BJS WHOLESALE CLUB INC DEF 14A 2006
Documents found in this filing:
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant ¨
Check the appropriate box:
BJs Wholesale Club, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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We invite you to attend our 2006 Annual Meeting of Stockholders on Thursday, May 25, 2006, at 11:00 a.m. at the Crowne Plaza Hotel, 1360 Worcester Street (Route 9), Natick, Massachusetts. At this meeting, you will be asked to elect three directors, to consider a shareholder proposal and to ratify the audit committees selection of the Companys independent registered public accounting firm.
We would like to take this opportunity to remind you that your vote is important.
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 25, 2006
The Annual Meeting of Stockholders of BJs Wholesale Club, Inc. will be held at the Crowne Plaza Hotel, 1360 Worcester Street (Route 9), Natick, Massachusetts, on Thursday, May 25, 2006, at 11:00 a.m. At the meeting, stockholders will consider and vote on the following matters:
The stockholders will also act on any other business that may properly come before the meeting.
Stockholders of record at the close of business on April 10, 2006, may vote at the meeting.
April 19, 2006
PLEASE COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED PROXY CARD, OR SUBMIT YOUR VOTE AND PROXY BY TELEPHONE OR BY INTERNET IN ACCORDANCE WITH THE INSTRUCTIONS ON YOUR PROXY CARD. IF YOU ARE PRESENT AT THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
BJs WHOLESALE CLUB, INC.
ANNUAL MEETING OF STOCKHOLDERS
May 25, 2006
We sent you this proxy statement and the enclosed proxy card because the Board of Directors of BJs Wholesale Club, Inc. (BJs or the Company) is soliciting your proxy to vote your shares at the annual meeting of stockholders to be held at 11:00 a.m. on May 25, 2006 and at any adjournment or adjournments of that meeting. Unless you give different instructions, shares represented by properly executed proxies will be voted FOR the election of the three nominees set forth below, AGAINST the shareholder proposal, and FOR the ratification of the selection of independent registered public accounting firm. You may revoke your proxy at any time before it is exercised by delivering a written revocation to the Secretary of BJs at the address below, by delivering another proxy with a later date or by requesting at the meeting that your proxy be revoked.
Stockholders of record at the close of business on April 10, 2006 are entitled to vote at the meeting. Each share of BJs common stock, par value $.01 (common stock), outstanding on the record date is entitled to one vote. As of the close of business on April 10, 2006, there were outstanding and entitled to vote 67,548,736 shares of common stock.
This proxy statement, the enclosed proxy card and the Annual Report of the Company for the fiscal year ended January 28, 2006, were first mailed to stockholders on or about April 21, 2006.
A copy of the Companys Annual Report on Form 10-K for the fiscal year ended January 28, 2006 as filed with the Securities and Exchange Commission, except for exhibits, will be furnished without charge to any stockholder upon written or oral request to the Corporate Secretary at the Companys address, which is BJs Wholesale Club, Inc., One Mercer Road, Natick, Massachusetts 01760. Exhibits will be provided upon written request and payment of an appropriate processing fee.
The Companys fiscal year ends on the Saturday closest to January 31 of each year. Fiscal year references apply to the Companys fiscal year which ended on the Saturday closest to January 31 of the following year. For example, the fiscal year ended January 28, 2006, is referred to as 2005 or fiscal 2005.
The representation in person or by proxy of at least a majority of the shares of common stock issued, outstanding and entitled to vote at the annual meeting is necessary to establish a quorum for the transaction of business. If a quorum is not present, the meeting will be adjourned until a quorum is obtained. For purposes of determining the presence or absence of a quorum, votes withheld, abstentions and broker non-votes (where a broker or nominee does not exercise discretionary authority to vote on a matter) will be counted as present.
Under the Companys by-laws, so long as a quorum is present at the meeting, the election of directors will require a plurality of votes cast at the meeting. This means that the three nominees for director with the most votes will be elected whether or not such nominees receive a majority of the votes cast. For each other item, when a quorum is present, the affirmative vote of the holders of a majority of the votes cast will be required for approval. Shares which abstain from voting on a particular matter and broker non-votes will not be counted as votes in favor of such matter and will also not be counted as votes cast or shares voting on such matter.
Any stockholder who owns shares of common stock of record may authorize the voting of its shares over the Internet at https://www.proxyvotenow.com/bj or by telephone by calling 1-866-213-0603 24 hours a day, 7
days a week, and by following the instructions on the enclosed proxy card. Authorizations submitted over the Internet or by telephone must be received by 5:00 p.m. Eastern Time on May 24, 2006.
If a stockholder owns shares held in street name by a bank or brokerage firm, the stockholders bank or brokerage firm will provide a vote instruction form to the stockholder with this proxy statement that may be used to direct how the shares will be voted. Many banks and brokerage firms also offer the option of voting over the Internet or by telephone, instructions for which would be provided by the stockholders bank or brokerage firm on the vote instruction form.
Participants in BJs Wholesale Club, Inc. 401(k) Savings Plans
If you participate in either the BJs Wholesale Club, Inc. 401(k) Savings Plan for Salaried Employees or the BJs Wholesale Club, Inc. 401(k) Savings Plan for Hourly Employees and hold Company stock in your account, you may vote an amount of shares of common stock equivalent to the interest in the Companys common stock credited to your account as of the record date. Fidelity Management Trust Company (Fidelity) will have a proxy card sent to you that you may use to direct Fidelity to vote your shares on your behalf. The proxy card should be signed and returned in the provided envelope to The Bank of New York, the Companys transfer agent and registrar, or you may authorize the voting of these shares over the Internet or by telephone by following the instructions on the provided proxy card. The Bank of New York will notify only Fidelity of the manner in which you have voted your shares. Fidelity will vote the shares in the manner directed on the proxy card (or as authorized over the Internet or by telephone). If The Bank of New York does not receive a signed proxy card or the authorization of the voting of your shares over the Internet or by telephone from you by 5:00 p.m. Eastern Time on May 23, 2006, there can be no assurance that Fidelity will be able to follow your instructions. If you fail to timely submit your instruction to The Bank of New York, Fidelity will vote your shares of common stock held in the BJs Common Stock Fund as of the record date in the same manner, proportionally, as it votes the other shares of common stock for which proper and timely voting instructions of other plan participants have been received by Fidelity.
ELECTION OF DIRECTORS
BJs Amended and Restated Certificate of Incorporation and by-laws provide for the classification of the Board of Directors into three classes, as nearly equal in number as possible, with the term of office of one class expiring each year. Your proxy will be voted to elect the three nominees named below, unless otherwise instructed, as directors for a term of three years expiring at the 2009 Annual Meeting of Stockholders and until their respective successors are duly elected and qualified. The Board has voted to fix the number of directors at nine. The three nominees, each of whom currently serves as a director of the Company, have indicated their willingness to serve, if elected. If a nominee becomes unavailable, your proxy will be voted either for another nominee proposed by the Board of Directors or a lesser number of directors as proposed by the Board of Directors.
No director or executive officer is related by blood, marriage or adoption to any other director or executive officer. No arrangements or understandings exist between any director or person nominated for election as a director and any other person pursuant to which such person is to be selected as a director or nominee for election as a director.
THE COMPANYS BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE NOMINEES FOR ELECTION AS DIRECTORS WITH TERMS EXPIRING IN 2009.
The nominees for election as directors and incumbent directors are as follows:
Nominees for Election Terms Expiring 2009
Bert N. Mitchell, 68, has been a director of the Company since May 1998. In 1974, Mr. Mitchell founded Mitchell & Titus, LLP, the nations largest minority-owned CPA firm, and serves as its Chairman and Chief Executive Officer. He is also Chairman of the Board of the Ariel Investment Trust, which includes membership on the board of four individual funds. Mr. Mitchell is a member of the Companys Audit Committee and Executive Compensation Committee.
Helen Frame Peters, Ph.D., 58, has been a director of the Company since May 2004. Dr. Peters currently is a professor of finance at Boston College. From August 2000 to May 2003 she served as Dean of the Carroll School of Management at Boston College. Prior to joining Boston College, from 1998-1999, Dr. Peters was Chief Investment Officer of the Global Bond Group of Scudder Kemper Investments in Boston, Massachusetts. Dr. Peters is a Trustee of StreetTracks Funds for State Street Global Advisors. Dr. Peters is a member of the Companys Executive Compensation Committee and Finance Committee.
Michael T. Wedge, 52, has been a director, President and Chief Executive Officer of the Company since September 2002. He was Executive Vice President, Club Operations of the Company from July 1997 to September 2002; and Executive Vice President, Sales Operations of the BJs Wholesale Club division of Waban Inc. (Waban) from February 1997 to July 1997. Mr. Wedge serves as a director of the Federal Reserve Bank of Boston where he is a member of the Business Commitments and Performance Committee. Mr. Wedge is a member of the Companys Executive Committee and Finance Committee.
