DEF 14A
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934

Filed by the Registrant   x                         Filed by a Party other than the Registrant ¨

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   Definitive Proxy Statement

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   Soliciting Material Pursuant to §240.14a-12

NATIONAL CINEMEDIA, 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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LOGO

9110 E. Nichols Ave., Suite 200

Centennial, Colorado 80112-3405

Notice of Annual Meeting of Stockholders to be held on May 1, 2013

You are cordially invited to attend the Annual Meeting of Stockholders of National CineMedia, Inc., which will be held at United Artists Theatre Meadows 12, 9355 Park Meadows Drive, Littleton, Colorado 80124 on Wednesday, May 1, 2013 at 9:00 a.m., Mountain Time, for the following purposes:

 

  1. To elect three directors to serve until the 2016 Annual Meeting of Stockholders, and until their respective successors are elected and qualified;

 

  2. To approve the National CineMedia, Inc. Executive Performance Bonus Plan;

 

  3. Advisory approval of the Company’s executive compensation;

 

  4. To approve the amendment to the National CineMedia, Inc. 2007 Equity Incentive Plan to increase the number of shares available for issuance and to approve performance goals;

 

  5. To ratify the appointment of Deloitte & Touche LLP as our independent auditors for our 2013 fiscal year ending December 26, 2013;

 

  6. To consider a stockholder proposal regarding majority voting in director elections, if properly presented at the annual meeting; and

 

  7. To transact such other business as may properly come before the meeting.

The close of business on March 12, 2013 has been set as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting and any and all adjournments.

Consistent with prior years, we are electronically disseminating our Annual Meeting materials by using the “Notice and Access” method approved by the Securities and Exchange Commission. We believe this process should continue to provide a convenient way to access your proxy materials and vote. The Notice of Internet Availability of Proxy Materials contains specific instructions on how to access Annual Meeting materials via the internet as well as instructions on how to receive paper copies if preferred. The Proxy Statement and Annual Report for the fiscal year ended December 27, 2012 are available at www.edocumentview.com/ncmi.

Whether or not you are able to attend the Annual Meeting, it is important that your shares be represented regardless of the size of your holdings. Please vote your proxy promptly in accordance with the instructions you receive on the Notice of Internet Availability of Proxy Materials as a quorum of the stockholders must be present, either in person or by proxy, in order for the Annual Meeting to take place.

Please note that brokers may not vote your shares on the election of directors or any other non-routine matters if you have not given your broker specific instructions as to how to vote. Please be sure to give specific voting instructions to your broker so that your vote can be counted.

 

LOGO

Ralph E. Hardy

Executive Vice President, General Counsel

and Secretary

Centennial, Colorado

March 20, 2013


Table of Contents

TABLE OF CONTENTS

 

Shares Outstanding and Voting Rights

     1   

Costs of Solicitation

  

Annual Report

  

Voting Securities and Principal Holders

     3   

Beneficial Ownership

  

Adoption of Share Ownership Guidelines

  

Anti-Hedging Policy

  

Anti-Pledging Policy

  

Proposal 1 – Election of Directors

     6   

Business Experience of the Nominees

  

Board Composition

  

Company Leadership Structure

  

Board’s Role in Risk Oversight

  

Compensation Risk Assessment

  

Meetings of the Board of Directors and Standing Committees

  

Stockholder Communications

  

Vote Required

  

Recommendation

  

Proposal 2 – Approval of the National CineMedia, Inc. Executive Performance Bonus Plan

     15   

Purpose

  

Summary of the Performance Bonus Plan

  

Federal Income Tax Consequences

  

New Plan Benefits

  

Vote Required

  

Recommendation

  

Proposal 3 – Advisory Approval of the Company’s Executive Compensation

     19   

Vote Required

  

Recommendation

  

Proposal 4 – Approval of Amendment to the National CineMedia, Inc. 2007 Equity Incentive Plan to Increase the Number of Shares Available for Issuance and to Approve Performance Goals

     20   

Purpose

  

Burn Rate Analysis

  

Summary of the Equity Plan

  

Federal Income Tax Consequences

  

New Plan Benefits and Other Information

  

Vote Required

  

Recommendation

  

Equity Incentive Plan Information

  

Proposal 5 – Ratification of Independent Auditors

     26   

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

  

Fees Paid to Independent Auditors

  

Pre-Approval Policies and Procedures

  

Vote Required

  

Recommendation

  

Proposal 6 – Stockholder Proposal Regarding Majority Voting in Director Elections

     28   

Stockholder Proposal and Supporting Statement

  

Board of Directors’ Response in Opposition to Stockholder Proposal

  

Vote Required

  

Recommendation

  

Audit Committee Report

     30   

Compensation Committee Report

     31   


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Compensation of Committee Interlocks and Insider Participation

     31   

Compensation Discussion and Analysis

     32   

Executive Summary

  

Say-on-Pay Result

  

Compensation Philosophy

  

Role of Compensation Consultant and CEO in Determining Executive Compensation

  

Elements of Compensation

  

2012 Compensation

  

Compensation Decisions for 2013

  

Executive Compensation Tables

     45   

Fiscal 2012 Summary Compensation Table

  

Fiscal 2012 Grants of Plan-Based Awards

  

Non-Equity Incentive Plan Awards

  

Equity Incentive Plan Awards

  

Outstanding Equity Awards at December 27, 2012

  

Option Exercises and Stock Vested at December 27, 2012

  

Potential Payments Upon Termination or Change in Control

  

Employment Agreements

  

Director Compensation

  

Fiscal 2012 Director Compensation

  

Certain Relationships and Related Party Transactions

     57   

General

  

Transactions with Founding Members

  

Other Transactions

  

Transactions with NCM LLC

  

Review, Approval or Ratification of Transactions with Related Persons

  

Corporate Code of Conduct

     74   

Section 16(a) Beneficial Ownership Reporting Compliance

     74   

Householding

     74   

Proposals of Stockholders

     74   

Other Business

     75   

Appendix A

     A-1   

National CineMedia, Inc. Executive Performance Bonus Plan

  

Appendix B

     B-1   

National CineMedia, Inc. 2007 Equity Incentive Plan

  


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NATIONAL CINEMEDIA, INC.

PROXY STATEMENT FOR THE 2013

ANNUAL MEETING OF STOCKHOLDERS

The accompanying proxy is solicited by the board of directors of National CineMedia, Inc., a Delaware corporation (“NCM, Inc.”, or the “Company”), for use at the 2013 Annual Meeting of Stockholders to be held at United Artists Theatre Meadows 12, located at 9355 Park Meadows Drive, Littleton, Colorado 80124, on Wednesday, May 1, 2013, at 9:00 a.m., Mountain Time, and at any and all adjournments and postponements thereof (the “Annual Meeting”). Unless the context otherwise requires, the references to “we”, “us” or “our” refer to the Company and its consolidated subsidiary National CineMedia, LLC (“NCM LLC”). The proxy may be revoked at any time before it is voted. If no contrary instruction is received, signed proxies returned by stockholders will be voted in accordance with the board of directors’ recommendations.

This proxy statement and accompanying proxy are first being made available to stockholders on or about March  20, 2013.

SHARES OUTSTANDING AND VOTING RIGHTS

Our board of directors has fixed the close of business on March 12, 2013 as the record date for the determination of stockholders entitled to notice of and to vote at the Annual Meeting. Our only outstanding voting stock is our common stock, $0.01 par value per share, of which 56,932,231 shares were outstanding as of the close of business on the record date, which includes 2,092,097 shares of unvested restricted stock with voting rights. Each outstanding share of common stock is entitled to one vote.

Any proxy given pursuant to this solicitation may be revoked by the person giving it at any time before its use by delivering to us (Attention: Secretary) a written notice of revocation or a duly executed proxy bearing a later date, or by attending the Annual Meeting and voting in person. Attendance at the Annual Meeting will not in itself constitute a revocation of a proxy.

At the Annual Meeting, stockholders will vote on six proposals: to elect three directors to serve until the 2016 Annual Meeting of Stockholders, and until their respective successors are elected and qualified (Proposal 1); to approve the National CineMedia, Inc. Executive Performance Bonus Plan (Proposal 2); advisory approval of the Company’s executive compensation (Proposal 3); to approve the amendment to the National CineMedia, Inc. 2007 Equity Incentive Plan to increase the number of shares available for issuance and to approve performance goals (Proposal 4); to ratify the appointment of Deloitte & Touche LLP as our independent auditors for our 2013 fiscal year ending December 26, 2013 (Proposal 5); and to consider a stockholder proposal regarding majority voting in director elections if properly presented (Proposal 6).

Stockholders representing a majority in voting power of the shares of stock outstanding and entitled to vote must be present or represented by proxy in order to constitute a quorum to conduct business at the Annual Meeting. With respect to the election of directors, our stockholders may vote in favor of the nominees, may withhold their vote for all of the nominees, or may withhold their vote as to specific nominees. The affirmative vote of the holders of a plurality of the votes of the holders of shares present in person or represented by proxy at the Annual Meeting and entitled to vote thereon is required to approve the election of each nominee named in Proposal 1. Under the Delaware General Corporation Law (“DGCL”) and our Bylaws and Certificate of Incorporation, the affirmative vote of the holders of a majority in voting power of the shares present in person or represented by proxy at the Annual Meeting and entitled to vote thereon is required to approve Proposals 2, 3, 4, 5 and 6.

Abstentions may be specified on all proposals and will be counted as present for the purposes of the proposal for which the abstention is noted. A vote withheld for a nominee in the election of directors will have no effect. For purposes of determining whether any of the other proposals have received the requisite vote, where a stockholder abstains from voting, it will have the same effect as a vote against the proposal.

 

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The independent tabulator appointed for the Annual Meeting will tabulate votes cast by proxy or in person at the Annual Meeting. For the purposes of determining whether a proposal has received the requisite vote of the holders of the common stock in instances where brokers are prohibited from exercising or choose not to exercise discretionary authority for beneficial owners who have not provided voting instructions (so-called “broker non-votes”), those shares of common stock will not be included in the vote totals and, therefore, will have no effect on the vote on any of such proposals. Pursuant to the Financial Industry Regulatory Authority (“FINRA”) Conduct Rules, brokers who hold shares in street name have the authority, in limited circumstances, to vote on certain items when they have not received instructions from beneficial owners. A broker will only have such authority if:

 

   

the broker holds the shares as executor, administrator, guardian or trustee or is a similar representative or fiduciary with authority to vote; or

 

   

the broker is acting pursuant to the rules of any national securities exchange of which the broker is also a member.

Prior to 2010, the election of directors was considered a routine matter for which brokers were permitted to vote shares without customer direction, however brokers are no longer permitted to vote shares for the election of directors in this manner. Brokers also will not be permitted to vote shares with respect to the approval of the Company’s Executive Performance Bonus Plan, the advisory approval of the Company’s executive compensation or the approval of the amendment to the Company’s 2007 Equity Incentive Plan without customer direction. Therefore, we urge you to give voting instructions to your broker on all six proposals. Shares that are not voted by a broker given the absence of customer direction are called “broker non-votes.” Broker non-votes are not considered votes for or against a proposal and therefore will have no direct impact on any proposal. Under these rules, absent authority or directions described above, brokers will not be able to vote on Proposals 1 through 4 and Proposal 6, which are considered non-routine matters. Proposal 5 is a routine proposal on which a broker or other nominee is generally empowered to vote. Accordingly, no broker non-votes will likely result from Proposal 5.

Costs of Solicitation

We will pay the cost of soliciting proxies for the Annual Meeting. Proxies may be solicited by our regular employees, without additional compensation, in person, or by mail, courier, telephone or facsimile. We may also make arrangements with brokerage houses and other custodians, nominees and fiduciaries for the forwarding of solicitation material to the beneficial owners of stock held of record by such persons. We may reimburse such brokerage houses, custodians, nominees and fiduciaries for reasonable out-of-pocket expenses incurred by them in connection therewith.

Annual Report

Our 2012 Annual Report on Form 10-K, including the audited consolidated financial statements as of and for the year ended December 27, 2012, is available to all stockholders entitled to vote at the Annual Meeting together with this proxy statement, in satisfaction of the requirements of the Securities and Exchange Commission (the “SEC”). Additional copies of the Annual Report are available at no charge upon request. To obtain additional copies of the Annual Report, please contact us at 9110 E. Nichols Ave., Suite 200, Centennial, Colorado 80112-3405, Attention: Investor Relations, or at telephone number (303) 792-3600 or (800) 844-0935 investor relations. You may also view the Annual Report at http://www.ncm.com at the Investor Relations link. The Annual Report does not form any part of the materials for the solicitation of proxies.

 

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VOTING SECURITIES AND PRINCIPAL HOLDERS

Beneficial Ownership

Beneficial ownership is determined under the rules of the SEC and generally includes voting or investment power over securities. Except in cases where community property laws apply or as indicated in the footnotes to this table, we believe that each stockholder identified in the table possesses sole voting and investment power over all shares of common stock shown as beneficially owned by the stockholder. As of March 12, 2013, the percentage of beneficial ownership for NCM, Inc. is based on 56,932,231 shares of common stock outstanding (including unvested restricted stock) and 112,371,713 membership units outstanding for NCM LLC, of which 54,840,134 are owned by NCM, Inc. Unless indicated below, the address of each individual listed below is 9110 E. Nichols Ave., Suite 200, Centennial, Colorado 80112- 3405. The following table sets forth information regarding the beneficial ownership of our common stock as of March 12, 2013, by:

 

   

each person (or group of affiliated persons) who is known by us to own beneficially more than 5% of our common stock;

 

   

each of our named executive officers;

 

   

each of our directors and nominees for director; and

 

   

all directors and executive officers as a group.

 

Name of Beneficial Owner

   Shares of NCM,
Inc. Common
Stock
     NCM LLC Common
Membership Units
(1)
     Percent of Class  

Five Percent Stockholders

        

Regal Entertainment Group and Affiliates (2)

     —           22,113,150         19.7

Cinemark Holdings, Inc. and Affiliates (3)

     —           18,094,644         16.1

American Multi-Cinema, Inc. and Affiliates (4)

     —           17,323,782         15.4

Janus Capital Management LLC and Affiliates (5)

     7,429,929         —           13.5

AllianceBernstein LP (6)

     5,085,368         —           9.3

BlackRock, Inc. (7)

     4,655,396         —           8.5

Ameriprise Financial, Inc. and Affiliates (8)

     4,086,902         —           7.5

TimesSquare Capital Management, LLC (9)

     2,797,200         —           5.1

The Vanguard Group, Inc. and Affiliates (10)

     2,961,829            5.4

Directors and Executive Officers

        

Kurt C. Hall (11)

     1,805,382         —           3.3

Clifford E. Marks (12)

     802,028         —           1.5

Gary W. Ferrera (13)

     413,554         —           *   

Ralph E. Hardy (14)

     298,729         —           *   

Earl B. Weihe (15)

     221,207         —           *   

Gerardo I. Lopez

     0         —           0

Amy E. Miles

     0         —           0

Lee Roy Mitchell

     0         —           0

Craig R. Ramsey

     0         —           0

Lawrence A. Goodman

     16,617         —           *   

David R. Haas

     33,197         —           *   

James R. Holland, Jr.

     27,197         —           *   

Stephen L. Lanning

     18,736         —           *   

Edward H. Meyer

     20,736         —           *   

Scott N. Schneider

     27,197         —           *   

All directors, nominees for director and executive officers as a group (15 persons)

     3,684,580         —           6.7

 

* Less than one percent.

 

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(1) NCM LLC common membership units are redeemable at any time at the option of the holder. Upon any redemption, we may choose whether to redeem the units for shares of our common stock on a one-for-one basis or for a cash payment equal to the market price of shares of NCM, Inc. common stock. If each member of NCM LLC chose to redeem all of its NCM LLC common membership units and we elected to issue shares of NCM, Inc. common stock in redemption of all of the units, AMC would receive 17,323,782 shares of NCM, Inc. common stock, Cinemark would receive 18,094,644 shares of NCM, Inc. common stock and Regal would receive 22,113,150 shares of NCM, Inc. common stock. These share amounts would represent 15.4%, 16.1% and 19.7%, respectively, of our outstanding common stock, assuming that all of the NCM LLC units are converted into our common stock.
(2) Includes Regal Entertainment Group, Regal Entertainment Holdings, Inc., Regal Cinemas Corp., Regal Cinemas Inc., Regal CineMedia Holdings, LLC and Regal Cinemedia Corp. at 7132 Regal Lane, Knoxville, Tennessee 37918 and Anschutz Company and Phillip F. Anschutz at 555 Seventeenth Street, Suite 2400, Denver, Colorado 80202. Represents beneficial ownership as of March 15, 2012 based on the Statement of Changes in Beneficial Ownership of Securities on Form 4 filed on March 19, 2012.
(3) Includes Cinemark Holdings, Inc., Cinemark USA Inc. and Cinemark Media, Inc. The address of these stockholders is 3900 Dallas Parkway, Suite 500, Plano, Texas 75093. Represents beneficial ownership as of March 15, 2012 based on the Statement of Changes in Beneficial Ownership of Securities on Form 4 filed on March 19, 2012.
(4) Includes American Multi-Cinema, Inc., AMC Entertainment Inc., Marquee Holdings Inc. and AMC Entertainment Holdings, Inc. The address of these stockholders is 920 Main Street, Kansas City, Missouri 64105. Represents beneficial ownership as of March 17, 2011 based on the Statement of Changes in Beneficial Ownership of Securities on Form 4 filed on March 23, 2011.
(5) The address of these stockholders is 151 Detroit Street, Denver, Colorado 80206. Represents beneficial ownership as of December 31, 2012 based on the Statement of Beneficial Ownership filed on Schedule 13G/A on February 14, 2013.
(6) The address of this stockholder is 1345 Avenue of the Americas, New York, New York 10105. Represents beneficial ownership as of December 31, 2012 based on the Statement of Beneficial Ownership filed on Schedule 13G/A on February 12, 2013.
(7)

The address of this stockholder is 40 East 52nd Street, New York, New York 10022. Represents beneficial ownership as of December 31, 2012 based on the Statement of Beneficial Ownership filed on Schedule 13G/A on February 1, 2013.

(8) Includes Ameriprise Financial, Inc. and Columbia Management Investment Advisers, LLC. The address of these stockholders is 145 Ameriprise Financial Center, Minneapolis, Minnesota 55474 and 225 Franklin Street, Boston, Massachusetts 02110, respectively. Represents beneficial ownership as of December 31, 2012 based on the Statement of Beneficial Ownership filed on Schedule 13G/A on February 13, 2013.
(9)

The address of this stockholder is 1177 Avenue of the Americas, 39th Floor, New York, New York 10036. Represents beneficial ownership as of December 31, 2012 based on the Statement of Beneficial Ownership filed on Schedule 13G/A on February 11, 2013.

(10) Includes Vanguard Fiduciary Trust Company and Vanguard Investments Australia, Ltd. The address of this stockholder is 100 Vanguard Blvd. Malvern, PA 19355. Represents beneficial ownership as of December 30, 2012 based on the Statement of Beneficial Ownership filed on Schedule 13G on February 12, 2013.
(11) Includes 1,140,763 stock options that were vested and exercisable within 60 days of March 12, 2013.
(12) Includes 478,651 stock options that were vested and exercisable within 60 days of March 12, 2013.
(13) Includes 288,231 stock options that were vested and exercisable within 60 days of March 12, 2013.
(14) Includes 189,536 stock options that were vested and exercisable within 60 days of March 12, 2013.
(15) Includes 133,086 stock options that were vested and exercisable within 60 days of March 12, 2013.

 

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Adoption of Share Ownership Guidelines

On January 16, 2013, the Company adopted the following share ownership guidelines for its executive officers and directors:

 

Position

  

Minimum Share Ownership Level

President, Chief Executive Officer and Chairman

   Lesser of: 3 times base salary or 140,000 shares

Other executive officers

   Lesser of: 1 times base salary or 20,000 shares

Board members

   Lesser of: 3 times annual Board cash retainer or 8,000 shares

Each individual is expected to attain the minimum ownership level within five years of the effective date of the policy, or the individual’s date of appointment, if later. If the minimum ownership level is not attained within the required timeframe, holding restrictions will apply. Upon vesting of equity awards, 50% of the individual’s shares that become vested will be subject to holding restrictions until the minimum ownership level is attained. Ownership levels are determined based on Company common stock owned by each individual, including shares of unvested timed-based restricted stock and in-the-money vested stock options.

Anti-Hedging Policy

The Company’s insider trading policy includes provisions that prohibit all employees and directors from entering into hedging transactions with respect to Company stock.

Anti-Pledging Policy

The Company’s insider trading policy includes provisions that prohibit all employees and directors from keeping Company stock in a margin account or using Company stock as collateral for a loan. To our knowledge, none of our officers or directors has pledged any of his or her shares.

 

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PROPOSAL 1

ELECTION OF DIRECTORS

Our board of directors currently consists of ten directors. Under the director designation agreement dated as of February 13, 2007, each of our founding members – AMC Entertainment Inc. and its affiliates (“AMC”), Cinemark Holdings, Inc. and its affiliates (“Cinemark”) and Regal Entertainment Group and its affiliates (“Regal”) – are permitted to appoint or designate up to two persons for nomination to election on our board of directors under the terms set forth in the agreement, one of which must qualify as “independent” as required by the rules promulgated by the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and by the Nasdaq Stock Market (“Nasdaq”). See “Certain Relationships and Related Party Transactions – Director Designation Agreement.” The designees pursuant to this agreement for AMC are Edward H. Meyer and Gerardo I. Lopez; for Cinemark are James R. Holland, Jr. and Lee Roy Mitchell; and for Regal are Stephen L. Lanning and Amy E. Miles.

Our bylaws provide that directors are divided into three classes, designated as Class I, Class II and Class III. The members of each class serve for staggered three-year terms. In 2013, the Class III directors are up for re-election with the exception of Geraldo I. Lopez. Mr. Lopez will be replaced as the AMC designee under the director designation agreement by Craig Ramsey, the Chief Financial Officer of AMC. Mr. Lopez has served as a Director of NCM, Inc. since April 2009. At the Annual Meeting, the stockholders will elect three Class III directors including Mr. Ramsey to serve until the 2016 Annual Meeting of Stockholders, and until their respective successors are duly elected and qualified. Stockholders are not entitled to cumulate votes in the election of directors and may not vote for a greater number of persons than the number of nominees named.

We are soliciting proxies in favor of the election or re-election of each of the nominees identified below. We intend that all properly executed proxies will be voted for these three nominees unless otherwise specified. All nominees have consented to serve as directors, if elected. If any nominee is unwilling to serve as a director at the time of the Annual Meeting, the persons who are designated as proxies intend to vote, in their discretion, for such other persons, if any, as may be designated by the board of directors. The proxies may not vote for a greater number of persons than the number of nominees named. As of the date of this proxy statement, the board of directors has no reason to believe that any of the persons named below will be unable or unwilling to serve as a nominee or as a director.

Business Experience of the Nominees

The names of the nominees and other information about them, including their directorships at public companies held at any time during the past five years, if applicable, and their involvement in certain legal proceedings during the past 10 years, if applicable, are set forth below. In addition, we have included information about each nominee’s specific experience, qualifications, attributes or skills that led the board to conclude that the nominee should serve as a director of the Company at the time we are filing this proxy statement, in light of our business and corporate structure.

Amy E. Miles. Ms. Miles has served as a director of NCM Inc. since June 2011. Ms. Miles has served as a director and Chief Executive Officer of Regal since June 2009. Ms. Miles previously served as Regal’s Executive Vice President, Chief Financial Officer and Treasurer from March 2002 through June 2009 and in various executive roles at Regal Cinemas, Inc., Regal’s wholly owned subsidiary. Ms. Miles was a Senior Manager with Deloitte & Touche from 1998 to 1999 and was with Pricewaterhouse Coopers, LLP from 1989 to 1998.

Ms. Miles has served in various executive positions at the most senior level of a public company in the theatre industry, which gives her the ability to understand the role of the board as well as the Company and its operations. Since Ms. Miles is a board designee for one of our founding members, she brings to the board the perspective of a major stakeholder.

