate performance goals; and (2) to oversee the competency and
qualifications of senior management personnel and the provisions of senior
management succession planning.




The
Company’s compensation policies with respect to its executive officers are based
on the principles that total compensation should, to a significant extent, be
reflective of the financial performance of the Company, and that a significant
portion of executive officers’ compensation should provide long-term incentives.
The Compensation Committee seeks to set and maintain executive compensation at
levels that are sufficiently competitive to attract, retain and motivate high
quality executive talent to maximize the Company’s success. We seek to achieve
this goal through a three-pronged compensation program consisting of base
salaries, annual incentive bonus and stock option grants pursuant to which our
executive officers will earn substantially more compensation than their base
salaries if corporate performance goals are met or surpassed. The annual
incentive bonus is linked strictly to the achievement of the Company’s annual
performance goals and rewards short-term performance. Stock options provide a
long-term incentive for executives to create wealth for our shareholders and
provide rewards based on the appreciation in stock price.




Throughout
this discussion, the individuals who served as the Company’s Chief Executive
Officer and Chief Financial Officer during 2008 and the other individuals
included in the Summary Compensation Table below are referred to as the “Named
Executive Officers.”




Employment
and Related Agreements




The
nature and terms of our executive compensation program have been influenced
significantly by the fact that we are a privately owned company and that
Trimaran Pollo Partners, LLC (the “LLC”), our principal indirect shareholder, is
actively involved in establishing and overseeing our compensation program. Two
members of our Compensation Committee, Andrew Heyer and John Roth, are
representatives of funds which have a majority membership interest in the
LLC.




In
connection with the Acquisition by CAC in November 2005, we entered into
employment agreements with our executive officers and CAC entered into other
agreements with the executive officers that established the basic parameters of
our compensation program. These agreements were negotiated with, and approved
by, the LLC. We have also entered into similar agreements with persons who have
become executive officers after the Acquisition. The employment agreements,
which are described below under “Employment Agreements,” provide for the salary,
annual bonus, benefits and payments upon termination of employment described
below. CAC maintains a Stock Option Plan pursuant to which it grants options to
purchase CAC common stock to our executive officers and other senior management.
In connection with the Acquisition, as a condition to permitting our officers
and other employees to exchange their existing Company shares and stock options
for shares and stock options of CAC, CAC required such officers and employees to
become parties to a Stockholders Agreement with the LLC. All persons who acquire
shares or options to purchase shares of CAC are required to become parties to
the Stockholders Agreement. The Stockholders Agreement provides for the put and
call rights described below under “Payments Upon Termination or Change in
Control.” This Agreement also generally imposes restrictions on the ability of
the parties to transfer any shares of CAC stock held by them and contains other
provisions governing their rights as stockholders of CAC. See “Item 13. Certain
Relationships and Related Transactions and Director Independence.”




Compensation
Components




Executive
compensation consists of the following components:




Base
Salary. The Company provides Named Executive Officers with base salary to
compensate them for services rendered during the fiscal year. The base salaries
for our executives set forth in their respective employment agreements were
initially established based on their experience and responsibilities, the
Company’s salary structure and negotiations. Salary adjustments are typically
considered annually as part of the Company’s annual performance review process
as well as upon a promotion or other change in job responsibility. Each year, in
connection with its approval of the annual operating plan, the Board of
Directors approves annual merit increase pools for various categories of Company
employees based on a percentage of the aggregate current salaries of employees
in each category. These percentages, which take into account cost of living
factors in Orange County, California, are determined in conjunction with the
preparation of the annual operating plan and are influenced by other costs and
their impact on budgeted EBITDA. For 2008, the Board approved merit salary
increases averaging 3.5% for Support Center employees, consisting of
approximately 137 management and administrative personnel, including executive
officers but excluding Mr. Carley.




37




Annual
salary increases for executive officers are approved by the Compensation
Committee based on recommendations from the Chief Executive Officer and his
assessment of the individual’s performance during the prior year. All Company
Support Center employees, including executive officers, are annually evaluated
on the following basis: (i) the employee’s achievement of performance
accountabilities and goals (which vary depending upon the individual employee’s
area of responsibility, e.g., operations, marketing, development, human
resources, finance, etc.) which are set jointly by the employee and his
supervisor in the prior year, and (ii) the employee’s demonstration of
certain “Good to Great” behaviors (based on the principles outlined in Jim
Collins' book Good to
Great ), such as sound decision-making, collaboration and teamwork,
customer orientation, execution and initiative, and integrity and trust. The
employee’s performance accountabilities and Good to Great behaviors are weighted
approximately 50/50 in determining an overall performance rating. We believe
that this balance promotes our policy of tying compensation to both short-term
performance goals and organizational behaviors that build long-term value. The
Compensation Committee reviews the performance of the Chief Executive Officer on
an annual basis using the same performance review documents and principles as
used for the other executive officers.





Based on
the executive’s performance review ratings and other factors, such as relative
position, responsibilities and tenure, the Chief Executive Officer, in
consultation with the Compensation Committee members, recommends specific salary
increases for all executive officers, including himself. In arriving at the
salary increases for executive officers in 2008, the Committee gave substantial
weight to Mr. Carley’s recommendations and also reviewed data contained in a
2007 Chain Restaurant Compensation Survey prepared by the Hay Group as a market
check (the Company does not benchmark its compensation).  Based on the
foregoing, the Committee approved salary increases for executive officers
(excluding the Chief Executive Officer) ranging from 2% to 4%. In the case of
Mr. Carley, the Committee approved a salary increase of 28.4% from $369,910 to
$475,000. The members of the Compensation Committee made their decision
primarily based on the compensation survey data.  Although Mr. Carley
received a 3% salary increase in 2007, his previous salary increase was in
2005.  Salary adjustments are effective the first day of the second
fiscal quarter of each year.




Annual
Bonus. Executive officers are eligible for annual incentive bonuses
pursuant to the terms of their respective employment agreements based upon our
achievement of budgeted EBITDA as approved by the Board of Directors for each
fiscal year. This element of compensation serves to motivate and challenge the
executive to achieve superior short-term performance, while stock option awards
are designed to motivate long-term performance and tenure at the Company. In
addition, all of our Support Center employees are eligible for an annual bonus
based on the achievement of budgeted EBITDA and other employees are entitled to
bonuses based on the achievement of specific operating performance goals
tailored to their positions and responsibilities.




Our
annual incentive bonus plan provides for a cash bonus, dependent upon the level
of achievement of budgeted EBITDA, calculated as a percentage of the officer’s
base salary, with higher ranked officers compensated at a higher percentage of
base salary to reflect their greater level of responsibility for the
implementation and achievement of the annual plan. The percentages for the Named
Executive Officers reflect our compensation policy that a substantial portion of
the compensation opportunity should depend on the achievement of specific
corporate performance goals. As set forth in their respective employment
agreements, the target bonus awards (as a percentage of base salary) are as
follows: Chief Executive Officer, 100%; Chief Financial Officer, 75%; and Senior
Vice Presidents, 75%.




Depending
on the achievement of budgeted EBITDA, the annual bonus for executive officers
ranges from 25% to 150% of the target bonus, and no bonus is paid if actual
adjusted EBITDA for the year is less than 90% of budgeted EBITDA. The bonus
calculation for executive officers is scaled to decline at a significantly
greater rate if actual adjusted EBITDA is less than budgeted EBITDA, compared to
the increase if actual adjusted EBITDA exceeds budgeted EBITDA. For example, if
actual adjusted EBITDA equals 95% of budgeted EBITDA, the bonus is equal to
62.5% of target bonus, whereas if actual adjusted EBITDA equals 110% of budgeted
EBITDA, the bonus equals 120% of target bonus. This scaling is designed to
reward executive officers only if the Company substantially achieves or exceeds
its annual plan for budgeted EBITDA. The Named Executive Officers did not earn a
bonus in 2008. Information regarding the 2008 bonus opportunities for our Named
Executive Officers is set forth under “Grants of Plan Based Awards in Fiscal
2008.”




Adjusted
EBITDA is defined as the income of the Company before, without duplication,
interest expense, amortization of deferred financing fees and
acquisition-related bank fees, income taxes, depreciation and amortization
expense, gains (or losses) on the sale of company-operated restaurants or other
significant assets, amortization of rent related to the application of FAS 13,
legal expenses associated with lawsuits relating to FLSA and California Labor
Code exempt classification, transaction and new debt offering expenses, stock
option expenses, and litigation-related legal expenses over plan, and after all
bonuses and profit sharing expenses of the Company of any kind.




During
2007, the Company incurred significant legal expenses in connection with
litigation involving El Pollo Loco S.A. de C.V. and Arch Insurance Company (the
“Litigation”), which is described in Item 3 of this report. At the request of
management, in February 2008, the Compensation Committee and the Board of
Directors approved an adjustment in the determination of adjusted EBITDA so that
for the years 2007 and 2008 only, adjusted EBITDA will be calculated before all
expenses relating to the Litigation, because those expenses are out of the
ordinary and not directly related to the Company’s operating performance. As
noted above, in addition to executive officers, all of the Company’s Support
Center employees are eligible for bonuses based on the achievement of budgeted
EBITDA. Therefore, the Compensation Committee and the Board determined that this
adjustment was necessary to promote the morale and retention of Company
employees.




38




We
believe that adjusted EBITDA is the best measure of our financial performance to
use for the purpose of employee bonuses because we utilize a similar measure to
establish our budgets and to analyze our operations as compared to our budgets.
The adjustments to income that define adjusted EBITDA facilitate our ability to
measure operating performance by eliminating certain items which do not reflect
management’s ability to impact the business and which we believe should not be
taken into account for incentive compensation purposes. EBITDA is also an
important non-GAAP valuation tool that is frequently used by securities
analysts, investors and others to evaluate companies in the multi-unit limited
service restaurant industry.




Each
year, management prepares a five-year development plan and annual operating plan
for the upcoming fiscal year which reflects management’s and the LLC’s
objectives for return on assets, growth and capital spending. These plans are
reviewed and approved by the Board of Directors. Budgeted EBITDA is derived from
the annual operating plan using the definition of adjusted EBITDA above. In each
of the following years, annual bonus payouts to executive officers where the
following percentages of target bonus: 2008 – 0%, 2007 - 63%; 2006 - 70%; 2005 -
105%; and 2004 - 101%. In the last five years, the Company achieved or exceeded
budgeted EBITDA in 2005 and 2004.




Discretionary
Bonuses. In addition to the annual bonus provided for in the employment
agreements, we may also, from time to time, decide to award discretionary
bonuses to executives upon the occurrence of extraordinary events, such as a
significant financing, acquisition or sale. No discretionary bonuses were
awarded in 2008.




Long-Term Stock
Option Incentive Program. We believe that long-term performance is
achieved through an ownership culture that encourages long-term performance by
our executive officers through the use of option-based awards. Stock option
awards enable the Company to enhance the link between the creation of
shareholder value and long-term executive incentive compensation and maintain
competitive levels of total compensation.




Our
historical practice has been for CAC to grant non-qualified stock options to
purchase CAC common stock to an eligible employee either upon hire or upon
promotion to a minimum management level in the Company. Newly hired or promoted
director-level or above employees typically receive their award at the first
scheduled board meeting following their hire or promotion date. We do not have a
program for the periodic grant of stock options to our employees. In addition,
persons who were officers at the time of the Acquisition were granted stock
options shortly thereafter by CAC in December 2005.. In connection with the
Acquisition, the LLC and our Chief Executive Officer established an initial
option pool and allocated option grants among the executive officers based on
their positions and responsibilities in the Company. Thereafter, option awards
have been determined by the Compensation Committee, in its discretion, taking
into account the number of options previously granted to other officers. Stock
options are granted with an exercise price equal to the fair market value of CAC
stock based on an independent valuation as described in Item 7 of this
Report.




Our stock
options are both “performance-based” and “time-based” awards. For the first five
years after the grant of an option, options vest 20% per year upon the
achievement of annual or cumulative budgeted EBITDA goals to motivate management
to achieve our financial goals. Because budgeted EBITDA was not achieved in
2008, none of the options vested in 2008. However, even if the financial goals
are not achieved, options vest 100% after seven years to encourage and reward
loyalty and long-term commitment to the Company. We also provide for accelerated
vesting upon an initial public offering of at least $50 million or a change in
control of CAC because these events result in the creation of shareholder value
and we want to motivate our officers to achieve these goals by permitting them
to participate in the increased shareholder value which results.




Other
Compensation. The Company provides named executive officers with
perquisites and other personal benefits that the Company and the Compensation
Committee believe are reasonable and consistent with its overall compensation
program to better enable the Company to attract and retain superior employees
for key positions. The Named Executive Officers are provided automobile expense
allowances, auto fuel and maintenance costs, supplemental ExecuCare health
insurance and payment of other health insurance premiums. Due to the significant
amount of travel by our Chief Executive Officer to visit restaurants throughout
the country, Mr. Carley is entitled to the use of a leased automobile and he
receives an annual travel stipend of up to $10,000 for personal expenses
incurred by Mr. Carley and his spouse. We intend to continue to maintain these
modest executive benefits and perquisites for officers; however, subject to the
terms of employment agreements, the Compensation Committee in its discretion may
revise, amend or add to the officers’ executive benefits and perquisites if it
deems it advisable.




We
maintain a 401(k) Plan for our employees, including our Named Executive
Officers, because we wish to encourage our employees to save some percentage of
their cash compensation, through voluntary deferrals, for their eventual
retirement. The 401(k) Plan permits employees to contribute up to 25% of their
qualified compensation and we match 100% of the first 3% of the employees’
contribution and 50% of the next 2% of their contribution. The Company’s
matching contribution immediately vests 100%.




39




Payments
Upon Termination or Change in Control




Under the
terms of various agreements first entered into in connection with the
Acquisition by CAC, the Named Executive Officers are entitled to payments in the
event of a termination of employment under certain circumstances or a change in
control of CAC. See “Employment and Related Agreements” above. The types of
payments and estimated amounts payable are described below under “Potential
Payments upon Termination or Change in Control.”




We do not
view the change in control or post termination payments as additional elements
of compensation because they are not directly related to the services provided
by the executive and because a change in control or other triggering event may
never occur. We believe the use and structure of our change in control and post
termination payments are consistent with our compensation objectives to attract,
motivate and retain highly talented executives. In addition, we believe the
change in control arrangements preserve morale and productivity, provide a
long-term commitment to job stability and financial security, and encourage
retention in the face of the potential disruptive impact of an actual or
potential change in control of the Company. Our change in control policies
ensure that the interest of our executives will be materially consistent with
the interest of our stockholders when considering corporate
transactions.




Pursuant
to their employment agreements, we provide severance payments to our executive
officers only if their employment is terminated by the Company without cause or
by the officer for good reason. The aggregate amount of an executive’s severance
is subject to reduction by the amounts of any other cash severance or
termination benefits payable to him under any other plans, programs or
arrangements of the Company or its affiliates. There are currently no other
formal severance or termination benefits plans or arrangements in place.
Executive officers other than the Chief Executive Officer receive continued
salary for twelve months and a pro rata portion of their bonus. The severance
benefits reflect the fact that it may be difficult for executive officers to
find comparable employment within a short period of time. In addition, except in
the case of severance payments to our Chief Executive Officer, the Company
receives a benefit from the payments since they are linked to the officer’s
compliance with the non-competition, non-solicitation and confidentiality
covenants contained in their employment agreements. Stephen Carley’s employment
agreement provides for a lump sum severance payment equal to two times his base
salary on the date of termination and two times the average of his annual bonus
in the two completed fiscal years prior to the date of termination. The
difference in Mr. Carley’s severance package and method of payment compared to
the other executives is due to his previous executive experience and his
negotiations with the LLC.




In the
event of the death or disability of an executive, to acknowledge such person’s
contribution to the Company’s performance, the executive is entitled to a pro
rata bonus based on the timing of such event during the year.




The
Stockholders Agreement provides that in the event of a termination without cause
or for good reason, a Named Executive Officer has the right (“put right”) to
require CAC to purchase all of his shares of CAC stock (including shares
underlying vested options) at their fair market value as determined by the board
of CAC. Upon the officer’s termination for any reason, CAC has the right (“call
right”) to purchase all of the officer’s CAC stock (including shares underlying
vested options) at (i) the lower of cost or fair market value if termination is
for cause or without good reason, or (ii) fair market value if termination is
for any other reason. CAC and the Company are privately owned and there is no
public market for CAC stock. The principal purpose of CAC’s call right is to
enable it to keep CAC shares closely held and out of the hands of former
employees who may become employed by competitors that have interests adverse to
the Company. The ability to repurchase these shares also enables CAC to issue
shares or options to new management personnel without further dilution to its
stockholders. Because there is no public market for the CAC stock, the officers’
put right enables the officers to liquidate their interest in CAC when they
leave the Company and to realize on any gains resulting from an appreciation in
the value of CAC shares during their tenure as officers.




The CAC
stock option agreements provide for automatic vesting of options upon the
occurrence of a change in control of CAC. If the options are not exercised, they
will automatically terminate on the effectiveness of the change in control
unless the surviving or acquiring company agrees to assume the options or to
substitute new options. We believe that the interests of our stockholders are
best served if the interests of our senior management are aligned with them, and
providing for acceleration of options in the event of a change in control should
eliminate, or at least reduce, the reluctance of senior management to pursue
potential change in control transactions that may be in the best interests of
our stockholders.




Tax
and Accounting Implications




Under
Section 162(m) of the Internal Revenue Code (the “Code”), a public company may
not deduct compensation of more than $1,000,000 that is paid to certain
individuals. Sections 280G and 4999 of the Code limit the ability of certain
companies to take a tax deduction for “excess parachute payments” (as defined
therein) and impose excise taxes on each executive that receives “excess
parachute payments” in connection with his or her severance in connection with a
change in control. These provisions of the Code are not applicable to the
Company because our equity securities are not publicly traded. When we become
subject to these provisions, the Compensation Committee will consider the impact
of these provisions on our compensation structure.




40




Various
rules under generally accepted accounting practices determine the manner in
which the Company accounts for grants of equity-based compensation to our
employees in our financial statements. Beginning on December 29, 2005, the
Company began accounting for stock-based payments, such as stock option awards,
in accordance with the requirements of SFAS 123(R) as discussed in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations - Critical Accounting Policies - Share-Based
Compensation.”




Compensation
Committee Report




The
Compensation Committee of the Board of Directors oversees our compensation
program on behalf of the Board. In fulfilling its oversight responsibilities,
the Compensation Committee reviewed and discussed with management the
Compensation Discussion and Analysis set forth in this Form 10-K. Based upon the
review and discussions referred to above, the Compensation Committee recommended
to the Board that the Compensation Discussion and Analysis be included in this
Form 10-K.




Compensation
      Committee:John
      M. RothAndrew
      R. HeyerDennis
      Lombardi







41




Summary
Compensation Table




The
following table provides compensation information for years 2006, 2007 and 2008
with respect to our principal executive officer, our principal financial
officer, and our three other most highly compensated executive officers (the
“Named Executive Officers”).




Non-EquityOption
                          
                          Incentive
      Plan
                          
                          All
      OtherAwards
                          
                          Compensation
                          
                          CompensationSalary
                          
                          ($)
                          
                          ($)
                          
                          ($)
                          
                          Total
      ($)Name
      and Principal Position
                          
                          Year
                          
                          ($)
                          
                          (a)
                          
                          (b)
                          
                          (c)
                          
                          (d)Stephen
      E. Carley,
                            President
      and Chief Executive Officer
                          
                          2008
                            2007
                          
                          446,707
                            367,009
                          
                          287,657
                            287,657
                          
                          0
                            234.281
                          
                          68,141
                            57,600
                          
                          802,505
                            949,6562006
                          
                          359,136
                          
                          287,657
                          
                          251,884
                          
                          61,456
                          
                          960,133Joseph
      N. Stein,
                            Senior
      Vice President Finance and
                          
                          2008
                            2007
                          
                          259,073
                            249,109
                          
                          95,886
                            95,866
                          
                          0
                            119,567
                          
                          29,237
                            27,438
                          
                          384,196
                            493,567Chief
      Financial Officer
                          
                          2006
                          
                          242,034
                          
                          95,866
                          
                          127,314
                          
                          25,392
                          
                          490,606Karen
      B. Eadon,Senior
      Vice President, Marketing
                          
                          2008
                            2007
                          
                          268,105
                            262,171
                          
                          95,886
                            95,866
                          
                          0
                            125,518
                          
                          44,692
                            30,390
                          
                          408,683
                            515,6112006
                          
                          256,547
                          
                          95,866
                          
                          134,949
                          
                          36,277
                          
                          523,639Brian
      Berkhausen, (e)
                            Senior
      Vice President, Development
                          
                          2008
                            2007
                          
                          246,308
                            241,478
                          
                          76,708
                            76,708
                          
                          0
                            115,313
                          
                          37,229
                            29,477
                          
                          360,245
                            464,5072006
                          
                          237,049
                          
                          76,708
                          
                          125,193
                          
                          33,177
                          
                          472,127Stephen
      J. Sather,
                            Senior
      Vice President, Operations (e)
                          
                          2008
                            2007
                          
                          238,524
                            229,933
                          
                          112,446
                            110,627
                          
                          0
                            110,083
                          
                          33,906
                            34,298
                          
                          384,876
                            486,4022006
                          
                          214,615
                          
                          106,080
                          
                          114,787
                          
                          23,364
                          
                          458,846


(a)
            These
      options represent the right to purchase common stock of CAC. The amounts
      in this column represent the compensation expense
              relating
      to stock options recognized in the applicable fiscal year for financial
      statement reporting purposes, with certain adjustments
              prescribed
      by the SEC’s rules. These amounts do not correspond to the actual amounts
      that may be recognized upon exercise of the
              options.
      The assumptions used in these calculations, excluding the estimated
      forfeiture rate, are described in “Item 7. Management’s
      Discussion
              and
      Analysis of Financial Condition and Results of Operations - Critical
      Accounting Policies -Share-Based Compensation” and
              Note
      18 to our Consolidated Financial
Statements.