Incumbent Directors Terms Expiring 2008
Paul Danos, Ph.D., 63, has been a director of the Company since May 2004. Dr. Danos is the Dean of the Tuck School of Business at Dartmouth College, a position he has held since 1995. A CPA since 1974, Dr. Danos specializes in financial accounting as part of his position as the Laurence F. Whittemore Professor of Business Administration at the Tuck School. Dr. Danos is also a member of the General Mills Board of Directors and is on its Audit Committee. Dr. Danos is a member of the Companys Audit Committee and Corporate Governance Committee.
Ronald R. Dion, 60, has been a director of the Company since September 1999. Mr. Dion has been Chairman and Chief Executive Officer of R.M. Bradley & Co., Inc., a real estate firm, since 1997. Mr. Dion is a trustee and Chairman of John Hancock Funds and a member of the Board of Governors of the Boston Stock Exchange. He also serves as a director of the Boston Municipal Research Bureau, the Massachusetts Business Roundtable and the New England Council and is on the Advisory Board of the Carroll Graduate School of Management at Boston College. Mr. Dion is a member of the Companys Corporate Governance Committee and Chairman of the Companys Executive Compensation Committee.
Lorne R. Waxlax, 72, has been a director of the Company since July 1997. He was a director of Waban from January 1990 to July 1997 and Chairman of the Board of Directors of Waban from June 1996 to July 1997. Mr. Waxlax formerly served as an Executive Vice President of The Gillette Company from 1985 to 1993. Mr. Waxlax is also a director of Clean Harbors, Inc. From July 1997 to March 2002, Mr. Waxlax was a director of House2Home, Inc., the surviving company of a merger in September 2001 with HomeBase, Inc., formerly known as Waban Inc. (House2Home). House2Home filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code on November 7, 2001 (see Relationship with House2Home; Conflicts of Interest on page 22). Mr. Waxlax is Chairman of the Companys Corporate Governance Committee and is a member the Companys Executive Committee, Executive Compensation Committee and Finance Committee.
Incumbent DirectorsTerms Expiring 2007
S. James Coppersmith, 73, has been a director of the Company since July 1997. He was a director of Waban from December 1993 to July 1997. Mr. Coppersmith is the retired president of ABC affiliate WCVB-TV Channel 5 in Boston, and is a director and Vice Chairman of the board of directors of Rasky Baerlein Group, a public relations firm. Mr. Coppersmith is a member of the Companys Audit Committee and Executive Compensation Committee.
Thomas J. Shields, 59, has been a director of the Company since July 1997 and presiding director since 2005. He was a director of Waban from June 1992 to July 1997. He has served as Managing Director of Shields & Company, Inc., a Boston-based investment banking firm, since 1991. Mr. Shields is also a director of Clean Harbors, Inc. Mr. Shields is Chairman of the Companys Audit Committee, Chairman of the Companys Finance Committee and a member of the Companys Executive Committee and Corporate Governance Committee.
Herbert J. Zarkin, 67, has been a director of the Company since November 1996 and Chairman of the Board of Directors of the Company since July 1997. From July 1997 to June 2002, Mr. Zarkin was Chairman of House2Home, and was President and Chief Executive Officer of House2Home from March 2000 to September 2001. He was a director, President and Chief Executive Officer of Waban (now known as House2Home) from May 1993 to July 1997. House2Home filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code on November 7, 2001 (see Relationship with House2Home; Conflicts of Interest on page 22). Mr. Zarkin is Chairman of the Companys Executive Committee, Chairman of the Companys ERISA Committee and a member of the Companys Finance Committee.
BJs Board of Directors believes that good corporate governance practices are important to ensure that BJs is managed for the long-term benefit of its stockholders. The Companys Board of Directors recognizes that maintaining and ensuring good corporate governance is a continuous process and that the long-term interests of stockholders are advanced by responsibly considering the concerns of other stakeholders and interested parties including employees/team members, customers, suppliers, the communities in which the Company does business, and the public at large. This section describes key corporate governance principles and practices adopted by the Company. Complete copies of the corporate governance principles; charters of the Audit,
Corporate Governance and Executive Compensation Committees; and the Statement on Commercial Bribery, Conflicts of Interest and Business Ethics described below are available on the Corporate Governance section of the Companys website, www.bjs.com. In addition, a copy of the Audit Committee Charter, as in effect on the date of this proxy statement, is attached as Appendix A. You can also request a copy of any of these documents by writing to the Corporate Secretary, BJs Wholesale Club, Inc., One Mercer Road, Natick, Massachusetts 01760.
Corporate Governance Principles
The Board has adopted corporate governance principles to assist the Board in the exercise of its duties and responsibilities and to serve the best interests of the Company and its stockholders. These principles, which, along with the charters and key practices of the Boards committees, provide a framework for the governance of BJs, include that:
Board Determination of Independence
Under applicable New York Stock Exchange (NYSE) rules, a director of BJs will only qualify as independent if the Board of Directors affirmatively determines that he or she has no material relationship with BJs (either directly or as a partner, shareholder or officer of an organization that has a relationship with BJs). The Board of Directors has established guidelines to assist it in determining whether a director has a material relationship with BJs. Under these guidelines, a director will be considered to have a material relationship with BJs if he or she is not independent under Section 303A.02(b) of the NYSE Listed Company Manual or he or she:
Ownership of a significant amount of BJs stock, by itself, does not constitute a material relationship.
For relationships not covered by the guidelines set forth above, the determination of whether a material relationship exists is made by the other members of the Board of Directors who are independent.
The Board of Directors has determined that none of Messrs. Coppersmith, Dion, Mitchell, Shields or Waxlax or Drs. Danos or Peters has a material relationship with BJs and that each of these directors is independent as determined under Section 303A.02 of the NYSE Listed Company Manual.
The Board of Directors has determined that all of the members of each of the Boards Audit, Corporate Governance and Executive Compensation committees are independent as defined under the rules of the NYSE, including, in the case of all members of the Audit Committee, the independence requirements contemplated by Rule 10A-3 under the Securities Exchange Act of 1934 (the Exchange Act).
The Board of Directors and its Committees
The Board of Directors has established six standing committeesAudit, Corporate Governance, ERISA, Executive, Executive Compensation and Financeeach of which operates under a charter that has been approved by the Board.
Audit Committee. The Audit Committees responsibilities include:
The current members of the Audit Committee are Thomas J. Shields (Chairman), S. James Coppersmith, Paul Danos and Bert N. Mitchell. The Audit Committee held 12 meetings during 2005.
The Board of Directors has determined that each of Paul Danos, Bert N. Mitchell and Thomas J. Shields is an audit committee financial expert as defined in Item 401(h) of Regulation S-K.
A copy of the Audit Committee charter, as in effect on the date of this proxy statement, is attached as Appendix A.
Corporate Governance Committee. The Corporate Governance Committees responsibilities include:
The current members of the Corporate Governance Committee are Lorne R. Waxlax (Chairman), Paul Danos, Ronald R. Dion and Thomas J. Shields. The Corporate Governance Committee held six meetings during 2005.
Executive Compensation Committee. The Executive Compensation Committees responsibilities include:
The current members of the Executive Compensation Committee are Ronald R. Dion (Chairman), S. James Coppersmith, Bert N. Mitchell, Helen Frame Peters and Lorne R. Waxlax. The Executive Compensation Committee held eight meetings in 2005.
The ERISA Committee, which held four meetings during 2005, oversees the Companys 401(k) savings plans.
The Board of Directors also has an Executive Committee which has authority to act for the Board on most matters during intervals between meetings of the Board. The Executive Committee held one meeting during 2005.
The Board of Directors has a Finance Committee which reviews with management and advises the Board with respect to the Companys finances, including exploring methods of meeting the Companys financing requirements and planning the Companys capital structure. The Finance Committee held one meeting during 2005.
Board and Stockholder Meetings and Attendance
The Board of Directors held 12 meetings during 2005, including three telephone meetings, and took action by written consent two times. Each director attended at least 75% of the aggregate of the number of Board meetings and the number of meetings held by all committees on which he or she then served.
The Companys corporate governance principles provide that directors are expected to attend the annual meeting of stockholders. All directors attended the 2005 annual meeting of stockholders.
The process followed by the Corporate Governance Committee to identify and evaluate director candidates includes requests to Board members and others for recommendations, meetings from time to time to evaluate biographical information and background material relating to potential candidates and interviews of selected candidates by members of the Committee and the Board.
