UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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Filed by the Registrantý | |||||
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o | Preliminary Proxy Statement | ||||
o | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) | ||||
| Definitive Proxy Statement | ||||
o | Definitive Additional Materials | ||||
o | Soliciting Material under §240.14a-12 |
Penske Automotive Group, 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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| No fee required. | ||||
o | Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. | ||||
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| 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. | ||||
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SEC 1913 (11-01) | Persons who are to respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number. |
Penske Automotive Group 2014 Proxy Statement |
Annual Meeting of Stockholders
The Annual Meeting of Stockholders of
Penske Automotive Group, Inc. will be held May 2, 2014
2555 Telegraph Road
Bloomfield Hills, Michigan 48302
Dear Fellow Stockholder:
You are invited to attend the annual meeting of stockholders of Penske Automotive Group, Inc. to be held at 8:00 a.m., Eastern Daylight Time on May 9, 2013,2, 2014, at our corporate headquarters, 2555 Telegraph Rd., Bloomfield Hills, Michigan.
The agenda for this year’syear's annual meeting includes the annual election of directors, approval of our 2012 Equity Incentive Plan, ratification of the selection of our independent auditing firm and an advisory vote regarding our executive officer compensation. The Board of Directors recommends that you vote FOR the director nominees, FOR the 2012 Equity Incentive Plan, FOR the ratification of our independent auditors and FOR approval of our executive officer compensation. Please refer to the detailed information on each of these proposals and our annual meeting of stockholders in the accompanying materials.
We have elected to deliver our proxy materials to our stockholders over the Internet. This delivery process provides stockholders with the information they need, while at the same time conserving natural resources and lowering the cost of printing and delivery. On or about March 15, 2013,17, 2014, we will mail to our stockholders a notice of internet availability of proxy materials containing instructions on how to access our 20132014 proxy statement and 20122013 annual report to stockholders. This notice also provides instructions on how to vote online or by telephone and includes information on how to request a paper copy of the proxy materials by mail.
The annual meeting provides an excellent opportunity for stockholders to become better acquainted with the Company and its directors and officers, and I hope that you will attend. Whether or not you plan to attend, we ask that you cast your vote as soon as possible. This will assure your shares are represented at the meeting. Thank you for your continued support of Penske Automotive Group.
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Sincerely, | ||
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Bloomfield Hills, Michigan March 10, 2014 |
Penske Automotive Group, Inc. |
Notice of 2014 Annual Meeting of Stockholders
Date: | May 2, 2014 | |
Time: | 8:00 a.m. Eastern Time | |
Place: | 2555 Telegraph Road Bloomfield Hills, Michigan 48302 | |
Record date: | March 7, 2014. Only stockholders of record at the close of business on the record date are entitled to receive notice of, and to vote at, the Annual Meeting. | |
Items of business: |
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| • To approve, on a non-binding advisory basis, the compensation paid to our Named Executive Officers • To transact other business that may properly come before the Annual Meeting |
NOTICE OF 2013 ANNUAL MEETING OF STOCKHOLDERS
Meeting Time and Place:
Thursday, May 9, 2013, at 8:00 a.m., Eastern Daylight Time, at our corporate headquarters, 2555 Telegraph Rd., Bloomfield Hills, Michigan.
Items of Business:
(1)Election of twelve directors to serve until the next annual meeting of stockholders, or until their successors are duly elected and qualified.
(2)Approval of our 2012 Equity Incentive Plan.
(3)Ratification of the selection of Deloitte & Touche LLP as our independent auditing firm for 2013.
(4)Approval of an advisory resolution regarding executive compensation.
(5)Transaction of such other business as may properly come before the annual meeting and any postponement or adjournment thereof.
Who may vote:
Stockholders of record as of March 12, 2013 can vote at the annual meeting and any postponements or adjournments of the annual meeting. Our proxy statement and the proxy card are first being made available to our stockholders on or about March 13, 2013.
Admission:
You will be asked to verify proof of ownership of PAG stock before being admitted to our annual meeting. If you hold shares indirectly through a bank or brokerage firm, please bring a recent statement to verify your ownership. We reserve the right to deny admission to anyone who cannot verify he or she is one of our stockholders. Cameras and recording devices will not be permitted.
Important notice regarding the availability of proxy materials for the stockholder meeting to be held on May 9, 2013.2, 2014.
Our Proxy Statement, Proxy Card and Annual Report to Stockholders are available atwww.envisionreports.com/pag.
By order of the Board of Directors
/s/ Shane M. Spradlin
Shane M. Spradlin
Executive Vice President, General Counsel and Secretary
Bloomfield Hills, Michigan
March 10, 2014
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2013 PROXY SUMMARY
This summary highlights information contained elsewhere in this proxy statement.Proxy Statement. This summary does not contain all of the information that you should consider, and you should read the entire proxy statementProxy Statement carefully before voting.
Annual Meeting of Stockholders
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Date: | May 2, 2014 | |||
Time: | 8:00 a.m. | |||
Place: |
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Bloomfield Hills, Michigan 48302 | ||||
Record date: |
March 7, 2014 | |||
Voting: |
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Admission to meeting: | Proof of share ownership will be required to enter the Penske Automotive Annual Meeting — see "Information about Attending the meeting" on page 38 for details. |
Meeting agenda
Voting Mattersmatters and vote recommendation
Matter | &zwsp; | Board | &zwsp; | Page Reference | ||||
Election of |
| For each director nominee | Page | |||||
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Ratification of Deloitte & Touche LLP as |
| For | &zwsp; | Page | ||||
Advisory |
| For | Page |
Board Nominees
Our director nominees |
The following table provides summary information about each director nominee. Each director nominee is elected annually by a majority of votes cast.
Name | Age | Director since | Occupation | Independent | Committee Memberships | |||||||||||||||||||||||||||
AC | CC | NCG | EC | |||||||||||||||||||||||||||||
John D. Barr | 66 | 2002 | Chairman Papa Murphy's International | • | F | |||||||||||||||||||||||||||
Michael R. Eisenson | &zwsp; | 58 | &zwsp; | 1993 | &zwsp; | Managing Director & CEO Charlesbank Capital Partners | &zwsp; | • | &zwsp; | C, F | &zwsp; | &zwsp; | &zwsp; | M | ||||||||||||||||||
Robert H. Kurnick, Jr. | 52 | 2006 | President, Penske Automotive Group | M | ||||||||||||||||||||||||||||
William J. Lovejoy | &zwsp; | 73 | &zwsp; | 2004 | &zwsp; | General Manager Lovejoy & Associates | &zwsp; | • | &zwsp; | &zwsp; | M | &zwsp; | &zwsp; | |||||||||||||||||||
Kimberly J. McWaters | 49 | 2004 | CEO, Universal Technical Institute | • | C | |||||||||||||||||||||||||||
Yoshimi Namba | &zwsp; | 48 | &zwsp; | 2010 | &zwsp; | Sr. Vice President — International Business Development Penske Automotive Group | &zwsp; | &zwsp; | &zwsp; | &zwsp; | &zwsp; | |||||||||||||||||||||
Lucio A. Noto | 75 | 2001 | Retired Vice Chairman ExxonMobil Corporation | M | ||||||||||||||||||||||||||||
Greg Penske | &zwsp; | 51 | &zwsp; | n/a | &zwsp; | Chairman and CEO Penske Motor Group | &zwsp; | &zwsp; | &zwsp; | &zwsp; | &zwsp; | |||||||||||||||||||||
Roger S. Penske | 77 | 1999 | Chairman and CEO Penske Automotive Group | C | ||||||||||||||||||||||||||||
Sandra E. Pierce | &zwsp; | 55 | &zwsp; | 2012 | &zwsp; | Vice-Chairman FirstMerit Corporation | &zwsp; | • | &zwsp; | &zwsp; | M | &zwsp; | M | &zwsp; | ||||||||||||||||||
Ronald G. Steinhart | 73 | 2001 | Retired Chairman and CEO Commercial Bank Group Bank One Corporation | • | F | |||||||||||||||||||||||||||
H. Brian Thompson | &zwsp; | 74 | &zwsp; | 2002 | &zwsp; | Executive Chairman Global Telecom & Technology | &zwsp; | • | &zwsp; | &zwsp; | C | &zwsp; | M | &zwsp; | M |
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| Director |
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Name |
| Age |
| Since |
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| AC |
| CMDC |
| NCGC |
| EC |
| Independent |
John D. Barr |
| 65 |
| 2002 |
| Chairman Papa Murphy’s International |
| X |
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Michael R. Eisenson |
| 57 |
| 1993 |
| Managing Director & CEO Charlesbank Capital Partners |
| X |
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| X |
Robert H. Kurnick, Jr. |
| 51 |
| 2006 |
| President Penske Automotive Group |
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| X |
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William J. Lovejoy |
| 72 |
| 2004 |
| General Manager Lovejoy & Associates |
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Kimberly J. McWaters |
| 48 |
| 2004 |
| CEO Universal Technical Institute |
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| X |
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Yoshimi Namba |
| 47 |
| 2010 |
| Sr. Vice President — International Business Development Penske Automotive Group |
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Lucio A. Noto |
| 74 |
| 2001 |
| Retired Vice Chairman ExxonMobil Corporation |
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| X |
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| X |
| X |
Roger S. Penske |
| 76 |
| 1999 |
| Chairman and CEO Penske Automotive Group |
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| X |
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Richard J. Peters |
| 65 |
| 1999 |
| Managing Director Transportation Resource Partners |
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Sandra E. Pierce |
| 54 |
| 2012 |
| Vice Chairman FirstMerit Corporation |
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| X |
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AC | Audit Committee | C | Chair | |||
CC | Compensation and Management Development Committee | F | Financial expert | |||
NCG | Nominating and Corporate Governance Committee | M | Member | |||
EC | Executive Committee |
Attendance |
Each nominee who is a current director attended at least 85% of meetings of the Board and of the committees of which he or she was a member in 2013.
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Name |
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| Since |
| Occupation |
| AC |
| CMDC |
| NCGC |
| EC |
| Independent |
Ronald G. Steinhart |
| 72 |
| 2001 |
| Retired Chairman and CEO Commercial Banking Group, Bank One Corporation |
| X |
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H. Brian Thompson |
| 73 |
| 2002 |
| Executive Chairman Global Telecom & Technology |
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| X |
| X |
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AC Audit Committee
CMDC Compensation & Management Development Committee
NCGC Nominating & Corporate Governance Committee
EC Executive Committee
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2012 Equity Incentive Plan
In light of the expiration of the company’s existing 2002 equity incentive plan, our stockholders are being asked to approve a new 2012 Equity Incentive Plan. This plan provides up to two million shares for equity awards, including awards that are intended to satisfy the requirements of Section 162(m) of the Internal Revenue Code, and terminates in 2015. In the last three years, we have granted a gross amount of 519,241, 436,970 and 452,782 shares of incentive equity, which represents an average annual rate of shares issued as compared to shares outstanding of approximately 0.5%.
Auditors
As a matter of good corporate governance, we are askingask that our stockholders to ratify the selection of Deloitte & Touche as our independent auditor for 2013.2014. Set forth below is summary information with respect to 20122013 auditor fees.
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| Deloitte |
| KPMG |
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Audit Fees |
| $ | 1,245,000 |
| $ | 762,800 |
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Audit Related Fees |
| 126,250 |
| 102,000 |
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Tax Fees |
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Tax Compliance |
| 32,000 |
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Other Tax Fees |
| 97,032 |
| 209,600 |
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| 129,032 |
| 209,600 |
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All Other Fees |
| — |
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Total Fees |
| $ | 1,500,282 |
| $ | 1,074,400 |
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| | Deloitte | KPMG | |||||
Audit Fees | $ | 1,250,000 | $ | 979,400 | ||||
Audit Related Fees | 81,500 | 36,000 | ||||||
Tax Fees | ||||||||
Tax Compliance | 50,000 | — | ||||||
Other Tax Fees | 470,750 | — | ||||||
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All Other Fees | — | 9,600 | ||||||
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Total Fees | $ | 1,852,250 | $ | 1,025,000 |
Executive Compensation
Executive Compensation |
We are askingask that our stockholders to annually approve on an advisory basis our named executive officer compensation. The Board recommends a FOR vote because it believes that our compensation policies and practices are effective in achieving the Company’sCompany's goals of rewarding sustained financial and operating performance and leadership excellence, aligning the executives’executives' long-term interest with those of our stockholders and motivating the executives to remain with the Company for long and productive careers. In 2012,2013, over 97%98% of the votes cast by our stockholders approved of our 20112012 executive compensation and there have not been any significant changes to the elements of our executive compensation in 2012.
2013.
20122013 Compensation Summary
Set forth below is the 20122013 compensation for each named executive officer as determined under SEC rules.
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| Salary |
| Bonus |
| Stock Awards |
| All Other |
| Total |
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Name and Principal Position |
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Roger S. Penske |
| 1,200,000 |
| — |
| 3,500,000 | (2) | 209,336 | (3) | 4,909,336 |
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Chief Executive Officer |
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Robert H. Kurnick, Jr. |
| 700,000 |
| — |
| 600,000 | (4) | 71,576 | (5) | 1,371,576 |
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President |
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David K. Jones |
| 400,000 |
| 180,000 |
| 241,100 |
| 72,597 | (6) | 893,697 |
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Executive Vice President & Chief Financial Officer |
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Calvin C. Sharp |
| 416,827 |
| 100,000 |
| 108,495 |
| 50,280 | (7) | 675,602 |
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Executive Vice President — Human Resources |
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Shane M. Spradlin |
| 424,039 |
| 180,000 |
| 192,880 |
| 66,996 | (8) | 863,915 |
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Executive Vice President, General Counsel & Secretary |
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Name and Principal Position | | Salary ($) | | Bonus ($) | | Stock Awards ($)(1) | | All Other Compensation ($) | | Total ($) | |||||||
Roger S. Penske | 1,200,000 | — | 3,600,000 | &zwsp; (2) | 305,569 | &zwsp; (3) | 5,105,569 | ||||||||||
Chief Executive Officer | |||||||||||||||||
Robert H. Kurnick, Jr. | 700,000 | — | 700,000 | &zwsp; (4) | 96,580 | &zwsp; (5) | 1,496,580 | ||||||||||
President | |||||||||||||||||
David K. Jones | 427,884 | 210,000 | 316,168 | 62,487 | &zwsp; (6) | 1,016,539 | |||||||||||
Executive Vice President & Chief Financial Officer | |||||||||||||||||
Calvin C. Sharp | 435,000 | 115,000 | 136,338 | 56,834 | &zwsp; (7) | 743,172 | |||||||||||
Executive Vice President — | |||||||||||||||||
Shane M. Spradlin | 450,000 | 210,000 | 305,420 | 53,361 | &zwsp; (8) | 1,018,781 | |||||||||||
Executive Vice President, General Counsel & Sec. |
Please see the footnote references beginning on page 3026 for further information regarding our named executive officer compensation.
Proxy statement table of contents |
Questions about the Meeting | 2 | |
Proposal 1 — Election of Directors | 5 | |
Our Corporate Governance | 9 | |
Board Committees | 9 | |
Board Structure and Lead Director | 10 | |
Director Independence | 10 | |
Risk Management | 11 | |
Securities Trading Policy/Anti-Hedging | 12 | |
Stock Ownership Guidelines/Pledging | 12 | |
Controlled Company | 12 | |
Director Candidates | 12 | |
Location of Corporate Governance Documents | 13 | |
Section 16(a) Beneficial Ownership Reporting Compliance | 13 | |
Compensation Committee Interlocks and Insider Participation | 13 | |
Stockholder Nominations and Proposals for 2015 | 13 | |
Proposal 2 — Ratification of the Selection of our Independent Auditors | 13 | |
Proposal 3 — Advisory Vote on Executive Compensation | 16 | |
Executive Officers | 17 | |
Compensation Committee Report | 17 | |
Compensation Discussion and Analysis ("CD&A") | 18 | |
Executive Compensation | 26 | |
Director Compensation | 29 | |
Security Ownership of Certain Beneficial Owners and Management | 31 | |
Related Party Transactions | 33 | |
Information about Attending the Meeting | 38 |
PROCEDURAL QUESTIONS ABOUT THE MEETINGTable of Contents
Questions about the Meeting |
Q. What am I voting on?
A. | Proposal 1: | Election of twelve directors to serve until the next annual meeting of stockholders, or until their successors are duly elected and qualified | ||
Proposal 2: |
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| Ratification of the selection of Deloitte & Touche LLP as our independent auditing firm for | |||
Proposal | Advisory vote regarding executive compensation |
Q. Who can vote?
A. Our stockholders as of the close of business on the record date, March 7, 2014, can vote at the annual meeting. Each share of our common stock gets one vote. Votes may not be cumulated. As of March 7, 2014, there were 90,552,058 shares of our common stock outstanding. |
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Q. Why did I receive a notice in the mail regarding the Internet availability of proxy materials instead of a full set of proxy materials?
A. As permitted by the Securities and Exchange Commission ("SEC"), we have elected to provide access to our proxy materials primarily over the Internet rather than mailing paper copies of those materials to each stockholder. On or about March 17, 2014, we will mail a Notice of Internet Availability of Proxy Materials (the "Notice") to our stockholders, which provides website and other information for the purpose of accessing our proxy materials. All stockholders will have the ability to access the proxy materials on the website referred to in the Notice or request a printed or electronic set of the proxy materials. Instructions on how to access the proxy materials over the Internet or to request a printed copy may be found in the Notice. In addition, stockholders may request to receive proxy materials in printed form by mail or electronically by email on an ongoing basis. We encourage you to take advantage of the availability of the proxy materials on the Internet to help reduce the cost and environmental impact of the annual meeting. |
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Q. How can I get electronic access to the proxy materials?
A. The Notice provides you with instructions regarding how to view our proxy materials for the annual meeting on the Internet and instruct us to send proxy materials to you by email. Choosing to receive proxy materials by email will save us the cost of printing and mailing documents to you and will reduce the impact of our annual meeting on the environment. If you choose to receive future proxy materials by email, you will receive an email message next year with instructions containing a link to those materials and a link to the proxy voting website. Your election to receive proxy materials by email will remain in effect unless and until you rescind it. |
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Q. What is the difference between a stockholder of record and a beneficial owner of shares held in street name?
A. Stockholder of Record. |
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Beneficial Owner of Shares Held in Street Name. If your shares are held in an account at a brokerage firm, bank, broker-dealer or other similar organization, then you are the beneficial owner of shares held in "street name," and the Notice was forwarded to you by that organization. The organization holding your account is considered the stockholder of record for purposes of voting at the annual meeting. As a beneficial owner, you have the right to direct that organization on how to vote the shares held in your account. If you request copies of the
proxy materials by mail, you will receive a voting instruction form.
Q. How do I vote my shares?
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·A. If you are a stockholder of record or a participant in the Company's stock fund within our Company 401(k) plan (the "401(k) plan"), you may vote in any of the following ways:
You may vote online 24 hours a day. If you vote online, you do not need to return a proxy card.
·By TelephoneTelephone.. If you are located in In the U.S., you may vote by calling toll free 1-800-652-VOTE (1-800-652-8683) and following the instructions. You will need the Control Number included on the Notice or on your proxy card, as applicable. You may vote by telephone 24 hours a day. If you vote by telephone, you do not need to return a proxy card.
·By MailMail.. If you requested printed copies of the proxy materials, you will receive a proxy card, and you may vote by signing, dating and mailing the proxy card in the envelope provided. Votes submitted by mail must be received at our headquarters on or before May 8, 2013.1, 2014.
·In PersonPerson.. You may vote in person at the annual meeting by requesting a ballot from the inspector of election at the meeting.
A.If you are a beneficial owner of shares held in street name, you may vote in any of the following ways:
·By InternetInternet.. You may vote online by following the instructions provided in the Notice. You will need the Control Number included on the Notice or on your voting instruction form, as applicable. You may vote online 24 hours a day. If you vote online, you do not need to return a voting instruction form.
·By TelephoneTelephone.. You may vote by telephone by following the instructions provided in the Notice. You will need the Control Number included on the Notice or on your voting instruction form, as applicable. You may vote by telephone 24 hours a day. If you vote by telephone, you do not need to return a voting instruction form.
·By MailMail.. If you requested printed copies of the proxy materials, you will receive a voting instruction form, and you may vote by signing, dating and mailing it in the envelope provided. Votes submitted by mail must be received at our headquarters on or before May 8, 2013.1, 2014.
·In PersonPerson.. You must obtain a legal proxy from the organization that holds your shares in order to vote your shares in person at the annual meeting. Follow the instructions on the Notice to obtain this legal proxy.
For both stockholders of record and beneficial owners of shares held in street name (other than stockholders within our Company 401(k) plan), online and telephone voting is available through 11:59 p.m. ET on Wednesday,Thursday, May 8, 2013.1, 2014. For shares held by the stock fund within the Company’sCompany's 401(k) plan, online and telephone voting is available through 11:59 p.m. ET on Monday, May 6, 2013.Tuesday, April 29, 2014.
Q. Can I change my mind after I vote?
A.You may change your vote at any time before the meeting by (1) signing and returning another proxy card with a later date (or voting through the Internet or telephone again), (2) voting at the meeting if you are a registered stockholder or have obtained a legal proxy from your bank or broker or (3) sending a notice to our Corporate Secretary prior to the meeting stating that you are revoking your proxy.
Q. What if I return my proxy card but do not provide voting instructions?
A.Proxies that are signed and returned but do not contain instructions will be voted (1) FOR the election of the twelve nominees for director, (2) FOR the approval of the 2012 Equity Incentive Plan, (3) FOR the ratification of our independent auditors,(4) (3) FOR approval of our executive officer compensation and (5)(4) in accordance with the best judgment of the named proxies on any other matters properly brought before the meeting.
Q. Will my shares be voted if I do not provide my proxy instruction form?
A.If you are a stockholder of record and do not provide a proxy, you must attend the meeting in order to vote your shares. If you are a beneficial holder of shares held in street name, your shares may be voted even if you do not provide voting instructions on your instruction form. Brokers have the authority under New York Stock Exchange rules to vote shares for which their customers do not provide voting instructions on certain “routine”"routine" matters. Under these rules, only the proposal to ratify our independent auditing firm is a “routine matter”"routine matter" being voted on by our stockholders this year.
Q. May stockholders ask questions at the meeting?
A.Yes. Our representatives will answer stockholders’stockholders' questions of general interest at the end of the meeting. In order to give a greater number of stockholders an opportunity to ask questions, individuals or groups may be allowed to ask only one question and repetitive or follow-up questions may not be permitted.
Q. How many votes must be present to hold the meeting?
A.Your shares are counted as present at the meeting if you attend the meeting and vote in person or if you properly return a proxy card or vote via the Internet or telephone. In order for us to conduct our meeting, a majority of our outstanding shares of common stock as of March 12, 20137, 2014 must be present in person or by proxy at the meeting (45,151,255)(45,276,030). This is referred to as a quorum. Abstentions and broker non-votes will be counted for purposes of establishing a quorum at the meeting.
Q. How many votes are needed to approve the proposals?
A.Regarding proposal 1, the twelve nominees receiving the highest number of “For”"For" votes will be elected as directors. This number is called a plurality. Shares not voted, whether by marking “Abstain”"Abstain" on the proxy card or otherwise, will have no impact on the election of directors. Regarding proposalproposals 2 the measure will pass if it receives the affirmative vote of a majority of the votes cast at the meeting, which must also represent at least 50% of the total shares outstanding on the record date. Regarding proposalsand 3, and 4, each measure will pass if it receives the affirmative vote of a majority of the votes cast. On these items, abstentions and broker non-votes will not be counted in determining the number of votes cast.
Proposal 1 — Election of Directors |
PROPOSAL 1 — ELECTION OF DIRECTORS
The first proposal to be voted on at the annual meeting will be the election of twelve director nominees. Our Nominating and Corporate Governance Committee and Board of Directors recommend approval of each of the nominees outlined below. If elected, each will serve a one-year term. Mr. Rich Peters, one of our current directors, is not standing for reelection. Pursuant to a stockholders agreement, certain of our stockholders affiliated with Roger S. Penske and Mitsui & Co., Ltd. have agreed to vote together to elect members of our Board of Directors. See “Related"Related Party Transactions”Transactions" for a description of this stockholders agreement.
Penske Corporation recommended Greg Penske (Roger S. Penske's son) to our Nominating and Corporate Governance Committee as a candidate for election to our Board of Directors at the 2014 annual meeting. Penske Corporation has also informed us that it intends to recommend Greg Penske for re-election to our Board at the 2015 and 2016 annual meetings. Beginning in 2017, in lieu of Greg Penske, Penske Corporation presently intends to recommend one of Mr. Penske's other sons, Roger Penske, Jr., to the Nominating and Corporate Governance Committee for nomination as a candidate for election to our Board at the 2017, 2018 and 2019 annual meetings. It is expected that Mr. Penske, Jr. will serve as an advisory committee member of Penske Truck Leasing (PTL) for 2014, 2015 and 2016 and it is expected that Greg Penske will step down from our Board at the 2017 annual meeting and will serve as an advisory committee member of PTL beginning in 2017.
Director Nominees. Our Nominating and Corporate Governance Committee has established minimum qualifications for director nominees, including having personal integrity, loyalty to Penske Automotive Group and concern for its success and welfare, willingness to apply sound and independent business judgment and having sufficient time available for Penske Automotive Group matters. Experience in at least one of the following is also desired: high level of leadership experience in business or administration, breadth of knowledge concerning issues affecting Penske Automotive Group, willingness to contribute special competence to board activities, accomplishments within the director’sdirector's respective field, and experience reading and understanding financial statements.
The Nominating and Corporate Governance Committee and Board of Directors reviewed the qualities of the Board members as a group, including the diversity of the Board’sBoard's career experiences, viewpoints, company affiliations, expertise with respect to the various facets of our business operations, and business experiences. The Board did not employ any particular benchmarks with respect to these qualities, but was mindful of achieving an appropriate balance of these qualities with respect to the Board of Directors as a whole. Moreover, the Board of Directors and Nominating and Corporate Governance Committee considered each nominee’snominee's overall service to Penske Automotive Group during the previous term, each nominee’snominee's personal integrity and adherence to the standards noted above, as well as the individual experience of each director noted within their biographies below.
Our Board of Directors Recommends a Vote “FOR”"FOR" Each of the Following Nominees:
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John D. Barr — Chairman, Papa Murphy's International Inc.Mr. Barr, 66, has served as a director since December 2002. Mr. Barr has been the Chairman of Papa Murphy's International Inc., a take-and-bake pizza chain, since September 2009 and was its Chief Executive Officer from April 2005 to January 1, 2012. From 1999 until April 2004, Mr. Barr served as President and Chief Executive Officer of Automotive Performance Industries, a vehicle transportation service provider. Prior thereto, Mr. Barr was President and Chief Operating Officer, as well as a member of the Board of Directors, of the Quaker State Corporation from June 1995 to 1999. Prior to joining Quaker State, Mr. Barr spent 25 years with The Valvoline Company, a subsidiary of
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Michael R. Eisenson — Managing Director and CEO of Charlesbank Capital Partners LLCMr. Eisenson, 58, has served as a director since December 1993. He is a Managing Director and CEO of Charlesbank Capital Partners LLC, a private investment firm and the successor to Harvard Private Capital Group, Inc., which he joined in 1986. Mr. Eisenson is also a director of Blueknight Energy Partners, L.P., Montpelier RE Holdings Ltd. and a number of private companies. In the previous five years, Mr. Eisenson was formerly a director of Animal Health International, Inc., Catlin Group Limited and CIFC Corp.Individual experience: Familiarity with all of the Company's key operations from serving as our director since 1993; experience managing Charlesbank and affiliates and their portfolio companies; experience in commercial finance, private equity and leveraged finance; demonstrated success serving as our audit committee chairman.
Robert H. Kurnick, Jr. — President of Penske Automotive Group
Mr. Kurnick, Jr., 52, has served as our President since April 2008. From March 2006 to April 2008 he served as our Vice Chairman and has been a director since May 2006. He also serves as President and a director of Penske Corporation, which he joined in 1995. Penske Corporation is a privately owned diversified transportation services company that holds, through its subsidiaries, interests in a number of businesses.Individual experience: Familiarity with all of the Company's key operations; breadth of knowledge concerning issues affecting our Company; extensive automotive industry experience; experience as President of Penske Corporation.
William J. Lovejoy — General Manager of Lovejoy & Associates
Mr. Lovejoy, 73, has served as a director since March 2004. Since September 2003, Mr. Lovejoy has served as General Manager of Lovejoy & Associates, an automotive consulting firm. From January 2000 until December 2002, Mr. Lovejoy served as Group Vice President, North American vehicle sales, service and marketing for General Motors Corporation. From 1994 until December 1999, Mr. Lovejoy served as Vice President of General Motors service and parts operation. From 1962 until 1992, Mr. Lovejoy served in various capacities for General Motors Acceptance Corporation ("GMAC") and ultimately President of GMAC in 1990. Mr. Lovejoy also serves on the Advisory Board of On My Own of Michigan.Individual experience: Extensive automotive industry experience with General Motors, including its sales and service and parts operations; automotive finance experience culminating with experience as President of GMAC; breadth of knowledge concerning issues affecting our Company.
Kimberly J. McWaters — CEO of Universal Technical Institute, Inc.
Ms. McWaters, 49, has served as a director since December 2004. Ms. McWaters has served as CEO of Universal Technical Institute, Inc. ("UTI"), a nationwide provider of technical educational training for individuals seeking careers as professional automotive technicians, since October 2003, as Chairman of the Board of UTI since December 9, 2013 and as a director on UTI's board since February 2005. From February 2000 to February 2011, Ms. McWaters served as President of UTI. From 1984 until 2000, Ms. McWaters held several positions at UTI including Vice President of Marketing and Vice President of Sales and Marketing.Individual experience: Automotive industry experience with Universal Technical Institute; accomplishment within her field culminating with leadership experience as Chief Executive Officer of UTI; expertise relating to service and parts operations and particularly service technicians.
Yoshimi Namba — Senior Vice President, International Business Development of Penske Automotive Group
Mr. Namba, 48, has served as a director and our Senior Vice President — International Business Development since October 2010. Mr. Namba is currently an employee of Mitsui & Co., Ltd. (Japan) and has held several positions with Mitsui since August 2001. Mr. Namba served as the Deputy General Manager of Mitsui's Second Motor Vehicles Division from June 2010 to October 2010. From May 2009 to June 2010, he served as the General Manager of Mitsui's Mining and Construction Machinery First Department. From November 2005 to May 2009, Mr. Namba first served as the Deputy General Manager and then the General Manager of Mitsui's Yamaha Business Department. Mr. Namba began his career at Mitsui in August 2001 serving as the Chief Operating Officer and Vice President of its PT Bussan Auto Finance (Indonesia) subsidiary until November 2005.Individual experience: Global automotive industry experience; breadth of knowledge concerning international opportunities; affiliation with Mitsui, which is the Company's second largest stockholder.
Lucio A. Noto — Retired Vice Chairman of ExxonMobil Corporation
Mr. Noto, 75, has served as a director since March 2001. Mr. Noto retired as Vice Chairman of ExxonMobil Corporation in January 2001, a position he had held since the merger of Exxon and Mobil companies in November 1999. Before the merger, Mr. Noto was Chairman and CEO of Mobil Corporation, where he had been employed since 1962. Mr. Noto is a managing partner of Midstream Partners LLC, an investment company specializing in energy and transportation projects. He is also a director of RHJ International SA, Philip Morris International, an Emeritus member of Temasek's International Advisory Panel, and was formerly a director of Commercial International Bank of Egypt in the previous five years.Individual experience: Extensive oil industry experience culminating with appointments as CEO of Mobil Corporation and Vice Chairman of ExxonMobil Corporation; breadth of knowledge concerning issues affecting our Company; experience as an executive and a director of some of the world's leading global corporations.
Greg Penske — Chairman of the Board and CEO of Penske Motor Group
Mr. Penske, 51, has been the Chairman and Chief Executive Officer of Penske Motor Group, LLC, an automotive group that includes Longo Toyota, the largest automotive retail dealership in the United States by volume, since 1993. From 1997 to 1999 he was the President and CEO of Penske Motorsports, a publicly traded company which operated racetracks in the U.S. Mr. Penske currently serves as a director of Penske Corporation. In the last five years, he has been a director of Ares Capital Corporation. Mr. Penske is the son of our Chief Executive Officer, Roger S. Penske.Individual experience: Extensive automotive retail industry experience; relationships with key automotive partners; familiarity with all of the Company's key operations through Penske Corporation directorship.
Roger S. Penske — Chairman of the Board and CEO of Penske Automotive Group
Mr. Penske, 77, has served as our Chairman and CEO since May 1999. Mr. Penske has also been Chairman of the Board and CEO of Penske Corporation since 1969. Mr. Penske has also been Chairman of the Board of Penske Truck Leasing Corporation since 1982. Mr. Penske serves as a member of the Board of Directors of Universal Technical Institute, and was formerly a director of General Electric Company and Internet Brands, Inc. in the previous five years. Mr. Penske also is Vice Chairman of the Downtown Detroit Partnership and a director of Business Leaders for Michigan.Individual experience: Extensive automotive industry experience; relationships with our key automotive partners; familiarity with all of the Company's key operations; experience as an executive and a director of some of the world's leading companies; significant ownership position of our stock through Penske Corporation and other affiliates.
Mr. Noto is a managing partner of Midstream Partners LLC, an investment company specializing in energy and transportation projects. He is also a director of RHJ International SA, Philip Morris International, an Emeritus member of Temasek’s International Advisory Panel, and was formerly a director of Commercial International Bank of Egypt, International Business Machines Corporation and Shinsei Bank in the previous five years. Individual experience: Extensive oil industry experience culminating with appointments as CEO of Mobil Corporation and Vice Chairman of ExxonMobil Corporation; breadth of knowledge concerning issues affecting our Company; experience as an executive and a director of some of the world’s leading global corporations.Roger S. Penske —Chairman of the Board and CEO of Penske Automotive GroupMr. Penske, 76, has served as our Chairman and CEO since May 1999. Mr. Penske has also been Chairman of the Board and CEO of Penske Corporation since 1969. Mr. Penske has also been Chairman of the Board of Penske Truck Leasing Corporation since 1982. Mr. Penske serves as a member of the Boards of Directors of General Electric Company and Universal Technical Institute, and was formerly a director of Internet Brands, Inc. in the previous five years. Mr. Penske also is Vice Chairman of the Downtown Detroit Partnership and a director of Business Leaders for Michigan. Individual experience: Extensive automotive industry experience; relationships with our key automotive partners; familiarity with all of the Company’s key operations; experience as an executive and a director of some of the world’s leading companies; significant ownership position of our stock through Penske Corporation and other affiliates.Richard J. Peters —Managing Director of Transportation Resource Partners, LPMr. Peters, 65, has served as a director since May 1999. Since January 2003, Mr. Peters has been a Managing Director of Transportation Resource Partners, an organization that undertakes investments in transportation-related industries (‘‘TRP”). Since 1997, Mr. Peters has also served as President and CEO of R.J. Peters & Company, LLC, a private investment company. From 1985 to 2003, Mr. Peters served in several senior management capacities for Penske Corporation, including President, CFO/Treasurer, and CEO of Penske Motorsports, Inc. Mr. Peters has been a Director of Penske Corporation since 1990. Individual experience: Extensive transportation industry experience; familiarity with all of the Company’s key operations; experience as an executive and a director of numerous transportation companies; general industry knowledge concerning other transportation companies; experience in commercial finance, private equity and leveraged finance.Sandra E. Pierce —Vice Chairman of FirstMerit Corporation and Chairman and CEO of FirstMerit MichiganMs. Pierce, 54,Ms. Pierce, 55, has served as a director since December 2012. Since February 1, 2013, Ms. Pierce has served as Vice Chairman of FirstMerit Corporation, and Chairman and CEO of FirstMerit Michigan. From 2004 until June 2012, Ms. Pierce served as the Chief Executive Officer and President at Charter One Bank Michigan, a division of Royal Bank of Scotland (“RBS”). In that role, she was responsible for the bank’s commercial banking business, overseeing all state bank activities and was involved in local marketing and community giving. From July through December 2012, Ms. Pierce was a consultant for RBS. In addition, Ms. Pierce was the Regional Executive for the Midwest, overseeing activities in Illinois and Ohio. From 1978 to 2004, Ms. Pierce served as Regional Executive of Midwest Retail Operations for Bank One, with responsibilities for Michigan and Indiana, and she held a number of management positions in the retail, commercial lending, and private banking businesses at Bank One and its predecessor companies, First Chicago NBD Corp. and NBD Bancorp. Ms. Pierce has performed leadership duties with numerous civic organizations, including Chairman and Trustee of Henry Ford Health System, Inc. since January 2012. Since February 1, 2013, Ms. Pierce has served as Vice Chairman of FirstMerit Corporation, and Chairman and CEO of FirstMerit Michigan. From 2005 until June 2012, Ms. Pierce served as the Chief Executive Officer and President at Charter One Bank Michigan, a division of Royal Bank of Scotland ("RBS"). In that role, she was responsible for the bank's commercial banking business, overseeing all state bank activities and was involved in local marketing and community giving. From July through December 2012, Ms. Pierce was a consultant for RBS. In addition, Ms. Pierce was the Regional Executive for the Midwest, overseeing activities in Illinois and Ohio. From 1978 through 2004, Ms. Pierce served as Regional Executive of Midwest Retail Operations for JPMorgan Chase, with responsibilities for Michigan and Indiana, and she held a number of management positions in the retail, commercial lending, and private banking businesses at JPMorgan Chase and its predecessor companies, Bank One, First Chicago NBD Corp. and NBD Bancorp. Ms. Pierce has performed leadership duties with numerous civic organizations, including Chairman and Trustee of Henry Ford Health System, Inc. since January 2012.Individual Experience: Extensive retail and commercial banking experience; accomplished within her field culminating in CEO experience; extensive experience on private company boards and demonstrated commitment to civic works.
CURRENT DIRECTORS | BOD | Audit Committee | Compensation & Management Development Committee | Nominating & Corporate Governance Committee | Executive Committee | |||||
John D. Barr | M | F | ||||||||
Michael R. Eisenson | M | C, F | M | |||||||
Robert H. Kurnick, Jr. | M | M | ||||||||
William J. Lovejoy | M | M | ||||||||
Kimberly J. McWaters | M | C | ||||||||
Yoshimi Namba | M | |||||||||
Lucio A. Noto | M | M | ||||||||
Roger S. Penske | C | C | ||||||||
Richard J. Peters | M | |||||||||
Sandra E. Pierce | M | M | M | |||||||
Ronald G. Steinhart | M | F | ||||||||
H. Brian Thompson | M | C | M | M | ||||||
No. of Meetings 2013 | 7 | 7 | 5 | 2 | 0 |
Our Board of Directors has four standing committees: the Audit Committee, the Compensation and Management Development Committee, the Nominating and Corporate Governance Committee and the Executive Committee. Charters for the Audit, Compensation and Management Development, and Nominating and Corporate Governance committees are available on our website, www.penskeautomotive.com, under the tab "Corporate Governance." The principal responsibilities of each committee are described below. Collectively, our directors attended over 97% of our board and committee meetings in 2013, and each director attended at least 85% of their meetings. All of our directors are encouraged to attend the annual meeting of stockholders and all directors serving at that time attended the annual meeting in 2013.
Committee Member Qualifications. Each of the members of our Audit, Compensation and Management Development, and Nominating and Corporate Governance Committees are independent under New York Stock Exchange guidelines and our guidelines for director independence. The Board of Directors has determined that all members of the Audit Committee are "independent" and "financially literate" under New York Stock Exchange rules and applicable law, and each is an "audit committee financial expert," as that term is defined in Securities and Exchange Commission rules.
The Audit Committee assists the Board of Directors in fulfilling its oversight responsibility relating to the:
The Compensation and Management Development Committee assists the Board of Directors in discharging its responsibility relating to:
The Nominating and Corporate Governance Committee:
Executive Committee. Our Executive Committee's primary function is to act upon matters when the Board of Directors is not in session. The Executive Committee has the full power and authority of the Board of Directors, except to the extent limited by law or our certificate of incorporation or bylaws or other governance documents.
Board Structure and Lead Director. This committee assists the Board of Directors in fulfilling its oversight responsibility relating to the:
·integrity of our financial statements, financial reporting processes and systems of internal accounting and financial controls
·activities of the internal audit function
·engagement of the Company’s independent auditing firms and the evaluation of their qualifications, independence and performance
·annual independent audit of our financial statements
·review of our financial statements prior to being filed with the Securities and Exchange Commission
·review with management of significant business risks or exposures and evaluating the steps management has taken to assess, monitor and mitigate such risks or exposures
·fulfillment of the other responsibilities set out in the Audit Committee charter
Compensation and Management Development Committee. This committee assists the Board of Directors in discharging its responsibility relating to the:
·determination of each element of our executive officers’ compensation
·compensation and benefits of other employees
·administration of our equity incentive plans
·development of recommendations to the Board of Directors with respect to director compensation
·review of management progression and succession plans
Nominating and Corporate Governance Committee. This committee:
·identifies individuals qualified to become members of the Board of Directors
·recommends director nominees for each annual meeting of stockholders and any interim vacancies the Board of Directors determines to fill
·develops and recommends to the Board of Directors corporate governance principles
·leads the annual review of our corporate governance policies and the Board of Directors’ performance evaluation
·oversees our compliance with legal and regulatory requirements
Executive Committee. Our Executive Committee’s primary function is to act upon matters when the Board of Directors is not in session. The Executive Committee has the full power and authority of the Board of Directors, except to the extent limited by law or our certificate of incorporation or bylaws or other governance documents.
Corporate Governance Documents. Our corporate governance guidelines and the other documents referenced in this section are posted on our website, www.penskeautomotive.com, under the tab “Corporate Governance.” We have also adopted a Code of Business Conduct and Ethics that applies to all of our employees and directors. We intend to disclose waivers, if any, for our executive officers or directors from the code, and changes to the code, on our website.
Securities Trading Policy/Pledging of Company Stock. We have a securities trading policy which applies to all of our directors and officers, which restricts trading in our securities while in possession of material nonpublic information and prohibits our directors and officers from engaging in hedging, short sales and other speculative trading techniques without the approval of our General Counsel. No such approvals were requested in 2012. We also have adopted stock ownership guidelines discussed in the CD&A below, which guidelines exclude any shares that are pledged by our directors and officers.
Risk Management. We have designed and implemented processes to manage risk in our operations. The Board of Director’s role in risk management is primarily one of oversight. Management is responsible for the implementation and execution of our risk management initiatives. Our Board of Directors executes its oversight role directly and also through its various committees as set forth below.
Audit Committee.
·principally responsible for implementing the Board’s risk management oversight role
·reviews management’s assessment of the key risks facing our Company, including the key controls we rely on to mitigate those risks
·monitors certain key risks at each of its regularly scheduled meetings, such as liquidity risk, risk relating to compliance with credit covenants, and related party transaction risk
Nominating and Corporate Governance Committee.
·oversees compliance with legal and regulatory requirements
·reviews risks relating to our governance structure
Compensation and Management Development Committee.
·reviews risks inherent in our compensation policies
·reviews the Company’s succession planning
Full Board of Directors.
·reviews strategic and operational risk in the context of reports from corporate management, regional executives and other officers
·receives reports on all significant committee activities at each regular meeting
·reviews the risks inherent in any significant Company transactions
Board Structure and Lead Director. Roger S. Penske is the Chairman of our Board of Directors and our Chief Executive Officer. We believe the combination of these two offices represents the most appropriate approach for our company due to Mr. Penske’s significant ownership position through Penske Corporation, his extensive automotive industry experience, his relationships with our key automotive partners and his experience as an executive and a director of some of the world’s leading companies. In light of the combination of these positions, one of our governance principles is to have an independent “Lead Director.” Our Lead Director is responsible for:
·coordinating and leading the activities of the outside directors
·establishing the agenda for executive sessions of the outside directors
·presiding at the executive sessions of the outside directors which generally occur as part of each Board meeting
·facilitating communication between the outside directors as a group and our management team
Our Lead Director is H. Brian Thompson. He may be contacted by leaving a message at the following telephone number: 800-469-1634. All messages will be reviewed by our Corporate Secretary’s office and all (other than frivolous messages) will be forwarded to the Lead Director. Any written communications to the independent directors as a group or the entire Board of Directors may be sent care of the Corporate Secretary to our principal executive office. These communications (other than frivolous messages) will also be forwarded to the Lead Director.
Director Independence. A majority of our Board of Directors is independent and each of the members of our audit, compensation and nominating committees is independent. The Board of Directors has determined that Ms. McWaters and Pierce and Messrs. Barr, Eisenson, Lovejoy, Noto, Steinhart and Thompson are each independent in accordance with the listing requirements of the New York Stock Exchange and our guidelines for independent directors which can be found in our corporate governance guidelines on our website www.penskeautomotive.com and as set forth below. As required by New York Stock Exchange rules, our Board of Directors determined that no material relationship exists which would interfere with the exercise of independent judgment in carrying out the responsibilities of the independent directors.
For a director to be considered independent under our corporate governance guidelines, the Board of Directors must determine that the director does not have any direct or indirect material relationship with us. In addition to applying these guidelines, the Board of Directors considers relevant facts and circumstances in making the determination of independence, and not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation. The Board considers the transactions, relationships and arrangements between the Company and affiliates of the director, including those described under “Related Party Transactions” and elsewhere in the proxy statement, in its independence determination. The Board also considers any ownership of our securities by the directors and any of their affiliates, ownership by our management team of any securities of affiliates of directors, as well as any direct or indirect investments with Transportation Resource Partners, an affiliate of Penske Corporation.
Under our guidelines, which are more stringent than the New York Stock Exchange guidelines, a director will not be independent if:
1.The director is employed by us, or an immediate family member is one of our executive officers.*
2.The director receives more than $60,000 of direct compensation from us, other than director fees and deferred compensation for prior service (provided such compensation is not contingent in any way on continued service).*
3.The director is affiliated with or employed by one of our independent auditing firms, or an immediate family member is affiliated with or employed in a professional capacity by one of our independent auditing firms.
4.An executive officer of ours serves on the compensation committee of the board of directors of a company that employs the director or an immediate family member as an executive officer.
5.The director is an executive officer or employee, or if an immediate family member is an executive officer, of another company that does business with us and the sales by that company to us or purchases by that company from us, in any single fiscal year during the evaluation period, are more than the greater of one percent of the annual revenues of that company or $1 million.
6.The director serves as an officer, director or trustee of a charitable organization, and our charitable contributions to the organization are more than the greater of $250,000 or one percent of that organization’s total annual charitable receipts during its last completed fiscal year.
* Employment as an Interim Chairman, Interim CEO or other executive officer on an interim basis, and related compensation, shall not disqualify a director from being considered independent following that employment.
Controlled Company. Under the New York Stock Exchange rules, if a company is “controlled” it need not have a majority of independent directors or solely independent compensation or nominating committees. We are a “controlled company” because more than 50% of the voting power for the election of directors is held by Penske Corporation through its voting agreement with Mitsui & Co. and their affiliates. These entities are considered a group due to the provisions of the stockholders agreement between these parties described under “Related Party Transactions.” Even though we are a “controlled company,” we are fully compliant with the New York Stock Exchange rules for non-controlled companies.
Director Candidates. When considering new candidates for our Board of Directors, the Nominating and Corporate Governance Committee uses the network of contacts of the Board of Directors to compile potential candidates, but may also engage, if it deems appropriate, a professional search firm. The committee considers whether the nominee would be independent and meets with each candidate to discuss and consider his or her qualifications. The Nominating and Corporate Governance Committee will consider director candidates recommended by stockholders pursuant to procedures outlined below. Stockholder proposals for nominees should be addressed to our Corporate Secretary, Penske Automotive Group, 2555 Telegraph Road, Bloomfield Hills, MI 48302. The committee’s evaluation of stockholder-proposed candidates will be the same as for any other candidates.
Director candidate submissions are to include:
·sufficient biographical information concerning the recommended individual, including age, employment history with employer names and description of the employer’s business
·whether such individual can read and understand basic financial statements
·a list of board memberships and other affiliations of the nominee
·a written consent of the individual to stand for election and serve if elected by the stockholders
·a statement of any relationships between the person recommended and the person submitting the recommendation
·a statement of any relationships between the candidate and any automotive retailer, manufacturer or supplier
·proof of ownership by the person submitting the recommendation of 500 shares of our common stock for one year
Recommendations received by November 12, 2013, will be considered for nomination at the 2014 annual meeting of stockholders. Recommendations received after November 12, 2013 will be considered for nomination at the 2015 annual meeting of stockholders.
Compensation Committee Interlocks and Insider Participation. An entity (the “Investor”) controlled by one of our directors, Lucio A. Noto, owns a 15.05% interest in one of our subsidiaries, UAG Connecticut I, LLC (“UAG Connecticut I”), pursuant to an agreement which entitles the Investor to 20% of the operating profits of UAG Connecticut I. This agreement also provides the Investor with the right to appoint one of three directors, and “tag-along rights” in the event we intend to sell our interest in UAG Connecticut I. We have a right of first refusal with respect to any potential sale by the Investor of its interest. From time to time, we provide UAG Connecticut I with working capital and other debt financing. The Investor paid $438,941 to us in 2012 pursuant to its option to purchase up to a 20% interest in UAG Connecticut I. In addition, UAG Connecticut I makes periodic pro rata distributions pursuant to which the Investor was paid $1,432,954 during 2012.
PROPOSAL 2 — APPROVAL OF THE 2012 EQUITY INCENTIVE PLAN
Summary
Our stockholders are being asked to approve the 2012 Equity Incentive Plan (the “Equity Incentive Plan”) which will be used to award incentive equity compensation to our management and board of directors. We are implementing a new equity incentive plan due to the expiration of our prior equity incentive plan. Both our Compensation and Management Development Committee and Board of Directors have approved the Equity Incentive Plan, subject to stockholder approval at the annual meeting.
This plan provides up to two million shares for equity awards, including awards that are intended to satisfy the requirements of Section 162(m) of the Internal Revenue Code, and terminates in 2015. In the last three years, we have granted a gross amount of 519,241, 436,970 and 452,782 shares of incentive equity, which represents an average annual rate of shares issued as compared to shares outstanding of approximately 0.5%.
General
Upon adoption by stockholders at the annual meeting, the Equity Incentive Plan will authorize two million shares of Penske Automotive Group, Inc. common stock for issuance as incentive awards. Incentive awards under the Equity Incentive Plan may be in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance compensation awards or common stock. The number of shares available for incentive awards under the Equity Incentive Plan will be increased in an amount equal to incentive awards that are forfeited or terminated without issuance of shares and shares withheld by or tendered to us in connection with satisfaction of tax withholding obligations of an award. Adjustments will be made in the aggregate number of shares that may be issued under the Equity Incentive Plan in the event of a change affecting shares of our common stock, such as a stock dividend or split, recapitalization, reorganization, or merger. No more than 1,000,000 shares may be allocated for incentive awards to any one participant during any single calendar year.
Administration and Term
Our Compensation and Management Development Committee will administer the Equity Incentive Plan, including the power to determine when to grant incentive awards; which eligible participants will receive incentive awards; whether the award will be an option, stock appreciation right, restricted stock, restricted stock unit, performance compensation award or company common stock; whether stock appreciation rights will be attached to options; and the number of shares or units to be allocated to each incentive award. The committee may impose conditions on the exercise of options and stock appreciation rights and upon the transfer of restricted stock or restricted stock units under the Equity Incentive Plan and may impose such other restrictions and requirements as it may deem appropriate, including reserving the right for us to reacquire shares issued pursuant to an incentive award.
The committee has delegated limited authority to the company’s CEO to grant equity awards to the company’s non-executive officer employees. The committee delegated this authority in order to permit the CEO to award limited equity grants without the specific action of the committee. Pursuant to this delegation, the CEO has the discretion to make total awards of 50,000 units or shares of the company’s common stock.
The Equity Incentive Plan will terminate on November 1, 2015, unless our Board of Directors terminates it prior to that date. Incentive awards existing after the termination date will continue to be governed by the terms and conditions of the Equity Incentive Plan.
Eligibility
All present and future employees, directors and any company contributors are eligible to receive incentive awards under the Equity Incentive Plan. As of March 12, 2013, we had made incentive awards amounting to 420,493 shares of common stock that had been reserved for issuance under the Equity Incentive Plan, which awards are subject to
stockholder approval of the Equity Incentive Plan. As a result, 1,579,507 shares of common stock remained available for incentive awards under the Equity Incentive Plan as of that date.
The following table sets forth information relating to all incentive awards made under the Equity Incentive Plan to (i) each of the named executive officers, (ii) all current executive officers as a group, (iii) all current directors who are not executive officers as a group and (iv) all employees, including all current officers who are not named executive officers, as a group.
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Roger S. Penske is the Chairman of our Board of Directors and |
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| For a director to be considered independent under our corporate governance guidelines, the Board of Directors must determine that the director does not have any direct or indirect | material relationship with us. In addition to applying these guidelines, the Board of Directors considers relevant facts and circumstances in making the determination of independence, and not merely from the standpoint of the director, but also from that of persons or organizations with which the director has an affiliation. The Board considers the transactions, relationships and arrangements between the Company and affiliates of the director, including those described under "Related Party Transactions" and elsewhere in the proxy statement, in its independence determination. The Board also considers ownership of our or our affiliates' securities by the directors and their affiliates, ownership by our management team of any securities of affiliates of directors, and any direct or indirect investments in affiliates of Charlesbank Capital Partners, an affiliate of Michael Eisenson, or Transportation Resource Partners, an affiliate of Penske Corporation. Under our guidelines, which are more stringent than the New York Stock Exchange guidelines, a director will not be independent if: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Audit Committee
Nominating and Corporate Governance Committee
Compensation and Management Development Committee
Full Board of Directors
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Proposal 2 — Ratification of the Selection of our Independent Auditors |
Our Audit Committee has selected Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (collectively referred to as "Deloitte") as our principal independent auditing firm for 2014. In performing its services for 2014, we anticipate Deloitte will not audit our subsidiaries which own the majority of our international operations and their opinions, insofar as they relate to those operations, will be based solely
on the report of the independent auditor of those operations, KPMG Audit Plc ("KPMG"). We refer to Deloitte and KPMG collectively as our independent auditing firms.
We have determined to submit the selection of auditors to stockholder ratification, even though it is not required by our governing documents or Delaware law. If the selection of Deloitte as our independent auditors is not ratified by our stockholders, our Audit Committee will re-evaluate its selection, taking into consideration the stockholder vote on the ratification and the advisability of selecting new auditors prior to completion of the 2014 audit.
Our Audit Committee is solely responsible for selecting, engaging and terminating our independent auditing firms, and may do so at any time at its discretion. It is anticipated that a representative of Deloitte will be present at the annual meeting with the opportunity to make a statement and to answer appropriate questions.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF DELOITTE & TOUCHE AS OUR INDEPENDENT AUDITORS
(a) The non-employee directors have not received any awards under the Equity Incentive Plan. Their compensation for 2012 was awarded under our prior equity plan. See “Director Compensation”.
AUDIT COMMITTEE REPORT |
The Audit Committee of the Board of Directors is responsible for providing independent, objective oversight of our accounting functions and internal controls as more fully discussed above under "Our Corporate Governance." The Audit Committee has the sole authority to retain and terminate our independent auditing firms, and is responsible for recommending to the Board of Directors that our financial statements be included in our annual report on Form 10-K.
The Audit Committee took a number of steps in making this recommendation for our 2013 annual report. The Audit Committee discussed with our independent auditing firms those matters required to be discussed by the Public Company Accounting Oversight Board ("PCAOB"), including information regarding their independence and the scope and results of their audit. These communications and discussions were intended to assist the Audit Committee in overseeing the financial reporting and disclosure process. The Audit Committee also discussed the independent auditing firms' independence and received the letters and written disclosures from the independent auditing firms required by the PCAOB. Finally, the Audit Committee reviewed and discussed the annual audited financial statements with our management and the independent auditing firms in advance of the public release of operating results, and before the filing of our annual and quarterly reports with the Securities and Exchange Commission.
Based on the foregoing, and such other matters deemed relevant and appropriate by the Audit Committee, the Audit Committee recommended to the Board of Directors that our audited financial statements be included in our 2013 annual report on Form 10-K as filed with the SEC on March 3, 2014.
Restricted Stock and Restricted Stock Units
Restricted stock and restricted stock units issued pursuant to the Equity Incentive Plan are subject to the following general restrictions: (1) no such shares or units may be sold, transferred, pledged, or otherwise encumbered or disposed of until the restrictions on such shares or units have lapsed or been removed under the provisions of the Equity Incentive Plan and (2) if a holder of restricted stock or restricted stock units ceases to be employed by us or one of our affiliates or ceases to be a company contributor, any shares of restricted stock, or restricted stock units, on which the restrictions have not lapsed or been otherwise removed will be forfeited. The committee is also authorized to impose further restrictions on restricted stock or restricted stock units, including additional events of forfeiture. The committee will establish the terms and conditions upon which the restrictions on those shares or units will lapse; provided that, unless otherwise specified in an award, the period of restriction must be at least one year from the date of grant. The terms and conditions may include, without limitation, the lapsing of those restrictions at the end of a specified period of time as a result of the disability or death of the participant, or as a result of the occurrence of a change-in-control. In addition, the committee may at any time, in its sole discretion, accelerate the time at which any or all restrictions will lapse or remove any and all restrictions.
Participants holding shares of restricted stock may exercise full voting rights with respect to those shares and are entitled to receive all dividends and other distributions paid with respect to those shares. Participants holding restricted stock units do not possess any voting rights with respect to those units, but are entitled to receive all dividends and other distributions paid with respect to those units if and as so provided in the related award agreement. Restricted stock units may be settled by the company in the form of shares of company common stock, cash, or a fixed combination of both, as determined by the committee.
Stock Options
Options granted under the Equity Incentive Plan may be incentive stock options (qualifying for favorable income tax treatment under Section 422 of the Internal Revenue Code of 1986, as amended) or nonstatutory stock options. The option price for any option awarded under the plan may not be less than 100% (or, in the case of an incentive stock option granted to a 10% stockholder, 110%) of the fair market value of the our common stock on the date of the grant. The committee determines any vesting requirement for option awards. Payment of the option exercise price may be made in cash or as otherwise provided in an option award or by separate action of the committee. The maximum term of any
option granted under the plan is ten years. To date, no stock options have been issued pursuant to the Equity Incentive Plan.
Stock Appreciation Rights
The committee may award stock appreciation rights under the Equity Incentive Plan either with or without related options, or the committee may subsequently award and attach stock appreciation rights to a previously awarded nonstatutory option, and impose such conditions upon their exercise as it deems appropriate. When the stock appreciation right is exercisable, the holder may surrender to us all or a portion of the unexercised stock appreciation right and receive in exchange an amount equal to the difference between (i) the fair market value on the date of exercise of the common stock covered by the surrendered portion of the stock appreciation right and (ii) the exercise price of the common stock under the related option or, if the stock appreciation right is not related to an option, the fair market value of the common stock on the date the stock appreciation right was awarded. The committee may limit the amount that can be received when a stock appreciation right is exercised. When a stock appreciation right related to an option is exercised, the underlying option, to the extent of the stock appreciation right’s surrender, will no longer be exercisable. Similarly, when an option is exercised, any stock appreciation rights attached to the option will no longer be exercisable. Our obligation arising upon exercise of a stock appreciation right may be paid in the company’s common stock or in cash, or in any combination of the two, as the committee may determine. Stock appreciation rights may only be exercised when the underlying option is exercisable or, if there is no underlying option, at the times specified by the committee.
Performance Compensation Awards
At the time of grant, the committee may designate any incentive award (other than stock options and stock appreciation rights) as a performance compensation award as part of its intention to qualify the award as performance-based compensation under Section 162(m) of the Internal Revenue Code. For incentive awards designated as performance compensation awards, the committee shall determine, among other items, the performance goals and performance period applicable to the awards. After the end of the performance period, the committee will certify in writing the level of performance goal that was attained for the performance period. The maximum performance award for a participant for a calendar year is 1,000,000 shares of company stock.
The committee may develop applicable performance goals using the following measurements: specified levels of or increases or decreases in revenue, return on equity, earnings per share, total earnings, earnings growth, earnings from continuing operations, EBITDA, EBITDAR, return on capital/equity, return on assets, gross profit, earnings before interest and taxes, sales, sales growth, gross or operating margin, cost reduction goals, fixed cost coverage measurements (including the ratio of service and parts revenues to operating costs), return on investment, increase in the fair market value of our common stock, share price (including growth measures and total stockholder return), market capitalization, operating profit, profit margin, net income, cash flow (including operating cash flow and free cash flow), financial return ratios, expense ratios, total return to stockholders, market share, earnings measures/ratios, balance sheet measurements (including debt to equity ratios, maintenance of specified credit availability levels, compliance with credit covenants, inventory measurements and receivables/payables metrics), human resources measurements (including measurements of employee turnover, workers’ compensation costs and employee satisfaction), internal rate of return, unit sales, same store sales, specified levels of acquisitions/acquired revenue, customer satisfaction and productivity and compliance objectives (including lack of material weakness in internal controls, each as determined in accordance with the relevant AICPA or PCAOB principles), or where applicable, as adjusted to the extent permitted under Section 162(m) of the Code, to omit the effects of extraordinary items, acquisitions or dispositions, the gain or loss on the disposal of a business segment, unusual or infrequently occurring events and transactions, accruals for incentive awards under the Equity Incentive Plan and/or cumulative effects of changes in accounting principles. These criteria may relate to the Company, one or more of its subsidiaries or one or more of its or their divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the committee shall determine.
Change-in-Control
The committee may, in its discretion, include provisions in award agreements that will make the incentive awards vested and/or fully exercisable upon a change in control of our Company. A change of control will be deemed to have taken place if any individual, entity or group other than the specified holders of common stock affiliated with Penske Corporation become the beneficial owner of Company securities that constitute more than 50% of the combined voting power of the then outstanding securities of the Company that may be cast for the election of directors to the Board of the Company (other than as a result of an issuance of securities initiated by the Company in the ordinary course of business).
Transferability of Incentive Awards
No options or stock appreciation rights granted under the Equity Incentive Plan, and, during the applicable period of restriction, no shares of restricted stock, may be sold, transferred, pledged, or otherwise disposed of, other than by will or by the laws of descent and distribution. Restricted stock units are not transferable by means of sale, assignment, exchange, pledge or otherwise. All rights granted to a participant under the plan will be exercisable during the participant’s lifetime only by such participant or, if permissible under applicable law, by the participant’s guardians or legal representatives. Upon the death of a participant, the participant’s personal representative or beneficiary may exercise the participant’s rights under the plan. No incentive awards may be transferred for value or consideration without the prior approval of our stockholders.
Re-pricing Prior Awards
Except in connection with certain corporate transactions, the terms of outstanding incentive awards may not be amended to reduce the exercise price of outstanding options or stock appreciation rights or cancel outstanding options or stock appreciation rights in exchange for cash, other incentive awards or options or stock appreciation rights with an exercise price that is less than the exercise price of the original options or stock appreciation rights without stockholder approval.
Federal Income Tax Information
The following is a general summary of the current federal income tax treatment of incentive awards that would be authorized to be granted under the Revised Stock Incentive Plan, based upon the current provisions of the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder. As the rules governing the tax treatment of such awards are technical in nature, the following discussion of tax consequences is necessarily general in nature and does not purport to be complete. In addition, statutory provisions are subject to change, as are their interpretations, and their application may vary in individual circumstances. This discussion does not address the tax consequences under applicable state and local law.
Incentive Stock Options. A participant generally will not recognize income on the grant or exercise of an incentive stock option. However, the difference between the exercise price and the fair market value of the stock on the date of exercise is an adjustment item for purposes of the alternative minimum tax. If a participant disposes of the stock received upon the exercise of an incentive stock option within certain specified periods (a “disqualifying disposition”), the participant will recognize ordinary income on the exercise of such incentive stock option in the same manner as on the exercise of a nonqualified stock option, as described below.
Non-qualified Stock Options and Stock Appreciation Rights. A participant generally is not required to recognize income on the grant of a nonqualified stock option or a stock appreciation right. Instead, ordinary income generally is required to be recognized on the date the nonqualified stock option or stock appreciation right is exercised. In general, the amount of ordinary income required to be recognized is (i) in the case of a nonqualified stock option an amount equal to the excess, if any, of the fair market value of the shares on the exercise date over the exercise price and (ii) in the case of a stock appreciation right, the amount of cash and/or the fair market value of any shares received upon exercise.
Restricted Stock. Unless a participant who receives an award of restricted stock makes an election under Section 83(b) of the Internal Revenue Code of 1986, as amended, as described below, the participant generally is not required to recognize ordinary income on the award of restricted stock. Instead, on the date the restrictions lapse and the shares vest (that is, become transferable and no longer subject to forfeiture), the participant will be required to recognize ordinary income in an amount equal to the excess, if any, of the fair market value of the shares on that date over the amount paid, if any for those shares. If a participant makes a Section 83(b) election to recognize ordinary income on the date the shares are awarded, the amount of ordinary income required to be recognized is an amount equal to the excess, if any, of the fair market value of the shares on the date of award over the amount paid, if any for those shares. In that case, the participant will not be required to recognize additional ordinary income when the restrictions lapse and the shares vest.
Restricted Stock Units. A participant generally is not required to recognize income on the grant of a restricted stock unit. In general, on the date the units are paid, the participant will be required to recognize ordinary income in an amount equal to the fair market value of the units on that date.
Company Common Stock. A participant generally is required to recognize income on the date of grant of company common stock in the amount of the fair market value of the stock received.
Gain or Loss on Sale or Exchange of Shares. In general, gain or loss from the sale or exchange of shares granted under the Equity Incentive Plan will be treated as capital gain or loss, provided that the shares are held as capital assets at the time of the sale or exchange.
Deductibility by Us. We generally are not allowed a deduction in connection with the grant or exercise of an incentive stock option. However, if a participant is required to recognize income as a result of a disqualifying disposition, we will be entitled to a deduction equal to the amount of ordinary income so recognized. In the case of a nonqualified stock option (including an incentive stock option that is treated as a nonqualified stock option, as described above), a stock appreciation right, or restricted stock or restricted stock unit, in general, we will be allowed a deduction in an amount equal to the amount of ordinary income recognized by a participant, provided that certain income tax reporting requirements are satisfied.
Performance-Based Compensation. Subject to certain exceptions, Section 162(m) of the Internal Revenue Code of 1986, as amended, disallows federal income tax deductions for compensation paid by a publicly-held corporation to certain executives to the extent the amount paid to an executive exceeds $1 million for the taxable year. The Equity Incentive Plan has been designed to allow the committee to grant stock options, stock appreciation rights and performance compensation awards that are intended to qualify under an exception to the deduction limit of Section 162(m) for “performance-based compensation.”
Modification of Equity Incentive Plan
Our board of directors may amend, alter, or terminate the Equity Incentive Plan as it deems advisable, provided that our stockholders must approve any amendment that would (i) materially increase the benefits accruing to participants under the Equity Incentive Plan, (ii) materially increase the number of shares of our common stock that may be issued under the Equity Incentive Plan or (iii) materially modify the requirements of eligibility for participation in the Equity Incentive Plan. Incentive awards granted under the Equity Incentive Plan may be amended with the consent of the participant so long as the amended award is consistent with the terms of the plan.
Vote Required
In order to be adopted, the Equity Incentive Plan must be approved by the affirmative vote of a majority of the votes cast by holders of record of the company’s common stock. Under applicable NYSE listing standards, the total votes cast on the proposal must also represent more than 50% of all shares of common stock outstanding on the record date. Abstentions will have the same effect as votes cast against the proposal. If our stockholders do not approve the Equity Incentive Plan, we will be unable to make any incentive awards to our management team or board of directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” PROPOSAL 2
PROPOSAL 3 — RATIFICATION OF THE SELECTION OF OUR INDEPENDENT AUDITORS
Our Audit Committee has selected Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu Limited, and their respective affiliates (collectively referred to as “Deloitte”) as our principal independent auditing firm for 2013. In performing its services for 2013, we anticipate Deloitte will not audit our subsidiaries which own the majority of our international operations and their opinions, insofar as they relate to those operations, will be based solely on the report of the independent auditor of those operations, KPMG Audit Plc (“KPMG”). We have determined to submit the selection of auditors to stockholder ratification, even though it is not required by our governing documents or Delaware law. If the selection of Deloitte as our independent auditing firm is not ratified by our stockholders, our Audit Committee will re-evaluate its selection, taking into consideration the stockholder vote on the ratification and the advisability of selecting new auditors prior to completion of the 2013 audit. Our Audit Committee is solely responsible for selecting, engaging and terminating our independent auditing firm, and may do so at any time at its discretion. It is anticipated that a representative of Deloitte will be present at the annual meeting with the opportunity to make a statement and to answer appropriate questions.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE “FOR” RATIFICATION OF DELOITTE & TOUCHE AS OUR INDEPENDENT AUDITORS
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors is responsible for providing independent, objective oversight of our accounting functions and internal controls as more fully discussed above under “— Our Corporate Governance.” The Audit Committee has the sole authority to retain and terminate our independent auditing firms, and is responsible for recommending to the Board of Directors that our financial statements be included in our annual report on Form 10-K.
The Audit Committee took a number of steps in making this recommendation for our 2012 annual report. The Audit Committee discussed with our independent auditing firms those matters required to be discussed by the Public Company Accounting Oversight Board (“PCAOB”), including information regarding their independence and the scope and results of their audit. These communications and discussions were intended to assist the Audit Committee in overseeing the financial reporting and disclosure process. The Audit Committee also discussed the independent auditing firms independence and received the letters and written disclosures from the independent auditing firms required by the PCAOB. Finally, the Audit Committee reviewed and discussed the annual audited financial statements with our management and the independent auditing firms in advance of the public release of operating results, and before the filing of our annual and quarterly reports with the Securities and Exchange Commission.
Based on the foregoing, and such other matters deemed relevant and appropriate by the Audit Committee, the Audit Committee recommended to the Board of Directors that our audited financial statements be included in our 2012 annual report on Form 10-K as filed with the SEC on February 28, 2013.
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INDEPENDENT AUDITING FIRMS We paid the independent auditing firms the fees described below in 2013 and 2012, all of which services were approved by our Audit Committee: Audit Services:
Audit Related Services:
Tax Fees:
All Other Fees:
The Audit Committee has considered the nature of the above-listed services provided by the independent auditing firms and determined that they are compatible with their provision of independent audit services under relevant guidance. The Audit Committee has discussed these services with the independent auditing firms and management and determined that they are permitted under the Code of Professional Conduct of the American Institute of Certified Public Accountants, the auditor independence requirements of the Public Company Accounting Oversight Board, and the laws and regulations administered by the Securities and Exchange Commission. Pre-approval Policy. The Audit Committee has adopted a policy requiring pre-approval of all audit and non-audit services provided by the independent auditing firms. The primary purpose of this policy is to ensure that we engage our public accountants with a view toward maintaining independence. The Audit Committee is required to pre-approve all services relating to work performed for us by our independent auditing firms and related fees. The Audit Committee must also approve fees incurred for pre-approved services that are in excess of the approved amount. Pre-approval of audit and non-audit services and fees may be given at any time up to a year before commencement of the specified service. The Chairman of the Audit Committee may independently approve fees and services as long as they are reviewed and ratified by the Audit Committee at its next regularly scheduled meeting. All of the services and related fees set forth above were approved by the Audit Committee in accordance with this policy.
Last year, our stockholders approved the compensation of our named executive officers as described under "Compensation Discussion and Analysis" and "Executive Compensation" with over 98% of the votes cast by our stockholders voting in favor. We are again seeking a non-binding advisory vote on our executive compensation and there have not been any significant changes to the elements of our executive compensation program in 2013. Because your vote is advisory, it will not be binding upon the Compensation and Management Development Committee however, the committee will take the outcome of the vote into account when making future executive compensation decisions. Our compensation program is designed to motivate our executive officers to enhance long-term stockholder value and to attract and retain the highest quality executive and key employee talent available. We believe our executive compensation is aligned with increasing the value of our common stock and promoting our key strategies, values and long term financial and operational objectives. In this regard, we note that:
THE BOARD OF DIRECTORS BELIEVES THAT THE COMPENSATION OF OUR EXECUTIVE OFFICERS IS APPROPRIATE AND RECOMMENDS A VOTE FOR THE FOLLOWING ADVISORY RESOLUTION: "RESOLVED, that the compensation paid to the Company's named executive officers, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis, compensation tables and narrative discussion is hereby APPROVED."
Our executive officers are elected by the Board of Directors and hold office until their successors have been duly elected and qualified or until their earlier resignation or removal from office. Biographies of Messrs. Kurnick and Penske are set forth above. Biographies of our other executive officers are provided below: David K. Jones, 44, has served as our Executive Vice President and Chief Financial Officer since May 3, 2011. Mr. Jones served as our Vice President and Chief Financial Officer for our international operations from October 2010 to May 2011. He also has served as our Vice President — Financial Compliance and Controls from April 2006 to May 2011. Mr. Jones joined the Company in 2003 as our Director of Financial Reporting. Prior to joining us, Mr. Jones was a Senior Manager at Andersen LLP, an accounting and financial advisory services firm, which he joined in 1991. Calvin C. Sharp, 62, has served as our Executive Vice President — Human Resources since July 1, 2007. Mr. Sharp served as Senior Vice President — Human Resources for our Eastern Region from October 2003 to July 2007. From 1988 to 2003, Mr. Sharp served in numerous positions with Detroit Diesel Corporation, culminating in his appointment as Senior Vice President — Administration. From 1974 to 1988, Mr. Sharp held various positions in Human Resources Management with General Motors. Shane M. Spradlin, 44, has served as our Executive Vice President since February 2010, our General Counsel since December 2007, and our Corporate Secretary since March 2004. Mr. Spradlin joined our Company in March 2003. From 1999 to 2003, he served as Corporate Counsel to Nextel Communications in Reston, Virginia. From 1995 through 1999, Mr. Spradlin was an associate with the New York and Washington, D.C. offices of Latham & Watkins, specializing in corporate finance and mergers and acquisitions. J.D. Carlson, 44, has served as our Senior Vice President and Principal Accounting Officer since May 3, 2011. Mr. Carlson has served as our Corporate Controller since April 2006. Prior to joining us, Mr. Carlson was Corporate Controller for Tecumseh Products. He was previously a Senior Manager for PricewaterhouseCoopers, an accounting and financial advisory services firm, which he joined in 1995.
The Compensation and Management
In 2013, over 98% of the votes cast by our stockholders approved of our 2012 executive compensation and there have not been any significant changes to the elements of our executive compensation
executive officer compensation determinations are made by the committee, using its independent judgment and analysis.
Non-employee board members are required to own common stock equal to five times our annual retainer (currently, $40,000 × 5= $200,000). Directors and officers have until the later of five years from adoption of the policy or appointment, to reach the minimum ownership level, though our policy allows extensions at the discretion of the Chairman and Lead Independent Director. These guidelines exclude any shares that are pledged by any of our directors and officers.
The committee reviews salary adjustments with a view to maintaining external compensation competitiveness. We benchmark competitiveness against a group of publicly traded automotive retailers (Asbury Automotive Group, AutoNation, CarMax, Group 1 Automotive, Lithia Motors and Sonic Automotive). While we benchmark our compensation against our industry peers, we do not target a specific quartile of pay for our executive officers as compared to our peers as we believe each of our executive officer's circumstances and challenges are unique to the individual and we base our compensation accordingly.
Our Compensation Program. Our compensation program primarily consists of four elements:
and the factors noted above under "Determination of Amounts." The committee also considers our Company-wide performance and general economic factors. The items of corporate performance that are considered for our named executive officers are the same as those with respect to the award detailed below under "2013 Compensation." Our compensation committee uses these factors in a subjective evaluation to gauge Company performance, keeping in mind the impact of the general performance of the automotive retail industry.
The items of Company-wide performance that are considered for our named executive officers are the same as those detailed below under "2013 Compensation." Our compensation committee uses these factors in a subjective evaluation to gauge Company performance, keeping in mind the impact of the overall performance of the automotive retail industry. The evaluation of the individual's performance and the performance of the individual's business unit is based on the committee's perception of that performance, based in part on input from our Chief Executive Officer and the factors noted above under "Determination of Amounts."
Each member of senior management is eligible to receive a restricted stock award because we believe these awards effectively align management's goals with those of our other stockholders. Restricted stock grants for management typically vest over four years at a rate of 15%, 15%, 20% and 50% per year, and are subject to forfeiture in the event the employee departs from the Company before vesting. We believe these awards provide a longer-term incentive for management because the majority of the award vests in the third and fourth year. We employ this form of compensation in part because many of our initiatives may take several years to yield benefits. We also believe that weighted vesting of these awards provides an additional incentive to retain our valuable employees due to the unvested value that may be created over time. Our restricted stock awards mirror our other outstanding stock, including the right to vote with our other stockholders and receive dividends. Under certain situations, we have issued restricted stock units to employees, in particular in foreign jurisdictions, which awards otherwise mirror the restricted stock awards. Restricted stock grants are generally discretionary and are based upon the awards granted in the prior year adjusted to reflect changes in the responsibilities of the named executive officers, the individual's performance and Company-wide performance measures detailed below under "2013 Compensation," keeping in mind the overall performance of the automotive retail industry. The amounts are also established to induce retention, as the awards are the sole aspect of long-term compensation for our named executive officers. In 2013, the committee approved the grant of approximately 471,472 incentive equity awards to employees (representing approximately 0.5% of our current outstanding equity), including the awards relating to the 2012 management incentive awards for our Chief Executive Officer and President.
2013 Compensation Chief Executive Officer Compensation. Our compensation committee established 2013 performance targets for a performance based award for Mr. Penske in February 2013. The award established a threshold payout of $2.4 million (50% of targets), a target payout of $3.6 million (100% of targets) and a maximum potential payout of $4.8 million (150% of targets) to be paid in shares of restricted stock to be granted in 2014. Mr. Penske achieved 143% of the performance metrics noted below, which entitled him to approximately $4.6 million in shares of restricted stock granted in February 2014. Mr. Penske did not receive an annual cash bonus because he received this restricted stock grant in lieu of a cash bonus. The specific 2013 performance objectives and related performance were as follows:
In February 2014, the committee established a similar performance based award for Mr. Penske with respect to 2014, with a threshold payout of $2.4 million (50% of target), a target payout of $3.6 million (100% of target) and a maximum potential payout of $4.8 million (150% of target) to be paid in shares of restricted stock to be granted in 2015. The performance objectives for 2014 are as follows:
Objective % of Award | • EBITDA (earnings before interest, taxes, depreciation and amortization) of $565 million (100% attainment). EBITDA below $485 million results in no attainment, EBITDA of $485 million results in 50% attainment, and EBITDA of $600 million yields 200% attainment. EBITDA between these amounts yields pro rata attainment(1) 20% | • same-store revenue growth of 5% (100% attainment). Growth below 5% results in no attainment, and growth of 10% yields 200% attainment. Growth between 5% and 10% yields pro rata attainment 10% | • maintain quarter-end availability under our U.S. and U.K. credit facilities of at least $250 million, excluding funds used for repurchases of debt or common stock 5% | • compliance with the covenants in our U.S. and U.K. credit facilities 5% | • customer satisfaction scores exceed manufacturer objectives at 85% of our U.S. franchises 10% | • no material weaknesses in our internal controls 10% | • common stock price performance exceeds the S&P 500 Index during 2014 (100% attainment) Performance below the S&P 500 results in no attainment and outperformance by 15% yields 150% attainment. Performance between 100% and 115% yields pro rata attainment. 10% | • reduce selling, general and administrative expense as a percentage of gross profit by 100 basis points (100% attainment). Reduction below 50 basis points results in no attainment, and reduction of 150 basis points yields 150% attainment. Reduction between these amounts yields pro rata attainment(1) 10% | • Return on equity (income from continuing operations divided by the average of beginning and ending stockholders equity) of between 17.8% and 18.5% (100% attainment). Return on equity below 17.8% results in no attainment, and return on equity over 18.5% yields 150% attainment.(1) 20% | | | | Total 100% | |
President Compensation. In February 2013, the committee established a similar performance based award for Mr. Kurnick with respect to 2013, with a threshold payout of $350,000 (50% of targets), a target payout of $700,000 (100% of targets) and a maximum potential payout of $1.05 million (150% of targets) to be paid in shares of restricted stock to be granted in 2014. The performance objectives and component percentages are the same as those set forth above with respect to the 2013 award for Mr. Penske. Mr. Kurnick achieved 143% of the performance metrics noted below, which entitled him to approximately $1.0 million in shares of restricted stock granted in February 2014. Mr. Kurnick did not receive an annual cash bonus because he received this restricted stock grant in lieu of a cash bonus.
In February 2014, the committee established a similar performance based award for Mr. Kurnick with respect to 2014, with a threshold payout of $350,000 (50% of target), a target payout of $700,000 (100% of target) and a maximum potential payout of $1.05 million (150% of targets) to be paid in shares of restricted stock to be granted in 2015. The performance objectives and component percentages are the same as those set forth above with respect to the 2014 award for Mr. Penske.
Mr. Kurnick is also the President of Penske Corporation (our controlling stockholder) and he receives a substantial amount of compensation from Penske Corporation. While Mr. Kurnick devotes a substantial amount of time and effort to our company, his total compensation paid by us reflects that he devotes time to Penske Corporation. Our committee does not track the exact percentage of time spent on Penske Automotive matters, recognizing that the amount varies from year to year, but it is generally expected to represent approximately 75% of his time. In determining Mr. Kurnick's pay, our compensation committee considers the impact of the time Mr. Kurnick spends on Penske Automotive matters, including the benefits of his leadership capabilities.
Other Executive Officer Compensation. In June 2013, Mr. Jones's salary was increased from $400,000 to $450,000. In January 2014, Messrs. Sharp and Spradlin's salaries were each increased from $435,000 and $450,000, respectively, to $460,000 and $475,000, respectively. Our compensation committee approved these increases in recognition of the Company's performance in 2013 and based upon its benchmarking against our peer companies. Each of our named executive officers received the stock awards and bonuses set forth in the tables below. In addition, in February 2014, Messrs. Jones, Sharp and Spradlin received 8,125, 3,500, and 7,000 shares of restricted stock, respectively, vesting over four years at a rate of 15%, 15%, 20% and 50% as part of our annual grant under the 2012 Equity Incentive Plan. In 2013, we were reimbursed approximately six percent of Mr. Spradlin's base salary by Penske Corporation to reflect his efforts on behalf of Penske Corporation. The full amount of Mr. Spradlin's base salary is shown in the table below.
Executive Compensation |
The following table contains information concerning 2013 annual and long-term compensation for our Chief Executive Officer, Chief Financial Officer and each of our three other most highly compensated executive officers, collectively referred to as the "named executive officers." For a discussion of our methodology in valuing the items set forth under "All Other Compensation," see "CD&A — Other Compensation."
2013 Summary Compensation Table
Name and Principal Position | | Year | | Salary ($) | | Bonus ($) | | Stock Awards ($)(1) | | All Other Compensation ($) | | Total ($) | |||||||
Roger S. Penske | 2013 | $ | 1,200,000 | — | $ | 3,600,000 | &zwsp; (2) | $ | 305,569 | &zwsp; (3) | $ | 5,105,569 | |||||||
Chief Executive Officer | 2012 | 1,200,000 | — | 3,500,000 | 209,336 | 4,909,336 | |||||||||||||
| 2011 | 1,200,000 | — | 3,150,000 | 114,933 | 4,464,933 | |||||||||||||
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Robert H. Kurnick, Jr. | 2013 | 700,000 | — | 700,000 | &zwsp; (4) | 96,580 | &zwsp; (5) | 1,496,580 | |||||||||||
President | 2012 | 700,000 | — | 600,000 | 71,576 | 1,371,576 | |||||||||||||
| 2011 | 700,000 | — | 540,000 | 57,115 | 1,297,115 | |||||||||||||
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David K. Jones | 2013 | 427,884 | 210,000 | 316,168 | 62,487 | &zwsp; (6) | 1,016,539 | ||||||||||||
Executive Vice President & Chief | 2012 | 400,000 | 180,000 | 241,100 | 72,597 | 893,697 | |||||||||||||
Financial Officer | 2011 | 364,038 | 125,000 | 189,240 | 464,559 | 1,142,837 | |||||||||||||
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Calvin C. Sharp | 2013 | 435,000 | 115,000 | 136,338 | 56,834 | &zwsp; (7) | 743,172 | ||||||||||||
Executive Vice President — Human | 2012 | 416,827 | 100,000 | 108,495 | 50,280 | 675,602 | |||||||||||||
Resources | 2011 | 400,000 | 90,000 | 68,390 | 43,000 | 601,390 | |||||||||||||
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Shane M. Spradlin | 2013 | 450,000 | 210,000 | 305,420 | 53,361 | &zwsp; (8) | 1,018,781 | ||||||||||||
Executive Vice President, General | 2012 | 424,000 | 180,000 | 192,880 | 66,996 | 863,915 | |||||||||||||
Counsel & Secretary | 2011 | 400,000 | 160,000 | 117,240 | 53,287 | 730,527 |
Grants of Plan-Based Awards in 2013
Estimated Future Payouts under Equity Incentive Plan Awards | | All other Awards: Number of Shares | | Grant Date Fair Value of Stock | |||||||||||||||
Name and Principal Position | Grant Date | | Threshold ($) | | Target ($) | | Maximum ($) | | of Stock | | Awards ($) | ||||||||
Roger S. Penske | 2/26/2013 | 2,400,000 | 3,600,000 | $ | 4,800,000 | $ | 3,600,000 | ||||||||||||
Chief Executive Officer | 2/26/2013 | 119,372 | 3,500,000 | ||||||||||||||||
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Robert H. Kurnick, Jr. | 2/26/2013 | 350,000 | 700,000 | $ | 1,050,000 | 700,000 | |||||||||||||
President | 2/26/2013 | 20,464 | 600,000 | ||||||||||||||||
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David K. Jones | 2/26/2013 | 10,500 | 307,860 | ||||||||||||||||
Executive Vice President & | 10/22/2013 | 200 | 8,308 | ||||||||||||||||
Chief Financial Officer | |||||||||||||||||||
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Calvin C. Sharp | 2/26/2013 | 4,650 | 136,338 | ||||||||||||||||
Executive Vice President — Human Resources | |||||||||||||||||||
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Shane M. Spradlin | 2/26/2013 | 9,000 | 263,880 | ||||||||||||||||
Executive Vice President, | 10/22/2013 | 1,000 | 41,540 | ||||||||||||||||
General Counsel & Secretary |
This table reflects two years of awards for Messrs. Penske and Kurnick: the 2012 awards attained that were paid in the form of restricted stock in 2013, and the awards relating to 2013 that were paid in 2014.
Narrative Discussion of Summary Compensation Table and Plan Based Awards
The amounts set forth in the two preceding tables reflect payments and awards to our named executive officers based on the principles and descriptions discussed under "CD&A."
Mr. Penske's Performance Based Award. Our compensation committee established 2013 performance targets for a performance based award for Mr. Penske in February 2013. The award established a threshold payout of $2.4 million (50% of targets), a target payout of $3.6 million (100% of targets) and a maximum potential payout of $4.8 million (150% of targets) to be paid in shares of restricted stock to be granted in 2014. Mr. Penske achieved 143% of the performance metrics noted above relating to this award, which entitled him to approximately $4.6 million in shares of restricted stock granted in February 2014, as more fully discussed above in "CD&A — Chief Executive Officer Compensation." Mr. Penske did not receive an annual cash bonus because he received this restricted stock grant in lieu of a cash bonus.
Mr. Kurnick's Performance Based Award. In February 2013, the committee established a similar performance based award for Mr. Kurnick with respect to 2013, with a threshold payout of $350,000 (50%
of targets), a target payout of $700,000 (100% of targets) and a maximum potential payout of $1.05 million (150% of targets) to be paid in shares of restricted stock to be granted in 2014. Mr. Kurnick achieved 143% of the performance metrics noted above relating to this award, which entitled him to approximately $1.0 million in shares of restricted stock granted in February 2014, as more fully discussed above in "CD&A — President Compensation." Mr. Kurnick did not receive an annual cash bonus because he received this restricted stock grant in lieu of a cash bonus.
Other Restricted Stock Awards. The equity awards granted in February 2013 to Messrs. Jones, Sharp and Spradlin were awarded as part of an annual grant of restricted stock pursuant to the terms of the 2012 Equity Incentive Plan. The October 2013 awards to Messrs. Jones and Spradlin were in recognition of achievement by those officers in connection with an acquisition project in 2013. These awards each vest annually on June 1 over four years at a rate of 15%, 15%, 20% and 50% and were issued based on principles described in the "CD&A — Incentive Equity Awards."
Outstanding Equity Awards at 2013 Year-End
Stock Awards | ||||||
Name | | Number of Shares of Stock That Have Not Vested (#) | Market Value of Shares of Stock That Have Not Vested(1) | |||
Roger S. Penske | 531,740 | &zwsp; (2) | $25,076,858 | |||
Chief Executive Officer | ||||||
Robert H. Kurnick, Jr. | 88,733 | (3) | 4,184,648 | |||
President | ||||||
David K. Jones | 26,500 | &zwsp; (4) | 1,249,740 | |||
Executive Vice President & Chief Financial Officer | ||||||
Calvin C. Sharp | 12,425 | (5) | 585,963 | |||
Executive Vice President — Human Resources | ||||||
Shane M. Spradlin | 23,250 | &zwsp; (6) | 1,096,470 | |||
Executive Vice President, General Counsel & Secretary | ||||||
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June 1, 2014 – 159,786 | June 1, 2017 – 80,738 | |
June 1, 2015 – 133,596 | June 1, 2018 – 52,630 | |
June 1, 2016 – 104,990 |
June 1, 2014 – 20,625 | June 1, 2017 – 14,780 | |
June 1, 2015 – 23,255 | June 1, 2018 – 11,370 | |
June 1, 2016 – 18,703 |
June 1, 2014 – 5,905 | June 1, 2016 – 7,140 | |
June 1, 2015 – 8,105 | June 1, 2017 – 5,350 |
June 1, 2014 – 3,572 | June 1, 2016 – 3,180 | |
June 1, 2015 – 3,348 | June 1, 2017 – 2,325 |
June 1, 2014 – 6,150 | June 1, 2016 – 6,000 | |
June 1, 2015 – 6,100 | June 1, 2017 – 5,000 |
Option Exercises and Stock Vested During 2013
Stock Awards | |||||||
Name | | Number of Shares acquired on Vesting (#) | | Value Realized On Vesting ($) | |||
| |||||||
Roger S. Penske | 78,838 | 2,531,488 | |||||
Chief Executive Officer | |||||||
Robert H. Kurnick, Jr. | 10,759 | 345,471 | |||||
President | |||||||
David K. Jones | 5,750 | 184,633 | |||||
Executive Vice President & Chief Financial Officer | |||||||
Calvin C. Sharp | 4,304 | 138,201 | |||||
Executive Vice President – Human Resources | |||||||
Shane M. Spradlin | 7,759 | 249,141 | |||||
Executive Vice President, General Counsel & Secretary |
Pension Benefits and Nonqualified Deferred Compensation
Our executive officers are not eligible to participate in any defined benefit or non-qualified deferred compensation plans.
"Golden Parachutes" or Termination/Change in Control Payments
None of our executive officers have been provided an employment agreement, nor are they entitled to any pre-arranged severance compensation. With respect to a change in control, none of our current executive officers have been guaranteed any change of control payments, however, certain of our outstanding restricted stock grants provide that in the event of a change of control the award will vest. Based on a closing stock price of $43.29 on March 1, 2014, the following number of shares would vest assuming a change of control occurred on that date: Roger Penske 224,631 shares ($9,724,276), Robert Kurnick 43,203 shares ($1,870,258) David Jones 18,825 shares ($814,934), Calvin Sharp 8,150 shares ($352,814), Shane Spradlin 17,000 shares ($735,930).
Director Compensation |
The Board of Directors believes that its members should receive a mix of cash and equity compensation, with the option to receive all compensation in the form of equity. The Board of Directors approves changes to director compensation only upon the recommendation of the Compensation and Management Development Committee, which is composed solely of independent directors. Although all of our directors are eligible for our charitable donation matching program discussed below, only those directors who are not our employees are eligible for director compensation.
Annual Fee and Stock Award. Each non-employee director receives an annual fee of $40,000, except for audit committee members, who receive $45,000. Committee chairpersons receive an additional $5,000. These fees are payable, at the option of each non-employee director, in cash or common stock valued on the date of receipt (generally in the fourth quarter of the year of service). Our non-employee directors also receive an annual grant of 4,000 shares of stock.
Option to Defer Receipt until Termination of Board Service. Under our Non-Employee
Director Compensation Plan, the annual fee and equity awards earned by our non-employee directors may be deferred in either cash (for the annual fee) and/or deferred stock. Each deferred stock unit is equal in value to a share of common stock, and ultimately will be paid in cash after a director retires. These stock units do not have voting rights, but do receive dividends in the form of additional stock units which are credited to the director's account on the date dividends are paid. All cash fees deferred are held in our general funds, and interest on such deferred fees is credited to the director's account at the then current U.S. 90-day Treasury bill rate on a quarterly basis.
Charitable Donation Matching Program. All directors are eligible to participate in a charitable matching gift program. Under this program, in 2013 we matched up to $35,000 per year in contributions by each director to institutions qualified as tax-exempt organizations under 501(c)(3) of the Internal Revenue Code and other institutions approved at the discretion of management. We may decline to match any contribution to an institution with goals that are incompatible with ours, or due to conflicts with our director independence policy. This program is not available for matching of political contributions. While the contributions are directed by our directors, we retain the tax deduction for matching contributions paid by us. For 2014, our Board has increased the amount available for matching to $50,000.
Other Amounts. As part of our director continuing education program, each director is eligible to be reimbursed by us for the cost and expenses relating to one education seminar per year. These amounts are excluded from the table below. Each non-employee director is also entitled to the use of a company vehicle, including the cost of routine maintenance and repairs and company-sponsored automobile insurance relating to that vehicle. All directors are also entitled to reimbursement for their reasonable out-of-pocket expenses in connection with their travel to, and attendance at, meetings of the Board of Directors or its committees. Because we expect attendance at all meetings, and a substantial portion of the Board of Directors' work is done outside of formal meetings, we do not pay meeting fees.
2013 Director Compensation Table
Our directors who are also our employees (Messrs. Kurnick, Namba and Penske) receive no additional compensation for serving as directors, though they are eligible for the charitable matching program noted above.
Name | | Fees Earned or Paid in Cash(1) | | Stock Awards(2) | | All Other Compensation | | Total | |||||
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John D. Barr | $ | 45,000 | $ | 178,760 | $ | 92,049 | &zwsp; (3) | $ | 315,809 | ||||
Michael R. Eisenson | 50,000 | 178,760 | 55,445 | (4) | 284,205 | ||||||||
William J. Lovejoy | 40,000 | 178,760 | 57,197 | &zwsp; (5) | 275,957 | ||||||||
Kimberly J. McWaters | 45,000 | 178,760 | 58,807 | (6) | 282,567 | ||||||||
Lucio A. Noto | 40,000 | 178,760 | 64,352 | &zwsp; (7) | 283,112 | ||||||||
Richard J. Peters | 40,000 | 178,760 | 54,345 | (8) | 273,105 | ||||||||
Sandra A. Pierce | 40,000 | 178,760 | 53,652 | &zwsp; (9) | 272,412 | ||||||||
Ronald G. Steinhart | 45,000 | 178,760 | 53,352 | (10) | 277,112 | ||||||||
H. Brian Thompson | 45,000 | 178,760 | 88,203 | &zwsp; (11) | 311,963 |
Security Ownership of Certain Beneficial Owners and Management |
The following table sets forth information with respect to the beneficial ownership of our common stock as of March 7, 2014 by (1) each person known to us to own more than five percent of our common stock, (2) each of our directors, (3) each of our named executive officers and (4) all of our directors and executive officers as a group.
"Beneficial ownership" is determined in accordance with the rules of the SEC and includes voting and investment power with respect to shares, including shares of restricted but unvested stock. The percentage of ownership is based on 90,552,058 shares of our common stock outstanding on March 7, 2014. Unless otherwise indicated in a footnote, each person identified in the table below has sole voting
and dispositive power with respect to the common stock beneficially owned by that person and none of the shares are pledged as security.
Name of Beneficial Owner | | Economic Ownership(1) | | Beneficial Ownership(2) | | Percent | ||||
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Principal Stockholders | ||||||||||
Penske Corporation(3) | 30,763,812 | 30,763,812 | 34.0% | |||||||
2555 Telegraph Road, Bloomfield Hills, MI 48302-0954 | ||||||||||
Mitsui(4) | 15,559,217 | 15,559,217 | 17.2% | |||||||
2-1, Ohtemachi 1-chome, Chiyoda-ku, Tokyo, Japan | ||||||||||
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Current Directors and Nominees | ||||||||||
John D. Barr | 42,184 | 17,000 | * | |||||||
Michael R. Eisenson | 76,563 | 76,563 | * | |||||||
Robert H. Kurnick, Jr.(5) | 103,299 | 103,299 | * | |||||||
William J. Lovejoy | 65,968 | 16,000 | * | |||||||
Kimberly J. McWaters | 31,362 | 18,924 | * | |||||||
Yoshimi Namba | 0 | 0 | * | |||||||
Lucio A. Noto | 73,919 | 44,674 | * | |||||||
Greg Penske(6) | 25,420 | 25,420 | * | |||||||
Roger S. Penske(7) | 31,846,056 | 31,846,056 | 35.2% | |||||||
Richard J. Peters(8) | 66,760 | 66,760 | * | |||||||
Sandra A. Pierce | 4,000 | 4,000 | * | |||||||
Ronald G. Steinhart | 46,000 | 46,000 | * | |||||||
H. Brian Thompson | 71,155 | 71,155 | * | |||||||
Officers Who Are Not Directors | ||||||||||
David K. Jones(9) | 35,950 | 35,950 | * | |||||||
Calvin C. Sharp(10) | 32,551 | 32,551 | * | |||||||
Shane M. Spradlin(11) | 49,381 | 49,381 | * | |||||||
All directors and named executive officers as a group (15 persons)(12) | 32,494,422 | 32,377,593 | 35.8% |
shares were deemed to be beneficially owned by Penske Corporation, its beneficial ownership would be 46,323,029 shares or 51.2%.
Related Party Transactions |
Our Board of Directors has adopted a written policy with respect to the approval of related party transactions. Under the policy, related party transactions valued over $5,000 must be approved by a majority of either the members of our Audit Committee or our disinterested Board members. Our Audit Committee approves all individual related party transactions valued below $1 million, all multiple-payment transactions valued below $5 million (such as a lease), and any transaction substantially similar to a prior year's transaction (regardless of amount). Our Board, by a vote of the disinterested directors, reviews and approves all other related party transactions. At each regularly scheduled meeting, our Audit Committee reviews any proposed new related party transactions for approval and reviews the status of previously approved transactions. Each of the transactions noted below was approved by our Board of Directors or Audit Committee pursuant to this policy.
Stockholders Agreement and Stock Purchase Agreement. Entities affiliated with Roger S. Penske, our Chairman of the Board and Chief Executive Officer, are parties to a stockholders agreement described below. Mr. Penske is also Chairman of the Board and Chief Executive Officer of Penske Corporation, and, through entities affiliated with Penske Corporation, our largest stockholder. The parties to the stockholders agreement are Mitsui & Co., Ltd., Mitsui & Co, (USA), Inc. (collectively, "Mitsui"), Penske Corporation and
Penske Automotive Holdings Corp. (collectively the "Penske companies").
Pursuant to the stockholders agreement, the Penske companies agreed to vote their shares for up to two directors who are representatives of Mitsui and Mitsui agreed to vote its shares for up to fourteen directors voted for by the Penske companies. In addition, the Penske companies agreed that if they transfer any of our shares of common stock, Mitsui would be entitled to "tag along" by transferring a pro rata amount of its shares upon similar terms and conditions, subject to certain limitations. This agreement terminates in 2024, or, if earlier, upon the mutual consent of the parties or when either party no longer owns any of our common stock.
Registration Rights Agreements. Both the Penske companies and Mitsui possess registration rights pursuant to which they are able on two remaining occasions each to register all or part of our common stock held by them, subject to specified limitations. They are also entitled to request inclusion of all or any part of their common stock in any registration of securities by us on Forms S-1 or S-3 under the Securities Act of 1933, as amended.
Other Related Party Interests. Several of our directors and officers are affiliated with Penske Corporation or related entities. Mr. Penske is a managing member of Transportation Resource Partners, a Penske affiliated organization that undertakes investments in transportation-related industries. Richard J. Peters, one of our directors, is a director of Penske Corporation and a managing director of Transportation Resource Partners. Robert H. Kurnick, Jr., our President and a director, is also the President and a director of Penske Corporation. In 2013, we were reimbursed approximately six percent of the base salary of Shane Spradlin, our General Counsel, by Penske Corporation to reflect his efforts on behalf of Penske Corporation affiliates. These employees or directors may receive salary, bonus or other compensation from Penske Corporation or its affiliates unrelated to their service at Penske Automotive. Our director Lucio A. Noto is an investor in Transportation Resources Partners.
Penske Truck Leasing. We own a 9% interest in Penske Truck Leasing Co., L.P. ("PTL"), a leading provider of transportation services and supply chain management. PTL operates and maintains approximately 205,000 vehicles and serves customers in North America, South America, Europe and Asia. Product lines include full-service leasing, contract maintenance, commercial and consumer truck rental used truck sales, transportation and warehousing management and supply chain management. PTL is owned 41.1% by Penske Corporation, 9.0% by us and the remaining 49.9% of PTL is owned by General Electric Capital Corporation ("GECC").
Historically GECC provided PTL with a majority of its financing and in 2012 PTL refinanced all of its GECC indebtedness. As part of that refinancing, we and the other PTL partners created a new company ("Holdings"), which, together with GECC, co-issued $700.0 million of 3.8% senior unsecured notes due 2019 (the "Holdings Bonds"). GECC agreed to be a co-obligor of the Holdings Bonds in order to achieve lower interest rates. Additional capital contributions from the members may be required to fund interest and principal payments on the Holdings Bonds. We have agreed to indemnify GECC for 9.0% of any principal or interest that GECC is required to pay as co-obligor, and pay GECC an annual fee of approximately $950,000 for acting as co-obligor. The maximum amount of our potential obligations to GECC under this agreement are 9.0% of the required principal repayment due in 2019 (which is expected to be $63.1 million) and 9.0% of interest payments under the Holdings Bonds, plus fees and default interest, if any.
As part of the refinancing transactions, we entered into a limited liability company agreement of Holdings which extends through 2023. We have governance rights in Holdings typical of a minority investor and, in light of our indemnification requirements related to the Holdings Bonds noted above, we have the right to approve certain additional debt obligations before incurrence by Holdings to the extent such incurrence would affect our indemnification requirements, any change in Holdings' business activities and changes to the maturity, interest
rate and principal amount of the Holdings Bonds. The agreement contains restrictions on our ability to transfer our interests similar to those in the existing and revised PTL partnership agreement discussed below.
The PTL partnership agreement provides us with specified distribution and governance rights and restricts our ability to transfer our interests. As a limited partner, we are entitled only to a limited number of rights, including the right to act as an observer at all meetings of PTL's Advisory Committee and a right to pro rata quarterly distributions equal to 50% of its consolidated net income. Further, we may only transfer our interests with the unanimous consent of the other partners or if we and Penske Corporation provide the remaining partners with a right of first refusal to acquire our interests at fair market value. We and Penske Corporation have also agreed that (1) in the event of any transfer by Penske Corporation of their partnership interests to a third party, we shall be entitled to "tag-along" by transferring a pro rata amount of our partnership interests on similar terms and conditions, and (2) Penske Corporation is entitled to a right of first refusal in the event of any transfer of our partnership interests.
The agreement, extends through 2023, and also allows GECC or Penske Corporation, beginning December 31, 2017, to give notice to require PTL to begin to effect an initial public offering of equity securities, subject to certain limitations, as soon as practicable after the first anniversary of the initial notice. The party that is not exercising this right may seek to find a third party to purchase all of the partnership interests from the exercising party or to propose another alternative to such equity offers. In connection with the right to cause PTL to conduct an initial public offering, the PTL partners have agreed to customary demand and piggyback registration rights.
In 2013, we received $11.2 million from PTL in pro rata cash distributions and license payments. During 2013, we were also party to an agreement expiring in 2047 (assuming exercise of all optional extension periods) pursuant to which PTL subleases a portion of a dealership location in New Jersey for $60,000 per year plus its pro rata share of certain property expenses. Aggregate payments are expected to be $2.0 million over the term of the remaining sublease, including all optional extension periods, but not including any potential increases in rent resulting from changes in the consumer price index. Our Chairman and Chief Executive Officer also serves as chairman of PTL, for which he is compensated by PTL. As a limited partner, we do not influence or control the amount of that compensation.
Other Transactions. From time to time, we pay and/or receive fees from Penske Corporation and its affiliates for services rendered in the normal course of business, including payments to third parties by Penske Corporation on our behalf which we then reimburse to them, payments to third parties made by us on behalf of Penske Corporation which they then reimburse to us, shared office expenses, shared employee expenses and payments relating to the use of aircraft from Penske Aviation, a subsidiary of Penske Corporation. These transactions are reviewed periodically by our Audit Committee and reflect the provider's cost or an amount mutually agreed upon by both parties. Aggregate payments relating to such transactions amounted to $6.3 million paid by us, excluding the payments to AGR discussed below.
In June 2008, RP Automotive, an affiliate of Mr. Penske, Jr., the son of our Chairman and Chief Executive Officer, purchased two of our subsidiaries operating six franchises in California. In connection with these transactions, the former subsidiaries continue to lease certain fixed assets from us. One of the leases has a term expiring in December 2037 with annual rent of $289,000 per year (or $6.9 million over the remaining period), and the second lease has a term expiring in February 2027 with annual rent of $219,000 per year (or $2.9 million over the remaining period).
We and Penske Corporation and certain of its affiliates have entered into a joint insurance agreement which provides that, with respect to any joint insurance policies (such as our commercial crime insurance policies), any
available coverage with respect to a loss shall be paid to each party as stipulated in the policies. In the event of losses that exceed the limit of liability for any policy or policy period, the total policy proceeds will be allocated based on the ratio of premiums paid.
We have entered into a license agreement with an affiliate of Penske Corporation for a license of the "Penske Automotive" name. This agreement provides us with a perpetual license of the name "Penske Automotive" and related trade names so long as Penske Corporation and its affiliates own in excess of 20% of our outstanding stock and we adhere to the other terms of the license agreement.
From time to time, we enter into arrangements with Penske Truck Leasing and/or other Penske Corporation affiliates and third party vendors in order to achieve the benefits of scale or synergy opportunities as between the companies. These arrangements are reviewed by the Board in accordance with our policy noted above. For example, we aggregate several Penske entities in connection with sourcing certain telecommunications services to achieve the benefits of scale. In addition, we have a preferred arrangement with Shell Oil whereby we purchase targeted amounts of lubricants, fuel and other products on competitive terms to the Company.
In 2012, we acquired a 70% interest in a group of BMW/MINI franchises in Northern Italy. In February, 2013, we sold 50% of our joint venture interest to Mitsui & Co. The purchase price was approximately $8.4 million which reflected our acquisition costs and subsequent profits/losses of those franchises since acquisition. We entered into a joint venture agreement with Mitsui that required us and Mitsui to agree to all significant actions by that joint venture, and allowed the transfer of membership interests only after complying with standard tag-along and right of first refusal provisions. In September 2013, we purchased the joint venture interest back from Mitsui & Co. The purchase price was approximately $9.4 million which reflected the same purchase price calculation of acquisition costs and subsequent profits/losses of those franchises since acquisition. The joint venture agreement discussed above was terminated.
In 2013, we had continuing investments in three companies controlled by Transportation Resource Partners ("TRP"), an organization discussed above: a mobile vehicle washing company, an auctioneer of powersport vehicles and a provider of outsourced vehicle management solutions ("QEK"). In November 2013, TRP sold its interest in QEK to third party investors. In connection with that recapitalization transaction, we invested an additional $2.0 million in QEK, bringing our total ownership to 31%. Penske Corporation and Penske Truck Leasing also invested an additional $1.0 million and $2.0 million, respectively on the same financial terms as our investment, bringing their respective total ownership levels to 15% and 17%. We and the other investors entered into a stockholders agreement relating to this investment which, among other things, provides us with specified management rights and rights to purchase additional shares, and restricts our ability to transfer shares. We also entered into a management agreement which provides that we and other investors are to be provided ongoing pro rata management fees. In 2013, we incurred $295,000 of compensation expense for the chief executive officer of QEK, who also provides consulting services to us.
In June 2013, we acquired a 27% interest in Around-The Clock Freightliner ("ATC"), a retailer of Daimler branded medium, heavy and light-duty trucks in Texas and Oklahoma for $15.9 million. TRP simultaneously acquired a controlling interest in this company on the same financial terms as our investment. We and several other investors, including TRP entered into a limited liability company agreement relating to this investment which, among other things, provides us with specified management rights, including the right to appoint one of seven directors, and rights to purchase additional shares, and restricts our ability to transfer shares. We guaranteed $1.5 million of ATC's indebtedness (along with the other investors) and are also entitled to a management fee with respect to our ongoing advisory services provided to ATC.
In 2013, we purchased $560,000 in vehicle window solar film for sale at our dealerships from Commonwealth Laminating & Coating, Inc., d/b/a SunTek, a company controlled by Transportation Resource Partners. In 2013, we purchased $700,000 in vehicle transportation services from United Road Services, a national auto transport company ("URS"). URS is indirectly majority owned by Charlesbank Capital Partners, an affiliate of Michael Eisenson, one of our directors. Transportation Resource Partners and Roger Penske collectively own approximately 8% of URS.
Our officers, directors and their affiliates periodically purchase, lease or sell vehicles from our dealerships at fair market value. Additionally, we hire automotive technicians who have graduated from Universal Technical Institute ("UTI"), a provider of technical education, whose Chief Executive Officer is one of our directors. We make no payments to UTI relating to the hiring of these graduates and hire them on the same terms as other employers. In 2013, Mr. Namba, one of our board members, received $335,000 in total compensation relating to his service as Senior Vice President — International Business Development, including a tax allowance of $12,800 relating to $21,600 of non-cash compensation. Mr. Namba is also an employee of Mitsui & Co., Ltd. (Japan). To the extent Mr. Namba's salary exceeds or is less than an amount set annually by Mitsui, he makes or receives payments to/from Mitsui intended to mitigate the effect of exchange rate changes.
An entity (the "Investor") controlled by one of our directors, Lucio A. Noto, owns a 16.4% interest in one of our subsidiaries, UAG Connecticut I, LLC, pursuant to an agreement which entitles the Investor to 20% of the operating profits of UAG Connecticut I. This agreement also provides the Investor with the right to appoint one of three directors, as well as "tag-along rights" in the event we intend to sell our interest in UAG Connecticut I. We have a right of first refusal with respect to any potential sale by the Investor of its interest. From time to time, we provide UAG Connecticut I with working capital and other debt financing. The Investor also paid $378,000 to us in 2013 pursuant to its option to purchase up to a 20% interest in UAG Connecticut I. In addition, UAG Connecticut I makes periodic pro rata distributions, pursuant to which the Investor was paid $1.4 million during 2013. In November 2013, a separate entity controlled by Mr. Noto (the "Additional Investor"), paid approximately $3.7 million for a 20% interest in our subsidiary that owns Mercedes-Benz of Greenwich. From time to time, we provide Mercedes-Benz of Greenwich with working capital and other debt financing and expect to make periodic pro rata distributions from Mercedes-Benz of Greenwich to the Investor. We have entered into an operating agreement that provides rights and obligations similar as those described above with respect to UAG Connecticut I.
Information about Attending the Meeting |
PAG 2014 Annual Meeting of Stockholders
8:00 a.m. Eastern Daylight Time, May 2, 2014
Penske Automotive Group
2555 Telegraph Road
Bloomfield Hills, Michigan 48302
Voting in Person at the Meeting
We encourage you to submit proxies in advance by telephone, by Internet or by mail. You may also vote in person at the annual meeting instead, or may execute a proxy designating a representative to vote for you at the meeting. If your PAG shares are held for you in a brokerage, bank or other institutional account, you must obtain a proxy from that entity and bring it with you to hand in with your ballot in order to be able to vote your shares at the meeting.
Admission
You will be asked to verify proof of ownership of PAG stock before being admitted to our annual meeting. If you hold shares indirectly through a bank or brokerage firm, please bring a recent statement to verify your ownership. We reserve the right to deny admission to anyone who cannot verify he or she is one of our stockholders. Cameras and recording devices will not be permitted.
Proxies are solicited by or on behalf of our Board of Directors. We will bear the cost of this solicitation. In addition to the solicitation of the proxies by mail, some of our officers and regular employees, without extra remuneration, may solicit proxies personally, or by telephone or otherwise. In addition, we will make arrangements with brokerage houses and other custodians, nominees and fiduciaries to forward proxies and proxy material to their principals, and we will reimburse them for their expenses in forwarding soliciting materials, which are not expected to exceed an aggregate of $10,000.
We will provide without charge to each of our stockholders, on the written request of such stockholder, a copy of our Form 10-K for the year ended December 31, 2013 and any of the other documents referenced herein. Copies can be obtained from Penske Automotive Group, Inc., Investor Relations, 2555 Telegraph Road, Bloomfield Hills, Michigan 48302-0954 (248-648-2500) or (866-715-5289).
Dated: March 10, 2014
Form of Proxy Card — Penske Automotive Group, Inc.
qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
Proxy — Penske Automotive Group, Inc.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes all prior proxies and appoints Robert H. Kurnick, Jr. and Shane M. Spradlin and each of them, as proxies with full power of substitution, to vote on behalf of the undersigned the same number of shares of Common Stock, par value $0.0001 per share, of Penske Automotive Group, Inc. which the undersigned is entitled to vote, at the Annual Meeting of Stockholders to be held on May 9, 20132, 2014 at 8:00 a.m., Eastern Daylight Time, at our corporate headquarters, 2555 Telegraph Road, Bloomfield Hills, Michigan 48302, and at any postponements or adjournments thereof, on any matter properly coming before the meeting, and specifically the matters described on the reverse side hereof.
THE PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, IT WILL BE VOTED FOR THE ELECTION OF THE NOMINEES NAMED HEREIN, FOR APPROVAL OF OUR 2012 EQUITY INCENTIVE PLAN, FOR RATIFICATION OF OUR AUDITORS, FOR APPROVAL OF OUR EXECUTIVE COMPENSATION, AND ACCORDING TO THE DISCRETION OF THE PROXY HOLDERS ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING OR ANY POSTPONEMENTS OR ADJOURNMENTS THEREOF. THE PROPOSALS HEREIN ARE PROPOSED BY THE BOARD OF DIRECTORS.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
C Non-Voting Items
Change of Address |
| Comments |
| Meeting Attendance |
Mark the box to the right o if you plan to attend the Annual Meeting |
IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A –— C ON BOTH SIDES OF THIS CARD.
Electronic Voting Instructions Available 24 hours a day, 7 days a week! Instead of mailing your proxy, you may choose one of the voting methods outlined below to vote your proxy. VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by1:00 a.m., Central Time, on May 2, 2014. Vote by Internet ·Go to www.envisionreports.com/pag ·Or scan the QR code with your smartphone ·Follow the steps outlined on the secured website Vote by telephone ·Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone ·Follow the instructions provided by the recorded message
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Using a black ink pen, mark your votes with an X as shown in this example. Please do not write outside the designated areas. x |
Annual Meeting Proxy Card
qIF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE.q
A Proposals –— The Board of Directors recommends that you vote FOR the following proposals:
1. | Election of Directors: |
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| Withhold |
01 — John D. Barr |
| o |
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02 — Michael R. Eisenson |
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03 — Robert H. Kurnick, Jr. |
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04 — William J. Lovejoy |
| o |
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05 — Kimberly J. McWaters |
| o |
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06 — Yoshimi Namba |
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07 — Lucio A. Noto |
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08 — Roger S. Penske |
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09 — |
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10 — Sandra E. Pierce |
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11 — Ronald G. Steinhart |
| o |
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12 — H. Brian Thompson |
| o |
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2. |
| Ratification of the |
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| Approval, by non-binding vote, of executive compensation. |
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| Transaction of such other business as may properly come before the annual meeting and any postponement or adjournment thereof. |
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B Authorized Signatures –— This section must be completed for your vote to be counted. –— Date and Sign Below
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy) |
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IF VOTING BY MAIL, YOU MUST COMPLETE SECTIONS A –— C ON BOTH SIDES OF THIS CARD.