(b)
            These
      amounts represent performance bonuses earned in the applicable fiscal
      year. For a description of the terms of the bonuses, see
      “Compensation
              Discussion
      and Analysis” and the table “Grants of Plan-Based Awards in Fiscal
      2008.”




(c)
            For
      2008, these amounts represent (i) premiums for medical, dental,
      vision and long-term care insurance paid by the Company that
              exceed
      the level of premiums the Company pays for its other employees; (ii)
      reimbursements under a supplemental health insurance
              plan;
      (iii) Company contributions to its 401(k) Plan ($13,628 for Mr.
      Carley and $10,363 for Mr. Stein); (iv) auto allowance
              and
      auto lease payments (a total of $26,096 for Mr. Carley; (v) auto fuel and
      maintenance costs; and (vi) personal expenses in
              connection
      with business travel. We have stated the full cost of these perquisites to
      the Company since we do not obtain the information
              necessary
      to calculate the percentage of these costs that represents a personal
      benefit to each individual.




(d)
            The
      salaries of the Named Executive Officers as a percentage of their
      respective total compensation ranged from 56% for
              Mr.
      Carley to between approximately 61% and 69% for the other Named Executive
      Officers, reflecting the
              higher
      portion of Mr. Carley’s compensation that is incentive-based, represented
      by the compensation value for financial reporting
              purposes
      of his stock option grants.





(e)
            Mr.
      Berkhausen ceased to be employed by the Company in February
      2009.




42





Grants
of Plan-Based Awards in Fiscal 2008




During
2008, the Named Executive Officers were entitled to bonuses in accordance with
the terms of their respective employment agreements. These bonuses are described
in the following table as “non-equity incentive plan awards.” The following
table describes the estimated potential future payouts under these awards in
2008; however, no payouts were actually made in 2008 because the performance
target was not achieved.




Estimated
      Future Payouts Under Non-Equity Incentive Plan AwardsName
                      
                      Grant
                        Date
                      
                      Threshold
                        ($)
                      
                      Target
                        ($)
                      
                      Maximum
                        ($)Stephen
      E. Carley
                      
                      2/06/08
                      
                      118,750
                      
                      475,000
                      
                      712,500Joseph
      N. Stein
                      
                      2/06/08
                      
                      65,446
                      
                      196,338
                      
                      392,676Karen
      B. Eadon
                      
                      2/06/08
                      
                      67,382
                      
                      202,146
                      
                      404,292Brian
      Berkhausen
                      
                      2/06/08
                      
                      61,904
                      
                      185,711
                      
                      371,423Stephen
      J. Sather
                      
                      2/06/08
                      
                      60,255
                      
                      180,765
                      
                      361,530





These
awards represent annual performance bonuses provided for in each officer’s
employment agreement. In the first quarter of each fiscal year, the board of
directors establishes “budgeted EBITDA” for such fiscal year following its
review of the Company’s annual operating plan with management. The date that
budgeted EBITDA is approved by the board is the “grant date.” The amount of
bonus for any fiscal year is calculated on the basis of how the Company’s actual
adjusted EBITDA for the fiscal year compares to budgeted EBITDA. The target
bonus (“Target” column) is 75% of each officer’s base salary (100% in the case
of Mr. Carley). The amount of the bonus ranges from 25% of the officer’s target
bonus if actual adjusted EBITDA is 90% of budgeted EBITDA (“Threshold” column)
to 150% of target bonus if actual adjusted EBITDA equals 125% or more of
budgeted EBITDA (“Maximum” column). No bonus is paid if actual adjusted EBITDA
is less than 90% of budgeted EBITDA and in no event may the bonus amount exceed
150% of the officer’s target bonus. See “Compensation Discussion and Analysis”
above for the definition of adjusted “EBITDA.”




Employment
Agreements




EPL has
employment agreements with each Named Executive Officer.




Term . Mr. Carley’s employment
agreement is dated September 27, 2005 and has a three-year term. Commencing on
January 1, 2007, and each January 1 thereafter, Mr. Carley’s employment term is
automatically extended for an additional year unless either party gives 60 days
prior notice of its intention not to extend the term. As a result of the timing
of these extensions, the term of Mr. Carley’s employment is a rolling three-year
period which currently expires November 18, 2011.  The term of the
other Named Executive Officers’ employment agreements expires on November 18,
2009 with respect to Mr. Stein, and on December 31, 2009 with respect to the
other Named Executive Officers. Each of the employment agreements (other than
Mr. Carley’s) has an automatic one-year renewal unless either party provides
termination notice at least 60 days prior to the end of the then applicable
term.





Base
Salary. Each agreement provides for a base annual salary that may be
increased at the sole discretion of the board of directors.




Bonus.
Contingent on our meeting certain financial goals, the target bonus for each
Named Executive Officer is 75% of the officer’s salary, except for Mr. Carley,
whose target bonus is 100% of his salary. The terms of the bonus are described
in the table “Grants of Plan - Based Awards in Fiscal 2008” above.




Employee
Benefits. Each Named Officer is entitled to receive health insurance,
retirement benefits and fringe benefits on the same basis as those benefits are
made available to other senior executives. In addition, EPL is required to
provide Mr. Carley with a leased vehicle and pay the routine operating,
maintenance and fuel costs for such vehicle.




Termination.
If EPL terminates a Named Executive Officer for cause or a Named Executive
Officer resigns without good reason or dies or suffers from a disability, that
executive officer is entitled to accrued base annual salary for the then current
year to date, earned unpaid bonus from prior years, accrued expenses meriting
reimbursement and accrued unpaid benefits. If a Named Executive Officer dies or
suffers from a disability, the officer is also entitled to a pro rata bonus for
the then current year. If we terminate a Named Executive Officer without cause
or a Named Executive Officer resigns for good reason, that executive officer is
entitled to all of the foregoing compensation plus one year additional base
salary payable over 12 months, except that Mr. Carley is entitled to two years
of base salary and bonus payable in a lump sum on termination. These termination
provisions and additional information regarding the payments the Named Executive
Officers are entitled to receive upon termination or a change in control are
described under “Potential Payments Upon Termination or Change in Control”
below.




43




CAC
Stock Option Plan




All of
our stock options are granted by CAC pursuant to its 2005 Stock Option Plan and
represent the right to purchase CAC common stock. All options granted pursuant
to the plan are intended to be non-qualified stock options under the Internal
Revenue Code of 1986. Of the 307,556 options outstanding at December 31, 2008,
79,650 fully vested options were granted in connection with the Acquisition by
CAC in November 2005 in exchange for previously outstanding options to purchase
common stock of EPL Holdings, Inc. which were fully vested. Subsequent to the
Acquisition through December 31, 2008, an aggregate of 227,906 options have been
granted. Such options vest upon the achievement of certain performance-based and
time-based conditions as described in footnote (b) to the table “Outstanding
Equity Awards at Fiscal Year-End 2008” below. The options terminate upon the
optionee’s termination of service with the Company subject to the optionee’s
right to exercise the vested portion of the option for a period of three to nine
months after termination, depending on the cause of termination; provided,
however, that if an optionee is terminated by the Company for cause, his options
are forfeited. The options are subject to accelerated vesting in the event of an
initial public offering of at least $50,000,000 or a change in control of CAC,
as described under “Potential Payments Upon Termination or Change in Control.”
Upon the payment of a dividend with respect to CAC common stock, the optionee is
entitled to receive the economic equivalent of such dividend as if all his
options had been exercised prior to payment of the dividend. The compensation
committee of CAC, which is responsible for administering the option plan, has
the right to waive any conditions or rights under, or amend any terms of,
outstanding options, including the exercise price, vesting provisions and term.
Options are not transferable except with the prior consent of the CAC
compensation committee.




Outstanding
Equity Awards at Fiscal Year-End 2008




Option AwardsName
                              
                              
                              Number
      of Securities
                                Underlying
      Unexercised
                                Options
                                (#)
      Exercisable
                                (a)
                              
                              
                              Equity Incentive Plan
      Awards: Number
      of
                                Securities
      Underlying
                                Unexercised
      Unearned
                                Options
                                (#)
                                (b)
                              
                              
                              Option
      Exercise Price
                                ($)
                              
                              
                              Option
      Expiration DateStephen
      E. Carley
                              
                              
                              22,845
                              
                              
                              
                              
                              
                              7.56
                              
                              
                              4/9/201166,741
                              
                              
                              86.43
                              
                              
                              12/14/2016Joseph
      N. Stein
                              
                              
                              10,158
                              
                              
                              
                              
                              
                              9.68
                              
                              
                              4/9/201222,247
                              
                              
                              86.43
                              
                              
                              12/14/2016Karen
      B. Eadon
                              
                              
                              15,356
                              
                              
                              
                              
                              
                              11.03
                              
                              
                              10/12/201222,247
                              
                              
                              86.43
                              
                              
                              12/14/2016Brian
      Berkhausen
                              
                              
                              8,977
                              
                              
                              
                              
                              
                              2.98
                              
                              
                              12/28/200917,778
                              
                              
                              86.43
                              
                              
                              12/14/2016Steve
      J. Sather
                              
                              
                              -0-
                              
                              
                              17,778
                              
                              
                              86.43
                              
                              
                              12/14/2016







44




(a)
            These
      options were initially granted by our parent company prior to the
      Acquisition by CAC on November 18, 2005 and were
              fully
      vested as of the date of the Acquisition. These options were exchanged for
      CAC options in connection with the
Acquisition.




(b)
            These
      options vest in the following ways:




•
            These
      options will vest 20% per year over the five years following the grant
      date if the Company achieves its budgeted
              EBITDA
      target. If the options do not vest in a specific year, they will vest on
      cumulative basis if cumulative budged EBITDA
              is
      achieved. See footnote (a) to “Grants of Plan-Based Awards in Fiscal 2008”
      for an explanation of budgeted EBITDA.
              None
      of these options vested in 2008.




•
            Even
      if the performance targets are not met, these options will vest in full
      seven years after the grant date as long as the
              employee
      is still with the Company.




•
            100%
      of the options will vest upon the occurrence of an initial public offering
      of at least $50 million or a change in control of
  CAC.




Potential
Payments Upon


Termination
or Change in Control




The
Company has entered into employment agreements and maintains certain plans and
arrangements that require certain payments to the Named Executive Officers in
the event of a termination of employment with EPL or a change in control of CAC.
The potential amounts payable to each Named Executive Officer in each situation
are listed in the table below. These amounts do not include any payments or
benefits to which the officer is entitled irrespective of a termination or
change in control, such as accrued unpaid salary or employee benefits. The
amounts payable are calculated based on the assumptions that the event which
triggered the payments took place on December 31, 2008 (our fiscal year end),
that the employee was employed during the entire fiscal year and received the
compensation set forth in the Summary Compensation Table, and, where applicable,
that the per share price of CAC’s common stock on that date was $70.05. See
“Item 7. Management’s Discussion and Analysis of Financial Condition and Results
of Operations - Critical Accounting Policies - Share-Based Compensation” for a
description of the manner in which we determine the fair market value of CAC
common stock.





Type
      of Payment/Recipient
              
              Termination
      by EPL for
                “Cause”
      or by
                Officer
      Without
                “Good
      Reason”
                $
              
              Termination
                Due
      to
                Death
      or
                “Disability”
                $
              
              Termination
      by EPL
                Without
      “Cause”
                or
      by Officer For
                “Good
      Reason”
                $
              
              “Change
      in
                Control”
                $Base
      SalaryStephen
      E. Carley
              
              0
              
              
              0
              
              
              950,000
              (1)
              
              N/AJoseph
      N. Stein
              
              0
              
              
              0
              
              
              261,784
              (2)
              
              N/AKaren
      B. Eadon
              
              0
              
              
              0
              
              
              269,528
              (2)
              
              N/ABrian
      Berkhausen
              
              0
              
              
              0
              
              
              247,615
              (2)
              
              N/AStephen
      J. Sather
              
              0
              
              
              0
              
              
              241,020
              (2)
              
              N/ABonusStephen
      E. Carley
              
              0
              
              
              0
              (3)
              
              486,164
              (3)(4)
              
              N/AJoseph
      N. Stein
              
              0
              
              
              0
              (3)
              
              0
              (3)
              
              N/AKaren
      B. Eadon
              
              0
              
              
              0
              (3)
              
              0
              (3)
              
              N/ABrian
      Berkhausen
              
              0
              
              
              0
              (3)
              
              0
              (3)
              
              N/AStephen
      J. Sather
              
              0
              
              
              0
              (3)
              
              0
              (3)
              
              N/AGain
      on Sale of CAC Stock (5)Stephen
      E. Carley
              
              0
              
              
              1,427,584
              
              
              1,427,584
              
              
              N/AJoseph
      N. Stein
              
              0
              
              
              613,238
              
              
              613,238
              
              
              N/AKaren
      B. Eadon
              
              0
              
              
              906,311
              
              
              906,311
              
              
              N/ABrian
      Berkhausen
              
              0
              
              
              602,087
              
              
              602,087
              
              
              N/AStephen
      J. Sather
              
              0
              
              
              0
              
              
              0
              
              
              N/AAcceleration
      of Stock Options (6)Stephen
      E. Carley
              
              N/A
              (7)
              
              N/A
              
              
              N/A
              
              
              0Joseph
      N. Stein
              
              N/A
              (7)
              
              N/A
              
              
              N/A
              
              
              0Karen
      B. Eadon
              
              N/A
              (7)
              
              N/A
              
              
              N/A
              
              
              0Brian
      Berkhausen
              
              N/A
              (7)
              
              N/A
              
              
              N/A
              
              
              0Stephen
      J. Sather
              
              N/A
              (7)
              
              N/A
              
              
              N/A
              
              
              0




45




(1)
            Lump-sum
      payment equal to two times base salary on the date of
      termination.




(2)
            Unless
      termination is due to voluntary resignation after reaching age 60, the
      officer receives continued salary for 12 months subject to compliance with
      non-competition, non-solicitation and confidentiality covenants, which are
      described below.




(3)
            The
      officer is entitled to a pro-rated bonus based on the percentage of the
      year the officer was employed, payable when the bonus would have otherwise
      been paid. The estimated payment above assumes that the officer was
      employed the entire fiscal year.  The amount is zero because no
      bonus was earned in 2008.




(4)
            Lump-sum
      payment equal to two times average bonus in the two completed fiscal years
      prior to the date of termination.




(5)
            Pursuant
      to the terms of a Stockholders Agreement described in “Item 13. Certain
      Relationships and Related Transactions and Director Independence,” in the
      event of termination of employment by EPL without cause or by the officer
      for good reason, the officer has the right to require CAC to purchase all
      of his or her shares of CAC stock (including shares underlying vested
      options) at their fair market value as determined by the board of CAC.
      Upon the officer’s termination of employment for any reason, CAC has the
      right (but not the obligation) to purchase all of the officer’s CAC stock
      (including shares underlying vested options) at (i) the lower of cost or
      fair market value if termination is by EPL for cause or by the officer
      without good reason, or (ii) fair market value if termination is for any
      other reason. In the case of termination due to death or disability, or by
      EPL without cause or by the officer for good reason, this table assumes
      that CAC purchases all CAC shares held by the officer (including shares
      underlying vested options) and the amount represents the difference
      between the officer’s cost (exercise price in the case of option shares)
      and $70.05, the fair market value of CAC stock at December 31, 2008. No
      amounts are reported in the event of termination for cause or without good
      reason since the officer would be paid only his cost of the shares,
      resulting in no gain on the transaction. These purchase rights terminate
      upon the occurrence of an initial public offering of at least $50
      million.




(6)
            Upon
      a change in control of CAC (defined below), options become 100% vested.
      The dollar amount is zero because the exercise price of the options that
      would accelerate upon a change in control ($86.43) exceeds the fair market
      value of CAC stock on December 31, 2008 ($70.05). See the table
      “Outstanding Equity Awards at Fiscal Year-End
  2008.”




(7)
            The
      officer forfeits his or her options in the event of termination for
      cause.




Our
employment agreements with the Named Executive Officers contain definitions of
the terms “cause,” “good reason” and “disability” as used in the foregoing
table.





The
      term “cause” means any action by a Named Executive Officer that
      constitutes:




•
            Misconduct,
      dishonesty or failure to comply with specific directions of the board of
      directors (after a 20 day period to cure such misconduct or
      failure);




•
            A
      deliberate and premeditated act against the Company or its
      affiliates;




•
            The
      commission of a felony;




•
            Substance
      abuse or alcohol abuse which renders the officer unfit to perform his
      duties;




•
            A
      breach by the officer of non-competition and non-solicitation obligations
      contained in the employment agreement;
or





•
            Voluntary
      termination of employment in anticipation of being terminated for
      cause.




A
      Named Executive Officer may terminate his or her employment for “good
      reason” if:




•
            The
      officer is relocated outside of Orange County, California, and the Company
      fails to cure within 30 days of
notice;




•
            The
      officer’s title is reduced and the Company fails to cure within 30 days of
      notice;




46




•
            The
      Company fails to provide the officer with any of the employee benefits he
      is entitled to pursuant to his employment agreement and, except in the
      case of the CEO, the Company fails to cure within 30 days of
      notice;




•
            In
      the case of Mr. Carley only, (i) he is removed from the board of directors
      or is not re-elected to the board of directors at any time during his
      employment term; or (ii) the Company elects not to extend the term of his
      employment agreement for an additional year, provided that he will not
      have good reason to terminate his employment in this case until the
      expiration of the employment term in effect at the time that the Company
      elects not to extend the employment term;
or




•
            In
      the case of all Named Executive Officers other than Mr. Carley, the
      officer’s base salary (as increased from time to time) is reduced or there
      is a change in his reporting relationship and the Company fails to cure
      within 30 days of notice, or the officer resigns after reaching age
      60.




A
“disability” exists if an officer becomes physically or mentally incapacitated
and is therefore unable to perform his duties for a period of six (6)
consecutive months or for an aggregate of nine (9) months in any twenty-four
(24) consecutive month period. If the Company and officer cannot agree, a
qualified independent physician will decide whether a disability
exits.




Except
with respect to Mr. Carley, each Named Executive Officer’s right to receive base
salary payments for 12 months after termination by the Company without cause or
by the officer with good reason, is subject to the officer’s compliance with
non-competition, non-solicitation and confidentiality covenants contained in his
or her employment agreement. The non-competition provision generally prohibits
the officer for one year after termination from engaging in, working for, or
owning a financial interest in, any business that operates quick-service
restaurants that compete directly with EPL or its affiliates in any market in
which EPL or its affiliates operate restaurants or have targeted operating
restaurants at the time of the officer’s termination. The non-solicitation
covenant generally prohibits the officer from soliciting any employee or
consultant of the Company or its affiliates to cease working for the Company or
its affiliates, for a period of one year after the officer terminates
employment. The confidentiality provision prohibits the officer from disclosing
or using Company trade secrets or confidential information at any
time.




Pursuant
to the terms of our stock option agreements, upon the occurrence of a change in
control of CAC, options become fully vested and exercisable by the officer
immediately prior to the change in control, but contingent upon the
effectiveness of the change in control. If the options are not exercised, they
will automatically terminate on the effectiveness of the change in control
unless the surviving or acquiring company agrees to assume the options or to
substitute new options. A “change in control” of CAC exists when:




•
            Trimaran
      Fund II, LLC, Trimaran Parallel Fund II, LP, Trimaran Capital, LLC, CIBC
      Employee Private Equity Fund (Trimaran) Partners, CIBC Capital Corp.,
      Trimaran Pollo Partners, LLC (or any investment fund or other entity
      directly or indirectly controlled by or under common control with such
      entities) (the “Permitted Holders”) collectively fail to beneficially own
      at least 40% of the outstanding shares of CAC common stock, unless such
      failure occurs as a result of a public offering with an aggregate cash
      offering price of at least
$50,000,000;




•
            There
      is a sale of all or substantially all of the assets of CAC and its
      subsidiaries to a party other than a Permitted Holder;
  or




•
            The
      CAC stockholders approve a complete liquidation or dissolution of
      CAC.