In considering whether to recommend any particular candidate for inclusion in the Boards slate of recommended director nominees, the Corporate Governance Committee applies the criteria set forth in the Companys corporate governance principles. Under these criteria, a candidate should have substantial experience which is of relevance to the Company; a willingness to devote sufficient time to carrying out his or her duties and
responsibilities effectively; and high personal and professional ethics, integrity and values. The Committee does not assign specific weights to particular criteria and no particular criterion is a prerequisite for each prospective nominee. The Company believes that the backgrounds and qualifications of its directors, considered as a group, should provide a composite mix of experience, knowledge and abilities that will allow the Board to fulfill its responsibilities.
Stockholders may recommend individuals to the Corporate Governance Committee for consideration as potential director candidates by submitting their names, together with appropriate biographical information and background materials, and a statement as to whether the stockholder or group of stockholders making the recommendation has beneficially owned more than 5% of the Companys common stock for at least a year as of the date such recommendation is made, to the Corporate Governance Committee, c/o General Counsel, BJs Wholesale Club, Inc., One Mercer Road, Natick, MA 01760. Assuming that appropriate biographical and background material has been provided on a timely basis, the Committee will evaluate stockholder-recommended candidates by following substantially the same process, and applying substantially the same criteria, as it follows for candidates submitted by others. If the Board determines to nominate a stockholder-recommended candidate and recommends his or her election, then his or her name will be included in the proxy card for the next annual meeting of stockholders.
Stockholders also have the right under the Companys by-laws to directly nominate director candidates, without any action or recommendation on the part of the Corporate Governance Committee or the Board, by following the procedures set forth in the second paragraph under Stockholder Proposals on page 29. Candidates nominated by stockholders in accordance with the procedures set forth in the Companys by-laws will not be included in the proxy card for the next annual meeting of stockholders.
Communicating with the Independent Directors
The Board will give appropriate attention to written communications that are submitted by stockholders and other interested parties, and will respond if and as appropriate. All stockholder communications will be reviewed by the Companys General Counsel and if they are relevant to the Companys operations, policies and philosophies, they will be forwarded to the Chairman of the Corporate Governance Committee (currently Mr. Waxlax). The Chairman of the Corporate Governance Committee will provide to the Board copies or summaries of any such stockholder communications as he or she considers appropriate.
Under procedures approved by a majority of the independent directors, communications are forwarded to all directors if they relate to important substantive matters and include suggestions or comments that the Chairman of the Corporate Governance Committee considers to be important for the directors to know. In general, communications relating to corporate governance and long-term corporate strategy are more likely to be forwarded than communications relating to ordinary business affairs, personal grievances and matters which are the subject of repetitive communications.
Stockholders who wish to send communications on any topic to the Board should address such communications to the Board of Directors c/o General Counsel, BJs Wholesale Club, Inc., One Mercer Road, Natick, MA 01760.
Compensation of Directors
Non-employee directors are paid an annual retainer of $40,000 and fees of $2,500 for each Board meeting attended, $1,000 for each Committee meeting attended and $1,000 for certain telephone meetings. In addition, the Chairman of the Audit Committee, the Chairman of the Corporate Governance Committee and the Chairman of the Executive Compensation Committee each are paid $5,000 per annum for their services as such. Other members of the Audit Committee, the Corporate Governance Committee and the Executive Compensation Committee each are paid $2,500 per annum for their services as such. All directors are reimbursed for their expenses related to attendance at meetings.
In accordance with the Companys 1997 Stock Incentive Plan, as amended, each non-employee director who was a director at the 2005 Annual Meeting of Stockholders received an automatic grant of an option to purchase 5,000 shares of Common Stock at an exercise price of $30.11 per share, which was equal to the closing price on the date of grant. Each such option expires ten years after the date of grant and becomes exercisable in three equal annual installments beginning on the first day of the month of each of the first three anniversaries of the date of grant. If the director ceases to be a director prior to the date the option becomes fully exercisable, the unvested portion of the option will immediately expire. Any vested options will remain exercisable for a period of one year following cessation of service as a director of the Company. All unexercised options will become exercisable in full beginning 20 days prior to the consummation of a merger or consolidation, acquisition, reorganization or liquidation and, to the extent not exercised, shall terminate immediately after the consummation of such merger, consolidation, acquisition, reorganization or liquidation. Except as the Board may otherwise determine, options granted to non-employee directors are not transferable.
Policies on Business Ethics and Conduct
All of the Companys salaried employees, including its Chief Executive Officer and Chief Financial Officer, as well as the directors, are required to abide by the Companys long-standing Statement on Commercial Bribery, Conflicts of Interest and Business Ethics (Code of Conduct) to insure that the Companys business is conducted in a consistently legal and ethical manner. The Companys policies and procedures cover all areas of professional conduct, including relations with vendors, conflicts of interest, financial integrity and the protection of corporate assets, as well as strict adherence to all laws and regulations applicable to the conduct of the Companys business.
Employees and directors are required to report any conduct that they believe in good faith to be an actual or apparent violation of the Code of Conduct. In addition, as contemplated by the Sarbanes-Oxley Act of 2002, the Companys Audit Committee has established procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters.
The full text of the Companys Code of Conduct is posted on the Corporate Governance section of the Companys website, at www.bjs.com. In addition, the Company intends to post on its website all disclosures that are required by law or NYSE listing standards concerning any amendments to, or waivers from, any provision of the Code of Conduct.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information regarding the beneficial ownership of common stock as of March 2, 2006 (unless otherwise indicated) by (i) each person known to the Company to beneficially own more than 5% of the outstanding shares of common stock, (ii) each director of the Company, (iii) each executive officer of the Company named in the Summary Compensation Table set forth on page 16, and (iv) all of the Companys current directors and executive officers as a group. Unless otherwise indicated, the address of each person listed in the table is c/o BJs Wholesale Club, Inc., One Mercer Road, Natick, MA 01760.
Set forth below is a line graph comparing the cumulative total stockholder return on the Companys common stock, based on the market price of the common stock, with the cumulative total return of companies in the Standard & Poors 500 Stock Index and the Dow Jones Industry Group Index RTB-Retail, Broadline from February 2, 2001 (the last trading day of fiscal 2000) to January 27, 2006 (the last trading day of fiscal 2005). The Dow Jones Industry Group Index RTB-Retail, Broadline is comprised currently of 25 specialty retail companies, including the Company. The graph assumes that the value of the investment at February 2, 2001 was $100 and that all dividends were reinvested. The values of investments in the companies in the Standard & Poors 500 Stock Index and the Dow Jones Industry Group Index RTB-Retail, Broadline were measured as of the date nearest to the end of the indicated period for which index data is readily available.
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG BJS WHOLESALE CLUB, INC.,
S&P 500 INDEX AND PUBLISHED INDUSTRY INDEX
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The following report has been submitted to the Board of Directors by its Executive Compensation Committee, in compliance with requirements of the SEC:
As members of the Executive Compensation Committee (the ECC), it is our responsibility annually to review and approve corporate goals and objectives relevant to the compensation of the Chief Executive Officer (CEO), determine the CEOs compensation, review and approve, or make recommendations to the Board with respect to, compensation for the Companys other executive officers, oversee the evaluation of the Companys senior executives, and oversee and administer the Companys incentive plans. All of the members of the ECC are independent, non-employee directors.
Executive Compensation Principles
The Companys executive compensation program is designed to provide competitive levels of compensation that:
Section 162(m) of the Internal Revenue Code of 1986, as amended (the Code), generally disallows a tax deduction to public companies for certain compensation in excess of $1 million paid to the Companys Chief Executive Officer and the four other most highly compensated executive officers. Certain compensation, including qualified performance-based compensation, will not be subject to the deduction limit if certain requirements are met. The ECC reviews the potential effect of Section 162(m) periodically and, in general, the Company structures and administers its stock incentive plans, its Management Incentive Plan (MIP) and its Growth Incentive Plan (BJGIP), in a manner intended to comply with the performance-based compensation exception to Section 162(m). Nevertheless, there can be no assurance that compensation attributable to awards granted under the Companys incentive plans will be treated as qualified performance-based compensation under Section 162(m). In addition, the ECC reserves the right to use its judgment to authorize compensation payments that may be subject to the limit when the ECC believes such payments are appropriate and in the best interests of the Company and its stockholders, after taking into consideration changing business conditions and the performance of its executives.
Compensation Policies for Executive Officers
The total compensation program for all executive officers, including executive officers named in the Summary Compensation Table, consists of both cash and equity-based compensation and takes into account applicable provisions of employment agreements of such officers. Through stock options and stock grants available under the Companys stock incentive plan, the ECC seeks to align executive officers long-range interests with those of stockholders by providing executive officers with the opportunity to participate in the growth of the Companys stock value.
The ECC reviews market data information provided by an independent compensation consultant concerning salary competitiveness and the design of the Companys compensation programs. The services provided by such consultant are billed at hourly rates on an as requested basis. Neither the Company nor the ECC has a retainer agreement with any compensation consultant.
