Exhibit 10.1
 
LITHIA MOTORS, INC.
RESTRICTED STOCK UNIT AGREEMENT
(Performance and Time Vesting)

This Restricted Stock Unit Agreement (“Agreement”) is entered into pursuant to
the Amended and Restated 2003 Stock Incentive Plan (the “Plan”) as adopted by
the Board of Directors and Shareholders of Lithia Motors, Inc., an
Oregon corporation (the “Company”) and as amended from time to time.  Unless
otherwise defined herein, capitalized terms in this Agreement have the meanings
as defined in the Plan. Any inconsistency between this Agreement and the terms
and conditions of the Plan will be resolved in accordance with the Plan.
Compensation paid pursuant to this Agreement is intended to qualify as
performance-based compensation under Section 162(m) of the Internal Revenue Code
of 1986 (the “Code”).

 

“Recipient”
                                                                                 
 
                                                                                        
Number of Restricted Stock Units (“RSUs”)
                                                                                                                                                                       
    “Date of Grant” February 1, 2013

 
                                                             
 
1.           GRANT OF RESTRICTED STOCK UNIT AWARD

1.1           The Grant.  The Company hereby awards to Recipient and Recipient
accepts the award of RSUs specified above on the terms and conditions set forth
in this Agreement and the Plan (the “Award”).  Each RSU represents the right to
receive one share of Class A Common Stock of the Company (a “Share”) on an
applicable Settlement Date (as defined in Section 1.3 of this Agreement),
subject to the terms of this Agreement and the Plan.

1.2           Forfeiture; Vesting; Clawback.  The RSUs are subject to forfeiture
in accordance with the performance criteria specified in Section 1.2(a) of this
Agreement. Any RSUs not forfeited will vest according to the schedule set forth
in Section 1.2(b) of this Agreement.  The RSUs, the Shares issued upon vesting
of the RSUs and any proceeds received upon the sale of the Shares are subject to
recovery by the Company as specified in Section 1.2(c) of this Agreement.

(a)           Forfeiture.

(i)           The RSUs are subject to forfeiture based on the Company’s 2013
Proforma earnings per share (the “2013 Proforma EPS”). The number of RSUs that
will be forfeited is determined according to the highest earnings per share
threshold set forth on the table below (each, an “EPS Threshold”) that the 2013
Proforma EPS meets or exceeds.  The table below specifies the applicable
percentage of RSUs that will be retained (the “Earned RSUs”), subject to
adjustment as provided in Section 1.2(a)(ii), at the specified EPS Threshold.
When the Committee certifies the number of Earned RSUs as provided in Section
1.2(a)(iii), all RSUs that are not Earned RSUs are forfeited.

EPS Threshold
Percentage of Earned RSUs
$  3.53 (highest)
100%
$  3.45
90%
$  3.37
80%
$  3.29
70%
$  3.21
60%
$  3.13
50%
$  3.05
40%
$  0.01
30%
$  0.00 or negative earnings per share (lowest)
0%

 
 
 

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(ii)           If the 2013 Proforma EPS is at least $3.05 and falls between the
EPS Thresholds specified in the table above, the percentage of Earned RSUs will
be determined on a pro-rata basis and the number of Earned RSUs will be rounded
to the nearest whole RSU.  If the 2013 Proforma EPS is positive but less than
$3.05, the percentage of Earned RSUs will not exceed 30%.
 
Example 1:  If the 2013 Proforma EPS is $3.27, the percentage of Earned RSUs
would be 60% plus an additional percentage calculated as follows:  (a) the
amount by which 2013 Proforma EPS exceeds the highest applicable EPS Threshold
multiplied by (b) a fraction, (i) the numerator of which is 10% and the (ii)
denominator of which is the difference between the highest applicable EPS
Threshold and the next-highest EPS Threshold that was exceeded (in this example,
$3.29 - $3.21 = $0.08):
 
$0.06 (10%/$0.08) = 7.5%
 
The resulting percentage of Earned RSUs correlating to an EPS of $3.27 would be
67.5%.  If the Award were 1,000 RSUs, the number of Earned RSUs would be 67.5%
of 1,000, or 675 RSUs. The number of forfeited RSUs would be 1,000 minus 675, or
325. The Earned RSUs would be subject to the vesting according to the schedule
specified in Section 1.2(b) of this Agreement.