Fiscal
2008 Director Compensation




Only
directors who our board has determined are independent are compensated by us for
their services as directors of the Company and EPL. We pay our independent
directors a fee of $2,500 per day for attendance at meetings of the board of
directors and the following fees for attending committee meetings that are held
on days other than days on which board meetings are held: $2,000 per meeting to
the chairman of a committee and $1,000 per meeting to other committee members.
All directors are reimbursed their reasonable expenses for attending meetings
and, pursuant to a Monitoring and Management Services Agreement, the Company
reimburses Trimaran Fund Management, LLC and Freeman Spogli & Co. V,
L.P. the travel and related expenses of their designees to our and CAC’s
board of directors. See “Item 13. Certain Relationships and Related Transactions
and Director Independence.”




47




Name
                          
                          Fees
      Earned or Paid in Cash
                            ($)
                          
                          Option
      Awards
                            ($)
                          
                          Total
                            ($)Douglas
      K. Ammerman
                          
                          
                          34,000
      (a)
                          
                          10,155
      (b)
                          
                          
                          44,155Peter
      A. Bassi
                          
                          
                          10,000
                          
                          -
                          
                          
                          10,000Dennis
      J. Lombardi
                          
                          
                          30,000
      (a)
                          
                          9,589
      (c)
                          
                          
                          39,589Steven
      Schulman
                          
                          
                          5,000
                          
                          -
                          
                          
                          5,000Jay
      R. Bloom, Andrew Heyer, Dean C. Kehler, Alberto Robaina,
                            John
      M. Roth and Griffin Whitney (d)
                          
                          
                          -
                          
                          -
                          
                          
                          -





(a)
            Pursuant
      to our Independent Director Stock Plan, Messrs. Ammerman and Lombardi
      elected to receive substantially all of their 2008 director fees in common
      stock of CAC. Shares are issued quarterly with respect to fees earned
      during the quarter and are valued based on the fair market value of CAC
      common stock on the last day of the applicable
  quarter.




(b)
            Mr.
      Ammerman’s options were granted on September 28, 2006 and vest 20% per
      year over the first five years after grant and 100% in the event of a
      public offering of at least $50 million or change in control of CAC. The
      fair value of the options on the date of grant ($49,981) and the
      compensation expense reported above were calculated using the guidance of
      SFAS 123R. The assumptions used in these calculations are described in
      Note 18 to our Consolidated Financial Statements. At December 31, 2008,
      Mr. Ammerman had 1,027 options with an exercise price of $108.92 per
      share.





(c)
            Mr.
      Lombardi’s options were granted prior to December 29, 2005, the date on
      which we adopted SFAS 123R. Therefore, to calculate the compensation
      expense reported above we used the “modified prospective transition
      approach” of SFAS 123R, by which the compensation expense represents a
      proportionate share of grant date value (determined per SFAS 123 using the
      minimum method) over the remaining vesting period. See Note 18 to our
      Consolidated Financial Statements for the assumptions used in these
      calculations. At December 31, 2008, Mr. Lombardi had 472 options with an
      exercise price of $2.98 per share which were initially granted prior to
      the Acquisition by CAC on November 18, 2005, were fully vested as of the
      date of the Acquisition, and were exchanged for CAC options in connection
      with the Acquisition. At December 31, 2008, Mr. Lombardi also had 2,225
      options with an exercise price of $86.43 per share, which vest 20% per
      year over the first five years after grant and 100% in the event of a
      public offering of at least $50 million or a change in control of CAC
      (grant date value of $67,120).




(d)
            All
      of these persons are designees of either Trimaran or the FS Parties
      (as defined below under “LLC Operating Agreement”) and are
      compensated as employees of affiliates of such companies for their
      services to such affiliates and not for their services to
    us.




In
October 2008, the Board of Directors of CAC adopted a Restricted Stock Plan
pursuant to which up to an aggregate of 5,000 shares of CAC common stock may be
awarded to independent directors as compensation for their
services.  The Company intends to award its independent directors
restricted stock having a value of $27,500 per year commencing 2009 in addition
to the meeting fees described above.  No restricted stock awards were
granted in 2008. Directors who own CAC stock are required to become parties to
the Stockholders Agreement described under “Compensation Committee Interlocks
and Insider Participation – Stockholders Agreement.”





Compensation
Committee Interlocks and Insider Participation




In 2008,
our compensation committee was comprised of Andrew Heyer, Dennis Lombardi and
John Roth. Mr. Heyer served as a Vice President of the Company until February
2008, but he is not an employee of the Company. Mr. Heyer serves as a director
as the designee of Trimaran Capital, LLC (“Trimaran”) and Mr. Roth serves as a
director as the designee of the FS Parties, pursuant to the LLC Operating
Agreement described below.




Certain
Relationships




The
Company and EPL are indirect wholly owned subsidiaries of CAC. The principal
stockholder of CAC is Trimaran Pollo Partners, LLC (the “LLC”). The remaining
..04% of the common stock of CAC and options to purchase stock of CAC are held by
the Company’s executive officers, directors Douglas Ammerman and Dennis
Lombardi, and certain other EPL employees (the “Management Stockholders”). The
LLC is controlled by Trimaran.




48




Company
directors Jay R. Bloom and Dean Kehler are Managing Partners and, together with
Andrew Heyer, are equal owners of Trimaran, which is the Managing Member of the
LLC. Messrs. Bloom and Kehler are the managing members and co-owners of Trimaran
Fund Management, LLC.




The
stockholders agreement, LLC operating agreement and monitoring and management
services agreement described below were each initially entered into in
connection with the LLC’s 2005 acquisition of the Company through
CAC.




Stockholders
Agreement




CAC, the
LLC and the Management Stockholders are parties to a stockholders agreement
dated November 18, 2005. The stockholders agreement generally restricts the
transfer of shares of CAC common stock and options by the parties, except for
certain transfers of shares for estate planning purposes and certain involuntary
transfers in connection with a default, foreclosure, forfeiture, divorce, court
order or otherwise than by a voluntary decision of the stockholder (so long as
CAC, and if CAC does not exercise its right, the other stockholders, have been
given the opportunity to purchase, pro rata, the common stock subject to such
involuntary transfer).




The
parties to the stockholders agreement have “tag-along” rights to sell their
shares, on a pro rata basis with the LLC, in significant sales by the LLC to
third parties. The LLC has “drag-along” rights to cause the other parties to the
stockholders agreement to sell their shares, on a pro rata basis with the LLC,
in significant sales by the LLC to third parties. Management Stockholders are
subject to “put” and “call” rights, which entitle these persons to require CAC
to purchase their shares or options, and which entitle CAC to require these
persons to sell their shares or options to CAC, upon certain terminations of the
party’s employment with the Company, at differing prices, depending upon the
circumstances of the termination. For a description of these provisions, see
“Item 11. Executive Compensation - Potential Payments Upon Termination or Change
in Control.” The stockholders agreement also includes pre-emptive rights in
favor of the LLC and the Management Stockholders with respect to the issuance of
certain equity securities by CAC or its subsidiaries, including the
Company.




The LLC
has the right to require CAC to effect a public offering of the Company’s, or
any other CAC subsidiary’s, common stock at an aggregate offering price of at
least $50,000,000. In such event, the LLC will have the right to designate all
material terms of such offering, including the underwriters to be retained. The
stockholders agreement also gives Trimaran and its affiliates and the FS Parties
(as defined below under “LLC Operating Agreement”) certain rights to request
that CAC register their shares under the Securities Act of 1933. In demand
registrations, the other parties to the stockholders agreement have certain
rights to participate on a pro rata basis.




The
stockholders agreement terminates upon the consummation of (1) an initial public
offering by CAC or its subsidiaries at an aggregate offering price of at least
$50,000,000 or (2) a sale of all or substantially all of the assets or equity
interests in CAC to a third party (whether by merger, consolidation, sale of
assets or securities or otherwise). The registration rights provisions of the
agreement, and certain other provisions, survive termination.




LLC
Operating Agreement




Pursuant
to the terms of the LLC’s Second Amended and Restated Limited Liability Company
Operating Agreement, dated March 8, 2006, as amended December 26,
2007  to add as members of the LLC FS Equity Partners V, L.P.
and FS Affiliates V, L.P. (jointly, the “FS Funds”) and Peter
Starrett (together with the FS Funds, the “FS Parties”),




·
            the
      LLC and its affiliates have the right to designate at least a majority of
      the directors of CAC (“Trimaran directors”);·
            the
      FS Parties have the right to appoint one director of CAC, the Company and
      EPL so long as they collectively hold 5% or more of the LLC’s membership
      units;·
            until
      the FS Parties hold less than 15% of the LLC’s membership
      units, their director designee is entitled to serve on the
      Company’s compensation committee;·
            the
      FS Parties  have certain observer rights with respect to board
      and committee meetings of CAC, the Company and EPL and the Company pays
      the costs of such observers to attend board and committee
      meetings;




·
            each
      other member of the LLC that holds at least a 15% interest in the LLC has
      the right to designate a director to the board of CAC;
  and




·
            the
      chief executive officer of El Pollo Loco Holdings, Inc. (our parent
      company), currently Stephen Carley (also the Company’s and EPL’s chief
      executive officer), must be elected a director of
  CAC.




The
operating agreement requires that the board of directors of each material
subsidiary of CAC consist of the same proportion of Trimaran directors and
non-Trimaran directors as that of the CAC board of directors and that such
directors be elected and appointed in the same manner as the CAC board.
Accordingly, pursuant to the operating agreement, Jay Bloom, Andrew Heyer, Dean
Kehler and Alberto Robaina (affiliates of Trimaran) and Griffin Whitney serve on
the Company’s and EPL’s board of directors as Trimaran directors, John Roth
serves as a director as the designee of the FS Parties, and Stephen Carley
serves as a non-Trimaran director.  Mr. Roth is a managing member of
FS Capital Partners V, LLC (which is the general partner of the FS
Funds).




49




The
operating agreement also requires the LLC to use its reasonable best efforts to
provide that directors and officers’ liability insurance maintained by CAC and
indemnification rights applicable to CAC directors are similarly maintained and
applicable to directors of CAC’s subsidiaries. The operating agreement will
terminate and the LLC will dissolve on the earlier of the election of the
managing member of the LLC or six years following an initial public offering by
CAC or any of its subsidiaries, such as the Company.




Monitoring
and Management Services Agreement




Under the
terms of a Monitoring and Management Services Agreement entered into on November
18, 2005, between CAC and Trimaran Fund Management, LLC (“Fund Management”), CAC
pays Fund Management an annual fee of $500,000, payable in quarterly
installments, for Fund Management to be available to provide advisory and
monitoring services to CAC and its subsidiaries, including the Company and EPL,
as requested by CAC. This agreement was amended on December 26, 2007, to add
Freeman Spogli & Co. V, L.P. (“FS”) as a party and to provide that Fund
Management and FS (the “Advisors”) will receive annual management fees of
$357,000 and $143,000, respectively. In addition, CAC must reimburse the
Advisors for all reasonable out of pocket expenses incurred by them in
connection with their services, including fees and expenses paid to third
parties and travel and related expenses of their designees who serve on the
board of CAC and the Company. The Company paid Fund Management and FS $380,000
and $150,000 respectively, in 2008 on behalf of CAC. Company director John Roth
is a managing member of the general partner of FS.




Fund
Management has a right of first offer to serve as financial advisor in
connection with any initial public offering, merger, sale of stock or
substantially all the assets, recapitalization, reorganization or similar
transaction by CAC or any of its subsidiaries, including the Company and EPL. If
Fund Management serves as a financial advisor in connection with any such
transaction, Fund Management and FS will receive a fee equal to 1.4286% and
..5714%, respectively, of the gross transaction value and reimbursement of
reasonable out-of-pocket expenses. If this agreement is terminated in connection
with an initial public offering by CAC or any of its subsidiaries, including the
Company or EPL, Fund Management and FS will be entitled to an additional
one-time fee of $1,786,000 and $714,000, respectively. CAC and its subsidiaries,
including the Company and EPL, must indemnify Fund Management and FS and their
affiliates and their respective partners, members, directors, officers,
employees and agents from any claims or liabilities arising in connection with
their services to CAC under the agreement, unless such claims or liabilities
result primarily from the gross negligence, willful misconduct or fraud of any
such person. This agreement continues in effect as to each Advisor until such
Advisor elects to terminate it.




Development
Agreement




Trimaran
and certain of its affiliates that are members of the LLC collectively
beneficially own about 70% and the FS Funds together beneficially own about
28% of Fiesta Brands, Inc. We entered into a development agreement with
Fiesta Brands on August 10, 2006. This development agreement gives Fiesta Brands
the right to develop 25 restaurants, with an option for 25 additional
restaurants, in Atlanta, Georgia and surrounding counties. Fiesta Brands paid
EPL a $250,000 fee upon execution of the agreement and must pay an additional
$250,000 fee to exercise the option. During 2008, Fiesta Brands opened 4
restaurants and is paying us franchise and other fees with respect to the 9
restaurants it operated at December 31, 2008 on the same terms as other
franchisees. This development agreement is, and the franchise agreements
executed when each restaurant is opened are on substantially the same terms
and conditions as those with non-affiliated franchisees and we believe that the
terms and conditions are no less favorable than we could have obtained from an
unaffiliated third party.




Agreements
Related to Litigation Appeal Bond





In
connection with our appeal of an adverse judgment in the case El Pollo Loco S.A. de C.V. v. El
Pollo Loco, Inc. described in Note 19 to our Consolidated Financial
Statements, EPL posted an appeal bond in the amount of $24,301,450. A portion of
the appeal bond was collateralized by a $17,900,000 letter of credit arranged by
Trimaran Fund II, LLC (“Trimaran Fund”). Trimaran Fund is a 20.6% member of the
LLC and an affiliate of Trimaran.





To
compensate Trimaran Fund for this accommodation, on December 19, 2007, EPL and
CAC entered into two agreements with Trimaran Fund: a Fee Agreement and a
Payment and Subscription Agreement. Pursuant to the Fee Agreement, in January
2008 EPL paid Trimaran Fund an up-front fee of $536,000, representing 3% of the
amount of the letter of credit. EPL also reimbursed Trimaran Fund $156,000 for
amounts it paid in connection with the letter of credit.




50




The
purpose of the Payment and Subscription Agreement was to provide for the
possibility that after all appeals EPL would have been required to pay the
judgments.  Both Agreements were terminated following the settlement
of the lawsuit in June 2008 and Trimaran refunded $277,000 of the $536,000
up-front fee to EPL.




Item
12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters




We hold
all of the outstanding common stock of EPL. All of our 100 outstanding common
shares are held by El Pollo Loco Holdings, Inc., which is indirectly wholly
owned by CAC.




Due to
its ownership of 99.6% of the outstanding common stock of CAC and its ability to
elect all of the directors of CAC, Trimaran Pollo Partners, LLC (the “LLC”) is
deemed to be the beneficial owner of 100% of our common stock. The address of
the LLC is 622 Third Avenue, 35 th Floor,
New York, New York 10017. The remaining .04% of CAC’s common stock is owned by
the Company’s executive officers, certain directors, and other EPL
employees.




The
managing member of the LLC, which has complete voting and management authority
for the LLC and the right to appoint a majority of the directors of CAC, the
Company and EPL, is Trimaran Capital, LLC (“Trimaran”). Trimaran is beneficially
owned one-third by each of Jay R. Bloom, Andrew Heyer and Dean Kehler, directors
of the Company. Messrs. Bloom, Heyer and Kehler disclaim beneficial ownership of
shares of CAC and the Company except to the extent of their pecuniary interest
therein.




None of
our equity securities are authorized for issuance under any equity compensation
plan.




Item
13. Certain Relationships and Related Transactions and Director
Independence




The
information set forth in “Item 11. Executive Compensation - Compensation
Committee Interlocks and Insider Participation” is incorporated herein by
reference.




Policy
Regarding Approval of Related Party Transactions




The
Company’s board of directors has adopted a written policy regarding approval of
related party transactions which requires that all “interested transactions”
with “related parties” shall be subject to approval or ratification by the
Company’s audit committee. In determining whether to approve an interested
transaction, the audit committee will take into account, among other factors it
deems appropriate, whether the transaction is on terms no less favorable than
terms generally available to an unaffiliated third party under the same or
similar circumstances, the extent of the related person’s interest in the
transaction, the benefits to the Company, and the impact, if any, of the
transaction on the independence of any director. No member of the audit
committee who has a direct or indirect interest in an interested transaction may
participate in the discussion or approval of such transaction.




The
policy defines an “interested transaction” as any transaction, arrangement or
relationship (or series of similar transactions, arrangements or relationships),
including indebtedness or guarantees of indebtedness, in which




•
            The
      aggregate amount involved will or may be expected to exceed $100,000 in
      any calendar year,




•
            The
      Company or any of its subsidiaries is a participant,
  and




•
            Any
      related party has or will have a direct or indirect interest (other than
      solely as a result of being a director or, together with all other related
      parties, being in the aggregate a less than 10% beneficial equity owner of
      another entity).




A
“related party” is an executive officer, a director or nominee for election as a
director, a greater than five percent (5%) beneficial owner of the Company’s
common stock, and any immediate family member (as such term is defined in the
SEC’s rules) of any of the foregoing.




The
policy provides that the following interested transactions are deemed to be
pre-approved by the audit committee without further action:




•
            Any
      director or executive officer compensation required to be disclosed in our
      SEC reports or that has been approved (or recommended to the board for
      approval) by our compensation committee;
and




•
            Any
      transaction that has been approved by El Pollo Loco Holdings, Inc. or CAC,
      our direct and indirect parent companies,
  respectively.




Director
Independence




51




In
determining the independence of our directors, we use the definition of
independence under the applicable rules of The Nasdaq Stock Market (“Nasdaq”);
however, our common stock is not listed on such exchange. Under these rules, we
would be considered a “controlled company” since more than 50% of our voting
power is held by another company. As a controlled company, we would be exempt
from the Nasdaq requirements that we have a nominating committee and that a
majority of our board and compensation committee be comprised of independent
directors. The Nasdaq rules would require us to have an audit committee
comprised of at least three members, all of whom are independent and meet
certain other requirements.




Based on
the Nasdaq definition of independence, our board of directors has determined
that Douglas Ammerman, Peter Bassi, Dennis Lombardi and Steven Shulman are
independent. Messers. Ammerman and Lombardi, together with Dean C. Kehler, who
is not independent, serve on our audit committee. Our compensation committee is
comprised of Mr. Lombardi, who is independent, and Andrew Heyer and John Roth,
who are not independent. We do not have a nominating committee.




Item
14. Principal Accounting Fees and Services




The
following fees were billed by Deloitte & Touche LLP (“Deloitte”) in 2007 and
2008:




Audit
Fees




Audit
fees for the audit of our 2007 annual financial statements and the review of the
financial statements included in our Quarterly Reports on Form 10-Q totaled
$455,000.




Audit
fees for the audit of our 2008 annual financial statements and the review of the
financial statements included in our Quarterly Reports on Form 10-Q in 2008
totaled $432,000.




Audit-Related
Fees




We were
not billed by Deloitte for any audit-related fees in 2007 and 2008.




Tax
Fees




Fees
billed to us by Deloitte for professional services for tax compliance, tax
advice and tax planning totaled $63,000 in 2007 and $99,000 in
2008.




The fees
disclosed under this category are comprised by services that include assistance
related to state tax incentives.




All
Other Fees




We did
not incur any other fees billed to us by Deloitte during 2008 and
2007.




Pre-Approval
Policies and Procedures




The Audit
Committee’s policy is to pre-approve all audit and permissible non-audit
services performed by the independent auditors. These services may include audit
services, audit-related services, tax services and other services. For audit
services, the independent auditor provides an engagement letter in advance of
the February meeting of the Audit Committee, outlining the scope of the audit
and related audit fees. If agreed to by the Audit Committee, this engagement
letter is formally accepted by the Audit Committee at its February Audit
Committee meeting.




For
non-audit services, our senior management submits from time to time to the Audit
Committee for pre-approval non-audit services that it recommends the Audit
Committee engage the independent auditor to provide for the fiscal year. Our
senior management and the independent auditor each confirms to the Audit
Committee that each non-audit service is permissible under all applicable legal
requirements. A budget, estimating non-audit service spending for the fiscal
year, is provided to the Audit Committee along with the request. The Audit
Committee must pre-approve both permissible non-audit services and the budget
for such services. The Audit Committee is informed routinely as to the non-audit
services actually provided by the independent auditor pursuant to this
pre-approval process.




The Audit
Committee approved all of the services provided by Deloitte described above and
determined that the provision of the non-audit services listed above was
compatible with maintaining the independence of Deloitte & Touche L.L.P.




PART IV




52




Item 15. Exhibits, Financial Statement
Schedules




(a) 1.
and 2. Financial Statements and Schedules




The
financial statements listed below which appear on the pages indicated are filed
as part of this annual report. Financial statement schedules are omitted because
they are not required or are not applicable or the required information is
provided in the financial statements or notes thereto.