Base Salary. Base salaries for the Companys executive officers, including Mr. Wedge, are set within ranges that are determined based upon a review of publicly available information concerning compensation paid to executives with similar responsibilities at certain peer companies. The ECC utilizes its compensation consultant to assist in the compilation and interpretation of this information. The peer companies selected for these purposes are retailing companies, including major competitors of the Company. Not all of these peer companies are included in the Dow Jones Industry Group Index RTB-Retail, Broadline which appears in the Performance Graph on page 12. While the ECCs overall objective is to set base salaries at approximately the midpoint of competitive ranges, an individual executives placement within a range and salary adjustments are based upon the ECCs subjective evaluation of the executives performance and value to the Company.
Annual Incentive Program. Under the MIP, executive officers and other members of management are eligible to receive incentive cash awards based upon the level of achievement of pre-established annual performance goals. Mr. Zarkin is not eligible to earn awards under the MIP. At the beginning of each year, the ECC establishes the MIP performance goals and corresponding target awards, based on one or more of the following objective performance criteria: operating income, pre-tax income, net income, gross profit dollars, costs, any of the preceding measures as a percent of sales, earnings per share, sales, return on equity, and return on investment. Such goals, criteria and target awards may vary among participants. The ECC reviews the payout calculations after the years financial results have been audited. Target awards for executive officers range from 25% to 75% of salary, but if targets are not met, there would be either no MIP award or a reduced award based on a percentage of the target realized. If results exceed goal(s), an executive officer could earn an additional award, depending upon the extent to which goals are exceeded. No executive officer may receive a MIP award in excess of $1,000,000 in any calendar year or, if less, 100% of base salary earned for the applicable performance period. MIP awards for 2005 for the Companys executive officers, including Mr. Wedge, were based on the Companys net income and sales goals. MIP results for 2005 were below target, resulting in payouts to Mr. Wedge and to the other executive officers equal to 63.53% of the target awards. MIP performance goals for 2006 for the Companys executive officers, including Mr. Wedge, are based on the Companys net income and sales goals.
Long-Term Incentive Program. The BJGIP is intended to provide high-level executives of the Company, as selected by the ECC, with cash awards based upon the growth and performance of the Company. Mr. Zarkin does not participate in the BJGIP. All other executive officers, including Mr. Wedge, currently participate in the BJGIP, as do approximately 65 other employees of the Company. Awards are earned based on one or more of the following objective measures of performance or growth, as selected by the ECC at the beginning of the award period: operating income, pre-tax income, net income, costs, any of the preceding measures as a percent of sales, earnings per share, sales, return on equity, and return on investment. All relevant factors upon which the cash award is based (e.g., performance measurement, length of award period, relation between performance and cash award) are determined at the beginning of the award period by the ECC. Awards granted to the Companys executive officers in 2003 were based on cumulative net income for the Company for the three-year period ended January 28, 2006. Payments based on the awards granted under the BJGIP in 2003 were paid 100% in cash in April 2006. Awards granted to the Companys executive officers in 2004 were based on cumulative net income for the Company for the three-year period ending February 3, 2007. Payments based on awards granted under the BJGIP in 2004 will be payable, if at all, in cash 100% in April 2007, contingent on employment continuing through February 3, 2007. Awards granted to the Companys executive officers in 2005 were based on cumulative net income for the Company for the three-year period ending February 2, 2008. Payments based on awards granted under the BJGIP in 2005 will be payable, if at all, in cash 100% in April 2008, contingent on employment continuing through February 2, 2008. Awards granted to the Companys executive officers in 2006 were based on cumulative net income for the Company for the three-year period ending January 31, 2009. Payments based on awards granted under the BJGIP in 2006 will be payable, if at all, in
cash 100% in April 2009 contingent on employment continuing through January 31, 2009. There is a targeted amount at which the value of each award increases as achievement of the performance measurement increases. If the targeted amount is not met, there would be a reduced award, so long as cumulative net income exceeds a designated threshold amount. No payment will be made if the Companys cumulative net income is below the threshold amount. No individual award payment under the BJGIP can exceed $2,000,000 in any calendar year.
The Company has made it a practice to provide incentives to its executive officers and other senior executives to achieve long-range goals that are typically expressed as either a compounded rate of earnings growth or three-year cumulative earnings. In determining the level of long-term incentive awards, the ECC takes into account a survey of the same peer companies referred to above, but does not target a specific percentile.
Stock-Based Incentives. Stock options are awarded to the Companys key employees, including Mr. Wedge and other executive officers, by the ECC, based on its subjective assessment of the following factors: the compensation level and responsibility of the particular employee, the employees contribution towards Company performance, and a survey of competitive compensation data of the same group of peer companies referred to previously in this report. The ECC generally targets awards to the median of such survey. The options are designed to reward recipients to the extent that the Companys stock value is enhanced. Because of the vesting provisions of such grants, the options also provide an incentive for the employee to remain with the Company. Because the ECC does not grant options on a cumulative basis, the size of previous grants is not a factor in making current grants.
Chief Executive Officer Compensation
Pursuant to Mr. Wedges employment agreement with the Company, his base salary is $850,000, effective June 5, 2005, and is reviewed annually. Mr. Wedges salary, and the number of options (200,000) granted to him in 2005 and the target awards under the MIP were subjectively determined to provide a fully competitive compensation opportunity based on Mr. Wedges success in providing leadership to the Company and after a review of competitive compensation data of the same group of peer companies referred to previously in this report without targeting a specific percentile range. The ECC believes stock option grants encourage long-term performance and promote management retention while further aligning stockholders and managements common interest in enhancing the value of the Companys common stock.
Mr. Wedges MIP award provides a target opportunity equal to 75% of base salary if performance goals are met; the actual payout can vary between 0% and 100% of base salary for the performance period, subject to a maximum annual award limitation of $1,000,000. As discussed above, based on a target award of 75% of base salary, Mr. Wedge received a MIP payout of $396,740 for 2005.
Executive Compensation Committee
Ronald R. Dion, Chairman
S. James Coppersmith
Bert N. Mitchell
Helen Frame Peters
Lorne R. Waxlax
Compensation Committee Interlocks and Insider Participation
During 2005, none of the members of the ECC is or was an officer or employee of the Company. None of the Companys executive officers has served as a director or member of the compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served as a director or member of BJs ECC.
Compensation of Executives
The following table sets forth certain information concerning the annual and long-term compensation paid for fiscal 2005, 2004 and 2003 to (i) the Companys Chief Executive Officer and (ii) the Companys four other most highly compensated executive officers who were serving as executive officers of the Company on January 28, 2006 (collectively, the Named Executive Officers).
Summary Compensation Table
Stock Option Grants
The following table sets forth the stock option grants made by the Company to each of the Named Executive Officers during 2005:
Option Grants in Last Fiscal Year
Aggregated Option Exercises and Valuation
The following table sets forth, on an aggregated basis, the exercise of stock options during fiscal 2005 by each of the Named Executive Officers and the fiscal year-end value of unexercised options held by such officers:
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
Long-Term Incentive PlansAwards in Last Fiscal Year
The following table sets forth information related to long-term incentive awards granted to the Named Executive Officers during fiscal 2005 pursuant to the BJGIP:
Employees in high-level management positions in the Company, as selected by the Executive Compensation Committee, were awarded units under the BJGIP during fiscal 2005. Each unit has a value in dollars equal to a designated percentage of improvement in net income during the three-year fiscal period ending February 2, 2008 over base period income, as defined, for the year ended January 29, 2005. No payment will be made unless cumulative net income is at least equal to 10% compounded growth over the base period amount. The threshold amounts in the table above would be earned upon achievement of 10% compounded growth in earnings for the fiscal year ended January 28, 2006 and the fiscal years ending February 3, 2007 and February 2, 2008. No individual award payment can exceed $2,000,000 in any calendar year. This limit is reflected in the maximum amount column of the table above. The BJGIP does not specify a target payout amount. Accordingly, pursuant to SEC rules, the target payout level in the table above assumes in each case that fiscal 2005s income level will be achieved in each of the three fiscal years during the award period. (If fiscal 2005s income level were achieved in each of fiscal 2006 and 2007, cumulative net income for the three-year period would be less that 10% compounded growth over the base period amount, and therefore, no payment would be earned.) The dollar amounts in the table are not intended to forecast future payments, if any, under the BJGIP.
The cash award, if any, earned under the BJGIP for the three-year award period ending February 2, 2008 will be paid in April 2008 to participants employed through February 2, 2008. No payment will be made unless the minimum three-year net income goal is achieved.