 

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Lee Roy Mitchell. Mr. Mitchell has served as a director of NCM, Inc. since October 2006. Mr. Mitchell has served as Chairman of the Board of Cinemark USA, Inc. since March 1996 and as a Director since its inception in 1987 and Chief Executive Officer of Cinemark USA, Inc. until December 2006. Mr. Mitchell serves on the boards of Cinemark Holdings, Inc. and National Association of Theatre Owners.

Mr. Mitchell has over four decades of executive leadership experience, including a key role in the theatre industry and brings important institutional knowledge to the board. Mr. Mitchell’s experience enables him to share with the board suggestions about how similarly situated companies effectively assess and undertake business considerations and opportunities. Since Mr. Mitchell is a board designee for one of our founding members, he brings to the board the perspective of a major stakeholder.

Craig R. Ramsey. Mr. Ramsey, age 61, serves as the Executive Vice President and Chief Financial Officer of AMC Entertainment Inc. (“AMC”) and oversees all financial areas of the company, including accounting, information systems, asset and liability management, and investor relations. Mr. Ramsey began his career with AMC in 1995 as the Director of Financial Reporting. He was promoted to Vice President of Finance in January 1997; to Senior Vice President in August 1998; and to Chief Financial Officer in February 2000. Mr. Ramsey is a certified public accountant. His professional affiliations include memberships in the American Institute of Certified Public Accountants, the Financial Executives Institute and the Missouri Society of Certified Public Accountants.

Mr. Ramsey is qualified to serve on our board based on his extensive financial experience in the media industry. Since Mr. Ramsey is a board designee for one of our founding members, he brings to the board the perspective of a major stakeholder.

Board Composition

Shown below are the names and ages, as of March 12, 2013, of the ten members of our current board of directors.

 

Name

   Age     

Position

Kurt C. Hall

     53       President, Chief Executive Officer and Chairman (Class I)

Lawrence A. Goodman

     58       Director (Class I)

David R. Haas

     71       Director (Class II)

James R. Holland, Jr.

     69       Director (Class II)

Stephen L. Lanning

     59       Director (Class II)

Gerardo I. Lopez

     53       Director (Class III)

Edward H. Meyer

     86       Director (Class II)

Amy E. Miles

     46       Director (Class III)

Lee Roy Mitchell

     76       Director (Class III)

Scott N. Schneider

     55       Director (Class I)

Set forth below is a brief description of the business experience of each of the individuals who, in addition to the nominees whose business experience is set forth above, currently serve on our board and are expected to continue to serve as our directors following the annual meeting, including their directorships at public companies held at any time during the past five years, if applicable, and their involvement in certain legal proceedings during the past 10 years, if applicable. In addition, we have included information about each director’s specific experience, qualifications, attributes or skills that led the board to conclude that the director should serve as a director of the Company at the time we are filing this proxy statement, in light of our business and corporate structure.

Kurt C. Hall. Mr. Hall was appointed President, Chief Executive Officer and Chairman of NCM, Inc. in February 2007 and held those same positions with NCM LLC since March 2005. He has also served as

 

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Chairman, President and Chief Executive Officer of NCM, Inc. since October 2006. Prior to his current position, from May 2002 to May 2005, Mr. Hall served as Co-Chairman and Co-Chief Executive Officer of Regal Entertainment Group and President and Chief Executive Officer of its media subsidiary Regal CineMedia Corporation. Since 1988, Mr. Hall has held various executive positions with United Artists Theatre Company, and its predecessor companies, including CFO and then CEO prior to it becoming part of Regal Entertainment Group in 2002. Mr. Hall served on the board of directors of IdeaCast, Inc. and on its compensation committee from 2007 until 2009. In 2009, upon the restructuring of IdeaCast, Inc. and the merger of certain assets into RMG Networks, Inc., Mr. Hall joined the board of directors of RMG Networks, Inc., a privately held company, and serves as a member of its compensation committee.

Mr. Hall has contributed significantly to the founding and development of the Company since its inception. He has extensive experience in the theatre exhibitor and cinema advertising businesses and is familiar with all aspects of the Company, including its management, operations and financial requirements and brings exceptional leadership and financial skills to the Company. Mr. Hall’s extensive theatre operating and finance experience provides insight and continuity in our strategic, operational and financial management.

Lawrence A. Goodman. Mr. Goodman has been a director and chairman of the Compensation Committee of NCM, Inc. since February 2007. Mr. Goodman founded White Mountain Media, a media consulting company, in July 2004 and has served as its president since inception. From July 2003 to July 2004, Mr. Goodman was retired. From March 1995 to July 2003, Mr. Goodman was the President of Sales and Marketing for CNN, a division of Turner Broadcasting System, Inc. Mr. Goodman currently serves as a director of Sagacity Media and formerly served on the board of Authenticlick, Inc, which are both privately held.

Mr. Goodman’s extensive background in the media industry allows him to provide media sales and marketing advice to our management and board. Mr. Goodman brings significant business experience to provide strategies and solutions to address the complex compensation environment of the media business that is required to appropriately compensate and motivate our sales personnel and executives.

David R. Haas. Mr. Haas has served as a director of NCM, Inc. and chairman of the Audit Committee of NCM, Inc. since February 2007 . He has been a private investor and financial consultant since January 1995. Mr. Haas was a Senior Vice President and Controller for Time Warner, Inc. from January 1990 through December 1994. Mr. Haas served as a director and chair of the audit committee of Armor Holdings, Inc. until July 2007.

Mr. Haas’ experience as a former high-ranking financial executive in a media company qualifies him to serve on our board of directors, the Audit Committee and to provide guidance to our internal audit function and financial advice to our board. In addition, Mr. Haas’ previous experience serving on several public company boards and audit committees has provided him a broad-based understanding of financial risks and compliance expertise.

James R. Holland, Jr. Mr. Holland has served as lead director of NCM, Inc. since February 2007. He has been the President and Chief Executive Officer of Unity Hunt, Inc., a diversified holding company, since September 1991, and is currently Chairman of the Board and also serves on its executive committee. He also serves as Chairman of the Governance and Nominating Committee of Texas Capital Bancshares, Inc., serves as a director of Placid Holding Co. and serves as Chairman of the Board of directors and a member of the audit and compensation committees of Hunt Midwest Enterprises, Inc.

Mr. Holland has demonstrated leadership abilities and extensive knowledge of complex financial and operational issues facing public companies. In addition, his experience as a board and audit committee member and as chief executive officer of various companies, as well as his financial expertise, brings necessary skills and viewpoints to the board.

 

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Stephen L. Lanning. Mr. Lanning has served as a director of NCM, Inc. and chairman of the Nominating and Governance Committee of NCM, Inc. since February 2007. Prior to his retirement in 2009, he served with URS Corp. EG&G Division from 2006 to 2009 as an independent consultant and Director of Space and Information Operations Strategic Business Element. Mr. Lanning served in the United States Air Force from 1977 until 2006. From 2005 to 2006, Mr. Lanning was the Director, Logistics and Warfighting Integration, and Chief Information Officer for the United States Air Force Space Command. Mr. Lanning was a Principal Director of the Defense Information Systems Agency from 2002 to 2005.

Mr. Lanning has significant experience in technology, operational leadership and policy development combined with his drive for innovation and excellence, which positions him well to serve as our governance committee chairman. Mr. Lanning’s background allows him to share best practices with our board of directors. His years of serving in the military have given him valuable knowledge and perspective.

Edward H. Meyer. Mr. Meyer has served as a director of NCM, Inc. since February 2007. Mr. Meyer founded Ocean Road Advisors, Inc., an investment management company, in January 2007, and currently serves as Chairman and Chief Executive Officer. He was Chairman, Chief Executive Officer and President of advertising agency Grey Global Group, Inc. from 1972 to December 2006. Mr. Meyer also serves as a director and member of the compensation committee of Harman International Industries, Inc. and director and member of the compensation committee of Retail Opportunity Investments Corp., as well as various privately held organizations.

Mr. Meyer’s senior executive positions in advertising and investment management give him the experience to critically review the various business considerations necessary to run a business such as ours. Mr. Meyer is able to offer the board sound business and financial strategies. This, combined with his many years of experience, makes him a valued contributor to the Company.

Scott N. Schneider. Mr. Schneider has been a director of NCM, Inc. since February 2007. Mr. Schneider became the Chief Executive Officer of AHC LLC, a financial consulting and advisory firm in October 2009. He served as Operating Partner and Chairman, Media and Communications, of Diamond Castle Holdings, LP, a private equity firm, from January 2005 to September 2009. From 2001 to 2004, Mr. Schneider served in various senior executive capacities including President, Chief Operating Officer and Vice Chairman of the Board of Citizens Communications Company. Mr. Schneider formerly served as a director of Centennial Communications Corp., Bonten Media Group, LLC and PRC, LLC. While he was serving as director, PRC, LLC filed bankruptcy proceedings in January 2008. At the request of new management to assist in evaluating financial conditions and operations, Mr. Schneider joined the board of Adelphia Communications for a one-month period prior to its bankruptcy proceedings, which were filed on June 25, 2002. Mr. Schneider resigned from the board of Adelphia Communications prior to any final determination with respect to the bankruptcy proceedings.

Mr. Schneider’s extensive experience in senior leadership positions at several public and private media companies makes him well suited to understand and advise the board on complex managerial, strategic and financial considerations. He has a strong knowledge of the nuances of financial markets and is able to provide a variety of perspectives on financial and operational issues as well as provide guidance to assist the Company with its public communications.

Our board of directors has determined that Lawrence A. Goodman, David R. Haas, James R. Holland, Jr., Stephen L. Lanning, Edward H. Meyer and Scott N. Schneider, all current directors, qualify as “independent” directors under the rules promulgated by the SEC under the Exchange Act, and by the Nasdaq. There are no family relationships among any of our executive officers, directors or nominees for director.

Company Leadership Structure

The position of Board Chairman is filled by our Chief Executive Officer. We believe this combined leadership structure promotes unified leadership and direction for the board and executive management and it

 

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conveys a singular, cohesive message to our stockholders, employees, founding members and the investment community. Our board has a very qualified lead director with many years of experience on other boards as lead director. Our lead director leads executive sessions of non-management directors at every quarterly board meeting and presides over meetings of the entire board in the absence of the chairman. Our lead director is James R. Holland, Jr., a member of our Audit Committee.

In addition, the Company’s leadership structure is also comprised of three independent directors who serve as chairs on the board committees, as described further below. We believe this structure provides the opportunity for those independent directors to exert influence over agenda items for their respective committees and management oversight. Our lead director and other directors and management team engage frequently and directly in the flow of information and ideas. We believe our combined leadership structure facilitates the quality, quantity and timeliness of communication.

Board’s Role in Risk Oversight

The board as a whole has responsibility for risk oversight, including setting the “tone at the top” regarding the importance of risk management. The board reviews information on the Company’s credit, liquidity and operations, as well as reports from management on enterprise risk and committee reports. The Compensation Committee is responsible for overseeing the management of risks relating to our executive compensation. The Audit Committee is responsible for overseeing the management of financial risks. The Nominating and Governance Committee is responsible for overseeing the management of risks associated with board independence and potential conflicts of interests. While each committee is responsible for evaluating and overseeing the management of such risks, the entire board is regularly informed of each committee’s analysis.

Gary Ferrera, Executive Vice President and Chief Financial Officer, was the Chief Risk Officer through his resignation on March 1, 2013. Jeff Cabot, our Senior Vice President and Controller, became our Chief Risk Officer on March 1, 2013. The Chief Risk Officer provided quarterly updates to the board on the strategic, operational, financial, compliance and reputational risks facing the Company, which serves to ensure that risk management is a priority within the organization and the Company’s risk oversight is aligned with its strategies.

Compensation Risk Assessment

We do not believe we currently have overall compensation practices that are reasonably likely to have a material adverse effect on the Company. Our Compensation Committee reviewed the compensation policies and practices for all employees, including executive officers. The Compensation Committee considered whether the compensation program encouraged excessive risk taking by employees at the expense of long-term Company value. Based upon its assessment, the Compensation Committee does not believe that the compensation program encourages excessive or inappropriate risk-taking. The Compensation Committee believes that the design of the compensation program, which includes a mix of annual and long-term incentives, cash and equity awards and retention incentives, is balanced and does not motivate imprudent risk-taking.

Meetings of the Board of Directors and Standing Committees

The board of directors held seven meetings during the fiscal year ended December 27, 2012. During our 2012 fiscal year, no director then in office attended fewer than 75% of the aggregate total number of meetings of the board of directors held during the period in which he or she was a director and of the total number of meetings held by all of the committees of the board of directors on which he or she served. The Company does not have a policy regarding attendance by members of the board of directors at the Company’s Annual Meeting, but encourages our directors to attend. All of our directors attended our Annual Meeting of Stockholders held on May 1, 2012. The three standing committees of the board of directors are the Audit Committee, the Compensation Committee and the Nominating and Governance Committee. In 2010, we established a Fathom special independent committee of the board to work with the Company’s management and the founding members

 

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that considered and planned the restructuring of the Fathom business. The special committee consists of Messrs. Goodman, Haas and Schneider. There were three meetings of the special committee during our 2012 fiscal year.

The following table shows the current membership and number of meetings held by the board and each standing committee during our 2012 fiscal year:

DIRECTOR COMMITTEE MEMBERSHIP AND MEETINGS

 

Director

   Audit
Committee
   Compensation
Committee
   Nominating
and
Governance
Committee
   Board of
Directors

Kurt C. Hall

            Chair

Lawrence A. Goodman

      Chair    X    X

David R. Haas

   Chair          X

James R. Holland, Jr.

   X          Lead Director

Stephen L. Lanning

      X    Chair    X

Gerardo I. Lopez

            X

Edward H. Meyer

      X    X    X

Amy E. Miles

            X

Lee Roy Mitchell

            X

Scott N. Schneider

   X          X

2012 Fiscal Year Meetings and Consents

   6    10    9    7

Our bylaws provide that stockholders seeking to bring business before an annual meeting of stockholders, or to nominate candidates for election as directors at an annual meeting of stockholders, must provide timely notice in writing. To be timely, a stockholder’s notice generally must be delivered to and received at our principal executive offices, not less than 90 days nor more than 120 days prior to the first anniversary of the preceding year’s annual meeting; provided, that in the event that the date of such meeting is advanced more than 30 days prior to, or delayed by more than 70 days after, the anniversary of the preceding year’s annual meeting of our stockholders, a stockholder’s notice to be timely must be so delivered not earlier than the close of business on the 120th day prior to such meeting and not later than the close of business on the later of the 90th day prior to such meeting or the 10th day following the day on which public announcement of the date of such meeting is first made. Our bylaws also specify certain requirements as to the form and content of a stockholder’s notice. These provisions may preclude stockholders from bringing matters before an annual meeting of stockholders or from making nominations for directors at an annual meeting of stockholders.

Audit Committee

For our 2012 fiscal year, the Audit Committee consisted of David R. Haas (chairman), James R. Holland, Jr. and Scott N. Schneider. Each of the committee members was “independent” as required by the rules promulgated by the SEC under the Exchange Act, and by the Nasdaq. Each of them also meets the financial literacy requirements of the Nasdaq. Our board of directors has determined that Mr. Haas qualifies as an “audit committee financial expert” as defined in the federal securities laws and regulations.

The Audit Committee is primarily concerned with overseeing management’s processes and activities relating to the following:

 

  (1) maintaining the reliability and integrity of our accounting policies, financial reporting practices and financial statements;

 

  (2) the independent auditor’s qualifications and independence;

 

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  (3) the performance of our internal audit function and independent auditor; and

 

  (4) confirming compliance with laws and regulations, and the requirements of any stock exchange or quotation system on which our securities may be listed.

The Audit Committee also is responsible for establishing procedures for the receipt of complaints regarding our accounting, internal accounting controls or audit matters, and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Audit Committee’s responsibilities are set forth in its charter, which was approved by the board of directors on January 8, 2008 and was most recently reviewed by the Audit Committee in January 2013. A copy of the charter is available on our website at NCM.com at the Investor Relations link. There were six meetings of the Audit Committee during our 2012 fiscal year.

Compensation Committee

For our 2012 fiscal year, the Compensation Committee consisted of Lawrence A. Goodman (chairman), Stephen L. Lanning and Edward H. Meyer. Each member was “independent” as defined in the rules promulgated by the SEC under the Exchange Act and by the Nasdaq and each also qualifies as an “outside director” within the meaning of Section 162(m) of the Internal Revenue Code and a “non-employee director” for purposes of Rule 16b-3 under the Exchange Act. David R. Haas was added to the Compensation Committee on January 13, 2013.

The Compensation Committee’s purposes, as set forth in its charter, are:

 

  (1) to assist the board in discharging its responsibilities relating to compensation of our executives;

 

  (2) to administer our equity incentive plans (other than any such plan applicable only to non-employee directors); and

 

  (3) to have overall responsibility for approving and evaluating all of our compensation plans, policies and programs that affect our executive officers.

The Compensation Committee’s responsibilities are set forth in its charter, which is reviewed at least annually. The current Compensation Committee charter was approved by the board of directors on January 8, 2008 and was most recently reviewed by the Committee in January 2013. A copy of the charter is available on our website at NCM.com at the Investor Relations link. There were ten meetings of the Compensation Committee during our 2012 fiscal year.

The Compensation Committee performs such functions and responsibilities enumerated in its charter as appropriate in furtherance of its purposes. The Compensation Committee is authorized to form and delegate responsibility to subcommittees of the Compensation Committee as it deems necessary or appropriate, provided, however, that any such subcommittees shall meet all applicable independence requirements and that the Compensation Committee shall not delegate to persons other than independent directors any functions that are required – under applicable law, regulation or Nasdaq rule – to be performed by independent directors.

In 2012, the Compensation Committee engaged ClearBridge Compensation Group, LLC (“ClearBridge”), a nationally recognized consulting firm, to assess the competitiveness of pay for the executive officers and provide independent advice and recommendations to the Compensation Committee regarding executive compensation. The Compensation Committee reviewed ClearBridge’s independence status and determined that there were no conflicts of interest and that ClearBridge is independent from the Company, our Compensation Committee and our executive officers.

Nominating and Governance Committee

For our 2012 fiscal year, Stephen L. Lanning (chairman), Lawrence A. Goodman and Edward H. Meyer served as the members of the Nominating and Governance Committee. All of the members of our Nominating

 

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and Governance Committee are independent as determined in accordance with Nasdaq rules and relevant federal securities laws and regulations. Scott N. Schneider was added to the Nominating and Governance Committee January 13, 2013.

The Nominating and Governance Committee’s purposes, as set forth in its charter, are:

 

  (1) to identify individuals qualified to become board members, and to recommend that the board select the director nominees for the next annual meeting of stockholders;

 

  (2) to oversee the evaluation of our management and the board; and

 

  (3) to review from time to time the Corporate Governance Guidelines applicable to us and to recommend to the board such changes as it may deem appropriate.

The Nominating and Governance Committee’s responsibilities are set forth in its charter, which was approved by the board of directors on January 8, 2008 and was most recently reviewed by the Committee in January 2013. A copy of the charter as well as our Corporate Governance Guidelines is available on our website at NCM.com at the Investor Relations link. There were nine meetings of the Nominating and Governance Committee during our 2012 fiscal year.

Other than the director candidates designated by our founding members, the Nominating and Governance Committee identifies individuals qualified to become board members and recommends director nominees to our board for each annual meeting of stockholders. It also reviews the qualifications and independence of the members of our board of directors and its various committees on a regular basis and makes any recommendations the committee members may deem appropriate from time to time concerning any changes in the composition of our board of directors and its committees. The Nominating and Governance Committee recommends to our board of directors the corporate governance guidelines and standards regarding the independence of outside directors applicable to us and reviews such guidelines and standards and the provisions of the Nominating and Governance Committee charter on a regular basis to confirm that such guidelines, standards and charter remain consistent with sound corporate governance practices and with any legal, regulatory or Nasdaq requirements. The Nominating and Governance Committee also monitors our board of directors and our compliance with any commitments made to regulators or otherwise regarding changes in corporate governance practices and leads our board of directors in its annual review of our board of directors’ performance.

Nomination of Directors. The nominees for election or re-election to our board of directors at the 2013 Annual Meeting were designated by our founding members, were formally nominated by the Nominating and Governance Committee and were approved by the board of directors on January 16, 2013. Mr. Ramsey, who is a new nominee to the board, was designated by AMC pursuant to the Director Designation Agreement.

As the need to fill vacancies arises in the future, the Nominating and Governance Committee will refer to its list of potential candidates that is maintained and updated on an on-going basis and will seek individuals qualified to become board members for recommendation to the board. The Nominating and Governance Committee would consider potential director candidates recommended by stockholders and would use the same criteria for screening all candidates, regardless of who proposed such candidates. See “Stockholder Communications” below for information on how our stockholders may communicate with our board of directors.

The Nominating and Governance Committee and the board of directors consider whether candidates for nomination to the board of directors possess the following qualifications, among others:

 

  (a) the highest level of personal and professional ethics, integrity, and values;

 

  (b) expertise that is useful to us and is complementary to the background and expertise of the other members of the board of directors;

 

  (c) a willingness and ability to devote the time necessary to carry out the duties and responsibilities of membership on the board of directors;

 

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  (d) a desire to ensure that our operations and financial reporting are effected in a transparent manner and in compliance with applicable laws, rules, and regulations; and

 

  (e) a dedication to the representation of our best interests and all of our stockholders, including our founding members.

Diversity of Directors. In considering whether to recommend any candidate for inclusion in the slate of director nominees, including candidates recommended by stockholders, the Nominating and Governance Committee complies with the Company’s Corporate Governance Guidelines and Corporate Code of Conduct. In addition to considering characteristics such as age, race, and gender, the Committee seeks nominees that will complement the experience, knowledge and abilities of the other board members. Nominees are not discriminated against on the basis of race, gender, religion, national origin, sexual orientation, disability or any other basis prescribed by law.

Stockholder Communications

Our board of directors provides a process for stockholders to send communications to the board. Information on communicating directly with the board of directors is available on our website at www.ncm.com at the Investor Relations link.

Vote Required

Directors will be elected by a plurality of the votes of the holders of shares present in person or by proxy at the Annual Meeting.

Recommendation

The board of directors recommends that stockholders vote FOR each of the nominees for director. If not otherwise specified, proxies will be voted FOR each of the nominees for director.

 

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PROPOSAL 2

APPROVAL OF THE

NATIONAL CINEMEDIA, INC.

EXECUTIVE PERFORMANCE BONUS PLAN

We are asking our stockholders to approve the National CineMedia, Inc. Executive Performance Bonus Plan (the “Performance Bonus Plan”). The Compensation Committee adopted the Performance Bonus Plan, subject to approval of our stockholders. The board of directors recommends that our stockholders approve the Performance Bonus Plan so that we may provide incentives to achieve our business objectives and also potentially receive a federal tax deduction for compensation paid under the Performance Bonus Plan.

Purpose

Section 162(m) of the Internal Revenue Code generally provides that compensation paid to a “covered employee” in excess of $1 million is not deductible by a corporation. This deduction limit does not apply to qualifying performance-based compensation. Compensation can qualify as performance-based under this rule only if it meets several technical requirements. One of the requirements is that the material terms of the performance goals under which the compensation is to be paid must be disclosed to and subsequently approved by the company’s stockholders before the compensation is paid. The material terms include: (a) the employees eligible to receive compensation; (b) the business criteria on which the performance goal is based; and (c) either the maximum amount of compensation that could be paid to any employee or the formula used to calculate the amount if the performance goal is achieved. Subject to the terms of the Performance Bonus Plan and as required for qualified performance-based compensation under Section 162(m), the Compensation Committee and approved by the board will determine the specific design of the plan for each fiscal year. The Performance Bonus Plan was adopted by the Compensation Committee on March 13, 2013, subject to approval of our stockholders and is expected to continue for five years.

If stockholders do not approve the Performance Bonus Plan, we will not pay compensation under the plan. In addition to the Performance Bonus Plan, we sponsor other compensation arrangements and incentive plans for eligible employees of NCM Inc. and our affiliates. Whether or not the Performance Bonus Plan is approved by our stockholders, we may choose to pay bonuses and other compensation to our employees, including our executives, outside of the Performance Bonus Plan on terms established by us from time to time.

Summary of the Performance Bonus Plan

The following summary is qualified in its entirety by reference to the Performance Bonus Plan, a copy of which is attached to this proxy statement as Appendix A.

Purpose. The purpose of the Performance Bonus Plan is to create a financial incentive for executives to achieve targeted levels of corporate, financial and strategic performance. The Performance Bonus Plan is intended to permit the payment of amounts that qualify as performance-based compensation for purposes of Section 162(m), provided all of the technical requirements of that rule are satisfied.

Administration. The Performance Bonus Plan is administered by our Compensation Committee (or sub-committee) or other committee designated by the board. Members of the Compensation Committee must qualify as outside directors within the meaning of Section 162(m). Subject to the terms of the plan and as required for qualified performance-based compensation under Section 162(m), the committee has the authority to (a) determine the participants and terms and conditions of awards, (b) interpret the plan and awards, (c) adopt procedures and rules to administer and interpret the plan, and (d) interpret, amend or revoke such rules.

Eligibility. The committee selects the employees of NCM Inc. (and its affiliates), by name or position, who are eligible to receive awards under the Performance Bonus Plan. The actual number of employees who will be eligible to receive an award during any particular year cannot be determined in advance because the committee has discretion to select the participants. We currently expect that approximately five to ten executives of NCM Inc. will participate in the Performance Bonus Plan at any given time.

 

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Target Awards and Maximum Awards. Under the Performance Bonus Plan, the committee establishes (a) the target award for each participant, (b) the performance goals and target levels that must be obtained to be eligible for an award, and (c) the formula, matrix or other standard to determine the amount of compensation. The target award is generally expressed as a percentage of base salary, a dollar amount, or an amount determined by a formula. The maximum award payable under the Performance Bonus Plan to any participant who is determined to be a covered employee under Section 162(m) for the fiscal year is $3,000,000.

Performance Goals. The committee determines the performance goals using one or more of the following measures.

 

•    Cash flow

  

•    Cost initiatives

•    Earnings

  

•    Earnings per share

•    Economic profit

  

•    Economic value added

•    Enterprise value

  

•    Free cash flow

•    Margins (gross or net)

  

•    Market share

•    Market value

  

•    Net income

•    Operating income

  

•    Return on assets

•    Return on capital

  

•    Return on equity

•    Return on investment

  

•    Revenue (gross or net)

•    Stock price

  

•    Strategic objectives

•    Total shareholder return

  

•    Debt ratios and other measures of credit quality or liquidity

The committee may choose to establish and measure performance goals (a) in absolute terms, (b) in combination, (c) in relative terms, (d) on a per-share or per-capita basis, (e) on a company-wide, business-segment or product basis, (f) on a pre-tax or after-tax basis, and/or (g) on a GAAP or non-GAAP basis. The committee may also choose to exclude the effect of extraordinary or non-recurring items, changes in accounting rules, mergers and acquisitions and other items. Performance goals and target levels can vary by participant and by performance period. The committee sets each performance period, which may consist of one or more fiscal years or a portion of a fiscal year.

Performance Bonus Awards. After the performance period ends, the committee certifies in writing the extent to which the performance goals and any other material terms of the awards were satisfied. The amount of the award is determined by applying the formula to the level of actual performance certified by the committee. The committee has the discretion to reduce or eliminate (but not to increase) the amount of the award. To be eligible for payment of an award, the executive generally must be employed by us on the date the awards are paid unless otherwise approved by the committee.

Payment of Awards. Performance bonus awards are generally paid after the end of the performance period in cash (or its equivalent) in a single lump sum payment within 30 days following the determination and certification by the committee. The committee may permit a participant to defer receipt of payment of the award subject to terms and conditions set by the committee.

Amendment and Termination. The board may amend, suspend or terminate the Performance Bonus Plan at any time for any reason. An amendment will be subject to stockholder approval to the extent necessary under Section 162(m).

Term. The Plan will continue in effect for five years following the date of approval by the Company’s stockholders, unless terminated earlier by the Company.

 

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Federal Income Tax Consequences

Under U.S. federal tax laws currently in effect, participants will generally recognize ordinary income in the year of payment equal to the performance bonus award amount. Subject to the limitations of Section 162(m), the company will generally claim a deduction for federal income tax purposes equal to the amount of ordinary income recognized by the participant.

Section 162(m). Section 162(m) generally provides that compensation paid to a “covered employee” in excess of $1 million is not deductible by the corporation for federal income tax purposes. A covered employee generally includes the chief executive officer of the company at the end of the taxable year and an individual serving as an officer of the company or a subsidiary at the end of such year who is among the three highest compensated officers (other than the chief executive officer and the chief financial officer) for proxy statement reporting purposes. Compensation that qualifies as performance-based compensation for purposes of Section 162(m) is excluded from this $1 million deduction limit. The rules and regulations promulgated under Section 162(m) are complex, technical and change from time to time, sometimes with retroactive effect. In addition, a number of requirements must be met in order for particular compensation to qualify as performance-based compensation for purposes of Section 162(m).

We have designed the Performance Bonus Plan to allow us to pay awards that are intended to qualify as performance-based compensation under Section 162(m). We are requesting that stockholders approve the Performance Bonus Plan so that we may choose to pay incentive compensation that is intended to be qualifying performance-based compensation. We may, however, choose to pay other or additional compensation outside of the Performance Bonus Plan that is not intended to qualify as performance-based compensation and therefore may not be fully deductible by us.

Section 409A. Section 409A of the Code imposes election, payment and funding requirements on “nonqualified deferred compensation” plans. If a nonqualified deferred compensation arrangement subject to Section 409A fails to meet, or is not operated in accordance with, the requirements of Section 409A, then compensation deferred under the arrangement may become immediately taxable and subject to a 20% additional tax, plus interest. Unless subject to a deferral election, the performance bonus awards are generally intended to qualify for an exception under Section 409A.

 

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New Plan Benefits

Awards, if any, under the Performance Bonus Plan are based on actual future performance. As a result, the amounts that will be paid under the Performance Bonus Plan are not currently determinable. The Compensation Committee established target award amounts for participants under the Performance Bonus Plan for fiscal 2013. The following table sets forth the target award under the Performance Bonus Plan for fiscal 2013 for each of our executive officers, subject to stockholder approval of the Performance Bonus Plan.

 

Name and Position

   Fiscal 2013 Maximum
Potential Performance
Bonus (1)
 

Kurt C. Hall

   $ 1,147,697   

President, Chief Executive Officer and Chairman

  

Clifford E. Marks

   $ 1,106,708   

President of Sales & Marketing

  

Gary W. Ferrera (2)

   $ —     

Executive Vice President and Chief Financial Officer

  

Ralph E. Hardy

   $ 322,472   

Executive Vice President and General Counsel

  

Earl B. Weihe

   $ 286,875   

Executive Vice President and Chief Operations Officer

  
  

 

 

 

Executive Officers as a Group

   $ 2,863,752   

Non-Executive Director Group

     —     

Non-Executive Officer Employee Group

     —     

 

(1) Estimated maximum performance bonus, is based upon actual base salary as of January 16, 2013. Actual bonus amounts will be determined based upon base salary determined at the end of our 2013 fiscal year, subject to the limit set forth in the Plan
(2) Mr. Ferrera resigned as Executive Vice President and Chief Financial Officer, effective March 1, 2013.

Vote Required

The affirmative vote of a majority of the votes cast on this proposal is required to approve Proposal 2.

Recommendation

The board of directors recommends that stockholders vote FOR the approval of Proposal 2. If not otherwise specified, proxies will be voted FOR approval of the National CineMedia, Inc. Executive Performance Bonus Plan.

 

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PROPOSAL 3

ADVISORY APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION

As required under Section 14A of the Securities Exchange Act, stockholders are being asked to consider an advisory approval of the Company’s executive compensation, also known as “say-on-pay.” This non-binding advisory approval of the Company’s executive compensation considers the information in this proxy statement included in the “Compensation Discussion and Analysis” and in the Summary Compensation Table and other related tables and narrative disclosures pursuant to the rules of the Securities and Exchange Commission.

The Compensation Committee believes that the Company’s compensation policies and procedures are aligned with the short-term and long-term interests of stockholders and are designed to attract, motivate, reward and retain superior talent who are critical to our long-term growth and profitability. A significant portion of the compensation of our named executive officers is tied closely to the financial performance of the Company (approximately 60% of 2012 compensation including performance bonuses paid in 2013), thus aligning our officers’ interests with those of our stockholders, including the annual performance bonus and equity incentives (refer to “Compensation Discussion and Analysis – Pay-for-Performance”). Under these programs, we provide our executives with incentives to achieve specific annual and long-term company performance goals established by the Compensation Committee. The Compensation Committee reviews our executive compensation programs annually to ensure they align executive compensation with the interests of our stockholders and current market practices and do not encourage excessive risk-taking.

Because your approval is advisory, it will not be binding on either the board of directors or the Company. However, the Compensation Committee and board value the opinions of our stockholders and will take into account the result of the vote on this proposal when considering future executive compensation arrangements.

Our stockholders have the opportunity to vote, on an advisory basis, for the following resolution at our Annual Meeting:

“RESOLVED, that the compensation paid to the Company’s named executive officers, as disclosed pursuant to the compensation disclosure rules of the Securities and Exchange Commission, including the Compensation Discussion and Analysis, compensation tables and narrative discussion in this proxy statement is hereby APPROVED.”

Vote Required

Approval of the foregoing resolution by our stockholders requires the affirmative vote of a majority of the votes cast on this proposal voting in favor of this Proposal 3.

Recommendation

The board of directors recommends that stockholders vote FOR Proposal 3, and approve on an advisory basis, the Company’s executive compensation program, as presented in this proxy statement. If not otherwise specified, proxies will be voted FOR the approval of our executive compensation program. This say-on-pay proposal is non-binding.

 

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PROPOSAL 4

APPROVAL OF AMENDMENT TO THE

NATIONAL CINEMEDIA, INC. 2007 EQUITY INCENTIVE PLAN

TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE

AND TO APPROVE PERFORMANCE GOALS

We are asking our stockholders to approve an amendment to the National CineMedia, Inc. 2007 Equity Incentive Plan, as amended (the “Equity Plan”), to increase the number of shares available for issuance under the Equity Plan and to approve performance goals. The board of directors recommends that our stockholders approve the amendment because it believes that equity awards to key employees, officers and non-employee directors serve the best interests of stockholders by promoting a long-term focus for such individuals to increase the value of our stock.

Purpose

Background. On January 16, 2013, our board of directors approved an amendment to the Equity Plan share counting provision to limit the types of award shares available for reissuance. On March 13, 2013, our board of directors approved an amendment to the Equity Plan to increase the number of shares available for issuance by 2.8 million shares and approved performance goals for awards intended to qualify as performance-based compensation for purposes of Section 162(m), subject to approval by our stockholders. The equity plan was further amended to prohibit granting replacement awards in the form of cash. If our stockholders do not approve the amendment to increase the number of shares available for issuance and to approve the performance goals, the amendment will not take effect. In that event, we will continue to grant awards under the Equity Plan and it will continue to operate according to its terms as in effect without this amendment.

Additional Shares. The amendment increases the maximum number of shares of our common stock available for issuance under the Equity Plan from 10,076,000 shares to 12,876,000 shares, an increase of 2.8 million shares. The total number of shares authorized for issuance under the Equity Plan would represent 7.4% of our total authorized common stock assuming approval of this proposal. As of March 13, 2013, there were 930,254 shares available for awards.

Performance Goals. In 2009 our stockholders approved “Free Cash Flow” as the performance measure for performance-based restricted stock awards. Under the Equity Plan awards vest based on achievement of targeted levels of this performance measure over a multi-year period. The amendment includes a list of performance goals, including “Free Cash Flow,” from which the Compensation Committee may select from in designating performance goals for qualifying performance-based awards. This approach provides more flexibility to the Compensation Committee in granting awards consistent with our strategic objectives from time to time.

Governance. We have designed the Equity Plan, as amended to include these changes, to include provisions that we believe promote best practices and protect our stockholders’ interests. These provisions include, but are not limited to, the following: (a) no liberal share counting; (b) no evergreen provision; (c) no repricing without stockholder approval; and (d) no tax gross-ups.

We are asking our stockholders to approve the amendment to ensure that we have sufficient shares available for future awards and to provide flexibility to grant awards, on a potentially tax-favorable basis, that are tied to the achievement of performance goals, consistent with the long-term interests of our stockholders.

Consistent with our agreements with NCM LLC, as restricted shares vest, options are exercised and restricted stock units are settled in shares, NCM LLC will issue units equal to the number of shares of NCM, Inc.’s common stock issued in connection with such events, which will increase NCM, Inc.’s ownership in NCM LLC.

 

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Burn Rate Analysis

The following table does not include any options, time-based restricted stock or performance-based restricted stock awards or units that were granted and subsequently forfeited.

 

Fiscal
Year

   Options
Granted
     Performance-
Based
Restricted
Stock and
RSUs
Granted (1)
     Total
Grants
     Weighted
Average
NCM, Inc.
Shares
Outstanding
(2)
     Burn
Rate
    Weighted
Average NCM
LLC Units
Outstanding
(2)(3)
     Fully
Diluted
Burn
Rate
 

2012

     562,623         911,491         1,474,114         54,377,135         2.71     112,420,506         1.31

2011

     1,314,568         470,865         1,785,433         53,864,243         3.31     111,582,935         1.60

2010

     1,186,507         429,585         1,616,092         46,369,411         3.49     107,680,776         1.50
              

 

 

      

 

 

 

Three-Year Average

                 3.17        1.47
              

 

 

      

 

 

 

 

(1) Performance-based restricted stock and restricted stock units, or RSUs, awards are described further below in “Compensation Discussion and Analysis – Elements of Compensation – Long-Term Incentives.” The amounts are presented based on 100% of the grant date amount and do not include an estimate of performance.
(2) Determined as of the last day of each fiscal year.
(3) Weighted average NCM LLC units outstanding assumed redemption of common membership units.

Summary of the Equity Plan

The following summary is qualified in its entirety by reference to the Equity Plan, as restated to incorporate the January 16, 2013 amendment and the proposed amendment, a copy of which is attached to this proxy statement as Appendix B.

Purpose; Eligibility. The Equity Plan assists us in attracting, retaining, motivating and rewarding employees, directors and consultants, and promoting the creation of long-term value for our stockholders by aligning the interests of our executive and key staff members with those of our stockholders. The Equity Plan provides for the grant of options, stock appreciation rights, restricted stock, restricted stock units, performance awards and other stock-based and cash awards to directors, officers, employees, consultants and other individuals who perform services for us or for our affiliates. As of December 27, 2012, six independent directors (which excludes directors who are employees of our founding members) and five officers of NCM, Inc. as well the approximately 630 employees of NCM LLC are eligible to participate in the Equity Plan when selected by the Compensation Committee to receive awards.

Share Reserve. Subject to adjustment for changes in capitalization, the maximum number of shares of our $0.01 par value common stock, available for issuance under the Equity Plan shall be 12,876,000. The share reserve is subject to adjustment in the event of any stock dividend or split, reorganization, recapitalization, merger, share exchange or any other similar corporate event. For purposes of determining the number of shares remaining available for issuance under the Equity Plan, to the extent an award expires or is canceled, forfeited, or otherwise terminated without delivery to the participant of the full number of shares to which the award related, the undelivered shares will again be available for grant. Shares withheld in payment of the exercise price or taxes relating to an award and shares for awards settled in cash are not available for reissuance under the Equity Plan. Shares issued under the Equity Plan may be authorized and unissued shares or treasury shares.

The maximum number of shares that may be covered by an award payable in shares granted under the Equity Plan to any single participant in any calendar year cannot exceed 500,000 shares, excluding substituted awards. The maximum dollar amount that may be awarded to a single participant payable in cash in any calendar year cannot exceed $5,000,000, excluding substituted awards.

 

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Administration; No Repricing. The board of directors has designated the Compensation Committee as the committee with authority to administer the Equity Plan. The committee administers the Equity Plan and approves those persons who will be granted awards and the amount, type and other terms and conditions of the awards. The committee has full authority to administer the Equity Plan, including the authority to interpret and construe any provision in the plan and the terms of any award agreement and to adopt such rules and regulations for administering the plan that it may deem necessary or appropriate. The Equity Plan prohibits a reduction in the exercise or grant price of an option or stock appreciation right either by lowering the price or canceling the award and granting a replacement award in the form of cash, option or stock appreciation right or other amendment treated as a repricing, without the approval of our stockholders.

Significant Features of Incentive Awards. The following is a description of the significant terms that apply to each type of award issued under the Equity Plan:

 

   

Options and Stock Appreciation Rights. Each option will entitle the holder to purchase a specified number of shares at a specified exercise price. Each option agreement will specify whether the option is an “incentive stock option” or “ISO” (within the meaning of Section 422 of the Code) or a nonqualified stock option. Each stock appreciation right will entitle the holder to receive, upon exercise, the excess of the fair market value of a share at the time of exercise over the base price of the stock appreciation right multiplied by the specified number of shares as to which the stock appreciation right is being exercised. The exercise or base price of each option and stock appreciation right cannot be less than 100% of the fair market value of a share on the date the award is granted. The term of any option or stock appreciation right cannot exceed ten years, except for substituted awards and the option or stock appreciation right will vest over a period determined by the committee. Each option or stock appreciation right agreement will specify the consequences to the award with respect to a termination of service with us and our affiliates.

 

   

Restricted Stock and Restricted Stock Units. The Compensation Committee may grant a restricted stock award, which is a grant of actual common shares subject to a risk of forfeiture and restrictions on transfer. The committee may also grant an award of restricted stock units, a contractual commitment to deliver shares at a future date. The terms and conditions of any restricted stock award or award of restricted stock units will be determined by the committee and such restrictions and limitations may include vesting requirements based upon the achievement of specific performance goals established by the committee with respect to the grant of one or more awards under the Equity Plan.

 

   

Other Stock-Based Awards. The Compensation Committee may grant other types of stock-based awards in such amounts and subject to such terms and conditions as the committee determines.

Performance Awards. The committee may grant awards of performance shares or performance units to participants in such amounts and upon such terms as the committee shall determine. The committee determines the performance goals using one or more of the following measures.

 

•    Cash flow

  

•    Cost initiatives

•    Earnings

  

•    Earnings per share

•    Economic profit

  

•    Economic value added

•    Enterprise value

  

•    Free cash flow

•    Margins (gross or net)

  

•    Market share

•    Market value

  

•    Net income

•    Operating income

  

•    Return on assets

•    Return on capital

  

•    Return on equity

•    Return on investment

  

•    Revenue (gross or net)

•    Stock price

  

•    Strategic objectives

•    Total shareholder return

  

•    Debt ratios and other measures of credit quality or liquidity

 

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The committee may choose to establish and measure performance goals (a) in absolute terms, (b) in combination, (c) in relative terms, (d) on a per-share or per-capita basis, (e) on a company-wide, business-segment or product basis, (f) on a pre-tax or after-tax basis, and/or (g) on a GAAP or non-GAAP basis. The committee may also choose to exclude the effect of extraordinary or non-recurring items, changes in accounting rules, mergers and acquisitions or other items. Performance goals and target levels can vary by participant and by performance period. The committee sets each performance period, which may consist of one or more fiscal years or a portion of a fiscal year.

After the performance period ends, the committee certifies in writing the extent to which the performance goals and any other material terms of the awards were satisfied. The amount of the award is determined by applying the formula to the level of actual performance certified by the committee. The committee has the discretion to reduce or eliminate (but not to increase) the amount of the award. To be eligible for payment of an award, the executive generally must be employed by us on the date the awards are paid unless otherwise approved by the committee.

Dividends and Dividend Equivalents. The Equity Plan generally permits the committee, in its discretion, to grant awards that include regular cash dividends or dividend equivalents on a current or a deferred basis with respect to shares covered by the award.

Change of Control; Changes in Capitalization. The Equity Plan includes a change of control provision that generally provides for accelerated vesting of outstanding awards if the awards are not assumed, continued or substituted and the participant’s service is terminated by us or an affiliate without cause or by the participant for good reason within three months prior to or one year after the consummation of a change of control (as defined in the plan). The Equity Plan includes adjustments for certain changes in capitalization.

Tax Withholding. The Equity Plan provides that participants may elect to satisfy certain federal, state or local income and employment tax withholding requirements by remitting to us cash or, subject to certain conditions, shares or by instructing us to withhold shares otherwise deliverable to the participant.

Amendment and Termination. Our board of directors may amend, modify or terminate the Equity Plan in any respect, except that, to the extent that any applicable law, regulation or rule of a stock exchange requires stockholder approval for any revision or amendment to be effective, the revision or amendment will not be effective without stockholder approval. Unless sooner terminated by the board of directors, the Equity Plan will expire on February 6, 2017, ten years after the effective date. We will not make any grants under the Equity Plan after it expires, but awards outstanding at that time will continue in accordance with their terms.

Federal Income Tax Consequences

The following is intended only as a brief summary of the material U.S. federal income tax consequences of the Equity Plan. The tax consequences to a participant will generally depend upon the type of award issued to the participant. In general, if a participant recognizes ordinary income in connection with the grant, vesting or exercise of an award, we will be entitled to a corresponding deduction equal to the amount of the income recognized by the participant, subject to the limitations of Section 162(m) of the Code, if applicable. This summary does not address the effects of other federal taxes (including possible “golden parachute” excise taxes) or taxes imposed under state, local or foreign tax laws.

Options and Stock Appreciation Rights. In general, a participant does not have taxable income upon the grant of an option or a stock appreciation right. The participant will recognize ordinary income upon exercise of a nonqualified stock option equal to the excess of the fair market value of shares acquired on exercise over the aggregate option price for the shares. Upon exercising a stock appreciation right, the participant will recognize ordinary income equal to the cash or fair market value of the shares received. A participant will not recognize ordinary income upon exercise of an ISO, except that the alternative minimum tax may apply. If a participant

 

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disposes of shares acquired upon exercise of an ISO before the end of the applicable holding periods, the participant will recognize ordinary income. Otherwise, a sale of shares acquired by exercise of an option or a stock appreciation right generally will result in short-term or long-term capital gain or loss measured by the difference between the sale price and the participant’s tax basis in the shares. We normally can claim a tax deduction equal to the amount recognized as ordinary income by a participant in connection with a nonqualified stock option or stock appreciation right, except as discussed below regarding Section 162(m) of the Code. We cannot claim a tax deduction relating to a participant’s capital gains. We will not be entitled to any tax deduction with respect to an ISO if the participant holds the shares for the applicable ISO holding periods before selling or transferring the shares.

Restricted Stock, Restricted Stock Units, Performance Shares, Performance Units and Other Stock-Based Awards. If an award is subject to a restriction on transferability and a substantial risk of forfeiture (for example, restricted stock), the participant generally must recognize ordinary income equal to the fair market value of the transferred shares or amounts at the earliest time either the transferability restriction or risk of forfeiture lapses. If an award has no restriction on transferability or is not subject to a substantial risk of forfeiture, the participant generally must recognize ordinary income equal to the cash or the fair market value of shares received. We can ordinarily claim a tax deduction in an amount equal to the ordinary income recognized by the participant, except as discussed below regarding Section 162(m) of the Code. A participant may irrevocably elect to accelerate the taxable income to the time of grant of restricted stock rather than upon lapse of restrictions on transferability or the risk of forfeiture (Section 83(b) election).

Section 409A. Section 409A of the Code imposes election, payment and funding requirements on “nonqualified deferred compensation” plans. If a nonqualified deferred compensation arrangement subject to Section 409A fails to meet, or is not operated in accordance with, the requirements of Section 409A, then compensation deferred under the arrangement may become immediately taxable and subject to a 20% additional tax, plus interest. Certain awards that may be issued under the plan may constitute a “deferral of compensation” subject to the requirements of Section 409A.

Section 162(m). Section 162(m) generally provides that compensation paid to a “covered employee” in excess of $1 million is not deductible by the corporation for federal income tax purposes. A covered employee generally includes the chief executive officer of the company at the end of the taxable year and an individual serving as an officer of the company or a subsidiary at the end of such year who is among the three highest compensated officers (other than the chief executive officer and the chief financial officer) for proxy statement reporting purposes. Compensation that qualifies as “performance-based” compensation for purposes of Section 162(m) is excluded from the $1 million deduction limitation. The rules and regulations promulgated under Section 162(m) are complex, technical and change from time to time, sometimes with retroactive effect. In addition, a number of requirements must be met in order for particular compensation to qualify as “performance-based” compensation for purposes of Section 162(m). We cannot assure you that any compensation awarded or paid under the Equity Plan will be deductible by us under all circumstances.

