NOTICE OF SETTLEMENT OF DERIVATIVE ACTION
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NOTICE OF PENDENCY OF DERIVATIVE ACTION, PROPOSED AGREEMENT OF SETTLEMENT AND RELEASE, AND SETTLEMENT HEARING


TO: ALL CURRENT RECORD HOLDERS AND BENEFICIAL OWNERS OF COMMON STOCK OF CHIPOTLE MEXICAN GRILL, INC. (“CHIPOTLE” OR THE “COMPANY”) AS OF JANUARY 31, 2014 (THE “RECORD DATE”) (“CURRENT CHIPOTLE SHAREHOLDERS”).

PLEASE READ THIS NOTICE CAREFULLY AND IN ITS ENTIRETY. THIS NOTICE RELATES TO A PROPOSED SETTLEMENT AND DISMISSAL OF RICHEY V. ELLS, NO. 12-CV-01831-WJM-MEH (THE “ACTION”), A SHAREHOLDER DERIVATIVE ACTION, AND CONTAINS IMPORTANT INFORMATION REGARDING YOUR RIGHTS. IF THE COURT APPROVES THE SETTLEMENT, YOU WILL BE FOREVER BARRED FROM CONTESTING THE APPROVAL OF THE PROPOSED SETTLEMENT AND FROM PURSUING THE “RELEASED CLAIMS,” AS DEFINED HEREIN.

THE COURT HAS MADE NO FINDINGS OR DETERMINATIONS CONCERNING THE MERITS OF THE ACTION. THE RECITATION OF THE BACKGROUND AND CIRCUMSTANCES OF THE SETTLEMENT CONTAINED HEREIN DOES NOT CONSTITUTE THE FINDINGS OF THE COURT. IT IS BASED ON REPRESENTATIONS MADE TO THE COURT BY COUNSEL FOR THE PARTIES.

Notice is hereby provided to you of the proposed settlement (the “Settlement”) of this shareholder derivative lawsuit. This Notice is provided by Order of the United States District Court for the District of Colorado (the “Court”). It is not an expression of any opinion by the Court. It is to notify you of the terms of the proposed Settlement, and your rights related thereto.

1. WHY THE COMPANY HAS ISSUED THIS NOTICE

Saleem Mohammed, Joanne Nelson, and Francis Schmitz (collectively “Plaintiffs”), Nominal Defendant Chipotle, and defendants M. Steven Ells, Montgomery F. Moran, Albert S. Baldocchi, John S. Charlesworth, Neil W. Flanzraich, Patrick J. Flynn, John. R. Hartung, and Darlene J. Friedman (collectively “Defendants,” and collectively with Plaintiffs and Chipotle the “Parties”) have agreed upon terms to settle the Action on the terms set forth in the Stipulation and Agreement of Settlement and Release (“Agreement”), dated January 31, 2014, which can be viewed and/or downloaded at www.chipotle.com.

On August 20, 2014 at 10:00 a.m., the Court will hold a hearing (the “Settlement Hearing”) in the Action. The purpose of the Settlement Hearing is to determine: (i) whether the terms of the Agreement are fair, reasonable, and adequate and should be approved; (ii) whether a final judgment should be entered; and (iii) such other matters as may be necessary or proper under the circumstances.

2. SUMMARY OF THE ACTION

On July 12, 2012, former plaintiff Ralph Richey initiated the Action in the United States District Court for the District of Colorado, and Ralph Richey was subsequently succeeded by Plaintiff Saleem Mohammed (the “Mohammed Action”). Two other plaintiffs, Joanne Nelson and Francis Schmitz, filed related lawsuits in the District of Colorado on September 21, 2012 and October 4, 2012, respectively. On January 17, 2012, those lawsuits were consolidated by order of the Court with the Mohammed Action. Plaintiffs purport to assert derivative claims on behalf of Chipotle against the Defendants, who, at the time of the alleged wrongdoing, were directors and/or officers of Chipotle.

On March 20, 2013, Plaintiffs collectively filed an Amended Consolidated Verified Shareholder Derivative Complaint (the “Complaint”) asserting a cause of action for breach of fiduciary duties (“Plaintiffs’ Claim”) based on: (a) alleged acts or omissions of Defendants related to the Company’s alleged noncompliance with immigration and work authorization laws from the period 2003 through the present, including, but not limited to, allegations related to pending investigations into the Company by the United States Securities and Exchange Commission, United States Immigration and Customs Enforcement, and the United States Attorney for the District of Columbia; and (b) alleged acts or omissions of Defendants related to securities fraud allegations against the Company, including, but not limited to, those contained in two actions in the United States District Court for the District of Colorado styled City of Dania Beach Police & Firefighters’ Retirement System v. Chipotle Mexican Grill, Inc., No. 12-cv-2164-PAB-KLM (the “City of Dania Action”) and Kim v. Chipotle Mexican Grill, Inc., No. 12-cv-2193-PAB-KLM (the “Kim Action”) (collectively “Plaintiffs’ Allegations”). In the Complaint, Plaintiffs allege that Chipotle suffered injury as a result of Plaintiffs’ Allegations.

