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CINEMARK HOLDINGS, INC.

3900 Dallas Parkway, Suite 500

Plano, Texas 75093

 

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 12, 2011

 

Dear Stockholder:

 

Notice is hereby given that the Annual Meeting of Cinemark Holdings, Inc. will be held on May 12, 2011, at 9 a.m. at our West Plano Theatre located at 3800 Dallas Parkway, Plano, TX 75093, for the following purposes:

 

1.  To elect four Class I directors to serve for three years on our Board of Directors;

 

 

Accompanying this notice is the proxy statement, which provides information on our Board of Directors and management team, and further describes the business we will conduct at the Annual Meeting.

 

The proxy statement is also available on the internet at http://www.cinemark.com/Investor Relations/Proxy Materials.

 

Only stockholders of record as of the close of business on March 24, 2011 will be entitled to notice of, and to vote at, the Annual Meeting.

 

We sincerely hope you will be able to attend the Annual Meeting. Whether or not you attend the Annual Meeting, it is important that your shares be represented. Therefore, we urge you to promptly vote. If you decide to attend the Annual Meeting, you will be able to vote in person, even if you previously submitted your proxy.

 

On behalf of Cinemark’s Board of Directors and management team, I look forward to greeting you at the Annual Meeting.

 

Sincerely,

 

 

Michael D. Cavalier

Secretary

 

Plano, Texas

March 29, 2011

CINEMARK HOLDINGS, INC.

3900 Dallas Parkway, Suite 500

Plano, Texas 75093

 

PROXY STATEMENT

 

ANNUAL MEETING OF STOCKHOLDERS
May 12, 2011

 

GENERAL INFORMATION

 

Solicitation and Revocability of Proxies

 

The Board of Directors (the “Board”) of Cinemark Holdings, Inc. (the “Company”, “we”, “our” or “us”) is soliciting proxies in connection with the 2011 annual meeting of stockholders and any adjournment thereof (the “Annual Meeting”) to be held on May 12, 2011, at 9 a.m. at the Company’s West Plano Theatre located at 3800 Dallas Parkway, Plano, TX 75093. The approximate date on which this proxy statement and the enclosed proxy are first being sent to stockholders is March 29, 2011.

 

Shares Outstanding and Voting Rights

 

As of March 24, 2011, 113,787,627 shares of the Company’s common stock, par value $0.001 per share (the “Common Stock”), were outstanding. The Common Stock constitutes the only class of voting securities of the Company. Only stockholders of record as of the close of business on March 24, 2011 (the “Record Date”) are entitled to receive notice of, and to vote at the Annual Meeting. Holders of Common Stock are entitled to one vote for each share so held.

 

QUESTIONS AND ANSWERS ABOUT
THE MEETING AND VOTING

 

 

We are holding the Annual Meeting to elect directors, to ratify the selection of Deloitte & Touche, LLP as our independent registered public accountant, to hold advisory votes of stockholders on our executive compensation program and determine the frequency of stockholder vote on executive compensation. Our Nominating and Corporate Governance Committee has recommended the director nominees to our Board and our Board has nominated the director nominees. Our Audit Committee has approved the appointment of our independent registered public accountant and our Board has ratified such appointment. Our Compensation Committee has approved our executive compensation program and our Board has recommended an annual stockholder vote on our executive compensation program. If any other matters requiring a stockholder vote properly come before the Annual Meeting, those stockholders present at the Annual Meeting and the proxies who have been appointed by our stockholders will vote as they think appropriate.

 

 

The Record Date for the Annual Meeting is March 24, 2011. The Record Date is established by the Board as required by Delaware law. Owners of record of Common Stock at the close of business on the Record Date are entitled to:

 

 

 

 

(a) Stockholder of record: If your shares are registered in your name with our transfer agent, Wells Fargo Shareowner Services, you are a stockholder of record with respect to those shares. As a stockholder of record, you have the right to grant your voting proxy directly to us or to a third party, or to vote in person at the Annual Meeting.

 

(b) Stockholder who holds stock in street name: If your shares are held in a brokerage account, by a bank or another nominee, you are considered to be a beneficial owner of shares held in “street name”. As the beneficial owner, you have the right to direct your broker, bank or nominee on how to vote and you are also invited to attend the Annual Meeting. Your broker, bank or nominee, as the record holder of your shares, may exercise discretionary authority to vote on “routine” proposals but may not vote on “non-routine” proposals. As a beneficial owner, you will not be deemed to have voted on the “non-routine” proposals if you do not instruct your broker, bank or nominee.

 

These proxy materials are being forwarded to you on behalf of your broker, bank or nominee. Your broker, bank or nominee has enclosed or provided voting instructions for you to use in directing the broker, bank or nominee on how to vote your shares. Since a beneficial owner in street name is not the stockholder of record, you may not vote these shares in person at the Annual Meeting unless you obtain a “legal proxy” from the broker, bank or nominee that holds your shares, giving you the right to vote the shares at the Annual Meeting.

 

 

A majority of our outstanding shares as of the Record Date must be present at the Annual Meeting in order to hold the Annual Meeting and conduct business. This is called a “quorum.” Unless a quorum is present at the Annual Meeting, no action may be taken at the Annual Meeting except the adjournment thereof until a later time. Shares are counted as present at the Annual Meeting if you are present and vote in person at the Annual Meeting or if you vote via the Internet, by telephone, or if you are represented by proxy. Abstentions and “broker non-votes” are counted as present for the purpose of determining the presence of a quorum.

 

 

A proxy is your legal designation of another person to vote the stock you own. The person(s) that you designate to vote your shares are called proxies. Alan W. Stock, Robert D. Copple and Michael D. Cavalier of the Company have been designated as proxies for the Annual Meeting. The term “proxy” also refers to the written document or “proxy card” that you sign to authorize those persons to vote your shares.

 

By executing the proxy card, you authorize the above-named individuals to act as your proxies to vote your shares in the manner that you specify. The proxy voting mechanism is vitally important to us. In order for us to obtain the necessary stockholder approval of proposals, a “quorum” of stockholders (a majority of the outstanding shares of Common Stock as of the Record Date) must be represented at the Annual Meeting in person or by proxy. Since few stockholders can spend the time or money to attend stockholder meetings in person, voting by proxy is necessary to obtain a quorum and complete the stockholder vote. It is important that you attend the Annual Meeting in person or grant a proxy to vote your shares to assure a quorum is obtained so corporate business can be transacted. If a quorum is not obtained, we must postpone the Annual Meeting and solicit additional proxies, which is an expensive and time-consuming process.

 

 

If you are a stockholder of record, you may vote:

 

 

 

If you are a beneficial holder, you may vote:

 

 

 

Stockholder of Record.

 

If you are a stockholder of record and you:

 

 

then the proxy holders will vote your shares in the manner recommended by the Board on all matters presented in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly presented for a vote at the Annual Meeting.

 

Beneficial Owner.

 

If you own shares through a broker, bank or nominee and do not provide voting instructions to the broker, bank or nominee holding your shares, your broker, bank or nominee may represent your shares at the Annual Meeting for purposes of obtaining a quorum. Your broker may vote your shares in its discretion on some “routine matters.” However, with respect to “non-routine matters”, your broker may not vote your shares for you. With respect to these “non-routine matters”, the aggregate number of unvoted shares is reported as “broker non-votes”.

 

 

If you are the beneficial owner of shares and hold stock in street name, then the broker, as the stockholder of record of the shares, may exercise discretionary authority to vote your shares with respect to “routine” matters but will not be permitted to vote the shares with respect to “non-routine” matters. A broker non-vote occurs when you do not provide the broker with voting instructions on “non-routine” matters for shares owned by you but held in the name of the broker. For such matters, the broker cannot vote either way and reports the number of such shares as “non-votes.”

 

“Broker non-votes” and abstentions are counted for purposes of determining a quorum. “Broker non-votes” and abstentions do not arise and have no effect on the proposal relating to the election of directors. But “broker non-votes” and abstentions affect whether the other proposals are approved.

 

 

Under the broker voting rules of the New York Stock Exchange (the “NYSE”), the ratification of the appointment of Deloitte & Touche, LLP as the Company’s independent, registered public accountant for the fiscal year 2011 (Item No. 2) is a matter considered “routine”. “Broker non-votes” will not arise in the context of Item No. 2 as brokers may exercise discretionary authority to vote your shares on Item No. 2.

 

Under the broker voting rules of the NYSE, the election of the directors (Item No. 1), advisory vote on executive compensation (Item No. 3) and advisory vote on frequency of vote on executive compensation (Item No. 4) are considered “non-routine” matters. As a consequence, brokers will not be able to vote on Item No. 1, Item No. 3 and Item No. 4 without receiving instructions from the beneficial owners. As a result, “broker non-votes” could arise in the context of these proposals.

 

 

Approval of Item 1: Directors are elected by a plurality of all of the votes cast, in person or by proxy. Votes marked “For” Item 1 will be counted in favor of all director nominees, except to the extent the proxy withholds authority to vote for a specified director nominee. The four director nominees receiving the highest number of affirmative votes of the shares entitled to be voted for them will be elected as directors to serve until the next annual meeting of stockholders and until their successors are duly elected and qualified. Therefore, votes marked “Abstain” from a director nominee have no effect on the vote. Also, since this proposal is considered a “non-routine” matter, “broker non-votes” will arise.

 

Approval of Item No. 2, No. 3 and No. 4: The ratification of the appointment of Deloitte & Touche, LLP, advisory votes on executive compensation and frequency of vote on executive compensation require the affirmative vote of a majority of the shares present or represented by proxy and voting at the Annual Meeting.

 

Abstention will have the same effect as a vote against that proposal. Since “broker non-votes” do not arise for Item 2, abstentions might prevent the approval of Item No. 2. For Item No. 3 and Item No. 4, abstentions and “broker non-votes” could prevent approvals.

 

 

You may revoke your proxy and change your vote at any time before the proxy has been exercised at the Annual Meeting.

 

If you are a stockholder of record, your proxy can be revoked in several ways:

 

 

If your shares are held in street name by a broker or bank, you must contact your broker or bank in order to revoke your proxy. Generally, you may change your vote by submitting new voting instructions to your broker, bank or nominee, or, if you have obtained a “legal proxy” from your broker, bank or nominee giving you the right to vote your shares, by attending the Annual Meeting and voting in person.

 

The Company has retained a representative of Wells Fargo Shareowner Services to serve as an independent tabulator to receive and tabulate the proxies and as an independent inspector of election to certify the results.

 

 

The Company pays for this proxy solicitation. We use our transfer agent, its agents, and brokers to distribute all proxy materials to our stockholders. We will pay them a fee and reimburse any expenses they incur in making the distribution. Proxies will be solicited on behalf of the Board by mail, telephone, other electronic means or in person. We have retained D.F. King & Co., Inc., 48 Wall Street, 22nd Floor, New York, NY 10005, to assist with the solicitation for a fee of $6,000 plus reasonable out-of-pocket expenses.

 

 

Stockholders may receive a copy of the Company’s 2010 Annual Report on Form 10-K at no charge by sending a written request to Michael D. Cavalier, Company Secretary at Cinemark Holdings, Inc., 3900 Dallas Parkway, Suite 500, Plano, Texas 75093.

 

You can also visit our Web site at www.cinemark.com for free access to our filings with the Securities and Exchange Commission (the “SEC”), including our registration statement on Form S-1, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and all amendments to these reports as soon as reasonably practicable after the reports are electronically filed with or furnished to the SEC. The SEC maintains a Web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The address of the Web site is www.sec.gov. The Company’s reports and corporate governance documents can also be accessed free of charge at the Company’s Web site, www.cinemark.com.

 

 

Stockholder Proxy Proposal Deadline: Stockholder proposals requested to be included in our proxy statement and form of proxy for our 2012 annual meeting must be in writing and received by us by the end of business on January 13, 2012, provided that proposals are submitted by eligible stockholders who have complied with the relevant regulations of the SEC regarding stockholder proposals and our bylaws. A copy of our bylaws is available from the Company Secretary upon written request. Proposals should be directed to Michael D. Cavalier, Company Secretary at Cinemark Holdings, Inc., 3900 Dallas Parkway, Suite 500, Plano, Texas 75093.

 

Stockholder Business — Annual Meeting Deadline: Stockholders who wish to introduce an item of business at the 2012 annual meeting of stockholders may do so in accordance with our bylaws. These procedures provide, generally, that stockholders desiring to bring a proper subject of business before an annual meeting, must do so by a written notice in proper written form, timely received (between 90 and 120 days in advance of such annual meeting) by the Company Secretary. Any notice of intent to introduce an item of business at an annual meeting of stockholders must contain the name and record address of the stockholder and the name and address of the beneficial owner on whose behalf the proposal is made, a representation that the stockholder is a holder of record, class, series and the number of shares of Common Stock owned of record or beneficially by the stockholder and the beneficial owner on whose behalf the proposal is made, a description of all arrangements and understandings between the stockholder and the beneficial owners, if any, and that the stockholder intends to appear in person or by proxy at the annual meeting. Notice of an item of business must also include a brief description of the proposed business, the text of the proposal, the reason for conducting such business at the annual meeting and any material interest of the stockholder in such business.

 

Composition of Board and Nomination of Class I Directors

 

Our Board is currently comprised of ten members. The size of the Board may be fixed from time to time exclusively by our Board as provided in our Second Amended and Restated Certificate of Incorporation. Our Second Amended and Restated Certificate of Incorporation also provides that our Board consists of three classes of directors, designated as Class I, Class II and Class III, and the members of each class are elected to serve a three-year term, with the terms of office of each class ending in successive years. On April 9, 2007, immediately prior to our initial public offering, we entered into a director nomination agreement with certain of our then current stockholders permitting those certain stockholders to designate persons for appointment or nomination for election to the Board (the “Director Nomination Agreement”). Pursuant to the Director Nomination Agreement, Madison Dearborn Capital Partners IV, L.P. (“MDCP”), has the right to designate five nominees to the Board, the Mitchell Investors (as defined in the Director Nomination Agreement) have the right to designate two nominees to the Board, Syufy Enterprises, LP (“Syufy Enterprises”) had the right to designate one nominee to the Board and the Quadrangle Investors (as defined in the Director Nomination Agreement) had the right to designate one nominee to the Board. Effective August 25, 2010 and December 9, 2009, Syufy Enterprises and Quadrangle Investors, respectively, no longer have a right to designate a nominee to the Board as they have sold their beneficial ownership in the Company’s Common Stock. However, Raymond Syufy, a former nominee of Syufy Enterprises and Peter Ezersky, a former nominee of the Quadrangle Investors are continuing as Class III and Class II directors respectively, subject to their re-election upon the expiry of their terms.

 

The terms of the current Class I directors, Mr. Steven P. Rosenberg, Mr. Enrique F. Senior, Mr. Donald G. Soderquist and Mr. Roger T. Staubach, expire at this Annual Meeting.

 

MDCP has designated Messers. Senior, Soderquist and Staubach and the Board nominated Mr. Rosenberg for election to the Board as Class I directors at the Annual Meeting. The Nomination and Corporate Governance Committee has recommended to the Board, and the Board has approved, the nomination of Messers. Rosenberg, Senior, Soderquist and Staubach for election to the Board at the Annual Meeting as Class I directors. Each of the Class I directors, if elected, will serve on the Board for a three-year term expiring on the date of our annual meeting of stockholders to be held in 2014.

 

Each nominee has consented to be named herein and to serve on the Board if elected. We have no reason to believe that any of the director nominees will be unable or unwilling to serve if elected. However, should any director nominee becomes unavailable or unwilling to serve before the election, your proxy card authorizes us to vote for a replacement nominee if the Board names one.

 

Director Qualifications and Board Diversity

 

Our Corporate Governance Guidelines contain Board membership criteria that apply to nominees for a position on our Board. The Board has not adopted a formal diversity policy but pursuant to the Company’s Corporate Governance Guidelines, the Board seeks candidates of diverse background, education, skills, age and expertise with a proven record of accomplishment and the ability to work well with others. The Nomination and Corporate Governance Committee, does not assign specific weight to any particular factor but in selecting members for open Board positions takes into account such factors as it deems appropriate, which may include the current composition of the Board, the range of talents, experiences and skills that would best complement those already represented on the Board and the need for financial or other specialized expertise.

