SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-
6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to (sec.) 240.14a-11(c) or (sec.)
240.14a-12
AUTOZONE, INC.
(Name of Registrant as Specified In Its Charter)
(none)
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing
fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing party:
4) Date Filed:
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[AUTOZONE(R) LOGO]
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 17, 1998
To our Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders of
AutoZone, Inc. at the J.R. Hyde III Store Support Center, 123 South Front
Street, Memphis, Tennessee, on Thursday, December 17, 1998, at 10 a.m. At the
meeting, the stockholders will vote to:
1. Elect nine directors.
2. Approve an amendment to AutoZone's stock option plan to increase the
maximum number of shares of common stock which may be granted from
six million to 11 million.
3. Approve the appointment of Ernst & Young LLP as independent auditors.
4. Transact other business which may be properly brought before the meeting.
If you were a stockholder at the close of business on October 20, 1998, 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
October 30, 1998
IMPORTANT
PLEASE PROMPTLY COMPLETE, DATE, SIGN, AND RETURN THE ENCLOSED PROXY CARD
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
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TABLE OF CONTENTS
Notice of Annual Meeting..................................................Cover
The Meeting...............................................................1
About this Proxy Statement..............................................1
Information about Voting................................................1
Voting Securities.......................................................2
Quorum and Required Votes...............................................2
The Proposals.............................................................3
Proposal 1 -- Election of Directors.....................................3
Proposal 2 -- Amendment to Stock Option Plan............................6
Proposal 3 -- Approval of Independent Auditors..........................10
Other Matters...........................................................10
Other Information.........................................................11
Security Ownership of Management........................................11
Security Ownership of Certain Beneficial Owners.........................12
Compensation of Directors...............................................13
Executive Compensation..................................................14
Summary Compensation Table............................................14
Option/SAR Grants in Last Fiscal Year.................................15
Aggregated Option/SAR Exercises in Last Fiscal Year
and FY-End Option/SAR Values..........................................15
Pension Plan Table....................................................15
Compensation Committee Report on Executive Compensation...............16
Stock Performance Graph...............................................18
Employment Agreements...................................................18
Certain Relationships and Related Transactions..........................19
Section 16(a) Beneficial Ownership Reporting Compliance.................19
Stockholder Proposals for 1999 Annual Meeting...........................19
Annual Report...........................................................19
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AUTOZONE, INC.
123 South Front Street
Memphis, Tennessee 38103
PROXY STATEMENT
for
Annual Meeting of Stockholders
December 17, 1998
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THE MEETING
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Our Annual Meeting will be held at AutoZone's J.R. Hyde III Store Support
Center, 123 South Front Street, Memphis, Tennessee, beginning at 10 a.m. on
December 17, 1998.
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 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 October 30, 1998.
INFORMATION ABOUT VOTING
If you are a stockholder of record as of October 20, 1998, you may vote your
shares:
. By Proxy -- You can vote via the Internet, by telephone, or by completing,
signing and dating the enclosed proxy card and returning it to us by 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 MAIL. The instructions for voting are contained on the
enclosed proxy card. The individuals named on the card, your "proxies,"
will vote your shares as you indicate. If you sign your card without
indicating how you wish to vote, all of your shares will be voted FOR all
of the nominees for director, will be voted FOR the amendment to the stock
option plan, will be voted FOR Ernst & Young LLP as independent auditors,
and, in their discretion, on any other matter that may be properly brought
before the meeting. You may revoke your proxy at any time before it is
voted at the meeting by sending a written notice to our Secretary (at the
address at the top of the page) that you have revoked the proxy, by
providing a later 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 held your shares in an account with a bank or broker or other entity
on the record date, please follow the instructions given to you on your ballot
regarding casting your vote.
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VOTING SECURITIES
At the close of business on October 20, 1998, we had 150,361,561 shares of
common stock outstanding. Each share of common stock is entitled to one vote.
Only stockholders of record at the close of business on Tuesday, October 20,
1998, will be entitled to vote.
QUORUM AND REQUIRED VOTES
Holders of a majority of the shares of common stock outstanding 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 -- The nine persons nominated for director receiving
the most votes will be elected.
. Amendment to stock option plan -- For approval, 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 the plan. Broker
non-votes will not be counted as voting either for or against the plan.
. Approval of independent auditors -- For approval, the auditors must receive
an affirmative vote from a majority of the shares present and voting.
Abstentions will be counted as if they were votes against the auditors.
Broker non-votes will not be counted as voting either for or against the
auditors. However, we are not bound by a vote either for or against the
auditors. The Board of Directors and the Audit Committee will consider a
vote against the auditors by the stockholders in selecting auditors in the
future.
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THE PROPOSALS
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PROPOSAL 1--ELECTION OF DIRECTORS
Nine directors will be elected at the Annual Meeting to serve until the
Annual Meeting in 1999. Each of the nominees named below was elected a director
at the 1997 annual meeting. 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 of Directors. The nominees are:
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NOMINEE AGE POSITIONS HELD
- ------- --- --------------
JOHN C. ADAMS, JR. 50 With AutoZone:
Chairman, Chief Executive . Director since 1996
Officer & Director . Chairman since March 1997
Customer Satisfaction . CEO since December 1996
. President from December 1996 to March
1997
. Vice Chairman and Chief Operating Officer
from March 1996 to December 1996
. Executive Vice President -- Distribution
from January 1995 to March 1996
. President of Miami Division of Malone &
Hyde, Inc. from 1983 to 1990
With Others:
. Owner of Nicotiana Enterprises, Inc., a
food distribution company, from 1990 to
1994
. Director of Keebler Foods Company
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ANDREW M. CLARKSON 61 With AutoZone:
Director . Director since 1986
Chairman of Finance Committee . Chairman of Finance Committee since 1995
Customer Satisfaction . Treasurer from 1990 to 1995 and from 1986
to 1988
. Secretary from 1988 to 1993
. Chief Financial Officer of Malone & Hyde,
Inc., from 1983 to 1988
With Others:
. Director of Amphenol Corporation
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N. GERRY HOUSE 51 With AutoZone:
Director . Director since 1996
Customer Satisfaction
With Others:
. Superintendent of Memphis, Tennessee,
City School System since 1992
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NOMINEE AGE POSITIONS HELD
------- --- --------------
ROBERT J. HUNT 49 With AutoZone:
Executive Vice President, Chief . Director since 1997
Financial Officer & Director . Executive Vice President and Chief
Customer Satisfaction Financial Officer since 1994
. Executive Vice President and Chief
Financial Officer for Malone & Hyde,
Inc. from 1988 to 1991
With Others:
. Executive Vice President, Chief
Financial Officer, & Director for The
Price Company from 1991 to 1993
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J.R. HYDE, III 55 With AutoZone:
Director . Director since 1986
Customer Satisfaction . Chairman from 1986 to March 1997
. Chief Executive Officer from 1986 to
December 1996
. Chairman and Chief Executive Officer of
Malone & Hyde, Inc., until 1988
With Others:
. President of Pittco, Inc., an
investment company, since 1989
. Director of FDX Corporation
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JAMES F. KEEGAN 66 With AutoZone:
Director . Director since 1991
Customer Satisfaction
With Others:
. Chairman of Adams Keegan, formerly
known as Staff Line, Inc., an employee
leasing firm, since 1997
. Managing Director of Weibel Huffman
Keegan, Inc., an investment management
firm, until 1997
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MICHAEL W. MICHELSON 47 With AutoZone:
Director . Director since 1986
Customer Satisfaction
With Others:
. Member of limited liability company
which is general partner of Kohlberg
Kravis Roberts & Co., L.P. since 1996
. General Partner of Kohlberg Kravis
Roberts & Co., L.P., prior to 1996
. General Partner of KKR Associates, L.P.
. Director of Amphenol Corporation,
Owens-Illinois, Inc., Owens-Illinois
Group, Inc., and Promus Corporation
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NOMINEE AGE POSITIONS HELD
------- --- --------------
RONALD A. TERRY 67 With AutoZone:
Director . Director since 1995
Customer Satisfaction
With Others:
. Chairman of First Tennessee National
Corporation from 1973 to 1995
. Chief Executive Officer of First
Tennessee National Corporation from 1973
to 1994
. Director of BellSouth Corporation and
Promus Corporation
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TIMOTHY D. VARGO 46 With AutoZone:
President, Chief Operation . Director since 1996
Officer & Director . President since March 1997
. Chief Operating Officer since December
Customer Satisfaction 1996
. Vice Chairman from March 1996 to March
1997
. Executive Vice President -- Merchandising
and Systems Technology from June 1995 to
March 1996
. Senior Vice President -- Merchandising
from March to June 1995 and from 1986 to
1992
. Director of Stores for Auto Shack
division of Malone & Hyde, Inc., from
1984 to 1986
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Note: Malone & Hyde, Inc., is the former parent company of AutoZone.
BOARD MEETINGS AND COMMITTEES
The Board of Directors held 13 meetings in fiscal year 1998. Each director
nominated for reelection attended at least 75% of the total of the Board of
Directors and committee meetings during the fiscal year. George R. Roberts, who
is currently a director but will not stand for reelection at the annual
meeting, did not attend at least 75% of the Board meetings.
The Board of Directors has three committees: the Audit Committee, the
Compensation Committee, and the Finance Committee. The Board of Directors does
not have a nominating committee.
The Audit Committee recommends the engagement of independent auditors,
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. During fiscal year 1998, the Audit
Committee met one time. For the fiscal year, the Audit Committee consisted of
Mr. Keegan (Chairman), Mr. Terry, and John E. Moll who was a member of the
Board of Directors and Audit Committee until his retirement in June 1998.
The Compensation Committee sets the compensation levels for all officers,
including salary and bonus levels. In addition, the Compensation Committee
administers AutoZone's stock option and stock purchase plans. The Compensation
Committee, consisting of Mr. Terry (Chairman), Mr. Keegan, and Dr. House, held
eight meetings during fiscal year 1998.
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The Finance Committee reviews AutoZone's financing options and makes
recommendations to the full Board and management as to appropriate financing
mechanisms. During fiscal year 1998, the Finance Committee, consisting of Mr.
Clarkson (Chairman) and Mr. Michelson, held two meetings.
PROPOSAL 2--AMENDMENT TO STOCK OPTION PLAN
WHAT IS THE CURRENT STOCK OPTION PLAN?
The AutoZone, Inc. Amended and Restated 1996 Stock Option Plan allows the
Compensation Committee to grant options to purchase shares of AutoZone, Inc.,
Common Stock, $0.01 par value, at a fixed price at some point in the future.
The Compensation Committee believes that stock options are an important part of
the compensation and motivation of employees, and are necessary to attract and
retain the most qualified people. The closing price of the common stock on the
New York Stock Exchange as of October 20, 1998, was $27.1875.
WHAT IS THE AMENDMENT?
Options to purchase up to 6,000,000 shares of common stock may be granted
under the current stock option plan, and, of those, as of the end of the fiscal
year, 2,699,468 shares remained available for future grants. In order to
continue to grant stock options, we recommend that the stockholders approve an
amendment to the stock option plan to increase the maximum number of shares for
which options may be granted by five million shares. If the stockholders
approve the amendment, options to purchase up to 11 million shares may be
granted under the current stock option plan.
WHO RECEIVES STOCK OPTIONS?
All employees of AutoZone and its subsidiaries are eligible to receive stock
option grants. Historically, all levels of management have received stock
options, including store managers, area advisors, and district managers. Due to
the number of stores acquired by AutoZone in the past fiscal year, AutoZone
needs the additional shares under the option plan to continue to grant stock
options to its new managers. The Compensation Committee decides which employees
receive stock options and in what amounts.
WHEN WAS THE STOCK OPTION PLAN ADOPTED?
The stockholders adopted the 1996 Stock Option Plan at the annual
stockholders meeting in 1996.
HAS THE STOCK OPTION PLAN BEEN AMENDED PRIOR TO NOW?
In 1997, the Compensation Committee amended the stock option plan to limit
the right to decrease the exercise price of a stock option after it is granted
and to limit the number of stock options that may be granted at a discount to
the market price as of the grant date.
HOW MANY EMPLOYEES HAVE RECEIVED STOCK OPTIONS?
AutoZone had 38,526 employees at the fiscal year end, each of whom is
eligible to receive stock options. Under either the current stock option plan
or under a prior plan, over 5,000 employees have received stock options,
including all store managers.
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This table shows how many options were received by the named executive
officers, all executive officers, and all employees, excluding the executive
officers, in the last fiscal year:
NUMBER
NAME AND POSITION OF SHARES
------------------------------------------------------------
John C. Adams, Jr. 0
Chairman & Chief Executive Officer
Timothy D. Vargo 0
President & Chief Operating Officer
Robert J. Hunt 0
Executive Vice President & Chief Financial Officer
Lawrence E. Evans 0
Executive Vice President
Gerald E. Colley 40,000
Senior Vice President
All Executive Officers 130,000
All Employees, 1,562,272
excluding Executive Officers
WHO DETERMINES WHICH EMPLOYEES RECEIVE STOCK OPTIONS AND THE TERMS OF THE
GRANT?
The Compensation Committee makes the grant of each stock option and
establishes the conditions of each stock option grant, including:
. the number of shares to be granted,
. the exercise price,
. the expiration date, and
. how long a recipient must wait to exercise the stock option.
Typically, stock options vest in increments beginning three years from the
grant date and become fully vested five to seven years after the grant date.
WHO IS ON THE COMPENSATION COMMITTEE?
The Compensation Committee must have two or more non-employee directors as
members. The current members are Ronald A. Terry, Chairman, N. Gerry House,
and James F. Keegan.
ARE THERE ANY LIMITATIONS ON STOCK OPTIONS?
. No person may be granted options to purchase more than 500,000 shares of
stock in a calendar year.
. Only 300,000 non-qualified stock options may have an exercise price less
than fair market value on the grant date, but the exercise price may not
be less than 85% of fair market value on the grant date.
. At least a year must pass after the grant date before an option may be
exercised.
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HOW ARE STOCK OPTIONS EXERCISED?
Stock options may be exercised at any time after the stock options have
become exercisable by delivering a notice of exercise to the Secretary with
payment of the option price and any required taxes. The option price may be
paid:
. in cash,
. by a "cashless exercise," where a broker agrees to sell the stock
purchased by the exercise of an option and paying a portion of the
proceeds of the sale equal to the exercise price to us,
. in an equivalent value of common stock, if approved by the Compensation
Committee,
. by delivery of a promissory note for the purchase price, if approved by
the Compensation Committee, or
. a combination of these payment methods.
WHO CAN AMEND THE STOCK OPTION PLAN?
The stock option plan may be amended by the Compensation Committee, except
that only the stockholders may amend the stock option plan to:
. increase the number of shares available for grant under the plan,
. increase the number of shares that may be granted to one person in a year,
. modify the eligibility requirements for receiving options,
. extend the expiration date of the stock option plan, or
. make any other amendment where the law would require stockholder approval.
WHEN DOES THE STOCK OPTION PLAN EXPIRE?
The stock option plan will expire on October 21, 2006. After the expiration
date, no more options may be granted under the stock option plan, but all
options granted under the plan prior to the expiration date will continue to
be exercisable subject to the plan.
WHAT HAPPENS TO STOCK OPTIONS IN CASE OF A STOCK SPLIT OR A CORPORATE
RESTRUCTURING?
The Compensation Committee may make appropriate adjustments to the number of
options granted and the exercise price to prevent dilution or enlargement of
the benefits under stock options granted. For example, if AutoZone's stock is
split 2 for 1, the Compensation Committee will double the number of shares
granted as stock options and reduce the exercise price of each share by half.
In the event of a corporate restructuring, which may include a merger with
another company, a sale of most of our assets, or a change in control, the
Compensation Committee may direct that:
. all options be repurchased for cash equal to the value as if they were
exercised,
. no options be exercised after the event,
. the exercise date of the options be accelerated prior to the event,
. the options be assumed by a successor corporation or that other securities
be substituted in lieu of the common stock, or
. other appropriate adjustments be made in the number and type of shares
subject to options.
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ARE THE STOCK OPTIONS TRANSFERABLE?
Options granted under the stock option plan are not transferable, except by
will or the laws of descent and distribution.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF STOCK OPTION GRANTS AND
EXERCISES?
Two different types of stock options may be granted under the stock option
plan, incentive stock options and non-qualified stock options, each of which
has a different tax impact on both the option recipient and us.
Non-Qualified Stock Options. Federal income taxes are due from a recipient of
non-qualified stock options when the stock options are exercised. The
difference between the exercise price of the option and the fair market value
of the stock purchased on the exercise date is taxed as ordinary income.
Thereafter, the tax basis for the acquired stock is equal to the fair market
value of the stock as of the exercise date. AutoZone will take a tax deduction
equal to the amount of income realized by the option recipient on the exercise
date.
Incentive Stock Options. We have not granted incentive stock options under
the stock option plan, although they are authorized. Unlike the treatment of
non-qualified stock options, federal income taxes are not imposed upon the
exercise of incentive stock options; taxes are imposed only when the shares of
stock from exercised options are sold. If the incentive stock option recipient
does not sell the stock until after one year after the receipt of the stock and
two years after the option was granted, upon sale of the stock the difference
between the exercise price and the market value of the stock as of the date of
exercise will be treated as a capital gain, and not ordinary income. If a
recipient fails to hold the stock for the minimum required time, at the time of
the sale of the stock taxes will be assessed on the gain as ordinary income. We
will not receive a tax deduction for incentive stock options which are taxed to
a recipient as capital gains; however, we will receive a tax deduction if the
sale of the stock does not qualify for capital gains tax treatment.
To the extent that the market value of the underlying stock at the grant date
of an incentive stock option exceeds $100,000 in any year, then the excess of
the value over $100,000 will be treated as non-qualified stock options for
federal tax purposes.
In addition, the exercise of an incentive stock option may trigger liability
for the alternative minimum tax.
WHAT VOTE IS REQUIRED TO APPROVE THE AMENDMENT TO THE STOCK OPTION PLAN?
To approve the amendment to the stock option plan, a majority of the
stockholders present and voting must vote FOR the amendment. Broker non-votes
will be counted as present at the meeting for purposes of a quorum, but will
not be counted as voting either for or against the amendment. Abstentions will
be counted as voting against the amendment.