On May 22, 2013, Defendants and nominal defendant Chipotle moved to dismiss the Complaint on the grounds that the Action is not ripe for judicial review because the Complaint alleges only potential injury and is reliant on contingent future events that may not occur (the “Motion to Dismiss”). The Motion to Dismiss has been fully briefed and the Court has not ruled in favor of Plaintiffs or Defendants.

On July 18, 2013, the District of Colorado dismissed, with prejudice, the City of Dania and Kim securities class actions filed against Chipotle.

3. SETTLEMENT

On January 31, 2014, Plaintiffs and Defendants entered into the Agreement to resolve the Action. Pursuant to the Agreement, Chipotle will institute certain corporate reforms to its hiring and employment procedures so that those procedures continue to exceed the requirements of federal immigration laws. As explained in more detail in the Agreement, Chipotle will implement the following corporate reforms:

  1. The Board of Directors of Chipotle shall adopt an amendment to the Corporate Charter of Chipotle’s Audit Committee (the “Audit Committee”) specifying that the Audit Committee shall receive regular reports (as set forth below) regarding the Company’s compliance with applicable federal and state regulations regarding its hiring controls and procedures and shall have the authority, in the exercise of its business judgment, to take appropriate action in connection with any material issues discussed in the Reports, including, without limitation, the authority to retain independent advisor(s).

    The Audit Committee shall receive a written report from the Director of Compliance regarding Chipotle’s employment compliance practices and procedures and adherence thereto (the “Report”) no less than twice per fiscal year. The Director of Compliance and any members of his/her staff will be required to attend any meeting(s) of the Audit Committee where it reviews or discussed the Report.

  2. The Report shall include a discussion of, at a minimum, certain specified topics relating to compliance practices and procedures. At the discretion of the Audit Committee, the Audit Committee shall report any material issues, including any deficiencies identified in the Report, to the full Board of Directors.

  3. These requirements shall remain in effect for at least until the earlier of (a) three (3) years after the effective date of any settlement, or (b) subsequent changes in law, if any, render the requirements irrelevant in whole or in large part.

The Agreement also provides for the entry of judgment dismissing the Action against the Defendants with prejudice and, as explained in more detail in the Agreement, releasing and discharging certain known and unknown claims that could have been brought in any court by the Plaintiffs in the Action or by Chipotle, or any of its shareholders, derivatively against the Defendants and Chipotle and all of their past, present, and future officers, directors, shareholders, members, partners, managers, agents, attorneys, and insurers that relate to, arise out of, or concern Plaintiffs’ Claim or Plaintiffs’ Allegations.

4. PLAINTIFFS’ ATTORNEYS’ FEES AND EXPENSES

After negotiating corporate governance reforms, counsel for Plaintiffs, the Company, and Defendants negotiated the attorneys’ fees that Chipotle would pay to Plaintiffs’ Counsel. As a result of these negotiations, and in light of the substantial benefit conferred, Chipotle has agreed to pay Plaintiffs’ Counsel attorneys’ fees and expenses of $525,000 (“Fee Award”). To date, Plaintiffs’ Counsel have not received any payments for their efforts. The Fee Award will compensate Plaintiffs’ Counsel for their efforts in prosecuting this Action and the substantial benefits achieved for Chipotle and its shareholders.

5. REASONS FOR THE SETTLEMENT

The Court did not decide in favor of Plaintiffs or Defendants. The proposed Settlement was negotiated at arm’s-length by attorneys for the Parties. The attorneys for all of the Parties have extensive experience in shareholder derivative cases, and they all believe the Settlement is in the best interest of their clients. Chipotle and Plaintiffs believe that the Settlement provides substantial benefits upon Chipotle and its shareholders.

5.1 Why Did Plaintiffs Agree to Settle?

Plaintiffs’ Counsel investigated claims and the underlying events and transactions alleged in the Action. Plaintiffs’ Counsel have analyzed the evidence adduced during their investigation, and have researched the applicable law with respect to the claims of Plaintiffs, Chipotle, and its shareholders against Defendants and the potential defenses thereto.

Based upon their investigation, Plaintiffs and their counsel have concluded that the terms and conditions of the Agreement are fair, reasonable, and adequate to Plaintiffs, Current Chipotle Shareholders, and Chipotle, and in their best interests, and have agreed to settle the claims raised in the Action pursuant to the terms and provisions of the Agreement after considering, among other things: (a) the substantial benefits that Chipotle and its shareholders will receive from the Agreement, (b) the attendant risks of continued litigation of the Action, and (c) the desirability of permitting the Settlement to be consummated.

In particular, Plaintiffs and their counsel considered the significant litigation risk inherent in this Action. The law imposes significant burdens on Plaintiffs for pleading and proving a shareholder derivative claim. While Plaintiffs believe their claims are meritorious, Plaintiffs acknowledge that there is a substantial risk that the Action may not succeed in producing a recovery in light of the applicable legal standards and possible defenses. Plaintiffs and their counsel believe that, under the circumstances, they have obtained the best possible relief for Chipotle and its shareholders.

