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OMB APPROVAL |
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OMB Number:
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3235-0059 |
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Expires:
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January 31, 2008 |
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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 Registrant
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Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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o Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2)) |
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þ Definitive Proxy Statement |
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o Definitive Additional Materials |
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Soliciting Material Pursuant to §240.14a-12 |
United Auto Group, Inc.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
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þ No fee required. |
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o
Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11. |
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1. Title
of each class of securities to which transaction applies: |
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2. Aggregate number of securities to which transaction applies: |
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3. |
Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): |
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4. Proposed maximum aggregate value of transaction: |
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o Fee paid previously with preliminary materials. |
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o 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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1. Amount Previously Paid: |
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2. Form, Schedule or Registration Statement No.: |
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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. |
To Our Stockholders:
We are pleased to invite you to attend the annual meeting of
stockholders of United Auto Group, Inc. to be held at
9:00 a.m., Pacific Daylight Time on May 3, 2006, at
Wynn Las Vegas, the site of Penske Wynn Ferrari Maserati, one of
our world-class automotive dealerships. Wynn Las Vegas is
located at 3131 Las Vegas Boulevard South, Las Vegas,
Nevada.
The accompanying Notice of Annual Meeting and Proxy Statement
describe the specific matters to be voted upon at the meeting.
The annual meeting provides an excellent opportunity for
stockholders to become better acquainted with UnitedAuto 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 UnitedAuto.
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Sincerely, |
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Roger S. Penske
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Chairman of the Board and |
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Chief Executive Officer |
Bloomfield Hills, Michigan
March 23, 2006
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
May 3, 2006
We will hold our annual meeting of stockholders at 9:00 a.m.,
Pacific Daylight Time on May 3, 2006, at Wynn Las Vegas,
the site of Penske Wynn Ferrari Maserati, one of our world-class
automotive dealerships. Wynn Las Vegas is located at
3131 Las Vegas Boulevard South, Las Vegas, Nevada. The
agenda items for approval at the meeting consist of:
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(1) |
the election of twelve directors to serve until the next annual
meeting of stockholders, or until their successors are duly
elected and qualified; |
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(2) |
the amendment of our certificate of incorporation to increase
the number of authorized shares of voting common stock from
80,000,000 to 240,000,000; and |
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(3) |
the transaction of such other business as may properly come
before the meeting. |
Stockholders of record as of March 20, 2006 can vote at the
annual meeting and any postponements or adjournments of the
annual meeting. We will make available for inspection a list of
holders of our common stock as of the record date during
business hours from April 17, 2006 through May 3, 2006
at our principal executive offices, located at 2555 Telegraph
Road, Bloomfield Hills, Michigan 48302. This proxy statement and
the enclosed proxy card are first being distributed on or about
March 23, 2006.
Your vote is very important. Please complete, date and sign the
enclosed proxy card and return it promptly in the enclosed
postage prepaid envelope or otherwise cast your vote. Your
prompt voting will ensure a quorum. You may revoke your proxy
and vote personally on all matters brought before the annual
meeting.
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By Order of the Board of Directors, |
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Shane M. Spradlin
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Vice President and Secretary |
Bloomfield Hills, Michigan
March 23, 2006
TABLE OF CONTENTS
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ABOUT THE MEETING
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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. |
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A. Proposal 2: |
Amendment of our certificate of incorporation to increase the
number of authorized shares of voting common stock from
80,000,000 to 240,000,000. |
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A. |
Common stockholders of UnitedAuto as of the close of business on
the record date, March 20, 2006, can vote at the annual
meeting. Each share of our common stock gets one vote. Votes may
not be cumulated. As of March 20, 2006, there were
47,001,428 shares of our common stock outstanding. |
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Q. |
How do I vote before the meeting? |
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A. |
By completing, signing and returning the enclosed proxy card. |
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Q. |
May I vote at the meeting? |
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A. |
You may vote at the meeting if you attend in person. If you hold
your shares through an account with a bank or broker, you must
obtain a legal proxy from the bank or broker in order to vote at
the meeting. Even if you plan to attend the meeting, we
encourage you to vote your shares by proxy. |
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Q. |
Can I change my mind after I vote? |
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A. |
You may change your vote at any time before the polls close at
the meeting by (1) signing another proxy card with a later
date and returning it to us prior to the meeting,
(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 the Corporate Secretary
prior to the meeting stating that you are revoking your proxy. |
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Q. |
What if I return my proxy card but do not provide voting
instructions? |
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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 amendment to our
certificate of incorporation to increase the number of
authorized shares of voting common stock from 80,000,000 to
240,000,000, and (3) in accordance with the best judgment
of the named proxies on any other matters properly brought
before the meeting. |
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Q. |
Will my shares be voted if I do not provide my proxy
instruction form? |
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A. |
If you are a registered stockholder and do not provide a proxy,
you must attend the meeting in order to vote your shares. If you
hold shares through an account with a bank or broker, your
shares may be voted even if you do not provide voting
instructions on your instruction form. Brokerage firms have the
authority under New York Stock Exchange rules to vote shares for
which their customers do not provide voting instructions on
certain routine matters. The election of directors
and the amendment to our certificate of incorporation are
considered routine matters for which brokerage firms may vote
without specific instructions. |
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May stockholders ask questions at the meeting? |
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Yes. Our representatives will answer 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. |
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Q. |
How many votes must be present to hold the meeting? |
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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. In order for us to conduct our meeting, a majority of our
outstanding shares of common stock as of March 20, 2006
must be present in person or by proxy at the meeting
(23,500,714 shares). This is referred to as a quorum.
Abstentions and broker non-votes will be counted for purposes of
establishing a quorum at the meeting. |
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Q. |
How many votes are needed to approve UnitedAutos
proposals? |
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A. |
Regarding proposal 1, the nominees receiving the highest
number of For votes will be elected as directors.
This number is called a plurality. Shares not voted, whether by
marking Abstain on the proxy card or otherwise, will
have no impact on the election of directors. Regarding
proposal 2, the affirmative vote of holders of a majority
of the outstanding shares of common stock
(23,500,714 shares) will be required for approval of the
amendment to our certificate of incorporation and abstentions
and broker non-votes will have the effect of voting against the
proposal. |
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Q. |
What is UnitedAutos policy regarding director
attendance at the annual meeting? |
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A. |
We encourage all of our directors to attend the annual meeting.
In 2005, all of our directors attended the annual meeting. |
2
PROPOSAL 1 ELECTION OF DIRECTORS
Proposal 1 to be voted on at the annual meeting is the
election of the following twelve director nominees, each of whom
is recommended by our Nominating and Corporate Governance
Committee and Board of Directors. If elected, each of these
nominees will be elected to serve a one-year term and will be
subject to re-election at next years annual meeting.
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 Party Transactions
for a description of this stockholders agreement.
Our Board of Directors Recommends a Vote FOR Each
of The Following Nominees:
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John D. Barr
CEO, Papa Murphys International, Inc. |
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Mr. Barr, 57, has served as a director since
December 2002. Mr. Barr has been the Chief Executive
Officer of Papa Murphys International, Inc., a
take-and-bake pizza chain, since April 2005 and its Vice
Chairman since July 2004. 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
Ashland, Inc., where he was President and Chief Executive
Officer from 1987 to 1995. Mr. Barr is a director of
Performance Transportation Systems, Inc., Clean Harbors, Inc.,
James Hardie Industries, NV and UST, Inc. |
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Michael R. Eisenson
Managing Director and CEO of Charlesbank Capital
Partners, L.L.C |
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Mr. Eisenson, 50, has served as a director since
December 1993. He is a Managing Director and CEO of Charlesbank
Capital Partners L.L.C., 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 Catlin
Group Limited, Playtex Products, Inc. and Xenogen Corporation,
as well as a number of private companies. |
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Hiroshi Ishikawa
Executive Vice President
International Business Development of UnitedAuto |
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Mr. Ishikawa, 43, has served as a director since May
2004 and our Executive Vice President International
Business Development since June 2004. Previously,
Mr. Ishikawa served as the President of Mitsui Automotive
North America, Inc. from June 2003 to May 2004. From October
2001 to May 2003, Mr. Ishikawa served as Vice President,
Secretary & Treasurer for Mitsui Automotive North
America, Inc. From March 1997 to October 2001, Mr. Ishikawa
served as the Assistant General Manager, Machinery &
Automotive Department, of Mitsui & Co. (U.S.A.), Inc.
Detroit Office. |
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Robert H. Kurnick, Jr.
Vice Chairman of UnitedAuto |
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Mr. Kurnick, Jr., 44, has served as our Vice
Chairman since March 8, 2006. From February 2000 until
March 2006, Mr. Kurnick served as our Executive Vice
President and General Counsel. Since January 2003,
Mr. Kurnick has served as President of Penske Corporation.
Employed by Penske Corporation since January 1995,
Mr. Kurnick has served in various capacities, including
Executive Vice President of Penske Corporation and General
Counsel of Penske Capital Partners, LLC, from August 1999 to
December 2002. Mr. Kurnick is also a director of Penske
Corporation. |
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William J. Lovejoy
Manager of Lovejoy & Associates |
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Mr. Lovejoy, 65, has served as a director since
March 2004. Since September 2003, Mr. Lovejoy has served as
Manager of Lovejoy & Associates, an automotive
consulting firm. From January 2000 until December 2002,
Mr. Lovejoy served as Group Vice President, North |
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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. |
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Kimberly J. McWaters
CEO of Universal Technical Institute, Inc. |
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Ms. McWaters, 41, has served as a director since
December 2004. Since October 2003, 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 February 2000, Ms. McWaters has 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. |
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Eustace W. Mita
Chairman of Achristavest Properties, LLC |
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Mr. Mita, 51, has served as a director since August
1999. Since October 2002, Mr. Mita has been chairman of
Achristavest Properties, LLC, a developer of waterfront
properties in New Jersey, Maryland and Pennsylvania, and CEO of
Mita Management, L.L.P., a closely held company with interests
in the automotive and real estate industries. From April 2000
until October 2001, Mr. Mita served as the Executive Vice
President of The Reynolds and Reynolds Company and had been
General Manager of Reynolds Transformation Services since May
2000. Prior thereto, Mr. Mita served as President and Chief
Executive Officer of HAC Group, LLC, an automobile training and
consulting company with operations in nineteen countries, which
was acquired by The Reynolds and Reynolds Company in 2000. In
1994, Mr. Mita founded Mita Leasing, a unique concept in
automotive retailing and leasing, now celebrating its 20th
anniversary. Mr. Mita is also a director of The Reynolds
and Reynolds Company and a founding director of First Republic
Bank. |
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Lucio A. Noto
Retired Vice Chairman of ExxonMobil Corporation |
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Mr. Noto, 67, 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 International Business Machines
Corporation, the Altria Group, Inc. and Shinsei Bank.
