Chipotle 2012 Annual Report Download - page 25

Download and view the complete annual report

Please find page 25 of the 2012 Chipotle annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 136

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136

Restrictions and indemnities in connection with the tax treatment of the exchange offer through which
we separated from McDonald’s could adversely affect us.
McDonald’s Corporation was our majority owner from 2000 until October 2006. We understand that the
exchange offer McDonald’s completed in October 2006 to dispose of its interest in us was generally tax-free to
McDonald’s and its shareholders. In order to protect the tax-free status of the exchange offer, in the separation
agreement we entered into with McDonald’s in connection with the separation we agreed among other things to
indemnify McDonald’s for taxes and related losses it incurs as a result of the exchange failing to qualify as a tax-
free transaction in certain situations, if the taxes and related losses are attributable to (i) certain direct or indirect
acquisitions of our stock or assets (regardless of whether we consent to such acquisitions); (ii) negotiations,
understandings, agreements or arrangements in respect of such acquisitions; or (iii) any amendment to our
certificate of incorporation that affects the relative voting rights of any separate classes of our common stock. In
December 2009, following completion of an extensive due diligence process, we completed a share conversion
eliminating the existence of our class B common stock, and with it the superior voting rights of the class B
common stock. In the event the share conversion is deemed to result in the McDonald’s exchange offer failing to
qualify as a tax-free transaction, we may have an indemnification obligation under the provision described above.
We currently estimate that the indemnification obligation to McDonald’s could exceed $450 million, and this
estimate does not take into account related losses and depends upon several factors that are beyond our control.
As a consequence, the indemnity to McDonald’s could vary substantially from the estimate and may be much
greater.
Our anti-takeover provisions may delay or prevent a change in control of us, which could adversely affect
the price of our common stock.
Certain provisions in our corporate documents and Delaware law may delay or prevent a change in control
of us, which could adversely affect the price of our common stock. Our amended and restated certificate of
incorporation and amended and restated bylaws contain some provisions that may make the acquisition of control
of us without the approval of our board of directors more difficult, including provisions relating to the
nomination, election and removal of directors, the structure of the board of directors and limitations on actions by
our shareholders. In addition, Delaware law also imposes some restrictions on mergers and other business
combinations between us and any holder of 15% or more of our outstanding common stock. Any of these
provisions, as well as the provisions of our separation agreement with McDonald’s described above under
“Restrictions and indemnities in connection with the tax treatment of the exchange offer through which we
separated from McDonald’s could adversely affect us,” may discourage a potential acquirer from proposing or
completing a transaction that may have otherwise presented a premium to our shareholders.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
23
Annual Report