Document:

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                                                                   Exhibit 10.19

                               SECURITY AGREEMENT

DEBTOR:    QIC HOLDING CORP.
ADDRESS:   550 15TH STREET
           SAN FRANCISCO, CALIFORNIA  94103

DATE:      JUNE 5, 1998

THIS SECURITY AGREEMENT is entered into as of the above date at Los Angeles,
California, between the above-named debtor(s) (jointly and severally, the
"Debtor"), whose chief executive offices are set forth above ("Debtor's
Address"), and SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"),
whose address is 3003 Tasman Drive, Santa Clara, California 95054. Certain
capitalized terms used in this Agreement are defined in Section 6 below.

1. DEFINITIONS OF OBLIGATIONS AND COLLATERAL; GRANT OF SECURITY INTEREST.

   1.1 OBLIGATIONS. The term "Obligations" as used in this Agreement shall mean
and include each and all of the following: the obligation to pay and perform
when due all indebtedness, liabilities, obligations, guarantees, covenants,
agreements, warranties and representations of Debtor to Silicon, whether
heretofore, now or hereafter existing, owing or arising; whether primary,
secondary, direct, absolute, contingent, fixed, secured or unsecured; joint or
several, monetary or non-monetary; and whether created pursuant to, or caused by
Debtor's breach of, this Agreement, or any other present or future agreement or
instrument, or created by operation of law or otherwise. The Obligations include
without limitation the obligations of Debtor under that certain Continuing
Guaranty in favor of Silicon with respect to the indebtedness of QUINTON
INSTRUMENT COMPANY , and all extensions and renewals thereof.

   1.2 COLLATERAL. To secure the payment and performance of all of the
Obligations when due, Debtor hereby grants to Silicon a security interest in all
of Debtor's interest in the following, whether now owned or hereafter acquired,
and wherever located (collectively, the "Collateral"): All Inventory, Equipment,
Receivables, and General Intangibles, including, without limitation, all of
Debtor's Deposit Accounts, all money, all collateral in which Silicon is granted
a security interest pursuant to any other present or future agreement, all
property now or at any time in the future in Silicon's possession, and all
proceeds (including proceeds of any insurance policies, proceeds of proceeds and
claims against third parties), all products of the foregoing, and all books and
records related to any of the foregoing.

2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE DEBTOR.

   In order to induce Silicon to enter into this Agreement, Debtor represents
and warrants to Silicon as follows, and Debtor covenants that the following
representations will continue to be true, and that Debtor will at all times
comply with all of the following covenants:

   2.1 CORPORATE EXISTENCE AND AUTHORITY. Debtor, if a corporation, is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Debtor is and will continue to be
qualified and licensed to do business in all jurisdictions in which any
failure to do so would have a material adverse effect on Debtor. The
execution, delivery and performance by Debtor of this Agreement, and all other
documents contemplated hereby (i) have been duly and validly authorized, (ii)
are enforceable against Debtor in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors'
rights generally), (iii) do not violate Debtor's articles or certificate of
incorporation, or Debtor's by-laws, or any law or any material agreement or
instrument which is binding upon Debtor or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Debtor or its
property.

   2.2 NAME; TRADE NAMES AND STYLES. The name of Debtor set forth in the heading
to this Agreement is its correct name. Listed on the Schedule are all prior
names of Debtor and all of Debtor's present and prior trade names. Debtor shall
give Silicon 30 days' prior written notice before changing its name or doing
business under any other name. Debtor has complied, and will in the future
comply, with all laws relating to the conduct of business under a fictitious
business name.

   2.3 PLACE OF BUSINESS; LOCATION OF COLLATERAL. The ad- dress set forth in the
heading to this Agreement is Debtor's chief executive office. In addition,
Debtor has places of business and Collateral is located only at the locations
set forth on the Schedule. Debtor will give Silicon at least 30 days prior
written notice before opening any additional place of business, changing its
chief executive office, or moving any of the Collateral to a location other than
Debtor's Address or one of the locations set forth on the Schedule.

   2.4 TITLE TO COLLATERAL; PERMITTED LIENS. Debtor is now, and will at all
times in the future be, the sole owner of all the Collateral, except for items
of Equipment which are leased by Debtor. The Collateral now is and will remain
free and clear of any and all liens, charges, security interests, encumbrances
and adverse claims, except for Permitted Liens. Silicon now has, and will
continue to

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have, a first-priority perfected and enforceable security interest in all of
the Collateral, subject only to the Permitted Liens, and Debtor will at all
times defend Silicon and the Collateral against all claims of others. Whenever
any Collateral is located upon premises in which any third party has an interest
(whether as owner, mortgagee, beneficiary under a deed of trust, lien or
otherwise), Debtor shall, whenever requested by Silicon, use its best efforts to
cause such third party to execute and deliver to Silicon, in form acceptable to
Silicon, such waivers and subordinations as Silicon shall specify, so as to
ensure that Silicon's rights in the Collateral are, and will continue to be,
superior to the rights of any such third party. Debtor will keep in full force
and effect, and will comply with all the terms of, any lease of real property
where any of the Collateral now or in the future may be located.

   2.5 MAINTENANCE OF COLLATERAL. Debtor will maintain the Collateral in good
working condition, ordinary wear and tear excepted, and Debtor will not use the
Collateral for any unlawful purpose. Debtor will immediately advise Silicon in
writing of any material loss or damage to the Collateral.

   2.6 BOOKS AND RECORDS. Debtor has maintained and will maintain at Debtor's
Address complete and accurate books and records, comprising an accounting system
in accordance with generally accepted accounting principles.

   2.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements now
or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and fairly reflect the financial condition of Debtor, at
the times and for the periods therein stated. Between the last date covered by
any such statement provided to Silicon and the date hereof, there has been no
material adverse change in the financial condition or business of Debtor. Debtor
is now and will continue to be solvent.

