UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
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☐ | Soliciting Material Pursuant to §240.14a-12 |
CHIPOTLE MEXICAN GRILL, INC.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Chipotle Mexican Grill, Inc.
1401 Wynkoop Street, Suite 500
Denver, CO 80202
April 2, 2018
DEAR SHAREHOLDER:
You are cordially invited to attend the annual meeting of shareholders of Chipotle Mexican Grill, Inc., which will be held on May 22, 2018 at 8:00 a.m. local time at The Westin Denver Downtown, 1672 Lawrence Street, Denver, Colorado. Details of the business to be conducted at the annual meeting are given in the notice of meeting and proxy statement that follow.
Please vote promptly by following the instructions in this proxy statement or in the Notice of Internet Availability of Proxy Materials that was sent to you.
Sincerely,
/s/ Brian Niccol
Chief Executive Officer
NOTICE OF MEETING
The 2018 annual meeting of shareholders of Chipotle Mexican Grill, Inc. will be held on May 22, 2018 at 8:00 a.m. local time at The Westin Denver Downtown, 1672 Lawrence Street, Denver, Colorado.
Shareholders will consider and take action on the following matters:
1. | Election of the nine directors named in this proxy statement, Al Baldocchi, Paul Cappuccio, Steve Ells, Neil Flanzraich, Robin Hickenlooper, Kimbal Musk, Ali Namvar, Brian Niccol and Matthew Paull, each to serve a one-year term; |
2. | An advisory vote to approve the compensation of our executive officers as disclosed in this proxy statement (or say-on-pay); |
3. | Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2018; |
4. | A proposal to approve the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan, to authorize the issuance of an additional 1,270,000 shares of common stock under the plan and make other changes to the terms of the plan; |
5. | A shareholder proposal, if properly presented at the meeting; and |
6. | Such other business as may properly come before the meeting or any adjournments or postponements of the meeting. |
Information with respect to the above matters is set forth in the proxy statement that accompanies this notice.
The record date for the meeting has been fixed by the Board of Directors as the close of business on March 23, 2018. Shareholders of record at that time are entitled to vote at the meeting.
If you would like to attend the meeting in person, you will need to obtain an admission ticket in advance. You can obtain a ticket by following the instructions beginning on page 60.
By order of the Board of Directors
/s/ Steve Ells
Executive Chairman of the Board
April 2, 2018
Please execute your vote promptly by following the instructions included on the Notice of Internet Availability of Proxy Materials that was sent to you, or as described under How do I vote? beginning on page 1 of the accompanying proxy statement.
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MATTERS TO BE VOTED ON AT THE ANNUAL MEETING AND BOARD RECOMMENDATIONS
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1. Election of nine Directors (page 6)
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For
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2. Say on Pay (page 21)
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For
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3. Ratification of Ernst & Young LLP as independent auditors (page 22)
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For
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4. Approval of Amended and Restated 2011 Stock Incentive Plan (page 25)
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For
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5. Shareholder proposal (page 32)
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AGAINST
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2018 BOARD HIGHLIGHTS
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NAME
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YEARS
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INDEPENDENT
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BOARD
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AUDIT
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COMPENSATION
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NOMINATING
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Albert Baldocchi
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21
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Yes
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FOR
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Chairperson
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Paul T. Cappuccio
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1
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Yes
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FOR
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✓
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Chairperson
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Steve Ells Executive Chairman
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22
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No
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FOR
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Neil
Flanzraich
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11
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Yes
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FOR
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Chairperson
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✓
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Robin Hickenlooper
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1
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Yes
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FOR
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✓
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Kimbal Musk
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5
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Yes
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FOR
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Brian Niccol
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No
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FOR
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Ali Namvar
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1
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Yes
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FOR
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✓
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✓
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Matthew Paull
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1
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Yes
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FOR
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✓ |
Designated | as Audit Committee Financial Expert under SEC rules. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | i |
Proxy Statement Summary (continued)
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ii | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proxy Statement Summary (continued)
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The graphics below represent a snapshot of the overall independence and tenure of our Board.
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SUMMARY OF CORPORATE GOVERNANCE HIGHLIGHTS
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Seven of the nine members on our Board of Directors are independent. | ||
Independent directors are led by an independent Lead Director. | ||
All directors are up for re-election on an annual basis. | ||
Adoption of bylaws permitting proxy access for qualifying shareholders to nominate directors. | ||
Directors are elected by majority vote in uncontested elections rather than plurality. | ||
Independent Board members meet in executive session at each quarterly Board meeting. | ||
Board performance is reviewed in an annual self-assessment by each director, with reporting to and evaluation by the full Board. | ||
Each independent director is subject to Board stock ownership requirements and prohibitions on hedging/pledging of shares owned. | ||
No shareholder rights plan or poison pill. | ||
Adoption of bylaws permitting holders of at least 25% of our outstanding common stock to call special meetings of shareholders. | ||
See also pages 39 and 40 for significant compensation policies and procedures we employ to motivate our employees to build shareholder value, while protecting the interests of all our shareholders. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | iii |
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iv | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Table of Contents (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | v |
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ANNUAL MEETING INFORMATION
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This proxy statement contains information related to the annual meeting of shareholders of Chipotle Mexican Grill, Inc. to be held on Tuesday, May 22, 2018, beginning at 8:00 a.m. at The Westin Denver Downtown, 1672 Lawrence Street, Denver, Colorado. This proxy statement was prepared under the direction of Chipotles Board of Directors to solicit your proxy for use at the annual meeting. It will be made available to shareholders on or about April 2, 2018. |
Who is entitled to vote and how many votes do I have?
If you were a shareholder of record of our common stock on March 23, 2018, you are entitled to vote at the annual meeting, or at any postponement or adjournment of the annual meeting. On each matter to be voted on, you may cast one vote for each share of common stock you hold. As of March 23, 2018, there were 27,835,850 shares of common stock outstanding and entitled to vote.
What am I voting on?
You will be asked to vote on five proposals:
Board Recommendation: | ||||||
PROPOSAL 1 | Election of nine directors: Al Baldocchi, Paul T. Cappuccio, Steve Ells, Neil Flanzraich, Robin Hickenlooper, Kimbal Musk, Ali Namvar, Brian Niccol and Matthew Paull. | FOR | ||||
PROPOSAL 2 | An advisory vote to approve the compensation of our executive officers as disclosed in this proxy statement (say-on-pay). | FOR | ||||
PROPOSAL 3 | Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2018. | FOR | ||||
PROPOSAL 4 | Approval of the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan, to authorize the issuance of an additional 1,270,000 shares of common stock under the plan and make other changes to the terms of the plan. | FOR | ||||
PROPOSAL 5 | A shareholder proposal, if properly presented at the meeting, requesting that the Board of Directors implement changes to Chipotles governing documents to allow shareholders to take action by written consent without a meeting. | AGAINST |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 1 |
Annual Meeting Information (continued)
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2 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Annual Meeting Information (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 3 |
Beneficial Ownership of our Common Stock
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BENEFICIAL OWNERSHIP OF OUR COMMON STOCK
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The following tables set forth information as of March 23, 2018 as to the beneficial ownership of shares of our common stock by:
| each person (or group of affiliated persons) known to us to beneficially own more than 5 percent of our common stock; |
| each of the executive officers listed in the Summary Compensation Table appearing later in this proxy statement; |
| each of our directors; and |
| all of our current executive officers and directors as a group. |
The number of shares beneficially owned by each shareholder is determined under SEC rules and generally includes shares for which the holder has voting or investment power. The information does not necessarily indicate beneficial ownership for any other purpose. The percentage of beneficial ownership shown in the following tables is based on 27,835,850 outstanding shares of common stock as of March 23, 2018. For purposes of calculating each persons or groups percentage ownership, shares of common stock issuable pursuant to the terms of stock options, stock appreciation rights or restricted stock units exercisable or vesting within 60 days after March 23, 2018 are included as outstanding and beneficially owned for that person or group, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person or group.
Name of Beneficial Owner |
Total Shares Beneficially Owned |
Percentage of Class Beneficially Owned |
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Beneficial holders of 5% or more of outstanding common stock |
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Pershing Square Capital Management, L.P.(1) |
2,882,463 | 10.36 | % | |||||
The Vanguard Group, Inc.(2) |
2,688,770 | 9.66 | % | |||||
BlackRock, Inc.(3) |
1,559,197 | 5.60 | % | |||||
FMR LLC(4) |
1,519,913 | 5.46 | % | |||||
Susquehanna Securities(5) |
1,499,536 | 5.39 | % | |||||
Directors and named executive officers |
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Steve Ells(6) |
383,339 | 1.37 | % | |||||
Brian Niccol |
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John Hartung(7) |
145,272 | * | ||||||
Mark Crumpacker(8) |
46,461 | * | ||||||
Curt Garner(9) |
5,500 | * | ||||||
Scott Boatwright |
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Albert Baldocchi(10)(11) |
73,887 | * | ||||||
Paul Cappuccio |
500 | | ||||||
Neil Flanzraich(10) |
4,146 | * | ||||||
Robin Hickenlooper |
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Kimbal Musk(12) |
501 | * | ||||||
Ali Namvar(13) |
3,000 | * | ||||||
Matthew Paull |
400 | * | ||||||
All directors and current executive officers as a group (12 people)(14) |
616,545 | 2.19 | % |
* | Less than one percent. |
(1) | Based solely on a report on Schedule 13D/A filed by Pershing Square Capital Management, L.P., PS Management GP, LLC, and William A. Ackman (collectively, Pershing Square) on February 7, 2017. The address of Pershing Square is 888 Seventh Avenue, 42nd Floor, New York, New York, 10019. |
4 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Beneficial Ownership of our Common Stock (continued)
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(2) | Based solely on a report on Schedule 13G/A filed on February 9, 2018. The address of The Vanguard Group, Inc. is 100 Vanguard Blvd., Malvern, Pennsylvania, 19355. |
(3) | Based solely on a report on Schedule 13G/A filed on January 29, 2018. The address of BlackRock, Inc. is 55 East 52nd Street, New York, New York, 10022. |
(4) | Based solely on a report on Schedule 13G/A filed on February 13, 2018. Various persons have the right to receive or the power to direct the receipt of dividends from, or the proceeds from the sale of, the shares of common stock reflected as beneficially owned by FMR LLC. The address of FMR LLC is 245 Summer Street, Boston, Massachusetts 02210. |
(5) | Based solely on a report on Schedule 13G filed on February 9, 2018. The address of Susquehanna Securities is 401 E. City Avenue, Suite 220, Bala Cynwyd, Pennsylvania, 19004. |
(6) | Shares beneficially owned by Mr. Ells include 175,000 shares underlying vested stock appreciation rights. |
(7) | Shares beneficially owned by Mr. Hartung include: 19,782 shares in a revocable trust for Mr. Hartungs benefit and of which his spouse is the trustee; 35 shares beneficially owned by his children; and 110,000 shares underlying vested stock appreciation rights. Mr. Hartung disclaims beneficial ownership of the shares beneficially owned by his children. |
(8) | Shares beneficially owned by Mr. Crumpacker include 40,000 shares underlying vested stock appreciation rights. Mr. Crumpackers employment terminated on March 15, 2018. |
(9) | Shares beneficially owned by Mr. Garner include 5,500 shares underlying vested stock appreciation rights. |
(10) | Shares beneficially owned by Messrs. Baldocchi and Flanzraich include 704 shares underlying unvested restricted stock units, which are deemed to be beneficially owned because each such director is retirement-eligible and the vesting of the awards accelerates in the event of the directors retirement. |
(11) | Shares beneficially owned by Mr. Baldocchi include 69,648 shares owned jointly by Mr. Baldocchi and his spouse. |
(12) | Shares beneficially owned by Mr. Musk include 189 shares underlying unvested restricted stock units which will vest on May 13, 2018. |
(13) | Mr. Namvar disclaims beneficial ownership of the shares beneficially owned by Pershing Square Capital Management L.P., PS Management GP, LLC and William A. Ackman, and accordingly such shares are not reported above as beneficially owned by Mr. Namvar. |
(14) | See Notes (6) through (13), except that shares beneficially owned by Mr. Crumpacker are excluded because he was not employed as of March 23, 2018. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 5 |
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Election of Directors
Our Board of Directors currently has nine members. At the annual meeting, shareholders will be asked to vote on the nine nominees named below, each of whom will be elected on an annual basis, and each of whom is an incumbent member of the Board. Each of the nominees was nominated by the Board upon the recommendation of the Nominating and Corporate Governance Committee, and has consented to serve if elected. If any nominee is unable to serve or will not serve for any reason, the persons designated on the accompanying form of proxy will vote for other candidates in accordance with their judgment. We are not aware of any reason the nominees would not be able to serve if elected.
Re-election of each nominee for director requires that such nominee receive a majority of the votes cast regarding his or her election. Abstentions and broker non-votes are not counted as votes cast and will have no effect on the outcome of any of these proposals.
The Board of Directors recommends a vote FOR the election of Ms. Hickenlooper and Messrs. Baldocchi, Cappuccio, Ells, Flanzraich, Musk, Namvar, Niccol and Paull as directors.
INFORMATION REGARDING THE BOARD OF DIRECTORS
The following is biographical information about each nominee, including a description of the experience, qualifications and skills that have led the Board to determine that each nominee should serve on the Board. The respective current terms of all directors expire as of the date of next years annual meeting of shareholders or continue until their successors are elected and have qualified.
