UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

SCHEDULE 14A

(RULE 14a-101)

 

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

 

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF

THE SECURITIES EXCHANGE ACT OF 1934

 

Filed by the Registrant x

Filed by a Party other than the Registrant o

 

Check the appropriate box:

 

x  Preliminary Proxy Statement

o  Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o  Definitive Proxy Statement

o  Definitive Additional Materials

o  Soliciting Material Pursuant to §240.14a-12

 

Royal Caribbean Cruises Ltd.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

 

Payment of Filing Fee (Check the appropriate box):

 

x  No fee required.

 

 

 

 

 

 

 

 

 

 

 

 

o  Fee paid previously with preliminary materials.

 

 

 

 

 

 

 

 

 

 

ROYAL CARIBBEAN CRUISES LTD.
1050 Caribbean Way
Miami, Florida 33132

 

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

TO BE HELD MAY 27, 2009

 

 

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDERS MEETING TO BE HELD ON MAY 27, 2009

 

This Notice, the Proxy Statement, the Annual Report
and all other proxy materials are available at www.rclinvestor.com

 

 

To the Shareholders of

ROYAL CARIBBEAN CRUISES LTD.

 

Notice is hereby given that the Annual Meeting of Shareholders of Royal Caribbean Cruises Ltd. (the “Company”) will be held at 9:00 A.M. on Wednesday, May 27, 2009 at the Hyatt Regency, 400 S.E. 2nd Avenue, Miami, Florida.

 

The Annual Meeting will be held for the following purposes:

 

 

The Board of Directors has fixed the close of business on March 30, 2009 as the record date for the determination of shareholders entitled to notice of and to vote at the meeting or any adjournment thereof.

 

New U.S. Securities and Exchange Commission rules allow us to deliver proxy materials over the Internet. Under these rules, we are sending our shareholders a notice regarding the Internet availability of proxy materials instead of a full set of proxy materials, unless they previously requested to receive printed copies. If you receive such notice, you will not receive printed copies of the proxy materials unless you specifically request them. Instead, this notice informs you how to access and review on the Internet all of the important information contained in the proxy materials and how to submit your proxy card over the Internet. All of the Company’s shareholders are urged to follow the instructions in the notice and submit their proxy promptly.

 

Notice and electronic availability of this proxy statement and accompanying proxy card are being made available on or about April   , 2009.

 

All shareholders are cordially invited to attend the meeting in person. Whether or not you expect to attend in person, the Company requests that you promptly complete and submit the proxy card.

 

Bradley H. Stein,
Secretary

 

April   , 2009

 

TABLE OF CONTENTS

 

 

ROYAL CARIBBEAN CRUISES LTD.
1050 Caribbean Way
Miami, Florida 33132

PROXY STATEMENT
FOR ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 27, 2009

 

 

 

 

 

This proxy statement is being furnished to you in connection with the solicitation of proxies by the Board of Directors of Royal Caribbean Cruises Ltd. (the “Board”) to be used at the 2009 Annual Meeting of Shareholders to be held on May 27, 2009, and any adjournments or postponements thereof. References in this proxy statement to “we,” “us,” “our,” “Company” and “Royal Caribbean” refer to Royal Caribbean Cruises Ltd.

 

Holders of the Company’s common stock, par value $.01 per share, as reflected in our records at the close of business on March 30, 2009 (the record date), may vote at the Annual Meeting of Shareholders to be held on May 27, 2009, and any adjournment or postponement thereof.

 

As of March 30, 2009, the Company had            issued and outstanding shares of common stock. Each issued and outstanding share is entitled to one vote.

 

You may vote in person at the meeting or by proxy. You may vote by proxy on the Internet, by telephone or by signing, dating and mailing your proxy card. Detailed instructions for Internet and telephone voting are set forth on the proxy card and the notice regarding the Internet availability of proxy materials. We recommend that you vote by proxy even if you plan to attend the meeting. You can always change your vote at the meeting. If your shares are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with you to hand in with your ballot in order to be able to vote your shares at the meeting.

 

All properly executed proxies will be voted in accordance with the instructions contained thereon, and if no choice is specified, the proxies will be voted: for the election of the directors named elsewhere in this proxy statement, to give the Board discretion to delist the Company’s common stock from the Oslo Stock Exchange, for the ratification of the selection of the independent registered certified public accounting firm and against the shareholder proposal. Abstentions are counted as present in determining the existence of a quorum but will not have the effect of votes in opposition to the election of a director or a “no” vote on proposals 2 or 3 or the shareholder proposal. Under New York Stock Exchange (“NYSE”) rules, if your broker holds your shares in its name, your broker is permitted to vote your shares on proposals 1, 2 and 3 even if it does not receive voting instructions from you, but it cannot vote on the shareholder proposal without your instructions.

 

We are not aware of any matters to be presented for a vote at the Annual Meeting of Shareholders other than those described in this proxy statement. If any matters not described in this proxy statement are properly presented at the meeting, the proxies will use their own judgment to determine how to vote your shares. If the meeting is postponed or adjourned, the proxies will vote your shares on the new meeting date in accordance with your previous instructions, unless you have revoked your proxy.

 

A majority of the votes represented by the shares of common stock present at the meeting in person or by proxy is required for approval of proposals 1 and 3. Votes represented by two-thirds of the shares of common stock outstanding are required for approval of proposal 2 and the shareholder proposal.

 

Any proxy may be revoked by a shareholder at any time before it is exercised by giving written notice to that effect to the Corporate Secretary of the Company or by signing and submitting a later-dated proxy, unless the proxy submitted is entitled “irrevocable proxy.” Shareholders who attend the Annual Meeting may revoke any proxy previously granted and vote in person.

 

We have adopted corporate governance principles which, along with board committee charters, provide the framework for the governance of the Company. The corporate governance principles address such matters as director qualifications, director independence, director compensation, board committees and committee evaluations. We believe that the corporate governance principles comply with the corporate governance rules adopted by the NYSE. A copy of the corporate governance principles of the Company is posted in the corporate governance section on the Company website at www.rclinvestor.com and is available in print to shareholders upon written request to the Corporate Secretary, Royal Caribbean Cruises Ltd., 1050 Caribbean Way, Miami, Florida 33132.

 

The Board has established an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance Committee and an Environmental, Safety and Security Committee. The functions of each of these committees are described below. Each committee has adopted a charter and a copy of each committee charter is posted in the corporate governance section on the Company website at www.rclinvestor.com and is available in print to shareholders upon written request to the Corporate Secretary, Royal Caribbean Cruises Ltd., 1050 Caribbean Way, Miami, Florida 33132.

 

 

 

 

The Company’s corporate governance principles contain guidelines established by the Board to assist it in determining director independence as defined by the listing standards of the NYSE. The Company’s corporate governance principles state that a majority of the Company’s directors shall be independent directors under NYSE rules. The Board believes that directors who do not meet the NYSE’s independence standards also make valuable contributions to the Board and to the Company by reason of their experience and wisdom, and the Board expects that some minority of its Board will not meet the NYSE’s independence standards.

 

To be considered independent under the NYSE rules, the Board must determine that a director does not have any direct or indirect material relationship with the Company or any of its subsidiaries (collectively, the “Royal Caribbean Group”). The Board has established the following guidelines to assist it in determining director independence in accordance with those rules:

 

 

 

Each director must regularly disclose to the Board whether his or her relationships satisfy these independence tests. Based on these disclosures and other information available to it, the Board has determined that each of the directors is independent with the exception of Messrs. Fain and Reilly. Mr. Fain is not considered independent as a result of his position as Chief Executive Officer of the Company. Mr. Reilly is not considered independent due to his consulting arrangement with the Company, which is described on page 13 under “Consulting Arrangement with William K. Reilly.” In determining that Messrs. Aronson and Kimsey are independent, the Board considered that each individual is a non-management director of a company with which we do business. In determining that Mr. Wilhelmsen is independent, the Board considered that he is President and Chief Executive Officer of a company that in 2008 provided us with crew manning services in the ordinary course of business of approximately $25,000. In determining that Mr. Pritzker is independent, the Board considered that he is Chairman of a company that in 2008 provided hotel accommodations to our guests in the ordinary course of business of approximately $653,690.

 

The Board has adopted a Code of Business Conduct and Ethics that applies to all employees of the Company, including its executive officers, and our directors. A copy of the Code of Business Conduct and Ethics is posted in the corporate governance section on the Company website at www.rclinvestor.com and is available in print, without charge, to shareholders upon written request to Corporate Secretary, Royal Caribbean Cruises Ltd., 1050 Caribbean Way, Miami, Florida 33132. Any amendments to the code or any waivers from any provisions of the code granted to executive officers or directors will be promptly disclosed to investors by posting on the Company website at www.rclinvestor.com.

 

Interested parties who wish to communicate with non-management members of the Board can address their communications to the attention of the Corporate Secretary of the Company at its principal address or via email to corporatesecretary@rccl.com. The Corporate Secretary will maintain a record of all such communications and promptly forward to the Chairman of the Nominating and Corporate Governance Committee (the “Committee Chair”), who presides at meetings of the independent directors, those communications that the Corporate Secretary

believes require immediate attention. The Corporate Secretary shall periodically provide the Committee Chair with a summary of all such communications. The Committee Chair shall notify the Board or the chairs of the relevant committees of the Board of those matters that he or she believes are appropriate for further action or discussion.

 

Unless otherwise stated, this table sets forth information as of February 12, 2009 about persons we know to beneficially own more than five percent of any class of our voting common stock.

 

 

 

 

This table sets forth information as of February 12, 2009 about the amount of common stock beneficially owned by our current directors, current named executive officers listed in the “Compensation Discussion and Analysis” below, and the current directors and named executive officers as a group.

 

The number of shares beneficially owned by each named person or entity is determined under rules of the SEC, and the information is not necessarily indicative of beneficial ownership for any other purpose. No shares of common stock held by our directors or named executive officers have been pledged.

 

 

 

 

The following table summarizes our equity plan information as of December 31, 2008.

 

 

 

 

Section 16(a) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires the Company’s directors, certain officers and persons who beneficially own more than ten percent of our common stock to file reports on Forms 3, 4 and 5 with the SEC. Based solely upon a review of such reports filed since the Company last made such a disclosure in its proxy statement distributed in connection with the 2008 annual meeting, all reporting persons filed on a timely basis the reports required by Section 16(a) of the Exchange Act.

 

A. Wilhelmsen AS and Cruise Associates are parties to a Shareholders’ Agreement dated as of February 1, 1993 as amended (the “Shareholders’ Agreement”) and, pursuant thereto, have agreed upon certain matters relative to the organization and operation of the Company and certain matters concerning their respective ownership of the Company’s voting stock. Pursuant to the Shareholders’ Agreement, Wilhelmsen and Cruise Associates have agreed to vote their shares of common stock in favor of the following individuals as directors of the Company: (i) up to four nominees of Wilhelmsen (at least one of whom must be independent); (ii) up to four nominees of Cruise Associates (at least one of whom must be independent); and (iii) one nominee who must be Richard D. Fain or such other individual who is then employed as the Company’s chief executive officer.

 

Of the persons nominated for election at the 2009 Annual Meeting, Wilhelmsen has nominated Morten Arntzen and Cruise Associates has nominated Bernard W. Aronson. Of the remaining directors, Wilhelmsen nominated Gert W. Munthe, Bernt Reitan and Arne Alexander Wilhelmsen and Cruise Associates nominated Laura D.B. Laviada, Eyal M. Ofer and Thomas J. Pritzker.

 

The Board of Directors is currently divided into three classes. The current term of office of directors in Class I expires at the 2009 Annual Meeting. The Board has proposed to nominate the three nominees described below, each of whom is currently serving as a Class I director, to be elected for a new term of three years and until his or her successor is duly elected and qualified. Upon the election of the nominees named below, there will be a total of eleven directors consisting of three directors in Class I and four directors in each of Class II and Class III. The election of each of the nominees to the Board of Directors requires the approval of a majority of the votes cast at the Annual Meeting.

 

Each of the nominees has consented to serve as a director. If any of them become unavailable to serve as a director, the Board may designate a substitute nominee. In that case, the persons named as proxies will vote for the substitute nominee named by the Board. The Class I directors standing for election are:

 

Morten Arntzen, 54, has served as a Director since September 2008. Mr. Arntzen is currently the President and Chief Executive Officer and a director of Overseas Shipholding Group, Inc., a diversified global energy transportation company. He is also Chairman of OSG America, LP, a master limited partnership listed on the New York Stock Exchange and affiliated with Overseas Shipholding Group, Inc. From 1997 to 2003, Mr. Arntzen served as the Chief Executive Officer of American Marine Advisors, Inc., a merchant banking firm specializing in the maritime industry. Prior to joining American Marine Advisors, Inc., Mr. Arntzen spent more than 17 years in the banking industry holding various corporate positions.