   2.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Debtor has timely filed,
and will timely file, all tax returns and reports required by applicable law,
and Debtor has timely paid, and will timely pay, all applicable taxes,
assessments, deposits and contributions now or in the future owed by Debtor.
Debtor may, however, defer payment of any contested taxes, provided that Debtor
(i) in good faith contests Debtor's obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted, (ii) notifies
Silicon in writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep the
contested taxes from becoming a lien upon any of the Collateral. Debtor is
unaware of any claims or adjustments proposed for any of Debtor's prior tax
years which could result in additional taxes becoming due and payable by Debtor.
Debtor has paid, and shall continue to pay all amounts necessary to fund all
present and future pension, profit sharing and deferred compensation plans in
accordance with their terms, and Debtor has not and will not withdraw from
participation in, permit partial or complete termination of, or permit the
occurrence of any other event with respect to, any such plan which could result
in any liability of Debtor, including any liability to the Pension Benefit
Guaranty Corporation or any other governmental agency. Debtor shall, at all
times, utilize the services of an outside payroll service providing for the
automatic deposit of all payroll faxes payable by Debtor.

   2.9 COMPLIANCE WITH LAW. Debtor has complied, and will comply, in all
material respects, with all provisions of all applicable laws and regulations,
including, but not limited to, those relating to Debtor's ownership of real or
personal property, the conduct and licensing of Debtor's business, and all
environmental matters.

   2.10 LITIGATION. Except as disclosed in the Schedule, there is no claim,
suit, litigation, proceeding or investigation pending or (to best of Debtor's
knowledge) threatened by or against or affecting Debtor in any court or before
any governmental agency (or any basis therefor known to Debtor) which may
result, either separately or in the aggregate, in any material adverse change in
the financial condition or business of Debtor, or in any material impairment in
the ability of Debtor to carry on its business in substantially the same manner
as it is now being conducted. Debtor will promptly inform Silicon in writing of
any claim, proceeding, litigation or investigation in the future threatened or
instituted by or against Debtor involving any single claim of $50,000 or more,
or involving $100,000 or more in the aggregate.

3. DUTIES OF THE DEBTOR.

   3.1 INSURANCE. Debtor shall, at all times, insure all of the tangible
personal property Collateral and carry such other business insurance, with
insurers reasonably acceptable to Silicon, in such form and amounts as Silicon
may reasonably require, and Debtor shall provide evidence of such insurance to
Silicon, so that Silicon is satisfied that such insurance is, at all times, in
full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no Default
or Event of Default has occurred and is continuing, Silicon shall release to
Debtor insurance proceeds with respect to Equipment totaling less than $100,000,
which shall be utilized by Debtor for the re- placement of the Equipment with
respect to which the insurance proceeds were paid. Silicon may require
reasonable assurance that the insurance proceeds so released will be so used. If
Debtor fails to provide or pay for any insurance, Silicon may, but is not
obligated to, obtain the same at Debtor's expense. Debtor shall promptly deliver
to Silicon copies of all reports made to insurance companies.

   3.2 REPORTS. Debtor, at its expense, shall provide Silicon with the written
reports set forth in the Schedule, and such other written reports with respect
to Debtor (including budgets, sales projections, operating plans and other
financial documentation), as Silicon shall from time to time reasonably specify.

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   3.3 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on one
business day's notice, Silicon, or its agents shall have the right to inspect
the Collateral, and the right to audit and copy Debtor's books and records.
Silicon shall take reasonable steps to keep confidential all information
obtained in any such inspection or audit, but Silicon shall have the right to
disclose any such information to its auditors, regulatory agencies, and
attorneys, and pursuant to any subpoena or other legal process.

   3.4 NEGATIVE COVENANTS. Except as may be permitted in the Schedule, Debtor
shall not, without Silicon's prior written consent, do any of the following: (i)
merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except that, provided no Default or Event of Default has occurred
and is continuing, Debtor may (a) sell finished Inventory in the ordinary course
of Debtor's business, and (b) sell Equipment in the ordinary course of business,
in good-faith arm's length transactions; (v) store any Inventory or other
Collateral with any warehouseman or other third party; (vi) sell any Inventory
on a sale-or-return, guaranteed sale, consignment, or other contingent basis;
(vii) make any loans of any money or other assets; (viii) incur any debts,
outside the ordinary course of business, which would have a material, adverse
effect on Debtor or on the prospect of repayment of the Obligations; (ix)
guarantee or otherwise become liable with respect to the obligations of another
party or entity; (x) pay or declare any dividends on Debtor's stock (except for
dividends payable solely in stock of Debtor); (xi) redeem, retire, purchase or
otherwise acquire, directly or indirectly, any of Debtor's stock; (xii) make any
change in Debtor's capital structure which would have a material adverse effect
on Debtor or on the prospect of repayment of the Obligations; or (xiii) dissolve
or elect to dissolve; or (xiv) agree to do any of the foregoing.

   3.5 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Debtor, Debtor shall, without expense to Silicon, make available
Debtor and its officers, employees and agents, and Debtor's books and records,
without charge, to the extent that Silicon may deem them reasonably necessary in
order to prosecute or defend any such suit or proceeding.

   3.6 NOTIFICATION OF CHANGES. Debtor will promptly notify Silicon in writing
of any change in its officers or directors, the opening of any new bank account
or other deposit account, and any material adverse change in the business or
financial affairs of Debtor.

   3.7 FURTHER ASSURANCES. Debtor agrees, at its expense, on request by Silicon,
to execute all documents and take all actions, as Silicon may deem reasonably
necessary or useful in order to perfect and maintain Silicon's perfected
security interest in the Collateral, and in order to fully consummate the
transactions contemplated by this Agreement.

   3.8 INDEMNITY. Debtor hereby agrees to indemnify Silicon and hold Silicon
harmless from and against any and all claims, debts, liabilities, demands,
obligations, actions, causes of action, penalties, costs and expenses (including
attorneys' fees), of every nature, character and description, which Silicon may
sustain or incur based upon or arising out of any of the Obligations, any actual
or alleged failure to collect and pay over any withholding or other tax relating
to Debtor or its employees, any relationship or agreement between Silicon and
Debtor, any actual or alleged failure of Silicon to comply with any writ of
attachment or other legal process relating to Debtor or any of its property, or
any other matter, cause or thing whatsoever occurred, done, omitted or suffered
to be done by Silicon relating to Debtor or the Obligations (except any such
amounts sustained or incurred as the result of the gross negligence or willful
misconduct of Silicon or any of its directors, officers, employees, agents,
attorneys, or any other person affiliated with or representing Silicon).
Notwithstanding any provision in this Agreement to the contrary, the indemnity
agreement set forth in this Section shall survive any termination of this
Agreement and shall for all purposes continue in full force and effect.

