UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

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BLUE NILE, INC.
705 Fifth Avenue South
Suite 900
Seattle, Washington 98104

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

 

To Be Held On May 19, 2010

 

Dear Stockholder:

 

You are cordially invited to attend the Annual Meeting of Stockholders of Blue Nile, Inc., a Delaware corporation (the “Company”). Notice is hereby given that the Annual Meeting will be held on Wednesday, May 19, 2010 at 11:00 AM Pacific Time at the Washington Athletic Club located at 1325 Sixth Avenue, Seattle, Washington 98101 for the following purposes:

 

 

These items of business are more fully described in the Proxy Statement accompanying this notice.

 

The record date for the Annual Meeting is March 31, 2010. Only stockholders of record at the close of business on that date may vote at the Annual Meeting or any adjournment thereof. For ten days prior to the Annual Meeting, a complete list of stockholders entitled to vote at the Annual Meeting will be available for examination by any stockholder, for any purpose relating to the Annual Meeting, during ordinary business hours at our principal offices located at 705 Fifth Avenue South, Suite 900, Seattle, Washington 98104.

 

By Order of the Board of Directors,

 

 

Lauren Neiswender

General Counsel and Corporate Secretary

 

Seattle, Washington
April 16, 2010

 

Important Notice Regarding the Availability of Proxy Materials for the Annual Meeting to be Held on

May 19, 2010. The Company’s Proxy Statement and Annual Report to security holders for the fiscal

year ended January 3, 2010 are also available at http://investor.bluenile.com.

 

BLUE NILE, INC.

705 Fifth Avenue South

Suite 900

Seattle, Washington 98104

 

PROXY STATEMENT
FOR THE 2010 ANNUAL MEETING OF STOCKHOLDERS

 

Wednesday, May 19, 2010

 

QUESTIONS AND ANSWERS ABOUT THESE PROXY MATERIALS AND VOTING

 

Why am I receiving these materials?

 

We have sent you this proxy statement and the enclosed proxy card because the Board of Directors of Blue Nile, Inc. (sometimes referred to as “we,” the “Company” or “Blue Nile”) is soliciting your proxy to vote at the 2010 Annual Meeting of Stockholders. You are invited to attend the Annual Meeting to vote on the proposals described in this proxy statement. However, you do not need to attend the meeting to vote your shares. Instead, you may simply complete, sign and return the enclosed proxy card or follow the instructions below to submit your proxy over the telephone or on the Internet.

 

We intend to mail this proxy statement and accompanying proxy card on or about April 16, 2010 to all stockholders of record entitled to vote at the Annual Meeting.

 

How do I attend the Annual Meeting?

 

The meeting will be held on Wednesday, May 19, 2010 at 11:00 AM. Directions to the Annual Meeting may be found at http://investor.bluenile.com. Information about how to vote in person at the Annual Meeting is discussed below.

 

Who can vote at the Annual Meeting?

 

Only stockholders of record at the close of business on March 31, 2010 will be entitled to vote at the Annual Meeting. On this record date, there were 14,500,551 shares of common stock outstanding and entitled to vote.

 

Stockholder of Record: Shares Registered in Your Name. If on March 31, 2010 your shares were registered directly in your name with our transfer agent, American Stock Transfer & Trust Company, then you are a stockholder of record. As a stockholder of record, you may vote in person at the Annual Meeting or vote by proxy. Whether or not you plan to attend the Annual Meeting, please fill out and return the enclosed proxy card or vote by proxy over the telephone or on the Internet as instructed below to ensure your vote is counted.

 

Beneficial Owner: Shares Registered in the Name of Broker or Bank. If on March 31, 2010 your shares were held, not in your name, but rather in an account at a brokerage firm, bank or similar organization, then you are the beneficial owner of shares held in “street name” and these proxy materials are being forwarded to you by that organization. The organization holding your account is considered to be the stockholder of record for purposes of voting at the Annual Meeting. As a beneficial owner, you have the right to direct your broker or other agent regarding how to vote the shares in your account. You are also invited to attend the Annual Meeting. However, since you are not the stockholder of record, you may not vote your shares in person at the meeting unless you request and obtain a valid proxy from your broker or other agent.

 

What am I voting on?

 

There are three matters scheduled for a vote:

 

1)  The election of three directors;

 

 

What if another matter is properly brought before the meeting?

 

The Board of Directors knows of no other matters that will be presented for consideration at the Annual Meeting. If any other matters are properly brought before the meeting, it is the intention of the persons named in the accompanying proxy to vote on those matters in accordance with their best judgment.

 

How do I vote?

 

For proposal number 1, you may either vote “For” all the nominees to the Board of Directors or you may “Withhold” your vote for any nominee you specify. For proposal numbers 2 and 3, you may vote “For” or “Against” or abstain from voting. The procedures for voting are as follows:

 

Stockholder of Record: Shares Registered in Your Name. If you are a stockholder of record, you may vote in person at the Annual Meeting, vote by proxy using the enclosed proxy card, vote by proxy over the telephone, or vote by proxy on the Internet. Whether or not you plan to attend the Annual Meeting, we urge you to vote by proxy to ensure your vote is counted. You may still attend the Annual Meeting and vote in person even if you have already voted by proxy.

 

 

 

 

Beneficial Owner: Shares Registered in the Name of Broker or Bank. If on March 31, 2010 you are a beneficial owner of shares registered in the name of your broker, bank or other agent, you should have received a proxy card and voting instructions with these proxy materials from that organization rather than from Blue Nile. To vote by proxy card, simply complete and mail the proxy card according to the instructions provided to you to ensure that your vote is counted. Alternatively, you may vote by telephone or on the Internet as instructed by your broker, bank or other agent. To vote in person at the Annual Meeting, you must obtain from the record holder a valid proxy issued in your name and present it to the Company’s inspector of elections at the Annual Meeting.

 

How many votes do I have?

 

On each matter to be voted upon, you have one vote for each share of common stock you own as of March 31, 2010.

What if I return a proxy card but do not make specific choices?

 

If you return a signed and dated proxy card without marking any voting selections, your shares will be voted as recommended by the Board of Directors. The Board of Directors unanimously recommends a vote:

 

1)  “FOR” the election of the three nominees for director;

 

 

If any other matter is properly presented at the Annual Meeting, your proxyholder (one of the individuals named on your proxy card) will vote your shares using his or her best judgment.

 

Who is paying for this proxy solicitation?

 

We will pay for the entire cost of soliciting proxies. In addition to these mailed proxy materials, our directors and employees may also solicit proxies in person, by telephone, or by other means of communication. Directors and employees will not be paid any additional compensation for soliciting proxies. We may also reimburse brokerage firms, banks and other agents for the cost of forwarding proxy materials to beneficial owners.

 

What does it mean if I receive more than one proxy card?

 

If you receive more than one proxy card, your shares are registered in more than one name or are registered in different accounts. Please complete, sign and return each proxy card to ensure that all of your shares are voted.

 

Can I change my vote after submitting my proxy?

 

Yes. You can revoke your proxy at any time before the final vote at the Annual Meeting. If you are the record holder of your shares, you may revoke your proxy in any one of four ways:

 

 

Your most current proxy card or telephone or Internet proxy is the one that is counted.

 

If your shares are held by your broker, bank or other agent, you should follow the instructions provided by that organization.

 

When are stockholder proposals due for next year’s Annual Meeting?

 

To be considered for inclusion in next year’s proxy materials, your proposal must be submitted in writing by December 17, 2010 (120 calendar days prior to the anniversary of the mailing date of this proxy statement), to our Corporate Secretary at 705 Fifth Avenue South, Suite 900, Seattle, Washington 98104. In addition, stockholder proposals must otherwise comply with the requirements of Rule 14a-8 of the Securities and Exchange Act of 1934, as amended.

 

A stockholder proposal or nomination for director that will not be included in next year’s proxy materials, but that a stockholder intends to present in person at next year’s Annual Meeting, must comply with the notice, information and

consent provisions contained in our Bylaws. In part, the Bylaws provide that to timely submit a proposal or nominate a director you must do so by submitting the proposal or nomination in writing to our Corporate Secretary at our principal executive offices no later than the close of business on February 18, 2011 (90 days prior to the first anniversary of the 2010 Annual Meeting Date) nor earlier than the close of business on January 19, 2011 (120 days prior to the first anniversary of the 2010 Annual Meeting date). In the event that we set an Annual Meeting date for 2011 that is not within 30 days before or after the anniversary of the 2010 Annual Meeting date, notice by the stockholder must be received no earlier than the close of business on the 120th day prior to the 2011 Annual Meeting and no later than the close of business on the later of the 90th day prior to the 2011 Annual Meeting or the 10th day following the day on which public announcement of the date of the 2011 Annual Meeting is first made. You are also advised to carefully review our Amended and Restated Bylaws, which contain additional requirements about advance notice of stockholder proposals and director nominations, including the submission of certain information with respect to proposed nominees and proponents of any stockholder proposals. You may obtain a copy of our Bylaws by mailing a request in writing to Blue Nile’s Corporate Secretary at 705 Fifth Avenue South, Suite 900, Seattle, Washington 98104.

 

How are votes counted?

 

Votes will be counted by the inspector of elections appointed for the Annual Meeting. With respect to the election of directors, the inspector of elections will count votes “For” and “Withheld.” The three directors who receive the greatest number of “For” votes (among votes properly cast in person or by proxy) will be elected to the Board of Directors. With respect to the ratification of the selection of an independent auditor for fiscal year 2010 and the approval of the Blue Nile Performance Bonus Plan, the inspector of elections will count votes cast “For” and “Against” the proposals, along with any abstentions. Abstentions from voting on the independent auditor proposal will be counted towards a quorum and will have the same effect as “Against” votes. Abstentions from voting on the Blue Nile Performance Bonus Plan proposal will be counted towards a quorum, but will not have any effect on whether or not the proposal is approved. The proposal to ratify the selection of the Company’s independent auditor for fiscal year 2010 will be approved if the holders of a majority of shares present and entitled to vote either in person or by proxy vote “For” the proposals. The proposal to approve our Blue Nile Performance Bonus Plan will be approved if the holders of a majority of the votes cast in person or by proxy and entitled to vote thereon vote “For” the proposal.

 

Will my shares be voted if I do not provide instructions to my broker?

 

If you have shares that are held by a broker, bank or other similar organization, you may give that organization voting instructions and it must vote as you directed. If you do not give instructions to the broker, the broker may vote the shares with respect to “routine” items, but will not be permitted to vote the shares with respect to “non-routine” items (resulting in a “broker non-vote”). The ratification of Deloitte & Touche LLP as independent auditor for the Company for fiscal year ending January 2, 2011, is considered a routine item. The election of directors and the approval of Blue Nile’s Performance Bonus Plan are considered non-routine items, and your broker may not vote using its discretion on these two matters. A “broker non-vote” occurs when you do not provide instructions to your broker as to how to vote on non-routine matters. Shares that constitute broker non-votes are not considered votes cast on the non-routine items, but are counted for quorum purposes.

 

How many votes are needed to approve each proposal?

 

What is the quorum requirement?

 

A quorum of stockholders is necessary to hold a valid Annual Meeting. A quorum will be present if stockholders holding at least a majority of the outstanding shares of stock entitled to vote are present at the Annual Meeting or represented by proxy. On the record date, there were 14,500,551 shares of common stock outstanding and entitled to vote. Thus, the holders of 7,250,276 shares of common stock must be present in person or represented by proxy at the Annual Meeting to have a quorum.

 

Your shares will be counted towards the quorum only if you submit a valid proxy (or one is submitted on your behalf by your broker, bank or other agent) or if you vote in person at the Annual Meeting. Abstentions and broker non-votes will be counted towards the quorum requirement. In the absence of a quorum, the Annual Meeting may be adjourned either by the Chairman of the meeting or by vote of the holders of a majority of shares present at the meeting in person or represented by proxy.

 

How can I find out the results of the voting at the Annual Meeting?

 

Preliminary voting results will be announced at the Annual Meeting. We will publish final voting results on a Form 8-K that we expect to file within four business days after our Annual Meeting. If final voting results are not available to us in time to file a Form 8-K within four business days after the meeting, we intend to file a Form 8-K to publish the preliminary results and, within four business days after the final results are known to us, file an additional Form 8-K to publish the final results.