Equity Compensation Plan Information
The following table provides information about the securities authorized for issuance under the Companys equity compensation plans as of January 28, 2006:
Under the BJERP, employees in high-level management positions in the Company including all executive officers, as selected by the ECC, are eligible to receive annual cash retirement contributions in an amount determined by the ECC; provided that the annual retirement contribution shall equal, on an after-tax basis, at least three percent of the participants base salary. All amounts paid under the BJERP are to be used exclusively to fund an investment vehicle, selected by the ECC, which is appropriate to provide retirement income, such as an insurance policy.
The Company made retirement contributions after the end of 2005 equal to 5% (net of taxes) of each participants base salary during 2005. These payments are reflected in the All Other Compensation column of the Summary Compensation Table on page 16. If a participant terminates employment prior to the end of the fiscal year in which the participant is credited with four years of service, the participant forfeits the right to any benefit under the BJERP. As of January 28, 2006, all Named Executive Officers, except Ms. Stout, were credited with at least four years of service.
Employment and Severance Agreements
Pursuant to his employment agreement, Mr. Wedge receives an annual base salary of $850,000 and participates in specified incentive and other benefit plans. The Company is entitled to terminate Mr. Wedges employment at any time with or without cause (as defined). If Mr. Wedges employment is terminated by the Company other than for cause, the Company is required to pay certain cash compensation amounts and to continue payment of Mr. Wedges base salary and certain benefits for 12 months after termination at the rate in effect upon termination. The continuing base salary payments are subject to reduction after three months for compensation earned by Mr. Wedge from other employment, and the continuing benefits are subject to reduction at any time for comparable benefits received by Mr. Wedge from other employment.
Pursuant to his employment agreement, Mr. Zarkin receives an annual base salary of $525,000 and participates in specified incentive and other benefit plans. Mr. Zarkins employment agreement continues in effect until the earlier of such time as either party terminates the agreement or the date of the Companys 2007
Annual Meeting of Stockholders. Mr. Zarkin does not participate in BJGIP or MIP. Mr. Zarkin must generally devote all of his working time and attention to the performance of his duties and responsibilities under his employment agreement. The Company is entitled to terminate Mr. Zarkins employment at any time with or without cause (as defined). If his employment terminates by reason of death, disability, incapacity or termination by the Company other than for cause, Mr. Zarkin is entitled to payment of certain cash compensation amounts and continuation of base salary and certain benefits for a period of 12 months after termination at the rate in effect upon termination. Any stock options or other stock-based awards held by Mr. Zarkin on the date of termination will continue to be exercisable for up to three years, when they will expire, unless they expire earlier by their terms. The continuing base salary payments are subject to reduction after three months for compensation earned by Mr. Zarkin from other employment, and the continuing benefits are subject to reduction at any time for comparable benefits received by Mr. Zarkin from other employment.
The Company has an employment agreement with each of Messrs. Forward and Giles and Ms. Stout under which they receive annual base salaries of $395,000, $375,000, and $400,000, respectively, and participate in specified incentive and other benefit plans. If employment is terminated by the Company other than for cause, each such executive is entitled to payment of certain cash compensation amounts and to certain benefits and continuation of base salary after termination at the rate in effect upon termination for a period of 12 months in the case of Messrs. Forward and Giles, and for a period of 18 months in the case of Ms. Stout. The continuing base salary payments to Messrs. Forward and Giles are subject to reduction after three months for compensation earned by the executive from other employment. The continuing base salary payments to Ms. Stout are payable and are not subject to reduction provided that at the time of termination, Ms. Stout executes a suitable release agreement for the benefit of the Company. The continuing base salary payments to Ms. Stout do, however, cease if she becomes employed by certain organizations that compete against the Company. The continuing benefits to each of Messrs. Forward and Giles and Ms. Stout are subject to reduction at any time for comparable benefits received by the executive from other employment.
Change of Control Severance Benefits
The Company provides change of control severance benefits to its executive officers under individual agreements. Under the agreements, in general, upon the earlier of a Change of Control or a Potential Change of Control (as such terms are defined in the agreements) of the Company, the executive would be entitled to accelerated lump-sum payments of the MIP target award prorated for the year in which the change of control occurs. If, during the Standstill Period (which is 24 months after a Change of Control, except that if a Change of Control does not occur within 12 months of the Potential Change of Control, the Standstill Period will end 12 months after the Potential Change of Control), the Company were to terminate the executives employment other than for cause (as defined) or the executive were to terminate employment for reasons specified in the agreement, or if employment were to terminate by reason of death, disability or incapacity, the executive would be entitled to receive an amount equal to, in the case of Ms. Stout, Messrs. Forward and Giles, two and one-half times their base salaries and MIP, and in the case of Mr. Wedge, three times his base salary and MIP, unless the executives termination occurs between eight and twelve months after a Change of Control and is voluntary, in which event the executive would be entitled to receive an amount equal to the executives annual salary and MIP. For up to two and one-half years following termination in the case of each of Ms. Stout and Messrs. Forward and Giles, and three years in the case of Mr. Wedge, the Company would also be obligated to provide specified benefits, including continued medical and life insurance benefits, unless the executives termination occurs between eight and twelve months after a Change of Control and is voluntary, in which event the executive would be entitled to receive such benefits for up to one year. In the event of a Change of Control, the Company may reduce any payments to the executive to the extent necessary to preserve the tax deductibility of such payments under the Code. The Company would also be obligated to pay all legal fees and expenses reasonably incurred by the executive in seeking enforcement of contractual rights to which the executive becomes entitled during the Standstill Period. In addition, upon involuntary termination within the Standstill Period, any agreement by the executive not to compete with the Company following termination of the executives employment would cease to be effective.
The Company has entered into agreements with each of its directors and executive officers indemnifying them against expenses, settlements, judgments and fines incurred in connection with any threatened, pending or completed action, suit, arbitration or proceeding, where the individuals involvement is by reason of the fact that he or she is or was a director or officer of the Company or served at the Companys request as a director of another organization (except that indemnification is not provided against judgments and fines in a derivative suit unless permitted by Delaware law). An individual may not be indemnified if he or she is found not to have acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Company, except to the extent Delaware law permits broader contractual indemnification. The indemnification agreements provide procedures, presumptions and remedies designed to substantially strengthen the indemnity rights beyond those provided by the Companys Amended and Restated Certificate of Incorporation and by Delaware law.
During fiscal 2005, Messrs. Gerald and Norman Zarkin, brothers of Mr. Zarkin, the Companys Chairman of the Board, had an interest in the following business transactions involving the Company.
In fiscal 2005, the Company purchased approximately $517,000 in merchandise from Tees Plus Corporation (Tees Plus), where Mr. Gerald Zarkin is an employee. In addition, the Company has an arrangement with Tees Plus for the sale of embroidered apparel and the Company receives a percentage of the sales made by Tees Plus to the Companys members. In fiscal 2005, the total amount of sales by Tees Plus to the Companys members was approximately $440,000 of which the Company received approximately $38,000 pursuant to this arrangement. Mr. Gerald Zarkin earned approximately $88,0001 in salary and commissions from Tees Plus with respect to these purchases by the Company, including salary of $66,000 received by Mr. Gerald Zarkin as Vice President Sales of Tees Plus, which he receives for managing the BJs business with Tees Plus. In addition, the Company has a consignment arrangement with Universal Supply MC, LLC (Universal) for the sale of specialty caps and blankets and also purchases certain merchandise from Universal. The Company provides space in its clubs for the display of Universals cap inventory and the Company receives a percentage of the sales made by Universal to the Companys members. In fiscal 2005, the total amount of consignment sales was approximately $3.4 million, of which the Company received approximately $500,000 from Universal pursuant to this arrangement. In addition, the Company paid approximately $70,000 for merchandise purchased from Universal. Mr. Gerald Zarkin has a ten percent interest in Universal and received approximately $75,000 in commissions related to these transactions.
Mr. Norman Zarkin is the sole shareholder of The Zarkin Group, Inc. The Zarkin Group, Inc. serves as a consultant for Wireless Retail, Inc. (WRI), which provided direct sales of wireless services and equipment to the Companys members. Pursuant to an arrangement between the Company and WRI, the Company provided WRI with space in the Companys clubs and the Company received a flat fee calculated based on sales volume plus a percentage of the sales made by WRI to the Companys members. In fiscal 2005, the Company received approximately $1.25 million from WRI pursuant to this arrangement and The Zarkin Group, Inc. was paid approximately $26,000 in consulting fees and commissions by WRI with respect to sales by WRI to the Companys members. In addition, in 2005, The Zarkin Group was paid $164,000 in commissions from WRI for previously unpaid amounts earned for the periods November 2003 through February 2004. In fiscal 2005, The Zarkin Group, Inc. also received approximately $17,000, in the aggregate, in commissions for sales made to the Company by, Handi Foil, Inc., Frank Mastaloni & Sons, and Sarica Food, Inc. each of which is a vendor of the Company. In the aggregate, the Company purchased approximately $460,000 of merchandise from these vendors.
