SCHEDULE 14A INFORMATION

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AUTOZONE, INC.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

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THIS FORM OF PROXY WILL BE FIRST MAILED TO STOCKHOLDERS ON OR ABOUT OCTOBER 22, 2007.

 

AUTOZONE, INC.

 

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

DECEMBER 12, 2007

 

 

 

By order of the Board of Directors,

 

Harry L. Goldsmith

Secretary

 

Memphis, Tennessee

October 22, 2007

 

 

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.

 

 

TABLE OF CONTENTS

 

AutoZone, Inc.
123 South Front Street
Memphis, Tennessee 38103

 

Proxy Statement

for

Annual Meeting of Stockholders

December 12, 2007

 

The Meeting

 

The Annual Meeting of Stockholders of AutoZone, Inc. will be held at AutoZone’s executive offices, the J. R. Hyde III Store Support Center, 123 South Front Street, Memphis, Tennessee, at 8:30 a.m. CST on December 12, 2007.

 

About this Proxy Statement

 

Our Board of Directors has sent you this Proxy Statement to solicit your vote at the Annual Meeting. This Proxy Statement contains important information for you to consider when deciding how to vote on the matters brought before the Meeting. Please read it carefully.

 

In this Proxy Statement:

 

 

AutoZone will pay all expenses incurred in this proxy solicitation. In addition to mailing this Proxy Statement to you, we also may make additional solicitations in person, by telephone, facsimile, e-mail, or other forms of communication. Brokers, banks, and others who hold our stock for 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 or about October 22, 2007.

 

Information about Voting

 

What matters will be voted on at the Annual Meeting?

 

At the Annual Meeting, stockholders will be asked to vote on the following proposals:

 

1. to elect nine directors;

 

2. to ratify the appointment of Ernst & Young LLP as our independent registered public accounting firm for the 2008 fiscal year.

 

Stockholders also will transact any other business that may be properly brought before the Meeting.

 

Who is entitled to vote at the Annual Meeting?

 

The record date for the Annual Meeting is October 15, 2007. Only stockholders of record at the close of business on that date are entitled to attend and vote at the Annual Meeting. The only class of stock that can be voted at the Meeting is our common stock. Each share of common stock is entitled to one vote on all matters that come before the Meeting. At the close of business on the record date, October 15, 2007, we had 64,914,833 shares of common stock outstanding.

How do I vote my shares?

 

You may vote your shares in person or by proxy:

 

By Proxy:  You can vote by telephone, on the Internet or 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.

 

1. By Telephone:  You may submit your voting instructions by telephone by following the instructions printed on the enclosed proxy card. If you submit your voting instructions by telephone, you do not have to mail in your proxy card.

 

2. On the Internet:  You may vote on the Internet by following the instructions printed on the enclosed proxy card. If you vote on the Internet, you do not have to mail in your proxy card.

 

3. By Mail:  If you properly complete and sign the enclosed proxy card and return it in the enclosed envelope, it will be voted in accordance with your instructions. The enclosed envelope requires no additional postage if mailed in the United States.

 

In Person:  You may attend the Annual Meeting and vote in person. If you are a registered holder of your shares (if you hold your stock in your own name), you need only attend the Meeting. However, if your shares are held in an account by a broker, you will need to present a written consent from your broker permitting you to vote the shares in person at the Annual Meeting.

 

What if I have shares in the AutoZone Employee Stock Purchase Plan?

 

If you have shares in an account under the AutoZone Employee Stock Purchase Plan, you have the right to vote the shares in your account. To do this you must sign and timely return the proxy card you received with this Proxy Statement, or grant your proxy by telephone or over the Internet by following the instructions on the proxy card.

 

How will my vote be counted?

 

Your vote for your shares will be cast as you indicate on your proxy card. If you sign your card without indicating how you wish to vote, your shares will be voted FOR our nominees for director, FOR Ernst & Young LLP as independent registered public accounting firm, and in the proxies’ discretion on any other matter that may properly be brought before the Meeting or any adjournment of the Meeting.

 

The votes will be tabulated and certified by our transfer agent, Computershare. A representative of Computershare will serve as the inspector of election.

 

Can I change my vote after I submit my proxy?

 

Yes, you may revoke your proxy at any time before it is voted at the Meeting by:

 

 

Any written notice should be sent to the Secretary at 123 South Front Street, Dept. 8074, Memphis, Tennessee 38103.

 

How many shares must be present to constitute a quorum for the Meeting?

 

Holders of a majority of the shares of the voting power of the Company’s stock must be present in person or by proxy in order for a quorum to be present. If a quorum is not present at the scheduled time of the Annual Meeting, we may adjourn the Meeting, without notice other than announcement at the Meeting, until a quorum is present or represented. Any business which could have been transacted at the Meeting as originally scheduled can be conducted at the adjourned meeting.

 

THE PROPOSALS

 

PROPOSAL 1 — Election of Directors

 

Nine directors will be elected at the Annual Meeting to serve until the annual meeting of stockholders in 2008. Directors are elected by a plurality, so the nine persons nominated for director and receiving the most votes will be elected. Pursuant to AutoZone’s Corporate Governance Principles, however, any nominee for director who receives a greater number of votes “withheld” from his or her election than votes “for” such election is required to tender his or her resignation for consideration by the Nominating and Corporate Governance Committee of the Board. The Nominating and Corporate Governance Committee will recommend to the Board the action to be taken with respect to such resignation.

 

Abstentions and broker non-votes have no effect on the election of directors. (“Broker non-votes” are shares held by banks or brokers on behalf of their customers that are represented at the Meeting but are not voted.)

 

The Board of Directors recommends that the stockholders vote FOR each of these nominees. These nominees have consented to serve if elected. Should any nominee be unavailable to serve, your proxy will be voted for the substitute nominee recommended by the Board of Directors, or the Board of Directors may reduce the number of directors on the Board.

 

Each of the nominees named below was elected a director at the 2006 annual meeting.

 

Nominees

 

The nominees are:

 

Charles M. Elson, 47, has been a director since 2000. He has been the Edgar S. Woolard, Jr. Professor of Corporate Governance since 2000 and is the Director of the Weinberg Center for Corporate Governance at the University of Delaware. He is also of counsel to Holland & Knight LLP. Mr. Elson is also a director of HealthSouth Corporation.

 

Sue E. Gove, 49, has been a director since 2005. She has been a consultant for Prentice Capital Management, LP since June 2006, and was a consultant for Alvarez and Marsal Business Consulting, L.L.C. from April 2006 to March 2007. She was Executive Vice President and Chief Operating Officer of Zale Corporation from 2002 to March 2006 and a director of Zale Corporation from 2004 to 2006. She was Executive Vice President, Chief Financial Officer of Zale Corporation from 1998 to 2002 and remained in the position of Chief Financial Officer until 2003.

 

Earl G. Graves, Jr., 45, has been a director since 2002. He has been the President and Chief Executive Officer of Earl G. Graves Publishing Company, publisher of Black Enterprise magazine, since January 2006, and was President and Chief Operating Officer from 1998 to 2006. Mr. Graves has been employed by the same company in various capacities since 1988.

 

N. Gerry House, 60, has been a director since 1996. She has been the President and Chief Executive Officer of the Institute for Student Achievement since 2000. Previously, she was the Superintendent of the Memphis, Tennessee City School System since 1992.

 

J. R. Hyde, III, 64, has been a director since 1986 and was non-executive Chairman of the Board from 2005 until June 2007. He has been the President of Pittco, Inc., an investment company, since 1989 and has been the Chairman of the Board and a director of GTx, Inc., a biotechnology, pharmaceutical company since 2000. Mr. Hyde was AutoZone’s Chairman from 1986 to 1997 and its Chief Executive Officer from 1986 to 1996. He was Chairman and Chief Executive Officer of Malone & Hyde, AutoZone’s former parent company, until 1988. Mr. Hyde is also a director of FedEx Corporation.

 

W. Andrew McKenna, 61, has been a director since 2000 and was elected Lead Director in June 2007. He is a private investor and is a director of Danka Business Systems PLC. Until his retirement in 1999, he had held various positions with The Home Depot, Inc., including Senior Vice President-Strategic

Business Development from 1997 to 1999; President, Midwest Division from 1994 to 1997; and Senior Vice President-Corporate Information Systems from 1990 to 1994. He was also President of SciQuest.com, Inc. in 2000.

 

George R. Mrkonic, Jr., 55, has been a director since June 2006. He served as Vice Chairman of Borders Group, Inc. from 1994 to 2002. He has held senior level executive positions with W.R. Grace and Company, Herman’s World of Sporting Goods, EyeLab, Inc., and Kmart Specialty Retail Group. He is also a director of Brinker International, Inc. and Nashua Corporation.

 

William C. Rhodes, III, 42, was elected Chairman in June 2007. He has been President, Chief Executive Officer, and a director since 2005. Prior to his appointment as President and Chief Executive Officer, Mr. Rhodes was Executive Vice President — Store Operations and Commercial. Prior to fiscal 2005, he had been Senior Vice President — Supply Chain and Information Technology since fiscal 2002, and prior thereto had been Senior Vice President — Supply Chain since 2001. Prior to that time, he served in various capacities within the Company, including Vice President — Stores in 2000, Senior Vice President — Finance and Vice President — Finance in 1999 and Vice President — Operations Analysis and Support from 1997 to 1999. Prior to 1994, Mr. Rhodes was a manager with Ernst & Young, LLP.

 

Theodore W. Ullyot, 40, has been a director since December 2006. He has been the Executive Vice President and General Counsel of ESL Investments, Inc., a private investment firm, since October 2005. He was Chief of Staff to former U.S. Attorney General Alberto R. Gonzales in 2005, after serving in the White House from January 2003 to January 2005 as a Deputy Assistant to President George W. Bush and as Associate Counsel. From January 2001 to January 2003, Mr. Ullyot served as a lawyer for AOL Time Warner Inc., beginning in New York as Vice President and Associate General Counsel and then in London as the General Counsel of AOL Time Warner Europe. Earlier in his career, Mr. Ullyot was a litigation and antitrust attorney at Kirkland & Ellis LLP, and a law clerk to Supreme Court Justice Antonin Scalia.

 

Independence

 

How many independent directors does AutoZone have?

 

Our Board of Directors has determined that seven of our current nine directors are independent: Charles M. Elson, Sue E. Gove, Earl G. Graves, Jr., N. Gerry House, W. Andrew McKenna, George R. Mrkonic, Jr., and Theodore W. Ullyot. All of these directors meet the independence standards of our Corporate Governance Principles and the New York Stock Exchange listing standards.

 

How does AutoZone determine whether a director is independent?

 

In accordance with AutoZone’s Corporate Governance Principles, a director is considered independent if the director:

 

 

 

In determining whether any business or charity affiliated with one of our directors did a significant amount of business with AutoZone, our Board has established that any payments from either party to the other exceeding 1% of either party’s revenues would disqualify a director from being independent.

 

In determining the independence of our directors, the Board considers relationships involving directors and their immediate family members that are relevant under applicable laws and regulations, the listing standards of the New York Stock Exchange, and the standards contained in our Corporate Governance Principles (listed above). The Board relies on information from Company records and questionnaires completed annually by each director.

 

As part of its most recent independence determinations, the Board noted that AutoZone does not have, and did not have during fiscal 2007, commercial relationships with companies at which Board members served as officers or directors, or in which Board members or their immediate family members held an aggregate of 10% or more direct or indirect interest. The Board considered the fact that Mr. Ullyot is Executive Vice President and General Counsel of ESL Investments, Inc., which beneficially owns 33.9% of AutoZone’s outstanding stock. ESL Investments, Inc., with its affiliates, is a substantial stockholder of Sears Holding Corporation. During fiscal 2007, Sears Holding Corporation did business with AutoZone in arm’s length transactions which were not, individually or cumulatively, material to either AutoZone or Sears Holding Corporation. The Board also reviewed donations made by the Company to not-for-profit organizations with which Board members or their immediate family members were affiliated by membership or service or as directors or trustees.

 

Based on its review of the above matters, the Board determined that none of Messrs. Elson, Graves, McKenna, Mrkonic, or Ullyot or Mmes. Gove and House has a material relationship with the Company and that all of them are independent within the meaning of the AutoZone Corporate Governance Principles and applicable law and listing standards.

 

Corporate Governance Documents

 

Our Board of Directors has adopted Corporate Governance Principles; charters for its Audit, Compensation and Nominating & Corporate Governance Committees; a Code of Business Conduct & Ethics for directors, officers and employees of AutoZone; and a Code of Ethical Conduct for Financial Executives. Each of these documents is available on our corporate website at www.autozoneinc.com and is also available, free of charge, in print to any stockholder who requests it.

 

Meetings and Attendance

 

How many times did AutoZone’s Board of Directors meet during the last fiscal year?

 

During the 2007 fiscal year, the Board of Directors held eight meetings.

 

Did any of AutoZone’s directors attend fewer than 75% of the meetings of the Board and their assigned committees?

 

All nine of our directors attended at least 75% of the meetings of the Board of Directors and their assigned committees during the fiscal year.

 

What is AutoZone’s policy with respect to directors’ attendance at the Annual Meeting?

 

As a general matter, all directors are expected to attend our Annual Meetings. At our 2006 Annual Meeting, all directors and nominees for director were present.

Do AutoZone’s non-management directors meet regularly in executive session?

 

The non-management members of our Board of Directors regularly meet in executive sessions in conjunction with each regularly scheduled Board meeting. Prior to June 2007, our then non-executive Chairman, Mr. Hyde, presided, and now our Lead Director, Mr. McKenna, presides at these sessions.

 

Committees of the Board

 

What are the standing committees of AutoZone’s Board of Directors?

 

AutoZone’s Board has three standing committees: Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee, each consisting only of independent directors.

 

Audit Committee

 

What is the function of the Audit Committee?

 

The Audit Committee is responsible for:

 

 

The Committee performs its duties by:

 

 

Who are the members of the Audit Committee?

 

The Audit Committee consists of Ms. Gove, Mr. Graves, Mr. Mrkonic and Mr. McKenna (Chairman).

 

Are all of the members of the Audit Committee independent?

 

Yes, the Audit Committee consists entirely of independent directors under the standards of AutoZone’s Corporate Governance Principles and the listing standards of the New York Stock Exchange.

 

Does the Audit Committee have an Audit Committee Financial Expert?

 

The Board has determined that Ms. Gove, Mr. McKenna and Mr. Mrkonic each meet the qualifications of an audit committee financial expert as defined by the Securities and Exchange Commission. All members of the Audit Committee meet the New York Stock Exchange definition of financial literacy.

How many times did the Audit Committee meet during the last fiscal year?

 

During the 2007 fiscal year, the Audit Committee held eleven meetings.

 

Where can I find the charter of the Audit Committee?

 

The Committee’s charter is available on our corporate website at www.autozoneinc.com and is also available, free of charge, in print to any stockholder who requests it.

 

Compensation Committee

 

What is the function of the Compensation Committee?

 

The Compensation Committee has the authority, based on its charter and the AutoZone Corporate Governance Principles, to:

 

 

The Committee may appoint subcommittees from time to time with such responsibilities as it may deem appropriate; however, the committee may not delegate its authority to any other persons.

 

AutoZone’s processes and procedures for the consideration and determination of executive compensation, including the role of the Compensation Committee and compensation consultants, are described in the “Compensation Discussion and Analysis” on page 17.

 

Who are the members of the Compensation Committee?

 

The Compensation Committee consists of Dr. House, Mr. McKenna, Mr. Mrkonic and Mr. Ullyot (Chairman), all of whom are independent directors under the standards of AutoZone’s Corporate Governance Principals and the listing standards of the New York Stock Exchange.

 

How many times did the Compensation Committee meet during the last fiscal year?

 

During the 2007 fiscal year, the Compensation Committee held three meetings.

 

Where can I find the charter of the Compensation Committee?

 

The Committee’s charter is available on our corporate website at www.autozoneinc.com and is also available, free of charge, in print to any stockholder who requests it.

 

Nominating and Corporate Governance Committee

 

What is the function of the Nominating and Corporate Governance Committee?

 

The Nominating and Corporate Governance Committee ensures that:

 

 

Who are the members of the Nominating and Corporate Governance Committee?

 

The Nominating and Corporate Governance Committee consists of Mr. Elson (Chairman), Ms. Gove, Mr. Graves and Dr. House, all of whom are independent directors under the standards of AutoZone’s Corporate Governance Principals and the listing standards of the New York Stock Exchange.

 

How many times did the Nominating and Corporate Governance Committee meet during the last fiscal year?

 

During the 2007 fiscal year, the Nominating and Corporate Governance Committee held four meetings.

 

Where can I find the charter of the Nominating and Corporate Governance Committee?

 

The Committee’s charter is available on our corporate website at www.autozoneinc.com and is also available, free of charge, in print to any stockholder who requests it.

 

Director Nomination Process

 

What is the Nominating and Corporate Governance Committee’s policy regarding consideration of director candidates recommended by stockholders? How do stockholders submit such recommendations?

 

The Nominating and Corporate Governance Committee’s policy is to consider director candidate recommendations from stockholders if they are submitted in writing to AutoZone’s Secretary, accompanied by the biographical and business experience information regarding the nominee and the other information required by Article III, Section 1 of AutoZone’s Fourth Amended and Restated Bylaws (“Bylaws”). Copies of the Bylaws will be provided upon written request to AutoZone’s Secretary and are also available on AutoZone’s corporate website at www.autozoneinc.com.

 

What qualifications must a nominee have in order to be recommended by the Nominating and Corporate Governance Committee for a position on the Board?

 

The Board believes each individual director should possess certain personal characteristics, and that the Board as a whole should possess certain core competencies. Such personal characteristics are integrity and accountability, informed judgment, financial literacy, mature confidence, high performance standards, and passion. Core competencies of the Board as a whole are accounting and finance, business judgment, management expertise, crisis response, industry knowledge, international markets, strategy and vision. These characteristics and competencies are set forth in more detail in AutoZone’s Corporate Governance Principles, which are available on AutoZone’s corporate website at www.autozoneinc.com.

 

How does the Nominating and Corporate Governance Committee identify and evaluate nominees for director?

 

Prior to each annual meeting of stockholders at which directors are to be elected, the Nominating and Corporate Governance Committee considers incumbent directors and other qualified individuals as potential director nominees. In evaluating a potential nominee, the Nominating and Corporate Governance Committee considers the personal characteristics described above, and also reviews the composition of the full Board to determine the areas of expertise and core competencies needed to enhance the function of the Board. The Committee may also consider other factors such as the size of the Board, whether a candidate is independent, how many other public company directorships a candidate holds, and the listing standards requirements of the New York Stock Exchange.

 

The Nominating and Corporate Governance Committee uses a variety of methods for identifying potential nominees for director. Candidates may come to the attention of the Committee through current Board members, stockholders or other persons. The Nominating and Corporate Governance Committee may retain a search firm or other consulting firm from time to time to identify potential nominees. Nominees recommended by stockholders in accordance with the procedure described above, i.e., submitted in writing to AutoZone’s Secretary, accompanied by the biographical and business experience information regarding the nominee and

the other information required by Article III, Section 1 of the Bylaws, will receive the same consideration as the Committee’s nominees.

 

Procedure for Communication with the Board of Directors

 

How can stockholders and other interested parties communicate with the Board of Directors?

 

Stockholders and other interested parties may communicate with the Board of Directors by writing to the Board, to any individual director or to the non-management directors as a group c/o Secretary, AutoZone, Inc., 123 South Front Street, Dept. 8074, Memphis, Tennessee 38103. All such communications will be forwarded unopened to the addressee. Communications addressed to the Board of Directors or to the non-management directors as a group will be forwarded to Charles M. Elson and communications addressed to a committee of the Board will be forwarded to the chairman of that committee.

 

Compensation of Directors

 

Director Compensation Table

 

This table shows the compensation paid to our non-employee directors during the 2007 fiscal year. No amounts were paid to our non-employee directors during the 2007 fiscal year that would be classified as “Non-Incentive Plan Compensation,” “Changes in Pension Value and Nonqualified Deferred Compensation Earnings” or “All Other Compensation,” so these columns have been omitted from the table.

 

 

 

 

 

		Stock				Stock
		Units				Options*
Director		(#)				(#)
Charles M. Elson			2,784				24,608
Sue E. Gove			280				6,715
Earl G. Graves, Jr.			2,411				13,282
N. Gerry House			4,326				25,500
J.R. Hyde, III			6,560				26,500
Edward S. Lampert			—				—
W. Andrew McKenna			4,247				24,955
George R. Mrkonic, Jr.			460				6,857
Theodore W. Ullyot			255				4,578

 

* Includes vested and unvested stock options.

 

The following table shows the grant date fair value of each stock award and each stock option award made during fiscal 2007 computed in accordance with SFAS 123(R). Stock award values are determined using the Black-Scholes option pricing model. See Note B, Share-Based Compensation, to our consolidated financial statements in our 2007 Annual Report for a discussion of our accounting for share-based awards and the assumptions used.

 

 

 

Narrative Accompanying Director Compensation Table

 

Current Compensation Structure

 

Annual Retainer Fees.  All non-employee directors are paid an annual retainer of $40,000, with the Audit Committee chairman receiving an additional $10,000 and the chairmen of the Compensation and Nominating and Corporate Governance committees each receiving an additional $5,000 per year. There are no meeting fees.

 

Director Compensation Plan.  Under the AutoZone, Inc. 2003 Director Compensation Plan (the “Director Compensation Plan”), a non-employee director may receive no more than one-half of the annual fees in cash — the remainder must be taken in common stock. The director may elect to receive up to 100% of the fees in stock or to defer all or part of the fees in units with value equivalent to the value of shares of AutoZone Common Stock (“Stock Units”). Unless deferred, the annual fees are payable in advance in equal quarterly installments on September 1, December 1, March 1, and June 1 of each year, at which time each director receives cash and/or shares of common stock in the amount of one-fourth of the annual fees. The number of shares issued is determined by dividing the amount of the fee payable in shares by the fair market value of the shares as of the grant date.

 

If a director defers any portion of the annual fees in the form of Stock Units, then on September 1, December 1, March 1, and June 1 of each year, AutoZone will credit a unit account maintained for the director with a number of Stock Units determined by dividing the amount of the fees by the fair market value of the shares as of the grant date. Upon the director’s termination of service, he or she will receive the number of shares of common stock with which his or her unit account is credited, either in a lump sum or installments, as elected by the director under the Director Compensation Plan.

 

Director Stock Option Plan.  Under the AutoZone, Inc. 2003 Director Stock Option Plan (the “Director Stock Option Plan”), each non-employee director receives an option to purchase 1,500 shares of common stock on January 1 of each year, and each director who owns common stock or Stock Units worth at least five times the annual retainer fee receives an additional option to purchase 1,500 shares. In addition, each new director receives an option to purchase 3,000 shares upon election to the Board, plus a portion of the annual directors’ option grant prorated for the portion of the year served in office. These stock option grants are made at the fair market value of the common stock as of the grant date, defined in the plan as the average of the highest and lowest prices quoted for the common stock on the New York Stock Exchange on the business day immediately prior to the grant date. They become fully vested and exercisable on the third anniversary of the date of grant, or the date on which the director ceases to be a director of AutoZone, whichever occurs first.

 

Changes Effective January 1, 2008

 

The Board of Directors has approved the following changes to AutoZone’s director compensation structure effective January 1, 2008.

 

Annual Retainer Fees.  Beginning January 1, 2008, non-employee directors will be able to choose each year between two compensation options. A director electing the first option will receive the same retainer fee as is currently paid, i.e., an annual base retainer of $40,000 (the “Base Retainer”). A director electing the second option will receive, in addition to the Base Retainer, an annual supplemental retainer in the amount of $35,000 (the “Supplemental Retainer”), but will receive a smaller annual stock option award under the Director Stock Option Plan.

 

Director Compensation Plan.  The Base Retainer and the Supplemental Retainer, if applicable, plus any chairman fees will be paid through the Director Compensation Plan, so that at least one-half of these fees will be paid in common stock, and the director may elect to receive up to 100% of the fees in stock or to defer all or part of the fees in Stock Units.

 

Director Stock Option Plan.  The Director Stock Option Plan will be amended so that directors who elect to be paid only the Base Retainer will receive, on January 1 during their first two years of service as a director, an option to purchase 3,000 shares of AutoZone common stock. After the first two years, such

directors will receive, on January 1 of each year, an option to purchase 1,500 shares of common stock, and each such director who owns common stock or Stock Units worth at least five times the Base Retainer will receive an additional option to purchase 1,500 shares. Directors electing to be paid the Supplemental Retainer will receive, on January 1 during their first two years of service as a director, an option to purchase 2,000 shares of AutoZone common stock. After the first two years, such directors will receive, on January 1 of each year, an option to purchase 500 shares of common stock, and each such director who owns common stock or Stock Units worth at least five times the Base Retainer will receive an additional option to purchase 1,500 shares.

 

The changes in the grants during a director’s first two years of service will not apply to any director who was a member of the Board as of June 6, 2007.

 

Predecessor Plans

 

The AutoZone, Inc. Second Amended and Restated Director Compensation Plan and the AutoZone, Inc. Fourth Amended and Restated 1998 Director Stock Option Plan were terminated in December 2002 and were replaced by the Director Compensation Plan and the Director Stock Option Plan. However, grants made under those plans continue in effect under the terms of the grant made and are included in the aggregate awards outstanding shown above.

 

Stock Ownership Requirement

 

The Board has established a stock ownership requirement for non-employee directors. Within three years of joining the Board, each director must personally invest at least $100,000 in AutoZone stock. Shares and Stock Units issued under the Director Compensation Plan count toward this requirement.

 

PROPOSAL 2 — Ratification of Independent Registered Public Accounting Firm

 

Ernst & Young LLP, our independent auditor for the past twenty fiscal years, has been selected by the Audit Committee to be AutoZone’s independent registered public accounting firm for the 2008 fiscal year. Representatives 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 Audit Committee recommends that you vote FOR ratification of Ernst & Young LLP as AutoZone’s independent registered public accounting firm. For ratification, the firm must receive more votes in favor of ratification than votes cast against. Abstentions and broker non-votes will not be counted as voting either for or against the firm. However, the Audit Committee is not bound by a vote either for or against the firm. The Audit Committee will consider a vote against the firm by the stockholders in selecting our independent registered public accounting firm in the future.

 

During the past two fiscal years, the aggregate fees for professional services rendered by Ernst & Young LLP were as follows:

 

 

 

 

The Audit Committee pre-approves all services performed by the independent registered public accounting firm under the terms contained in the Audit Committee charter, a copy of which can be obtained at our website at www.autozoneinc.com. The Audit Committee pre-approved 100% of the services provided by

Ernst & Young LLP during the 2007 and 2006 fiscal years. The Audit Committee considers the services listed above to be compatible with maintaining Ernst & Young LLP’s independence.

 

Audit Committee Report

 

The Audit Committee of AutoZone, Inc., has reviewed and discussed AutoZone’s audited financial statements for the year ended August 25, 2007, with AutoZone’s management. In addition, we have discussed with Ernst & Young LLP, AutoZone’s independent registered public accounting firm, the matters required to be discussed by Statement on Auditing Standards No. 61, the Sarbanes-Oxley Act of 2002, and the charter of the Committee.

 

The Committee also has received the written disclosures and the letter from Ernst & Young LLP required by Independence Standards Board Standard No. 1, and we have discussed with Ernst & Young LLP their independence from the Company and its management. The Committee has discussed with AutoZone’s management and the auditing firm such other matters and received such assurances from them as we deemed appropriate.

 

As a result of our review and discussions, we have recommended to the Board of Directors the inclusion of AutoZone’s audited financial statements in the annual report for the fiscal year ended August 25, 2007, on Form 10-K for filing with the Securities and Exchange Commission.

 

While the Audit Committee has the responsibilities and powers set forth in its charter, the Audit Committee does not have the duty to plan or conduct audits or to determine that AutoZone’s financial statements are complete, accurate, or in accordance with generally accepted accounting principles; AutoZone’s management and the independent auditor have this responsibility. Nor does the Audit Committee have the duty to assure compliance with laws and regulations and the policies of the Board of Directors.

 

W. Andrew McKenna (Chairman)
Sue E. Gove
Earl G. Graves, Jr.
George R. Mrkonic, Jr.

 

The above Audit Committee Report does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent the Company specifically incorporates this Report by reference therein.

 

Other Matters

 

We do not know of any matters to be presented at the Annual Meeting other than those discussed in this Proxy Statement. If, however, other matters are properly brought before the Annual Meeting, your proxies will be able to vote those matters in their discretion.

 

OTHER INFORMATION

 

Security Ownership of Management

 

This table shows the beneficial ownership of common stock by each director, the Principal Executive Officer, the Principal Financial Officer and the other three most highly compensated executive officers, and all current 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.

 

 

 

 

 

Security Ownership of Certain Beneficial Owners

 

The following entities are known by us to own more than five percent of our outstanding common stock:

 

 

 

 

EXECUTIVE COMPENSATION

 

Compensation Discussion and Analysis

 

Introduction

 

This Compensation Discussion and Analysis provides a principles-based overview of AutoZone’s executive compensation program. It discusses our rationale for the types and amounts of compensation that our executive officers receive and how compensation decisions affecting these officers are made. It also discusses AutoZone’s total rewards philosophy, the key principles governing our compensation program, and the objectives we seek to achieve with each element of our compensation program.

 

What are the Company’s key compensation principles?

 

Pay for performance.  The primary emphasis of AutoZone’s compensation program is linking executive pay to business results and stockholder value. Base salary levels are intended to be competitive, but the more potentially valuable components of executive compensation are annual cash incentives, which depend on the achievement of pre-determined business goals, and to a greater extent, long-term compensation, which is based on the value of our stock.

 

Attract and retain talented AutoZoners.  The overall level and balance of compensation elements in our compensation program are designed to ensure that AutoZone can retain key executives and, when necessary, attract qualified new executives to the organization. We believe that a financially strong company which delivers solid stockholder results is the most important component of attracting and retaining executive talent.

 

What are the Company’s overall executive compensation objectives?

 

Drive high performance.  AutoZone sets challenging financial and operating goals, and a significant amount of an executive’s annual cash compensation is tied to these objectives and therefore “at risk” — payment is earned only if performance warrants it.

 

Drive long-term stockholder results.  AutoZone’s compensation program is intended to support long-term focus on stockholder results, so it emphasizes long-term rewards. At target levels, the majority of an executive officer’s total compensation package each year is the potential value of his or her stock options.

 

Who participates in AutoZone’s executive compensation programs?

 

The Chief Executive Officer and the other named executive officers, as well as the other senior executives comprising AutoZone’s Executive Committee, participate in the compensation program outlined in this Compensation Discussion and Analysis. The Executive Committee consists of the Chief Executive Officer and officers with the title of senior vice president or executive vice president. However, many elements of the compensation program also apply to other levels of AutoZone management. The intent is to ensure that management is motivated to pursue, and is rewarded for achieving, the same financial, operating and stockholder objectives.

What are the key elements of the company’s overall executive compensation program?

 

The table below summarizes the key elements of AutoZone’s executive compensation program and the objectives they are designed to achieve.

 

 

Annual cash compensation.  Annual cash compensation consists of base salary and annual cash incentives (bonus).

 

Base Salary.  Salaries are determined within the context of a targeted total cash compensation level for each position. Base salary is a fixed portion of the targeted annual cash compensation, with the specific portion varying based on differences in the size, scope or complexity of the jobs as well as the tenure and performance level of incumbents in the positions. Points are assigned to positions using a job evaluation system developed by Hay Group, and AutoZone maintains salary ranges based on the job evaluations originally constructed with Hay Group’s help. These salary ranges are updated annually based on broad-based survey data; in addition to Hay Group survey data, AutoZone uses surveys published by Mercer and Hewitt Associates, among others, for this purpose. As discussed below, neither the Compensation Committee of the Board of Directors nor AutoZone management routinely engages independent compensation consultants for the purpose of setting individual executive pay levels or incentive targets.

 

AutoZone emphasizes pay for performance, so base salary ranges are structured to support the delivery of competitive total cash compensation (a combination of base salary and annual cash incentive) when AutoZone’s financial objectives are achieved. Therefore, base salary ranges are not established by reviewing external base salary information alone.

 

Annual Cash Incentive.  Executive officers and certain other employees are eligible to receive annual cash incentives (bonuses) each fiscal year based on the Company’s attainment of objectives set by the Compensation Committee at the beginning of the fiscal year. The annual cash incentive target for each position, expressed as a percentage of base salary, is based on both salary range and level within the organization. As a general rule, as an executive’s level of management responsibility increases, the portion of his or her total compensation dependent on Company performance as measured by business objectives increases.

 

Annual cash incentives for executive officers are paid pursuant to the AutoZone, Inc. 2005 Executive Incentive Compensation Plan (“EICP”), our performance-based short-term incentive plan. Pursuant to the Plan, the Compensation Committee establishes incentive objectives at the beginning of each fiscal year. For more information about the EICP, see Discussion of Plan-Based Awards Table on page 27.

 

The actual bonus amount paid depends on performance relative to the target objectives. A minimum pre-established goal must be met in order for any bonus award to be paid, and the bonus award as a percentage of annual salary will increase as the Company achieves higher levels of performance.

The incentive objectives for fiscal 2007 and fiscal 2008 were based on the achievement of specified levels of earnings before interest and taxes (“EBIT”) and return on invested capital (“ROIC”). The specific targets are tied to achievement of the Company’s operating plan for the fiscal year. In 2007, the target objectives were EBIT of $1,048.9 million and ROIC of 21.5%.

 

Because the EBIT and ROIC performance targets for 2008 are tied to achievement of our operating plan, we regard them as highly confidential and competitively sensitive. Disclosing the specific targets would result in competitive harm to the Company in that it would inform competitors as to the basis for future business decisions. Also, it has been AutoZone’s policy for a number of years not to give financial guidance to stock market analysts, and disclosure of the specific targets would violate that policy.

 

Our Board of Directors participates in the creation of challenging financial and operating plans to be achieved by management. The Compensation Committee sets the incentive targets each year based on these plans. There are no individual performance measures or other means by which executives may earn annual incentive awards if the financial results do not warrant payment. Over the last five years, annual cash incentive payouts have exceeded target three times and have been below target twice.

 

Effect of Performance on Total Annual Cash Compensation.  Because AutoZone emphasizes pay for performance, it is only when the Company exceeds its target objectives that an executive’s total annual cash compensation begins to exceed competitive market levels. Similarly, Company performance below target will cause an executive’s total annual cash compensation to drop below competitive market levels. As discussed below, AutoZone does not engage in strict benchmarking of compensation levels, i.e., we do not use specific data to support precise targeting of compensation, such as setting an executive’s base pay at the 50th percentile of an identified group of companies.

 

Stock options.  To emphasize achievement of long-term stockholder value, AutoZone’s executives receive a significant portion of their targeted total compensation in the form of stock options. Although stock options have potential worth at the time they are granted, they only confer actual value if AutoZone’s stock price appreciates between the grant date and the exercise date. For this reason, we believe stock options are the best long-term compensation vehicle to reward executives for creating stockholder value. We do not maintain any other long-term incentive plans for our executives. We want our executives to realize total compensation levels well above the market norm, because when they do, such success is the result of both achievement of Company financial objectives and strong stockholder returns.

 

In order to support and facilitate stock ownership by our executive officers, a portion of their annual stock option grant typically consists of Incentive Stock Options (“ISOs”). If an executive holds the stock acquired upon exercise of an ISO for at least two years from the date of grant and one year from the date of exercise, he or she can receive favorable long-term capital gains tax treatment for all appreciation over the exercise price. ISOs have a term of ten years and vest in equal 25% increments on the first, second, third and fourth anniversaries of the grant date. They are granted at the fair market value on the date of grant as defined in the relevant stock option plan. There is a $100,000 limit on the aggregate grant value of ISOs that may become exercisable in any calendar year.

 

Because of the limitations on ISOs, most of the stock options granted to our officers and other employees are non-qualified stock options (“NQSOs”). In general, our NQSOs have terms of ten years and one day and vest in equal 25% increments on the first, second, third and fourth anniversaries of the grant date. They are granted at the fair market value on the date of grant as defined in the relevant stock option plan.

 

AutoZone does not grant discounted stock options, and our stock option plans prohibit repricing of previously granted options. AutoZone’s plans do not provide for the granting of “reload” options.

 

AutoZone grants stock options annually. Currently, the annual grants are reviewed and approved by the Compensation Committee in the meeting at which it reviews prior year results, determines incentive payouts, and takes other compensation actions affecting the named executive officers. The Compensation Committee has not delegated its authority to grant stock options; all grants are directly approved by the Compensation Committee. Option grant amounts are recommended to the Compensation Committee by the Chief Executive Officer, based on individual performance and the size and scope of the position held.

Newly promoted or hired officers may receive a grant shortly after their hire or promotion. As a general rule, new hire or promotional stock options are approved and effective on the date of a regularly scheduled meeting of the Compensation Committee. On occasion, these interim grants may be approved by unanimous written consent of the Compensation Committee. The grants are recommended to the Compensation Committee by the Chief Executive Officer based on individual circumstances (e.g., what may be required in order to attract a new executive). Internal promotional grants are prorated based on the time elapsed since the officer received a regular annual grant of stock options.

 

For more information about our stock option plans, see Discussion of Plan-Based Awards Table on page 27.

 

Stock purchase plans.  AutoZone maintains the Employee Stock Purchase Plan which enables all employees to purchase AutoZone common stock at a discount, subject to IRS-determined limitations. Based on IRS rules, we limit the annual purchases in the Employee Stock Purchase Plan to no more than $15,000, and no more than 10% of eligible (base and bonus or commission) compensation. To support and encourage stock ownership by our executives, AutoZone also established a non-qualified stock purchase plan. The Fourth Amended and Restated AutoZone, Inc. Executive Stock Purchase Plan (“Executive Stock Purchase Plan”) permits participants to acquire AutoZone common stock in excess of the purchase limits contained in AutoZone’s Employee Stock Purchase Plan. Because the Executive Stock Purchase Plan is not required to comply with the requirements of Section 423 of the Internal Revenue Code, it has a higher limit on the percentage of a participant’s compensation that may be used to purchase shares (25%) and places no dollar limit on the amount of a participant’s compensation that may be used to purchase shares under the plan.

 

The Executive Stock Purchase Plan operates in a similar manner to the tax-qualified Employee Stock Purchase Plan, in that it allows executives to defer after-tax base or bonus compensation (after making annual elections as required under Section 409A of the Internal Revenue Code) for use in making quarterly purchases of AutoZone common stock. Options are granted under the Executive Stock Purchase Plan each calendar quarter and consist of two parts: a restricted share option and an unvested share option. Shares are purchased under the restricted share option at 100% of the closing price of AutoZone stock at the end of the calendar quarter (i.e., not at a discount), and a number of shares are issued under the unvested share option at no cost to the executive, so that the total number of shares acquired upon exercise of both options is equivalent to the number of shares that could have been purchased with the deferred funds at a price equal to 85% of the stock price at the end of the quarter. The unvested shares are subject to forfeiture if the executive does not remain with the company for one year after the grant date. After one year, the shares vest, and the executive owes taxes based on the share price on the vesting date (unless a so-called 83(b) election was made on the date of grant).

 

The table below can be used to compare and contrast the stock purchase plans.

 

How does the Compensation Committee consider and determine executive and director compensation?

 

Chief Executive Officer.  The Compensation Committee establishes the compensation level for the Chief Executive Officer, including base salary and annual cash incentive compensation, and reviews and approves his stock option awards. The Chief Executive Officer’s compensation is reviewed annually by the Compensation Committee in conjunction with a review of his performance by the non-management directors, taking into account all forms of compensation, including base salary, annual cash incentive, stock option awards, and the value of other benefits received.

 

Other Executive Officers.  The Compensation Committee reviews and establishes base salaries for AutoZone’s executive officers other than the Chief Executive Officer based on each executive officer’s performance during the past fiscal year and on the recommendations of the Chief Executive Officer. The Compensation Committee approves the annual cash incentive amounts for the executive officers, which are determined by objectives established by the Compensation Committee at the beginning of each fiscal year as discussed above. The actual bonus amount paid depends on performance relative to the target objectives.

 

The Compensation Committee approves awards of stock options to many levels of management, including executive officers. Stock options are granted to executive officers upon initial hire or promotion, and thereafter are typically granted annually in accordance with guidelines established by the Compensation Committee as discussed above. The actual grant is determined by the Compensation Committee based on the guidelines and the performance of the individual in the position. The Compensation Committee considers the recommendations of the Chief Executive Officer.

 

What roles do the Chief Executive Officer and other executive officers play in the determination of executive compensation?

 

The Chief Executive Officer attends most meetings of the Compensation Committee and participates in the process by answering Compensation Committee questions about pay philosophy and by ensuring that the Compensation Committee’s requests for information are fulfilled. He also assists the Compensation Committee in determining the compensation of the executive officers by providing recommendations and input about such matters as individual performance, tenure, and size, scope and complexity of their positions. The Chief Executive Officer makes specific recommendations to the Compensation Committee concerning the compensation of his direct reports and other senior executives, including the executive officers. These recommendations usually relate to base salary increases and stock option grants. The Chief Executive Officer also recommends pay packages for newly hired executives. Management provides the Compensation Committee with data, analyses and perspectives on market trends and annually prepares information to assist the Compensation Committee in its consideration of such recommendations. Annual incentive awards are based on achievement of business objectives set by the Compensation Committee, but the Compensation Committee may exercise negative discretion, and if it does so, it is typically in reliance on the Chief Executive Officer’s assessment of an individual’s performance.

 

The Chief Executive Officer does not make recommendations to the Compensation Committee regarding his own compensation. The Senior Vice President, Human Resources has direct discussions with the Compensation Committee Chairman regarding the Compensation Committee’s recommendations on the Chief Executive Officer’s compensation; however, Compensation Committee discussions of specific pay actions related to the Chief Executive Officer are held outside his presence.

 

Does AutoZone use compensation consultants?

 

Neither AutoZone management nor the Compensation Committee hired compensation consultants during fiscal 2007. As discussed previously, AutoZone does not regularly engage consultants as part of our annual review and determination of executive compensation. Although historically we have hired consultants to provide services from time to time, it is not our usual practice. The Compensation Committee has authority, pursuant to its charter, to hire consultants of its selection to advise it with respect to AutoZone’s compensation programs, and it may also limit the use of the Compensation Committee’s compensation consultants by AutoZone’s management as it deems appropriate.

What are AutoZone’s peer group and compensation benchmarking practices?

 

AutoZone reviews publicly-available data from a peer group of companies to help us ensure that our overall compensation remains competitive. The peer group is currently composed of the 24 specialty retailers listed below, and includes our direct competitors as well as other companies which we believe are similar to AutoZone in such matters as customers, product lines, revenues and market capitalization. The peer group data we use is from proxy filings and other published sources — it is not prepared or compiled especially for AutoZone.

 

We periodically review the appropriateness of this peer group. It typically changes when such events as acquisitions and spin-offs occur.

 

 

We do not use information from the peer group or other published sources to set targets or make individual compensation decisions. AutoZone does not engage in “benchmarking,” such as targeting base salary at peer group median for a given position. Rather we use such data as context in reviewing AutoZone’s overall compensation levels and approving recommended compensation actions. Broad survey data and peer group information are just two elements that we find useful in maintaining a reasonable and competitive compensation program. Other elements that we consider are individual performance, Company performance, individual tenure, position tenure, and succession planning.

 

What is AutoZone’s policy concerning the tax deductibility of compensation?

 

The Compensation Committee considers the provisions of Section 162(m) of the Internal Revenue Code (the “Code”) which allows the Company to take an income tax deduction for compensation up to $1 million and for certain compensation exceeding $1 million paid in any taxable year to a “covered employee” as that term is defined in the Code. There is an exception for qualified performance-based compensation, and AutoZone’s compensation program is designed to maximize the tax deductibility of compensation paid to executive officers, where possible. Our EICP, discussed above, is a performance-based incentive plan designed to ensure deductibility of annual cash incentives. However, the Compensation Committee may authorize payments which are not deductible where it is in the best interests of AutoZone and its stockholders.

 

The following table outlines which plans or types of payments retain deductibility when the $1 million threshold is exceeded.

 

 

How is AutoZone complying with Section 409A of the Internal Revenue Code?

 

Section 409A of the Internal Revenue Code was created with the passage of the American Jobs Creation Act of 2004. These new tax regulations create strict rules related to non-qualified deferred compensation earned and vested on or after January 1, 2005. AutoZone has conducted a thorough assessment of all affected plans, and continues to take actions necessary to comply with the new requirements by the deadlines established by the Internal Revenue Service.

 

Compensation Committee Report

 

The Compensation Committee of the Board of Directors (the “Committee”) has reviewed and discussed with management the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K. Based on the review and discussions, the Committee recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement.

 

Members of the Compensation Committee:

Theodore W. Ullyot, Chairman

N. Gerry House

W. Andrew McKenna

George R. Mrkonic, Jr.

 

Compensation Committee Interlocks and Insider Participation

 

The current members of the Compensation Committee of the Board of Directors are listed above. Mr. Lampert served as a member of the Compensation Committee and chaired the Compensation Committee until he retired from the Board of Directors in December, 2006. The Committee is composed solely of independent, non-employee directors.

 

Summary Compensation Table

 

This table shows the compensation paid to the Principal Executive Officer, the Principal Financial Officer and our other three most highly paid executive officers (the “Named Executive Officers”).

 

 

 

 

										Company
										Contributions to
		Perquisites				Tax				Defined				Life
		and Personal				Gross-				Contribution				Insurance
Name		Benefits(A)				ups				Plans(C)				Premiums				Other(D)
William C. Rhodes III		$	71,093	(B)						$	45,938			$	4,516
William T. Giles		$	267,222	(B)		$	765							$	1,663
James A. Shea		$	17,481							$	21,902			$	1,920
Harry L. Goldsmith		$	28,234							$	17,459			$	2,097			$	6,600
Robert D. Olsen		$	21,059							$	18,960			$	2,097

 

 

 

Mr. Rhodes:  $50,000 in matching charitable contributions made under the AutoZone Matching Gift Program, under which executives may contribute to qualified charitable organizations and AutoZone provides a matching contribution to the charities in an equal amount, up to $50,000 in the aggregate for each executive officer annually.

 

Mr. Giles:  $253,728 in relocation expenses, including $2,128 in temporary living expense reimbursements. The remaining amount consists of $6,500 for repair and maintenance of Mr. Giles’ former home while it was on the market and a difference of $245,100 between the appraised value at which the Company purchased the home and the price at which it was ultimately sold.

 

 

 

Grants of Plan-Based Awards

 

The following table sets forth information regarding plan-based awards granted to the Company’s Named Executive Officers during the 2007 fiscal year.

 

 

 

Discussion of Plan-Based Awards Table

 

Executive Incentive Compensation Plan.  The EICP is intended to be a performance-based compensation plan under Section 162(m) of the Internal Revenue Code. The Company’s executive officers, as determined by the Compensation Committee of the Board of Directors, are eligible to participate in the EICP. At the beginning of each fiscal year, the Compensation Committee establishes a goal, which may be a range from a minimum to a maximum attainable bonus, based on one or more of the following measures:

 

 

The EICP provides that the goal may be different for different executives. The goals can change annually to support our business objectives. After the end of each fiscal year, the Compensation Committee must certify the attainment of goals under the EICP and direct the amount to be paid to each participant in cash. See “Compensation Discussion and Analysis” on page 17 for more information about the EICP.

 

Executive Stock Purchase Plan.  The Executive Stock Purchase Plan permits participants to acquire AutoZone common stock in excess of the purchase limits contained in AutoZone’s Employee Stock Purchase Plan. Because the Executive Stock Purchase Plan is not required to comply with the requirements of Section 423 of the Internal Revenue Code, it has a higher limit on the percentage of a participant’s compensation that may be used to purchase shares (25%) and places no dollar limit on the amount of a participant’s compensation that may be used to purchase shares under the plan. For more information about the Executive Stock Purchase Plan, see “Compensation Discussion and Analysis” on page 17.

 

Stock Option Plan.  Stock options are awarded to many levels of management, including executive officers, to align the long-term interests of AutoZone’s management and our stockholders. The stock options shown in the table were granted pursuant to the Third Amended and Restated AutoZone, Inc. 1996 Stock Option Plan (“1996 Stock Option Plan”), which expired on October 21, 2006; future stock options will be granted under the AutoZone, Inc. 2006 Stock Option Plan. The plans are similar in operation and are collectively referred to as the “Stock Option Plans” in this discussion.

 

Both incentive stock options and non-qualified stock options, or a combination of both, can be granted under the Stock Option Plans. Incentive stock options have a term of ten years, and non-qualified stock options have a term of ten years and one day. Options granted during the 2007 fiscal year vest in one-fourth increments over a four-year period. All options granted under the Stock Option Plans have an exercise price equal to the fair market value of AutoZone common stock on the date of grant, which is defined in the Stock Option Plans as the closing price on the trading day previous to the grant date. Option repricing is expressly prohibited by the terms of the Stock Option Plans.

 

Each grant of stock options is governed by the terms of a Stock Option Agreement entered into between the Company and the executive officer at the time of the grant. The Stock Option Agreements provide vesting schedules and other terms of the grants in accordance with the Stock Option Plans.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

The following table sets forth information regarding outstanding stock option awards under the 1996 Stock Option Plan and unvested shares under the Executive Stock Purchase Plan for the Company’s Named Executive Officers as of August 25, 2007: