This excerpt taken from the CMG 10-K filed Mar 17, 2006.
Conflicts of interest between McDonald's and us could be resolved in a manner unfavorable to us.
Various conflicts of interest between McDonald's and us could arise. Many of our officers own stock in McDonald's, in some cases it could be more than the amount of Chipotle common stock they own. In addition, one of our directors, Mats Lederhausen, is Managing Director of our controlling shareholder, McDonald's Ventures, LLC. Ownership interests of directors or officers of McDonald's in the common stock of Chipotle, or a person's service as either a director or officer of both companies, could create or appear to create potential conflicts of interest when those directors and officers are faced with decisions that could have different implications for McDonald's and Chipotle. These decisions could, for example, relate to:
Potential conflicts of interest could also arise if we enter into any new commercial arrangements with McDonald's in the future. Our directors and officers who have interests in both McDonald's and us may also face conflicts of interest with regard to the allocation of their time between McDonald's and Chipotle. Our restated certificate of incorporation includes the following provisions relating to corporate opportunities of us and McDonald's, which provisions will remain in effect for so long as McDonald's owns at least 5% of our outstanding common stock or at least one person who is a director or officer of us is also a director or officer of McDonald's:
directs such corporate opportunity to another person or entity, or does not communicate information about, or offer, such corporate opportunity to us.
Prior to our initial public offering, our tax allocation agreement with McDonald's provided that McDonald's, as our parent, had the sole authority to file federal income tax returns and most state income tax returns on our behalf and that McDonald's would be responsible for administering that agreement until the consummation of the initial public offering. This arrangement terminated for federal and some state income tax purposes for taxable periods following the initial public offering. However, the tax allocation agreement remains in effect for taxable years prior to the initial public offering and for some state returns. Consequently, this may result in conflicts of interest between McDonald's and us. For example, McDonald's may choose to contest, compromise or settle any adjustment or deficiency proposed by the relevant taxing authority in a manner that may be beneficial to McDonald's and detrimental to us and for which we may be required to reimburse McDonald's under the tax allocation agreement. The tax allocation agreement will continue to apply to, and govern, the sharing of tax liabilities between McDonald's and us for state tax purposes for those states in which we and McDonald's will continue to file tax returns on a combined basis.