Shake Shack 2016 Annual Report Download - page 37

Table of Contents
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
Shake Shack is controlled by the Continuing SSE Equity Owners, whose interests may differ from those of our public stockholders.
As of December 30, 2015, the Continuing SSE Equity Owners control approximately 66.0% of the combined voting power of our common stock through their
ownership of both our Class A and Class B common stock. The Continuing SSE Equity Owners, for the foreseeable future, have significant influence over
corporate management and affairs, and control virtually all matters requiring stockholder approval. The Continuing SSE Equity Owners are able to, subject to
applicable law, and the voting arrangements allow the Continuing SSE Equity Owners to, elect a majority of the members of our Board of Directors and control
actions to be taken by us and our Board of Directors, including amendments to our certificate of incorporation and bylaws and approval of significant corporate
transactions, including mergers and sales of substantially all of our assets. The directors so elected will have the authority, subject to the terms of our indebtedness
and applicable rules and regulations, to issue additional stock, implement stock repurchase programs, declare dividends and make other decisions. It is possible that
the interests of the Continuing SSE Equity Owners may in some circumstances conflict with our interests and the interests of our other stockholders. For example,
the Continuing SSE Equity Owners may have different tax positions from us, especially in light of the agreement we entered into with the Continuing SSE Equity
Owners that provides for the payment by us to the Continuing SSE Equity Owners of 85% of the amount of any tax benefits that we actually realize, or in some
cases are deemed to realize (the "Tax Receivable Agreement") , that could influence their decisions regarding whether and when to dispose of assets, whether and
when to incur new or refinance existing indebtedness, and whether and when Shake Shack should terminate the Tax Receivable Agreement and accelerate its
obligations thereunder. In addition, the determination of future tax reporting positions, the structuring of future transactions and the handling of any future
challenges by any taxing authorities to our tax reporting positions may take into consideration these Continuing SSE Equity Owners' tax or other considerations,
which may differ from the considerations of us or our other stockholders.
In addition, certain of the Continuing SSE Equity Owners are in the business of making or advising on investments in companies and may hold, and may from time
to time in the future acquire interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or the business of
our suppliers. Our amended and restated certificate of incorporation provides that, to the fullest extent permitted by law, none of the Continuing SSE Equity
Owners or any director who is not employed by us or his or her affiliates has any duty to refrain from engaging in a corporate opportunity in the same or similar
lines of business as us. The Continuing SSE Equity Owners may also pursue acquisitions that may be complementary to our business, and, as a result, those
acquisition opportunities may not be available to us.
Our organizational structure, including the Tax Receivable Agreement, confers certain benefits upon the Continuing SSE Equity Owners that will not benefit
Class A common stockholders to the same extent as it will benefit the Continuing SSE Equity Owners.
We are a party to the Tax Receivable Agreement with the Continuing SSE Equity Owners. Under the Tax Receivable Agreement, we are required to make cash
payments to the Continuing SSE Equity Owners equal to 85% of the tax benefits, if any, that we actually realize, or in certain circumstances are deemed to realize,
as a result of (i) the increases in the tax basis of assets of SSE Holdings resulting from any redemptions or exchanges of LLC Interests from the Continuing SSE
Equity Owners and (ii) certain other tax benefits related to our making payments under the Tax Receivable Agreement.
We expect that the amount of the cash payments that we are required to make under the Tax Receivable Agreement will be significant. Any payments made by us
to the Continuing SSE Equity Owners under the Tax Receivable Agreement will generally reduce the amount of overall cash flow that might have otherwise been
available to us. Furthermore, our future obligation to make payments under the Tax Receivable Agreement could make us a less attractive target for an acquisition,
particularly in the case of an acquirer that cannot use some or all of the tax benefits that are the subject of the Tax Receivable Agreement. Payments under the Tax
Receivable Agreement are not conditioned on any Continuing SSE Equity Owner's continued ownership of LLC Interests or our Class A common stock after the
IPO.
35 | Shake Shack Inc. Form 10-K