5.2 Why Did the Defendants Agree to Settle?

Litigation presents inherent risks. Although Defendants deny that they acted improperly, the defense of the Action requires an expenditure of corporate resources, in particular, of management time and attention. After investigation of the underlying facts and analyzing the applicable law, Defendants believe that the arm’s-length Settlement negotiated with Plaintiffs is appropriate under the circumstances. The Settlement provides a certain and specific resolution of the disputes and provides corporate governance changes that are beneficial to Chipotle’s shareholders. The Settlement also permits Chipotle’s management to focus their attention on Chipotle’s business affairs, which is where the focus of management should be.

6. SETTLEMENT HEARING

On August 20, 2014 at 10:00 a.m., the Court will hold the Settlement Hearing before the Honorable William J. Martinez at the Alfred A. Arraj United States Courthouse, 901 19th Street Denver, Colorado 80294-3589, in Courtroom A801. At the Settlement Hearing, the Court will consider whether the terms of the Settlement are fair, reasonable, and adequate and thus should be finally approved and whether the Action should be dismissed with prejudice pursuant to the Agreement.

7. RIGHT TO ATTEND SETTLEMENT HEARING

Any Current Chipotle Shareholder may, but is not required to, appear in person at the Settlement Hearing. If you want to be heard at the Settlement Hearing, you must first comply with the procedures for objecting, which are set forth below. The Court has the right to change the hearing date or time without further notice. Thus, if you are planning to attend the Settlement Hearing, you should confirm the date and time before going to the Court. CURRENT CHIPOTLE SHAREHOLDERS WHO HAVE NO OBJECTION TO THE SETTLEMENT DO NOT NEED TO APPEAR AT THE SETTLEMENT HEARING OR TAKE ANY OTHER ACTION.

8. RIGHT TO OBJECT TO SETTLEMENT AND PROCEDURES FOR DOING SO

You have the right to object to any aspect of the Settlement. You must object in writing, and you may request to be heard at the Settlement Hearing. If you choose to object, then you must follow these procedures.

8.1 You Must Make Detailed Objections in Writing

Any objection must be presented in writing and must contain the following information. The Court may not consider any objection that does not substantially include the following information:

  1. Your name, legal address, and telephone number;

  2. Proof of being a Current Chipotle Shareholder as of the Record Date;

  3. The date(s) you purchased your Chipotle shares;

  4. A statement of your position with respect to the matters to be heard at the Settlement Hearing, including a statement of each objection being made;

  5. The grounds for each objection or the reasons for your desiring to appear and to be heard;

  6. Notice of whether you intend to appear at the Settlement Hearing (this is not required if you have lodged your objection with the Court); and

  7. Copies of any papers you intend to submit to the Court, along with the names of any witness(es) you intend to call to testify at the Settlement Hearing and the subject(s) of their testimony.

8.2 You Must Timely Deliver Written Objections to the Court, Plaintiffs’ Counsel, and Defendants’ Counsel

YOUR WRITTEN OBJECTIONS MUST BE ON FILE WITH THE CLERK OF THE COURT NO LATER THAN FOURTEEN (14) DAYS BEFORE THE SETTLEMENT HEARING.

The Court Clerk’s address is:

Clerk of the Court
United States District Court
District of Colorado
Alfred A. Arraj United States Courthouse
901 19th Street
Denver, Colorado 80294-3589

YOU ALSO MUST DELIVER COPIES OF THE MATERIALS TO COUNSEL FOR PLAINTIFFS AND COUNSEL FOR DEFENDANTS SO THEY ARE RECEIVED NO LATER THAN TWENTY (20) DAYS BEFORE THE SETTLEMENT HEARING.

Counsel’s addresses are:

Seth D. Rigrodsky Scott Leonard Evans
Brian D. Long Messner Reeves LLP
Rigrodsky & Long, P.A. 1430 Wynkoop Street, Suite 300
2 Righter Parkway, Suite 120 Denver, CO 80202
Wilmington, DE 19801
   
Counsel for Plaintiffs Counsel for the Defendants and Chipotle

9. HOW TO OBTAIN ADDITIONAL INFORMATION

This Notice summarizes the Agreement. It is not a complete statement of the events of the Action or the Agreement.

You may inspect the Agreement and other papers in the Action at the United States District for the District of Colorado’s Clerk’s office at any time during regular business hours of each business day. The Clerk’s office is located at the United States District Court for the District of Colorado, Alfred A. Arraj United States Courthouse, 901 19th Street, Denver, Colorado 80294-3589.

PLEASE DO NOT CALL, WRITE, OR OTHERWISE DIRECT QUESTIONS TO EITHER THE COURT OR THE CLERK’S OFFICE. Any questions you have about matters in this Notice should be directed by telephone to Rigrodsky & Long, P.A. at 302-295-5310 or in writing to Rigrodsky & Long, P.A., 2 Righter Parkway, Suite 120 Wilmington, DE 19801.

DATED: May 19, 2014
BY ORDER OF THE COURT
UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO