BJ SERVICES CO LLC DEF 14A 2005
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 ¨
Check the appropriate box:
BJ SERVICES COMPANY
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JANUARY 31, 2006
The Annual Meeting of the Stockholders of BJ Services Company (the Company) will be held on Tuesday, January 31, 2006, at 11:00 a.m. local time, at The Westin Galleria Hotel, located at 5060 West Alabama, Houston, Texas 77056, for the following purposes:
The foregoing items of business are more fully described in the Proxy Statement that accompanies this Notice.
All stockholders of record at the close of business on December 6, 2005, are entitled to notice of, and to vote at, the meeting and any adjournment. Stockholders holding at least a majority of the outstanding shares of the Company are required to be present or represented by proxy at the meeting to constitute a quorum.
Please note that space limitations make it necessary to limit attendance at the meeting to stockholders, though each stockholder may be accompanied by one guest. Admission to the meeting will be on a first-come, first-served basis. Registration will begin at 10:00 a.m. and seating will begin at 10:30 a.m. Each stockholder may be asked to present valid picture identification, such as a drivers license or passport. Stockholders holding stock in brokerage accounts must bring a copy of a brokerage statement reflecting stock ownership as of the record date. Cameras, recording devices and other electronic devices will not be permitted at the meeting.
December 30, 2005
YOUR VOTE IS IMPORTANT
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE AND RETURN YOUR PROXY AS PROMPTLY AS POSSIBLE. AN ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED FOR THIS PURPOSE.
This proxy statement is furnished in connection with the solicitation of proxies by the Board of Directors in connection with the Annual Meeting of Stockholders (the 2006 Annual Meeting) of BJ Services Company, a Delaware corporation (the Company), to be held at The Westin Galleria Hotel, located at 5060 West Alabama, Houston, Texas 77056, on Tuesday, January 31, 2006, at 11:00 a.m. local time. Stockholders of record at the close of business on December 6, 2005, are entitled to notice of, and to vote at, the meeting and at any postponement or adjournment.
When a properly executed proxy is received prior to the meeting, the shares represented will be voted at the meeting in accordance with the directions noted on the proxy. A proxy may be revoked at any time before it is exercised by submitting a written revocation or a later-dated proxy to the Secretary of the Company at the mailing address provided below or by attending the meeting in person and so notifying the inspector of elections.
Management does not intend to present any business for a vote at the meeting, other than the election of directors and the amendment of the Companys certificate of incorporation, as amended (the charter) to increase the total number of shares of authorized common stock, par value $0.10 per share (the Authorized Shares Amendment). Unless stockholders specify otherwise in their proxy, their shares will be voted FOR the election of the nominees listed in this proxy statement and FOR the Authorized Shares Amendment. If other matters requiring the vote of stockholders properly come before the meeting, it is the intention of the persons named in the enclosed proxy card to vote proxies held by them in accordance with their judgment.
The complete mailing address of the Companys executive offices is 5500 Northwest Central Drive, Houston, Texas 77092. The approximate date on which this proxy statement and the accompanying proxy card are being sent or given to the stockholders of the Company is December 30, 2005.
On December 6, 2005, the record date, there were outstanding 323,802,752 shares of the common stock of the Company (together with the associated preferred share purchase rights), held of record by approximately 1,495 persons. Stockholders are entitled to one vote, exercisable in person or by proxy, for each share of Common Stock held on the record date. Stockholders do not have cumulative voting rights.
The following table lists all persons who beneficially own more than 5% of the outstanding voting securities of the Company, to the knowledge of the Companys management, as of December 15, 2005.
PROPOSAL 1: ELECTION OF DIRECTORS
Board of Directors. The Companys Bylaws provide for the Board of Directors to serve in three classes having staggered terms of three years each. Two Class I directors will be elected at the 2006 Annual Meeting to serve for a three-year term expiring at the Annual Meeting of Stockholders in 2009. Pursuant to Delaware law, in the event of a vacancy on the Board of Directors, a majority of the remaining directors will be empowered to elect a successor, and the person so elected will hold office for the remainder of the full term of the director whose death, retirement, resignation, removal, disqualification or other cause created the vacancy and thereafter until the election of a successor director.
Recommendation; Proxies. The Board of Directors recommends a vote FOR each of the nominees named below. The persons named in the enclosed proxy card will vote all shares over which they have discretionary authority FOR the election of the nominees named below. Although the Board of Directors of the Company does not anticipate that any of the nominees will be unable to serve, if such a situation should arise prior to the meeting, the appointed persons will use their discretionary authority pursuant to the proxy and vote in accordance with their best judgment.
Nominees. The following table sets forth information for each nominee. Each nominee has consented to be named in this proxy statement and to serve as a director, if elected.
Other Directors. The following table sets forth certain information for the Class II and Class III directors, whose terms will expire at the Annual Meetings of Stockholders in 2007 and 2008, respectively.
PROPOSAL 2: PROPOSED INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has unanimously approved the charter amendment increasing the authorized number of shares of common stock from 380,000,000 shares to 910,000,000 shares and unanimously recommends that you vote FOR approval of the Authorized Shares Amendment. The affirmative vote of holders of a majority of the outstanding shares of common stock is required to approve this amendment.
What is the proposed charter amendment?
Our certificate of incorporation, as amended, currently authorizes the issuance of a total of 385,000,000 shares of stock, consisting of 380,000,000 shares of common stock, par value $0.10 per share, and 5,000,000 shares of preferred stock, par value $1.00 per share. The charter amendment would increase the total number of authorized shares of common stock from 380,000,000 to 910,000,000 shares and is being proposed for approval at the 2006 annual meeting of our stockholders.