DIRECTORS WHOSE TERMS EXPIRE AT THE 2018 ANNUAL MEETING OF SHAREHOLDERS AND WHO ARE NOMINEES FOR TERMS EXPIRING AT THE 2019 ANNUAL MEETING | ||||
Albert S. Baldocchi
Age: 63 Director Since: 1997 |
Background: Mr. Baldocchi has been self-employed since 2000 as a financial consultant and strategic advisor for, and investor in, a variety of privately-held companies. He holds a Bachelor of Science degree in chemical engineering from the University of California at Berkeley and an MBA from Stanford University. |
Qualifications: Mr. Baldocchis extensive involvement with restaurant companies for more than 25 years has given him an in-depth knowledge of restaurant company finance, operations and strategy. He also has considerable experience with high-growth companies in the restaurant industry and in other industries, and his experience as a senior investment banker at a number of prominent institutions, including Morgan Stanley, Solomon Brothers and Montgomery Securities, helped him develop solid capabilities in accounting and finance as well. |
6 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 1 (continued)
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DIRECTORS WHOSE TERMS EXPIRE AT THE 2018 ANNUAL MEETING OF SHAREHOLDERS AND WHO ARE NOMINEES FOR TERMS EXPIRING AT THE 2019 ANNUAL MEETING (CONTD) | ||||
Paul T. Cappuccio
Age: 56 Director Since: 2016 |
Background: Mr. Cappuccio has served as Executive Vice President and General Counsel of Time Warner since 2001. In this capacity, he oversees the worldwide management of Time Warners legal functions, collaborating with all of its operating businesses. From 1999 to 2001, Mr. Cappuccio was Senior Vice President and General Counsel at America Online. Before joining AOL, he was a partner at the Washington, DC office of law firm Kirkland & Ellis LLP, where he specialized in telecommunications law, appellate litigation, and negotiation with government agencies. From 1991 to 1993, Mr. Cappuccio was Associate Deputy Attorney General at the United States Department of Justice. Prior to his service at the DOJ, Mr. Cappuccio served as law clerk at the United States Supreme Court for Justices Antonin Scalia and Anthony M. Kennedy, and as a law clerk to Judge Alex Kozinski of the United States Court of Appeals for the Ninth Circuit. Mr. Cappuccio earned a law degree from Harvard Law School and a Bachelors degree from Georgetown University, and serves on the board of directors of Central European Media Enterprises Ltd. (NasdaqGS: CETV). |
Qualifications: Mr. Cappuccios contributions to the Board include strong experience in legal and regulatory compliance, risk management, and public company corporate governance. | ||
Steve Ells
Age: 52 Director Since: 1996 |
Background: Mr. Ells founded Chipotle in 1993. He was Chief Executive Officer until Mr. Niccol was appointed to that role in March 2018, at which time Mr. Ells became Executive Chairman. From 2009 through 2016 Mr. Ells served as Co-Chief Executive Officer and Chairman. Prior to launching Chipotle, Mr. Ells worked for two years at Stars restaurant in San Francisco. Mr. Ellss vision that food served fast doesnt have to be low quality and that delicious food doesnt have to be expensive is the foundation on which Chipotle is based. Mr. Ells graduated from the University of Colorado with a Bachelor of Arts degree in art history, and is also a graduate of the Culinary Institute of America. |
Qualifications: Mr. Ellss visionary thinking has led Chipotle to extraordinary accomplishments, such as growing from a single restaurant to over 2,400, and leading us to become the only national restaurant brand to prepare its food with no added flavors, colors or preservatives. This progressive thinking has also resulted in Mr. Ells remaining a principal driving force behind making our company innovative and striving for constant improvement, and he continues to provide important leadership to our executive officers, management team, and Board. He is also one of the largest individual shareholders of our company. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 7 |
Proposal 1 (continued)
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DIRECTORS WHOSE TERMS EXPIRE AT THE 2018 ANNUAL MEETING OF SHAREHOLDERS AND WHO ARE NOMINEES FOR TERMS EXPIRING AT THE 2019 ANNUAL MEETING (CONTD) | ||||
Neil W. Flanzraich
Age: 74 Director Since: 2007 |
Background: Mr. Flanzraich is the Executive Chairman of Cantex Pharmaceuticals, Inc. (formerly ParinGenix, Inc.), a privately-owned biotech company, where he previously served as CEO and Chairman, and additionally, he has been a private investor since February 2006. From 1998 through its sale in January 2006 to TEVA Pharmaceuticals Industries, Ltd., he served as Vice Chairman and President of IVAX Corporation, an international pharmaceutical company. From 1995 to 1998, Mr. Flanzraich served as Chairman of the Life Sciences Legal Practice Group of Heller Ehrman LLP, a law firm, and from 1981 to 1994, served as the Senior Vice President and Chief Counsel and member of the Operating and Executive Committees of Syntex Corporation, an international pharmaceutical company. He was a director of Equity One Inc. (NYSE:EQY) until it was acquired on March 1, 2017. Mr. Flanzraich also previously served as a director of a number of additional publicly-traded companies. He received an A.B. from Harvard College and a J.D. from Harvard Law School. |
Qualifications: Mr. Flanzraichs executive experience has helped him develop outstanding skills in leading and managing strong teams of employees, and in oversight of the growth and financing of businesses in a rapidly-evolving market. His legal background also is valuable to us in the risk management area, and Mr. Flanzraich brings to us extensive experience serving as an independent director of other public and privately-held companies. | ||
Robin Hickenlooper
Age: 39 Director Since: 2016 |
Background: Ms. Hickenlooper is Senior Vice President of Corporate Development at Liberty Media Corporation and has served in senior corporate development roles at Liberty Media and its affiliates since 2010. Prior to joining Liberty Media in 2008, Ms. Hickenlooper worked at Del Monte Foods and in investment banking at Thomas Weisel Partners. Ms. Hickenlooper serves on the board of directors of FTD Companies, Inc. (Nasdaq: FTD). She earned an MBA from Kellogg School of Management at Northwestern University and a Bachelors degree in Public Policy from Duke University. |
Qualifications: Ms. Hickenlooper brings to the Board significant experience in marketing and new media, as well as public company corporate governance. |
8 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 1 (continued)
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DIRECTORS WHOSE TERMS EXPIRE AT THE 2018 ANNUAL MEETING OF SHAREHOLDERS AND WHO ARE NOMINEES FOR TERMS EXPIRING AT THE 2019 ANNUAL MEETING (CONTD) | ||||
Kimbal Musk
Age: 45 Director Since: 2013 |
Background: Mr. Musk is an entrepreneur and restaurateur who has had a role in founding and advising several companies and non-profits including: The Kitchen Restaurant Group, a restaurant company with restaurants in Colorado, Illinois and Tennessee; The Kitchen Community; Zip2 Corporation (acquired by Compaq Computer Corporation); PayPal, Inc. (acquired by eBay Inc.); Everdream Corporation (acquired by Dell Inc.); Tesla Motors, Inc.; Space Exploration Technologies Corp. (SpaceX); OneRiot (acquired by Wal-Mart Stores, Inc.) and SolarCity Corporation. Mr. Musk has been Chief Executive Officer of The Kitchen Restaurant Group since April 2004, and Executive Director of The Kitchen Community, a non-profit organization that creates learning gardens in schools across the United States, since November 2010. After success in the technology business, Mr. Musk decided to pursue his passion for food and cooking and attended the French Culinary Institute in New York City. He is a member of the board of directors of Tesla Motors, Inc. (Nasdaq:TSLA) as well as a number of privately-held companies and charitable organizations. He has served as an Adjunct Professor at New York University, and is a graduate of Queens Business School in Canada and the French Culinary Institute. |
Qualifications: Mr. Musks extensive experience with fast-growing and innovative companies, as well as restaurants and other retail operations, and his experience on numerous boards of directors, are an asset to our Board. | ||
Ali Namvar
Age: 48 Director Since: 2016 |
Background: Mr. Namvar is a private investor, and until April 1, 2018 was an active Partner and senior member of the investment team at Pershing Square Capital Management, L.P., currently our largest shareholder. Prior to joining Pershing Square in 2006, Mr. Namvar held positions at Blackstone Group and Goldman Sachs Group, Inc. Mr. Namvar holds a Bachelor of Arts degree from Columbia University and an MBA from the Wharton School at the University of Pennsylvania. |
Qualifications: Mr. Namvar has significant experience with investments in the restaurant industry as well as the overall consumer goods sector, and also brings to the Board a deep knowledge of finance, strategic transactions and investor relations. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 9 |
Proposal 1 (continued)
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DIRECTORS WHOSE TERMS EXPIRE AT THE 2018 ANNUAL MEETING OF SHAREHOLDERS AND WHO ARE NOMINEES FOR TERMS EXPIRING AT THE 2019 ANNUAL MEETING (CONTD) | ||||
Brian Niccol
Age: 43 Director Since: 2018 |
Background: Mr. Niccol was appointed to our Board effective March 5, 2018, at the same time he became our Chief Executive Officer. Mr. Niccol previously served from January 1, 2015 as Chief Executive Officer of Taco Bell, a division of Yum! Brands, Inc. He joined Taco Bell in 2011 as Chief Marketing and Innovation Officer and served as President from 2013 to 2014. Prior to his service at Taco Bell, from 2005 to 2011 he served in various executive positions at Pizza Hut, another division of Yum! Brands, including General Manager and Chief Marketing Officer. Before joining Yum! Brands, Mr. Niccol spent 10 years at Procter & Gamble Co., serving in various brand management positions. Mr. Niccol holds an undergraduate degree from Miami University and an MBA from the University of Chicago Booth School of Business. He serves as a director of Harley-Davidson, Inc. (NYSE: HOG) |
Qualifications: Mr. Niccol brings us extensive experience in brand management, marketing and operations, as well as a proven track record of driving outstanding results at multiple restaurant brands. He also adds to the Boards experience in corporate governance and public company oversight. | ||
Matthew H. Paull
Age: 66 Director Since: 2016 |
Background: Mr. Paull was Senior Vice President and Chief Financial Officer of McDonalds Corp. from 2001 until he retired from that position in 2008. Prior to joining McDonalds in 1993, Mr. Paull was a Partner at Ernst & Young, LLP. Mr. Paull currently serves on the boards of directors of Air Products and Chemicals, Inc. (NYSE: APD), Canadian Pacific Railway Limited (NYSE: CP) and KapStone Paper and Packaging Corp. (NYSE: KS). Mr. Paull previously served as a member of the board of WMS Industries, Inc. until 2013, and Best Buy Co. until 2013. He also serves on the advisory board of Pershing Square Capital Management, L.P. Mr. Paull holds a Bachelors degree and a Masters degree in Accounting from the University of Illinois. |
Qualifications: Mr. Paull brings to our Board expert knowledge in finance, accounting, and public company corporate governance. |
Board Qualifications, Skills and Attributes
In addition to the specific qualifications, skills and experience described above, each incumbent director has demonstrated a strong work ethic and dedication to Chipotle, including coming prepared to meetings, supporting our strategic vision while asking constructive questions and challenging management in a productive way, and otherwise providing valuable oversight of our business on behalf of our shareholders. We also believe that each director, through their personal accomplishments and in their service to Chipotle, has demonstrated high integrity, strong intellectual acumen, solid business judgment, and strategic vision.
10 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 1 (continued)
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The graphic below depicts a number of the key skills, experiences and attributes our Board believes to be important to have represented on the Board, and identifies the number of continuing directors having those skills, experiences and attributes.
SKILLS, EXPERIENCE AND ATTRIBUTES |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 11 |
Proposal 1 (continued)
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12 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 1 (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 13 |
Proposal 1 (continued)
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14 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 1 (continued)
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The compensation of each of our non-employee directors in 2017 is set forth below.
NAME | FEES EARNED OR PAID IN CASH |
STOCK AWARDS(1) | TOTAL | |||||||||
Albert S. Baldocchi |
$ | 118,750 | $ | 120,348 | $ | 239,098 | ||||||
Paul T. Cappuccio |
$ | 107,800 | $ | 120,348 | $ | 228,148 | ||||||
John S. Charlesworth(2) |
$ | 41,781 | $ | 48,620 | $ | 90,401 | ||||||
Neil W. Flanzraich |
$ | 174,250 | $ | 120,348 | $ | 294,598 | ||||||
Patrick J. Flynn(2) |
$ | 50,981 | $ | 48,620 | $ | 99,601 | ||||||
Darlene J. Friedman(2) |
$ | 46,281 | $ | 48,620 | $ | 94,901 | ||||||
Stephen Gillett(2) |
$ | 42,531 | $ | 48,620 | $ | 91,151 | ||||||
Robin Hickenlooper |
$ | 95,750 | $ | 120,348 | $ | 216,098 | ||||||
Kimbal Musk |
$ | 85,250 | $ | 120,348 | $ | 205,598 | ||||||
Ali Namvar(3) |
| | | |||||||||
Matthew H. Paull |
$ | 92,750 | $ | 120,348 | $ | 213,098 |
(1) | Reflects the grant date fair value under FASB Topic 718 of restricted stock units awarded for the equity portion of each directors annual retainer. Restricted stock units in respect of 250 shares of common stock were granted to non-employee directors Messrs. Baldocchi, Cappuccio, Flanzraich, Musk and Paull and Ms. Hickenlooper on May 25, 2017, and restricted stock units in respect of 101 shares of common stock were granted to non-employee directors Messrs. Charlesworth, Flynn and Gillett and Ms. Friedman on the same date. The restricted stock units were valued at $481.39, the closing price of our common stock on May 25, 2017. The restricted stock units vest on the third anniversary of the grant date subject to the directors continued service as a director through that date. Vesting accelerates in the event of the retirement of a director who has served for a total of six years (including any breaks in service), or in the event the director leaves the Board following certain changes in control of Chipotle. Directors may elect in advance to defer receipt upon vesting of the shares underlying the restricted stock units. As of December 31, 2017, Messrs Baldocchi, Flanzraich and Musk each held 704 unvested restricted stock units, and Messrs. Cappuccio, and Paull and Ms. Hickenlooper each held 266 unvested restricted stock units as of that date. |
(2) | Ms. Friedman and Messrs. Charlesworth and Flynn retired from the Board, and Mr. Gillett resigned from the Board, effective May 25, 2017. On May 24, 2017, the Compensation Committee approved the acceleration of vesting of 518 restricted stock units held by Mr. Gillett as of the date of his resignation. |
(3) | Mr. Namvar waived his right to receive compensation as an outside director for 2017. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 15 |
Proposal 1 (continued)
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16 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 1 (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 17 |
Proposal 1 (continued)
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18 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 1 (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 19 |
Proposal 1 (continued)
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20 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 3 (continued)
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Ernst & Young has served as our independent auditors since 1997. Representatives of Ernst & Young are expected to be present at the annual meeting and will have an opportunity to make a statement if they desire to do so, and are expected to be available to respond to appropriate questions.
The aggregate fees and related reimbursable expenses for professional services provided by Ernst & Young for the years ended December 31, 2017 and 2016 were:
Fees for Services | 2017 | 2016 | ||||||
Audit Fees(1) |
$ | 943,578 | $ | 783,808 | ||||
Audit-Related Fees |
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Tax Fees(2) |
37,451 | 168,426 | ||||||
All Other Fees |
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Total Fees |
$ | 981,129 | $ | 952,234 |
(1) | Includes fees and expenses related to the fiscal year audit and interim reviews, notwithstanding when the fees and expenses were billed or when the services were rendered. Audit fees also include fees and expenses, if any, related to SEC filings, comfort letters, consents, SEC comment letters and accounting consultations. |
(2) | Represents fees for tax consulting and advisory services. |
The Board of Directors recommends a vote FOR the ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2018.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 23 |
Proposal 3 (continued)
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24 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 4 (continued)
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26 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 4 (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 27 |
Proposal 4 (continued)
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28 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 4 (continued)
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 29 |
Proposal 4 (continued)
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30 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Proposal 4 (continued)
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Securities Authorized for Issuance Under Equity Compensation Plans
The following table presents information regarding options and rights outstanding under our equity compensation plans as of December 31, 2017. All options reflected are stock-only stock appreciation rights denominated in shares of our common stock.
(a) Number of Securities to be Issued Upon Exercise of Outstanding Options and Rights(1) |
(b) Weighted-Average Exercise Price of Outstanding Options and Rights(1) |
(c) Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding securities reflected in column (a))(2) |
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Equity Compensation Plans Approved by Security Holders |
2,211,600 | $ | 480.09 | 2,032,484 | ||||||||||
Equity Compensation Plans Not Approved by Security Holders |
None | N/A | None | |||||||||||
Total |
2,211,600 | $ | 480.09 | 2,032,484 |
(1) | Includes shares issuable in connection with awards with performance and market conditions, which will be issued based on achievement of performance criteria associated with the awards, with the number of shares issuable dependent on our level of performance. The weighted-average exercise price in column (b) includes the weighted-average exercise price of SOSARs only. |
(2) | Includes 1,786,198 shares remaining available under the 2011 Stock Incentive Plan prior to the amendments being proposed herein, and 246,286 shares remaining available under the Chipotle Mexican Grill, Inc. Employee Stock Purchase Plan. In addition to being available for future issuance upon exercise of SOSARs or stock options that may be granted after December 31, 2017, all of the shares available for grant under the 2011 Stock Incentive Plan may instead be issued in the form of restricted stock, restricted stock units, performance shares or other equity-based awards. Each share underlying a full value award such as restricted stock, restricted stock units or performance shares counts as two shares used against the total number of securities authorized under the plan. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 31 |
Shareholder Proposal
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Proposal 5 is a shareholder proposal. If the shareholder proponent of the proposal, or representative who is qualified under state law, is present at the annual meeting and submits the proposal for a vote, the proposal will be voted upon. The shareholder proposal and related supporting statement is included in this proxy statement as submitted by the proponent and we accept no responsibility for its contents. The Boards statement in opposition to the proposal is presented immediately following the proposal and supporting statement. The name and address of the proponent and the amount of stock owned by such proponent will be promptly provided to any shareholder making an oral or written request for such information to our corporate Secretary at our headquarters.
AN ADVISORY VOTE ON A SHAREHOLDER PROPOSAL REQUESTING THAT WE IMPLEMENT
A RIGHT OF SHAREHOLDERS TO ACT BY WRITTEN CONSENT WITHOUT A MEETING
Resolved Chipotle Mexican Grill, Inc. (CMG) shareholders request that our board of directors undertake such steps as may be necessary to permit written consent by shareholders entitled to cast the minimum number of votes that would be necessary to authorize the action at a meeting at which all shareholders entitled to vote thereon were present and voting. This written consent is to be consistent with applicable law and consistent with giving shareholders the fullest power to act by written consent consistent with applicable law. This includes shareholder ability to initiate any topic for written consent consistent with applicable law.
Supporting Statement: Shareholder rights to act by written consent and to call a special meeting are two complimentary ways to bring an important matter to the attention of both management and shareholders outside the annual meeting cycle. This is important because there could be 15-months between annual meetings.
A shareholder right to act by written consent is one method to equalize our restricted provisions for shareholders to call a special meeting. For instance it takes 25% of shareholders at our company to call a special meeting when many companies allow 10% of shareholders to do so.
This proposal topic won majority shareholder support at 13 major companies in a single year. This included 67% support at both Allstate and Sprint. Last year the topic won majority votes at Western Union, Ryder System, and BorgWarner Inc.
Given our companys underperformance relative to the Nasdaq for many years, we believe it is time for this good governance reform. Hundreds of major companies enable shareholders to act by written consent, including 64% of the S&P 500 and 55% of the S&P 1500.
Increase Shareholder Value. Vote for Right to Act by Written Consent Proposal 5
32 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Shareholder Proposal (continued)
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consents at any time and as often as they wish, the solicitation of written consents could create a considerable amount of confusion and disruption among Chipotles shareholders, as well as divert the time and attention of our officers, other employees, and the Board from the management of the companys business.
The proposal also does not prevent or limit the potential for abuse in employing this method of approving corporate actions. For instance, it would not limit the ability of a group of shareholders to accumulate a short-term voting position by borrowing shares from other shareholders and then taking action without those shareholders knowing that their voting rights were being used to take such action. Shareholders who have loaned their stock are better able to take action to protect and exercise their voting rights at a shareholder meeting than if an action is permitted by written consent without appropriate procedural safeguards. In addition, a group of shareholders could also use a consent solicitation to remove and replace directors and effectively assume control of Chipotle without having to pay a control premium to shareholders.
In light of the concerns expressed above, the Board believes that a more open, transparent, and democratic way for shareholders to exercise their rights regarding important issues affecting our company is through annual or special shareholder meetings, so that all shareholders have the ability to voice their concerns, the issues can be fully discussed, and all shareholders can vote on the issues. Under our bylaws, holders of 25% of our outstanding common stock can request that a special meeting of shareholders be held. Shareholders also have the right to bring business before the shareholders at annual meetings, as evidenced by this proposal and other shareholder proposals included in our proxy statements for previous annual meetings.
Moreover, we believe our shareholders have significant access to the Board, and rights and protections that provide shareholders with ample power to express any concerns, and to move to effect change if they believe it is necessary. For example:
Members of the Board are elected annually by majority vote in uncontested director elections, and any incumbent director who does not receive a majority of the votes cast for his or her election is required to offer to resign from the Board.
As noted above, holders of 25% of our outstanding common stock can request a special meeting of shareholders.
As noted above, shareholders may submit proposals for presentation at an annual meeting (including nominations of director candidates).
Shareholders can communicate directly with any director (including the Lead Independent Director), any Board committee or the full Board by following the procedures set forth on page 17.
The Board consists of a substantial majority of independent directors.
For the reasons stated above, the Board believes that the proposal is not in the best interests of Chipotle or its shareholders.
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The Board of Directors recommends a vote AGAINST the shareholder proposal.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 33 |
Executive Officers and Compensation
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In addition to Steve Ells, our Executive Chairman, and Brian Niccol, our Chief Executive Officer, whose biographies are included in Proposal 1 under the heading Information Regarding the Board of Directors, our executive officers as of March 23, 2018, are as follows:
EXECUTIVE OFFICERS | ||
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John R. (Jack) Hartung, 60, is Chief Financial Officer and has served in this role since 2002. In addition to having responsibility for all of our financial and reporting functions, Mr. Hartung also oversees compensation and benefits, and Chipotles European operations. Mr. Hartung joined Chipotle after spending 18 years at McDonalds where he held a variety of management positions, most recently as Vice President and Chief Financial Officer of its Partner Brands Group. Mr. Hartung has a Bachelor of Science degree in accounting and economics as well as an MBA from Illinois State University. | |
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Scott Boatwright, 45, was appointed Chief Restaurant Officer in May 2017, and shortly thereafter assumed direct accountability for all restaurant operations. Prior to Chipotle, Mr. Boatwright spent 18 years with Arbys Restaurant Group in various leadership positions, including for the last six years as the Sr. Vice President of Operations, where he was responsible for the performance of over 1,700 Arbys restaurants in numerous states. Scott holds an MBA from the J. Mack Robinson College of Business at Georgia State University. | |
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Curt Garner, 48, was appointed Chief Digital and Information Officer in March 2017. Mr. Garner joined Chipotle in November 2015 as Chief Information Officer, and prior to that had worked for Starbucks Corp. for 17 years, most recently serving as Executive Vice President and Chief Information Officer. Mr. Garner has a Bachelor of Arts degree in economics from The Ohio State University. He serves as a director of Aerohive Networks, Inc. (NYSE: HIVE). |
34 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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COMPENSATION DISCUSSION AND ANALYSIS
This Compensation Discussion and Analysis describes the objectives and principles underlying our executive compensation programs, outlines the material elements of the compensation of our executive officers, and explains the Compensation Committees determinations as to the actual compensation of our executive officers for 2017. In addition, this Compensation Discussion and Analysis is intended to put into perspective the tables and related narratives regarding the compensation of our executive officers that appear following this section.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 35 |
Executive Officers and Compensation (continued)
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Performance Overview for 2017
2017 was a year of continued turnaround for Chipotle highlighted by our accomplishments in three key areas:
| Operations |
| Hired Scott Boatwright as our Chief Restaurant Officer in May 2017. |
| Launched a dedicated centralized training program to ensure our teams primary focus will be on delivering an outstanding guest experience in our restaurants. |
| Implemented a new guest satisfaction system in our restaurants. |
| Restructured field support team, and modified field incentives to drive greater accountability for results at all levels. |
36 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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| Enhancing Guest Experience Through Digital and Catering |
| Increased our digital sales by 50% over 2016, which was driven in part by the new version of our mobile app. |
| Reduced guest wait times as we continue to optimize the digital experience through our Smarter Pickup Times system. |
| Offered delivery support for catering in 40% of our restaurants. |
| Reinvesting in Our Existing Restaurants: |
| Developed preliminary designs for new restaurants that will have the ability to be applied to our existing restaurants. |
| Completed plans to launch a significant refresh and maintenance upgrades (e.g., replace lighting, upgrade equipment) in 2018. |
These and other accomplishments helped us achieve year-over-year increases across several key financial metrics:
| Revenue increased 14.7% on a year-over-year basis. |
| Comparable restaurant sales increased 6.4% on a year-over-year basis. |
| Net income increased from $22.9 million to $176.3 million. |
While these results were encouraging, they did not translate into share price performance in 2017 and we recognize that there is more work to be done. As a result, in late 2017 and into early 2018, we made additional leadership changes with the objective of further elevating the Chipotle brand and performance in 2018 and beyond.