Index to Financial
Statements




PageReport
      of Independent Registered Public Accounting Firm
                
                F-1Consolidated
      Balance Sheets as of December 26, 2007 and December 31,
    2008
                
                F-2Consolidated
      Statements of Operations for the Years Ended December 27, 2006, December
      26, 2007 and December 31, 2008
                
                F-4Consolidated
      Statements of Stockholder’s Equity (Deficiency) for the Years Ended
      December 27, 2006, December 26, 2007 and December 31, 2008
                
                F-5Consolidated
      Statements of Cash Flows for the Years Ended December 27,2006, December
      26, 2007 and December 31, 2008
                
                F-6Notes
      to Consolidated Financial Statements
                
                F-8




3. Exhibits - See the Exhibit
Index which follows the financial statements included in this Report for a list
of exhibits. The Exhibit Index is incorporated herein by this
reference.





53




SIGNATURES




Pursuant
to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




March
      31, 2009
              EPL
      INTERMEDIATE, INC.By:
              /s/
      Gary CampanaroGary
      CampanaroSenior
      Vice President




Pursuant
to the requirements of the Securities and Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant in the
capacities and on the dates indicated.





Signature
                                              
                                              Title
                                              
                                              Date/s/
      Stephen E. Carley
                                              
                                              President
      (Principal Executive Officer), Director
                                              
                                              March
      31, 2009Stephen
      E. Carley/s/
      Joseph Stein
                                              
                                              Senior
      Vice President
                                              
                                              March
      31, 2009Joseph
      Stein/s/
      Gary Campanaro
                                              
                                              Senior
      Vice President of Finance, Chief Financial Officer (Principal
                                              
                                              March
      31, 2009Gary
      Campanaro
                                              
                                              Financial and Accounting Officer)/s/
      Douglas K. Ammerman
                                              
                                              Director
                                              
                                              March
      31, 2009Douglas
      K. Ammerman/s/
      Jay R. Bloom
                                              
                                              Director
                                              
                                              March
      31, 2009Jay
      R. Bloom/s/
      Andrew R. Heyer
                                              
                                              Director
                                              
                                              March
      31, 2009Andrew
      R. Heyer/s/
      Dean C. Kehler
                                              
                                              Director
                                              
                                              March
      31, 2009Dean
      C. Kehler/s/
      Dennis Lombardi
                                              
                                              Director
                                              
                                              March
      31, 2009Dennis
      Lombardi/s/
      Alberto Robaina
                                              
                                              Director
                                              
                                              March
      31, 2009Alberto
      Robaina/s/
      John M. Roth
                                              
                                              Director
                                              
                                              March
      31, 2009John
      M. Roth/s/
      Griffin Whitney
                                              
                                              Director
                                              
                                              March
      31, 2009Griffin
      Whitney/s/
      Peter A. Bassi
                                              
                                              Director
                                              
                                              March
      31, 2009Peter
      A. Bassi/s/
      Steven Shulman
                                              
                                              Director
                                              
                                              March
      31, 2009Steven
      Shulman




54




REPORT
OF MANAGEMENT ON INTERNAL CONTROLS





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f)
under the Securities Exchange Act of 1934. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. All
internal control systems, no matter how well designed, have inherent
limitations. Therefore, even those systems determined to be effective can
provide only reasonable assurance with respect to financial reporting, and
misstatements may not be prevented or detected.





Management
has assessed the effectiveness of our internal control over financial reporting
as of December 31, 2008. In making its assessment of internal control over
financial reporting, management used the criteria set forth in Internal Control
- Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (COSO).





Our
Management has concluded that based on our assessment, as of December 31, 2008,
our internal control over financial reporting was effective.




This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by such accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that
permit the Company to provide only management’s report in the annual
report.





55







REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM




To the
Board of Directors and Stockholders of


EPL
Intermediate, Inc.


Costa
Mesa, California





We have
audited the accompanying consolidated balance sheets of EPL Intermediate, Inc.
and its subsidiary (the “Company”), a wholly owned subsidiary of El Pollo Loco
Holdings, Inc., as of December 31, 2008, and December 26, 2007, and the related
consolidated statements of operations, stockholders’ equity, and cash flows for
each of the years ended December 31, 2008, December 26, 2007 and December 27,
2006. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.





In
our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 2008
and December 26, 2007, and the results of its operations and its cash flows for
each of the years ended December 31, 2008, December 26, 2007 and December 27,
2006, in conformity with accounting principles generally accepted in the United
States of America.




/s/
DELOITTE & TOUCHE LLP




Costa
      Mesa, CaliforniaMarch
      31, 2009




F-1




EPL
      INTERMEDIATE, INC.(A
      Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)CONSOLIDATED
      BALANCE SHEETS(Amounts
      in thousands)
  DECEMBER
      26,
                                                          
                                                          
                                                          DECEMBER
      31,ASSETS
                                                          
                                                          2007
                                                          
                                                          
                                                          2008CURRENT
      ASSETS:Cash and cash
      equivalents
                                                          
                                                          $
                                                          3,841
                                                          
                                                          
                                                          $
                                                          1,076Accounts
      receivable--net
                                                          
                                                          
                                                          3,631
                                                          
                                                          
                                                          
                                                          4,472Inventories
                                                          
                                                          
                                                          1,778
                                                          
                                                          
                                                          
                                                          1,756Prepaid
      expenses and other current assets
                                                          
                                                          
                                                          3,674
                                                          
                                                          
                                                          
                                                          4,640Income taxes
      receivable
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          43Deferred income
      taxes
                                                          
                                                          
                                                          2,357
                                                          
                                                          
                                                          
                                                          1,740Total current
      assets
                                                          
                                                          
                                                          15,281
                                                          
                                                          
                                                          
                                                          13,727PROPERTY
      OWNED--Net
                                                          
                                                          
                                                          82,217
                                                          
                                                          
                                                          
                                                          84,321PROPERTY
      HELD UNDER CAPITALLEASES--Net
                                                          
                                                          
                                                          1,105
                                                          
                                                          
                                                          
                                                          732GOODWILL
                                                          
                                                          
                                                          276,911
                                                          
                                                          
                                                          
                                                          252,418DOMESTIC
      TRADEMARKS
                                                          
                                                          
                                                          120,700
                                                          
                                                          
                                                          
                                                          103,100OTHER
      INTANGIBLE ASSETS--Net
                                                          
                                                          
                                                          10,607
                                                          
                                                          
                                                          
                                                          9,157OTHER
      ASSETS
                                                          
                                                          
                                                          9,607
                                                          
                                                          
                                                          
                                                          6,310TOTAL
      ASSETS
                                                          
                                                          $
                                                          516,428
                                                          
                                                          
                                                          $
                                                          469,765See
      notes to consolidated financial statements.
                                                          
                                                          
                                                          
                                                          
                                                          
                                                          (continued)
  F-2
  EPL
      INTERMEDIATE, INC.(A
      Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)CONSOLIDATED
      BALANCE SHEETS(Amounts
      in thousands, except share data)
  DECEMBER
      26,
                                                                    
                                                                    
                                                                    DECEMBER
      31,2007
                                                                    
                                                                    
                                                                    2008LIABILITIES
      AND STOCKHOLDER'S EQUITYCURRENT
      LIABILITIES:Revolving credit
      facility
                                                                    
                                                                    $
                                                                    2,500
                                                                    
                                                                    
                                                                    $
                                                                    5,000Current portion of note
      payable
                                                                    
                                                                    
                                                                    1,035
                                                                    
                                                                    
                                                                    
                                                                    5,889Current portion of senior secured
      notes
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    250Current portion of obligations
      undercapital
    leases
                                                                    
                                                                    
                                                                    1,241
                                                                    
                                                                    
                                                                    
                                                                    601Accounts
      payable
                                                                    
                                                                    
                                                                    13,203
                                                                    
                                                                    
                                                                    
                                                                    12,441Accrued
      salaries
                                                                    
                                                                    
                                                                    3,725
                                                                    
                                                                    
                                                                    
                                                                    3,410Accrued
      vacation
                                                                    
                                                                    
                                                                    1,936
                                                                    
                                                                    
                                                                    
                                                                    2,075Accrued
      insurance
                                                                    
                                                                    
                                                                    1,412
                                                                    
                                                                    
                                                                    
                                                                    1,723Accrued income taxes
      payable
                                                                    
                                                                    
                                                                    102
                                                                    
                                                                    
                                                                    
                                                                    -Accrued
      interest
                                                                    
                                                                    
                                                                    1,934
                                                                    
                                                                    
                                                                    
                                                                    1,658Accrued
      advertising
                                                                    
                                                                    
                                                                    180
                                                                    
                                                                    
                                                                    
                                                                    380Other accrued expenses and
      current liabilities
                                                                    
                                                                    
                                                                    5,076
                                                                    
                                                                    
                                                                    
                                                                    6,196Total current
      liabilities
                                                                    
                                                                    
                                                                    32,344
                                                                    
                                                                    
                                                                    
                                                                    39,623NONCURRENT
      LIABILITIES:Senior secured notes (2009
      Notes)
                                                                    
                                                                    
                                                                    250
                                                                    
                                                                    
                                                                    
                                                                    -Senior unsecured notes payable
      (2013 Notes)
                                                                    
                                                                    
                                                                    123,843
                                                                    
                                                                    
                                                                    
                                                                    108,163PIK Notes (2014
      Notes)
                                                                    
                                                                    
                                                                    30,274
                                                                    
                                                                    
                                                                    
                                                                    25,980Note payable--less current
      portion
                                                                    
                                                                    
                                                                    100,418
                                                                    
                                                                    
                                                                    
                                                                    93,464Obligations under capital
      leases--lesscurrent
      portion
                                                                    
                                                                    
                                                                    2,706
                                                                    
                                                                    
                                                                    
                                                                    2,104Deferred income
      taxes
                                                                    
                                                                    
                                                                    38,864
                                                                    
                                                                    
                                                                    
                                                                    26,136Other intangible
      liabilities--net
                                                                    
                                                                    
                                                                    6,047
                                                                    
                                                                    
                                                                    
                                                                    4,883Other noncurrent
      liabilities
                                                                    
                                                                    
                                                                    9,371
                                                                    
                                                                    
                                                                    
                                                                    12,832Total noncurrent
      liabilities
                                                                    
                                                                    
                                                                    311,773
                                                                    
                                                                    
                                                                    
                                                                    273,562COMMITMENTS
      AND CONTINGENCIESSTOCKHOLDER'S
      EQUITYCommon stock, $.01 par
      value--20,000 sharesauthorized;
      100 shares issued and outstanding
                                                                    
                                                                    
                                                                    -
                                                                    
                                                                    
                                                                    
                                                                    -Additional
      paid-in-capital
                                                                    
                                                                    
                                                                    176,296
                                                                    
                                                                    
                                                                    
                                                                    200,046Accumulated
      Deficit
                                                                    
                                                                    
                                                                    (3,985
                                                                    )
                                                                    
                                                                    
                                                                    (43,466
                                                                    )Total stockholder's
      equity
                                                                    
                                                                    
                                                                    172,311
                                                                    
                                                                    
                                                                    
                                                                    156,580TOTAL
                                                                    
                                                                    $
                                                                    516,428
                                                                    
                                                                    
                                                                    $
                                                                    469,765See
      notes to consolidated financial statements.
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    
                                                                    (concluded)
   F-3
 
  EPL
      INTERMEDIATE, INC.(A
      Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)CONSOLIDATED
      STATEMENTS OF OPERATIONS(Amounts
      in thousands)
  Years
      EndedDecember
      27,
                                                                                              
                                                                                              
                                                                                              December
      26,
                                                                                              
                                                                                              
                                                                                              December
      31,2006
                                                                                              
                                                                                              
                                                                                              2007
                                                                                              
                                                                                              
                                                                                              2008OPERATING
      REVENUE:Restaurant
      revenue
                                                                                              
                                                                                              $
                                                                                              242,571
                                                                                              
                                                                                              
                                                                                              $
                                                                                              259,987
                                                                                              
                                                                                              
                                                                                              $
                                                                                              278,343Franchise
      revenue
                                                                                              
                                                                                              
                                                                                              17,317
                                                                                              
                                                                                              
                                                                                              
                                                                                              19,038
                                                                                              
                                                                                              
                                                                                              
                                                                                              20,587Total operating
      revenue
                                                                                              
                                                                                              
                                                                                              259,888
                                                                                              
                                                                                              
                                                                                              
                                                                                              279,025
                                                                                              
                                                                                              
                                                                                              
                                                                                              298,930OPERATING
      EXPENSES:Product
    cost
                                                                                              
                                                                                              
                                                                                              76,151
                                                                                              
                                                                                              
                                                                                              
                                                                                              81,233
                                                                                              
                                                                                              
                                                                                              
                                                                                              89,442Payroll and
      benefits
                                                                                              
                                                                                              
                                                                                              61,601
                                                                                              
                                                                                              
                                                                                              
                                                                                              67,545
                                                                                              
                                                                                              
                                                                                              
                                                                                              73,139Depreciation and
      amortization
                                                                                              
                                                                                              
                                                                                              10,333
                                                                                              
                                                                                              
                                                                                              
                                                                                              11,947
                                                                                              
                                                                                              
                                                                                              
                                                                                              13,007Other operating
      expenses
                                                                                              
                                                                                              
                                                                                              81,281
                                                                                              
                                                                                              
                                                                                              
                                                                                              90,074
                                                                                              
                                                                                              
                                                                                              
                                                                                              106,304Goodwill and domestic trademarks
      impairment
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              42,093Total operating
      expenses
                                                                                              
                                                                                              
                                                                                              229,366
                                                                                              
                                                                                              
                                                                                              
                                                                                              250,799
                                                                                              
                                                                                              
                                                                                              
                                                                                              323,985OPERATING
      INCOME (LOSS)
                                                                                              
                                                                                              
                                                                                              30,522
                                                                                              
                                                                                              
                                                                                              
                                                                                              28,226
                                                                                              
                                                                                              
                                                                                              
                                                                                              (25,055
                                                                                              )INTEREST
      EXPENSE--Net of interest incomeof $413, $384 and $260 for the
      periods endedDecember 27, 2006, December 26,
      2007and December 31, 2008
      respectively
                                                                                              
                                                                                              
                                                                                              28,813
                                                                                              
                                                                                              
                                                                                              
                                                                                              29,167
                                                                                              
                                                                                              
                                                                                              
                                                                                              26,003OTHER
      EXPENSE
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              2,043OTHER
      INCOME
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              -
                                                                                              
                                                                                              
                                                                                              
                                                                                              (1,570
                                                                                              )INCOME
      (LOSS) BEFORE PROVISIONFOR INCOME
      TAXES
                                                                                              
                                                                                              
                                                                                              1,709
                                                                                              
                                                                                              
                                                                                              
                                                                                              (941
                                                                                              )
                                                                                              
                                                                                              
                                                                                              (51,531
                                                                                              )PROVISION
      (BENEFIT) FOR INCOME TAXES
                                                                                              
                                                                                              
                                                                                              1,072
                                                                                              
                                                                                              
                                                                                              
                                                                                              3,093
                                                                                              
                                                                                              
                                                                                              
                                                                                              (12,050
                                                                                              )NET
      INCOME (LOSS)
                                                                                              
                                                                                              $
                                                                                              637
                                                                                              
                                                                                              
                                                                                              $
                                                                                              (4,034
                                                                                              )
                                                                                              
                                                                                              $
                                                                                              (39,481
                                                                                              )See
      notes to consolidated financial statements.
   F-4
  EPL
      INTERMEDIATE, INC.(A
      Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)CONSOLIDATED
      STATEMENT OF STOCKHOLDER'S EQUITY(Amounts
      in thousands, except share data)
  RetainedAdditional
                                                            
                                                            
                                                            EarningsCommon
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            Paid-in
                                                            
                                                            
                                                            (AccumulatedShares
                                                            
                                                            
                                                            Amount
                                                            
                                                            
                                                            Capital
                                                            
                                                            
                                                            Deficit)
                                                            
                                                            
                                                            TotalBALANCE,
      DECEMBER 28, 2005
                                                            
                                                            
                                                            100
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            172,279
                                                            
                                                            
                                                            
                                                            (588
                                                            )
                                                            
                                                            
                                                            171,691Stock-based
      compensation
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            358
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            358Exercise
      of stock options
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            50
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            50Repurchase
      of common stock
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (22
                                                            )
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (22
                                                            )Net
      income
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            637
                                                            
                                                            
                                                            
                                                            637BALANCE,
      DECEMBER 27, 2006
                                                            
                                                            
                                                            100
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            172,665
                                                            
                                                            
                                                            
                                                            49
                                                            
                                                            
                                                            
                                                            172,714Stock-based
      compensation
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            754
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            754Tax
      benefit from exercise / cancellation of stock options
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (69
                                                            )
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (69
                                                            )Repurchase
      of common stock
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (54
                                                            )
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (54
                                                            )Capital
      contribution
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            3,000
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            3,000Net
      loss
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (4,034
                                                            )
                                                            
                                                            
                                                            (4,034
                                                            )BALANCE,
      DECEMBER 26, 2007
                                                            
                                                            
                                                            100
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            176,296
                                                            
                                                            
                                                            
                                                            (3,985
                                                            )
                                                            
                                                            
                                                            172,311Stock-based
      compensation
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            768
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            768Repurchase
      of common stock
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (78
                                                            )
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            (78
                                                            )Tax
      benefit from exercise / cancellation of stock options
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            68
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            68Proceeds
      from issuance of common stock
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            50
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            50Capital
      contribution
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            22,942
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            22,942Net
      loss
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            (39,481
                                                            )
                                                            
                                                            
                                                            (39,481
                                                            )BALANCE,
      DECEMBER 31, 2008
                                                            
                                                            
                                                            100
                                                            
                                                            
                                                            
                                                            -
                                                            
                                                            
                                                            
                                                            200,046
                                                            
                                                            
                                                            
                                                            (43,466
                                                            )
                                                            
                                                            
                                                            156,580See
      notes to consolidated financial statements.
  F-5
 EPL
      INTERMEDIATE, INC.(A
      Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)CONSOLIDATED
      STATEMENTS OF CASH FLOWS(Amounts
      in thousands)




Years
      EndedDecember
      27,
                                            
                                            
                                            December
      26,
                                            
                                            
                                            December
      31,2006
                                            
                                            
                                            2007
                                            
                                            
                                            2008CASH
      FLOWS FROM OPERATINGACTIVITIES:Net
      income (loss)
                                            
                                            $
                                            637
                                            
                                            
                                            $
                                            (4,034
                                            )
                                            
                                            $
                                            (39,481
                                            )Adjustments
      to reconcile net income (loss) to netcash
      provided by operating activities:Depreciation
      and amortization
                                            
                                            
                                            10,333
                                            
                                            
                                            
                                            11,947
                                            
                                            
                                            
                                            13,007Stock-based
      compensation expense
                                            
                                            
                                            358
                                            
                                            
                                            
                                            754
                                            
                                            
                                            
                                            768Interest
      accretion
                                            
                                            
                                            3,651
                                            
                                            
                                            
                                            4,152
                                            
                                            
                                            
                                            3,773(Gain)
      loss on disposal of assets
                                            
                                            
                                            4
                                            
                                            
                                            
                                            2,558
                                            
                                            
                                            
                                            (538
                                            )Gain
      on repurchase of bonds
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (1,570
                                            )Asset
      impairment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            1,919Goodwill
      and domestic trademarks impairment
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            42,093Amortization
      of deferred financing costs
                                            
                                            
                                            1,367
                                            
                                            
                                            
                                            1,391
                                            
                                            
                                            
                                            1,355Amortization
      of favorable / unfavorable leases
                                            
                                            
                                            (344
                                            )
                                            
                                            
                                            (469
                                            )
                                            
                                            
                                            (172
                                            )Deferred
      income taxes
                                            
                                            
                                            585
                                            
                                            
                                            
                                            2,990
                                            
                                            
                                            
                                            (12,111
                                            )Excess
      tax benefits related to exercise / cancellation of stock
      options
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (69
                                            )
                                            
                                            
                                            (68
                                            )Litigation
      settlement
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            10,942Change
      in fair value of interest rate swap
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            2,049Changes
      in operating assets and liabilities:Notes
      and accounts receivable--net
                                            
                                            
                                            (566
                                            )
                                            
                                            
                                            (67
                                            )
                                            
                                            
                                            (841
                                            )Inventories
                                            
                                            
                                            (188
                                            )
                                            
                                            
                                            (218
                                            )
                                            
                                            
                                            22Prepaid
      expenses and other current assets
                                            
                                            
                                            (646
                                            )
                                            
                                            
                                            161
                                            
                                            
                                            
                                            (966
                                            )Income
      taxes receivable / payable
                                            
                                            
                                            3,757
                                            
                                            
                                            
                                            170
                                            
                                            
                                            
                                            (145
                                            )Other
      assets
                                            
                                            
                                            67
                                            
                                            
                                            
                                            (230
                                            )
                                            
                                            
                                            1,241Accounts
      payable
                                            
                                            
                                            (638
                                            )
                                            
                                            
                                            3,051
                                            
                                            
                                            
                                            (226
                                            )Accrued
      salaries and vacation
                                            
                                            
                                            (413
                                            )
                                            
                                            
                                            162
                                            
                                            
                                            
                                            (176
                                            )Accrued
      insurance
                                            
                                            
                                            330
                                            
                                            
                                            
                                            (2,457
                                            )
                                            