The full text of the proposed charter amendment is set forth in Appendix A to this proxy statement. The newly authorized shares of common stock would constitute additional shares of the existing class of common stock and, if and when issued, would have the same rights and privileges as the shares of common stock currently authorized. The number of authorized shares of preferred stock would not be affected.
Why is the amendment necessary?
The Board of Directors recommends to the stockholders that the number of authorized shares of the common stock of BJ Services be increased from 380,000,000 shares to 910,000,000 shares.
As of December 15, 2005, approximately 323.8 million shares were issued and outstanding and approximately 29.2 million shares were reserved for issuance pursuant to stock option and employee benefit plans, leaving fewer than 27 million shares of common stock, or approximately 7 percent of the authorized shares of common stock, currently unreserved and available for future use. After a stock split effected in the form of a stock dividend to stockholders on September 1, 2005, the Company has insufficient shares of common stock available for future use.
How will the additional authorized shares be used?
The Board believes that increasing our authorized common stock will afford BJ Services continued flexibility to issue common stock for valid corporate purposes, including acquisitions, financings, incentive compensation and further stock dividends or stock splits. The proposed charter amendment would permit the Board to issue the additional shares without further action or authorization by stockholders, except as may be required in certain cases by law or the rules of the New York Stock Exchange (NYSE).
A stockholder vote against the proposed increase in the number of authorized shares of BJ Services common stock would have the effect of restricting the use of common stock by the Company. Although at present the Board of Directors has no plans, other than under existing stock incentive plans and agreements, to issue additional shares of common stock, the Board desires to have additional shares available to provide flexibility to use its common stock for business and financial purposes in the future. The Board of Directors believes that the proposed increase in the authorized shares of common stock is necessary to provide BJ Services with the flexibility to pursue corporate opportunities without added delay and expense.
Are there disadvantages of having additional authorized shares?
The Companys stockholders do not have preemptive rights, which means they do not have the right to purchase shares in any future issuance of common stock in order to maintain their proportionate equity interests
in BJ Services. Although the Board of Directors will authorize the further issuance of common stock only when it considers such issuance to be in the best interests of BJ Services, stockholders should recognize that any such issuance of additional stock would have the effect of diluting the earnings per share and book value per share of outstanding shares of BJ Services common stock and the equity and voting rights of holders of shares of common stock.
What are the potential anti-takeover effects of the charter amendment?
The increase in the authorized number of shares of common stock and the subsequent issuance of such shares could have the effect of delaying or preventing a change of control of BJ Services without further action by the stockholders. Shares of authorized and unissued common stock could (within the limits imposed by applicable law) be issued in one or more transactions that would make a change of control of BJ Services more difficult, and therefore less likely. The additional authorized shares could be used to discourage persons from attempting to gain control of BJ Services, by diluting the voting power of shares then outstanding or increasing the voting power of persons who would support the Board in a potential takeover scenario. However, this proposal is not made in response to any effort of which the Company is aware to accumulate its stock or to obtain control of the Company nor does the Company have an intent to use the additional shares of common stock to oppose a hostile takeover attempt or to delay or prevent changes in control of management.
What is the recommendation of the Board of Directors?
The Board of Directors has unanimously approved the proposed charter amendment and has determined that the increase in authorized common stock is in the best interests of BJ Services and its stockholders. Accordingly, the Board unanimously recommends that stockholders vote FOR the Authorized Shares Amendment.
Is my vote important?
Your vote counts. Please note that not returning your proxy or abstaining from the vote on the charter amendment has the same effect as voting against the amendment. Approval of the amendment requires the affirmative vote of an absolute majority of the common stock outstanding, rather than simply a majority of those who actually vote.
BENEFICIAL OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the beneficial ownership of Common Stock as of December 15, 2005, by each current director (including each nominee), each executive officer named in the Summary Compensation Table and all current directors and executive officers as a group.
BOARD OF DIRECTORS AND COMMITTEES OF THE BOARD
Meetings. During fiscal 2005, the Board of Directors held eight meetings of the full Board and sixteen meetings of committees. The Nominating and Governance Committee held one meeting, the Executive Compensation Committee held two meetings and the Audit Committee held thirteen meetings during fiscal 2005. In addition, the Companys independent auditors and management met with the Audit Committee Chairman prior to the issuance of earnings press releases, and the other members of the Audit Committee were invited to attend, and often do attend, these meetings. Each director attended at least 75% of the aggregate number of meetings of the Board of Directors and meetings of committees of the Board on which he served. It is the policy of the Board of Directors that directors are encouraged to attend each meeting of stockholders, and all of the directors other than Mr. Huff attended the last Annual Meeting of Stockholders.
Compensation. During the first two months of fiscal 2005, the Company paid non-employee directors a monthly retainer based on an annual retainer of $50,000, an annual retainer of $10,000 to committee chairman, and an attendance fee of $1,500 for each Board or committee meeting attended. Members of the Audit Committee receive a fee of $1,500 for each quarterly pre-earnings release conference call in which they participate. Effective December 1, 2004, the Company increased the annual retainer for non-employee directors to $60,000 and raised the annual retainer for the Audit Committee Chairman to $25,000. Committee chairmen are also paid an additional attendance or participation fee equal to 50% of the meeting fee paid to other committee members. The Lead Director also receives an annual retainer of $10,000. Directors who are employees of the Company are not paid directors fees. The Company reimburses the directors out-of-pocket expenses. In addition, under the terms of the 1997 Incentive Plan and the 2000 Incentive Plan, non-employee directors are eligible to receive awards of options to purchase shares of Common Stock. Under the terms of the 2003 Incentive Plan, non-employee directors are eligible to receive any awards except incentive stock options. Each non-employee director was granted 16,000 options for fiscal 2005 (with an exercise price of $35.38). These awards were made under the 2000 Incentive Plan. Also, each non-employee director was granted 8,000 shares of phantom stock for fiscal 2005. These awards were made under the 2003 Incentive Plan. Each share of phantom stock represents the right to receive one share of Common Stock. These options and shares of phantom stock vest in one-third installments on the first, second and third anniversaries of the grant date.