Shareholder Outreach in 2017
At our 2017 annual meeting of shareholders, 93% of the votes cast by our shareholders supported our say-on-pay proposal, which was an increase from the 72% approval at our 2016 annual meeting.
Over the course of 2017, shareholder engagement with members of the Board on compensation and governance issues reached holders of over 50% of our outstanding common stock. We view these discussions as an important opportunity to develop broader relationships with investors over the long term and to engage in open dialogue on compensation and governance related issues.
We took investor feedback into account, and took a number of actions in 2017 to address this feedback, as depicted below:
What We Heard from Shareholders |
What Chipotle Did | |||
Concerned with select features of 2016 performance share award design. |
Modified 2016 awards, with agreement from continuing executive officers, to reduce maximum payout, increase the duration over which stock price performance must be sustained in order for awards to vest, and add a cap in the event our stock price declines after stock price goals are achieved during the performance period. | |||
Desire to ensure there is balance in performance share award design and that design is complementary to key strategic objectives. |
Introduced a key financial metric comparable restaurant sales increases into the 2017 performance share design in addition to challenging absolute stock price targets. | |||
Concerned with the level of equity awards to our CEO. |
Reduced 2017 equity award level for our CEO by 31% (at target). | |||
Desire to ensure pay and performance alignment. |
Retained absolute stock price goals in our 2017 performance share awards and also added a comparable restaurant sales metric. As a result of annual incentive plan goals not being met, our CEO, CFO and Chief Marketing and Strategy Officer did not earn annual incentive payouts for the 2015, 2016 and 2017 plan years. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 37 |
Executive Officers and Compensation (continued)
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2017 Pay Actions
As a result of the above, our 2017 executive officer pay was significantly impacted:
Action |
Additional Considerations | |||
No base salary increases for our CEO, CFO or Chief Marketing and Strategy Officer. |
Our Chief Restaurant Officer was hired in 2017. | |||
While our annual incentive plan (AIP) formula yielded a payout, the committee exercised its discretion and, in light of our share price performance for 2017, decided that our CEO, CFO and Chief Marketing and Strategy Officer would not receive payouts. |
This is the third consecutive year for which our CEO, CFO and Chief Marketing and Strategy Officer did not receive an AIP payout. | |||
Performance shares were awarded to executives tied to highly challenging absolute stock price and comparable restaurant sales goals. |
The intention of our LTI awards is to clearly align the largest component of our executive officers compensation with the creation of shareholder value. As of December 31, 2017, the realizable value of these awards was $0. |
Alignment of CEO Realizable Pay Value and Performance
The Compensation Committee reviews multi-year realizable pay value analyses for the executive officers to inform design and award levels for annual equity awards. We calculate realizable pay as the sum of annual base salary, actual annual incentive plan award paid, the in-the-money value of SOSARs and of performance shares that are based on achievement of absolute stock price targets, and, for performance shares that are based on the level of relative achievement versus the peer group or against internal goals, the current value as determined by measuring performance thus far in the performance period and determining the resulting level of assumed payout.
| The aggregate realizable pay value of the total base salary, annual incentive payout, and long-term incentives, or LTI, paid to our CEO for the last three fiscal years (2015-2017) was estimated to be $7.9 million at the end of 2017, or approximately 17% of the three-year total disclosed compensation value (consisting of total compensation as disclosed in the Summary Compensation Table, plus target annual bonuses as disclosed in the Grants of Plan-Based Awards Table, for each years). |
| The realizable pay value of our last three fiscal years of LTI awards to our CEO was estimated to be $3.3 million at the end of 2017, or approximately 9% of the three-year total LTI values disclosed in the Summary Compensation Table. The realizable pay value was attributable to the 2015 performance share award, which was valued at 27.7% of the value disclosed in the Summary Compensation Table for the award in the year of grant. |
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Executive Officers and Compensation (continued)
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These findings demonstrate alignment of the CEOs realizable pay with shareholders investment performance over the three-year time period shown in the Summary Compensation Table. During that time, Mr. Ellss realizable pay value was 80% lower than his total disclosed compensation, and his realizable LTI value was 91% lower than his disclosed LTI compensation value.
In addition to company-specific pay-for-performance, the Compensation Committee also reviews multi-year analyses that compare our CEOs realizable pay value and our company performance to the CEO realizable pay values and company performance at our peer group companies. Findings from these analyses, based on three- and four-year realizable pay and company performance, reflected that Mr. Ellss realizable pay as a percentage of pay opportunity is the lowest of the peers during the periods analyzed. The committee believes this is appropriate given our stock price performance during these time periods, and also believes this further reflects the committees commitment to shareholder-aligned pay for performance.
Alignment of Executive Compensation with Shareholder Interests: What We Do and Dont Do
What We Do |
What We Dont Do | |||
☑ Conduct extensive shareholder engagement on compensation and governance related issues. Engage in careful consideration of the annual say-on-pay results and respond to shareholder feedback when appropriate. |
☒ Executive officers and directors are prohibited from hedging or pledging shares of Chipotle stock or holding Chipotle stock in margin accounts. | |||
☑ Employ an LTI program based entirely on performance-based equity awards. |
☒ No stock option repricing, reloads, exchanges or options granted below market value without shareholder approval. | |||
☑ Maintain a strong link between financial and operational goals, shareholder value creation and executive compensation. |
☒ No change-in-control agreements. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 39 |
Executive Officers and Compensation (continued)
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What We Do |
What We Dont Do | |||
☑ Ensure our compensation programs are designed to discourage excessive risk taking, with design features including the incorporation of multiple performance measures in our incentive programs, strong executive stock ownership guidelines, three-year performance and vesting periods on LTI awards, payout limitations in performance share awards in the event of deteriorating stock price performance, and clawback provisions in LTI award agreements that incorporate expected SEC clawback rules. |
☒ Equity awards include double triggers in order for an executive to receive benefits in connection with a change in control. | |||
☑ Use an independent compensation consultant who is engaged directly by the committee to advise on executive compensation matters. |
☒ Engage the committees consultant for additional work for or on behalf of the executive officers. |
Executive Chairman Agreement
On November 28, 2017, we entered into an Executive Chairman Agreement with Mr. Ells that provided for his transition to the role of Executive Chairman of the Board once Chipotle appointed a new CEO. Following a comprehensive search process, the Board appointed Brian Niccol as Chipotles new CEO, effective March 5, 2018, and in conjunction with this appointment Mr. Ells assumed the role of Executive Chairman. Under the Executive Chairman Agreement, Mr. Ells will have an annualized base salary for the 2018 fiscal year of $900,000, a target annual bonus opportunity under the AIP of 100% of his base salary, and he was awarded a special stock-only stock appreciation right (SOSAR) award on January 7, 2018, with an exercise price of $500 per share, which equated to a nearly 60% premium to the grant date stock price of $313.79. The SOSARs are scheduled to vest on July 7, 2019, and if vested, will first be exercisable on January 4, 2021, and will expire on January 4, 2022. The grant date fair value of this special award was approximately 40% below Mr. Ellss 2017 annual LTI award as CEO. Further details of the Executive Chairman Agreement are disclosed below under Executive Agreements.
Executive Officer Retention Awards
On January 9, 2018, we entered into retention agreements with certain employees, including our executive officers other than Mr. Ells. The retention agreements were intended to encourage the employees continued service to Chipotle during the pendency of a search for Chipotles next CEO and the subsequent leadership transition, and were approved by the Compensation Committee. Specifically, the committee determined that if uncertainty associated with the planned hiring of a new CEO were to cause one or more executive officers to leave Chipotle, such departures would have a high potential to be very disruptive to our organization, the morale of our teams, and our turnaround efforts (particularly in the areas of operations and IT/digital). In determining the award amounts, the committee considered multiple factors, including external market data, the executives historical compensation, and the expected cost to recruit and replace executives in these roles. Further details of the retention agreements are disclosed below under Executive Agreements.
New CEO Compensation
On March 5, 2018, Brian Niccol assumed the role of CEO at Chipotle. In connection with his joining us as CEO, we entered into an offer letter with Mr. Niccol providing that Mr. Niccol will have an annualized base salary of $1.2 million, a target annual bonus for the 2018 fiscal year of 150% of his base salary, a $1.0 million sign-on bonus, and an entitlement to certain equity awards. Further details of the offer letter are disclosed below under Executive Agreements.
40 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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Executive Compensation Program Components and Structures
Our executive compensation program is comprised of three primary components:
BASE SALARY | ANNUAL CASH BONUS (AIP) | EQUITY COMPENSATION (LTI) | ||
Determined based on the positions importance within Chipotle, the executives experience, and external market data. | Determined under our company-wide Annual Incentive Plan, or AIP, which provides for variable payouts based on achievement against operating and financial performance goals approved by the committee at the beginning of each year, as well as evaluations of performance against individual goals and objectives. | Aligns the incentives of our executive officers with shareholder interests and rewards the creation of shareholder value.
For 2017, in response to a decline in the level of approval of our say-on-pay vote in 2016, and after significant ongoing dialogue with shareholders, we amended the 2016 awards to address concerns expressed by shareholders. We also used a similar structure for the 2017 awards with lower grant date values than the 2016 awards. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 41 |
Executive Officers and Compensation (continued)
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The Compensation Committee allocates pay among these components in a manner designed to place performance at the forefront of our overall executive compensation program. This is illustrated in the following graphics, which reflect the heavy emphasis placed on variable, performance-based pay elements (based on 2017 base salary, target AIP bonus and LTI grant date value):
Factors in Setting Executive Officer Pay
The committee sets compensation for the executive officers annually after considering the following factors:
| Chipotles performance relative to goals approved by the committee |
| The business climate in the restaurant industry, general economic conditions and other factors |
| Each executive officers experience, knowledge, skills and personal contributions |
| Levels of compensation for similar jobs at market reference points |
| The degree of difficulty in committee-approved goals |
The CEO makes recommendations to the committee regarding compensation for the other executive officers after reviewing Chipotles overall performance and each executive officers personal contributions. The committee is responsible for approving executive officer compensation and has broad discretion when setting compensation types and amounts.
With respect to the CEO, the committee annually reviews and approves the corporate goals and objectives relevant to the CEOs compensation, evaluates the CEOs performance against those objectives and makes determinations regarding the CEOs compensation level based on that evaluation.
As part of its reviews of executive compensation, the committee reviews tally sheets that show historical pay for each executive officer (including the CEO), as well as their accumulated equity. These tally sheets are used as a reference point to assist the committee in understanding the overall compensation provided to each executive officer.
42 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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Roles and Responsibilities of the Committee, Compensation Consultant and the CEO in Setting Executive Officer Compensation
Compensation Committee The committee is currently comprised of three independent directors and reports to the Board |
Retains independent consultants and counsel to assist it in evaluating compensation and fulfilling its obligations as set forth in its charter. Works with the CEO to set performance goals at the beginning of each year targeted to positively influence shareholder value. Evaluates CEO performance in relation to those goals and Chipotles overall performance. Determines and approves compensation for our executive officers. Reviews and approves overall compensation philosophy and strategy, as well as all compensation and benefits programs in which our executive officers participate. Reviews applicable peer group and broader market data as one of multiple reference points. Engages with shareholders and others to receive stakeholder input on executive compensation matters. | |
Consultant to the Compensation Committee Pay Governance, an independent compensation consultant, has been retained by the committee to provide consulting advice on matters of governance and executive compensation |
Provides advice and opinion on the appropriateness and competitiveness of our compensation programs relative to market practice, our strategy and internal processes. Performs functions at the direction of the committee. Attends committee meetings when requested. Provides advice regarding compensation decision-making governance. Provides market data, as requested. Consults on various compensation matters. Confers with the committee, the CEO, the CFO and the companys compensation and benefits team on incentive goals (annual and long-term). | |
Chief Executive Officer With the support of other members of the management team, including the internal compensation and benefits team |
Works with the other executive officers to set performance goals at the beginning of each year that are targeted to positively influence shareholder value; goals are reviewed and approved by the Compensation Committee. Reviews performance of the other executive officers and makes recommendations to the committee with respect to their compensation. Confers with the committee concerning design and development of compensation and benefit plans for Chipotle executive officers and employees. |
Role of Market Data and Our Peer Group
Market Data
The committee believes the investment community generally assesses our company performance by reference to a peer group composed primarily of other companies in the restaurant industry, and our management team and Board also reference such peer company performance in analyzing and evaluating our business.
Each year, the committees independent compensation consultant provides the committee with pay data for executive officer roles and the incentive plan structures of the companies in our peer group. The committee does not explicitly benchmark our executive officers compensation to the peers, but the peer group data is one of multiple reference points used to evaluate our executive compensation programs.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 43 |
Executive Officers and Compensation (continued)
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2017 Peer Group
The peer group used for 2017 was generally comprised of publicly-traded companies in the Restaurants or Hotel, Resorts & Cruise Line (focus on hotels) primary industries as defined by the Global Industry Classification Standard (GICS), with annual revenues between $1 billion and $8 billion (0.25x to 2.0x Chipotle). The committee also included select peers with whom we compete for executive talent above the upper end of this range (for example, our Chief Digital and Information Officer was formerly an executive at Starbucks Corporation), and excluded companies serving a substantially different market or client base than we do. The committee expanded the peer group for 2017 beyond solely restaurants to include select companies in the hospitality industry that had revenues and market capitalization approximating Chipotles, given our enhanced focus on customer service.
$ in millions
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Company Name | Revenues(1) | Market Cap(2) | ||||||||||
McDonalds Corporation | $22,820 | $137,212 | ||||||||||
Starbucks Corporation | $22,728 | $81,711 | ||||||||||
Darden Restaurants, Inc. | $7,631 | $11,875 | ||||||||||
YUM! Brands, Inc. | $5,878 | $27,502 | ||||||||||
Wyndham Worldwide Corporation | $4,613 | $11,741 | ||||||||||
Bloomin Brands, Inc. | $4,213 | $1,948 | ||||||||||
Brinker International, Inc. | $3,142 | $1,798 | ||||||||||
Cracker Barrel Old Country Store, Inc. | $2,941 | $3,813 | ||||||||||
Panera Bread Company | $2,838 | | ||||||||||
Dominos Pizza, Inc. | $2,788 | $8,266 | ||||||||||
Hyatt Hotels Corporation | $2,767 | $8,748 | ||||||||||
The Cheesecake Factory Incorporated | $2,261 | $2,121 | ||||||||||
Texas Roadhouse, Inc. | $2,220 | $3,746 | ||||||||||
Buffalo Wild Wings, Inc. | $2,026 | $2,429 | ||||||||||
Papa Johns International, Inc. | $1,783 | $1,966 | ||||||||||
Jack in the Box Inc. | $1,554 | $2,888 | ||||||||||
Red Robin Gourmet Burgers, Inc. | $1,381 | $730 | ||||||||||
The Wendys Company | $1,223 | $3,977 | ||||||||||
Ruby Tuesday, Inc. | $913 | | ||||||||||
Bob Evans Farms, Inc. | $440 | $1,580 | ||||||||||
Peer Group Median | $2,777 | $3,779 | ||||||||||
Chipotle Mexican Grill, Inc. | $4,476 | $8,160 | ||||||||||
Percent Rank | 77% | 65% |
Notes:
(1) | Trailing 12 months as of December 31, 2017. |
(2) | As of December 31, 2017. |
The committee reviews the composition of the peer group periodically and will make adjustments to the peer group in response to changes in the size or business operations of Chipotle and of companies in the peer group, companies in the peer group being acquired or taken private, and other companies in the GICS restaurant industry becoming public.
44 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
Base Salaries
We pay a base salary to compensate our executive officers for services rendered during the year, and also to provide them with income regardless of our stock price performance, which helps avoid incentives to create short-term stock price fluctuations and mitigates the impact of forces beyond our control such as general economic and stock market conditions.
The committee reviews the base salary of each executive officer at least annually, and adjusts salary levels as the committee deems necessary and appropriate in its discretion.
Recommendations for the executive officers (other than the CEO) are provided to the committee by our CEO. The committee reviews the CEOs base salary and recommends any changes for review and approval by the full Board. Adjustments to base salaries, if any, typically occur during the first quarter of each year. Base salaries for each executive officer are set forth below.
Base Salaries | ||||||||||||||||||||||||
Executive Officer | 2016 | 2017 | % Change | |||||||||||||||||||||
Steve Ells |
$ | 1,540,000 | $ | 1,540,000 | 0% | |||||||||||||||||||
Jack Hartung |
$ | 800,000 | $ | 800,000 | 0% | |||||||||||||||||||
Mark Crumpacker |
$ | 600,000 | $ | 600,000 | 0% | |||||||||||||||||||
Curt Garner(1) |
*** | $ | 489,375 | *** | ||||||||||||||||||||
Scott Boatwright(2) |
N/A | $ | 410,000 | N/A |
(1) | Mr. Garner was not an executive officer in 2016. |
(2) | Mr. Boatwright was hired in May 2017. |
Annual Incentive Plan
The AIP is our annual cash incentive program for all employees. Our executive officers participate in the AIP alongside other eligible salaried employees, with slight variations to the plan terms in order to appropriately incentivize our executive officers to drive superior business results. The formula to determine payouts under the 2017 AIP consisted of a company performance factor (CPF), a team performance factor (TPF) and an individual performance factor (IPF):
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 45 |
Executive Officers and Compensation (continued)
|
|
Target goals for business performance metrics used to determine the CPF are set at the beginning of the year. Achievement at the target level of each performance metric would yield a CPF of 100%, equating to a payout at the target level. The CPF is adjusted up or down based on the performance versus the underlying performance metrics. As a result of our underperformance versus the AIP performance metrics in 2017, as depicted below, the CPF was 47% of target.
