Exhibit 10.46
SONIC AUTOMOTIVE, INC.
INCENTIVE COMPENSATION PLAN
AMENDED AND RESTATED AS OF DECEMBER 4, 2008
Section 1. Purposes
     The purpose of the Sonic Automotive, Inc. Incentive Compensation Plan is to
provide incentives to highly-qualified executives and other key employees in an
effort to motivate them to continue service with the Company, devote their best
efforts to the Company and improve the Company’s economic performance, thus
enhancing the value of the Company for the benefit of shareholders. An
additional purpose of the Plan is to serve as a qualified performance-based
compensation program under Section 162(m) of the Internal Revenue Code of 1986,
as amended, in order to preserve the Company’s tax deduction for compensation
paid under the Plan to Covered Employees.
Section 2. Definitions
     Throughout this Plan, when capitalized the following terms shall have the
respective meanings set forth below:
     (a) “Board” shall mean the Board of Directors of the Company.
     (b) “Code” shall mean the Internal Revenue Code of 1986, as amended from
time to time.
     (c) “Committee” shall mean the Compensation Committee of the Board or a
subcommittee thereof, provided that the Committee shall consist of two or more
members each of whom is an outside director within the meaning of Section 162(m)
of the Code.
     (d) “Company” shall mean Sonic Automotive, Inc., a corporation organized
under the laws of the State of Delaware, or any successor corporation.
     (e) “Covered Employee” shall have the meaning set forth in
Section 162(m)(3) of the Code (or any successor provision).
     (f) “Incentive Award” shall mean a monetary incentive compensation award
granted pursuant to the Plan, the payment of which shall be contingent upon the
attainment of Performance Goals with respect to a Performance Period.
     (g) “Participant” shall mean an executive officer or other key employee of
the Company or one of its Subsidiaries who is selected by the Committee to
participate in the Plan.
     (h) “Performance Goals” shall mean the criteria and objectives that must be
met during the Performance Period as a condition of the Participant’s receipt of
payment with respect to an Incentive Award, as described in Section 5 hereof.
     (i) “Performance Period” shall mean the period designated by the Committee
during which the Performance Goals with respect to a particular Participant will
be measured.

 

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

 

     (j) “Plan” shall mean this Sonic Automotive, Inc. Incentive Compensation
Plan, as amended from time to time.
     (k) “Subsidiary” shall mean any subsidiary or other business organization
in which the Company owns, directly or indirectly, more than 50% of the voting
power, stock or capital interest.
Section 3. Administration
     The Plan shall be administered by the Committee. The Committee shall have
the authority in its sole discretion, subject to the provisions of the Plan, to
administer the Plan and to exercise all of the powers and authorities either
specifically granted to it under the Plan or necessary or advisable in the
administration of the Plan, including, without limitation, the authority to
grant Incentive Awards, to determine the persons to whom and the time or times
at which Incentive Awards shall be granted, to determine the terms, conditions,
restrictions, Performance Period and Performance Goals relating to any Incentive
Award, to adjust compensation payable upon attainment of Performance Goals
(subject to the limitations of the Plan), to construe and interpret the Plan and
any Incentive Awards, to prescribe, amend and rescind rules and regulations
relating to the Plan, and to make all other determinations deemed necessary or
advisable for the administration of the Plan.
     All decisions, determinations and interpretations of the Committee shall be
final and binding on all persons, including the Company, the Participant (or any
person claiming any rights under the Plan through any Participant) and any
shareholder.
     No member of the Board or the Committee shall be liable for any action
taken or determination made in good faith with respect to the Plan or any
Incentive Award granted hereunder.
Section 4. Eligibility
     Executive officers of the Company and key employees of the Company and its
Subsidiaries who are designated by the Committee may participate in the Plan. In
determining the persons who may participate in the Plan, the Committee may take
into account such factors as the Committee shall deem relevant in connection
with accomplishing the purposes of the Plan. The fact that an executive officer
or key employee has been designated to participate in the Plan for one
Performance Period does not assure that such person will be eligible to
participate in any subsequent Performance Period.
Section 5. Incentive Awards and Performance Goals
     (a) In General. The Committee shall establish in writing for each
Participant the applicable Performance Period, the amount of or the formula for
determining the actual Incentive Award for such Participant (which may include
the establishment of a target Incentive Award) with respect to such Performance
Period, the Performance Goal(s) that must be achieved in order for the
Participant to receive an Incentive Award under the Plan with respect to such
Performance Period, and any other conditions that the Committee deems
appropriate and consistent with the Plan, and in the case of Covered Employees,
with Section 162(m) of the Code. All of the foregoing must be established in
writing by the Committee within ninety (90) days after the beginning of the
Performance Period (or, if earlier, by the date on which twenty-five percent
(25%) of the Performance Period has elapsed), provided that achievement of the
Performance Goals must be substantially uncertain at the time they are
established.

2

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

 

     (b) Performance Goals. The Committee shall establish one or more
Performance Goals for each Participant that are objectively determinable (i.e.,
such that a third party with knowledge of the relevant facts could determine
whether the goals have been met). Such Performance Goals shall be based on one
or more of the following, as determined in the sole discretion of the Committee:
stock price; market share; earnings per share (basic or diluted); net earnings;
operating or other earnings; gross or net profits; revenues; financial return
ratios; stockholder return; cash flow measures (including operating cash flow,
free cash flow, and cash flow return on investment); cash position; return on
equity; return on investment; debt rating; sales (including Company-wide sales
and dealership sales); expense reduction levels; debt levels (including
borrowing capacity); return on assets (gross or net); debt to equity ratio; debt
to capitalization ratio; consummation of debt offerings; consummation of equity
offerings; growth in assets, sales, or market share; customer satisfaction;
reducing, retiring or refinancing all or a portion of the Company’s long-term or
short-term public or private debt or similar financial obligations (including
the attainment of a certain level of reduction in such debt); share count
reduction; gross or operating margins; contractual compliance (including
maintaining compliance with financial and other covenants, obtaining waivers of
non-compliance, or obtaining amendments of contractual covenants); or strategic
business objectives based on meeting specified revenue goals, market penetration
goals, geographic business expansion goals, cost targets, or goals relating to
acquisitions or divestitures. Performance Goals may be based on the performance
of the Company, based on the Participant’s division, business unit or employing
Subsidiary, based on the performance of one or more divisions, business units or
Subsidiaries, based on the performance of the Company and its Subsidiaries as a
whole, or based on any combination of the foregoing. Performance Goals also may
be expressed by reference to the Participant’s individual performance with
respect to any of the foregoing criteria.
     Performance Goals may be expressed in such form as the Committee shall
determine, including either in absolute or relative terms (including, but not by
way of limitation, by relative comparison to a pre-established target, to
previous years or to other companies or other external measures), in
percentages, in terms of growth over time or otherwise, provided that the
Performance Goals meet the requirements hereunder. Performance Goals need not be
based upon an increase or positive result under one of the above criteria and
could include, for example, maintaining the status quo or the limitation of
economic losses (measured in such case by reference to the specific criteria).
When establishing the Performance Goals, the Committee may specify that the
Performance Goals shall be determined either before or after taxes and shall be
adjusted to exclude items such as (A) asset write-downs or impairment charges;
(B) the effect of unusual or extraordinary charges or income items or other
events, including acquisitions or dispositions of businesses or assets,
restructurings, discontinued operations, reductions in force,
refinancing/restructuring of short term and/or long term debt, or other
extraordinary non-recurring items as described in Accounting Principles Board
Opinion No. 30 and/or management’s discussion and analysis of financial
condition and results of operations appearing in the Company’s annual report to
stockholders for the applicable year; (C) litigation or claim expenses,
judgments or settlements, or (D) changes in accounting principles or tax laws or
other laws or provisions affecting reported results. The Performance Goals
established by the Committee may be (but need not be) particular to a
Participant and/or different each Performance Period.
     In all events, the Performance Goals established for Covered Employees must
meet the requirements under Section 162(m). The Committee also may establish
subjective Performance Goals for Participants; provided that for Covered
Employees, the subjective Performance Goals may be used only to reduce, and not
increase, the Incentive Award otherwise payable under the Plan.
     (c) Incentive Awards. In accordance with subparagraph (a) above, the
Committee must establish in writing the amount of or method for calculating a
Participant’s potential Incentive Award for

3

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

 

each Performance Period. The potential Incentive Award must be expressed in
terms of an objective formula or standard, and shall be expressed as either a
dollar amount, a percentage of salary, a percentage of the applicable criteria
underlying the specified Performance Goal(s) (or a percentage thereof in excess
of a threshold amount) or otherwise. The foregoing also may be expressed in the
form of a range, pursuant to which the actual amount of an Incentive Award
payable under the Plan may vary depending upon the extent to which the
Performance Goals for the Performance Period have been attained. The Committee
also may establish a Participant’s potential Incentive Award as a percentage of
a bonus pool; provided, however, that the amount of the bonus pool (or the
formula for determining the amount of the bonus pool) shall be established in
accordance with the requirements of this Section 5 and that the sum of the
individual maximum percentages of the bonus pool that each Participant
potentially could receive shall not exceed 100%.
     The formula or standard for determining the actual amount of the Incentive
Award must be such that a third party having knowledge of the extent to which
the Performance Goals have been attained could calculate the amount to be paid
to the Participant. However, the Committee may, in its discretion, reduce or
eliminate the amount payable to any Participant (including a Covered Employee),
in each case based upon such factors as the Committee may deem relevant, but the
Committee shall not increase the amount payable to any Covered Employee in a
manner that would cause the Incentive Award to fail to qualify as
performance-based compensation under Section 162(m) of the Code. Notwithstanding
any other provision of the Plan, the maximum amount payable with respect to an
Incentive Award to any Participant during any calendar year shall not exceed
$3,000,000.
     (d) Payment of Incentive Awards.
          (i) Conditions on Payment. Payment of an Incentive Award shall be made
to a Participant for a particular Performance Period only if: (A) the Committee
has certified in writing that extent to which the applicable Performance Goals
and any other material terms of the Incentive Award have been achieved or
exceeded, and (B) except as otherwise set forth below in Section 5(d)(ii), the
Participant remains employed by the Company or one of its Subsidiaries until the
date such Incentive Award shall be payable pursuant to Section 5(d)(iii)(A)
below (or, alternatively, on the last day of the Performance Period, if the
Committee shall have substituted such alternative requirement for such
Participant at the time it established the Performance Goals for such
Performance Period).
          (ii) Termination of Employment. A Participant shall not be entitled to
payment of an Incentive Award if the Participant does not remain continuously
employed by the Company or one its Subsidiaries until the date such Incentive
Award becomes payable pursuant to Section 5(d)(iii)(A) below (or, alternatively,
on the last day of the Performance Period, if the Committee shall have
substituted such alternative requirement for such Participant at the time it
established the Performance Goals for such Performance Period). Notwithstanding
the foregoing, unless the Committee provides otherwise, in the event a
Participant’s employment terminates due to his or her death or disability, the
Participant (or his or her estate or the persons to whom the right to payment
under this Plan passes by will or the laws of descent and distribution) shall be
eligible to receive the prorated amount of the Incentive Award for which the
Participant otherwise would have been eligible based upon the portion of the
Performance Period during which he or she was so employed so long as the
Performance Goals are subsequently achieved. Payment of such prorated Incentive
Award shall be made in accordance with the terms of Section 5(d)(iii) and (iv).

4

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

 

          (iii) Timing of Payment.
               (A) Following the end of the Performance Period, any payment to
be made with respect to an Incentive Award shall be made pursuant to this Plan
as soon as administratively practicable following the Committee’s certification
in accordance with Section 5(d)(i) above; provided, that any such payment shall
be made between January 1 and March 15 of the calendar year following the
calendar year in which the Performance Period ends.
               (B) To the extent that payment of any Incentive Award may be
deferred under a nonqualified deferred compensation plan established by the
Company, the terms of such nonqualified deferred compensation plan shall govern
such deferral, provided that such plan and any related deferral elections comply
with Section 409A of the Code.
          (iv) Form of Payment. Payment of each Participant’s Incentive Award
for a Performance Period shall be made in cash (or its equivalent) in a lump
sum, subject to applicable tax and other withholding.
Section 6. Withholding Taxes.
     The Company or Subsidiary employing any Participant shall have the right to
deduct from all payments made pursuant to the Plan any and all federal, state
and local taxes or other amounts required by law to be withheld.
Section 7. Miscellaneous Provisions
     (a) Compliance with Legal Requirements. The Plan and the granting of
Incentive Awards, and the other obligations of the Company under the Plan shall
be subject to all applicable federal and state laws, rules and regulations, and
to such approvals by any regulatory or governmental agency as may be required.
     (b) No Right To Continued Employment. Nothing in the Plan or in any
Incentive Award shall confer upon any Participant the right to continue in the
employ of the Company or any of its Subsidiaries or to be entitled to any
remuneration or benefits not set forth in the Plan or to interfere with or limit
in any way the right of the Company or Subsidiary to terminate such
Participant’s employment at any time for any reason.
     (c) Participant Rights. No person shall have any claim or right to be
granted any Incentive Award under the Plan, and there is no obligation for
uniformity of treatment among Participants.
     (d) Unfunded Status of Incentive Awards. The Plan is intended to constitute
an “unfunded” plan for incentive compensation. Payments shall be made solely
from the general assets of the Company and its Subsidiaries. With respect to any
payments for which a Participant may be eligible pursuant to an Incentive Award,
nothing contained in the Plan or any Incentive Award shall give any such
Participant any rights that are greater than those of a general unsecured
creditor of the Company.
     (e) No Transferability of Rights. A Participant’s rights and interests
under the Plan may not be assigned, pledged, transferred or made subject to any
lien, either directly or by operation of law or otherwise (except for a transfer
by will or the laws of descent and distribution in the event of a Participant’s
death), including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner.

5

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

 

     (f) Governing Law. The Plan and the rights of all persons claiming
hereunder shall be construed and determined in accordance with the laws of the
State of North Carolina without giving effect to the choice of law principles
thereof, except to the extent that such law is preempted by federal law.
     (g) Other Compensation Plans. Nothing contained in this Plan shall prevent
the Company from establishing other or additional compensation arrangements.
Section 8. Effective Date
     The Plan originally became effective upon its adoption by the Board on
October 11, 2001, subject to the requisite approval of the shareholders of the
Company at the 2002 Annual Meeting of Stockholders which was obtained on May 8,
2002. It was subsequently amended and restated effective as of April 19, 2007,
subject to the requisite approval of the shareholders of the Company at the 2007
Annual Meeting of Stockholders which was obtained on April 19, 2007. This
amendment and restatement shall be effective upon its adoption by the Committee
on December 4, 2008, provided that the amendments to Section 5(b) in this
amendment and restatement of the Plan shall be subject to the requisite approval
of the shareholders of the Company at the 2009 Annual Meeting of Stockholders.
In the absence of such shareholder approval, any outstanding Incentive Awards
for which the terms have been established under this amended and restated Plan
but which are subject to such shareholder approval shall be null and void.
Section 9. Amendment and Termination of the Plan
     The Board or the Committee may at any time and from time to time alter,
amend, suspend, or terminate the Plan in whole or in part; provided, however,
that any amendment that increases the maximum amount that can be paid to a
Participant during a Performance Period under the Plan or any other amendment
that requires stockholder approval in order for the Plan to continue to comply
with Section 162(m) of the Code shall be subject to approval by the requisite
vote of the shareholders of the Company. No amendment shall adversely affect any
of the rights of any Participant, without such Participant’s consent, under any
Incentive Award theretofore granted under the Plan. Notwithstanding the
foregoing, the Board or the Committee may amend the Plan or any Incentive Award
in any respect it deems necessary or advisable to comply with applicable law
without obtaining a Participant’s consent, including, but not limited to,
reforming (including on a retroactive basis, if applicable) any terms of an
Incentive Award to comply with or meet an exemption from Section 409A of the
Code and applicable regulations and guidance issued thereunder.
Section 10. Reapproval of Plan
     The Plan must be resubmitted to the shareholders of the Company as
necessary to enable the Plan to qualify as performance-based compensation under
Section 162(m) of the Code. As of the time of the Plan’s adoption, Section
162(m) requires that the shareholders reapprove the Plan no later than the first
shareholder meeting that occurs in the fifth year following the year in which
the shareholders previously approved the Plan.
Section 11. Intent With Respect to Code Section 409A
     It is the general intent of the Company that neither this Plan nor any
Incentive Awards hereunder be subject to Section 409A of the Code.
Notwithstanding the foregoing, to the extent that any Incentive Awards hereunder
may constitute nonqualified deferred compensation within the meaning of
Section 409A of the Code, the Company intends that such Incentive Awards shall
comply with Section 409A of

6

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

 

the Code, and the Committee shall determine and interpret the terms of any such
Incentive Awards consistent with such intent. To the extent an Incentive Award
does not provide for a deferral of compensation (within the meaning of
Section 409A of the Code), but may be deferred under a nonqualified deferred
compensation plan established by the Company, the terms of such nonqualified
deferred compensation plan shall govern such deferral, and to the extent
necessary, are incorporated herein by reference. Notwithstanding the foregoing,
the Company does not guarantee to any Participant (or any other person with an
interest in an Incentive Award) that the Plan or any Incentive Award hereunder
complies with or is exempt from Section 409A, and shall not have any liability
to or indemnify or hold harmless any individual with respect to any tax
consequences that arise under or in connection with Section 409A.
Section 12. Intent to Comply With Code Section 162(m)
     It is the intent of the Company that the Plan and Incentive Awards under
the Plan for Covered Employees comply with Section 162(m) of the Code, to the
extent applicable, and all provisions hereof shall be construed in a manner to
so comply. To the extent that any legal requirement of Section 162(m) of the
Code as set forth in the Plan shall be modified or ceases to be required under
Section 162(m) of the Code, the Committee may determine that such provision
shall be correspondingly modified or cease to apply, as the case may be.

7