Under the Directors Benefit Plan, which was adopted in 2000, each non-employee director serving on the Board for more than three years will earn an annual benefit for each year of service on the Board equal to the annual retainer in effect for directors at the time of termination of his Board service. Payment of the benefit commences following the directors termination of service and continues for the number of years equal to his years of service as a director of the Company. Directors who have served on the Board for more than ten years will receive an amount based on their years of service, paid over a ten-year period. In the event of the death of a participant, benefit payments will be made to the directors beneficiaries over the remainder of the benefit period. The three-year minimum period is waived in the case of death. For purposes of the plan, each director completes a year of service on the anniversary of the date on which he was first elected to the Board. The non-employee directors were first elected on the following dates: Mr. HeiligbrodtMay 7, 1992; Mr. HuffMay 7, 1992; Mr. JordanAugust 20, 1990; Mr. PatrickApril 13, 1995; Mr. PayneJanuary 28, 1999; and Mr. WhiteJanuary 22, 2003.
Non-Management Sessions; Communications. For fiscal 2005, the non-management directors met in three regularly scheduled executive sessions without management present. Mr. Payne was selected by the Board to serve as Lead Director for 2005 and presided at these sessions. Mr. Patrick has been selected by the Board to serve as Lead Director for 2006. Interested parties may communicate directly with the Board, non-management directors or the Lead Director by sending a letter to the attention of the Board, non-management directors or the Lead Director, as applicable, c/o Vice President and General Counsel, BJ Services Company, 5500 Northwest Central Drive, Houston, Texas 77092.
Independence. The Board has determined that each of the directors except for Mr. Stewart is independent as that term is defined by rules of the New York Stock Exchange and, in the case of the Audit Committee, the Securities and Exchange Commission. Mr. Stewart is not an independent director because he is an officer and employee of the Company. In determining that each of the other directors is independent, the Board considered that the Company and its subsidiaries in the ordinary course of business buy from and sell products and services to other companies, including those at which certain directors serve (or recently served) as executive officers or directors. Mr. Huff currently serves as an executive officer of Oceaneering International, Inc., a subsidiary of which is a vendor to the Company in amounts that are immaterial, and as a director of Suncor Energy Inc., which is a customer of the Company. Mr. Payne served as an executive officer of Nuevo Energy Company, a customer of the Company, prior to his retirement from Nuevo Energy in 2004. In addition, until the end of 2004, Mr. Payne served as an executive officer of a charitable organization to which the Company makes contributions from time to time. In each case, the transactions and contributions did not automatically disqualify the directors from being considered independent under the NYSE rules. The Board also determined that these transactions were not otherwise material to the Company or to the other company involved in the transactions and that none of our directors had a material interest in the transactions with these companies. Based upon its review, the Board of Directors has affirmatively determined that each of the directors except for Mr. Stewart is independent and that none of these independent directors has a material relationship with the Company.
The following table shows the committees on which each director serves:
Audit Committee. The responsibilities of the Audit Committee, composed of Messrs. Huff (Chairman), Jordan, Patrick and White, include:
To promote the independence of the audit, the Audit Committee consults separately and jointly with the independent auditors, the internal auditors and management. The Board of Directors has determined that all of the Audit Committee members are audit committee financial experts. The Board of Directors has adopted a charter for the Audit Committee, a copy of which is available on the Companys website (www.bjservices.com).
Executive Compensation Committee. The responsibilities of the Executive Compensation Committee, composed of Messrs. Jordan (Chairman), Heiligbrodt, Huff, Patrick and Payne, include:
The Board of Directors has adopted a charter for the Executive Compensation Committee, a copy of which is available on the Companys website (www.bjservices.com).
In 2005, the Company has formalized stock ownership guidelines for executive officers, providing for executive officers to own three times the officers salary in value of common stock. New officers are allowed to reach this level by keeping shares received through earned performance units. As an officer receives performance units with the specified value, an officer is expected to hold the specified value of common stock and not sell shares below that amount. In addition, the Board of Directors has increased its stock ownership guidelines for directors, providing for each director to own five times the directors annual retainer in value of common stock. New directors have three years to acquire stock at that level.
Nominating and Governance Committee. The responsibilities of the Nominating and Governance Committee, composed of Messrs. Heiligbrodt (Chairman), Payne and White include:
The Board of Directors has adopted a charter for the Nominating and Governance Committee, a copy of which is available on the Companys website (www.bjservices.com).
The Nominating and Governance Committee has established the following minimum qualifications for non-employee director candidates that it recommends for nomination:
The Nominating and Governance Committee has established procedures for identifying and evaluating nominees. First, the Committee considers the Boards needs. For instance, the Committee may determine that, due to vacancies or current developments, the election of a director with a particular specialty (e.g., in a specific industry) would benefit the Board. The Committee then solicits recommendations from the Chief Executive Officer and other Board members and considers recommendations, if any, made by stockholders. The Committee then evaluates these recommendations and identifies prospective nominees to interview. Results from the interview process are reported to the Committee, and the Committee then recommends nominees to the full Board, which, upon approval by the Board, recommends the nominees for election by the stockholders.