$ in millions
|
||||||||||||
Metric | Target | Actual | Impact on CPF | |||||||||
AB Grade |
86% | 84% | (5)% | |||||||||
Max 15 Minute Trans. |
29.0 | 25.8 | (11)% | |||||||||
Comparable Restaurant Sales |
9.0% | 6.4% | (9)% | |||||||||
Out of Store ADS |
$450 | $444 | (1)% | |||||||||
Restaurant Cash Flow Margin |
19.3% | 16.9% | (28)% | |||||||||
|
|
|||||||||||
A. Beginning CPF: | 100% | |||||||||||
B. Actual Perf. Impact to CPF: | (53)% | |||||||||||
C. Final CPF (A + B)* | 47% | |||||||||||
*Cannot be less than 0% |
The TPF uses the same underlying performance measures as the company performance measure, but is based on regional-or corporate office-specific goals. For 2017, the TPF that was applicable to the executive officers was based on a weighted-average of regional results and was 56% of target.
The IPF is a function of an individual employees performance rating for the year. The committee evaluates the performance of the CEO to determine his individual performance factor, and approves individual performance factors for each of the other executive officers after considering recommendations from the CEO.
While our AIP formula yielded a payout based on our operating and financial results for 2017, the committee made a determination that, in light of our share price performance for the year, our CEO, CFO and Chief Marketing and Strategy Officer would not receive AIP payouts. The committee further concluded that Messrs. Garner and Boatwright, each of whom were recent appointees to their position and have not achieved the level of historical rewards that our other officers have, but whom we nonetheless expect to be important contributors to our ongoing turnaround, would receive the payouts as specified under the 2017 AIP formula and our actual performance.
Target 2017 AIP Bonus |
Actual of | ||||||||||||||||||||||||||||||||||||
Executive Officer | % of Base Salary | Dollar Value | CPF | TPF | IPF |
Actual 2017 AIP |
|||||||||||||||||||||||||||||||
Steve Ells | 125 | % | $ | 1,925,000 | 47 | % | 56 | % | N/A | $ | 0 | 0 | % | ||||||||||||||||||||||||
Jack Hartung | 85 | % | $ | 680,000 | 47 | % | 56 | % | N/A | $ | 0 | 0 | % | ||||||||||||||||||||||||
Mark Crumpacker | 65 | % | $ | 390,000 | 47 | % | 56 | % | N/A | $ | 0 | 0 | % | ||||||||||||||||||||||||
Curt Garner | 65 | % | $ | 318,079 | 47 | % | 56 | % | 125 | % | $ | 139,786 | 60 | % | |||||||||||||||||||||||
Scott Boatwright(1) | 65 | % | $ | 156,979 | 47 | % | 56 | % | 125 | % | $ | 69,624 | 61 | % |
(1) | Dollar amounts for Mr. Boatwright are pro-rated, based on his start date of May 30, 2017. |
46 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
Long-Term Incentives 2017 Performance Share Award Design
In early 2017, we conducted shareholder outreach and discussed our potential 2017 performance share award design with several of our largest shareholders. The 2017 performance share award design uses a stock price performance goal similar to the 2016 design, while adding a comparable restaurant sales increase goal as well.
| As a result of our trailing one-year stock price range of approximately $350 to $540, the committee determined that it would be appropriate to establish a stock price performance goal of $600 for threshold payout and $650 for target payout, in order to ensure the awards would be aligned with the restoration of substantial shareholder value while also being achievable enough to provide meaningful incentive value to our executive officers. The stock price goal was well above the stock price of $427.61 on the date of grant and will require the restoration of substantial shareholder value before the awards pay out at all. As a result, the committee determined that the stock price goal was appropriately challenging. |
| Comparable restaurant sales is a metric closely followed by our management, our shareholders, and securities analysts and is a key measure for any growth-oriented restaurant or retail organization. Restoring our industry-leading economic model will be substantially dependent on comparable restaurant sales growth, and including this measure in the award ties any payout to a strong company sales recovery, rather than tying the payout solely to stock price performance. |
The absolute stock price goals have similar parameters as the 2016 awards:
| 60-day average to determine stock price goal achievement. |
| End-of-period performance modifier providing that if the average stock price for the last 60 days in the performance period is below $600, then the final payout will be no higher than target, even if an above-target average stock price was achieved during the performance period. |
Metric | Weighting | Performance Period |
Performance Level | Stock Price / 3-Year CRS CAGR
|
Payout (as % of target) | |||||
Absolute Stock Price |
2/3 | Feb. 19, 2017 to Feb. 19, 2020 |
Threshold | $600 | 50% | |||||
Target | $650 | 100% | ||||||||
Maximum | $900 | 350% | ||||||||
CRS 3-Year Compound Annual Growth Rate |
1/3 | Jan. 1, 2017 to Dec. 31, 2019 |
Threshold | 5% | 50% | |||||
Target | 7% | 100% | ||||||||
Maximum | 11% | 300% |
Given stock price performance and financial results, the committee believed a reduction in the target value of the 2017 performance share award as compared to 2016 was appropriate, and reduced Mr. Ellss target award value significantly:
Target 2017 Award Value | Percentage Change versus 2016 (at target) | |
$8.6 million | -31% |
Target value refers to the number of shares payable at target level performance, multiplied by the stock price as of the grant date. The target value of the 2016 performance share award for Mr. Ells was $12.5 million. The grant date fair value shown in the Summary Compensation Table for 2016 was $14.0 million as a result of the accounting expense valuation required by SEC reporting requirements, which differs from the target value; the grant date fair value reflected in the Summary Compensation Table for Mr. Ells for 2017 was $9.3 million.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 47 |
Executive Officers and Compensation (continued)
|
|
Other Bonus Payments
In addition to the AIP bonus paid to Mr. Garner for 2017, we also paid a portion of Mr. Garners sign-on bonus, totaling $250,000, following the second anniversary of Mr. Garners commencement of employment with us. This sign-on bonus was provided for in the offer letter we entered into with Mr. Garner at the time he joined us in 2015.
Additionally, in May 2017, the committee authorized the payment to Mr. Garner of a one-time discretionary bonus totaling $176,501 (intended to approximate an actual after-tax payout of $100,000) in recognition of the expanding importance of Mr. Garners role with the company and outstanding performance by Mr. Garner individually as well as his team.
Long-Term Incentives 2015 Performance Share Award Vesting
The 2015 performance share award was based on our relative performance compared to the 2015 restaurant industry peer group in average annual revenue growth, net income growth and total shareholder return during the three-year performance period from January 1, 2015 through December 31, 2017. In March 2018, the awards paid out between threshold and target; the value of the shares received as of the payout determination date was approximately 31% of the values disclosed in the Summary Compensation Table for each executive officer who received the award, driven by our below-target performance as well as the decline in our stock price during the performance period. Shares paid out under this award will be disclosed in the Option Exercises and Stock Vested table of our proxy statement for the 2019 annual meeting of shareholders.
Benefits and Perquisites
In addition to the principal compensation elements described above, we provide our executive officers with access to the same benefits we provide all of our full-time employees. We also provide our officers with perquisites and other personal benefits that we believe are reasonable and consistent with our compensation objectives, and with additional benefit programs that are not available to all employees throughout our company.
Perquisites are generally provided to help us attract and retain top performing employees for key positions, and in some cases perquisites are designed to facilitate our executive officers bringing maximum focus to what we believe to be demanding job duties. In addition to the perquisites identified in notes to the Summary Compensation Table below, we have occasionally allowed executive officers to be accompanied by a guest when traveling for business on an airplane owned or chartered by us. Executive officers have also used company-owned or chartered airplanes for personal trips, in which case we require the executive officer to fully reimburse us for the cost of personal use of the airplane, except where prohibited by applicable regulations. Our executive officers are also provided with personal administrative and other services by company employees from time to time, including scheduling of personal appointments, performing personal errands, and use of company-provided drivers. We believe that the perquisites we provide our executive officers are consistent with market practices, and are reasonable and consistent with our compensation objectives.
We also administer a non-qualified deferred compensation plan for our senior employees, including our executive officers. The plan allows participants to defer the obligation to pay taxes on certain elements of their compensation while also potentially receiving earnings on deferred amounts. We offer an employer match on a portion of the contributions made by the employees. We believe this plan is an important retention and recruitment tool because it helps facilitate retirement savings and financial flexibility for our key employees, and because many of the companies with which we compete for executive talent provide a similar plan to their key employees.
48 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 49 |
Executive Officers and Compensation (continued)
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50 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 51 |
Executive Officers and Compensation (continued)
|
|
The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis included in this Proxy Statement with management. Based on such review and discussion, the Compensation Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this Proxy Statement for filing with the SEC.
The Compensation Committee.
Neil W. Flanzraich, Chairperson
Ali Namvar
Mathew Paull
52 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
NAME AND PRINCIPAL POSITION |
YEAR | SALARY | BONUS(1) | STOCK AWARDS (2) |
OPTION AWARDS (3) |
NON-EQUITY INCENTIVE PLAN COMPENSATION(4) |
ALL OTHER COMPENSATION(5) |
TOTAL | ||||||||||||||||||||||||
STEVE ELLS |
2017 | $ | 1,540,000 | | $ | 9,324,505 | | | $ | 187,675 | $ | 11,052,180 | ||||||||||||||||||||
Executive Chairman; former Chief Executive Officer(6) | 2016 | $ | 1,540,000 | | $ | 14,002,740 | | | $ | 120,356 | $ | 15,663,096 | ||||||||||||||||||||
2015 | $ | 1,526,000 | | $ | 12,030,036 | | | $ | 281,858 | $ | 13,837,891 | |||||||||||||||||||||
JACK HARTUNG |
2017 | $ | 800,000 | | $ | 4,196,010 | | | $ | 209,150 | $ | 5,205,160 | ||||||||||||||||||||
Chief Financial Officer | 2016 | $ | 792,308 | | $ | 5,886,337 | | | $ | 175,559 | $ | 6,854,204 | ||||||||||||||||||||
2015 | $ | 745,769 | | $ | 5,052,179 | | | $ | 235,361 | $ | 6,033,309 | |||||||||||||||||||||
MARK CRUMPACKER(7) |
2017 | $ | 600,000 | | $ | 3,450,091 | | | $ | 125,347 | $ | 4,175,438 | ||||||||||||||||||||
Former Chief Marketing and Strategy Officer | 2016 | $ | 590,000 | | $ | 4,200,822 | | | $ | 109,914 | $ | 4,900,736 | ||||||||||||||||||||
2015 | $ | 532,077 | | $ | 3,608,930 | | | $ | 141,581 | $ | 4,282,588 | |||||||||||||||||||||
CURT GARNER(8) |
2017 | $ | 483,299 | $ | 426,501 | | $ | 2,653,500 | $ | 139,786 | $ | 206,468 | $ | 3,909,555 | ||||||||||||||||||
Chief Digital and Information Officer | ||||||||||||||||||||||||||||||||
SCOTT BOATWRIGHT(9) |
2017 | $ | 236,538 | | | $ | 1,194,757 | $ | 69,624 | $ | 215,486 | $ | 1,716,406 | |||||||||||||||||||
Chief Restaurant Officer | ||||||||||||||||||||||||||||||||
(1) | Amounts under Bonus represent a $250,000 sign-on bonus paid to Mr. Garner on the second anniversary of his joining Chipotle, as agreed at the time he joined us in 2015, as well as a discretionary bonus as further described under Compensation Discussion and Analysis 2017 Compensation Program Other Bonus Payments. |
(2) | Amounts under Stock Awards represent the grant date fair value under FASB Topic 718 of performance shares awarded in 2015, 2016 and 2017, and for the 2015 award, for which vesting was considered probable as of the grant date. See Note 6 to our audited consolidated financial statements for the year ended December 31, 2017, which are included in our Annual Report on Form 10-K filed with the SEC on February 8, 2018, for descriptions of the methodologies and assumptions we use to value stock awards and the manner in which we recognize the related expense pursuant to FASB ASC Topic 718. The 2016 performance share awards will not pay out or have any value unless the price of our common stock exceeds an average of $700 for a period of 60 consecutive trading days, before February 3, 2019, and the 2017 performance share awards will not pay out or have any value unless the price of our common stock exceeds an average of $600 for a period of 60 consecutive trading days, before February 19, 2020. For further discussion, see above under Compensation Discussion and Analysis 2017 Compensation Program Long Term Incentives 2017 Performance Share Award Design. |
(3) | Amounts under Option Awards represent the grant date fair value under FASB Topic 718 of SOSARs awarded in 2017. See Note 6 to our audited consolidated financial statements for the year ended December 31, 2017, as referenced in footnote 2, for descriptions of the methodologies and assumptions we use to value SOSAR awards and the manner in which we recognize the related expense pursuant to FASB ASC Topic 718. The SOSAR awards reflected in this table have the exercise prices reflected in the Grants of Plan-Based Awards table below, and expire in February 2024 for Mr. Garner and May 2024 for Mr. Boatwright. |
(4) | Amounts under Non-Equity Incentive Plan Compensation represent the amounts earned under the AIP for the relevant year. |
(5) | Amounts under All Other Compensation for 2017 include the following: |
| Matching contributions we made on the executive officers behalf to the Chipotle Mexican Grill, Inc. 401(K) plan as well as the Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan, in the aggregate amounts of $61,600 for Mr. Ells, $32,123 for Mr. Hartung, and $27,198 for Mr. Crumpacker. See Non-Qualified Deferred Compensation for 2017 below for a description of the Chipotle Mexican Grill, Inc. Supplemental Deferred Investment Plan. |
| Company car costs, which include the depreciation expense recognized on company-owned cars or lease payments on leased cars (in either case less employee payroll deductions), insurance premiums, and maintenance and fuel costs, or a car allowance paid to officers who choose not to receive a company car. Company car costs for Mr. Ells were $49,585, for Mr. Hartung were $45,210, for Mr. Crumpacker were $34,123, for Mr. Garner were $35,100, and for Mr. Boatwright were less than $25,000. |
| Housing costs, including monthly rent and utilities payments, of $43,200 for Mr. Hartung and $45,300 for Mr. Crumpacker, and a net $54,000 housing allowance for Mr. Garner. |
| Relocation costs, including moving expenses, of $169,069 for Mr. Boatwright. |
| $57,776 for Mr. Hartung, $18,186 for Mr. Crumpacker, $84,691 for Mr. Garner, and $25,909 for Mr. Boatwright for reimbursement of taxes payable in connection with taxable perquisites under rules of the Internal Revenue Service. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 53 |
Executive Officers and Compensation (continued)
|
|
| Commuting expenses, which include air fare, airport parking and ground transportation relating to travel between home and our company headquarters, totaling $30,302 for Mr. Hartung and $32,156 for Mr. Garner. |
| $75,950 in personal legal fees and disbursements paid to counsel for Mr. Ells in connection with the Executive Chairman Agreement. |
(6) | Mr. Ells became Executive Chairman effective upon our appointment of Mr. Niccol as Chief Executive Officer on March 5, 2018. |
(7) | Mr. Crumpacker was appointed Chief Marketing and Strategy Officer in September 2017, after previously serving as Chief Marketing and Development Officer. Mr. Crumpackers employment terminated on March 15, 2018. |
(8) | Mr. Garner was appointed Chief Digital and Information Officer, and designated as an executive officer, in March 2017, after previously serving as Chief Information Officer. |
(9) | Mr. Boatwright was appointed Chief Restaurant Officer in May 2017, and designated as an executive officer in September 2017. |
GRANTS OF PLAN-BASED AWARDS IN 2017
ESTIMATED POSSIBLE PAYOUTS
|
ESTIMATED POSSIBLE PAYOUTS
|
ALL
OTHER (# shares)
|
EXERCISE OR ($)
|
GRANT ($)
|
||||||||||||||||||||||||||||||||
NAME
|
GRANT
|
AWARD DESCRIPTION
|
THRESHOLD
|
TARGET ($)
|
MAXIMUM ($)
|
THRESHOLD
|
TARGET (# shares)
|
MAXIMUM (# shares)
|
||||||||||||||||||||||||||||
STEVE ELLS | ||||||||||||||||||||||||||||||||||||
n/a | AIP | $0 | $1,925,000 | $ | 4,331,250 | |||||||||||||||||||||||||||||||
2/19/17 | Performance Shares |
10,000 | 20,000 | 66,667 | $ | 9,324,505 | ||||||||||||||||||||||||||||||
JACK HARTUNG | ||||||||||||||||||||||||||||||||||||
n/a | AIP | $0 | $680,000 | $ | 1,530,000 | |||||||||||||||||||||||||||||||
2/19/17 | Performance Shares |
4,500 | 9,000 | 30,000 | $ | 4,196,010 | ||||||||||||||||||||||||||||||
MARK CRUMPACKER | ||||||||||||||||||||||||||||||||||||
n/a | AIP(3) | $0 | $390,000 | $ | 877,500 | |||||||||||||||||||||||||||||||
2/19/17 | Performance Shares(3) |
3,700 | 7,400 | 24,667 | $ | 3,450,091 | ||||||||||||||||||||||||||||||
CURT GARNER | ||||||||||||||||||||||||||||||||||||
n/a | AIP | $0 | $318,079 | $ | 715,679 | |||||||||||||||||||||||||||||||
2/20/17 | SOSARs | 25,000 | $ | 427.61 | $ | 2,653,500 | ||||||||||||||||||||||||||||||
SCOTT BOATWRIGHT | ||||||||||||||||||||||||||||||||||||
n/a | AIP(4) | $0 | $156,079 | $ | 353,204 | |||||||||||||||||||||||||||||||
5/30/17 | SOSARs | 10,090 | $ | 475.70 | $ | 1,194,757 |
(1) | Each executive officer was entitled to a cash award to be paid under our 2014 Cash Incentive Plan, although as a matter of practice the Compensation Committee exercises discretion to pay each executive officer a lesser amount determined under the AIP as described under Compensation Discussion and Analysis 2017 Compensation Program Annual Incentive Plan. Amounts under Threshold reflect that no payouts would be paid under the AIP if achievement against company targets under the AIP were sufficiently below target. Amounts under Target reflect the target AIP bonus, which would have been paid to the executive officer if each of the company performance factor, team performance factor and individual performance factor under the AIP had been set at 100 percent. Amounts under Maximum reflect the AIP bonus which would have been payable had each of the company performance factor, team performance factor and individual performance factor been at the maximum level. Actual AIP bonuses paid are reflected in the Non-Equity Incentive Plan Compensation column of the table labeled Summary Compensation Table above. |
(2) | All equity awards are denominated in shares of common stock, and were granted under the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan. See Terms of 2017 Performance Share Awards and Terms of 2017 SOSAR Awards below for a description of the vesting terms for the Performance Shares and SOSARs granted during 2017. See Note 6 to our audited consolidated financial statements for the year ended December 31, 2017, which are included in our Annual Report on Form 10-K filed with the SEC on February 8, 2018, for descriptions of the methodologies and assumptions we used to value equity awards pursuant to FASB Topic 718. The grant date fair value of Performance Share awards is included in the Stock Awards column of the Summary Compensation Table above for each executive officer for 2017, and the grant date fair value of SOSARs awards is included in the Option Awards column of the Summary Compensation Table above for each executive officer for 2017. |
(3) | In connection with the termination of Mr. Crumpackers employment in March 2018, these awards were cancelled and forfeited. |
(4) | AIP amounts for Mr. Boatwright are pro-rated, based on his start date of May 30, 2017. |
54 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
|
|
Terms of 2017 Performance Share Awards
Vesting of the performance share awards granted to the executive officers in 2017 will be based on Chipotles stock price performance and growth in comparable restaurant sales over the three-year performance term.