4. TERM. This Agreement shall continue in effect until all of the Obligations
have been paid and performed in full and all agreements between Silicon and
Debtor have been terminated.

5. EVENTS OF DEFAULT AND REMEDIES.

   5.1 EVENTS OF DEFAULT. The occurrence of any of the following events shall
constitute an "Event of Default" under this Agreement, and Debtor shall give
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or delivered to Silicon by Debtor or any
of Debtor's officers, employees or agents, now or in the future, shall be untrue
or misleading in a material respect; or (b) Debtor shall fail to pay when due
any monetary Obligation; or (c) Debtor shall fail to perform any non-monetary
Obligation which by its nature cannot be cured; or (d) Debtor shall fail to
perform any other non-monetary Obligation, which failure is not cured within 5
business days after the date performance is due; or (e) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (f) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any applicable
cure period or waived in writing by the holder of the Permitted Lien; or (g)
Debtor breaches any material contract or obligation, which has or may reasonably
be expected to have a material adverse effect on Debtor's business or financial
condition; or (h) dissolution, termination of existence, insolvency or business
failure of Debtor; or appointment of a receiver, trustee or custodian, for all
or any part of the property of, assignment for the benefit of creditors by, or
the commencement of any proceeding by Debtor under any reorganization,
bankruptcy, insolvency, arrangement, readjustment of debt, dissolution or
liquidation law or statute of any jurisdiction, now or in the future in effect;
or (i) the commencement of any proceeding against Debtor under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation

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law or statute of any jurisdiction, now or in the future in effect, which is not
cured by the dismissal thereof within 45 days after the date commenced; or (j)
there shall be a change in the record or beneficial ownership of an aggregate of
more than 20% of the outstanding shares of stock of Debtor, in one or more
transactions, compared to the ownership of outstanding shares of stock of Debtor
in effect on the date hereof, without the prior written consent of Silicon; or
(k) Debtor shall generally not pay its debts as they become due, or Debtor shall
conceal, remove or transfer any part of its property, with intent to hinder,
delay or defraud its creditors, or make or suffer any transfer of any of its
property which may be fraudulent under any bankruptcy, fraudulent conveyance or
similar law; or (1) there shall be a material adverse change in Debtor's
business or financial condition.

   5.2 REMEDIES. Upon the occurrence and during the continuance of any Event of
Default, and at any time thereafter, Silicon, at its option, and without notice
or demand of any kind (all of which are hereby expressly waived by Debtor), may
do any one or more of the following: (a) Accelerate and declare all or any part
of the Obligations to be immediately due, payable, and performable,
notwithstanding any deferred or installment payments allowed by any instrument
evidencing or relating to any Obligation; (b) Take possession of any or all of
the Collateral wherever it may be found, and for that purpose Debtor hereby
authorizes Silicon without judicial process to enter onto any of Debtor's
premises without interference to search for, take possession of, keep, store, or
remove any of the Collateral, and remain on the premises or cause a custodian to
remain on the premises in exclusive control thereof, without charge for so long
as Silicon deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Silicon seek to take possession of any of the Collateral by Court
process, Debtor hereby irrevocably waives: (i) any bond and any surety or
security relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until after trial or final judgment; (c) Require Debtor to assemble
any or all of the Collateral and make it available to Silicon at places
designated by Silicon which are reasonably convenient to Silicon and Debtor, and
to remove the Collateral to such locations as Silicon may deem advisable; (d)
Complete the processing, manufacturing or repair of any Collateral prior to a
disposition thereof and, for such purpose and for the purpose of removal,
Silicon shall have the right to use Debtor's premises, vehicles, hoists, lifts,
cranes, equipment and all other property without charge; (e) Sell, lease or
otherwise dispose of any of the Collateral, in its condition at the time Silicon
obtains possession of it or after further manufacturing, processing or repair,
at one or more public and/or private sales, in lots or in bulk, for cash,
exchange or other property, or on credit, and to adjourn any such sale from time
to time without notice other than oral announcement at the time scheduled for
sale. Silicon shall have the right to conduct such disposition on Debtor's
premises without charge, for such time or times as Silicon deems reasonable, or
on Silicon's premises, or elsewhere and the Collateral need not be located at
the place of disposition. Silicon may directly or through any affiliated company
purchase or lease any Collateral at any such public disposition, and if
permissible under applicable law, at any private disposition. Any sale or other
disposition of Collateral shall not relieve Debtor of any liability Debtor may
have if any Collateral is defective as to title or physical condition or
otherwise at the time of sale; (f) Demand payment of, and collect any
Receivables and General Intangibles comprising Collateral and, in connection
therewith, Debtor irrevocably authorizes Silicon to endorse or sign Debtor's
name on all collections, receipts, instruments and other documents, to take
possession of and open mail addressed to Debtor and remove therefrom payments
made with respect to any item of the Collateral or proceeds thereof, and, in
Silicon's sole discretion, to grant extensions of time to pay, compromise claims
and settle Receivables, General Intangibles and the like for less than face
value; and (h) Demand and receive possession of any of Debtor's federal and
state income tax returns and the books and records utilized in the preparation
thereof or referring thereto. All reasonable attorneys' fees, expenses, costs,
liabilities and obligations incurred by Silicon with respect to the foregoing
shall be added to and become part of the Obligations, shall be due on demand,
and shall bear interest at a rate equal to the highest interest rate applicable
to any of the Obligations.