Stockholders may nominate director candidates in accordance with the Companys Bylaws. To summarize, such nominations must be made in writing to the Companys Secretary at the Companys principal executive offices. The recommendation must set forth certain information about both the nominee and the nominating stockholder(s). The foregoing is a summary, and the specific requirements and procedures of the Bylaws control.
It is the policy of the Nominating and Governance Committee to consider nominating any director candidate nominated by one or more stockholders in accordance with the Companys Bylaws, provided that the nomination includes the following additional information:
If a nomination is made by two or more stockholders, the foregoing information must be submitted with respect to each stockholder. The Committees acceptance of a proposal for consideration does not imply that the Committee has any obligation to interview or nominate the candidate. Candidates proposed by stockholders in accordance with the foregoing requirements are considered by the Committee in the same manner as all other candidates. In evaluating candidates for director, the Committee may, in its discretion, consider a candidates qualifications in relation to the overall structure and composition of the Board of Directors.
CODE OF ETHICS
The Company has adopted a supplemental code of ethics that applies to its directors and executive officers, including its Chief Executive Officer, Chief Financial Officer and Controller. The Code of Ethics is available on the Companys website (www.bjservices.com).
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors consists of four directors who are independent, as defined by the standards of the New York Stock Exchange and the rules of the Securities and Exchange Commission. Under the charter approved by the Board, the Committee assists the Board in overseeing matters relating to the accounting and financial reporting practices of the Company, the adequacy of its internal controls and the quality and integrity of its financial statements and is responsible for selecting and retaining the independent auditors. The Companys management is responsible for preparing the financial statements of the Company and the independent auditors are responsible for auditing those financial statements. The Audit Committees role under the charter is to provide oversight of managements responsibility. The Committee is not providing any expert or special assurance as to the Companys financial statements or any professional certification as to the independent auditors work. The Committee met thirteen times during the year ended September 30, 2005.
The independent auditors provided the Committee a written statement describing all the relationships between the auditors and the Company that might bear on the auditors independence consistent with Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees. The Committee also discussed with the auditors any relationships that may impact the independence of the auditors.
The Committee discussed and reviewed with the independent auditors all communications required to be discussed by standards of the Public Company Accounting Oversight Board, including those described in Statement of Auditing Standards No. 61, as amended, Communication with Audit Committees.
The Committee reviewed the Companys audited financial statements as of and for the year ended September 30, 2005, and discussed them with management and the independent auditors. Based on such review and discussions, the Committee recommended to the Board that the Companys audited financial statements be included in its Annual Report on Form 10-K for the fiscal year ended September 30, 2005, for filing with the Securities and Exchange Commission.
John R. Huff, Chairman
Don D. Jordan
Michael E. Patrick
William H. White
November 22, 2005
This report of the Audit Committee shall not be deemed soliciting material, or to be filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Securities Exchange Act of 1934 (the Exchange Act), except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act of 1933 (the Securities Act) or the Exchange Act. Further, this report will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that the Company specifically incorporates this information by reference.
EXECUTIVE COMPENSATION COMMITTEE REPORT
The Executive Compensation Committee of the Board of Directors consists of five directors who are not employees of the Company and who are independent, as defined by the standards of the New York Stock Exchange. The Committee annually reviews the Companys compensation program and policies for executive officers and directors and determines the compensation of executive officers and directors.
Compensation of Executive Officers. The Committees overall policy regarding compensation of the Companys executive officers, including Mr. Stewart, is to provide competitive salary levels and compensation incentives that (1) attract and retain individuals of outstanding ability in these key positions, (2) recognize individual performance and the performance of the Company relative to the performance of other companies of comparable size, complexity and quality, and (3) support both the short-term and long-term goals of the Company. The Executive Compensation Committee believes this approach closely links the compensation of the Companys executives to the accomplishment of Company goals that coincide with stockholder objectives.
In addition, the Executive Compensation Committee considers the anticipated tax treatment of the Companys executive compensation program. Section 162(m) of the Internal Revenue Code of 1986, as amended, generally limits the corporate tax deduction for compensation paid to executive officers named in the Summary Compensation Table to $1 million, unless certain conditions are met.
The executive compensation program has in the past included three elements that, taken together, constitute a flexible and balanced method of establishing total compensation for the Companys executive officers. These elements are (1) base salary, (2) annual bonus plan awards, and (3) long-term incentive awards, which in the past have included stock option grants and performance unit awards.
Providing Competitive Levels of Compensation. The Executive Compensation Committee generally attempts to provide the Companys executives, including Mr. Stewart, with a total compensation package that is competitive and reflective of the performance achieved by the Company compared to the performance achieved by the Companys peers. The compensation is typically weighted toward long-term incentives with base compensation targeted in the range of the 50th percentile of the compensation comparator group considered by the Committee. The Committee determines a competitive level of compensation for each executive based on information drawn from a variety of sources, including proxy statements of other companies and surveys conducted by compensation consultants. An independent consultant periodically reviews and provides survey data to the Chief Executive Officer and the Executive Compensation Committee to compare the Companys executive compensation with compensation levels at companies in an industry peer group. The Committee obtained an independent survey in the fall of 2005 for the purpose of determining 2006 compensation for directors and executive officers.
While the targeted value of an executives compensation package may be competitive, its actual value may exceed or fall below competitive levels depending on performance, as discussed below.
Base Salaries. The Committee periodically reviews and establishes executive base salaries. Generally, base salaries are determined according to the following factors: the individuals experience level, scope and complexity of the position held and annual performance of the individual. In addition, the Committee considers the survey data. Based on fiscal 2005 performance, all executives received salary increases for fiscal 2006, including Mr. Stewart. The Company provides perquisites to its senior executives, who choose from the following perquisites: club memberships, extended life insurance, financial counseling and charitable contributions. The perquisite plan has been approved by the Committee.
The Annual Bonus Plan. The purpose of the annual bonus plan is to provide motivation toward, and reward the accomplishment of, corporate annual objectives and to provide a competitive compensation package that will attract, reward and retain individuals of the highest quality. As a pay-for-performance plan, cash bonus awards are paid based upon the achievement of corporate performance objectives established for the fiscal year.
Targeted bonus award levels for the Companys executive officers are established by the Committee each year. The Companys annual performance measures are established jointly by the Committee and management. For fiscal 2005, bonus targets for the Companys Chief Executive Officer and its other executive officers were based on earnings per share objectives. These objectives are established at three levels: entry level, expected value (target level) and over-achievement level. The Committee does not disclose the specific earnings per share objectives because it believes such disclosure would be detrimental to the Companys competitive position in the industry. The Companys fiscal 2005 earnings per share achievement was 90 percentage points above the target (expected value) level. All of the executive officers, including Mr. Stewart, received a bonus at this level for fiscal 2005.
Long-Term Incentive Program. The long-term incentive program was introduced in fiscal 1993 to focus management attention on Company performance over a period of time longer than one year in recognition of the long-term horizons for return on investments and strategic decisions in the energy services industry. The program is designed to motivate management to assist the Company in achieving a high level of long-term performance and serves to link this portion of executive compensation to long-term stockholder value. The Executive Compensation Committee generally attempts to provide the Companys executives, including Mr. Stewart, with a total compensation package that is competitive and reflective of the performance achieved by the Company compared to its peers, and is typically weighted toward long-term incentives. Aggregate stock or option holdings of the executive have no bearing on the size of a performance award.
The incentive plans approved by the stockholders of the Company provide flexibility to the Committee in the types of long-term incentive awards that can be made. For fiscal 2005, the Committee made grants of performance units, which are payable in stock and have an attached tax gross-up, and stock options. Performance units and stock options were granted to Mr. Stewart and the other officers named in the summary compensation table on November 22, 2005. The performance units generally vest at the end of a three-year period, based on Company performance over such period measured against pre-established objectives. No performance units were scheduled to vest in fiscal 2005.
CEO Compensation. A separate, formal process of evaluating Mr. Stewart was conducted, and the results of that process were considered in determining Mr. Stewarts compensation. Specifically, the Committees considerations included whether Mr. Stewart achieved his goals for fiscal 2005, the Companys stock performance, the Companys return on assets, and the Companys earnings growth. The Committee also compared the Companys financial performance for fiscal 2005 to the Companys one- and five-year plans. Further, the Committee considered various qualitative factors, including leadership skills and dedication to strategic planning. The Committee did not base its considerations on any single factor or specifically assign relative weights to factors.
Key Employee Share Option Plan and Deferred Compensation Plan. In 1997, the Committee approved the BJ Services Company Key Employee Share Option Plan, called the Keysop Plan, which allows participants to elect to receive, in lieu of salary and bonus, options to purchase certain designated mutual funds. An executive will not be taxed on the value of the mutual funds until the Keysop option is exercised, and the Company does not deduct such amount for tax purposes as compensation until the option is exercised. Beginning January 1, 2005, future elections were discontinued. In 2000, the Company also implemented a deferred compensation plan for officers and certain key employees that enables participants to defer taxation on their bonus and a portion of their salary. Amounts deferred after January 1, 2005, are subject to new Section 409(A) of the Internal Revenue Code (Section 409) and the plan will be modified to conform to this law.
Supplemental Executive Retirement Plan. In 2000, the Committee approved the BJ Services Company Supplemental Executive Retirement Plan, which provides supplemental retirement benefits to the Companys executive officers. The purpose of this plan is to insure that the Companys overall compensation program for its executives is competitive.
Compensation of Directors. The Committee is also responsible for determining the annual retainer, meeting fees, stock options and other benefits for members of the Board of Directors. The Committees objective
with respect to director compensation is to provide compensation incentives that attract and retain individuals of outstanding ability.
During the first two months of fiscal 2005, the Company paid non-employee directors a monthly retainer based on an annual retainer of $50,000, an additional annual retainer of $10,000 to committee chairmen, and an attendance fee of $1,500 for each Board or committee meeting attended. Members of the Audit Committee received a fee of $1,500 for each quarterly pre-earnings release conference call in which they participated. Effective December 1, 2004, the Company increased the annual retainer for non-employee directors to $60,000 and raised the annual retainer for the Audit Committee Chairman to $25,000. Committee chairmen are also paid an additional attendance or participation fee equal to 50% of the meeting fee paid to other committee members. The Lead Director also receives an annual retainer of $10,000. Directors who are employees of the Company are not paid directors fees. The Company reimburses the directors out-of-pocket expenses. In addition, under the terms of the 1997 Incentive Plan and the 2000 Incentive Plan, non-employee directors are eligible to receive awards of options to purchase shares of Common Stock. Under the terms of the 2003 Incentive Plan, non-employee directors are eligible to receive any awards except incentive stock options.
Under the Directors Benefit Plan, which was adopted in 2000, each non-employee director serving on the Board for more than three years will earn an annual benefit for each year of service on the Board equal to the annual retainer in effect for directors at the time of termination of his Board service. Payment of the benefit commences following the directors termination of service and continues for the number of years equal to his years of service as a director of the Company. Directors who have served on the Board for more than ten years will receive an amount based on their years of service, paid over a ten-year period. In the event of the death of a participant, benefit payments will be made to the directors beneficiaries over the remainder of the benefit period. The three-year minimum period is waived in the case of death.