Two-thirds of the awards will pay out only if the average closing price of Chipotles common stock for any period of 60 consecutive trading days during performance term is at least $600, which is approximately 52% higher than the closing price of Chipotles common stock as of the grant date. The number of shares issuable at the end of the performance term will be determined based on the highest average closing stock price achieved for any period of 60 consecutive trading days during the performance term. Additionally, if the average closing stock price of Chipotles common stock during the last 60 consecutive trading days of the performance period is below $600, the maximum payout of the award will be no greater than the target payout, regardless of whether a higher payout level was actually achieved earlier in the performance period.
The other one-third of the awards will pay out only if the average annual growth in Chipotle comparable restaurant sales during the three fiscal years ending December 31, 2017, 2018 and 2019 is at least 5%.
Vesting and payout of each award is subject to the recipients continued employment through the vesting date, subject to the potential pro-rata payout to the recipient or his estate in the event of termination due to death, disability or retirement, and to potential accelerated vesting in the event of certain terminations within two years of certain change in control transactions. We filed the form of Performance Share Agreements for these grants as an exhibit to our Quarterly Report on Form 10-Q filed with the SEC on April 27, 2016.
Each SOSAR represents the right to receive shares of common stock in an amount equal to (i) the excess of the market price of the common stock at the time of exercise over the exercise price of the SOSAR, divided by (ii) the market price of the common stock at the time of exercise. The exercise price of the SOSARs is equal to the closing price of our common stock on the date the committee approved the grants. The SOSARs are subject to vesting in equal amounts on the second and third anniversary of the grant date, subject to potential acceleration of vesting in the event of termination due to death, disability, or retirement, and to potential accelerated vesting if the SOSARs are not replaced in the event of certain in control transactions. We filed the form of SOSAR Agreements for these grants as an exhibit to our Quarterly Report on Form 10-Q filed with the SEC on April 20, 2012.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 55 |
Executive Officers and Compensation (continued)
|
|
OUTSTANDING EQUITY AWARDS AT DECEMBER 31, 2017
OPTION AWARDS
|
STOCK AWARDS
|
|||||||||||||||||||||||
NAME
|
NUMBER OF SECURITIES EXERCISABLE
|
NUMBER OF SECURITIES UNEXERCISABLE
|
OPTION
|
OPTION
|
EQUITY INCENTIVE OR OTHER RIGHTS
|
EQUITY INCENTIVE
|
||||||||||||||||||
STEVE ELLS |
||||||||||||||||||||||||
87,500 | | $ | 543.20 | 2/3/2021 | 7,444 | (2) | $ | 2,151,539 | (3) | |||||||||||||||
43,750 | 43,750 | (1) | $ | 543.20 | 2/3/2021 | 13,500 | (4) | $ | 3,901,905 | (3) | ||||||||||||||
10,000 | (5) | $ | 2,890,300 | (3) | ||||||||||||||||||||
JACK HARTUNG |
||||||||||||||||||||||||
25,000 | | $ | 318.45 | 2/7/2020 | 3,126 | (2) | $ | 903,508 | (3) | |||||||||||||||
25,000 | | $ | 318.45 | 2/7/2020 | 5,675 | (4) | $ | 1,640,245 | (3) | |||||||||||||||
30,000 | | $ | 543.20 | 2/3/2021 | 4,500 | (5) | $ | 1,300,635 | (3) | |||||||||||||||
15,000 | 15,000 | (1) | $ | 543.20 | 2/3/2021 | |||||||||||||||||||
MARK CRUMPACKER |
||||||||||||||||||||||||
4,000 | | $ | 318.45 | 2/7/2020 | (6) | 2,233 | (2) | $ | 645,404 | (3) | ||||||||||||||
4,000 | | $ | 318.45 | 2/7/2020 | (6) | 4,050 | (4)(7) | $ | 1,170,572 | (3) | ||||||||||||||
2,000 | | $ | 365.80 | 6/8/2020 | (6) | 3,700 | (5)(7) | $ | 1,069,411 | (3) | ||||||||||||||
15,000 | | $ | 543.20 | 2/3/2021 | (6) | |||||||||||||||||||
7,500 | 7,500 | (1) | $ | 543.20 | 2/3/2021 | (6) | ||||||||||||||||||
CURT GARNER |
||||||||||||||||||||||||
5,500 | 5,500 | $ | 554.86 | 12/15/2022 | ||||||||||||||||||||
| 25,000 | $ | 417.22 | 4/27/2023 | ||||||||||||||||||||
| 25,000 | $ | 427.61 | 2/10/2024 | ||||||||||||||||||||
SCOTT BOATWRIGHT |
||||||||||||||||||||||||
| 10,090 | $ | 475.70 | 5/30/2024 |
(1) | Vesting of the unvested portion of these Performance SOSARs was contingent upon our achievement of stated levels of cumulative cash flow from operations prior to the fifth fiscal year-end following the award date, with vesting to occur no sooner than February 3, 2017. The SOSARs vested in full as of March 12, 2018. |
(2) | Represents shares issuable under the 2015 performance share awards, assuming achievement at the threshold level. Payout was based on relative achievement versus our restaurant industry peer group in sales growth, net income growth and total shareholder return over the three year performance period. In March 2018, the awards paid out between threshold and target. |
(3) | Based on the closing stock price of our common stock on December 29, 2017 of $289.03 per share. |
(4) | Represents shares issuable under the 2016 performance share awards, assuming achievement at the threshold level (which would require that our average closing stock price for any period of 60 consecutive trading days during the performance period is at least $700). |
(5) | Represents shares issuable under the 2017 performance share awards, assuming achievement at the threshold level (which would require that our average closing stock price for any period of 60 consecutive trading days during the performance period is at least $600, in addition to achievement of comparable restaurant sales goals). The performance terms for the 2017 performance share awards are further described above under Terms of 2017 Performance Share Awards. |
(6) | In connection with the termination of Mr. Crumpackers employment in March 2018, the expiration date of these awards was amended to March 19, 2019. |
(7) | In connection with the termination of Mr. Crumpackers employment in March 2018, these awards were cancelled and forfeited. |
OPTION EXERCISES AND STOCK VESTED IN 2017
None of our executive officers exercised SOSARs during 2017, and no full-value shares of stock vested during 2017.
56 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Executive Officers and Compensation (continued)
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The table below presents contributions by each executive officer, and our matching contributions, to the Supplemental Deferred Investment Plan during 2017, as well as each executive officers earnings under the plan and ending balances in the plan on December 31, 2017.
NAME |
EXECUTIVE IN LAST FY(1) |
REGISTRANT IN LAST FY(2) |
AGGREGATE EARNINGS) IN LAST FY(3) |
AGGREGATE DISTRIBUTIONS |
AGGREGATE AT LAST FYE(4) |
|||||||||||||||||
Steve Ells | $ | 63,500 | $ | 50,800 | $ | 109,158 | $ | 429,654 | $ | 800,320 | ||||||||||||
Jack Hartung | $ | 136,000 | $ | 27,200 | $ | 86,037 | | $ | 6,428,117 | |||||||||||||
Mark Crumpacker | $ | 22,732 | $ | 16,398 | $ | 54,786 | | $ | 343,892 |
(1) | These amounts are reported in the Summary Compensation Table as part of each executives Salary for 2017. |
(2) | These amounts are reported in the Summary Compensation Table as part of each executives All Other Compensation for 2017. |
(3) | These amounts are not reported as compensation in the Summary Compensation Table because none of the earnings are above market as defined in SEC rules. |
(4) | These amounts include amounts previously reported in the Summary Compensation Table as Salary, Non-Equity Incentive Plan Compensation or All Other Compensation for years prior to 2017 (ignoring for purposes of this footnote any investment losses on balances in the plan and any withdrawals/distributions), in the following aggregate amounts: $2,450,615 for Mr. Ells, $5,631,631 for Mr. Hartung, and $347,689 for Mr. Crumpacker. |
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 57 |
Executive Officers and Compensation (continued)
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58 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Other Business and Miscellaneous
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60 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Other Business and Miscellaneous (continued)
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If you request physical delivery of these proxy materials, we will mail along with the proxy materials our 2017 Annual Report, including our Annual Report on Form 10-K for fiscal year 2017 (and the financial statements included in that report) as filed with the SEC; however, it is not intended that the Annual Report on Form 10-K be a part of the proxy statement or a solicitation of proxies.
You are respectfully urged to enter your vote instruction via the Internet as explained on the Notice of Internet Availability of Proxy Materials that was mailed to you, or if you are a holder of record and have received a proxy card, via telephone as explained on the proxy card. We will appreciate your prompt response.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | 61 |
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MARKED TO SHOW PROPOSED CHANGES VS. PLAN AS CURRENTLY IN EFFECT
AMENDED AND RESTATED
CHIPOTLE MEXICAN GRILL, INC.
2011 STOCK INCENTIVE PLAN
1. Effective Date;
Purpose of the Plan
The purpose of the Amended and Restated
Chipotle Mexican Grill, Inc. established, effective2011 Stock Incentive Plan as of March 6, 2011, the
set forth herein (this
Plan)
is to attract and retain Employees, Consultants and Non-Employee Directors and to provide additional incentives for these persons consistent with the long-term success of the business of Chipotle Mexican
Grill, Inc. (the
Company)
and its Subsidiaries. This Plan was most recently approved by stockholders on May 13, 2015 as the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive
Plan, which is hereby amended and restated effective as of May 14, 2015, (the
2015
Plan). This amendment and restatement is subject to
stockholderthe approval of the
Companys stockholders, and shall remain
inhave no effect as provided prior to that time.
The amendments made herein shall affect only Awards granted on or after the Effective
Date (as hereinafter defined herein). Awards granted prior to the Effective Date shall be governed by the terms of the 2015 Plan (including any earlier amendment and restatement that is referred in the 2015 Plan) and Award Agreements as in
Section 19 below. effect prior to the Effective Date. The terms of
this Plan isare not intended to promote the interests of the Company and its shareholders by providing current and prospective directors, officers,
employees, consultants and advisors of the Company and its Subsidiaries, who are largely responsible for the management, growth and protection of the business of the Company, with incentives and rewards to encourage them to continue in the
serviceaffect the interpretation of the Company. The Plan is designed to meet this intent by providing Eligible Persons (as defined below) with a
proprietary interest in pursuing the long-term growth, profitability and financial success of the Companyterms of the 2015 Plan as they existed prior to the Effective Date.
2. Definitions
As used in the Plan or in any instrument governing the terms of any Incentive Award, the following definitions apply to the terms indicated below:
(a) Board or Board of Directors means the Board of Directors of Chipotle.
(b) Business Combination means a merger, consolidation, reorganization or similar transaction.
(c) Cause means, when used in connection with the termination of a Participants employment with the Company, unless otherwise provided in the Participants award agreement with respect to an Incentive Award or effective employment agreement or other written agreement with respect to the termination of a Participants employment with the Company, the termination of the Participants employment with the Company on account of: (i) a failure of the Participant to substantially perform his or her duties (other than as a result of physical or mental illness or injury); (ii) the Participants willful misconduct or gross negligence which is materially injurious to the Company; (iii) a breach by a Participant of the Participants fiduciary duty or duty of loyalty to the Company; (iv) the Participants unauthorized removal from the premises of the Company of any document (in any medium or form) relating to the Company or the customers of the Company; or (v) the commission by the Participant of any felony or other serious crime involving moral turpitude. Any rights the Company may have hereunder in respect of the events giving rise to Cause shall be in addition to the rights the Company may have under any other agreement with the Participant or at law or in equity. If, subsequent to a Participants termination of employment prior to a Change in Control, it is discovered that such Participants employment could have been terminated for Cause, the Participants employment shall, at the election of the Committee, in its sole discretion, be deemed to have been terminated for Cause retroactively to the date the events giving rise to Cause occurred.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | A-1 |
Appendix A (continued)
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(d) Change in Control means the occurrence, in a single transaction or in a series of related transactions, of one or more of the following events:
(i) Any Person becoming the beneficial owner (within the meaning of Rule 13d-3 promulgated under the Exchange Act, a Beneficial Owner), directly or indirectly, of twenty-five percent or more of the combined voting power of Voting Securities; provided, however that a Change in Control shall not be deemed to occur by reason of an acquisition of Voting Securities by the Company or by an employee benefit plan (or a trust forming a part thereof) maintained by the Company. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur solely because any Person becomes the Beneficial Owner of twenty-five percent or more of the outstanding Voting Securities (A) in connection with a Business Combination that is not a Change in Control pursuant to sub-clause (iii), below, or (B) as a result of the acquisition of Voting Securities by the Company which, by reducing the number of Voting Securities deemed to be outstanding, increases the proportional number of shares Beneficially Owned by such Person, provided, however, that if a Change in Control would have occurred (but for the operation of this proviso) as a result of the acquisition of Voting Securities by the Company and at any time after such acquisition such Person becomes the Beneficial Owner of any additional Voting Securities following which such Person is the Beneficial Owner of twenty-five percent or more of the outstanding Voting Securities, a Change in Control shall occur;
(ii) The individuals who, as of March 16, 2011 are members of the Board of Directors (the Incumbent Board), cease for any reason to constitute at least a majority of the members of the Board of Directors; provided, however that if the election or appointment, or nomination for election by Chipotles common stockholders, of any new director was approved by a vote of at least two-thirds of the Incumbent Board, such new director shall, for purposes of the Plan, thereafter be considered as a member of the Incumbent Board; provided, further, however, that no individual shall be considered a member of the Incumbent Board if such individual initially assumed office as a result of an actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors (a Proxy Contest) including by reason of any agreement intended to avoid or settle any Proxy Contest; or
(iii) The consummation of:
(A) a Business Combination with or into the Company or in which securities of Chipotle are issued, unless such Business Combination is a Non-Control Transaction;
(B) a complete liquidation or dissolution of the Company; or
(C) the sale or other disposition of all or substantially all of the assets of the Company (on a consolidated basis) to any Person other than the Company or an employee benefit plan (or a trust forming a part thereof) maintained by the Company or by a Person which, immediately thereafter, will have all its voting securities owned by the holders of the Voting Securities immediately prior thereto, in substantially the same proportions.
For purposes of the Plan, a Non-Control Transaction is Business Combination involving the Company where:
(x) the holders of Voting Securities immediately before such Business Combination own, directly or indirectly immediately following such Business Combination more than fifty percent of the combined voting power of the outstanding voting securities of the parent corporation resulting from, or the corporation issuing its voting securities as part of, such Business Combination (the Surviving Corporation) in substantially the same proportion as their ownership of the Voting Securities immediately before such Business Combination by reason of their prior ownership of Voting Securities;
(y) the individuals who were members of the Incumbent Board immediately prior to the execution of the agreement providing for such Business Combination constitute a majority of the members of the board of directors of the Surviving Corporation, or a corporation beneficially owning a majority of the voting securities of the Surviving Corporation; and
(z) no Person other than the Company or any employee benefit plan (or any trust forming a part thereof) maintained immediately prior to such Business Combination by the Company immediately following the time at which such transaction occurs, is a Beneficial Owner of twenty-five percent or more of the combined voting power of the Surviving Corporations voting securities outstanding immediately following such Business Combination.
A-2 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Appendix A (continued)
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Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Incentive Award that provides for the deferral of compensation and is subject to Section 409A of the Code,
the transaction or event described in (i), (ii), or (iii) above with respect to such Incentive Award must also constitute a change in control event, as defined in Treasury Regulation §
1.409A-3(i)(5) to the extent required by Section 409A of the Code. The Committee shall have full and final authority, which shall be exercised in its sole discretion, to determine conclusively whether a
Change in Control has occurred for purposes of this Section 12(d), and the
date of the occurrence of such Change in Control and any incidental matters relating thereto.
(e) Chipotle means Chipotle Mexican Grill, Inc., a Delaware corporation, and any successor thereto.
(f) Code means the Internal Revenue Code of 1986, as amended from time to time, and all
regulations, interpretations and administrative guidance issued thereunder.; provided, however, that references to
performance-based
compensation under Section 162(m) shall
refer to the Internal Revenue Code of 1986 as in effect as of December 31, 2017, and all regulations, interpretations and administrative guidance issued thereunder.
(g) Committee means the Compensation Committee of the Board of Directors or such other committee as the Board of Directors shall appoint from time to time to administer the Plan and to otherwise exercise and perform the authority and functions assigned to the Committee under the terms of the Plan.
(h) Common Stock means Chipotles Common Stock, $0.01 par value per share, or any other security
into which the common stock shall be changed pursuant to the adjustment provisions of Section 99 of the Plan.
(i) Company means Chipotle and all of its Subsidiaries, collectively.
(a) Director means a member of the Board of Directors who is not at the time of
reference an employee of the Company.
(j) Consultant means any consultant or advisor to the Company or any of its Subsidiaries who may be offered securities registrable on Form S-8 under the Securities Act or pursuant to Rule 701 of the Securities Act, or any other available exemption, as applicable.
