Document:

EXHIBIT
10.7.1

 

LITHIA
MOTORS, INC.

 

AMENDED
AND RESTATED

2003
STOCK INCENTIVE PLAN

 

ARTICLE
I

PURPOSE OF THE PLAN

 

The purposes of this
Stock Incentive Plan (the “Plan”) are to attract, retain and provide incentive
compensation to employees, non-employee directors and others who contribute to
the long-term financial success of LITHIA MOTORS, INC., an Oregon corporation
(the “Company”) and to more closely align their interests with those of the
Company and its shareholders. This Plan amends and restates in its entirety the
2003 Stock Incentive Plan.

 

ARTICLE
II

DEFINITIONS

 

As used herein, the
following definitions will apply:

 

(a)          “Acquired Company” means
any corporation or other entity that becomes a majority owned subsidiary of the
Company, after the Effective Date, by merger, consolidation, acquisition of all
or substantially all of its assets or otherwise.

 

(b)         “Authorized Shares” means
the number of shares of Common Stock authorized for issuance pursuant to
Section 3.1 of this Plan.

 

(c)          “Available Shares” means
the number of shares of Common Stock available under this Plan at any time for
future issuance under Stock Options, Stock-Settled SARs, Performance Share
Awards or Restricted Share Awards, as provided in Section 3.2 of this Plan.

 

(d)         “Award” means any
agreement to issue a Stock Option, a Stock-Settled SAR, or to make a
Performance Share Award or a Restricted Share Award pursuant to this Plan. An
Award shall, for all purposes, be deemed to have been made on the later of (i)
the date when the Company completes all necessary corporate action necessary to
authorize the Award or such later date as specified in such corporate action or
(ii) when the maximum number of shares covered by the Award can be determined
(excluding from such determination the effects of any vesting provisions
including Performance Goals and excluding provisions adjusting the number of
shares pursuant to Section 11.1 of Article XI of this Plan) regardless of the
date on which the written agreement evidencing the Award is prepared or
executed by the Company or the Recipient.

 

(e)          “Board of Directors”
means the Board of Directors of the Company.

 

(f)            “Committee” means any
committee appointed by the Board of Directors in accordance with Article V of
this Plan, or, the Board of Directors, if no such committee is then in
existence.

 

(g)         “Common Stock” means the
common stock of the Company.

 

(h)         “Company” means Lithia
Motors, Inc. and, unless the context requires otherwise, any successor or
assignee of the Company by merger, consolidation, acquisition of all or
substantially all of the assets of the Company or otherwise. As used in
connection with either the term “Employee” or “Service,” it includes
Subsidiaries of the Company.

 

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(i)             “Corporate
Transaction” means (i) the adoption of a plan of dissolution or liquidation
with respect to the Company, (ii) the consummation of any plan of exchange,
merger or consolidation with one or more corporations in which the Company is
not the surviving entity (other than a merger of the Company into a
wholly-owned subsidiary of the Company or a reincorporation of the Company in a
different jurisdiction), or in which the security holders of the Company prior
to such transaction do not receive in the transaction securities with voting
rights with respect to the election of directors equal to 50% or more of the
votes of all classes of securities of the surviving corporation or (iii) the
consummation of a sale of all of substantially all of the assets of the Company
following a shareholder vote on such sale.

 

(j)             “Disabled” means
having a mental or physical impairment that has lasted or is expected to last
for a continuous period of 12 months or more and, in the Committee’s sole
discretion, renders a Recipient unable to perform the duties that were assigned
to the Recipient during the 12 month period prior to such determination. The
Committee’s determination of the existence of an individual’s disability will
be effective when communicated in writing to the Recipient and will be
conclusive on all of the parties.

 

(k)          “Employee” means any
person employed by the Company or a Subsidiary of the Company.

 

(l)             “Exercise Price”
means the price per share at which shares of Common Stock may be purchased upon
exercise of a Stock Option or a Stock-Settled SAR.

 

(m)       “Fair Market Value” with
respect to shares of Common Stock for any date means:

 

1)              If the Common Stock
is traded on a national securities exchange or on either the NASDAQ National
Market or NASDAQ SmallCap Market, the “Fair Market Value” of a share of Common
Stock will be the average between the lowest and highest reported sales price
of the Common Stock for such date, or if no transactions occurred on such date,
on the last date on which trades occurred;

 

2)              If the Common Stock
is not traded on a national securities exchange or on NASDAQ but bid and asked
prices are regularly quoted on the OTC Bulletin Board Service, by the National
Quotation Bureau or any other comparable service, the “Fair Market Value” of a
share of Common Stock will be the average between the highest bid and lowest
asked prices of the Common Stock as reported by such service at the close of
trading for such date or, if such date was not a business day, on the preceding
business day; or

 

3)              If there is no
public trading of the Common Stock within the terms of subparagraphs 1 or 2 of
this subsection, the “Fair Market Value” of a share of Common Stock will be as
determined by the Committee in its good faith discretion.

 

(n)         “Option Agreement” means
the written agreement between the Company and a Recipient that evidences a
Stock Option awarded pursuant to this Plan. Each Option Agreement shall be
subject to the terms and conditions of this Plan.

 

(o)         “Outstanding Stock
Options” means all Stock Options awarded pursuant to this Plan that, at such
time, have not yet expired and have not either been terminated or cancelled.

 

(p)         “Performance Goals” means
any of the following performance criteria or combination of the following
performance criteria applied either to the Company as a whole, as to any
Subsidiary or as to any business unit of the Company or any Subsidiary and
measured on an actual or as adjusted basis applied on a quarterly, annual or
cumulative basis or relative to pre-established targets, previous period
results or a designated comparison group, in each case as specified by the
Committee in the agreement evidencing an Award: 
(i) net revenue, (ii) net margin, (iii) operating income,
(iv) operating cash flow, (v) earnings before interest, taxes, depreciation
and amortization, (vi) earnings before interest and

 

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taxes, (vii) net
income before income taxes, (viii) net income, (ix) new product
introduction, (x) product release schedules, (xi) market segment
share, (xii) product cost reduction, (xiii) customer satisfaction,
(xiv) quality criteria, or (xv) other business objectives. The
Committee shall determine whether or the extent to which any Performance Goal
is achieved and may appropriately adjust any evaluation of performance to
exclude, in whole or in part, any extraordinary non-recurring items, accruals
for reorganization or restructuring events, asset write-downs, judgments,
settlement amounts and expenses associated with litigation, and the effect of
changes in tax law or accounting principles.

 

(q)         “Performance Share Award”
means an Award of shares of Common Stock pursuant to Article IX of this Plan
subject to the terms of a Share Vesting Agreement in which vesting is based,
either in whole or in part, to the achievement of certain Performance Goals.

 

(r)            “Recipient” means any
individual who is awarded a Stock Option, a Stock-Settled SAR, a Performance
Share Award or a Restricted Share Award pursuant to this Plan.

 

(s)          “Restricted Share Award”
means an Award of shares of Common Stock pursuant to Article X of this Plan,
regardless of whether the Recipient receives the shares covered by such Award
solely for services or for a combination of services and cash payment to the
Company, pursuant to a Share Vesting Agreement.

 

(t)            “Securities Act” means
the Securities Act of 1933, as amended.

 

(u)         “Service” means the
continued employment of an Employee, service as director of the Company,
service as a director of a Subsidiary of the Company or the regular provision
of services to the Company or a Subsidiary of the Company under an independent
contractor arrangement. If a recipient ceases to provide Service with the
Company or a Subsidiary of the Company in one capacity but continues to provide
Service in another capacity or contemporaneously begins to provide Service in
another capacity, the recipient shall, for purposes of this Plan, be deemed to
have continued in Service without interruption.

 

(v)         “Share Vesting Agreement”
means the written agreement between the Company and a Recipient that evidences
either a Performance Share Award or a Restricted Share Award made pursuant to
this Plan. Each Share Vesting Agreement shall be subject to the terms and
conditions of this Plan.

 

(w)       “Stock-Settled SAR” means the
right to acquire shares of Common Stock in an amount equal to the difference
between the Fair Market Value of a share of Common Stock on the date of
exercise and the Exercise Price per share multiplied by the number of shares
covered by the right awarded under Article VII of this Plan.

 

(x)           “Stock-Settled SAR
Agreement” means the written agreement between the Company and a Recipient that
evidences a Stock-Settled SAR pursuant to this Plan. Each Stock-Settled SAR
Agreement shall be subject to the terms and conditions of this Plan.

 

(y)         “Subsidiary” of the
Company means any corporation or other entity owned or controlled by the
Company in an unbroken chain of corporations or other entities in which each of
the corporations or other entities other than last corporation or other entity
owns 50 percent or more of the total combined voting power of all classes of
equity ownership interests in the other corporations or other entities in such
chain.

 

(z)           “Stock Option” means a
Stock Option awarded pursuant to Article VI of this Plan.

 

(aa)    “Tax Withholding” means all
amounts determined by the Company to be required to satisfy applicable federal,
state and local tax withholding requirements upon the exercise of a Stock
Option, the disqualifying disposition of shares of Common Stock acquired by
exercise of a Stock Option, the vesting of shares under a Performance Share
Award or Restricted Share Award, a Recipient making an

 

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election under
Section 83(b) of the Internal Revenue Code with respect to a Performance
Share Award or Restricted Share Award or as otherwise may be required under
applicable tax laws.

 

ARTICLE
III

STOCK SUBJECT TO THE PLAN

 

3.1          Aggregate Number of Authorized
Shares. Subject to adjustment in accordance with
Section 10.1, the total number of shares of Common Stock authorized for
issuance under all Awards pursuant to this Plan is established at 2,200,000
shares.