American Jobs Creation Act (AJCA). On October 22, 2004, a new law was enacted which made sweeping changes to the administration, design and taxation of all deferred compensation arrangements. AJCA is generally effective for deferrals made on or after January 1, 2005, but may also apply to amounts deferred before that date if such amounts are not vested as of December 31, 2004 or are made pursuant to a plan that either was not in existence on or was materially modified after October 3, 2004. Failure to comply with the new law will result in adverse tax consequences to participants and possible reporting penalties to the Company. The new law impacts, and changes are required under, the Deferred Compensation Plan, the Supplemental Executive Retirement Plan, and the Directors Benefit Plan, as well as other benefit arrangements applicable to officers and directors. The Internal Revenue Service has issued proposed regulations implementing the new law, and final regulations are expected some time during 2006. The Companys plans and arrangements are being reviewed to insure that the requirements of AJCA are timely met.
Don D. Jordan, Chairman
L. William Heiligbrodt
John R. Huff
Michael E. Patrick
James L. Payne
November 22, 2005
This report of the Executive Compensation Committee shall not be deemed soliciting material, or to be filed with the Securities and Exchange Commission or subject to Regulation 14A or 14C or to the liabilities of Section 18 of the Exchange Act, except to the extent that the Company specifically requests that the information be treated as soliciting material or specifically incorporates it by reference into a document filed under the Securities Act or the Exchange Act. Further, this report will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that the Company specifically incorporates this information by reference.
Performance GraphTotal Stockholder Return. The following is a line graph comparing cumulative, five-year total shareholder return with a general market index (the S&P 500) and a group of peers in the same line of business or industry selected by the Company. The peer group is comprised of the following companies: Baker Hughes Incorporated, Halliburton Company, Schlumberger N.V., Smith International, Inc., and Weatherford International Ltd.
The graph assumes investments of $100 on September 30, 2000, and the reinvestment of all dividends.
The graph shall not be deemed incorporated by reference by any general statement incorporating by reference this Proxy Statement into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts.
September 30, 2000 to September 30, 2005
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG BJ SERVICES COMPANY, THE S & P 500 INDEX
AND A PEER GROUP
Copyright © 2002, Standard & Poors, a division of The McGraw-Hill Companies, Inc. All rights reserved.
Summary Compensation Table
The following information relates to compensation paid by the Company for fiscal 2003, 2004 and 2005 to the Companys Chief Executive Officer and each of the other four most highly compensated executive officers in fiscal 2005:
With respect to fiscal 2004, the amount shown in this column represents the following amounts contributed by the Company on the individuals behalf: Mr. Stewart$12,500 (401(k) plan), $51,381 (deferred compensation plan) and $17,181 (premium for life insurance); Mr. Williams$12,250 (401(k) plan) and $14,438 (deferred compensation plan); Mr. Dunlap$9,188 (401(k) plan), $12,263 (deferred compensation plan) and $2,760 (premium for life insurance); Mr. Whichard$10,469 (401(k) plan), $9,875 (deferred compensation plan) and $1,132 (premium for life insurance); and Ms. Shannon$11,737 (401(k) plan), $9,875 (deferred compensation plan) and $5,147 (premium for life insurance).
With respect to fiscal 2003, the amount shown in this column represents the following amounts contributed by the Company on the individuals behalf: Mr. Stewart$12,000 (401(k) plan), $48,375 (deferred compensation plan) and $15,660 (premium for life insurance); Mr. Williams$11,667 (401(k) plan) and $11,350 (deferred compensation plan); Mr. Dunlap$8,500 (401(k) plan), $10,131 (deferred compensation plan) and $2,601 (premium for life insurance); Mr. Whichard$9,000 (401(k) plan), $7,650 (deferred compensation plan) and $566 (premium for life insurance); and Ms. Shannon$11,000 (401(k) plan), $8,775 (deferred compensation plan) and $1,492 (premium for life insurance).
The deferred compensation plan provides that the Company contribute the following amounts to the plan on behalf of each executive officer who participates: (a) for each calendar month, an amount equal to 50% of the participants deferrals of Excess Compensation (the participants salary over a specified Internal Revenue Code limit ($205,000 for 2004 and $210,000 for 2005)), but not in excess of 6% of the participants Excess Compensation for the calendar month; (b) for each calendar month, an amount equal to 50% of the participants deferrals of Regular Compensation (the participants base salary up to the Internal Revenue Code limit noted above), but not in excess of 6% of the participants Regular Compensation for the calendar month; and (c) for each calendar month, a percentage (up to 5%) of the participants monthly Excess Compensation. The Company may also make contributions to the plan on behalf of participants to make up for certain contributions that were forfeited under, or not permitted to be made to, the 401(k) plan due to Internal Revenue Code limitations applicable to such plan.
Option/SAR Grants in Last Fiscal Year
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
The following table sets forth certain information regarding options that persons named in the Summary Compensation Table above exercised during fiscal 2005 and options that those persons held at September 30, 2005. The values of unexercised in-the-money stock options at September 30, 2005, shown below are presented pursuant to Securities and Exchange Commission rules. The actual amount, if any, realized upon exercise of stock options will depend upon the market price of the Common Stock relative to the exercise price per share of the stock option at the time the stock option is exercised.
Long-Term Incentive PlansAwards in Last Fiscal Year
The following table sets forth certain information regarding performance units granted to the individuals named in the Summary Compensation Table for performance in fiscal 2005. Performance units represent the right to receive shares of Common Stock, the number of which is determined by the performance of the Companys stock as measured against pre-established objectives. The performance units generally vest at the end of a three-year period, based on the performance of the Common Stock against such pre-established objectives. Each performance unit includes a tax gross-up paid in cash.
Supplemental Executive Retirement Plan
The Company implemented the Supplemental Executive Retirement Plan for its senior executives, including Mr. Stewart, effective October 1, 2000. The following table indicates the hypothetical annual benefit payable under the plan based on a hypothetical single life annuity computation starting at age 60, using a formula of 2% per year of service, but not more than 60%, of the participants highest average compensation, which is the average base salary and bonus paid for the three highest consecutive years out of the participants last ten years of employment. This benefit would be reduced by Social Security and other benefits listed below.
Pension Plan TableHypothetical Annuity
The credited years of service of the named executive officers, at September 30, 2005, are as follows: Mr. Stewart36 years; Mr. Williams32 years; Mr. Dunlap15 years; Mr. Whichard16 years; and Ms. Shannon11 years.
The hypothetical annuity shown above would be reduced by (i) the Social Security benefit payable at age 62, (ii) certain contributions by the Company for the participants account under the Companys 401(k) plan and 401(k) restoration plan, and (iii) any annual benefit the participant will receive under a defined benefit pension plan maintained by the predecessors of the Company. The average annual reduction in benefit currently projected by the Company for the five named officers is $67,317. In the case of early retirement, death, disability or change in control before the participant reaches age 60, the benefit is reduced. The compensation covered by the plan for the most recent three years does not differ by more than 10% from the annual compensation shown in the Summary Compensation Table.
The actual benefit payable is the actuarial equivalent of the hypothetical annuity, after applicable offsets, paid out over a period elected by the participant of from five to 30 years.
A participants benefit is fully vested upon the later of the participants 55th birthday or the date the participant completes five full years of service. Prior to age 55, no part of the benefit is vested, unless the participant dies, becomes disabled, or a change in control occurs. If one of these events occurs, the participants benefit will be fully vested. In the event of a change in control, the participant will be given three years extra credit for years of service and age in calculating the benefit.
A participants interest in the plan is generally distributed upon retirement in accordance with the participants distribution election. The Executive Compensation Committee may, however, direct that the benefits be paid as a lump sum. A lump sum payment will be paid in the event of death or a change in control, and may be paid by the Committee at the request of the participant in the case of disability. In the event of a change in control, the participant will receive a gross-up payment sufficient to satisfy any excise tax payments that may be imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the Code), and any additional taxes imposed with respect to such gross-up payments, in accordance with the provisions of the plan.
The Company has purchased life insurance to finance the benefits under this plan.
EQUITY COMPENSATION PLAN INFORMATION
The following table provides information about the Common Stock that may be issued upon the exercise of options and rights under all of the Companys existing equity compensation plans as of September 30, 2005.
The Company has severance agreements with its executive officers, including each of the named executive officers shown in the Summary Compensation Table. The severance agreements were effective August 27, 1993, except for Ms. Shannons agreement, which was effective February 14, 1994 and Mr. Dunlaps agreement, which was effective November 27, 1995. In 1999, the Board of Directors approved amendments to the form of executive severance agreements. The following describes the terms of the form of severance agreement, as so amended. The term of each agreement is automatically extended for an additional year at the end of each year, unless the Company has given one years prior notice of termination. The agreements are intended to provide for continuity of management in the event of a change in control of the Company. The agreements provide that covered executive officers could be entitled to certain severance benefits following a change in control of the Company. If, following a change in control, the executive is terminated by the Company for any reason, other than for death, disability or for cause, or if such executive officer terminates his or her employment for good reason (as this term is defined in the agreements), then the executive officer is entitled to a severance payment that will be three times the sum of the executive officers base salary and bonus amount, as defined in the agreements, plus an amount equal to three times the value of the executives largest stock option and/or performance unit grant in the prior three years. Option awards that are intended as two-year awards will be annualized for purposes of this calculation. The severance payment is generally made in the form of a lump sum. For a period of up to three years, the Company would also provide life, disability, accident and health insurance coverage substantially similar to the benefits provided before termination. Further, the Company would provide outplacement services, and the Company would provide retiree medical coverage if the executive were within five years of eligibility at the time of termination following a change in control.
If a change in control occurs, the severance agreements are effective for a period of two years from the date of such change in control. Under the severance agreements, a change in control would generally include any of the following events: (i) any person as defined in the Securities Exchange Act of 1934, as amended, acquires 25 percent or more of the Companys voting securities; (ii) a majority of the Companys directors are replaced during a two-year period; (iii) stockholders approve a merger, resulting in (a) 60% or less of the common stock and voting securities of the surviving corporation being owned by the same persons that owned the Common Stock of the Company immediately prior to such merger, (b) a person owning 25% or more of the surviving corporations common stock or voting securities, or (c) replacement of a majority of the members of the Board of Directors; or (iv) the Companys stockholders approve a liquidation or sale of the Companys assets. In the event that any payments made in connection with a change in control would be subject to the excise tax imposed by Section 4999 of the Code, the Company would pay an additional payment (a gross-up payment) sufficient to satisfy such excise tax obligations and any additional taxes imposed with respect to such gross-up payment.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely upon a review of reports on Forms 3 and 4 and amendments thereto furnished to the Company during fiscal 2005, reports on Form 5 and amendments thereto furnished to the Company with respect to fiscal 2005, and written representations from officers and directors that no Form 5 was required to be filed, the Company believes that all filing requirements applicable to its officers, directors and beneficial owners of more than 10% of the Common Stock under Section 16(a) of the Securities Exchange Act of 1934, as amended, were complied with during fiscal 2005.
The Company is soliciting proxies for the 2006 Annual Meeting and will bear the cost of solicitation. In addition to solicitation by mail, certain of the directors, officers or regular employees of the Company may, without extra compensation, solicit the return of proxies by telephone or electronic media. Arrangements will be made with brokerage houses, custodians and other fiduciaries to send proxy material to their principals, and the Company will reimburse these parties for any out-of-pocket expenses. Georgeson & Company Inc. will assist the Company in the proxy solicitation and will receive a fee of $8,000, plus reimbursement of certain charges and expenses.
A majority of the outstanding shares of Common Stock present or represented by proxy at the 2006 Annual Meeting constitutes a quorum for the transaction of business. ADP Investor Communication Services will tabulate all votes cast, in person or by submission of a properly executed proxy, before the closing of the polls at the meeting. The Company will appoint an inspector of elections at the meeting. The affirmative vote of holders of a plurality of the Common Stock present or represented by proxy at the meeting and entitled to vote is required for the election of each nominee. Therefore, abstentions and broker non-votes will not be taken into account in determining the outcome of the election of directors. For the Authorized Shares Amendment, the affirmative vote of holders of a majority of the outstanding Common Stock is required, and abstentions and broker non-votes will have the effect of negative votes. For any other matters presented for a vote of stockholders, the affirmative vote of holders of a majority of the Common Stock present or represented by proxy at the meeting and entitled to vote is required. Therefore, on any such matters, abstentions have the effect of a negative vote, and broker non-votes will not be taken into account.
Deloitte & Touche LLP, an independent public accounting firm, audited the Companys consolidated financial statements for fiscal 2005, and has advised the Company that it will have a representative available at the 2006 Annual Meeting to respond to appropriate questions. Such representative will be permitted to make a statement if he or she so desires. It has not been the Companys practice, and the Company is not required by law, to submit the Audit Committees choice of independent auditor to the stockholders for ratification. The Company has not yet selected independent public accountants to audit its consolidated financial statements for fiscal 2006. Historically, the Company has selected independent public accountants for that purpose in May of the fiscal year during which the audit will take place. Thus, the Audit Committee of the Board of Directors intends to engage the accountants for such purpose in May 2006.
Deloitte & Touche LLP has billed the Company and its subsidiaries fees as set forth in the table below for (i) the audits of the Companys 2004 and 2005 annual financial statements, the audit of the 2005 report on internal control over financial reporting, reviews of quarterly financial statements, and review of other documents filed with the Securities and Exchange Commission, (ii) assurance and other services reasonably related to the audit or review of the Companys financial statements, and (iii) services related to tax compliance.
The Audit Committee of the Board of Directors has adopted policies regarding the pre-approval of auditor services. Specifically, the Audit Committee pre-approves at its May meeting all services provided by the independent public accountants. All additional services must be pre-approved on a case-by-case basis. The Audit Committee reviews the actual and budgeted fees for the independent public accountants at its May and November meetings. All of the services provided by Deloitte & Touche LLP during fiscal 2004 and 2005 were approved by the Audit Committee.
PROPOSALS OF STOCKHOLDERS
Stockholders of record who intend to submit a proposal at the annual meeting of stockholders in 2007 must provide written notice to the Company in accordance with the Companys Bylaws. Under the Companys Bylaws, such notice must be received at the Companys principal executive offices, addressed to the Secretary of the Company, no later than November 2, 2006.
Stockholders who intend to submit a proposal at the annual meeting of stockholders in 2007 and desire that such proposal be included in the proxy materials for such meeting must follow the procedures prescribed in the Companys Bylaws and Rule l4a-8 under the Securities Exchange Act of 1934, as amended. To be eligible for inclusion in the proxy materials, stockholder proposals must be received by the Secretary of the Company at the Companys principal executive offices no later than September 1, 2006.
The Annual Report to Stockholders of the Company for the year ended September 30, 2005, including audited financial statements, is enclosed with this proxy statement but does not constitute a part of the proxy soliciting material. Additional copies of the Annual Report are available, without charge, upon request.
The Corporate Governance Guidelines, the Corporate Compliance and Business Ethics Manual of the Company and the charters of the Audit Committee, the Nominating and Governance Committee and the Executive Compensation Committee are available on the Companys website (www.bjservices.com), and copies of these documents are available to stockholders, without charge, upon request.
BJ Services Company will furnish a copy of its Annual Report on Form 10-K for the year ended September 30, 2005, without exhibits, free of charge to each person who forwards a written request to Robert C. Coons, Director, Corporate Communications, BJ Services Company, 5500 Northwest Central Drive, Houston, Texas 77092-2036.
PROPOSED TEXT OF ARTICLE FOURTH OF
THE BJ SERVICES COMPANY CHARTER
The text of the proposed amended Article FOURTH of the BJ Services Company Charter is as follows:
FOURTH: The total number of shares of stock which the Corporation shall have the authority to issue is 915,000,000 shares of capital stock, consisting of 5,000,000 shares of preferred stock, par value $1.00 per share (the Preferred Stock), and 910,000,000 shares of common stock, par value $0.10 per share (the Common Stock).
The designations, powers and preferences and relative, participating, optional or other special rights and qualifications, limitations or restrictions of the Preferred Stock shall be established by resolutions of the Board of Directors pursuant to Section 151 of the General Corporation Law of the State of Delaware.
(Please sign, date and return this proxy in the enclosed
postage prepaid envelope.)
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.