Shake Shack 2015 Annual Report Download - page 52

Table of Contents
SHAKE SHACK INC.
NOTES TO BALANCE SHEETS
(dollar amounts in thousands, except share and per share amounts)
Following the completion of the Organizational Transactions, the Corporation owns 33.3% of SSE Holdings. The SSE Holdings members subsequent to the Merger (the "
Continuing
SSE Equity Owners ") own the remaining 66.7% of SSE Holdings.
SSE Holdings Recapitalization
As noted above, in connection with the IPO, the limited liability company agreement of SSE Holdings was amended and restated to, among other things, (i) provide for a new single
class of common membership interests in SSE Holdings, or the LLC Interests; (ii) exchange all of the then existing membership interests of the Original SSE Equity Owners for LLC
Interests and (iii) appoint the Corporation as the sole managing member of SSE Holdings. Although the Corporation has a minority economic interest in SSE Holdings, as the sole
managing member, they have the sole voting power in, and control the management of, SSE Holdings. As a result, the Corporation will consolidate the financial results of SSE
Holdings and report a non-controlling interest.
The amendment also requires that SSE Holdings, at all times, maintain (i) a one-to-
one ratio between the number of shares of Class A common stock issued by the Corporation and the
number of LLC Interests owned by the Corporation and (ii) a one-to-
one ratio between the number of shares of Class B common stock owned by the Continuing SSE Equity Owners
and the number of LLC Interests owned by the Continuing SSE Equity Owners.
Amendment and Restatement of Certificate of Incorporation
As noted above, on February 4, 2015, the Corporation's certificate of incorporation was amended and restated to, among other things, provide for the (i) authorization of 200,000,000
shares of Class A common stock with a par value of $0.001 per share; (ii) authorization of 35,000,000 shares of Class B common stock with a par value of $0.001 per share; (iii)
authorization of 10,000,000 shares of undesignated preferred stock that may be issued from time to time by the Corporation's Board of Directors in one or more series; and (iv)
establishment of a classified board of directors, divided into three classes, each of whose members will serve for staggered three-year terms.
Holders of Class A and Class B common stock are entitled to one vote per share and, except as otherwise required, will vote together as a single class on all matters on which
stockholders generally are entitled to vote. Holders of Class B common stock are not entitled to receive dividends and will not be entitled to receive any distributions upon the
liquidation, dissolution or winding up of the Corporation. Shares of Class B common stock may only be issued to the extent necessary to maintain the one-to-
one ratio between the
number of LLC Interests held by the Continuing SSE Equity Owners and the number of shares of Class B common stock held by the Continuing SSE Equity Owners. Shares of Class B
common stock are transferable only together with an equal number of LLC Interests. Shares of Class B common stock will be canceled on a one-for-
one basis if we, at the election of a
Continuing SSE Equity Owner, redeem or exchange LLC Interests.
The Corporation must, at all times, maintain a one-to-
one ratio between the number of shares of Class A common stock issued by the Corporation and the number of LLC Interests
owned by the Corporation (subject to certain exceptions for treasury shares and shares underlying certain convertible or exchangeable securities).
Acquisition of Former SSE Equity Owners
As noted above, on February 4, 2015, we acquired, by merger, two entities that were members of SSE Holdings, or the Former SSE Equity Owners, for which we issued 5,968,841
shares of Class A common stock as merger consideration. The only assets held by the Former SSE Equity Owners were 5,968,841 LLC Interests and a corresponding number of shares
of Class B common stock. Upon consummation of the Merger, the Corporation canceled the 5,968,841 shares of Class B common stock and recognized the 5,968,841 of LLC Interests
at carrying value, as the Merger is considered to be a transaction between entities under common control. Following the Merger, the Corporation now holds 12,058,147 LLC Interests,
representing a 33.3% ownership interest in SSE Holdings.
Tax Receivable Agreement
We expect to obtain an increase in our share of the tax basis of the assets of SSE Holdings when LLC Interests are redeemed or exchanged by the Continuing SSE Equity Owners and
other qualifying transactions. This increase in tax basis may have the effect of reducing the amounts that we would otherwise pay in the future to various tax authorities. The increase in
tax basis may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
On February 4, 2015, the Corporation entered into a tax receivable agreement with the Continuing SSE Equity Owners (the " Tax Receivable Agreement
") that provides for the
payment by the Corporation to the Continuing SSE Equity Owners of 85% of the amount of tax benefits, if any, that Shake Shack actually realizes as a result of (i) increases in the tax
basis of assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests or any prior sales of interests in SSE Holdings and (ii) certain other tax benefits related
to our making payments under the Tax Receivable Agreement.
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▪ the acquisition, by merger, of certain members of SSE Holdings (" Former SSE Equity Owners
"), for which we issued 5,968,841 shares Class A common stock as merger
consideration (the " Merger ").