The Company believes that each of the transactions described above was carried out on terms that were no less favorable to the Company than those that would have been obtained from unaffiliated third parties.
During fiscal 2005, the Company had an agreement with Fidelity Management Trust Company (FMTC) to provide 401(k) plan administration. FMTC also serves as trustee with respect to the assets of the Companys 401(k) plans. The Company paid fees for these services totaling approximately $133,000 in fiscal 2005. Additionally, fees are paid by plan participants in the form of investment management services fees generated on various transactions including loan setup and related fees. FMTC is a subsidiary of FMR Corp. and, as of December 31, 2005, FMR Corp. beneficially owned more than five percent of the Companys common stock.
RELATIONSHIP WITH HOUSE2HOME; CONFLICTS OF INTEREST
Distribution and Tax Sharing Agreements
In connection with the spin-off of the Company from Waban in July 1997 (the Distribution), BJs and House2Home entered into a Separation and Distribution Agreement (the Distribution Agreement), which provided for, among other things, (i) the division between BJs and House2Home of certain assets and liabilities; (ii) other agreements governing certain aspects of the relationship between BJs and House2Home following the Distribution; and (iii) an agreement regarding certain matters relating to lease liabilities described below.
Under the Distribution Agreement, except as provided in the other agreements, BJs agreed to indemnify House2Home for liabilities relating to BJs business. Similarly, House2Home agreed to indemnify BJs for liabilities pertaining to House2Homes business. The Distribution Agreement also requires BJs and House2Home to indemnify each other for losses incurred due to a failure to perform their respective obligations under the Distribution Agreement or any other agreement entered into in connection with the Distribution.
BJs and House2Home also entered into a Tax Sharing Agreement (the Tax Sharing Agreement) providing for the allocation between the parties of federal, state, local and foreign tax liabilities and the entitlement to tax refunds for periods beginning prior to the date of the Distribution, and various related matters.
Pursuant to the Distribution Agreement, effective upon the Distribution, BJs assumed all liabilities to third-party lessors with respect to leases entered into by Waban with respect to the BJs Division and agreed to indemnify House2Home for such liabilities.
In connection with the spin-off of Waban by The TJX Companies, Inc. (TJX) in 1989, Waban and TJX entered into an agreement (the 1989 Agreement) pursuant to which Waban agreed to indemnify TJX against any liabilities that TJX might incur with respect to certain House2Home real estate leases as to which TJX was either a lessee or guarantor. Pursuant to a subsequent agreement, BJs agreed to indemnify TJX for 100% of House2Homes lease liabilities through January 31, 2003, and for 50% of such liabilities thereafter.
House2Home filed for bankruptcy under Chapter 11 of the United States Bankruptcy Code on November 7, 2001. In 2001, the Company recorded pre-tax charges of $105 million for its estimated loss associated with 41 House2Home leases. Based on its continuing evaluation of our remaining obligations and the progress made in settling liabilities for House2Home leases, the Company recorded pretax gains of $20.0 million in 2002, $5.5 million in 2003, $2.7 million in 2004 and $0.1 million in 2005 to reduce its estimated liability related to House2Home contingent lease obligations.
As of January 28, 2006, the Company has settled all 41 House2Home leases for which it was originally contingently liable, including lump sum settlements for 38 leases. The other three House2Home properties (for which the Company remains contingently liable) have been assigned to third parties.
The Company filed proofs of claim against House2Home for claims arising primarily from BJs indemnification of TJX with respect to TJXs guarantee of House2Home leases and from the Tax Sharing Agreement. The Company entered into a settlement agreement with House2Home, which was approved by the United States Bankruptcy Court for the Central District of California on November 10, 2003. The settlement agreement resolves the proofs of claim filed by BJs and releases BJs, its officers and directors and the officers and directors of House2Home who were also officers or directors of the Company of all claims and liabilities, including any claims arising out of the 1997 spin-off, including $1.7 million owed by BJs to House2Home under the Tax Sharing Agreement. BJs claims on account of payments to landlords are allowed in the amount of $29.8 million and its claims under the Tax Sharing Agreement have been allowed in the amount of $8.0 million. BJs received pre-tax payments of $4.5 million and $4.4 million on account of these claims in 2004 and 2005, respectively. In March 2006, the Company received pre-tax bankruptcy recoveries of $3.1 million on account of these claims.
Procedures for Addressing Conflicts
As a result of the Distribution, BJs and House2Home had significant contractual and other ongoing relationships that may present certain conflict situations for Mr. Zarkin, who serves as Chairman of the Board of Directors of the Company and who served as Chairman of the Board of Directors of House2Home from July 1997 to June 2002, and for Mr. Waxlax, who serves as a director of the Company and who served as a director of House2Home from July 1997 to March 2002. BJs has adopted procedures to be followed by its Board of Directors to limit the involvement of such persons in conflict situations whereby all transactions being considered by BJs which relate to House2Home must (i) be approved by a majority of the Board of Directors and by a majority of the disinterested members of the Board of Directors and (ii) be on terms no less favorable to BJs than could be obtained from unaffiliated third parties, as determined by a majority of the Board of Directors and by a majority of the disinterested members of the Board of Directors.
In October 2001, the Board appointed a Special Committee comprised of Messrs. Coppersmith, Dion and Mitchell, each of whom is a disinterested and independent member of the Board, to act for the Board on matters pertaining to House2Home. The Special Committee approved the settlements described above. In light of the Companys entry into the settlement agreement, in July 2004, the Board dissolved the Special Committee.
SHAREHOLDER PROPOSAL TO REQUIRE ELECTION OF DIRECTORS
BY A MAJORITY OF VOTES CAST AT AN ANNUAL MEETING
Mr. Mark Erlich, in his capacity as Fund Chairman of the Massachusetts State Carpenters Pension Fund (350 Fordham Road, Wilmington, MA 01887) (the Fund) a record holder of 1,500 shares of Company Common stock, has notified the Company of the Funds intention to propose the following resolution at the Annual Meeting of Shareholders:
RESOLVED: That the shareholders of BJs Wholesale Club, Inc. (Company) hereby request that the Board of Directors initiate the appropriate process to amend the Companys governance documents (certificate to incorporation or bylaws) to provide that director nominees shall be elected by the affirmative vote of the majority of votes cast at an annual meeting of shareholders.
In support of the resolution, the Fund has submitted the following statement:
Our Company is incorporated in Delaware. Delaware law provides that a companys certificate of incorporation or bylaws may specify the number of votes that shall be necessary for the transaction of any business, including the election of directors. (DGCL, Title 8, Chapter 1, Subchapter VII, Section 216). The law provides that if the level of voting support necessary for a specific action is not specified in the corporations certificate or bylaws, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors.
Our Company presently uses the plurality vote standard to elect directors. This shareholder proposal requests that the Board initiate a change in the Companys director election vote standard to provide that nominees for the board of directors must receive a majority of the vote cast in order to be elected or re-elected to the Board.
We believe that a majority vote standard in director elections would give shareholders a meaningful vote in the director election process. Under the Companys current standard, a nominee in a director election can be elected with as little as a single affirmative vote, even if a substantial majority of the votes cast are withheld from that nominee. The majority vote standard would require that a director receive a majority of the vote cast in order to be elected to the Board.
The majority vote proposal received high levels of support last year, winning majority support at Advanced Micro Devices, Freeport McMoRan, Marathon Oil, Marsh & McLennan, Office Depot, Raytheon, and others. Leading proxy advisory firms recommended voting in favor of the proposal.
Some companies have adopted board governance policies requiring director nominees that fail to receive majority support from shareholders to tender their resignations to the board. We believe that these policies are inadequate for they are based on continued use of the plurality standard and would allow director nominees to be elected despite only minimal shareholder support. We contend that changing the legal standard to a majority vote is a superior solution that merits shareholder support.
Our proposal is not intended to limit the judgment of the Board in crafting the requested governance change. For instance, the Board should address the status of incumbent director nominees who fail to receive a majority vote under a majority vote standard and whether a plurality vote standard maybe appropriate in director elections when the number of director nominees exceeds the available board seats.
We urge your support of this important direction election reform.
Board Response and Recommendation Against the Proposal
The Companys Board and Corporate Governance Committee have considered this proposal and recommend that shareholders vote against it because:
While the Board believes that the current plurality voting standard is the most appropriate standard for the Company at this time, the Board is aware of the different approaches recently being adopted by some public companies and the various studies examining this issue that are underway. The Corporate Governance Committee will continue to monitor these developments and plans to periodically reassess its conclusion as to what it believes to be the most appropriate standard for the Company. The Board and the Corporate Governance Committee strongly believe, however, that any change from the well-established and time-tested plurality voting standard must be done in a thoughtful and deliberate manner that focuses on BJs particular circumstances.