   5.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Debtor and Silicon
agree that a sale or other disposition (collectively, "sale") of any Collateral
which complies with the following standards will conclusively be deemed to be
commercially reasonable: (i) Notice of the sale is given to Debtor at least
seven days prior to the sale, and, in the case of a public sale, notice of the
sale is published at least seven days before the sale in a newspaper of general
circulation in the county where the sale is to be conducted; (ii) Notice of the
sale describes the collateral in general, non-specific terms; (iii) The sale is
conducted at a place designated by Silicon, with or without the Collateral being
present; (iv) The sale commences at any time between 8:00 a.m. and 6:00 p.m.;
(v) Payment of the purchase price in cash or by cashier's check or wire transfer
is required; (vi) With respect to any sale of any of the Collateral, Silicon may
(but is not obligated to) direct any prospective purchaser to ascertain directly
from Debtor any and all information concerning the same. Silicon shall be free
to employ other methods of noticing and selling the Collateral, in its
discretion, if they are commercially reasonable.

   5.4 POWER OF ATTORNEY. Upon the occurrence and during the continuance of any
Event of Default, without limiting Silicon's other rights and remedies, Debtor
grants to Silicon an irrevocable power of attorney coupled with an interest,
authorizing and permitting Silicon (acting through any of its employees,
attorneys or agents) at any time, at its option, but without obligation, with or
without notice to Debtor, and at Debtor's expense, to do any or all of the
following, in Debtor's name or otherwise, but Silicon agrees to exercise the
following powers in a commercially reasonable manner:

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(a) Execute on behalf of Debtor any documents that Silicon may, in its sole
discretion, deem advisable in order to perfect and maintain Silicon's security
interest in the Collateral, or in order to exercise a right of Debtor or
Silicon, or in order to fully consummate all the transactions contemplated under
this Agreement, and all other present and future agreements; (b) Execute on
behalf of Debtor any document exercising, transferring or assigning any option
to purchase, sell or otherwise dispose of or to lease (as lessor or lessee) any
real or personal property which is part of Silicon's Collateral or in which
Silicon has an interest; (c) Execute on behalf of Debtor, any invoices relating
to any Receivable, any draft against any Account Debtor and any notice to any
Account Debtor, any proof of claim in bankruptcy, any Notice of Lien, claim of
mechanic's, materialman's or other lien, or assignment or satisfaction of
mechanic's, materialman's or other lien; (d) Take control in any manner of any
cash or non-cash items of payment or proceeds of Collateral; endorse the name of
Debtor upon any instruments, or documents, evidence of payment or Collateral
that may come into Silicon's possession; (e) Endorse all checks and other forms
of remittances received by Silicon; (f) Pay, contest or settle any lien, charge,
encumbrance, security interest and adverse claim in or to any of the Collateral,
or any judgment based thereon, or otherwise take any action to terminate or
discharge the same; (g) Grant extensions of time to pay, compromise claims and
settle Receivables and General Intangibles for less than face value and execute
all releases and other documents in connection therewith; (h) Pay any sums
required on account of Debtor's taxes or to secure the release of any liens
therefor, or both; (i) Settle and adjust, and give releases of, any insurance
claim that relates to any of the Collateral and obtain payment therefor; (j)
Instruct any third party having custody or control of any books or records
belonging to, or relating to, Debtor to give Silicon the same rights of access
and other rights with respect thereto as Silicon has under this Agreement; and
(k) Take any action or pay any sum required of Debtor pursuant to this Agreement
and any other present or future agreements. Any and all reasonable sums paid and
any and all reasonable costs, expenses, liabilities, obligations and reasonable
attorneys' fees incurred by Silicon with respect to the foregoing shall be added
to and become part of the Obligations, shall be payable on demand, and shall
bear interest at a rate equal to the highest interest rate applicable to any of
the Obligations. In no event shall Silicon's rights under the foregoing power of
attorney or any of Silicon's other rights under this Agreement be deemed to
indicate that Silicon is in control of the business, management or properties of
Debtor.

   5.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any sale
or other disposition of the Collateral shall be applied by Silicon first to the
reasonable costs, expenses, liabilities, obligations and attorneys' fees
incurred by Silicon in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Silicon shall determine in its sole
discretion. Any surplus shall be paid to Debtor or other persons legally
entitled thereto; Debtor shall remain liable to Silicon for any deficiency. If
Silicon, in its sole discretion, directly or indirectly enters into a deferred
payment or other credit transaction with any purchaser at any sale of
Collateral, Silicon shall have the option, exercisable at any time, in its sole
discretion, of either reducing the Obligations by the principal amount of
purchase price or deferring the reduction of the Obligations until the actual
receipt by Silicon of the cash therefor.

   5.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth in
this Agreement, Silicon shall have all the other rights and remedies accorded a
secured parry under the California Uniform Commercial Code and under all other
applicable laws, and under any other instrument or agreement now or in the
future entered into between Silicon and Debtor, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon to exercise any rights
or remedies shall not operate as a waiver thereof, but all rights and remedies
shall continue in full force and effect until all of the Obligations have been
fully paid and performed.

6. DEFINITIONS. As used in this Agreement, the following terms have the
following meanings:

   "Account Debtor" means the obligor on a Receivable.

   "Affiliate" means, with respect to any Person, a relative, partner,
shareholder, director, officer, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.

   "Agreement" and "this Agreement" means this Security Agreement and al1
modifications and amendments thereto, extensions thereof, and replacements
therefor.

   "Code" means the Uniform Commercial Code as adopted and in effect in the
State of California from time to time.

   "Collateral" has the meaning set forth in Section 1.2 above.

   "Default" means any event which with notice or passage of time or both, would
constitute an Event of Default.

   "Deposit Account" has the meaning set forth in Section 9105 of the Code.

   "Equipment" means all of Debtor's present and hereafter acquired machinery,
molds, machine tools, motors, furniture, equipment, furnishings, fixtures, trade
fixtures, motor vehicles, tools, parts, dyes, jigs, goods and other tangible
personal property (other than Inventory) of every kind and description used in
Debtor's operations or owned by Debtor and any interest in any of the foregoing,
and all attachments, accessories, accessions, replacements, substitutions,
additions or improvements to any of the foregoing, wherever located.

   "Event of Default" means any of the events set forth in Section 5.1 of this
Agreement.

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   "General Intangibles" means all general intangibles of Debtor, whether now
owned or hereafter created or acquired by Debtor, including, without limitation,
all choses in action, causes of action, corporate or other business records,
Deposit Accounts, inventions, designs, drawings, blueprints, patents, patent
applications, trademarks and the goodwill of the business symbolized thereby,
names, trade names, trade secrets, goodwill, copyrights, registrations,
licenses, franchises, customer lists, security and other deposits, rights in all
litigation presently or hereafter pending for any cause or claim (whether in
contract, tort or otherwise), and all judgments now or hereafter arising
therefrom, all claims of Debtor against Silicon, rights to purchase or sell real
or personal property, rights as a licenser or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase orders, and all insurance
policies and claims (including life insurance, key man insurance, credit
insurance, liability insurance, property insurance and other insurance), tax
refunds and claims, computer programs, discs, tapes and tape files, claims under
guaranties, security interests or other security held by or granted to Debtor,
all rights to indemnification and all other intangible property of every kind
and nature (other than Receivables).

   "Inventory" means all of Debtor's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished under
any contract of service or held for sale or lease (including all raw materials,
work in process, finished goods and goods in transit), and all materials and
supplies of every kind, nature and description which are or might be used or
consumed in Debtor's business or used in connection with the manufacture,
packing, shipping, advertising, selling or finishing of such goods, merchandise
or other personal property, and all warehouse receipts, documents of title and
other documents representing any of the foregoing.

   "Obligations" has the meaning set forth in Section 1 above.

   "Permitted Liens" means the following: (i) purchase money security interests
in specific items of Equipment; (ii) leases of specific items of Equipment;
(iii) liens for taxes not yet payable; (iv) additional security interests and
liens which are subordinate to the security interest in favor of Silicon and are
consented to in writing by Silicon (which consent shall not be unreasonably
withheld); (v) security interests being terminated substantially concurrently
with this Agreement: (vi) liens of materialmen, mechanics, warehousemen,
carriers, or other similar liens arising in the ordinary course of business and
securing obligations which are not delinquent; (vii) liens incurred in
connection with the extension, renewal or refinancing of the indebtedness
secured by liens of the type described above in clauses (i) or (ii) above,
provided that any extension, renewal or replacement lien is limited to the
property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest so
long as any Obligations remain outstanding, and that Debtor agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.

   "Person" means any individual, sole proprietorship. partnership, joint
venture, trust, unincorporated organization, association, corporation,
government, or any agency or political division thereof, or any other entity.

   "Receivables" means all of Debtor's now owned and hereafter acquired accounts
(whether or not earned by performance), letters of credit, contract rights,
chattel paper, instruments, securities, documents and all other forms of
obligations at any time owing to Debtor, all guaranties and other security
therefor, all merchandise returned to or repossessed by Debtor, and all rights
of stoppage in transit and all other rights or remedies of an unpaid vendor,
lienor or secured party.

   Other Terms. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with
generally accepted accounting principles, consistently applied. All other terms
contained in this Agreement, unless otherwise indicated, shall have the meanings
provided by the Code, to the extent such terms are defined therein.

7. GENERAL PROVISIONS.

   7.1 APPLICATION OF PAYMENTS. All payments with respect to the Obligations may
be applied, and in Silicon's sole discretion reversed and re-applied, to the
Obligations, in such order and manner as Silicon shall determine in its sole
discretion.

   7.2 NOTICES. All notices to be given under this Agreement shall be in writing
and shall be given either personally or by reputable private delivery service or
by regular first-class mail, or certified mail return receipt requested,
addressed to Silicon or Debtor at the addresses shown in the heading to this
Agreement, or at any other address designated in writing by one party to the
other party. All notices shall be deemed to have been given upon delivery in the
case of notices personally delivered, or at the expiration of one business day
following delivery to the private delivery service, or two business days
following the deposit thereof in the United States mail, with postage prepaid.

   7.3 SEVERABILITY. Should any provision of this Agreement be held by any court
of competent jurisdiction to be void or unenforceable, such defect shall not
affect the remainder of this Agreement, which shall continue in full force and
effect.

   7.4 INTEGRATION. This Agreement and such other written agreements, documents
and instruments as may be executed in connection herewith are the final, entire
and complete

                                      -6-
<PAGE>

                 SILICON VALLEY BANK                      SECURITY AGREEMENT
         -----------------------------------------------------------------------

agreement between Debtor and Silicon and supersede all prior and contemporaneous
negotiations and oral representations and agreements, all of which are merged
and integrated in this Agreement. There are no oral understandings,
representations or agreements between the parties which are not set forth in
this Agreement or in other written agreements signed by the parties in
connection herewith.

   7.5 WAIVERS. The failure of Silicon at any time or times to require Debtor to
strictly comply with any of the provisions of this Agreement or any other
present or future agreement between Debtor and Silicon shall not waive or
diminish any right of Silicon later to demand and receive strict compliance
therewith. Any waiver of any default shall not waive or affect any other
default, whether prior or subsequent, and whether or not similar. None of the
provisions of this Agreement or any other agreement now or in the future
executed by Debtor and delivered to Silicon shall be deemed to have been waived
by any act or knowledge of Silicon or its agents or employees, but only by a
specific written waiver signed by an authorized officer of Silicon and delivered
to Debtor. Debtor waives demand, protest, notice of protest and notice of
default or dishonor, notice of payment and nonpayment, release, compromise,
settlement, extension or renewal of any commercial paper, instrument, account,
General Intangible, document or guaranty at any time held by Silicon on which
Debtor is or may in any way be liable, and notice of any action taken by
Silicon, unless expressly required by this Agreement.

   7.6 AMENDMENT. The terms and provisions of this Agreement may not be waived
or amended, except in a writing executed by Debtor and a duly authorized officer
of Silicon.

   7.7 TIME OF ESSENCE. Time is of the essence in the performance by Debtor of
each and every obligation under this Agreement.

   7.8 ATTORNEYS FEES AND COSTS. Debtor shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, pursuant to,
or in connection with, or relating to this Agreement (whether or not a lawsuit
is filed), including, but not limited to, any reasonable attorneys' fees and
costs Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; obtain legal advice in
connection with this Agreement or Debtor; enforce, or seek to enforce, any of
its rights; prosecute actions against, or defend actions by, Account Debtors;
commence, intervene in, or defend any action or proceeding; initiate any
complaint to be relieved of the automatic stay in bankruptcy; file or prosecute
any probate claim, bankruptcy claim, third-party claim, or other claim; examine,
audit, copy, and inspect any of the Collateral or any of Debtor's books and
records; protect, obtain possession of, lease, dispose of, or otherwise enforce
Silicon's security interest in, the Collateral; and otherwise represent Silicon
in any litigation relating to Debtor. If either Silicon or Debtor files any
lawsuit against the other predicated on a breach of this Agreement, the
prevailing party in such action shall be entitled to recover its reasonable
costs and attorneys' fees, including (but not limited to) reasonable attorneys'
fees and costs incurred in the enforcement of, execution upon or defense of any
order, decree, award or judgment. All attorneys' fees and costs to which Silicon
may be entitled pursuant to this Paragraph shall immediately become part of
Debtor's Obligations, shall be due on demand, and shall bear interest at a rate
equal to the highest interest rate applicable to any of the Obligations.

   7.9 BENEFIT OF AGREEMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors, assigns, heirs,
beneficiaries and representatives of Debtor and Silicon; provided, however, that
Debtor may not assign or transfer any of its rights under this Agreement without
the prior written consent of Silicon, and any prohibited assignment shall be
void. No consent by Silicon to any assignment shall release Debtor from its
liability for the Obligations.

   7.10 JOINT AND SEVERAL LIABILITY. If Debtor consists of more than one person,
their liability shall be joint and several, and the compromise of any claim
with, or the release of, any Debtor shall not constitute a compromise with, or a
release of, any other Debtor.

   7.11 LIMITATION OF ACTIONS. Any claim or cause of action by Debtor against
Silicon, its directors, officers, employees, agents, accountants or attorneys,
based upon, arising from, or relating to this Agreement, or any other present or
future document or agreement, or any other transaction contemplated hereby or
thereby or relating hereto or thereto, or any other matter, cause or thing
whatsoever, occurred, done, omitted or suffered to be done by Silicon, its
directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Debtor by the commencement of an action or proceeding
in a court of competent jurisdiction by the filing of a complaint within one
year after the first act, occurrence or omission upon which such claim or cause
of action, or any part thereof, is based, and the service of a summons and
complaint on an officer of Silicon, or on any other person authorized to accept
service on behalf of Silicon, within thirty (30) days thereafter. Debtor agrees
that such one-year period is a reasonable and sufficient time for Debtor to
investigate and act upon any such claim or cause of action. The one-year period
provided herein shall not be waived, tolled, or extended except by the written
consent of Silicon in its sole discretion. This provision shall survive any
termination of this Agreement or other present or future agreement.

   7.12 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Debtor and Silicon acknowledge that the headings
may not describe completely the subject matter of the applicable paragraph, and
the headings shall not be used in any manner to construe, limit, define or
interpret any term or provision of this Agreement. The term "including",
whenever used in this Agreement, shall mean "including (but not limited to)".
This Agreement has been fully reviewed and negotiated between the parties and no
uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Silicon or Debtor under any rule of construction or
otherwise.

                                      -7-
<PAGE>

                 SILICON VALLEY BANK                      SECURITY AGREEMENT
         -----------------------------------------------------------------------

   7.13 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Debtor
shall be governed by the laws of the State of California. As a material part
of the consideration to Silicon to enter into this Agreement, Debtor (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Los Angeles County;
(ii) consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Debtor may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.

   7.14 MUTUAL WAIVER OF JURY TRIAL. DEBTOR AND SILICON EACH HEREBY WAIVE THE
RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF,
OR IN ANY WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE
INSTRUMENT OR AGREEMENT BETWEEN SILICON AND DEBTOR, OR ANY CONDUCT, ACTS OR
OMISSIONS OF SILICON OR DEBTOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES,
AGENTS, ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR DEBTOR, IN ALL
OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.

  Debtor:      QIC HOLDING CORP.

               By   /s/ J.D. Delafield
                 --------------------------------
                    J.D. Delafield, President

  Silicon:     SILICON VALLEY BANK

               By   /s/ Silicon Valley Bank
                 --------------------------------
               Title
                    -----------------------------

          SCHEDULE TO SECURITY AGREEMENT

PRIOR NAMES OF DEBTOR:

FICTITIOUS NAMES, TRADE NAMES AND TRADE STYLES OF
DEBTOR:

OTHER ADDRESSES AND OTHER LOCATIONS OF COLLATERAL:

                                      -8-<PAGE>
                                                                  EXHIBIT 10.6.1

                        INCENTIVE STOCK OPTION AGREEMENT

        This Incentive Stock Option Agreement is made and entered into as of the
Date of Grant indicated below pursuant to the terms of the Lithia Motors, Inc.
(the "Company") 2001 Stock Option Plan (the "Plan") by and between the Company
and the person named below as the Optionee. Unless otherwise defined herein,
capitalized terms defined in this Incentive Stock Option Agreement shall have
the meanings as defined in the Plan.

THE "OPTIONEE"
                                                   ---------------------------
"DATE OF GRANT"                                                         ,
                                                   --------------------- -----

NUMBER OF SHARES OF THE
COMPANY'S CLASS A COMMON STOCK                     ---------------------------

"EXERCISE PRICE" PER SHARE                         $
                                                   ---------------------------
"EXPIRATION DATE"                                                       ,
                                                   --------------------- -----

"VESTING RATE"                                          % ON
                                                   -----    ------------------
1.      TERMS OF THE OPTION.

        1.1 Grant of Option. The Company hereby grants to the Optionee and the
Optionee hereby accepts, as of the Date of Grant, the right, privilege, and
option (the "Option") to purchase up to the number of shares of Common Stock
indicated above (the "Option Shares") at the Exercise Price indicated above,
subject to adjustment in accordance with the terms and conditions of the Plan.
The Option may only be exercised as to a whole number of shares of Common Stock.

        1.2 Status of this Option as an Incentive Stock Option. The Company
intends that this Option will qualify as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended.
However, if this Option fails in whole or in part to qualify as an incentive
stock option for any reason, this Option shall continue to be valid, shall be an
incentive stock option to the fullest extent permitted and otherwise shall be
treated as a nonqualified stock option. The Company shall not have any liability
to the Optionee for any failure of this Option to qualify, in whole or in part,
as an incentive stock option.

        1.3 Nontransferability of Option. This Option and the rights of the
Optionee under this Incentive Stock Option Agreement may not be transferred in
any manner except by will or by the laws of descent and distribution upon the
death of the Optionee.

                                       1
<PAGE>

        1.4 Reservation of Shares. At all times, the Company shall have reserved
for issuance upon exercise of this Option such number of shares of its Common
Stock as is required for such issuance.

2.      TIME OF EXERCISE OF OPTION.

        2.1 When the Option Becomes Exercisable. This Option may only be
exercised on or after the Grant Date to the extent vested. This Option shall
vest on the date or dates indicated in the Vesting Rate as to that number of
shares that equals (rounded to the nearest whole share) the total number of
Option Shares multiplied by the Vesting Rate as indicated above. Notwithstanding
the foregoing, to the extent that this Incentive Stock Option Agreement
(together with other incentive stock options within the meaning of Section 422
of the Internal Revenue Code held by the Optionee with an equal or lower
exercise price per share) purports to become exercisable for the first time
during any calendar year as to shares of Class A Common Stock with a Fair Market
Value (determined at the time of grant) in excess of $100,000, such excess
shares shall be considered to be covered by a nonqualified stock option and not
an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code. Under certain circumstances, the number of shares indicated in the
foregoing vesting schedule may be adjusted and the vesting dates may be
accelerated in accordance with terms and conditions of the Plan.

        2.2 Effect of Unpaid Leaves of Absence. If at any time during the term
of this Option, the Optionee is on unpaid leave from the Company or any
Subsidiary, the Option may not be exercised during such unpaid leave and the
dates contained in the Vesting Rate shall be extended by the length of such
unpaid leave.

        2.3 Expiration and Termination of Option. This Option will expire at
5:00pm Pacific Time on the Expiration Date and may terminate earlier upon
certain events as set forth in Section 4 of this Incentive Stock Option
Agreement. To the extent that this Option has not been exercised prior to the
Expiration Date or any earlier termination, all further rights to purchase
shares pursuant to this Option will cease and terminate at such time.

3.      OPTION EXERCISE PROCEDURES.

        3.1 Who May Exercise the Option. Only the Optionee (or, in the case of
exercise after death of the Optionee, by the executor, administrator, heir, or
legatee of the Optionee, as the case may be) may exercise this Option.

        3.2 Notice of Exercise. A "Notice of Exercise" must be signed and
delivered to the Company's corporate Secretary or such other person as the
Company may designate at the Company's principal business office of the Company.
A copy of the Company's current form of Notice of Exercise is attached hereto.
The Company, however, reserves the right to revise its form of Notice of
Exercise from time-to-time as it determines to be appropriate. If, at the time
of the exercise of this Option, the Company does not have an effective
registration statement on file with the Securities and Exchange Commission that
covers the issuance of shares upon the exercise of

                                       2
<PAGE>

this Option, the Notice of Exercise will also contain certain representations
from the Optionee as required under applicable state and federal securities
laws. A copy of the then-current form of Notice of Exercise may be obtained at
any time from the Company. A notice will only be effective if submitted on the
form in effect at the time of such exercise.

        3.3 Payment of Exercise Price. The Notice of Exercise must indicate the
manner of payment of the Exercise Price for the number of shares so purchased.
Payment shall be made by cash or by the surrender to the Company for
cancellation of shares of Common Stock or other securities of the Company
(provided that the surrendered shares of Common Stock or other securities of the
Company shall have been held by the Optionee for not less than six months) or
any combination of the foregoing.

        3.4 Payment of Tax Withholding. The Optionee shall pay or make adequate
provision for payment, of any Tax Withholding that may be required upon exercise
of this Option. The notice of exercise shall indicate the method of payment of
Tax Withholding, which may be accomplished by payment in cash, the Company
withholding other amounts payable by the Company to the Optionee, by the
application of shares to be received upon exercise of this Option, the surrender
of shares of Common Stock or other securities of the Company (provided that the
surrendered shares of Common Stock or other securities of the Company shall have
been held by the Optionee for not less than six months) or any combination of
the foregoing.

        3.5 Delivery of Shares Following Exercise. The Company will make
delivery of the Option Shares purchased within a reasonable time after it
receives the Notice of Exercise and payment in full of the Exercise Price of the
Option Shares being purchased. However, if any law or regulation requires the
Company to take any action with respect to the issuance of the Option Shares,
including, without limitation, actions that may be required for compliance with
federal and state securities laws or the listing requirements of any stock
exchange upon which the Company's Common Stock is then listed, then the date of
delivery of such shares may be extended for the period necessary to take such
action. The Optionee shall only become the holder of such shares upon the actual
issuance of the stock certificate representing such shares.

4.      TERMINATION OF THE OPTION

        4.1 Effect of the Death of the Optionee. If the Optionee dies while an
employee of the Company or any Subsidiary, this Option will terminate 12 months
following the date of the Optionee's death or, if sooner, upon the Expiration
Date. In such event, this Option may be exercised only to the extent the
Optionee was entitled to exercise this Option on the date of the Optionee's
death and only by the person or persons to whom the Optionee's rights under this
Option may pass by the Optionee's will or by the laws of descent and
distribution of the state or country of the Optionee's domicile at the time of
death.

        4.2 Effect of the Disability of the Optionee. If the Optionee's
employment by the Company terminates as a result of the Optionee becoming
Disabled (as defined in the Plan) while an employee of the Company or any
Subsidiary, this Option will terminate 12 months following the date of the
Optionee becoming Disabled or, if sooner, upon the Expiration Date. In such
event,

                                       3
<PAGE>

this Option may be exercised only to the extent the Optionee was entitled to
exercise this Option on the date of such termination.

        4.3 Effect of Termination of the Employment of the Optionee for Cause.
If the Optionee's employment with the Company or any Subsidiary is terminated
for "cause", as defined in the Plan, this Option will terminate on the effective
date of the termination of Optionee's employment and shall no longer be
exercisable as to any of the remaining Option Shares.

        4.4 Effect of Retirement of the Optionee. If the Optionee's employment
with the Company or any Subsidiary is terminated as a result of the Optionee's
retirement in accordance with the Company's then current retirement policy, this
Option will terminate three months after the date of the termination of
Optionee's employment by retirement and shall no longer be exercisable as to any
of the remaining Option Shares. In such event, this Option may be exercised only
to the extent the Optionee was entitled to exercise this Option on the date of
the Optionee's retirement.

        4.5 Effect of any other Termination of the Employment of the Optionee.
If the Optionee's employment with the Company or any Subsidiary terminates for
any reason other than the reasons set forth in Sections 4.1, 4.2, 4.3 or 4.4 of
this Option, this Option will terminate thirty days after the date of such
termination of employment or, if sooner, upon the Expiration Date. In such
event, this Option may be exercised only to the extent the Optionee was entitled
to exercise this Option on the date of such termination. For purposes of this
Option, the Optionee's employment with the Company or any Subsidiary shall be
considered to have terminated if the Optionee for any reason becomes a
"part-time" employee as such term is defined in the Company's then existing
employment rules or guidelines.

5.      REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE OPTIONEE.

        5.1. No Effect on Employment. The Optionee understands and agrees that
nothing contained in this Incentive Stock Option Agreement will be construed to
limit or restrict the rights of the Company to terminate the employment of the
Optionee at any time, with or without cause, to change the duties of the
Optionee or to increase or decrease the Optionee's compensation. Without
limiting the foregoing, the Optionee understands and agrees that the vesting of
shares under this Option is subject to and is conditioned upon the continued
employment of the Optionee by the Company or a Subsidiary and that such
employment can be terminated at any time by the Company or its Subsidiary.

        5.2. Rights Prior to Exercise of This Option. The Optionee understands
and agrees that the Optionee will have no rights as a shareholder in the Option
Shares, including without limitation the right to vote or receive dividends,
until the issuance of the shares is reflected in the Company's stock transfer
records.

        5.3. Tax Implications. The Optionee understands that, under federal
income tax laws as they currently exist, the exercise of this Option may result
in alternative minimum taxes and that the sale of shares acquired by exercise of
this Option either within two (2) years of the Grant Date

                                       4
<PAGE>

or within one (1) year of the date on which this Option is exercised (a
"Disqualifying Disposition") will result in ordinary income to the Optionee in
an amount equal to the difference between the Exercise Price and the lesser of
the fair market value of the shares acquired on the date of such exercise or the
amount realized in the Disqualifying Disposition. If the Optionee makes a
Disqualifying Disposition, the Optionee will immediately notify the Company that
such has occurred and will pay to the Company the amount of any federal, state,
or local income taxes that the Company may be required to withhold under
applicable law.

        5.4 Underwriter's Lock-up. The Optionee by accepting this Option agrees
that whenever the Company undertakes a firm underwritten public offering of its
securities and if requested by the managing underwriter in such offering, the
Optionee will enter into an agreement not to sell or dispose of any securities
of the Company owned or controlled by the Optionee provided that such
restriction will not extend beyond twelve (12) months from the effective date of
the registration statement filed in connection with such offering.

        5.5 Disclosures. The Optionee acknowledges receipt of a copy of the Plan
and certain related information and represents that Optionee has fully reviewed
the terms and conditions of the Plan and this Option and has had opportunity to
obtain the advice of counsel prior to executing this Incentive Stock Option
Agreement. The Optionee represents and warrants that the Optionee is not relying
upon any representations, agreements or understandings of or with the Company
except for those set forth in this Incentive Stock Option Agreement.

6.      MISCELLANEOUS PROVISIONS

        6.1. Binding Effect. This Incentive Stock Option Agreement will be
binding upon and inure to the benefit of the parties hereto and their heirs,
executors, administrators, successors, and assigns.

        6.2. Notices. All notices to the Optionee or other persons then entitled
to exercise this Option will be delivered at the address contained in the
records of the Company or such other address as may be specified in writing by
the Optionee or such other person. All notices to the Company will be delivered
at its principal offices.

        6.3. Governing Law and Interpretation. This Incentive Stock Option
Agreement and the Option granted hereunder will be governed by the laws of the
State of Oregon as to all matters, including but not limited to matters of
validity, construction, effect, and performance, without giving effect to rules
of choice of law. This Incentive Stock Option Agreement hereby incorporates by
reference all of the provisions of the Plan and will in all respects be
interpreted and construed in such manner as to effectuate the intent of the
Plan. In the event of a conflict between the terms of this Incentive Stock
Option Agreement and the Plan, the terms of the Plan will prevail. All matters
of interpretation of the Plan and this Incentive Stock Option Agreement,
including the applicable terms and conditions and the definitions of the words,
will be determined in the sole and final discretion of the Committee or the
Company's Board of Directors.

                                       5
<PAGE>

        6.4. Attorney Fees. If any suit or action is instituted in connection
with any controversy arising out of this Incentive Stock Option 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 may adjudge reasonable as
attorney fees, including fees on any appeal.

                               LITHIA MOTORS, INC.

                               By:
                                  ---------------------------------------
                               Name:
                                    -------------------------------------
                               Title
                                    -------------------------------------

                               OPTIONEE:

                               ------------------------------------------
                               Name:
                                    -------------------------------------

                               ------------------------------------------
                               Street Address

                               ------------------------------------------
                               City, State and Zip Code

                               ------------------------------------------
                               Social Security Number

                                       6

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