 

Bernard W. Aronson, 62, has served as a Director since July 1993. Mr. Aronson is currently Managing Partner of ACON Investments, LLC. Prior to that, he served as international advisor to Goldman, Sachs & Co. From June 1989 to July 1993, Mr. Aronson served as Assistant Secretary of State for Inter-American Affairs. Prior to that, Mr. Aronson served in various positions in the private and government sectors. Mr. Aronson is a member of the Council on Foreign Relations. Mr. Aronson serves as a director of Liz Claiborne, Inc., Global Hyatt Corporation, Mariner Energy Incorporated and Chroma Oil and Gas, LP.

 

Richard D. Fain, 61, has served as a Director since 1979 and as Chairman and Chief Executive Officer of the Company since 1988. Mr. Fain has been involved in the shipping industry for over 30 years.

 

THE BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE
ELECTION OF EACH OF THE NOMINEES FOR DIRECTOR.

 

Class II Directors

 

The following Class II directors are serving for a term ending in 2010:

 

William L. Kimsey, 66, has served as a Director since April 2003. Mr. Kimsey was employed for 32 years through September 2002 with the independent public accounting firm Ernst & Young L.L.P. From 1998 through 2002, Mr. Kimsey served as the Chief Executive Officer of Ernst & Young Global and Global Executive Board member of Ernst & Young and from 1993 through 1998 as the Firm Deputy Chairman and Chief Operating Officer. Mr. Kimsey also serves on the board of Western Digital Corporation, Parsons Corporation and Accenture, Ltd.. Mr. Kimsey serves on the audit committees of Accenture Ltd. and Western Digital Corporation. Mr. Kimsey is a certified public accountant and a member of the American Institute of Certified Public Accountants.

 

Gert W. Munthe, 52, has served as a Director since May 2002. Since September 2002, Mr. Munthe has served as managing partner of Herkules Capital, a private equity company that focuses on mid-cap companies in the technology area. From 1994 through January 2000, Mr. Munthe was a director of Alpharma, Inc., a life science company active in animal health and generic pharmaceuticals, and served as its Chief Operating Officer from 1998 until 1999 and as its Chief Executive Officer in 1999. From 1993 through 1998, Mr. Munthe was the President and Chief Executive Officer of NetCom, a leading wireless telecommunication operator in Norway that was listed on the Oslo and London Stock Exchanges. He served in the Royal Norwegian Navy and was previously with McKinsey & Co.

 

Thomas J. Pritzker, 58, has served as a Director since February 1999. Mr. Pritzker is Chairman of Global Hyatt Corporation and Marmon Holdings, Inc. He is Chairman and Chief Executive Officer of The Pritzker Organization LLC, which provides certain services primarily to and/or in connection with business interests of trusts for the benefit of various members of the Pritzker family. Mr. Pritzker is a member of the Board of Trustees of the University of Chicago and Chairman of the Art Institute of Chicago.

 

Bernt Reitan, 60, has served as a director of the Company since September 2004. Mr. Reitan is an Executive Vice President of Alcoa Inc. and is the Group President for the Global Primary Products division, with responsibility for the strategic management of Alcoa Inc.’s alumina refineries and primary aluminum smelters worldwide and associated businesses, such as metal purchasing, trading and transportation. Mr. Reitan joined Alcoa Inc. in 2000 as general manager of Alcoa World Alumina & Chemicals and was named President of Alcoa World Alumina & Chemicals in January 2001. In July of that year, he was elected a Vice President of Alcoa Inc. In January 2003, he was appointed President, Alcoa Primary Metals. In November 2004, he was named an Executive Vice President of the company. Before joining Alcoa Inc., he was employed for 20 years in a number of positions with Elkem ASA in Norway. Mr. Reitan serves on the board of the International Primary Aluminum Institute and holds a master’s degree in civil engineering from the Technical University, Trondheim, Norway.

 

Class III Directors

 

The following Class III directors are serving for a term ending in 2011:

 

Laura D.B. Laviada, 58, has served as a Director since July 1997. Ms. Laviada sits on the board of several public and not-for-profit companies in Mexico, including Telemex, Grupo Financiero Inbursa, Pro Mujer (an organization that provides micro credit for women in Mexico) and is the President of the Board of Trustees of the Museum of San Ildefonso. In 2006, Ms. Laviada, along with a group of investors acquired a controlling stake in Grupo Aeroportuario del Pacifico, which operates 12 airports in Mexico including Puerto Vallarta, Guadalajara, Los Cabos and Tijuana. Prior to 2000, Ms. Laviada was the Chairman and CEO of Editorial Televisa, the largest Spanish language magazine publisher with 40 titles distributed throughout 19 countries.

 

Eyal M. Ofer, 58, has served as a Director since May 1995. Mr. Ofer has served as the Chairman and CEO of Deerbrook Limited, an international real estate management company, since May 1991.

 

William K. Reilly, 69, has served as a Director since January 1998. Mr. Reilly is the Founding Partner of Aqua International Partners L.P., an investment group that finances water and renewable energy companies, and he is a Senior Advisor to TPG Capital. From 1989 to 1993, Mr. Reilly served as the Administrator of the

U.S. Environmental Protection Agency. He has also previously served as the Payne Visiting Professor at Stanford University’s Institute of International Studies, president of World Wildlife Fund and of The Conservation Foundation. He is Chairman Emeritus of the World Wildlife Fund and of the Board of Advisors to the Nicholas Institute for Environmental Policy Solutions at Duke University, and also serves on the board of trustees of National Geographic Society and the Packard Foundation. He serves as a director of E.I. Du Pont de Nemours and Company, ConocoPhillips, Energy Future Holdings, AgraQuest and Eden Springs Ltd.

 

Arne Alexander Wilhelmsen, 43, has served as a Director since May 2003. Mr. Wilhelmsen is a member of the board of directors of A. Wilhelmsen AS and other companies affiliated with A. Wilhelmsen AS and has held since 1995 a variety of managerial positions with such entities. In 2005, Mr. Wilhelmsen was elected President and Chief Executive Officer of AWILHELMSEN MANAGEMENT AS, the management company for the companies owned by A. Wilhelmsen AS. From 1996 through 1997, Mr. Wilhelmsen was engaged as a marketing analyst for the Company and since 2001 has served as a member of the board of directors of Royal Caribbean Cruise Line AS, a wholly owned subsidiary of the Company that is responsible for the sales and marketing activities of the Company in Europe.

 

Directors who are Company employees do not receive any fees for their services as directors. For services in the fiscal year 2008, each non-employee director was entitled to receive an annual retainer of $50,000 and $1,200 for each Board meeting attended in his or her capacity as director and $1,200 for each committee meeting attended. The Chair of the Audit Committee is entitled to an additional annual retainer of $30,000, the Chair of the Compensation Committee is entitled to an additional annual retainer of $15,000 and each of the Chairs of the Nominating and Corporate Governance, and Environmental, Safety and Security Committees is entitled to an additional annual retainer of $6,000. Other members of the Audit Committee are entitled to an additional annual retainer of $15,000 and other members of the Compensation, Nominating and Corporate Governance, and Environmental, Safety and Security Committees are entitled to an additional annual retainer of $5,000. During 2008, directors could elect to defer their fees, in whole or in part, under the Company’s Board of Directors Nonqualified Deferred Compensation Plan, provided the deferral was made in advance in accordance with IRS requirements. Each director was entitled to elect to invest their contributions to such plan in one or more investment funds and was required to designate the form and timing of their distributions. In 2008, a new U.S. tax law was enacted that imposes a punitive tax on compensation deferred under our nonqualified deferred compensation plans after January 1, 2009. As a result of the passage of this law, the Company amended this plan to prohibit the directors from deferring compensation under such plan after January 1, 2009, and provided for the distribution to them of all previously deferred contributions. Directors are reimbursed for their travel expenses, and occasionally for those of an accompanying guest, for meetings attended.

 

At the discretion of the Board, each non-employee director is eligible to receive an annual grant of equity awards with an aggregate value on the date of grant equal to $90,000. For 2008, two-thirds of this annual grant was awarded in the form of restricted stock units and one-third was awarded in the form of stock options to purchase the Company’s common stock. The Board’s stock ownership guidelines require directors to accumulate ownership of at least $150,000 of the Company’s common stock, including the value of restricted stock units, within three years of becoming a director. If the value of their stock holdings falls below this amount, directors cannot sell the Company’s common stock.

 

In order to increase knowledge and understanding of our business, we encourage Board members and their families to experience our cruises. As a result, the Company has adopted a Board Member Cruise Policy (the “Cruise Policy”). Under the Cruise Policy, a Board member is entitled to one stateroom accommodation per year on a complimentary basis. A Board member is also entitled to provide immediate family members traveling with the Board member with one complimentary stateroom per year. Additional guests traveling with a Board member will receive a 15% discount off of the lowest available fare for up to 20 staterooms. A Board member is entitled to accommodate immediate family members not traveling with the Board member with one complimentary stateroom, provided they have not already traveled with a Board member that same calendar year.

Consulting Arrangement with William K. Reilly.  The Company has a consulting arrangement with Mr. Reilly under which it pays him $300,000 a year in consultancy fees in exchange for his providing services with respect to, and overseeing, the Company’s environmental programs. As part of his responsibilities, Mr. Reilly serves on the Grants Committee of the Royal Caribbean Ocean Fund, a fund established to support marine conservation organizations in preserving the world’s oceans.

 

The table below summarizes the compensation of our outside directors in 2008.

 

 

 

 

Related Person Transaction Policy and Procedure

 

The Company has a written Related Person Transaction Policy that requires review of all relationships and transactions in which the Company and any director or executive officer or their immediate family members have a direct or indirect material interest. Under this policy, each director, director nominee and executive officer is required to promptly notify the Corporate Secretary of any such transaction. The Corporate Secretary then presents such transactions to the Audit Committee and the Audit Committee is responsible for determining whether to approve or ratify the transactions. The following types of transactions are deemed not to create or involve a material interest on the part of the related person and do not require approval or ratification under the policy unless the Audit Committee determines that the facts and circumstances of the transaction warrant its review:

 

 

 

In making its decision, the Audit Committee reviews and considers all relevant facts and circumstances, including:

 

 

If after the review described above, the Audit Committee determines not to approve or ratify the transaction, it will be cancelled or unwound, as the case may be.

 

Related Person Transactions

 

The Audit Committee reviewed and approved or ratified all of the following transactions in accordance with our Related Person Transaction Policy.

 

During the fiscal year ended December 31, 2008, the Company paid the Global Hyatt Corporation approximately $653,690 to provide accommodations to the Company’s guests. In addition, certain employees of the Company stay at Hyatt Hotels while traveling on business and the Company may make use of Hyatt facilities for business purposes although Hyatt has no specific arrangement or understanding with the Company in that connection. Mr. Thomas J. Pritzker, one of the Company’s directors and shareholders, is Chairman of the Global Hyatt Corporation.

 

During the fiscal year ended December 31, 2008, the Company paid Red Sail Sports approximately $427,125 as a shore excursions operator in the Caribbean. Red Sail Sports is owned by one of Mr. Pritzker’s brothers.

 

During the fiscal year ended December 31, 2008, the Company paid Mr. William K. Reilly $300,000 under his consulting arrangement with the Company, which is described on page 13 under “Consulting Arrangement with William K. Reilly.”

 

The Company’s primary listing for its shares of common stock is the New York Stock Exchange. The Company also maintains a secondary listing on the Oslo Stock Exchange. The Board is seeking shareholder approval to give it discretion to delist from the Oslo Stock Exchange if it determines that maintaining this secondary listing is no longer in the best interests of the shareholders.

 

The Company’s common stock has been listed on the Oslo Stock Exchange since 1996. Over the years, the Company has benefited from this listing as it has allowed the Company to increase its visibility with Norwegian institutional investors. A significant number of the major institutional investors in Norway currently own shares of the Company’s stock on the Oslo Stock Exchange. The Company does not believe it would have been able to attract these investors were it not for its listing in Norway.

 

Nonetheless, the trading volume on the Oslo Stock Exchange has remained considerably lower than that of the New York Stock Exchange. Currently, approximately 6% of the Company’s total outstanding shares trade on the Oslo Stock Exchange which represents approximately 13% of the Company’s total daily trading volume. Meanwhile, the cost of the listing is relatively high. Over the years, the Company has paid an average of $250,000 per year in listing fees and has to devote additional time and resources to comply with separate reporting and regulatory requirements of a secondary listing.

 

As part of its cost-cutting initiatives in the current economic environment, the Company is examining whether the benefits of listing in Oslo are worth the additional costs. The Company has had productive discussions with the Oslo Stock Exchange in this respect and these discussions are continuing. While the Company feels it would be premature to make a definitive decision at this time on delisting, it believes that it would be appropriate to seek shareholder approval should the situation warrant.

 

The Company is cognizant of the impact that a delisting could have to holders of the Company’s common stock who reside in Norway. Should the Company decide to delist, it would work with the Company’s transfer agent in Norway to ensure that all holders in Norway would be able to easily transfer their shares to the New York Stock Exchange.

 

Based on regulatory requirements of the Oslo Stock Exchange, the approval to provide the Board with discretion to delist from the Oslo Stock Exchange requires the affirmative vote of two-thirds of the outstanding shares of the Company’s common stock entitled to vote. For the reasons set forth above, the Board recommends that the shareholders vote in favor of giving the Board discretion to delist the Company’s common stock from the Oslo Stock Exchange.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” THE BOARD TO HAVE DISCRETION TO DELIST THE COMPANY’S COMMON STOCK FROM THE OSLO STOCK EXCHANGE.

 

The Audit Committee of the Board has appointed PricewaterhouseCoopers LLP as the independent registered certified public accounting firm for the Company for the fiscal year ending December 31, 2009. PricewaterhouseCoopers LLP has served as the Company’s independent registered certified public accounting firm for over 20 years. A representative of PricewaterhouseCoopers LLP will be present at the Annual Meeting to respond to questions from the shareholders and to make a statement if the representative desires to do so.

 

Although ratification by the shareholders of the appointment of the independent registered certified public accounting firm for the Company is not legally required, the Board believes that such action is desirable. If the shareholders do not approve this proposal, the Audit Committee will consider selecting another accounting firm for the fiscal year 2009 and future fiscal years.

 

Aggregate fees for professional services rendered by PricewaterhouseCoopers LLP for the fiscal years ended December 31, 2008 and 2007 were:

 

 

Pursuant to the terms of its charter, the Audit Committee shall approve all audit engagement fees and terms and all non-audit engagements with the independent registered certified public accounting firm. The Chairman of the Audit Committee also has the authority to approve any non-audit engagements with the independent registered certified public accounting firm but must report any such approvals to the Audit Committee at its next meeting. Our Audit Committee was not called upon in the fiscal years ended December 31, 2008 or 2007 to approve, after the fact, any non-audit, review or attest services pursuant to the pre-approval waiver provisions of the auditor independence rules of the SEC.

 

The audit fees for the fiscal years ended December 31, 2008 and 2007 were for professional services rendered for the integrated audits of the Company’s consolidated financial statements and system of internal control over financial reporting, quarterly reviews, statutory audits required by foreign jurisdictions, comfort letters, consents, and review of documents filed with the SEC.

 

The audit-related fees for the fiscal years ended December 31, 2008 and 2007 were primarily for the audits of employee benefit plans.

 

Tax fees for the fiscal year ended December 31, 2008 and 2007 were for services performed in connection with international tax compliance and transfer pricing services.

 

All other fees for the fiscal year ended December 31, 2008 and 2007 were primarily for subscription fees for accounting research software.

 

The Audit Committee has considered and determined that the services provided by PricewaterhouseCoopers LLP are compatible with maintaining PricewaterhouseCoopers LLP’s independence.

 

THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE “FOR” RATIFICATION OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY’S INDEPENDENT REGISTERED CERTIFIED PUBLIC ACCOUNTING FIRM FOR THE 2009 FISCAL YEAR.

 

In accordance with its charter, the Audit Committee of Royal Caribbean Cruises Ltd. (the “Company”) is responsible for assisting the Board of Directors in fulfilling its oversight responsibilities for the integrity of the Company’s financial statements; the Company’s compliance with legal and regulatory requirements; the independent auditor’s qualifications and independence; and the performance of the Company’s internal audit function and independent registered certified public accounting firm.

 

It is the responsibility of the Company’s management to prepare the Company’s financial statements and to develop and maintain adequate systems of internal controls over financial reporting. The internal auditors’ and the independent registered certified public accounting firm’s responsibilities are to review and, when appropriate, audit the financial statements and internal controls over financial reporting. The independent registered certified public accounting firm has the responsibility to express an opinion on the financial statements and internal controls over financial reporting based on an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board.

 

The Audit Committee has reviewed and discussed the audited financial statements contained in the 2008 Annual Report on Form 10-K and the Company’s internal controls over financial reporting with the Company’s management and its independent registered certified public accounting firm. The Audit Committee has discussed with the independent registered certified public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended. The Audit Committee has received the written disclosures and the letter from the independent accountant required by 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 the independent accountant the independent accountant’s independence. The Audit Committee has also considered whether the provision of non-audit services is compatible with maintaining the independence of the independent registered certified public accounting firm.

 

Based on the review and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, for filing with the Securities and Exchange Commission.

 

THE AUDIT COMMITTEE
OF ROYAL CARIBBEAN CRUISES LTD.

William L. Kimsey, Chairman
Gert W. Munthe
Bernt Reitan

 

The Compensation Committee of the Board of Directors of Royal Caribbean Cruises Ltd. has reviewed and discussed with management the Compensation Discussion and Analysis (“CD&A”) and, based on such review and discussion, has recommended to the Board that the CD&A be included in the Company’s 2009 proxy statement.

 

COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS

Bernt Reitan, Chairman
Bernard W. Aronson
Laura D.B. Laviada
Gert W. Munthe

 

Introduction

 

We are the second largest cruise company in the world with 38 ships operating under five different cruise brands, sailing to approximately 425 destinations and employing approximately 49,000 shipboard and shoreside employees worldwide as of December 31, 2008.

 

In 2008, we faced a worldwide economic downturn, the meltdown of the global credit and capital markets, and significantly higher fuel costs, which contributed to lower operating income. Despite these challenges, we successfully took delivery of Independence of the Seas, the third Freedom-class ship for Royal Caribbean International and Celebrity Solstice, the first Solstice-class ship for Celebrity Cruises. We also implemented a cost savings initiative expected to save approximately $125 million of general and administrative expenses annually, which included the elimination of approximately 400 shore-side positions and the discontinuation of some non-core operations.

 

This CD&A describes the compensation plans, programs and objectives for our named executive officers and outlines the 2008 compensation actions taken to recognize their overall performance in this challenging environment.

 

Named Executive Officers

 

The Compensation Committee determines the compensation of our senior executive officers, including our Chairman and Chief Executive Officer, Chief Financial Officer and our three most highly compensated executive officers other than the Chairman and Chief Executive Officer and Chief Financial Officer for the fiscal year ended December 31, 2008 (“Named Executive Officers” or “NEOs”), which are set forth below.

 

 

Principal Compensation Objectives

 

Our executive compensation programs are designed to: attract and retain executives who contribute to the Company’s long-term success; reward executives for their contribution to achieving the Company’s short- and long-term goals; align executive compensation and shareholder interests through performance- and equity-based plans; and recognize individual contributions to the Company’s performance.

We provide compensation to our executives consisting of three principal elements: base salary, performance based annual incentive and long-term incentive awards (“Total Direct Compensation”). The objectives of each element of compensation are described below.

 

 

While the principal elements of our compensation programs are quantitative in nature, our programs also take into account qualitative factors to avoid an overly formulaic approach in determining compensation. The key quantitative and qualitative considerations that we used in assessing performance, and the process by which we linked compensation to them, are described in this CD&A.

 

Based on our pay for performance orientation and the desire to create long-term earnings opportunities, we place a significant portion of target Total Direct Compensation at risk, as illustrated below. This mix of Total Direct Compensation elements is consistent with general market trends and with the mix provided by companies in our 2008 Market Comparison Group identified below (the “Market Comparison Group”).

 

 

 

 

Compensation Review Process

 

The process of making compensation decisions begins with establishing a Market Comparison Group. This is the foundation of our review of compensation practices and levels for our Named Executive Officers. The Compensation Committee engages Watson Wyatt Worldwide (“Consultant”), an executive compensation consulting firm, to assist with constructing the Market Comparison Group. Traditionally, this group consists of companies that generally operate in the travel and tourism, hospitality, leisure, air transportation and food and beverage industries. The Compensation Committee selects these companies based upon their size (generally one-half to two times our revenues) and industry as well as the operational similarities of their business to our own, even though many of them may not be our direct or indirect competitors.

The table below sets forth the companies included in our Market Comparison Group, which was used by the Compensation Committee for making the NEO’s 2008 compensation determinations:

 

 

We attempt to keep the Market Comparison Group as stable as possible from year to year. We revise the group when companies change significantly in scope, cease to be public companies, significantly underperform the group or otherwise cease to be appropriate comparators. In May 2008, the Compensation Committee removed three companies from the above group that ceased to be public companies, Harrah’s Entertainment, Hilton Hotels Corp. and Sabre Holdings Corp., and replaced them with Marriott International, Inc., US Airways Group Inc, and Hertz Global Holdings, Inc. This new Market Comparison Group will be used for making the NEO’s 2009 compensation determinations.

 

The Consultant obtains the data on these companies and the compensation of their executives from their public filings. The Compensation Committee relies on the Consultant to analyze the data and present its findings. The Consultant’s analysis compares each NEO’s elements of Total Direct Compensation to those of his counterparts in the Market Comparison Group and provides senior management and the Compensation Committee with the relative positioning for compensation. Additionally, the Consultant makes recommendations with regard to changes that may be appropriate in the approach to compensating the NEOs; for 2008 there were no material changes to our methodology.

 

The Compensation Committee reviews and evaluates the data and makes recommendations to determine the appropriate compensation programs and levels. In doing so, it carefully considers the performance of our Company, each Brand and each NEO. For the Company and each Brand, both financial (as determined by operating and net income, EBITDA, total shareholder return and earnings per share) and operational performance (including customer satisfaction and operational efficiencies) are carefully reviewed. For each NEO, the Compensation Committee assesses how the executive contributed to financial and operational performance and his long-term contributions to our Company.

 

For each NEO other than the Chairman and Chief Executive Officer, the Compensation Committee consults with and receives the recommendation of the Chairman and Chief Executive Officer, but the Compensation Committee is ultimately responsible for determining whether to accept such recommendations. For the compensation related to the Chairman and Chief Executive Officer, the Compensation Committee meets in executive session and considers the opinion of the Consultant as well as other criteria identified in this CD&A.

 

The elements of our compensation programs are discussed more fully below.

 

Base Salary

 

The Compensation Committee seeks to pay each NEO a level of fixed compensation that competitively reflects his scope of responsibility relative to the Market Comparison Group. The primary considerations used in setting base salary levels include each NEO’s scope of responsibilities, expertise, experience, performance and potential to further our business objectives. We generally review salaries early each year and, if appropriate, adjust them to reflect changes in such considerations and to respond to market conditions and competitive pressures.

 

In February 2008, the Compensation Committee established 2008 Base Salaries for the NEOs. Mr. Fain’s base salary was not changed. The base salaries for Messrs. Rice, Goldstein, Hanrahan and Kulovarra were increased after

evaluating the competitive market conditions as well as their respective expertise, experience, tenure, performance, potential and scope of responsibility.

 

The table below shows each NEO’s Fiscal Year 2007 and 2008 base salary.

 

 

Performance Based Annual Incentive

 

Under the Executive Incentive Plan (“EIP”), we award performance-based annual incentives that are tied to four components: Corporate Performance, Brand Performance (if applicable), Individual Performance and a discretionary performance multiplier based on the Compensation Committee’s assessment of our overall operational performance.

 

For 2008, the Compensation Committee established a target incentive opportunity for each NEO, expressed as a percentage of base salary. The target incentives for Messrs. Fain, Rice, Goldstein, and Hanrahan were increased to provide a stronger incentive for performance and increase their focus on generating income and cash flows. The Compensation Committee also allocated the target incentives in accordance with the design of the EIP as set forth below.

 

 

 

 

The Compensation Committee also confirmed that the previously established threshold and maximum performance and funding levels for the corporate and brand components were commensurate with the market and should be retained for 2008. The four performance and funding levels are illustrated below.

 

 

For 2008, the table below shows each NEO’s Target and Actual Incentive award. For Mr. Kulovaara, the ship delivery bonuses are not factored into the target, but they are included in the actual performance based annual incentive. In every case, 2008 Actual Incentive awards were flat or below 2007, reflecting our Company’s results and our pay-for-performance philosophy.

 

 

Corporate Performance — The Compensation Committee approves an EIP net income target, for corporate performance, based on guidance announced at the beginning of the calendar year. For 2008, the Compensation Committee approved an EIP net income target for corporate performance of $707 million, which represents the midpoint of the range of our guidance announced in January 2008.

 

When we establish this target, we do not attempt to forecast changes in fuel price as we do not believe such forecasts are reliable or relevant to management’s performance. Accordingly, as our operating results are sensitive to fuel price fluctuations, we believe that retrospective adjustments to operating results to account for fuel price increases or decreases are appropriate in determining the EIP awards. Additionally, the Compensation Committee reviews our operating results to determine if adjustments are required because of other events outside of management’s control.

 

For 2008, the Compensation Committee approved an upward adjustment to net income of $127 million to account for significant fuel price increases, which resulted in a 2008 EIP-adjusted net income of $699 million or $8 million below the net income target. This yielded a funding level for the EIP corporate performance component of 73.1% of target.

 

Brand Performance — Executives who are dedicated to specific brands have a portion of their EIP award tied to the performance of their respective brands. Consistent with the approach used to establish the net income target for corporate performance, the Committee established an EIP operating income target for each brand that was consistent with the corporate net income guidance announced at the beginning of the calendar year. At the brand level, we focus on operating income as that metric takes into account capital costs that are important in calculating returns on invested capital, which is a fundamental precept of the Company’s operating plan. The Compensation Committee approved operating income targets for Royal Caribbean International and Celebrity Cruises. The brand performance components of Messrs. Goldstein and Hanrahan’s EIP awards were measured against their respective brand’s operating income as adjusted for fuel cost increases in a manner similar to the adjustment made for corporate performance. Royal Caribbean International delivered operating income significantly above target, which yielded a funding level for Mr. Goldstein of 241% for his brand component of the EIP award. Celebrity Cruises delivered operating income below threshold, which yielded a funding level of 0%. The Compensation Committee noted that the introduction of Celebrity Solstice had been extraordinarily successful although its financial impact would mainly be felt in 2009 and beyond. The Compensation Committee determined that this should be taken into consideration and, in its discretion, approved a 10% funding level for the Celebrity Cruises brand component of the EIP award to account for this successful launch.

 

Individual Performance — The individual performance component of our EIP award is intended to reward the managerial decision making, behavioral interaction and overall contribution of our NEOs. In determining each NEO’s individual performance component, the Compensation Committee considered the recommendation of Mr. Fain, in each case except for himself. The Compensation Committee evaluated those recommendations based on its knowledge of our Company and each NEO’s overall contributions to our successful growth and achievement of priority strategic objectives, how the NEO directed his area of responsibility to meet challenges in the market and the results of specific projects the NEO may have been responsible for during the year.

 

In the case of Mr. Fain, the Compensation Committee considered various objective measures including customer satisfaction, return on capital, revenue growth and shareholder return. It also considered subjective criteria including Mr. Fain’s contribution to the long-term growth of the Company, his execution of strategic initiatives and

his introduction of innovative products that create long-term shareholder value. Based on these factors, the Compensation Committee awarded Mr. Fain 110% of the individual performance component of his EIP award.

 

In the face of the severe economic conditions prevailing in 2008, the Compensation Committee agreed with the Chairman and CEO’s recommendation that the contributions of Messrs. Rice, Goldstein and Hanrahan reflected a level of performance that exceeded target expectations, and therefore awarded them a funding level of 110% for their respective individual performance components of the EIP award.

 

The Compensation Committee also awarded Mr. Kulovaara a special performance bonus of $300,000 for overseeing the successful design, construction and delivery of two new cruise ships in 2008, Independence of the Seas, and the first of a new class of ship, Celebrity Solstice. It also adopted the Chairman and CEO’s recommendation and awarded him 100% of the individual performance component of the EIP award to reflect these contributions.

 

The table below shows the 2008 performance based annual incentive payout, as a percent of target, for each component of the EIP.

 

 

Performance Multiplier — The Compensation Committee can apply a performance multiplier, which may modify the total EIP award upwards or downwards by as much as 15% based on operational performance relative to industry competitors (subject to the maximum funding limit of 300% of the entire incentive amount). For 2008, the Compensation Committee decided not to apply the discretionary performance multiplier in view of the Company’s underperformance relative to its operating plan.

 

Long-Term Incentive Awards

 

In 2008, the Compensation Committee granted long-term equity based incentive compensation under the 2000 Stock Award Plan (“2000 Equity Plan” or “LTIP”). Under the 2000 Equity Plan, the Compensation Committee can grant the following types of awards: stock options, performance shares, restricted stock, restricted stock units (“RSUs”), and stock appreciation rights. In balancing the Company’s retention objectives with its pay for performance orientation, the Compensation Committee considered the spectrum of potential equity instrument designs, vesting criteria and schedules.

 

As in previous years, the long-term incentive award granted to the NEOs was comprised of stock options and RSUs. In making the allocation between the two types of awards, the Compensation Committee considered that, of the two award designs, RSUs have a relatively greater retentive effect, and stock options have a relatively greater performance incentive impact. Also, the Compensation Committee considered the dilutive effect of the two awards under the 2000 Equity Plan, which is greater in the case of stock options. As shown below, the Compensation Committee allocated up to 75% of the award value to RSUs and the remainder to stock options to attempt to balance these competing considerations.

 

To further promote retention, the stock options and RSUs vest in equal installments over a four year period on the anniversary date of the grant. As the awards are inherently tied to the performance of Company stock, a vesting schedule based on continued service is considered appropriate to meet the desire for both retention and performance incentive.

 

In determining long-term incentive awards, the Compensation Committee considers the compensation of the Market Comparison Group, a review of other elements of compensation and the NEO’s contribution to the overall results of the Company. In February 2008, the Compensation Committee increased the long-term incentive award

grant values for each of the NEOs in consideration of these factors. Below is a table which illustrates the 2007 and 2008 grant values for the NEOs and the allocation of the grants between stock options and RSUs.

 

 

Equity Grant Practices

 

The Compensation Committee generally grants annual equity awards to Named Executive Officers and management at the first meeting of the calendar year. All stock options have a ten year term and an exercise price of not less than 100% of the fair market value of the underlying shares on the date of the Compensation Committee’s approval. The 2000 Equity Plan defines the fair market value as the average of the high and low prices of the Company’s stock on the grant date. To determine the number of stock options awarded, the total grant value of the award is multiplied by the stock option allocation and then divided by the Black-Scholes value of a stock option as of the grant date. To determine the number of RSUs awarded, the total grant value is multiplied by the RSU allocation and then divided by the fair market value of the Company stock as of the grant date. A small number of equity awards may be granted outside of the annual grant cycle in connection with events such as hiring and promotion, although no such awards were granted to the Named Executive Officers in 2008. The grants are priced pursuant to the methodology outlined above.

 

Stock Ownership Guidelines

 

We recognize the importance of aligning our management’s interests with those of our shareholders. As a result, the Board, at the recommendation of the Compensation Committee, has established stock ownership guidelines for our executives. Under these guidelines, over a three-year period, the NEOs are expected to accumulate Company stock, along with derivative forms of Company equity, such as unvested and vested stock options, having a fair market value equal to the multiples of their base salaries as shown in the table below.

 

 

As of December 31, 2008, each Named Executive Officer has exceeded his stock ownership guideline objective shown above.

 

Severance

 

The Company has entered into Employment Agreements (“Agreements”) with each of the NEOs. These Agreements provide for severance benefits in connection with various termination of employment scenarios, which are discussed in this proxy statement under the heading “Executive Compensation — Additional Information”.

We do not currently provide enhanced severance benefits if termination should follow a change-in-control of the Company. However, the Compensation Committee may in its discretion accelerate the vesting of long-term incentive awards in connection with a change-in-control.

 

Elements of Other Compensation

 

In an effort to offer our employees a competitive remuneration package, we provide them with certain retirement, medical and welfare benefits. The NEOs are eligible to participate on a basis commensurate with that of other employees. They also participate in the Company’s qualified defined contribution retirement plan and receive life insurance coverage equal to five times their annual base salary. During 2008, they were also eligible to participate in a nonqualified deferred compensation plan which allowed them to defer compensation on a pre-tax basis and in a nonqualified (unfunded) Supplemental Executive Retirement Plan (SERP) which restored to them the benefits they are unable to receive under the qualified retirement plan due to IRS limitations. In 2008, a new U.S. tax law was enacted that imposes a punitive tax on compensation deferred under our nonqualified deferred compensation plans after January 1, 2009. As a result of the passage of this law, the Company amended its nonqualified plans to prohibit the NEOs and other affected employees from deferring compensation under such plans after January 1, 2009, and provided for the distribution to them of all previously deferred contributions.

 

The Company granted 10,086 shares of Company stock on a quarterly basis to a trust for Mr. Fain’s benefit. These grants were intended to give Mr. Fain a wealth accumulation opportunity commensurate with that of similarly situated executives in other companies, and to more closely link his long-term interests to those of shareholders. To avoid the punitive tax consequences to Mr. Fain of the new U.S. tax law referred to above, the Compensation Committee approved the amendment of Mr. Fain’s employment agreement as of January 1, 2009, to provide that all future quarterly distributions of shares of Company stock which were previously required to be paid into the trust be paid instead directly to Mr. Fain and the deferred assets already in the trust be disbursed to Mr. Fain.

 

The Company offers a few perquisites or personal benefits, which include: Company subsidized automobile leases, membership dues, discounts on Company cruises, annual executive physicals and travel expenses for spouses accompanying executives.

 

Impact of Tax and Accounting Treatment

 

Our 2000 Equity Plan complies with the requirements for “qualified performance based compensation” under Section 162(m) of the U.S. Internal Revenue Code.

 

Our EIP does not comply with Section 162(m), as it would require our EIP awards to be entirely formulaic and not allow for any discretion in determining individual performance. We believe our EIP is closely aligned to Company performance and should also have the ability to reward our NEOs for their individual contributions to our Company’s success. Even though our EIP is subject to the deduction limitations under Section 162(m), the financial impact of these limitations is immaterial.

 

 

 

 

 

 

 

 

 

 

The Company has an employment agreement with Mr. Fain dated as of July 25, 2007 and amended as of December 19, 2008. The Company has employment agreements with Messrs. Rice, Goldstein, and Kulovaara dated as of July 25, 2007. Our subsidiary, Celebrity Cruises Inc. (“Celebrity”), has an employment agreement with Mr. Hanrahan dated as of July 25, 2007. These agreements (the “Agreements”) are intended to enhance the retention and motivation of these key employees, ensure compliance with section 409(A) of the U.S. Internal Revenue Code and include provisions protecting the Company such as a non-competition and non-solicitation clause. The terms of the Agreements are summarized below and apply uniformly to all NEOs, except that Mr. Hanrahan’s employment agreement differs from that of the other NEOs by establishing Celebrity rather than the Company as his employer. In addition, under our employment agreement with Mr. Fain, we have agreed to make quarterly distributions to Mr. Fain, in the amount of 10,086 shares of Company stock per quarter, until the earlier of the termination of Mr. Fain’s employment or June 2014. Prior to January 1, 2009, the Company made the quarterly contributions of such shares to a trust in favor of Mr. Fain as described on page 33 under “Trust Agreement for Mr. Richard D. Fain.”

 

The term of the Agreements shall always be two years, unless sooner terminated as provided in the Agreements. The Agreements provide for an annual base salary which may be increased, but not decreased at any time during the term of the Agreement at the sole discretion of the Company. Each NEO is eligible to participate in any cash incentive compensation program available to similarly situated executives of the Company and is eligible to receive an annual cash incentive during the term of employment on the same basis and under substantially the same terms as similarly situated executives. Under the terms of the Agreements, the NEO is eligible to participate in any equity or long-term incentive plans available to similarly situated executives of the Company and is eligible to receive awards under such plans as determined by the Company in its sole discretion.

 

The NEOs’ employment can be terminated by the Company or by them at any time. If the Company terminates a NEO’s employment without cause or if the NEO resigns for “good reason” (as defined in the Agreement), he is entitled to receive: an amount equal to two times annual base salary; the target annual EIP award during the two years following termination; continued payment of health and medical benefits for a period of two years, or until such time that he commences employment with a new employer, whichever occurs first; and payment of reasonable professional search fees relating to outplacement. At the sole discretion of the Company, the NEO is also eligible to receive a one time termination bonus to be paid two years after the date of termination in an amount not to exceed 50% of base salary.

 

Each NEO has agreed not to compete with the Company or its affiliates during the term of employment and for two years following termination of employment and to refrain from (i) employing the Company’s or its affiliates’ employees during this period or (ii) soliciting employees, consultants, lenders, suppliers or customers from discontinuing, modifying or reducing the extent of their relationship with the Company during such period. During the term of the Agreements and subsequent to other terminations, the NEOs agree not to disclose or use any confidential information.