UNITED STATESSCHEDULE 14ASECURITIES AND EXCHANGE COMMISSION(Rule 14a-101)WASHINGTON, D.C. 20549INFORMATION REQUIRED IN PROXY STATEMENT
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AutoZone, IncAUTOZONE, INC.(Name of Registrant as Specified In Its Charter)(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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Notice Of Annual Meeting Of StockholdersNOTICE OF ANNUAL MEETING OF STOCKHOLDERSDecember 9, 1999DECEMBER 14, 2000
To our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of AutoZone, Inc. at theOrpheum Theater, 203J.R. Hyde, III, Store Support Center, 123 SouthMainFront Street, Memphis, Tennessee, on Thursday, December9, 1999,14, 2000, at 10 a.m. At the meeting, the stockholders will voteto:regarding:
1. Elect ten directors.
2. Approve• The election of eleven directors. • Approval of the AutoZone, Inc. 2000 Executive Incentive Compensation Plan.amendment to the executive incentive compensation plan.
3. Approve• Approval of the appointment of Ernst && Young LLP as independentauditors.accountants.
4. Transact• The transaction of other business which may be properly brought before the meeting.
If you were a stockholder at the close of business on October12, 1999,17, 2000, you may vote at the meeting.
We look forward to seeing you at the meeting.
By order of the Board of Directors,
HARRY L. GOLDSMITH Secretary Memphis, Tennessee
October25, 199927, 2000 IMPORTANT
IMPORTANTPlease VOTE by proxy card, telephone, or Internet
whether or not you plan to attend the meeting.TABLE OF CONTENTS
Table of ContentsTable of Contents
AutoZone, Inc.
123 South Front StreetMemphis, Tennessee 38103Proxy Statement
forAnnual Meeting of StockholdersDecember9, 199914, 2000 The MeetingOur Annual Meeting will be held at the
Orpheum Theater, 203J.R. Hyde, III, Store Support Center, 123 SouthMainFront Street, Memphis, Tennessee, beginning at 10 a.m. on December9, 1999.14, 2000.
About this Proxy Statement
Our Board of Directors has sent you this Proxy Statement to solicit your vote at the Annual Meeting. We will pay all expenses incurred in this proxy solicitation. In addition to mailing this Proxy Statement to you, we have hired Beacon Hill Partners to be our proxy solicitation agent for a fee of $4,500 plus expenses. We also may make additional solicitations in person, by telephone, facsimile, e-mail, or other forms of communication. Brokers, banks and others who hold our stock for the beneficial owners will be reimbursed by us for their expenses related to forwarding our proxy materials to the beneficial owners. This Proxy Statement is first being mailed on October25, 1999.27, 2000.
Information about Voting
If you were a stockholder of record as of October 12, 1999, youYou may vote yourshares:shares in person or by proxy:
• By Proxy — You can vote via the Internet, by telephone, or by completing and returning the enclosed proxy or voting cardto usby mail.We encourage you to vote by telephone or Internet, both of which are convenient, cost-effective and reliable alternatives to returning your proxy card by.The instructions for voting are contained on the enclosed proxy card. The individuals named on the card, your"proxies,"“proxies,” will vote your shares as you indicate. If you sign your card without indicating how you wish to vote, your shares will be voted FOR our nominees for director, will be voted FOR theexecutive incentive compensation plan,amendment to the AutoZone, Inc. 2000 Executive Incentive Compensation Plan, will be voted FOR Ernst&& Young LLP as independentauditors,accountants, and in theproxiesproxies’ discretion on any other matter that may be properly brought before the meeting or at any adjournment of the meeting. You may revoke your proxy at any time before it is voted at the meeting bysendinggiving a written notice to our Secretary (at the address at the top ofthethis page) that you have revoked the proxy, by providing alater datedlater-dated proxy, or by voting in person at the Annual Meeting.
• In Person — You may attend the Annual Meeting and vote in person. If you are a registered holder of your shares, you only need to attend the meeting. However, if your shares are held in an account by a broker (held in “street name”) you may still vote in person if you obtain from your broker written consent to permit you to vote the shares in person, which must be presented at the meeting.
If you held your shares in an account with a bank, broker or other entity on the record date, please follow the instructions given to you on your ballot regarding casting your vote.Voting Securities
At the close of business on October12, 1999,17, 2000, we had138,935,636116,000,313 shares of common stock outstanding. Each share of common stock is entitled to one vote.Only stockholdersHowever, AutoZone had forward purchase agreements under its common stock repurchase program covering 8,034,400 shares ofrecordcommon stock that are ineligible to be voted at theclosemeeting. Therefore, only 107,965,913 shares ofbusiness on Tuesday, October 12, 1999,common stock will beentitledeligible tovote.be voted at the meeting.Quorum and Required Votes
Holders of a majority of the shares of common stock outstanding (without regard to shares under forward purchase agreements) must be present in person or by proxy in order for a quorum to be present. Votes on the proposals will be tallied as follows:
• Election of Directors -— Theteneleven persons nominated for director receiving the most votes will be elected.
• Approval of amendment to executive incentive compensation plan -— For approval, the amendment to the plan must receive an affirmative vote from a majority of the shares present and voting. Abstentions will be counted as if they were votes against theplan.amendment. Broker non-votes will not be counted as voting either for or against theplan.amendment.
• Approval of independent auditors -accountants — For approval, theauditorsaccountants must receive an affirmative vote from a majority of the shares present and voting. Abstentions will be counted as if they were votes against theauditors.accountants. Broker non-votes will not be counted as voting either for or against theauditors.accountants. However, we are not bound by a vote either for or against theauditors.accountants. The Board of Directors and the Audit Committee will consider a vote against theauditorsaccountants by the stockholders in selectingauditorsaccountants in the future.2
The ProposalsPROPOSAL
1-ELECTION OF DIRECTORS1 — Election of Directors
TenEleven directors will be elected at the Annual Meeting to serve until the Annual Meeting in2000.2001. Each of the nominees named below was elected a director at the19981999 annual meeting, except for Mr.LampertMcKenna whois being nominatedwas elected toserve onthe Boardof Directors forin May 2000 and Mr. Elson who was elected to thefirst time at this meeting.Board in August 2000. These nominees have consented to serve if elected, but should any nominee be unavailable to serve, your proxy will vote for the substitute nominee recommended by the Board ofDirectors.Directors or the Board of Directors may reduce the number of directors on the Board. The nominees are:
NomineeAgePositions HeldJohn C. Adams, Jr.
Chairman & Chief
Executive OfficerOfficer & Director
Customer Satisfaction51With AutoZone:
- Mr. Adams, 52, has been a Director, Customer Satisfaction, since
1996- 1996. He is currently AutoZone’s Chairman and Chief Executive Officer. In September 2000, Mr. Adams announced that he intends to step aside as CEO as soon as a replacement is found by the Board of Directors. Mr. Adams has been Chairman since 1997
- and CEO since December
1996- 1996. Mr. Adams had also been President from December 1996 to March 1997,
- Vice Chairman and Chief Operating Officer from March 1996 to December 1996,
- and Executive Vice
President - DistributionPresident-Distribution fromJanuary1995 to March1996- 1996. Mr. Adams had previously been President of the Miami Division of Malone
&& Hyde, Inc.from 1983 to 1990With Others:Company.
Part Owner, the former parent company ofNicotiana Enterprises, Inc.,AutoZone. Mr. Adams is also afood distribution company, from 1990 to 1994Directordirector of Keebler FoodsCompanyAndrew M. Clarkson Director
Chairman of
Finance Committee
Customer Satisfaction62With AutoZone:
- Mr. Clarkson, 63, has been a Director, Customer Satisfaction, since
1986- 1986. He is employed by AutoZone as Chairman of the Finance
Committee since 1995- Committee. Previously, Mr. Clarkson had been Treasurer from 1990 to 1995 and from 1986 to 1988,
- and Secretary from 1988 to
1993- 1993. Prior to that time, Mr. Clarkson had been Chief Financial Officer of Malone
& Hyde, Inc., from 1983 to 1988With Others:Corporation.
Director& Hyde. Mr. Clarkson is also a director of AmphenolCorporationCharles M. Elson
Edgar S. Woolard, Jr. Professor of Corporate Governance
University of DelawareMr. Elson, 40, was elected a Director, Customer Satisfaction, by the Board in August 2000. He has been the Edgar S. Woolard, Jr. Professor of Corporate Governance at the University of Delaware beginning in August 2000. Prior to that time, Mr. Elson had been a Professor at the Stetson University College of Law since 1990. Mr. Elson is also a director of Nuevo Energy Company and Sunbeam Corporation. N. Gerry House
President and Chief
Executive Officer
Institute for Student AchievementDr. House, 53, has been a Director,
Customer Satisfaction,52With AutoZone:
Directorsince1996With Others:1992.
- 1996. She has been the President and Chief Executive Officer of the Institute for Student Achievement since April 2000. Prior to that time, she was the Superintendent of the Memphis, Tennessee, City School System since
1992Trustee of Educational Testing Service (ETS)3
Robert J. Hunt
Executive Vice President &
Chief Financial Officer& Director
Customer Satisfaction50With AutoZone:
- Mr. Hunt, 51, has been a Director, Customer Satisfaction, since
1997- 1997. He has been Executive Vice President and Chief Financial Officer since
1994- 1994. Prior to that time, Mr. Hunt was Executive Vice President, Chief Financial Officer and a Director for The Price Company from 1991 to 1993. Previously, Mr. Hunt had been Executive Vice President and Chief Financial Officer for Malone
&& HydeInc.from 1988 to1991With Others:1991.
Executive Vice President, Chief Financial Officer & Director for The Price Company from 1991 to 1993J.R. Hyde, III DirectorCustomer Satisfaction56With AutoZone:
Director since 1986- Former Chairman
from 1986 to 1997- &
Chief Executive Officerfrom 1986 to 1996Chairman and Chief Executive Officer of Malone &
Customer SatisfactionMr. Hyde, Inc., until 1988With Others:Malone & Hyde until 1988. Mr. Hyde is also a director of FedEx Corporation.
- 57, has been a Director, Customer Satisfaction, since 1986. He has been the President of Pittco, Inc., an investment company, since
1989Director1989. Mr. Hyde had been AutoZone’s Chairman from 1986 to 1997 and Chief Executive Officer from 1986 to 1996. He had also been Chairman and Chief Executive Officer ofFDX CorporationJames F. Keegan
Chairman
Adams Keegan, Inc.Mr. Keegan, 68, has been a Director,
Customer Satisfaction,67With AutoZone:
Directorsince1991With Others:firm.
- 1991. He has been the Chairman of Adams Keegan, Inc.,
a professional employer organization,an employee leasing firm, since1997- 1997. Prior to that time, he was Managing Director of Weibel Huffman Keegan, Inc., an investment management
firm, until 1997Edward S. Lampert
Chief Executive OfficerNominee forESL Investments, Inc.Mr. Lampert, 38, has been a Director,
Customer Satisfaction,37With Others:1988.
- since 1999. He has been Chief Executive Officer of ESL Investments, Inc., a private investment firm, since
1988W. Andrew McKenna
President
SciQuest.com, Inc.Mr. McKenna, 54, was elected a Director, Customer Satisfaction, by the Board in May 2000. He has been President of SciQuest.com, Inc., a Web- based, interactive marketplace for scientific and laboratory products since January 2000. Prior to that time he held various positions with The Home Depot, Inc., including Senior Vice President-Strategic Business Development from 1997 to 1999, President, Midwest Division from 1994 to 1997, and Senior Vice President-Corporate Information Systems from 1990 to 1994. Mr. McKenna is also a director of SciQuest.com, Inc. Michael W. Michelson
Member of General Partner
Kohlberg Kravis Roberts & Co. LLCMr. Michelson, 49, has been a Director,
Customer Satisfaction,48With AutoZone:
Directorsince1986With Others:
Member1986. He has been a member of the limited liability company which is general partner of Kohlberg Kravis Roberts&& Co., L.P., since 1996General Partnerand is a general partner of KKR Associates, L.P. Prior to that time, he was a general partner of Kohlberg Kravis Roberts&& Co., L.P., prior to 1996General PartnerMr. Michelson is also a director ofKKR Associates, L.P.Director ofAlliance Imaging, Inc., Amphenol Corporation, Owens-Illinois, Inc.,Owens-Illinois Group,and KinderCare Learning Centers, Inc., and Promus Hotel CorporationRonald A. TerryDirectorCustomer Satisfaction4
68With AutoZone:
Director since 1995With Others:
Chairman of First Tennessee National Corporation from 1973 to 1995Chief Executive Officer of First Tennessee National Corporation from 1973 to 1994Director of BellSouth Corporation and Promus Hotel CorporationTimothy D. Vargo
President & Chief
Operating Officer& Director
Customer Satisfaction48With AutoZone:1984-1986.
- Mr. Vargo, 49, has been a Director, Customer Satisfaction, since
1996- 1996. He has been President since March 1997
- and Chief Operating Officer since December
1996- 1996. Prior to that time, he was Vice Chairman from March 1996 to
March 1997- December 1996, Executive Vice
President - Merchandising and Systems TechnologyPresident-Merchandising from June 1995 to March 1996,- and Senior Vice
PresidentPresident-Merchandising from March to June1995- 1995. Previously, Mr. Vargo had been Senior Vice
President - Merchandising &President-Merchandising & Distribution from 1986 to 1992,- and had been Director of Stores for the Auto Shack division of Malone
&& HydeInc.,from1984 to 1986Note: Malone & Hyde, Inc., isMr. Ronald A. Terry, currently a member of the
former parent companyBoard ofAutoZone.Directors, will be retiring from the Board as of the date of the Annual Meeting and will not stand for reelection.Board Meetings and Committees
The Board of Directors heldfivenine meetings in fiscal year1999. Each incumbent director2000. All directors attended at least 75% of the total of the Board of Directors and committee meetings during the fiscalyear, except for Dr. House.year.
The Board of Directors hasthreefour committees: the Audit Committee, the Compensation Committee, the Finance Committee, and theFinanceNominating and Corporate Governance Committee.The Board of Directors does not have a nominating committee.
The Audit Committee recommends the engagement of independentauditors,accountants, confers with our internal and external auditors regarding the adequacy of our financial controls and fiscal policy, and directs changes to financial policies or procedures as suggested by the auditors. The Audit Committee has a charter, which is attached to this Proxy Statement as Appendix A. AutoZone’s common stock is listed on the New York Stock Exchange and is governed by its listing standards. During fiscal year1999,2000, the Audit Committee mettwofive times. For the19992000 fiscal year, the Audit Committee consisted of Mr. Keegan (Chairman), Mr. Terry, and Mr.Terry.Lampert (who joined the committee in December 1999). The Audit Committee meets the independence standards of section 303.01(B)(2)(a) of Regulation S-K and the standards of the New York Stock Exchange.
The Compensation Committeesetsapproves the compensation levels for all senior executive officers, including salary and bonus levels. In addition, the Compensation Committee administersAutoZone'sAutoZone’s stock option and stock purchase plans. The Compensation Committee, consisting of Mr. Terry (Chairman), Dr. House, Mr. Keegan, Mr. Lampert (who joined the committee in December 1999), andDr. House,Mr. McKenna (who joined the committee in June 2000) heldfour12 meetings during fiscal year1999.2000.
The Finance Committee reviewsAutoZone'sAutoZone’s financing options and makes recommendations to the full Board and management as to appropriate financing mechanisms. During fiscal year1999,2000, the Finance Committee, consisting of Mr. Clarkson (Chairman) and Mr. Michelson, heldtwofive meetings.The Nominating and Corporate Governance Committee was formed in the beginning of fiscal year 2001 and currently consists of Mr. Elson as Chairman. Mr. Elson will make recommendations to the Board for additional committee members in the future. The committee has not yet established nomination policies or procedures.
PROPOSAL
2-APPROVAL OF EXECUTIVE INCENTIVE COMPENSATION PLAN
The following is a summary of the AutoZone, Inc. 20002 — Amendment to Executive Incentive CompensationPlan. For complete details please see the plan, which is reproduced in its entirety as Exhibit A to this proxy statement.PlanWhat is the executive incentive compensation plan?
The federal tax code prohibits us fromdeductingreceiving a tax deduction for compensation in excess of $1 million for the chief executive officer and our other four most highly paid officers unless the compensation in excess of $1 million is based on an objective measure of performance. The AutoZone, Inc. 2000 Executive Incentive Compensation Plan is intended to qualify as a performance-based compensation plan under the federal tax code so that performance bonuses paid to our executive officers are tax deductible to AutoZone. The plan requires that the Compensation Committee establish objective5
performance goals and that the performance goals be met before a participant may receive an annual bonus under the plan.What is the proposed amendment?
The amendment reads as follows:
RESOLVED, that “sales,” “sales per square foot” and comparable store sales be added as measures of objective goals under the second paragraph of section 4 of the AutoZone, Inc. 2000 Executive Incentive Compensation Plan (the “plan”), and that in that same section “operating margin” shall be deleted and “EBIT margin” substituted in lieu thereof.” FURTHER RESOLVED, that the final sentence of the fourth paragraph of section 4 of the plan be amended to read: “No individual may receive in any one fiscal year an award under the Plan of an amount greater than the lesser of (i) 200% of such individual’s base salary for that year or (ii) $2 million.” What are the reasons for the amendment?
The Compensation Committee believes that the addition of the goals of sales, sales per square foot and comparable store sales will give the committee additional flexibility in designing executive incentive compensation that is aligned with company goals, and the substitution of “EBIT margin” for “operating margin” is a better technical accounting description of what the goal is to measure.
Currently, the executive incentive compensation plan allows an executive officer to receive the lesser of up to 150% of salary or $2 million as a bonus. The amendment would permit bonuses under the plan to be granted up to 200% of salary (subject to the $2 million limitation). This additional authority would be used by the Compensation Committee to establish additional incremental goals under the plan that would be increasingly more difficult to attain.
Who is eligible to participate in the plan?
The executive officers, as determined by the Compensation Committee, are eligible to participate in the plan.How are performance goals established?
UnderIf the amendment is adopted, then, under the plan, at the beginning of each fiscal year, the Compensation Committee must establish a goal which may be a range from a minimum to a maximum attainable bonus. The goal may be based on one or more of the following measures:
• Earnings
• Earnings per share
• Common stock price
• Market share
Sales• Revenue
Revenue
•Operating or net cash flows
• Pre-tax profits
• Earnings before interest and taxes
• Return on capital
• Economic value added
• Return on inventory 6
Operating•EBIT margin
• Gross profit margin • Sales • Sales per square foot • Comparable store sales
The goal may be different for different executives. No bonus may be paid under the plan unless at least the minimum goal is attained. However, the committee may disregard for goal purposes one-time charges and extraordinary events such as asset write-downs, litigation judgments or settlements, the effect of changes in tax laws, accounting principles or other laws or provisions affecting reported results, accruals for reorganization or restructuring, and any other extraordinary non-recurring items, acquisitions or divestitures and any foreign exchange gains or losses.
What is the maximum compensation that a participant may receive under the plan?
No participant may receive more than the lesser of 150% of the executive's annual salary or $2 million as a bonus under the plan.How is the bonus paid under the plan?
After the end of each fiscal year, the Compensation Committee must certify the attainment of goalsif any,under the plan, if any, and direct the amount to be paid to each participant. The committee,inat its discretion, may reduce or eliminate any bonus to be paid to an executive, even if a goal was attained. The bonus may only be paid after the attainment of the goals has been certified. The bonus may be paid in cash or in whole or part in common stock, at the option of the Compensation Committee.
Does AutoZone currently have an executive incentive compensation plan?
Currently, the AutoZone, Inc. Executive Incentive Compensation Plan is in effect. The existing plan will expire in December 1999. Therefore, we are proposing the new plan.
What are the differences between the new plan and the existing plan?
The two plans are essentially similar, except that the existing plan required the target amount to be based upon pre-tax earnings and the new plan allows the committee more flexibility in selecting the goal measure. In addition, the old plan had a maximum of 100% of salary which could be paid as a bonus and the new plan will allow up to 150% of salary to be paid as a bonus.
Who participated in the existing plan last fiscal year?
Last fiscal year, 11 AutoZone executives were granted bonuses under the existing plan. This table shows bonuses for the named executive officers and all executive officers as a group under the existing plan, in the last fiscal year:
Name and PositionDollarValue ($)John C. Adams, Jr.265,200Chairman & Chief Executive OfficerTimothy D. Vargo212,200President & Chief Operating OfficerRobert J. Hunt114,750Executive Vice President & Chief Financial OfficerGerald E. Colley76,250Senior Vice PresidentDavid J. Wilhite75,000Senior Vice PresidentExecutive Group11,031,900_______________1Eleven persons, including all of the persons named above.
The Board of Directors recommends that you vote FOR approval of the amendment to the AutoZone, Inc. 2000 Executive Incentive Compensation Plan.PROPOSAL 3
- APPROVAL OF INDEPENDENT AUDITORS— Approval of Independent Accountants
Ernst&& Young LLP,which has beenour independentauditoraccountants for the pasttwelvethirteen fiscal years, has again been selected by the Audit Committee to beAutoZone'sAutoZone’s independentauditorsaccountants for fiscal year2000.2001. Members of Ernst&& Young LLP will be present at the Annual Meeting to make a statement if they so desire and to answer any appropriate questions.
The Board of Directors recommends that you vote FOR approval of Ernst&& YoungLLP as independentauditors.accountants.
Other MattersWe do not know of any matters to be presented at the Annual Meeting other than those discussed in this proxy statement. If, however, other matters are properly brought before the Annual Meeting, your
proxyproxies will be able to vote those matters in their discretion.7
Other InformationSECURITY OWNERSHIP OF MANAGEMENTSecurity Ownership of Management
This table shows the beneficial ownership of common stock as of October12, 1999,17, 2000, by each director, the Chief Executive Officer, the other four most highly compensated executive officers, and allincumbentdirectors and executive officers as a group. Unless stated otherwise in the notes to the table, each person named below has sole authority to vote and invest the shares shown.
Beneficial Ownership as of October 17, 2000 Name of Beneficial Owner Shares Percent1 John C. Adams, Jr.2 354,297 * Andrew M. Clarkson3 479,020 * Charles M. Elson 4,902 * N. Gerry House4 4,808 * Robert J. Hunt5 252,647 * J.R. Hyde, III6 2,067,817 1.9 % James F. Keegan7 12,876 * Edward S. Lampert8 21,762,643 20.2 % W. Andrew McKenna9 4,589 * Michael W. Michelson10 514,839 * Ronald A. Terry11 14,834 * Timothy D. Vargo12 263,684 * Gerald E. Colley13 30,492 * Stephen W. Valentine14 123,145 * All directors and executive officers as a group (24 persons)15 26,251,446 24.1 %
Beneficial Ownershipas ofOctober 12, 1998Name of Beneficial OwnerSharesPercentJohn C. Adams, Jr.1*Less than 1%.110,407*Andrew M. Clarkson2480,820*N. Gerry House3748*Robert J. Hunt4190,287*J.R. Hyde, III52,256,4981.6%James F. Keegan611,521*Edward S. Lampert721,761,40015.7%Michael W. Michelson8513,483*Ronald A. Terry86,728*Timothy D. Vargo966,730*Gerald E. Colley105,683*David J. Wilhite1119,676*All incumbent directors andexecutive officers as agroup (19 persons)123,927,8522.8%*Less than 1%1 Calculated assuming shares under forward purchase agreements by AutoZone are not outstanding.
2Does not include 1,572 shares held in trusts for the benefit of Mr.
Adam'sAdams’ children. Includes100,000316,665 shares issuable upon exercise of stock options either immediately or within 60 days of October12, 1999.17, 2000.
23Includes 119,400 shares held by a charitable trust for which Mr. Clarkson is a trustee and shares investment and voting power, with respect to which Mr. Clarkson disclaims beneficial ownership. Does not include 1,000 shares owned by members of Mr.Clarkson'sClarkson’s immediate family nor does it include 28,000 shares held in trust for the benefit of a member of Mr.Clarkson'sClarkson’s family, with respect to which he disclaims beneficial ownership.
34Includes7481,608 shares which may be acquired immediately upon termination as a director by conversion of stock appreciation rights.
45Includes 2,000 shares owned by Mr.Hunt'sHunt’s wife and75,000129,166 shares which may be acquired upon exercise of stock options either immediately or within 60 days of October12, 1999.17, 2000.
56Includes740,000550,000 shares held by a charitable foundation for which Mr. Hyde is an officer and a director and for which he shares investment and voting power, and includes1,5592,878 shares which may be acquired immediately upon termination as a director by conversion of stock appreciation rights. Does not include 2,000 shares owned by Mr.Hyde'sHyde’s wife.
67Does not include 800 shares owned by a member of Mr.Keegan'sKeegan’s family with respect to which Mr. Keegan disclaims any beneficial ownership.
78Mr. Lampert is the Chief Executive Officer and a director of ESL Investments, Inc., a Delaware corporation.Mr. Lampert is also the managing member of ESL Investment Management, LLC,a Delaware limited liability company,and RBS Investment Management,LLC, a Delaware limited liability company.LLC. All shares indicated, other than 1,243 shares which are owned directly by Mr. Lampert, are owned by ESL Partners, L.P.,a Delaware limited partnership,ESL Limited,a Bermuda corporation,ESL Institutional Partners, L.P.,a Delaware limited partnership,Acres Partners, L.P.,a Delaware limited partnership,and Marion Partners, L.P., a Delaware limited partnership.Mr. Lampert may be deemed to have indirect beneficial ownership of the shares owned by these entities. See also footnote13 under Security Ownership of Certain Beneficial Owners, below.
89Includes1,600589 shares which may be acquired immediately upon termination as a director by conversion of stock appreciation rights.
910Includes50,0002,956 shares which may be acquired immediately upon termination as a director by conversion of stock appreciation rights.11 Includes 2,956 shares which may be acquired immediately upon termination as a director by conversion of stock appreciation rights.
12 Includes 220,833 shares which may be acquired upon exercise of stock options either immediately or within 60 days of October
12, 1999.17, 2000. Does not include 4,635 shares owned by members of Mr.Vargo'sVargo’s immediate family.
1013Includes5,16718,333 shares which may be acquired upon exercise of stock options either immediately or within 60 days of October12, 1999.17, 2000. Does not include 5,000 shares owned by Mr.Colley'sColley’s wife.
1114Includes18,666110,000 shares which may be acquired upon exercise of stock options either immediately or within 60 days of October12, 1999.17, 2000.
1215Includes479,5001,074,242 shares which may be acquired upon exercise of stock options either immediately or within 60 days of October12, 1999,17, 2000, and5,50710,398 shares which may be acquired immediately upon termination as a director by conversion of stock appreciation rights.Does not include shares deemed beneficially owned by Mr. Lampert.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERSSecurity Ownership of Certain Beneficial Owners
The following entities are known by us to own more than five percent of the outstanding common stock:
Beneficial OwnershipName and Addressof Beneficial OwnerSharesPercentCapital Research andManagement Company17,840,0005.6333 South Hope StreetLos Angeles, CA 90071ESL Investments, Inc.221,761,40015.7One Lafayette PlaceGreenwich, CT 06830FMR Corp.311,772,3048.582 Devonshire St.Boston, MA 02109W.P. Stewart & Co., Ltd.419,501,00014.0129 Front St.Hamilton, Bermuda
Beneficial Ownership Name and Address of Beneficial Owner Shares Percent1 Capital Research and Management Company2 8,140,000 7.5% 333 South Hope Street
Los Angeles, CA 90071ESL Investments, Inc.3 21,762,643 20.2% One Lafayette Place
Greenwich, CT 068301 Calculated assuming shares under forward purchase agreements by AutoZone are not outstanding.
2All information regarding Capital Research and Management Company is based upon the Schedule 13F for the period ended June 30,
1999.2000. Capital Research and Management Company has the sole power to vote and dispose of the shares deemed beneficially owned by it.
23 All information regarding ESL Investments, Inc., is based upon theForm 4 for the period ended September 30, 1999,Schedule 13D dated October 10, 2000, filed on behalf of a group consisting of ESL Investments, Inc., ESL Partners, L.P., ESL Limited, ESL Institutional Partners, L.P., Acres Partners, L.P., Marion Partners, L.P., and Edward S. Lampert. The general partner of ESL Partners, L.P., is RBS Partners, L.P. The general partner of RBS Partners, L.P. is ESL Investments, Inc. ESL Investment Management, LLC, is the investment manager of ESL Limited. RBS Investment Management, LLC, is the general partner of ESL Institutional Partners, L.P. ESL Investments, Inc., is the general partner of Acres Partners, L.P. Mr. Lampert is the managing9
member of ESL Investment Management, LLC, and RBS Investment Management, LLC. In their respective capacities, each of the foregoing may be deemed to be the beneficial owner of the shares of AutoZone common stock beneficially owned by other members of the group. As ofSeptember 30, 1999,October 10, 2000, ESL Partners, Inc., was the record owner of 10,775,083 shares, ESL Limited was the record owner of 2,645,021 shares, ESL Institutional Partners, L.P., was the record owner of 348,528 shares, Acres Partners, L.P., was the record owner of 6,867,928 shares,andMarion Partners, L.P., was the record owner of 1,124,840 shares, and Mr. Lampert was the record owner of 1,243 shares. Each entity or person has the sole power to vote and dispose of the shares deemed beneficially owned by it.See also footnote 7 under Security OwnershipCompensation of
Management, above.Directors
3All information regarding FMR Corp. is based upon the Schedule 13G dated February 1, 1999, filed on behalf of FMR Corp., Edward C. Johnson 3d and Abigail P. Johnson, and the Schedule 13F filed by FMR Corp. for the period ending June 30, 1999. FMR Corp. states that various persons have the right to receive, or the power to direct the proceeds from the sale of, the shares. No one person's interest in the shares is more than five percent of the total outstanding common stock. Fidelity Management & Research Company, a wholly-owned subsidiary of FMR Corp. and a registered investment advisor, is the beneficial owner of 11,590,000 shares as the result of acting as investment adviser to various investment companies. Edward C. Johnson 3d, FMR Corp. through its control of Fidelity, and the funds each has sole power to dispose of the 11,590,000 shares owned by the funds. Neither FMR Corp. nor Edward C. Johnson 3d, Chairman of FMR Corp. has the sole power to vote or direct the voting of the shares owned directly by the Fidelity Funds, which power resides with the funds' Boards of Trustees. Fidelity carries out the voting of the shares under written guidelines established by the funds' Boards of Trustees.
Fidelity Management Trust Company, a wholly-owned subsidiary of FMR Corp. and a bank, is the beneficial owner of 182,304 shares as a result of its serving as investment manager of the institutional accounts. Edward C. Johnson 3d and FMR Corp., through its control of Fidelity Management Trust Company, each has sole dispositive power over 182,304 shares and sole power to vote or to direct the voting of 182,304 shares of common stock owned by the institutional accounts.
4All information regarding W.P. Stewart & Co., Ltd., is based upon the Schedule 13G for the period ended December 31, 1998. W.P. Stewart & Co., Ltd., has the sole power to vote and dispose of the shares deemed beneficially owned by it.
Non-employee directors are paid an annual fee of $25,000 in quarterly installments, plus $1,000 for each Board meeting attended.In 1998,Under theBoard of Directors adopted theAutoZone, Inc., Second Amended and Restated Directors CompensationPlan. Under this plan,Plan, a non-employee director may receive no more than one-half of the annual and meeting fees immediately in cash, and the remainder of the fees must be taken in either common stock or the fee may be deferred in units with value equivalent to the value of shares of common stock as of the grant date (also known as"stock“stock appreciationrights"rights”).
Also inUnder the AutoZone, Inc., Second Amended and Restated Stock 1998the Board of Directors adopted the 1998 DirectorsDirector Stock OptionPlan. Under the stock option plan,Plan, on January 1 of each year, each non-employee director receives an option to purchase1,0001,500 shares of commonstock. On December 31 of each year,stock, and each non-employee director that owns common stock worth at least five times the annual fee paid to each non-employee director on an annual basis will receive an additional option to purchase1,0001,500 shares of common stock. In addition, each new director receives an option to purchase 3,000 shares upon election to the Board of Directors, plus a portion of the annual directors’ option grant prorated for the portion of the year actually served in office. These stock option grants are made at the fair market value as of the grant date.
Mr. Clarkson is an AutoZone employee, and for fiscal year19992000 was paid a salary and bonus of$62,500$75,000 and received other benefits ordinarily granted to all employees.10
EXECUTIVE COMPENSATIONExecutive CompensationSummary Compensation Table
This table shows the compensation paid to the Chief Executive Officer and the other four most highly paid executive officers for the past three fiscal years.
Name andPrincipal PositionAnnual Compensation SecuritiesLong TermCompensationAwardsYearSalaryBonus1Other AnnualCompensation2SecuritiesUnderlyingOptions/SARs3All OtherCompensation4John C. Adams, Jr.51999530,400265,2002,40003,916Chairman &1998520,000253,50003,048Chief Executive Officer1997413,952199,268350,0002,032Timothy D. Vargo61999424,400212,2002,40002,384President &1998416,000202,80003,048Chief Operating Officer1997356,859170,973250,0002,032Robert J. Hunt1999306,000114,7502,40025,0003,311Executive Vice President1998300,000117,00003,048& Chief Financial Officer1997261,76996,22350,0002,032Gerald E. Colley71999305,00076,25002,194Senior Vice President1998230,00074,75042,00340,0002,2131997110,67630,98918,44850,0002,122David J. Wilhite81999300,00075,0000832Senior Vice President1998192,40062,58850,0004661997130,76936,61530,0001,046
Long Term Compensation Awards Annual Compensation Securities Name and Other Annual Underlying All Other Principal Position Year Salary Bonus1 Compensation2 Options/SARs3 Compensation4 John C. Adams, Jr. 2000 541,000 541,000 1,769 50,000 3,600 Chairman & 1999 530,400 265,200 2,400 0 3,600 Chief Executive Officer 1998 520,000 253,500 — 0 3,048 Timothy D. Vargo 2000 424,400 328,910 2,040 30,000 3,600 President & 1999 424,400 212,200 2,400 0 3,600 Chief Operating Officer 1998 416,000 202,800 — 0 3,048 Robert J. Hunt 2000 312,000 234,000 1,430 10,000 3,600 Executive Vice President 1999 306,000 114,750 2,400 25,000 3,600 & Chief Financial Officer 1998 300,000 117,000 — 0 3,048 Gerald E. Colley 2000 312,000 179,760 — 15,000 3,600 Senior Vice President 1999 305,000 76,250 — 0 3,343 1998 230,000 74,750 42,003 40,000 2,213 Stephen W. Valentine 2000 268,077 159,981 1,811 10,000 3,590 Senior Vice President 1999 250,000 62,500 2,183 0 3,358 1998 215,500 70,047 — 0 2,332 1 Bonuses are shown for the fiscal year earned, but paid in the following fiscal year.
2 Amounts shown for fiscal years 1999 and 2000 are 401(k) plan matching contributions. Amounts shown for Mr. Colley for
1997 and1998 are relocation allowances.3 All amounts shown are stock options; AutoZone did not grant SARs to executive officers in the
1997,1998, 1999 or19992000 fiscal years. All options were granted in accordance with the 1996 Stock Option Plan, as amended and restated in 1997 and 1998.4 All Other Compensation consists of term life insurance provided for the benefit of the named
officer's beneficiaryofficer’s beneficiary.
.11
6Mr. Vargo was first elected Chief Operating Officer in December 1996, and was elected President in March 1997.
7Mr. Colley was a Vice President from June 1997 to October 1997, when he was elected Senior Vice President.
8Mr. Wilhite was a Vice President until October 1997 when he was elected Senior Vice President.
Option/SAR Grants in Last Fiscal Year
This table shows the number of stock options granted to certain executive officers during the most recent fiscal year. Executive officers were not granted SARs during the19992000 fiscal year.
PotentialRealizable Value atAssumed AnnualRates of Stock PriceAppreciationfor Option Term1Number ofSecuritiesUnderlyingOptions/SARsGranted% ofTotalOptions/SARsGranted toEmployeesin FiscalExerciseor BasePriceExpiration(#)Year($/Sh)Date5% ($)10% ($)John C. Adams, Jr.0Timothy D. Vargo0Robert J. Hunt225,0001.226.687510/24/2008419,5911,063,325Gerald E. Colley0David J. Wilhite0
Potential Realizable Value at Assumed Number of % of Total Annual Rates of Stock Securities Options/SARs Price Appreciation Underlying Granted to Exercise for Option Term1 Options/SARs Employees or Base Expiration Granted (#)2 in Fiscal Year Price ($/Sh) Date 5%($) 10%($) John C. Adams, Jr. 50,000 2.6 24 9/1/2009 754,674 1,912,491 Timothy D. Vargo 30,000 1.5 24 9/1/2009 452,804 1,147,495 Robert J. Hunt 10,000 0.5 24 9/1/2009 150,935 382,498 Gerald E. Colley 15,000 0.8 24 9/1/2009 226,402 573,747 Stephen W. Valentine 10,000 0.5 24 9/1/2009 150,935 382,498 1 The 5% and 10% appreciation rates have been arbitrarily set by the Securities and Exchange Commission and do not forecast actual stock price appreciation.
2 Options shown vest in one-third increments on each of the third, fourth, and fifth anniversaries after the grant date.
Aggregated Option/SAR Exercises in Last Fiscal Year and FY-End Option/SAR Values
This table shows stock option exercises by certain executive officers during the most recent fiscal year, and their exercisable and unexercisable stock options as of August28, 1999.26, 2000. The fiscal year-end value of"in-the-money"“in-the-money” stock options is the difference between the exercise price of the option and the market value of the common stock (not including options with an exercise price greater than the fair market value) on August27, 1999 (the last trading day before the fiscal year end)26, 2000, which was$24$22 per share. Executive officers do not have SARs.
Shares Acquiredon Exercise (#)ValueRealized ($)Number of SecuritiesUnderlying UnexercisedOptions/SARsat FY-End (#)Value of UnexercisedIn-the-Money Options/SARsat FY-End ($)ExercisableUnexercisableExercisableUnexercisableJohn C. Adams, Jr.050,000700,0000937,500Timothy D. Vargo050,000550,0000690,625Robert J. Hunt037,500187,5000193,750Gerald E. Colley4,834128,1015,16790,000115,6120David J. Wilhite011,333115,667038,750
Number of Securities Value of Unexercised Underlying Unexercised In-the-Money Options/SARs Options/SARs Shares at FY-End (#) at FY-End ($) Acquired Value on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable John C. Adams, Jr. 0 — 266,665 533,335 124,999 250,001 Timothy D. Vargo 0 — 220,833 409,167 93,750 187,500 Robert J. Hunt 0 — 91,666 143,334 31,249 62,501 Gerald E. Colley 5,167 140,478 5,000 100,000 0 0 Stephen W. Valentine 0 — 105,000 55,000 532,150 37,500 12
Pension Plan Table
This table shows the estimated annual benefits payable upon retirement at age 65 in19992000 under our pension plan. Sixty monthly payments are guaranteed after retirement.
Years of ServiceRemuneration1520253035$100,000$21,992$30,450$38,909$42,292$42,292120,00026,93237,29047,64951,79251,792140,00031,87244,13056,38961,29261,292160,00034,83648,23461,63366,99266,992180,00034,83648,23461,63366,99266,992
Years of Service Credit Remuneration 15 20 25 30 35 200,000 32,002 45,336 58,670 66,671 66,671 300,000 45,000 60,000 75,000 75,000 75,000 400,000 60,000 80,000 100,000 100,000 100,000 500,000 75,000 100,000 125,000 125,000 125,000 600,000 90,000 120,000 150,000 150,000 150,000 700,000 105,000 140,000 175,000 175,000 175,000 800,000 120,000 160,000 200,000 200,000 200,000 900,000 135,000 180,000 225,000 225,000 225,000 1,000,000 150,000 200,000 250,000 250,000 250,000 1,100,000 165,000 220,000 275,000 275,000 275,000 1,200,000 180,000 240,000 300,000 300,000 300,000 1,300,000 195,000 260,000 325,000 325,000 325,000
Remuneration includes salary and bonus. The benefit is based on the average monthly earnings for the consecutivefive yearfive-year period during which a participant had his or her highest level of earnings. The benefits stated in the table will not be reduced by Social Security or other amounts received by a participant. Remuneration shown is assumed to be theparticipant's five yearparticipant’s five-year average earnings.
Neither remuneration greater than $160,000 nor years of service in excess of 25 years is credited for benefit calculation purposes. The pension plan was amended on January 1, 1998. The difference in the table between 25 and 30 years of service is due to the calculation of the prior plan minimum benefit which was fixed effective December 31, 1997. A participant with 25 years of service today would have had only 23 years under the prior plan minimum, whereas the participant with 30 years of service today would have the full 25 years of service credit under the prior plan minimum.
The number of years of credited service certain executive officers have accrued under the pension plan as of the most recent fiscal year end are:
Name Years of
ServiceJohn C. Adams, Jr. 413 Timothy D. Vargo 1314 Robert J. Hunt 45 Gerald E. Colley 1011 David J. WilhiteStephen W. Valentine1311 Compensation Committee Report on Executive Compensation
The executive compensation program is designed to attract and retain executives who are key to our long-term success. In this process, we want to align anexecutive'sexecutive’s compensation withAutoZone'sAutoZone’s attainment of business goals and the increase in share value. The Compensation Committee reviews executive compensation annually and makes appropriate adjustments based on company performance, achievement ofpredetermined andindividual goals, and changes in anexecutive'sexecutive’s duties and responsibilities. The compensation of other AutoZone employees is based on a similar philosophy.Compensation Philosophy
Executive compensation consists of salary, bonus, and stock options.
Salary.The Committee desires that overall compensation reflect eachexecutive'sexecutive’s performance over time. Base salaries are set at levels subjectively determined by the Compensation Committee to adequately reward and retain capable executives, including the Chief Executive Officer.
At the beginning of each fiscal year, the Compensation Committee reviews and establishes the annual salary ofeach officer, includingthe Chief Executive Officer, the Chief Operating Officer, and the Chief Financial Officer. The Committee makes an independent, subjective determination of the appropriate level ofeach officer's salary. The Compensation Committee employs a compensation consultant to assist the Committee in comparing AutoZone's compensation for its executives to that of other retailers. However, the Committee uses this information to verify the reasonableness of the compensation, but does not have a predetermined compensation objective.these officers’ salaries. The Committee does not use any mechanical formulations or weighting of any of the factors13
considered. In addition, the Compensation Committee approves the salaries of the other officers as recommended by the Chief Executive Officer.
Bonus.Each fiscal year executive officers (including the Chief Executive Officer) are paid a bonus based onAutoZone's attainment of increases in earnings over the prior year andthe attainment ofothergoalsasset by the Compensation Committee.A target isObjective goal targets are set at the beginning of each fiscal year and bonuses are paid upon achievement of the goal targets. An executive’s goals may be based on one or more criteria related to the executive’s performance and to the performance of the company as apercentage of the attainment of the objectives.whole. A maximum bonus is established for each executiveofficer.officer as a percentage of salary. The maximum bonus attainable for the last fiscal year was 125% of salary for both the Chief Executive Officer and the Chief Operating Officer. As a general matter, as anexecutive'sexecutive’s level of management responsibility in the Company increases, the greater the portion of his or her potential total compensation depends on theCompany'sCompany’s performance as measured byincreases in earnings over the previous year. No bonus is payable under the bonus plan unless a predetermined minimum target is achieved. A significant portion of each officer's compensation is directly related to the performance of the Company. Please see Proposal 2 of this Proxy Statement for a more complete discussion of the AutoZone, Inc. 2000 Executive Incentive Compensation Plan under which bonuses will be paid to executive officers in future years.attaining goal objectives.
Stock Options.To align the long-term interests of management and our stockholders, the Compensation Committee awards non-qualified stock options to all levels of management, including individual store managers.StockPreviously, stock option grantsarewere made by a subjective determination by the Committee, upon recommendation by the Chief Executive Officer (for grants other than those to the Chief Executive Officer), whoconsidersconsidered therecipient'srecipient’s past performance and current responsibilities, and the number of shares previously granted to that person.
Stock Ownership
Beginningwithin the 2001 fiscal year, stock options will be granted to AutoZone’s executives and managers upon initial hire and thereafter annually in accordance with guidelines established by the Committee for attainment of company goals and individual performance within a position.Stock Ownership
Beginning the 2000 fiscal year, the Compensation Committee has implemented the AutoZone, Inc. Management Stock Ownership Plan to encourage and facilitate the ownership of AutoZone stock by senior management and
members of the Board of Directors.directors. The plan provides guidelines for stock ownership levels by senior management and directors. AutoZone will loan one-half of the necessary funds to theexecutive officers and new directors.senior manager or director. The borrower is at risk and signs a promissory note for the full amount borrowed. As a condition to obtaining the loan,beginning as of the bonus paid for the 2000 fiscal year,each senior executive must commit to use a set percentage of any bonus received to acquire AutoZone common stock and must fully participate inAutoZone'sAutoZone’s employee stock purchase plan.Long-Term Incentive Plan
Beginning as of the 2001 fiscal year, the Compensation Committee has established a long-term incentive plan to place strong emphasis on the achievement of specified levels of AutoZone’s long-term performance. Under the plan, the Compensation Committee would establish three-year performance goals at the beginning of each fiscal year, with awards under the plan paid to senior executives in cash after the passage of the three-year period. We anticipate that the plan will be submitted for a vote of the stockholders at the 2001 annual meeting, prior to any award being paid under the plan to any executive.
CEO Compensation
InFor the last fiscal year, John C. Adams, Jr., Chairman and Chief Executive Officer, was paid$530,400$541,000 in salary and$265,200$541,000 in bonus. Mr. Adamshas anreceived options to purchase 50,000 shares in the 2000 fiscal year which vest in one-third increments on the third, fourth and fifth anniversaries after the date of grant.Mr. Adams announced in September 2000 that he would step aside as CEO as soon as a replacement is found. Mr. Adams’ employment agreement
whichwill be amended to reflect his new position. The new employment agreement is described in the proxy statement under the section entitled"Employment Agreements" in this Proxy Statement. Mr. Adams did not receive any stock options during the last fiscal year.“Employment Agreements.”14
Tax Deductions for Compensation
The federal tax code limits the amount of compensation that we may deduct in any year for the Chief Executive Officer and our other four most highly paid officers to $1 million. However, this deduction limitation does not apply to performance-based compensation as defined in the tax code.In order for AutoZone to continue to be able to deduct any compensation which may exceed $1 million, the Committee recommends that the stockholders adopt the AutoZone, Inc. 2000 Executive Incentive Compensation Plan, which is Proposal 2 in this Proxy Statement.Our compensation plans are generally designed and implemented so that they qualify for full deductibility. However, we may from time to time pay compensation to our executive officers that may not be fully deductible.
This report was unanimously adopted by the Compensation Committee and approved by the Board of Directors.Ronald A. Terry, Chairman
N. Gerry HouseEdward S. LampertJames F. KeeganW. Andrew McKennaStock Performance Graph
This graph shows, from the end of fiscal year19941995 to the end of fiscal year1999,2000, changes in the value of $100 invested in each ofAutoZone'sAutoZone’s common stock, Standard& Poor's Retail Store Composite Index, Standard & Poor's& Poor’s 500 Composite Index, and a peer group consisting of other automotive aftermarket retailers.
AutoZone, Inc. Peer Group S&P 500 Index Aug. 95 100.00 100.00 100.00 Aug. 96 101.40 112.30 119.11 Aug. 97 105.12 115.22 167.49 Aug. 98 100.47 114.53 194.27 Aug. 99 89.30 111.20 258.47 Aug. 00 81.86 74.25 292.24
[PERFORMANCE GRAPH]
Aug. 94Aug. 95Aug. 96Aug. 97Aug. 98Aug. 99AutoZone, Inc.$100.00$108.04$109.55$113.57$104.27$ 95.73S&P 500 Index$100.00$121.45$144.19$202.81$219.22$306.52S&P Retail Store Composite Index$100.00$101.71$122.63$157.84$206.85$270.83Peer Group$100.00$103.37$116.33$119.35$114.71$114.02
In past proxy statements, we had used the Standard & Poor's Retail Store Composite Index as a comparison index, principally because the specific industry of other automotive aftermarket retailers had few public companies against which to compare. We now believe that the group of public automotive aftermarket retailers is large enough to present a valid comparison to the value of our common stock, and will be using this peer group index in the future.The peer group consists of CSK Auto Corporation, Discount Auto Parts, Inc., Genuine Parts Company,O'ReillyO’Reilly Automotive, Inc., and The Pep Boys-Manny, Moe&& Jack.15
Audit Committee Report
To the Board of Directors of AutoZone, Inc.:
The Audit Committee of AutoZone, Inc., has reviewed and discussed AutoZone’s audited financial statements for the year ended August 26, 2000. In addition, we have discussed with Ernst & Young LLP, AutoZone’s independent auditing firm, the matters required by Codification of Statement on Auditing Standards No. 61.
The committee also has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1, and we have discussed with AutoZone’s management and the auditing firm such other matters and received such assurances from them as we deemed appropriate.
As a result of our review and discussions, we have recommended to the Board of Directors the inclusion of AutoZone’s audited financial statements in the annual report for the year ended August 26, 2000, on Form 10-K.
James F. Keegan, Chairman
Edward S. LampertRonald A. TerryEmployment Agreements
EMPLOYMENT AGREEMENTSMr. Adams
In September 2000, Mr. Adams announced that he would step aside as Chief Executive Officer as soon as a replacement was found. In October 2000, Mr.Vargo, Mr. Hunt, Mr. Colley,Adams andMr. Wilhite have eachAutoZone entered into a new five-year employmentagreements.agreement which becomes effective as of the date a new CEO is elected. In the new agreement, Mr.Adams'sAdams is retained as AutoZone’s Chairman at a minimum base salary of $575,000, plus bonuses, for each year that Mr. Adams remains as Chairman. During the term of the new agreement,statesMr. Adams is prohibited from competing against AutoZone or from hiring away any AutoZone employees. Mr. Adams’ service as Chairman may be terminated by AutoZone’s Board with cause at any time and after such termination all compensation to Mr. Adams ceases. The Board may terminate Mr. Adams’ service as Chairman without cause as of the date of any annual stockholders meeting following the Board’s delivery of at least 90 days written notice of termination. In addition, the Board may terminate Mr. Adams’ service as Chairman within 90 days after the election of a new CEO. Upon termination of Mr. Adams’ services as Chairman without cause, Mr. Adams shall remain as an AutoZone employee and shall receive his base salary for the remainder of the term of the agreement, shall continue to accrue credit under AutoZone’s retirement plans for that period of time, shall receive six months administrative assistance, and other benefits granted to other AutoZone employees. In addition, if Mr. Adams’ service as Chairman is terminated without cause before August 26, 2001, he will receive a bonus for the full 2001 fiscal year. If Mr. Adams’ service as Chairman is terminated after August 26, 2001, or if Mr. Adams voluntarily resigns his position as Chairman later than two years after the effective date of the agreement, he will receive a bonus for the prorated portion of the year in which he served as Chairman. Under the Agreement, “cause” means, in the good faith determination of the Board, the employee’s willful engagement in conduct which is demonstrably or materially injurious to AutoZone, monetarily or otherwise.Under Mr. Adams’ current agreement, which has terms and conditions similar to those in the agreements described for all other executive officers below, Mr. Adams is employed as Chairman and
Chief Executive Officer,CEO, with a minimum annual salary of$530,400,$530,000 and a bonus potential of 100% of annual salary.In addition, Mr.
Vargo'sAdams receives credit for time in service with Malone & Hyde under AutoZone’s supplemental pension plan.16
Other Executive Officers
Most of AutoZone’s executive officers have employment agreements. Mr. Vargo has an employment agreement that states that he is employed as President and Chief Operating Officer, with a minimum annual salary of $424,400 and a bonus potential of 100% of annual salary. Mr.
Hunt'sHunt’s agreement states that he is employed as Executive Vice President and Chief Financial Officer, with a minimum annual salary of $306,000 and a bonus potential of 75% of annual salary. Mr.Colley'sColley’s agreement states that he is employed as Senior Vice President with a minimum annual salary of $305,000, and a bonus potential of 50% of annual salary. Mr.Wilhite'sValentine’s agreement states that he is employed as Senior Vice President with a minimum annual salary of$300,000$250,000, and a bonus potential of 50% of annual salary.
All minimum salaries and bonus are subject to increase by the Compensation Committee.TheseAll agreements continue until terminated either byeitherthe executive or by us. If an agreement is terminated by us for cause, or by the executive for any reason, the executive will cease to be an employee, and will cease to receive salary, bonus and other benefits. If an agreement is terminated by us without cause, the executive will remain an employee for three years after the termination date and will continue to receive his then-current salary and other benefits of an employee, and will receive a prorated bonus for the fiscal year in which he was terminated, but no bonuses thereafter. If an agreement is terminated by us or by the executive for reasons other than a change in control, then the executive will be prohibited from competing against AutoZone for three years after the termination date.
"Cause"“Cause” is defined in each agreement as the willful engagement by the executive in conduct which is demonstrably or materially injurious to AutoZone, monetarily or otherwise."Change“Change incontrol"control” in each agreement generally means (although more specifically defined in each agreement) either the acquisition of a majority of our voting securities by or the sale of all or substantially all of our assets to a non-affiliate of the company.
Mr. Hyde is the sole stockholder of a corporation that owns an aircraft that was leased to us for our business at times during the 1999 fiscal year. For fiscal year 1999, we paid the corporation that owned the aircraft lease feesCertain Relationships andexpenses totaling $207,418. In addition, we employ pilots that operated the aircraft for Mr. Hyde's personal benefit at times during the 1999 fiscal year. For the use of the pilots' services, Mr. Hyde paid us $98,000. We believe that the charges for our use of the plane and the amount that we charge Mr. Hyde for the use of the pilots are reasonable and equivalent to the fees charged by others for the use of similar aircraft and pilots.Related Transactions
Upon his retirement as Chairman in 1997, Mr. Hyde entered into an agreement not to compete againstthe CompanyAutoZone until March 2002. In fiscal year1999,2000, under the terms of that agreement, we paid Mr. Hyde$301,377,$293,693, and provided him personal security services valued at approximately$48,351.$54,745.Mr. Elson is Of Counsel to Holland & Knight, a law firm which provided service to AutoZone related to one real estate matter in the 2000 fiscal year for fees not exceeding $7,000. Mr. Elson took no part in the service provided as a result of the engagement and was not consulted related to the engagement.
17
Indebtedness of ManagementEffective as of the beginning of the 2000 fiscal year, the Board of Directors
hasadopted the AutoZone, Inc. Management Stock Ownership Plan. Under this plan,eachdirectors and executiveofficer is encouragedofficers are required to purchase and maintain ownership of AutoZone stock in an amountwhichthat is asetmultiple ofhistheir annualsalary.salary or director’s fees. As a part of the program, we have agreed to loan each outside director and executive officer up to one-half of the funds required to purchase the stock. The notes are demand notes which mature in fiveyears or upon termination of the officer's employment.years. Interest accrues at a 6% annually compoundedrate, which approximates the applicable federal rate as set by the Internal Revenue Service.rate. As of October 25, 2000, AutoZone’s executive officers and directors had thedatefollowing balances, each ofthis Proxy Statement, Mr. Adams has a principalwhich is the highest balance during the term of$402,941, Mr. Vargo has a principal balance of $848,800, Mr. Hunt has a principal balance of $408,063, and Mr. Colley has a principal balance of $300,000.the loan:
Name Title Indebtedness John C. Adams, Jr. Chairman & CEO $ 784,820 Timothy D. Vargo President & COO $ 903,130 Robert J. Hunt Executive Vice President & CFO $ 433,927 Michael B. Baird Senior Vice President $ 215,318 Bruce G. Clark Senior Vice President & CIO $ 132,805 Gerald R. Colley Senior Vice President $ 318,941 Joseph P. Fabiano Senior Vice President $ 244,642 Harry L. Goldsmith Senior Vice President $ 224,281 Michael E. Longo Senior Vice President $ 257,307 Robert D. Olson Senior Vice President $ 277,348 William C. Rhodes, III Senior Vice President $ 184,972 Stephen W. Valentine Senior Vice President $ 305,015 N. Gerry House Director $ 65,582 Section 16(a)
BENEFICIAL OWNERSHIP REPORTING COMPLIANCEBeneficial Ownership Reporting Compliance
Securities laws require our executive officers, directors, and owners of more than ten percent of our common stock to file reports (Forms 3, 4, and 5) with the Securities and Exchange Commission and the New York Stock Exchange relating to the number of shares of common stock that they own, and any changes in their ownership. To our knowledge, all persons required to file such forms have done so in a timelymanner.manner, other than one Form 3 filed by Mr. Valentine in 1995 which inadvertently omitted some of his holdings in AutoZone common stock and, in fiscal year 2000, one transaction by Mr. Adams and one transaction by Mr. Vargo were filed late on Forms 4.
STOCKHOLDER PROPOSALS FOR 2000 ANNUAL MEETINGStockholder Proposals for 2001 Annual Meeting
Stockholder proposals for inclusion in the Proxy Statement for the Annual Meeting in the year20002001 must be received by June22, 2000. Stockholders27, 2001. In accordance with our bylaws, Stockholder proposals received afterJune 22, 2000,August 16, 2001, but by September8, 2000,15, 2001, may be presented at the meeting, but will not be included in the20002001 Proxy Statement. Any stockholder proposal received after September8, 2000,15, 2001, will not be eligible to be presented for a vote to the stockholders in accordance withAutoZone'sour bylaws. Any proposals must be mailed to AutoZone, Inc., Attention: Secretary, Post Office Box 2198, Dept. 8074, Memphis, Tennessee38101-9842.38101-2198.
ANNUAL REPORTAnnual Report
A copy of our Annual Report is being mailed with this Proxy Statement to all stockholders of record.
By the order of the Board of Directors,
HARRY L. GOLDSMITH Secretary
Memphis, Tennessee
October25,27, 200018
Appendix A
Audit Committee CharterAdopted December 9, 1999Revised June 6, 2000I. Mission/Purpose
The broad purpose of the audit committee is to assist AutoZone, Inc.’s Board of Directors (the “Board”) in fulfilling its oversight responsibilities by reviewing (1) the financial information that will be provided to the stockholders and others, (2) the development and implementation of systems of internal controls by management and the Board and (3) all audit processes.
II. Organization
The audit committee members shall not be officers or employees of AutoZone or of any of its related organizations. In addition, each member shall be independent of management and free from business relationships that might conflict with their ability to exercise independent judgment regarding AutoZone’s financial matters. Furthermore, each audit committee member shall have a minimum level of financial literacy and at least one member should possess accounting or financial expertise.
III. General Functions
A. The audit committee shall serve as an informed voice to the Board in support of AutoZone’s accounting and auditing groups in their responsibilities for control and reporting of all financial transactions.
B. The audit committee shall provide a channel of communication between the internal auditors, independent accountants, and the Board. The audit committee shall meet in private session with the internal auditors and the independent accountants to discuss the process and progress of their work.
�� C. The audit committee shall report committee actions to the Board and may make appropriate recommendations.
D. The committee shall meet quarterly and even more frequently if circumstances warrant such meetings.
IV. Specific Functions
A. The audit committee shall review annually the qualifications and fees of the independent public accountants recommended by management and recommend to the board the firm to be selected to audit the financial statements of the Company for the next fiscal year. In addition, the audit committee should review management’s plans for any significant engagements of the public accountants or its affiliates for management consulting services. The committee shall discuss with the auditors their independence from management and the Company and the matters included in the written disclosures required by the Independence Standards Board.
B. The audit committee shall, after completion of each annual audit, review with management and the external auditors, the audit report, the management letter relating to the audit report, any significant questions (resolved or unresolved) between management and the public accountants that arose during the audit or in connection with the preparation of the annual financial statements, and the cooperation afforded or limitations, if any, imposed by management in the conduct of the audit.
C. The audit committee shall review the effectiveness of AutoZone’s internal audit process and adequacy of staff and resources; review the cooperation afforded or limitations, if any, imposed by management in the conduct of the internal auditing.
A-1
EXHIBIT AD. The audit committee shall review the adequacy of AutoZone’s computerized information systems control and security with the independent accountant and the Vice President of Financial Planning and Control.
E. The audit committee shall review with the Vice President of Financial Planning and Control and the independent accountant the results of their examination of AutoZone’s code of conduct.
F. The audit committee shall review the legal and regulatory matters that may have a material effect on the organization’s financial statements, compliance policies and programs.
G. The audit committee shall review the quality, effectiveness and appropriateness of AutoZone’s accounting practices, particularly the degree of aggressiveness or conservatism of its accounting principles and underlying estimates.
H. The committee shall review the interim financial statements with management and the independent auditors prior to the filing of the Company’s Quarterly Report on Form 10-Q. Also, the committee shall discuss the results of the quarterly review and any other matters required to be communicated to the committee by the independent auditors under generally accepted auditing standards. The chair of the committee may represent the entire committee for the purposes of this review.
I. The committee shall review with management and the independent auditors the financial statements to be included in the Company’s Annual Report on Form 10-K (or the annual report to shareholders if distributed prior to the filing of Form 10-K), including their judgment about the quality, not just acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. Also, the committee shall discuss the results of the annual audit and any other matters required to be communicated to the committee by the independent auditors under generally accepted auditing standards.
J. The audit committee shall review the adequacy of AutoZone’s systems of internal accounting controls, review of overall compliance with administrative policies and recommend to the Board of Directors any changes in the system of internal controls, procedures and practices which the Committee determines to be appropriate. Such controls shall be evaluated through a review of the reports issued by AutoZone’s internal auditors and the independent public accountants, which identify and describe control weaknesses. The Committee shall inquire as to whether management is taking appropriate corrective action.
K. The audit committee shall review the scope and plan for the external audit and internal audits for the year.
L. The audit committee shall review and report to the Board on compliance with the Foreign Corrupt Practices Act and the Corporation’s policies on business integrity, and ethics and conflict of interest.
M. The audit committee shall be completely accessible to the Vice President of Financial Planning and Control, the independent accountant, and management (both individually and collectively) to discuss any matters the committee or these groups believe should be discussed privately with the audit committee.
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APPENDIX B
AUTOZONE, INC.
AMENDED AND RESTATED
2000 EXECUTIVE INCENTIVE COMPENSATION PLAN
1.PURPOSE.Purpose
The AutoZone, Inc. 2000 Executive Incentive Compensation Plan("Plan"(“Plan”) is designed to provide incentives and rewards to eligible employees of AutoZone, Inc. (the"Company"“Company”) and its affiliates who have significant responsibility for the success and growth of the Company and assist the Company in attracting, motivating, and retaining key employees on a competitive basis. The Plan is designed to ensure that the annual bonus paid pursuant to this Plan to eligible employees of the Company is deductible under Section 162(m) of the Internal Revenue Code of 1986, as amended (the"Code"“Code”). This Plan shall be ratified by theCompany'sCompany’s stockholders pursuant to 26 C.F.R.§§ 1.162-27(e)(4)(vi) at the annual meeting to be held on December 9, 1999, and shall be effective for the entire 2000 fiscal year. If the stockholders do not ratify the Plan, the Plan shall not become effective.2.
ADMINISTRATION OF THE PLAN.Administration of the Plan
The Plan shall be administered by the Compensation Committee of the Board of Directors of the Company("Committee"(“Committee”). The Committee shall be appointed by the Board of Directors of the Company and shall consist of at least two outside directors of the Company that satisfy the requirements of Code Section 162(m). The Committee shall have the sole discretion and authority to administer and interpret the Plan in accordance with Code Section 162(m). TheCommittee'sCommittee’s interpretations of the Plan, and all actions taken and determinations made by the Committee pursuant to the powers vested in it hereunder, shall be conclusive and binding on all parties concerned, including the Company, its stockholders and any person receiving an award under the Plan.3.
ELIGIBILITY.Eligibility
The individuals entitled to participate in the Plan shall be the executive officers of the Company, as determined by the Committee.4.
AWARDS.Awards
Executive officers as determined by the Committee may be granted annual incentive awards under this Plan at such times of each year as will satisfy the requirements of Code Section 162(m), provided, however, that if an individual becomes an executive officer during a year, an incentive goal for that individual shall be made for that fiscal year at the time she or he becomes an executive officer. The Committee may, in its discretion, grant annual incentive awards to non-executive officers and managers of the Company outside of this Plan.
The annual incentive award to each executive officer shall be based on the Company, a subsidiary or division, attaining one or more of the following objective goals as established by the Committee for the fiscal year:
(a) earnings,
(b) earnings per share,
(c) common stock price,
(d)market share,
(e)revenue,
(f)Operating or net cash flows,
(g)pre-tax profits,
(h)earnings before interest and taxes,
(i)return on capital
(j)economic value added,
(k)return on inventory
(l)operating margin
(m)revenue
(n)gross profit margin
(a) earnings(b) earnings per share(c) sales(d) market share(e) revenue(f) operating or net cash flows(g) pre-tax profits(h) earnings before interest and taxesB-1
(i) return on capital(j) economic value added(k) return on inventory(l) EBIT margin(m) gross profit margin(n) sales(o) sales per square foot(p) comparable store salesDifferent measures of goal attainment may be set for different plan participants. The performance goal may be a single goal or a range with a minimum goal up to a maximum goal, with corresponding increases in the incentive award up to the maximum award set by the Committee and as may be limited by this Plan. Such performance goals may disregard, at the
Committee'sCommittee’s discretion, the effect of one-time charges and extraordinary events such as asset write-downs, litigation judgments or settlements, changes in tax laws, accounting principles or other laws or provisions affecting reported results, accruals for reorganization or restructuring, and any other extraordinary non-recurring items, acquisitions or divestitures and any foreign exchange gains or losses. These goals shall be established by the Committee either by written consent or as evidenced by the minutes of a meeting at such times as to qualify amounts paid under this Plan for tax deductible treatment under Code Section 162(m).
Payment of an earned award will be made in cash, or at the option of the Committee, in whole or in part in Company common stock. Upon completion of each fiscal year, the Committee shall review performance verses the established goal, and shall certify (either by written consent or as evidenced by the minutes of a meeting) the specified performance goals achieved for the fiscal year (if any), and direct which award payments are payable under the Plan, if any. No payment will be made if the minimum pre-established goals are not met. The Committee may, in its discretion, reduce or eliminate anindividual'sindividual’s award that would have been otherwise paid. No individual may receive in any one fiscal year an award under the Plan of an amount greater than the lesser of (i)150%200% of suchindividual'sindividual’s base salary for that year or (ii) $2 million.5.
MISCELLANEOUS PROVISIONS.Miscellaneous Provisions
(a)The Company shall have the right to deduct all federal, state, or local taxes required by law or Company policy from any award paid.
(b)Nothing contained in this Plan grants to any person any claim or right to any payments under the Plan. Such payments shall be made at the sole discretion of the Compensation Committee.
(c)Nothing contained in this Plan or any action taken by the Committee pursuant to this Plan shall be construed as giving an individual any right to be retained in the employ of the Company.
(d)The Plan shall be unfunded. The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any award under the Plan.
(e)The Plan may be amended, subject to the limits of Code Section 162(m), or terminated by the Committee at any time. However, no amendment to the Plan shall be effective without prior approval of theCompany'sCompany’s stockholders which would (i) increase the maximum amount that may be paid under the Plan to any person or (ii) modify the business criteria on which performance targets are to be based under the Plan.
(f)This Plan shall terminate on the fifth anniversary after the date of ratification by theCompany'sCompany’s stockholders.B-2
AUTOZONE, INC.
Proxy Solicited on Behalf of the Board of Directors ofthe Company for Annual Meeting of Stockholders
PROXYProxy Solicited on Behalf of the Board of Directors of
the Company for Annual Meeting of StockholdersP
R
O
X
YI hereby appoint Harry L. Goldsmith and Donald R. Rawlins, and each of them, as proxies, with full power of substitution, to vote all shares of common stock of AutoZone, Inc., which I would be entitled to vote at the Annual Meeting of AutoZone, Inc., to be held at the Orpheum Theatre, 203J.R. Hyde III Store Support Center, 123 SouthMainFront Street, Memphis, Tennessee, on Thursday, December9, 1999,14, 2000, at 10 a.m., and at any adjournments, on items 1, 2 and 3, as I have specified andsuchin their discretion on other matters as may come before the meeting.Election of Directors - Nominees: (change of address)address/comments)(01) John C. Adams, Jr., (02) Andrew M. Clarkson
(03)Charles M. Elson, (04) N. Gerry House,(04)
(05) Robert J. Hunt,(05)(06) J.R. Hyde, III,(06)(07) James F. Keegan,(07)
(08) Edward S. Lampert,(08)(09) W. Andrew McKenna,
(10) Michael W. Michelson,(09) Ronald A. Terry,and(10)(11) Timothy D.Vargo.Vargo___________________________________
___________________________________
___________________________________
___________________________________
You are encouraged to specify your choices by marking the appropriate boxes, SEE REVERSE SIDE, but you need not mark any boxes if you wish to vote in accordance with the Board of Director'sDirectors’ recommendations.[Map to Orpheum Theatre appears here]FOLD AND DETACH HERE
You are invited
to attend theANNUAL MEETING
OF STOCKHOLDERSDecember
9, 199914, 2000
10:00 a.m.
Orpheum TheatreJ.R. Hyde III Store Support Center203123 SouthMainFront Street
Memphis, Tennessee
[X]Please mark your
votes as in thisexample.example4631 This proxy when properly executed will be voted in the manner directed below. If no direction is made, this proxy will be voted FOR the election of directors and FOR proposals 2 and 3.
The Board of Directors recommends a vote FOR Proposals 2 and 3. FOR WITHHELD FOR AGAINST ABSTAIN 1. Election of
Directors
(see reverse)2. Approval of
amendment to
executive
compensation plan4. In the discretion of
the proxies named
herein, upon such
other matters as
may properly come
before the meetingFor, except vote withheld from the following nominee(s): ______________________________________ 3. Approval of
Independent
Accountants.
The Board of Directors recommends a vote FOR proposals 2 and 3.FORWITHHELDFORAGAINSTABSTAIN1.Election ofDirectors(see reverse)[_][_]2.Approval ofexecutive compensationplan.[_][_][_]4.In the discretionof the proxiesnamed herein,upon such other matters as may properly comebefore themeeting.For, except vote withheld from the following nominee(s):3.Approval ofIndependent Auditors.[_][_][_]
[_]Change of Address
(Phone:)
Please write new address
on reverse side.
SIGNATURE(S) _____________________________________________ _____________________________________________________DATE ____________________DATE _________________________ The signer hereby revokes all proxies heretofore given by the signer to vote at the meeting or any adjournments thereof. NOTE: NOTE:Please sign exactly as name appears hereon. Joint owners should each sign. When signing as attorney, executor,administrator, trustee or guardian, please give fulltitle.details.FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL
lFOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAILl
Internet and Telephone Voting
We encourage you to take advantage of these convenientnewwaysby whichthat you can vote your shares. You can vote your shares through the Internet or the telephone. This eliminates the need to return the proxy card.
To vote your shares through the Internet or the telephone you must use the control number printed in the box above just below the perforation. The series of numbers thatappearappears in the box above must be used to access the system.
1.To vote over the Internet:Log on the Internet and go to the Web site http://www.eproxyvote.com/azo
• Log on the Internet and go to the Web site http://www.eproxyvote.com/azo
2.To vote over the telephone:On a touch-tone telephone call toll free 1-877-PRX-VOTE (1-877-779-8683)
• On a touch-tone telephone call toll free 1-877-PRX-VOTE (1-877-779-8683)
Your Internet or telephone vote authorizes the named proxies in the same manner as if you marked, signed, dated and returned the proxy card.
If you choose to vote your shares through the Internet or the telephone, you should not mail back your proxy card.Your vote is important. Thank you for voting.