 

The Board seeks to achieve a mix of members who together bring experience and personal backgrounds relevant to the Company’s strategic priorities and the scope and complexity of the Company’s business. The background information on current nominees sets out how each of the current nominees contributes to the mix of experience and qualifications the Board seeks.

 

Currently, seven of our Board members are nominees of our stockholders pursuant to the Director Nomination Agreement. The Nominating and Corporate Governance Committee receives nominations from the stockholders and the Board and evaluates nominees against the standards and qualifications and diversity

criteria set forth in the Company’s Corporate Governance Guidelines. The Nominating and Corporate Governance Committee annually evaluates the criteria for the selection of new directors and recommends any proposed changes to the Board.

 

Candidates nominated for election or re-election to the Board should possess the following qualifications:

 

 

Information on each of our director nominees and continuing directors is given below. Overall, each of our Board members is committed to the growth of the Company for the benefit of the stockholders, contribute new ideas in a productive and congenial manner and regularly attend board meetings.

Nominees for Class I Directors
For a Term Expiring 2014

 

 

Our Board unanimously recommends that the stockholders vote “FOR” each of the above director nominees.

 

Unless marked to the contrary, proxies received will be voted “FOR” the election of each of the director nominees.

Continuing Class II Directors
Term Expiring 2012

 

Continuing Class III Directors
Term Expiring 2013

 

 

CORPORATE GOVERNANCE

 

General

 

We are governed by our directors who, in turn, appoint executive officers to manage our business operations. The Board oversees our executive management on your behalf. The Board reviews our long-term strategic plans and exercises oversight over all major decisions, such as acquisitions, the declaration of dividends, major capital expenditures and the establishment of Company policies.

 

Board Leadership Structure

 

Since December 2006, we have split the roles of Chairman of the Board and Chief Executive Officer. Mr. Mitchell, the founder of the Company, had been Chairman and Chief Executive Officer since the Company’s inception until December 2006, when the Board deemed it to be in the best interest of the Company to separate the two positions. Mr. Lee Roy Mitchell is currently the executive Chairman of the Board and Mr. Alan W. Stock is the Chief Executive Officer. The Board believes that this structure is appropriate for the Company. As the founder of the Company with more than 50 years of experience in the movie exhibition industry, Mr. Mitchell is uniquely positioned to lead the Board as well as to guide the Company’s management in strategic planning. Mr. Stock’s knowledge of the industry coupled with his experience in managing the Company at various levels for more than 20 years, makes him best suited to conduct the day-to-day management and implement the strategic vision of the Board. In addition to the separation of the two positions, the Board has a lead independent director which role adequately addresses the need for leadership and an organizational structure for the non-executive directors. Our lead independent director presides over executive sessions of the Board, serves as a liaison between the non-executive directors and the Chief Executive Officer, plays a key role in overseeing performance evaluations of the Board and is available for communication with our stockholders. Our non-executive directors meet at least twice a year without management.

 

Board’s Role in Risk Oversight

 

The Board discusses with management major risk factors relating to the Company and its performance, and reviews measures to address and mitigate such risks. The Board has oversight responsibility of the processes established to identify, report and mitigate material risks applicable to the Company. The Board has delegated its oversight responsibility to the Audit Committee with respect to financial and accounting risks. The Audit Committee discusses with management the Company’s major financial risk exposures and the Company’s risk assessment and risk management policies. Management provides to the Audit Committee periodic assessments of the Company’s risk management processes and system of internal control. The Audit Committee Chair reports to the full Board regarding material risks as deemed appropriate.

 

Director Independence

 

Our Board has established an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee each of which is further described below. Based upon the review of the Nominating and Corporate Governance Committee, the Board has determined, in its business judgment, that (a) the majority of the Board is independent, (b) each of Messrs. Chereskin, Dombalagian, Ezersky, Rosenberg, Senior, Sepulveda, Soderquist, and Staubach is independent within the meaning of the rules of the NYSE director independence standards, as currently in effect, (c) each of Messrs. Ezersky, Rosenberg and Sepulveda meets all applicable requirements of the SEC and NYSE for membership in the Audit Committee and (d) Mr. Sepulveda is an “audit committee financial expert” as such term is defined in Item 407(d)(5)(ii) of Regulation S-K promulgated by the SEC and satisfies the NYSE’s financial experience requirements. For purposes of Board membership, the Board affirmatively determined the independence of each member of the Board based on the independence standards of the NYSE. The bright-line tests for independence are whether the director:

 

 

 

Meetings

 

The Board held 6 meetings and took action by written consent on two occasions during the fiscal year ended December 31, 2010. Each director attended at least seventy-five percent (75%) of all meetings held by the Board and all meetings held by committees of the Board on which such director served.

 

All directors are strongly encouraged to attend the Annual Meeting, but we do not have a formal attendance requirement. Eight directors attended the 2010 annual meeting of stockholders held in May 2010.

 

Executive Sessions

 

Our non-management directors meet in executive sessions with no Company employees present as a part of each regularly scheduled Board meeting. The presiding director of these sessions is currently Mr. Donald Soderquist.

 

Communications with the Board

 

Any Company stockholder or other interested party who wishes to communicate with the non-management directors as a group may direct such communications by writing to the:

 

Company Secretary
Cinemark Holdings, Inc.
3900 Dallas Parkway, Suite 500
Plano, TX 75093

 

The communication must be clearly addressed to the Board or to a specific director. If a response is desired, the individual should also provide contact information such as name, address and telephone number.

 

All such communications will be reviewed initially by the Company Secretary. The Company Secretary will forward to the appropriate director(s) all correspondence, except for items of the following nature:

 

 

The Company Secretary will prepare a periodic summary report of all such communications for the Board. Correspondence not forwarded to the Board will be retained by the Company and will be made available to any director upon request.

 

Corporate Governance Policies and Charters

 

The following documents make up our corporate governance framework:

 

 

Current copies of the above policies and guidelines are available publicly on the Company’s Web site at www.cinemark.com.

 

The Company has also adopted a Code of Business Conduct and Ethics, which applies to directors, executive officers and employees. The Code of Business Conduct and Ethics sets forth the Company’s policies on critical issues such as conflicts of interest, insider trading, protection of our property, business opportunities and proprietary information. Prompt disclosure to stockholders will be made regarding any waiver of the Code of Business Conduct and Ethics for executive officers and directors approved by our Board or any committee thereof. The Code of Business Conduct and Ethics is available on our Web site at www.cinemark.com. We will post on our Web site any amendments or waivers to the Code of Business Conduct and Ethics.

 

BOARD COMMITTEES

 

The Board has three principal standing committees, namely, a Nominating and Corporate Governance Committee, an Audit Committee and a Compensation Committee. The chart below identifies the members of each of these committees as of the date of this Proxy Statement:

 

Nominating &

Name of Director

Audit

Corporate Governance

Compensation

Benjamin D. Chereskin*

x

x

Vahe A. Dombalagian

x

x

Peter R. Ezersky

x

Steven P. Rosenberg

x

Carlos M. Sepulveda**

x

 

* = Committee chairperson

 

**= Committee chairperson and financial expert

 

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee is governed by the Nominating and Corporate Governance Committee Charter setting forth the purpose and responsibilities of this committee. The Nominating and Corporate Governance Charter is available on our Web site at www.cinemark.com. Subject to the rights of certain stockholders to nominate directors pursuant to the Director Nomination Agreement, the principal responsibilities of the Nominating and Corporate Governance Committee is to assist the Board in identifying individuals qualified to serve as members of the Board, make recommendations to the Board concerning committee appointments, develop and recommend to the Board a set of corporate governance principles for the Company and oversee the Board’s annual self-evaluation process and the Board’s evaluation of management.

 

Although the Board retains ultimate responsibility for approving candidates for election, the Nominating and Corporate Governance Committee conducts the initial screening and evaluation process. In doing so, the Nominating and Corporate Governance Committee considers candidates recommended by the directors, the Chief Executive Officer and the Company’s stockholders. This Committee also has the authority, to the extent it deems appropriate, to retain one or more search firms to be used to identify director candidates.

 

To recommend a candidate for election to the Board for the 2012 annual meeting, a stockholder must submit the following information to the Company Secretary no later than 90 and no earlier than 120 days in advance of the anniversary date of this Annual Meeting:

 

 

Candidates recommended by stockholders will be evaluated under the same process as candidates recommended by existing directors and the Chief Executive Officer.

 

As provided in the Company’s Third Amended and Restated Corporate Governance Guidelines, director nominees will be selected based on, among other things, consideration of the following factors:

 

 

In considering whether to nominate directors who are eligible to stand for election or re-election, the Nominating and Corporate Governance Committee considers the director’s personal and professional ethics, integrity, practical wisdom, judgment, training and expertise that will be useful to the Company and complementary to the background and experience of other Board members, willingness to devote required amount of time to carry out Board responsibilities, commitment to serve on the Board for several years to develop knowledge about the Company, willingness to represent the interest of all stockholders and objectively appraise management performance.

 

The Nominating and Corporate Governance Committee took action by written consent on one occasion during 2010.

 

Audit Committee

 

Each of the Audit Committee members satisfies the standards for independence of the NYSE and the SEC as they relate to audit committees. Our Board has determined that each member of the Audit Committee is financially literate and that Mr. Sepulveda, a licensed certified public accountant with extensive public company accounting experience, qualifies as an “audit committee financial expert” within the meaning of Item 407(d)(5)(ii) of Regulation S-K promulgated by the SEC.

 

The Audit Committee is governed by the Audit Committee Charter setting forth the purpose and responsibilities of this committee. The Audit Committee Charter is available on our Web site at www.cinemark.com.

 

The functions of the Audit Committee include the following:

 

 

The Audit Committee held four meetings and took action by written consent on one occasion during 2010.

 

Approval of Audit and Non-Audit Services

 

The Audit Committee approves all audit and permissible non-audit services (including the fees and terms of the services) performed for the Company by its independent registered public accountants prior to the time that those services are commenced. The Audit Committee may, when it deems appropriate, form and delegate this authority to a subcommittee consisting of one or more Audit Committee members, including the authority to grant pre-approvals of audit and permitted non-audit services. The decision of such subcommittee is presented to the full Audit Committee at its next meeting.

 

The Audit Committee pre-approved all fees for 2010 noted in the table below:

 

Fees Paid to Independent Registered Public Accounting Firm

 

We expensed the following fees to Deloitte & Touche, LLP for professional and other services rendered by them during fiscal years ended 2010 and 2009, respectively:

 

Fees			2010				2009
Audit			$	1,868,000			$	2,317,500
Audit Related(1)			$	36,000			$	62,000
Tax(2)			$	402,000			$	269,000
Other			$	-				-
Total			$	2,306,000			$	2,648,500

 

 

Audit Committee Report

 

During its February 21, 2011 meeting, the Audit Committee reviewed with Company management and Deloitte & Touche, LLP the results of the 2010 audit. The Audit Committee reviewed the requirements of the Audit Committee Charter previously adopted and the reports required to be disclosed to the Audit Committee. The Audit Committee discussed with Deloitte & Touche, LLP the matters required to be discussed by Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board in Rule 3200T. The Audit Committee has received the written disclosures and the letter from Deloitte & Touche, LLP as required by the applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant’s communications with the Audit Committee concerning independence and has discussed with Deloitte & Touche, LLP its independence. Upon deliberations, the Audit Committee determined that Deloitte & Touche, LLP was independent of the Company.

 

During its February 21, 2011 meeting, the Audit Committee also reviewed and discussed with management and Deloitte & Touche, LLP, a draft of the Form 10-K and the audited financial statements for the year ended December 31, 2010 which had been provided to the Audit Committee in advance of the meeting. Management has the responsibility for the preparation of the financial statements and the reporting process, including the evaluation of the systems of internal control over financial reporting and disclosure controls and procedures. The external auditor is responsible for examining the financial statements and expressing an opinion on the conformity of the audited financial statements with accounting principles generally accepted in the United States of America. Based on its review of all of the above and on discussions with management and the external auditor, the Audit Committee recommended to the Board that the

Company’s audited financial statements be included in the Annual Report on Form 10-K for the year ended December 31, 2010 for filing with the SEC.

 

Respectfully submitted,

 

Carlos M. Sepulveda (Chairman)

Steven P. Rosenberg

Peter R. Ezersky

 

Compensation Committee

 

Each of the Compensation Committee members qualify as “outside directors” within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”), and “non-employee directors” within the meaning of Rule 16b-3 promulgated under Section 16 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The Compensation Committee is governed by the Amended and Restated Compensation Committee Charter setting forth the purpose and responsibilities of this committee. The Amended and Restated Compensation Committee Charter is available on our Web site at www.cinemark.com.

 

The functions of the Compensation Committee are primarily to establish the Company’s compensation policy, set base salaries of our executive officers and review, approve and administer (to the extent such authority is delegated to the Compensation Committee by the Board) the Company’s annual cash incentive bonus and long term equity incentive compensation plans for all eligible employees. In determining the compensation of our executive officers, the Compensation Committee has the authority under the Amended and Restated Compensation Committee Charter, to the extent it deems appropriate, to retain one or more consultants to assist in the evaluation of the Chief Executive Officer and executive compensation. The Compensation Committee also has the right to receive information it deems pertinent from management, employees, outside counsel and other advisers as the Compensation Committee may request. However, none of our executives are involved in the Compensation Committee’s determination of their own compensation. In 2010, the Company engaged an outside compensation consultant, Longnecker & Associates, to review and make recommendations to our executive compensation program. Certain elements of our executive compensation for 2010 have been developed, based in part, on such recommendations. The Compensation Committee has the authority to delegate any of its responsibilities to one or more sub-committees as the Compensation Committee may from time to time deem appropriate. The Compensation Committee reviewed and discussed the Compensation Discussion and Analysis contained in this proxy statement with our management and upon such review and discussion recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement.

 

The Compensation Committee took action by written consent on three occasions during 2010.

 

Compensation of Directors

 

In order to attract and retain qualified non-employee directors, the Company adopted a Non-Employee Director Compensation Policy in August 2007, by which non-employee directors are compensated for their service to the Company. Only those members of the Board who constitute non-employee directors are eligible to receive compensation under this Policy. Non-employee directors include any member of the Board who (i) is neither our employee nor an employee of any of our subsidiaries; and (ii) is not an employee of any of the Company’s stockholders with contractual rights to nominate directors.

 

Each non-employee director receives the following annual compensation in connection with the service of such non-employee director as a member of the Board:

 

 

 

 

 

 

 

Annual compensation is paid in four equal quarterly installments at the end of each quarter for services rendered during the quarter. Additionally, on an annual basis the non-employee directors receive a grant of restricted stock of the Company’s Common Stock valued at $100,000. The number of restricted stock to be issued is determined by dividing $100,000 by the fair market value of a share of Common Stock on the grant date, rounded down to the nearest whole share. The initial award and each annual award generally vest on the first anniversary of the date of the grant, subject to the non-employee director’s continued service to the Company through the vesting dates. An employee director who ceases to be an employee, but who remains a director, will not receive an initial award or an annual award for any remaining term or renewal term of office during which such director does not qualify as an independent director under applicable SEC rules and NYSE listing standards. All grants of restricted stock are made pursuant to the Amended and Restated Cinemark Holdings, Inc. 2006 Long Term Incentive Plan (the “Restated Plan”).

 

Members of the Board who are also officers or employees of our Company or employees of our stockholders with contractual rights to nominate directors do not receive compensation for their services as a director. All directors are reimbursed for expenses incurred for each board meeting which they attend.

 

The following table sets forth certain information regarding the compensation of our directors for year ended December 31, 2010.

 

Director Compensation

 

 

 

EXECUTIVE OFFICERS

 

Executive Officers

 

Set forth below is the name, age, position and a brief account of the business experience of our executive officers and certain other officers:

 

 

Lee Roy Mitchell has served as Chairman of the Board since March 1996 and as a director since our inception in 1987. Mr. Mitchell served as our Chief Executive Officer from our inception until December 2006. Mr. Mitchell was Vice Chairman of the Board from March 1993 until March 1996 and was President from our inception in 1987 until March 1993. From 1985 until 1987, Mr. Mitchell served as President and Chief Executive Officer of a predecessor corporation. Mr. Mitchell currently serves on the board of directors of Texas Capital Bancshares, Inc. and National CineMedia, Inc. Mr. Mitchell is also on the board of directors of the National Association of Theatre Owners, Champions for Life and Dallas County Community College. Mr. Mitchell has been engaged in the motion picture exhibition business for over 50 years. Mr. Mitchell is the brother-in-law of Walter Hebert, III, the Senior Vice President — Purchasing of the Company.

 

Alan W. Stock has served as Chief Executive Officer since December 2006. Mr. Stock served as President from March 1993 until December 2006 and as Chief Operating Officer from March 1992 until December 2006. Mr. Stock also served as a director from April 1992 until April 2004. Mr. Stock was Senior Vice President from June 1989 until March 1993. Mr. Stock has been engaged in the motion picture exhibition business for 30 years.

 

Timothy Warner has served as President and Chief Operating Officer since December 2006. Mr. Warner served as Senior Vice President from May 2002 until December 2006 and President of Cinemark International, L.L.C. from August 1996 until December 2006. Mr. Warner has been engaged in the motion picture exhibition business for 43 years.

 

Robert Copple has served as Executive Vice President since January 2007 and as Senior Vice President, Treasurer, Chief Financial Officer and Assistant Secretary since August 2000 and also served as a director from September 2001 until April 2004. Mr. Copple was acting Chief Financial Officer from March 2000 until August 2000. From August 1997 until March 2000, Mr. Copple was President of PBA Development, Inc., an investment management and venture capital company controlled by Mr. Mitchell. From June 1993 until July 1997, Mr. Copple was Director of Finance of our company. Prior to joining our Company, Mr. Copple was a Senior Manager with Deloitte & Touche, LLP where he was employed from 1982 until 1993.

 

Valmir Fernandes has served as President of Cinemark International since March 2007. From 1996 until March 2007, Mr. Fernandes was the general manager of Cinemark Brasil S.A.

 

Michael Cavalier has served as Senior Vice President-General Counsel since January 2006, as Vice President-General Counsel since August 1999, as Assistant Secretary from May 2001 until December 2003 and as Secretary since December 2003. From July 1997 until July 1999, Mr. Cavalier was General Counsel of our Company and from July 1993 until July 1997 was Associate General Counsel.

Tom Owens has served as Senior Vice President-Real Estate since January 2007, as Vice President-Development since December 2003 and as Director of Real Estate since April 2002. From 1998 until April 2001, Mr. Owens was President of NRE, a company he founded that specialized in the development and financing of motion picture theatres. From 1996 until 1998, Mr. Owens served as President of Silver Cinemas International, Inc., a motion picture exhibitor. From 1993 until 1996, Mr. Owens served as our Vice President-Development.

 

Steve Bunnell has served as Senior Vice President-Film Licensing since May 2009. From March 2006 until May 2009, Mr. Bunnell was the Chairman of Distribution of The Weinstein Company, an independent film studio. From May 1993 until February 2006, Mr. Bunnell was the Senior Vice President and Head Film Buyer of Loews Cineplex Entertainment, the oldest theatre chain in North America until its merger with AMC Entertainment in 2006.

 

EXECUTIVE COMPENSATION

 

COMPENSATION DISCUSSION AND ANALYSIS

 

The compensation discussion and analysis provides important information regarding our executive compensation program. The “named executive officers” are the five executives whose compensation is detailed in the compensation table. All members of management, including the named executive officers are referred to as “executive officers”.

 

Executive Summary

 

Our executive compensation philosophy is to enhance the value of our stockholders’ investment and reward and retain executive talent. The goals of our compensation program are:

 

 

The principal elements of our executive compensation are as follows:

 

 

Generally, total compensation of all executive officers is distributed between the three elements. The annual base salary is the only portion of the compensation guaranteed to the executive officers and is set by the Compensation Committee in December of the prior fiscal year. In 2008, the stockholders approved the performance-based cash incentive compensation pursuant to the Cinemark Holdings, Inc. Performance Bonus Plan (the “Bonus Plan”). Incentive compensation under the Bonus Plan is paid based upon the performance of the Company during the fiscal year measured against an objective business criteria and performance factors set up during the first quarter of the fiscal year by the Compensation Committee. The objective of the Bonus Plan is to make cash bonus payments annually to executives provided the Company achieves certain pre-established metrics.

Long term equity incentive compensation awarded annually pursuant to the Restated Plan, approved by the stockholders in 2008, ties executive compensation to long-term Company performance. The Company believes that long-term performance is achieved through an ownership culture that encourages such performance and aligns the employee’s interests with the interests of our stockholders. In addition, we believe we must be able to attract and retain highly qualified executive officers as leaders to ensure our success and that long term equity incentive compensation is a key factor to attract and retain such officers. In order to achieve our compensation goals we balance the various elements of our compensation program. Performance awards entitle recipients to vest in or acquire shares of Common Stock upon the attainment of specified performance goals over a three year performance period established by the Compensation Committee. The grants of performance awards are usually at a higher percentage of total compensation for the named executive officers compared to the other executive officers as the named executive officers have a greater leadership role in directing the Company. The restricted stock are awarded annually as a retention incentive. Restricted stock vesting is not tied to Company performance but have long-term vesting schedules of 50% each on the second and fourth anniversaries of the grant date provided, the executive is continuously employed with the Company through the vest date.

 

For 2010, the Compensation Committee granted the named executive officers and certain other executive officers additional shares of restricted stock and performance shares in the form of restricted stock units in consideration of the Company’s outperformance of its peer group and the industry and the leadership shown in not only guiding the Company through, but increasing its equity value during the challenging economic environment over the previous years. The Compensation Committee determined that the additional awards awarded in 2010 were appropriate to incentivize these executive officers to continue to create long term value for the stockholders.

 

Since 2006, we have achieved year-over-year revenue growth and increased profitability. Over the 4 year period from 2006 to 2009, the Company achieved the following:

 

 

In 2010, the Company continued its strong performance record. The Company’s revenues for 2010 increased 8.3% to over $2 billion from 2009. Net income of the Company for 2010 increased to approximately $146 million from approximately $97 million for 2009.

 

We achieved these results not only because of factors such as our disciplined operating philosophy, business model, leading state-of-the-art technology and strong customer relationships but because of the leadership and strong management. Improving our results, positioning the Company for continued future success as a leader in the industry and increasing financial returns for our stockholders require that we foster and retain talent. Led by Chairman and founder Lee Roy Mitchell, Chief Executive Officer Alan W. Stock, President and Chief Operating Officer Timothy Warner, Chief Financial Officer Robert Copple and President of Cinemark International Valmir Fernandes, our management team has 14 to 52 years of theatre operating experience executing a focused strategy that has led to consistent operating results. This management team has successfully navigated the Company through many industry and economic cycles.

 

The pie charts below show the percentage composition of the total direct compensation for each named executive officer for 2010. The percentage of compensation component listed in each graph is calculated by dividing the value of compensation received under each category by the total direct compensation. The performance award percentages have been calculated based on a target level of achievement as the number of restricted stock units to vest cannot be determined prior to December 31, 2012.

 

 

The base salaries of the named executive officers, except Mr. Mitchell, were aligned closely to market midpoint. Mr. Mitchell’s base salary was between the market 50th and market 75th percentiles. The actual performance-based cash incentive payments received in February 2011 by the named executive officers for 2010 was between the market 50th and market 75th percentiles. Overall, the target total direct compensation of the named executive officers is below the market midpoint targeted total direct compensation.