 

3.2          Number of Available Shares. At
any point in time, the number of Available Shares shall be the number of
Authorized Shares at such time minus:

 

(a)                                  the
number of shares of Common Stock issued prior to such time upon the exercise of
Stock Options and Stock-Settled SARs that were awarded pursuant to this Plan;
and

 

(b)                                 the
number of shares covered by outstanding Stock Options and Stock-Settled SARs
that were awarded pursuant to this Plan to the extent that such have not been
exercised at such time; and

 

(c)                                  the
number of shares of Common Stock covered by Performance Share Awards and
Restricted Share Awards made pursuant to this Plan prior to such time except to
the extent that unvested shares have been forfeited and repurchased by the
Company pursuant to the terms of a Share Vesting Agreement.

 

As a result of the
foregoing, if a Stock Option or Stock-Settled SAR expires, terminates or is
cancelled for any reason without having been exercised in full, the shares of
Common Stock covered by such Stock Option or Stock-Settled SAR that were not
acquired through the exercise of such Award will again become Available Shares.
Upon the exercise in full of a Stock-Settled SAR, all shares covered by that
Award other than the shares actually issued upon such exercise, will again
become Available Shares. If shares of Common Stock covered by a Performance
Share Award or Restricted Share Award are repurchased by the Company pursuant
to the terms of a Share Vesting Agreement, those shares will again become
Available Shares. If shares of Common Stock covered by an Award are surrendered
by a Recipient to satisfy any Tax Withholding obligations, those shares will
again become Available Shares.

 

3.3          Reservation of Shares. Available
Shares shall consist of authorized but unissued shares of Common Stock of the
Company. By appropriate resolution of the Board of Directors, the Company at
all times will reserve for issuance shares of Common Stock equal to the sum of
(i) the number of shares covered by Outstanding Stock Options to the extent
that such Stock Options have not been exercised at such time and (ii) the
number of Available Shares. By action of the Board of Directors, the Company
may repurchase issued and outstanding shares for purposes of providing
Available Shares under this Plan but the Company is not required to make such
repurchases and any such repurchases shall not effect the calculation of the
number of Authorized Shares or Available Shares.

 

3.4          Annual Limit on Number of Shares to Any One Person. No
person will be eligible to receive Awards pursuant to this Plan which, in
aggregate, exceed 75,000 shares in any calendar year except in connection with
the hiring or commencement of services from such person in which case such
limit shall be 100,000 shares during such calendar year. However, the foregoing
limitation shall not apply to Awards of Stock Options in substitution for
outstanding stock options of an Acquired Company that are cancelled in
connection with the acquisition of such Acquired Company.

 

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ARTICLE
IV

COMMENCEMENT AND DURATION OF THE PLAN

 

4.1          Effective Date of the Plan. This
Plan will be effective as of the date on which it was adopted by the Board of
Directors. However, the implementation of this Plan shall be subject to the
provisions of Section 4.2.

 

4.2          Shareholder Approval of the Plan. Within
twelve (12) months of the date on which this Plan was adopted by the Board of
Directors, this Plan will be submitted to the shareholders of the Company for
their approval. This Plan will be deemed approved by the shareholders if
approved by a majority of the votes cast at a duly held meeting of the Company’s
shareholders at which a quorum is present in person or by proxy. Awards may be
made pursuant to this Plan prior to such shareholder approval provided that
such Awards are conditioned upon such approval and state by their terms that
they will be null and void if shareholder approval is not obtained.

 

4.3          Termination of the Plan. This
Plan will terminate March 4, 2013. In addition, the Board of Directors will
have the right to suspend or terminate this Plan at any time. Termination of
the Plan will not terminate or otherwise affect any outstanding Stock Option,
Stock-Settled SAR, Performance Share Award, Restricted Share Award, Option
Agreement, Stock-Settled SAR Agreement or Share Vesting Agreement.

 

ARTICLE
V

ADMINISTRATION OF THE PLAN

 

Subject to the provisions of this Plan and any
additional terms or conditions which, from time to time, may be imposed by the
Board of Directors, the Committee will administer this Plan and, in its sole
discretion, will have the authority to award Stock Options, Stock-Settled SARs,
Performance Share Awards and Restricted Share Awards in accordance with
Articles VI, VII, IX and X respectively. The Board of Directors shall retain
(but may delegate to the Committee) the right to agree to award Stock Options,
Stock-Settled SARs, Performance Share Awards or Restricted Share Awards in
substitution for outstanding unexercised stock options or unvested share grants
made by the Acquired Company prior to the date of such acquisition in accordance
with Section 11.2 of Article XI. From time to time, the Committee may adopt
rules and regulations relating to the administration of this Plan and may seek
the advice of legal, tax, accounting and compensation advisors. Decisions of
the Committee with respect to the administration of this Plan, the
interpretation or construction of this Plan, or the interpretation or
construction of any written agreement evidencing an Award will be final and
conclusive, subject only to review by the full Board of Directors. The
Committee shall not directly reduce or adjust the exercise price of any
outstanding Stock Option, nor indirectly do so by canceling such outstanding
Stock Option and replacing it with a similar award with a lower exercise price.
Notwithstanding the foregoing, the Committee may exchange Restricted Stock
Grants for outstanding Stock Options at such ratio as the Committee deems
appropriate in the exercise of its fiduciary duties. The Committee may correct
any defect, supply any omission or reconcile any inconsistency in this Plan or
in any agreement evidencing an Award in the manner and to the extent it deems
appropriate.

 

The Board of Directors
shall appoint the members of the Committee, which shall consist of at least two
directors from the Board of Directors. The appointment to the Committee of one
or more directors who are not “outside directors” as such term is defined in
Treasury Regulation §1.162-27(e)(3), one or more directors who are not “non-employee
directors” as such term is defined in Rule 16b-3 issued by the Securities and
Exchange Commission under Section 16 of the Securities Exchange Act of
1934, as amended, (“Rule 16b-3”) or one or more directors that fail to meet the
requirements for service on a compensation committee as set forth in the
listing standards of the exchange or market on which the Common Stock primarily
trades shall not invalidate any of the actions of the Committee. Any member of
the Committee that is not an outside director, as such term is defined, is
referred to in this paragraph as an “Abstaining Director” with respect to any
action by the Committee, for which Section 162(m) of the Internal Revenue
Code requires the approval of a committee consisting solely of outside
directors. Any member of the Committee that is not a non-employee director, as
such term is defined, is referred to in this paragraph as an “Abstaining
Director” with respect to any action by the Committee for which Rule 16b-3
requires the approval of a committee consisting solely of non-employee directors.
Any member of the Committee that fails to meet the requirements of the listing
standards of the exchange or market on which the Common Stock primarily trades
is referred to in this paragraph as an “Abstaining Director” with respect to
any action by the Committee that requires the approval of a committee
consisting solely of directors meeting those requirements. An Abstaining
Director shall be deemed to have abstained from such action (notwithstanding
any statement to the

 

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contrary which may be
contained in minutes of a meeting of the Committee) and the assent of any such
director shall be ignored for purposes of determining whether or not any such
actions were approved by the Committee. If the Committee proposes to take an
action by unanimous consent in lieu of a meeting, an Abstaining Director shall
be deemed to not be a member of the Committee for the purpose of such consent
with respect to any actions for which such member is deemed to be an Abstaining
Director.

 

If no Committee is appointed, the Board of Directors
will have all the powers, duties and responsibilities of the Committee as set
forth in this Plan. In addition, the Board of Directors may abolish a Committee
and assume the duties and responsibilities of the Committee at any time by
resolution duly adopted by the Board of Directors.

 

ARTICLE
VI 

STOCK OPTION TERMS AND CONDITIONS

 

Stock Options may be
awarded pursuant to this Plan in accordance with the following terms and
conditions.

 

6.1          Requirement for a Written Option
Agreement. Each Stock Option will be evidenced by a
written Option Agreement. The Committee, from time to time, will determine the
form of Option Agreement to be used for purposes of evidencing Stock Options
awarded pursuant to this Plan. Except as provided in Section 11.2 of
Article XI, the terms of the Option Agreement evidencing a Stock Option must be
consistent with this Plan, including but not limited to this Article VI. Any
inconsistencies between any Option Agreement and this Plan will be resolved in
accordance with the terms and conditions specified in this Plan. Except as
expressly required by this Article VI, the terms and conditions of each Stock
Option do not need to be identical.

 

6.2          Who may be Awarded a Stock Option. A
Stock Option may be awarded to any Employee, any director of the Company or of
any Subsidiary and any other individual who, in the judgment of the Committee,
has performed or will perform, in whatever capacity, services important to the
management, operation and development of the business of the Company or an of
its Subsidiaries. The Committee, in its sole discretion, shall determine when
and to whom Stock Options are awarded pursuant to this Plan. In addition,
substitute Stock Options may be awarded pursuant to Section 11.2 of Article XI
to persons who were employees, directors, or independent contractors or former
employees, directors or independent contractors of an Acquired Company.

 

6.3          Number of Shares Covered by a Stock Option. The
Committee, in its sole discretion, shall determine the number of shares of
Common Stock covered by each Stock Option awarded pursuant to this Plan. The
number of shares covered by each Stock Option shall be specified in the Option
Agreement.

 

6.4          Vesting Under a Stock Option. The
Committee, in its sole discretion, shall determine whether a Stock Option is
immediately exercisable as to all of the shares of Common Stock covered by such
option or whether it is exercisable only in accordance with a time-based
vesting schedule, Performance Goals or a combination of the foregoing, all as
determined by the Committee. Any such vesting terms and conditions shall be
specified in the Option Agreement. Notwithstanding any term to the contrary in
any Option Agreement, a Stock Option that is awarded to a person who, at the
time of the Award, was an executive officer of the Company will not become
exercisable until after six (6) months from the date of such Award unless the
Award was approved either by (i) a committee of non-employee directors within
the requirements of Rule 16b-3 or (ii) the full Board of Directors.

 

6.5          Exercise Price of a Stock Option. The
Exercise Price for each Stock Option will be at least 100% of the Fair Market
Value of a share of Common Stock as of the date on which the Stock Option was
awarded. However, if it is subsequently determined that the Exercise Price as
stated in the Option Agreement evidencing a Stock Option is less than 100% of
the Fair Market Value of a share of Common Stock as of the date on which an
option was awarded, such fact will not invalidate the Stock Option.

 

6.6          Duration of a Stock Option—Generally.
The Committee, in its sole discretion, will determine the
term of each Stock Option provided that such term will not exceed 10 years from
the date on which such option was awarded. The term of each Stock Option shall
be set forth in the Option Agreement. The Recipient shall have no further right
to exercise a Stock Option following the expiration of such term.

 

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6.7          The Effect of Termination of the Recipient’s Service
with the Company on the Term of a Stock Option. If a
Recipient’s Service with the Company terminates for any reason other than as a
result of the Recipient dying or becoming Disabled (as provided for in
Section 6.9 and Section 6.10, respectively), all Stock Options that
have been awarded to such Recipient shall terminate to the extent that they are
not exercised within 30 days following the date the Recipient ceased to be in
Service with the Company. The foregoing provision will not extend the time
within which a Stock Option may be exercised beyond the expiration of the term
of such option and no additional vesting shall occur after the date the
Recipient’s Service with the Company terminated.

 

6.8          The Effect of a Leave of Absence on
a Stock Option. Unless otherwise provided in the Option
Agreement evidencing a Stock Option, a Recipient’s Service shall not be deemed
to have terminated if the Recipient is on sick leave, family leave, military
leave or any other leave of absence that is approved by the Committee. The
Committee, in its sole discretion, may determine whether a Stock Option shall
continue to vest during any sick leave, family leave, military leave or other
approved leave of absence.

 

6.9          The Effect of the Death of a
Recipient on the Term of a Stock Option. If a Recipient’s
Service with the Company terminates as a result of the Recipient’s death, all
Stock Options that have been awarded to such Recipient will terminate to the
extent that they are not previously exercised within 12 months following the
date of the Recipient’s death. The foregoing provision will not extend the time
within which a Stock Option may be exercised beyond the expiration of the term
of such option and no additional vesting shall occur after the date the
Recipient’s death.

 

6.10        The Effect of the Disability of a
Recipient on the Term of a Stock Option. If a Recipient’s
Service with the Company terminates as a result of the Recipient becoming
Disabled, all Stock Options that have been awarded to such Recipient shall
terminate to the extent that they are not exercised within 12 months following
the date of the Recipient becoming Disabled. The foregoing provision will not
extend the time within which a Stock Option may be exercised beyond the
expiration of the term of such option and no additional vesting shall occur
after the date the Recipient became Disabled.

 

6.11        Options Intended Not to Qualify as
Incentive Stock Options. Stock Options issued pursuant to
this Plan are not intended to qualify as incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended.

 

ARTICLE
VII

STOCK-SETTLED SARS TERMS AND CONDITIONS

 

Stock-Settled SARS may be awarded pursuant to this Plan in
accordance with the following terms and conditions.

 

7.1          Requirement for a Written
Stock-Settled SAR Agreement. Each Stock-Settled SAR will
be evidenced by a written Stock-Settled SAR Agreement. The Committee, from time
to time, will determine the form of Stock-Settled SAR Agreement to be used for
purposes of evidencing Stock-Settled SARs awarded pursuant to this Plan. Except
as provided in Section 11.2 of Article XI, the terms of the Stock-Settled
SAR Agreement must be consistent with this Plan, including but not limited to
this Article VII. Any inconsistencies between any Stock-Settled SAR
Agreement and this Plan will be resolved in accordance with the terms and
conditions specified in this Plan. Except as expressly required by this Article
VII, the terms and conditions of each Stock-Settled SAR do not need to be
identical.

 

7.2          Who may be Awarded a Stock-Settled SAR. A
Stock-Settled SAR may be awarded to any Employee, any director of the Company
or of a Subsidiary and any other individual who, in the judgment of the
Committee, has performed or will perform, in whatever capacity, services
important to the management, operation and development of the business of the
Company or any of Subsidiaries. The Committee, in its sole discretion, shall
determine when and to whom Stock-Settled SARs are awarded pursuant to this Plan.
In addition, substitute Stock-Settled SARs may be awarded pursuant to Section
11.2 of Article XI to persons who were employees, directors, or independent
contractors or former employees, directors or independent contractors of an
Acquired Company.

 

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7.3          Number of Shares Covered by a Stock-Settled SAR. The
Committee, in its sole discretion, shall determine the number of shares of
Common Stock covered by each Stock-Settled SAR awarded pursuant to this Plan. The
number of shares covered by each Stock-Settled SAR shall be specified in the
Stock-Settled SAR Agreement.

 

7.4          Vesting Under a Stock-Settled SAR. The
Committee, in its sole discretion, shall determine whether a Stock-Settled SAR
is immediately exercisable as to all of the shares of Common Stock covered by
the Stock-Settled SAR or whether it is exercisable only in accordance with a
time-based vesting schedule, Performance Goals or a combination of the
foregoing, all as determined by the Committee. Any such vesting terms and
conditions shall be specified in the Stock-Settled SAR Agreement. Notwithstanding
any term to the contrary in any Stock-Settled SAR Agreement, a Stock-Settled
SAR that is awarded to a person who, at the time of the Award, was an executive
officer of the Company will not become exercisable until after six (6) months
from the date of such Award unless the Award was approved either by (i) a
committee of non-employee directors within the requirements of Rule 16b-3 or
(ii) the full Board of Directors.

 

7.5          Exercise Price of a Stock-Settled SAR. The
Exercise Price for each Stock-Settled SAR will be at least 100% of the Fair
Market Value of a share of Common Stock as of the date on which the
Stock-Settled SAR was awarded. However, if it is subsequently determined that
the Exercise Price as stated in the Stock-Settled SAR Agreement evidencing a
Stock-Settled SAR is less than 100% of the Fair Market Value of a share of
Common Stock as of the date on which an option was awarded, such fact will not
invalidate the Stock-Settled SAR.

 

7.6          Effect of Exercise of a
Stock-Settled SAR. Exercise of a Stock-Settled SAR
results in the Recipient receiving net shares of Common Stock with an aggregate
Fair Market Value as of the date of such exercise equal to (i) the difference
between the Fair Market Value of a share of Common Stock as of the exercise
date minus the Exercise Price of the SAR, multiplied by (ii) the number of
shares covered by the Stock-Settled SAR as to which it is being exercised,
rounded down to the nearest whole number. A Stock-Settled SAR may be exercised
as to all of the shares covered by it or may be exercised only in part.

 

7.7          Duration of a Stock-Settled SAR—Generally.
The Committee, in its sole discretion, will determine the
term of each Stock-Settled SAR provided that such term will not exceed 10 years
from the date on which such option was awarded. The term of each Stock-Settled
SAR shall be set forth in the Stock-Settled SAR Agreement. The Recipient shall
have no further right to exercise a Stock-Settled SAR following the expiration
of such term.

 

7.8          The Effect of Termination of the Recipient’s Service
with the Company on the Term of a Stock-Settled SAR. If a
Recipient’s Service with the Company terminates for any reason other than as a
result of the Recipient dying or becoming Disabled (as provided for in
Section 7.10 and Section 7.11, respectively), all Stock-Settled SARs
that have been awarded to such Recipient shall terminate to the extent that
they are not exercised within 30 days following the date the Recipient ceased
to be in Service with the Company. The foregoing provision will not extend the
time within which a Stock-Settled SAR may be exercised beyond the expiration of
the term of such option and no additional vesting shall occur after the date
the Recipient’s Service with the Company terminated.

 

7.9          The Effect of a Leave of Absence on
a Stock-Settled SAR. Unless otherwise provided in the
Stock-Settled SAR Agreement evidencing a Stock Option, a Recipient’s Service
shall not be deemed to have terminated if the Recipient is on sick leave,
family leave, military leave or any other leave of absence that is approved by
the Committee. The Committee, in its sole discretion, may determine whether a
Stock-Settled SAR shall continue to vest during any sick leave, family leave,
military leave or other approved leave of absence.

 

7.10        The Effect of the Death of a
Recipient on the Term of a Stock-Settled SAR. If a
Recipient’s Service with the Company terminates as a result of the Recipient’s
death, all Stock-Settled SARs that have been awarded to such Recipient will
terminate to the extent that they are not previously exercised within 12 months
following the date of the Recipient’s death. The foregoing provision will not
extend the time within which a Stock-Settled SAR may be exercised beyond the
expiration of the term of such option and no additional vesting shall occur
after the date the Recipient’s death.

 

8

 

7.11        The Effect of the Disability of a
Recipient on the Term of a Stock-Settled SAR. If a
Recipient’s Service with the Company terminates as a result of the Recipient
becoming Disabled, all Stock-Settled SARs that have been awarded to such
Recipient shall terminate to the extent that they are not exercised within 12
months following the date of the Recipient becoming Disabled. The foregoing
provision will not extend the time within which a Stock-Settled SAR may be
exercised beyond the expiration of the term of such option and no additional
vesting shall occur after the date the Recipient became Disabled.

