NCMI National CineMedia Inc

On March 15, 2018, National CineMedia, Inc. (“NCM, Inc.”), as sole manager of National CineMedia, LLC (“NCM LLC”), provided written notices setting forth the determination of common membership units due to/from the members of NCM LLC as shown in the table below, in accordance with the Common Unit Adjustment Agreement dated as of February 13, 2007, by and among NCM, Inc., NCM LLC, Regal CineMedia Holdings, LLC (“Regal”), American Multi-Cinema, Inc. (“AMC”), Cinemark Media, Inc. (“Cinemark”), Regal Cinemas, Inc. (“RCI”) and Cinemark USA, Inc.  Regal, AMC and Cinemark are referred to collectively as the “Founding Members.”   The “Founding Member Group” means, with respect to each Founding Member, the Founding Member, its ESA Party, and their Affiliates.  Any undefined capitalized term has the meaning given it in the Common Unit Adjustment Agreement.  Under the Common Unit Adjustment Agreement, the adjustment of membership units is conducted annually, except that a Common Unit Adjustment will occur for a specific Founding Member (or designee) if its acquisition or disposition of theaters, in a single transaction or cumulatively since the most recent Common Unit Adjustment, results in an extraordinary attendance increase or decrease in excess of two percent of the annual total attendance as determined on the prior adjustment date. The common membership units are expected to be issued on March 29, 2018, the settlement date. Following is a summary of the NCM LLC ownership units that will result from this most recent Common Unit Adjustment:

Following the issuance (surrender) of these common membership units pursuant to the Common Unit Adjustment Agreement for fiscal 2017, each Founding Member Group’s ownership interest in NCM LLC will change as follows:

Pursuant to NCM, Inc.’s Amended and Restated Certificate of Incorporation and NCM LLC’s Third Amended and Restated Limited Liability Company Operating Agreement, as amended, members of NCM LLC, other than NCM, Inc., may choose to have common membership units redeemed, and NCM, Inc. may elect to issue cash or shares of its common stock on a one-for-one basis.  Therefore, the NCM LLC units issued to the Founding Members may be redeemable for an equal number of shares of NCM, Inc.’s common stock.

Neither NCM, Inc. nor NCM LLC received any cash consideration in exchange for the issuance of the units.  In addition to the issuance of the units, cash will be paid in lieu of partial units in the amounts of $5.94 and $1.83 to Cinemark USA, Inc. and RCI, respectively, and cash was received in lieu of partial units returned in the amount of $6.27 from AMC.

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The units will be issued in reliance upon the exemption from the registration requirements of the Securities Act provided for by Section 4(2) thereof for transactions not involving a public offering. Appropriate legends will be affixed to the securities issued in this transaction. The Founding Members had adequate access, through business or other relationships, to information about NCM, Inc.

Discussion of Common Unit Adjustment Calculations

Methodology

The Common Unit Adjustment Agreement provides a mechanism for adjusting membership units held by the Founding Members, based on increases or decreases in attendance associated with new theater construction or acquisitions and dispositions or closures by each Founding Member as discussed below.  The adjustment of membership units pursuant to this agreement are conducted annually, except that an earlier adjustment will occur for a Founding Member if its acquisition or disposition of theaters, 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.  

Increases in attendance associated with theater additions are included in the unit adjustment if arising from acquisition of a theater or opening of a newly constructed theater, except that lease renewals and extensions are not included and acquired theaters, 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 theater pursuant to its ESA or until such third party cinema advertising agreement expires.

Decreases in attendance associated with theater dispositions are included in the unit adjustment if arising from the closure or sale of a theater, unless the purchaser or sublessee enters into an agreement with NCM LLC similar to the ESA, the theater is closed at or after the end of its lease term in effect on February 13, 2007 (the Common Unit Adjustment Agreement date), the theater is closed at the end of an initial term of a lease entered into after February 13, 2007, or a non-digitized theater is closed within the last three years of the term of a lease in effect on February 13, 2007 (the closing date of NCM, Inc.’s initial public offering).

The increases in attendance for acquired theaters that were open for the full twelve months prior to the acquisition date are calculated based on the attendance for the twelve months prior to the acquisition date and decreases in attendance for theaters that were disposed are based on the attendance for the twelve months prior to the disposition date. However, if an acquired or new build theater was not operating during the entire twelve months prior to the acquisition date (in the case of an acquired theater), the change in annual attendance is calculated based on 75% of the projected, year 1 annual attendance for such theater, as determined by the Founding Members’ board of directors (or other investment committee designated by the board) in approving development or acquisition.  Additionally, in the calculations for adjustment upon acquisition, new openings, closures or disposition, only 50% of the attendance is included for theaters that were not digitized.

In the case of acquired or new build theaters in which the 75% of projected, year 1 annual attendance was used in prior Common Unit Adjustments, an additional adjustment or “true-up” was made to the net increases and decreases in attendance.  This adjustment was calculated as the variance between the attendees applied in the prior Common Unit Adjustment and the actual, year 1 attendance for such theaters.

Discussion of changes in screens and attendance

The aggregate net attendance adjustment used in calculating the Common Unit Adjustment for the 2017 fiscal year was an increase of 6,816,041 attendees as described below.

A total of 293 screens were added resulting in an average attendance per added screen of approximately 37,886.

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A total of 243 screens were disposed of resulting in an average attendance per disposed screen of approximately 24,322.  

Excluded from the calculation was a 2,202,783 decrease in attendance related to theater closures associated with expired leases in effect at February 13, 2007, of which all attendees were from digital screens.  A total of 117 screens were excluded, due to end of lease screen closures resulting in an average attendance per excluded screen of approximately 18,827.

Calculation of the Common Unit Adjustment (1): (as of and for the fiscal year ended December 28, 2017, except as noted)  

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