New Plan Benefits and Other Information

If our stockholders approve the amendment to the Equity Plan, the new plan benefits for our named executive officers, the executive officer group, the non-executive director group and the non-executive officer employee group are not determinable. For information regarding prior awards made under the Equity Incentive Plan, see the Executive Compensation and Director Compensation Tables.

Shares issuable under the Equity Plan are shares of our common stock, $0.01 par value per share. The closing price of a share of our common stock on March 13, 2013 was $15.03.

Vote Required

The affirmative vote of the holders of a majority of the votes cast on this proposal is required to approve Proposal 4.

 

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Recommendation

Our board of directors recommends that stockholders vote FOR Proposal 4. If not otherwise specified, proxies will be voted FOR approval of the Amendment to the National CineMedia, Inc. 2007 Equity Incentive Plan to increase the number of shares available for issuance and to approve the performance goals.

EQUITY COMPENSATION PLAN

The following table sets forth, as of December 27, 2012, information for all equity compensation plans under which our equity securities were authorized for issuance:

 

Plan Category

   Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights

(a)
    Weighted-average
exercise price of
outstanding options,
warrants and rights

(b)
    Number of securities
remaining available

for future issuance
under equity
compensation plans
(excluding securities
reflected in column
(a))

(c)
 

Equity compensation plans approved by security holders

     6,692,080  (1)    $ 16.13  (2)      1,851,975  (3) 

Equity compensation plans not approved by security holders

     —          —          —     
  

 

 

   

 

 

   

 

 

 

Total

     6,692,080      $ 16.13        1,851,975   

 

(1) Includes 4,984,952 stock option grants and 1,707,128 restricted stock units including, 164,635, 98,225 and 84,556 for additional shares for the 2012, 2011 and 2010 performance-based restricted stock grants, respectively, that may be issued assuming the highest level of performance is achieved (150%). For the 2010 performance awards, we achieved 95.6% of target resulting in a vesting of 77.9% of the awards on February 25, 2013. Actual results could vary from estimates, especially in the later years included in the three-year projections.
(2) Restricted stock awards are excluded as there is no exercise price for these awards.
(3) Represents remaining shares of our common stock available for issuance under the Equity Incentive Plan.

The Equity Incentive Plan, as amended, was approved by our stockholders on April 26, 2011.

 

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PROPOSAL 5

RATIFICATION OF INDEPENDENT AUDITORS

A resolution will be presented at the Annual Meeting to ratify the appointment by the board of directors of the firm of Deloitte & Touche LLP as independent auditors, to audit our financial statements for the year ending December 26, 2013, and to perform other approved accounting services.

Although current law, rules and regulations, as well as the charter of the Audit Committee, require the Audit Committee to appoint, retain, and supervise our independent auditors, our board of directors considers the selection of our independent auditors to be an important matter of stockholder concern and is submitting the selection of Deloitte & Touche LLP for ratification by stockholders as a matter of good corporate practice. If the stockholders do not ratify the selection of Deloitte & Touche LLP as our independent auditors, the Audit Committee will reconsider whether to retain Deloitte & Touche LLP. Even if the selection of Deloitte & Touche LLP is ratified, the Audit Committee in its discretion may direct the appointment of different independent auditors at any time during the year if it determines that such a change would be in the best interest of the Company and its stockholders.

Representatives of Deloitte & Touche LLP are expected to be present at our Annual Meeting, will have the opportunity to make a statement if they wish to do so, and will be available to respond to appropriate questions.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Fees Paid to Independent Auditors

We paid Deloitte & Touche LLP, the Company’s independent registered public accounting firm for fiscal years 2012 and 2011, the following amounts:

 

     2012      2011  

Audit Fees

   $ 781,000       $ 732,200   

Audit Related Fees (1)

     185,800         245,000   
  

 

 

    

 

 

 

Total Audit and Related Fees

     966,800         977,200   

Tax Fees

     —           —     

All Other Fees

     —           —     
  

 

 

    

 

 

 

Total Fees

   $ 966,800       $ 977,200   
  

 

 

    

 

 

 

 

(1) Audit related fees consisted primarily of services provided for our debt transactions and services provided for our founding members, which are reimbursed to the company.

Pre-Approval Policies and Procedures

All auditing services, internal control-related services, and permitted non-audit services (including the fees and terms thereof) to be performed for the Company by our independent auditors must be approved by the Audit Committee in advance, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(l)(B) of the Exchange Act that are approved by the Audit Committee prior to the completion of the audit. The Audit Committee may form and delegate authority to subcommittees consisting of one or more of its members or may delegate authority to one or more members, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that all decisions to grant pre-approvals pursuant to such delegated authority will be presented to the entire Audit Committee at its next scheduled meeting. Effective with the completion of our IPO in February 2007, all of our independent auditors’ services were pre-approved by the Audit Committee.

 

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Vote Required

The affirmative vote of the holders of a majority of the votes cast on this proposal is required to approve Proposal 5.

Recommendation

The board of directors recommends that stockholders vote FOR Proposal 5. If not otherwise specified, proxies will be voted FOR the appointment of Deloitte & Touche LLP as our independent auditors for our 2013 fiscal year.

 

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PROPOSAL 6

STOCKHOLDER PROPOSAL REGARDING MAJORITY VOTING

IN DIRECTOR ELECTIONS

California State Teachers’ Retirement System Investments (“CalSTRS”) has given notice that it intends to present the proposal set forth below for action at the Annual Meeting. The Company will promptly provide the stockholder’s name, address and number of common stock held by CalSTRS to any stockholder upon receiving an oral or written request for this information. In accordance with applicable proxy rules and regulations, the proposed resolution and supporting statement from CalSTRS (for which the Company and its board of directors accept no responsibility) are set forth below.

Stockholder Proposal and Supporting Statement

BE IT RESOLVED:

That the shareholders of National CineMedia, Inc. hereby request that the Board of Directors initiate the appropriate process to amend the Company’s articles of incorporation and/or bylaws to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders, with a plurality vote standard retained for contested director elections, that is, when the number of director nominees exceeds the number of board seats.

SUPPORTING STATEMENT:

In order to provide shareholders a meaningful role in director elections, the Company’s current director election standard should be changed from a plurality vote standard to a majority vote standard. The majority vote standard is the most appropriate voting standard for director elections where only board nominated candidates are on the ballot, and it will establish a challenging vote standard for board nominees to improve the performance of individual directors and entire boards. Under the Company’s current voting system, a nominee for the board can be elected with as little as a single affirmative vote, because “withheld” votes have no legal effect. A majority vote standard would require that a nominee receive a majority of the votes cast in order to be re-elected and continue to serve as a representative for the shareholders.

In response to strong shareholder support a substantial number of the nation’s leading companies have adopted a majority vote standard in company bylaws or articles of incorporation. In fact, more than 80% of the companies in the S&P 500 have adopted majority voting for uncontested elections. We believe the Company needs to join the growing list of companies that have already adopted this standard.

CalSTRS is a long-term shareholder of the Company and we believe that accountability is of utmost importance. We believe the plurality vote standard currently in place at the Company completely disenfranchises shareholders and makes the shareholder’s role in director elections meaningless. Majority voting in director elections will empower shareholders with the ability to remove poorly performing directors and increase the directors’ accountability to the owners of the Company, its shareholders. In addition, those directors who receive the majority support from shareholders will know they have the backing of the very shareholders they represent. We therefore ask you to join us in requesting that the Board of directors promptly adopt the majority vote standard for director elections.

Please vote FOR this proposal.

Board of Directors’ Response in Opposition to Stockholder Proposal

The board of directors has carefully considered the stockholder proposal and for the reasons described below believes that the proposal, to provide for the election of directors by a majority of the votes cast, is not in the best interests of the Company and its stockholders.

 

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The CalSTRS proposal presents some issues specific to the Company due to its unique corporate structure and governing documents. Specifically, the workings of certain provisions of the Director Designation Agreement and NCM LLC’s Operating Agreement in conjunction with the CalSTRS proposal, as described in more detail below, could result in disenfranchisement of stockholders rather than the empowerment sought by the proposal.

The Company is party to a Director Designation Agreement with its founding members. Pursuant to the Director Designation Agreement, so long as a founding member owns at least 5% of NCM LLC’s issued and outstanding common membership units, such founding member has the right to designate a total of two nominees to the Company’s ten-member board of directors to be voted upon by the Company’s stockholders. At least one of the designees of such founding member must qualify as an “independent director” at the time of designation so that a majority of the members of the Company’s board of directors are independent directors. An “independent director” under the Director Designation Agreement is a director who qualifies as an “independent director” under the Nasdaq rules. With certain exceptions, under the terms of the Director Designation Agreement, the Company has agreed to use its best efforts to assure that each director designee is included in the board of director’s slate of nominees submitted to the Company’s stockholders for election and in the proxy statement prepared by management in connection with soliciting proxies for every meeting of the Company’s stockholders called with respect to the election of members of the board.

Under the terms of NCM LLC’s Operating Agreement, if any director designee designated by the founding members is not elected to the board by the Company’s stockholders, then the Company will essentially lose the ability to manage NCM LLC. Instead, the founding members will be entitled to step into management of NCM LLC by having approval rights over all significant corporate actions of NCM LLC such as approval of budgets, entering into financing transactions and material contracts, hiring and firing executives, approval of acquisitions or dispositions of assets, approval of a transaction that would constitute a Change of Control and so on. See “Certain Relationships and Related Party Transactions – Transactions with Founding Members” for disclosure of the provisions of the Director Designation Agreement and the NCM LLC Operating Agreement.

As a result of these provisions, the board of directors does not believe that adopting a majority vote standard would serve to meet the goals outlined by CalSTRS in its proposal. Rather, to the extent that one director designated by a founding member is not elected, the founding members, rather than the board of directors, would have ultimate approval over major corporate actions of NCM LLC, leading to significant disenfranchisement of the Company’s stockholders. It is important to note that failure of a director nominee to garner the requisite vote to be elected under a majority voting standard could happen not as a result of dissatisfaction with the director nominee, but as a result of recent changes to the stock exchange rules eliminating broker discretionary voting in uncontested elections.

The Company agrees with CalSTRS about the importance of accountability. Under the terms of the Company’s Amended and Restated Bylaws, stockholders do have the right to remove a director for cause by majority vote. CalSTRS states that under the current plurality voting standard, a nominee can be elected with as little as a single affirmative vote, a highly theoretical and unlikely possibility. Rather in practice, in every director election held by the Company since its initial public offering in 2007, director nominees have received well in excess of the majority of votes cast at the meeting. In fact, no director nominee has received less than 96% of the votes cast. These voting results have demonstrated to us that the Company does indeed have the backing of its stockholders and that its strong corporate governance practices are well received and supported. Further, this suggests that the CalSTRS proposal is not made in response to any particular concerns over the current director election process and is unnecessary for the Company.

For the reasons stated above, the board of directors believes that the CalSTRS proposal is not necessary, would not be beneficial to the Company’s stockholders and could result in disenfranchisement of the Company’s stockholders.

The board of directors accordingly recommends a vote AGAINST this proposal.

 

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Vote Required

The affirmative vote of a majority of the votes cast on this proposal is required to approve Proposal 6.

Recommendation

The board of directors recommends that the stockholders vote AGAINST the approval of Proposal 6. If not otherwise specified, proxies will be voted AGAINST approval of Proposal 6.

Notwithstanding anything to the contrary set forth in any of our filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, that might incorporate future filings, including this proxy statement, in whole or in part, the following Audit Committee Report and Compensation Committee Report shall not be deemed to be “Soliciting Material,” are not deemed “filed” with the SEC and shall not be incorporated by reference into any filings under the Securities Act or Exchange Act whether made before or after the date of this proxy statement and irrespective of any general incorporation language in such filings.

AUDIT COMMITTEE REPORT

The charter of the Audit Committee specifies that the purpose of the Committee is to assist the board in the oversight of management’s processes and activities relating to the following:

 

   

maintaining the reliability and integrity of our accounting policies, financial reporting practices and financial statements;

 

   

the independent auditor’s qualifications and independence;

 

   

the performance of our internal audit function and independent auditor; and

 

   

confirming compliance with laws and regulations, and the requirements of any stock exchange or quotation system on which our securities may be listed.

As part of fulfilling its responsibilities, the Audit Committee reviewed and discussed the audited consolidated financial statements of NCM, Inc. for fiscal year ended December 27, 2012 with management and discussed those matters required by Statement on Auditing Standards No. 61, “Communication with Audit Committees,” as amended (AICPA, Professional Standards, Vol. 1, AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T, and SEC Regulation S-X, Rule 2-07, with Deloitte & Touche LLP, an independent registered public accounting firm. The Audit Committee received the written disclosures and the letter from Deloitte & Touche LLP required by applicable requirements of the Public Company Accounting Oversight Board regarding Deloitte & Touche LLP’s communications with the Audit Committee concerning independence, and has discussed that firm’s independence with representatives of the firm with respect to NCM, Inc.

Based upon the Audit Committee’s review of the audited consolidated financial statements and its discussions with management and Deloitte & Touche LLP, the Audit Committee recommended that the board of directors include the audited consolidated financial statements for the fiscal year ended December 27, 2012 in NCM, Inc.’s Annual Report on Form 10-K filed with the SEC.

Audit Committee of National CineMedia, Inc.

David R. Haas, Chairman

James R. Holland, Jr.

Scott N. Schneider

 

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COMPENSATION COMMITTEE REPORT

The Compensation Committee has reviewed and discussed the “Compensation Discussion and Analysis” included elsewhere in this report with management and, based on such review and discussions, the Compensation Committee recommended that the board of directors include such disclosure for the fiscal year ended December 27, 2012 in NCM, Inc.’s Annual Report on Form 10-K and Proxy Statement filed with the SEC.

Compensation Committee of National CineMedia, Inc.

Lawrence A. Goodman, Chairman

Stephen L. Lanning

Edward H. Meyer

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

We do not have any interlocking relationships between any member of our Compensation Committee and any of our executive officers that would require disclosure under the applicable rules promulgated under the U.S. federal securities laws.

 

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COMPENSATION DISCUSSION AND ANALYSIS

During fiscal 2012, the Company had the following named executive officers.

 

   

Kurt C. Hall – President, Chief Executive Officer and Chairman, our CEO

 

   

Clifford E. Marks – President of Sales & Marketing

 

   

Gary W. Ferrera – Executive Vice President and Chief Financial Officer, our CFO

 

   

Ralph E. Hardy – Executive Vice President and General Counsel

 

   

Earl B. Weihe – Executive Vice President and Chief Operations Officer

Executive Summary

Our Compensation Committee believes that the Company’s compensation policies and procedures are aligned with the short-term and long-term interests of our stockholders and are designed to attract, motivate, reward and retain superior talent who are critical to our long-term growth and profitability. A significant portion of the compensation of our named executive officers is tied closely to the financial performance of the Company, thus aligning our officers’ interests with those of our stockholders. We believe the mix of annual and long-term incentives, cash and equity awards and retention incentives, is balanced and does not motivate imprudent risk-taking.

Compensation Program Highlights. Highlights of our executive compensation program include:

 

   

Pay-for-performance:

 

   

71% of our CEO’s compensation is variable (see “Pay-for-Performance” below)

 

   

The Annual Performance Bonus is tied to key financial metrics for the Company

 

   

75% of the long-term incentive equity grant vests based on the achievement of multi-year cumulative free cash flow goals

 

   

Shareholder alignment:

 

   

100% of the long-term incentives are granted in equity to support shareholder alignment

 

   

Our CEO and other executive officers are subject to stock ownership guidelines (adopted in 2013)

 

   

We adopted a clawback policy for incentive compensation (adopted in 2013)

 

   

We have an insider trading policy, which includes an anti-hedging policy that prohibits hedging transactions by employees and directors

 

   

We amended our equity plan to eliminate “liberal share counting provisions” (amended in 2013)

 

   

Limited non-performance-based elements of pay:

 

   

We have only limited perquisites and other benefits

 

   

We do not provide excise tax gross-ups or single-trigger benefits upon a change-in-control

Fiscal Year 2012 Performance. For 2012, the Company’s actual Adjusted OIBDA and adjusted advertising revenue, which are defined below in “Elements of Compensation – Annual Performance Bonus,” were below target levels, primarily due to weak economic conditions in November and December 2012 that were inconsistent with the assumptions in the targets (all financial goals for fiscal year 2012). In particular, the advertising marketplace and overall U.S. economy weakened in November and December 2012 as U.S. Gross Domestic Product or GDP decreased to a 0.1% annual rate in the fourth quarter of 2012. The targets for 2012 were established in the beginning of 2012 with limited visibility into the year, particularly with respect to the macro-

 

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economic environment in the second half of the year. The following table summarizes the key fiscal 2012 financial metrics on which the Company based its executive compensation:

 

Fiscal 2012 Performance Measures (in millions) (1)

     Target      Actual     

Achievement relative to target

Adjusted OIBDA

   $ 239.4       $ 221.8            92.7% of Adjusted OIBDA target

Adjusted advertising revenue

   $ 392.6       $ 367.5       93.6% of Adjusted advertising revenue target

Technology and Operations operating expenditures

   $ 23.2       $ 22.0       Under-spent target by 5.2%

Technology and Operations capital expenditures

   $ 35.7       $ 32.3       Under-spent target by 9.5%

 

(1) Refer to “Annual Performance Bonus” below for additional details and calculations.

Pay-for-Performance. The following charts present the elements of compensation as a percentage of total compensation for fiscal year 2012, computed using the Fiscal 2012 Summary Compensation Table.

Fiscal Year 2012 Elements of Compensation Mix

 

LOGO

 

LOGO

 

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Realizable Pay

The Compensation Committee believes that having a larger percentage of executive officers’ pay as performance-based compensation ensures their interests are aligned with those of our stockholders. The Company strives to continuously improve total shareholder return (“TSR”) and therefore, align short-term executive compensation with short-term Company performance and long-term compensation with long-term Company performance and shareholder return. The link between the realizable compensation of our CEO and indexed TSR is shown in the following graph.

 

LOGO

 

(1) The following table shows the components of the CEO Realizable Pay which includes all of the categories that are included in the Summary Compensation Table; however, equity incentive plan compensation is computed as the value of restricted stock as vested applying the appropriate performance factor to applicable awards, and the value of in the money options as vested during each year, based on the closing stock price at fiscal year end.

 

Type of Compensation

   As of
January 1,
2009
     As of
December 31,
2009
     As of
December 30,
2010
     As of
December 29,
2011
     As of
December 27,
2012
 

Salary

   $ 721,000       $ 721,000       $ 735,420       $ 750,128       $ 765,131   

Annual Performance Bonus

     389,340         761,561         1,042,224         —           485,093   

Discretionary Bonus

     —           —           —           330,056         —     

Equity Incentive Plans Compensation

     136,468         927,432         1,833,223         1,347,883         869,471   

All Other Compensation

     50,533         41,988         35,928         23,267         212,210 (a) 
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 1,287,341       $ 2,451,981       $ 3,646,795       $ 2,451,334       $ 2,331,905   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(a) During 2012, the 2009 restricted stock grant vested, resulting in accrued dividends paid. This was the first 3-year performance-based restricted stock grant that vested.

Say-on-Pay Result

Our stockholders approved our executive compensation proposal in 2012 with approximately 70% of the votes cast in favor of the proposal at the 2012 annual meeting of stockholders. Our board of directors recognizes that executive compensation is an important matter of stockholder concern and takes stockholder views into account when reviewing the compensation program throughout the year. The Compensation Committee considered the results of the advisory approval of the Company’s executive compensation, and made several changes to the compensation program.

 

   

Generally maintained our annual performance bonus structure for 2013, given strong support from stockholders

 

   

Did not pay any discretionary bonuses for fiscal 2012

 

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Did not increase 2013 equity grant value for the CEO from the 2012 value, which represented a reduction from the 2011 grant value

 

   

Implemented stock ownership guidelines for our CEO and other executive officers, as well as a holding requirement to hold a portion of net shares from vesting of restricted stock or option exercises until the ownership guidelines are achieved

 

   

Implemented a clawback policy

Compensation Philosophy

The primary goals of our Compensation Committee with respect to executive compensation are to:

 

   

review the competitiveness of executive cash compensation and equity grant levels compared to a select peer group of companies using the 50th percentile as a reference point for setting compensation;

 

   

provide shorter term cash incentives primarily for achieving specified annual performance objectives;

 

   

provide a mix of long-term equity incentives that are time and performance based that promote stock price growth and ownership through employee retention and achievement of long-term financial performance goals; and

 

   

establish and monitor appropriate cash pay and annual operating performance relationships and annual long-term incentive plan cost and share dilution goals.

To achieve these goals, we intend to maintain a compensation structure that provides rewards for high performance and value creation for our stockholders (including the founding members). Our objectives are to maintain compensation plans with an appropriate balance of base salary, annual performance bonus and long-term incentives (primarily stock-based awards) and to tie a substantial portion of executives’ overall compensation to key financial goals such as achievement of targeted levels of adjusted advertising revenue and non-GAAP measures such as Adjusted OIBDA, and Free Cash Flow.

Role of Compensation Consultant and CEO in Determining Executive Compensation

Our CEO had substantial input in determining executive compensation and made all of the recommendations for the other four named executive officers that were ultimately approved by the Compensation Committee.

For a portion of 2012, the Compensation Committee engaged Pay Governance LLC, a nationally recognized consulting firm, to assess the competitiveness of pay for the executive officers and provide independent advice and recommendations to the Compensation Committee regarding executive compensation. The Compensation Committee determined that Pay Governance LLC is independent from the Company. As part of its review, Pay Governance LLC considered base salary, annual performance bonus, total cash compensation (combined salary and annual performance bonus), value of long-term incentives, and total compensation. Pay Governance LLC developed and recommended a peer group for comparison to our executive officers comprised of domestic, publicly-traded media and entertainment related companies with revenues generally between $200 million and $900 million and market capitalization generally between $700 million and $3 billion. The Compensation Committee reviewed and approved the peer group.

Our Compensation Committee believes that peer group comparisons are useful to measure the competitiveness of our compensation practices and uses the information provided by the compensation consultant to guide its decision making. The recommendation was that executive total direct compensation should be targeted near the median of the range in the media industry. However, the Compensation Committee uses its discretion to design our compensation programs.

 

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The following peer companies were used in our competitive analysis for fiscal 2012 decisions:

 

Akamai Technologies, Inc.*

   Harmonic Inc.*

Arbitron Inc.

   Lamar Advertising Co.

comScore, Inc.

   LodgeNet Interactive Corporation*

Clear Channel Outdoor Holdings Inc.*

   QuinStreet, Inc.

Digital Generation, Inc.

   QLogic Corp.*

Digital River Inc.

   SeaChange International Inc.

DreamWorks Animation SKG Inc.

   Sinclair Broadcast Group Inc.

Equinix Inc.*

   ValueClick Inc.

Harte-Hanks Inc.

   WebMD Health Corp.

 

* These companies were removed from the peer group for 2013 due to a combination of company size and business criteria. The following companies were added to the peer group for 2013: Belo Corp., Reachlocal Inc., Crown Media Holdings, Inc., and Tivo, Inc.

Later in 2012, the Compensation Committee engaged ClearBridge Compensation Group, LLC (“ClearBridge”), a nationally recognized consulting firm, to assess the competitiveness of pay for the executive officers and provide independent advice and recommendations to the Compensation Committee regarding executive compensation. The Compensation Committee reviewed ClearBridge’s independence status and determined that there were no conflicts of interest and that ClearBridge was independent from the Company, our Compensation Committee and our executive officers.

As part of its review of executive officer compensation, ClearBridge considered base salary, annual performance bonus, total cash compensation (combined salary and annual performance bonus), value of long-term incentives, and total compensation. ClearBridge developed and recommended a peer group for 2013 for comparison to our executive officers comprised of domestic, publicly-traded media and entertainment related companies of comparable size. The Compensation Committee reviewed and approved the peer group.