 

ARTICLE
VIII

EXERCISE OF STOCK OPTIONS AND STOCK SETTLED SARS

 

8.1          Notice of Exercise. A Stock Option
or a Stock-Settled SAR may be exercised only by delivery to the Company of
written notice directed to the President of the Company (or such other person
as the Company may designate) at the principal business office of the Company. The
notice will specify (i) the number of shares of Common Stock being purchased,
(ii) the method of payment of the Exercise Price of a Stock Option, (iii) the
method of payment of the Tax Withholding if required, and (iv), unless a
registration under the Securities Act is in effect with respect to the Plan at
the time of such exercise, the notice of exercise shall contain such
representations as the Company determines to be necessary or appropriate in
order for the sale of shares of Common Stock being purchased pursuant to such
exercise to qualify for exemptions from registration under the Securities Act
and other applicable state securities laws. If the date of expiration or
termination of a Stock Option or Stock-Settled SAR falls on a day on which the
principal business office of the Company is not open for business, the notice
of exercise must be delivered to the Company no later than the last business
day prior to such expiration or termination date in order for the notice of
exercise to be timely.

 

8.2          Payment of Exercise Price. No
shares of Common Stock will be issued upon the exercise of any Stock Option
unless and until payment or adequate provision for payment of the Exercise
Price of such shares has been made in accordance with this subsection. The
Committee, in its sole discretion, may provide in any Option Agreement for the
payment of the Exercise Price in cash (including by check), by delivery of a
full-recourse promissory note, by the delivery of shares of Common Stock or
other securities issued by the Company in accordance with Section 12.7, or
by any combination of the foregoing. In the absence of such terms in the Option
Agreement, the Exercise Price shall be paid in cash (including by check). The
Committee, in its sole discretion, may permit a Recipient to elect to pay the
Exercise Price by authorizing a duly registered and licensed broker-dealer to
sell the shares of Common Stock to be issued upon such exercise (or, at least,
a sufficient portion thereof) and instructing such broker-dealer to immediately
remit to the Company a sufficient portion of the proceeds from such sale to pay
the entire Exercise Price.

 

8.3          Payment of Tax Withholding Amounts.
Upon the exercise of any Stock Option (except Incentive Stock Options issued
under previous plans) or Stock-Settled SAR (including any Stock Option or
Stock-Settled SAR transferred by the Recipient pursuant to Section 12.5),
either with the delivery of the notice of exercise or upon notification of the
amount due, each Recipient must pay to the Company or make adequate provision
for the payment of all Tax Withholding, if any. The Option Agreement or
Stock-Settled SAR Agreement may provide for, or the Committee, in its sole
discretion, may allow, the Recipient to pay the Tax Withholding (i) in
cash (including by check), (ii) by the Company withholding such amount
from other amounts payable by the Company to the Recipient, including salary,
(iii) by delivery of shares of Common Stock or other securities of the
Company in accordance with Section 12.7, (iv) by the application of shares
that could be received upon exercise of the Stock Option or Stock-Settled SAR
in accordance with Section 12.7 but only up to the minimum statutorily
required tax withholding amounts, or (v) any combination of the foregoing.
In the absence of such terms in the Option Agreement or Stock Settled SAR
Agreement, the Tax Withholding shall be paid in cash (including by check) or
the Committee may authorize payment or provision for the Tax Withholding by any
other means permitted by this Section 8.3.

 

By receiving and upon exercise of a Stock Option or a
Stock-Settled SAR, the Recipient shall be deemed to have consented to the
Company withholding the amount of any Tax Withholding from any amounts payable
by the Company to the Recipient. The Committee, in its sole discretion, may
permit a Recipient to elect to pay the Tax Withholding by authorizing a duly
registered and licensed broker-dealer to sell the shares to be issued upon such
exercise (or, at least, a sufficient portion thereof) and instructing such
broker-dealer to immediately remit to the Company a sufficient portion of the
proceeds from such sale to pay the Tax Withholding. No shares will be issued

 

9

 

upon an exercise of a
Stock Option or a Stock-Settled SAR unless and until payment or adequate
provision for payment of the Tax Withholding has been made. If, either as a
result of the exercise of a Stock Option or a Stock-Settled SAR or the
subsequent disqualifying disposition of shares acquired through such exercise,
the Company determines that additional Tax Withholding was or has become
required beyond any amount paid or provided for by the Recipient, the Recipient
will pay such additional amount to the Company immediately upon demand by the
Company. If the Recipient fails to pay the amount demanded, the Company may
withhold that amount from other amounts payable by the Company to the
Recipient, including salary.

 

8.4          Issuance of Shares. Notwithstanding
the good faith compliance by the Recipient with all of the terms and conditions
of an Option Agreement and with this Article VIII, the Recipient will not
become a shareholder and will have no rights as a shareholder with respect to
the shares covered by such Stock Option until the issuance of shares pursuant
to the exercise of such Stock Option is recorded on the stock transfer record
of the Company. The Company will not unreasonably delay the issuance of a stock
certificate and shall exercise reasonable efforts to cause such stock
certificate to be issued to the Recipient as soon as is practicable after the
compliance by the Recipient with all of the terms and conditions of the Option
Agreement and with this Article VIII. In addition, when the payment of the
Exercise Price is permitted under Section 8.2 to be remitted to the Company by
a broker-dealer in connection with the sale of some or all of the shares
covered by the Stock Option, the Recipient shall be considered a shareholder
and to own the shares being purchased by such exercise upon the Company
receiving both the Recipient’s notice of exercise and the broker-dealer’s
agreement to remit to the Company the Exercise Price in a form satisfactory to
the Company in its sole discretion.

 

ARTICLE IX

PERFORMANCE
SHARE AWARDS

 

Performance Share Awards may be made pursuant to this Plan
in accordance with the following terms and conditions.

 

9.1          Requirement for a Written Share Vesting Agreement. Each
Performance Share Award will be evidenced by a Share Vesting Agreement. The
Committee will determine from time to time the form of Share Vesting Agreement
to be used to evidence Performance Share Awards made pursuant to this Plan. Except
as provided in Section 11.2 of Article XI, the terms of each Share Vesting
Agreement must be consistent with this Plan. Any inconsistencies between any
Share Vesting Agreement and this Plan will be resolved in will be resolved in
accordance with the terms and conditions specified in this Plan. Except as
otherwise required by this Article IX, the terms and conditions of each
Performance Share Award do not need to be identical.

 

9.2          Who May Receive a Performance Share Award. A
Performance Share Award may be made to any Employee, any director of the
Company or of a Subsidiary and any other individual who, in the judgment of the
Committee, has performed or will perform, in whatever capacity, services
important to the management, operation and development of the business of the
Company or any of Subsidiaries. The Committee, in its sole discretion, shall
determine when and to whom Performance Share Awards are awarded pursuant to
this Plan. In addition, substitute Performance Share Awards may be awarded
pursuant to Section 11.2 of Article XI to persons who were employees,
directors, or independent contractors or former employees, directors or
independent contractors of an Acquired Company.

 

9.3          Number of Shares Covered by a Performance Share Award.
The Committee, in its sole discretion, shall determine the number of shares of
Common Stock covered by each Performance Restricted Share Award made pursuant
to this Plan. The Share Vesting Agreement shall specify the number of shares of
Common Stock covered by such Performance Share Award.

 

9.4          What the Recipient Must Deliver to Receive a Performance
Share Award. The Committee, in its sole discretion, will
determine whether the Recipient, in order to receive the Performance Share
Award, must make a payment, either in cash (including by check), by delivery of
a promissory note or by delivery of other securities of the Company (including
options to purchase securities of the Company), to the Company of all or some
portion of the Fair Market Value of the shares of Common Stock covered by the
Performance Share Award. To the extent that the sum of any cash payment, any
promissory note and any other securities received by the Company from the
Recipient in connection with a Performance Share Award is less than the Fair
Market Value of the shares

 

10

 

of
Common Stock covered by such Performance Share Award determined as of the date
of such Award, the shares of Common Stock covered by the Performance Share
Award shall be deemed to have been issued by the Company for services rendered
by the Recipient.

 

9.5          Vesting Under a Performance Share Award. The
Committee, in its sole discretion, shall determine the Performance Goals and
other terms and conditions, if any, upon which shares covered by any
Performance Share Award shall vest. The Share Vesting Agreement evidencing a
Performance Share Award shall specify the Performance Goals and other vesting
terms and conditions. Unvested shares covered by a Performance Share Award may
not be transferred by the Recipient under any condition without the prior
written consent of the Committee, which consent may be withheld in its sole
discretion.

 

9.6          Right to Repurchase Unvested Shares upon Certain
Conditions. The Share Vesting Agreement shall specify the
events upon the occurrence of which the Company shall have the right to
repurchase from the Recipient any or all of the Recipient’s unvested shares and
the period during which the Company must exercise this right following the
occurrence of the event. The Share Vesting Agreement shall also specify the “Repurchase
Price Per Share” that the Company shall pay to the Recipient upon exercise of
its right to repurchase unvested shares and the terms of such payment. If not
otherwise specified in the Share Vesting Agreement, the right to repurchase
must be exercised within forty-five (45) days after the Company receives from
the Recipient written notice of the occurrence of the event, the repurchase
price shall be $0.001 per share and the repurchase price shall be payable to
the Recipient in cash (including by check) within ten (10) days after the date
on which the right to repurchase the shares is exercised. Any right of the
Company to repurchase unvested shares may be assigned by the Company in its
sole discretion without notice to, or the prior consent of, the Recipient. Every
Share Vesting Agreement evidencing a Performance Share Award shall contain or
shall be deemed to contain a blank stock power pursuant to which the Recipient
authorizes the Company or its transfer agent to transfer ownership of unvested
shares from the Recipient to the Company or its assigns upon the right to
repurchase being exercised.

 

9.7          Payment of Tax Withholding Amounts.
Upon the vesting of shares under a Performance Share Award (including any
Performance Share Award transferred by the Recipient pursuant to
Section 12.5) or upon the Recipient making a valid election under
Section 83(b) of the Internal Revenue Code, each Recipient must pay to the
Company or make adequate provision for the payment of all Tax Withholding, if
any. The Share Vesting Agreement may provide for, or the Committee, in its sole
discretion, may allow the Recipient to pay the Tax Withholding (i) in cash
(including by check), (ii) by the Company withholding such amount from
other amounts payable by the Company to the Recipient, including salary,
(iii) by delivery of shares of Common Stock or other securities of the Company
in accordance with Section 12.7, (iv) by the application of vested
shares under the Performance Share Award in accordance with Section 12.7
but only up to the minimum statutorily required tax withholding amounts, or
(v) any combination of the foregoing. In the absence of such terms in the
Share Vesting Agreement, the Tax Withholding shall be paid in cash (including
by check) or the Committee may authorize payment or provision for the Tax
Withholding by any other means permitted by this Section 9.7.

 

By receiving and upon exercise of a Performance Share
Award, the Recipient shall be deemed to have consented to the Company
withholding the amount of any Tax Withholding from any amounts payable by the
Company to the Recipient. The Committee, in its sole discretion, may permit a
Recipient to elect to pay the Tax Withholding by authorizing a duly registered
and licensed broker-dealer to sell the shares to be issued upon such exercise
(or, at least, a sufficient portion thereof) and instructing such broker-dealer
to immediately remit to the Company a sufficient portion of the proceeds from
such sale to pay the Tax Withholding. No shares will be delivered in response
to a request to deliver vested shares unless and until payment or adequate
provision for payment of the Tax Withholding has been made. If the Company
later determines that additional Tax Withholding was or has become required
beyond any amount paid or provided for by the Recipient, the Recipient will pay
such additional amount to the Company immediately upon demand by the Company. If
the Recipient fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable by the Company to the Recipient, including
salary.

 

9.8          Rights as a Shareholder, Legends on Certificates, Escrow
of Unvested Shares and Delivery of Vested Shares Covered by a Performance Share
Award. As soon as is practicable after a Performance
Stock Award is awarded by the Company, the Company will issue one or more stock
certificates in the name of the Recipient for the shares covered by a
Performance Share Award. For such time as and to the extent that the shares

 

11

 

covered by a Performance
Share Award remain unvested, the Company may place a restrictive legend on any
stock certificate evidencing such shares, may give stop transfer instructions
to the Company’s transfer agent and may place the stock certificates in escrow
with the Company or an agent of the Company. Upon the vesting of shares covered
by a Performance Share Award, the Recipient by notice, in such form as the
Company may reasonably request, directed to the President of the Company (or
such other person as the Company may designate) at the principal business
office of the Company request that a stock certificate covering such vested
shares be issued in the name of the Recipient and delivered in accordance with
such instructions as the Recipient may reasonably request.

 

ARTICLE X

RESTRICTED
SHARE AWARDS

 

Restricted Share Awards
may be made pursuant to this Plan in accordance with the following terms and
conditions.

 

10.1        Requirement for a Written Share Vesting Agreement. Each
Restricted Share Award will be evidenced by a Share Vesting Agreement. The
Committee will determine from time to time the form of Share Vesting Agreement
to be used to evidence Restricted Share Awards made pursuant to this Plan. Except
as provided in Section 11.2 of Article XI, the terms of each Share Vesting
Agreement must be consistent with this Plan. Any inconsistencies between any
Share Vesting Agreement and this Plan will be resolved in will be resolved in
accordance with the terms and conditions specified in this Plan. Except as
otherwise required by this Article X, the terms and conditions of each
Restricted Share Award do not need to be identical.

 

10.2        Who May Receive a Restricted Share Award. A
Restricted Share Award may be made to any Employee, any director of the Company
or of a Subsidiary and any other individual who, in the judgment of the
Committee, has performed or will perform, in whatever capacity, services
important to the management, operation and development of the business of the
Company or any of Subsidiaries. The Committee, in its sole discretion, shall
determine when and to whom Restricted Share Awards are awarded pursuant to this
Plan. In addition, substitute Restricted Share Awards may be awarded pursuant
to Section 11.2 of Article XI to persons who were employees, directors, or
independent contractors or former employees, directors or independent
contractors of an Acquired Company.

 

10.3        Number of Shares Covered by a Restricted Share Award. The
Committee, in its sole discretion, shall determine the number of shares of
Common Stock covered by each Restricted Share Award made pursuant to this Plan.
The Share Vesting Agreement shall specify the number of shares of Common Stock
covered by such Restricted Share Award.

 

10.4        What the Recipient Must Deliver to Receive a Restricted
Share Award. The Committee, in its sole discretion, will
determine whether the Recipient, in order to receive the Restricted Share
Award, must make a payment, either in cash (including by check), by delivery of
a promissory note or by delivery of other securities of the Company (including
options to purchase securities of the Company), to the Company of all or some
portion of the Fair Market Value of the shares of Common Stock covered by the
Restricted Share Award. To the extent that the sum of any cash payment, any
promissory note and any other securities received by the Company from the Recipient
in connection with a Restricted Share Award is less than the Fair Market Value
of the shares of Common Stock covered by such Restricted Share Award determined
as of the date of such Award, the shares of Common Stock covered by the
Restricted Share Award shall be deemed to have been issued by the Company for
services rendered by the Recipient.

 

10.5        Vesting Under a Restricted Share Award. The
Committee, in its sole discretion, shall determine the terms and conditions
upon which shares covered by any Restricted Share Award shall vest. The Share
Vesting Agreement shall specify the vesting schedule. Unvested shares covered
by a Restricted Share Award may not be transferred by the Recipient under any
condition without the prior written consent of the Committee, which consent may
be withheld in its sole discretion.

 

10.6        Right to Repurchase Unvested Shares upon Certain
Conditions. The Share Vesting Agreement shall specify the
events upon the occurrence of which the Company shall have the right to
repurchase

 

12

 

from the
Recipient any or all of the Recipient’s unvested shares and the period during
which the Company must exercise this right following the occurrence of the
event. The Share Vesting Agreement shall also specify the “Repurchase Price Per
Share” that the Company shall pay to the Recipient upon exercise of its right
to repurchase unvested shares and the terms of such payment. If not otherwise
specified in the Share Vesting Agreement, the right to repurchase must be
exercised within forty-five (45) days after the Company receives from the
Recipient written notice of the occurrence of the event, the repurchase price
shall be $0.001 per share and the repurchase price shall be payable to the
Recipient in cash (including by check) within ten (10) days after the date on
which the right to repurchase the shares is exercised. Any right of the Company
to repurchase unvested shares may be assigned by the Company in its sole
discretion without notice to, or the prior consent of, the Recipient. Every
Share Vesting Agreement evidencing a Restricted Share Award shall contain or
shall be deemed to contain a blank stock power pursuant to which the Recipient
authorizes the Company or its transfer agent to transfer ownership of unvested
shares from the Recipient to the Company or its assigns upon the right to
repurchase being exercised.

 

10.7        Payment of Tax Withholding Amounts. Upon
the vesting of shares under a Restricted Share Award (including any Restricted
Share Award transferred by the Recipient pursuant to Section 12.5) or upon
the Recipient making a valid election under Section 83(b) of the Internal
Revenue Code, each Recipient must pay to the Company or make adequate provision
for the payment of all Tax Withholding, if any. The Share Vesting Agreement may
provide for, or the Committee, in its sole discretion, may allow the Recipient
to pay the Tax Withholding (i) in cash (including by check), (ii) by
the Company withholding such amount from other amounts payable by the Company
to the Recipient, including salary, (iii) by delivery of shares of Common
Stock or other securities of the Company in accordance with Section 12.7,
(iv) by the application of vested shares under the Restricted Share Award
in accordance with Section 12.7 but only up to the minimum statutorily
required tax withholding amounts, or (v) any combination of the foregoing.
In the absence of such terms in the Share Vesting Agreement, the Tax
Withholding shall be paid in cash (including by check) or the Committee may
authorize payment or provision for the Tax Withholding by any other means
permitted by this Section 10.7.

 

By receiving and upon exercise of a Restricted Share
Award, the Recipient shall be deemed to have consented to the Company
withholding the amount of any Tax Withholding from any amounts payable by the
Company to the Recipient. The Committee, in its sole discretion, may permit a
Recipient to elect to pay the Tax Withholding by authorizing a duly registered
and licensed broker-dealer to sell the shares to be issued upon such exercise
(or, at least, a sufficient portion thereof) and instructing such broker-dealer
to immediately remit to the Company a sufficient portion of the proceeds from
such sale to pay the Tax Withholding. No shares will be delivered in response
to a request to deliver vested shares unless and until payment or adequate
provision for payment of the Tax Withholding has been made. If the Company
later determines that additional Tax Withholding was or has become required
beyond any amount paid or provided for by the Recipient, the Recipient will pay
such additional amount to the Company immediately upon demand by the Company. If
the Recipient fails to pay the amount demanded, the Company may withhold that
amount from other amounts payable by the Company to the Recipient, including
salary.

 

10.8        Rights as a Shareholder, Legends on Certificates, Escrow
of Unvested Shares and Delivery of Vested Shares Covered by a Restricted Share
Award. As soon as is practicable after a Restricted Stock
Award is awarded by the Company, the Company will issue one or more stock
certificates in the name of the Recipient for the shares covered by a
Restricted Share Award. For such time as and to the extent that the shares
covered by a Restricted Share Award remain unvested, the Company may place a
restrictive legend on any stock certificate evidencing such shares, may give
stop transfer instructions to the Company’s transfer agent and may place the
stock certificates in escrow with the Company or an agent of the Company. Upon
the vesting of shares covered by a Restricted Share Award, the Recipient by
notice, in such form as the Company may reasonably request, directed to the
President of the Company (or such other person as the Company may designate) at
the principal business office of the Company request that a stock certificate
covering such vested shares be issued in the name of the Recipient and
delivered in accordance with such instructions as the Recipient may reasonably
request.

 

13

 

ARTICLE
XI

CHANGES IN CAPITAL STRUCTURE, ACQUISITIONS AND CORPORATE TRANSACTIONS

 

11.1        Effect of Changes in Capital
Structure of the Company on the Number of Shares and Exercise Price. If
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, the Committee will make
such adjustment as it deems appropriate in the number and kind of Authorized
Shares. In addition, the Committee will make such adjustment in the number and
kind of shares of Common Stock or other securities covered by outstanding Stock
Options and outstanding Stock-Settled SARs, as well as make an adjustment in
the Exercise Price of each outstanding Stock Option and Stock-Settled SAR as
the Committee deems appropriate. The vesting terms of all Stock Option
Agreements, Stock-Settled SAR Agreements and Share Vesting Agreements will also
be adjusted as the Committee deems appropriate. Any determination by the
Committee as to what adjustments may be made, and the extent thereof, will be
final, binding on all parties and conclusive.

 

11.2        Issuance of Substitute Awards in Connection with an
Acquisition by the Company. In the event of the
acquisition of an Acquired Company by the Company or any Subsidiary, Awards (in
any form) may be awarded by the Company in substitution for any outstanding
unexercised stock options and any unvested share grants of the Acquired Company.
Such substitute Awards may deviate from the terms otherwise required by
Article VI, Article VII, Article VIII, Article IX and
Article X of this Plan to the extent that the Committee, in its sole
discretion upon the advise of its advisors, determines that such non-conforming
terms are required under applicable tax law, accounting principles or
contractual requirements or are otherwise appropriate.

 

11.3        Effect of the Occurrence of a
Corporate Transaction on Continuing Rights. In the event
of the occurrence of any Corporate Transaction, all outstanding Stock Options
and Stock-Settled SARs that were awarded pursuant to this Plan shall terminate
effective as of the effective date of such transaction, unless and only to the
extent that the terms and conditions of the transaction expressly provide either
(i) for the assumption of this Plan and the continuation of such Stock Options
and Stock-Settled SARs or (ii) the issuance of substitute similar Awards under
a plan of the acquiring or surviving entity in such transaction. Each Recipient
shall be provided written notice of the expected occurrence of any Corporate
Transaction at least fifteen (15) days prior to the effective date and shall be
permitted to tender a notice of exercise of any Stock Option or Stock-Settled
SAR in which exercise is conditioned upon the transaction actually occurring
and, notwithstanding any provision of Article VIII or term of any Option
Agreement, shall not be required to tender payment of the Exercise Price or
amounts that the Company may be required to withhold for tax purposes until
after the occurrence of the transaction. The terms and conditions of the
transaction may provide for the assumption of this Plan with respect only to
outstanding Performance Share Awards and Restricted Share Awards that have not
fully vested and the assignment to and assumption by the surviving corporation
of the rights and obligation of the Company under each outstanding Share
Vesting Agreement. The Option Agreements, Stock-Settled SAR Agreements and
Share Vesting Agreements that evidence Awards made under this Plan may, in the
sole discretion of Committee, provide for the acceleration of vesting, either
in whole or in part, under the Award. In addition, the Committee shall have the
power to accelerate the vesting of any Stock Option, Stock-Settled SAR,
Performance Share Award, Restricted Share Award in its sole discretion at the
time of a Corporate Transaction or conditioned upon the occurrence of an
expected Corporate Transaction.

 

ARTICLE
XII

OTHER TERMS APPLICABLE TO ALL AWARDS

 

12.1        Underwriters’ Lock-up. Each
written agreement evidencing an Award will specify that the Recipient, by
accepting the Award agrees that whenever the Company undertakes a firmly
underwritten public offering of its securities, the 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 the Recipient provided that such restriction will not extend
beyond 12 months from the effective date of the registration statement filed in
connection with such offering and provided that all of the then directors and
executive officers of the Company are also requested to and do enter into a
similarly restrictive agreement with the managing underwriter.

 

12.2        No Rights to Continued Service. Nothing
in this Plan nor in any written agreement evidencing an Award will confer upon
any Recipient any right to continued employment with the Company or to limit or
affect in any way the right of the Company, in its sole discretion, to (a)
terminate the employment of such Recipient at any time, with or without cause,
(b) change the duties of such Recipient, or (c) increase or decrease the
compensation of

 

14

 

the Recipient at any
time, subject, in each instance to the terms of any written employment
agreement between the Company and such Recipient. Unless the written agreement
evidencing an Award expressly provides otherwise, vesting under such agreement
shall be conditioned upon:

 

1)              for Employees of the
Company, the continued employment of the Recipient;

 

2)              for independent
contractors, the Recipient continuing to provide services to the Company on
substantially the same terms and conditions as such services were provided at
the time of the Award; or

 

3)              for directors who
are not Employees, the Recipient continuing to serve as a director of the
Company or a Subsidiary.

 

Nothing in this Plan
shall be construed as creating a contractual or implied right or covenant by
the Company to continue such employment, service as an independent contractor
or service as a director.

 

12.3        Who May Exercise Rights with Respect to Awards. During
a Recipient’s lifetime, all rights with respect to an Award may only be
exercised by the Recipient (including a legally appointed guardian or
representative for the Recipient).

 

12.4        Beneficiary Designations. Any
Recipient of an Award may, during his or her lifetime, designate a person or
persons who may exercise the rights of that Recipient as to any Award made to
such Recipient after the Recipient’s death. Any such designation shall be
effective only if given in writing in a form and manner acceptable to the
Committee and shall supercede and revoke all prior designations. In the absence
of an effective designation, any vested benefits with respect to Awards under
this Plan that remain unpaid at the time of Recipient’s death shall be paid to
the Recipient’s estate and, subjected to the terms of this Plan and the
applicable written agreement evidencing such Award, any unexercised rights of
the Recipient with respect to an Award may be exercised by the administrator or
executor of the Recipient’s estate.

 

12.5        Limited Transferability of Awards.
Unless the written agreement evidencing an Award expressly
states that the Award is transferable as provided in this Section 12.5, no
Award granted under this Plan nor any interest therein may be sold, assigned,
conveyed, gifted, pledge or otherwise transferred in any manner other than by
will or the laws of descent and distribution after the death of the Recipient. The
foregoing prohibition on transferability is not intended to and shall not
prohibit (i) the transfer of an Award to a trust in which the Recipient is
considered the sole beneficial owner under both Section 671 of the Internal
Revenue Code and applicable state law, (ii) a pledge of shares to be received
upon exercise of a Stock Option as security for a loan that is used to pay the
Exercise Price or the (iii) transfer of shares covered by an Award after
those shares are issued to the Recipient upon exercise of a Stock Option or
Stock-Settled SAR or the delivery of the shares to the Recipient upon vesting
of a Performance Share Grant or a Restricted Share Grant provided, in each
instance, that all other applicable restrictions on transfer of such shares
(whether imposed by law, the listing requirements of an exchange on which
shares of Common Stock are traded, the terms of this Plan, the written
agreement evidencing the Award or any share retention policy or share ownership
guidelines of the Company that are applicable to the Recipient) have lapsed. Notwithstanding
the foregoing, the Committee may make an Award of or amend the terms of an
outstanding Stock Option, Stock-Settled SAR, Performance Share Award or Restricted
Share Award to permit the transfer or assignment of an Award by means of a gift
or court approved domestic relations order provided that the transferees are
limited to (x) any combination of the Recipient, the Recipient’s spouse or
former spouse, or the Recipient’s children, (y) is made to a trust established
for the exclusive benefit of one or more of the persons identified in clause
(x) in which the beneficiaries are prohibited from transferring or assigning
their interests except for transfers to other persons identified in clause (x),
or (z) a partnership, limited liability company or other entity in which all
equity ownership interests are owned by persons identified in clause (x) and in
which such equity ownership interests cannot be transferred or assigned except
for transfers to other persons identified in clause (x). Any transfer of an
Award permitted by this Section 12.5 shall be conditioned upon the
Recipient and the transferee of such Award executing and delivering to the
Company a form of Transfer and Assumption as the Committee may request. Notwithstanding
any transfer of an Award, the Recipient shall remain liable to the Company for
any income tax withholding amounts that the Company is required to withhold at
the time the Award vests or is exercised or the shares subject to the Award are
sold by the transferee. The Committee shall have sole discretion in determining
whether or not an Award is transferable within the limitations set forth in
this Section 12.5 and may exercise that

 

15

 

discretion with respect
to certain Awards or certain Recipients without being bound to exercise that
discretion in the same manner with respect to other similar Awards or other
Recipients. Any purported assignment, transfer or encumbrance that does not
comply with the requirements of this Section 12.5 shall be void and
unenforceable against the Company.

 

12.6        Repurchase of Awards. With
the consent of the Recipient and upon approval of the Committee, the Company
may from time-to-time repurchase Awards by payment in cash in an amount equal
to the net Fair Market Value of the vested shares covered by the Award less any
Exercise Price. Although the Committee is authorized by this Plan to make such
repurchases, Awards shall not be made with the expectation that they will be
repurchased for cash and no Recipient shall have the right to cause the Company
to repurchase any Award without the consent of the Committee, which consent can
be withheld by the Committee in its sole discretion.