Mr. Noto is a member of the Temasek Technologies
(Singapore) International Advisory Counsel. |
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Roger S. Penske
Chairman of the Board and CEO of UnitedAuto and
Penske Corporation |
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Mr. Penske, 69, 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. Penske
Corporation is a privately owned diversified transportation
services company that holds, through its subsidiaries, interests
in a number of businesses. 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 Internet Brands, Inc., a private company offering
online retail services, General Electric Company, and Universal
Technical Institute. Mr. Penske also is a director of
Detroit Renaissance and a member of The Business Council. |
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Richard J. Peters
Managing Director of Transportation Resource Partners, LP |
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Mr. Peters, 58, has served as a director since May
1999. Since January 2003, Mr. Peters has been a Managing
Director of Transportation Resource Partners. From January 2000
to December 2002, Mr. Peters was President of Penske
Corporation. Since 1997, Mr. Peters has also served as
President and CEO of R.J. Peters & Company, LLC, a
private investment company. Mr. Peters has also served as
an officer and director of various subsidiaries of Penske
Corporation since 1990. Mr. Peters has been a member of the
Board of Directors of Penske Corporation since 1990. |
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Ronald G. Steinhart
Retired Chairman and CEO, Commercial Banking Group, Bank
One Corporation |
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Mr. Steinhart, 65, has served as a director since
March 2001. Mr. Steinhart served as Chairman and CEO,
Commercial Banking Group, of Bank One Corporation from December
1996 until his retirement in January 2000. From January 1995 to
December 1996, Mr. Steinhart was Chairman and CEO of Bank
One, Texas, N.A. Mr. Steinhart joined Bank One in
connection with its merger with Team Bank, which he founded in
1988. Mr. Steinhart also serves as a Trustee of the MFS/
Compass Group of mutual funds. |
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H. Brian Thompson
Chairman of Comsat International |
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Mr. Thompson, 67, has served as a Director since
March 2002. Mr. Thompson is currently Chairman of Comsat
International, a telecommunications services provider, and heads
his own private equity investment and advisory firm, Universal
Telecommunications, Inc., in Vienna, Virginia. Mr. Thompson
is also the Chairman and CEO of Mercator Partners Acquisition
Corporation, a publicly traded blank check company
formed in January 2005 as an acquisition vehicle for an
operating business. Mr. Thompson was previously Chairman
and CEO of Global TeleSystems Group, Inc. from March 1999
through September 2000. From 1991 to 1998, Mr. Thompson
served as Chairman and CEO of LCI International. Subsequent to
the merger of LCI with Qwest Communications International Inc.
in June 1998, Mr. Thompson became Vice Chairman of the
Board for Qwest until his resignation in December 1998.
Mr. Thompson was Chairman of the Irish telephone company,
Telecom Eirann, in 1999 and Executive Vice President of MCI
Communications Corporation from 1981 to 1990. Mr. Thompson
currently serves as a member of the Board of Directors of
Axcelis Technologies, Inc., Bell Canada International Inc., and
Sonus Networks, Inc. |
5
PROPOSAL 2
AMENDMENT TO CERTIFICATE OF INCORPORATION TO INCREASE
AUTHORIZED
SHARES OF VOTING COMMON STOCK FROM 80,000,000 TO
240,000,000
Our certificate of incorporation (the Certificate)
presently authorizes the issuance of 107,225,000 shares
consisting of 80,000,000 shares of voting common stock, par
value $.0001 per share; 7,125,000 shares of non-voting
common stock, par value $.0001 per share; 20,000,000 shares
of class C common stock, par value $.0001 per share;
and 100,000 shares of preferred stock, par value
$.0001 per share. The Board of Directors has determined
that the Certificate should be amended to increase the number of
authorized shares of our voting common stock from 80,000,000 to
240,000,000, and has unanimously approved, subject to
stockholder approval, an amendment to our Certificate to effect
this increase.
As of March 20, 2006, we had about 47,000,000 shares
of voting common stock issued and outstanding; about
2,653,000 shares of voting common stock held in treasury;
about 2,100,000 shares of voting common stock reserved for
issuance upon the award of restricted stock or the exercise of
options or other equity awards under our equity compensation
plans, and about 7,900,000 shares of voting common stock
reserved for issuance upon conversion of our 3.5% convertible
senior subordinated notes due 2026. This leaves a total of about
23,000,000 shares of voting common stock available for
future issuance or reservation. There are no shares of
non-voting, class C or preferred stock outstanding.
The Board of Directors believes that an increase in the number
of authorized shares of voting common stock is necessary to
provide UnitedAuto with additional financial flexibility to meet
its future business needs. If the proposed amendment is approved
by our stockholders, we will have additional shares available
for acquisitions, financings, stock option plans, stock
dividends or stock splits, the reduction of indebtedness and
other corporate purposes. The additional shares would be
available for issuance without further stockholder approval,
except as may be required by applicable law or the rules of the
New York Stock Exchange. Other than as permitted or required
under our equity compensation plans or the indenture governing
our 3.5% convertible senior subordinated notes, we have no plans
or other existing or proposed agreements or understandings to
issue or reserve for further issuance the additional shares of
voting common stock.
If and when issued, the newly authorized shares of voting common
stock would have the same rights and privileges as the shares of
voting common stock currently authorized. The number of
authorized shares of non-voting common stock, class C
common stock and preferred stock would not be affected by the
proposed amendment.
The issuance of additional shares of voting common stock could
have a dilutive effect on earnings per common share and on the
equity and voting power of those holding shares of voting common
stock at the time of issuance, as our stockholders do not have
preemptive rights. In addition, the proposed amendment could
have an anti-takeover effect, as additional shares of voting
common stock could be issued to dilute the stock ownership and
voting power of, or increase the cost to, a person seeking to
obtain control of UnitedAuto. However, the proposed amendment is
not being proposed for such purposes and is not in response to
any known effort to accumulate shares of common stock or obtain
control of UnitedAuto.
The text of the proposed amendment to our Certificate is
attached as Annex A.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
PROPOSED
AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO INCREASE
THE
AUTHORIZED SHARES OF VOTING COMMON STOCK FROM 80,000,000 TO
240,000,000.
6
THE BOARD OF DIRECTORS AND ITS COMMITTEES
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Compensation & |
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Nominating & |
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Management |
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Corporate |
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Audit |
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Development |
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Governance |
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Executive |
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John D. Barr
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Michael R. Eisenson
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James A. Hislop
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Hiroshi Ishikawa
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William J. Lovejoy
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Kimberly J. McWaters
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Eustace W. Mita
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Lucio A. Noto
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Roger S. Penske
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Richard J. Peters
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Ronald G. Steinhart
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H. Brian Thompson
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X |
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X |
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No. of Meetings 2005
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6 |
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14 |
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5 |
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0 |
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Our Board of Directors has four standing committees: the Audit
Committee, the Compensation and Management Development
Committee, the Executive Committee and the Nominating and
Corporate Governance Committee. The Board of Directors approved
a charter for each of the Audit, Compensation and Management
Development, and Nominating and Corporate Governance committees,
which charters are available on our website, www.unitedauto.com
under the tab Corporate Governance. In addition, our
Audit Committee charter is attached hereto as Annex B. The
principal responsibilities of each committee are described
below. All of our directors attended over 83% of our board and
committee meetings in 2005 and the average attendance was 95%.
Audit Committee. The purpose of this committee is to
assist the Board of Directors in fulfilling its oversight
responsibility relating to (i) the integrity of our
financial statements and financial reporting process and our
systems of internal accounting and financial controls;
(ii) the performance of the internal audit function;
(iii) the annual independent audit of our financial
statements, the engagement of the independent registered public
accounting firms and the evaluation of the independent
registered public accounting firms qualifications,
independence and performance; and (iv) the fulfillment of
the other responsibilities set out in the Audit Committee
Charter. The Board of Directors has confirmed that all members
of the Audit Committee are independent and
financially literate under the 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.
Compensation and Management Development Committee. The
purpose of this committee is to assist the Board of Directors in
discharging its responsibility relating to compensation of our
directors, executive officers and such other employees as this
committee may determine, succession planning and related
matters. Each committee member is independent under New York
Stock Exchange rules and our more stringent guidelines for
director independence.
Executive Committee. Our Executive Committees
primary function is to assist our Board of Directors by acting
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. This Committee did not
meet in 2005.
Nominating and Corporate Governance Committee. The
purpose of this committee is to identify individuals qualified
to become members of the Board of Directors, to recommend
Director nominees for each annual meeting of stockholders and
nominees for election to fill any vacancies on the Board of
Directors and to address related matters. This committee also
develops and recommends to the Board of Directors corporate
7
governance principles and is responsible for leading the annual
review of our corporate governance policies and the Board of
Directors performance. Each of the Committee members is
independent under New York Stock Exchange rules and our more
stringent guidelines for director independence.
Corporate Governance Guidelines. The Nominating and
Corporate Governance Committee also makes recommendations
concerning our corporate governance guidelines, which are posted
on our website, www.unitedauto.com, under the tab
Corporate Governance. These guidelines, and the
other documents referenced in this section, are also available
in print to any stockholder who requests them by calling our
investor relations department at 248-648-2500.
Lead Director. One of our governance principles is that
we have a Lead Director, who is responsible for
coordinating the activities of the other outside Directors,
including the establishment of the agenda for executive sessions
of the outside Directors, and who shall preside at their
meetings. These sessions generally occur as part of each Board
meeting and include, at least annually, a session comprised of
only our independent directors. Our Lead Director is currently
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 Secretarys office and all
(other than frivolous messages) will be forwarded to the Lead
Director. Any written communications to the Board of Directors
may be sent care of the Corporate Secretary to our principal
executive office. These communications (other than frivolous
messages) also will be forwarded to the Lead Director.
Code of Conduct. We have also adopted a Code of Business
Conduct and Ethics, applicable to all of our employees and
directors, which is posted on our website at www.unitedauto.com
under the tab Corporate Governance. We plan to
disclose waivers for our executive officers or directors from
the code on our website, www.unitedauto.com.
Director Independence. A majority of our Board of
Directors is independent. The Board of Directors has determined
that Ms. McWaters and Messrs. Barr, Eisenson, Lovejoy,
Mita, Steinhart and Thompson are each independent in accordance
with the listing requirements of the New York Stock Exchange, as
well as with the more stringent requirements of our guidelines
for independent directors found in our corporate governance
guidelines and which are set forth below. As required by New
York Stock Exchange rules, our Board of Directors made an
affirmative determination as to each independent director that
no material relationship exists which, in the opinion of the
Board of Directors, would interfere with the exercise of
independent judgment in carrying out the responsibilities of a
director. In making these determinations, the Board of Directors
reviewed and discussed information provided by the directors and
us with regard to each directors business and personal
activities as they may relate to us and our management.
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 (including any parent or subsidiary in a
consolidated group with us). In addition to applying these
guidelines, the Board of Directors considers all relevant facts
and circumstances in making an independence determination, and
not merely from the standpoint of the director, but also from
that of persons or organizations with which the director has an
affiliation.
