Lithia Motors, Inc. Schedule 14A
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
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Check the appropriate box:
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14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant toss.240.14a-11(c) orss.240.14a-12
LITHIA MOTORS, INC.
(Exact Name of Registrant as Specified In Its Charter)
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LITHIA MOTORS, INC.
360 E. Jackson Street
Medford, Oregon 97501-5289
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held On May 17, 2001
To the Shareholders of Lithia Motors, Inc.:
I am pleased to invite you to the Annual Meeting of Shareholders of LITHIA
MOTORS, INC., which will be held at the Rogue Valley Country Club, 2660
Hillcrest Road, Medford, Oregon 97504, on Thursday, May 17, 2001, at 4:00 p.m.,
Pacific Daylight Savings Time for the following purposes.
1. To elect directors of the Company for the ensuing year;
2. To approve the Lithia Motors, Inc. 2001 Stock Option Plan;
3. To approve an amendment to the Lithia Motors, Inc. 1998
Employee Stock Purchase Plan to modify certain eligibility
requirements; and
4. To consider and act on such other matters as may properly come
before the meeting.
The Board of Directors has fixed the close of business on March 30, 2001, as the
record date. Only holders of record of Common Stock and Series M Preferred Stock
of the Company at the close of business on the record date will be entitled to
notice of and to vote at the meeting and any adjournment thereof. Further
information regarding voting rights and the matters to be voted upon is
presented in this proxy statement.
The Proxy Statement, the proxy card, a return envelope and a copy of the Annual
Report to Shareholders describing the Company's operations for the year ended
December 31, 2000 are enclosed.
I hope that you will be able to attend the meeting in person. Whether or not you
plan to attend the meeting, please sign and return the enclosed proxy card
promptly. Your shares will be voted at the meeting in accordance with your
proxy.
If you have shares in more than one name, or if your stock is registered in more
than one way, you may receive multiple copies of the proxy materials. If so,
please sign and return each proxy card you receive so that all of your shares
may be voted. I look forward to meeting you at the Annual Meeting.
Very truly yours,
LITHIA MOTORS, INC.
SIDNEY B. DeBOER
Chairman of the Board,
April 20, 2001 Chief Executive Officer and Secretary
LITHIA MOTORS, INC.
PROXY STATEMENT
GENERAL
This proxy statement and the accompanying Annual Report to Shareholders, the
Notice of Annual Meeting and the proxy card are being furnished to the
shareholders of Lithia Motors, Inc., an Oregon corporation (the "Company"), in
connection with the solicitation of proxies by the Company's Board of Directors
for use at the Company's 2001 Annual Meeting of Shareholders (the "Annual
Meeting") to be held at the Rogue Valley Country Club, 2660 Hillcrest Road,
Medford, Oregon 97504, on Thursday, May 17, 2001, at 4:00 p.m. Pacific Daylight
Savings Time and any adjournment thereof.
SOLICITATION AND REVOCATION OF PROXIES
The Board of Directors is soliciting proxies for use at the Annual Meeting. The
solicitation of proxies by mail may be followed by personal solicitation of
certain shareholders, by officers or regular employees of the Company. All
expenses of the Company associated with this solicitation will be borne by the
Company.
The two persons named as proxies on the enclosed proxy card, Sidney B. DeBoer
and M. L. Dick Heimann, were designated by the Board of Directors. All properly
executed proxies will be voted (except to the extent that authority to vote has
been withheld) and where a choice has been specified by the shareholder as
provided in the proxy card, it will be voted in accordance with the
specification so made. Proxies submitted without specification will be voted FOR
Proposal No. 1 to elect the nominees for directors proposed by the Board of
Directors; FOR Proposal No. 2 to approve the Lithia Motors, Inc. 2001 Stock
Option Plan; and FOR Proposal No. 3 to approve an amendment to the Company's
1998 Employee Stock Purchase Plan.
A proxy may be revoked by a shareholder prior to its exercise by written notice
to the Secretary of the Company, by submission of another proxy bearing a later
date or by voting in person at the Annual Meeting. Such notice or later proxy
will not affect a vote on any matter taken prior to the receipt thereof by the
Company.
These proxy materials and the Company's 2000 Annual Report to Shareholders are
being mailed on or about April 20, 2001 to shareholders of record on March 30,
2001 of the Company's Common Stock and Series M Preferred Stock. The principal
executive office and mailing address of the Company is 360 E. Jackson Street,
Medford, Oregon 97501.
VOTING AT THE MEETING
Class A Common Stock, Class B Common Stock and Series M Preferred Stock
constitute the only classes of securities entitled to notice of and to vote at
the meeting. As of the record date, there were 8,448,213 shares of Class A
Common Stock, 4,087,000 shares of Class B Common Stock and 14,859 shares of
Series M Preferred Stock outstanding and entitled to vote. The Class A Common
Stock, Class B Common Stock and Series M Preferred Stock vote together as a
single voting group on all matters submitted to a vote of the shareholders. For
a quorum to exist, there must be 25,062,528 votes represented at the meeting in
person or by proxy.
1
At the annual meeting, each share of Class A Common Stock is entitled to one
vote per share, each share of Class B Common Stock outstanding is entitled to
ten votes per share and each share of Series M Preferred Stock is entitled to
54.30 votes per share
Proxies that expressly indicate an abstention as to a particular proposal and
broker non-votes will be counted for purposes of determining whether a quorum
exists at the Annual Meeting. Directors are elected by a plurality of the votes
cast and only votes cast in favor of a nominee will be counted. Therefore,
abstention from voting or nonvoting by brokers will have no effect. The proposed
2001 Stock Option Plan and the proposed amendment to the Company's 1998 Employee
Stock Purchase Plan will be approved if more votes are cast in favor of the
proposal than cast against it. Therefore, abstention from voting and nonvoting
by brokers will have no effect on the approval of these proposals.
BUSINESS TO BE CONDUCTED AT THE MEETING
PROPOSAL NO. 1
Election of Directors
The Company's bylaws provide for not less than two and not more than seven
directors. The Board of Directors has currently established the number of
directors at seven. Directors are elected by the shareholders at the Company's
annual meeting and serve until the next annual meeting or until their successors
are elected and qualified. The Board of Directors has nominated the following
persons to serve as directors for the ensuing year:
Name Age Has Been a Director Since
------------------- -- -------------------------
Sidney B. DeBoer 57 1968
Thomas Becker 49 1997
R. Bradford Gray 49 1997
M. L. Dick Heimann 57 1970
W. Douglas Moreland 52 1999
Gerald F. Taylor 60 2000
William J. Young 58 1997
SIDNEY B. DEBOER. Mr. DeBoer has served as the Chairman, Chief Executive Officer
and Secretary of the Company since 1968. He also is a member of various
automobile industry organizations, including the President's Club of the
National Automobile Dealers Association, Oregon Auto Dealers Association,
Medford New Car Dealers Association, Chrysler Dealer Council, Toyota Dealer
Council and Honda Dealer Council. Mr. DeBoer has earned several awards including
the Time Magazine Quality Dealer Award in 1997, the Sports Illustrated All-Star
Dealer Award in 1990 and various Medford Chamber of Commerce Awards in 1986,
1991, 1993 and 1998. Mr. DeBoer is active with several community and charitable
organizations, including Oregon Community Foundation, Oregon Shakespeare
Festival, Ashland Community Hospital and Rogue Valley Medical Center Foundation.
THOMAS BECKER. Mr. Becker became a Director of the Company in March 1997. Mr.
Becker is the Executive Director of Pacific Retirement Services, Inc. and Rogue
Valley Manor in Medford, Oregon. Pacific Retirement Services, Inc. is the parent
corporation of a number of retirement centers and related operations in Oregon,
California and Texas. Mr. Becker began his career with Rogue Valley Manor in
January 1978. Mr. Becker holds a Bachelor of Science degree from the University
of Oregon.
2
R. BRADFORD GRAY. Mr. Gray has served as Executive Vice President of the Company
since 1996 and became a Director of the Company in 1997. From 1981 to 1995, he
served in various capacities with the Company, including as General Manager of
the Company's Grants Pass (1991-1995) and Lithia Dodge (1989-1991) dealerships.
Since 1975, Mr. Gray has held various positions in the automobile sales
industry, including sales representative, sales manager and general manager.
M.L. DICK HEIMANN. Mr. Heimann has served as the Chief Operating Officer and
Director of the Company since 1970 and was appointed President in 1997. Prior to
joining the Company, he served as a district manager of Chrysler Corporation
from 1967 to 1970. He is a member of various automobile industry organizations
including the Oregon Auto Dealers Association, the Jeep Dealer Council and the
Medford New Car Dealers Association, for which he has previously served as
president. Mr. Heimann is a graduate of University of Colorado with a Bachelor
of Science degree in Biology and Languages.
W. DOUGLAS MORELAND. Mr. Moreland became a Director and joined the Company as
Regional Vice President - Intermountain Region in May 1999 when Lithia acquired
the Moreland Automotive Group. In March 2000, Mr. Moreland was promoted to
Senior Vice President, Regional Operations - Colorado. Prior to joining the
Company, Mr. Moreland was the owner of Moreland Automotive Group. Mr. Moreland
began his auto retailing career in 1969 and became a primary dealer and owner in
January 1980.
GERALD F. TAYLOR. Mr. Taylor became a Director of the Company in April 2000. Mr.
Taylor served in the position of Senior Vice President and CFO of Applied
Materials, Inc., a manufacturer of semi-conductor equipment, from 1984 until
1998. From 1998 to January 2000, Mr. Taylor served as senior advisor to the CEO
of Applied Materials, Inc., and is now fully retired from Applied Materials,
Inc. He is on the Board of Directors of Electro Scientific Industries, Inc. and
MicroBar, Inc. (a private company). He is also on the Board of Directors of the
Oregon Shakespeare Festival.
WILLIAM J. YOUNG. Mr. Young became a Director of the Company in March 1997. Mr.
Young is the former Chairman of the Board, President and Chief Executive Officer
of ARC Capital, a holding company with three wholly-owned subsidiaries operating
in the machine vision industry. Mr. Young was with ARC Capital since 1994. Prior
to 1994, Mr. Young served with Volkswagen of America ("VOA") for 18 years, most
recently as President and Chief Executive Officer. During his tenure as
President and CEO of VOA, Mr. Young also served as President of V-Crest Systems,
Inc. ("VCI"), a computer services company serving 1,200 auto dealer agencies,
and director of VCI, Inc., a $2 billion financial services company.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR EACH OF THE NOMINEES NAMED ABOVE.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four regular meetings and took action pursuant to 12
unanimous written consents during the year ended December 31, 2000. Mr. Moreland
missed three of the four regular meetings during 2000. No other director
attended fewer than 75 percent of the meetings of the Board of Directors and
committees thereof, if any, during the period that he was a member of the Board
of Directors during 2000.
3
The Compensation Committee, currently consisting of Messrs. Becker, Taylor and
Young, all independent directors, reviews and approves salaries for the
executive officers, grants of stock options and other incentive compensation for
employees of the Company. The Compensation Committee also administers the
Company's 1996 Stock Incentive Plan and the 1998 Employee Stock Purchase Plan.
Upon approval by shareholders of the 2001 Stock Option Plan, the Compensation
Committee will become responsible for its administration as well. Mr. DeBoer was
a member of the Compensation Committee until March 2000. The Compensation
Committee held four meetings and took action pursuant to two unanimous written
consents during 2000.
The Audit Committee, currently consisting of Messrs. Becker, Taylor and Young,
is responsible for recommending the selection of auditors for the Company and
reviewing the results of the audit and other reports and services provided by
the Company's independent auditors. The Audit Committee held three meetings
during 2000.
Each member of the Audit Committee is independent, as independence is defined
under Rule 303.01 of the corporate governance standards of the New York Stock
Exchange. The Board has adopted an Audit Committee Charter, a copy of which is
attached as Appendix A to this proxy statement. The Audit Committee Charter
provides that employees of the Company are not eligible to serve on the Audit
Committee. The charter further provides that at least one member shall have had
past employment experience in finance or accounting, requisite professional
certification in accounting, or any other comparable experience or background
which results in the individual's financial sophistication, including being or
having been a chief executive officer, chief financial officer or other senior
officer with financial oversight responsibilities. The Board believes that each
of the current members of the Audit Committee has employment experience that
provides them with appropriate financial sophistication to serve on the Audit
Committee.
The Nominating Committee currently consists of Messrs. DeBoer, Heimann and
Young. The Nominating Committee will consider nominations from shareholders. The
Nominating Committee held one meeting during 2000.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company were paid based on a rate of
$12,000 per year for the first four months of 2000 and based on a rate of
$15,000 per year for the last eight months of 2000. In addition, they receive an
additional $500 per meeting of the Board or a committee of the Board in excess
of one meeting per month. During 2000, each non-employee director received
options exercisable for 2,000 shares of the Company's Class A Common Stock. The
options were granted at the fair market value of the Company's Common Stock on
the date of grant and vest six months from the date of grant. Directors of the
Company who are employees do not receive any additional compensation for serving
as a director. All directors are reimbursed for out-of-pocket expenses incurred
in connection with attending Board and committee meetings.
4
AUDIT COMMITTEE REPORT
The Audit Committee of the Board of Directors reports to the Board and is
responsible for overseeing Lithia's accounting functions, the system of internal
controls established by management, and the processes to assure compliance with
applicable laws, regulations and internal policies. The Audit Committee's
activities are governed by a written charter, which was adopted by the Board on
February 21, 2000 and reapproved February 9, 2001. A copy of the Audit Committee
Charter is attached to this Proxy Statement as Appendix A.
In discharging its responsibilities, the Audit Committee and its individual
members have met with management and Lithia's independent auditors, KPMG LLP, to
review the Company's accounting functions and the audit process. The Audit
Committee discussed and reviewed with its independent auditors all matters that
the independent auditors were required to communicate and discuss with the Audit
Committee under applicable auditing standards, including those described in
Statement on Auditing Standards No. 61, as amended, regarding communications
with audit committees. Audit Committee members also discussed and reviewed the
results of the independent auditors' examination of the financial statements,
the quality and adequacy of the Company's internal controls, and issues relating
to auditor independence. The Audit Committee has obtained a formal written
statement relating to independence consistent with Independence Standards Board
Standard No. 1, "Independence Discussions with Audit Committee," and discussed
with the auditors any relationships that may impact their objectivity and
independence.
Based on its review and discussions with management and Lithia's independent
auditors, the Audit Committee recommended to the Board that the audited
Financial Statements be included in Lithia's Annual Report on Form 10-K for the
fiscal year ended December 31, 2000, for filing with the United States
Securities and Exchange Commission.
Submitted by:
Thomas Becker
Gerald F. Taylor
William J. Young
5
PROPOSAL NO. 2
Approval of the Lithia Motors, Inc. 2001 Stock Option Plan
Stock options provide employees and directors with incentives to increase
productivity and Company profitability, thereby enhancing shareholder value. We
believe equity compensation is important and beneficial to the Company because
it enables us to attract and retain the most highly qualified personnel. Through
two previously adopted plans, the 1996 Stock Incentive Plan (the "1996 Plan")
and the 1997 Non-Discretionary Stock Option Plan for Non-Employee Directors (the
Directors' Plan"), we provided ownership opportunities in the Company to our
employees and non-employee directors. However, the authorized shares under these
two plans are nearly exhausted. Rather than amend these plans to meet our
current demands, we have decided to replace these two plans with a new stock
option plan that will allow us to continue to offer equity participation and
compensation to our employees at a competitive level without placing undue
demands on our capital resources.
The Board of Directors has approved the adoption of the 2001 Stock Option Plan
(the "Plan") and is recommending it to the shareholders for their approval. A
summary of the terms of the Plan follows, but you should read the entire Plan
before you vote. A copy of the Plan document is attached as Appendix B to this
proxy statement.
Subject to approval by the shareholders, the Plan became effective April 9, 2001
and will terminate 10 years after the effective date. Termination of the Plan
will not affect outstanding options at the time of termination. The Plan will be
administered by a committee selected by the Board of Directors, and if no such
committee is appointed, then by the Board of Directors. The Company's
Compensation Committee will be the initial Plan administrator.
The Plan provides for the issuance of up to 600,000 shares of Class A Common
Stock upon exercise of stock options granted pursuant to the Plan. No options
have been granted under the Plan, nor has the Company committed to grant any
options as of this date. In the event any option granted expires without being
exercised, the unexercised shares previously subject to the expired option would
again become available for future grants. The Plan may be amended from time to
time as may be necessary to increase the number of shares available, subject to
shareholder approval.
Options granted under the Plan are designated as either "Incentive Stock
Options" as defined in Section 422 of the Internal Revenue Code, or
"Non-Qualified Stock Options." Each person receiving an option must execute a
written option agreement setting forth the specific terms of that particular
option. The Compensation Committee has full discretion, subject to the terms and
conditions of the Plan, to determine the specific terms of each grant.
The Incentive Stock Options may be granted only to employees and are exercisable
at 100% of the fair market value of the shares on the date of grant, unless the
person receiving the option grant beneficially owns 10% or more of the
outstanding shares, in which case the exercise price must be at least 110% of
the fair market value. The term of the options may not exceed 10 years from the
date of the grant and may be subject to a vesting schedule as determined by the
Compensation Committee; and in the case of a 10% owner, the term may not exceed
5 years. Incentive Stock Options are not transferable, except by will or laws of
descent and distribution upon death of the option holder.
6
The Non-Qualified Stock Options may be granted to employees, directors and other
individuals determined by the Compensation Committee to have performed services
of importance to the Company in the management, operation or development of
business of the Company or any of its subsidiaries at any price determined in
the sole discretion of the Compensation Committee. The Compensation Committee
also has sole discretion in determining the term, not to exceed 10 years, and
the vesting schedule. Under certain circumstances, if permitted by the
Compensation Committee, Non-Qualified Stock Options may be transferable by gift
in addition to a will or the laws of descent and distribution upon death.
Options may be exercised while the recipient is employed or is serving as a
director and within three months after termination of service. If termination of
service is because of death or disability, the option holder may exercise the
options within 12 months of the date of death or disability. If the service is
terminated by the Company for cause, the Compensation Committee may terminate
any unexercised options. In the event of a transaction involving a change of
control of the Company, such as a merger or acquisition of the Company, option
holders would be immediately entitled to exercise all of their options,
notwithstanding any vesting schedule, unless adequate provisions were made for
the continuation of the options.
At the discretion of the Compensation Committee, the Plan permits the option
holder to pay the exercise price of any options with cash, Company stock held by
the option holder for at least six months, or by the application of shares that
could be received upon exercise of the options (a "net" exercise, except that
for purposes of the Plan, such shares will be treated as having been issued and
redeemed and not longer available for reissuance), with such shares valued at
the difference between the option exercise price and the fair market value of
the underlying shares. The Plan also permits broker-assisted cashless exercises
of stock options.
Non-qualified stock options do not result in income to the grantee under federal
income tax law currently in effect until the option is exercised. At the time of
exercise of a non-qualified stock option, the recipient of the option will
realize ordinary income, and the corporation will be entitled to a deduction for
tax purposes, in the amount by which the market value of the shares issued on
exercise of the option exceeds the exercise price.
Incentive stock options have no tax consequences for the option recipient or the
corporation upon grant or exercise, except for possible application of the
alternative minimum tax under certain circumstances to the option recipient.
Upon sale of the shares received from the exercise of incentive stock options,
any gain realized is treated as capital gain if two years have elapsed from the
date of the grant and one year has elapsed from the date of exercise. If these
holding periods are not satisfied, the sale is deemed a disqualifying
disposition, and that portion of any gain realized, which is represented by the
difference between the exercise price and the fair market value of the shares as
of the date of exercise of the option, is treated as ordinary income and the
corporation will be entitled to a corresponding compensation expense deduction
for income tax purposes.
7
Upon receiving shareholder approval for the Plan, all shares available for grant
under the 1996 Plan and the Directors' Plan will be canceled. Options
outstanding under the 1996 Plan and the Directors' Plan will not be affected by
shareholder approval of the Plan. Should option grants under the 1996 Plan and
the Directors' Plan be canceled after shareholder approval of the Plan, the
shares covered thereby will not be available for future grants.
RECOMMENDATION OF THE BOARD OF DIRECTORS AND VOTE OF SHAREHOLDERS
Under the rules of the New York Stock Exchange, any plan providing for the
issuance of shares to directors and officers of the Company must be approved by
the shareholders. The Board of Directors unanimously recommends that the
shareholders vote in favor of the adoption of the 2001 Stock Option Plan. The
persons named as proxy holders intend to, and will, vote your shares in favor of
adoption of this proposal, unless you instruct otherwise.
PROPOSAL NO. 3
Approval of an Amendment to the 1998 Employee Stock Purchase Plan
Our shareholders have previously approved the 1998 Employee Stock Purchase Plan
(the "ESPP") which permits eligible employees to purchase our Class A Common
Stock via payroll deductions at a price equal to the lower of 85% of the market
price of such shares on the first day or the last day of each fiscal quarter.
Deductions are limited to 10% of a participant's base pay (maximum of $25,000
per year per employee). The original ESPP authorized the sale of 250,000 shares,
which authority was expanded to 500,000 shares at last year's annual meeting of
shareholders. As of April 3, 2001, 262,021 shares have been sold under the ESPP,
leaving 237,979 remaining available under the ESPP.