 

12.7        Payment of Exercise Price or Tax Withholding with Other
Securities. To the extent permitted in Section 8.2,
the Exercise Price and, to the extent permitted by Section 8.3,
Section 9.7 and Section 10.7, above, the Tax Withholding may be paid
by the surrender of shares of Common Stock or other securities of the Company. Payment
shall be made by either (i) delivering to the Company the certificates or
instruments representing such shares of Common Stock or other securities, duly
endorsed for transfer, or (ii) delivering to the Company an attestation in
such form as the Company may deem appropriate with respect to the Recipient’s
ownership of the shares of Common Stock or other securities of the Company. For
purposes of this Section 12.7, shares of Common Stock shall be valued at their
Fair Market Value as of the last business day preceding the day the Company
receives the Recipient’s notice of exercise with respect to the exercise of a
Stock Option or Stock-Settled SAR or as of the day on which a Performance Share
Award or Restricted Share Award vests. In addition to the foregoing, to the
extent permitted by Section 8.3, Section 9.7 and Section 10.7,
above, the Tax Withholding may be paid by the application of shares which could
be received upon exercise of a Stock Option or Stock-Settled SAR or the
application of shares which would otherwise be vesting under a Performance
Share Award or Restricted Share Award, provided, however, that this net
withholding of shares shall only be permitted up to minimum legally required
tax withholding amount required under federal, state and local income and
payroll taxes and Tax Withholding in excess of the minimum legally required tax
withholding amount may only be satisfied in the manner previously provided in
this Section 12.7. This net withholding of shares shall be accomplished by
crediting toward the Recipient’s Tax Withholding obligation either (i) the
difference between the Fair Market Value of a share of Common Stock and the
Exercise Price of the Stock Option or Stock-Settled SAR or (ii) the Fair Market
Value of a share of Common Stock with respect to a Performance Share Award or
Restricted Share Award, in each instance rounded down to the nearest whole
share. Any such net withholding of shares shall be considered an exercise of
the Stock Option or Stock-Settled SAR to the extent that shares are so applied.

 

12.8        Suspension or Termination of Awards
for Misconduct of the Recipient. If at any time
(including after receipt of a notice of exercise or a request for delivery of
vested shares) the Committee reasonably believes that a Recipient has committed
an act of misconduct as described in this Section 12.8, the Committee may
suspend the Recipient’s right to exercise and Stock Option or Stock-Settled SAR
or to receive delivery of vested shares under a Performance Share Award or
Restricted Stock Award pending a determination of whether an act of misconduct
has been committed by such Recipient. For purposes of this Section 12.8, acts
of misconduct shall mean (i) an act of embezzlement, fraud, dishonesty, breach
of fiduciary duty, violation of securities laws involving the Company, any of
its Subsidiaries or any entity or person with whom the Company or any of its
Subsidiaries does business, (ii) nonpayment of any obligation to the
Company or any Subsidiary, misappropriation or wrongful disclosure of any trade
secret of the Company or any Subsidiary, (iii) engaging in any conduct
constituting unfair competition or inducing any entity or person with whom the
Company or any of its Subsidiaries does business to discontinue or materially
reduce such business with the Company or its Subsidiaries and (iv) any similar
conduct that materially aversely impacts or reflects on the Company. A
Recipient accused of engaging in any such misconduct shall be provided the
opportunity to explain the Recipient’s conduct in writing. Any determination by
the Committee as to whether or not a Recipient did engage in misconduct within
the meaning of this Section 12.8 shall be final, conclusive and binding on the
all interested parties. If the Committee determines that the Recipient did not
engage in misconduct, the Company shall immediately give effect to any notice
of exercise or request for delivery of vested shares received prior to or
during any period of suspension. The Company shall not have any liability to
the Recipient for any loss which the Recipient may have sustained as a result
of any delay in delivering shares as a result of any suspension.

 

16

 

12.9        Compliance with Legal Requirements. No
shares of Common Stock will be issued with respect to any Award of a
Performance Share Award or Restricted Stock Award or upon the exercise of any
Stock Option or Stock-Settled SAR unless the exercise and issuance of the
shares of Common Stock will comply with (i) all relevant provisions of
law, including, without limitation, the Securities Act, the Securities Exchange
Act of 1934, all applicable state securities laws and the Internal Revenue Code,
each as amended and including the respective rules and regulations promulgated
under each of the foregoing, (ii) any registration under the Securities
Act in effect with respect to the Plan, and (iii) the requirements of any
stock exchange or market upon which the Common Stock may then be listed. Compliance
with such provisions shall be subject to the approval of legal counsel for the
Company. The Company will not be liable to any Recipient or any other person
for any delay in issuing or failure to issue shares of Common Stock where such
delay or failure is due to the inability of the Company to obtain all permits,
exemptions or approvals from regulatory authorities which are deemed necessary
by the Company’s legal counsel. The Board may require any action or agreement
by a Recipient as may be necessary, from time to time, to comply with the
federal and state securities laws. The Company will not be obliged to prepare,
file or maintain a registration under the Securities Act with respect to the
Plan or to take any actions with respect to any state securities laws.

 

ARTICLE
XIII

AMENDMENT OF PLAN

 

The Board of Directors,
at any time and from time to time, may modify or amend this Plan as it deems
advisable except that any amendment (i) increasing the number of shares of
Common Stock issuable pursuant to this Plan either in aggregate or as to any
type of Award, (ii) expanding the group of persons eligible to receive
Awards or (iii) reducing the Exercise Price permitted by Article V or
Article VI with respect to Stock Options or the Exercise Price permitted by
Article VII with respect to Stock-Settled SARs, (iv) reducing the Exercise
Price of then outstanding Stock Options or Stock-Settled SARs or
(v) otherwise required to be approved by the shareholders of the Company
under any applicable law, accounting principle or the requirements of any stock
exchange or market upon which the Common Stock may then be listed, shall only
become effective if and when such amendment is approved by the shareholders of
the Company. No amendment will be made that adversely impacts the rights of any
Recipient under an outstanding Award without the written consent of the
Recipient unless the Committee in its sole discretion determines either
(x) that the amendment is required or advisable for the Company, this Plan
or such Award to satisfy any law or regulation or the requirements of any
applicable accounting standard or (y) is not reasonably likely to significantly
diminish the benefits provided to the Recipient under the Award or that the
Recipient has been adequately compensated for such diminishment in benefits.

 

This Amended and Restated
Plan is dated as of and approved and adopted by the Board of Directors of the
Company at a meeting held on February 17, 2005 and ratified by shareholders on
May 5, 2005.

 

17EXHIBIT 10.7.2

 

LITHIA MOTORS, INC.

RESTRICTED STOCK AGREEMENT

 

This Restricted Stock Agreement is made and entered
into pursuant to the terms of the 2003 Stock Incentive Plan (the “Plan”)
adopted by the Board of Directors and Shareholders of Lithia Motors, Inc., an
Oregon corporation (the “Company”). 
Unless otherwise defined herein, capitalized terms defined in this Restricted
Stock Agreement shall have the meanings as defined in the Plan.

 

	
  The
  “Grantee”

  	
                                                               

  	
   

  
	
   

  	
   

  	
   

  
	
  Number
  of Shares of the Company’s

  	
                                                               

  	
   

  
	
  Common
  Stock Awarded

  	
  (the
  “Grant Shares”)

  	
   

  
	
   

  	
   

  	
   

  
	
  “Date
  of Award”

  	
                                                              

  	
   

  
	
   

  	
   

  	
   

  
	
  Price
  Paid by Grantee per Share

  	
  $

  	
  0

  	
   

  	
   

  
	
   

  	
   

  
	
  Fair
  Market Value per Share of Date of Award

  	
  $

  	
                          

  	
   

  
	
   

  	
   

  
	
  Repurchase
  Price per Share

  	
  $

  	
  0.001

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Grantee’s
  Current Job Grade or Manager Level

  	
                                                              

  	
   

  
	
   

  	
   

  	
   

  
	
  “Vesting
  Schedule”

  	
  Per
  the attached Schedule A

  	
   

  

 

1.             AWARD OF RESTRICTED STOCK GRANT

 

The Company hereby awards to the Grantee and the
Grantee accepts the award of a Restricted Stock Grant of the number of shares
of Common Stock of the Company specified above as the Grant Shares.  This
Restricted Stock Grant is being made as part of the Grantee’s compensation
package without the payment of any consideration other than the Grantee’s
services to the Company and payment by the Grantee of the Price Paid per Share
specified above, if any.  The Award is being made pursuant to the Plan and
is subject to and conditioned upon the terms and conditions of the Plan and the
terms and conditions set forth in this Agreement.  Any inconsistency
between this Agreement and the terms and conditions of the Plan will be
resolved in accordance with the Plan.

 

2.             REPRESENTATIONS OF THE GRANTEE

 

2.1          No Representations by or on Behalf of the
Company.  The Grantee 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 Grant
Shares or this Restricted Stock Grant.

 

2.2          Tax Election.  The Company has
advised the Grantee to seek the Grantee’s own tax and financial advice with
regard to the federal and state tax considerations resulting from the Grantee’s
receipt of the Grant Shares pursuant to the Award.  The Grantee is making
the Grantee’s own determination as to the advisability of making a Section 83(b)
election with respect to the Grant Shares covered by the Award and this
Agreement.  The Grantee understands that the Company will report to
appropriate taxing authorities the payment to the Grantee of compensation
income either (i) upon the vesting of Shares or (ii) if the Grantee makes
a timely Section 83(b) election, as of the Date of the Award.  The
Grantee understands that he or she is solely responsible for the payment of all
federal and state taxes resulting from this Restricted Stock Grant.  With
respect to Tax Withholding Amounts, the Company has all of the rights specified
in Section 5 of this Agreement and has no obligations to the Grantee except as
expressly stated in Section 5 of this Agreement.