(j)(k) Dividend
Equivalent means a right to receive the equivalent value (in cash or Common Stock) of dividends paid on Common Stock. Dividend Equivalents may be granted based on dividends declared on the Common Stock, to be credited as of dividend
payment dates during the period between the date an Incentive Award is granted to a Participant and such date or dates as determined by the Committee. Such Dividend Equivalents shall be converted to cash or additional shares of Common Stock by such
formula and at such time and subject to such limitations as may be determined by the Committee. In addition,Dividend Equivalents shall be subject to the same restrictions
as the shares subject to the underlying Incentive Award. Dividend Equivalents with respect to an Incentive Award with performance-based vesting that are based on dividends paid prior to the vesting of such Incentive Award shall only be paid out
to the Participant to the extent that the performance-based vesting conditions are subsequently satisfied and such award vests. No Dividend Equivalent shall be payable with respect to any Incentive Award unless specified by the Committee in the
agreement evidencing the Incentive Award. Dividend Equivalents shall not be issued in tandem with Options or stock appreciation rights.
(l) Eligible
Person means any (i) individual employed by the Company or any of its Subsidiaries; (ii) director of the Company or any of its
Subsidiaries; (iii) consultant or advisor to the Company or any of its Subsidiaries who may be offered securities registrable on Form S-8 under the Securities Act or pursuant to Rule 701 of the Securities Act,
or any other available exemption, as applicable; or (iv) prospective employees, directors, officers, consultants or
advisorsEffective
Date means May 22, 2018, subject to
shareholder approval at the Companys 2018 annual
shareholders meeting (or any adjournment thereof).
(m) Eligible Person means any (i) Employee; (ii) Non-Employee Director or (iii) Consultant; including persons who have accepted offers of employment or consultancy from the Company or its Subsidiaries (and would satisfy the provisions of clauses (i) through (iii) above once such person begins employment with or providing services to the Company or its Subsidiaries).
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | A-3 |
Appendix A (continued)
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(k)(n)
Employee means an individual who is on
the payroll of the Company or one of its Subsidiaries, and is classified on the employers human resource payroll
system as a regular full-time or regular part-time employee.
(l)(o) Exchange Act
means the Securities Exchange Act of 1934, as amended.
(m)(p) Fair Market Value
or FMV means, as of any date, the value of a share of Common Stock as determined by the Committee, in its discretion, subject to the following:
(i) If, on such date, Common Stock is listed on the New York Stock Exchange (NYSE) (or such other national securities exchange as may at the time be the principal market for the Common Stock), then: the Fair Market Value of a share shall be the closing price of a share of Common Stock as quoted on such exchange, as reported in The Wall Street Journal or such other source as the Company deems reliable (or, if no such closing price is reported, the closing price on the last preceding date on which a sale of Common Stock occurred); provided, however, that the Committee may, in its discretion, determine the Fair Market Value of a share of Common Stock on the basis of the opening, closing, or average of the high and low sale prices of a share of Common Stock on such date or the preceding trading day, the actual sale price of a Share, any other reasonable basis using actual transactions involving shares of Common Stock as reported on an established U.S. national or regional securities exchange, or on any other basis consistent with the requirements of Section 409A of the Code.
(ii) If the Common Stock is not then listed and traded on the NYSE or other national securities exchange, Fair Market Value shall be what the Committee determines in good faith to be 100% of the fair market value of a share of Common Stock on that date, using such criteria as it shall determine, in its sole discretion, to be appropriate for valuation.
(iii) The Committee may vary in its discretion the method of determining Fair Market Value as provided in this Section for purposes of different provisions under the Plan. The Committee may delegate its authority to establish Fair Market Value for purposes of determining whether sufficient consideration has been paid to exercise Options or SARs or for purposes of any other transactions involving outstanding Incentive Awards.
(n)(q) Full Value Award
means any Incentive Award other than an Option or stock appreciation right.
(o)(r) Good Reason
means, unless otherwise provided in any award agreement entered between the Company and the Participant with respect to an Incentive Award or effective employment agreement or other written agreement between the Participant and the Company with
respect to the termination of a Participants employment with the Company, the Participants termination of employment on account of: (i) a material diminution in a Participants duties and responsibilities other than a change in
such Participants duties and responsibilities that results from becoming part of a larger organization following a Change in Control, (ii) a decrease in a Participants base salary, bonus opportunity or benefits other than a decrease
in bonus opportunity or benefits that applies to all employees of the Company otherwise eligible to participate in the affected plan or (iii) a relocation of a Participants primary work location more than 30 miles from the
Participants work location on the date of grant of a Participants Incentive Awards under the Plan, without the Participants prior written consent; provided that, within thirty days following the occurrence of any of the events set
forth herein, the Participant shall have delivered written notice to the Company of his or her intention to terminate his or her employment for Good Reason, which notice specifies in reasonable detail the circumstances claimed to give rise to the
Participants right to terminate employment for Good Reason, and the Company shall not have cured such circumstances within thirty days following the Companys receipt of such notice.
(p)(s) Incentive Award
means an Option or Other Stock-Based Award granted to a Participant pursuant to the terms of the Plan.
(t) Non-Employee Director means a member of the Board of Directors who is not an Employee.
(q)(u) Option means an
option to purchase shares of Common Stock granted to a Participant pursuant to
Section 66..
A-4 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Appendix A (continued)
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(r)(v) Other Stock-Based Award means an equity or equity-related award granted to a
Participant pursuant to Section 77..
(s)(w) Participant means
a Director, consultant, advisor or employee of the Companyan Eligible Person who is eligible to participate in the Plan and to whom one or more
Incentive Awards havehas been granted an Incentive Award pursuant to the Plan and, following the death of any
such Person, his successors, heirs, executors and administrators, as the case may be.
(t)(x) Performance-Based
Compensation means any Full Value Award designated by the Committee as Performance-Based Compensation underIncentive Award that is granted subject to
Section 8 of the Plan.
(u)(y) Performance
Goals mean, for a Performance Period,
Goal means the level of performance
with respect to one or more goals established by the Committee for the Performance Period based upon the Performance Measures. that must be achieved
during a Performance Period to earn a payment under an Incentive Award structured as Performance-Based Compensation.
(v)(z) Performance
Measures means suchthe measures as are described in Section 8 on
whichthat may be used as part of a Performance Goals are based in order to qualify certain awards granted hereunder
asGoal when granting Performance-Based Compensation.
(w)(aa) Performance
Period means the period of time during which the Performance Goals must be met in order to determine the degree of payout and/or vesting with respect to a Full Value Award that is intended to qualify as Performance-Based
Compensation.
(x)(bb) Person means a
person as such term is used in Section 13(d) and 14(d) of the Exchange Act, including any group within the meaning of Section 13(d)(3) under the Exchange Act.
(y)(cc) Plan means this
Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan, as it may be amended from time to time.
(z)(dd) Qualifying
Termination means a Participants termination of employment by the Company Without Cause or for Good Reason, in either case during the period commencing on a Change in Control and ending on the second anniversary of the Change in
Control.
(aa)(ee) Securities Act
means the Securities Act of 1933, as amended.
(bb)(ff) Subsidiary
means any subsidiary within the meaning of Rule 405 under the Securities Act.
(cc)(gg) Voting
Securities means, at any time, Chipotles then outstanding voting securities.
(dd)(hh) Without Cause
means a termination of a Participants employment with the Company other than: (i) a termination of employment by the Company for Cause, (ii) a termination of employment as a result of the Participants death or Disability or
(iii) a termination of employment by the Participant for any reason.
(ii) 2015 Plan means the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan as in effect prior to the Effective Date.
3. Stock Subject to the Plan
(a) In General
Subject to adjustment as provided in Section 9 and the following provisions of this Section 3, the maximum number of shares of Common Stock that may be issued pursuant to Incentive Awards granted under the Plan shall be increased from
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | A-5 |
Appendix A (continued)
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3,360,000 to 5,560,000 to 6,830,000 shares of Common Stock in the aggregate, of which
960,000 shares of Common Stock were available for issuance but were not issued under the Companys Amended and Restated 2006
Stock Incentive Plan. Out of such aggregate, the maximum number of shares of Common Stock that may be covered by Options that are designated as incentive stock options within the meaning
of Section 422 of the Code shall not exceed 3,000,000 shares of Common Stock, subject to adjustment as provided in Section 9 and the following provisions of this
Section 3. Shares of Common Stock issued under the Plan may be either authorized and unissued shares or , authorized and issued
shares held in the Companys treasury shares, or bothor otherwise acquired for purposes of the Plan, at the discretion of the Committee. Any shares of Common
Stock subject to Options or stock appreciation rights shall be counted against the maximum share limitation of this Section 3(a) as one share of Common Stock for every share of Common Stock subject thereto. Any shares of
Common Stock subject to Full Value Awards shall be counted against the maximum share limitation of this Section 3(a) as two shares of Common Stock for every share of Common Stock subject
thereto. No further Incentive Awards shall be granted subject to the terms of the 2015 Plan.
For purposes of the preceding paragraph, shares of Common Stock covered by Incentive Awards shall only be counted as used to the extent they
are actually issued and delivered to a Participant (or such Participants permitted transferees as described in the Plan) pursuant to the Plan. For
purposes of clarification, if shares of Common Stock are issued subject to conditions which may result in the forfeiture, cancellation or return of such shares to the Company, any portion of the shares forfeited, cancelled or returned shall be
treated as not issued pursuant to the Plan.Any shares of Common Stock related to Incentive Awards, whether granted under this Plan or the 2015 Plan, that at any time on or after
the Effective Date, terminate by expiration, forfeiture, cancellation, or otherwise without the issuance of such shares (including but not limited to settlement of an Incentive Award at less than the target number of shares), are settled in cash in
lieu of shares of Common Stock, or are exchanged with the Committees permission, prior to the issuance of shares of Common Stock, for Incentive Awards not involving shares
of Common Stock, shall be available again for grant under this Plan. Shares of Common Stock covered by Incentive Awards granted pursuant to the Plan in connection with the assumption, replacement, conversion or adjustment of outstanding
equity-based awards in the context of a corporate acquisition or merger (within the meaning of Section 303A.08 of the New York Stock Exchange Listed Company Manual or any successor provision) shall not count as used under the Plan for purposes
of this Section 3. Notwithstanding the foregoing, the following shares of Common Stock may not again be made available for issuance as Incentive Awards under the Plan: (i) shares of Common Stock not issued or delivered
as a result of the net settlement of an outstanding Option or stock appreciation right, (ii) shares of Common Stock used to pay the exercise price or withholding taxes related to
anany outstanding Incentive Award, or (iii) shares of Common Stock reacquired by the Company with the amount received upon exercise of an Option.
Subject to adjustment as provided in Section 9, the maximum number of shares of Common Stock subject to Incentive Awards which may be granted under the Plan to any single Participant in any fiscal year of the Company shall not exceed 700,000 shares per fiscal year, all of which may be granted in the form of incentive stock options under Section 422 of the Code.
(b) Prohibition on Substitutions and Repricings
Except as provided in this
Section 3(b)3(b) in no event shall any new Incentive Awards be issued in substitution for outstanding Incentive Awards
previously granted to Participants, nor shall any repricing (within the meaning of US generally accepted accounting practices or any applicable stock exchange rule) of Incentive Awards issued under the Plan be permitted at any time under any
circumstances, in each case unless the shareholders of the Company expressly approve such substitution or repricing. Notwithstanding the foregoing, the Committee may authorize the issuance of Incentive Awards in substitution for outstanding Full
Value Awards, provided such substituted Incentive Awards are for a number of shares of Common Stock no greater than the number included in the original award, have an exercise price or base price (if applicable) at least as great as the exercise
price or base price of the substituted award, and the effect of the substitution is (A) solely to add restrictions (such as performance conditions) to the award or (B) to provide a benefit to the Company (and not the Participant) (which,
for the avoidance of doubt, shall include substitutions performed for the purpose of permitting the Incentive Awards to qualify as performance based compensation for purposes of Section 162(m) of the Code).
A-6 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Appendix A (continued)
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4. Administration of the Plan; Certain Restrictions on Incentive Awards
The Plan shall be administered by a Committee of the Board of Directors designated by the Board of Directors consisting of two or more persons, at
least two of whom qualify as non-employee directorsNon-Employee Directors (within the meaning of Rule 16b-3 promulgated under Section 16 of the Exchange Act), and as outside directors within the meaning of Treasury
Regulation Section 1.162-27(e)(3) and as independent within the meaning of the rules of any applicable stock exchange or similar regulatory authority. The Committee shall, consistent with
the terms of the Plan, from time to time designate those employees and non-employee directorsEligible Persons who shall be granted Incentive Awards
under the Plan and the amount, type and other terms and conditions of such Incentive Awards. Except to the extent prohibited by applicable law or the applicable rules of a stock exchange on which the Companys shares are traded, the Committee
may (i) allocate all or any portion of its responsibilities and powers to any one or more of its members and (ii) delegate all or any part of its responsibilities and powers to any person or persons selected by it, provided that no such
delegation may be made that would cause any Incentive Awards or other transactions under the Plan to fail to or cease to be exempt from Section 16(b) of the Exchange Act, or cause an Incentive Award designated as Performance-Based
Compensation not to qualify for, or to cease to qualify for, any exemption from non-deductibility under Section 162(m) of
the Code.. Any such allocation or delegation may be revoked by the Committee at any time.
The Committee shall have full discretionary authority to administer the Plan, including discretionary authority to interpret and construe any and all provisions of the Plan and the terms of any Incentive Award (and
any agreement evidencing any Incentive Award) granted thereunder and to adopt and amend from time to time such rules and regulations for the administration of the Plan as the Committee may deem necessary or appropriate (including without limitation
the adoption or amendment of rules or regulations applicable to the grant, vesting or exercise of Incentive Awards issued to employees located outside the United States). Without limiting the generality of the foregoing,
(i) the Committee shall determine whether an authorized leave of absence, or absence in military or government service, shall constitute termination of employment
and (ii) the employment of a Participant with the Company shall be deemed to have terminated for all purposes of the Plan if such person is employed by or provides services to a Person that is a Subsidiary of the
Company and such Person ceases to be a Subsidiary of the Company, unless the Committee specifically determines otherwise in writing. Decisions of the Committee shall be final, binding and conclusive on all parties.
On or after the date of grant of an Incentive Award under the Plan, the Committee may (i) accelerate the date on which any such Incentive Award becomes vested, exercisable or transferable, as the case may be, (ii) extend the term of any such Incentive Award, including, without limitation, extending the period following a termination of a Participants employment with or services as a Director of the Company during which any such Incentive Award may remain outstanding, (iii) waive any conditions to the vesting, exercisability or transferability, as the case may be, of any such Incentive Award (iv) provide for the payment of dividends or Dividend Equivalents with respect to any such Incentive Award; or (v) otherwise amend an outstanding Incentive Award in whole or in part from time-to-time as the Committee determines, in its sole and absolute discretion, to be necessary or appropriate to conform the Incentive Award to, or otherwise satisfy any legal requirement (including without limitation the provisions of Section 409A of the Code), which amendments may be made retroactively or prospectively and without the approval or consent of the Participant to the extent permitted by applicable law; provided, that the Committee shall not have any such authority to the extent that the grant or exercise of such authority would cause any tax to become due under Section 409A of the Code.
Notwithstanding anything herein to the contrary, in no event shall a Full Value Award not subject to performance-based conditions have a
vesting schedule resulting in such Full Value Award vesting in full prior to the third anniversary of the grant date, provided, however, that this restriction
will be inapplicable to awards representing no more than 5% of the total shares of Common Stock authorized for issuance under the Plan. For purposes of clarity, this restriction will not prohibit any Full Value Award from
(i) having partial vesting dates prior to the third anniversary of the grant date in accordance with a proportionate vesting schedule determined at the discretion of the Committee, so long as such award does
not vest in full prior to the third anniversary of the grant date, or (ii) having provisions for acceleration of the vesting date within the limitations set forth in the following paragraph.
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Except with respect to a maximum of five percent (5%) of the shares of Common Stock authorized under Section 3(a) as of the Effective Date, as may be adjusted under Section 9, any equity-based Incentive Award that vests on the basis of the Participants continued employment with or provision of service to the Company shall not provide for vesting before the first (1st) anniversary of the Grant Date.
Also notwithstanding anything herein to the contrary, in no event shall any Incentive Award provide for acceleration of the vesting date of such award other than in connection with the death, disability or retirement of the Participant holding such Incentive Award or a Change in Control, provided, however, that this restriction will be inapplicable to awards representing no more than 5% of the total shares of Common Stock authorized for issuance under the Plan.
No member of the Committee shall be liable for any action, omission, or determination relating to the Plan, and Chipotle shall indemnify and hold harmless each member of the Committee and each other Director or employee of the Company to whom any duty or power relating to the administration or interpretation of the Plan has been delegated against any cost or expense (including counsel fees) or liability (including any sum paid in settlement of a claim with the approval of the Committee) arising out of any action, omission or determination relating to the Plan, unless, in either case, such action, omission or determination was taken or made by such member, director or employee in bad faith and without reasonable belief that it was in the best interests of the Company.
5. Eligibility
The Persons who shall be eligible to receive Incentive Awards pursuant to the Plan shall be those employees, consultants and advisors of the Company and
DirectorsEligible Persons whom the Committee shall select from time to time. All Incentive Awards granted under the Plan shall be evidenced by a separate written agreement
entered into by the Company and the recipient of such Incentive Award.
6. Options
The Committee may from time to time grant Options, subject to the following terms and conditions:
(a) Exercise Price
The exercise price per share of Common Stock covered by any Option shall be not less than 100% of the Fair Market Value of a share of Common Stock on the date on which such Option is granted. The agreement evidencing the award of each Option shall clearly identify such Option as either an incentive stock option within the meaning of Section 422 of the Code or as not an incentive stock option.
(b) Term and Exercise of Options
(1) Each Option shall become vested and exercisable on such date or dates, during such period and for such number of shares of Common Stock as shall be determined by the Committee on or after
the date such Option is granted (including without limitation in accordance with terms and conditions relating to the vesting or exercisability of an Option set forth in any employment, severance, change in control or similar agreement entered into
by the Company with a Participant on or after the date of grant) and subject to the restrictions set forth in Section 4; provided, however that no
Option shall be exercisable after the expiration of ten years from the date such Option is granted; and, provided, further, that each Option shall be subject to earlier termination, expiration or cancellation as provided in the Plan or
in the agreement evidencing such Option. In addition, except as otherwise determined by the Committee at or after the time of grant, unless an Option becomes vested or exercisable pursuant to Sections
or hereof, an Option may not become vested or exercisable in whole or in part during the twelve-month period commencing with the date on which the Option was granted.