 

The Compensation Committee believes our executive compensation program is not only effective at achieving our performance goals, but reasonable in relation to the programs of our peer group companies, and balanced in that it encourages our named executive officers to work for meaningful stockholder returns, without taking unnecessary or excessive risks. The highlights of our compensation program and compensation governance include:

 

 

The following section discusses the process of determining executive compensation and the specifics of the elements of compensation.

 

Roles and Responsibilities

 

Compensation Committee. The Compensation Committee is responsible for:

 

 

The Compensation Committee establishes the compensation of the Chief Executive Officer without management input, but may be assisted in this determination by outside compensation consultants. In establishing the compensation for the executive officers, the Compensation Committee may consider the recommendations of the Chief Executive Officer and input received from a compensation consultant. The Compensation Committee advises the Board of its determination prior to implementation of annual cash incentive bonus and equity based awards for the named executive officers and executive officers it deems appropriate. While the Compensation Committee may consider input provided by the Board, the decisions regarding performance-based cash incentive compensation and long term equity incentive compensation are made solely by the Compensation Committee.

 

Management. The Chief Executive Officer conducts an annual review of the aggregate level of our executive compensation as part of our annual budget review and annual performance review. The review considers financial and non-financial criteria to measure our performance against internal goals and the performance of comparable companies in the theatrical exhibition industry. Annually, the Chief Executive Officer provides recommendations to the Compensation Committee for specific levels of base salary, target levels for annual performance-based cash incentive payments and long-term equity based compensation for the executive officers (other than for the Chief Executive Officer). Management also provides data with respect to the competitive market for executives and compensation levels provided by comparable companies, the compensation practices of companies in the theatrical exhibition industry and companies of comparable size and financial performance with whom we may compete for talent.

 

Compensation Consultant. The Compensation Committee Charter authorizes the Compensation Committee to retain one or more compensation consultants to assist in the evaluation of CEO or executive compensation. In 2007, the Company management, with the approval of the Compensation Committee, engaged an outside compensation consultant, Longnecker & Associates, which reviewed and made recommendations to our executive compensation program. The consultant is independent of management and provides data (including data provided by management) to the Compensation Committee for review and determination of compensation of individual executive officers. Longnecker & Associates does not provide any other services to the Company and works with the Company’s management only on matters for which the Compensation Committee is responsible. The consultant was re-engaged by management to make recommendations regarding the 2010 compensation levels of the executive officers based on appropriate peer companies and market survey data. For 2010, as in previous years, management provided comparable compensation data from SEC filings for a peer group of companies, namely, AMC Entertainment, Inc., Regal Entertainment Group, Inc., Carmike Cinemas, Inc. and IMAX Corporation. The Compensation Committee believes, based upon its experience and knowledge, that the executive compensation program discussed herein provides the best method to achieve our executive compensation goal of aligning stockholder interest of long-term growth while attracting, retaining and motivating key executive personnel.

 

Base Salary

 

The Compensation Committee seeks to keep base salary competitive and to establish the minimum levels of compensation that helps attract and retain qualified executives. Base salaries for the Chief Executive Officer and the other executive officers are determined by the Compensation Committee based on a variety of factors including:

 

 

The Compensation Committee has not adopted any formula with specific weightings assigned to any of the factors above. For the 2010 fiscal year, annual base salaries were reviewed during the fourth quarter of 2009. Following this review, for 2010, base salaries for our named executive officers increased 1% over their respective 2009 base salaries.

 

Annual Performance-Based Cash Incentive Compensation

 

In setting compensation, the Compensation Committee considers annual cash incentives based on Company performance to be an important tool in motivating and rewarding the performance of our executive officers. Performance-based cash incentive compensation is paid to our executive officers pursuant to our Bonus Plan to align executive pay with the financial performance of the Company. Under the Bonus Plan, during the first quarter of the fiscal year, the Compensation Committee establishes objective business criteria and performance factors for the Company for the fiscal year and based upon the performance of the Company during the fiscal year, the Compensation Committee awards annual cash incentive bonuses to the Bonus Plan participants prior to the end of the first quarter of the following fiscal year. The objective of the Bonus Plan is to make cash bonus payments annually to individuals based on the achievement of specific objective annual performance factors or business criteria that contributes to the growth, profitability and increased value of the Company.

 

The bonus process for the named executive officers under the Bonus Plan involves the following steps:

 

(1)  Setting a Target Bonus. During the first quarter of the fiscal year, the Compensation Committee approves the target bonus amount for each named executive officer. The target bonus amount may take into account all factors deemed relevant by the Compensation Committee, including recommendations from the chief executive officer (except for target bonus amounts for the Chief Executive Officer). The Compensation Committee also approves the maximum bonus that a named executive officer is entitled to receive. The maximum bonus amount will not exceed 200% of such named executive officer’s annual base salary at the time the target bonus is determined.

 

(2)  Setting the Performance Factors. During the first quarter of each fiscal year, the Compensation Committee establishes the performance factors for the Company and the executive officers. Performance factors may include by way of example but not limitation, any or all of the following: revenue; net sales; operating income; earnings before all or any of interest, taxes, depreciation and/or amortization (“EBIT”, “EBITA”, or “EBITDA”); Adjusted EBITDA; Adjusted EBITDA Margin; cash flow; working capital and components thereof; return on equity or average stockholder’s equity; return on assets; market share; sales (net or gross) measured by product line, territory, customer(s), or other category; stock price; earnings per share; earnings from continuing operations; net worth; credit rating; levels of expense, cost or liability by category, operating unit or any other delineation; any increase or decrease of one or more of the foregoing over a specified period; or implementation or completion of critical projects. With respect to certain participants who are not named executive officers, these targets may also include such objective or subjective performance goals as the Compensation Committee may, from time to time, establish.

 

(3)  Measuring Performance. Prior to making any payments under the Bonus Plan, the Compensation Committee will certify whether the applicable performance factors were attained. In reaching its conclusions, the Compensation Committee will make certain adjustments as specified in the Bonus Plan. Such adjustments include but are not limited to issues such as changes in accounting principles, extraordinary, unusual or non-recurring events that were not included in the operating budget for the performance period (such as the disposition of a theatre or theatres or the cessation of operation of a theatre as a result of a natural disaster).

 

In March 2010, the Compensation Committee established performance criteria, performance targets and awards for our named executive officers for the 2010 fiscal year under the terms of the Bonus Plan. The 2010 awards provided for the payment of bonus compensation based on the achievement of Adjusted EBITDA financial metrics, which we believe reflect the effective implementation of the Company’s business plan and objectives in a manner that will be beneficial to stockholders and to the long-term financial health and development of our business. Each performance target under the 2010 awards had a threshold, target and maximum level of payment opportunity. Messers. Mitchell and Stock had a target opportunity of 100% of their

individual 2010 base salary and Messers. Warner, Copple and Fernandes had a target opportunity of 75% of their individual 2010 base salary. The threshold opportunity for each of Messers. Mitchell, Stock, Warner, Copple and Fernandes was 33.33%, with the maximum payment opportunity equal to 133.33% of the individual’s target opportunity. Each named executive officer was entitled to receive a ratable portion of his target bonus if we achieved Adjusted EBITDA within the specified parameters. The actual amount of bonuses paid, if any, may result in a bonus that is greater or less than the stated target (and could be zero) depending on whether, and to what extent, the applicable performance and other conditions are satisfied.

 

In February 2011, based on the Adjusted EBITDA target achieved by the Company, the Compensation Committee determined the cash incentive bonus for each of the named executive officers. The percentage at which the bonus was awarded was 133.33% of the target bonus for each named executive officer. The Adjusted EBITDA target for purposes of the Bonus Plan for 2010, before payment of bonuses, was set by the Compensation Committee at $435 million. The Adjusted EBITDA target achieved by the Company for purposes of the Bonus Plan in 2010 was $493.2 million. The reported Adjusted EBITDA was 485.9 million after adjustment for payment of bonuses of $7.3 million. The amount of the cash bonus paid on February 24, 2011, to each of Messers. Mitchell, Stock, Warner, Copple and Fernandes under the Bonus Plan for the 2010 fiscal year are as follows:

 

Name			Bonus Amount
Lee Roy Mitchell			$	1,091,347
Alan W. Stock			$	828,556
Timothy Warner			$	455,348
Robert Copple			$	428,563
Valmir Fernandes			$	350,000

 

Long Term Equity Incentive Compensation

 

The Company believes granting awards with long vesting periods creates an ownership culture which provides substantial retention incentive and also encourages focus on the Company’s long term business objectives and performance. In addition, we believe we must be able to attract and retain highly qualified executive officers as leaders to ensure our success and that long term equity incentive compensation is a key factor to attract and retain such officers.