Under our guidelines, a director will not be independent if:
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1. |
the director is employed by us, or an immediate family member is
one of our executive officers; |
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2. |
the director receives any direct compensation from us, other
than director and committee fees and forms of deferred
compensation for prior service (provided such compensation is
not contingent in any way on continued service); |
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3. |
the director is affiliated with or employed by our independent
registered public accounting firms (or internal auditors), or an
immediate family member is affiliated with or employed in a
professional capacity by our independent registered public
accounting firms (or internal auditors); or |
8
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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. |
A director also will not be independent if, at the time of the
independence determination, 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. Furthermore, a director will
not be independent if, at the time of the independence
determination, the director is an executive officer or employee,
or an immediate family member is an executive officer, of
another company that is indebted to us, or to which we are
indebted, and the total amount of either companys
indebtedness to the other at the end of the last completed
fiscal year is more than one percent of the other companys
total consolidated assets. Finally, a director will not be
independent if, at the time of the independence determination,
the director serves as an officer, director or trustee of a
charitable organization, and our charitable contributions to the
organization are more than one percent of that
organizations total annual charitable receipts during its
last completed fiscal year.
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 and its affiliates, and
Mitsui & Co. and its 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. A majority of our
Board of Directors is independent and each of our nominating,
audit and compensation committees are comprised solely of
independent directors.
Director Nominees. The Nominating and Corporate
Governance Committee believes that director candidates should
have certain minimum qualifications, including having personal
integrity, loyalty to UnitedAuto and concern for its success and
welfare, willingness to apply sound and independent business
judgment and time available for UnitedAuto 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 UnitedAuto, willingness to
contribute special competence to board activities,
accomplishments within the directors respective field and
experience reading and understanding financial statements. The
Nominating and Corporate Governance Committee retains the right
to modify these qualifications from time to time.
The Nominating and Corporate Governance Committees process
for identifying and evaluating nominees is as follows: in the
case of incumbent directors whose terms of office are set to
expire, the Committee reviews such directors overall
service to UnitedAuto during their term. In the case of new
director candidates, the Committee uses its network of contacts
to compile potential candidates, but may also engage, if it
deems appropriate, a professional search firm. The Committee
determines whether the nominee would be independent. The
Committee then meets with each candidate individually to discuss
and consider his or her qualifications and, if approved,
recommends the candidate to the Board.
The Nominating and Corporate Governance Committee will consider
director candidates recommended by stockholders. Stockholder
proposals for nominees should be addressed to Corporate
Secretary, United Auto Group, 2555 Telegraph Road,
Bloomfield Hills, MI 48302 and must comply with the procedures
outlined immediately below. The committees evaluation of
stockholder-proposed candidates will be the same as for any
other candidates.
Stockholders who wish to recommend individuals for consideration
by the committee to become nominees for election to the Board
may do so by submitting a written recommendation to the
Corporate Secretary. Submissions must include sufficient
biographical information concerning the recommended individual,
including age, employment history with employer names and a
description of the employers business, whether such
individual can read and understand basic financial statements
and a list of board memberships and other affiliations of the
nominee. The submission must be accompanied by a written consent
of the individual to stand for election and serve if elected by
the stockholders, a statement of any relationships
9
between the person recommended and the person submitting the
recommendation, and a statement of any relationships between the
candidate and any automotive retailer, manufacturer or supplier.
Recommendations received by December 3, 2006, will be
considered for nomination at the 2007 annual meeting of
stockholders. Recommendations received after December 3,
2006, will be considered for nomination at the 2008 annual
meeting of stockholders.
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. Only directors who are
not our paid employees, who we call Outside
Directors, are eligible for director compensation, unless
otherwise noted. Each Outside Director receives an annual
retainer of $40,000, except for Audit Committee members, who
receive $45,000. These fees are payable, at the option of each
Outside Director, in cash or common stock. Our Outside Directors
also receive an annual grant of 1,000 shares of restricted
stock generally in the first quarter. These restricted shares
vest ratably and annually over three years.
Under our Non-Employee Director Compensation Plan, the annual
retainer and restricted stock awards may be deferred in either
the form of cash (for the annual retainer) and/or deferred stock
units. Each deferred stock unit is equal in value to a share of
common stock and ultimately paid in cash after a director
retires. These stock units do not have voting rights, but do
generate dividend equivalents in the form of additional stock
units and are credited to the directors account on the
date the dividends are paid. Any fees deferred in cash will be
held in our general funds. Interest on deferred fees is credited
quarterly to the account at the then current U.S. 90 day
Treasury Bill rate.
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. Each
Outside Director also is entitled to the use of a vehicle (and
company-sponsored automobile insurance relating to that
vehicle), the cost of which averaged about $16,200 per Outside
Director in 2005. All directors are 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.
Outside Directors are also eligible to participate in a
charitable matching gift program. Under this program, we will
match up to $25,000 per year in contributions by the Outside
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 Outside Directors, we retain the tax deduction
for these contributions. We contributed $122,500 under this
program in 2005.
We have ten Outside Directors and two employee directors.
Directors who are also our employees receive no cash
compensation for serving as directors or as members of
committees. In July 2005, Roger Penske and Hiroshi Ishikawa were
granted 18,663 and 1,000 shares, respectively, of restricted
common stock in their capacity as our officers.
Compensation Committee Interlocks and Insider Participation.
During 2005, the Compensation and Management Development
Committee was comprised of H. Brian Thompson (Chairman) and
William Lovejoy. Neither of these members had any compensation
committee interlocks.
10
EXECUTIVE OFFICERS
Our named 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. A brief biography of Messrs. Kurnick
and Penske are set forth above. Brief biographies of our other
named executive officers are provided below.
James R. Davidson, 60, has served as our Executive
Vice President Finance since May 1999, as our
Executive Vice President Accounting and Treasurer
from August 1997 to May 1999, and as our Senior Vice
President Finance from February 1997 to August 1997.
Prior to joining us, Mr. Davidson was an audit partner for
Ernst & Young LLP, an accounting and financial advisory
services firm, which he joined in 1973.
Robert T. OShaughnessy, 40, has served as
our Senior Vice President Finance since July 2005.
From August 1999 until July 2005, he served as our Vice
President and Controller. Prior to
Mr. OShaughnessys joining us in May 1997 as
Assistant Controller, he was a senior manager for
Ernst & Young LLP, an accounting and financial advisory
services firm, which he joined in 1987.
Paul F. Walters, 62, has served as our Executive
Vice President Human Resources since August 1999.
Since July 1997, Mr. Walters has also served as Executive
Vice President Administration of Penske Corporation.
Mr. Walters served as Senior Vice President of Detroit
Diesel Corporation from August 1997 to December 2000.
REPORT OF THE COMPENSATION AND MANAGEMENT
DEVELOPMENT COMMITTEE ON EXECUTIVE COMPENSATION
Our Compensation and Management Development Committees
responsibilities include establishing our policies regarding the
compensation of our executive officers and other key employees.
The committee reviews all elements of compensation for our
executive officers and is responsible for the administration of
our incentive equity plans. The committee is comprised only of
independent directors as set forth in the listing requirements
of the New York Stock Exchange, as well as in the more stringent
requirements of our corporate governance guidelines. The members
of the committee also qualify as non-employee
directors within the meaning of Rule 16b-3 of the
Securities Exchange Act and as outside directors
within the meaning of Section 162(m) of the Internal
Revenue Code.
Compensation Program Objectives. Our compensation program
consists of:
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base salary; |
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annual bonus payment; |
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annual equity-based award; and |
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employee health care and other benefits, such as the use of a
company vehicle. |
The objectives of our compensation program are to motivate and
reward our executive officers and other key employees, to
improve long-term stockholder value and to attract and retain
the highest quality executive and key employee talent available.
Our executive compensation program is designed to align
executive compensation practices with increasing the value of
our common stock and to promote our business mission, values,
strategic goals and annual objectives.
Determination of Amounts. The committee reviews and
determines all aspects of compensation for our chief executive
officer. The committee also reviews and establishes appropriate
compensation parameters for management given their role in the
corporate structure. In making decisions regarding non-CEO
compensation, the committee receives input from our Chief
Executive Officer. The committee reviews annual increases or
decreases with a view to maintaining internal compensation
consistency and external compensation competitiveness. External
competitiveness is benchmarked against other publicly traded
automotive retailers, and in some cases, other large automotive
and other retailers. The committee does not employ outside
consultants to recommend compensation levels (though it retains
the authority to do so).
11
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Base Salary. We pay base salary to set a baseline level
of compensation for all employees. The salary levels for our
executive officers are determined by level of job responsibility
and experience, job performance and attainment of corporate
objectives. The committee reviews and recommends salary levels
for executive officers and certain key employees in order to
maintain internal compensation consistency, external
compensation competitiveness and to reflect the contributions by
those employees in the prior year. In making its
recommendations, the committee considers the executives
scope of responsibilities, level of experience and individual
performance, as well as the Companys achievement of
corporate objectives, performance verses the business plan and
general economic factors. |
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Annual Bonus Payments. Each member of our senior
management is eligible to receive an annual bonus payment. We
pay annual bonuses to provide an incentive for future
performance and as a reward for prior years performance.
Since the annual bonus is based in part on our company-wide
performance, we believe the annual bonus also focuses employees
on our corporate goals designed to increase stockholder value.
The committee reviews and recommends bonus payouts for our
executive officers and certain other key employees based in part
on managements and the committees evaluation of
individual performance in the prior year and the assessment of
the annual performance of an individuals business unit.
Also considered are the previous years company-wide
performance and the attainment of corporate earnings goals. |
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Equity Incentives. The committee believes strongly that
the interests of senior management must be closely aligned with
those of our stockholders. Therefore, each member of senior
management is eligible to receive an incentive equity award
because we believe equity grants most effectively align
managements goals with those of our other stockholders. In
2005, we continued to issue incentive compensation for our
senior management team in the form of restricted stock. In
recent years, we have extended the vesting period of our
restricted stock grants to four years and weighted the vesting
so that a majority of the award vests in the third and fourth
years. We believe this provides a long-term incentive and more
closely aligns the incentives for management with the interests
of our long-term stockholders. |
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We typically grant restricted stock annually on a discretionary
basis within a guideline range that takes into account the
responsibilities of executive officers and key employees whose
contributions and skills are important to our long-term success.
Individual performance of each recipient is reviewed by
management in its recommendation of awards to the committee.
Annual awards are based on the evaluation of each persons
individual performance in the prior year and the assessment of
the annual performance of that persons business unit. In
2005, the committee granted approximately 171,000 shares of
restricted stock to our management group, some of which has
reverted back to us as employees have departed from UnitedAuto.
From time-to-time, the committee also approves special equity
awards based on an employees outstanding contributions or
other factors. |
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Employee Benefits. We provide our employees with other
benefits in order to attract and retain highly skilled
employees. Our employees generally are entitled to a number of
benefits such as corporate contribution toward health benefits
and corporate paid life insurance. In addition, senior
management is provided the use of a company vehicle,
company-sponsored automobile insurance, and a tax gross-up
relating to these amounts. We provide senior management with
company vehicles for retention, but also to familiarize them
with the vehicles we sell. With respect to health benefits, the
committee believes that our employees should receive a
meaningful benefit package commensurate with those of other
automotive retailers, recognizing the increasing corporate cost
of those benefits in recent years. |
Management Incentive Plan. Section 162(m) of the
Internal Revenue Code of 1986, as amended, generally imposes a
$1,000,000 per year ceiling on tax-deductible remuneration paid
to any one of the five most highly compensated executive
officers of a publicly held corporation, unless the remuneration
is treated as performance-based or is otherwise exempt from the
provisions of Section 162(m). In 2004, our stockholders
approved the United Auto Group Management Incentive Plan,
designed to provide for the payment of performance-based
compensation that is qualified within the meaning of
Section 162(m) of the Internal Revenue Code and that we may
deduct for tax purposes. From time-to-time, the committee has
approved awards under the plan, including to our Chief Executive
Officer. While the committee intends to
12
maximize the tax-efficiency of its compensation programs
generally, it retains flexibility in the manner in which it
awards compensation to act in our best interests and the best
interests of our stockholders, including awarding compensation
that may not be tax deductible.
Other Forms of Compensation. The committee has also
reviewed various other forms of executive compensation for our
management. The committee is currently of the view that salary,
bonus and restricted stock awards should provide the principal
components of management compensation and these forms of
compensation best align managements goals with those of
our stockholders. Therefore, after review, the committee has
determined not to issue or grant any executive any stock
options, deferred compensation in the form of a deferral of
salary or bonus, or retirement benefit (other than under our all
employee 401(k) plan). The committee considers the advisability
of these additional types of compensation periodically and
retains the flexibility to implement other forms of compensation
in the future. For these reasons, our executive officers are
also not entitled to any severance compensation, except as
disclosed under Executive Compensation-Employment
Contracts or upon the potential vesting of certain
outstanding equity awards.
Chief Executive Officer. In 2005, we substantially
increased our revenues and income from continuing operations
from 2004 levels. We successfully acquired numerous dealerships,
improved our brand mix and made significant strides toward
integrating those operations into our business. We made
significant progress toward increasing the performance of our
fixed operations, improving store appearances and developing
dealership campuses. We also continued our significant
same-store sales growth and we are the only U.S.-based
automotive retailer with a substantial number of dealerships
outside the U.S.
In determining the compensation of Mr. Penske, the
committee considered these factors and also monitors the
compensation and performance of our peer companies. The
committee also considered UnitedAutos relative stockholder
return and previous years compensation. For these reasons,
the committee recommended an increase in Mr. Penskes
base salary. However, for the second consecutive year,
Mr. Penske declined the salary increase in order to more
closely align his total compensation to the performance of our
common stock and the interests of our shareholders. Therefore,
the committee maintained Mr. Penskes base salary at
$750,000. In March 2006, the Committee awarded Mr. Penske a
cash bonus of $1,000,000, as well as 23,073 shares of restricted
stock valued at $1,000,000 based on the closing price on the New
York Stock Exchange on the date of approval ($43.34). The bonus
was based on our strong financial performance including our
strong same-store sales growth, growth in earnings per share,
and return on equity, as well as operational performance, such
as achievements in reducing employee turnover and customer
satisfaction. While the committee believes that Mr. Penske
has made outstanding efforts towards our successes noted above,
it has noted that Mr. Penskes compensation is
generally on par or less than those of our peer companies
chief executive officers. Mr. Penske does not participate
in the approval of his own compensation.
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The Compensation & Management Development |
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Committee of the Board of Directors |
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H. Brian Thompson (Chairman) |
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William J. Lovejoy |
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Eustace W. Mita |
13
EXECUTIVE COMPENSATION
The following table contains information concerning annual and
long-term compensation for the years indicated of our chief
executive officer and each of our four other most highly
compensated executive officers during 2005, collectively
referred to as the named executive officers.
Summary Compensation Table
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Long Term Compensation |
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Annual Compensation |
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Awards |
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Other Annual |
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Restricted |
Name and Principal Position |
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Year |
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Salary($) |
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Bonus($) |
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Compensation($) |
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Stock Awards (1)(2)($) |
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Roger S. Penske
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2005 |
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750,000 |
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1,000,000 |
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601,700 |
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Chief Executive Officer |
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2004 |
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750,000 |
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900,000 |
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225,825 |
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2003 |
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750,000 |
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1,000,000 |
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225,625 |
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Samuel X. DiFeo
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2005 |
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400,000 |
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100,000 |
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57,236 |
(5) |
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112,840 |
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President and Chief |
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2004 |
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400,000 |
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200,000 |
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116 |
(4) |
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105,385 |
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Operating Officer |
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2003 |
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400,000 |
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200,000 |
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552 |
(4) |
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135,375 |
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James R. Davidson
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2005 |
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480,000 |
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320,000 |
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28,783 |
(5) |
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96,720 |
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Executive Vice President |
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2004 |
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465,000 |
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320,000 |
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20,734 |
(5) |
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90,330 |
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Finance |
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2003 |
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450,000 |
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300,000 |
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15,169 |
(5) |
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108,300 |
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Robert H. Kurnick, Jr.
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2005 |
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309,150 |
(3) |
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12,695 |
(6) |
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161,200 |
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Executive Vice President |
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2004 |
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265,000 |
(3) |
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9,276 |
(6) |
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90,330 |
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and General Counsel |
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2003 |
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239,250 |
(3) |
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108,300 |
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Paul F. Walters
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2005 |
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288,895 |
(3) |
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96,720 |
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Executive Vice President |
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2004 |
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445,000 |
(3) |
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90,300 |
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Human Resources |
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2003 |
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427,500 |
(3) |
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108,300 |
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(1) |
Represents the value of the award based on the closing price of
our common stock on the date of grant. The restricted stock
awarded on July 1, 2004 and July 12, 2005 vests
annually over four years at a rate of 15%, 15%, 20% and 50%. The
restricted stock awarded on May 16, 2003 vests ratably and
annually over three years. We pay dividend equivalents on our
outstanding and unvested restricted stock. The aggregate total
number and value of restricted stock holdings as of
December 31, 2005, based on the market closing price of
$38.20 on such date, for our named executive officers was as
follows: Roger S. Penske: 29,204 shares ($1,115,600),
Samuel X. DiFeo: 8,975 shares ($342,845),
Robert H. Kurnick, Jr.: 9550 shares ($364,810), and
each of James Davidson and Paul F. Walters:
7,550 shares ($288,410). |
|
(2) |
The awards in the 2005 rows were received on July 12, 2005.
In March 2006, we awarded each executive officer the following
amounts of restricted stock (based on a closing price on
March 7, 2006 of $43.34 per share) relating to performance
in 2005: Roger S. Penske: 23,073 shares ($1,000,000);
Samuel X. DiFeo: 1,000 shares ($43,270); each of
James R. Davidson and Paul F. Walters:
3,000 shares ($129,810); and Robert H. Kurnick, Jr.:
5,000 shares ($216,350). |
|
(3) |
Messrs. Kurnick and Walters are paid directly by Penske
Corporation. The amounts shown reflect that portion of the
compensation of Messrs. Kurnick and Walters that was paid
by us to Penske Corporation. |
|
(4) |
Represents tax allowance for life insurance sponsored by us as
part of our Company wide plan. Mr. DiFeo used multiple
company vehicles in the ordinary course of his employment, which
use cannot be measured. |
|
(5) |
Represents the use of and tax allowance for a company vehicle
and related automobile insurance, and life insurance sponsored
by us as part of our company-wide plan. Of the $57,236
identified for Mr. DiFeo in 2005, $33,865 represents use of
an automobile, $22,339 represents a tax allowance and $1,032
represents life insurance. |
|
(6) |
Represents an allowance for a company vehicle. |
14
Option Grants
We did not grant any options to purchase common stock during
2005 to our named executive officers.
Aggregated Option Exercises in 2005 and Year-End Option
Values
The following table sets forth information concerning the number
and value of options held by our named executive officers on
December 31, 2005, and 2005 option exercises.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities |
|
|
|
|
|
|
|
|
Underlying Unexercised |
|
Value of Unexercised In the |
|
|
Number of |
|
|
|
Options at Fiscal |
|
Money Options at Fiscal |
|
|
Shares |
|
|
|
Year End (#) |
|
Year End ($)(1) |
|
|
Acquired upon |
|
Value |
|
|
|
|
Name |
|
Exercise(#) |
|
Realized($) |
|
Exercisable |
|
Unexercisable |
|
Exercisable |
|
Unexercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
Roger S. Penske
|
|
|
|
|
|
|
|
|
|
|
460,000 |
|
|
|
|
|
|
|
12,758,650 |
|
|
|
|
|
Samuel X. DiFeo
|
|
|
|
|
|
|
|
|
|
|
180,000 |
|
|
|
|
|
|
|
3,972,650 |
|
|
|
|
|
James R. Davidson
|
|
|
|
|
|
|
|
|
|
|
7,334 |
|
|
|
|
|
|
|
126,512 |
|
|
|
|
|
Robert H. Kurnick, Jr.
|
|
|
25,000 |
|
|
|
392,490 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul F. Walters
|
|
|
|
|
|
|
|
|
|
|
20,000 |
|
|
|
|
|
|
|
482,825 |
|
|
|
|
|
|
|
(1) |
The closing price of our common stock on December 31, 2005
was $38.20. |
Employment Contracts
Mr. DiFeo served as our President and Chief Operating
Officer until March 8, 2006, at which time he retired from
those offices. The following is a description of
Mr. DiFeos employment agreement as previously in
effect. Pursuant to the agreement, as amended, if
Mr. DiFeos employment were terminated as a result of
death, Mr. DiFeos estate was entitled to receive any
accrued salary and bonus and a cash payment of
$0.8 million. If Mr. DiFeo were terminated without
cause as defined in the agreement or for various
reasons outlined in the agreement, including his resignation
upon a change of control or his termination within six months of
a change of control other than for cause, Mr. DiFeo was
entitled to these same payments, as well as the benefit of a
consulting agreement. While a consultant, Mr. DiFeo is
entitled to compensation of $0.4 million per year, plus use
of an automobile, reimbursement of expenses incurred on behalf
of us and health benefits comparable to those available to our
management. The agreement prohibits Mr. DiFeo from seeking
or obtaining employment in the automotive industry while the
consulting agreement is in effect without our consent, which
consent shall not be unreasonably withheld. We are not a party
to employment contracts with any of our current executive
officers.
15
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 20,
2006 by (1) each person known to us to own more than five
percent of our common stock, (2) each of our directors,
(3) our chief executive officer and other named executive
officers and (4) all of our directors and named executive
officers as a group.
Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission (the SEC)
and includes voting and investment power with respect to shares.
The percentage of ownership is based on 47,001,428 shares
of our common stock outstanding on March 20, 2006. Unless
otherwise indicated, each person identified in the table below
has sole voting and dispositive power with respect to the common
stock beneficially owned by that person.
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially |
|
|
Owned(1) |
|
|
|
Beneficial Owner |
|
Number |
|
Percent |
|
|
|
|
|
Penske Corporation(2)(3)(4)
|
|
|
19,069,282 |
|
|
|
40.6 |
% |
|
2555 Telegraph Road |
|
|
|
|
|
|
|
|
|
Bloomfield Hills, MI 48302-0954 |
|
|
|
|
|
|
|
|
Penske Capital Partners, L.L.C.(3)(4)
|
|
|
7,657,282 |
|
|
|
16.3 |
% |
|
One Harmon Plaza, Ninth Floor |
|
|
|
|
|
|
|
|
|
Secaucus, NJ 07094 |
|
|
|
|
|
|
|
|
Mitsui(5)
|
|
|
7,221,349 |
|
|
|
15.4 |
% |
|
2-1, Ohtemachi 1-chome, Chiyoda-ku |
|
|
|
|
|
|
|
|
|
Tokyo, Japan |
|
|
|
|
|
|
|
|
Dimension Fund Advisors, Inc.(6)
|
|
|
3,251,337 |
|
|
|
6.9 |
% |
|
1294 Ocean Avenue, 11th Floor |
|
|
|
|
|
|
|
|
|
Santa Monica, CA 90401 |
|
|
|
|
|
|
|
|
John D. Barr(7)
|
|
|
4,500 |
|
|
|
* |
|
Michael R. Eisenson
|
|
|
13,040 |
|
|
|
* |
|
James A. Hislop(8)
|
|
|
7,816,719 |
|
|
|
16.6 |
% |
Hiroshi Ishikawa
|
|
|
3,000 |
|
|
|
* |
|
Kimberly J. McWaters
|
|
|
2,462 |
|
|
|
* |
|
William J. Lovejoy(9)
|
|
|
5,000 |
|
|
|
* |
|
Eustace W. Mita
|
|
|
411,954 |
|
|
|
* |
|
Lucio A. Noto(10)
|
|
|
7,832 |
|
|
|
* |
|
Roger S. Penske(11)
|
|
|
19,329,914 |
|
|
|
41.1 |
% |
Richard J. Peters
|
|
|
52,380 |
|
|
|
* |
|
Ronald G. Steinhart
|
|
|
11,250 |
|
|
|
* |
|
H. Brian Thompson
|
|
|
16,015 |
|
|
|
* |
|
Samuel X. DiFeo(12)
|
|
|
301,700 |
|
|
|
* |
|
James R. Davidson(13)
|
|
|
22,566 |
|
|
|
* |
|
Robert H. Kurnick, Jr.
|
|
|
36,646 |
|
|
|
* |
|
Paul F. Walters(14)
|
|
|
44,466 |
|
|
|
* |
|
All directors and executive officers as a group (16 persons)
|
|
|
20,189,253 |
|
|
|
42.8 |
% |
|
|
(1) |
Pursuant to the regulations of the SEC, shares are deemed to be
beneficially owned by a person if such person
directly or indirectly has or shares the power to vote or
dispose of such shares. Each person is deemed to be the
beneficial owner of securities that may be acquired within sixty
days through the |
16
|
|
|
exercise of options, warrants, and rights, if any, and such
securities are deemed to be outstanding for the purpose of
computing the percentage of the class beneficially owned by such
person. |
|
|
(2) |
Penske Corporation is the beneficial owner of
11,154,021 shares of common stock, of which it has shared
power to vote and dispose together with a wholly owned
subsidiary, and the beneficial owner of up to
7,478,386 shares that are held by International Motor Cars
Group I, L.L.C. (IMCGI). This number will be
reduced in connection with each distribution of shares to Penske
Corporation by the number of shares representing any carried
interest attributable to the managing member pursuant to the
operating agreement of IMCGI. Penske Corporation also has shared
voting power over 436,875 shares under voting agreements.
Penske Corporation also has the right to vote the shares owned
by the Mitsui entities (see note 5) under certain
circumstances discussed under Certain Relationships and
Related Party Transactions. If these shares were deemed to
be beneficially owned by Penske Corporation, its beneficial
ownership would be 26,290,631 shares, or 56.0%. |
|
|
(3) |
Penske Capital, IMCGI, International Motor Cars Group II,
L.L.C. (IMCGII) and Penske Corporation each disclaim
beneficial ownership of the shares owned by the others that may
be deemed to exist. |
|
(4) |
Penske Capital has voting power with respect to
7,657,282 shares of common stock, consisting of
7,592,792 shares of common stock held by IMCGI and
64,490 shares of common stock held by IMCGII. Penske
Capital is the managing member of each of IMCGI and IMCGII. The
managing members of Penske Capital are Roger S. Penske and
James A. Hislop. Penske Capital is obligated to cause IMCGI
and IMCGII to make special distributions to each of their
members in connection with the sale of those securities by the
members. The non-managing member of IMCGI is Penske Corporation. |
|
|
(5) |
Represents 1,444,070 shares held by Mitsui & Co.,
(U.S.A.), Inc. and 5,777,279 shares held by
Mitsui & Co., Ltd. |
|
|
(6) |
Such information was reported on a Schedule 13G with the
SEC filed on February 6, 2006. |
|
(7) |
Mr. Barr also owns 1,000 deferred stock units which, in
accordance with SEC rules, are not reflected in the table. |
|
(8) |
Includes the 7,657,282 shares deemed to be beneficially
owned by Penske Capital. Mr. Hislop is a managing member of
Penske Capital. Mr. Hislop disclaims beneficial ownership
of the shares beneficially owned by Penske Capital, except to
the extent of his pecuniary interest. |
|
(9) |
Mr. Lovejoy also owns 3,370.81 deferred stock units which,
in accordance with SEC rules, are not reflected in the table. |
|
|
(10) |
Mr. Noto also owns 4,832.16 deferred stock units which, in
accordance with SEC rules, are not reflected in the table. |
|
(11) |
Includes the 7,657,282 shares deemed to be beneficially
owned by Penske Capital, for which shares Mr. Penske may be
deemed to have shared voting and dispositive power and an
additional 11,590,896 shares deemed to be beneficially
owned by Penske Corporation, for which shares Mr. Penske
may be deemed to have shared voting and/or dispositive power.
Mr. Penske is a managing member of Penske Capital and the
Chairman and Chief Executive Officer of Penske Corporation.
Mr. Penske disclaims beneficial ownership of the shares
beneficially owned by Penske Capital and Penske Corporation,
except to the extent of his pecuniary interest therein. |
|
(12) |
Includes options to purchase 180,000 shares of common stock. |
|
(13) |
Includes 7,334 shares issuable upon the exercise of options
and 500 shares held by Mr. Davidsons wife.
Mr. Davidson disclaims beneficial ownership of all shares
held by his wife. |
|
(14) |
Includes 20,000 shares issuable upon the exercise of
options. |
17
SHARE INVESTMENT PERFORMANCE
The following graph compares the cumulative total stockholder
returns on our common stock based on an investment of $100 on
December 31, 2000 and the close of the market on December
31 of each year thereafter against (i) the Standard &
Poors Index and (ii) an industry/peer group
consisting of Asbury Automotive Group, Inc., AutoNation, Inc.,
Group 1 Automotive, Inc., Lithia Motors Inc. and Sonic
Automotive Inc. The graph also assumes the reinvestment of all
dividends.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG UNITED AUTO GROUP, INC., THE S & P 500
INDEX
AND A PEER GROUP
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Total Return |
|
|
|
|
|
|
12/00 |
|
12/01 |
|
12/02 |
|
12/03 |
|
12/04 |
|
12/05 |
|
|
|
United Auto Group, Inc.
|
|
|
100.00 |
|
|
|
385.94 |
|
|
|
186.47 |
|
|
|
469.88 |
|
|
|
450.79 |
|
|
|
590.14 |
|
|
|
|
S&P 500
|
|
|
100.00 |
|
|
|
88.12 |
|
|
|
68.64 |
|
|
|
88.33 |
|
|
|
97.94 |
|
|
|
102.75 |
|
|
|
|
Peer Group
|
|
|
100.00 |
|
|
|
221.35 |
|
|
|
208.57 |
|
|
|
316.35 |
|
|
|
320.06 |
|
|
|
353.37 |
|
|
|
|
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. The Audit Committee acts under
a written charter adopted and approved by the Board of
Directors. The Audit Committee is comprised only of independent
directors as set forth in the listing requirements of the New
York Stock Exchange, the more stringent requirements of our
corporate governance guidelines and the Securities and Exchange
Commissions additional independence requirements. In
addition, our Board of Directors has determined that each of our
committee members is an audit committee financial
expert, as defined by Securities and Exchange Commission
rules.
In accordance with the Audit Committee charter, the Audit
Committee has the sole authority to retain and terminate our
independent registered public accounting firms. The Audit
Committee is responsible for recommending to the Board of
Directors that our financial statements be included in our
annual report on
Form 10-K.
18
The Audit Committee took a number of steps in making this
recommendation for our 2005 annual report. First, the Audit
Committee discussed with our independent registered public
accounting firms those matters required to be discussed by
Statement on Auditing Standards No. 61, including
information regarding the scope and results of their audits.
These communications and discussions are intended to assist the
Audit Committee in overseeing the financial reporting and
disclosure process. Second, the Audit Committee discussed with
the independent registered public accounting firms their
independence and received letters and written disclosures from
the independent registered public accounting firms required by
Independence Standards Board Standard No. 1 (Independence
Standards Board Standard No. 1, Independence Discussions
with Audit Committees). This discussion and disclosure assisted
the Audit Committee in evaluating such independence. Finally,
the Audit Committee reviewed and discussed the annual audited
and quarterly unaudited financial statements with our management
and the independent registered public accounting firms in
advance of the public release of operating results, and the
filing of our annual and quarterly reports with the Securities
and Exchange Commission.
Based on the foregoing as well as on the review and discussions
referred to above and such other matters deemed relevant and
appropriate by the Audit Committee, the Audit Committee
recommended to the Board of Directors that our financial
statements be included in our 2005 annual report on
Form 10-K.
|
|
|
The Audit Committee of the Board of Directors |
|
|
Michael R. Eisenson (Chairman) |
|
John D. Barr |
|
Ronald G. Steinhart |
19
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
Deloitte & Touche LLP, the member firms of Deloitte
Touche Tohmatsu, and their respective affiliates (collectively,
Deloitte) will audit our consolidated financial
statements for 2006 and perform other services. In 2005,
Deloitte did not audit certain of our subsidiaries holding our
international operations and their opinions, insofar as they
relate to those operations, are based solely on the reports of
the independent auditor of those operations, KPMG Audit PLC
(KPMG). We refer to Deloitte and KPMG collectively
as our independent registered public accounting firms. We paid
the independent registered public accounting firms the following
fees for the enumerated services in 2005, all of which services
were approved by our Audit Committee.
Audit Fees. Audit Fees in the table below include the
aggregate fees for professional services rendered by the
independent registered public accounting firms in connection
with the audits of our consolidated financial statements,
including audits of managements assessment of internal
control over financial reporting, reviews of the consolidated
condensed financial statements included in our quarterly reports
on Form 10-Q and other services normally provided in
connection with statutory or regulatory engagements.
Audit Related Fees. Audit Related Fees in the table below
include the aggregate fees for professional services rendered by
the independent registered public accounting firms in connection
with registration statements, acquisition due diligence, their
assurance services related to benefit plans and accounting
research and consultation.
Tax Fees. Tax Fees in the table below include aggregate
fees for professional services rendered by the independent
registered public accounting firms in connection with tax
compliance, planning and advice.
All Other Fees. All Other Fees in the table below include
aggregate fees for all other services rendered by the
independent registered public accounting firms. These fees
related primarily to appraisal review services, benefits
advisory services and in 2004, a review of certain operational
processes at our dealerships.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deloitte |
|
KPMG |
|
|
|
|
|
|
|
2005 |
|
2004 |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
$ |
1,179,000 |
|
|
$ |
1,330,000 |
|
|
$ |
453,000 |
|
|
$ |
542,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Audit Related Fees
|
|
$ |
291,000 |
|
|
$ |
239,000 |
|
|
$ |
28,000 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Fees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Compliance
|
|
$ |
41,000 |
|
|
$ |
128,000 |
|
|
|
|
|
|
|
|
|
|
Other Tax Fees
|
|
$ |
159,000 |
|
|
$ |
708,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
200,000 |
|
|
$ |
836,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other Fees
|
|
$ |
12,000 |
|
|
$ |
82,000 |
|
|
$ |
75,000 |
|
|
$ |
67,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fees
|
|
$ |
1,682,000 |
|
|
$ |
2,487,000 |
|
|
$ |
556,000 |
|
|
$ |
609,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Audit Committee has considered the nature of the
above-listed services provided by the independent registered
public accounting firms and determined that they are compatible
with their provision of independent audit services. The Audit
Committee has discussed these services with the independent
registered public accounting firms and management to determine
that they are permitted under the Code of Professional Conduct
of the American Institute of Certified Public Accountants and
the auditor independence requirements of the Securities and
Exchange Commission.
Pre-approval Policy. The Audit Committee has adopted a
policy requiring pre-approval of audit and non-audit services
provided by the independent registered public accounting firms.
The primary purpose of this policy is to ensure that we engage
our public accountants only to provide audit and non-audit
services that are compatible with maintaining independence. The
Audit Committee is required to pre-approve all services
performed for us by our independent registered public accounting
firms and the related fees for such services. The Audit
Committee must also approve fees incurred for pre-approved
services that are in excess of the
20
approved amount prior to payment, except as provided below. Our
independent registered public accounting firms are prohibited
from performing any service prohibited by applicable law.
Pre-approval of audit and non-audit services may be given at any
time up to a year before commencement of the specified service.
Engagement of the independent registered public accounting firms
and their fees for the annual audit must be approved by the
entire Audit Committee. The Chairman of the Audit Committee may
independently approve services if the estimated fee for the
service is less than 10% of the total estimated audit fee, or if
the excess fees for pre-approved services are less than 20% of
the approved fees for that service; provided, however, that no
such pre-approval may be granted with respect to any service
prohibited by applicable law or that otherwise appears
reasonably likely to compromise the independent registered
public accounting firms independence. Any pre-approval
granted pursuant to this delegation of authority will be
reviewed with the Audit Committee at its next regularly
scheduled meeting. Non-audit services for which the estimated
fee is greater than 10% of the audit fee must be approved by the
entire Audit Committee before commencement of the service.
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.
RELATED PARTY TRANSACTIONS
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 International Motor Cars Group, I., L.L.C.
(IMCGI), International Motor Cars Group, II,
L.L.C. (IMCGII), Mitsui & Co., Ltd.,
Mitsui & Co, (USA), Inc. (collectively,
Mitsui), Penske Corporation and Penske Automotive
Holdings Corp. We refer to IMCGI, IMCGII, Penske Corporation and
Penske Automotive Holdings Corp. as the Penske affiliated
companies.
In March 2004, we issued and sold 4,050,000 shares of our common
stock to Mitsui in exchange for $119 million under the
terms of a purchase agreement between us, Mitsui and the Penske
affiliated companies. This purchase agreement also contains
other agreements between the parties. The Penske affiliated
companies and Mitsui have agreed to certain
standstill provisions. Until termination of the
stockholders agreement discussed below, among other things and
with some exceptions, the parties have agreed not to acquire or
seek to acquire any of our capital stock or assets, enter into
or propose business combinations involving us, participate in a
proxy contest with respect to us or initiate or propose any
stockholder proposals with respect to us. Notwithstanding the
prior sentence, the purchase agreement permits (1) any
transaction approved by either a majority of disinterested
members of the Board of Directors or a majority of the
disinterested stockholders, (2) in the case of Mitsui, the
acquisition of securities if, after giving effect to such
acquisition, its beneficial ownership in us is less than or
equal to 49%, (3) in the case of the Penske affiliated
companies, the acquisition of securities if, after giving effect
to such acquisition, their aggregate beneficial ownership in us
is less than or equal to 65%, and (4) the acquisition of
securities resulting from equity grants by the Board of
Directors to individuals for compensatory purposes.
We have also agreed to grant Mitsui the right to an observer to
our Board of Directors as long as it owns at least 2.5% of our
outstanding common stock, and the right to have an appointee
designated as a senior vice president of UnitedAuto, as long as
it owns at least 10% of our outstanding common stock.
Mr. Hiroshi Ishikawa, one of our directors has been
appointed as our Executive Vice President
International Business Development. We also agreed not to take
any action that would restrict the ability of a stockholder to
propose, nominate or vote for any person as a director of us,
subject to specified limitations.
Stockholders Agreement. Simultaneously with this
purchase, Mitsui and the Penske affiliated companies entered
into a stockholders agreement. Under this stockholders
agreement, the Penske affiliated companies agreed to vote their
shares for one director who is a representative of Mitsui. In
turn, Mitsui agreed to vote its shares for up to fourteen
directors voted for by the Penske affiliated companies. In
addition, the
21
Penske affiliated 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 on its tenth anniversary,
upon the mutual consent of the parties or when either party no
longer owns any of our common stock.
Registration Rights Agreements. In May 1999, we and IMCGI
and IMCGII entered into a registration rights agreement and in
December 2000, we and Penske Automotive Holdings Corp. entered
into a registration rights agreement. Pursuant to these
agreements, IMCGI and IMCGII and Penske Corporation each may
require us on three occasions 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 (the Securities
Act).
In connection with the March 2004 purchase of shares discussed
above, we entered into a registration rights agreement with
Mitsui. Under this agreement, Mitsui may require us on two
occasions to register all or part of its common stock, subject
to specified limitations. Mitsui also is entitled to request
inclusion of all or any part of its common stock in any
registration of securities by us on Forms S-1 or
S-3 under the
Securities Act.
Other Related Party Interests. James A. Hislop, one of
our directors, is a managing member of Penske Capital Partners
(which is the managing member of IMCGI and IMCGII), a director
of Penske Corporation and a managing director of Transportation
Resource Partners, an organization that undertakes investments
in transportation-related industries. Mr. Penske also is a
managing member of Penske Capital Partners and Transportation
Resource Partners. 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 Vice Chairman and a director nominee, is
also the President and a director of the Penske Corporation and
Paul F. Walters, our Executive Vice President Human
Resources serves in a similar human resources capacity for
Penske Corporation. In 2005, Mr. Ishikawa, one of our
directors, received $150,000 in compensation from us for his
services as Executive Vice President International
Business Development and he also served in a similar capacity
for Penske Corporation. These employees or directors receive
salary, bonus and other compensation from Penske Corporation or
its affiliates unrelated to their service at UnitedAuto.
Eustace W. Mita and Lucio A. Noto are investors in
Transportation Resources Partners.
CarsDirect.com. In May 2000, we, along with Penske
Automotive Group, Inc. (PAG), an automobile
dealership company controlled by Roger S. Penske, entered
into an operating agreement with CarsDirect.com, Inc., whereby
PAG and we supply vehicles to CarsDirect.com at pre-negotiated
prices through PAGs and our respective franchised vehicle
dealers. CarsDirect.com is owned by Internet Brands, Inc.
(Internet Brands), of which Roger S. Penske is
a director. During the term of the operating agreement,
CarsDirect.com will offer the franchised vehicle dealers of PAG
or UnitedAuto with the closest geographic proximity to the
customer the first opportunity to supply the vehicle purchased
through its website. As consideration for entering into the
operating agreement, Internet Brands granted to PAG and us
warrants to purchase 3,650,000 shares of preferred stock of
CarsDirect.com, which are exercisable at various times from 2007
to 2009. We and PAG have agreed to allocate the warrants in
proportion to our relative sales to CarsDirect.com under the
operating agreement.
Other Transactions. We are currently a tenant under a
number of non-cancelable lease agreements with Samuel X.
DiFeo and members of his family. Mr. DiFeo served as our
President and Chief Operating Officer until March 8, 2006.
During 2005, we paid $5.5 million to Mr. DiFeo and his
family under these lease agreements. We believe that when we
entered into these transactions, their terms were at least as
favorable as those that could have been obtained from an
unaffiliated third party negotiated on an arms length
basis. In addition, in 2005, we paid two of
Mr. DiFeos family members $50,000 each under
multi-year consulting arrangements.
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 rents paid to Automotive
Group Realty, LLC (AGR), as described below,
payments to third parties made by Penske Corporation on behalf
of us, for which we then
22
reimburse Penske Corporation, payments relating to the use of
aircraft from Penske Aviation Services, and payment of a racing
sponsorship to Penske Racing. These transactions are reviewed
annually by our Audit Committee and reflect the providers
cost or an amount mutually agreed upon by both parties. We
believe that the payments relating to these transactions are on
terms at least as favorable as those that could be obtained from
an unaffiliated third party negotiated on an arms length
basis. Aggregate payments relating to such transactions amounted
to $6.1 million in 2005, excluding the payments to AGR
discussed below.
We are currently a tenant under a number of non-cancelable lease
agreements with AGR. AGR is a wholly owned subsidiary of Penske
Corporation. During 2005, we paid $4.7 million to AGR under
these lease agreements. In addition, in 2005, we sold to AGR
real property and improvements for $43.9 million which were
subsequently leased by AGR to us. There were no gains or losses
associated with such sales. The sale of each parcel of property
was valued at a price that was either independently confirmed by
a third party appraiser or at the price for which we purchased
the property from an independent third party. We believe that
the terms of these transactions were at least as favorable as
those that could have been obtained from an unaffiliated third
party negotiated on an arms length basis.
In February 2005, we acquired a 7% interest in a mobile vehicle
washing company in exchange for $2.4 million.
Transportation Resource Partners, an organization discussed
above, simultaneously acquired a controlling interest in this
company on the same financial terms as our investment. On
April 29, 2005, we acquired a 23% interest in QEK Global
Solutions (US), Inc., a provider of outsourced vehicle
management solutions, in exchange for $4.5 million.
Transportation Resource Partners simultaneously acquired a
controlling interest in this company on the same financial
terms. We and several other investors, including Transportation
Resource Partners, 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 have also entered into a management agreement which provides
that we and other investors (or their affiliates) are to be
provided ongoing management fees. In 2005, we paid QEK Global
Solutions about $384,000, principally relating to the
preparation and delivery of new vehicles in the U.K.
We are also party to operating agreements with Roger S.
Penske, Jr., the son of Roger S. Penske, relating to his
(1) 10% ownership investment in one of our subsidiaries,
HBL, LLC, and (2) his 4.7% ownership interest in United
Auto do Brasil, Ltda., of which we own about 22.7%. From time to
time, we provide these subsidiaries with working capital and
other debt financing and make periodic pro rata distributions
from these subsidiaries to Mr. Penske, Jr., which in 2005
totaled approximately seven hundred and twelve thousand dollars.
For 2005, Mr. Penske, Jr., received total compensation from
us of approximately two million one hundred and sixty nine
thousand dollars in his capacity as Executive Vice
President Eastern Operations, as well as 3,000
shares of restricted stock.
Our officers and directors periodically purchase vehicles from
our dealerships on fair market terms. Additionally, we hire
automotive technicians who have graduated from Universal
Technical Institute (UTI), a provider of technical
education, whose Chief Executive Officer is Kimberly McWaters,
one of our directors. We make no payments to UTI for these
graduates and hire them on the same terms as other employers. In
2005, we purchased $64,400 of various novelty items (t-shirts,
key rings, etc.) from Hislop & Associates for sale at
our dealerships. Hislop & Associates is owned by the
brother of James A. Hislop, one of our directors.
In 2005, we employed the sons of Eustace Mita, one of our
directors, and James Davidson, our Executive Vice
President Finance, at our dealerships as managers,
for which each was compensated in excess of $60,000. In 2005, we
employed the son-in-law of Paul Walters, our Executive Vice
President Human Resources, as Senior Vice
President Manufacturer Relations, for which he
received compensation in excess of $60,000 in 2005.
Since April 2003, an entity controlled by one of our directors,
Lucio A. Noto (the Investor), has owned an
interest in one of our subsidiaries, UAG Connecticut I, LLC
(UAG Connecticut I), which entitles the
Investor to 20% of the operating profits of UAG
Connecticut I. From time to time, we provide UAG
Connecticut I with working capital and other debt financing
and make periodic pro rata distributions from
23
UAG Connecticut I to the Investor, which in 2005 totaled
$787,400. In addition, in July 2005, the Investor paid us
$200,060 pursuant to his option to purchase up to a 20% interest
in UAG Connecticut I.
OTHER MATTERS
Securities Authorized for Issuance Under Equity Compensation
Plans.
The following table provides details regarding the shares of
common stock issuable upon the exercise of outstanding options,
warrants and rights granted under our equity compensation plans
(including individual equity compensation arrangements) as of
December 31, 2005.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average |
|
Number of securities remaining |
|
|
Number of securities to |
|
exercise price of |
|
available for future issuance |
|
|
be issued upon exercise |
|
outstanding |
|
under equity compensation |
|
|
of outstanding options, |
|
options, warrants |
|
plans (excluding securities |
|
|
warrants and rights |
|
and rights |
|
reflected in column (A)) |
Plan Category |
|
(A) |
|
(B) |
|
(C) |
|
|
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
703,441 |
|
|
$ |
16.39 |
|
|
|
1,605,893 |
|
Equity compensation plans not approved by security holders
|
|
|
400,000 |
(1) |
|
$ |
10.00 |
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,103,441 |
|
|
|
|
|
|
|
1,605,893 |
|
|
|
(1) |
Consisted of options to purchase an aggregate amount of
400,000 shares of common stock. These options have been
exercised subsequent to December 31, 2005. |
Section 16(a) Beneficial
Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as
amended, requires our executive officers and directors and
persons who beneficially own more than 10% of our common stock
to file initial reports of ownership and reports of changes of
ownership with the SEC. Executive officers, directors and
greater than 10% beneficial owners are required by SEC
regulations to furnish us with copies of all Section 16(a)
forms they file. To our knowledge, based solely on our review of
the copies of the Section 16(a) forms furnished to us and
representations from our executive officers, directors and
greater than 10% beneficial owners, all Section 16(a)
reports were timely filed in 2005.
Stockholder Nominations and Proposals for 2007.
We must receive any proposals intended to be presented to
stockholders at our 2007 annual meeting of stockholders at our
principal executive offices at 2555 Telegraph Road,
Bloomfield Hills, Michigan
48302-0954 for
inclusion in the proxy statement by November 23, 2006.
These proposals must also meet other requirements of the rules
of the SEC relating to stockholder proposals. Stockholders who
intend to present an item of business at the annual meeting of
stockholders in 2007 (other than a proposal submitted for
inclusion in our proxy statement) must provide us notice of the
business no later than February 5, 2007.
Proxy Information.
We do not anticipate that there will be presented at the annual
meeting any business other than as discussed in the above
proposals and the Board of Directors is not aware of any other
matters that might properly be presented for action at the
meeting. If any other business should properly come before the
annual meeting, the persons named on the enclosed proxy card
will have discretionary authority to vote all proxies in
accordance with their best judgment.
24
Proxies in the form enclosed 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
use of the mails, 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 $5,000.
It is important that proxies be returned promptly. Therefore,
you are urged to sign, date and return the enclosed proxy card
in the accompanying stamped and addressed envelope as soon as
possible.
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, 2005 and any
of the other documents referenced herein. Copies can be obtained
from United Auto Group, Inc., Investor Relations, 2555 Telegraph
Road, Bloomfield Hills, Michigan 48302-0954 (248/648-2500).
Dated: March 23, 2006
25
ANNEX A
AMENDMENT TO CERTIFICATE OF INCORPORATION
United Auto Group, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State
of Delaware, DOES HEREBY CERTIFY:
FIRST: That at a meeting of the Board of Directors of
United Auto Group, Inc., resolutions were duly adopted setting
forth a proposed amendment to the Third Restated Certificate of
Incorporation of said corporation, declaring said amendment to
be advisable and subject to consideration at a meeting of the
stockholders of said corporation for consideration thereof. The
proposed amendment is as follows:
RESOLVED, that the Third Restated Certificate of
Incorporation of this corporation be amended by changing the
first paragraph of Section 1 of Article IV thereof so
that, as amended said first paragraph shall be and read as
follows:
The total number of shares of capital stock which the
Company shall have the authority to issue is 267,225,000,
consisting of (i) 240,000,000 shares of Voting Common
Stock, par value $0.0001 per share (the Voting Common
Stock); (ii) 7,125,000 shares of Non-voting
Common Stock, par value $0.0001 per share (the
Non-Voting Common Stock);
(iii) 20,000,000 shares of Class C Common Stock,
par value $0.0001 per share (the Class C Common
Stock and, collectively with the Voting Common Stock, and
the Non-Voting Common Stock, the Common Stock); and
(iv) 100,000 shares of Preferred Stock, par value
$0.0001 per share.
SECOND: That thereafter, pursuant to resolution of its
Board of Directors, an annual meeting of the stockholders of
said corporation was duly called and held, upon notice in
accordance with Section 222 of the General Corporation Law
of the State of Delaware at which meeting the necessary number
of shares as required by statute were voted in favor of the
amendment.
THIRD: That said amendment was duly adopted in accordance
with the provisions of Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, said United Auto Group, Inc. has caused this
certificate to be signed by Shane M. Spradlin, its
Secretary, this 3rd day of May, 2006.
By: Shane M. Spradlin
Its: Secretary
26
ANNEX B
AUDIT COMMITTEE CHARTER
October 19, 2005
I. Statement of Purpose
The Audit Committee is a standing committee of the Board of
Directors. The purpose of the Committee is to assist the Board
of Directors in fulfilling its oversight responsibility relating
to (i) the integrity of the Companys financial
statements and financial reporting process and the
Companys systems of internal accounting and financial
controls; (ii) the performance of the internal audit
services function; (iii) the annual independent audit of
the Companys financial statements, the engagement of the
independent auditors and the evaluation of the independent
auditors qualifications, independence and performance;
(iv) the compliance by the Company with legal and
regulatory requirements, including the Companys disclosure
controls and procedures; (v) the evaluation of enterprise
risk issues; and (vi) the fulfillment of the other
responsibilities set out herein. The Committee shall also
prepare the report of the Committee required to be included in
the Companys annual proxy statement.
In discharging its responsibilities, the Committee is not itself
responsible for the planning or conduct of audits or for any
determination that the Companys financial statements are
complete and accurate or in accordance with generally accepted
accounting principles. This is the responsibility of management
and the independent auditors.
II. Organization
|
|
|
A. Charter. At least annually, this charter shall be
reviewed and reassessed by the Committee and any proposed
changes shall be submitted to the Board of Directors for
approval. |
|
|
B. Members. The members of the Committee shall be
appointed by the Board of Directors and shall number at least
three, who meet the independence, experience and expertise
requirements of the New York Stock Exchange and applicable law.
The Board of Directors shall also designate a Committee
Chairperson. Unless otherwise determined by the Board of
Directors of the Company, no Committee Member may serve on more
than three Audit Committees of companies who have issued any
outstanding publicly-traded equity securities. |
|
|
C. Meetings. In order to discharge its
responsibilities, the Committee shall each year establish a
schedule of meetings; additional meetings may be scheduled as
required. In planning the annual schedule of meetings, the
Committee shall ensure that sufficient opportunities exist for
its members to meet separately with the independent auditors
and/or the head of internal audit (or internal audit service
providers), without management present; to meet separately with
management, without the independent auditors and/or the head of
internal audit (or internal audit service providers) present;
and to meet in private with only the Committee Members present. |
|
|
D. Quorum; Action by Committee. A quorum at any
Committee meeting shall be at least two members. All
determinations of the Committee shall be made by a majority of
its members present at a meeting duly called or held, except as
specifically provided herein (or where only two members are
present, by unanimous vote). Action may be delegated to a single
member in compliance with applicable law, such as the approval
of certain services by the independent auditors. Any decision or
determination of the Committee reduced to writing and signed by
all of the members of the Committee shall be as fully effective
as if it had been made at a meeting duly called and held, except
as specifically provided herein (or where only two members are
present, by unanimous vote). |
|
|
E. Agenda, Minutes and Reports. An agenda, together
with materials relating to the subject matter of each meeting,
shall be sent to members of the Committee prior to each meeting.
Minutes for all meetings of the Committee shall be prepared to
document the Committees discharge of its responsibilities.
The minutes shall be circulated in draft form to all Committee
Members to ensure an accurate final |
27
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|
record, shall be approved at a subsequent meeting of the
Committee and shall be distributed periodically to the full
Board of Directors. The Committee shall make regular reports to
the Board of Directors. |
|
|
F. Performance Evaluation. The Committee shall
evaluate its performance on an annual basis and periodically
review its criteria for such evaluation. |
III. Responsibilities
The following shall be the principal responsibilities of the
Audit Committee:
|
|
|
A. Engagement of Independent Auditors. The Committee
shall engage the independent auditors, including in connection
with any non-audit services, and oversee, evaluate and, where
appropriate, replace the independent auditors. The Committee
shall approve the fees paid to the independent auditors,
including in connection with any non-audit services. |
|
|
B. Determination as to Independence and Performance of
Independent Auditors. The Committee shall review and
evaluate the lead partner of the independent auditor teams. The
Committee shall receive periodic reports from the independent
auditors as required by the Independence Standards Board (or any
successor body) regarding the auditors independence, which
shall be not less frequently than annually. The Committee shall
also obtain and review a report from the independent auditor at
least annually regarding (a) the independent auditors
internal quality-control procedures, (b) any material
issues raised by the most recent internal quality-control
review, or peer review, of the firm, or by any inquiry or
investigation by governmental or professional authorities within
the preceding five years respecting one or more independent
audits carried out by the firm, (c) any steps taken to deal
with any such issues, and (d) all relationships between the
independent auditor and the Company. The Committee shall
evaluate the qualifications, performance and independence of the
independent auditor, including considering whether the
auditors quality controls are adequate and the provision
of permitted non-audit services is compatible with maintaining
the auditors independence, and taking into account the
opinions of management and internal auditors. In addition, the
Audit Committee shall present its conclusions with respect to
the independent auditor to the Board. The Audit Committee shall
also ensure the rotation of the lead (or coordinating) audit
partner having primary responsibility for the audit and the
audit partner responsible for reviewing the audit as required by
law and periodically consider whether, in order to assure
continuing auditor independence, it is appropriate to adopt a
policy of rotating the independent auditing firm on a regular
basis. |
|
|
C. Determination as to Performance of Internal Auditors.
The Committee shall annually review the experience and
qualifications of the senior members of the internal auditors
and the performance of the internal audit function, including
any contributions by internal audit service providers. In
addition, the Committee annually shall discuss the
responsibilities, budget and staffing of the internal audit
function with the Companys principal independent auditor. |
|
|
D. Audits by Internal and Independent Auditors. The
Committee shall discuss with the internal auditor and the
independent auditors the overall scope and plans for their
respective audits, including the adequacy of staffing and other
factors that may affect the effectiveness and timeliness of such
audits. In this connection, the Committee shall discuss with
management, the internal auditor and the independent auditors
the Companys major risk exposures (whether financial,
operating or otherwise), the adequacy and effectiveness of the
accounting and financial controls, and the steps management has
taken to monitor and control such exposures and manage legal
compliance programs, among other considerations that may be
relevant to their respective audits. The Committee shall review
with management and the independent auditors managements
annual internal control report, including any attestation of
same by the independent auditors. Management and the internal
auditor or the audit service providers, as the case may be,
shall report periodically to the Committee regarding any
significant deficiencies in the design or operation of the
Companys internal controls, material weaknesses in
internal controls and any fraud (regardless of materiality)
involving persons having a significant role in the internal
controls, as well as any significant changes in internal
controls implemented by management during the most recent
reporting period of the Company. |
28
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|
|
E. Pre-Approval of Audit and Non-Audit Services. The
Committee shall periodically review its guidelines for the
retention of the independent auditors for any non-audit service.
The Committee shall, in accordance with such procedures, approve
in advance any audit or non-audit service provided to the
Company by the independent auditors, all as required by
applicable law or listing standards, and subject to the
exceptions set forth in applicable law or listing standards. |
|
|
F. Review of Disclosure Controls and Procedures. The
Committee shall review with the Chief Executive Officer, the
Chief Financial Officer and the General Counsel the
Companys disclosure controls and procedures and shall
review periodically, but in no event less frequently than
quarterly, managements conclusions about the efficacy of
such disclosure controls and procedures, including any
significant deficiencies in, or material non-compliance with,
such controls and procedures. |
|
|
G. Review of Annual SEC Filings. The Committee shall
review with management and the independent auditors the
financial information to be included in the Companys
Annual Report on
Form 10-K (or the
annual report to shareholders if distributed prior to the filing
of the Form 10-K),
including the disclosures under Managements
Discussion and Analysis of Financial Condition and Results of
Operations, their judgment about the quality, not just
acceptability, of accounting principles, the reasonableness of
significant judgments, the clarity of the disclosures in the
financial statements and the adequacy of internal controls. The
Committee shall also discuss the results of the annual audit and
any other matters required to be communicated to the Committee
by the independent auditors under generally accepted auditing
standards, applicable law or listing standards. Based on such
review and discussion, the Committee shall make a determination
whether to recommend to the Board of Directors that the audited
financial statements be included in the Companys
Form 10-K. |
|
|
H. Review of Quarterly SEC Filings and Other
Communications. The Committee shall review and discuss with
management and the independent auditors the quarterly financial
information to be included in the Companys Quarterly
Reports on
form 10-Q,
including the disclosures under Managements
Discussion and Analysis of Financial Condition and Results of
Operations, and shall discuss any other matters required
to be communicated to the Committee by the independent auditors
under generally accepted auditing standards, applicable law or
listing standards. The Committee shall also discuss the
Companys earnings press releases and financial information
and earnings guidance periodically provided to analysts and
rating agencies. Such discussion may be done generally
(consisting of the types of information to be disclosed and the
types of presentations to be made). The Committee shall also
discuss the results of the independent auditors review of
the Companys quarterly financial information conducted in
accordance with Statement on Auditing Standards No. 71. |
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|
I. Review of Certain Matters with Internal and
Independent Auditors. The Committee shall review
periodically with management, the internal auditor, or the audit
service providers (as the case may be) and independent auditors
the effect of new or proposed regulatory and accounting
initiatives on the Companys financial statements and other
public disclosures. |
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|
J. Consultation with Independent Auditors. The
Committee shall review with the independent auditors any
problems or difficulties the auditors may have encountered in
connection with the annual audit or otherwise and any management
letter, or other material written communications or schedule of
unadjusted differences, provided by the auditors and the
Companys response to that letter or communication. Such
review shall address any difficulties encountered in the course
of the audit work, including any restrictions on the scope of
activities or access to required information, any disagreements
with management regarding generally accepted accounting
principles and other matters, material adjustments to the
financial statements recommended by the independent auditors and
adjustments that were proposed but passed,
regardless of materiality. The Committee shall obtain from the
independent auditor assurance that the independent auditor has
not detected or become aware of any illegal act and, if it has,
that the Audit Committee is adequately informed in compliance
with applicable law. |
|
|
K. Preparation of Report for Proxy Statement. The
Committee shall authorize the report of the Audit Committee to
be included in the Companys annual proxy statement, all in
accordance with applicable rules and regulations. |
29
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L. Policies for Employment of Former Audit Staff.
The Committee shall periodically review its guidelines for
the Companys hiring of former employees of the independent
auditors, which guidelines shall meet the requirements of
applicable law and listing standards. |
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M. Whistleblowing Procedures. The
Committee shall periodically review its procedures for the
receipt, retention and treatment of complaints received by the
Company regarding accounting, internal accounting controls or
auditing matters and the confidential, anonymous submission by
employees of the Company of concerns regarding questionable
accounting or auditing matters. |
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N. Review of Legal and Regulatory Compliance. The
Committee shall periodically review with management, including
the General Counsel, and the independent auditors any
correspondence with, or other action by, regulators or
governmental agencies and any employee complaints or published
reports that raise concerns regarding the Companys
financial statements, accounting or auditing matters or
compliance with the Companys Code of Business Conduct and
Ethics. The Committee shall also meet periodically with the
General Counsel and other appropriate legal staff of the Company
to review material legal affairs of the Company and the
Companys compliance with applicable law and listing
standards. |
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O. Review of Certain Transactions with Directors and
Related Parties. The Committee shall review periodically,
but no less frequently than annually, a summary of the
Companys transactions with Directors and officers of the
Company and with firms that employ Directors, as well as any
other material related party transactions. |
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P. Compliance with Code of Business Conduct and Ethics
Grant of Waivers. The Committee shall review annually a
summary of compliance with the Companys Code of Business
Conduct and Ethics. The Committee shall be responsible for
determining whether and on what terms to grant to any Director
or Executive Officer a waiver from the Companys Code of
Business Conduct and Ethics. |
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Q. Access to Records, Consultants and Others. The
Committee shall have full authority (i) to investigate any
matter brought to its attention with full access to all books,
records, facilities and personnel of the Company; (ii) to
retain outside legal, accounting or other consultants to advise
the Committee; and (iii) to request any officer or employee
of the Company, the Companys outside counsel, internal
auditor, internal audit service providers or independent
auditors to attend a meeting of the Committee or to meet with
any members of, or consultants to, the Committee. The Company
shall provide for appropriate funding, as determined by the
Audit Committee, for the payment of compensation to the
independent auditor for the purpose of rendering or issuing an
audit report and to any advisors or consultants employed by the
Audit Committee. |
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R. Delegation. The Committee may delegate any of its
responsibilities to a subcommittee comprised of one or more
members of the Committee, including the authority to grant
pre-approvals of audit and permitted non-audit services,
provided that decisions of such sub-committee to grant
pre-approvals shall be presented to the full Audit Committee at
its next scheduled meeting. |
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Proxy United Auto Group, Inc.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby revokes all prior proxies and appoints Roger S. Penske, 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 Voting Common Stock, par value $0.0001 per
share, of United Auto Group, Inc. which the undersigned is entitled to vote, at the Annual Meeting
of Stockholders to be held on Wednesday, May 3, 2006 at 9:00 a.m., Pacific Daylight Time, at Wynn
Las Vegas, 3131 Las Vegas Boulevard South, Las Vegas, Nevada, 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 THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION 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
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o Mark this box with an X if you have made
changes to your name or address details above
Annual Meeting Proxy Card
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The Board of Directors recommends a vote FOR the listed nominees. |
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01 John Barr
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07 Eustace Mita
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02 Michael Eisenson
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08 Lucio Noto
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03 Hiroshi Ishikawa
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09 Roger Penske
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04 Robert H. Kurnick, Jr.
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10 Richard Peters
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05 William Lovejoy
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11 Ronald Steinhart
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06 Kimberly McWaters
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12 Brian Thompson
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The Board of Directors recommends a vote FOR the following proposals:
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2.
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Amend Certificate of Incorporation to
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Increase Authorized Voting Common Stock. |
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3.
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To transact such other business as may
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Properly come before the meeting. |
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Mark this box with an X if you plan to attend the meeting. |
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C Authorized Signatures Sign Here This section must be completed for your instructions to be executed. |
Please sign this proxy exactly as name appears hereon. When shares are held by joint tenants, both
should sign. When signing as attorney, administrator, trustee or guardian, please give full title
as such.
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