(2) Each Option may be exercised in whole or in part; provided, however that the Committee (or its delegatee) may impose a minimum size for a partial exercise of an Option in its discretion from time to time. The partial exercise of an Option shall not cause the expiration, termination or cancellation of the remaining portion thereof.
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(3) An Option shall be exercised by such methods and procedures as the Committee determines from time to time, including without limitation through net physical settlement or other method of cashless exercise. With respect to any Participant who is a member of the Board or an officer (as defined under SEC Rule 16a-1), a tender of shares of Common Stock or, a cashless or net exercise shall be a subsequent transaction approved as part of the original grant of an Option for purposes of the exemption under Rule 16b-3 of the Exchange Act.
(4) Options may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of a Participant, only by the Participant; provided, however that the Committee may permit Options to be pledged, assigned, hypothecated, transferred, or disposed of, on a general or specific basis, subject to such conditions and limitations as the Committee may determine, except that Options may not be sold for consideration or transferred for value (provided further that donative transfers described in Section A.1.(a)(5) of the general instructions to Form S-8 shall not be deemed transfers for value for purposes of this section).
(5) If the exercise of the Option following the termination of the Participants employment or service (other than upon the Participants death or disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, or any other requirements of applicable law, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option and (ii) the expiration of a period of 30 days after the termination of the Participants employment or service during which the exercise of the Option would not be in violation of such registration requirements or other applicable requirements.
(6) Notwithstanding the foregoing, the Committee may, in its sole discretion, implement a provision in existing and future grants of Options and stock appreciation rights providing that if,
on the last day that an Option or stock appreciation right may be exercised, the Participant has not then exercised such Option, such Option shall be deemed to have been exercised by the Participant on such last day and the Company shall make the
appropriate payment to such Participant after applying minimum required tax withholding. The Committee may delegate this authority to one or more of the Companys officers, who may implement this provision by including it in grant agreements or
including it in the Plans administrative rules, provided that such officers may not implement it in Incentive Awards to persons (i) who are Non-Employee Directors or executive officers otherwise subject to reporting obligations
under Section 16 of the Exchange Act or (ii) who are, or are reasonably expected to be, individuals the deductibility of whose compensation is limited by
Section 162(m) of the Code.
(c) Effect of Termination of Employment or other Relationship
The agreement evidencing the award of each Option shall specify the consequences with respect to
such Option of the termination of the employment, service as a directorNon-Employee Director or other relationship between the
Company and the Participant holding the Option, subject to the restrictions set forth in Section 4, provided, however, that except as expressly provided
to the contrary in the agreement evidencing the award of a particular Option, where continued vesting or exercisability of an Option terminates in connection with the termination of a Participants employment relationship with the Company, such
Participants employment relationship with the Company will be deemed, for purposes of such Option, to continue so long as Participant serves as either an employee of the Company or as a member of the Board. Notwithstanding the foregoing
sentence, a Participants employment will be deemed to terminate immediately upon such Participants termination for Cause, regardless of whether Participant remains on the Board following such termination.
(d) Effect of Qualifying Termination
If a Participant experiences a Qualifying Termination or a Non-Employee Directors service on the Board terminates in connection with or as a result of a Change in Control, each Option outstanding immediately prior to such Qualifying Termination or termination of a Non-Employee Directors service shall become fully and immediately vested and exercisable as of such Qualifying Termination or termination of a Non-Employee Directors service and shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan and the agreement evidencing such Option.
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(e) Special Rules for Incentive Stock Options
(1) The aggregate Fair Market Value of shares of Common Stock with respect to which incentive stock options (within the meaning of Section 422 of the Code) are exercisable for the first time by a Participant during any calendar year under the Plan and any other stock option plan of the Company (or any subsidiary as such term is defined in Section 424 of the Code of Chipotle) shall not exceed $100,000. Such Fair Market Value shall be determined as of the date on which each such incentive stock option is granted. In the event that the aggregate Fair Market Value of shares of Common Stock with respect to such incentive stock options exceeds $100,000, then incentive stock options granted hereunder to such Participant shall, to the extent and in the order required by regulations promulgated under the Code (or any other authority having the force of regulations) (Regulations), automatically be deemed to be non-qualified stock options, but all other terms and provisions of such incentive stock options shall remain unchanged. In the absence of such Regulations (and authority), or in the event such Regulations (or authority) require or permit a designation of the options which shall cease to constitute incentive stock options, incentive stock options granted hereunder shall, to the extent of such excess and in the order in which they were granted, automatically be deemed to be non-qualified stock options, but all other terms and provisions of such incentive stock options shall remain unchanged.
(2) No incentive stock option may be granted to an individual if, at the time of the proposed grant, such individual owns stock possessing more than ten percent of the total combined voting power of all classes of stock of Chipotle or any of its subsidiaries (within the meaning of Section 424 of the Code), unless (i) the exercise price of such incentive stock option is at least one hundred and ten percent of the Fair Market Value of a share of Common Stock at the time such incentive stock option is granted and (ii) such incentive stock option is not exercisable after the expiration of five years from the date such incentive stock option is granted.
7. Other Stock-Based Awards
(a) Authorization of Other Stock-Based Awards
The Committee may grant
equity-based or equity-related awards not otherwise described herein in such amounts and subject to such terms and conditions as the Committee shall determine. Without limiting the generality of the preceding sentence, each such Other Stock-Based
Award may, subject to the restrictions set forth in Section 4 (i) involve the transfer of actual shares of Common Stock to Participants, either at the time of grant or thereafter, or payment in cash or otherwise of
amounts based on the value of shares of Common Stock, (ii) be subject to performance-based and/or service-based conditions, (iii) be in the form of cash-settled stock appreciation rights, stock-settled stock appreciation rights, phantom
stock, restricted stock, restricted stock units, performance shares, or share-denominated performance units, and (iv) be designed to comply with applicable laws of jurisdictions
other than the United States, and (v) be designed to qualify as Performance-Based Compensation. Notwithstanding the foregoing, any Other Stock-Based Award that is a stock appreciation right
(i) shall have a base price of not less than 100% of the Fair Market Value of a share of Common Stock on the date on which such stock appreciation right is granted, (ii) shall not have an expiration date greater than ten years from the
date on which such stock appreciation right is granted and (iii) shall be subject to deemed exercise rule under Section 6(b)(6) using a settlement method similar to a net exercise for an Option.
(b) Effect of Qualifying Termination; Other Termination Provisions
Except as may be expressly provided to the contrary by the Committee in an agreement evidencing the grant of an Other Stock-Based Award or any employment, severance, change in control or similar agreement entered into with a Participant, if a Participant experiences a Qualifying Termination or a Non-Employee Directors service on the Board terminates in connection with or as a result of a Change in Control, each Other Stock-Based Award outstanding immediately prior to such Qualifying Termination or termination of Non-Employee Directors service shall become fully and immediately vested and, if applicable, exercisable as of such Qualifying Termination or termination and shall remain exercisable until its expiration, termination or cancellation pursuant to the terms of the Plan and the agreement evidencing such Other Stock-Based Award.
Furthermore, except as expressly provided to the contrary in the agreement evidencing the award of a particular Other Stock-Based Award, where continued vesting or exercisability of an Other Stock-Based Award terminates in connection with
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the termination of a Participants employment relationship with the Company, such Participants employment relationship with the Company will be deemed, for purposes of such Other Stock-Based Award, to continue so long as Participant serves as either an employee of the Company or as a member of the Board. Notwithstanding the foregoing sentence, a Participants employment will be deemed to terminate immediately upon such Participants termination for Cause, regardless of whether Participant remains on the Board following such termination.
8. Incentive Awards Subject to Performance
MeasuresGoals
(b) Performance Measures
The Committee shall have the authority, at the time of to
grant of any Full Value Award, to designate it as aIncentive Awards subject to the provisions of this Section 8 (collectively, Performance-Based
Compensation). Performance-Based Compensation intended to qualifysubject to this Section 8 may, but is not required, to be granted as
performance-based compensation under Section 162(m) of the Code. Notwithstanding anything to the contrary in the Plan, the Committee shall not be obligated to grant any Incentive Award in the form of
performance-based compensation under Section 162(m) of the Code.
The Performance Measures that willmay be used to establish
Performance Goals shall be based on attaining specific levels of performance (either alone or in any combination, and may be expressed with respect to the Company (and/or one or more of its Subsidiaries, divisions or operating units or groups or any
combination of the foregoing), and may include any of the following as the Committee may determine: revenue growth; cash flow; cash flow from operations; net income; net income before equity compensation expense; earnings per share, diluted or
basic; earnings per share from continuing operations, diluted or basic; earnings before interest and taxes; earnings before interest, taxes, depreciation, and amortization; earnings from continuing operations; net asset turnover; inventory turnover;
capital expenditures; income from operations; income from operations excluding non-cash related entries; income from operations excluding non-cash adjustments; income
from operations before equity compensation expenses; income from operations excluding equity compensation expense and lease expense; operating cash flow from operations; income before income taxes; gross or operating margin; restaurant-level
operating margin; profit margin; assets; debt; working capital; return on equity; return on net assets; return on total assets; return on capital; return on investment; return on revenue; net or gross revenue; comparable restaurant sales; new
restaurant openings; market share; economic value added; cost of capital; expense reduction levels; safety record; stock price; productivity; customer satisfaction; employee satisfaction; and total shareholder
return or any other financial or operational criteria that the Committee determines in its sole discretion to be appropriate. For any Plan Year, Performance Measures may be determined
on an absolute basis or relative to internal goals or relative to levels attained in years prior to such Plan Year or related to other companies or indices or as ratios expressing relationships between two or more Performance Measures.
InTo the
eventextent that applicable tax and/or securities laws change to permit Committee discretion to alter the governing Performance Measures without obtaining stockholder
approval of such alterations, the Committee shall have sole discretion to make such alterations without obtaining stockholder approval. The Committee is authorized at any time during the first ninety (90) days of a Performance Period (or, if
longer or shorter, within the maximum period allowed under Section 162(m) of the Code), or at any time thereafter to the extent the exercise of such authority at such time would not cause the Performance-Based Compensation granted to any
Participant for such Performance Period to fail to qualify as performance-based compensation under Section 162(m) of the Code, in its sole discretion, to adjust or modify the calculation of a Performance Goal for such Performance
Period, based on and in order to appropriately reflect the following events: (i) asset write-downs; (ii) litigation or claim judgments or settlements; (iii) the effect of changes in tax laws, accounting principles, or other laws or
regulatory rules affecting reported results; (iv) any reorganization and restructuring programs; (v) events of an unusual nature or of a type that indicates infrequency of occurrence, both as described in Accounting
Standards Codification Topic 225-20 (or any successor pronouncement thereto) and/or in managements discussion and analysis of financial condition and results of operations appearing in the Companys
annual report to stockholders for the applicable year; (vi) acquisitions or divestitures; (vii) any other specific unusual or nonrecurring events, or objectively determinable category thereof; (viii) foreign exchange gains and losses;
and (ix) a change in the Companys fiscal year. For the avoidance of doubt, the Committee may elect to exercise its authority to adjust an Incentive Award as described in this
paragraph solely under the terms and conditions as set forth in the Incentive Award.
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Performance Periods may be equalof any length.
Awards intended to or longer than, but not less than, one fiscal year of the Company and mayqualify as performance-based compensation under
Section 162(m) shall be overlapping. Within 90 days after the beginning of a Performance Period, and in any casegranted before
twenty-five (25%%) of the Performance Period has elapsed,
thebut in no event later the 90th day after commencement of the Performance Period. The Committee shall establish (a) Performance Goals for such Performance Period, (b) target awards
for each Participant, and (c) schedules or other objective methods for determining the applicable performance percentage to be applied to each such target award.
To the extent determined by the Committee at the time the Performance Measures are established, the measurement of any Performance Measure(s) may exclude the impact of charges for restructurings, discontinued
operations, extraordinary items, and other unusual or non-recurring items, and the cumulative effects of accounting changes, each as defined by generally accepted accounting principles and as
identified in the Companys audited financial statements, including the notes thereto., and any other events or circumstances that may render the Performance Goals
unsuitable. To the extent determined by the Committee at the time the Performance Measures are established, any Performance Measure(s) may be used to measure the performance of the Company or a Subsidiary as a whole or any business unit of the
Company or any Subsidiary or any combination thereof, as the Committee may deem appropriate, or any of the above Performance Measures as compared to the performance of a group of comparator companies, or a published or special index that the
Committee, in its discretion, deems appropriate.
Nothing in this Section 88 is intended to limit the
Committees discretion to adopt conditions with respect to any Incentive Award that is not intended to qualify as Performance-Based Compensation that relate to performance other than the Performance Measures. In addition, the Committee may,
subject to the terms of the Plan, amend previously granted Incentive Awards in a way that disqualifies them as Performance-Based Compensation.
(a) Committee Discretion
In the event that the
requirements of Section 162(m) of the Code and the regulations thereunder change to permit Committee discretion to alter the Performance Measures without obtaining shareholder approval of such changes, the
Committee shall have discretion to make such changes without obtaining shareholder approval.
9. Adjustment Upon Changes in Common Stock
(a) Shares Available for Grants
In the event of any change in the number of shares of Common Stock outstanding by reason of any stock dividend or split, recapitalization, merger, consolidation, combination or exchange of shares or similar corporate change, the maximum aggregate number of shares of Common Stock with respect to which the Committee may grant Incentive Awards and the maximum aggregate number of shares of Common Stock with respect to which the Committee may grant Incentive Awards to any individual Participant in any year shall be equitably adjusted by the Committee. In the event of any change in the number of shares of Common Stock outstanding by reason of any other similar event or transaction, the Committee may, but need not, make such adjustments in the number and class of shares of Common Stock with respect to which Incentive Awards may be granted as the Committee may deem appropriate.
(b) Increase or Decrease in Issued Shares Without Consideration
Subject to any required action by the shareholders of Chipotle, in the event of any increase or decrease in the number of issued shares of Common Stock resulting from a subdivision or consolidation of shares of Common Stock or the payment of a stock dividend (but only on the shares of Common Stock), or any other increase or decrease in the number of such shares effected without receipt or payment of consideration by the Company or the payment of an extraordinary cash dividend, the number of shares of Common Stock subject to each outstanding Incentive Award and the exercise price per share of Common Stock of each such Incentive Award shall be adjusted as necessary to prevent the enlargement or dilution of rights under such Incentive Award.
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(c) Certain Mergers
Subject to any required action by the shareholders of Chipotle, in the event that Chipotle shall be the surviving corporation in any merger, consolidation or similar transaction as a result of which the holders of shares of Common Stock receive consideration consisting exclusively of securities of such surviving corporation, the Committee shall adjust each Incentive Award outstanding on the date of such merger or consolidation to the extent deemed appropriate by the Committee so that it pertains to and applies to the securities which a holder of the number of shares of Common Stock subject to such Incentive Award would have received in such merger or consolidation.
(d) Certain Other Transactions
In the event of (i) a dissolution or liquidation of Chipotle, (ii) a sale of all or substantially all of the Companys assets (on a consolidated basis), (iii) a Business Combination in which Chipotle is not the surviving corporation, (iv) a Business Combination in which Chipotle is the surviving corporation but the holders of shares of Common Stock receive securities of another corporation and/or other property, including cash, or (v) a Business Combination that is a Change in Control, the Committee shall, in its discretion, have the power to:
(i) cancel, effective immediately prior to the occurrence of such event, each Incentive Award (whether or not then exercisable), and, in full consideration of such cancellation, pay to the Participant to whom such Incentive Award was granted an amount in cash, for each share of Common Stock subject to such Incentive Award equal to the value, as determined by the Committee in its discretion, of such Incentive Award, provided that with respect to any outstanding Option or stock appreciation right such value shall be equal to the excess of (A) the value, as determined by the Committee in its discretion, of the property (including cash) received by the holder of a share of Common Stock as a result of such event over (B) the exercise price (with respect to an Option) or the base price (with respect to a stock appreciation right);
(ii) provide for the exchange of each Incentive Award (whether or not then exercisable or vested) for an incentive award with respect to, as appropriate, some or all of the property which a holder of the number of shares of Common Stock subject to such Incentive Award would have received in such transaction and, incident thereto, make an equitable adjustment as determined by the Committee in its discretion in the exercise price of the incentive award, or the number of shares or amount of property subject to the incentive award or, if appropriate, provide for a cash payment to the Participant to whom such Incentive Award was granted in partial consideration for the exchange of the Incentive Award; or
(iii) a combination of the foregoing, which may vary among Participants.
(e) Other Changes
In the event of any change in the capitalization of Chipotle or corporate change other than those specifically referred to in paragraphs (b), (c) or (d), the Committee may, in its discretion, make such adjustments in the number and class of shares subject to Incentive Awards outstanding on the date on which such change occurs and in such other terms of such Incentive Awards as the Committee may consider appropriate.
(f) No Other Rights
Except as expressly provided in the Plan or the agreement evidencing the grant of an Option or Other Stock-Based Award, no Participant shall have any rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend, any increase or decrease in the number of shares of stock of any class or any dissolution, liquidation, merger or consolidation of Chipotle or any other corporation. Except as expressly provided in the Plan or the agreement evidencing the grant of an Option or Other Stock-Based Award, no issuance by Chipotle of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number of shares or amount of other property subject to any Incentive Award.
(g) Code Section 409A
(i) To the extent applicable and notwithstanding any other provision of the Plan, the Company intends to administer, operate and interpret the Plan and all Incentive Awards granted thereunder in a manner that complies with
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Code Section 409A, however, the Company and its Subsidiaries (including their respective employees, officers, directors or agents) shall not have any liability to any Participant (or any other person) that is related to a Section 409A violation, nor will the Company indemnify or otherwise reimburse Participant (or any other person) for any liability incurred as a result of a violation of Code Section 409A.
(ii) Notwithstanding any provision in Section 14 of the Plan to the contrary, in the event that the Committee determines that any amounts payable hereunder will be taxable to a Participant under Section 409A of the Code prior to the payment and/or delivery to such Participant of such amount, the Company may (A) adopt such amendments to the Plan and related agreement, and appropriate policies and procedures, including amendments and policies with retroactive effect, that the Committee determines necessary or appropriate to preserve the intended tax treatment of the benefits provided by the Plan and awards hereunder and/or (B) take such other actions as the Committee determines necessary or appropriate to comply with the requirements of Section 409A of the Code. No action shall be taken under this Plan which shall cause an award to fail to comply with Section 409A of the Code, to the extent applicable to such Award.
(iii) With respect to any Incentive Award that is considered deferred compensation subject to Section 409A of the Code, references in the Plan to termination of employment (and substantially similar phrases) shall mean separation from service within the meaning of Section 409A of the Code. For purposes of Section 409A of the Code, each of the payments that may be made in respect of any Incentive Award granted under the Plan are designated as separate payments.