 

Our long term equity incentive compensation under the Restated Plan, permits the Compensation Committee to grant stock options, restricted stock awards, restricted stock units, performance awards in the form of restricted stock or restricted stock units or a mix of any such type of award. Stock options, restricted stock awards and restricted stock units reward participants in slightly different ways as measured against increases in stockholder value. Stock options are issued with an exercise price equal to the fair market value of the Company’s Common Stock on the date of grant. Accordingly, a recipient of stock options is rewarded only if the stock price increases after the dates of grant. Restricted stock and restricted stock units are impacted by increases or decreases in stock price from the market price at the date of grant.

 

No stock options were granted to any employee in 2010. Pursuant to the Restated Plan, restricted stock and performance awards in the form of restricted stock units were granted to eligible employees, including named executive officers, before the end of the first quarter of 2010. The grants of restricted stock and restricted stock units based performance awards were at a higher percentage of total compensation for the named executive officers compared to the other executive officers.

 

Restricted Stock. Restricted stock granted under the Restated Plan is subject to a time based vesting condition. Annual grants of restricted stock to the executive officers may be based upon a percentage of such executive’s annual base salary. Recipients of restricted stock awards are permitted to (i) receive dividends on the restricted stock to the extent dividends are paid by the Company on shares of its Common Stock and (ii) to

vote such Common Stock during the restriction period. Periodic awards of restricted stock can be made to eligible employees at the discretion of the Compensation Committee.

 

The restricted stock awarded to the executive officers generally vest 50% on each of the second and fourth anniversaries of the grant date provided, the executive is continuously employed with the Company through the vest date.

 

Performance Awards. Performance awards can be granted in the form of restricted stock or restricted stock units. Performance awards entitle recipients to vest in or acquire shares of Common Stock upon the attainment of specified performance goals established by the Compensation Committee. The performance awards and performance goals are based on one or more pre-established objective criteria that specify the number of shares of Common Stock under the performance award that will be granted (if performance award is in the form of restricted stock unit) or will vest (if performance award is in the form of restricted stock) if the performance goal is attained. During the first quarter of a fiscal year, the Compensation Committee approves the performance goal for each performance award. Common stock received upon attainment of the performance goals under a restricted stock unit based performance award may be subject to additional time-based vesting conditions. Any dividends that are attributable to the underlying Common Stock relating to a restricted stock unit based performance award will be payable to the recipient when the established vesting conditions are satisfied.

 

The total number of shares of Common Stock that may be awarded pursuant to the performance share agreement is based on an implied equity value concept that determines an internal rate of return during a three fiscal year period (the “Performance Period”) based on a formula utilizing a multiple of Adjusted EBITDA (subject to certain specified adjustments). Each performance target underlying the performance awards has a threshold, target and maximum level of payment opportunity, with the maximum payment opportunity equal to 150% of the individual’s target opportunity based upon an internal rate of return during such three year period (“IRR”). The targets were established in writing by the Compensation Committee. The number of shares of Common Stock an executive may receive on the attainment of a performance goal cannot be determined at the date of grant because the payment of such compensation is contingent upon attainment of pre-established goals and the actual compensation to be paid to an executive officer is at the Compensation Committee’s discretion. In 2010, the performance awards were awarded in the form of restricted stock units. The 2010 restricted stock unit awards will vest on a prorated basis according to the IRR achieved by the Company during the Performance Period. For example, if the Company achieves an IRR equal to 11.5%, the number of restricted stock units that will vest will be greater than the target but less than the maximum number that would have vested had the Company achieved the highest IRR.

 

The following table sets forth the various IRR percentages and the number of corresponding restricted stock units underlying the performance awards to be made to eligible participants:

 

 

The shares of Common Stock each executive officer receives upon attainment of the specified performance targets are subject to further service based vesting for a period of one year beyond the calculation date. See Grants of Plan-Based Awards table.

 

In March 2010, the Compensation Committee modified the criteria used to determine the IRR for the performance awards (in the form of restricted stock units) granted to certain executive officers and employees in 2008. The modification was necessitated to more accurately reflect the intention of the Compensation Committee to reward participants for value created by factors that are within the control of the employee. Such factors and certain external inputs comprise the performance criteria for the performance awards. Although the Company has performed remarkably well since the beginning of the Performance Period for the 2008 performance awards, the challenging economic environment had adversely impacted certain external inputs in the performance criteria which

is outside of the participant’s control. Accordingly, the Compensation Committee modified the performance criteria by changing the multiple upon which the implied equity value is calculated to determine the IRR for the Performance Period for the 2008 performance awards. The number of restricted stock units subject to each performance award however remained unchanged. As a result of the application of IRC Section 162(m), for the named executive officers the 2008 performance awards were deemed cancelled and reissued as of March 31, 2010. For all other recipients of the 2008 performance awards, the change was deemed a modification.

 

In March 2011, the Compensation Committee certified that the Company had achieved the highest level of IRR for the Performance Period from January 1, 2008 to December 31, 2010. Consequently, the restricted stock units that were awarded to the named executive officers in March and April 2008 will vest in the maximum amounts in March and April 2012 respectively, provided the named executive officer satisfies the additional time based vesting condition. See Outstanding Equity Awards at Fiscal Year End table.

 

Perquisites

 

With limited exceptions, the Compensation Committee’s policy is to provide benefits and perquisites to our named executive officers that are substantially the same as those offered to our other employees at or above the level of vice president. The benefits and perquisites that may be available in addition to those available to our other employees include life insurance premiums and long term disability insurance.

 

401(k) Plan

 

We sponsor a defined contribution savings plan, or 401(k) Plan, whereby certain employees may elect to contribute, in whole percentages between 1% and 50% of such employee’s compensation, provided no employee’s elective contribution shall exceed the amount permitted under Section 402(g) of the Code ($16,500 for 2010, $16,500 for 2009 and $15,500 for 2008). In 2010, participants over the age of 50 could contribute an additional $5,500.

 

We may make an annual discretionary matching contribution up to a maximum of 6% of the employee’s annual contribution to the 401(k) Plan. In 2010, our annual discretionary matching contribution was 100% up to 3% and 75% for the remaining 3% of the employee’s contribution. Our discretionary matching contributions immediately vest.

 

Compensation Committee Report

 

The Compensation Committee has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussion, the Compensation Committee recommended to the Board that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in our annual report on Form 10-K for the 2010 fiscal year, and the Board has approved the recommendation.

 

Respectfully submitted,

 

Benjamin D. Chereskin (Chairman)

Vahe A. Dombalagian

 

Summary of Employment Agreements for our Named Executive Officers

 

We have employment agreements with our named executive officers and certain other executive officers. The employment agreements with Lee Roy Mitchell, Alan W. Stock, Timothy Warner and Robert Copple were executed in 2008 and the employment agreement with Valmir Fernandes was entered into in 2010. In line with our compensation philosophy, the Company entered into the employment agreements to more closely align the compensation of certain executive officers with market competitive compensation. In approving the employment agreements, the Compensation Committee compared the employment agreements

for similarly situated executives at Regal Entertainment Group, Inc., AMC Entertainment, Inc. and National CineMedia, Inc. A summary of the employment agreements of the named executive officers is below:

 

Term

 

The term of the employment agreements initially is three years. However, at the end of each year of the term, the term is extended for an additional one-year period unless the named executive officer’s employment is terminated.

 

Base Compensation

 

The base salaries are subject to annual review for increase (but not decrease) each year by our Compensation Committee. In addition, the named executive officers are eligible to receive an annual cash incentive bonus upon our meeting certain performance targets established by our Compensation Committee for the fiscal year.

 

Severance Payments

 

The employment agreements provide for severance payments upon termination of employment, the amount and nature of which depends upon the reason for termination.

 

Termination for Good Reason or Without Cause

 

If Mr. Mitchell resigns for good reason (as defined in the agreement) or is terminated by us without cause, Mr. Mitchell will receive, in a lump sum, subject to applicable Section 409A requirements: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; vacation pay and any vested equity awards and benefits such as retirement benefits, in accordance with the terms of the plan or agreement pursuant to which such equity awards or benefits were granted to Mr. Mitchell; an amount equal to Mr. Mitchell’s annual base salary in effect as of the date of such termination and an amount equal to the most recent annual bonus he received prior to the date of termination payable within 30 days of the end of the current fiscal year. Mr. Mitchell and his dependents will also be entitled to continue to participate in the Company’s welfare benefit plans and insurance programs for twelve (12) months from the termination date.

 

If Messers. Stock, Warner, Copple or Fernandes resign for good reason or is terminated by us without cause, the executive will receive, subject to applicable Section 409A requirements: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; vacation pay and any vested equity awards and benefits such as retirement benefits, in accordance with the terms of the plan or agreement pursuant to which such equity awards or benefits were granted. Messers. Stock, Warner, Copple and Fernandes will also receive two times the annual base salary in effect at the time of termination for a period of twenty-four (24) months following such termination, subject to applicable Section 409A requirements; an amount equal to the most recent annual bonus received by the executive for any fiscal year ended prior to the date of such termination payable in a lump sum within thirty (30) days of termination; outstanding stock options will become fully vested and exercisable upon such termination or resignation; equity awards other than stock options with time vesting provisions shall become vested on a pro rata basis and equity awards other than stock options with performance based vesting provisions shall remain outstanding through the remainder of the applicable performance period (without regard to any continued employment requirement) and if or to the extent the performance provisions are attained shall become vested without any regard to any continued employment requirement on a pro rata basis. The executive and executive’s dependents will also be entitled to continue to participate in the Company’s welfare benefit plans and insurance programs for a period of twenty-four (24) months from the termination date.

 

Termination Due to Death or Disability

 

In the event an executive’s employment is terminated due to his death or disability, the executive or his estate will receive, in a lump sum: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; vacation pay and any vested equity awards and benefits such as retirement

benefits, in accordance with the terms of the plan or agreement pursuant to which such equity awards or benefits were granted; a lump sum payment equal to twelve (12) months of executive’s annual base salary as in effect at the time of termination, provided, in the case of disability, such amount shall be offset by the amount of base salary paid by the Company to executive or his representative following the date he was first unable to substantially perform his duties under his employment agreement through the date of termination and any benefits payable to executive and/or his beneficiaries in accordance with the terms of any applicable benefit plan. The executive and executive’s dependents will be entitled to continue to participate in the Company’s welfare benefit plans and insurance programs for twelve (12) months from the termination date.

 

Termination For Cause or Voluntary Termination

 

In the event executive’s employment is terminated by us for cause or under a voluntary termination (other than termination due to disability or good reason), the executive will receive accrued base salary through the date of termination and any previously vested rights under a stock option or similar incentive compensation plan in accordance with the terms of such plan.

 

Termination Due to Change of Control

 

Mr. Mitchell does not have a change of control provision in his employment agreement.

 

In the employment agreements of Messers. Stock, Warner, Copple and Fernandes, change of control shall be deemed to have occurred (i) on the date (A) any individual, entity or group other than MDCP or the Mitchell Family (as defined in the agreement) acquires or has acquired during the 12 month period ending on the date, beneficial ownership of thirty percent (30%) or more of the total voting stock at the election of directors and (B) such beneficial ownership then exceeds the combined voting power of MDCP and the Mitchell Family, (ii) a majority of the Company’s Board shall not be Continuing Directors (as defined in the agreement) or (iii) the sale of all or substantially all of the Company’s assets.

 

If within one (1) year after a change of control, executive’s employment is terminated by the Company (other than for disability, death or cause) or by executive for good reason, the executive shall receive, in a lump sum within thirty (30) days of termination, subject to applicable Section 409A requirements: accrued compensation (which includes base salary and a pro rata bonus) through the date of termination; vacation pay and any vested equity awards and benefits such as retirement benefits, in accordance with the terms of the plan or agreement pursuant to which such equity awards or benefits were granted; sum of two times executive’s annual base salary and one and one half times the most recent annual bonus received by executive for any fiscal year ended prior to the date of termination. The executive and executive’s dependents will be entitled to continue to participate in the Company’s welfare benefit plans and insurance programs for a period of thirty (30) months from the termination date. Any outstanding equity award granted to executive shall become fully vested and/or exercisable as of the date of such termination and shall remain exercisable in accordance with the terms of the plan or agreement pursuant to which such equity awards were granted.

 

Benefits

 

The named executive officers qualify for our 401(k) matching program and are also entitled to certain additional benefits including life insurance and disability insurance. Pursuant to his employment agreement, Mr. Mitchell is entitled to life insurance benefits of not less than $5 million and disability benefits of not less than 66% of base salary.

 

Perquisites

 

Under his employment agreement, Mr. Mitchell is entitled to a luxury automobile and a membership at a country club. Currently, Mr. Mitchell does not have a luxury automobile or a country club membership paid for by the Company.

 

Unless Mr. Mitchell’s employment is terminated by us for cause or under a voluntary termination, Mr. Mitchell will also be entitled, for a period of five years, to tax preparation assistance upon termination of

his employment. The employment agreement contains various covenants, including covenants related to confidentiality, non-competition (other than certain permitted activities as defined therein) and non-solicitation.

 

The employment agreements of Messers. Stock, Warner, Copple or Fernandes provide that unless the executive’s employment is terminated by us for cause the executive will also be entitled to office space and support services for a period of not more than three months (3) following the date of any termination.

 

Covenants

 

All the employment agreements contain various covenants, including covenants related to confidentiality, non-competition (other than certain permitted activities as defined therein) and non-solicitation.

 

Additional information on amounts payable had a termination for good reason, a change of control, death or disability occurred on December 31, 2010 may be found under the heading — “Potential Payments Upon Termination by us Without Cause or by Executive for Good Reason”, “Potential Payments Upon Termination due to Change of Control” and “Potential Payments Upon Death or Disability.”

 

Compensation Risk

 

With respect to risks related to compensation matters, the Compensation Committee considers whether the Company’s compensation programs for executives and employees encourages unnecessary or excessive risk taking. Upon such consideration the Compensation Committee has concluded that the Company’s compensation programs do not create risks that are reasonably likely to have a material adverse effect on the Company. The base salaries of executives are fixed, annual cash incentives are tied to Company’s overall performance and measured against a pre-established objective business criteria and long-term incentive awards are equity-based with vesting schedules tied to Company performance and long-term service to the Company, all of which ensure that executives have significant value tied to the growth of the Company.

Summary Compensation Table

 

The following table contains summary information concerning the total compensation earned during 2010, 2009 and 2008 by our Chief Executive Officer, Chief Financial Officer and our three other most highly compensated executive officers serving in this capacity as of December 31, 2010, whose total compensation exceeded $100,000 for the fiscal year ended December 31, 2010.

 

 

 

Name			2010					2009					2008
Alan W. Stock			$	1,499,533				$	571,150				$	565,484
Timothy Warner			$	1,258,491				$	334,799				$	331,492
Robert Copple			$	1,238,390				$	315,106				$	311,990
Valmir Fernandes			$	1,041,914				$	143,526				$	139,380

 

Name
			2008
Alan W. Stock			$	804,576
Timothy Warner			$	471,650
Robert Copple			$	443,901
Valmir Fernandes			$	198,310

 

 

Grants of Plan-Based Awards

 

The following table specifies the grants of awards made to the named executive officers during the fiscal year ended December 31, 2010 under the Restated Plan and the Bonus Plan.

 

Grants of Plan-Based Awards

 

 

 

Outstanding Equity Awards

 

There were no unexercised options for each named executive officer as of December 31, 2010.

 

Outstanding Equity Awards at Fiscal Year-End