Currently, employees are required to have completed at least six consecutive
months of continuous employment with Lithia to be eligible to participate in the
ESPP. The Board of Directors is asking shareholders to approve an amendment to
the ESPP that would (i) reduce the minimum employment period to ninety (90) days
of continuous employment and (ii) give employees prior credit for the time they
served with any dealership whose assets or stock is acquired by Lithia.
The amendment revises the definition of Employer as follows:
"2.11 "EMPLOYER" means the Company, its successors, any future parent
(as defined in Section 424(e) of the Code), each current or future
Subsidiary and any company whose operating assets or stock is acquired
by the Company or any Subsidiary."
The amended provision to reduce the employment period would read as follows:
"3.1 ELIGIBILITY REQUIREMENTS. Participation in the Plan is voluntary.
Each Employee who has completed at least ninety (90) days of continuous
Employment with an Employer (calculated from his last date of hire to
the termination of his Employment for any reason), is regularly
scheduled to work at least 20 hours per week and has reached the age of
majority in the jurisdiction of his legal residency, will be eligible
to participate in the Plan on the first day of the payroll period
commencing on or after the earlier of (i) the Effective Date or (ii)
the Entry Date on which the Employee satisfies the aforementioned
8
eligibility requirements. Each Employee whose Employment terminates and
who is rehired by an Employer shall be treated as a new Employee for
eligibility purposes under the Plan."
Management believes that shortening the prior employment period and giving prior
service credit to employees who continue with Lithia after the acquisition of
their previous employer is in the Company's interest by permitting new hires to
participate sooner and permitting acquired employees with prior service to
immediately begin participation in the ESPP and become Lithia shareholders.
Management further believes that early integration of new employees gained in
acquisitions into its benefit plans provides additional incentives and helps
implement its management systems in those new stores.
Because employees who control 5% or more of the total voting power of all
classes of the Company's stock are not eligible, Messrs. Sidney DeBoer, Heimann,
Gray and Moreland are not currently eligible to participate in the ESPP. Messrs.
Jeffrey DeBoer, Bryan DeBoer and Mark DeBoer are not able to participate because
of their family relationship with Mr. Sidney DeBoer.
A more complete summary of the ESPP is set forth in Appendix C.
RECOMMENDATION OF THE BOARD OF DIRECTORS AND VOTE OF SHAREHOLDERS
Under the rules of the New York Stock Exchange, any plan providing for the
issuance of shares to directors and officers of the Company must be approved by
the shareholders. The Board of Directors unanimously recommends that the
shareholders vote in favor of the amendment to the 1998 Employee Stock Purchase
Plan. The persons named as proxy holders intend to, and will, vote your shares
in favor of adoption this proposal, unless you instruct otherwise.
9
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of March 30, 2001, certain information with
respect to ownership of the Company's Common Stock and Series M Preferred Stock
of (i) each Director, (ii) the "Named Executive Officers" (as defined under
"Executive Compensation"), (iii) all persons known by the Company to be
beneficial owners of more than 5 percent of its Common Stock, and (iv) all
executive officers and Directors as a group.
Number of Percent of Shares
Shareholder Shares (A)(B)(E) Outstanding
------------------------------------------ ----------------- -----------------
Lithia Holding Company, LLC (C) (D) Class B 4,087,000 100%
Sidney B. DeBoer (C) (D) (F) Class A 129,015 1.5%
Class B 4,087,000 100%
W. Douglas Moreland (C) (G) Class A 1,288,848 15.2%
Series M 12,020 80.9%
Fidelity Management and Research Corp.(H) Class A 1,189,250 14.1%
82 Devonshire Street
Boston, Massachusetts 02109
Capital Guardian Trust Company (I) Class A 775,700 9.2%
333 South Hope Street, 55th Floor
Los Angeles, CA 90071
J.P. Morgan & Co. Incorporated (J) Class A 528,325 6.3%
60 Wall Street
New York, NY 10260
Wellington Management Company, LLP (K) Class A 526,700 6.2%
75 State Street
Boston, Massachusetts 02109
M. L. Dick Heimann (D) (L) Class A 169,654 2.0%
R. Bradford Gray (D) Class A 77,823 *
Don Jones, Jr. (M) Class A 37,873 *
Bryan B. DeBoer Class A 25,714 *
Thomas Becker (N) Class A 14,200 *
Gerald F. Taylor Class A 11,000 *
William J. Young Class A 4,000 *
All current executive officers and Class A 1,780,172 20.5%
directors as a group (10 persons) (O) Class B 4,087,000 100%
Series M 12,020 80.9%
-----------------
*Less than one percent
(A) Applicable percentage of ownership is based on 8,448,213 shares of
Class A Common Stock outstanding, 4,087,000 shares of Class B Common
Stock outstanding and 14,859 shares of Series M Preferred Stock
outstanding as of March 30, 2001, together with applicable options for
such shareholders. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and includes
voting and investment power with respect to shares. Shares of Common
Stock subject to options or warrants currently exercisable or
exercisable within 60 days after March 30, 2001 are deemed outstanding
for computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for computing the
percentage of any other person.
10
(B) The Class A Common Stock is entitled to one vote per share, the Class B
Common Stock is entitled to 10 votes per share and is convertible into
Class A Common Stock on a share for share basis at the option of the
holder thereof or under certain other circumstances and the Series M
Preferred Stock is entitled to 54.30 votes per share.
(C) Such person can be reached c/o 360 E. Jackson Street, Medford, Oregon
97501.
(D) Lithia Holding's members are Sidney DeBoer (1.16%), DeBoer Family LLC
(50.30%), Heimann Family LLC (35.07%), Mr. Gray (7.04%), DeBoer
Insurance, L.L.C. (4.61%) and Sid and Karen DeBoer Foundation (1.43%).
Sidney DeBoer, as the manager of Lithia Holding and pursuant to the
terms of its operating agreement, has the sole voting and investment
power with respect to all of the Class B Common Stock. DeBoer Family
LLC is managed by Sidney DeBoer, Trustee of the Sidney B. DeBoer Trust.
DeBoer Insurance, L.L.C. is owned by Mr. DeBoer's adult children. Mr.
Heimann is the manager of the Heimann Family LLC.
(E) Includes shares subject to options exercisable within 60 days of March 30, 2001 as follows:
Name Number of Options
------------------------- ------------------
Sidney B. DeBoer 48,009
W. Douglas Moreland 18,512
M. L. Dick Heimann 50,190
R. Bradford Gray 57,273
Don Jones, Jr. 16,289
Bryan B. DeBoer 17,384
Thomas Becker 4,000
Gerald F. Taylor 1,000
William Young 4,000
All current executive officers
and directors as a group 233,238
(F) Includes 10,325 Class A shares held in Mr. DeBoer's 401(k) account.
(G) 1,260,336 of the Class A Shares and all of the Series M shares
beneficially owned by Mr. Moreland are held by several limited
partnerships of which Mr. Moreland and his wife are the limited
partners and Mr. Moreland is the President of the corporate general
partner of each of the partnerships.
(H) Based solely on information as of December 31, 2000 provided on
Schedule 13G filed with the Securities and Exchange Commission by FMR
Corp. ("FMR"). FMR is the parent holding company of Fidelity Management
Trust Company, which has beneficial ownership of 848,000 of the
reported shares. FMR has sole voting power with respect to 859,400
shares and sole dispositive power with respect to all 1,189,250 shares.
(I) Based solely on information as of December 31, 2000 provided on
Schedule 13G filed with the Securities and Exchange Commission by
Capital Guardian Trust Company ("Capital Guardian"). Capital Guardian
serves as an investment manager for several institutional customers.
Capital Guardian has sole voting power with respect to 402,500 shares
and sole dispositive power with respect to all 775,700 shares.
(J) Based solely on information as of December 31, 2000 provided on
Schedule 13G filed with the Securities and Exchange Commission by J. P.
Morgan & Co. Incorporated ("J. P. Morgan"). J.P. Morgan has sole voting
power with respect to 524,825 shares and sole dispositive power with
respect to all 528,325 shares.
(K) Based solely on information as of December 31, 2000 provided on
Schedule 13G filed with the Securities and Exchange Commission by
Wellington Management Company, LLP ("WMC"). WMC has shared voting power
with respect to 270,800 shares and shared dispositive power with
respect to all 526,700 shares.
(L) Includes 15,964 shares held by Mr. Heimann's spouse.
(M) Includes 7,504 Class A shares held in Mr. Jones' 401(k) account.
(N) Includes 200 shares held in a custodial account for Mr. Becker's
daughter.
(O) Class A includes 15,964 shares held by Mr. Heimann's spouse, 200 shares
held in a custodial account for Mr. Becker's daughter, 10,325 shares
held in Sidney DeBoer's 401(k) account and 7,504 shares held in Mr.
Jones' 401(k) account.
11
EXECUTIVE OFFICERS
The following table identifies the current executive officers of the Company,
the positions they hold, and the year in which they began serving in their
respective capacities. Officers of the Company are elected by the Board of
Directors to hold office until their successors are elected and qualified.
With Company
Name Age Current Position(s) with Company Since
---------------------- ------ --------------------------------------------- --------------
Sidney B. DeBoer 57 Chairman, Chief Executive Officer and 1968
Secretary
M. L. Dick Heimann 57 President, Chief Operating Officer and 1970
Director
R. Bradford Gray 49 Executive Vice President and Director 1981
Bryan B. DeBoer 34 Senior Vice President, Mergers and 1989
Acquisitions/ Operations
Don Jones, Jr. 38 Senior Vice President, Retail Operations 1989
Jeffrey B. DeBoer 36 Senior Vice President and Chief Financial 1997
Officer
W. Douglas Moreland 52 Senior Vice President, Regional 1999
Operations-Colorado
Information on the business backgrounds of Sidney B. DeBoer, M. L. Dick Heimann,
R. Bradford Gray and W. Douglas Moreland is provided in "Election of Directors"
above.
BRYAN B. DEBOER. Mr. DeBoer joined Lithia in 1989 working in various capacities
including General Manager of certain dealerships, Finance Manager and General
Sales Manager. In 1996, Mr. DeBoer began serving on the acquisition team and was
promoted to Vice President, Acquisitions in 1997. In March 2000, Mr. DeBoer was
promoted to Senior Vice President, Mergers and Acquisitions/Operations. Mr.
DeBoer has a B.S. degree from Southern Oregon University. Mr. DeBoer also
graduated from the National Auto Dealers Association Dealer Academy in 1990,
where he was trained in all operational aspects of auto retailing.
DON JONES, JR. Mr. Jones joined Lithia in 1989 as a General Sales Manager after
13 years of auto retailing experience outside of Lithia. Mr. Jones has held
various other positions including General Manager, Executive Manager and
Regional Manager. In 1997, Mr. Jones was promoted to Vice President, Operations
and In March 2000, he was promoted to Senior Vice President of Retail
Operations. Mr. Jones holds degrees from Menlo College in Atherton, California
and the University of Oregon.
JEFFREY B. DEBOER. Mr. DeBoer joined Lithia in March 1997 as Vice President,
Finance and Investor Relations. In March 2000, Mr. DeBoer was promoted to Senior
Vice President and Chief Financial Officer. Prior to joining Lithia, Mr. DeBoer
was an equity analyst and sector fund manager at Fidelity Investments Japan from
1994 to 1997 and a Credit Officer at Fuji Bank, Ltd., in Tokyo, Japan from 1988
to 1992. Mr. DeBoer holds an undergraduate degree from Pomona College and an
M.B.A. degree with a specialty in finance and investment management from London
Business School. Mr. DeBoer also attended the National Auto Dealers Association
Dealer Academy in 1998, where he was trained in all operational aspects of auto
retailing.
12
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows compensation paid to the Chief Executive Officer and
the top four other executive officers during 2000 who had total compensation
during 2000 exceeding $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Comp. Awards
---------------------------------------- ------------
Other Securities
Annual Underlying
Name and Principal Position Year Salary Bonus (A) Compensation (B) Options (#)
-------------------------- ------- --------- --------- --------------- ------------
Sidney B. DeBoer 2000 $418,000 $ 6,000 $8,264 87,282
Chairman, Chief Execu- 1999 372,000 349,459 8,868 12,000
tive Officer and 1998 371,700 77,000 9,809 12,000
Secretary
M. L. Dick Heimann 2000 334,500 6,000 525 87,282
President, Chief Operat- 1999 300,000 320,500 6,774 12,000
ing Officer and Director 1998 298,875 51,000 4,456 12,000
R. Bradford Gray 2000 287,000 6,000 6,993 40,000
Executive Vice President 1999 264,000 277,500 8,240 8,000
and Director 1998 263,000 48,660 6,617 8,000
Don Jones, Jr. 2000 239,000 1,000 5,757 32,000
Senior Vice President, 1999 215,000 219,500 3,488 4,000
Retail Operations 1998 203,000 40,900 4,956 5,935
Bryan B. DeBoer 2000 237,415 1,000 8,990 32,000
Senior Vice President, 1999 190,000 228,500 9,357 4,000
Mergers and 1998 174,000 30,900 7,028 4,000
Acquisitions/
Operations
(A) Includes a "years of service bonus" totaling between $900 and $1,000 in
1998 for each of the Named Executive Officers, $3,500 in 1999 for each
of the Named Executive Officers and $1,000 in 2000 for each of the
Named Executive Officers. All full-time employees are entitled to an
annual "years of service bonus" for each year of employment (maximum of
ten years) for undergoing a physical and other health counseling.
(B) Includes an automobile allowance and Company contributions to
employees' 401(k) account.
13
STOCK OPTIONS
The following table contains information concerning the grant of stock options
under the Company's 1996 Stock Incentive Plan (the "Plan") to the Named
Executive Officers in 2000.
OPTION GRANTS IN LAST FISCAL YEAR
Potential
Individual Grants (A) Realizable Value
---------------------------------------------------------------- At Assumed Annual
Number of % of Total Rates of Stock Price
Securities Options Appreciation for
Underlying Granted to Option Term (H)
Options Employees in Exercise Expiration ------------------------------
Name Granted Fiscal Year Price ($/Sh.) Date 5% 10%
----------- ----------- ----------- ----------- ----------- ----------- -----------
Sidney B. DeBoer 16,000 (A) 2.26% $1.00 12/26/10 $291,861 $474,217
31,788 (B) 4.49 11.81 12/26/10 236,147 598,444
7,494 (C) 1.06 12.99 12/26/05 15,605 45,191
22,010 (D) 3.11 16.75 01/06/10 231,853 587,561
9,990 (E) 1.41 18.43 01/06/05 29,448 85,375
M. L. Dick Heimann 16,000 (A) 2.26% $1.00 12/26/10 $291,861 $474,217
31,788 (B) 4.49 11.81 12/26/10 236,147 598,444
7,494 (C) 1.06 12.99 12/26/05 15,605 45,191
22,010 (D) 3.11 16.75 01/06/10 231,853 587,561
9,990 (E) 1.41 18.43 01/06/05 29,448 85,375
R. Bradford Gray 12,000 (A) 1.69 1.00 12/26/10 218,896 355,663
28,000 (F) 3.95 16.75 01/06/10 294,952 747,465
Don Jones, Jr. 8,000 (A) 1.13 1.00 12/26/10 145,931 237,109
24,000 (G) 3.39 16.75 01/06/10 252,816 640,684
Bryan DeBoer 8,000 (A) 1.13 1.00 12/26/10 145,931 237,109
24,000 (G) 3.39 16.75 01/06/10 252,816 640,684
-----------------
(A) Such options expire ten years from the date of grant and vest 100% five
years from the date of grant.
(B) Such options expire ten years from date of grant and vest as follows:
8,360 immediately; 2,108 two years from the date of grant; 10,565 three
years from the date of grant; and 10,755 four years from the date of
grant.
(C) Such options vest 100% on the date of grant and expire five years from
the date of grant.
(D) Such options expire ten years from the date of grant and vest as
follows: 13,627 one year from the date of grant and 8,383 two years
from the date of grant.
(E) Such options expire five years from the date of grant and vest as
follows: 4,745 three years from the date of grant and 5,245 four years
from the date of grant.
(F) Such options expire ten years from the date of grant and vest as
follows: 3,498 one year from the date of grant; 4,894 two years from
the date of grant; 4,055 three years from the date of grant; 4,055 four
years from the date of grant; and 8,000 five years from the date of
grant.
(G) Such options expire ten years from the date of grant and vest as
follows: 4,000 on each of the first through fourth anniversaries of the
grant date and 8,000 five years from the date of grant.
(H) These calculations are based on certain assumed annual rates of
appreciation as prescribed by rules adopted by the Securities and
Exchange Commission requiring additional disclosure regarding executive
compensation. Under these rules, an assumption is made that the shares
underlying the stock options shown in this table could appreciate at
rates of 5% and 10% per annum on a compounded basis over the term of
the stock options. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Company's Common Stock and
overall stock market conditions. There can be no assurance that amounts
reflected in this table will be achieved, or may not be exceeded.
14
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of options
during 2000 and unexercised options held as of the end of the fiscal year, with
respect to the Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
Number of
Securities Underlying
Number of Unexercised Value of Unexercised
Shares Options In-The-Money Options
Acquired Value At FY-End (#) At FY-End (A)
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
------------- ------------- ------------- ------------- ------------- ------------- -------------
Sidney B. DeBoer 20,681 $213,749 28,873 83,864 $13,540 $205,969
M. L. Dick Heimann 58,500 587,978 31,054 83,864 38,485 205,969
R. Bradford Gray 20,550 220,462 40,075 66,784 349,099 272,901
Don Jones, Jr. 12,330 132,277 8,179 45,612 85,237 147,378
Bryan DeBoer 6,330 67,909 9,274 44,401 89,674 133,526
(A) Market value of the underlying securities at December 31, 2000
($12.4375 per share), minus exercise price of the unexercised options.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Moreland dated May 14,
1999. The agreement is for a term of three years and provides for an initial
annual base salary of $180,000, plus an incentive bonus based on the annual
increase in profits of the dealerships under his direction. The Company may
terminate Mr. Moreland's employment within the three year term with or without
cause. If terminated for cause, Mr. Moreland shall receive his salary and bonus
earned through the date of termination. If terminated without cause, Mr.
Moreland shall receive the greater of six months salary or one-half of the
salary due for the remaining term of the contract, and his incentive bonus due
for the remaining term of the contract.
15
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors consists of Messrs. Becker,
Taylor and Young. The members are non-employee, outside directors and are
responsible for establishing compensation of officers who also serve on the
Board of Directors. The entire Board is responsible for reviewing and providing
feedback on non-director executive officer compensation.
COMPENSATION PHILOSOPHY AND POLICIES
The Company's philosophy is to structure executive officer compensation so that
it will attract, motivate and retain senior management by providing an
opportunity for competitive compensation based on performance. Executive officer
compensation includes competitive base salaries, performance based bonuses and
long-term stock-based incentive opportunities in the form of options exercisable
to purchase the Company's Class A Common Stock.
It is the policy of the Board that, to the extent possible, compensation will be
structured so that it meets the "performance-based" criteria as defined by
Section 162(m) of the Internal Revenue Code of 1986, as amended, and therefore
is not subject to federal income tax deduction limitations.
BASE SALARIES
Base salaries for the Named Executive Officers were determined by the Board
based on factors including, but not limited to, length of service, salaries for
comparable positions within the industry and Company performance.
ANNUAL BONUS
The Company has a bonus plan under which the Compensation Committee establishes
a bonus pool for the fiscal year and makes bonus awards to the Chief Executive
Officer and other individuals selected by the Chief Executive Officer. Award
amounts are determined on the basis of the achievement of both Company and
individual performance goals. Provision is made for the elimination or reduction
of awards for Company performance below a minimum level and for unsatisfactory
individual performance. The Compensation Committee has broad authority to alter,
amend or terminate the bonus plan. The Company has the option of paying the
bonus in cash, stock or stock options. Certain of the Named Executive Officers,
including the Chief Executive Officer, received a cash bonus related to 2000
performance totaling $5,000.
During 2000, the Company also provided a "years of service bonus" of $1,000 for
each of the Named Executive Officers. At the discretion of the Board, all
full-time employees are eligible for an annual "years of service bonus" equal to
$100 per year for each year of employment, with a maximum of $1,000.
401(k) PLAN
The Company maintains a 401(k) plan, which covers substantially all eligible
full-time employees. Any Company contribution to the 401(k) plan is at the
discretion of the Board of Directors. Each of the Named Executive Officers
received a Company contribution of $525 under this 401(k) plan during 2000.
16
EMPLOYEE STOCK PURCHASE PLAN
The Company maintains an Employee Stock Purchase Plan, which covers
substantially all eligible full-time employees. Messrs. Sidney B. DeBoer,
Heimann, Gray and Moreland are not currently eligible to participate in the
Employee Stock Purchase Plan since employees who control 5% or more of the total
voting power of all classes of the Company's stock are not eligible. Messrs.
Jeffrey DeBoer, Bryan DeBoer and Mark DeBoer are not able to participate because
of their family relationship with Mr. Sidney DeBoer.
STOCK OPTION AWARDS FOR 2000
The Company's 1996 Stock Incentive Plan provides for the issuance of incentive
and/or nonqualified stock options to officers and employees of the Company to
purchase shares of the Company's Class A Common Stock. See "Option Grants in
Last Fiscal Year" table for a summary of options granted to the Named Executive
Officers during 2000.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. DeBoer's 2000 base salary of $418,000, annual bonus of $6,000 were
determined in the same manner as the other executives as described above.
SUBMITTED BY:
Thomas Becker
Gerald F. Taylor
William J. Young
17
STOCK PERFORMANCE GRAPH
The following line-graph shows the annual percentage change in the cumulative
total returns for the past five years and the quarterly percentage change for
the first quarter of fiscal 2001 on an assumed $100 initial investment and
reinvestment of dividends, on (a) the Company's Class A Common Stock; (b) the
Russell 2000; and (c) a peer group index composed of United Auto Group, Inc.,
Auto Nation (formerly Republic Industries, Inc.), Sonic Automotive, Inc. and
Group 1 Automotive, Inc., the only other publicly traded automobile dealerships
in the United States as of December 31, 2000 that are of comparable size to the
Company. The peer group index utilizes the same methods of presentation and
assumptions for the total return calculation as the Company and the Russell
2000. All companies in the peer group index are weighted in accordance with
their market capitalizations.
Percentage Return
-----------------------------------------------------------------------
Quarter
Year Ended Ended
------------------------------------------------------------ ---------
Company/Index 12/31/96 (1) 12/31/97 12/31/98 12/31/99 12/31/00 3/31/01
------------------ --------- --------- --------- --------- --------- ---------
Lithia Motors, Inc. 1.18% 32.52% 11.86% 8.33% (30.42)% 21.00%
Russell 2000 2.79 22.36 (2.55) 21.26 (3.02) (6.82)
Peer Group Index 0.41 (25.44) (30.87) (37.62) (28.93) 45.88
Indexed Returns
-----------------------------------------------------------------
Quarter
Base Year Ended Ended
Period ----------------------------------------------------- ---------
Company/Index 12/18/96 12/31/96 12/31/97 12/31/98 12/31/99 12/31/00 3/31/01
------------------ --------- --------- --------- --------- --------- --------- ---------
Lithia Motors, Inc. $100.00 $101.18 $134.09 $150.00 $162.50 $113.07 $136.82
Russell 2000 100.00 102.79 125.77 122.57 148.62 144.13 134.29
Peer Group Index 100.00 100.41 74.86 51.76 32.20 22.88 33.48
(1) Represents return from December 18, 1996, the date the Company began
trading, through December 31, 1996.
18
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2000, Lithia Real Estate, Inc. paid Mark DeBoer Construction, Inc. $6.8
million for remodeling certain of the Company's facilities. Mark DeBoer
Construction is owned and operated by Mark DeBoer, vice president of Lithia Real
Estate, Inc. and son of Sidney B. DeBoer. This amount included $6.1 million paid
for subcontractors and materials, $32,000 for permits, licenses, travel and
various miscellaneous fees, and $624,000 for contractor fees.
In May 1999, the Company purchased certain dealerships owned by W. Douglas
Moreland for total consideration of approximately $66.0 million, at which time,
Mr. Moreland became a member of the Company's Board of Directors. During 2000,
in the normal course of business, these dealerships paid $2.8 million to other
companies owned by Mr. Moreland primarily for vehicles purchased. The Company
also paid rental expense of $3.2 million in 2000 to other companies owned by Mr.
Moreland.
The terms of the acquisition agreement with Mr. Moreland provided for additional
consideration to be paid if the acquired entity results of operations exceeded
certain targeted levels in 1999. Targeted levels were set substantially above
the historical experience of the acquired entity at the time of acquisition.
Such additional consideration was paid in cash and with shares of the Company's
stock in the first quarter of 2000. Additional consideration totaled $18.0
million, including $9.0 million in cash, $4.5 million in Class A Common Stock
and $4.5 million in stated value Series M Redeemable Convertible Preferred Stock
with a fair value of $2.7 million.
The Company believes the amounts paid in the above transactions were fair in
comparison with fees and prices negotiated with independent third parties.
INDEPENDENT ACCOUNTANTS
KPMG LLP was the Company's independent accountant for the year ended December
31, 2000. A representative of KPMG LLP is expected to be present at the Annual
Meeting. The representative will be given the opportunity to make a statement on
behalf of the firm if such representative so desires, and will be available to
respond to appropriate shareholder questions.
Total fees paid to KPMG LLP related to fiscal 2000 were $274,200, all of which
were audit related.
19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the executive
officers and directors of the Company and all persons who own more than ten
percent of the outstanding shares of the Common Stock of the Company (referred
to as the "ten percent shareholders") to file with the Securities and Exchange
Commission and the New York Stock Exchange initial reports of beneficial
ownership and all subsequent changes in beneficial ownership of the Common Stock
and other equity securities of the Company. Based solely on review of the copies
of the forms provided to the Company and the representations by the executive
officers, directors and ten percent shareholders, the Company believes, to the
best of its knowledge, that all Section 16(a) filing requirements were met for
the fiscal year ending December 31, 2000.
OTHER BUSINESS AND SHAREHOLDER PROPOSALS
The Company knows of no other business to be conducted at the Annual Meeting.
Proposals of Shareholders intended to be presented by such Shareholders at next
year's Annual Meeting must be received by the Company at its principal office no
later than December 21, 2001 and must satisfy the conditions established by the
Securities and Exchange Commission for shareholder proposals to be included in
the Company's proxy statement for that meeting.
FORM 10-K
The Company will provide, without charge, on the written request of any
beneficial owner of shares of the Company's Common Stock a copy of the Company's
Annual report on Form 10-K as filed with the Securities and Exchange Commission
for the Company's fiscal year ended December 31, 2000. Written requests should
be mailed to the Secretary, Lithia Motors, Inc., 360 E. Jackson Street, Medford,
Oregon 97501.
By Order of the Board of Directors:
SIDNEY B. DeBOER
Chairman, Chief Executive
Dated: April 20, 2001 Officer and Secretary
20
APPENDIX A
LITHIA MOTORS, INC.
CHARTER OF THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
February 21, 2000
Reapproved February 9, 2001
MEMBERSHIP
As permitted by the Bylaws of the Corporation, the Board of Directors of Lithia
Motors, Inc. has elected to select a committee of the Board of Directors to be
called the "Lithia Audit Committee." The Audit Committee will consist of not
less than two members of the Board of Directors, one of whom will be designated
to serve as Chairperson. Members of the Audit Committee may be appointed from
time to time by the Board and will be appointed or re-appointed at its first
meeting following the Annual Meeting of the Shareholders of the Corporation. No
member of this Committee may be an employee of the Corporation or its
subsidiaries.
MEETINGS
The Audit Committee will normally meet prior to the quarterly meeting of the
Board of Directors or at such other times as the Committee Chairperson or any
Committee member may reasonably request. Minutes of the Audit Committee shall be
prepared and a copy provided to all members of the Committee, the Board of
Directors and the Secretary of the Corporation.
ACCESS TO AUDIT COMMITTEE MEMBERS
As the Audit Committee serves a vital function in ensuring that the books and
records of the Corporation accurately reflect its condition and operations,
auditors of the Corporation, as well as any employee of the Corporation or its
subsidiaries, shall have direct access to the Audit Committee to discuss the
results of any examination, the adequacy of internal accounting controls and the
integrity of the financial reports.
SELECTION OF INDEPENDENT ACCOUNTANTS
Management of the Corporation may, from time to time, recommend the selection of
independent auditors to conduct an audit of the Corporation's financial
statements. The Audit Committee will consider the selection and provide a
recommendation to the full Board of Directors as to the formal approval and
engagement of the Corporation independent auditors.