According to a recent ABA committee report, plurality voting is the default standard under the corporate law statutes of 35 states, including Delaware where BJs is incorporated. Plurality voting is the standard used by the vast majority of publicly traded companies in the United States. Under this approach, the nominees that receive the most votes are elected as directors, regardless of whether they are nominated by the companys board of directors or by a shareholder. The plurality vote standard has well served its purpose of protecting against failed elections that is, a situation where shareholders fail to fill a vacant board position.
At BJs, the plurality vote standard has worked well. The Company has a history of electing, by a plurality, strong and independent Boards. In each of the last three years, each director was elected by a vote of at least 95% of votes cast. The Company believes that the Proposal was not submitted to the Company out of any particular concern that the proponent may have with the composition or governance structure of the Companys Board of Directors, but instead as part of a broad-based campaign by the proponent and others to advance debate over existing voting standards.
Our Board believes that the Company already has a strong corporate governance process designed to identify and propose director nominees who will serve the best interests of the Company and all shareholders. Director nominees are evaluated and recommended for election by the Corporate Governance Committee, which is comprised solely of independent, nonemployee directors. In recommending nominees, the Corporate Governance Committee considers a variety of factors. The Company also has published in this proxy statement information on how shareholders can communicate their views on potential nominees or other matters with the Corporate Governance Committee. In light of the foregoing, our Board believes the existing plurality voting standard and the role of the Corporate Governance Committee provide an effective mechanism for electing an effective Board that is committed to delivering long-term shareholder value.
Over the past year, attention has been focused on the question of whether plurality or majority voting is the best standard for public companies. Many scholars, bar association groups, corporations and investor groups are studying the issue. The Corporate Governance Committee has been and will continue to monitor these efforts and this issue has also been reviewed and discussed by the full Board. Based on the Board and Committees review of these developments, it is clear that there are many complexities and impediments to a majority-vote standard. For example:
The complexities of developing a majority-vote standard are compounded by potential future changes to Delaware law and SEC rules that could impact, in unexpected and unintended ways, the manner in which directors are elected. It is possible that the efforts underway by various bar and other groups will lead to proposed changes in the Delaware corporate law statute, including changes to the holdover rule. In addition, the SEC has recently proposed changes to the proxy solicitation rules that might significantly alter the frequency of proxy contests. Adopting a majority-vote standard in advance of these potentially significant changes would be premature and could result in unintended consequences that are not in the best interest of BJs stockholders.
THE COMPANYS BOARD OF DIRECTORS RECOMMENDS A VOTE AGAINST THE
SHAREHOLDER PROPOSAL TO REQUIRE ELECTION OF DIRECTORS
BY A MAJORITY OF VOTES CAST AT AN ANNUAL MEETING
RATIFICATION OF SELECTION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Audit Committee has selected the firm of PricewaterhouseCoopers LLP, independent registered public accounting firm, as the Companys independent registered public accounting firm for the fiscal year ending February 3, 2007. Although stockholder approval of the selection of PricewaterhouseCoopers LLP is not required by law, the Companys Board of Directors believes that it is advisable to give stockholders an opportunity to ratify this selection. If this proposal is not approved by the Companys stockholders at the 2006 annual meeting, the Audit Committee will reconsider its selection of PricewaterhouseCoopers LLP. Even if the selection of PricewaterhouseCoopers LLP is ratified, the Audit Committee in its discretion may select a different registered public accounting firm at any time during the year if it determines that such a change would be in the best interests of the Company and its stockholders.
Representatives of PricewaterhouseCoopers LLP are expected to be present at the 2006 annual meeting. They will have the opportunity to make a statement if they desire to do so and will also be available to respond to appropriate questions from stockholders.
THE COMPANYS BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF THE SELECTION OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANYS
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FOR THE 2006 FISCAL YEAR.
AUDIT COMMITTEE REPORT
The Audit Committee (the Committee) consists of four directors, each of whom is independent as defined by the applicable standards of the New York Stock Exchange. A brief description of the responsibilities of the Committee is set forth above under the caption The Board of Directors and its Committees on page 6.
The Committee has reviewed and discussed the Companys audited financial statements for fiscal 2005 with the management of the Company. The Committee has discussed with PricewaterhouseCoopers LLP, the Companys independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards 61 (Communication with Audit Committees). The Committee also has received the written disclosures and the letter from PricewaterhouseCoopers LLP required by Independence Standards Board Standard No. 1 (Independence discussion with Audit Committees) and has discussed with PricewaterhouseCoopers LLP its independence from the Company. The Committee also considered whether the independent registered public accounting firms provision of the other, non-audit related services to the Company which are referred to in All Other Fees on page 28 is compatible with maintaining such firms independence.
Based on the review and the discussions referred to above, the Committee recommended to the Board of Directors that the Companys audited financial statements be included in the Companys Annual Report on Form 10-K for the fiscal year ended January 28, 2006, for filing with the SEC.
The Audit Committee
Thomas J. Shields, Chairman
S. James Coppersmith
Bert N. Mitchell
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM FEES AND OTHER MATTERS
Fees to Independent Registered Public Accounting Firm
The following table presents the fees of PricewaterhouseCoopers LLP, the Companys independent registered public accounting firm, billed to the Company for each of the last two fiscal years.
Preapproval Policies and Procedures
The Audit Committee has adopted policies and procedures relating to the approval of all audit and non-audit services that are to be performed by the Companys independent registered public accounting firm. This policy generally provides that the Company will not engage its independent registered public accounting firm to render audit or non-audit services unless the service is specifically approved in advance by the Audit Committee or the engagement is entered into pursuant to one of the pre-approval procedures described below.
From time to time, the Audit Committee may pre-approve specified types of services that are expected to be provided to the Company by its independent registered public accounting firm during the next 12 months. Any such pre-approval is detailed as to the particular service or type of services to be provided and is also generally subject to a maximum dollar amount.
The Audit Committee has also delegated to the chairman of the Audit Committee the authority to approve any audit or non-audit services to be provided to the Company by its independent registered public accounting firm. Any approval of services by the Chairman of the Audit Committee pursuant to this delegated authority is reported at the next meeting of the Audit Committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Companys directors and executive officers and persons who own more than ten percent of a registered class of the Companys equity securities to file with the SEC and the New York Stock Exchange initial reports of ownership and reports of changes in ownership of common stock and other equity securities of the Company. Executive officers, directors and greater-than-ten-percent stockholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file.
To the Companys knowledge, based solely on review of the copies of such reports furnished to the Company and written representations regarding the filing of required reports, all Section 16(a) filing requirements applicable to its directors, executive officers and greater-than-ten-percent beneficial owners with respect to fiscal 2005 were met.
Proposals of stockholders intended to be presented at the 2007 annual meeting of stockholders, pursuant to Rule 14a-8 under the Exchange Act, must be received by the Company no later than 5 p.m. Eastern Time on December 22, 2006, in order to be considered for inclusion in the Companys proxy materials for that meeting. The Company suggests that proponents submit their proposals via registered or certified mail addressed to Kellye L. Walker, Secretary, BJs Wholesale Club, Inc., One Mercer Road, Natick, Massachusetts 01760.
The Companys by-laws require that the Company be given advance written notice of stockholder nominations for election to the Companys Board of Directors and of other matters which stockholders wish to present for action at an annual meeting of stockholders (other than matters included in the Companys proxy materials in accordance with Rule 14a-8 under the Exchange Act). The Secretary must receive such notice at the address noted above not less than 70 days nor more than 90 days prior to the first anniversary of the preceding years annual meeting, provided, however, that in the event that the date of the annual meeting is advanced by more than 20 days, or delayed by more than 70 days, from such anniversary date, the Secretary must receive such notice not earlier than the 90th day prior to such annual meeting and not later than the close of business on the later of the 70th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such annual meeting is first made. Assuming that the 2007 annual meeting is held during the period from May 5, 2007 to August 3, 2007 (as it is expected to be), in order to comply with the time periods set forth in the Companys by-laws, appropriate notice would need to be provided to the Secretary of the Company at the address noted above no earlier than February 24, 2007, and no later than March 16, 2007. If a stockholder fails to provide timely notice of a proposal to be presented at the 2007 annual meeting, the proxies designated by the Board of Directors of the Company will have discretionary authority to vote on any such proposal which may come before the meeting.
The Companys by-laws also specify requirements relating to the content of the notice which stockholders must provide to the Secretary of the Company for any matter, including a stockholder nomination for director, to be properly presented at a stockholder meeting.