THE COMPENSATION COMMITTEE AND THE BOARD OF DIRECTORS RECOMMEND THAT YOU VOTE
FOR THE AMENDMENT TO THE STOCK OPTION PLAN.
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PROPOSAL 3--APPROVAL OF INDEPENDENT AUDITORS
Ernst & Young LLP, which has been our independent auditor for the past eleven
fiscal years, has again been selected by the Audit Committee to be AutoZone's
independent auditors for fiscal year 1999. 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 & YOUNG
LLP AS INDEPENDENT AUDITORS.
OTHER MATTERS
We do not know of any other 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 proxy will be able to vote
those matters in their discretion.
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OTHER INFORMATION
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SECURITY OWNERSHIP OF MANAGEMENT
This table shows the beneficial ownership of common stock as of October 20,
1998, by each director, the Chief Executive Officer, the other four most highly
compensated executive officers, and all directors 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 20, 1998
--------------------
NAME OF BENEFICIAL OWNER SHARES PERCENT
- ------------------------ ------------ --------
John C. Adams, Jr. /1,2/.................................... 51,552 *
Andrew M. Clarkson /3/...................................... 525,820 *
N. Gerry House.............................................. 0 --
Robert J. Hunt /2,4/........................................ 141,618 *
J.R. Hyde, III /5,6/........................................ 4,567,030 3.0%
James F. Keegan /5,7/....................................... 408,013 *
Michael W. Michelson........................................ 511,883 *
George R. Roberts /8/....................................... 2,941,247 2.0%
Ronald A. Terry............................................. 5,128 *
Timothy D. Vargo /9/........................................ 9,402 *
Lawrence E. Evans /2,10/.................................... 198,868 *
Gerald E. Colley /2,11/..................................... 10,432 *
All directors and executive officers as a group /2/......... 9,194,253 6.1%
- --------
*Less than 1%
/1/Does not include 1,572 shares held in trusts for the benefit of Mr. Adam's
children.
/2/Includes shares issuable upon exercise of stock options either immediately
or within 60 days of October 20, 1998, as follows: Mr. Adams: 50,000; Mr. Hunt:
37,500; Mr. Evans: 198,333, Mr. Colley: 10,001; All directors and executive
officers as a group: 511,834.
/3/Includes 134,400 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's immediate family nor does it include 14,000 shares
held in trust for the benefit of a member of Mr. Clarkson's family, with
respect to which he disclaims beneficial ownership.
/4/Includes 2,000 shares owned by Mr. Hunt's wife.
/5/Includes 400,000 shares which are held in trusts for which Mr. Hyde and
Mr. Keegan are co-trustees, and with respect to which Mr. Keegan disclaims
beneficial ownership.
/6/Includes 790,000 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 170,000 shares held by a trust for the benefit of a family member
for which Mr. Hyde is sole trustee. Does not include 2,000 shares owned by Mr.
Hyde's wife.
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/7/Does not include 800 shares owned by a member of Mr. Keegan's family with
respect to which Mr. Keegan disclaims any beneficial ownership.
/8/Includes 120,000 shares held by Mr. Roberts as trustee of an irrevocable
trust; does not include 120,000 shares held in a trust for the benefit of
members of Mr. Roberts family. Mr. Roberts will be a member of the Board of
Directors until the annual meeting, but has declined to stand for reelection.
/9/Does not include 4,635 shares owned by members of Mr. Vargo's immediate
family.
/10/Does not include 10,000 shares owned by Mr. Evans's wife with respect to
which Mr. Evans disclaims beneficial ownership.
/11/Does not include 5,000 shares owned by Mr. Colley's wife.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following entities are known by us to own more than five percent of the
outstanding common stock:
BENEFICIAL OWNERSHIP
AS OF
OCTOBER 20, 1998
-----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER SHARES PERCENT
- ------------------------------------ ------------- ---------
ESL Partners, L.P/1/..................................... 15,416,100 10.3%
One Lafayette Place
Greenwich, CT 06830
The Prudential Insurance Company of America/2/........... 8,098,552 5.4%
751 Broad Street
Newark, NJ 07102
W.P. Stewart & Co., Inc./3/.............................. 9,322,595 6.2%
527 Madison Avenue
New York, NY 10022
- --------
/1/All information regarding ESL Partners, L.P., is based upon the Schedule
13G dated October 7, 1998, filed on behalf of a group consisting of ESL
Partners, L.P., ESL Limited, ESL Institutional Partners, L.P. and Acres
Partners, L.P. The general partner of ESL 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. In their
respective capacities, each of the foregoing entities may be deemed to be the
beneficial owner of the shares of AutoZone common stock beneficially owned by
other members of the group. As of October 7, 1998, ESL Partners, Inc., was the
record owner of 9,825,139 shares, ESL Limited was the record owner of 1,576,679
shares, ESL Institutional Partners, L.P., was the record owner of 294,937
shares, and Acres Partners, L.P., was the record owner of 3,719,345 shares.
Each entity has the sole power to vote and dispose of the shares deemed
beneficially owned by them.
/2/All information regarding The Prudential Insurance Company of America
("Prudential") is based upon the Schedule 13G dated February 10, 1998.
Prudential has the sole power to vote and
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direct the disposition for 659,400 shares, shares the power to vote or direct
the vote for 6,700,852 shares, and shares the power to dispose of 7,439,152
shares. Prudential holds 5,000 shares for the benefit of its general account
and holds 8,093,552 shares for the benefit of its clients by its separate
accounts, externally managed accounts, registered investment companies,
subsidiaries and/or other affiliates.
/3/All information regarding W.P. Stewart & Co., Inc., is based upon the
Schedule 13G dated February 17, 1998. W.P. Stewart & Co., Inc., has the sole
power to vote and dispose of the shares deemed beneficially owned by them.
COMPENSATION OF DIRECTORS
Non-employee directors are paid an annual fee of $25,000 in quarterly
installments, plus $1,000 for each meeting attended. In March 1998, the Board
of Directors adopted the Directors Compensation Plan. Under this 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
appreciation rights").
Also in March 1998, the Board of Directors adopted the 1998 Directors Stock
Option Plan. Under the stock option plan, each non-employee director was
automatically granted an option to purchase 1,000 shares of common stock on the
plan's adoption date. On January 1 of each year, each non-employee director
will receive an additional option to purchase 1,000 shares of common stock. On
December 31 of each year, 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 purchase 1,000 shares of
common stock. 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 year 1998 was paid a
salary and bonus of $66,250 and received other benefits ordinarily granted to
all employees.
13
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
This table shows the compensation paid to the Chief Executive Officer and the
other four most highly paid executive officers for the past three fiscal years.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION AWARDS
----------------------------------------------- -------------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY($) BONUS($)/1/ COMPENSATION($)/2/ OPTIONS/SARs(#)/3/ COMPENSATION/4/
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John C. Adams, Jr./5/ 1998 520,000 253,500 -- 0 3,048
Chairman & Chief 1997 413,952 199,268 -- 350,000 2,032
Executive Officer 1996 292,788 92,859 -- 200,000 2,219
Timothy D. Vargo/6/ 1998 416,000 202,800 -- 0 3,048
President & Chief 1997 356,859 170,973 -- 250,000 2,032
Operating Officer 1996 291,282 92,583 -- 150,000 2,442
Lawrence E. Evans 1998 216,250 84,338 -- 0 2,482
Executive Vice 1997 208,000 76,160 -- 50,000 1,805
President 1996 203,846 65,000 -- 0 2,958
Robert J. Hunt 1998 300,000 117,000 -- 0 3,048
Executive Vice 1997 261,769 96,223 -- 50,000 2,032
President & Chief 1996 249,711 79,625 14,257 0 2,878
Financial Officer
Gerald E. Colley/7/ 1998 230,000 74,750 42,003 40,000 2,213
Senior Vice President 1997 110,676 30,989 18,448 50,000 2,122
</TABLE>
- --------
/1/Bonuses are shown for the fiscal year earned, but paid in the following
fiscal year.
/2/Amounts shown are: tax reimbursement for Mr. Hunt in 1996, and relocation
expenses for Mr. Colley in 1997 and 1998.
/3/All amounts shown are stock options; AutoZone did not grant SARs to
executive officers in the 1996, 1997 or 1998 fiscal years. All options granted
in 1997 and 1998 were granted in accordance with the 1996 Stock Option Plan, as
amended and restated in 1997. All options granted in 1996 were granted in
accordance with the Amended and Restated Stock Option Plan.
/4/All Other Compensation consists of term life insurance provided for the
benefit of the named officer's beneficiary.
/5/Mr. Adams was Executive Vice President-Distribution until March 1996, Vice
Chairman and Chief Operating Officer from March 1996 to December 1996, was
President from December 1996 to March 1997, was first elected Chief Executive
Officer in December 1996, and was first elected Chairman in March 1997.
/6/Mr. Vargo was Executive Vice President-Merchandising and Systems
Technology
until March 1996, was Vice Chairman from March 1996 to March 1997, was first
elected Chief Operating Officer in December 1996, and was first elected
President in March 1997.
/7/Mr. Colley was Vice President-Stores from June 1997 to October 1997, and
was first elected Senior Vice President-Stores in October 1997.
14
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
This table shows the number stock options granted to certain executive
officers during the most recent fiscal year. Executive officers were not
granted SARs during the 1998 fiscal year.
<TABLE>
<CAPTION>
POTENTIAL
% OF REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL
SECURITIES OPTIONS/SARS RATES OF STOCK PRICE
UNDERLYING GRANTED TO EXERCISE APPRECIATION
OPTIONS/SARS EMPLOYEES OR BASE FOR OPTION TERM/1/
GRANTED IN FISCAL PRICE EXPIRATION ---------------------
NAME (#) YEAR ($/SH) DATE 5% ($) 10% ($)
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John C. Adams, Jr. 0 -- -- -- -- --
Timothy D. Vargo 0 -- -- -- -- --
Lawrence E. Evans 0 -- -- -- -- --
Robert J. Hunt 0 -- -- -- -- --
Gerald E. Colley/2/ 40,000 2.4 31.375 10/22/2007 789,263 2,000,147
</TABLE>
- --------
/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 August 29, 1998. The fiscal year-end value of "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 August 28, 1998 (the last trading
day before the fiscal year end) which was $27 per share. Executive officers do
not have SARs.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS/SARS IN-THE-MONEY OPTIONS/SARS
AT FY-END (#) AT FY-END ($)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE (#) REALIZED ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John C. Adams, Jr. 0 -- 0 750,000 0 2,362,500
Timothy D. Vargo 0 -- 0 600,000 0 1,815,625
Lawrence E. Evans 16,000 543,563 171,666 118,334 2,337,666 437,085
Robert J. Hunt 0 -- 0 200,000 0 625,000
Gerald E. Colley 0 -- 10,001 90,000 256,797 96,250
</TABLE>
PENSION PLAN TABLE
This table shows the estimated annual benefits payable upon retirement at age
65 in 1998 under our pension plan. Sixty monthly payments are guaranteed after
retirement.
YEARS OF SERVICE
---------------------------------------
REMUNERATION 15 20 25 30 35
------------ ------- ------- ------- ------- -------
$100,000 $23,854 $32,374 $40,893 $42,597 $42,597
120,000 29,174 39,594 50,013 52,097 52,097
140,000 34,494 46,814 59,133 61,597 61,597
160,000 37,686 51,146 64,605 67,297 67,297
180,000 37,686 51,146 64,605 67,297 67,297
15
<PAGE>
Remuneration includes salary and bonus. The benefit is based on the average
monthly earnings for the consecutive five 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 the participant'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 24 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:
YEARS OF
NAME SERVICE
---- --------
John C. Adams, Jr. 3
Timothy D. Vargo 12
Lawrence E. Evans 12
Robert J. Hunt 3
Gerald E. Colley 9
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 an executive's compensation with AutoZone'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 of predetermined and individual goals, and changes in
an executive's duties and responsibilities. The compensation of other AutoZone
employees is based on a similar philosophy.
COMPENSATION PHILOSOPHY
Executive compensation consists of three components: salary, bonus and stock
options.
SALARY. The Committee desires that overall compensation reflect each
executive'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 of each officer, including the Chief Executive
Officer. The Committee makes an independent, subjective determination of the
appropriate level of each 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. The
Committee does not use any mechanical formulations or weighting of any of the
factors considered.
16
<PAGE>
BONUS. Each fiscal year executive officers are paid a bonus based on
AutoZone's attainment of increases in earnings over the prior year. A target is
set at the beginning of each fiscal year and bonuses are paid as a percentage
of the attainment of the target. A maximum bonus is established for each
executive officer. The maximum bonus attainable for the last fiscal year was
75% of salary for both the Chief Executive Officer and the Chief Operating
Officer. As a general matter, as an executive's level of management
responsibility in the Company increases, the greater the portion of his or her
potential total compensation depends on the Company's performance as measured
by increases in earnings over the previous year. No bonus is payable under the
bonus plan unless a predetermined minimum increase in earnings is achieved. A
significant portion of each officer's compensation is directly related to the
performance of the Company.
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. Stock option
grants are 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), who considers the recipient's past performance
and current responsibilities, and the number of shares previously granted to
that person. For a more in-depth discussion of the stock option plan, see
Proposal 2 on page 6 of this Proxy Statement.
CEO COMPENSATION
In the last fiscal year, John C. Adams, Jr., Chairman and Chief Executive
Officer was paid $520,000 in salary and $253,500 in bonus. Mr. Adams has an
employment agreement which is described under the section entitled "Employment
Agreements" on page 18 of this Proxy Statement. Mr. Adams did not receive any
stock options during the last fiscal year.
TAX DEDUCTIONS FOR COMPENSATION
The federal tax code limits to $1 million the amount of compensation that we
may deduct in any year for the Chief Executive Officer and our other four most
highly paid officers. However, this deduction limitation does not apply to
certain performance based compensation as defined in the tax code. 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 House
James F. Keegan
17
<PAGE>
STOCK PERFORMANCE GRAPH
This graph shows, from the end of fiscal year 1993 to the end of fiscal year
1998, changes in the value of $100 invested in each of the Company's Common
Stock, Standard & Poor's Retail Store Composite Index, and Standard & Poor's
500 Composite Index.
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Aug. 93 Aug. 94 Aug. 95 Aug. 96 Aug. 97 Aug. 98
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
AutoZone, Inc. $100.00 $91.87 $102.88 $104.31 $108.14 $103.35
S&P 500 Index $100.00 $100.52 $105.47 $126.74 $163.13 $190.33
S&P Retail Store Composite $100.00 $105.44 $128.30 $153.10 $215.33 $313.83
</TABLE>
EMPLOYMENT AGREEMENTS
In 1997, certain executive officers entered into five year employment
agreements with AutoZone. Mr. Adams was retained as Chairman and Chief
Executive Officer, with a minimum annual salary of $500,000, and a bonus
potential of 75% of annual salary. Mr. Vargo was retained as President and
Chief Operating Officer, with a minimum annual salary of $400,000 and a bonus
potential of 75% of annual salary. Mr. Hunt was retained as Executive Vice
President and Chief Financial Officer, with a minimum annual salary of $285,000
and a bonus potential of 60% of annual salary.
If an agreement is terminated by AutoZone for cause, or by an 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
AutoZone 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, but will receive no bonus. If an agreement
is terminated by AutoZone 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" 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 in control" in each agreement generally means
(although more specifically defined in each agreement)
18
<PAGE>
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.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
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 1998 fiscal year. For
fiscal year 1998, we paid the corporation that owned the aircraft lease fees
and expenses totaling $280,974. In addition, we employ pilots that operated the
aircraft for Mr. Hyde's personal benefit at times during the 1998 fiscal year.
For the use of the pilots' services, Mr. Hyde paid us $96,000. 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.
Upon his retirement as Chairman in 1997, Mr. Hyde entered into an agreement
not to compete against the Company until March 2002. In fiscal year 1998, under
the terms of that agreement, we paid Mr. Hyde $289,102, and provided him
personal security services valued at approximately $50,551.
SECTION 16(a) BENEFICIAL 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 timely manner, except that James F. Keegan, a director, was late filing
a Form 4 covering one transaction for the 1998 fiscal year.
STOCKHOLDER PROPOSALS FOR 1999 ANNUAL MEETING
Stockholder proposals for inclusion in the 1999 Proxy Statement must be
received by July 2, 1999. Stockholders proposals received after July 2, 1999,
but by September 18, 1999, may be presented at the meeting, but will not be
included in the 1999 Proxy Statement. Any stockholder proposal submitted after
September 18, 1999, will not be eligible to be presented for a vote to the
stockholders in accordance with AutoZone's bylaws. Any proposals must be mailed
to AutoZone, Inc., Attention: Secretary, Post Office Box 2198, Dept. 8074,
Memphis, Tennessee 38101-9842.
ANNUAL 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
October 30, 1998
19
<PAGE>
APPENDIX A
AUTOZONE, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
THE COMPANY FOR ANNUAL MEETING OF STOCKHOLDERS
P I 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
R common stock of AutoZone, Inc., which I would be entitled to vote at the
Annual Meeting of AutoZone, Inc., to be held at the J.R. Hyde III Store
O Support Center, 123 South Front Street, Memphis, Tennessee, on Thursday,
December 17, 1998, at 10 a.m., and at any adjournments, on items 1, 2 and
X 3, as I have specified and such other matters as may come before the
meeting.
Y
Election of Directors, Nominees: (change of address)
(1) John C. Adams, Jr., (2) Andrew M. Clarkson, ------------------------------
(3) N. Gerry House, (4) Robert J. Hunt,
(5) J.R. Hyde, III, (6) James F. Keegan, ------------------------------
(7) Michael W. Michelson, (8) Ronald A. Terry,
and (9) Timothy D. 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's recommendations.
- -------------------------------------------------------------------------------
[MAP to meeting location] You are invited
to attend the
[AUTOZONE(R) logo]
ANNUAL MEETING
OF STOCKHOLDERS
December 17, 1998
10:00 a.m.
123 South Front Street
Memphis, Tennessee
38103-3607
<PAGE>
[X] Please mark your votes as in this example. 4631
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
1. Election
of Directors [ ] [ ]
For, except vote withheld from the following nominee(s):
_____________________________
FOR AGAINST ABSTAIN
2. Approval of amendment
to stock option plan. [ ] [ ] [ ]
3. Approval of Independent Auditors. [ ] [ ] [ ]
4. In the discretion of the proxies
named herein, upon such other matters
as may properly come before the
meeting.
[ ] Change of Address
(Phone: )
Please write new address
on reverse side.
Signature(s) _____________________________________ Date ______________
NOTE: Please sign exactly as name appears hereon. The signer hereby
Joint owners should each sign. When signing as revokes all proxies
attorney, executor, administrator, trustee or heretofore given
guardian, please give full title. by the signer to vote
at the meeting or any
adjournments thereof.
- -------------------------------------------------------------------------------
FOLD AND DETACH HERE IF YOU ARE RETURNING YOUR VOTED PROXY CARD BY MAIL.
Internet and Telephone Voting
We encourage you to take advantage of these convenient new ways by which
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 that appears 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.VOTE-BY-
NET.COM
2. To vote over the telephone:
. On a touch-tone telephone call 1-800-OK2-VOTE (1-800-652-8683)
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 he Internet or the telephone,
there is no need for your to mail back your proxy card.
Your vote is important. Thank you for voting.
<PAGE>
APPENDIX B
AUTOZONE, INC.
SECOND
AMENDED AND RESTATED
1996 STOCK OPTION PLAN
AutoZone, Inc., a corporation organized under the laws of the State of
Nevada, by resolution of the Board of Directors of the Company (the "Board") on
October 21, 1996, and as approved by the stockholders of the Company on
December 12, 1996, adopted this AutoZone, Inc. 1996 Stock Option Plan (the
"Plan").
The Compensation Committee of the Board of Directors of the Company by
resolution adopt the Amended and Restated 1996 Stock Option Plan effective as
of October 21, 1997.
Further, by resolution of the Compensation Committee on October 20, 1998,
and as presented to the stockholders on December 17, 1998, the Plan was amended
to increase the number of shares available for grant under the Plan.
The purposes of this Plan are as follows:
(1) To further the growth, development and financial success of the Company
by providing additional incentives to certain of its executive and other key
employees who have been or will be given responsibility for the management or
administration of the Company's business affairs, by assisting them to become
owners of capital stock of the Company and thus to benefit directly from its
growth, development and financial success.
(2) To enable the Company to obtain and retain the services of the type of
professional, technical and managerial employees considered essential to the
long-range success of the Company by providing and offering them an opportunity
to become owners of capital stock of the Company.
ARTICLE I
Definitions
Whenever the following terms are used in this Plan, they shall have the
meaning specified below unless the context clearly indicates to the contrary.
The masculine pronoun shall include the feminine and neuter and the singular
shall include the plural, where the context so indicates.
Section 1.1--Affiliate
"Affiliate" shall mean any Subsidiary and any limited partnership of
which the Company or any Subsidiary is the general partner.
Section 1.2--Award Limit
"Award Limit" shall mean 500,000 shares of Common Stock.
Section 1.3--Board
"Board" shall mean the Board of Directors of the Company.
Section 1.4--Code
"Code" shall mean the Internal Revenue Code of 1986, as amended.
Section 1.5--Committee
"Committee" shall mean the Compensation Committee or another committee of
the Board, appointed as provided in Section 6.1.
Section 1.6--Common Stock
"Common Stock" shall mean the common stock of the Company, par value $.01
per share, and any equity security of the Company issued or authorized to be
issued in the future, but excluding any preferred stock and any warrants,
options or other rights to purchase Common Stock. Debt securities of the
Company convertible into Common Stock shall be deemed equity securities of the
Company.
Section 1.7--Company
"Company" shall mean AutoZone, Inc. In addition, "Company" shall mean any
corporation assuming, or issuing new employee stock options in substitution
for, Incentive Stock Options, outstanding under the Plan, in a transaction to
which Section 424(a) of the Code applies.
Section 1.8--Corporate Transaction
"Corporate Transaction" shall mean any of the following stockholder-
approved transactions to which the Company is a party:
(a) a merger or consolidation in which the Company is not the surviving
entity, except for a transaction the principal purpose of which is to change
the State in which the Company is incorporated, form a holding company or
effect a similar reorganization as to form whereupon this Plan and all Awards
are assumed by the successor entity;
(b) the sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company, in complete liquidation or
dissolution of the Company in a transaction not covered by the exceptions to
clause (a), above; or
(c) any reverse merger in which the Company is the surviving entity but in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred or issued
to a person or persons different from those who held such securities
immediately prior to such merger.
Section 1.9--Director
"Director" shall mean a member of the Board.
Section 1.10--Employee
"Employee" shall mean any employee (as defined in accordance with Section
3401(c) of the Code) of the Employer, whether such employee is so employed at
the time this Plan is adopted or becomes so employed subsequent to the adoption
of this Plan.
Section 1.11--Employer
"Employer" shall mean the Company or an Affiliate, whichever at the time
employs the Employee.
Section 1.12--Exchange Act
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
Section 1.13--Fair Market Value
"Fair Market Value" of a share of Common Stock as of a given date shall
be (i) the closing price of a share of Common Stock on the principal exchange
on which shares of Common Stock are then trading, if any (or as reported on any
composite index which includes such principal exchange), on the trading day
previous to such date, or if shares were not traded on the trading day previous
to such date, then on the next preceding date on which a trade occurred; or
(ii) if Common Stock is not traded on an exchange but is quoted on NASDAQ or a
successor quotation system, the mean between the closing representative bid and
asked prices for the Common Stock on the trading day previous to such date as
reported by NASDAQ or such successor quotation system; or (iii) if Common Stock
is not publicly traded on an exchange and not quoted on NASDAQ or a successor
quotation system, the Fair Market Value of a share of Common Stock as
established by the Committee acting in good faith.
Section 1.14--Incentive Stock Option
"Incentive Stock Option" shall mean an Option that qualifies under
Section 422 of the Code and which is designated as an Incentive Stock Option by
the Committee.
Section 1.15--Non-Qualified Option
"Non-Qualified Option" shall mean an Option which is not designated as an
Incentive Stock Option and which is designated as a Non-Qualified Option by the
Committee.
Section 1.16--Officer
"Officer" shall mean an officer of the Company, as defined in Rule 16a-
1(f) under the Exchange Act, as such Rule may be amended in the future.
Section 1.17--Option
"Option" shall mean a stock option granted under Article III of this
Plan. An Option granted under this Plan, as determined by the Committee, shall
either be an Incentive Stock Option or a Non-Qualified Option, provided,
however that options granted to Employees of an Affiliate which is not a
Subsidiary shall be Non-Qualified Options.
Section 1.18--Grantee
"Grantee" shall mean an Employee to whom an Option is granted under this
Plan.
Section 1.19--Plan
"Plan" shall mean this 1996 Stock Option Plan of AutoZone, Inc.
Section 1.20--Rule 16b-3
"Rule 16b-3" shall mean that certain Rule 16b-3 under the Exchange Act,
as such Rule may be amended from time to time.
Section 1.21--Secretary
"Secretary" shall mean the Secretary of the Company.
Section 1.22--Securities Act
"Securities Act" shall mean the Securities Act of 1933, as amended.
Section 1.23--Subsidiary
"Subsidiary" shall mean any corporation in an unbroken chain of
corporations beginning with the Company if each of the corporations other than
the last corporation in the unbroken chain then owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in such chain.
Section 1.24--Termination of Employment
"Termination of Employment" shall mean the time when the employee-
employer relationship between an Grantee and the Employer is terminated for any
reason, with or without cause, including, but not by way of limitation, a
termination by resignation, discharge, death, or retirement, but excluding (i)
terminations where there is a simultaneous reemployment or continuing
employment of an Grantee by the Employer; (ii) at the discretion of the
Committee, terminations which result in a temporary severance of the employee-
employer relationship; and (iii) at the discretion of the Committee,
terminations which are followed by the simultaneous establishment of a
consulting relationship by the Employer with the former Employee. The
Committee, in its absolute discretion, shall determine the effect of all
matters and questions relating to Termination of Employment, including, but not
by way of limitation, the question of whether a Termination of Employment
resulted from a discharge for good cause, and all questions of whether
particular leaves of absence constitute Terminations of Employment; provided,
however, that, with respect to Incentive Stock Options, a leave of absence,
change in status from an employee to an independent contractor or other change
in the employee-employer relationship shall constitute a Termination of
Employment if, and to the extent that, such leave of absence, change in status
or other change interrupts employment for the purposes of Section 422(a)(2) of
the Code and the then applicable regulations and revenue rulings under said
Section. However, notwithstanding any provision of this Plan, the Employer has
an absolute and unrestricted right to terminate an Employee's employment at any
time for any reason whatsoever, with or without cause, except to the extent
expressly provided otherwise in writing.
ARTICLE II
Shares Subject to Plan
Section 2.1--Shares Subject to Plan
(a) The shares of stock subject to Awards shall be Common Stock,
initially shares of the Company's common stock, $.01 par value. The aggregate
number of such shares which may be issued upon exercise of Options under the
Plan shall not exceed 11,000,000. The shares of Common Stock issuable under the
Plan upon exercise of such Options may be either previously authorized but
unissued shares or treasury shares.
(b) The maximum number of shares which may be subject to Options granted
under the Plan to any individual in any calendar year shall not exceed the
Award Limit. To the extent required by Section 162(m) of the Code, the number
of shares subject to Options which are canceled continue to be counted against
the Award Limit and if, after grant of an Option, the price of shares subject
to such Option is reduced, subject to the limits of Section 3.4(d), the
transaction is treated as a cancellation of the Option and a grant of a new
Option and both the Option deemed to be canceled and the Option deemed to be
granted are counted against the Award Limit.
Section 2.2--Add-back of Options
If any Option expires or is canceled without having been fully exercised
or vested, the number of shares subject to such Option, but as to which such
Option was not exercised or vested prior to its expiration or cancellation, may
again be awarded hereunder, subject to the limitations of Sections 2.1 and
3.4(d). Furthermore, any shares subject to Options which are adjusted pursuant
to Section 7.8 and become exercisable with respect to shares of stock of
another corporation, shall be considered canceled and may again be awarded
hereunder, subject to the limitations of Section 2.1. Shares of Common Stock
which are delivered by the Grantee or withheld by the Company upon the exercise
or vesting of any Option, in payment of the exercise price thereof, may again
be awarded hereunder, subject to the limitations of Section 2.1.
Notwithstanding the provisions of this Section 2.2, no shares of Common Stock
may again be optioned if such action would cause an Incentive Stock Option to
fail to qualify as an incentive stock option under Section 422 of the Code.
ARTICLE III
Granting of Options
Section 3.1--Eligibility
Any key Employee selected by the Committee pursuant to Section 3.4(a)(i)
shall be eligible to be granted an Option, provided, however, that an Employee
of an Affiliate which is not a Subsidiary shall be eligible to be granted Non-
Qualified Options only.
Section 3.2--Qualification of Incentive Stock Options
No Incentive Stock Option shall be granted to any person who is not an
employee (as defined in accordance with Section 3401(c) of the Code) of the
Company or a Subsidiary.
Section 3.3--Disqualification for Stock Ownership
No person may be granted an Incentive Stock Option under this Plan if
such person, at the time the Incentive Stock Option is granted, owns stock
representing more than ten percent (10%) of the total combined voting power of
all classes of stock of the Company or any then existing Subsidiary or parent
corporation unless such Incentive Stock Option conforms to the applicable
provisions of Section 422 of the Code.
Section 3.4--Granting of Options
(a) The Committee shall from time to time, in its absolute discretion,
and subject to applicable limitations of this Plan:
(i) Determine which Employees are key employees (including Employees who
have previously received Options under this Plan, or any other plan of the
Company) and in its opinion should be granted Options; and
(ii) Subject to the Award Limit, determine the number of shares to be
subject to such Options granted to such selected Employees; and
(iii) Determine whether such Options are to be Incentive Stock Options or
Non-Qualified Options and whether such Options are to qualify as performance-
based compensation as described in Section 162(m)(4)(C) of the Code; and
(iv) Determine the terms and conditions of such Options, consistent with the
Plan; provided, however, that the terms and conditions of such Options intended
to qualify as performance-based compensation as described in Section
162(m)(4)(C) of the Code shall include, but not be limited to, such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m)(4)(C) of the Code.
(b) Upon the selection of an Employee to be granted an Option, the
Committee shall instruct the Secretary to issue such Option and may impose such
conditions on the grant of such Option as it deems appropriate. Without
limiting the generality of the preceding sentence, the Committee may, in its
discretion and on such terms as it deems appropriate, require as a condition of
the grant of an Option to an Employee that the Employee surrender for
cancellation some or all of the unexercised Options which have been previously
granted to him under this Plan or otherwise. Subject to Section 3.4(d), an
Option, the grant of which is conditioned upon such surrender, may have an
exercise price lower (or higher) than the exercise price of the surrendered
Option, may cover the same (or a lesser or greater) number of shares as the
surrendered Option, may contain such other terms as the Committee deems
appropriate and shall be exercisable in accordance with its terms, without
regard to the number of shares, price, exercise period or any other term or
condition of the surrendered Option.
(c) Any Incentive Stock Option granted under this Plan may be modified by
the Committee to disqualify such Option from treatment as an "incentive stock
option" under Section 422 of the Code.
(d) Notwithstanding any other provision of this Plan, in no event may
Options to purchase more than 300,000 shares of Common Stock be granted under
this Plan at a lower price on a per share basis than the per share price of any
Options (i) deemed canceled and regranted or (ii) required to be surrendered as
a condition of the grant of new Options, determined on a cumulative basis for
all Grantees in the aggregate.
Section 3.5--Consideration
Except as the Committee may otherwise determine, in consideration of the
granting of an Option, the Grantee shall agree, in the written Option
agreement, to remain in the employ of the Company, or any Affiliate, for a
period of at least one year (or such shorter period as may be fixed in the
Option agreement or by action of the Committee following grant of the Option)
after the Option is granted. Nothing in this Plan or in any Option agreement
hereunder shall confer upon any Grantee any right to continue in the employ of
his respective Employer, or shall interfere with or restrict in any way the
rights of each respective Employer, which are hereby expressly reserved, to
discharge any Grantee at any time for any reason whatsoever, with or without
cause.
ARTICLE IV
Terms of Options
Section 4.1--Option Agreement
Each Option shall be evidenced by a written Option agreement which shall
be executed by the Grantee and authorized Officers of the Company and which
shall contain such terms and conditions as the Committee shall determine,
consistent with the Plan. Option agreements evidencing Incentive Stock Options
shall contain such terms and conditions as may be necessary to meet the
applicable provisions of Section 422 of the Code. Stock Option agreements
evidencing Options intended to qualify as performance-based compensation as
described in Section 162(m)(4)(C) of the Code shall contain such terms and
conditions as may be necessary to meet the applicable provisions of Section
162(m) of the Code.
Section 4.2--Option Price
(a) Subject to subsection 4.2(b), the price per share of the shares
subject to each Option shall be set by the Committee; provided, however, that
such price shall be no less than eighty- five percent (85%) of the Fair Market
Value of the underlying shares on the date of grant; further provided that (i)
such price shall be no less than the par value of a share of Common Stock,
unless otherwise permitted by applicable state law, (ii) in the case of
Incentive Stock Options and Options intended to qualify as performance-based
compensation as described in Section 162(m)(4)(C) of the Code, such price shall
not be less than 100% of the Fair Market Value of a share of Common Stock on
the date the Option is granted; and (iii) in the case of Incentive Stock
Options granted to an individual then owning (within the meaning of Section
424(d) of the Code) more than 10% of the total combined voting power of all
classes of stock of the Company or any Subsidiary or parent corporation thereof
(within the meaning of Section 422 of the Code) such price shall not be less
than 110% of the Fair Market Value of a share of Common Stock on the date the
Option is granted.
(b) Options to purchase no more than 300,000 shares of Common Stock may
be granted under this Plan at a price lower than 100% of the Fair Market Value
of the underlying shares on the date of grant, determined on a cumulative basis
for all Grantees in the aggregate..
(c) Except within the limits provided in Section 3.4(d), the price of an
Option, once established by the Committee as of the grant date, may not be
lowered.
Section 4.3--Option Term
The term of an Option shall be set by the Committee in its discretion;
provided, however, that, in the case of Incentive Stock Options, the term shall
not be more than ten (10) years from the date the Incentive Stock Option is
granted, or five (5) years from such date if the Incentive Stock Option is
granted to an individual then owning (within the meaning of Section 424(d) of
the Code) more than 10% of the total combined voting power of all classes of
stock of the Company or any Subsidiary or parent corporation thereof (within
the meaning of Section 422 of the Code). Except as limited by requirements of
Section 422 of the Code and regulations and rulings thereunder applicable to
Incentive Stock Options, the Committee may extend the term of any outstanding
Option in connection with any Termination of Employment of the Grantee, or
amend any other term or condition of such Option relating to such a
termination.
Section 4.4--Option Vesting
(a) Except as the Committee may otherwise provide, no Option may be
exercised in whole or in part during the first year after such Option is
granted unless the Option is being granted in modification or substitution of a
previously granted Option, in which case the one year period shall be measured
from the date of the grant of the previously granted Option.
(b) Subject to the provisions of Sections 4.4(a) and 4.4(d), the period
during which the right to exercise an Option in whole or in part vests in the
Grantee shall be set by the Committee and the Committee may determine that an
Option may not be exercised in whole or in part for a specified period after it
is granted. At any time after grant of an Option, the Committee may, in its
sole and absolute discretion and subject to whatever terms and conditions it
selects, accelerate the period during which an Option vests.
(c) No portion of an Option which is unexercisable at Termination of
Employment shall thereafter become exercisable, except as may be otherwise
provided by the Committee either in the Option agreement or by action of the
Committee following the grant of the Option.
(d) To the extent that the aggregate Fair Market Value of stock with
respect to which "incentive stock options" (within the meaning of Section 422
of the Code, but without regard to Section 422(d) of the Code) are exercisable
for the first time by a Grantee during any calendar year (under the Plan and
all other incentive stock option plans of the Company and any Subsidiary)
exceeds $100,000, such Options shall be treated as Non-Qualified Options to the
extent required by Section 422 of the Code. The rule set forth in the preceding
sentence shall be applied by taking Options into account in the order in which
they were granted. For purposes of this Section 4.4(d), the Fair Market Value
of stock shall be determined as of the time the Option with respect to such
stock is granted.
ARTICLE V
Exercise of Options
Section 5.1--Partial Exercise
An exercisable Option may be exercised in whole or in part. However, an
Option shall not be exercisable with respect to fractional shares and the
Committee may require that, by the terms of the Option, a partial exercise be
with respect to a minimum number of shares.
Section 5.2--Manner of Exercise
All or a portion of an exercisable Option shall be deemed exercised upon
delivery to the Secretary of the Company or his designee:
(a) A written notice complying with the applicable rules established by the
Committee stating that the Option, or a portion thereof, is exercised. The
notice shall be signed by the Grantee or other person then entitled to exercise
the Option or such portion;
(b) Such representations and documents as the Committee, in its absolute
discretion, deems necessary or advisable to effect compliance with all
applicable provisions of the Securities Act, the Code, and any other federal or
state laws or regulations. The Committee may, in its absolute discretion, also
take whatever additional actions it deems appropriate to effect such compliance
including, without limitation, placing legends on share certificates and
issuing stop-transfer notices to agents and registrars;
(c) In the event that the Option or portion thereof shall be by any person
or persons other than the Grantee, appropriate proof of the right of such
person or persons to exercise the Option or portion thereof; and
(d) Full cash payment to the Company of the exercise price and any
applicable taxes for the shares with respect to which the Option, or portion
thereof, is exercised or through the delivery of a notice that the Grantee has
placed a market sell order with a broker approved by the Company with respect
to shares of Common Stock then issuable upon exercise of the Option, and that
the broker has been directed to pay a sufficient portion of the net proceeds of
the sale to the Company in satisfaction of the Option exercise price and any
applicable taxes. However, the Committee may, in its discretion, allow payment,
in whole or in part, through (i) the delivery of shares of Common Stock owned
by the Grantee, duly endorsed for transfer to the Company with a Fair Market
Value on the date of delivery equal to the aggregate exercise price of the
Option or exercised portion thereof; (ii) allow payment, in whole or in part,
through the delivery of a full recourse promissory note bearing interest (at no
less than such rate as shall then preclude the imputation of interest under the
Code) and payable upon such terms as may be prescribed by the Committee or the
Board; or (iii) allow payment through any combination of the foregoing. In the
case of a promissory note, the Committee may also prescribe the form of such
note and the security to be given for such note. The Option may not be
exercised, however, by delivery of a promissory note or by a loan from the
Company when or where such loan or other extension of credit is prohibited by
law.
Section 5.3--Rights as Stockholders
Grantees shall not be, nor have any of the rights or privileges of,
stockholders of the Company in respect of any shares purchasable upon the
exercise of any part of an Option unless and until certificates representing
such shares have been issued by the Company to such Grantees.
Section 5.4--Transfer Restrictions
The Committee, in its absolute discretion, may impose such restrictions
on the transferability of the shares purchasable upon the exercise of an Option
as it deems appropriate. Any such restrictions shall be set forth in the
respective Option agreement and may be referred to on the certificates
evidencing such shares. Without limiting the generality of the foregoing, the
Committee may require the Employee to give the Company prompt notice of any
disposition of shares of stock acquired by exercise of an Incentive Stock
Option within two years from the date of granting such Option or one year after
the transfer of such shares to such Employee. The Committee may direct that the
certificates evidencing shares acquired by exercise of an Option refer to such
requirement to give prompt notice of disposition.
ARTICLE VI
Administration
Section 6.1--Compensation Committee
The Committee shall consist solely of two or more Directors, appointed by
and holding office at the pleasure of the Board, each of whom is both a "non-
employee director" as defined by Rule 16b-3 and an "outside director" for
purposes of Section 162(m) of the Code. Appointment of Committee members shall
be effective upon acceptance of appointment. Committee members may resign at
any time by delivering written notice to the Board. Vacancies in the Committee
shall be filled by the Board.
Section 6.2--Duties and Powers of the Committee
It shall be the duty of the Committee to conduct the general
administration of the Plan in accordance with its provisions. The Committee
shall have the power to interpret the Plan and the agreements pursuant to which
Options are granted and to adopt such rules for the administration,
interpretation and application of the Plan as are consistent herewith and to
interpret, amend or revoke any such rules. Any such interpretations and rules
in regard to Incentive Stock Options shall be consistent with provisions of
Section 422 of the Code. Any grant under this Plan need not be the same with
respect to each Grantee. In its absolute discretion, the Board may at any time
and from time to time exercise any and all rights and duties of the Committee
under this Plan except with respect to matters which under Rule 16b-3 or
Section 162(m) of the Code, or any regulations or rules issued thereunder, are
required to be determined in the sole discretion of the Committee.
Section 6.3--Majority Rule; Unanimous Written Consent
The Committee shall act by a majority of its members in attendance at a
meeting at which a quorum is present or by a memorandum or other written
instrument signed by all members of the Committee.
Section 6.4--Professional Assistance; Good Faith Actions
All expenses and liabilities which members of the Committee incur in
connection with the administration of this Plan shall be borne by the Company.
The Committee may employ attorneys, consultants, accountants, appraisers,
brokers or other persons. The Committee, the Company and its Officers and
Directors shall be entitled to rely upon the advice, opinions or valuations of
any such persons. All actions taken and all interpretations and determinations
made by the Committee or Board in good faith shall be final and binding upon
all Grantees, the Company and all other interested persons. No members of the
Committee or the Board shall be personally liable for any action, determination
or interpretation made in good faith with respect to the Plan or the Awards,
and all members of the Committee and the Board shall be fully protected by the
Company in respect to any such action, determination or interpretation.
ARTICLE VII
Other Provisions
Section 7.1--Options Not Transferable
Options may not be sold, pledged, assigned, or transferred in any manner
other than by will or the laws of descent and distribution, unless and until
such Options have been exercised, and the shares underlying such Options have
been issued, and all restrictions applicable to such shares have lapsed. No
Option or interest or right therein or part thereof shall be liable for the
debts, contracts or engagements of the Grantee or his successors in interest or
shall be subject to disposition by transfer, alienation, anticipation, pledge,
encumbrance, assignment or any other means whether such disposition be
voluntary or involuntary or by operation of law by judgment, levy, attachment,
garnishment or any other legal or equitable proceedings (including bankruptcy),
and any attempted disposition thereof shall be null and void and of no effect
except as otherwise permitted in this Section 7.1.
Section 7.2--Eligibility to Exercise
Only a Grantee may exercise an Option granted under the Plan during the
Grantee's lifetime. After the death of the Grantee, any exercisable portion of
an Option may, prior to the time when such portion becomes unexercisable under
the Plan or the applicable Option agreement or other agreement, be exercised by
the Grantee's personal representative, or by any person empowered to do so
under the deceased Grantee's will or under the then applicable laws of descent
and distribution.
Section 7.3--Conditions to Issuance of Stock Certificates
The Company shall not be required to issue or deliver any certificate or
certificates for shares of stock purchased upon the exercise of any Option
prior to fulfillment of all of the following conditions:
(a) The admission of such shares to listing on all stock exchanges on which
such class of stock is then listed;
(b) The completion of any registration or other qualification of such shares
under any state or federal law or under the rulings or regulations of the
Securities and Exchange Commission or any other governmental regulatory body,
which the Committee shall, in its absolute discretion, deem necessary or
advisable;
(c) The obtaining of any approval or other clearance from any state or
federal governmental agency which the Committee shall, in its absolute
discretion, determine to be necessary or advisable;
(d) The lapse of such reasonable period of time following the exercise of
the Option as the Committee may establish from time to time for reasons of
administrative convenience; and
(e) The receipt by the Company of full payment for such shares, including
payment of any applicable withholding tax.
Section 7.4--Amendment, Suspension or Termination of the Plan
Except as otherwise provided in this Section 7.4, the Plan may be wholly
or partially amended or otherwise modified, suspended or terminated at any time
or from time to time by the Board or the Committee. However, to the extent
required by Sections 422 or 162(m) of the Code, without approval of the
Company's stockholders given within 12 months before or after the action by the
Committee or Board, no action of the Committee or Board may increase any limit
imposed in Section 2.1 on the maximum number of shares which may be issued
under the Plan, modify the Award Limit, materially modify the eligibility
requirements of Section 3.1, or extend the limit imposed in this Section 7.4 on
the period during which Options may be granted or amend or modify the Plan in a
manner requiring stockholder approval under Sections 422 or 162(m) of the Code,
and no action of the Committee or Board may be taken that would otherwise
require stockholder approval as a matter of applicable law, regulation or rule.
Neither the amendment, suspension nor termination of the Plan shall, without
the consent of the holder of the Option, alter or impair any rights or
obligations under any Option theretofore granted unless the Option agreement
itself expressly so provides. No Option may be granted during any period of
suspension nor after termination of the Plan, and in no event any Option be
granted under this Plan on or after October 21, 2006. No amendment, suspension
or termination of this Plan shall, without the consent of the Grantees alter or
impair any rights or obligations under any Option theretofore granted or
awarded, unless the Option agreement otherwise expressly so provides.
Section 7.5--Approval of Plan by Stockholders
The Company shall take such actions with respect to the Plan as may be
necessary to satisfy the requirements of Sections 162(m) and 422 of the Code.
This Plan will be submitted for the approval of the Company's stockholders
within twelve months after the date of the Board's initial adoption of this
Plan. Options may not be granted under the Plan prior to such stockholder
approval.
Section 7.6--Effect of Plan Upon Other Compensation Plans
The adoption of this Plan shall not affect any other compensation or
incentive plans in effect for the Employers. Nothing in this Plan shall be
construed to limit the right of the Employers (a) to establish any other forms
of incentives or compensation for employees of the Employers or (b) to grant or
assume options otherwise than under this Plan in connection with any proper
corporate purpose, including, but not by way of limitation, the grant or
assumption of options in connection with the acquisition by purchase, lease,
merger, consolidation or otherwise, of the business, stock or assets of any
corporation, firm or association.
Section 7.7--Conformity to Securities Laws
The Plan is intended to conform to the extent necessary with all
provisions of the Securities Act, the Exchange Act, the Code, and any and all
regulations and rules promulgated by the Securities and Exchange Commission and
the Internal Revenue Service. Notwithstanding anything herein to the contrary,
the Plan shall be administered, and Options shall be granted and may be
exercised, only in such a manner as to conform to such laws, rules and
regulations. To the extent permitted by applicable law, the Plan and Options
granted hereunder shall be deemed amended to the extent necessary to conform to
such laws, rules and regulations.
Section 7.8--Changes in Common Stock or Assets of the Company, Acquisition or
Liquidation of the Company and Other Corporate Events
(a) Subject to Section 7.8(d), in event that the Committee determines
that any dividend or other distribution (whether in the form of cash, Common
Stock, other securities, or other property), recapitalization,
reclassification, stock split, reverse stock split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase, liquidation,
dissolution, or sale, transfer, exchange or other disposition of all or
substantially all of the assets of the Company (including, but not limited to,
a Corporate Transaction), or exchange of Common Stock or other securities of
the Company, issuance of warrants or other rights to purchase Common Stock or
other securities of the Company, or other similar corporate transaction or
event, in the Committee's sole discretion, affects the Common Stock such that
an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits intended to be made available
under the Plan or with respect to an Option, then the Committee shall, in such
manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Common Stock (or other securities or
property) with respect to which Options may be granted under the Plan,
(including, but not limited to, adjustments of the limitations in Section 2.1
on the maximum number and kind of shares which may be issued and adjustments of
the Award Limit),
(ii) the number and kind of shares of Common Stock (or other securities or
property) subject to outstanding Options, and
(iii) the grant or exercise price with respect to any Option.
(b) Subject to Section 7.8(d), in the event of any Corporate Transaction
or other transaction or event described in Section 7.8(a) or any unusual or
nonrecurring transactions or events affecting the Company, any affiliate of the
Company, or the financial statements of the Company or any affiliate, or of
changes in applicable laws, regulations, or accounting principles, the
Committee in its discretion is hereby authorized to take any one or more of the
following actions whenever the Committee determines that such action is
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits intended to be made available under the Plan or with respect
to any Option under this Plan, to facilitate such transactions or events, or to
give effect to such changes in laws, regulations or principles:
(i) In its sole and absolute discretion, and on such terms and conditions as
it deems appropriate, the Committee may provide, either by the terms of the
Option agreement or by action taken prior to the occurrence of such transaction
or event and either automatically or upon the Grantee's request, for either the
purchase of any such Option for an amount of cash equal to the amount that
could have been attained upon the exercise of such option, or award or
realization of the Grantee's rights had such Option been currently exercisable
or payable or fully vested or the replacement of such Option with other rights
or property selected by the Committee in its sole discretion;
(ii) In its sole and absolute discretion, the Committee may provide, either
by the terms of such Option or by action taken prior to the occurrence of such
transaction or event that it cannot be exercised after such event;
(iii) In its sole and absolute discretion, and on such terms and conditions
as it deems appropriate, the Committee may provide, either by the terms of such
Option or by action taken prior to the occurrence of such transaction or event,
that for a specified period of time prior to such transaction or event, such
option shall be exercisable as to all shares covered thereby, notwithstanding
anything to the contrary in (i) Section 4.4 or (ii) the provisions of such
Option;
(iv) In its sole and absolute discretion, and on such terms and conditions
as it deems appropriate, the Committee may provide, either by the terms of such
Option agreement or by action taken prior to the occurrence of such transaction
or event, that upon such event, such Option be assumed by the successor or
survivor corporation, or a parent or subsidiary thereof, or shall be
substituted for by similar options, rights or awards covering the stock of the
successor or survivor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kind of shares and prices; or
(v) In its sole and absolute discretion, and on such terms and conditions as
it deems appropriate, the Committee may make adjustments in the number and type
of shares of Common Stock (or other securities or property) subject to
outstanding Options and/or in the terms and conditions of (including the grant
or exercise price), and the criteria included in, outstanding Options that may
be granted in the future.
(c) Subject to Section 7.8(d) and 7.12, the Committee may, in its
discretion, include such further provisions and limitations in any Option
agreement or stock certificate, as it may deem equitable and in the best
interests of the Company.
(d) With respect to Options intended to qualify as performance-based
compensation under Section 162(m), no adjustment or action described in this
Section 7.8 or in any other provision of the Plan shall be authorized to the
extent that such adjustment or action would cause the Plan to violate Section
422(b)(1) of the Code or would cause such Option to fail to so qualify under
Section 162(m), as the case may be, or any successor provisions thereto.
Furthermore, no such adjustment or action shall be authorized to the extent
such adjustment or action would result in short-swing profits liability under
Section 16 of the Exchange Act or violate the exemptive conditions of Rule 16b-
3 unless the Committee determines that the Option is not to comply with such
exemptive conditions.
(e) The number of shares of Common Stock subject to any Option shall
always be rounded to the nearest whole number.
Section 7.9--Tax Withholding
The Company shall be entitled to require payment in cash or deduction
from other compensation payable to each Grantee of any sums required by
federal, state or local tax laws to be withheld with respect to the issuance,
vesting or exercise of any Option. The Committee may in its discretion and in
satisfaction of the foregoing requirement allow such Grantee to elect to have
the Company withhold shares of Common Stock otherwise issuable under such
Option (or allow the return of shares of Common Stock) having a Fair Market
Value equal to the sums required to be withheld.
Section 7.10--Loans
The Committee may, in its discretion, extend one or more loans to
Employees in connection with the exercise of an Option granted under this Plan.
The terms and conditions of any such loan shall be set by the Committee.
Section 7.11--Forfeiture Provisions
Pursuant to its general authority to determine the terms and conditions
applicable to awards under the Plan, the Committee shall have the right (to the
extent consistent with the applicable exemptive conditions of Rule 16b-3) to
provide, in the terms of an Option made under the Plan, or to require the
recipient to agree by separate written instrument, that (i) any proceeds, gains
or other economic benefit actually or constructively received by the recipient
upon any receipt or exercise of the Option, or upon the receipt or resale of
any Common Stock underlying such Option, must be paid to the Company, and (ii)
the Option shall terminate and any unexercised portion of such Option (whether
or not vested) shall be forfeited, if (a) a Termination of Employment occurs
prior to a specified date, or within a specified time period following receipt
or exercise of the Option, or (b) the recipient at any time, or during a
specified time period, engages in any activity in competition with the Company,
or which is adverse, contrary or harmful to the interests of the Company, as
further defined by the Committee.
Section 7.12--Limitations Applicable to Section 16 Persons and Performance-
Based Compensation
Notwithstanding any other provision of this Plan, this Plan, and any
Option granted to any individual who is then subject to Section 16, shall be
subject to any additional limitations set forth in any applicable exemptive
rule under Section 16 of the Exchange Act (including any amendment to Rule 16b-
3) that are requirements for the application of such exemptive rule. To the
extent permitted by applicable law, the Plan and Options granted hereunder
shall be deemed amended to the extent necessary to conform to such applicable
exemptive rule. Furthermore, notwithstanding any other provision of this Plan,
any Option intended to qualify as performance-based compensation as described
in Section 162(m)(4)(C) of the Code shall be subject to any additional
limitations set forth in Section 162(m) of the Code (including any amendment to
Section 162(m) of the Code) or any regulations or rulings issued thereunder
that are requirements for qualification as performance-based compensation as
described in Section 162(m)(4)(C) of the Code, and this Plan shall be deemed
amended to the extent necessary to conform to such requirements.
Section 7.13--Compliance with Laws
This Plan, the granting and vesting of Options under this Plan and the
issuance and delivery of shares of Common Stock and the payment of money under
this Plan or under Options granted hereunder are subject to compliance with all
applicable federal and state laws, rules and regulations (including but not
limited to state and federal securities law and federal margin requirements)
and to such approvals by any listing, regulatory or governmental authority as
may, in the opinion of counsel for the Company, be necessary or advisable in
connection therewith. Any securities delivered under this Plan shall be subject
to such restriction, and the person acquiring such securities shall, if
requested by the Company, provide such assurances and representations to the
Company as the Company may deem necessary or desirable to assure compliance
with all applicable legal requirements. To the extent permitted by applicable
law, the Plan, Options granted or awarded hereunder shall be deemed amended to
the extent necessary to conform to such laws, rules or regulations.
Section 7.14--Titles
Titles are provided herein for convenience only and are not to serve as a
basis for interpretation or construction of this Plan.
Section 7.15--Governing Law
This Plan and any agreements hereunder shall be administered, interpreted
and enforced under the internal laws of the State of Nevada without regard to
the conflicts of laws rules thereof.