(iii)           The 2013 Proforma EPS will be calculated by deducting from the
Company’s consolidated earnings per share (as set forth in the audited
consolidated statement of income for the Company and its subsidiaries for the
year) the following, in each case related to non-operational transactions or
disposal activities:

i.          gains or losses on the sale of real estate or stores;
ii.          asset impairments;
iii.         income tax adjustments.

As soon as practicable, the Director of Internal Audit of the Company shall
calculate the 2013 Proforma EPS, and shall submit those calculations to the
Committee.  At or prior to the regularly scheduled meeting of the Committee held
in the first fiscal quarter of 2014, the Committee shall certify in writing
(which may consist of approved minutes of the meeting) the 2013 Proforma EPS and
the number of Earned RSUs.  Unless otherwise required under this Agreement, no
Shares or other amounts shall be delivered or paid unless the Committee
certifies the 2013 Proforma EPS and the number of Earned RSUs.

(b)           Vesting.  Any Earned RSUs shall vest subject to the continued
employment of Recipient with the Company or any Subsidiary through the vesting
dates set forth in the table below (each, a “Vesting Date”).  The number of
Shares to which Recipient is entitled on each Vesting Date shall be rounded up
to the nearest whole Share (except for the last Vesting Date, on which all
remaining RSUs shall vest).
 
 
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Vesting Date
Vesting of
Award
February 1, 2014
25%
February 1, 2015
25%
February 1, 2016
25%
February 1, 2017
25%

 

 Example 2:  If there are 675 Earned RSUs as described in Example 1, above, they
would vest and entitle Recipient to receive Shares as follows.              
Vesting Date
Vesting of
Award
Shares
   
February 1, 2014
25%
169
   
February 1, 2015
25%
169
   
February 1, 2016
25%
169
   
February 1, 2017
25%
168
 

(c)           Clawback.  If the Company’s financial statements are restated at
any time within three years after the Committee certifies the number of Earned
RSUs under Section 1.2(a)(iii) of this Agreement, the 2013 Proforma EPS shall be
recalculated (the resulting number, the “Recalculated 2013 Proforma EPS”) based
on the restated financial statements. If, based on the Company’s restated
financial statements, the Recalculated 2013 Proforma EPS is less than the 2013
Proforma EPS that the Committee previously certified, (i) any Earned RSUs
subject to vesting shall be adjusted to reflect the number of RSUs that would
have been Earned RSUs based on the Recalculated 2013 Proforma EPS and (ii)
Recipient shall repay to the Company a number of Shares calculated by
subtracting the number of Shares Recipient should have received based on the
Recalculated 2013 Proforma EPS from the number of Shares Recipient received
under this Award (the “Excess Shares”) and any dividend paid on the Excess
Shares (the “Excess Dividends”).  If any Excess Shares are sold by Recipient
before the Company’s demand for repayment (including any Shares withheld for
taxes under Section 4 of this Agreement), Recipient shall repay to the Company
100% of the proceeds of such sale or sales.  The Committee may, in its sole
discretion, reduce the amount to be repaid by Recipient to take into account the
tax consequences of such repayment for Recipient.
 
If any portion of the Excess Shares and Excess Dividends was deferred under the
RSU Deferral Plan effective January 1, 2012 (the “Deferral Plan”), that portion
shall be recovered by canceling the amounts so deferred under the Deferral Plan
and any dividends or other earnings credited under the Deferral Plan with
respect to such cancelled amounts.  The Company may seek direct repayment from
Recipient of any Excess Shares, Excess Dividends and proceeds not so recovered
and may, to the extent permitted by applicable law, offset such amounts against
any compensation or other amounts owed by the Company to Recipient.  In
particular, such amounts may be recovered by offset against the after-tax
proceeds of deferred compensation payouts under the Company’s Deferred
Compensation Plan, the Company’s Supplemental Executive Retirement Plan at the
times such deferred compensation payouts occur under the terms of those
plans.  Amounts that remain unpaid for more than 60 days after demand by the
Company shall accrue interest at the rate used from time to time for crediting
interest under the Deferred Compensation Plan.
 
1.3           Settlement of Earned RSUs.  There is no obligation for the Company
to make payments or distributions with respect to RSUs except for the
distribution of Shares with respect to Earned RSUs after the applicable Vesting
Date. The Company’s issuance of one Share for each vested Earned RSU
(“Settlement”) may be subject to such conditions, restrictions and contingencies
as the Committee shall determine.  The Company agrees not to exercise its right
under the Plan to settle Earned RSUs in any medium other than Shares.  Unless
receipt of the Shares is validly deferred pursuant to the RSU Deferral Plan
effective January 1, 2012, Earned RSUs shall be settled as soon as practicable
after the  applicable Vesting Date (each date of Settlement, a “Settlement
Date”), but in no event later than March 15 of the calendar year following the
calendar year in which the Vesting Date occurs.  Notwithstanding the foregoing,
the payment dates set forth in this Section 1.3 have been specified for the
purpose of complying with the short-term deferral exception under Code Section
409A, and to the extent payments are made during the periods permitted under
Code Section 409A (including applicable periods before or after the specified
payment dates set forth in this Section 1.3), the Company shall be deemed to
have satisfied its obligations under the Plan and shall be deemed not to be in
breach of its payment obligations hereunder.
 
 
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1.4           Termination of Recipient’s Employment.

(a)           Voluntary or Involuntary Termination.  Except as otherwise
provided in this Section 1.4, if Recipient’s employment with the Company or any
Subsidiary terminates as a result of a voluntary or involuntary termination, all
outstanding unvested RSUs (whether or not determined to be Earned RSUs) shall
immediately be forfeited.

(b)           Death.  If Recipient’s employment with the Company or any
Subsidiary terminates as a result of Recipient’s death, Recipient shall become
vested in a prorated number of Earned RSUs.  The prorated portion of the Earned
RSUs that is vested as of Recipient’s death shall be the total number of Earned
RSUs multiplied by a fraction, the numerator of which shall be the number of
full months elapsed from the Date of Grant through the date of Recipient’s
death, and the denominator of which shall be 48.  The Vesting Date for
additional RSU vesting under this Section 1.4(b) shall be the date of
Recipient’s death.

(c)           Disability.  If Recipient becomes Disabled while employed by the
Company or a Subsidiary, Earned RSUs shall continue to vest as scheduled in
Section 1.2 of this Agreement for so long as Recipient remains Disabled.  If
Recipient dies after having become Disabled, Section 1.4(b) of this Agreement
shall apply.

(d)           Qualified Retirement.  If Recipient terminates employment due to a
Qualified Retirement, Recipient shall become vested in a prorated number of
Earned RSUs.  A “Qualified Retirement” means the  Recipient voluntarily
terminates employment on or after Recipient attains age 65 and has at least four
complete years of employment with the Company or a Subsidiary.  The prorated
portion of the Earned RSUs that is vested as of Recipient’s Qualified
Retirement  shall be the total number of Earned RSUs multiplied by a fraction,
the numerator of which shall be the number of full months elapsed from the Date
of Grant through the date of Recipient’s Qualified Retirement, and the
denominator of which shall be 48.

Notwithstanding anything in this Agreement to the contrary, in no event will any
Settlement occur prior to the applicable Vesting Date.

1.5           Effect of Leaves of Absence on RSU Vesting. Notwithstanding
anything in this Agreement to the contrary:

(a)           No RSUs will vest while Recipient is on an unpaid leave of
absence; and

(b)           The vesting schedule in Section 1.2(b) of this Agreement shall
automatically be extended by the duration of any unpaid leave of absence in
excess of 90 days.
 
 
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2.           REPRESENTATIONS AND COVENANTS OF RECIPIENT

2.1           No Representations by or on Behalf of the Company.  Recipient is
not relying on any representation, warranty or statement made by the Company or
any agent, employee or officer, director, shareholder or other controlling
person of the Company regarding the RSUs or this Agreement.

2.2           Tax Considerations.  The Company has advised Recipient to seek
Recipient’s own tax and financial advice with regard to the federal and state
tax considerations resulting from Recipient’s receipt of the Award and
Recipient’s receipt of the Shares upon Settlement of the vested portion of the
Award.  Recipient understands that the Company, to the extent required by law,
will report to appropriate taxing authorities the payment to Recipient of
compensation income upon the Settlement of RSUs under the Award and Recipient
shall be solely responsible for the payment of all federal and state taxes
resulting from such Settlement.

2.3           Agreement to Enter into Lock-Up Agreement with an
Underwriter.  Recipient understands and agrees that whenever the Company
undertakes a firmly underwritten public offering of its securities, Recipient
will, if requested to do so by the managing underwriter in such offering, enter
into an agreement not to sell or dispose of any securities of the Company owned
or controlled by Recipient, including any the RSUs, provided that such
restriction will not extend beyond 12 months from the effective date of the
registration statement filed in connection with such offering.

3.           GENERAL RESTRICTIONS OF TRANSFERS OF UNVESTED RSUS

3.1           No Transfers of Unvested RSUs.  Except for a transfer upon
Recipient’s death, Recipient agrees for himself or herself, his or her
executors, administrators and other successors in interest that none of the
RSUs, nor any interest therein, may be voluntarily or involuntarily sold,
transferred, assigned, donated, pledged, hypothecated or otherwise disposed of,
gratuitously or for consideration prior to their vesting in accordance with this
Agreement.

3.2           Award Adjustments.  The number of RSUs granted under this Award
shall, at the discretion of the Committee, be subject to adjustment under the
Plan in the event the outstanding shares of Common Stock are hereafter
increased, decreased, changed into or exchanged for a different number or kind
of shares of Common Stock or for other securities of the Company or of another
corporation, by reason of any reorganization, merger, consolidation,
reclassification, stock split up, combination of shares of Common Stock, or
dividend payable in shares of Common Stock or other securities of the
Company.  If Recipient receives any additional RSUs pursuant to the Plan, such
additional (or other) RSUs shall be deemed granted hereunder and shall be
subject to the same restrictions and obligations on the RSUs as originally
granted as imposed by this Agreement.

3.3           Invalid Transfers.  Any disposition of the RSUs other than in
strict compliance with the provisions of this Agreement shall be void.

4.           PAYMENT OF TAX WITHHOLDING AMOUNTS.  To the extent the Company is
responsible for withholding income taxes, upon the vesting of the Award
Recipient must pay to the Company or make adequate provision for the payment of
all Tax Withholding.  It is expected that the Award will vest under Section 1.2
of this Agreement during a period in which trading is not permitted under the
Company’s insider trading policy.  To satisfy the Tax Withholding requirement,
Recipient irrevocably elects to settle the Tax Withholding obligation by the
Company withholding a number of Shares otherwise deliverable upon vesting having
a market value sufficient to satisfy the statutory minimum tax withholding of
Recipient.  If the Company later determines that additional Tax Withholding was
or has become required beyond any amount paid or provided for by Recipient,
Recipient will pay such additional amount to the Company immediately upon demand
by the Company.  If Recipient fails to pay the amount demanded, the Company may
withhold that amount from other amounts payable by the Company to Recipient.
 
 
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5.           MISCELLANEOUS PROVISIONS

5.1           Amendment and Modification.  Except as otherwise provided by the
Plan, this Agreement may be amended, modified and supplemented only by written
agreement of all of the parties hereto.

5.2           Assignment.  This Agreement and all of the provisions hereof shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by Recipient
without the prior written consent of the Company.

5.3           Governing Law.  To the extent not preempted by federal law, this
Agreement and the rights and obligations of the parties hereunder shall be
governed by and construed in accordance with the internal laws of the State of
Oregon applicable to the construction and enforcement of contracts wholly
executed in Oregon by residents of Oregon and wholly performed in Oregon.  Any
action or proceeding brought by any party hereto shall be brought only in a
state or federal court of competent jurisdiction located in the County of
Multnomah in the State of Oregon and all parties hereto hereby submit to the in
personal jurisdiction of such court for purposes of any such action or
procedure.

5.4           Arbitration.  The parties agree to submit any dispute arising
under this Agreement to final, binding, private arbitration in Portland,
Oregon.  This includes not only disputes about the meaning or performance of the
Agreement, but disputes about its negotiation, drafting, or execution.  The
dispute will be determined by a single arbitrator in accordance with the
then-existing rules of arbitration procedure of Multnomah County, Oregon Circuit
Court, except that there shall be no right of de novo review in Circuit Court
and the arbitrator may charge his or her standard arbitration fees rather than
the fees prescribed in the Multnomah County Circuit Court arbitration
procedures.  The proceeding will be commenced by the filing of a civil complaint
in Multnomah County Circuit Court and a simultaneous request for transfer to
arbitration. The parties expressly agree that they may choose an arbitrator who
is not on the list provided by the Multnomah County Circuit Court Arbitration
Department, but if they are unable to agree upon the single arbitrator within
ten days of receipt of the Arbitration Department list, they will ask the
Arbitration Department to make the selection for them.  The arbitrator will have
full authority to determine all issues, including arbitrability, to award any
remedy, including permanent injunctive relief, and to determine any request for
costs and expenses in accordance with Section 5.5 of this Agreement.  The
arbitrator’s award may be reduced to final judgment in Multnomah County Circuit
Court.  The complaining party shall bear the arbitration expenses and may seek
their recovery if it prevails.  Notwithstanding any other provision of this
Agreement, an aggrieved party may seek a temporary restraining order or
preliminary injunction in Multnomah County Circuit Court to preserve the status
quo during the arbitration proceeding.

5.5           Attorney Fees.  If any suit, action, or proceeding is instituted
in connection with any controversy arising out of this Agreement or the
enforcement of any right hereunder, the prevailing party will be entitled to
recover, in addition to costs, such sums as the court or arbitrator may adjudge
reasonable as attorney fees, including fees on any appeal.

5.6           Headings.  The headings of the sections and subsections of this
Agreement are inserted for convenience only and shall not constitute a part
hereof.

5.7           Entire Agreement.  This Agreement and the Plan embody the entire
agreement and understanding of the parties hereto in respect of the subject
matter contained herein and supersedes all prior written or oral communications
or agreements all of which are merged herein.  There are no restrictions,
promises, warranties, covenants, or undertakings, other than those expressly set
forth or referred to herein.
 
 
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5.8           No Waiver.  No waiver of any provision of this Agreement or any
rights or obligations of any party hereunder shall be effective, except pursuant
to a written instrument signed by the party or parties waiving compliance, and
any such waiver shall be effective only in the specific instance and for the
specific purpose stated in such writing.

5.9           Severability of Provisions.  In the event that any provision
hereof is found invalid or unenforceable pursuant to judicial decree or
decision, the remainder of this Agreement shall remain valid and enforceable
according to its terms.

5.10           Incorporation by Reference, Etc.  The provisions of the Plan are
hereby incorporated herein by reference.  Except as otherwise set forth herein,
this Agreement shall be construed in accordance with the provisions of the Plan
and any interpretations, amendments, rules and regulations promulgated by the
Committee from time to time pursuant to the Plan.  The Committee shall have the
final authority to interpret and construe the Plan and this Agreement and to
make any and all determinations under them, and its decision shall be final,
binding and conclusive upon Recipient and his or her legal representative in
respect to any questions arising under the Plan or this Agreement.

5.11           Notices.  All notices or other communications pursuant to this
Agreement shall be in writing and shall be deemed duly given if delivered
personally or by courier service, or if mailed by certified mail, return receipt
requested, prepaid and addressed to the Company executive offices to the
attention of the Corporate Secretary, or if to Recipient, to the address
maintained by the personnel department, or such other address as such party
shall have furnished to the other party in writing.

5.12           Acceptance of Agreement. Unless Recipient notifies the Corporate
Secretary in writing within 14 days after the Date of Grant that Recipient does
not wish to accept this Agreement, Recipient will be deemed to have accepted
this Agreement and will be bound by the terms of this Agreement and the Plan.

5.13           No Right of Employment.  Nothing contained in the Plan or this
Agreement shall be construed as giving Recipient any right to be retained, in
any position, as an employee of the Company or any Subsidiary.
 
 
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Recipient and the Company have executed this Agreement effective as of the Grant
Date.

RECIPIENT
                                                                                                                                                                   
Signature

Type or Print Name:                                            
                              

Social Security Number:                                           

COMPANY                                                           LITHIA MOTORS,
INC.

By:                                                                         
      Chris Holzshu, CFO

* Please take the time to read and understand this Agreement in its
entirety.  If you have any specific questions or do not fully understand any of
the provisions, please contact Chris Holzshu in writing within 10 days of
receipt of this Agreement.

 
 
 
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