The Board of Directors has no knowledge of any other matter which may come before the meeting and does not intend to present any such other matter. Pursuant to the Companys by-laws, the deadline for stockholders to notify the Company of any proposals or director nominations to be presented for action at the annual meting has passed. However, if any other matters shall properly come before the meeting or any adjournment thereof, the persons named as proxies will have discretionary authority to vote the shares represented by the accompanying proxy in accordance with their own judgment.
The Executive Compensation Committee Report on Executive Compensation appearing on pages 13 through 15, the Audit Committee Report appearing on page 27, the Performance Graph appearing on page 12 and the information regarding the Audit Committees Charter and the independence of Audit Committee members appearing on page 6 shall not be deemed incorporated by reference by any general statement incorporating this proxy statement into any filing under the Securities Act of 1933 or under the Exchange Act, except to the extent that the Company specifically incorporates such information by reference, and shall not otherwise be deemed filed under such Acts.
The cost of solicitation of proxies will be borne by the Company. The Company has retained Georgeson Shareholder Communications Inc. to assist in soliciting proxies by mail, e-mail, telephone and personal interview for a fee of $7,500, plus expenses. Officers and employees of the Company may, without additional remuneration, also assist in soliciting proxies in the same manner. Brokers, custodians and fiduciaries will be requested to forward proxy soliciting materials to the owners of stock held in their names, and the Company will reimburse them for their reasonable out-of-pocket expenses incurred in connection with the distribution of proxy materials.
Householding of Annual Meeting Materials
Some banks, brokers and other nominee record holders may be participating in the practice of householding proxy statements and annual reports. This means that only one copy of the Companys proxy statement or annual report to stockholders may have been sent to multiple stockholders in each household. The Company will promptly deliver a separate copy of either document to any stockholder upon written or oral request to the Investor Relations Department of the Company, BJs Wholesale Club, Inc., One Mercer Road, Natick, MA 01760, telephone: (508) 651-6650. Any stockholder who wants to receive separate copies of the proxy statement or annual report to stockholders in the future, or any stockholder who is receiving multiple copies and would like to receive only one copy per household, should contact the stockholders bank, broker, or other nominee record holder, or the stockholder may contact the Company at the above address and phone number.
BJs Wholesale Club, Inc.
Charter of the Audit Committee of the Board of Directors
(Amended as of December, 2005)
The purpose of the Audit Committee is (i) to assist the Board of Directors oversight of the integrity of the Companys financial statements, the Companys compliance with legal and regulatory requirements, the independent auditors qualifications and independence and the performance of the Companys internal audit functions and independent auditors and (ii) to prepare an audit committee report as required by the Securities and Exchange Commission to be included in the Companys annual proxy statement.
The Audit Committee shall consist of at least three directors of the Board of Directors, one of whom shall be designated as chairperson. Except as otherwise permitted by the applicable rules of the New York Stock Exchange, each member of the Audit Committee shall be independent as defined by such rules.
Each member of the Companys Audit Committee must be financially literate (or must become financially literate within a reasonable period of time after his or her appointment to the Audit Committee), and at least one member of the Audit Committee shall have accounting or related financial management expertise, both as determined in the Board of Directors business judgment. No member of the Audit Committee may receive, directly or indirectly, any consulting, advisory or other compensatory fee from the Company or any of its subsidiaries, other than fees paid in his or her capacity as a member of the Board of Directors or a committee of the Board.
Members of the Audit Committee shall be appointed by the Board of Directors, upon the recommendation of the Nominating and Corporate Governance Committee. Unless otherwise determined by the Board (in which case disclosure of such determination shall be made in the Companys annual proxy statement), no member of the Audit Committee may serve on the audit committee of more than two other public companies. The Board of Directors may remove members of the Audit Committee from such committee, with or without cause.
The Audit Committee shall discharge its responsibilities, and shall assess the information provided by the Companys management and the independent auditors, in accordance with its business judgment.
Management is responsible for the preparation, presentation and integrity of the Companys financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company. The independent auditors are responsible for auditing the Companys financial statements and for reviewing the Companys unaudited interim financial statements. The authority and responsibilities set forth in this Charter do not reflect or create any duty or obligation of the Audit Committee to plan or conduct any audit, to determine or certify that the Companys financial statements are complete, accurate, fairly presented, or in accordance with generally accepted accounting principles or applicable law, or to guarantee the independent auditors report.
The Audit Committee shall:
The Audit Committee will meet as often as it deems necessary or appropriate in its judgment, either in person or telephonically, and at such times and places as the Audit Committee determines. The Audit Committee may also act by unanimous written consent in lieu of a meeting. As it deems appropriate, the Audit Committee shall periodically meet separately with the independent auditors, Company management and the Companys internal auditors, including the Chief Financial Officer and the Vice President, Manager of Internal Audit. The majority of the members of the Audit Committee shall constitute a quorum at any meeting. The Audit Committee may form and delegate authority to one or more subcommittees (including a subcommittee of a single member) as it deems appropriate from time to time under the circumstances. Any decision of a subcommittee to pre-approve audit, review, attest or non-audit services shall be presented to the full Audit Committee at its next scheduled meeting. The Audit Committee shall keep such records of its meetings as it shall deem appropriate.
Your telephone or Internet vote authorizes the named proxies to vote your shares in the same manner as if you marked, signed and returned the proxy card. If you have submitted your proxy by telephone or the Internet there is no need for you to mail back your proxy card.
Internet and telephone votes must be received by 5 p.m., eastern time, on Wednesday, May 24, 2006 to be counted in the final tabulation.
CALL TOLL-FREE TO VOTE
If you vote by the Internet or by telephone, please do not mail your card.
DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL.
Please sign, date and return the proxy card promptly using the enclosed envelope.
x Votes must be indicated (x) in Black or Blue ink.
The Board of Directors recommends a vote FOR the election of directors.
1. Election of Directors for a term to expire in 2009.
Nominees: 01Bert N. Mitchell, 02Helen Frame Peters and 03Michael T. Wedge
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a line through that nominees name and check the Exceptions box above.)
The Board of Directors recommands a vote AGAINST Proposal 2.
2. Shareholder Proposal regarding the election of directors by majority of votes cast at an annual meeting.
The Board of Directors recommands a vote FOR Proposal 3.
3. Ratification of the audit committees selection of PricewaterhouseCoopers, LLP as the Companys independent registered public accounting firm for the fiscal year ending February 3, 2007.
Mark box at right if you plan to attend the Annual Meeting. ¨
Mark box at right if an address change or comment has been noted on the reverse side of this card. ¨
S C A N L I N E
Please sign exactly as the name appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, trustee or guardian, please give full title as such. Only authorized officers should sign for corporations. PLEASE SIGN AND DATE HERE AND RETURN PROMPTLY ONLY IF YOU ARE VOTING BY MAIL.
The signer hereby revokes all proxies heretofore given by the signer to vote at said meeting or any adjournment thereof.
As part of BJs Wholesale Club, Inc.s ongoing efforts to reduce expenses, we are asking our stockholders to authorize us to send only one copy of stockholder publications to their respective households. If you are receiving multiple copies of stockholder reports at your address and wish to eliminate them for the account shown on the attached proxy card, please write or call our Investor Relations Department, BJs Wholesale Club, Inc., One Mercer Road, Natick, MA 01760, telephone: (508) 651-6650. You will continue to receive your proxy mailing for shares held in this account.
We urge you to vote your shares. Thank you very much for your cooperation and continued loyalty as a BJs Wholesale Club, Inc. stockholder.
BJs WHOLESALE CLUB, INC.
Proxy Solicited on Behalf of the Board of Directors
for the Annual Meeting of Stockholders, May 25, 2006
The undersigned hereby appoints Frank D. Forward, Thomas J. Shields and Kellye L. Walker, and each of them singly, as proxies, with full power of substitution, to represent and to vote, as designated herein, all shares of Common Stock of BJs Wholesale Club, Inc., at the Annual Meeting of Stockholders of BJs Wholesale Club, Inc. to be held at the Crowne Plaza Hotel, 1360 Worcester Street (Route 9), Natick, Massachusetts, on Thursday, May 25, 2006 at 11 a.m., and at all adjournments thereof, at which the undersigned could vote, if present, in such manner as they may determine on any matters which may properly come before the meeting and to vote as specified on the reverse side hereof.
You are encouraged to specify your choices by marking the appropriate boxes on the reverse side but you need not mark any boxes if you wish to vote in accordance with the Board of Directors recommendation. Please sign and return this card if you are voting by mail.
THIS PROXY, WHEN PROPERLY EXECUTED ON THE REVERSE SIDE OF THIS CARD, WILL BE VOTED IN THE MANNER DIRECTED. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES, AGAINST PROPOSAL 2 AND FOR PROPOSAL 3. THE PROXIES, IN THEIR DISCRETION, ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING.
PLEASE VOTE, DATE AND SIGN THIS PROXY ON THE OTHER SIDE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.