 

Proposal 1

 

Election Of Directors

 

Our Board of Directors is divided into three classes. Each class consists, as nearly as possible, of one-third of the total number of directors, and each class has a three-year term. Vacancies on the Board of Directors may be filled only by persons elected by a majority of the remaining directors. A director elected by the Board of Directors to fill a vacancy in a class, including a vacancy created by an increase in the number of directors, shall serve for the remainder of the full term of that class and until the director’s successor is elected and qualified.

 

Our Board of Directors presently has eight members. There are three directors in the class whose terms of office expire in 2010, Diane Irvine, Leslie Lane and Ned Mansour. Ms. Irvine has served as a director since 2001 and was previously elected by the stockholders. Mr. Lane and Mr. Mansour were appointed by the Board of Directors in December 2008 and have not previously been subject to stockholder election. Mr. Lane was initially recommended to the Nominating and Corporate Governance Committee by our Executive Chairman, Mark Vadon, and Mr. Mansour was initially recommended to the Nominating and Corporate Governance Committee by Michael Potter, another member of our Board of Directors. On the recommendation of the Nominating and Corporate Governance Committee, the Board of Directors has nominated Diane Irvine, Leslie Lane and Ned Mansour to stand for election at the 2010 Annual Meeting. If elected at the 2010 Annual Meeting, Ms. Irvine, Mr. Lane and Mr. Mansour would serve until the 2013 Annual Meeting and until his or her successor is elected and qualified, or, if sooner, until the director’s death, resignation or removal. If elected, Mr. Lane and Mr. Mansour would be independent non-employee directors. If elected Ms. Irvine would not be considered an independent director because of her role as our President and Chief Executive Officer. It is our policy to invite and encourage directors and nominees for director to attend the Annual Meeting. Mr. Vadon and Ms. Irvine attended the 2009 Annual Meeting.

 

For the election of directors, the three nominees receiving the most “For” votes (among votes properly cast in person or by proxy) will be elected. Only votes “For” or “Withheld” will affect the outcome. Shares represented by executed proxies will be voted, if authority to do so is not withheld, for the election of the nominees named below. In the unexpected event that a nominee is unable or unwilling to serve as a nominee at the time of the Annual Meeting, the persons named as proxies may vote for a substitute nominee chosen by the Company. Alternatively, the Board of Directors may decide to reduce the size of the Board of Directors. Each person nominated for election has agreed to serve if elected, and we have no reason to believe that any nominee will be unable or unwilling to serve.

 

Below is a biography of each nominee and each director whose term will continue after the Annual Meeting. The biographies below include information, as of the date of this proxy statement, regarding specific and particular experience, qualifications, attributions or skills of each director that led the Nominating and Corporate Governance Committee to recommend the director nominees to the Board of Directors and to conclude that each of the other directors should continue to serve as members of our Board of Directors.

 

In addition to the individual information set forth below, all of our directors, including our nominees, must exemplify the highest levels of ethics and integrity, have a demonstrated willingness to devote sufficient time and energy to serving on our Board of Directors and Committees of the Board of Directors, and have a commitment to rigorously representing the long-term interests of our stockholders.

 

Nominees for Election for a Three-year Term Expiring at the 2013 Annual Meeting

 

Diane Irvine

Diane Irvine, age 51, has served as a director since May 2001, and has served as Blue Nile’s Chief Executive Officer since February 2008 and as President since February 2007. She served as the Company’s Chief Financial Officer from December 1999 to September 2007. From February 1994 to May 1999, Ms. Irvine served as Vice President and Chief Financial Officer of Plum Creek Timber Company, Inc., a timberland management and wood products company. From September 1981 to February 1994, Ms. Irvine served in various capacities, most recently as a partner, with Coopers and Lybrand LLP, an accounting firm. Ms. Irvine formerly served on the Board of Directors of Ticketmaster Entertainment, Inc., a live entertainment ticketing and marketing company, and Davidson Companies, an investment banking and asset management company. Ms. Irvine holds a B.S. in Accounting from Illinois State University and an M.S. in Taxation

from Golden Gate University. Ms. Irvine’s experience and tenure at Blue Nile provides the Board of Directors with critical insights into the Company’s day-to-day operations, organizational development and structure, and short and long-term strategic opportunities and challenges. Additionally, Ms. Irvine brings substantial leadership skills and financial expertise to the Board of Directors.

 

Leslie Lane

Leslie Lane, age 42, has served as a director since December 2008. Mr. Lane has served as Vice President and General Manager of Global Running for Nike, Inc., a leading designer, marketer and distributor of authentic athletic footwear, apparel, equipment and accessories, since October 2006. From March 2004 to October 2006, Lane served as the Director of Nike Global Footwear Finance and Strategic Planning and, from March 2003 to March 2004, he served as the Director of Nike Subsidiaries. From 1998 to 2002, Lane held various positions at Roll International Corporation, a private holding company, including serving as the Chief Operating Officer of PomWonderful LLC, the Chief Financial Officer of Paramount Citrus, and the Vice President of Strategy of Roll International Corporation. From 1990 to 1998, Lane was a consultant with Bain & Company. He holds an M.A. in Chemistry from Oxford University and an M.B.A. from Harvard University. Mr. Lane is a member of our Audit Committee and Nominating and Corporate Governance Committee. Mr. Lane has a strong background in building a customer-centric brand. His experience provides the Board of Directors with valuable insights into strategic branding and marketing opportunities both domestically and internationally. Further, Mr. Lane’s deep financial expertise and experience is valuable to the Board of Directors and the Audit Committee. Mr. Lane has been designated by our Board of Directors as an Audit Committee financial expert.

 

Ned Mansour

Ned Mansour, age 61, has served as a director since December 2008. Mr. Mansour served as President of Mattel, Inc., a worldwide leader in the design, manufacture and marketing of family products, until his retirement in March 2000. He joined Mattel in 1978 as a senior attorney and held numerous positions before becoming President, including President of Corporate Operations, President of Mattel USA, Chief Administrative Officer, and Executive Vice President and General Counsel. Mr. Mansour currently serves on the Board of Directors of the Ryland Group, one of the nation’s largest homebuilders. In addition, Mr. Mansour previously served as a member of the Board of Directors of Mattel and Big Lots, Inc., a Fortune 500 retailer. He holds a B.A. in Finance from the University of Southern California and a J.D. from the University of San Diego School of Law. Mr. Mansour serves on our Compensation Committee and our Nominating and Corporate Governance Committee. Mr. Mansour brings a wealth of experience in retail operations, international expansion, marketing, and corporate governance. Additionally, having served as a President of a large retailer and a director at several large companies, Mr. Mansour brings valuable executive leadership experience to the Board of Directors.

 

The Board Of Directors Unanimously Recommends

A Vote In Favor Of Each Named Nominee (Proposal 1).

 

Directors Continuing in Office Until the 2011 Annual Meeting

 

Mark Vadon

Mark Vadon, age 40, co-founded Blue Nile and has served as Chairman of the Board of Directors since its inception in March 1999. He has served as the Company’s Executive Chairman since February 2008 and served as the Company’s Chief Executive Officer from March 1999 to February 2008. From March 1999 to February 2007, Mr. Vadon was also Blue Nile’s President. From December 1992 to March 1999, Mr. Vadon was a consultant for Bain & Company, a management consulting firm. Mr. Vadon holds a B.A. in Social Studies from Harvard University and an M.B.A. from Stanford University. Mr. Vadon serves as our Chairman of the Board of Directors. Mr. Vadon founded Blue Nile over ten years ago and brings to the Board of Directors a deep understanding and expertise of the business and the strategic vision for the business. Further, Mr. Vadon’s experience and tenure both on the Board of Directors and at the Company provides the Board of Directors with critical leadership and institutional knowledge. Mr. Vadon’s expertise and experience with Blue Nile make him exceptionally well suited to serve as our Chairman of the Board of Directors.

Eric Carlborg

Eric Carlborg, age 46, has served as a director since February 2005. Since April 2006, Mr. Carlborg has served as a partner at Continental Investors LLC, an investment company. From September 2005 to March 2006, Mr. Carlborg served as Chief Financial Officer of ProvideCommerce, Inc., an e-commerce company. From July 2001 to October 2004, Mr. Carlborg was a Managing Director of Investment Banking with Merrill Lynch & Co., a financial services company. Prior to his tenure at Merrill Lynch, Mr. Carlborg served in various executive financial positions, including Chief Financial Officer at Authorize.net, Inc. and Chief Strategy Officer at Go2Net, Inc., providers of Internet products and services. Mr. Carlborg also previously served as Chief Financial Officer for Einstein/Noah Bagel Corp., a food service company. Mr. Carlborg previously served as a member of the Board of Directors of Big Lots, Inc., a Fortune 500 retailer. Mr. Carlborg holds a B.A. from the University of Illinois and an M.B.A. from the University of Chicago. Mr. Carlborg serves as the Chair of our Audit Committee. Mr. Carlborg’s extensive background in accounting and financial management is valuable to our Board of Directors and Audit Committee. Additionally, Mr. Carlborg has a deep understanding of our financials and our business, which make him an especially valuable and effective Audit Committee Chair. Mr. Carlborg has been designated by our Board of Directors as an Audit Committee financial expert.

 

Directors Continuing in Office Until the 2012 Annual Meeting

 

Mary Alice Taylor

Mary Alice Taylor, age 60, has served as a director since March 2000 and has served as Blue Nile’s lead independent director since 2004. Ms. Taylor has been an independent business executive since October 2000. She held a temporary assignment as Chairman and Chief Executive Officer of Webvan Group, Inc., an e-commerce company, from July 2001 to December 2001. Prior to that, she served as Chairman and Chief Executive Officer of HomeGrocer.com, an e-commerce company, from September 1999 until she completed a sale of the company to Webvan Group, Inc. in October 2000. From January 1997 to September 1999, Ms. Taylor served as Corporate Executive Vice President of Worldwide Operations and Technology for Citigroup, Inc., a financial services organization. Ms. Taylor also served as Senior Vice President of Federal Express Corporation, a delivery services company, from September 1991 until December 1996. Ms. Taylor also serves on the Board of Directors of Allstate Corporation, an insurance company. Ms. Taylor formerly served on the Board of Directors of Autodesk Inc., a design software company, and Sabre Holdings, an Internet travel services company. Ms. Taylor holds a B.S. in Finance from Mississippi State University. Ms. Taylor serves as our lead independent director and our Chair of the Nominating and Corporate Governance Committee. She also serves as a member of our Audit Committee. Ms. Taylor is a seasoned business leader and director. Her executive leadership experience, including her role as Chief Executive Officer, provides the Board of Directors with valuable operational, financial, and executive leadership skills. Her tenure and in-depth knowledge about our business make her exceptionally well suited to serve as our lead independent director. Ms. Taylor has been designated by our Board of Directors as an Audit Committee financial expert.

 

Michael Potter

Michael Potter, age 48, has served as a director since October 2007. Mr. Potter served as Chairman and Chief Executive Officer of Big Lots, Inc., a Fortune 500 retailer, from June 2000 to June 2005. Prior to serving as Chief Executive Officer, Mr. Potter served in various capacities at Big Lots, including the role of Chief Financial Officer. Prior to Big Lots, Mr. Potter held various positions at The Limited, Inc., May Department Stores, and Meier & Frank, all retail companies. Mr. Potter currently serves on the Board of Directors of Coldwater Creek, Inc., a triple channel retailer of women’s apparel, gifts and accessories, as well as Newegg, Inc., an online-only retailer specializing in high-tech products. Mr. Potter formerly served on the Board of Directors of Big Lots, Inc. Mr. Potter holds an M.B.A. from Capital University in Ohio and a B.S. in Finance and Management from the University of Oregon. Mr. Potter serves on our Audit Committee and Compensation Committee. Mr. Potter brings a wealth of retail experience to the Board of Directors. Additionally, his experience as a Chief Executive Officer and former director of a Fortune 500 retailer provides the Board of Directors with valuable leadership skills, operational experience, and strategic planning experience. His prior experience as a Chief Financial Officer also provides valuable financial expertise to the Board of Directors and to the Audit Committee. Mr. Potter has been designated by our Board of Directors as an Audit Committee financial expert.

 

Steve Scheid

Steve Scheid, age 56, has served as a director since October 2007. Mr. Scheid currently serves as Chairman of the Board of Janus Capital Group, Inc., an asset management company. From April 2004 until December 2005, Mr. Scheid served as Chief Executive Officer and Chairman of the Board of Janus. Mr. Scheid joined the Janus Board in December 2002 and was appointed Chairman in January 2004. Mr. Scheid served as Vice Chairman of The Charles Schwab Corporation and President of Schwab’s retail group from 2000 to 2002. Prior thereto, Mr. Scheid headed Schwab’s financial products

and services group and was the firm’s Chief Financial Officer from 1996 through 1999. From 2001 to 2002, Mr. Scheid served on the Federal Advisory Council, which provides oversight to the Federal Reserve Board in Washington, D.C. Mr. Scheid has served as a founding partner of Strategic Execution Group, LLC, a consulting firm, since April 2007. Mr. Scheid formerly served on the Board of Directors of PMI Group, Inc., an international provider of credit enhancement products and Autodesk, Inc., a design software company. Mr. Scheid holds a B.S. from Michigan State University. Mr. Scheid serves as the Chair of our Compensation Committee. Mr. Scheid has a deep expertise in finance, retail strategies, risk management and investment services. Additionally, he provides the Board of Directors with valuable executive leadership experience. Mr. Scheid has a deep understanding of and tremendous experience with executive compensation packages making him an exceptionally valuable and effective Compensation Committee Chair.

 

Independence of The Board of Directors

 

As required under the NASDAQ Stock Market LLC (“Nasdaq”) listing standards, a majority of the members of a listed company’s Board of Directors must qualify as “independent,” as affirmatively determined by the Board of Directors. Our Board of Directors consults with our legal counsel to ensure that the Board of Directors’ determinations are consistent with all relevant securities and other laws and regulations regarding the definition of “independent,” including those set forth in pertinent listing standards of Nasdaq, as in effect, from time to time.

 

Consistent with these considerations, after reviewing all relevant transactions and relationships between each director, or any of his or her family members, and the Company, our senior management and our independent auditor, the Board of Directors affirmatively determined that the following six directors are independent directors within the meaning of the applicable Nasdaq listing standards: Mary Alice Taylor, Eric Carlborg, Leslie Lane, Ned Mansour, Michael Potter, and Steve Scheid. In making this determination, the Board of Directors found that none of these directors had a material or other disqualifying relationship with us. Mr. Vadon, our Executive Chairman, and Ms. Irvine, our Chief Executive Officer and President, are not independent directors by virtue of their employment with us.

 

The Board of Directors’ Role in Risk Oversight

 

There are risks inherent in every business and our Board of Directors has oversight over how we manage the risks associated with our business. Our Board of Directors has delegated to the Audit Committee the primary responsibility for the oversight of our risks. The Audit Committee Chair reports to the full Board of Directors the process the Audit Committee and management went through to fulfill its oversight responsibilities and the results from the process. The Audit Committee’s Charter provides, in relevant part, that it will review and discuss with management and with our independent auditors, as appropriate, our guidelines and policies with respect to risk assessment and risk management, including our major financial risk exposures and the steps taken by management to monitor and control these exposures.

 

At least annually, the Audit Committee evaluates our risks and the management of our risks. In 2009, management presented to the Audit Committee the Company’s Enterprise Risk Management assessment tool. In connection with its review, the Audit Committee went through the risks identified by management, the process management used to identify and rate risks, the mitigation strategies for each of the material risks, and the relevant action items. The Chair of the Audit Committee then reported to the Board of Directors the process it and management went through and discussed the material findings from the review. The Board of Directors believes that the process that it goes through to oversee the management of risks allows it to understand the critical risks facing the business, evaluate our risk management process and ensure that they are functioning adequately, and foster a culture of risk awareness.

 

Meetings of the Board of Directors

 

The Board of Directors met four times during fiscal year 2009. Each Board member attended 75% or more of the aggregate of the meetings of the Board of Directors and meetings of the committees on which he or she served, held during the period for which he or she was a director or committee member.

 

As required under applicable Nasdaq listing standards, in fiscal year 2009, our independent directors met four times in regularly scheduled executive sessions at which only independent directors were present. The lead independent director, Mary Alice Taylor, presided over the executive sessions. Persons interested in communicating with the independent directors with their concerns or issues may address correspondence to a particular director or to the independent directors generally, in care of Blue Nile’s Corporate Secretary at 705 Fifth Avenue South, Suite 900, Seattle,

Washington 98104. If no particular director is named, letters will be forwarded, depending on the subject matter, to the Chair of the Audit Committee, Compensation Committee or Nominating and Corporate Governance Committee, as applicable.

 

Information Regarding the Board of Directors and its Committees

 

In April 2004, our Board of Directors documented the governance practices followed by us and our Board of Directors by adopting the Corporate Governance Policies of the Board of Directors (the “Governance Policies”). The Governance Policies provide the Board of Directors with the necessary authority to review and evaluate our business operations, as needed, and they are designed to facilitate the Board of Directors’ independent decision making authority. The Governance Policies are intended to align the interests of directors and management with those of our stockholders. The Governance Policies, among other things, set forth the practices the Board of Directors will follow with respect to the selection of directors, the independence of the directors, meetings of the Board of Directors, committees of the Board of Directors, and the responsibilities of the Board of Directors. The Governance Policies were adopted to, among other things, reflect changes to the Nasdaq listing standards and Securities and Exchange Commission rules adopted to implement provisions of the Sarbanes-Oxley Act of 2002. The Corporate Governance Policies of the Board of Directors, as well as the charters for each committee of the Board of Directors, may be viewed on our website at www.bluenile.com in the corporate governance section of our investor relations page.

 

Leadership Structure. The Board of Directors does not have a policy on whether the role of the Chairman and Chief Executive Officer should be separate, but currently our former Chief Executive Officer, Mr. Vadon, is serving as our Chairman. The role of the Chairman and Chief Executive Officer became separate in February 2008, when Mr. Vadon transitioned from our Chief Executive Officer to our Executive Chairman. The Board of Directors believes that this leadership structure is appropriate at this time as it allows our Chief Executive Officer, Ms. Irvine, to focus on her management responsibilities. Additionally, the Board of Directors believes that Mr. Vadon’s role as the Chairman of the Board is appropriate given his responsibilities over the long-term strategic objectives of the Company. Mr. Vadon is not considered an independent director. Our Governance Policies provide that to the extent that there is not an independent Chairman, the Board of Directors will designate an independent director to serve as lead independent director. The Board of Directors has designated Ms. Taylor to serve as our lead independent director. She has served in this capacity since 2004. Pursuant to our Governance Policies, except to the extent otherwise deemed appropriate by the Board of the Directors, the lead director has the following responsibilities: (i) in conjunction with the Chief Executive Officer, establish any agenda for meetings of the independent directors, (ii) preside over the meetings of the independent directors, and (iii) coordinate the activities of the other independent directors and to perform various other duties. Typically, there is a meeting of the independent directors in conjunction with every meeting of the Board of Directors and in 2009 each meeting of the Board of Directors included a non-management executive session. This allows the directors to speak candidly on any matter of interest, without the Executive Chairman, Chief Executive Officer, or any other members of management present.

 

Committees. The Board of Directors has three standing committees: an Audit Committee, a Compensation Committee and a Nominating and Corporate Governance Committee. The following table provides membership and meeting information for fiscal year 2009 for each of the committees of the Board of Directors:

 

Below is a description of each committee of the Board of Directors. Each committee has authority to engage legal counsel or other experts or consultants, as it deems appropriate, to carry out its responsibilities. The Board of Directors has determined that each member of each committee meets the applicable rules and regulations regarding “independence” and that each member is free of any relationship that would interfere with his or her individual exercise of independent judgment.

 

Audit Committee

 

The Audit Committee of the Board of Directors oversees our corporate accounting and financial reporting processes and audits of our financial statements. For this purpose, the Audit Committee performs functions, including, among other things:

 

 

Four directors comprise the Audit Committee: Mr. Carlborg (Chairman), Mr. Lane, Mr. Potter and Ms. Taylor. The Audit Committee met nine times during fiscal year 2009. The Audit Committee has adopted a written charter that is available on our website, www.bluenile.com, in the corporate governance section of our investor relations page.

 

Our Board of Directors annually reviews the Nasdaq listing standards definition of independence for Audit Committee members and has determined that all members of our Audit Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaq listing standards). The Board of Directors has also determined that each of Mr. Carlborg, Mr. Lane, Mr. Potter, and Ms. Taylor, qualifies as an “audit committee financial expert,” as defined in applicable Securities and Exchange Commission rules. In making this determination, the Board of Directors made a qualitative assessment of Mr. Carlborg, Mr. Lane, Mr. Potter and Ms. Taylor’s level of knowledge and experience based on a number of factors, including their respective formal education, experience, business acumen and independence.

Audit Committee Report⁽¹⁾

 

The Audit Committee reviewed and discussed the audited financial statements for fiscal year 2009 with management of Blue Nile. The Audit Committee has also discussed with Blue Nile’s independent registered public accounting firm the matters required to be discussed by the Statement on Auditing Standards No. 61, as amended (AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T. The Audit Committee has also received the written disclosures and the letter from Blue Nile’s independent registered public accounting firm required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence, and has discussed with Blue Nile’s independent registered public accounting firm’s independence. Based on the foregoing, the Audit Committee has recommended to the Board of Directors that the audited financial statements be included in Blue Nile’s Annual Report on Form 10-K for the fiscal year ended January 3, 2010.

 

Date: April 16, 2010

 

Respectfully submitted,

 

Eric Carlborg, Chairman
Leslie Lane
Michael Potter
Mary Alice Taylor

 

 

Compensation Committee

 

The Compensation Committee acts on behalf of the Board of Directors to review, adopt, and oversee our compensation strategy, policies, plans and programs, including:

 

 

The Compensation Committee also reviews with management our Compensation Discussion and Analysis and considers whether to recommend that it be included in our Proxy Statement.

 

Three directors comprise the Compensation Committee: Mr. Scheid (Chairman), Mr. Mansour and Mr. Potter. Our Board of Directors has determined that all of the members of the Compensation Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaq listing standards). The Compensation Committee met ten times during fiscal year 2009. The Compensation Committee has adopted a written Compensation Committee charter that is available on our website, www.bluenile.com, in the corporate governance section of our investor relations page.

 

The agenda for each Compensation Committee meeting is generally developed by the Chair of the Compensation Committee, in consultation with the Chief Executive Officer, the Executive Chairman, and the General Counsel, as appropriate. The Compensation Committee meets regularly in executive session. From time to time, various members of management as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, provide financial or other background information or advice, or otherwise participate in the Compensation Committee meetings. The charter of the Compensation Committee grants the Compensation Committee full access to all of our books, records, facilities and personnel, as well as authority to obtain, at our expense, advice and assistance from internal and external legal, accounting, or other advisors and consultants and other external resources that the Compensation Committee considers necessary or appropriate in the performance of its duties. In particular, the Compensation Committee has the sole authority to retain compensation consultants to assist it in its evaluation of executive and director compensation, including the authority to approve the consultant’s reasonable fees and other retention terms.

 

Under its charter, the Compensation Committee may form, and delegate authority to, subcommittees, as appropriate. In 2004, the Compensation Committee formed the Stock Award Committee. Four executives comprise the Stock Award Committee: Ms. Irvine, our Chief Executive Officer, Mr. Vadon, our Executive Chairman, Marc Stolzman, our Chief Financial Officer, and Lauren Neiswender, our General Counsel. The Compensation Committee delegated authority to grant within ranges approved by the Compensation Committee: (1) stock options to newly hired non-executive employees, and (2) merit awards to existing non-executive employees at such times as are specifically authorized. The purpose of this delegation of authority is to enhance the flexibility of option administration within the Company and to facilitate the timely grant of options to non-executive employees within specified limits approved by the Compensation Committee.

 

Compensation Committee Interlocks and Insider Participation

 

None of the Compensation Committee’s members has at any time been an officer or employee of Blue Nile. None of our executive officers serve, or in the past fiscal year has served, as a member of the Board of Directors or Compensation Committee of any entity that has one or more of its executive officers serving on our Board of Directors or Compensation Committee. None of the Compensation Committee’s members is or was a participant in a “related person transaction” in the past fiscal year (see “Transactions with Related Persons” included herein for a description of our policy on related person transactions).

Nominating and Corporate Governance Committee

 

The Nominating and Corporate Governance Committee of the Board of Directors is responsible for, among other things:

 

 

Three directors comprise the Nominating and Corporate Governance Committee: Ms. Taylor (Chairwoman), Mr. Lane and Mr. Mansour. All members of the Nominating and Corporate Governance Committee are independent (as independence is currently defined in Rule 5605(a)(2) of the Nasdaq listing standards). The Nominating and Corporate Governance Committee met four times during fiscal year 2009. The Nominating and Corporate Governance Committee has adopted a written charter that is available on our website, www.bluenile.com, in the corporate governance section of our investor relations page.

 

Criteria for Nominees.  The Nominating and Corporate Governance Committee reviews the experience and characteristics appropriate for members of the Board of Directors and director nominees in light of the Board of Directors’ composition at the time, and skills and expertise needed at the Board of Directors and committee levels. The Nominating and Corporate Governance Committee also considers such factors as possessing relevant expertise upon which to be able to offer advice and guidance to management, having sufficient time to devote to our affairs, demonstrated excellence in his or her field, having the ability to exercise sound business judgment and having the commitment to rigorously represent the long-term interests of our stockholders. However, the Nominating and Corporate Governance Committee retains the right to modify these qualifications from time to time. In the case of incumbent directors whose terms of office are set to expire, the Nominating and Corporate Governance Committee reviews such directors’ overall service to us during their term, including the number of meetings attended, level of participation, quality of performance and any other relationships and transactions that might impair such directors’ independence. In the case of new director candidates, the Nominating and Corporate Governance Committee also determines whether the nominee must be “independent” under Nasdaq listing standards, applicable Securities and Exchange Commission rules and regulations and the advice of counsel, if necessary. The Nominating and Corporate Governance Committee uses its network of contacts to compile a list of potential candidates, but may also engage, if it deems appropriate, a professional search firm. The Nominating and Corporate Governance Committee conducts any appropriate and necessary inquiries into the backgrounds and qualifications of possible nominees after considering the

function and needs of the Board of Directors. The Nominating and Corporate Governance Committee meets to discuss and consider the nominees and then selects a nominee or nominees for recommendation to the Board of Directors by majority vote.

 

To date, the Nominating and Corporate Governance Committee has not paid a fee to any third party to assist in the process of identifying or evaluating director nominees. To date, the Nominating and Corporate Governance Committee has not received a timely recommendation for a director nominee from a stockholder or stockholders holding more than 5% of our voting stock.

 

The Nominating and Corporate Governance Committee will consider properly submitted director nominees recommended by stockholders. The Nominating and Corporate Governance Committee does not intend to alter the manner in which it evaluates nominees based on whether or not the nominee was recommended by a stockholder. Stockholders who wish to recommend individuals for consideration by the Nominating and Corporate Governance Committee to become nominees for election to the Board of Directors may do so by delivering a written recommendation to the Nominating and Corporate Governance Committee at the following address: 705 Fifth Avenue South, Suite 900, Seattle, Washington 98104, Attention: Corporate Secretary, at least 120 days prior to the anniversary date of the mailing of our proxy statement for the last Annual Meeting of Stockholders. Our Bylaws contain other specific requirements to properly submit a director nomination to the Company’s stockholders. A recommendation of a nominee to the Nominating and Corporate Governance Committee shall not be deemed to satisfy the nomination requirements set forth in our Bylaws.

 

Diversity.  While the Nominating and Corporate Governance Committee does not have a formal diversity policy for Board membership, the Committee seeks directors who represent a mix of backgrounds and experiences that will enhance the quality of the Board’s deliberations and decisions. The Nominating and Corporate Governance Committee identifies qualified potential candidates without regard to any candidate’s race, color, disability, gender, national origin, religion or creed. As part of the process of identifying candidates, the Nominating and Corporate Governance Committee evaluates how a particular candidate would strengthen and increase the diversity of the Board in terms of that candidate’s possible contribution to the Board of Directors’ overall balance of perspectives, backgrounds, knowledge, experience, skill sets and expertise in substantive matters pertaining to our business.

 

Stockholder Communications With The Board Of Directors

 

Our Board of Directors has adopted a formal process by which stockholders may communicate with the Board of Directors or any of our individual directors. Stockholders who wish to communicate with the Board of Directors may do so by sending written communications addressed to the Corporate Secretary of Blue Nile at 705 Fifth Avenue South, Suite 900, Seattle, Washington 98104. All communications will be compiled by our Corporate Secretary and submitted to the Board of Directors or the individual directors, as applicable, on a periodic basis.

 

Code Of Ethics

 

We have adopted the Blue Nile, Inc. Code of Ethics that applies to all officers, directors and employees, including our principal executive officer, principal financial officer, principal accounting officer and controller, or persons performing similar functions. The Code of Ethics is available on our website at www.bluenile.com in the corporate governance section of our investor relations page. If we make any substantive amendments to the Code of Ethics or grant any waiver from a provision of the Code of Ethics to any executive officer or director, we will promptly disclose the nature of the amendment or waiver on our website and file a Current Report on Form 8-K to the extent required by law and the Nasdaq listing standards.

 

Proposal 2

 

Ratification Of Selection Of Independent Auditor

 

The Audit Committee of the Board of Directors has selected Deloitte & Touche LLP as independent auditor for the Company for fiscal year ending January 2, 2011 and has further directed that management submit the selection of the independent auditor for ratification by the stockholders at the Annual Meeting. Deloitte & Touche LLP has served as our independent auditor since 2006. Representatives of Deloitte & Touche LLP are expected to be present at the Annual Meeting. They will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

 

Neither our Bylaws nor other governing documents or law require stockholder ratification of the selection of Deloitte & Touche LLP as independent auditor for the Company. The Audit Committee, however, is submitting the selection of Deloitte & Touche LLP to the stockholders for ratification as a matter of good corporate practice. If the stockholders fail to ratify the selection, the Audit Committee will reconsider whether or not to retain that firm. Even if the selection is ratified, the Audit Committee in its discretion may direct the appointment of a different independent auditor at any time during the year if they determine that such a change would be in the best interest of the Company and its stockholders.

 

The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the Annual Meeting will be required to ratify the selection of Deloitte & Touche LLP. Abstentions will have the same effect as a vote against this proposal.

 

Principal Accountant Fees and Services

 

The following table represents aggregate fees billed to us for the fiscal years ended January 3, 2010 and January 4, 2009 by Deloitte & Touche LLP, the Company’s principal accountant for each of these fiscal years. All fees described below were approved by the Audit Committee.

 

 

 

Pre-Approval Policies and Procedures

 

The Audit Committee has adopted policies and procedures for the pre-approval of audit and non-audit services rendered by our independent auditor. These policies generally provide for the pre-approval of specified services in the defined categories of audit services, audit-related services, and tax services up to specified amounts. Pre-approval may also be given as part of the Audit Committee’s approval of the scope of the engagement of the independent auditor or on an individual explicit case-by-case basis before the independent auditor is engaged to provide each service. The pre-

approval of services may be delegated to one or more of the Audit Committee’s members, but the decision must be reported to and ratified by the full Audit Committee at its next scheduled meeting. As such, the engagement of Deloitte & Touche LLP to render all of the services described in the categories above was approved by the Audit Committee in advance of rendering those services or approved by a delegate and subsequently ratified by the Audit Committee at its next scheduled meeting.

 

The Audit Committee has determined that the rendering of services other than audit services by Deloitte & Touche LLP is compatible with maintaining the principal accountant’s independence.

 

The Board Of Directors Unanimously Recommends

A Vote In Favor Of Proposal 2.

 

Proposal 3

 

Approval Of Blue Nile Performance Bonus Plan

 

The Board of Directors recommends that our stockholders approve the terms of the Blue Nile Performance Bonus Plan (referred to as the “Bonus Plan”) for purposes of satisfying the requirements for deductibility of compensation under Section 162(m) of the Internal Revenue Code of 1986, as amended (referred to as the “Code”).

 

Our Board of Directors adopted the Bonus Plan on February 9, 2010, subject to stockholder approval. The Bonus Plan was adopted in order to allow the maximum deductibility of the compensation that may be payable under our cash incentive programs to certain of our executive officers and other key employees. The Committee believes that the Bonus Plan is an important part of our overall compensation strategy, allowing us to offer meaningful, performance-based cash incentives that we believe are necessary to attract and retain key employees who are in a position to help us achieve our strategic goals, while balancing the Company’s interests in having fully deductible compensation. Set forth below is a summary of the principal features of the Bonus Plan. This summary is qualified in its entirety by reference to the terms of the Bonus Plan, a copy of which is included in this proxy statement as Appendix A.

 

Vote Required and Board Recommendation

 

The affirmative vote of the holders of a majority of the votes cast in person or by proxy and entitled to vote at the meeting will be required to approve the Bonus Plan. Abstentions will not have any effect on the outcome of this proposal.

 

THE BOARD UNANIMOUSLY RECOMMENDS A VOTE “FOR” THIS PROPOSAL

 

Description of the Bonus Plan

 

Introduction.  Generally, Section 162(m) limits the deduction that a publicly-held company may take on compensation paid in any given taxable year to the company’s principal executive officer and those executives whose total compensation for a taxable year is required to be reported to stockholders under the Securities and Exchange Act of 1934, as amended, for being among the three highest compensated officers of the company (“Covered Employees”) to $1,000,000 per person. However, the $1,000,000 cap on deductibility does not apply if such additional payments constitute “performance-based compensation” — that is, compensation payable solely on account of the attainment of one or more performance goals. Section 162(m) sets forth a number of requirements to qualify compensation as “performance-based compensation.” One requirement for compensation to be performance-based under Section 162(m) is that we obtain stockholder approval of the material terms that apply to the payment of such compensation. Material terms include: (1) the description of the employees eligible to earn compensation under the Bonus Plan, (2) a description of the business criteria on which the performance goals may be based, and (3) the maximum amount of compensation that could be paid to any individual participant in a specified period under the Bonus Plan if the performance goal is achieved. If stockholders fail to approve the Bonus Plan at this meeting, no awards will be earned or paid under the Bonus Plan in respect of fiscal year 2010 performance. However, the Committee retains the authority to develop and implement alternate means of fairly compensating Covered Employees in a manner that is consistent with the requirements of Section 162(m).

 

Overview of Bonus Plan Awards.  The Bonus Plan provides cash bonus opportunities for our key employees that are intended to comply with Section 162(m)’s performance-based compensation exception. If approved by stockholders, the first awards under the Bonus Plan will be paid based on performance in the Company’s 2010 fiscal year.

 

Administration.  The Bonus Plan will be administered by the Compensation Committee or a subcommittee thereof. References in this proposal to the Compensation Committee will mean the Compensation Committee or the subcommittee, as applicable. The Compensation Committee will, with respect to payments under the Bonus Plan intended to qualify as performance-based compensation under Section 162(m), consist solely of two or more members of the Board of Directors who are not employees of the Company and who otherwise qualify as “outside directors” within the meaning of

Section 162(m). The Compensation Committee’s powers include the authority, within the limitations set forth in the Bonus Plan, to select the persons to be granted awards, to establish performance goals for each participant, to certify performance against such performance goals, to construe and interpret the Bonus Plan, and to make reasonable rules and regulations for the administration of the Bonus Plan. Subject to the requirements for qualifying compensation as performance-based compensation under Section 162(m), the Compensation Committee may delegate specific administrative tasks to Company employees or others as appropriate for proper administration of the Bonus Plan.

 

Eligibility to Receive Awards.  The Compensation Committee may select for eligibility those Company employees who are executive officers and key employees whose efforts are anticipated to contribute materially to the success of the Company. Unless specifically determined otherwise by the Compensation Committee, and then only to the extent consistent with deductibility of performance-based compensation under Section 162(m), a participant must be actively employed on the last day of the performance period to be eligible to receive a payment under the Bonus Plan.

 

The number of eligible employees is neither fixed nor predetermined. Accordingly, it is not possible to anticipate the exact number of individuals who will be eligible for grants under the Bonus Plan during the life of the Bonus Plan. However, for the 2010 fiscal year, there are approximately ten employees who are eligible for bonuses under the Bonus Plan.

 

Determination of Awards.  Under the Bonus Plan, participants are eligible to earn bonus payments based upon the attainment and certification of certain objective performance criteria established by the Compensation Committee. As determined by the Compensation Committee, the performance goals applicable to a bonus award may include one or more of the following measures: (a) growth in revenue; (b) growth in the market price of stock; (c) operating margin; (d) gross margin; (e) operating income; (f) pre-tax profit; (g) earnings before interest, taxes and depreciation; (h) earnings before interest, taxes, depreciation and amortization; (i) net income; (j) total stockholder return; (k) earnings per share; (l) return on stockholder equity; (m) return on net assets; (n) expenses; (o) return on capital; (p) economic value added; (q) market share; (r) operating cash flow or free cash flow (defined as operating cash flow minus capital expenditures); (s) cash flow, as indicated by book earnings before interest, taxes, depreciation and amortization; (t) cash flow per share (operating cash flow or free cash flow); (u) customer satisfaction; (v) implementation or completion of projects or processes; (w) improvement in or attainment of working capital levels; (x) stockholders’ equity; (y) internal improvements; (z) business development metrics; (aa) culture, development, leadership and/or employee metrics; (bb) innovation; and/or (cc) other measures of performance selected by the Committee, in each case, to the degree such measure is used in a manner consistent with the requirements of Section 162(m).

 

The performance goals may be based on absolute target numbers or growth in one or more such categories compared to a prior period. The performance goals may relate to the Company, one or more of its divisions or units, or departments or functions, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies, indices, prior periods, or any combination thereof, all as the Committee will determine. In addition, to the degree consistent with Section 162(m), in establishing the performance goals, the Committee may provide that the attainment of the performance goals will be measured by appropriately adjusting the evaluation of performance goal performance as follows: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting principles required by the Financial Accounting Standards Board; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; (v) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles; (vi) to exclude any other unusual, non-recurring gain or loss or other extraordinary item; (vii) to exclude the effects of stock based compensation and/or the payment of the bonuses under the Bonus Plan and/or any other bonus plans of the Company; (viii) to respond to, or in anticipation of, any unusual or extraordinary corporate item, transaction, event or development; (ix) to respond to, or in anticipation of, changes in applicable laws, regulations, accounting principles, or business conditions; (x) to exclude the dilutive effects of acquisitions or joint ventures; (xi) to assume that any business divested by the Company achieved performance objectives at targeted levels during the balance of a performance period following such divestiture; (xii) to exclude or include the effect of any change in the outstanding shares of common stock of the Company by reason of any stock dividend or split, stock repurchase, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of shares or other similar corporate change, or any distributions to common stockholders other than regular cash dividends; (xiii) to reflect a corporate transaction, such as a merger, consolidation, separation (including a spinoff or other distribution of stock or property by a corporation), or reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code); and (xiv) to reflect any partial or complete corporate liquidation. The performance goals, and the manner of calculating such goals, may differ from participant to participant.

Payment of Awards.  Awards will generally be paid in cash. However, the Committee may decide that awards will be paid in shares of common stock that will be issued under the Company’s 2004 Equity Incentive Plan or any other compensatory stock plan that may be approved by the Company’s stockholders from time to time. Payment will be made as soon as is practicable following the determination and certification of performance achieved, but generally no later than two-and-one-half months after the end of the year in which the bonus was earned. The Committee may, however, defer payment of awards in its discretion, as necessary or desirable to preserve the deductibility of such awards under Section 162(m) of the Code. The Committee may also permit a participant to defer receipt of the cash payment that would otherwise be delivered to a participant under the Bonus Plan, subject to such rules and procedures as determined by the Committee in its sole discretion.

 

Maximum Award.  The maximum award that may be earned under the Bonus Plan by a participant for a given performance period may be (but is not required to be) expressed as a percentage of the participant’s base salary, a specific dollar amount, or a specific number of shares of the Company’s common stock, as determined by the Compensation Committee in accordance with the Bonus Plan. In no event may the maximum award payable in cash, as to any participant for any performance period, exceed $3 million multiplied by the number of complete fiscal years contained within the performance period. In addition, in no event may the maximum award payable in shares under this Bonus Plan, as to any participant for any performance period, exceed 300,000 shares of the Company’s common stock multiplied by the number of complete fiscal years contained within the performance period. This maximum share limit under this Bonus Plan in no way amends or limits the maximum award size established under the Company’s 2004 Equity Incentive Plan, although any shares paid under this Bonus Plan from the share reserve of the 2004 Equity Incentive Plan (or any other stockholder approved equity plan) will count against the maximum award limit established under the Company’s 2004 Equity Incentive Plan (or any other stockholder approved equity plan, as applicable) for the applicable period. A participant may be awarded, and may earn, both a maximum award payable in cash and a maximum award payable in shares for the same performance period.

 

Amendment and Termination.  The Committee may amend, suspend or terminate the Bonus Plan in whole or in part at any time, including the adoption of amendments deemed necessary or desirable to correct any defect or supply omitted data or reconcile any inconsistency in the Bonus Plan or in any award granted thereunder. The Committee may amend or modify the Bonus Plan in any respect, or terminate the Bonus Plan, without the consent of any affected participant. However, in no event may such amendment, alteration, suspension or discontinuation be made which would (i) increase the amount of compensation payable pursuant to a bonus award, except in connection with any increases in base salary in accordance with Section 162(m) or (ii) cause compensation that is, or may become, payable under the Bonus Plan to fail to qualify as performance-based compensation.

 

Effective Date; Termination Date.  The Bonus Plan is effective as of the date first approved by the Board of Directors, that is, February 9, 2010 (the “Effective Date”), subject to approval by the Company’s stockholders at this meeting. If approved by the Company’s stockholders at this meeting, the Bonus Plan will continue until the earlier of (a) the date as of which the Committee terminates the Bonus Plan and (b) the last day of the Company’s fiscal year ending in 2014 (provided that bonus awards, if any, for such fiscal year will be paid in accordance with the terms of the Bonus Plan) unless the Bonus Plan again will be approved by the Company’s stockholders.

 

Indemnification.  Our Board of Directors and the Committee are generally indemnified by the Company for any liability arising from claims relating to the Bonus Plan.

 

Federal Tax Consequences.  The information set forth below is a summary only and does not purport to be complete. The information is based upon current federal income tax rules and therefore is subject to change when those rules change. Because the tax consequences to any recipient may depend on his or her particular situation, each Bonus Plan participant should consult his or her tax adviser regarding the federal, state, local, and other tax consequences of his or her award. Our ability to realize the benefit of any tax deductions described below depends on our generation of taxable income, as well as the requirement of reasonableness, the provisions of Section 162(m) of the Code and the satisfaction of our tax reporting obligations.

 

In general, the grant of an award opportunity under the Bonus Plan will have no federal income tax consequences. The payment of the award, whether in cash or shares of our common stock, will generally be taxable to a participant as ordinary income in the year paid. We will generally be entitled to a tax deduction equal to the taxable ordinary income realized by the Bonus Plan participant. The Company will withhold from any payments under the Bonus Plan and from any other amounts payable to a participant by the Company any amount required to satisfy the income and employment tax withholding obligations arising under applicable federal and state laws in respect of a bonus award.

For awards paid in shares of our common stock, the amount subject to ordinary income in the year paid is determined by multiplying the number of shares received by the fair market value of the Company’s common stock on the date of payment, less any purchase price paid for the shares. Upon the subsequent sale or disposition of such shares, the participant would recognize gain or loss, if any, on the difference between the fair market value of the shares on the date the award is paid (less any purchase price paid), and the fair market value of the shares on the date of the subsequent sale or disposition. For a sale of shares that occurs more than one year after the date the award is paid, such gain or loss would be federal long-term capital gain or loss. Otherwise, the gain or loss would be treated as short-term capital gain or loss.

 

The payment of a cash award may be deferred by the participant if such deferral is permitted under a deferral plan or arrangement approved by us in a manner that complies with Section 409A of the Code. In the absence of any such permitted deferral, we intend for all payments under the Bonus Plan to be exempt from the rules for deferred compensation that are set forth in Section 409A of the Code.

 

New Plan Benefits.  The Company cannot determine at this time the actual awards that will be paid under the Bonus Plan over the life of the Bonus Plan, as awards will depend upon the individuals selected for participation in any given year, the bonus amounts that may be earned by them as determined by the Committee in any given year, whether such awards may be paid in cash or shares of common stock, and the Company’s actual performance against the performance goals selected by the Compensation Committee for the given year.

 

However, the table below sets forth certain information regarding the maximum bonus awards that may be earned for performance in the fiscal year ending January 2, 2011 under the Bonus Plan by: (i) our current Named Executive Officers (currently 5 people); (ii) all current executive officers as a group (currently 7 people); (iii) all current directors who are not executive officers as a group (currently 6 people, although none are eligible to receive awards under the Bonus Plan); and (iv) all employees, other than executive officers, as a group (as of January 3, 2010, there were 183 full-time employees, five part-time employees and one independent contractor; three full-time employees have been selected as participants for fiscal year 2010). Bonus awards for this fiscal year are denominated in cash.

 

 

 

 

The Board Of Directors Unanimously Recommends

A Vote In Favor Of This Proposal 3.

 

Security Ownership of
Certain Beneficial Owners And Management

 

The following table sets forth certain information regarding the ownership of our common stock as of March 12, 2010, except as otherwise indicated, by: (i) each director and nominee for director; (ii) each of our named executive officers (as defined herein); (iii) all of our executive officers, directors and nominees for director as a group; and (iv) all those known by us to be beneficial owners of more than five percent of our common stock. Unless otherwise noted below, the address of each beneficial owner listed in the table is c/o Blue Nile, 705 Fifth Avenue South, Suite 900, Seattle, Washington 98104.

 

 

 

* Less than one percent.

 

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers, and persons who own more than ten percent of a registered class of our equity securities, to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of our common stock and other equity securities. Officers, directors and greater than ten percent stockholders are required by Securities and Exchange Commission regulation to furnish us with copies of all Section 16(a) forms they file.

 

To our knowledge, based solely on a review of the copies of such reports furnished to us and written representations that no other reports were required, during the fiscal year ended January 3, 2010, all Section 16(a) filing requirements applicable to our officers, directors and greater than ten percent beneficial owners were complied with, except as set forth below.

 

Due to an administrative error by the Company, a Form 4 filed on February 11, 2005 and a Form 4 filed on December 16, 2004 each understated the number of shares sold by Ms. Irvine by 80 shares. An amendment to these two Form 4s was filed on April 10, 2009 to correct these errors. Additionally during fiscal year 2009, due to an administrative error by the Company, Ms. Taylor, Mr. Scheid, Mr. Lane and Mr. Potter each reported one transaction late on a Form 4 filed on June 8, 2009.

 

Executive Officers

 

Set forth below is information regarding our executive officers as of March 12, 2010.

 

 

Diane Irvine has served as a director since May 2001, and has served as Blue Nile’s Chief Executive Officer since February 2008 and as President since February 2007. She served as the Company’s Chief Financial Officer from December 1999 to September 2007. From February 1994 to May 1999, Ms. Irvine served as Vice President and Chief Financial Officer of Plum Creek Timber Company, Inc., a timberland management and wood products company. From September 1981 to February 1994, Ms. Irvine served in various capacities, most recently as a partner, with Coopers and Lybrand LLP, an accounting firm. Ms. Irvine formerly served on the Board of Directors of Ticketmaster Entertainment, Inc., a live entertainment ticketing and marketing company, and Davidson Companies, an investment banking and asset management company. Ms. Irvine holds a B.S. in Accounting from Illinois State University and an M.S. in Taxation from Golden Gate University.

 

Mark Vadon co-founded Blue Nile and has served as Chairman of the Board of Directors since its inception in March 1999. He has served as the Company’s Executive Chairman since February 2008 and served as the Company’s Chief Executive Officer from March 1999 to February 2008. From March 1999 to February 2007, Mr. Vadon was also Blue Nile’s President. From December 1992 to March 1999, Mr. Vadon was a consultant for Bain & Company, a management consulting firm. Mr. Vadon holds a B.A. in Social Studies from Harvard University and an M.B.A. from Stanford University.

 

Marc Stolzman has served as Blue Nile’s Chief Financial Officer since June 2008. Prior to joining Blue Nile, Mr. Stolzman served as Chief Financial Officer for Imperium Renewables, a biodiesel refining and manufacturing company, from March 2007 to May 2008. From 1994 to January 2007, Mr. Stolzman served in a number of executive leadership positions with Starbucks Coffee Company, including Senior Vice President of Finance and Business Development of Starbucks Coffee International from July 2003 to January 2007, Chief Financial Officer of Starbucks Coffee Japan from May 2001 to July 2003, and as Vice President of Finance of North America from 1997 to 2001. Mr. Stolzman holds a B.A. in Business Administration from Washington State University.

 

Susan Bell has served as Blue Nile’s Senior Vice President since June 2005. Ms. Bell has held executive level positions in both marketing and merchandising since she joined Blue Nile in September 2001. From October 2000 to February 2001, Ms. Bell served as Vice President of Merchandising and Marketing for The Body Shop Digital, an e-commerce company. From July 1984 to July 2000, Ms. Bell served in various capacities at Eddie Bauer, Inc., a clothing and merchandise retail company, most recently as Vice President and General Merchandising Manager. Ms. Bell holds a B.A. in Business Administration from San Francisco State University.

 

Dwight Gaston has served as Blue Nile’s Senior Vice President since September 2005. From July 2003 to March 2005, Mr. Gaston served as Vice President of Operations, and from May 1999 to July 2003, Mr. Gaston served as Blue Nile’s Director of Fulfillment Operations. From June 1992 to June 1995 and from August 1997 to May 1999, Mr. Gaston was a consultant with Bain & Company, a management consulting firm. Mr. Gaston holds a B.A. in Economics from Rice University and an M.B.A. from Harvard University.

Marianne Marck has served as Blue Nile’s Senior Vice President since January 2009. From May 2003 to January 2009, Ms. Marck served as Vice President of Engineering for Disney Interactive Media Group, a division of The Walt Disney Company. From March 1998 to May 2003, Ms. Marck served in various capacities at CNET Networks, most recently as Senior Vice President of Technology Infrastructure. From November 1991 to March 1998, Ms. Marck served as an engineer and engineering manager at Sybase, an enterprise software company. From June 1989 to November 1991, Ms. Marck served as a software developer at the IBM Almaden Research Laboratory. Ms. Marck holds a B.A. in Mathematics from Mills College and has done graduate work in computer science and executive management.

 

Terri Maupin has served as Blue Nile’s Vice President of Finance and Controller since July 2004 and served as Corporate Secretary from October 2004 through February 2010. From September 2003 to July 2004, Ms. Maupin served as Blue Nile’s Controller. From February 2001 to September 2003, Ms. Maupin served as the Staff Vice President of Finance and Controller at Alaska Air Group, Inc., the parent company of airline companies Alaska Airlines, Inc. and Horizon Air Industries, Inc., and Staff Vice President of Finance and Controller at Alaska Airlines, Inc. From September 1994 to August 1997, Ms. Maupin served as the Manager of Financial Reporting and from September 1997 to January 2001 as the Director of Financial Reporting for Nordstrom, Inc., a fashion specialty retail company. From October 1993 to September 1994, Ms. Maupin served as Controller at Coastal Transportation Inc., a marine transportation company. From January 1987 to October 1993, Ms. Maupin served in various capacities, most recently as audit manager, with Coopers and Lybrand LLP, an accounting firm. Ms. Maupin holds a B.A. in Accounting from Western Washington University.

 

Compensation of Executive Officers

 

Compensation Discussion and Analysis

 

This compensation discussion and analysis provides a narrative review of the compensation earned by our named executive officers as detailed in the executive compensation tables that follow. The term “named executive officers” refers to: (1) Diane Irvine, who serves as our Principal Executive Officer; (2) Marc Stolzman, who serves as our Principal Financial Officer; (3) the other three most highly compensated executive officers based on SEC regulations, which includes Mark Vadon, our Executive Chairman, Susan Bell, our Senior Vice President, and Dwight Gaston, our Senior Vice President; and (4) Kevin Frisch, our former Senior Vice President of Marketing. Mr. Frisch resigned in October 2009.

 

2009 Year in Review. When establishing the goals for executive compensation in early 2009, the Compensation Committee expected that 2009 would be an extremely challenging economic environment. Luxury retailers around the world were facing negative growth, with a significant number of jewelry retailers closing stores or filing for bankruptcy. In light of the economic environment, during its annual review of executive compensation, the Compensation Committee decided to maintain the 2008 base salary levels and target bonus opportunities for the named executive officers and did not approve increases to these components of compensation. The Compensation Committee also decided that for 2009 it was appropriate to award restricted stock units, in addition to stock options. The Compensation Committee believed that the combination of stock options and restricted stock units was appropriate in 2009 to further motivate and incent the named executive officers to drive Company performance and to promote retention.

 

Despite the difficult economic environment, we delivered strong financial results in 2009 and captured market share in an overall contracting jewelry market. Many of the milestones we accomplished in 2009 were focused efforts to enhance the customer experience, drive revenue, and optimize profitability and free cash flow. Our fiscal 2009 financial results were highlighted by the following:

 

 

 

We ended the year with cash, cash equivalents, and short term investments of $93.1 million, an increase of $38.7 million over the prior year, and no long-term indebtedness. As a result of our strong fiscal 2009 performance, our Compensation Committee determined that the named executive officers earned bonus payouts under our 2009 incentive bonus plan. Additional information regarding these bonus awards is set forth below.

 

Philosophy and Objectives. Blue Nile tries to establish a high performing environment whereby each executive continually strives for excellence, and we believe such excellence should be rewarded through responsible compensation practices. We desire to attract and retain executives that are passionate about building an iconic consumer brand. As part of our compensation philosophy, our compensation package is designed with a focus on pay for performance. The Compensation Committee believes that our most senior executives have the greatest ability to influence the Company’s performance and therefore their compensation should primarily be performance based. The intent of this focus on performance is to reinforce the alignment of interests between the executives and our stockholders.

 

With this philosophy in mind, our executive compensation package is designed to achieve the following key objectives:

 

 

Compensation Components and How Components Relate to Objectives.  Our compensation package is comprised of three primary components — base salary, annual cash incentive bonus, and equity awards. In addition, we provide our executives with benefits available to substantially all full-time salaried employees. The Compensation Committee believes that these elements are consistent with the elements offered by our peer group companies and that the combination of these elements effectively helps us to achieve the objectives set forth above.

 

The Compensation Committee reviews each executive’s compensation annually and makes the adjustments that it believes are necessary to meet our compensation objectives. It does not use a formulaic approach to its compensation review but rather focuses on what the Compensation Committee believes is appropriate compensation for each named executive officer. In any given year, the Compensation Committee may consider the following items when making compensation decisions:

 

 

 

In setting the total compensation package each year, the Compensation Committee works to create an appropriate mix, given the relevant circumstances and goals in a given year, between cash and equity compensation and between currently-paid and longer-term cash compensation. To maintain flexibility to address these relevant circumstances and goals, the Compensation Committee does not target a specific percentage or dollar allocation as between base salary, annual cash incentive bonus, and equity awards. Instead, the Compensation Committee believes that a significant portion of executive compensation should be performance based, and thus weights compensation more heavily towards target bonus opportunities and equity compensation as compared to salary. The Compensation Committee believes that, relative to other employees, executives should have a greater proportion of their compensation tied to longer-term performance because they are in a position to have greater influence on long-term results. As a result, our executives receive a greater proportion of their total compensation through annual bonus payments and equity awards than our other employees. In setting the allocation mix as between executive officers, the Compensation Committee believes that the amount of “at risk” compensation — that is performance-based cash and equity awards — should increase with responsibility level. As illustrated in the pie chart below, performance-based pay (target annual bonus payment and equity) is approximately 74% of the total compensation paid to the current named executive officers. Performance-based pay represents approximately 78% of Ms. Irvine’s total compensation.

 

The chart below illustrates how compensation is allocated among the components of compensation for the group of named executive officers (excluding Mr. Frisch). The chart aggregates the 2009 compensation amounts disclosed in the Summary Compensation Table below.

 

 

Role of Compensation Consultant.  In May 2009, the Compensation Committee engaged Milliman, Inc., an independent compensation consulting firm, to assist the Compensation Committee in its assessment of the overall competitiveness of our executive compensation package relative to the companies that we compete with for executive talent. Milliman has been working with the Compensation Committee since 2007, and only performs work on behalf of

the Compensation Committee with respect to compensation of our executive officers. We pay the cost of Milliman’s services. Management engages a different compensation firm to review and analyze our non-executive officer compensation.

 

As part of its duties, Milliman provided the Compensation Committee with the following services:

 

 

In 2009, the Compensation Committee met regularly with Milliman with management present and in executive session without management present. The Chair of the Compensation Committee also occasionally communicated directly with Milliman. Our General Counsel worked with Milliman to provide any information it needed about us or our executives. The Compensation Committee intends to continue to retain the services of third party executive compensation specialists, such as Milliman, from time to time, in connection with the establishment of our executive compensation package.

 

Benchmarking.  Milliman’s analysis of our executive compensation included data from the proxy statements of our peer group of publicly-traded companies and published survey data. The proxy data provided a focused comparison of the five most highly compensated executives for each company within our peer group. To conduct this proxy analysis, Milliman evaluated three years of data and averaged the three years to gain a picture of our peer companies’ compensation policies over time. Additionally, Milliman provided specific compensation benchmarks for all of our executive positions using several compensation survey sources. The Milliman survey data came from the following sources: Mercer Executive, Economic Research Institute Executive Assessor, Watson Wyatt Top Management Compensation Survey, Milliman Executive Pay Survey, Aon Executive Compensation Report, Compensation Data Survey, Culpepper Technology Executive Pay Report, Custom Proxy Survey, and Hay Retail Executive.

 

The Compensation Committee benchmarked Ms. Irvine, Mr. Vadon, Mr. Stolzman, Mr. Gaston and Ms. Bell’s base salaries and total cash compensation against the 50th percentile of base salaries and total cash compensation paid to similarly situated executives. Milliman established the 50th percentile for each of Ms. Irvine, Mr. Stolzman, Mr. Gaston and Ms. Bell through a combination of proxy data and the survey data. Proxy data was not used to benchmark Mr. Vadon’s compensation because of his unique position as Executive Chairman. Instead, for Mr. Vadon, Milliman exclusively used published survey data (rather than a combination of proxy data and survey data) to provide the Compensation Committee with the 25th, 50th and 75th percentiles of base salaries and total cash compensation paid to similarly situated executives. The information provided by Milliman was not a factor in the Compensation Committee’s decision to maintain for 2009 the 2008 base salary levels and 2008 target bonus opportunities.

 

When benchmarking the total compensation (cash and equity) paid to Ms. Irvine, Mr. Stolzman, Mr. Gaston and Ms. Bell, Milliman provided the Compensation Committee with the 25th, 50th and 75th percentiles of total compensation paid to similarly situated executives. Milliman established these percentiles by exclusively using the proxy data. To review Mr. Vadon’s total compensation, Milliman provided the Compensation Committee with the 50th percentile of total direct compensation using exclusively the survey data. Milliman used the survey data to calculate the 50th percentile of total compensation by using the 50th percentile of total cash compensation in combination with an estimate of the 50th percentile of long-term incentives as a percent of base pay (while the survey data does not typically provide equity values in tandem with cash compensation values, Milliman was able to use survey data to estimate the percentage of base salary individuals in positions similar to Mr. Vadon’s receive in equity and thus was able to use the survey data to calculate the 50th percentile of total direct compensation paid to similarly situated executives). As stated above, Milliman believed that the survey data would provide the most reliable results for Mr. Vadon, given his role as the

Executive Chairman. The Compensation Committee believes that the total compensation paid to the named executive officers is within a normal range around the 50th percentile of the compensation data provided by Milliman.

 

The Compensation Committee used the information provided by Milliman primarily to ensure that the executive compensation program as a whole is competitive in the marketplace, as this helps us to achieve our goal of attracting and retaining highly qualified executives. While the Compensation Committee does not follow a rigid formula for determining where an executive’s compensation should fall within the compensation data provided by Milliman, in general, it targets base salaries and total cash compensation within a “normal range” around the 50th percentile and targets total compensation (cash and equity compensation) within a normal range around the 75th percentile of total compensation paid to similarly situated executives. The normal range is established by considering a 20% range (above or below) around the target. The Compensation Committee believes this range allows for variations due to market factors, experience and performance, job complexity, and organizational values or strategies. The Compensation Committee may deviate from these targets after taking into consideration, in its discretion, various factors, including those set forth under “Compensation Components and How Components Relate to Objectives.”

 

Peer Group.  Before the proxy data was collected and analyzed, the Compensation Committee worked with Milliman to determine the peer group for 2009. The Compensation Committee reviews annually the appropriateness of the companies comprising the peer group for which proxy data is analyzed. In determining the appropriate peer group of companies to be used in connection with the 2009 compensation planning process, the Compensation Committee considered, among other things, revenue, revenue growth, market capitalization, profitability, industry, year founded, and number of employees. In 2009, the Compensation Committee removed The Knot, Movado Group, TheStreet.com, Move, Inc., Spark Networks, and the CoStar Group because it no longer believed these companies represented companies with whom we would compete for executive talent or because the companies no longer met the peer group criteria. Additionally, the Compensation Committee removed Jupitermedia because it was acquired. Based on the factors set forth above, the Compensation Committee decided to add Digital River, Inc., eHealth, Inc., optionsXpress Holdings, Inc., and PetMed Express Inc. The current peer group consists of:

 

 

In general, these peer group companies are less than 15 years old, operate online, are profitable, and the average revenue of the peer group companies is approximately $250 million, the average number of employees is approximately 500, the average market capitalization is approximately $670 million, and the average three year revenue growth is in the double digits.

 

Compensation Decision Process.  The Compensation Committee is responsible for establishing and administering our executive compensation package. It determines, in its sole discretion, the compensation and other terms of employment of our executive officers and may form and delegate authority to subcommittees, as appropriate. The Compensation Committee is comprised entirely of independent directors. The Compensation Committee meets outside the presence of all of our executive officers, except Mr. Vadon, our Executive Chairman, and Ms. Irvine, our Chief Executive Officer, collectively the Designated Officers, to formulate recommendations on matters of compensation philosophy and specific compensation recommendations for the executive officers other than the Designated Officers. Our General Counsel, Lauren Neiswender, also attends certain meetings in her capacity as secretary, and Marc Stolzman, our Chief Financial Officer, attends certain meetings to provide the Compensation Committee with requested compensation and financial information. From time to time, various members of management as well as outside advisors or consultants may be invited by the Compensation Committee to make presentations, provide financial or other background information or advice, or otherwise participate in the Compensation Committee meetings.

 

When making compensation decisions for executive officers other than the Designated Officers, the Compensation Committee generally begins with recommendations and input from the Designated Officers, and then reviews some or all of the factors described under “Compensation Components and How Components Relate to Objectives.” The Compensation Committee follows the same methodology for reviewing Ms. Irvine and Mr. Vadon’s compensation, except that Mr. Vadon provides input and feedback to the Compensation Committee for Ms. Irvine. The Compensation

Committee meets outside the presence of all executive officers, including the Designated Officers, when determining Ms. Irvine and Mr. Vadon’s compensation.

 

The information below provides a more detailed analysis of how each of the components of our executive compensation package contributes to the objectives set forth above and the process by which the Compensation Committee determines each component of compensation.

 

Base Salary. The primary objective of base salary is to attract and retain high performing talent whose knowledge, skills, experience, and performance help us to achieve our business goals and objectives. Typically, the Compensation Committee reviews base salaries annually and at the time of hire, promotion or other change in responsibilities. In determining whether to increase or decrease the base salary paid to an executive, the Compensation Committee takes into account the recommendations and input from the Designated Officers, and, to the extent deemed material at the time, changes (if any) in peer group pay levels, the contributions made by the executive, the performance of the executive, the increase or decrease in responsibilities and roles of the executive, the business needs for the executive, the compensation of other executive officers within the Company with similar responsibilities and the other factors described above.

 

In light of the expected challenging economic conditions, the Compensation Committee determined in February 2009 to maintain 2008 base salaries for the named executive officers. No other material factors were considered in making this decision.

 

In August 2009, Mr. Gaston’s salary was increased by 4.3 percent to $240,000 due to an increase in his responsibilities. When making this adjustment, the Compensation Committee first considered the input and recommendation from the Designated Officers. It then reviewed this recommendation in light of the increase in Mr. Gaston’s responsibilities, peer group data (which indicated that with such an increase he would be within a normal range around the 50th percentile of base salaries for similarly situated executives), and the salaries of the other executives relative to their roles and responsibilities.

 

Mr. Frisch was hired in May 2009 as our Senior Vice President responsible for marketing. When determining his base salary, the Designated Officers proposed a recommendation to the Compensation Committee based on Mr. Frisch’s level of experience, his potential value to the business, the base salaries of the other top executives, and the compensation negotiations with Mr. Frisch. Mr. Frisch resigned in October 2009.

 

Annual Cash Incentive Bonus. The goal of the annual cash incentive bonus is to continue to incent and motivate executives to drive our annual objectives and initiatives and to reward the executives when those objectives and initiatives are achieved. The Compensation Committee has authority over our bonus program, including eligibility for participation in the bonus program and determination of the bonus amounts awarded to executives. All of our named executive officers were eligible for participation in our 2009 bonus program. The objectives and initiatives under our bonus plan are established early in the fiscal year and are designed to align executive compensation with the creation of stockholder value and therefore to best position us for sustainable long-term success. Target bonus awards are typically established in the first quarter of the year, are reviewed midway through the year and may be adjusted if an executive is promoted, there is a change in the competitive environment, or the responsibilities of the executive changes during the year.

 

In any given year, when establishing bonus targets, the Compensation Committee reviews the total cash compensation paid to the executive and then establishes a target bonus amount that reflects the Compensation Committee’s desire to have a meaningful portion of the executive’s total cash compensation tied to the achievement of pre-established performance objectives. The Compensation Committee also reviews the executive’s position at the Company and his or her ability to contribute to the achievement of the Company’s annual objectives. Target bonus awards among our peer group are also considered to ensure the named executive officer’s total cash compensation is competitive. For 2009, the Compensation Committee decided to maintain the target bonus levels for 2009 at the 2008 levels. This decision was made on the basis of the tough economic environment, and no other material factors were considered in making this decision.

 

The Compensation Committee established the 2009 bonus plan targets and objectives during a very difficult economic environment. The Compensation Committee’s goal was to establish financial targets that were challenging and not guaranteed. The Compensation Committee also wanted to maintain discretion to award bonuses if we outperformed our

competitors. When establishing the 2009 bonus plan, the Compensation Committee determined that the overarching goal for the year should be to increase market share during a challenging economic environment.

 

The aggregate bonus pool for fiscal year 2009 was structured to be established through the achievement of Adjusted EBITDA. The aggregate bonus pool is calculated based on the target bonus amounts for each of our executives and this pool may be funded between zero and 200 percent based on our actual results for Adjusted EBITDA.

 

As noted above, the Compensation Committee also established an individual target bonus amount for each executive officer expressed as a percentage of the executive officer’s base salary. The 2009 individual bonus targets for the named executive officers as a percentage of their base salary are as follows:

 

 

Upon the establishment of the aggregate bonus pool, the Compensation Committee had the authority to award the executive officers (other than Mr. Vadon) between zero and 200 percent of such executive officer’s bonus target amount based: (i) 50 percent on the achievement of certain Company financial performance objectives, including net sales, earnings per diluted share and free cash flow generation, and (ii) 50 percent on the achievement of individual performance objectives related to the executive officer’s roles and responsibilities within the Company. Mr. Vadon’s bonus, which the Compensation Committee also had the authority to establish at between 0 and 200 percent of his bonus target amount, was based entirely on the objectives for net sales, earnings per diluted share, and free cash flow. Adjusted EBITDA and free cash flow are non-GAAP financial measures that we derive from our financial statements. Adjusted EBITDA is derived from earnings before interest and other income, taxes, depreciation and amortization, adjusted to exclude the effects of stock-based compensation expense. Free cash flow is derived from net cash provided by or used in operating activities adjusted for cash outflows related to purchases of fixed assets, including internal use software and website development.

 

When establishing the financial objectives, the Compensation Committee reviewed and considered our internal forecasts for Adjusted EBITDA, revenue, earnings per diluted share and free cash flow, with the recognition that its top executives play a large part in whether the Company achieves its goals. The fiscal year 2009 financial targets were:

 

 

We exceeded each of the pre-established financial targets under our bonus program in 2009. Our actual performance for each of these measures was as follows:

 

 

Based on our actual Adjusted EBITDA performance for fiscal year 2009 as compared to our objective, the Compensation Committee established the aggregate bonus pool at 135% and each executive officer was then measured against 135% of his or her individual target bonus award. Based on the results set forth above, each of our named executive officers received full credit for the accomplishment of our goals for net sales, earnings per diluted share, and free cash flow. As mentioned above, Mr. Vadon’s bonus award was determined solely on the basis of financial performance.

With input from the Designated Officers, the Compensation Committee then assessed Mr. Stolzman, Mr. Gaston and Ms. Bell’s individual performance against their pre-established individual performance objectives to determine their 2009 bonus payment. Mr. Stolzman’s performance objectives related to financial metrics, financial planning initiatives, leadership over our cost savings initiatives, leadership over our investor relations activities, international growth, and organizational development. Mr. Gaston’s personal objectives related to our diamond supply, product margins, inventory, fulfillment and organizational development. Ms. Bell’s individual performance objectives related to the launch of our new website, website analytics, merchandising assortment, product margins, customer service metrics, and organizational development. When assessing Ms. Irvine’s individual performance, Mr. Vadon provided the Compensation Committee with input, but the Compensation Committee made its final determination regarding her bonus award outside the presence of any members of management. Ms. Irvine’s performance objectives related to our organizational structure, leadership development within the Company, leadership of business initiatives, brand development initiatives, and international growth. The 2009 bonus payment for each of our named executive officers is set forth in the Summary Compensation Table below.

 

Mr. Frisch’s bonus target award was established when he commenced employment with us in May 2009. In establishing Mr. Frisch’s target bonus award, the Compensation Committee took into consideration the recommendation by the Designated Officers, the target bonus awards paid to the other top executives, Mr. Frisch’s level, experience, and expected value to the business, and the compensation negotiations with Mr. Frisch. Mr. Frisch resigned prior to the end of the year and did not receive a bonus payment.

 

Equity Awards.  The Compensation Committee believes in the importance of equity ownership for all named executive officers to incent, retain, and reward executives and to align executive interests with stockholders. Our long-term equity incentive awards are made pursuant to our 2004 Equity Incentive Plan. Historically, our equity incentive compensation for all executives has exclusively been in the form of options to acquire our common stock. For all new hires, stock option awards are granted on the employee’s hire date and the exercise price of the stock option is equal to the closing price of our common stock on the last trading day prior to the hire date. In all cases, the hire date and the pricing of the option is preceded by approval of the option grant and terms by the Compensation Committee or our Stock Award Committee, as appropriate. Historically, the Compensation Committee has also awarded employees merit-based stock option grants annually. Our policy is to award these annual grants during open windows under our internal trading policy to provide for pricing of equity grants that reflects the dissemination of material information and a fair representation of the market’s collective view of our results and performance. If the Compensation Committee approves a merit-based stock option grant to an existing executive during an open window, the exercise price of the stock option award is equal to the last known closing price of our common stock on the date of grant. The Compensation Committee may approve the annual equity award during a closed window for grant on the first day of an open window. The exercise price of the stock option grant in these circumstances is the closing price of our common stock on the last trading day prior to the grant date. Executives receive value from option grants only if the value of our common stock appreciates over the long-term. In general, the stock option awards granted to executive officers vest over a four-year period as follows: 1/4th of the shares vest one year after the vesting commencement date and 1/48th of the shares vest monthly thereafter. The Compensation Committee believes this vesting period promotes retention and properly relates the value of this compensation component to the long-term success of the Company and the individual.

 

In 2009, the Compensation Committee decided to also award restricted stock units to our named executive officers. Restricted stock units entitle the holder to receive shares of our common stock upon the vesting date. The restricted stock units awarded in 2009 vest in two equal annual installments commencing on the first anniversary of the date of grant. The Compensation Committee believes that this vesting period properly balances the potential compensatory benefits of the grants with the long-term success of the Company. For 2009, the Compensation Committee believed that the combination of stock options and restricted stock units would properly align executive interests with stockholder interests, while helping to control dilution and providing a retention tool during periods of fluctuation in our stock price. Each year the Compensation Committee intends to review the proper form and mix of equity awards.

 

In 2009, the current named executive officers were granted options to purchase between 35,000 and 120,000 shares of our common stock, which ranged from approximately 6% to 22% of the total options granted to all employees. The named executive officers also received restricted stock units ranging from 942 to 4,712 shares. To determine the amount of equity to grant the named executive officers, the Compensation Committee considered input from the Designated Officers, the recipient’s level of responsibility, individual and Company performance, and the individual’s anticipated level of future contributions to our success. When assessing the potential value from the equity grants, the Compensation Committee reviewed the Black-Scholes value of the grants, as well as the intrinsic value of the grants at certain stock prices. The Compensation Committee also considered dilution and the expense to the Company under

SFAS 123(R). In addition to the factors mentioned above, in 2009, the Compensation Committee also considered the amount of the executive’s target bonus for 2008 when determining the amount of restricted stock units to award in 2009. The compensation data provided by Milliman in 2009 was not used to determine the amount of equity awarded in 2009, as the grants were awarded in the first quarter of 2009, prior to Milliman’s engagement. The amount of equity awarded to our named executive officers in fiscal year 2009 is set forth below in the Summary Compensation Table.

 

When Mr. Frisch commenced employment with us, he received an initial option to purchase 30,500 shares of our stock. When establishing the amount of this initial grant, the Compensation Committee considered the recommendation by the Designated Officers, the Black-Scholes value of the award, the amount of the award in relation to the equity awards granted to our other top executives, his experience, level of responsibility, and expected value to the business, and negotiations with Mr. Frisch. Mr. Frisch resigned prior to any of his stock options vesting.

 

Health and Welfare Benefits.  All full-time regular employees, including our named executive officers, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage, disability insurance and life insurance. We believe these benefits are consistent with benefits provided by our peer group companies and help us to attract and retain high quality employees.

 

Retirement Savings Opportunity.  All employees, including our named executive officers, may participate in our tax-qualified 401(k) defined contribution retirement savings plan, or 401(k) Plan. Each employee may make before tax contributions of their base salary up to the current Internal Revenue Service limits. We provide this plan to help our employees save some amount of their cash compensation for retirement in a tax efficient manner. All contributions to the 401(k) Plan are made in cash and are invested in funds as directed by the participant, with the participant being able to select from a variety of funds. We do not offer participants the opportunity to invest in shares of our stock through the 401(k) Plan. Pursuant to the terms of our 401(k) Plan, we have the discretion to fund a cash match based on a percentage of the employee’s cash contribution. In 2009, we matched fifty percent of the amount contributed by each employee up to four percent of such employee’s annual compensation. Vesting in the matching contribution is based on years of service. Participants are 100% vested after four years of continuous service to the Company. We believe these benefits are consistent with benefits provided by our peer group companies and help us to attract and retain high quality employees.

 

Other Broad-Based Employee Benefits.  All full-time regular employees, including the named executive officers, receive an annual transportation allowance of $720. Additionally, all full-time regular employees are eligible for an employee discount on certain of our products.

 

Employment, Severance and Change of Control Agreements.  Each of our named executive officers, except for Mr. Vadon, has signed offer letters. These offer letters provide that the officer is an at-will employee. These offer letters also provide for an initial salary and an initial stock option grant as well as other customary benefits and terms. Additionally, Mr. Stolzman’s offer letter set forth his initial target bonus award. All of our offer letters provide that the Company may modify compensation from time to time as it deems necessary.

 

Outside of a change of control, we are not contractually obligated to pay severance to any named executive officer. In October 2009, we entered into a Severance Agreement with Kevin Frisch, our former Senior Vice President of Marketing. Under the terms of this agreement, we agreed to pay Mr. Frisch a lump sum of $60,000 after he signed the Severance Agreement. This severance was given in consideration for his agreement to assist in transitioning his duties, in consideration for the release of all claims against us, and in recognition of the contributions he made to the business.

 

In March 2009, the Compensation Committee approved a Change of Control Severance Plan. This plan provides for the payment of severance benefits to designated executive employees whose employment is terminated within a specified period (not to exceed two years) following a Change of Control of the Company, either due to a termination without Cause or a Resignation for Good Reason, as each term is defined in the Change of Control Severance Plan. Currently, each of our named executive officers is eligible to participate in this plan. Benefits are only paid under the plan if there is: (1) a Change of Control, and (2) the executive is terminated without Cause or submits a Resignation for Good Reason. The Change of Control Severance Plan does not provide for any tax gross-ups.

 

Under the terms of the Change of Control Severance Plan, if following a Change of Control a named executive officer is terminated without Cause or submits a Resignation for Good Reason, and provided the executive signs the Company’s standard form of release, he or she will be entitled to receive as severance: (1) a lump sum cash payment equal to a

multiple of such employee’s base salary and target annual incentive bonus, (2) Company-paid premiums for continued health insurance for a period of time equal to the period of base salary being provided (but not more than 18 months and in no event for longer than such coverage is available), and (3) full vesting of all then-outstanding equity awards.

 

The Compensation Committee believes that the adoption of a Change of Control Severance Plan is an important part of a competitive overall compensation arrangement for named executive officers. The Compensation Committee believes that the potential benefits payable pursuant to the Change of Control Severance Plan are consistent with the compensation practices for similarly situated executives at our peer companies and that the Change of Control Severance Plan will help to secure the continued employment and dedication of named executive officers, and ameliorate any concern that they might have regarding their continued employment prior to or following a change of control, thereby allowing the executive to focus his or her attention to serving the interest of the Company. The Compensation Committee also believes that the Change of Control Severance Plan serves as an important recruitment and retention device, as many of the companies with which we compete for executive talent have similar agreements in place for their senior officers. In determining the appropriate terms of the Change of Control Severance Plan, the Compensation Committee reviewed the potential cost of the change of control benefits assuming various stock price scenarios.

 

Under the 2004 Equity Incentive Plan, in the event of certain corporate transactions, if the surviving or acquiring entity elects not to assume, continue or substitute for equity awards granted under the 2004 Equity Incentive Plan, the vesting and, if applicable, exercisability of each equity award granted under the 2004 Equity Incentive Plan will accelerate in full for those whose service with the Company or any of the Company’s affiliates has not terminated. To the extent such equity award requires exercise, such as a stock option, such equity awards will be terminated if not exercised prior to the effective date of such corporate transaction. We believe these benefits are consistent with benefits provided by our peer group companies.

 

Compensation of Named Executives in Relation to Each Other and to the Chief Executive Officer.  Ms. Irvine’s salary relative to the other named executive officers reflects her level of experience and scope of responsibilities within the Company, including her responsibility over the organizational structure, initiatives, growth, and health and strategic direction of the Company. The Compensation Committee believes that the compensation paid to Mr. Stolzman, Ms. Bell, Mr. Gaston, and Mr. Frisch in relation to Ms. Irvine and in relation to each other is reasonable and appropriate given each individual’s level of experience and scope of responsibilities. Mr. Vadon does not have day-to-day management responsibilities, but rather helps provide strategic direction and helps establish longer-term objectives. When Mr. Vadon transitioned into the role of Executive Chairman, the Compensation Committee structured his compensation package in light of his unique role within the Company. The Compensation Committee believes that Mr. Vadon’s compensation should be significantly weighted towards performance-based pay. His base salary is $250,000 and his bonus target is 100% of his base salary. The Compensation Committee believes that this cash compensation is appropriate to provide the proper incentives to Mr. Vadon in light of his duties and is appropriate relative to the duties and cash compensation paid to Ms. Irvine and to the other named executive officers. Given Mr. Vadon’s role in the long-term strategic direction of the Company, the Compensation Committee further believes that equity should be a significant component of Mr. Vadon’s compensation. In 2009, Mr. Vadon was awarded a stock option to purchase 60,000 shares and 2,356 restricted stock units. The Compensation Committee believes that the amount of equity granted to Mr. Vadon relative to Ms. Irvine and relative to the other named executive officers is appropriate given his role and responsibilities.

 

Executive Equity Ownership Guidelines.  The Compensation Committee believes that equity ownership guidelines help align the interests of executives with that of our stockholders. In August 2009, the Compensation Committee clarified the executive equity ownership guidelines. Pursuant to these guidelines, the Compensation Committee suggests that each of the named executive officers hold “equity value” of at least three times the executive’s annual salary plus target bonus award. The equity value may be comprised of: common stock owned individually; common stock owned joining with, or separately by a spouse, domestic partner, and/or minor children, either directly or indirectly; vested restricted stock units; or vested stock options. The value of the equity is determined based on the intrinsic value of the equity using a rolling three month average stock price.

 

Policy Against Speculative Transactions.  No employee may engage in short sales, transactions in put or call options, margin loans with stock as collateral, certain hedging transactions or other inherently speculative transactions with respect to the Company’s stock at any time.

Tax Treatment of Compensation.  We review compensation plans in light of applicable tax provisions, including Section 162(m) of the Internal Revenue Code of 1986, as amended, or the Code. We try to maximize the tax deductibility of compensation paid to our most highly compensated executives under Section 162(m). Section 162(m) generally limits the deduction for federal income tax purposes to no more than $1.0 million of compensation paid to each of the named executive officers in a taxable year. Compensation above $1.0 million may be deducted if it is “performance-based compensation” within the meaning of the Code. To date, we have not faced the annual deduction limit, because bonus, full value equity award compensation, and base salary have not exceeded $1.0 million to any individual executive. We believe that compensation received upon the exercise of stock option grants awarded under our 2004 Equity Incentive Plan qualifies as “performance-based compensation” within the meaning of the Code and is therefore exempt from the deduction limit. We are currently seeking approval of our Performance Plan to qualify our annual cash incentive bonus payments as “performance-based compensation” within the meaning of the Code.

 

Risk Analysis of Our Compensation Plans.  The Compensation Committee has reviewed our compensation policies as generally applicable to our employees and believes that our policies do not encourage excessive and unnecessary risk-taking, and that the level of risk that they do encourage is not reasonably likely to have a material adverse effect on the Company. The design of our compensation policies and programs encourage our employees to remain focused on both the short and long-term goals of the Company. For example, while our cash bonus plans measure performance on an annual basis, our equity awards typically vest over a number of years, which we believe encourages our employees to focus on sustained stock price appreciation, thus limiting the potential value of excessive risk-taking.

 

Compensation Committee Report⁽¹⁾

 

As part of fulfilling its responsibilities, the Compensation Committee reviewed and discussed the Compensation Discussion and Analysis (“CD&A”) for the fiscal year ended January 3, 2010 with management. Based on the Compensation Committee’s review of the CD&A and its discussions with management, the Compensation Committee has recommended to the Board of Directors that the CD&A for the fiscal year ended January 3, 2010 be included in this proxy statement for filing with the Securities and Exchange Commission and incorporated into our Annual Report on Form 10-K for the fiscal year ended January 3, 2010.

 

Date: April 16, 2010

 

Respectfully submitted,

 

Steve Scheid (Chairman)

Ned Mansour

Michael Potter

 

 

(1) The material in this report is not “soliciting material,” is not deemed “filed” with the Securities and Exchange Commission, as amended, and is not to be incorporated by reference into any filing of Blue Nile, Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date hereof and irrespective of any general incorporation language in any such filing.

 

Compensation of Executive Officers

 

The following table sets forth compensation earned by our named executive officers for the 2009, 2008, and 2007 fiscal years.

 

Summary Compensation Table
Fiscal 2009, 2008 and 2007

 

 

 

 

 

All Other Compensation Table

 

 

 

 

The following table supplements the Fiscal Year 2009, 2008, and 2007 Summary Compensation Table by providing additional information about our fiscal year 2009 plan-based compensation.

 

Grants of Plan-Based Awards for Fiscal 2009 Table

 

 

 

 

Narrative Disclosure to Summary Compensation Table and Grants of Plan-Based Awards Table

 

Employment Agreements.  Each of our named executive officers, except for Mr. Vadon, has signed offer letters with the Company. Descriptions of our employment agreements with our named executive officers are included under the caption Employment, Severance and Change of Control Agreements in our Compensation Discussion and Analysis above.

 

Non-Equity Incentive Plan Awards.  These amounts reflect the potential target and maximum annual cash incentive awards payable to our named executive officers under our 2009 annual cash incentive bonus plan. For more information regarding this plan, please see the Annual Cash Incentive Bonus section in our Compensation Discussion and Analysis above.

 

Equity Awards.  We grant stock options and restricted stock units to executive officers under our 2004 Equity Incentive Plan. Prior to the adoption of the 2004 Equity Incentive Plan, we granted options to our executive officers under our 1999 Equity Incentive Plan. We have never granted any stock appreciation rights.

 

Other Compensatory Arrangements.  For a description of the other elements of our executive compensation program, see our Compensation Discussion and Analysis above.

The following table provides information regarding unexercised stock options held by each of the named executive officers as of January 3, 2010.

 

Outstanding Equity Awards At Fiscal Year End 2009