                                            
                                            311Other
      accrued expenses and current and noncurrent liabilities
                                            
                                            
                                            2,449
                                            
                                            
                                            
                                            3,337
                                            
                                            
                                            
                                            2,524Net
      cash provided by operating activities
                                            
                                            
                                            20,743
                                            
                                            
                                            
                                            23,129
                                            
                                            
                                            
                                            23,710CASH
      FLOW FROM INVESTINGACTIVITIES:Proceeds
      from asset disposition
                                            
                                            
                                            2
                                            
                                            
                                            
                                            8,035
                                            
                                            
                                            
                                            1,080Purchase
      of franchise restaurants
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (8,358
                                            )
                                            
                                            
                                            -Purchase
      of property
                                            
                                            
                                            (14,022
                                            )
                                            
                                            
                                            (20,747
                                            )
                                            
                                            
                                            (17,455
                                            )Payment
      of acquisition costs
                                            
                                            
                                            (5,073
                                            )
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Net
      cash used in investing activities
                                            
                                            
                                            (19,093
                                            )
                                            
                                            
                                            (21,070
                                            )
                                            
                                            
                                            (16,375
                                            )CASH
      FLOWS FROM FINANCINGACTIVITIES:Proceeds
      from issuance of common stock
                                            
                                            
                                            50
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            50Repurchase
      of common stock
                                            
                                            
                                            (22
                                            )
                                            
                                            
                                            (54
                                            )
                                            
                                            
                                            (78
                                            )Excess
      tax benefits related to exercise / cancellation of stock
      options
                                            
                                            
                                            -
                                            
                                            
                                            
                                            69
                                            
                                            
                                            
                                            68Capital
      contribution
                                            
                                            
                                            -
                                            
                                            
                                            
                                            3,000
                                            
                                            
                                            
                                            12,000Proceeds
      from borrowings
                                            
                                            
                                            6,500
                                            
                                            
                                            
                                            17,000
                                            
                                            
                                            
                                            9,000Payment
      of obligations under capital leases
                                            
                                            
                                            (1,219
                                            )
                                            
                                            
                                            (1,252
                                            )
                                            
                                            
                                            (1,044
                                            )Payments
      on debt
                                            
                                            
                                            (7,059
                                            )
                                            
                                            
                                            (19,763
                                            )
                                            
                                            
                                            (8,600
                                            )Repurchase
      of notes
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            (21,496
                                            )Deferred
      financing costs
                                            
                                            
                                            (497
                                            )
                                            
                                            
                                            (173
                                            )
                                            
                                            
                                            -Net
      cash used in financing activities
                                            
                                            
                                            (2,247
                                            )
                                            
                                            
                                            (1,173
                                            )
                                            
                                            
                                            (10,100
                                            )See
      notes to consolidated financial statements.
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            (continued)




F-6




EPL
      INTERMEDIATE, INC.(A
      Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)CONSOLIDATED
      STATEMENTS OF CASH FLOWS(Amounts
      in thousands)




Years
      EndedDecember
27,
                                    2006
                                  
                                  
                                  December
      26,
                                    2007
                                  
                                  
                                  December
      31,
                                    2008INCREASE
      (DECREASE) IN CASH ANDCASH
      EQUIVALENTS
                                  
                                  $
                                  (597
                                  )
                                  
                                  $
                                  886
                                  
                                  
                                  $
                                  (2,765
                                  )CASH
      AND CASH EQUIVALENTS--Beginning
      of period
                                  
                                  
                                  3,552
                                  
                                  
                                  
                                  2,955
                                  
                                  
                                  
                                  3,841CASH
      AND CASH EQUIVALENTS--End
      of period
                                  
                                  $
                                  2,955
                                  
                                  
                                  $
                                  3,841
                                  
                                  
                                  $
                                  1,076SUPPLEMENTAL
      DISCLOSURE OF CASH FLOWINFORMATION--Cash
      paid during the period for:Interest
      (net of amounts capitalized)
                                  
                                  $
                                  24,401
                                  
                                  
                                  $
                                  25,025
                                  
                                  
                                  $
                                  21,624Income
      taxes
                                  
                                  $
                                  125
                                  
                                  
                                  $
                                  38
                                  
                                  
                                  $
                                  165SUPPLEMENTAL
      SCHEDULE OF NON-CASH ACTIVITIES:Litigation
      settlement paid by Chicken Acquisition Corp. on behalf of
    theCompany,
      treated as a capital contribution
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  -
                                  
                                  
                                  $
                                  10,942




In 2007,
the Company acquired three restaurants from a franchisee for total consideration
of $8,500,000. The Company's allocation of the purchase price to the fair value
of the acquired assets is as follows: equipment, $0.1 million, favorable lease,
$0.2 million, and goodwill, $8.2 million.
 
 As of
December 27, 2006, December 26, 2007 and December 31, 2008, the Company had
included in accounts payable $1,027,000 $1,358,000 and $822,000 respectively,
for the purchase of property and equipment
 
 See notes
to consolidated financial statements.
 (concluded)




F-7




EPL
INTERMEDIATE, INC.


(A
Wholly Owned Subsidiary of El Pollo Loco Holdings, Inc.)




NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS




1.
DESCRIPTION OF BUSINESS




EPL
Intermediate, Inc. (“Intermediate”) and subsidiary (collectively, the “Company”)
is a Delaware corporation headquartered in Costa Mesa, California. The Company’s
activities are conducted principally through its subsidiary, El Pollo Loco, Inc.
(“EPL”), which develops, franchises, licenses and operates quick-service
restaurants under the name El Pollo Loco®. The restaurants, which are located
principally in California but also in Arizona, Colorado, Connecticut, Georgia,
Illinois, Massachusetts, Nevada, Oregon, Texas, Utah, Virginia and Washington,
specialize in flame-grilled chicken in a wide variety of contemporary
Mexican-influenced entrees, including specialty chicken burritos, chicken
quesadillas, chicken tortilla soup, Pollo Bowls and Pollo Salads. At
December 31, 2008, the Company operated 165 (130 in the greater Los Angeles
area) and franchised 248 (140 in the greater Los Angeles area) El Pollo Loco
restaurants. The Company is a wholly owned subsidiary of El Pollo Loco Holdings,
Inc. (“Holdings”). Holdings is an indirect wholly owned subsidiary of Chicken
Acquisition Corp. ("CAC"). The Company was acquired by CAC on November 17, 2005
(the “Acquisition”).




As a
holding company, the stock of EPL constitutes Intermediate’s only material
asset. Consequently, EPL conducts all of the Company’s consolidated operations
and owns substantially all of the consolidated operating assets. Intermediate
has no independent assets or operations; Intermediate’s guarantee of EPL’s
11 3/4% Senior Notes due 2013 is full and unconditional and Intermediate
has no subsidiaries other than EPL. The Company’s principal source of the cash
required to pay its obligations is the cash that EPL generates from its
operations. EPL is a separate and distinct legal entity, has no obligation to
make funds available to Intermediate, and currently has restrictions that limit
distributions or dividends to be paid by EPL to Intermediate.




2.
EQUITY INVESTMENT IN CHICKEN ACQUISITION CORPORATION




The
Company is a wholly owned indirect subsidiary of CAC, which is 99.6% owned by
Trimaran Pollo Partners, LLC (the “LLC”) (which is controlled by affiliates of
Trimaran Capital, LLC). The LLC’s only material asset is its investment in CAC.
CAC’s only material asset, other than cash from the investment described below,
is its investment in Intermediate.




On
December 26, 2007, the Company entered into a Unit Purchase Agreement with the
LLC, CAC, EPL, FS Equity Partners V, L.P. (“FSEP V”), FS Affiliates V, L.P.
(“FSA V”), Peter Starrett (“Starrett” and collectively with FSEP V and FSA V,
the “Purchasers”), and certain members of the LLC (the “Unit Purchase
Agreement”). Pursuant to the Unit Purchase Agreement, the Purchasers acquired
409,091 membership units from the LLC, for an aggregate purchase price of $45
million. The LLC contributed the proceeds of this sale to CAC in consideration
for 409,091 newly issued CAC shares. The LLC owned 1,910,753 CAC shares prior to
the transaction and 2,319,844 CAC shares after the transaction, representing
99.6% of CAC’s outstanding shares. CAC paid various fees and
expenses related to this transaction of approximately $1.8
million.




On
December 26, 2007, CAC made a $3 million capital contribution to EPL through
intermediary subsidiaries. On January 25, 2008, CAC made an $8 million capital
contribution to the Company. The Company used $7.8 million of these proceeds to
repurchase outstanding 14.5% senior discount notes due 2014 (see Note 13) at a
price that approximated their accreted net book value. In May of 2008, CAC made
a $4.0 million capital contribution to the Company that was used for normal
operating purposes.  On June 18, 2008 we settled the Mexico Litigation
as described in Note 19.  The settlement payment of $10,722,860 was
paid by CAC on behalf of EPL.  This payment is accounted for as a
capital contribution by CAC to EPL.  The Company expects that CAC will
make future capital contributions (up to approximately $17 million) to the
Company and EPL for general corporate purposes.




3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Basis of
Presentation —The
Company uses a 52- or 53-week fiscal year ending on the last Wednesday of the
calendar year. In a 52-week fiscal year, each quarter includes 13 weeks of
operations; in a 53-week fiscal year, the first, second and third quarters each
include 13 weeks of operations and the fourth quarter includes 14 weeks of
operations. Approximately every six or seven years a 53-week fiscal year occurs.
Fiscal 2008, which ended December 31, 2008, was a 53-week fiscal year. Fiscal
years 2006 and 2007, which were 52-week years, ended December 27, 2006 and
December 26, 2007, respectively. The accompanying consolidated balance sheets
present the Company’s financial position as of December 26, 2007 and
December 31, 2008. The accompanying consolidated statements of operations,
stockholder’s equity and cash flows present the years ended December 27, 2006,
December 26, 2007 and December 31, 2008.




F-8




Principles of
Consolidation —
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary. All significant intercompany balances
and transactions have been eliminated in consolidation.




Cash and Cash
Equivalents — The
Company considers all highly liquid instruments with a maturity of three months
or less at the date of purchase to be cash equivalents.




Accounts
Receivable - Net — Notes and accounts
receivable consist primarily of royalties, advertising and sublease rent and
related amounts receivable from franchisees, which are due on a monthly basis
that may differ from the Company’s month-end dates.




Inventories
— Inventories consist
principally of food, beverages and paper supplies and are valued at the lower of
average cost or market.




Property
Owned — Net — Property is stated at cost
and is depreciated using the straight-line method over the estimated useful
lives of the assets. Leasehold improvements and property held under capital
leases are amortized over the shorter of their estimated useful lives or the
remaining lease terms. For leases with renewal periods at the Company’s option,
the Company generally uses the original lease term, excluding the option
periods, to determine estimated useful lives; if failure to exercise a renewal
option imposes an economic penalty on the Company, such that management
determines at the inception of the lease that renewal is reasonably assured, the
Company includes the renewal option period in the determination of appropriate
estimated useful lives.




The
estimated useful service lives are as follows:




Buildings
            
            20
      yearsLand improvements
            
            3-30 yearsBuilding improvements
            
            3-10
      yearsRestaurant equipment
            
            3-10
      yearsOther
      equipment
            
            2-10
      yearsLeasehold improvements
            
            Estimated useful life limited by the lease term




The
Company capitalizes certain costs in conjunction with site selection that relate
to specific sites for planned future restaurants. The Company also capitalizes
certain costs, including interest, in conjunction with constructing new
restaurants. These costs are included in property and amortized over the shorter
of the life of the related buildings and leasehold improvements or the lease
term. Costs related to abandoned sites and other site selection costs that
cannot be identified with specific restaurants are charged to operations. The
Company capitalized $47,000, $4,000 and $0 of internal costs related to site
selection and construction activities during the years ended December 27, 2006,
December 26, 2007 and December 31, 2008, respectively. The Company also
capitalized $166,000, $252,000 and $205,000, of interest expense during the
years ended December 27, 2006, December 26, 2007 and December 31, 2008,
respectively.




Goodwill and
Other Intangible Assets—Net — Intangible assets consist
primarily of goodwill and the value allocated to the Company’s trademarks,
franchise network and favorable and unfavorable leasehold interests. Goodwill
represents the excess of cost over fair value of net identified assets acquired
in business combinations accounted for under the purchase method. Goodwill
resulted from the Acquisition by CAC and from the acquisition of certain
franchise locations.




In
accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the
Company does not amortize its goodwill and certain intangible assets with an
indefinite life, including domestic trademarks. The Company performs its
impairment test annually at its fiscal year end, or more frequently if
impairment indicators arise. No impairment was recorded in 2006 and 2007. In
fiscal 2008, we recorded a non-cash impairment of $24.5 million for goodwill and
$17.6 million for domestic trademarks.




F-9




Intangible
assets and liabilities with a definite life are amortized using the
straight-line method over their estimated useful lives as follows:




Franchise
      network
            
            17.5 yearsFavorable
      leasehold interests
            
            1 to 18 years (remaining lease term)Unfavorable
      leasehold interests
            
            1 to 20 years (remaining lease term)




Deferred
Financing Costs— Deferred financing costs are recorded at cost and
amortized using the effective interest method over the terms of the related
notes. Deferred financing costs are included in other assets and the related
amortization is reflected as a component of interest expense in the accompanying
consolidated financial statements.




Impairment of
Long-Lived Assets— The Company reviews its long-lived assets for
impairment whenever events or changes in circumstances indicate that the
carrying value of certain assets may not be recoverable. If the Company
concludes that the carrying value of such assets will not be recovered based on
expected undiscounted future cash flows, an impairment write-down is recorded.
The Company recorded a non-cash impairment charge of approximately $1.9 million
for the year ended December 31, 2008 for three under-performing
company-operated restaurants that will continue to be operated.  This
amount is included in other operating expenses on our consolidated statement of
operations.  There were no impairment losses recognized in 2006 or
2007.




Insurance
Reserves — The
Company is responsible for workers’ compensation and health insurance claims up
to a specified aggregate stop loss amount. The Company maintains a reserve for
estimated claims, both reported and incurred but not reported, based on
historical claims experience and other assumptions.  These amounts are
included in payroll and benefits and other operating expenses on our
consolidated statement of operations.




Restaurant and
Franchise Revenue — Revenues from the operation
of Company-operated restaurants are recognized as products are delivered to
customers. Franchise revenue consists of franchise royalties, initial franchise
fees, license fees due from franchisees, and rental income for leases and
subleases to franchisees. Franchise royalties are based upon a percentage of net
sales of the franchisee and are recorded as income as such sales are reported by
the franchisees. Initial franchise and license fees are recognized when all
material obligations have been performed and conditions have been satisfied,
typically when operations have commenced. Initial franchise fees recognized
during the years ended December 27, 2006, December 26, 2007 and December 31,
2008, totaled $892,000, $1,049,000 and $1,184,000, respectively. Sales tax
collected from our customers is recorded on a net basis.




Advertising
Costs —
Production costs for radio and television commercials are initially capitalized
and then fully expensed when the commercials are first aired. Advertising
expense, which is a component of other operating expenses, was $9,320,000,
$10,361,000 and $11,204,000 for the years ended December 27, 2006, December 26,
2007 and December 31, 2008, respectively, and is net of $11,979,000, $13,605,000
and $15,169,000, respectively, funded by the franchisees’ advertising
fees.




Franchisees
pay a monthly fee to the Company that ranges from 4% to 5% of their restaurants’
net sales as reimbursement for advertising, public relations and promotional
services the Company provides. Fees received in advance of provided services are
included in other accrued expenses and current liabilities and were $180,000 and
$380,000 at December 26, 2007 and December 31, 2008, respectively. Pursuant
to the Company’s Franchise Disclosure Document, our company-operated restaurants
contribute to the advertising fund on the same basis as franchised
restaurants.  At December 31, 2008, the Company was obligated to
spend an additional $94,000 in future periods to comply with this
requirement.




Preopening
Costs —
Preopening costs incurred in connection with the opening of new restaurants are
expensed as incurred. These amounts are included in other operating expenses on
our consolidated statement of operations.




Franchise Area
Development Fees — The Company receives area
development fees from franchisees when they execute multi-unit area development
agreements. The Company does not recognize revenue from the agreements until the
related restaurants open or in certain circumstances, the fees are applied to
satisfy other obligations of the franchisee. Unrecognized area development fees
totaled $1,945,000 and $1,355,000 at December 26, 2007 and
December 31, 2008, respectively, and are included in other accrued expenses
and current liabilities and other noncurrent liabilities in the accompanying
consolidated balance sheets.




Operating
Leases— Rent expense for the Company’s operating leases, which generally
have escalating rentals over the term of the lease, is recorded on a
straight-line basis over the lease term, as defined in SFAS No. 13,
“Accounting for Leases”, as amended. The lease term begins when the Company has
the right to control the use of the leased property, which is typically before
rent payments are due under the terms of the lease.  Rent expense is
included in other operating expenses on our consolidated statement of
operations. The difference between rent expense and rent paid is recorded as
deferred rent, which is included in other noncurrent liabilities in the
accompanying consolidated balance sheets, and is amortized over the term of the
lease.




F-10




Income
Taxes — Deferred
income taxes are provided for temporary differences between the bases of assets
and liabilities for financial statement purposes and income tax purposes.
Deferred income taxes are based on enacted income tax rates in effect when the
temporary differences are expected to reverse. A valuation allowance is provided
when it is more likely than not that some portion or all of the deferred income
tax asset will not be realized.





Comprehensive
Loss—For the
years ended December 31, 2008, December 26, 2007 and December 27, 2006,
there was no difference between the Company’s net loss and comprehensive
loss.





Use of
Estimates — The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and revenue and expenses during the period reported.
Actual results could materially differ from those estimates.




Financial
Instruments — The
recorded values of accounts receivable, accounts payable and certain accrued
expenses approximate fair values based on their short-term nature. The recorded
values of notes payable approximate fair value, as interest approximates market
rates. The recorded value of other notes payable and senior secured notes
payable approximates fair value, based on borrowing rates currently available to
the Company for loans with similar terms and remaining maturities.




Accounting for
Stock Based Compensation — The Company adopted the
provisions of FASB Statement No. 123(R), Share-Based Payment on
December 29, 2005, which requires companies to expense the estimated fair
value of employee stock options and similar awards based on the grant-date fair
value of the award. The Company adopted FASB Statement No. 123(R) using a
prospective application, which only applies to new awards and any awards that
are modified or cancelled subsequent to the date of adoption of FASB Statement
No. 123(R).




Segment
Reporting— The Company develops, franchises and operates quick-service
restaurants under the name El Pollo Loco, which provide similar products to
similar customers. The restaurants possess similar economic characteristics
resulting in similar long-term expected financial performance characteristics.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in assessing
performance. Based on its methods of internal reporting and management
structure, management determined that the Company operates in a single reporting
segment.





Recent Accounting
Changes — In April 2008, the FASB issued FASB Staff Position 142-3, Determination of the Useful Lives of Intangible
Assets(“FSP 142-3”), which amends the factors that should be considered
in developing renewal or extension assumptions used to determine the useful life
of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible
Assets. The intent of FSP 142-3 is to improve the consistency between the
useful life of a recognized intangible asset under FASB Statement No. 142 and
the period of expected cash flows used to measure the fair value of the asset
under FASB Statement No. 141(R) and other U.S. generally accepted accounting
principles. FSP 142-3 is effective for fiscal years beginning after December 15,
2008 and for interim periods within those fiscal years. The Company does not
expect the adoption of FSP 142-3 to have a material effect on its consolidated
results of operations, financial position and cash flows.




In March
2008, the FASB issued Statement No. 161, Disclosures about Derivative
Instruments and Hedging Activities - an Amendment of FASB Statement No.
133. The new standard is intended to improve financial reporting about
derivative instruments and hedging activities by requiring enhanced disclosures
to enable investors to better understand their effects on an entity’s financial
position, financial performance, and cash flows. It is effective for financial
statements issued for fiscal years and interim periods beginning after November
15, 2008, with early application encouraged. The Company is currently evaluating
the impact of adopting FASB Statement No. 161 on its consolidated results of
operations, financial position and cash flows.





In
February 2008, the FASB issued FASB Staff Position No. 157-2 (“FSP 157-2”),
which deferred the effective date for certain portions of FASB Statement No. 157
related to nonrecurring measurements of nonfinancial assets and liabilities.
That provision of FASB Statement No. 157 will be effective for the Company’s
fiscal year 2009. The Company is currently evaluating the effect, if any, that
the adoption of FSP No. 157-2 will have on its consolidated results of
operations, financial position and cash flows.




F-11




In
December 2007, the FASB issued Statement No. 141(R), Business Combinations. FASB
Statement No. 141(R) requires reporting entities to record fair value
estimates of contingent consideration and certain other potential liabilities
during the original purchase price allocation, expense acquisition costs as
incurred and does not permit certain restructuring activities previously allowed
under Emerging Issues Task Force 95-3 to be recorded as a component of
purchase accounting. FASB Statement No. 141(R) is effective for fiscal
periods beginning after December 15, 2008 and should be applied
prospectively for all business acquisitions entered into after the date of
adoption. The Company is currently evaluating the impact the adoption of FASB
Statement No. 141(R) will have on its consolidated results of
operations, financial position and cash flows.





In
December 2007, the FASB issued Statement No. 160, Noncontrolling Interest in
Consolidated Financial Statements — an amendment of ARB No. 51.
FASB Statement No. 160 requires (i) that noncontrolling
(minority) interests be reported as a component of shareholders’ equity,
(ii) that net income attributable to the parent and to the noncontrolling
interest be separately identified in the consolidated statement of operations,
(iii) that changes in a parent’s ownership interest while the parent
retains its controlling interest be accounted for as equity transactions,
(iv) that any retained noncontrolling equity investment upon the
deconsolidation of a subsidiary be initially measured at fair value, and
(v) that sufficient disclosures are provided that clearly identify and
distinguish between the interests of the parent and the interests of the
noncontrolling owners. FASB Statement No. 160 is effective for fiscal
periods beginning after December 15, 2008. The Company is currently
evaluating the impact the adoption of FASB Statement No. 160 will have
on its consolidated results of operations, financial position and cash
flows.





4.
SALE AND ACQUISITIONS OF RESTAURANTS




On June
29, 2007, the Company acquired the assets of three previously franchised
restaurants (Las Vegas restaurants). The purchase price of $8.5 million
consisted of cash and was accounted for using the purchase method of accounting
in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 141,
Business Combinations. The Company’s allocation of the purchase price to the
fair value of the acquired assets is as follows: equipment, $0.1 million,
favorable lease, $0.2 million, and goodwill, $8.2 million. Results of operations
of the Las Vegas restaurants are included in the Company’s financial statements
beginning as of the acquisition date. The pro forma effects of the Company’s
acquisition on its historical results of operations are not
material.




In August
and September of 2007, the Company sold eight restaurants to franchisees for a
total of $7.5 million. These restaurants had an aggregate net book value of $1.6
million, and after a write off of goodwill of $8.8 million, which was the
proportionate share of goodwill attributable to the eight restaurants, and a
liability reduction of $0.1 million, the Company realized a $2.8 million loss
that is included in other operating expenses in the accompanying 2007
consolidated statements of operations.




5.
PREPAID EXPENSES AND OTHER CURRENT ASSETS




Prepaid
expenses and other current assets consist of the following (in
thousands):




December 26,
                        2007
                      
                      
                      December 31,
                        2008Prepaid
      rent
                      
                      $
                      1,511
                      
                      
                      $
                      1,573Other
                      
                      
                      2,163
                      
                      
                      
                      3,067$
                      3,674
                      
                      
                      $
                      4,640




F-12




6.
PROPERTY




The costs
and related accumulated depreciation and amortization of major classes of
property as of December 26, 2007 and December 31, 2008 are as follows (in
thousands):




December
      26,
                                2007
                              
                              
                              December
      31,
                                2008Property
      owned:Land
                              
                              $
                              12,771
                              
                              
                              $
                              12,453Buildings
      and improvements
                              
                              
                              55,091
                              
                              
                              
                              63,946Other
      property and equipment
                              
                              
                              30,353
                              
                              
                              
                              34,660Construction
      in progress
                              
                              
                              3,317
                              
                              
                              
                              3,415101,532
                              
                              
                              
                              114,474Accumulated
      depreciation and amortization
                              
                              
                              (19,315
                              )
                              
                              
                              (30,153
                              )Property
      owned—net
                              
                              $
                              82,217
                              
                              
                              $
                              84,321Property
      held under capital leases
                              
                              $
                              2,186
                              
                              
                              $
                              2,015Accumulated
      amortization
                              
                              
                              (1,081
                              )
                              
                              
                              (1,283
                              )Property
      held under capital leases—net
                              
                              $
                              1,105
                              
                              
                              $
                              732




Property
held under capital leases consists principally of buildings and improvements.
The total depreciation and amortization expense for property for the years ended
December 27, 2006, December 26, 2007 and December 31, 2008, was approximately
$9,674,000, $11,195,000 and $11,949,000 respectively.








F-13




7.
GOODWILL AND OTHER INTANGIBLE ASSETS AND LIABILITIES




Changes
in goodwill consist of the following (in thousands):




December
      26,
                      2007
                    
                    
                    December
      31,
                      2008Beginning
      balance
                    
                    $
                    277,514
                    
                    
                    $
                    276,911Purchase
      of franchise restaurants
                    
                    
                    8,213
                    
                    
                    
                    —Sale
      of franchise restaurants
                    
                    
                    (8,816
                    )
                    
                    
                    —Goodwill
      impairment loss
                    
                    
                    —
                    
                    
                    
                    (24,493
                    )Ending
      balance
                    
                    $
                    276,911
                    
                    
                    $
                    252,418




Other
intangible assets consist of the following (in thousands):




December
      26,
                      2007
                    
                    
                    December
      31,
                      2008Franchise
      network—net
                    
                    $
                    7,032
                    
                    
                    $
                    6,575Favorable
      leasehold interest - net
                    
                    
                    3,575
                    
                    
                    
                    2,582Other
      intangible assets—net
                    
                    $
                    10,607
                    
                    
                    $
                    9,157Unfavorable
      leasehold interest liability—net
                    
                    $
                    (6,047
                    )
                    
                    $
                    (4,883
                    )




Due to
the downturn in the economy and its effect on expected future cash flows, and
based on an independent valuation of the Company, in fiscal 2008, we recorded a
non-cash impairment of goodwill of $24.5 million and recorded a non-cash
impairment of domestic trademarks of $17.6 million in accordance with the
evaluation described below.





The
evaluation of the carrying amount of other intangible assets with indefinite
lives is made annually coinciding with our fiscal year-end by comparing the
carrying amount of these assets to their estimated fair value. The estimated
fair value is generally determined on the basis of discounted future cash flows.
If the estimated fair value is less than the carrying amount of the other
intangible assets with indefinite lives, then an impairment charge is recorded
to reduce the asset to its estimated fair value.





The
impairment evaluation for goodwill is conducted annually coinciding with our
fiscal year-end using a two-step process. In the first step, the fair value of
our reporting unit is compared with the carrying amount of the reporting unit,
including goodwill. The estimated fair value of the reporting unit is generally
determined on the basis of discounted future cash flows or in consideration of
recent transactions involving stock sales with independent third parties. If the
estimated fair value of the reporting unit is less than the carrying amount of
the reporting unit, a second step must be completed in order to determine the
amount of the goodwill impairment that should be recorded. In the second step,
the implied fair value of the reporting unit’s goodwill is determined by
allocating the reporting unit’s fair value to all of its assets and liabilities
other than goodwill (including any unrecognized intangible assets) in a manner
similar to a purchase price allocation. The resulting implied fair value of the
goodwill that results from the application of this second step is then compared
with the carrying amount of the goodwill and an impairment charge is recorded
for the difference.




The
assumptions used in the estimate of fair value are generally consistent with the
past performance of our reporting unit and are also consistent with the
projections and assumptions that are used in current operating plans. These
assumptions are subject to change as a result of changing economic and
competitive conditions.





Amortization
expense for franchise network was $457,000 for each of the years ended December
27, 2006, December 26, 2007 and December 31, 2008, respectively.





Favorable
leasehold interest represents the asset in excess of the approximate fair market
value of the leases assumed as of November 18, 2005, the date of the
Acquisition. The amount is being reduced over the approximate average life of
the leases.




Unfavorable
leasehold interest liability represents the liability in excess of the
approximate fair market value of the leases assumed as of November 18, 2005, the
date of the Acquisition. The amount is being reduced over the approximate
average life of the leases.  This amount is shown as other intangible
liabilities-net on the balance sheet.





F-14




The
estimated amortization expense for the Company’s amortizable intangible assets
and liabilities for each of the five succeeding fiscal years is as follows (in
thousands):




Year
      Ending December 312009
                      
                      $
                      2542010
                      
                      
                      1302011
                      
                      
                      1672012
                      
                      
                      1822013
                      
                      
                      244




8.
OTHER ASSETS




Other
assets consist of the following (in thousands):




December
      26,
                        2007
                      
                      
                      December
      31,
                        2008Deferred
      financing costs - net
                      
                      $
                      7,334
                      
                      
                      $
                      5,298Other
                      
                      
                      2,273
                      
                      
                      
                      1,012$
                      9,607
                      
                      
                      $
                      6,310




Amortization
expense for deferred financing costs was $1,367,000, $1,391,000 and $1,356,000
for the years ended December 27, 2006, December 26, 2007 and December 31, 2008,
respectively.




9.
LEASES




The
Company’s operations utilize property, facilities, equipment and vehicles owned
by the Company or leased from others. Buildings and facilities leased from
others are primarily for restaurants and support facilities. Restaurants are
operated under lease arrangements that generally provide for a fixed base rent
and, in some instances, contingent rent based on a percentage of gross operating
profit or gross revenues in excess of a defined amount. Initial terms of land
and restaurant building leases generally are not less than 20 years, exclusive
of options to renew. Leases of equipment primarily consist of restaurant
equipment, computer systems and vehicles. The Company subleases facilities to
certain franchisees and other non-related parties which are recorded on a
straight-line basis.




Information
regarding the Company’s future lease obligations at December 31, 2008 is as
follows (in thousands):




Capital
      Leases
                                    
                                    
                                    Operating
      LeasesYear
      Ending December 31
                                    
                                    Minimum
                                      Lease
                                      Payments
                                    
                                    
                                    Minimum
                                      Sublease
                                      Rentals
                                    
                                    
                                    Minimum
                                      Lease
                                      Payments
                                    
                                    
                                    Minimum
                                      Sublease
                                      Rentals2009
                                    
                                    $
                                    948
                                    
                                    
                                    
                                    490
                                    
                                    
                                    
                                    18,614
                                    
                                    
                                    
                                    2,0132010
                                    
                                    
                                    627
                                    
                                    
                                    
                                    225
                                    
                                    
                                    
                                    18,662
                                    
                                    
                                    
                                    1,6562011
                                    
                                    
                                    457
                                    
                                    
                                    
                                    115
                                    
                                    
                                    
                                    18,514
                                    
                                    
                                    
                                    1,4382012
                                    
                                    
                                    436
                                    
                                    
                                    
                                    115
                                    
                                    
                                    
                                    18,328
                                    
                                    
                                    
                                    1,1812013
                                    
                                    
                                    417
                                    
                                    
                                    
                                    115
                                    
                                    
                                    
                                    17,940
                                    
                                    
                                    
                                    762Subsequent
      years
                                    
                                    
                                    1,615
                                    
                                    
                                    
                                    286
                                    
                                    
                                    
                                    128,847
                                    
                                    
                                    
                                    969Total
                                    
                                    
                                    4,500
                                    
                                    
                                    $
                                    1,346
                                    
                                    
                                    $
                                    220,905
                                    
                                    
                                    $
                                    8,018Less
      imputed interest
                                    
                                    
                                    (1,795
                                    )Present
      value of capital lease obligations
                                    
                                    
                                    2,705Less
      current maturities
                                    
                                    
                                    (601
                                    )Noncurrent
      portion
                                    
                                    $
                                    2,104




Net rent
expense for the years ended December 27, 2006, December 26, 2007 and December
31, 2008 is as follows (in thousands):




F-15




Years
      EndedDecember
      27, 2006
                                    
                                    
                                    December
      26, 2007
                                    
                                    
                                    December 31,
      2008Base
      rent
                                    
                                    $
                                    15,969
                                    
                                    
                                    $
                                    17,246
                                    
                                    
                                    $
                                    18,159Contingent
      rent
                                    
                                    
                                    518
                                    
                                    
                                    
                                    630
                                    
                                    
                                    
                                    683Less
      sublease income
                                    
                                    
                                    (4,221
                                    )
                                    
                                    
                                    (4,316
                                    )
                                    
                                    
                                    (4,155
                                    )Net
      rent expense
                                    
                                    $
                                    12,266
                                    
                                    
                                    $
                                    13,560
                                    
                                    
                                    $
                                    14,687




Base rent
and contingent rent are included in other operating expenses, while sublease
income is included in franchise revenue in the accompanying consolidated
statements of operations. Sublease income includes contingent rental income of
$1,980,000, $2,060,000 and $2,071,000 for the years ended December 27, 2006,
December 26, 2007 and December 31, 2008, respectively.




In
addition to the sublease income described above, the Company is a lessor for
certain property, facilities and equipment owned by the Company and leased to
others, principally franchisees, under noncancelable leases with terms ranging
from three to nine years. The lease agreements generally provide for a fixed
base rent and, in some instances, contingent rent based on a percentage of gross
operating profit or gross revenues. Total rental income, included in franchise
revenue in the accompanying consolidated statements of operations, for leased
property was $385,000, $414,000 and $360,000 for the years ended December 27,
2006, December 26, 2007 and December 31, 2008, respectively.




Minimum
future rental income for company-owned properties under noncancelable operating
leases, which is recorded on a straight-line basis, in effect as of December 31,
2008 is as follows (in thousands):




Year
      Ending December 312009
                        
                        $
                        3022010
                        
                        
                        2342011
                        
                        
                        1662012
                        
                        
                        1662013
                        
                        
                        166Thereafter
                        
                        
                        181Total
      future minimum rental income
                        
                        $
                        1,215




10.
SENIOR SECURED NOTES (2009 Notes)




In
December 2003, EPL issued the 2009 Notes, consisting of $110.0 million of senior
secured notes accruing interest at 9.25% per annum, due 2009. At December 31,
2008, $250,000 principal amount of the 2009 Notes remained
outstanding.





11.
SENIOR UNSECURED NOTES PAYABLE (2013 Notes)




EPL has
outstanding 2013 Notes, consisting of $108.2 million aggregate principal amount
of 11 3/4% senior notes due 2013. Interest is payable in May and November
beginning May 15, 2006. The 2013 Notes are unsecured, are guaranteed by
Intermediate, and may be redeemed, at the discretion of the issuer, after
November 15, 2009. The indenture contains certain provisions which may prohibit
EPL’s ability to incur additional indebtedness, sell assets, engage in
transactions with affiliates, and issue or sell preferred stock, among other
items.





In
October 2006, EPL completed the exchange of the 2013 Notes for registered,
publicly tradable notes that have substantially identical terms as the 2013
Notes. The costs incurred in connection with the offering of the 2013 Notes have
been capitalized and are included in other assets in the accompanying balance
sheets, and the related amortization is reflected as a component of interest
expense in the accompanying consolidated financial statements. The Company used
the proceeds from the 2013 Notes to purchase substantially all of the
outstanding 2009 Notes.




As a
holding company, the stock of EPL constitutes Intermediate’s only material
asset. Consequently, EPL conducts all of the Company’s consolidated operations
and owns substantially all of the consolidated operating assets. The Company’s
principal source of the cash required to pay its obligations is the cash that
EPL generates from its operations. EPL is a separate and distinct legal entity,
has no obligation to make funds available to Intermediate, and the 2013 Notes
and the 2014 Notes (see Note 13) have restrictions that limit distributions or
dividends that may be paid by EPL to Intermediate. Conditions that would allow
for distributions or dividends to be made include compliance with a fixed charge
coverage ratio test (as defined in the indenture governing the 2013 Notes) and
cash received from the proceeds of new equity contributions. As of December 31,
2008, we are restricted from incurring additional indebtedness, as EPL does not
currently meet the fixed charge coverage ratio. This restriction does not apply
to the existing loan availability of $12.6 million under the revolving line of
credit. There are also some allowed distributions, payments and dividends for
other specific events. Distributions, dividends or investments would also be
limited to 50% of consolidated net income under certain
circumstances.




F-16





The
Company purchased $15.9 million in principal amount of these Notes at a price of
$13.6 million at various times in 2008.  The net purchase price was
86% of the principal amount of such notes and resulted in a net gain of $1.7
million which is included in other income in the consolidated statement of
operations. The gain of $1.7 million is net of the write-off of prorated
deferred finance costs of $0.6 million.




12.
NOTES PAYABLE TO MERRILL LYNCH, BANK OF AMERICA, ET AL AND REVOLVING CREDIT
FACILITY




On
November 18, 2005, EPL entered into senior secured credit facilities (the
“Credit Facility”) with Intermediate, as parent guarantor, Merrill Lynch Capital
Corporation, as administrative agent, the other agents identified therein,
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated
and Bank of America, N.A., as lead arrangers and book managers, and a syndicate
of financial institutions and institutional lenders. The Credit Facility
provides for a $104.5 million term loan and $25.0 million in revolving
availability. Utilizing this senior secured revolving credit facility, EPL
issued $7.4 million of letters of credit as of December 31, 2008. Future
principal payments under the term loan at December 31, 2008 are as follows (in
thousands).





Year
      Ending December 312009
                      
                      $
                      5,8892010
                      
                      
                      9742011
                      
                      
                      92,490$
                      99,353




The
Credit Facility bears interest, payable quarterly, at a Base Rate or LIBOR, at
EPL’s option, plus an applicable margin. The applicable margin is based on EPL’s
financial performance, as defined. The applicable margin rate for the term loan
remains constant at 2.50% with respect to LIBOR and 1.50% with respect to Base
Rate.  The effective rate at December 31, 2008 for the term loan was
5.70%.  See below for the interest rates on the portion of the term
loan represented by an interest rate swap. The applicable margin rate for the
revolver as of December 31, 2008 was 2.50% with respect to LIBOR and 1.50% with
respect to Base Rate advances and thereafter ranges from 2.75% to 2.25% with
respect to LIBOR advances and 1.75% to 1.25% with respect to Base Rate advances.
The effective rate at December 31, 2008 for the revolver was 5.0%. The Credit
Facility is secured by a first-priority pledge by Holdings of all of the
outstanding stock of the Company, a first priority pledge by the Company of all
of EPL’s outstanding stock and a first priority security interest in
substantially all of EPL’s tangible and intangible assets. In addition, the
Credit Facility is guaranteed by the Company and Holdings. The Credit Facility
matures on November 18, 2011. As of December 31, 2008, EPL was in compliance
with all of the financial covenants contained in the Credit Facility and has
$12.6 million available for borrowings under the revolving line of
credit.





The
credit facility requires the prepayment of the term loan in an amount equal to
50% of the Excess Operating Cash Flow, if at the end of the fiscal year, the
Consolidated Leverage Ratio is less than 5.0:1.0.  Excess Operating
Cash Flow is defined as an amount equal to Consolidated EBITDA minus
Consolidated Financial Obligations and other specific payments and
adjustments.  The Excess Operating Cash Flow for 2008 was $9.8
million.  The Company will make the payment of $4.9 million in April
2009.




To manage
or reduce the interest rate risk, the Company periodically enters into interest
rate swap transactions. The Company enters into these contracts with major
financial institutions, which may minimize its risk of credit loss. On June 26,
2008, the Company entered into an interest rate swap agreement with an effective
date of September 24, 2008 and a maturity date of June 30, 2010. The agreement
is based on the notional amount of $50.0 million. Under the terms of the
agreement, the Company agreed to make fixed rate payments on the notional amount
on a quarterly basis at increasing interest rates ranging from 3.17% to 4.61%
(3.56% at December 31, 2008), in exchange for receiving payments on the notional
amount at a floating rate based on the three-month LIBOR rate, on a quarterly
basis (5.7% at December 31, 2008). The interest rate swap agreement is intended
to reduce interest rate risk associated with variable interest rate debt. At
December 31, 2008, the fair value of the interest rate swap was approximately
$2.0 million and is included in other noncurrent liabilities on the accompanying
consolidated balance sheet. At December 31, 2008, the total interest rate per
our swap agreement was 3.65%.





13.
PIK NOTES (2014 Notes)




F-17




At
December 31, 2008 the Company had $26.0 million outstanding in aggregate
principal amount of the 2014 Notes. No cash interest will accrue on the 2014
Notes prior to November 15, 2009. Instead, the principal value of the 2014 Notes
will increase (representing accretion of original issue discount) from the date
of original issuance until but not including November 15, 2009 at a rate of 14
1/2% per annum compounded annually, so that the accreted value of the 2014 Notes
on November 15, 2009 will be equal to the full principal amount of $29.3 million
due at maturity.




Beginning
on November 15, 2009, cash interest will accrue on the 2014 Notes at an annual
rate of 14 1/2% per annum payable semi-annually in arrears on May 15 and
November 15 of each year, beginning May 15, 2010. Principal is due on November
15, 2014. The indenture restricts the ability of Intermediate and its
subsidiaries to incur additional indebtedness, sell assets, engage in
transactions with affiliates, and issue or sell preferred stock, among other
items. The indenture also limits the ability of EPL or other subsidiaries to
make dividend or other payments to Intermediate and for Intermediate to make
payments to Holdings (see Note 11).




The 2014
Notes are effectively subordinated to all existing and future indebtedness and
other liabilities of the Company’s subsidiaries. The 2014 Notes are unsecured
and are not guaranteed. If any of the 2014 Notes are outstanding at May 15,
2011, the Company is required to redeem for cash a portion of each note then
outstanding at 104.5% of the accreted value of such portion of such note, plus
accrued and unpaid interest. Additionally, the Company may, at its discretion,
redeem any or all of the 2014 Notes, subject to certain provisions.




In
October 2006, Intermediate completed the exchange of the 2014 Notes for
registered, publicly tradable notes that have substantially identical terms as
the 2014 Notes. The costs incurred in connection with its registration of the
2014 Notes have been capitalized and are included in other assets in the
accompanying balance sheets and the related amortization is reflected as a
component of interest expense in the accompanying consolidated financial
statements.





On
January 25, 2008, CAC made an $8.0 million capital contribution to the Company.
The Company used $7.9 million of these proceeds to repurchase a portion of the
outstanding 2014 Notes at a price that approximated their accreted
value.  The Company wrote-off the prorated deferred finance costs of
$0.1 million which is included in other income in the consolidated statement of
operations.





14.
OTHER ACCRUED EXPENSES AND CURRENT LIABILITIES




Other
accrued expenses and current liabilities consist of the following (in
thousands):




December
      26,
                      2007
                    
                    
                    December
      31,
                      2008Accrued
      sales and property taxes
                    
                    $
                    2,601
                    
                    
                    $
                    3,435Other
                    
                    
                    2,475
                    
                    
                    
                    2,761$
                    5,076
                    
                    
                    $
                    6,196


15. OTHER NONCURRENT LIABILITIES




Other
noncurrent liabilities consist of the following (in thousands):




December
      26,
                      2007
                    
                    
                    December
      31,
                      2008Fair
      value of interest rate swap
                    
                    
                    -
                    
                    
                    
                    2,048Deferred
      rent
                    
                    
                    4,498
                    
                    
                    
                    6,314Workers’
      compensation reserve
                    
                    
                    2,378
                    
                    
                    
                    2,674Other
                    
                    
                    2,495
                    
                    
                    
                    1,796$
                    9,371
                    
                    
                    $
                    12,832




F-18




The
Company leases its facilities under various operating lease agreements. Certain
provisions of these leases provide for graduated rent payments and landlord
contributions. The Company recognizes rent expense on a straight-line basis over
the lease term. The cumulative difference between such rent expense and actual
payments to date is reflected as deferred rent. Landlord contributions are also
included in deferred rent and are amortized as a reduction of rent expense
ratably over the lease term.




16. INCOME TAXES




The
provision (benefit) for income taxes is based on the following components (in
thousands):




Years
      EndedDecember
      27,
                                          2006
                                        
                                        
                                        December
      26,
                                          2007
                                        
                                        
                                        December
      31,
                                          2008Current
      income taxes:Federal
                                        
                                        $
                                        22
                                        
                                        
                                        $
                                        12
                                        
                                        
                                        $
                                        14State
                                        
                                        
                                        13
                                        
                                        
                                        
                                        23
                                        
                                        
                                        
                                        4735
                                        
                                        
                                        
                                        35
                                        
                                        
                                        
                                        61Deferred
      income taxes:Federal
                                        
                                        
                                        994
                                        
                                        
                                        
                                        1,933
                                        
                                        
                                        
                                        (9,182
                                        )State
                                        
                                        
                                        43
                                        
                                        
                                        
                                        1,125
                                        
                                        
                                        
                                        (2,929
                                        )1,037
                                        
                                        
                                        
                                        3,058
                                        
                                        
                                        
                                        (12,111
                                        )$
                                        1,072
                                        
                                        
                                        $
                                        3,093
                                        
                                        
                                        $
                                        (12,050
                                        )





F-19







A
reconciliation of the provision (benefit) for income taxes to the amount of
income tax expense that would result from applying the federal statutory rate to
income before provision (benefit) for income taxes is as follows (in
thousands):




Years
    EndedDecember
      27,
                                    2006
                                  
                                  
                                  December
      26,
                                    2007
                                  
                                  
                                  December
      31,
                                    2008Provision
      (benefit) for income taxes at statutory
                                    rate
                                  
                                  $
                                  598
                                  
                                  
                                  $
                                  (329
                                  )
                                  
                                  $
                                  (18,035
                                  )State
      income taxes—net of federal
                                    income
      tax benefit
                                  
                                  
                                  37
                                  
                                  
                                  
                                  746
                                  
                                  
                                  
                                  (1,851
                                  )Disqualified
      interest expense
                                  
                                  
                                  353
                                  
                                  
                                  
                                  —
                                  
                                  
                                  
                                  —Non-deductible
      goodwill
                                  
                                  
                                  —
                                  
                                  
                                  
                                  2,785
                                  
                                  
                                  
                                  7,738Other
                                  
                                  
                                  84
                                  
                                  
                                  
                                  (109
                                  )
                                  
                                  
                                  98$
                                  1,072
                                  
                                  
                                  $
                                  3,093
                                  
                                  
                                  $
                                  (12,050
                                  )




Deferred
income taxes reflect the tax effect of temporary differences between the
carrying amount of the assets and liabilities for financial reporting purposes
and the amount used for income tax purposes.




The
Company’s deferred income tax assets and liabilities consist of the following
(in thousands):




December
    26,
                                                        
                                                        
                                                        December
    31,2007
                                                        
                                                        
                                                        2008Negative
      leasehold liability
                                                        
                                                        $
                                                        3,706
                                                        
                                                        
                                                        $
                                                        3,566Capital
      leases
                                                        
                                                        
                                                        1,242
                                                        
                                                        
                                                        
                                                        845Accrued
      vacation
                                                        
                                                        
                                                        683
                                                        
                                                        
                                                        
                                                        727Accrued
      bonus
                                                        
                                                        
                                                        798
                                                        
                                                        
                                                        
                                                        —Deferred
      rent
                                                        
                                                        
                                                        1,597
                                                        
                                                        
                                                        
                                                        2,121Accrued
      workers’ compensation
                                                        
                                                        
                                                        1,448
                                                        
                                                        
                                                        
                                                        1,516Enterprise
      zone and other credits
                                                        
                                                        
                                                        525
                                                        
                                                        
                                                        
                                                        505State
      taxes
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        17Net
      operating losses
                                                        
                                                        
                                                        7,595
                                                        
                                                        
                                                        
                                                        14,196Interest
      expense
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        880Other
                                                        
                                                        
                                                        4,145
                                                        
                                                        
                                                        
                                                        3,427Deferred
      income tax assets
                                                        
                                                        
                                                        21,739
                                                        
                                                        
                                                        
                                                        27,800Other
      identifiable intangibles
                                                        
                                                        
                                                        (51,262
                                                        )
                                                        
                                                        
                                                        (44,045
                                                        )Prepaid
      expense
                                                        
                                                        
                                                        —
                                                        
                                                        
                                                        
                                                        (1,353
                                                        )Basis
      difference in fixed assets
                                                        
                                                        
                                                        (2,393
                                                        )
                                                        
                                                        
                                                        (4,223
                                                        )Other
                                                        
                                                        
                                                        (4,591
                                                        )
                                                        
                                                        
                                                        (2,575
                                                        )Deferred
      income tax liabilities
                                                        
                                                        
                                                        (58,246
                                                        )
                                                        
                                                        
                                                        (52,196
                                                        )Net
      deferred income tax liability
                                                        
                                                        $
                                                        (36,507
                                                        )
                                                        
                                                        $
                                                        (24,396
                                                        )





F-20




The
Company has evaluated the available evidence supporting the realization of its
gross deferred tax assets, including the amount and timing of future taxable
income, and has determined it is more likely than not that the assets will be
realized.




As of
December 31, 2008, the Company has federal and state net operating loss
carryforwards of approximately $30,942,000 and $41,556,000, respectively, which
expire beginning in 2025 and 2017, respectively. The Company also has state
enterprise zone credits of approximately $351,000 which carryforward
indefinitely.




The
utilization of net operating loss carryforwards may be subject to limitations
under provision of the Internal Revenue Code Section 382 and similar state
provisions.




On
December 28, 2006, the Company adopted the provisions of FIN 48, which clarifies
the accounting for uncertain tax positions. FIN 48 requires that the Company
recognize the impact of a tax position in our financial statement if the
position is more likely than not of being sustained upon examination and on the
technical merits of the position. The impact of the adoption of FIN 48 was
immaterial to the Company’s consolidated financial statements. The total amount
of unrecognized tax benefits as of December 31, 2008, was $742,000, which if
recognized, would affect other tax accounts, primarily deferred taxes in future
periods and would not affect the Company’s effective tax rate.





A
reconciliation of the beginning and ending balance of unrecognized tax benefits
is as follows:





Balance
      at December 27, 2006
                                
                                $
                                —Additions
      based on tax positions related to the current year
                                
                                
                                2,098,000Balance
      at December 26, 2007
                                
                                $
                                2,098,000Gross
      Decreases - tax positions in prior period
                                
                                
                                (1,356,000)Balance
      at December 31, 2008
                                
                                $
                                742,000





The
Company does not anticipate any material change in the total amount of
unrecognized tax benefits to occur within the next twelve months.





FIN 48
requires the Company to accrue interest and penalties where there is an
underpayment of taxes based on the Company’s best estimate of the amount
ultimately to be paid. The Company’s policy is to recognize interest accrued
related to unrecognized tax benefits and penalties as income tax expense. The
Company has no uncertain tax positions as of December 31, 2008, consequently no
interest or penalties has been accrued by the Company.





The
Company is subject to taxation in the U.S. and various state jurisdictions. The
Company’s tax years for 2004 through 2008 are subject to examination by various
tax authorities. The Company is no longer subject to U.S. examination for years
before 2005, and years before 2004 by state taxing authorities.




17.
EMPLOYEE BENEFIT PLANS




The
Company sponsors a defined contribution employee benefit 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 vests 100%. The Company’s contributions to the plan for the years
ended December 27, 2006, December 26, 2007 and December 31, 2008, were
approximately $393,000, $416,000 and $551,000, respectively.




18.
STOCK-BASED COMPENSATION




As of
December 27, 2006, December 26, 2007 and December 31, 2008, options to purchase
302,772, 304,287 and 307,556 shares, respectively of common stock of CAC were
outstanding. Included in that amount are 79,650 options that are fully vested;
the remaining options partially vest upon the Company’s attaining annual
financial or other goals, with the remaining unvested portion vesting on the
seventh anniversary of the grant date, and vest 100% upon the occurrence of an
initial public offering of at least $50 million or a change in control of CAC.
All options were granted at fair value on the date of grant.




Changes
in stock options for the years ended December 27, 2006, December 26, 2007 and
December 31, 2008 are as follows:





F-21





Predecessor
                              
                              Shares
                              
                              
                              Weighted-Average
                                Exercise
      Price
                              
                              
                              Weighted-
                                Average
                                Remaining
                                Contractual
      Life
                                (in
      Years)
                              
                              
                              Aggregate
                                Intrinsic
                                ValueOutstanding—December
      28, 2005
                              
                              
                              277,608
                              
                              
                              $
                              63.53Grants
      (weighted-average fair value of $45.86 per share)
                              
                              
                              32,153
                              
                              
                              $
                              96.48Exercised
                              
                              
                              (295
                              )
                              
                              $
                              10.80Canceled
                              
                              
                              (6,694
                              )
                              
                              $
                              86.43Outstanding—December
      27, 2006
                              
                              
                              302,772
                              
                              
                              $
                              66.58Grants
      (weighted-average fair value of $49.95 per share)
                              
                              
                              22,246
                              
                              
                              $
                              113.29Exercised
                              
                              
                              (709
                              )
                              
                              $
                              10.39Canceled
                              
                              
                              (20,022
                              )
                              
                              $
                              88.93Outstanding—December
      26, 2007
                              
                              
                              304,287
                              
                              
                              $
                              68.65
                              
                              
                              
                              7.0
                              
                              
                              
                              13,044Grants
      (weighted-average fair value of $42.14 per share)
                              
                              
                              4,449
                              
                              
                              $
                              109.07Exercised
                              
                              
                              (1,180
                              )
                              
                              $
                              20.60Canceled
                              
                              
                              -Outstanding—December
      31, 2008
                              
                              
                              307,556
                              
                              
                              $
                              69.42
                              
                              
                              
                              6.1
                              
                              
                              
                              194Vested
      and expected to vest in the future - December 31, 2008
                              
                              
                              303,803
                              
                              
                              $
                              69.42
                              
                              
                              
                              6.1
                              
                              
                              
                              191Exercisable
      - December 31, 2008
                              
                              
                              79,650
                              
                              
                              $
                              8.55
                              
                              
                              
                              2.8
                              
                              
                              
                              4,898




Outstanding
stock options at December 31, 2008 are summarized as follows:




Range
      of Exercise Prices
                                
                                
                                Number
                                  Outstanding
                                
                                
                                Weighted-
                                  Average
                                  Remaining
                                  Contractual
      Life
                                  (in
      Years)
                                
                                
                                Weighted-
                                  Average
                                  Exercise
      Price
                                
                                
                                Number
                                  Exercisable
                                
                                
                                Weighted-
                                  Average
                                  Exercise
      Price$
                                2.98
                                
                                
                                $
                                17,694
                                
                                
                                
                                1.1
                                
                                
                                $
                                2.98
                                
                                
                                $
                                17,694
                                
                                
                                $
                                2.98$
                                7.56
                                
                                
                                
                                24,026
                                
                                
                                
                                2.3
                                
                                
                                $
                                7.56
                                
                                
                                
                                24,026
                                
                                
                                $
                                7.56$
                                9.68-$11.77
                                
                                
                                
                                32,365
                                
                                
                                
                                3.7
                                
                                
                                $
                                10.68
                                
                                
                                
                                32,365
                                
                                
                                $
                                10.68$
                                15.48-$20.60
                                
                                
                                
                                5,565
                                
                                
                                
                                5.9
                                
                                
                                $
                                18.17
                                
                                
                                
                                5,565
                                
                                
                                $
                                18.17$
                                86.43
                                
                                
                                
                                189,059
                                
                                
                                
                                7.0
                                
                                
                                $
                                86.43
                                
                                
                                
                                —
                                
                                
                                $
                                —$
                                108.84-$117.75
                                
                                
                                
                                38,847
                                
                                
                                
                                8.3
                                
                                
                                $
                                111.44
                                
                                
                                
                                —
                                
                                
                                $
                                —307,556
                                
                                
                                
                                6.1
                                
                                
                                $
                                69.42
                                
                                
                                
                                79,650
                                
                                
                                $
                                8.55




The
intrinsic value is calculated as the difference between the market value as of
December 31, 2008 and the exercise price of the options outstanding and options
exercisable.




Options
are accounted for as follows:




Variable Accounting:
Options granted on December 15, 2005 provide that, in the event of a successful
completion of an initial public offering of at least $50 million before November
18, 2007, 50% of the then unvested options would have vested immediately upon
consummation of the offering. The remaining unvested options would have
automatically terminated and the optionees would have been entitled to receive
restricted stock with an aggregate economic value equal to the fair market value
(measured at the close of business of the first day of public trading) of the
shares into which the terminated unvested options were exercisable minus the
aggregate exercise price of such options. Upon a change in control of CAC, or if
the initial public offering occurs after November 18, 2007, 100% of the options
granted will vest immediately.




F-22




For
options granted on December 15, 2005 that would have been cancelled and replaced
with restricted stock upon completion of an initial public offering before
November 18, 2007, the Company used variable accounting to recognize expense
based on the change in incremental value of the award at each reporting period
until November 18, 2007. As the Company did not undertake an initial public
offering prior to November 18, 2007, the future compensation expense is
calculated based on the intrinsic value of the award as of that date.
Compensation expense of $245,000, $381,000 and $307,000 and a corresponding
decrease in net income of $91,000, $155,000 and $235,000 was recognized for the
years ended December 27, 2006, December 26, 2007 and December 31, 2008,
respectively, related to such options. As of December 31, 2008, the total
unamortized compensation expense related to these options was approximately $1.2
million, which will be amortized over the remaining vesting period of
approximately 4.0 years, or earlier in the event of an initial public offering
of our common stock or a change in control.




FASB Statement No.
123(R): FASB Statement No. 123(R) requires companies to expense the
estimated fair value of employee stock options and similar awards based on the
grant-date fair value of the award. The cost will be recognized on a
straight-line basis over the period during which an employee is required to
provide service in exchange for the award, usually the vesting period. The
Company adopted the provisions of FASB Statement No. 123(R) on December 29, 2005
using a prospective application. Under the prospective application, FASB
Statement No. 123(R) applies to new awards and any awards that are modified or
cancelled subsequent to the date of adoption of FASB Statement No. 123(R). Prior
periods are not revised for comparative purposes. Because the Company used the
minimum value method for its pro forma disclosures under FASB Statement No. 123,
Accounting for Stock-Based
Compensation, options granted prior to December 29, 2005 will continue to
be accounted for in accordance with APB Opinion No. 25 unless such options are
modified, repurchased or cancelled after December 29, 2005.




In order
to meet the fair value measurement objective, the Company utilizes the
Black-Scholes option-pricing model to value compensation expense for share-based
awards granted beginning in 2006 and developed estimates of various inputs
including forfeiture rate, expected term life, expected volatility, and
risk-free interest rate. The forfeiture rate is based on historical rates and
reduces the compensation expense recognized. The expected term of options
granted is derived from the simplified method per Staff Accounting Bulletin No.
107 “SAB 107”. The risk-free interest rate is based on the implied yield on a
U.S. Treasury constant maturity with a remaining term equal to the expected term
of the Company’s employee stock options. Expected volatility is based on the
comparative industry entity data. The Company does not anticipate paying any
cash dividends in the foreseeable future and therefore uses an expected dividend
yield of zero for option valuation.




The
weighted-average estimated fair value of employee stock options granted during
the year ended December 31, 2008 was $42.14 per share using the Black-Scholes
model with the following weighted-average assumptions used to value the option
grants: Expected volatility of 31%; Expected term life - 7.0 years; Forfeiture
rate - 1.22%; Risk-free interest rates - 3.0%; and Expected dividends -
0%.





The
weighted-average estimated fair value of employee stock options granted during
the year ended December 26, 2007 was $49.95 per share using the Black-Scholes
model with the following weighted-average assumptions used to value the option
grants: Expected volatility of 32%; Expected term life - 7.0 years; Forfeiture
rate - 1.22%; Risk-free interest rates ranged from 4.5% to 5.0%; and Expected
dividends - 0%.




The
weighted-average estimated fair value of employee stock options granted during
the year ended December 27, 2006 was $45.86 per share using the Black-Scholes
model with the following weighted-average assumptions used to value the option
grants: Expected volatility of 33%; Expected term life - 7.0 years; Forfeiture
rate - 1.22%; Risk-free interest rates ranged from 4.3% to 4.7%; and Expected
dividends - 0%.





Under the
prospective method of FASB Statement No. 123(R), compensation expense was
recognized during the year ended December 31, 2008 for all stock based payments
granted after December 28, 2005 based on the grant date fair value estimated in
accordance with the provisions of FASB Statement No. 123(R). During the years
ended December 27, 2006, December 26, 2007 and December 31, 2008, the Company
recognized share-based compensation expense before tax of $112,000, $373,000 and
$404,000, respectively, related to stock option grants after December 28, 2005.
These expenses were included in other operating expenses consistent with the
salary expense for the related optionees. This incremental stock-based
compensation expense caused a decrease to net income of $42,000, $152,000 and
$310,000 for the years ended December 27, 2006, December 26, 2007 and December
31, 2008, respectively. The adoption of FASB Statement No. 123(R) did not impact
the Company’s cash flows.




F-23




Upon
consummation of an initial public offering of at least $50 million or a change
in control of CAC, the Company would incur compensation expense related to the
immediate vesting of the unvested portion of certain options. The expense will
be determined by calculating the unrecognized compensation cost as of the date
of the completion of the offering or the change in control.




As of
December 31, 2008, there was total unrecognized compensation expense of $3.1
million related to unvested stock options which the Company expects to recognize
over a weighted average period of 4.1 years.





In
October 2008, the Board of Directors of CAC adopted a Restricted Stock Plan
pursuant to which up to an aggregate of 5,000 shares of CAC common stock may be
awarded to independent directors as compensation for their
services.  No restricted stock awards were granted in
2008.




19.
COMMITMENTS AND CONTINGENCIES




Legal
Matters




On or
about April 16, 2004, former managers Haroldo Elias, Marco Ramirez and Javier
Rivera filed a purported class action lawsuit in the Superior Court of the State
of California, County of Los Angeles, against EPL on behalf of all putative
class members (former and current general managers and restaurant managers from
April 2000 to present) alleging certain violations of California labor laws,
including alleged improper classification of general managers and restaurant
managers as exempt employees. Plaintiffs’ requested remedies include
compensatory damages for unpaid wages, interest, certain statutory penalties,
disgorgement of alleged profits, punitive damages and attorneys’ fees and costs
as well as certain injunctive relief.  Plaintiffs’ motion for class
certification is expected to be filed in April 2009, and briefing completed and
a hearing set in June 2009.  While we intend to defend against this
action vigorously, the ultimate outcome of this case is presently not
determinable as it is in a preliminary phase. Thus, we cannot at this time
determine the likelihood of an adverse judgment or a likely range of damages in
the event of an adverse judgment




On or
about October 18, 2005, Salvador Amezcua, on behalf of himself and all others
similarly situated, filed a purported class action complaint against EPL in the
Superior Court of the State of California, County of Los Angeles. Carlos Olvera
replaced Mr. Amezcua as the named class representative on August 16, 2006. This
action alleges certain violations of California labor laws and the California
Business and Professions Code, based on, among other things, failure to pay
overtime compensation, failure to provide meal periods, unlawful deductions from
earnings and unfair competition. Plaintiffs’ requested remedies include
compensatory and punitive damages, injunctive relief, disgorgement of profits
and reasonable attorneys’ fees and costs.  The court denied EPL’s
motion to compel arbitration, and the Company has appealed that decision. This
matter is subject to an automatic stay while it is pending before the Court of
Appeal. While we intend to defend against this action vigorously, the ultimate
outcome of this case is presently not determinable as it is in a preliminary
phase. Thus, we cannot at this time determine the likelihood of an adverse
judgment or a likely range of damages in the event of an adverse
judgment.




In  2004,
El Pollo Loco S.A. de C.V. (“EPL-Mexico”) filed suit against us alleging, among
other things, that we breached our 1996 agreement with EPL-Mexico by failing to
exploit trademarks and develop new restaurants in Mexico and claiming that the
right to use the name El Pollo Loco ® in
Mexico should revert to EPL-Mexico (the “Mexico Litigation”). This case went to
trial in 2007 and a final judgment against EPL was issued by the Court in the
amount of $20,251,000 plus attorneys fees of $3,031,350. In addition, the Court
terminated the 1996 agreement and ordered EPL to assign all intellectual
property defined in that agreement to EPL-Mexico.  In January 2008,
EPL filed an appeal of these judgments in the U.S. Fifth Circuit Court of
Appeals. The parties settled this matter on June 18, 2008 on the following
terms:  payment to EPL-Mexico of $10,722,860; return of all rights
associated with Mexico trademarks to EPL-Mexico; execution of a Confidential
Settlement and Release Agreement; the judgments against EPL were vacated; and,
EPL received $1,087,500 plus interest which it had deposited into the Court
registry during the litigation. The Settlement Payment, plus certain legal
expenses of $0.2 million, were paid by CAC on behalf of EPL. The payment by CAC
was accounted for as a capital contribution by CAC to EPL with the corresponding
settlement included in other operating expenses in the accompanying consolidated
statement of operations.




On June
22, 2006, the Company filed a complaint for declaratory relief, breach of
written contract and bad faith against Arch Specialty Insurance Company
(Arch), seeking damages and equitable relief for Arch’s refusal to carry
out the obligations of its insurance contract to defend and indemnify, among
other things, the Company in the EPL-Mexico v. EPL-USA trademark litigation
settled in June 2008. Following a trial on the merits, the Court issued a final
decision on March 2, 2009 in favor of EPL, which Arch promptly
appealed.




In April
2007, Dora Santana filed a purported class action in state court in Los Angeles
County on behalf of all “Assistant Shift Managers.” Plaintiff alleges wage and
hour violations including working off the clock, failure to pay overtime, and
meal break violations on behalf of the purported class, currently defined as all
Assistant Managers from April 2003 to present. Written discovery is completed on
the limited issue of class certification.  The Court has ordered that
plaintiffs file their motion for class certification no later than August 15,
2009.  While we intend to defend against this action vigorously, the
ultimate outcome of this case is presently not determinable as it is in a
preliminary phase. Thus, we cannot at this time determine the likelihood of an
adverse judgment or a likely range of damages in the event of an adverse
judgment.




F-24




On or
about October 4, 2007, Robyn James, a former General Manager, filed a lawsuit in
Superior Court for the County of Los Angeles. EPL was served on January 31,
2008. Plaintiff alleges race discrimination as well as retaliation and negligent
hiring and supervision. In addition to suing EPL, plaintiff has named as
individual defendants, the Area Leader of the two stores where she was assigned
and an Assistant Manager. Discovery is completed and we are awaiting assignment
of a trial date.  While we intend to defend against this action
vigorously, the ultimate outcome of this case is presently not determinable.
Thus, we cannot at this time determine the likelihood of an adverse judgment or
a likely range of damages in the event of an adverse
judgment.




On May
30, 2008, Jeannette Delgado, a former Assistant Manager filed a purported class
action on behalf of all hourly (i.e. non-exempt) employees of EPL in state court
in Los Angeles County alleging violations of certain California labor laws and
the California Business and Professions Code including failure to pay overtime,
failure to provide meal periods and rest periods and unfair business practices.
By statute, the purported class extends back four years, to May 30, 2004.
Plaintiff’s requested remedies include compensatory and punitive damages,
injunctive relief, disgorgement of profits and reasonable attorneys’ fees and
costs. This lawsuit was served on the Company in early September 2008 and
discovery has begun. Thus, we cannot at this time determine the likelihood of an
adverse judgment or a likely range of damages in the event of an adverse
judgment.




On or
about February 2, 2009, Sunset & Westridge, LLC, landlord of a restaurant
site in St. George, Utah, filed suit against EPL in Superior Court for the
County of Orange seeking declaratory relief for alleged breach of a commercial
lease.  Plaintiff alleges that the Company wrongfully terminated the lease
in question, citing force majeure delays as justification for missing the
delivery date on the property.  While we intend to defend against this
action vigorously, the ultimate outcome of this case is presently not
determinable as it is in a preliminary phase. Thus, we cannot at this time
determine the likelihood of an adverse judgment or a likely range of damages in
the event of an adverse judgment.




We are
also involved in various other claims and legal actions that arise in the
ordinary course of business. We do not believe that the ultimate resolution of
these other actions will have a material adverse effect on our financial
position, results of operations, liquidity and capital resources. A significant
increase in the number of claims or an increase in amounts owing under
successful claims could materially adversely affect our business, financial
condition, results of operation and cash flows.




Purchasing
Commitments




The
Company has entered into long-term beverage supply agreements with certain major
beverage vendors. Pursuant to the terms of these arrangements, marketing rebates
are provided to the Company and its franchisees from the beverage vendors based
upon the dollar volume of purchases for company-operated restaurants and
franchised restaurants, respectively, which will vary according to their demand
for beverage syrup and fluctuations in the market rates for beverage syrup.
These contracts have terms extending into 2011 with an estimated Company
obligation totaling $6,400,000.





In March
2009, EPL executed chicken supply contracts with two suppliers that are
effective March 2009 and extend for two years.  The agreements provide for
prices and minimum quantities of chicken that EPL must purchase from each
supplier.  The contracts have an estimated Company obligation totalling
$27,000,000.




20.
RELATED PARTY TRANSACTIONS




On
November 18, 2005, CAC entered into a Monitoring and Management Services
Agreement with Trimaran Fund Management, L.L.C. (“Trimaran”), an affiliate of
the majority owner of CAC and of certain directors, which provides for annual
fees of $500,000 plus reasonable expenses. This Agreement was amended on
December 26, 2007 to add an affiliate of the Purchasers (see Note 2) as a party
to the Agreement. Such party shares in the fees payable under the Agreement.
During the years ended December 27, 2006, December 26, 2007 and December 31,
2008, $570,000, $624,000 and $525,000, respectively, was expensed pursuant to
this Agreement. These amounts are included in other operating expenses in the
accompanying consolidated statements of operations.





In
connection with our appeal of the Mexico Litigation described in Note 19, EPL
posted an appeal bond in the amount of $24,301,450. A portion of the appeal bond
was collateralized by a $17,900,000 letter of credit arranged by Trimaran Fund
II, LLC (“Trimaran Fund”). Trimaran Fund is a 20.6% member of the LLC and an
affiliate of certain directors.  To compensate Trimaran Fund for this
accommodation, on December 19, 2007, EPL and CAC entered into two agreements
pursuant to which, among other things, EPL paid Trimaran Fund an up-front fee of
$536,000, representing 3% of the amount of the letter of credit and EPL agreed
to reimburse Trimaran Fund for any amounts it paid in connection with the letter
of credit.


These
agreements were terminated following the settlement of the Mexico Litigation and
Trimaran Fund reimbursed EPL $277,000 of the $536,000 up front fee.





The
Company had receivables from affiliated entities of $115,000 and $221,000 as of
December 26, 2007 and December 31, 2008, respectively.




F-25





EXHIBIT INDEX





Exhibit
      No.
              Footnote
              Description2.1
              (8)
              Unit
      Purchase Agreement, dated December 26, 2007, among EPL Intermediate, Inc.,
      Trimaran Pollo Partners, L.L.C., Chicken Acquisition Corp., El Pollo Loco,
      Inc., FS Equity Partners V, L.P., FS Affiliates V, L.P., Peter Starrett,
      and certain members of Trimaran Pollo Partners, L.L.C.3.1
              (2)
              Certificate
      of Incorporation of EPL Intermediate, Inc.3.2
              (13)
              Amended
      and Restated Bylaws of EPL Intermediate, Inc. as of October 7,
      20084.1
              (5)
              Indenture
      relating to the 2014 Notes, dated November 18, 2005, between EPL
      Intermediate, Inc. (as successor by merger to EPL Intermediate Finance
      Corp.) and The Bank of New York Trust Company, N.A.4.2
              (5)
              Form
      of Note (included as Exhibit A to Exhibit 4.1)4.3
              (5)
              Registration
      Rights Agreement relating to the 2014 Notes, dated November 18, 2005,
      among EPL Intermediate, Inc. (as successor by merger to EPL Intermediate
      Finance Corp.), Merrill Lynch, Pierce, Fenner & Smith Incorporated and
      Banc of America Securities LLC4.4
              (3)
              Indenture
      relating to the 2009 Notes, dated as of December 19, 2003, among El Pollo
      Loco, Inc., EPL Intermediate, Inc. and The Bank of New York, as
      Trustee4.5
              (5)
              Indenture
      relating to the 2013 Notes, dated November 18, 2005, among El Pollo Loco,
      Inc. (as successor by merger to EPL Finance Corp.), EPL Intermediate, Inc.
      and The Bank of New York Trust Company, N.A.4.6
              (5)
              Registration
      Rights Agreement relating to the 2013 Notes, dated November 18, 2005,
      among El Pollo Loco, Inc. (as successor by merger to EPL Finance Corp.),
      Merrill Lynch, Pierce, Fenner & Smith Incorporated and Banc of America
      Securities LLC4.7
              (6)
              Supplemental
      Indenture, dated November 2, 2005, between El Pollo Loco, Inc. and The
      Bank of New York as Trustee10.1
              (5)+
              Employment
      Agreement, dated September 27, 2005, between El Pollo Loco, Inc. and
      Stephen E. Carley10.2
              (5)+
              Employment
      Agreement, dated September 27, 2005, between El Pollo Loco, Inc. and
      Joseph Stein10.3
              (5)
      +
              Amendment
      No. 1 to Stein Employment Agreement, dated October 10, 2005, between El
      Pollo Loco, Inc. and Joseph Stein10.4
              (5)
      +
              Employment
      Agreement, dated November 1, 2005, between El Pollo Loco, Inc. and Brian
      Berkhausen10.5
              (5)
      +
              Employment
      Agreement, dated October 10, 2005, between El Pollo Loco, Inc. and Karen
      Eadon10.6
              (14)+
              Employment
      Agreement, dated June 28, 2007, between El Pollo Loco, Inc. and Jerry
      Lovejoy.10.7
              (14)+
              Personal
      Travel Stipend for Stephen Carley.10.8
              (5)
      +
              Employment
      Agreement, dated October 10, 2005, between El Pollo Loco, Inc. and Jeanne
      Scott10.9
              (5)
      +
              Employment
      Agreement, dated January 9, 2006, between El Pollo Loco, Inc. and Stephen
      Sather10.10
              
              [intentionally
      omitted]10.11
              (13)+
              Chicken
      Acquisition Corp. 2008 Restricted Stock Plan for Directors and related
      Restricted Stock Award Agreement10.12
              (5)
      +
              Form
      of Exchange Stock Option Agreement, entered into between Chicken
      Acquisition Corp. and certain executive officers10.13
              (5)
      +
              Amendment
      No. 1 to Form of Exchange Stock Option Agreement, entered into between
      Chicken Acquisition Corp. and certain executive
  officers





56





10.14
              (5)
      +
              Amendment
      No. 2 to Form of Exchange Stock Option Agreement, entered into between
      Chicken Acquisition Corp. and certain executive
officers10.15
              (5)
      +
              Stockholders
      Agreement, dated November 18, 2005, among Chicken Acquisition Corp.,
      Trimaran Pollo Partners, LLC and other shareholders10.16
              (14)+
              Amendment
      No. 1 to Stockholders Agreement, dated on or about April 20, 2006,
      between Chicken Acquisition Corp. and Trimaran Pollo Partners,
      LLC.10.17
              (7)
              Second
      Amended and Restated Limited Liability Company Operating Agreement of
      Trimaran Pollo Partners, L.L.C., dated March 8, 2006, among affiliates of
      Trimaran Fund Management, L.L.C. and certain other third party
      investors10.18
              (5)
              Monitoring
      and Management Services Agreement, dated November 18, 2005, between
      Chicken Acquisition Corp. and Trimaran Fund Management,
    L.L.C.10.19
              (5)
              Credit
      Agreement, dated November 18, 2005, among El Pollo Loco, Inc., EPL
      Intermediate, Inc., Merrill Lynch Capital Corporation, Bank of America,
      N.A., Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
      Incorporated, CIT Lending Services Corporation and the other lenders party
      thereto10.20
              (5)
              Security
      Agreement, dated as of November 18, 2005, with Merrill Lynch Capital
      Corporation10.21
              (5)
              Securities
      Pledge Agreement, dated as of November 18, 2005, with Merrill Lynch
      Capital Corporation10.22
              (5)
              Guaranty,
      dated as of November 18, 2005, with Merrill Lynch Capital
      Corporation10.23
              (9)
      +
              Form
      of Non-Qualified Stock Option Agreement for directors with Chicken
      Acquisition Corp.10.24
              (5)
      +
              Form
      of Non-Qualified Stock Option Agreement for officers with Chicken
      Acquisition Corp.10.25
              (5)
      +
              Chicken
      Acquisition Corp. 2005 Stock Option Plan10.26
              (16)
              Confidential
      Settlement and Release Agreement dated June 18, 2008, between El Pollo
      Loco, Inc. and El Pollo Loco, S.A. de C.V.10.27
              (16)
              Termination
      Agreeement dated June 23, 2008, among El Pollo Loco, Inc., Chicken
      Acquisition Corp. and Trimaran Fund II, LLC10.28
              (3)
              Form
      of Franchise Development Agreement10.29
              (3)
              Form
      of Franchise Agreement10.30
              +
              Compensation
      of Independent Directors10.31
              (9)
              Fiesta
      Brands Development Agreement dated August 10, 2006.10.32
              (8)
              Amendment
      No. 1 to the Monitoring and Management Services Agreement, dated December
      26, 2007, among Chicken Acquisition Corp., Trimaran Fund Management, LLC,
      and Freeman Spogli & Co. V, L.P.10.33
              (8)
              Amendment
      No. 1 to the Second Amended and Restated Limited Liability Company
      Operating Agreement of Trimaran Pollo Partners, L.L.C., dated December 26,
      2007, among Trimaran Pollo Partners, LLC, certain members of Trimaran
      Pollo Partners, LLC, FS Equity Partners V, L.P. and  FS
      Affiliates V, L.P.10.34
              (8)
              Amendment
      No. 2 to the Stockholders Agreement, dated December 26, 2007, between
      Chicken Acquisition Corp. and Trimaran Pollo Partners, LLC. Note: this
      exhibit was incorrectly identified as Amendment No. 1 to the Stockholders
      Agreements in the Form 8-K filed on January 2, 2008. Amendment No. 1 to
      the Stockholders Agreement is filed as Exhibit No. 10.16
      hereto.10.35
              (14)
              Payment
      and Subscription Agreement, dated December 19, 2007, among El Pollo Loco,
      Inc., Chicken Acquisition Corp. and Trimaran Fund II,
  LLC.10.36
              (14)
              Fee
      Agreement, dated December 19, 2007, among El Pollo Loco, Inc., Chicken
      Acquisition Corp. and Trimaran Fund II, LLC.10.37
              (10)*
              Letter
      Agreement dated February 27, 2007 between El Pollo Loco, Inc. and
      Pilgrim’s Pride Corporation.10.38
              (10)
      +
              Independent
      Directors Stock Plan10.39
              (10)
              Lease
      dated May 18, 2007, between El Pollo Loco, Inc. and C.J. Segerstrom &
      Sons.





57





10.40
            (11)
            Amendment
      No. 1 and Agreement dated March 14, 2007 relating to Credit Agreement
      dated November 18, 2005.10.41
            (12)
            Amendment
      No. 2 to Second Amended and Restated Limited Liability Company Operating
      Agreement of Trimaran Pollo Partners, L.L.C., dated January 30, 2008,
      among Trimaran Pollo Partners, LLC, certain members of Trimaran Pollo
      Partners, LLC, FS Equity Partners V, L.P. and  FS Affiliates V,
      L.P.10.42
            (14)+
            Form
      of Amendment dated March 19,  2008, to the Officer Employment
      Agreements filed as exhibits 10.1, 10.2, 10.4, 10.5, 10.6, 10.8 and 10.9
      hereto.10.43
            (14)+
            Adjustment
      to Calculation of EBITDA Applicable to Executive Bonus Awards effective
      February 6, 2008.10.44
            (14)+
            Definition
      of EBITDA applicable to Executive Bonus Awards pursuant to Amendment to
      Employment Agreements (Exhibit 10.42 hereto).10.45
              
              10.46
              
              10.47
            (15)*
              
              (15)*
              
              (15)*
            Letter
      Agreement dated February 25, 2008, between El Pollo Loco, Inc. and Simmons
      Prepared Foods, Inc.*
              
              Letter
      Agreement dated February 25, 2008, between El Pollo Loco, Inc. and
      Cagle’s, Inc. *
              
              Letter
      Agreement dated February 4, 2008 between El Pollo Loco, Inc. and Koch
      Foods, Inc. *12.1
            
            Computation
      of Ratio of Earnings to Fixed Charges14.1
            (4)
            El
      Pollo Loco, Inc. Code of Business Ethics & Conduct21.1
            (2)
            Subsidiaries
      of EPL Intermediate, Inc.31.1
            
            Certification
      Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
      Act of 193431.2
            
            Certification
      Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange
      Act of 193432.1
            
            Certification
      Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
      Act of 193432.2
            
            Certification
      Pursuant to Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange
      Act of 193499.1
            
            Press
      Release dated March 30, 2009.


58




Footnotes:


(1)
            Intentionally
      omitted.




(2)
            Incorporated
      by reference to EPL Intermediate, Inc.’s Registration Statement on Form
      S-4 (File No. 333-115644) filed on May 19,
2004.




(3)
            Incorporated
      by reference to El Pollo Loco, Inc.’s Registration Statement on Form S-4
      (File No. 333-115486) filed on May 14,
2004.




(4)
            Incorporated
      by reference to El Pollo Loco, Inc.’s Annual Report on Form 10-K for the
      year ended December 29, 2004 (File No. 333-115486) filed on March 28,
      2005.




(5)
            Incorporated
      by reference to EPL Intermediate, Inc.’s Form 10-K for the year ended
      December 27, 2005 (File No. 333-115644) filed on April 10,
      2006.




(6)
            Incorporated
      by reference to El Pollo Loco, Inc.’s Form 8-K filed on November 4,
      2005.




(7)
            Incorporated
      by reference to EPL Intermediate Inc.’s Registration Statement on Form S-4
      (File No. 333-133318) filed on April 14,
2006.




(8)
            Incorporated
      by reference to EPL Intermediate Inc.’s Form 8-K (File No. 333-115644)
      filed on January 2, 2008.




(9)
            Incorporated
      by reference to EPL Intermediate Inc.’s Form 10-K (File No. 333-115644)
      filed March 23, 2007.




(10)
            Incorporated
      by reference to EPL Intermediate Inc.’s Form 10-Q (File No. 333-115644)
      filed August 10, 2007.




(11)
            Incorporated
      by reference to EPL Intermediate Inc.’s Form 10-Q (File No. 333-115644)
      filed May 14, 2007.




(12)
              
              (13)
              
              (14)
              
              (15)
              
              (16)
            Incorporated
      by reference to EPL Intermediate, Inc.’s Form 8-K (File No. 333-115644)
      filed February 5, 2008.
              
              Incorporated
      by reference to EPL Intermediate, Inc.’s Form 10-Q (File No. 333-115644)
      filed November 7, 2008
              
              Incorporated
      by reference to EPL Intermediate, Inc.’s Form 10-K (File No. 333-115644)
      filed March 24, 2008
              
              Incorporated
      by reference to EPL Intermediate, Inc.’s Form 10-Q (File No. 333-115644)
      filed May 9, 2008
              
              Incorporated
      by reference to EPL Intermediate, Inc.’s Form 10-Q (File No. 333-115644)
      filed August 11, 2008




+
            Management
      contracts and compensatory plans and
  arrangements.




*
            Certain
      confidential portions of this exhibit have been redacted and filed
      separately with the Commission pursuant to a Confidential Treatment
      Request.





59