 

2.3          Agreement to Enter into Lock-Up Agreement
with an Underwriter.  If the Grantee is then an executive officer of
the Company, the Grantee, by accepting the Award represented by this Agreement,
understands and agrees that whenever the Company undertakes a firmly
underwritten public offering of its securities, the Grantee 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
the Grantee 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 SHARES

 

3.1          No Transfers of Unvested Shares. 
The Grantee agrees for himself or herself, his or her executors, administrators
and other successors in interest that none of the Unvested Shares, 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 the Vesting
Schedule set forth in Schedule A.

 

3.2          Stock Distributions.  If the Company
makes any distribution of stock with respect to the Grant Shares by way of a
stock dividend or stock split, or pursuant to any recapitalization,
reorganization, consolidation, merger or otherwise, and the Grantee receives
any additional shares of stock in the Company (or other shares of stock in
another corporation) as a result thereof, such additional (or other) shares
shall be deemed Grant Shares hereunder and shall be subject to the same
restrictions and obligations imposed by this Agreement.

 

3.3          Invalid Transfers.  Any disposition
of the Grant Shares other than in strict compliance with the provisions of this
Agreement shall be void.  The Company shall not be required (i) to
transfer on its books any Grant Shares which have been sold or transferred in
violation of the provisions of this Section 3 or (ii) to treat as the owner of
the Grant Shares, or otherwise to accord voting, dividend or any other rights
to, any person or entity to whom Grantee transferred or attempted to transfer
the Grant Shares in contravention of this Agreement.

 

3.4          Status of Repurchased Grant Shares. 
Any of the Grant Shares repurchased by the Company pursuant to this Agreement
shall return to the status of authorized, but unissued, shares of the Company.

 

4.             REPURCHASE
OF UNVESTED GRANT SHARES

 

4.1          Repurchase Right.  Unless the
Company gives notice to the Grantee within a period of ninety days (90) after
the occurrence of any of the foregoing events (each a “Repurchase Event”) of
its intent to waive its repurchase right, the Company will repurchase the Grant
Shares from the Grantee to the extent that they were Unvested on the date of
the Repurchase Event:

 

(i)            upon the
death of the Grantee;

 

(ii)           upon the
Grantee becoming Disabled, as such term is defined in the Plan; and

 

(iii)          upon
the Grantee ceasing, for any reason, to be an Employee, as such term is defined
in the Plan, except that a leave of absence in accordance with the Company’s
sick leave, family leave or military leave policies or that is otherwise
approved by the Committee that administers the Plan shall not constitute
cessation of Employment provided unless the Grantee fails to return to
employment with the Company at the end of such leave in accordance with such
policies or approval.

 

Notwithstanding the
foregoing, if the Company was not aware of the occurrence of the Repurchase
Event, the ninety-day period shall not begin to run until such time as the
Company actually becomes aware of such occurrence.  If the Company gives
notice of its election not to repurchase the Unvested Grant Shares, this shall
not bar or waive the Company’s obligation or option to exercise its repurchase
right in connection with any subsequent Repurchase Event.

 

4.2          Purchase Price and Payment.  The
Repurchase Price of the Grant Shares under this Section 4 is as specified
on the first page of this Agreement and shall be paid by the Company at the
closing by check.

 

4.3          Closing of the Repurchase.  Any
shares repurchased pursuant to this Section 4 shall be transferred at a closing
to be held at the principal office of the Company no later than ten (10) days
after the expiration of the ninety (90) day period specified in Section
4.1.  Failure to timely remit the Repurchase Price to the Grantee shall
not invalidate the Company’s repurchase obligation and right as set forth in
Section 4.1.

 

4.4          Safekeeping of Stock Certificate Until the
Expiration of the Repurchase Right.  Until Grant Shares are vested in
accordance with the vesting schedule set forth in Schedule A, the stock
certificate representing the Grant Shares may be retained by the Company or its
transfer agent.  Upon the closing of any repurchase pursuant to this
Section 4, Grantee hereby authorizes and irrevocably appoints the Secretary of
the Company (with full power of substitution) Grantee’s attorney-in-fact to
transfer the Grant Shares on the books of the Company and to cancel or reissue
a new certificate representing the Grant Shares in accordance with this Section
4.  Upon the written request of the Grantee, the Company will deliver or
cause to be delivered to the Grantee a stock certificate representing the Grant
Shares that have vested in accordance with the vesting schedule set forth in
Schedule A to the extent that stock

 

 

certificates for such vested shares have not previously been delivered
to the Grantee.  The power of attorney contained in this Section 4.4 shall
become null and void as to Grant Shares that have vested in accordance with the
vesting schedule set forth in Schedule A.

 

4.5          Assignment of Rights by the Company. 
The Company may, in its sole discretion, assign its repurchase obligation with
respect to any Unvested Grant Shares to any one or more persons without notice
to, or the prior consent of, the Grantee.

 

5.             PROVISION FOR PAYMENT OF TAX WITHHOLDING
AMOUNTS

 

5.1          Payment of Tax Withholding Amounts. 
Upon the vesting of the Grant Shares or upon the Grantee making a valid
election under Section 83(b) of the Internal Revenue Code, the Grantee
must pay to the Company or make adequate provision for the payment of all Tax
Withholding as such term is defined in the Plan.  By accepting the Award
represented by this Agreement, the Grantee shall be deemed to have consented to
the Company withholding the amount of any Tax Withholding from any amounts
payable by the Company to the Grantee.  No shares of Common Stock will be
released from the restrictions on their transfer under Section 3 of this
Agreement unless and until payment or adequate provision for payment of the Tax
Withholding has been made.  If the Company later determines that
additional Tax Withholding was or has become required beyond any amount paid or
provided for by the Grantee, the Grantee will pay such additional amount to the
Company immediately upon demand by the Company.  If the Grantee fails to
pay the amount demanded, the Company may withhold that amount from other
amounts payable by the Company to the Grantee, including salary or any bonus.

 

5.2          Alternative Provisions for the Payment of Tax
Withholding Amounts.  The Grantee may elect to pay all or any portion
of the Tax Withholding (i) by surrender of shares of Common Stock
(including vested Grant Shares) valued at their Fair Market Value as such term
is defined in the Plan, (ii) by authorizing a duly registered and licensed
broker-dealer to sell shares of Common Stock that are vested or vesting under
this Agreement (or, at least a sufficient portion thereof) and instructing such
broker-dealer to immediately remit to the Company a sufficient portion of the
proceeds from such sale to pay the Tax Withholding (iii) by the surrender of
other securities of the Company in the manner specified in Section 8.4 of
the Plan, or (iv) any combination of the foregoing.

 

6.             MISCELLANEOUS PROVISIONS

 

6.1           Specific Performance.  The parties
hereby acknowledge and agree that it is impossible to measure in money the
damages which will be suffered by a party hereto by reason of any breach by
another party of any term of this Agreement, that the Company and its common
stock are unique and that a non-breaching party will suffer irreparable injury
if this Agreement is not specifically performed.  Accordingly, the parties
hereto acknowledge that a non-breaching party shall, in addition to all other
remedies available hereunder or at law, be entitled to equitable relief
(including without limitation preliminary and permanent injunctive relief) to
enforce the terms of this Agreement.

 

6.2          No Rights to Continued Employment. 
Nothing contained herein shall confer upon Grantee any right to continue in the
employ of the Company or continue in their current job grade or manager level,
and the Company reserves all rights to discharge or demote Grantee for any
reason whatsoever, with or without cause, as an at-will employee, subject to
the terms of any other written agreement that may exist between the Company and
Grantee.

 

6.3          Amendment and Modification.  This
Agreement may be amended, modified and supplemented only by written agreement
of all of the parties hereto.

 

6.4          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 the Grantee without the prior written consent of
the Company.

 

6.5          Governing 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.

 

6.6          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 6.7
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.

 

6.7          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.

 

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

 

6.9          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.

 

6.10        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.

 

6.11        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.

 

6.12        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
the Grantee, to the address maintained by the personnel department, or such
other address as such party shall have furnished to the other party in writing.

 

IN WITNESS WHEREOF, the Grantee and the Company have
executed this Agreement effective as of the Date of Award.

 

 

	
  The GRANTEE

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Type or Print Name:

  	
   

  	
   

  
	
   

  	
   

  	
  Social Security Number:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  COMPANY

  	
   

  	
    LITHIA
  MOTORS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Sidney B. DeBoer, Chief
  Executive Officer

  
									

 

 

RESTRICTED
STOCK AGREEMENT

 

Schedule A –
Vesting Schedule

 

Grant Shares awarded under the Restricted Stock Agreement
to which this Schedule A is attached shall vest in accordance with the
following schedule.  Grant Shares that have not yet vested in accordance
with the vesting schedule set forth herein, are referred to in the Restricted
Stock Agreement as “Unvested Shares.”

 

A.            Upon the following vesting dates:

 

	
  Vesting Date

  	
   

  	
  Number of Grant Shares Vesting on that Date

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

B.            Upon
the consummation of a Change of Control Transaction, as such term is defined in
the Plan, all of the Grant Shares that remain unvested shall become vested.

 

Notwithstanding the
foregoing:

 

(i)        no
additional Grant Shares will vest after the occurrence of any Repurchase Event;

 

(ii)       no
additional Grant Shares will vest while the Grantee is on leave;

 

(iii)      any
vesting dates referred to above shall automatically be extended by the duration
of any leave of absence that is without pay; and

 

(iv)     the
number of Grant Shares vesting above shall automatically be adjusted as
appropriate to reflect any stock dividend, stock-split, combination of shares
or other similar event as referred to in Section 10.1 of the Plan.

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