 

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Elements of Compensation

The Company’s executive compensation consists primarily of base salary, an annual performance bonus, long-term incentive compensation, other compensation and potential payments upon termination or change in control. The Compensation Committee determines the portion of compensation allocated to each element for each individual named executive officer. Our Compensation Committee may reevaluate the current policies and practices as it considers advisable. The elements of executive compensation are generally independent of each other.

 

Component   Purpose   Characteristics   Where reported in
accompanying tables
       
Base Salary   Reward for level of responsibility, experience and sustained individual performance   Fixed cash component   Summary Compensation Table under the heading “Salary”
       
Annual Performance Bonus   Reward individual achievement against specific objective financial goals   Cash performance bonus based on achievement of pre-determined performance goals   Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation” and Grants of Plan Based Awards Table
       
Long-Term Incentive   Reward for the creation of stockholder value  

Equity grants in 2012 consisted of:

 

•    Performance-based restricted shares

 

•    Time-vested stock options

 

As discussed further in “Compensation Decisions for 2013”, the stock option component was replaced with time-vested restricted shares for 2013 grants

  Summary Compensation Table under the headings “Stock Awards” and “Option Awards,” Grants of Plan Based Awards Table, Outstanding Equity Awards Table and Option Exercises and Stock Vested Table
       
Other Compensation   Provide an appropriate level of employee benefit plans and programs   A matching contribution to our defined contribution 401(k) plan and various health, life and disability insurance plans; dividends paid on unvested restricted stock (for 2007 and 2008 awards); and other customary employee benefits   Summary Compensation Table under the heading “All Other Compensation”
       
Potential Payments Upon Termination or Change in Control   Provide an appropriate level of payment in the event of a change in control or termination   Contingent in nature. Amounts are payable only if employment is terminated as specified under each employment agreement. No excise tax gross-ups are provided.   Potential Payments Upon Termination or Change in Control
       
Other Policies   Enhance alignment with shareholder interests  

Stock Ownership Guideline policy (adopted in 2013)

 

Clawback policy (adopted in 2013)

 

Insider trading policy

  Not applicable

 

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2012 Compensation

Base Salary. Base salaries for our executives were established based on the scope of their responsibilities, taking into account the internal value and importance of the role, as well as experience and seniority of the individual, our ability to replace the individual and other primarily judgmental factors deemed relevant by the Compensation Committee.

Base salaries are reviewed annually by the Compensation Committee and the board, and may be adjusted from time to time pursuant to such review and/or in accordance with guidelines contained in the various employment agreements and are generally for relatively small percentage cost of living increases.

The Compensation Committee reviewed executive compensation in January 2012 and decided to increase the base salary by a cost of living adjustment of 2% for Messrs. Hall, Marks, Ferrera, Hardy and Weihe on January 12, 2012, which is consistent with the average increases for our employees generally.

For 2012, we believe total cash compensation of our executives, which is base salary combined with the annual performance bonus, was within a market competitive range versus our peer group and the video advertising marketplace primarily made up of companies that are much larger than the Company, but which the Company competes for sales executives.

Annual Performance Bonus. Annual performance bonuses are intended to compensate executives for achieving financial goals that support our operational and strategic goals. The target percentages for our executives were established based on the level of responsibility, base salary, as well as experience and seniority of the individual. We believe our total cash compensation is competitive. In addition, we believe rewarding our executives for achievement of our financial goals is consistent with the practice of aligning their interests with our stockholders. The stretch bonus is further incentive for our executive officers to exceed operating budgets and thus further increase our equity value.

Payments of performance bonuses, including any stretch bonus, are objectively calculated based on the achievement of specific financial targets for each named executive pursuant to the terms of the annual Performance Bonus Plan, which ensures that executive compensation is aligned with the performance of the Company.

The Compensation Committee adopted the National CineMedia, Inc. 2012 Performance Bonus Plan on January 11, 2012 and it was approved by our stockholders on May 1, 2012. The financial performance criteria and potential bonus levels were consistent with 2011.

The awards under the Performance Bonus Plan were determined in accordance with the Company’s actual performance compared to our internal targets. We believe the amounts paid under the Performance Bonus Plan are appropriate in light of the achievement relative to the financial targets. The following table provides details about each component of the “Non-Equity Incentive Plan Compensation” column of the Fiscal 2012 Summary Compensation Table.

 

Actual Fiscal 2012 Performance Bonus Amounts

 

Performance Bonus

 

Name

   Target
Award as
a % of
Salary
    Target
Award
Achievement
    Actual
Award as
a % of
Target
    Total
Award
Amount
 

Kurt C. Hall

     100     92.68     63.40   $ 485,093   

Cliff E. Marks

     100     93.61     80.83   $ 596,367   

Gary W. Ferrera

     75     92.68     63.40   $ 176,611   

Gene E. Hardy

     75     92.68     63.40   $ 136,298   

Earl B. Weihe

     75     90.34     72.55   $ 138,751   

 

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The objective financial factors are consistent with the metrics used in previous years and represent the metrics the Compensation Committee believes may best encourage sound decisions regarding operations and investment of capital and are important to our goal of increasing the value of our equity. We believe we have adequately addressed the risks that an executive might be incentivized to take inappropriate actions to meet the performance metrics through our internal controls over financial reporting.

Our annual performance bonus traditionally has been paid in a single payment in the first quarter following the completion of a given fiscal year. Payments are subject to review, approval and certification by the Compensation Committee in conjunction with the issuance of our annual audit report.

Fiscal 2012 Performance Bonus Plan Summary

 

     Kurt C.
Hall (1)
    Clifford E.
Marks (2)
    Gary W.
Ferrera (1)
    Ralph E.
Hardy (1)
    Earl B.
Weihe (1)
 

Performance Bonus Potential (3)

     100     100     75     75     75

Performance Bonus Measures:

          

Adjusted OIBDA

     100       100     100     75

Adjusted advertising revenue

       100      

Technology and Operations operating and capital expenditures budgets (4)

             25

2012 Stretch Bonus

          

Stretch Bonus Potential (5)

     50     50     50     50     50

 

(1) The performance bonus potential is based on the percentage of Adjusted OIBDA target achieved as follows:

 

Percentage of Adjusted OIBDA Target Achieved

   % of Base Salary

Performance Bonus

  

Less than or equal to 80%

   0%

Greater than 80% to 100%

   >0% to 100%

 

(2) The performance bonus potential is based on the percentage of advertising revenue target achieved as follows:

 

Percentage of Adjusted Advertising Revenue Target Achieved

   % of Base Salary

Performance Bonus

  

Less than 80%

   0%

Greater than or equal to 80% to 90%

   50% to 70%

Greater than 90% to 100%

   >70% to 100%

 

(3) Percentage of base salary determined at the end of our 2012 fiscal year (December 27, 2012).
(4) No performance bonus is payable if the actual annual operating expenditures and capital expenditures, including any capitalized overhead, on an aggregate basis exceed 100% of budget.
(5) The 2012 Stretch Bonus potential is 50% of the Performance Bonus paid times the percentage that Adjusted OIBDA is in excess of budget (capped at 10%), divided by 10%.

For actual amounts earned for fiscal 2012 for each of our executives, see our Fiscal 2012 Summary Compensation Table, “Non-Equity Incentive Plan Compensation.”

 

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Fiscal 2012 Performance Results

(in millions)

 

Performance Measure    Target      Actual     Achievement relative to target

Adjusted OIBDA (a)

   $ 239.4       $ 221.8      92.7% of Adjusted OIBDA target

Adjusted advertising revenue (b)

   $ 392.6       $ 367.5                          93.6% of Adjusted  Advertising revenue target

Technology and Operations operating expenditures

   $ 23.2       $ 22.0      Under-spent target by 5.2%

Technology and Operations capital expenditures

   $ 35.7       $ 32.3      Under-spent target by 9.5%

 

(a) Adjusted OIBDA, a non-GAAP financial measure, is one measure used by management to measure the Company’s operating performance. Adjusted OIBDA represents operating income (loss) before depreciation and amortization expense and other costs. Adjusted OIBDA adds back the make-good liability shifted into 2013, share-based compensation costs and other costs. While Adjusted OIBDA is a measure we use to measure the financial performance for purposes of our Annual Performance and Stretch Bonus awards, you should not consider Adjusted OIBDA in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as operating income (loss). Adjusted OIBDA has material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate Adjusted OIBDA differently than we do, this measure may not be comparable to similarly-titled measures reported by other companies (dollars in millions).

 

     FY 2012
Target
     FY 2012
Actual
 

Operating income

   $ 227.2       $ 191.8   

Depreciation and amortization

     —           20.4   

Make-good liability

     —           1.2   

Share-based compensation costs and other costs

   $ 12.2         8.4   
  

 

 

    

 

 

 

Adjusted OIBDA

   $ 239.4       $ 221.8   
  

 

 

    

 

 

 

 

(b) Adjusted advertising revenue for purposes of this calculation is a non-GAAP financial measure used by management to measure the performance of certain of its advertising sales personnel, including Mr. Marks. Adjusted advertising revenue represents reported advertising revenue less founding member circuit beverage revenue, zero margin barter revenue and other founding member payments included in revenue plus the make-good liability shifted into 2013. You should not consider this measure in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as advertising revenue (dollars in millions).

 

     FY 2012
Target
    FY 2012
Actual
 

Advertising revenue

   $ 433.6      $ 409.2   

Less: Founding member circuit beverage revenue and other revenue

     (41.0     (42.9

Plus: Make-good liability

     —          1.2   
  

 

 

   

 

 

 

Adjusted advertising revenue

   $ 392.6      $ 367.5   
  

 

 

   

 

 

 

Long-Term Incentives. We believe that creating long-term value for our stockholders is achieved, in part, by aligning the interests of our executive officers with those of our stockholders. We grant awards under our stockholder approved equity incentive plan, the National CineMedia, Inc. 2007 Equity Incentive Plan as amended and restated, which we refer to as the “Equity Incentive Plan.”

All grants under the Equity Incentive Plan to our executive officers are generally proposed annually by the CEO at the start of each fiscal year and approved and priced by the Compensation Committee at its first meeting of the fiscal year, although grants could be made at any time at the discretion of our Compensation Committee.

 

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In 2012, equity grant values were reduced from 2011 amounts. On January 12, 2012, the Compensation Committee granted stock options and performance-based restricted stock awards to Messrs. Hall, Marks, Ferrera, Hardy and Weihe, as follows:

 

   

3-Year Performance-Based Restricted Stock: Performance-based restricted stock awards that vest based on the achievement of cumulative 2012-2014 “Free Cash Flow” goals.

 

   

2-Year Performance-Based Restricted Stock: Performance-based restricted stock awards that vest based on the achievement of cumulative 2012-2013 “Free Cash Flow” goals.

 

   

Stock Options: Vest ratably over a 3-year period.

Refer to footnote (1) of the 2012 Equity Awards table below for additional information. The value of the awards is set at the closing price of the Company’s common stock on the date of approval by the Compensation Committee.

Performance-Based Restricted Stock. The 2010, 2011 and 2012 restricted stock awards are scheduled to vest based upon achievement of the actual cumulative “Free Cash Flow” target at the end of the two or three-year measurement period, with 50% of the award vesting at 90% of target achievement and 150% vesting at 110% of target achievement (with interpolation between 90% and 110%). Dividends accrue and will be paid upon vesting for those shares earned. In the event that shares are not earned, accrued dividends on those shares are not paid.

The three-year measurement period for the 2010 restricted stock awards concluded on December 27, 2012. Following is the achievement relative to the target:

 

Performance Measure (in millions)    Target      Actual      Achievement relative to target     Vesting %  

2010 grant three-year cumulative Free Cash Flow (a)

   $ 669.5       $ 639.9         95.6     77.9

 

(a) “Free Cash Flow” is defined as Adjusted OIBDA less capital expenditures. In the past, we defined “Free Cash Flow” as EBITDA (earnings before interest, tax and depreciation and amortization expense) less capital expenditures. EBITDA is most directly comparable to net income. However, the Company’s reconciliation for EBITDA made adjustments for items such as income taxes, noncontrolling interest and interest expense, which are not part of operating income, therefore OIBDA and EBITDA yield the same results. This calculation methodology change was made to make it easier for the Company to provide a reconciliation of the metric as required by SEC rules.

 

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Adjusted OIBDA, a non-GAAP financial measure, is one measure used by management to measure the Company’s operating performance. Adjusted OIBDA represents operating income (loss) before depreciation and amortization expense and other costs. Adjusted OIBDA adds back the make-good liability shifted into 2013, share-based compensation costs and other costs. While Adjusted OIBDA is a measure we use to measure the financial performance for purposes of our Performance and Stretch Bonus awards, you should not consider Adjusted OIBDA in isolation of, or as a substitute for, measures of our financial performance as determined in accordance with GAAP, such as operating income (loss). Adjusted OIBDA has material limitations as a performance measure because it excludes items that are necessary elements of our costs and operations. Because other companies may calculate Adjusted OIBDA differently than we do, this measure may not be comparable to similarly-titled measures reported by other companies (dollars in millions).

 

ACTUAL

   2010-2012 3-Year Cumulative
Ended December 27, 2012
 

Operating income

   $ 576.1   

Depreciation and amortization

     57.0   

Make-good liability

     6.7   

Share-based compensation and other costs

     34.5   
  

 

 

 

Adjusted OIBDA

   $ 674.4   

Capital expenditures

     34.5   
  

 

 

 

Free Cash Flow – Actual

   $ 639.9   
  

 

 

 

TARGET

  

Free Cash Flow – Target

   $ 669.5   

Free Cash Flow – Achievement of Target

     95.6

Free Cash Flow – Vesting % – February 15, 2013

     77.9

 

Name and Position

   Number of
Shares
Awarded on
January 14,
2010
     Total
Vesting on
February 25,
2013
     Accrued
Dividends
 

Kurt C. Hall

     76,787         59,817       $ 137,799   

Clifford E. Marks

     41,136         32,044       $ 74,182   

Gary W. Ferrera

     28,992         22,584       $ 51,726   

Ralph E. Hardy

     15,235         11,868       $ 27,179   

Earl B. Weihe

     26,961         21,002       $ 48,098   

As a result of the level of achievement of the 2010 award which vested on February 25, 2013, accrued dividends were paid on March 5, 2013.

The following table shows the maximum number of shares that could be received under the Equity Incentive Plan for the 2012 awards:

 

2012 Equity Awards

 

Name

   Number  of
shares

3-Year Vest (1)
     Number of
shares
2-Year Vest (2)
     Number  of
Stock

Options (3)
     Total
Number of
Shares
 

Kurt C. Hall

     73,502         49,001         73,502         196,005   

Clifford E. Marks

     59,064         39,376         59,064         157,504   

Gary W. Ferrera

     29,602         18,501         29,602         77,705   

Ralph E. Hardy

     19,122         12,748         19,122         50,992   

Earl B. Weihe

     17,012         11,341         17,012         45,365   

 

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(1) Includes the target maximum number of shares that will vest if actual cumulative Free Cash Flow equals 100% of the three-year (2012-2014) cumulative Free Cash Flow target. If actual Free Cash Flow exceeds 100% of the Free Cash Flow target (up to 110% of Free Cash Flow), the number of shares will be increased ratably as set forth below for actual Free Cash Flow performance versus the target. As such, Mr. Hall could receive up to 36,751 additional shares; Mr. Marks could receive up to 29,532 additional shares; Mr. Ferrera could receive up to 14,801 additional shares, but due to his resignation effective March 1, 2013, Mr. Ferrera will not receive additional shares; Mr. Hardy could receive up to 9,561 additional shares and Mr. Weihe could receive up to 8,506 additional shares.

The amount is equal to the number of shares of restricted stock granted on January 13, 2011, with the exception of Mr. Ferrera. Mr. Ferrera was awarded an increase of 6.7% over the January 13, 2011 grant in order to bring his total value up to a more competitive level.

 

(2) Includes the target maximum number of shares that will vest if actual cumulative Free Cash Flow equals 100% of the two-year (2012-2013) cumulative Free Cash Flow target. If actual Free Cash Flow exceeds 100% of the Free Cash Flow target (up to 110% of Free Cash Flow), the number of shares will be increased ratably as set forth below for actual Free Cash Flow performance versus the target. As such, Mr. Hall could receive up to 24,500 additional shares; Mr. Marks could receive up to 19,688 additional shares; Mr. Ferrera could receive up to 9,251 additional shares, but due to his resignation, Mr. Ferrera will not receive additional shares; Mr. Hardy could receive up to 6,374 additional shares and Mr. Weihe could receive up to 5,671 additional shares.

The potential shares that would otherwise vest at the end of this two-year measurement period as described above will be reduced by the amount of vested shares from the January 13, 2011 restricted stock grant, if any. The executive officers were granted a total of 196,452 shares of restricted stock on January 13, 2011, of which 73,502 were to Mr. Hall; 59,064 to Mr. Marks; 27,752 to Mr. Ferrera; 19,122 to Mr. Hardy and 17,012 to Mr. Weihe.

 

(3) The amount is equal to the number of shares of three-year vest stock options. The stock options are scheduled to vest 33.33% each year over the next three years (fiscal 2013-2015), subject to continuous service. The stock options have a 10-year term and an exercise price of $13.14, the closing price of the Company’s common stock on January 12, 2012, the date of approval of the grants.

The restricted stock awards are scheduled to vest based upon achievement of at least 90% of the actual cumulative Free Cash Flow target at the end of the two-year or three-year measurement period. The restricted stock awards include the right to receive dividend equivalents, subject to vesting. Below is a summary of how the number of vested shares of restricted stock will be determined based on the level of achievement of actual cumulative Free Cash Flow.

 

Award Vesting %

   Free Cash Flow Target Actual %

150%

   >=110%

100%

   100%

50%

   90%

0%

   <90%

If actual cumulative Free Cash Flow is between 90% and 100% of the target, the award will vest proportionately. If actual cumulative Free Cash Flow exceeds 100% of the Free Cash Flow target for the measurement period, the participant will receive an additional grant of shares of restricted stock that will vest 60 days following the last day of the measurement period. The number of additional shares of restricted stock will be determined by interpolation, but will not exceed 50% of the number of shares of restricted stock that vest as set forth above up to 110% of the targeted cumulative Free Cash Flow.

Other Compensation. Our employees, including our named executive officers, participate in various employee benefits. These benefits include the following: medical and dental insurance; flexible spending accounts for healthcare; life, accidental death and dismemberment and disability insurance; employee assistance programs (confidential counseling); a 401(k) plan; and paid time off.

 

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None of our named executive officers participate in or have account balances in qualified or non-qualified defined benefit plans sponsored by us or in non-qualified defined contribution plans or other deferred compensation plans maintained by us. The Compensation Committee may elect to provide our officers and other employees with non-qualified defined contribution or deferred compensation benefits if the Compensation Committee determines that doing so is in our best interests.

Potential Payments upon Termination or Change in Control. Upon certain types of terminations of employment, payments may be made to our executive officers in accordance with their respective employment agreements. These events and potential amounts are further described below under the heading “Potential Payments Upon Termination or Change in Control.”

Compensation Decisions for 2013

Below is information about compensation decisions made for executive officers in early 2013.

Base Salary. The Compensation Committee reviewed executive compensation in January 2013 and decided that no base salary increases would be provided to our executive officers.

Annual Performance Bonus. The Compensation Committee adopted the National CineMedia, Inc. Executive Performance Bonus Plan, and directed that the Executive Performance Bonus Plan be submitted to a vote of stockholders at our Annual Meeting.

For additional information about the Executive Performance Bonus Plan, see Proposal 2. The process for setting the financial targets for 2013 is consistent with previous years as part of the annual budget review and approval.

Long-Term Incentive. For 2013, the mix of equity securities granted was changed to 75% performance-based restricted stock and 25% time-vested restricted stock. The Compensation Committee granted time-vested restricted stock and performance-based restricted stock awards to each of our executive officers effective January 15, 2013, as described in greater detail below.

The following table shows the maximum number of shares granted to each of our executive officers for these awards:

 

2013 Equity Awards

 

Name and Position

   Target
Number of
Shares
Performance-
Based
Restricted
Stock
     Number of
Shares
Time-
Based
Restricted
Stock
     Total
Number of
Shares
 

Kurt C. Hall

     96,710         32,237         128,947   

Clifford E. Marks

     92,349         30,783         123,132   

Gary W. Ferrera (a)

     —           —           —     

Ralph E. Hardy

     25,115         8,372         33,487   

Earl B. Weihe

     17,874         5,958         23,832   

 

(a) Mr. Ferrera resigned as Executive Vice President and Chief Financial Officer, effective March 1, 2013.

Clawback Policy. The Company adopted a “clawback” policy in fiscal year 2013, which applies to all of our executive officers, including the named executive officers. Under the policy, if the board determines that any current or former executive officer has engaged in fraud or intentional misconduct that caused an error that, directly or indirectly, resulted in a financial restatement, the board may require reimbursement of all compensation granted, earned or paid under annual incentive and long-term incentive compensation plans, including cancellation of outstanding equity awards.

 

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EXECUTIVE COMPENSATION TABLES

FISCAL 2012 SUMMARY COMPENSATION TABLE

The following table shows the amount of compensation earned by our NEOs during the years indicated. For additional information regarding the material terms of each named executive officers’ employment agreement, see “Employment Agreements” and “Potential Payments Upon Termination or Change in Control” below.

 

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  

Kurt C. Hall

President, Chief Executive Officer and Chairman

    2012      $ 765,131        —        $ 1,609,689      $ 299,888      $ 485,093      $ 212,210      $ 3,372,011   
    2011      $ 750,128      $ 330,056      $ 1,350,232      $ 821,701        —        $ 23,267      $ 3,275,384   
    2010      $ 735,420        —        $ 1,303,075      $ 1,114,875      $ 1,042,224      $ 35,928      $ 4,231,522   

Clifford E. Marks

President of Sales & Marketing

    2012      $ 737,805        —        $ 1,293,500      $ 240,981      $ 596,367      $ 128,462      $ 2,997,115   
    2011      $ 723,338        —        $ 1,085,006      $ 660,295      $ 509,953      $ 28,816      $ 3,007,408   
    2010      $ 709,155        —        $ 698,078      $ 597,254      $ 1,005,002      $ 30,835      $ 3,040,324   

Gary W. Ferrera

Executive Vice President and Chief Financial Officer

    2012      $ 371,423        —        $ 632,073      $ 120,776      $ 176,611      $ 86,317      $ 1,387,200   
    2011      $ 364,140      $ 120,166      $ 509,804      $ 310,244        —        $ 15,914      $ 1,320,268   
    2010      $ 357,000        —        $ 491,994      $ 420,934      $ 379,450      $ 20,101      $ 1,669,479   

Ralph E. Hardy

Executive Vice President and General Counsel

    2012      $ 286,642        —        $ 418,771      $ 78,017      $ 136,298      $ 43,471      $ 963,199   
    2011      $ 281,022      $ 92,737      $ 351,271      $ 213,774        —        $ 11,138      $ 949,942   
    2010      $ 262,637        —        $ 258,538      $ 221,194      $ 279,153      $ 11,447      $ 1,032,969   

Earl B. Weihe

Executive Vice President and Chief Operations Officer

    2012      $ 255,000        —        $ 372,557      $ 69,408      $ 138,751      $ 18,995      $ 854,711   
    2011      $ 250,000      $ 61,875      $ 312,492      $ 190,175      $ 46,875      $ 9,607      $ 871,024   
    2010      $ 200,345      $ 124,004      $ 501,528      $ 395,815      $ 141,718      $ 9,544      $ 1,372,954   

 

(1) No discretionary bonuses were paid for fiscal 2012. For fiscal 2011, the amounts represent discretionary bonus awards for each executive. Mr. Weihe also earned a discretionary bonus for fiscal 2010. See prior year proxy statements for additional information.