(iv) Notwithstanding any payment provision in the Plan or an agreement evidencing an Incentive Award to the contrary, if a Participant is a specified employee within the meaning of Section 409A(a)(2)(B)(i) of the Code, no payments in respect of any Incentive Awards that are deferred compensation subject to Section 409A of the Code and which would otherwise be payable upon the Participants separation from service (as defined in Section 409A of the Code) shall be made to such Participant prior to the date that is six months after the date of such Participants separation from service or, if earlier, the Participants date of death. Following any applicable six month delay, all such delayed payments will be paid in a single lump sum, without interest, on the earliest date permitted under Section 409A of the Code that is also a business day.
10. Rights as a Stockholder
No person shall have any rights as a stockholder with respect to any shares of Common Stock covered by or relating to any Incentive Award granted pursuant to the Plan until the date of the issuance of a stock certificate with respect to such shares. Except as otherwise expressly provided in Section 9 hereof, no adjustment of any Incentive Award shall be made for dividends or other rights for which the record date occurs prior to the date such stock certificate is issued. Notwithstanding any other provisions of this Section 10, dividends shall be subject to the same restrictions, including but not limited to meeting vesting requirements and achieving applicable Performance Goals, as the underlying Incentive Award or such other restrictions as the Committee may determine.
11. No Special Employment Rights; No Right to Incentive Award
(a) Nothing contained in the Plan or any Incentive Award shall confer upon any Participant any right with respect to the continuation of his employment by or service to the Company or interfere in any way with the right of the Company at any time to terminate such employment or to increase or decrease the compensation of the Participant from the rate in existence at the time of the grant of an Incentive Award.
(b) No person shall have any claim or right to receive an Incentive Award hereunder. The Committees granting of an Incentive Award to a Participant at any time shall neither require the Committee to grant an Incentive Award to such Participant or any other Participant or other person at any time nor preclude the Committee from making subsequent grants to such Participant or any other Participant or other person.
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12. Securities Matters
(a) Chipotle shall be under no obligation to effect the registration pursuant to the Securities Act of any shares of Common Stock to be issued hereunder or to effect similar compliance under any state laws. Notwithstanding anything herein to the contrary, Chipotle shall not be obligated to cause to be issued or delivered any certificates evidencing shares of Common Stock pursuant to the Plan unless and until Chipotle is advised by its counsel that the issuance and delivery of such certificates is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. The Committee may require, as a condition to the issuance and delivery of certificates evidencing shares of Common Stock pursuant to the terms hereof, that the recipient of such shares make such covenants, agreements and representations, and that such certificates bear such legends, as the Committee deems necessary or desirable.
(b) The exercise of any Option granted hereunder shall only be effective at such time as counsel to Chipotle shall have determined that the issuance and delivery of shares of Common Stock pursuant to such exercise is in compliance with all applicable laws, regulations of governmental authority and the requirements of any securities exchange on which shares of Common Stock are traded. Chipotle may, in its discretion, defer the effectiveness of an exercise of an Option hereunder or the issuance or transfer of shares of Common Stock pursuant to any Incentive Award pending or to ensure compliance under federal or state securities laws or the rules or regulations of any exchange on which the Shares are then listed for trading. Chipotle shall inform the Participant in writing of its decision to defer the effectiveness of the exercise of an Option or the issuance or transfer of shares of Common Stock pursuant to any Incentive Award. During the period that the effectiveness of the exercise of an Option has been deferred, the Participant may, by written notice, withdraw such exercise and obtain the refund of any amount paid with respect thereto.
13. Withholding Taxes
(a) Cash Remittance
Whenever shares of Common Stock are to be issued upon the exercise of an Option or the grant or vesting of an Incentive Award, Chipotle shall have the right to require the Participant to remit to Chipotle in cash an amount sufficient to satisfy federal, state and local withholding tax requirements, attributable to such exercise, grant or vesting prior to the delivery of any certificate or certificates for such shares or the effectiveness of the lapse of such restrictions. In addition, upon the exercise or settlement of any Incentive Award in cash, Chipotle shall have the right to withhold from any cash payment required to be made pursuant thereto an amount sufficient to satisfy the federal, state and local withholding tax requirements, if any, attributable to such exercise or settlement.
(b) Stock Remittance
At the election of the Participant, subject to the approval of the Committee, when shares of Common Stock are to be issued upon the exercise, grant or vesting of an Incentive Award, the Participant may tender to Chipotle a number of shares of Common Stock (subject to any minimum holding period as the Committee may determine) having a fair market value at the tender date determined by the Committee to be sufficient to satisfy the minimum federal, state and local withholding tax requirements, if any, attributable to such exercise, grant or vesting but not greater than such minimum withholding obligations. Such election shall satisfy the Participants obligations under Section 13(a) hereof, if any.
(c) Stock Withholding
At the election of the Participant, subject to the approval of the Committee, when shares of Common Stock are to be issued upon the exercise, grant or vesting of an Incentive Award, Chipotle shall withhold
asuch number of such shares having a fair market value at the exercise date
determinedelected by the Committee to be sufficient to satisfy the minimumParticipant not in excess
of the maximum amount required for federal, state and local tax withholding tax requirements, if any, attributable to such exercise, grant or vesting but
not greater than such minimum withholding obligations. . Such election shall satisfy the Participants obligations under Section 13(a) hereof, if any.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | A-15 |
Appendix A (continued)
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(d) Section 16 Approval
With respect to any Participant who is a member of the Board of Directors or an officer (as defined under SEC Rule 16a-1), a withholding or tender of shares of Common Stock shall be a subsequent transaction approved as part of the Incentive Award for purposes of the exemption under Rule 16b-3 of the Exchange Act.
14. Amendment or Termination of the Plan
The Board of Directors may at any time suspend or discontinue the Plan or revise or amend it in any respect whatsoever; provided, however, that to the extent any applicable law, regulation or rule of a stock exchange requires shareholder approval in order for any such revision or amendment to be effective, such revision or amendment shall not be effective without such approval. The preceding sentence shall not restrict the Committees ability to exercise its discretionary authority hereunder pursuant to Section 4, which discretion may be exercised without amendment to the Plan. No provision of this Section 14 shall be given effect to the extent that such provision would cause any tax to become due under Section 409A of the Code. Except as expressly provided in the Plan, no action hereunder may, without the consent of a Participant, reduce the Participants rights under any previously granted and outstanding Incentive Award. Nothing in the Plan shall limit the right of the Company to pay compensation of any kind outside the terms of the Plan.
15. No Obligation to Exercise
The grant to a Participant of an Incentive Award shall impose no obligation upon such Participant to exercise such Incentive Award.
16. Transfers Upon Death
Upon the death of a Participant, outstanding Incentive Awards granted to such Participant may be exercised only by the executors or administrators of the Participants estate or by any person or persons who shall have acquired such right to exercise by will or by the laws of descent and distribution. No transfer by will or the laws of descent and distribution of any Incentive Award, or the right to exercise any Incentive Award, shall be effective to bind Chipotle unless the Committee shall have been furnished with (a) written notice thereof and with a copy of the will and/or such evidence as the Committee may deem necessary to establish the validity of the transfer and (b) an agreement by the transferee to comply with all the terms and conditions of the Incentive Award that are or would have been applicable to the Participant and to be bound by the acknowledgements made by the Participant in connection with the grant of the Incentive Award.
17. Expenses and Receipts
The expenses of the Plan shall be paid by Chipotle. Any proceeds received by Chipotle in connection with any Incentive Award will be used for general corporate purposes.
18. Governing Law
The Plan and the rights of all persons under the Plan shall be construed and administered in accordance with the laws of the State of Delaware without regard to its conflict of law principles.
19. Duration of Plan
Effective with this amendment and restatement of the Plan, unless sooner terminated as provided herein, the Plan shall terminate on
March 16, 2021 May 22, 2023. After the Plan is terminated, no new Incentive Awards may be granted but Incentive Awards previously granted shall
remain outstanding in accordance with their applicable terms and conditions and the Plans terms and conditions.
A-16 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
Appendix A (continued)
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20. Company Recoupment of Incentive Awards
The rights contained in this Plan shall be subject to (i) any right that the Company may have under any other Company recoupment policy or other agreement or arrangement with a Participant, or (ii) any right or obligation that the Company may have regarding the recovery of incentive-based compensation under Section 10D of the Exchange Act, as amended (as determined by the applicable rules and regulations promulgated thereunder from time to time by the U.S. Securities and Exchange Commission) or other applicable law. The Committee may determine, as late as the time of such recoupment or recovery, regardless of whether such method is stated in the Incentive Award agreement, whether the Company shall effect any such recoupment or recovery: (i) by seeking repayment from the Participant; (ii) by reducing (subject to applicable law and the terms and conditions of the applicable plan, program or arrangement) the amount that would otherwise be payable to the Participant under any compensatory plan, program or arrangement maintained by the Company, (iii) by withholding payment of future increases in compensation (including the payment of any discretionary bonus amount) or grants of compensatory awards that would otherwise have been made in accordance with the Companys otherwise applicable compensation practices, (iv) by holdback or escrow (before or after taxation) of part or all the Common Stock, payment or property received upon exercise or satisfaction of an Incentive Award or (v) by any combination of the foregoing.
21. International Participants.
With respect to Participants who reside or work outside of the United States of America and subject to Section 88 above, the Committee may in its sole discretion grant
Incentive Awards on such terms and conditions different from those specified in the Plan as may, in the judgment of the Committee, be necessary or desirable to foster and promote achievement of the purposes of the Plan, and, in furtherance of such
purposes, the Committee may make such modifications, amendments, procedures, or subplans as may be necessary or advisable to comply with such legal or regulatory provisions and/or to obtain more favorable tax or other treatment for a Participant,
the Company or its Subsidiaries. For avoidance of doubt, the Committee may delegate its authority under this Section 21 with respect to any Participant;
provided, however that only the Committee (or a subcommittee) thereof shall be authorized to grant Incentive Awards or otherwise provide additional benefits to a member of the Board
of Directors or officer (as defined under SEC Rule 16a-1).
22. Provisions Relating to Termination of Consultants and Non-Employee Directors.
To the extent that an Incentive Award is made to a Non-Employee Director or Consultant, the provisions of the Plan relating to termination of employment shall be deemed to refer to the termination of such individuals service with the Company or a Subsidiary.
23. Certain Terminations of Employment, Hardship and Approved Leave of Absence.
Notwithstanding any other provision of this Plan to the contrary, in the event of a Participants termination of employment (including by reason of death, disability or retirement) or in the event of hardship or other special circumstances, the Committee may in its sole discretion take any action that it deems to be equitable under the circumstances or in the best interests of the Company, including, without limitation, waiving or modifying any limitation or requirement with respect to any Award under this Plan. The Committee shall have the discretion to determine whether and to what extent the vesting of Awards shall be tolled during any leave of absence, paid or unpaid; provided however, that in the event of military leave, vesting shall toll during any unpaid portion of such leave, provided that, upon a Participants returning from military leave (under conditions that would entitle him or her to protection upon such return under the Uniform Services Employment and Reemployment Rights Act), he or she shall be given vesting credit with respect to the Award to the same extent as would have applied had the Participant continued to provide services to the Company throughout the leave on the same terms as he or she was providing services immediately prior to such leave. Any actions taken by the Committee shall be taken consistent with the requirements of Section 409A of the Code.
24. Tolling of Exercisability of Options and Stock Appreciation Rights.
In the event a Participant is prevented from exercising an Option or stock appreciation right or the Company is unable to settle an Incentive Award due to either any trading restrictions applicable to the Companys shares of Common Stock,
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT | A-17 |
Appendix A (continued)
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the Participants physical infirmity or administrative error by the Company relied upon and not caused by the Participant, then unless otherwise determined by the Committee, the length of time applicable to any such restriction, condition or event shall toll any exercise period (i) until such restriction lapses, (ii) until the Participant (or his representative) is able to exercise the Incentive Award or (iii) until such error is corrected, as applicable.
25. No Duty to Inform Regarding Exercise Rights.
Neither the Company, its Subsidiaries, the Committee nor the Board of Directors shall have any duty to inform a Participant of the pending expiration of the period in which a stock appreciation right may be exercised or in which an Option may be exercised.
26. No Constraint on Corporate Action.
Nothing in this Plan shall be construed to: (i) limit, impair, or otherwise affect the Companys or a Subsidiarys right or power to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge or consolidate, or dissolve, liquidate, sell, or transfer all or any part of its business or assets; or, (ii) limit the right or power of the Company or a Subsidiary to take any action which such entity deems to be necessary or appropriate.
27. Effect of Disposition of Facility or Operating Unit.
If the Company or any of its Subsidiaries closes or disposes of the facility at which a Participant is located or the Company or any of its Subsidiaries diminish or eliminate ownership interests in any operating unit of the Company or any of its Subsidiaries so that such operating unit ceases to be majority owned by the Company or any of its Subsidiaries then, with respect to Incentive Awards held by Participants who subsequent to such event will not be Employees, the Committee may, to the extent consistent with Section 409A (if applicable), take any of the actions described in Section 9 with respect to a Change in Control. If the Committee takes no special action with respect to any disposition of a facility or an operating unit, then the Participant shall be deemed to have terminated his or her employment with the Company and its Subsidiaries and the terms and conditions of the award agreement and the other terms and conditions of this Plan shall control.
28. Limitations Period.
Any person who believes he or she is being denied any benefit or right under this Plan may file a written claim with the Committee. Any claim must be delivered to the Committee within forty-five (45) days of the specific event giving rise to the claim. Untimely claims will not be processed and shall be deemed denied. The Committee, or its designated agent, will notify the Participant of its decision in writing as soon as administratively practicable. Claims not responded to by the Committee in writing within ninety (90) days of the date the written claim is delivered to the Committee shall be deemed denied. The Committees decision shall be final, conclusive and binding on all persons. No lawsuit relating to this Plan or an Incentive Award granted hereunder may be filed before a written claim is filed with the Committee and is denied or deemed denied, and any lawsuit must be filed within one year of such denial or deemed denial or be forever barred. The venue for any lawsuit relating to this Plan or an Incentive Award shall be Wilmington, Delaware.
A-18 | NOTICE OF ANNUAL MEETING OF SHAREHOLDERS AND 2018 PROXY STATEMENT |
CHIPOTLE MEXICAN GRILL, INC. 1401 WYNKOOP ST, STE 500 DENVER, CO 80202 |
VOTE BY INTERNET - www.proxyvote.com | |
Use the Internet to transmit your voting instructions and for electronic delivery of information up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you access the web site and follow the instructions to obtain your records and to create an electronic voting instruction form. | ||
ELECTRONIC DELIVERY OF FUTURE PROXY MATERIALS | ||
If you would like to reduce the costs incurred by our company in mailing proxy materials, you can consent to receiving all future proxy statements, proxy cards and annual reports electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or access proxy materials electronically in future years. | ||
VOTE BY PHONE - 1-800-690-6903 | ||
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. Eastern Time the day before the cut-off date or meeting date. Have your proxy card in hand when you call and then follow the instructions. | ||
VOTE BY MAIL | ||
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717. | ||
SHAREHOLDER MEETING REGISTRATION | ||
To register to attend the meeting, go to the Register for Meeting link at www.proxyvote.com. Please refer to the Proxy Statement for additional information regarding admission procedures at the meeting. |
TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK INK AS FOLLOWS:
E37490-P03182 KEEP THIS PORTION FOR YOUR RECORDS
DETACH AND RETURN THIS PORTION ONLY
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
CHIPOTLE MEXICAN GRILL, INC. |
For All |
Against All |
For All Except |
To vote AGAINST any individual
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The Board of Directors recommends you vote FOR the following: | ||||||||||||||||||||||||||||||||||||||||||||||||||
1. | Election of Nine Directors | ☐ | ☐ | ☐ |
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Nominees:
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01) Al Baldocchi 06) Kimbal Musk | ||||||||||||||||||||||||||||||||||||||||||||||||||
02) Paul Cappuccio 07) Ali Namvar | ||||||||||||||||||||||||||||||||||||||||||||||||||
03) Steve Ells 08) Brian Niccol | ||||||||||||||||||||||||||||||||||||||||||||||||||
04) Neil Flanzraich 09) Matthew Paull | ||||||||||||||||||||||||||||||||||||||||||||||||||
05) Robin Hickenlooper | ||||||||||||||||||||||||||||||||||||||||||||||||||
The Board of Directors recommends you vote FOR the following proposals: | For | Against | Abstain | |||||||||||||||||||||||||||||||||||||||||||||||
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An advisory vote to approve the compensation of our executive officers as disclosed in the proxy statement (say-on-pay). |
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Ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the year ending December 31, 2018. |
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Approval of the Amended and Restated Chipotle Mexican Grill, Inc. 2011 Stock Incentive Plan to authorize the issuance of an additional 1,270,000 shares of common stock under the plan and make other changes to the terms of the plan. |
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The Board of Directors recommends you vote AGAINST the following proposal: |
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A shareholder proposal, if properly presented at the meeting, requesting that the Board of Directors undertake steps to permit shareholder action by written consent without a meeting. |
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NOTE: Such other business as may properly come before the meeting or any adjournment thereof. |
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Please sign exactly as your name(s) appear(s) hereon. When signing as attorney, executor, administrator, or other fiduciary, please give full title as such. Joint owners should each sign personally. All holders must sign. If a corporation or partnership, please sign in full corporate or partnership name by authorized officer.
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Signature [PLEASE SIGN WITHIN BOX]
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Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting:
The Combined Proxy Statement and Annual Report are available at www.proxyvote.com.
E37491-P03182
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
ANNUAL MEETING OF SHAREHOLDERS
May 22, 2018
The shareholder(s), revoking all prior proxies, hereby appoint(s) Steve Ells, Brian Niccol and Jack Hartung, or any of them, as proxies, each with the power to appoint his substitute, and hereby authorizes them to represent and to vote, as designated on the reverse side of this ballot, all of the shares of common stock of Chipotle Mexican Grill, Inc. that the shareholder(s) is/are entitled to vote at the Annual Meeting of Shareholders to be held at 8:00 A.M., Mountain Time, on May 22, 2018, at The Westin Denver Downtown, 1672 Lawrence Street, Denver, Colorado 80202, and any adjournment or postponement thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED BY THE SHAREHOLDER(S). IF NO SUCH DIRECTIONS ARE MADE, THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE BOARD OF DIRECTORS RECOMMENDATIONS.
PLEASE MARK, SIGN, DATE, AND RETURN THIS PROXY PROMPTLY USING THE ENCLOSED REPLY ENVELOPE.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE