Exhibit 10.2
 
ANNEX B

LITHIA MOTORS, INC.
2013 DISCRETIONARY SUPPORT SERVICES VARIABLE
PERFORMANCE COMPENSATION PLAN

1.             Purpose.  Lithia Motors, Inc. (the “Company”) establishes the
Lithia Motors, Inc. 2013 Discretionary Support Services Variable Performance
Compensation (the “Plan”) with the intent of qualifying compensation paid under
the Plan as “performance-based compensation” within the meaning of Section
162(m) of the Internal Revenue Code of 1986 (“Section 162(m)”) and the
regulations promulgated thereunder.  The Plan shall be interpreted in a manner
consistent with the foregoing intent.

2.             Administration.  The Plan shall be administered by the
Compensation Committee (the “Committee”) of the Board of Directors of the
Company, which shall be comprised solely of two or more “outside directors” as
defined in regulations promulgated under Section 162(m).  The Committee may
adopt guidelines to implement and administer the Plan.

3.             Plan Participants.  The participants in the Plan (the
“Participants”) shall be the Chief Executive Officer (the “CEO”) of the Company
and such other employees of the Company as may be designated in writing by the
Committee at the time of the establishment of Performance Goals for any
period.  Other employees of the Company may receive bonuses on terms similar to
the terms of bonuses paid to Participants under the Plan, but those bonuses
shall not be covered by the Plan and, therefore, shall not qualify as
performance-based compensation under Section 162(m).

4.             Performance Goals.

(a)           To make an award under the Plan, the Committee shall, no later
than the earlier of (i) 90 days after the beginning of a performance period or
(ii) the date on which 25% of the period of service (as scheduled in good faith
at the time the goals are established) has elapsed, establish in writing the
objectives (“Performance Goals”) that must be satisfied by the Company or any
subsidiary, division or other unit of the Company (“Business Unit”) during that
performance period as a condition to the payment or accrual of a cash bonus for
each Participant based on performance in that period.  The Committee shall also
establish (i) the amounts, or the formula for determining the amounts, of cash
bonuses to be paid or accrued based on achievement of the Performance Goals, and
(ii) the timing of payment and any other conditions to payment of such
amounts.  In establishing any Performance Goals, the Committee may, in its sole
discretion, reserve the right to reduce the resulting cash bonuses prior to
payment on such terms as determined by the Committee.
 
 
 

--------------------------------------------------------------------------------

 

(b)           The Performance Goals for each performance period shall be one or
more targeted levels of performance with respect to one or more of the following
objective measures with respect to the Company or any Business Unit, and may be
relative to any designated comparison group of companies: (i)  revenue, (ii) net
margin, (iii) operating income, (iv) operating cash flow, (v) net income before
interest, taxes, depreciation and amortization, (vi) net income before interest
and taxes, (vii) net income before income taxes, (viii) net income, (ix) new or
used vehicle unit or revenue growth rate (based on same-store growth rate), (x)
fixed department revenue growth rate (based on same-store revenue growth rate),
(xi) sales or service satisfaction scores (percent of same stores equaling or
exceeding specified manufacturers’ criteria), (xii) sales responsibility
performance (percent of same stores at or above market sales rate thresholds set
by specified manufacturers), (xiii) financing and insurance revenue or revenue
per vehicle, (xiv) service, body and parts revenue or revenue per vehicle, (xv)
basic or diluted net income per share, (xvi) basic or diluted net income per
share from continuing operations, (xvii) basic or diluted net income per share
minus per share dividends and other shareholder distributions, (xviii) basic or
diluted net income per share from continuing operations minus per share
dividends and other shareholder distributions, (xix) basic or diluted net income
per share from continuing operations as adjusted to eliminate the effects of
asset impairment, gains and losses on the sale of real estate or stores, equity
investments and related taxes or (xx) any of the foregoing before the effect of
acquisitions, divestitures, accounting or tax changes, and restructuring and
special charges (determined according to criteria established by the Committee).

5.             Computation of Bonus.  Following the conclusion of any
performance year, prior to the payment of any cash bonuses under the Plan with
respect to that performance period, the Committee shall certify in writing the
attainment of the Performance Goals for the performance period and the
calculation of the bonus amounts.  No bonus shall be paid or accrued if the
related Performance Goal is not met.

6.             Maximum Bonus.  The cash bonus that may be paid or accrued for
any Participant under the Plan in any calendar year with respect to performance
of the Company in any fiscal year shall not exceed 150% of the Participant’s
annual salary (based on salary up to $1,000,000).  The Committee and the Board
of Directors of the Company retain discretion to reduce the amount of the
attained variable compensation amounts for any reason.

7.             Clawback.  The Company requires reimbursement of any
performance-based compensation awarded or paid to a Participant where: (a) the
payment was predicated upon achieving financial results that were later the
subject of a restatement of the Company’s financial statements and (b) a lower
payment would have been made to the Participant based upon the restated
financial results. In each case, the Company will, to the extent practicable,
seek to recover from the Participant the amount by which the Participant’s award
or payment for the relevant period exceeded the lower payment that would have
been made based on the restated financial results.

8.             Amendment and Termination of Plan.  The Board may at any time
amend or terminate the Plan, except that no amendment will be effective without
approval by the Company’s shareholders if such approval is necessary to qualify
amounts payable hereunder as performance-based compensation under Section
162(m).  Unless it is re-approved by the shareholders, the Plan shall terminate
on the date of the first shareholder meeting that occurs in the fifth year after
the year of the last re-approval by the shareholders.  No termination of the
Plan shall affect Performance Goals and related awards established by the
Committee prior to such termination.
 
 
2

--------------------------------------------------------------------------------

 

9.             No Right of Continued Employment.  Nothing in the Plan or any
award pursuant to the Plan shall confer upon any person any right to be
continued in the employment of the Company or any subsidiary.

10.           Governing Law.  The Plan shall be construed in accordance with and
governed by the laws of the State of Oregon.

11.           Effective Date.  The Plan shall be effective upon approval by the
shareholders of the Company.
 
 
3