 

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(2) The amounts represent the aggregate grant date fair value of the stock awards computed in accordance with ASC Topic 718. The stock awards granted in 2012, 2011 and 2010 are scheduled to vest based upon the achievement of performance conditions relating to cumulative “Free Cash Flow” at the end of the two or three-year measuring period. The amounts for these awards are presented based on 100% of the fair market value on the date of grant and do not include an estimate of performance. Actual results could materially differ from this estimate. Stock awards are further discussed in the “Long-Term Incentive” section of our CD&A. The table below includes the maximum amounts payable assuming the highest level of performance is achieved:

 

Stock Awards

 

Name

     Grant Date        Maximum
Number of
Shares
Scheduled to
Vest
       Maximum Grant
Date Fair  Value (a)
 

Kurt C. Hall

       1/12/2012           183,754         $ 2,414,527   
       1/13/2011           110,253         $ 2,025,348   
       1/14/2010           115,180         $ 1,954,605   

Clifford E. Marks

       1/12/2012           147,660         $ 1,940,252   
       1/13/2011           88,596         $ 1,627,509   
       1/14/2010           61,704         $ 1,047,117   

Gary W. Ferrera

       1/12/2012           72,155         $ 948,116   
       1/13/2011           41,628         $ 764,706   
       1/14/2010           43,488         $ 737,991   

Ralph E. Hardy

       1/12/2012           47,805         $ 628,157   
       1/13/2011           28,683         $ 526,907   
       1/14/2010           22,853         $ 387,815   

Earl B. Weihe

       1/12/2012           42,530         $ 558,844   
       1/13/2011           25,516         $ 468,729   
       1/14/2010           30,000         $ 575,100   

 

  (a) The amount is based on the maximum number of shares as of the grant date subject to the award assuming the highest level of performance is achieved (150%). The amounts for these awards are presented based upon the fair market value on the date of grant ($13.14, $18.37 and $16.97 per share for 2012, 2011 and 2010, respectively).
(3) The amounts represent the aggregate grant date fair value of the options computed in accordance with ASC Topic 718 and do not represent cash payments made to the individuals or amounts realized. See details of the assumptions used in valuation of the options in Note 10 “Share-Based Compensation” to the audited financial statements filed with the SEC on Form 10-K for the year ended December 27, 2012. The full grant date fair values of the awards were $4.08 (January 12, 2012), $3.73 (January 13, 2011), $4.84 (January 14, 2010) and $4.91 (November 4, 2010) per share. The Grants of Plan Based Awards table discloses the options granted in fiscal 2012 to the named executive officers. Share-based options are discussed in the “Long-Term Incentive” section of our CD&A.
(4) The Compensation Committee approved 2012 performance bonuses for the named executive officers on February 15, 2013, and the bonuses were paid on February 26, 2013. In 2010 the payments of non-equity incentive plan compensation included a stretch bonus due to achievement of certain performance measures. In 2011 and 2012, no amount of stretch bonus was earned. See further discussion in the “Annual Performance Bonus” section of our CD&A.

 

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(5) The following table provides details about each component of the “All Other Compensation” column from the Fiscal 2012 Summary Compensation Table above.

 

Name

   Year      401(k)
Employer
Contribution
(a)
     Term Life
Insurance
(b)
     Disability
Insurance
(c)
     Restricted
Stock
Dividends
(d)
     Miscellaneous
(e)
     Total All
Other
Compensation
 

Kurt C. Hall

     2012       $ 6,000       $ 1,510       $ 3,414       $ 201,286         —         $ 212,210   
     2011       $ 6,600       $ 1,929       $ 1,257       $ 13,176       $ 305       $ 23,267   
     2010       $ 6,600       $ 1,889       $ 1,257       $ 22,588       $ 3,594       $ 35,928   

Clifford E. Marks

     2012       $ 6,000       $ 1,456       $ 3,304       $ 116,581       $ 1,120       $ 128,461   
     2011       $ 6,600       $ 1,856       $ 1,257       $ 16,706       $ 2,397       $ 28,816   
     2010       $ 6,600       $ 1,184       $ 1,257       $ 21,479       $ 315       $ 30,835   

Gary W. Ferrera

     2012       $ 6,000       $ 733       $ 1,827       $ 77,756         —         $ 86,316   
     2011       $ 6,600       $ 566       $ 1,257       $ 7,491         —         $ 15,914   
     2010       $ 6,600       $ 552       $ 1,257       $ 11,402       $ 290       $ 20,101   

Ralph E. Hardy

     2012       $ 6,000       $ 566       $ 1,485       $ 35,420         —         $ 43,471   
     2011       $ 6,600       $ 1,818       $ 1,257       $ 1,463         —         $ 11,138   
     2010       $ 6,600       $ 1,084       $ 1,255       $ 2,508         —         $ 11,447   

Earl B. Weihe

     2012       $ 6,000       $ 503       $ 1,358       $ 11,134         —         $ 18,995   
     2011       $ 6,269       $ 1,584       $ 1,257       $ 497         —         $ 9,607   
     2010       $ 6,233       $ 1,191       $ 1,164       $ 852       $ 104       $ 9,544   

 

  (a) Represents matching contributions made pursuant to NCM LLC’s defined contribution 401(k) Plan. Eligible employees, including the named executive officers are eligible for a discretionary contribution under the 401(k) plan on base pay up to IRS limits.
  (b) Represents imputed income for term life insurance coverage.
  (c) Represents imputed income for long-term and short-term disability insurance coverage.
  (d) Under the terms of the 2007 and 2008 restricted stock awards, the named executive officers are entitled to receive cash dividends at the same time as other stockholders on unvested shares starting with the 2009 restricted stock dividends are accrued and paid only when vested. During 2012, the 2009 restricted stock grant vested, resulting in accrued dividends paid. This was the first 3-year performance-based restricted stock grant that vested. During 2012, NCM, Inc. paid per share dividends of $0.22 on March 22, 2012, May 31, 2012, August 30, 2012 and November 29, 2012, respectively. During 2011, NCM, Inc. paid per share dividends of $0.20 on March 24, 2011 and June 2, 2011, and $0.22 on September 1, 2011 and December 1, 2011, respectively. During 2010, NCM, Inc. paid per share dividends of $0.16 on April 1, 2010, $0.18 on June 3, 2010 and September 2, 2010, and $0.20 on December 2, 2010, respectively.
  (e) Represents business-related awards, gifts and prizes and taxable fringe benefits.

 

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FISCAL 2012 GRANTS OF PLAN-BASED AWARDS

The following table shows the awards granted to our named executive officers for our 2012 fiscal year.

 

Name

  Grant
Date
  Estimated Future Payouts
Under Non-Equity
Incentive Plan Awards (1)
    Estimated Future  Payouts
Under Equity
Incentive Plan Awards (2)
    All Other
Option
Awards:
Number of
Securities
Underlying
Options (3)
    Exercise
of Base
Price of
Option
Awards
    Grant
Date Fair
Value of
Stock and
Option
Awards
($) (4)
 
    Thresh-
hold ($)
    Target
($)
    Maxi-
mum ($)
    Thresh-
hold (#)
    Target
(#)
    Maxi-
mum (#)
       

Kurt C. Hall

  N/A     —        $ 765,131      $ 1,147,697        —          —          —          —          —          —     
  1/12/2012     —          —          —          —          —          —          73,502      $ 13.14      $ 299,888   
  1/12/2012     —          —          —          —          73,502        110,253        —          —        $ 965,816   
  1/12/2012     —          —          —          —          49,001        73,502        —          —        $ 643,873   

Clifford E. Marks

  N/A     —        $ 737,805      $ 1,106,708        —          —          —          —          —          —     
  1/12/2012     —          —          —          —          —          —          59,064      $ 13.14      $ 240,981   
  1/12/2012     —          —          —          —          59,064        88,596        —          —        $ 776,100   
  1/12/2012     —          —          —          —          39,376        59,064        —          —        $ 517,400   

Gary W. Ferrera

  N/A     —        $ 278,567      $ 417,851        —          —          —          —          —          —     
  1/12/2012     —          —          —          —          —          —          29,602      $ 13.14      $ 120,776   
  1/12/2012     —          —          —          —          29,602        44,403        —          —        $ 388,970   
  1/12/2012     —          —          —          —          18,501        27,752        —          —        $ 243,103   

Ralph E. Hardy

  N/A     —        $ 214,981      $ 322,472        —          —          —          —          —          —     
  1/12/2012     —          —          —          —          —          —          19,122      $ 13.14      $ 78,017   
  1/12/2012     —          —          —          —          19,122        28,683        —          —        $ 251,263   
  1/12/2012     —          —          —          —          12,748        19,122        —          —        $ 167,508   

Earl B. Weihe

  N/A     —        $ 191,250      $ 286,875        —          —          —          —          —          —     
  1/12/2012     —          —          —          —          —          —          17,012      $ 13.14      $ 69,408   
  1/12/2012     —          —          —          —          17,012        25,518        —          —        $ 223,537   
  1/12/2012     —          —          —          —          11,341        17,012        —          —        $ 149,020   

 

(1) Amounts represent potential cash bonus amounts if targets are achieved for 2012 performance for each named executive officer. The Compensation Committee may, at its discretion, reduce the amount of any awards payable under the 2012 Performance Bonus Plan by up to 25%. See our Summary Compensation Table for amounts paid.
(2) Represents restricted stock grants made in 2012 under the Equity Incentive Plan. The restricted stock awards provide that the award will accrue dividends payable subject to vesting. For additional information regarding equity awards see “Long-Term Incentive” in the CD&A and “Equity Incentive Plan Information.”
(3) Represents stock option grants made in 2012 under the Equity Incentive Plan. For additional information regarding outstanding options, see our Outstanding Equity Awards Table. For additional information regarding equity awards see “Long-Term Incentive” in the CD&A and “Equity Incentive Plan Information.”
(4) Grant date fair value of stock and option awards was calculated in accordance with GAAP. The 2012 restricted stock awards are scheduled to vest based upon achievement of the actual cumulative “Free Cash Flow” target at the end of the three-year or two-year measuring period and are presented in the table based on target amounts. Refer to footnote (2) to our Summary Compensation Table for the maximum number of shares that could be awarded.

Non-Equity Incentive Plan Awards

Refer to our Summary Compensation Table for the actual payouts for fiscal 2012, 2011 and 2010. Additional information about these awards and our actual performance is included in our CD&A, “Annual Performance Bonus.”

Equity Incentive Plan Awards

During fiscal 2012, each of our named executive officers received awards under our Equity Incentive Plan. Additional information about the awards is included in our CD&A, “Long-Term Incentive.”

 

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OUTSTANDING EQUITY AWARDS AT DECEMBER 27, 2012

 

    Stock Option Awards     Restricted Stock Awards  

Name

  Number of
Securities
Underlying
Unexercised
Options
Exercisable
    Number of
Securities
Underlying
Unexercised
Options
Unexercisable
    Option
Exercise
Price
    Option
Expiration
Date (a)
    Number of
Shares of
Stock That
Have Not
Vested
    Market
Value of
Shares of
Stock That
Have Not
Vested (b)
    Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares That
Have Not
Vested (c)
    Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares That
Have Not
Vested (b)
 

Kurt C. Hall

    263,924        —        $ 9.22        1/15/2019        —          —          —          —     
    153,573        76,787 (d)    $ 16.97        1/14/2020        —          —          76,787      $ 1,085,000   
    474,974        —        $ 16.35        4/04/2021        —          —          —          —     
    73,502        147,004 (e)    $ 18.37        1/13/2021        —          —          73,502      $ 1,038,583   
    —          73,502 (f)    $ 13.14        1/12/2022        —          —          49,001      $ 692,384   
    —          —          —          —          —          —          73,502      $ 1,038,583   

Clifford E. Marks

    90,738        52,755 (g)    $ 16.35        4/04/2021        9,944 (i)      140,508        —          —     
    29,861        7,466 (g)    $ 24.04        9/07/2021        —          —          —          —     
    47,130        —        $ 9.22        1/15/2019        —          —          —          —     
    71,749        41,136 (d)    $ 16.97        1/14/2020        —          —          41,136      $ 581,251   
    59,064        118,128 (e)    $ 18.37        1/13/2021        —          —          59,064      $ 834,574   
    —          59,064 (f)    $ 13.14        1/12/2022        —          —          39,376      $ 556,382   
    —          —          —          —          —          —          59,064      $ 834,574   

Gary W. Ferrera

    95,752        —        $ 18.01        5/01/2021        2,000 (j)      28,260        —          —     
    40,000        10,000 (e)    $ 19.37        1/08/2018        —          —          —          —     
    66,432        —        $ 9.22        1/15/2019        —          —          —          —     
    57,983        28,992 (d)    $ 16.97        1/14/2020        —          —          28,992      $ 409,656   
    27,752        55,503 (e)    $ 18.37        1/13/2021        —          —          27,752      $ 392,135   
    —          29,602 (f)    $ 13.14        1/12/2022        —          —          18,501      $ 261,419   
    —          —          —          —          —          —          29,602        418,276   

Ralph E. Hardy

    52,769        —        $ 16.35        4/04/2021        —          —          —          —     
    46,444        —        $ 9.22        1/15/2019        —          —          —          —     
    30,469        15,235 (d)    $ 16.97        1/14/2020        —          —          15,235      $ 215,270   
    19,123        38,244 (e)    $ 18.37        1/13/2021        —          —          19,122      $ 270,193   
    —          19,122 (f)    $ 13.14        1/12/2022        —          —          12,748      $ 180,129   
    —          —          —          —          —          —          19,122      $ 270,193   

Earl B. Weihe

    17,909        —        $ 16.35        4/04/2021        —          —          —          —     
    14,601        —        $ 9.22        1/15/2019        —          —          —          —     
    13,921        6,961 (d)    $ 16.97        1/14/2020        —          —          6,961      $ 98,358   
    40,000        20,000 (h)    $ 19.17        11/04/2020        —          —          20,000      $ 282,600   
    17,012        34,022 (e)    $ 18.37        1/13/2021        —          —          17,011      $ 240,365   
    —          17,012 (f)    $ 13.14        1/12/2022        —          —          11,341      $ 160,248   
    —          —          —          —          —          —          17,012      $ 240,379   

 

(a) Options generally expire prior to date if named executive officer terminates employment.
(b) Amounts are based on the closing stock price, $14.13 per share, on December 27, 2012 based on the target level of performance.
(c) The restricted stock awards are scheduled to vest based on achievement of the actual cumulative “Free Cash Flow” target at the end of the three-year or two-year measuring period. Refer to CD&A for discussion of cumulative Free Cash Flow.
(d) The options vest 33.33% per year commencing on January 14, 2011, subject to continuous service
(e) The options vest 33.33% per year commencing on January 13, 2012, subject to continuous service.
(f) The options vest 33.33% per year commencing on January 12, 2013, subject to continuous service.

 

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(g) The options vest 20% per year commencing on January 1, 2009, subject to continuous service.
(h) The options vest 33.33% per year commencing on November 4, 2011, subject to continuous service.
(i) The restricted stock vests 20% per year commencing on January 1, 2009, subject to continuous service.
(j) The restricted stock vests 20% per year commencing on January 8, 2009, subject to continuous service.

See “Long-Term Incentive” in the CD&A for additional information.

OPTION EXERCISES AND STOCK VESTED AT DECEMBER 27, 2012

 

     Option Awards      Stock Awards  

Name

   Number of
Shares
Acquired on
Exercise
     Value Realized
on Exercise
     Number of
Shares
Acquired on
Vesting
     Value Realized
on Vesting (a)
 

Kurt C. Hall

     —           —           103,661       $ 1,587,960   

Clifford E. Marks

     —           —           57,073       $ 869,791   

Gary W. Ferrera

     —           —           40,134       $ 612,258   

Ralph E. Hardy

     —           —           17,223       $ 266,807   

Earl B. Weihe

     —           —           5,459       $ 84,430   

 

(a) Amounts are based on the closing stock price on the date realized.

Potential Payments Upon Termination or Change in Control

The following summaries set forth potential payments payable to our named executive officers upon termination of their employment or a change in control of NCM, Inc. under their employment agreements, as amended, and under the Equity Incentive Plan. The following discussion is based on the assumption that the actual bonus amount would be the target amount reported as a non-equity incentive plan award in the Grants of Plan Based Awards table. Actual payments may be more or less than the amounts described below. In addition, the Company may enter into new arrangements or modify these arrangements, from time to time. Each employment agreement provides definitions for the termination reasons.

 

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The following table assumes the executive’s employment was terminated under each of these circumstances on December 27, 2012 and such payments and benefits have an estimated value of:

 

    Cash
Severance

(1)
    Bonus
(1)
    Medical
Insurance
(2)
    Term Life
Insurance
(2)
    Disability
Insurance
(2)
    401(k)
Employer
Contrib.
(2)
    Value of
Accelerated
Equity Awards

(3)
 

Kurt C. Hall (a)

             

Without Cause

  $ 1,530,262      $ 485,093      $ 32,044      $ 3,018      $ 2,398        —          —     

For Good Reason

  $ 2,295,393      $ 485,093      $ 32,044      $ 3,018      $ 2,398        —          —     

Without Cause or For Good Reason 3 months prior or one year following a Change of Control

  $ 3,443,090      $ 485,093      $ 40,055      $ 3,773      $ 2,998        —        $ 3,927,318   

Death

    —        $ 485,093      $ 16,022        —         —          —          —     

Disability

    —        $ 485,093      $ 16,022      $ 1,509      $ 1,199        —          —     

Clifford E. Marks (b)

             

Without Cause or For Good Reason or Expiration of Agreement

  $ 737,805      $ 596,367      $ 16,022      $ 1,456      $ 1,199      $ 6,000        —     

Without Cause or For Good Reason 3 months prior or one year following a Change of Control

    —        $ 596,367        —          —          —          —        $ 3,005,765   

Death

    —        $ 596,367      $ 16,022        —          —          —          —     

Disability*

  $ 368,903      $ 596,367      $ 16,022      $ 1,456      $ 1,199        —          —     

Gary W. Ferrera (c)

             

Without Cause or For Good Reason or Expiration of Agreement

  $ 371,423        176,611      $ 16,022      $ 733      $ 1,199      $ 6,000        —     

Without Cause or For Good Reason 3 months prior or one year following a Change of Control

    —          176,611        —          —          —          —        $ 1,539,054   

Death

    —          176,611      $ 16,022        —          —          —          —     

Disability*

  $ 185,712        176,611      $ 16,022      $ 733      $ 1,199        —          —     

Ralph E. Hardy (c)

             

Without Cause or For Good Reason or Expiration of Agreement

  $ 286,642        136,298      $ 16,022      $ 566      $ 1,199      $ 6,000        —     

Without Cause or For Good Reason 3 months prior or one year following a Change of Control

    —          136,298        —          —          —          —          954,718   

Death

    —          136,298      $ 16,022        —          —          —          —     

Disability*

  $ 143,321        136,298      $ 16,022      $ 566      $ 1,199        —          —     

Earl B. Weihe (c)

             

Without Cause or For Good Reason or Expiration of Agreement

  $ 255,000        138,751      $ 5,007      $ 503      $ 1,199      $ 6,000        —     

Without Cause or For Good Reason 3 months prior or one year following a Change of Control

    —          138,751        —          —          —          —        $ 1,038,794   

Death

    —          138,751      $ 5,007        —          —          —          —     

Disability*

  $ 127,500        138,751      $ 5,007      $ 503      $ 1,199        —          —     

 

* net of amounts offset by disability insurance payments
(1)

If the employment of the named executive officer is terminated by NCM, Inc. for reasons other than disability, death or cause, or the executive resigns for good reason, as defined in the agreement, or his agreement is not renewed on substantially equal terms, he will be entitled to severance for a specified period and any annual bonuses awarded but not yet paid. If the named executive officer’s employment terminates due to his death, his beneficiaries will receive his base salary paid through the end of the month of his death. Except for Mr. Hall, if the named executive officer terminates

 

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  employment on account of his disability, in exchange for a release of claims against the Company, he will be entitled to his base salary for a period of six months following termination, offset by any disability benefits provided under a company sponsored benefit arrangement.
  (a) If the employment of Mr. Hall is terminated by NCM, Inc., for reasons other than permanent disability, death or cause, he will be entitled to severance equal to two times his base salary. If Mr. Hall resigns from NCM, Inc. with good reason, as defined in the agreement, he will be entitled to severance equal to three times his base salary. If, within three months before or one year after a change of control, as defined in the agreement, Mr. Hall resigns for good reason or his employment is terminated for reasons other than permanent disability, death or cause, he would be entitled to severance equal to 2.25 times the sum of his base salary and his target bonus. If Mr. Hall terminates employment for any reason, other than cause, he or his beneficiaries will receive his actual bonus for the current year prorated by the number of days until his termination to be paid at the same time bonuses are paid to other executives. Because this table assumes termination as of December 27, 2012, the full 2012 bonus would be payable. Amounts are based on Mr. Hall’s base salary in effect on January 16, 2013.
  (b) Mr. Marks will be entitled to severance equal to the greater of (1) his base salary paid over the remaining existing term of the contract and a bonus equal to the last bonus paid per month applied against the remaining contract period or (2) one year of base salary plus 100% of the bonus amount paid for the last full year of employment. The cash severance amount is based on Mr. Marks’ base salary in effect on January 16, 2013 and the bonus amount is based on the Summary Compensation Table under the heading “Non-Equity Incentive Plan Compensation” for 2012.
  (c) Messrs. Ferrera, Hardy and Weihe’s severance represent base salary paid over 12 months based on their base salary in effect on January 16, 2013.
(2) Except for Mr. Hall, if the employment of a named executive officer is terminated by NCM, Inc. for reasons other than disability, death or cause, or he resigns for good reason, as defined in the agreement, the named executive officer is entitled to receive an amount equal to NCM, Inc.’s premium costs or other contributions made by the Company on behalf of each named executive officer with respect to all employee benefit plans or programs that such named executive officer was participating in on the date of his termination of employment, for a specified period. If Mr. Hall’s employment is terminated by NCM, Inc. for reasons other than disability, death or cause, or he resigns for good reason, as defined in the agreement, he will be entitled to payments equal to the amount of company contributions and payments under any medical, health and life insurance plans per month for the preceding calendar year, for a specified period. If the named executive officer terminates employment on account of his death or disability, he or his beneficiaries will be entitled to one year of continued coverage under the NCM, Inc. medical and health insurance plan pursuant to COBRA and life insurance coverage.
  (a) Amounts for Mr. Hall represent a 24-month period, except if within three months before or one year after a change of control, as defined in the agreement, then he is entitled to 30-months of continued benefits.
  (b) Amounts for Mr. Marks represent estimates until the date he receives equivalent coverage but not longer than the period for which his base salary is paid after termination.
  (c) Amounts for Messrs. Ferrera, Hardy and Weihe represent a 12-month period.
(3) Under the Equity Incentive Plan, if within three months prior to or one year after the consummation of a change of control, as defined in the plan, the named executive officer’s employment is terminated by NCM, Inc., its affiliate or a successor in interest without cause or by the named executive officer for good reason, both as defined in the plan, then all outstanding options and stock appreciation rights shall become immediately exercisable and all other awards shall become vested and any restrictions will lapse. Amounts are based on the closing stock price, $14.13 per share, on December 27, 2012.

Employment Agreements

On February 13, 2007, NCM, Inc. and NCM LLC entered into multi-year employment agreements with each of our named executive officers as described further below, except for Mr. Weihe. The agreements were amended effective as of January 1, 2009 in order to comply with the requirements of Section 409A and Section 162(m) of the Internal Revenue Code of 1986. We entered into an employment agreement with Mr. Weihe on August 24, 2011. The Compensation Committee believes these employment agreements are consistent with the industry standard in our industry for top executives. The agreements provide for payments and benefits if each executive’s employment with the Company and its affiliates is terminated (i) without cause (as defined in the agreements), (ii) for good reason (as defined in the agreements), (iii) without cause or good reason three months prior to or within one year following a change of control (as defined in the agreements),

 

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(iv) in the event of death, and (v) in the event of disability. See “Potential Payments Upon Termination or Change in Control” for additional information about such payments and benefits.

Kurt C. Hall

Mr. Hall’s employment agreement, which initially had a two-year term beginning February 13, 2007, provides that he will serve as President, Chief Executive Officer and Chairman of the Board of NCM, Inc. On each May 24, beginning in 2007, one year is added to the term of the agreement. The agreement initially provided that Mr. Hall be paid an initial base salary at the rate of $700,000 per year, subject to annual increases at the discretion of the Compensation Committee based on previous year performance, market conditions and other factors deemed to be relevant by the Compensation Committee. The Compensation Committee increased Mr. Hall’s base salary to $735,420, $750,128 and to $765,131 effective January 2010, January 2011 and January 2012, respectively. There was no base salary increase for 2013. In addition to base salary, Mr. Hall is eligible to receive an annual cash bonus pursuant to the Company’s annual Performance Bonus Plan based upon attainment of performance goals determined by the Compensation Committee. Mr. Hall will also be reimbursed for reasonable out-of-pocket business expenses. Under the agreement, during his employment and for 12 months thereafter, Mr. Hall, subject to certain limitations, has agreed not to compete with NCM, Inc. or any of its affiliates or subsidiaries or solicit anyone who was employed by these entities. Under the agreement, Mr. Hall has also agreed not to divulge or disclose confidential information of NCM, Inc. or its affiliates or subsidiaries except in the business of and for the benefit of NCM, Inc., or as required by law.

Clifford E. Marks

Mr. Marks’ employment agreement, which initially had a two-year term beginning February 13, 2007, provides that he will serve as the President of Sales & Marketing. On September 30 of each year, beginning in 2008, the term is automatically extended by one year. Under the agreement, Mr. Marks is paid a base salary, which was initially at the rate of $675,000 per year with increases of not less than 1% annually; however the Company and Mr. Marks agreed that his base salary would not be increased for fiscal 2009. The Compensation Committee increased Mr. Marks’ base salary to $709,155, $723,338 and to $737,805 effective January 2010, January 2011 and January 2012, respectively. There was no base salary increase for 2013. The Compensation Committee will review Mr. Marks’ salary at least annually and may increase (but not reduce) the base salary in its sole discretion. In addition to base salary, Mr. Marks is eligible to receive an annual cash bonus pursuant to the Company’s annual Performance Bonus Plan based upon attainment of performance goals determined by the Compensation Committee. The Compensation Committee will review Mr. Marks’ bonus structure and may adjust the bonus structure in its sole discretion based on previous year performance, market conditions and other factors deemed relevant by the Compensation Committee. Under the agreement, during his employment and for 12 months thereafter, Mr. Marks has agreed not to compete with NCM, Inc., its affiliates or subsidiaries, or solicit anyone who is an employee, officer or agent of these entities. Under the agreement, Mr. Marks has also agreed not to divulge or disclose customer lists or trade secrets of NCM, Inc. or its affiliates or subsidiaries except in the course of carrying out his duties under the agreement or as required by law.

Gary W. Ferrera

Mr. Ferrera’s employment agreement, which initially had a one-year term beginning February 13, 2007, provides that he will serve as Executive Vice President and Chief Financial Officer of NCM, Inc. On each April 1, beginning in 2007, one year is added to the termination date. The agreement initially provided that Mr. Ferrera be paid an initial base salary of $325,000 per year, subject to further annual increases at the discretion of the Compensation Committee based on previous year performance, market conditions and other factors deemed relevant by the Compensation Committee. The Compensation Committee increased Mr. Ferrera’s base salary to $357,000, $364,140 and to $371,423 effective January 2010, January 2011 and January 2012, respectively. There was no base salary increase for 2013. In addition to base salary, Mr. Ferrera is eligible to receive an annual bonus pursuant to the Company’s annual Performance Bonus Plan based upon attainment of

 

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performance goals determined by the Compensation Committee. Under the agreement, during his employment and for 12 months thereafter, Mr. Ferrera has agreed not to compete with NCM, Inc. or any of its affiliates or subsidiaries, or solicit any of the employees, officers or agents of these entities. Under the agreement, Mr. Ferrera has also agreed not to divulge or disclose customer lists or trade secrets of NCM, Inc. or its affiliates or subsidiaries except in the course of carrying out his duties under the agreement or as required by law.

Ralph E. Hardy

Mr. Hardy’s employment agreement provides that he will serve as the Executive Vice President and General Counsel of NCM, Inc. The term of employment terminates on each December 31, but will be considered automatically renewed unless notice of termination is given by either party. The agreement initially provided that Mr. Hardy be paid an initial base salary at the rate of $221,728 per year, subject to further annual increases at the discretion of the Compensation Committee based on previous year performance, market conditions and other factors deemed relevant by the Compensation Committee. The Compensation Committee increased Mr. Hardy’s base salary to$262,637, $281,022 and to $286,642 effective January 2010, January 2011 and January 2012, respectively. There was no base salary increase for 2013. In addition to base salary, Mr. Hardy is eligible to receive an annual cash bonus pursuant to the Company’s annual Performance Bonus Plan based upon attainment of performance goals determined by the Compensation Committee. Under the agreement, during his employment and for so long as he is entitled to receive any benefits or payment under the agreement (but in no event less than 12 months), Mr. Hardy has agreed not to compete with NCM, Inc. or any of its affiliates or subsidiaries, or solicit any of the employees, officers or agents of these entities. Under the agreement, Mr. Hardy has also agreed not to divulge or disclose customer lists or trade secrets of NCM, Inc. or its affiliates or subsidiaries except in the course of carrying out his duties under the agreement or as required by law.

Earl B. Weihe

Mr. Weihe’s employment agreement, effective August 24, 2011, provides that he will serve as the Executive Vice President and Chief Operations Officer of NCM, Inc. The term of employment terminates on each December 31, but will be considered automatically renewed unless notice of termination is given by either party. The agreement initially provided that Mr. Weihe be paid an initial base salary at the rate of $250,000 per year, subject to further annual increases at the discretion of the Compensation Committee based on previous year performance, market conditions and other factors deemed relevant by the Compensation Committee. The Compensation Committee increased Mr. Weihe’s base salary to $255,000 effective January 2012. In addition to base salary, Mr. Weihe is eligible to receive an annual cash bonus pursuant to the Company’s annual Performance Bonus Plan based upon attainment of performance goals determined by the Compensation Committee. Under the agreement, during his employment and for so long as he is entitled to receive any benefits or payment under the agreement (but in no event less than 12 months), Mr. Weihe has agreed not to compete with NCM, Inc. or any of its affiliates or subsidiaries, or solicit any of the employees, officers or agents of these entities. Under the agreement, Mr. Weihe has also agreed not to divulge or disclose customer lists or trade secrets of NCM, Inc. or its affiliates or subsidiaries except in the course of carrying out his duties under the agreement or as required by law.

DIRECTOR COMPENSATION

Non-Employee Directors

For our 2012 fiscal year, our directors who were not our employees or employees of our founding members (“independent directors”) received an annual cash retainer of $44,200, plus $1,683 for each meeting of the board of directors they attended. In addition, our independent directors received a restricted stock unit grant of 7,610 shares on January 12, 2012 at $13.14 per share. The restricted stock units are settled in shares of the Company’s common stock. The restricted stock units vested on February 12, 2013 and had a value of $15.54 per share based on the closing price of the Company’s common stock on the vesting date. The restricted stock unit awards

 

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include the right to receive dividend equivalents, subject to vesting. Annual retainers were paid to the chairperson of each committee of the board of directors as follows: $11,220 for the Audit Committee chairperson; $5,610 for each of the Compensation Committee chairperson and the Nominating and Governance Committee chairperson and $5,610 for the lead director retainer fee. Audit Committee members also receive $1,683 for each Audit Committee meeting they attend, and Compensation Committee and Nominating and Governance Committee members receive $1,122 for each meeting of those committees they attend. In addition, members of the Fathom special committee received $1,122 for each meeting they attended. We reimburse all of our directors for reasonable travel, lodging and other expenses related to their service on our board of directors.

In January 2013, the Nominating and Governance Committee considered compensation for 2013 for non-employee directors and recommended the following changes. Annual cash retainers were set as follows: $45,000 for Board service, $12,000 for Audit Committee Chair, $6,000 for each of Compensation Committee chairperson and Nominating and Governance Committee chairperson. Meeting fees were set at $1,750 per meeting for the Board and Audit Committee Meetings and $1,200 per meeting for the Compensation and Nominating and Governance Committee. In addition, non-employee directors received a grant of 6,676 restricted stock units at $14.98 per share on January 16, 2013. The restricted stock units will be settled in shares of the Company’s common stock. The restricted stock units are scheduled to vest on February 15, 2014, subject to continuous service. The restricted stock unit awards include the right to receive dividend equivalents, subject to vesting.

Employee Directors

Our employees and employees of our founding members who also serve as directors receive compensation for their services as employees from their respective employers, but they do not receive any additional compensation from us for their service as our directors.

FISCAL 2012 DIRECTOR COMPENSATION

 

Name

   Fees Earned or
Paid in Cash

(1)
     Stock Awards
(2)
     All Other
Compensation

(3)
     Total  

Lawrence A. Goodman

   $ 82,348       $ 100,000       $ 6,697       $ 189,045   

David R. Haas

   $ 78,401       $ 100,000       $ 6,697       $ 185,098   

James R. Holland, Jr.

   $ 71,869       $ 100,000       $ 6,697       $ 178,566   

Stephen L. Lanning

   $ 81,787       $ 100,000       $ 6,697       $ 188,484   

Edward H. Meyer

   $ 76,177       $ 100,000       $ 6,697       $ 182,874   

Scott N. Schneider

   $ 67,201       $ 100,000       $ 6,697       $ 173,898   

 

(1) The following table provides details about each component of the “Fees Earned or Paid in Cash” column from the Fiscal 2012 Director Compensation Table above.

 

Name

   Annual
Retainer
     Committee Chair
Retainer
     Meeting
Fees
     Total Fees
Earned or Paid
in Cash
 

Lawrence A. Goodman

   $ 44,200       $ 5,610       $ 34,782       $ 84,592   

David R. Haas

   $ 44,200       $ 11,200       $ 25,245       $ 80,645   

James R. Holland, Jr.

   $ 44,200       $ 5,610       $ 21,879       $ 71,689   

Stephen L. Lanning

   $ 44,200       $ 5,610       $ 31,977       $ 81,787   

Edward H. Meyer

   $ 44,200         —         $ 31,977       $ 76,177   

Scott N. Schneider

   $ 44,200         —         $ 25,245       $ 69,445   

 

(2) The amounts represent the aggregate grant date fair value of the restricted stock unit awards as computed under ASC 718 and do not represent cash payments made to the individuals or amounts realized. The grant date fair value of the awards was $13.14 per share, the closing price of our common stock on January 12, 2012, the date of grant.

 

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(3) During 2012, NCM, Inc. accrued per share dividends of $0.22 on March 22, 2012, May 31, 2012, August 30, 2012 and November 29, 2012, respectively. The accrued dividends were paid on March 5, 2013 after the vesting on February 12, 2013.

The restricted stock units are also subject to the terms and provisions of the Equity Incentive Plan. The following table provides details about the “Stock Awards” column from the Fiscal 2012 Director Compensation Table above and outstanding stock awards at December 27, 2012.

 

     Fiscal 2012 Grants      Outstanding Equity Awards at
December 27, 2012
 

Name

   Grant Date      Number of
Shares of
Stock
     Grant Date
Fair Value of
Stock Awards
(a)
     Number of
Shares of Stock
that have not
vested
     Market Value of
Shares of Stock That
Have Not Vested (b)
 

Lawrence A. Goodman

     1/12/2012         7,610       $ 100,000         7,610       $ 107,534   

David R. Haas

     1/12/2012         7,610       $ 100,000         7,610       $ 107,534   

James R. Holland, Jr.

     1/12/2012         7,610       $ 100,000         7,610       $ 107,534   

Stephen L. Lanning

     1/12/2012         7,610       $ 100,000         7,610       $ 107,534   

Edward H. Meyer

     1/12/2012         7,610       $ 100,000         7,610       $ 107,534   

Scott N. Schneider

     1/12/2012         7,610       $ 100,000         7,610       $ 107,534   

 

(a) Calculated in accordance with ASC Topic 718 as described in footnote (2) to the Fiscal 2012 Director Compensation Table above and based on our closing share price on the grant date of $13.14 per share on January 12, 2012.
(b) Amounts are based on the closing stock price, $14.13 per share, on December 27, 2012.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

General

Before the completion of our IPO in February 2007, NCM LLC was wholly owned by our founding members. In connection with the completion of our IPO, NCM, Inc. purchased from NCM LLC a number of newly issued common membership units, at a price per unit equal to the IPO price per share, less underwriting discounts and commissions and related offering expenses. NCM LLC paid a portion of the proceeds it received from the sale of its units to NCM, Inc. to our founding members in exchange for their agreement to modify payment obligations under their exhibitor services agreement (“ESA”). In connection with the completion of the IPO, the underwriters exercised their over-allotment option to purchase additional shares in full, and we acquired an equivalent number of additional units in NCM LLC promptly after issuing the additional shares pursuant to the over-allotment.

As of December 27, 2012, NCM, Inc. owned approximately 48.6% of the outstanding common membership units in NCM LLC, and the founding members collectively owned approximately 51.4% of the outstanding common membership units in NCM LLC. NCM, Inc. is the sole managing member of NCM LLC.

We entered into several agreements to effect the reorganization and the financing transaction and to define and regulate the relationships among us, NCM LLC and the founding members after the completion of the IPO. Except as described in this section, we do not expect to have any material arrangements with NCM LLC, the founding members or any of our or their respective directors, officers or other affiliates going forward, other than ordinary course business relationships.

Further transactions between NCM, Inc. and our founding members, if any, have been and will continue to be approved by our Audit Committee, which is composed of independent members of our board of directors, or another committee comprised entirely of independent members of our board. Our Audit Committee charter authorizes the Audit Committee to hire financial advisors and other professionals to assist the committee in evaluating and approving any transaction between us and any related party, including our founding members.

Transactions with Founding Members

Exhibitor Services Agreements

On February 12, 2007, NCM LLC and each of AMC, Cinemark and Regal agreed upon the final terms of the ESAs between NCM LLC and AMC, Cinemark and Regal, respectively. The ESAs, which replace the ESAs previously in effect among NCM LLC, AMC, Cinemark and Regal, were executed by the parties effective February 13, 2007 and have been amended several times since that date, as discussed below. Certain basic terms of the ESAs are discussed below:

Services Provided. Pursuant to the ESAs, NCM LLC is the exclusive provider within the United States of advertising services in the founding members’ theatres (subject to pre-existing contractual obligations and other limited exceptions for the benefit of the founding members), as well as of meeting events and digital programming events through our Fathom Events business, and the founding members agree to participate in such services. Advertising services include on-screen advertising and the FirstLook pre-show, use of the lobby entertainment network and lobby promotions. Meetings and events involve the hosting of meetings primarily for corporations and distribution of entertainment programming. The advertising, entertainment programming, promotions and Fathom events that are included within the services provided by NCM LLC are generally referred to herein as the services.

Term and Termination. The ESAs entered into at the completion of the IPO have a term of 30 years for advertising. The terms for Fathom Events businesses are five years with provisions for automatic renewal for a series of additional five-year terms through 2037 if certain financial performance conditions during each five-year term are met by our Fathom Business or Fathom Consumer businesses, as applicable. If such financial

 

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performance conditions are not met, the founding member may elect to extend the term relating to meetings or digital programming, as applicable so long as the Fathom Business and Fathom Consumer businesses are profitable (as defined). If the Fathom Business and Fathom Consumer businesses are not profitable (as defined) either the founding members or NCM LLC may elect not to extend the term relating to those businesses. Beginning one year prior to the end of the 30-year term of the ESAs, NCM LLC will have a five-year right of first refusal to enter into a services agreement for the services provided under the ESA with the applicable founding member on terms equivalent to those offered by a third-party.

The financial test for the Fathom business meeting division for the period ending December 29, 2011 was not met and certain of the rights and obligations associated with that part of the Fathom business were transferred back to the founding members during early 2012. The financial performance conditions for the Fathom Consumer entertainment programming part of the Fathom business were met and thus our rights have been extended for a second five-year term through the end of fiscal 2016.

Either party may terminate the agreement upon:

 

   

a material breach of the ESA by the other party after notice and a cure period;

 

   

a government, regulatory or judicial injunction, order or decree; or

 

   

bankruptcy, insolvency or dissolution of the other party, appointment of a receiver or trustee for the other party who is not dismissed within 60 days or cessation of business or inability to pay debts.

Theatres. The founding members are required to make all of their theatres available for the services, including theatres that are newly acquired or built during the term of the ESA, but excluding draft house and art house theatres (attendance at which shall not exceed 4% of the attendance at the founding member’s participating theatres for the preceding year) and screens exhibiting IMAX technology. For newly acquired theatres that are subject to contracts with an alternative cinema advertising provider, if the founding member wishes to receive common membership units in NCM LLC (as provided in the Common Unit Adjustment Agreement described below) at the time the theatres are acquired, the ESA provides that the founding member may make certain run out payments until NCM LLC can utilize the theatres for all of its services. Alternatively, the founding member may wait to receive common membership units for the acquired theatres until the contracts with the alternative providers have expired and NCM LLC may provide its services without limitation.

Lobby Entertainment Network. With exceptions for digitized theatres that already have lobby screens for the lobby entertainment network, the founding members are required to have one lobby entertainment network screen in digitized theatres with ten or fewer auditoriums, two lobby entertainment network screens in digitized theatres with eleven to twenty auditoriums and three lobby entertainment network screens in digitized theatres with more than twenty auditoriums.

Inventory. The pre-feature program for digital on-screen advertising is generally 20 to 30 minutes long, and the founding members have agreed to use commercially reasonable efforts to open their auditoriums to customers at least 20 minutes prior to the advertised show time. Lobby entertainment network advertising is displayed in a repeating loop. With respect to lobby promotions, there is an inventory of lobby promotions that are pre-approved by the founding members. Additional lobby promotions may be added to the pre-approved inventory upon consent by NCM LLC and the founding member. The ESA also establishes pre-approved periods when such events may be exhibited in applicable theatres, specifically on Monday through Thursday evenings for digital programming events and Monday through Thursday from 6:00 a.m. to 6:00 p.m. for meetings, in both cases except during specified peak holiday periods. Fathom Consumer events may be exhibited and Fathom Business events may be conducted at other times upon consent by NCM LLC and the founding member.

Payments. In consideration for NCM LLC’s access to NCM LLC’s founding members’ theatre attendees for on-screen advertising and use of off-screen locations within the founding members’ theatres for the lobby entertainment network and lobby promotions, the founding members receive a monthly theatre access fee under

 

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the ESAs. The theatre access fee is composed of a fixed payment per patron and a fixed payment per digital screen, which will be adjusted for any advertising exhibited by some, but not all, theatres or founding members because of content objections or technical capacity. The payment per theatre patron will increase by 8% every five years with the first such increase taking effect after the end of fiscal 2011 and the payment per digital screen increases annually by 5%, beginning after the end of fiscal 2007. In 2012, the theatre access fee aggregate payments to the founding members totaled $64.5 million. The theatre access fee paid in the aggregate to all founding members cannot be less than 12% of NCM LLC’s aggregate advertising revenue (as defined in the ESA), or it will be adjusted upward to reach this minimum payment. Beginning on October 1, 2010, the theatre access fee paid to the members of NCM LLC included an additional fee for digital cinema systems connected to our advertising network pursuant to an amendment of the ESAs entered into during 2010. These new systems will not only provide higher quality 2D images, they will also expand our capability to provide 3D advertising and 3D live and pre-recorded Fathom events.

In consideration for the exhibition of Fathom Consumer events, the founding members retain 15% of the revenue from ticket sales, net of taxes and refunds and 100% of the concession sales. NCM LLC distributes a total of 15% of the net revenue received from any promotional fee for a Fathom Consumer event to the founding members that participated in such Fathom Consumer event, allocated based upon the number of tickets sold. Revenue from Fathom Business events is shared based on the type of event. On November 5, 2008, NCM LLC and the founding members agreed to an amendment of the ESA that, among other things, provides the founding members with the flexibility to book digital programming directly with major studios and provides NCM LLC a payment of a percentage of the ticket revenue associated with the event, however there were no such events in 2012[is this a true statement?].

For Fathom Business Meetings with a Movie or Fathom Business Meetings with a Consumer Event, the founding member retains the proceeds of movie ticket sales for a full sale of the auditorium (at adult ticket prices) and NCM LLC retains other fees associated with the meeting. For meetings without a movie, NCM LLC pays the founding member 15% of the rental revenue for the meeting. For church worship services, NCM LLC pays the founding member 50% of the rental revenue for the meeting. In 2012, aggregate payments to the founding members for use of their screens and theatres for our meetings and events business totaled $5.5 million.

NCM LLC pays the cost associated with providing its services to the founding members’ theatres, which includes selling and marketing expenses (including base salaries, commissions and benefits of our advertising sales staff and marketing, public relations and research departments), network operations and maintenance costs (including costs to run our network operations center, satellite bandwidth costs and costs for the maintenance of the network software and hardware), advertising and event costs (including production and other costs associated with non-digital advertising, and direct costs of events) and administrative expenses (including salaries, bonuses and benefits for our administrative staff and occupancy costs). The founding members pay the in-theatre operational costs of exhibiting the services within the theatres (such as electricity), except that any incremental costs (such as third-party security at digital programming events) may be reimbursed by NCM LLC.

Beverage Concessionaire Agreements. Under the ESAs, NCM LLC displays up to 90 seconds of on-screen advertising for beverage concessionaires at the time established in their agreements with the founding members and the founding members are required to pay to NCM LLC an initial beverage agreement advertising rate based on CPM (cost per thousand) impressions for the beverage advertising. During 2012, NCM LLC displayed 60 seconds of on-screen advertising for beverage concessionaires for all founding member exhibitors. As long as the beverage agreement advertising rate does not exceed the highest rate being charged by NCM LLC for on-screen advertising, the rate increases annually at a percentage equal to the annual increase in the advertising rate charged by NCM LLC to unaffiliated third parties. In 2012, total revenue from the founding members related to the beverage concessionaire agreements totaled $39.7 million.

Equipment. Founding members’ existing digitized theatres have the requisite equipment to participate in the advertising services. Equipment acquisitions are funded by the founding members. For newly acquired and built theatres, as well as theatres converting from the non-digitized to digitized format, in most cases NCM LLC is

 

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responsible for procuring the equipment necessary to deliver its services on behalf of the founding members, however the founding members have the option to procure equipment directly. The founding members will pay for (through a reimbursement to NCM or directly) any equipment within the theatre and NCM LLC will pay for the equipment that is not within or attached (satellite dish) to the theatres and for any testing equipment installed within the theatres to maintain NCM LLC’s software. Under the ESAs, the founding members will be responsible for the cost of installation of equipment purchased, but they may elect to have NCM LLC perform the installation, in which case NCM LLC will be reimbursed for installation services. If satellite service is not available and a landline connection is required for delivery of its services, NCM LLC will pay for the costs of the landline connection with respect to delivery of content from NCM LLC to the founding member’s wide area network, and the founding member will pay the costs with respect to delivery of content from its wide area network to its theatres.

Each party owns the equipment for which it pays or for which it reimburses the other party. NCM LLC may request replacement, upgrade or modification of equipment or software in any theatre, provided such request is made to all founding members, and NCM LLC and the founding member will negotiate the terms and cost-sharing of any upgrade requests. Under the ESAs, if no agreement is reached regarding the upgrade request, NCM LLC may elect to pay for the proposed replacements, upgrades or modifications. The parties, pursuant to the ESAs, agree to use commercially reasonable efforts to replace the current digital content network through the integration with any network for delivery of digital cinema services so that NCM LLC’s services can be delivered over any such digital cinema network. As the majority of the cost of the digital cinema deployment will be funded by others, it is not expected to create a significant increase in our capital expenditures and is not expected to have a material adverse impact on our Adjusted OIBDA as increases in our operating costs are expected to be offset by the sales benefits associated with the higher quality projection and ability to display 3D advertising and events. NCM LLC will perform repair and routine maintenance of equipment, unless the founding member elects to assume this responsibility. If NCM LLC is performing repair and routine maintenance, it will bear the cost of repairs (subject to limited restrictions), but not replacement. The founding member will pay the expense of equipment repair or replacement if the expense would constitute a capital expense for NCM LLC or if the expense is payable by the founding member’s insurance provider upon theft or insured damage.

Content Standards. Section 4.03 of each of the ESAs establishes content standards for the services that NCM LLC provides. Specifically, content may not (a) be subject to a Motion Picture Association of America “X” or “NC-17” rating or the equivalent; (b) promote illegal activity; (c) promote the use of tobacco, sexual aids, birth control, firearms, weapons or similar products; (d) promote alcohol, except prior to “R”-rated films in an auditorium; (e) constitute religious advertising, except the time and location for local church services; (f) constitute political advertising or promote gambling; (g) promote competitive theatres, theatre circuits or other entities that compete with the founding member or NCM LLC; (h) violate any of the founding member’s beverage agreements or identified exclusive contractual relationships; or (i) otherwise negatively reflect on the founding member or adversely affect the founding member’s attendance, as determined in the founding member’s reasonable discretion and specified with respect to the geographical locations affected. If certain founding members decline to exhibit an advertisement on the basis of these content standards, while other founding members agree to exhibit it, the revenue from such advertisement is considered “4.03 Revenue.” 4.03 Revenue will increase the theatre access fee paid to the founding members that displayed such advertisement relative to the founding members that did not display such advertisement in all or some of their theatres.

Founding Member Brand. The ESAs provides that NCM LLC, in coordination with each founding member, creates a brand identity for the founding member, presented in interstitial messaging during the FirstLook pre-feature program, including an introduction and close to the program. NCM LLC also includes in the pre-feature show up to two minutes for promotion of the founding member in segments called branded slots, and NCM LLC includes founding member branding in the policy trailer it produces. The branded slots may include theatre advertising, as described below. The branded slots are provided by NCM LLC to the founding members at no charge and include 45 seconds within 15 minutes of show time, 15 seconds of which is placed within 12 minutes

 

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of show time, and the remainder placed at NCM LLC’s discretion. After the advertised show time (and after the pre-feature show), the founding members may also exhibit a policy trailer regarding theatre policy and operations. The policy trailer may include promotions of the founding member’s concessions and may display branding of film studios, distributors or production companies. Upon prior written approval of the founding member, NCM LLC may sell advertising for inclusion in the policy trailer. Under the ESAs, NCM LLC provides, at no additional cost to the founding members, creative services to prepare branding material for the founding members, subject to a 1,000 hour annual limit for creative services to each founding member. After this hour limit is reached, the founding member may purchase additional creative services on an hourly basis. For 2012, AMC used 640 hours, Cinemark used 1,000 hours and Regal used 985 hours of creative services provided by NCM LLC.

Founding Member Strategic Programs. The ESAs allow a founding member to exhibit advertising that is not directly related to theatre operations but is designed to promote the theatres or the movie-going experience to increase attendance or revenue (other than revenue from the sale of advertising) for the founding member (called a founding member strategic program). The founding member, at no cost, may use one minute for every 30 minutes of advertising on the lobby entertainment network and certain lobby promotions for its strategic programs in up to two local or regional promotions per theatre per flight (the approximately four- to five-week period that advertising content runs before being refreshed by NCM LLC) and up to four national promotions per year, provided that only one national promotion is running at any given time. The founding member may purchase an additional minute of lobby entertainment network time, for strategic programs at rate card rates and subject to availability. Any additional strategic advertising on the lobby entertainment network or as part of a lobby promotion must be agreed to by NCM LLC. There was not a significant amount of lobby entertainment network or lobby promotion provided to the founding members during 2012.

Theatre Advertising. The ESAs permit the founding members to use their branded slot time (as described above) within the FirstLook program and the lobby entertainment network and certain lobby promotions to promote various activities associated with operation of the theatres, including concessions, ticketing partners, gift card and loyalty programs, special events presented by the founding member and vendors of non-film related services provided to theatres, so long as such promotions are incidental to the vendor’s service (called theatre advertising). The ESAs also permit the founding members to:

 

   

purchase additional theatre advertising at an arm’s length basis and subject to availability;

 

   

include promotion of concessions and display branding of film studios, distributor or production companies in the policy trailer;

 

   

exhibit theatre advertising and other internal programming, on lobby screens in excess of the lobby entertainment network requirements;

 

   

promote the grand opening of a theatre with promotions involving local businesses for the period of 14 days before to 14 days after the opening of such theatre, which may include, subject to availability, one on-screen advertisement of 30 seconds in length;

 

   

place advertising for full-length feature films on special popcorn tubs in circumstances where NCM LLC does not sell such advertising; and

 

   

allow employee uniform suppliers to advertise on theatre employees’ uniforms.

Non-Competition. The founding members agree not to compete with NCM LLC in the businesses that the ESA authorizes NCM LLC to conduct, unless:

 

   

the founding member or an affiliate acquires a competing business as an incidental part of an acquisition and disposes of the competing business as soon as practicable;

 

   

the founding member and any affiliates acquire an aggregate direct or indirect ownership of less than 10% of the voting power of a competitive business; or

 

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the founding member enters into an agreement for the acquisition or installation of equipment or the provision of services with a competitor of NCM LLC, if there is no violation of NCM LLC’s exclusive provision of services under the ESA.

Certain Other Provisions. The ESA includes (a) a limited license from NCM LLC to the founding member for use of NCM LLC’s software and marks and (b) a limited license from the founding member to NCM LLC for use of the founding member’s marks. Each party makes standard representations and warranties, such as due formation and authorization to enter into and perform the agreement, and each party agrees to indemnify the other for certain liabilities. If the ESA with one founding member is amended, other founding members have the right to amend their ESAs to match such change pursuant to a most-favored nations provision. Neither party may assign, including by operation of law, its rights or obligations under the ESA, except to certain permitted transferees affiliated with the transferring entity.

Net Payments to Founding Members. In 2012, the net payments to (from) each founding member for theatre access fees, payments for use of their screens and theatres for our meetings and events business and for beverage concessionaire agreements were $8.7 million to AMC, $8.7 million to Cinemark and $12.9 million to Regal, respectively.

NCM LLC Operating Agreement

On February 12, 2007, NCM, Inc., AMC, Cinemark and Regal agreed upon final terms of the NCM LLC third amended and restated limited liability company operating agreement. The restated operating agreement was executed by the parties effective February 13, 2007. On March 16, 2009, NCM LLC entered into a First Amendment to the NCM LLC third amended and restated limited liability company operating agreement to redefine the purpose of the Company to permit it to provide advertising at a variety of out-of-home advertising venues in addition to movie theatres. On August 6, 2010, NCM LLC entered into a Second Amendment to the NCM LLC third amended and restated limited liability company operating agreement to modify the timing of written notice should a founding member desire to exercise its option to redeem common membership units. Certain basic terms of the restated operating agreement are discussed below.

Appointment as Manager. Under the restated operating agreement, we became a member and the sole manager of NCM LLC. As the sole manager, we control all of the day to day business affairs and decision-making of NCM LLC without the approval of any other member. As such, we, through our officers and directors, are responsible for all operational and administrative decisions of NCM LLC and the day-to-day management of NCM LLC’s business. Furthermore, we cannot be removed as manager of NCM LLC.

Except as necessary to avoid being classified as an investment company or with the founding members’ approval, as long as we are the manager of NCM LLC our business will be limited to owning and dealing with units, managing the business of NCM LLC, fulfilling our obligations under the Exchange Act, and activities incidental to the foregoing.

Founding Member Approval Rights. If any director designee to our board of directors designated by NCM LLC’s founding members pursuant to the Director Designation Agreement described below is not appointed to our board, nominated by us or elected by our stockholders, as applicable, then each of the founding members (so long as such founding member continues to own 5% of NCM LLC’s issued and outstanding common membership units) will be entitled to approve the following actions of NCM LLC:

 

   

approving any budget or any amendment or modification of the budget;

 

   

incurring any indebtedness or entering into or consummating any other financing transaction that is not provided for in the budget;

 

   

entering into or consummating any agreements or arrangements involving annual payments by NCM LLC (including the fair market value of any barter) in excess of $5 million (subject to annual

 

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adjustment based on the Consumer Price Index), except as otherwise provided in the budget, or any material modification of any such agreements or arrangements;

 

   

entering into or consummating any agreements or arrangements involving annual receipts (including the fair market value of any barter) in excess of $20 million (subject to annual adjustment based on the Consumer Price Index), or any material modification of any such agreements or arrangements;

 

   

except as contemplated herein, declaring, setting aside or paying any redemption of, dividends on, or the making of any other distributions in respect of, any of its membership units or other equity interests in NCM LLC, as the case may be, payable in cash, stock, property or otherwise, or any reorganization or recapitalization or split, combination or reclassification or similar transaction of any of its units, limited liability company interests or capital stock, as the case may be;

 

   

amending any provision of the restated operating agreement to authorize, or to issue, any additional membership units or classes of units or other equity interests and the designations, preferences and relative, participating or other rights, powers or duties thereof;

 

   

hiring or terminating the employment of the chief executive officer, chief financial officer, chief technology officer or chief sales and marketing officer of NCM LLC, or the entering into, amendment or termination of any employment, severance, change of control or other contract with any employee who has a written employment agreement with NCM LLC;

 

   

changing the purposes of NCM LLC, or the provision by NCM LLC of any services beyond the scope of the services defined in the ESAs, or services outside of the United States or Canada;

 

   

entering into any agreement with respect to or the taking of any material steps to facilitate a transaction that constitutes a change of control of NCM LLC or a proposal for such a transaction;

 

   

leasing (as lessor), licensing (as licensor) or other transfer of assets (including securities) (x) having a fair market value or for consideration exceeding $10 million (subject to annual adjustment based on the Consumer Price Index), taken as a whole, or (y) to which the revenue or the profits attributable exceed $10 million (subject to annual adjustment based on the Consumer Price Index), taken as a whole, in any one transaction or series of related transactions, in each case, determined using the most recent quarterly consolidated financial statement of NCM LLC;

 

   

entering into any agreement with respect to or consummating any acquisition of any business or assets having a fair market value in excess of $10 million (subject to annual adjustment based on the Consumer Price Index) taken as a whole, in any one transaction or series of related transactions, whether by purchase and sale, merger, consolidation, restructuring, recapitalization or otherwise;

 

   

settling claims or suits in which NCM LLC is a party for an amount that exceeds the relevant provision in the budget by more than $1 million (subject to annual adjustment based on the Consumer Price Index) or where equitable or injunctive relief is included as part of such settlement;

 

   

entering into, modifying or terminating any material contract or transaction or series of related transactions (including by way of barter) between (x) NCM LLC or any of its subsidiaries and (y) any member or any affiliate of any member or any person in which any founding member has taken, or is negotiating to take, a material financial interest, in each case, other than relating to the purchase or sale of products or services in the ordinary course of business of NCM LLC;

 

   

entering into any agreement for NCM LLC to provide to any new member or affiliate of any new member any services similar to those set forth in the ESAs described above, or admitting to NCM LLC any new member;

 

   

entering into, modifying or terminating any agreement for NCM LLC to provide any services to any person (other than a member or affiliate of a member) that requires capital expenditures or guaranteed payments in excess of $1 million annually (subject to annual adjustment based on the Consumer Price Index);

 

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dissolution of NCM LLC; the adoption of a plan of liquidation of NCM LLC; any action by NCM LLC to commence any suit, case, proceeding or other action (i) under any existing or future law of any jurisdiction relating to bankruptcy, insolvency, reorganization or relief of debtors seeking to have an order for relief entered with respect to NCM LLC, or seeking to adjudicate NCM LLC as bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding up, liquidation, dissolution, composition or other relief with respect to NCM LLC, or (ii) seeking appointment of a receiver, trustee, custodian or other similar official for NCM LLC, or for all or any material portion of the assets of NCM LLC, or making a general assignment for the benefit of the creditors of NCM LLC;

 

   

approving any significant tax matters;

 

   

valuation determinations to be made under the restated operating agreement;

 

   

amending or changing certain provisions of the restated operating agreement; and

 

   

any expenditure by NCM LLC to replace, upgrade or modify any equipment or software owned by any of the founding members or their affiliates.

For purposes of calculating the 5% ownership thresholds discussed above, shares of our common stock held by a founding member and received upon redemption of NCM LLC common membership units will be counted toward the threshold, but common membership units issued to us in connection with the redemption of common membership units by a founding member will be excluded, so long as such founding member continues to hold the common stock acquired through such redemption or such founding member has disposed of such shares of common stock to another founding member. Shares of our common stock otherwise acquired by the founding members will also be excluded, unless such shares of common stock were transferred by one founding member to another and were originally received by the transferring founding member upon redemption of NCM LLC common membership units. NCM LLC common membership units held by permitted transferees of a founding member will be combined with units held by the founding member for purposes of determining whether the 5% threshold has been met, and the founding member and its permitted transferees may exercise their designation rights jointly. Permitted transferees include affiliates of the founding member and entities that are owned more than 50% by the same entity or entities that ultimately control the founding member.

Compensation. We are not entitled to compensation for our services as manager except as provided in the Management Services Agreement described under “– Transactions with NCM LLC – Management Services Agreement” below, or as otherwise approved by a vote of the members holding a majority of the outstanding common membership units plus each founding member. We are entitled to reimbursement by NCM LLC for our reasonable out-of-pocket expenses incurred by us on its behalf.

Distributions. The restated operating agreement provides for mandatory distributions to members of all “Available Cash,” as defined in the restated operating agreement. Available Cash does not include amounts drawn or paid under NCM LLC’s working capital line of credit. The mandatory distributions must occur quarterly. In 2012, available cash distributions totaled $151.9 million. Of that amount, the portion payable to NCM, Inc., AMC, Cinemark and Regal totaled $72.7 million, $23.1 million, $24.2 million and $29.5 million, respectively.

Transfer Restrictions. The restated operating agreement generally permits transfers of membership units of NCM LLC, subject to limited exceptions. Any transferee of membership units must assume, by operation of law or written agreement, all of the obligations of the transferring member with respect to the transferred units, even if the transferee is not admitted as a member of NCM LLC. In the event of a transfer of membership units by a founding member, the transferee shall not have the rights and powers of a founding member (such as the right to designate directors for nomination), unless the transferee is an entity that is affiliated with the founding member or that is controlled by certain owners of the founding member.

Common Unit Redemption Right. The restated operating agreement provides a redemption right of the members to exchange common membership units of NCM LLC for our shares of common stock on a one-for-one basis (as adjusted to account for stock splits, recapitalization or similar events), or at our option, a cash payment

 

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equal to the market price of one share of our common stock. If we determine to make a cash payment, the member has the option to rescind its redemption request within a specified time period. In the event of a determination to make a cash payment, we are obligated to sell to a third party a number of shares equal to the number of redeemed units, to ensure that the number of NCM LLC common units we own equals the number of our outstanding shares of common stock. Upon the exercise of the redemption right, the redeeming member will surrender common units to NCM LLC for cancellation. Pursuant to our amended and restated certificate of incorporation, we will then contribute cash or shares of our common stock to NCM LLC in exchange for an amount of newly issued common units equal to the number of units surrendered by the redeeming member. NCM LLC will then distribute the cash or shares of common stock to the redeeming member to complete the redemption.

During the third quarter of 2010, AMC and Regal exercised the redemption right of an aggregate 10,955,471 common membership units, whereby AMC and Regal surrendered 6,655,193 and 4,300,278 common membership units to NCM LLC for cancellation, respectively. The Company contributed an aggregate 10,955,471 shares of its common stock to NCM LLC in exchange for a like number of newly issued common membership units. NCM LLC then distributed the shares of common stock to AMC and Regal to complete the redemptions. Such redemptions took place immediately prior to the closing of the underwritten public offering and the subsequent closing of the overallotment option; in each case the NCM, Inc. common stock was sold at a price to the public of $16.00 per share by AMC and Regal. The Company did not receive any proceeds from the sale of its common stock by AMC and Regal.

Issuance of Units upon Exercise of Options or Vesting of Other Equity Compensation. Upon the exercise of options we have issued or the vesting of shares for other types of equity compensation (such as issuance of restricted or non-restricted stock, payment of bonuses in stock or settlement of stock appreciation rights in stock), we will have the right to acquire from NCM LLC a number of common units equal to the number of our shares being issued in connection with the exercise of options or vesting of shares for other types of equity compensation. In consideration for such units, we will contribute to NCM LLC the consideration we received for the exercise of options or vesting of shares for other types of equity compensation. In 2012, we acquired 551,654 units due to vesting of restricted stock and exercise of options and contributed $2.3 million to NCM LLC.

Dissolution. The restated operating agreement provides that the unanimous consent of all members holding common units will be required to voluntarily dissolve NCM LLC. In addition to a voluntary dissolution, NCM LLC will be dissolved upon the entry of a decree of judicial dissolution in accordance with Delaware law or the termination of the legal existence of the last remaining member. Upon a dissolution event, the proceeds of liquidation will be distributed in the following order:

 

   

first, to pay the expenses of winding up and dissolving NCM LLC and debts and liabilities owed to creditors of NCM LLC, other than members;

 

   

second, to pay debts and liabilities owed to members; and

 

   

third, to the members pro rata in accordance with their percentage interests.

Confidentiality. Each member agrees to maintain the confidentiality of NCM LLC’s intellectual property and other confidential information for a period of three years following the earlier of (i) date of dissolution of NCM LLC or (ii) the date such member ceases to be a member. This obligation covers information provided to NCM LLC by the members and their affiliates, and excludes disclosures required by law or judicial process.

Amendment. The restated operating agreement may be amended by a vote of the members holding a majority of the outstanding common membership units plus each founding member. Amendments to specified provisions require the additional consent of us as manager. No amendment that would materially impair the voting power or economic rights of any outstanding common units in relation to any other outstanding class of units may be made without the consent of a majority of the affected units. No amendment that would materially impair the voting power or economic rights of any member in relation to the other members may be made without the consent of the affected member.

 

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Indemnification. The restated operating agreement provides that NCM LLC will indemnify its managers, members and officers against liabilities that arise in connection with the business of NCM LLC and any activities of any managers, members and officers involving actions taken on behalf of NCM LLC, provided that the indemnification will not apply to acts of gross negligence or willful misconduct or a breach of any agreement between the indemnitee and NCM LLC.

Business Opportunities. The restated operating agreement also provides that, except as provided in the ESAs and as otherwise provided in the restated operating agreement, each member and its affiliates may have other business interests and may engage in any other businesses of any kind, including businesses that compete with our business and purpose.

Common Unit Adjustment Agreement

On February 12, 2007, NCM, Inc., NCM LLC, AMC, Cinemark, and Regal agreed upon the final terms of a common unit adjustment agreement. The common unit adjustment agreement was executed by the parties effective February 13, 2007.

The common unit adjustment agreement provides a mechanism for adjusting membership units held by the founding members, based on increases or decreases in the number of screens operated by each founding member. Increases in the number of screens are included in the unit adjustment if arising from acquisition of a theatre or opening of a newly constructed theatre, except that acquired theatres subject to an agreement with an alternative cinema advertising provider will not be included until certain run out payments are made to NCM LLC by the founding member acquiring the theatre pursuant to its ESA or until such third party cinema advertising agreement expires and the theatre is added to NCM’s network. Decreases in the number of screens are included in the unit adjustment if arising from disposition of a theatre, unless the purchaser or sublessee enters into an agreement with NCM LLC similar to the ESA, the theatre is closed at the end of its lease term or a non-digitized theatre is closed within three years of the end of its lease term.

The adjustment of membership units pursuant to the common unit adjustment agreement is to be conducted annually, except that an earlier adjustment will occur for a founding member if its acquisition or disposition of theatres, in a single transaction or cumulatively since the most recent adjustment, will cause a change of two percent or more in the total annual attendance of all founding members. The adjustment is generally calculated by multiplying a founding member’s change in annual attendance from any acquisitions and dispositions during the relevant period by NCM LLC’s enterprise value per attendee (as defined in the common unit adjustment agreement), and dividing this product by the sixty-day volume-weighted share price of our common stock. The changes in annual attendance will be calculated based on attendance at the relevant theatres during the prior twelve fiscal months; however, if an acquired theatre has not been operating during the twelve prior fiscal months, the change in annual attendance will be calculated based on 75% of the projected annual attendance for such theatre, with a subsequent adjustment made for any difference between 75% of the projected attendance and the actual attendance during the first twelve months of operation. Additionally, in the calculations for adjustment upon acquisition or disposition, only one-half of the attendance will be counted for theatres that are not digitized. If an acquired theatre that is not digitized is subsequently converted to a digitized theatre, the founding member will then be credited with half of that theatre’s attendance.

On April 30, 2008, pursuant to the provisions of the common unit adjustment agreement, NCM LLC issued 2,913,754 common membership units to Regal in connection with the closing of its acquisition of Consolidated Theatres, as the acquisition resulted in an extraordinary attendance increase as defined in the common unit adjustment agreement. Neither NCM, Inc. nor NCM LLC received any cash consideration in exchange for the issuance of the units. The number of units issued assumed that NCM LLC would have immediate access to the Consolidated Theatres for sales of advertising. However, Consolidated Theatres had a pre-existing advertising agreement with another cinema advertising provider. Accordingly, pursuant to terms of the ESA, Regal paid to NCM LLC through the second quarter of 2011 the amount calculated per the common unit adjustment agreement

 

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to reflect the net amount of cash that NCM LLC would have generated if NCM LLC was able to sell on-screen advertising in the Consolidated Theatres on an exclusive basis. Regal did not make integration payments to NCM LLC in 2012.

On March 29, 2012, NCM LLC issued 598,724 common membership units to Cinemark, and 52,888 common membership units to Regal for the 2011 fiscal year common unit agreement adjustment. NCM LLC received a cash payment of $21,804 from AMC in lieu of surrendering 16,727 whole units and one partial unit. Neither NCM, Inc. nor NCM LLC received any cash consideration in exchange for the issuance of the units.

Theatre and attendance information is being provided to us by our founding members and we expect the calculation for our 2012 fiscal year common unit adjustment to be completed pursuant to the provisions in the common unit adjustment agreement in the first quarter of 2013.

Tax Receivable Agreement

On February 12, 2007, NCM, Inc., NCM LLC, AMC, Cinemark, and Regal agreed upon the final terms of the tax receivable agreement. The tax receivable agreement was executed by the parties effective February 13, 2007.

The tax receivable agreement provides for the effective payment by us to the founding members of 90% of the amount of cash savings, if any, in U.S. federal, state, and local income tax or franchise tax that we actually realized as a result of certain increases in our proportionate share of tax basis in NCM LLC’s tangible and intangible assets resulting from our IPO and related transactions, including increases attributable to payments made under the tax receivable agreement. These tax benefit payments are not conditioned upon one or more of the founding members maintaining a continued ownership interest in either NCM LLC or NCM, Inc. We expect to benefit from the remaining 10% of cash savings, if any, that we may actually realize.

For purposes of the tax receivable agreement, cash savings in income and franchise tax will be computed by comparing our actual income and franchise tax liability to the amount of such taxes that we would have been required to pay had there been no increase in our proportionate share of tax basis in NCM LLC’s tangible and intangible assets and had the tax receivable agreement not been entered into. The tax receivable agreement shall generally apply to our taxable years up to and including the 30th anniversary date of our IPO. The term of the tax receivable agreement will continue until any utilized benefits are no longer subject to potential audit or examination by a taxing authority. The term of the tax receivable agreement may, however, be terminated at an earlier date in the event that we exercise our right to terminate the agreement pursuant to an early termination procedure that requires us to pay the founding members an agreed upon amount equal to the present value of the estimated remaining payments to be made under the agreement.

Although the actual timing and amount of any payments that may be made under the tax receivable agreement will vary depending upon a number of factors (including the timing of any redemptions of common membership units in NCM LLC by our founding members, the extent to which such redemptions are taxable, the trading price of shares of our common stock at the time of any such redemptions, and the amount and timing of our income), we expect the payments that we may effectively make to the founding members could be substantial. If the Internal Revenue Service or other taxing authority were to subsequently challenge any of our cash savings covered by the tax receivable agreement, and if such challenge were ultimately upheld, the terms of the tax receivable agreement require the founding members to repay to us an amount equal to the prior payments effectively made by us in respect of such disallowed cash savings, plus a proportionate share of any applicable interest and penalties. In such an event, and if a founding member is unable to make a timely repayment to us under the terms of the tax receivable agreement, we will have the ability to cause NCM LLC to offset against payments owed to the founding member. The repayment obligation is a several liability of each founding member and not a joint liability among the founding members.

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