AUDIT REVIEW
The Audit Committee will meet periodically with management, the Corporation's
internal audit staff and representatives of the Corporation's independent
auditors to ensure that appropriate audits of the Corporation's affairs are
being conducted. The Audit Committee will review with management and staff any
audit plans submitted to the Corporation and the recommendations contained in
and the appropriate response to any Management Letter or Letter of
Recommendation issued by the Corporation's independent accountants as a result
of any audit conducted.
A-1
Further, for fiscal year 2000 and forward, the Audit Committee shall:
o Review and discuss with management the scope of internal and
external audit activities and the audited financial statements
of the Corporation.
o Discuss with the Corporation's auditors matters relating to
the Statement on Auditing Standard No. 61.
o Secure disclosures from and discuss with the Corporation's
auditors, the auditor's independence in light of Independence
Standards Board Standard No. 1.
o Issue a statement to the Board of Directors whether, based
upon the review and discussions identified above, the
committee recommends that the audited financial statements be
included in the Corporation Annual Report filed with the SEC
on Form 10-K.
o Submit a report as required by Item 306 of Regulation S-K for
inclusion in the Corporation's Proxy Statement in connection
with its annual shareholders meeting.
REPORTS TO THE FULL BOARD OF DIRECTORS
The Chairperson shall report to the full Board of Directors a summary of the
Audit Committee's activities and may submit or refer to the full Board any
matter, which the Committee believes warrants the attention of the Board of
Directors.
A-2
APPENDIX B
Lithia Motors, Inc.
2001 Stock Option Plan
ARTICLE I
PURPOSE OF THE PLAN
The purpose of this 2001 Stock Option Plan (the "Plan") is to advance
the interests of Lithia Motors, Inc. (the "Company") and its shareholders by
enabling the Company to attract and retain the services of people with training,
experience and ability and to provide additional incentive to employees and
non-employee directors of the Company and others who provide services to the
Company by giving them an additional opportunity to participate in the ownership
of the Company.
ARTICLE II
DEFINITIONS
As used herein, the following definitions will apply:
(a) "Available Shares" means the number of shares of Common Stock
available at any time for issuance pursuant to Incentive Stock
Options or Nonqualified Stock Options under this Plan as
provided in Article III.
(b) "Award" means any grant of an Incentive Stock Option or any
grant of a Nonqualified Stock Option under this Plan.
(c) "Board of Directors" means the Board of Directors of the
Company.
(d) "Internal Revenue Code" means the Internal Revenue Code of
1986, as amended.
(e) "Committee" means any committee appointed by the Board of
Directors in accordance with Article V of this Plan, or, if no
such committee has been appointed, shall mean the Board of
Directors. Initially, the Company's Compensation Committee
shall serve as the Committee.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Lithia Motors, Inc. an Oregon business
corporation, and, unless the context otherwise requires, any
majority owned subsidiary of the Company and any successor or
assignee of the Company by merger, consolidation, acquisition
of all or substantially all of the assets of the Company or
otherwise.
B-1
(h) "Disabled" means a mental or physical impairment which has
lasted or which is expected to last for a continuous period of
12 months or more and which renders an Optionee unable, in the
Committee's sole discretion, of performing the duties which
were assigned to the Optionee 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 Optionee and will be conclusive
on all of the parties.
(i) "Effective Date" means the date on which this Plan is approved
by the Board of Directors.
(j) "Employee" means any person employed by the Company.
(k) "Exercise Price" means the price per share at which a shares
of Common Stock may be purchased upon exercise of an Incentive
Stock Option or Nonqualified Stock Option.
(l) "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 National Market
System or Small Cap Market of NASDAQ, the "Fair
Market Value" of a share of Common Stock shall 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 NASDAQ OTC
Bulletin Board Service, by the National Quotation
Bureau or any other comparable service, the "Fair
Market Value" of a share of Common Stock shall be the
average between the highest closing bid and lowest
closing asked prices as reported by such service 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 A or B, the "Fair
Market Value" of a share of Common Stock shall be as
determined by the Committee in its sole discretion.
(m) "Incentive Stock Option" means an option to purchase shares of
Common Stock that the Committee indicates is intended to
qualify as an incentive stock option within the meaning of
Section 422 of the Internal Revenue Code and is granted under
Article VI of this Plan.
(n) "Nonqualified Stock Option" means an option to purchase shares
of Common Stock that the Committee either indicates is
intended to be a nonqualified stock option or indicates is NOT
intended to qualify as an incentive stock option within the
meaning of Section 422 of the Internal Revenue Code and is
granted under Article VII of this Plan.
(o) "Optionee" means any individual who is granted either an
Incentive Stock Option or a Nonqualified Stock Option under
this Plan.
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(p) "Reserved Shares" means the number of shares of Common Stock
reserved for issuance pursuant to Awards under this Plan as
provided in Section 3.1 of Article III.
(q) "Securities Act" means the Securities Act of 1933, as amended.
(r) "Significant Shareholder" means any person who owns stock
possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or any
parent or subsidiary of the Company. For purposes of this
definition a person shall be considered as owning all stock
owned, directly or indirectly by or for such person's brothers
and sisters, spouse, ancestors and lineal descendants. In
addition, stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered
as being owned proportionately by or for its shareholders,
partners or beneficiaries to the extent required by Section
422 of the Internal Revenue Code.
ARTICLE III
STOCK SUBJECT TO THE PLAN
3.1 AGGREGATE NUMBER OF RESERVED SHARES. Subject to adjustment in
accordance with Section 9.1, the total number of shares of Common Stock reserved
for issuance pursuant to all Awards under this Plan is established at 600,000
shares.
3.2 NUMBER OF AVAILABLE SHARES. At any point in time, the number of
Available Shares shall be the number of Reserved Shares at such time minus:
(a) the number of shares of Common Stock issued upon the exercise
of Incentive Stock Options and Nonqualified Stock Options
prior to such time; and
(b) the number of shares covered by Incentive Stock Options and
Nonqualified Stock Options that have been granted and which
have not yet expired, been terminated or been cancelled to the
extent that such options have not been exercised at such time.
As a result of the foregoing, if an Incentive Stock Option or Nonqualified Stock
Option expires, terminates or is cancelled for any reason without having been
exercised in full, the shares of Common Stock covered by such option that were
not purchased through the exercise of such option will be added back to the
Available Shares. However, shares of Common Stock used by an Optionee to satisfy
withholding obligations upon the exercise of a Nonqualified Stock Option shall
nonetheless, for purposes of this Plan, be considered as having been issued upon
the exercise of such option.
3.3 RESERVATION OF SHARES. Available Shares shall consist of authorized
but unissued shares of Common Stock of the Company. The Company will, at all
times, reserve for issuance shares of Common Stock equal to the sum of (i) the
number of shares covered by Incentive Stock Options and Nonqualified Stock
Options that have been granted and which have not yet expired, been terminated
or been cancelled to the extent that such options have not been exercised at
such time and (ii) the number of Available Shares.
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3.4 ANNUAL LIMIT ON NUMBER OF SHARES TO ANY ONE PERSON. No person will
be eligible to receive Awards under 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.
ARTICLE IV
COMMENCEMENT AND DURATION OF THE PLAN
4.1 EFFECTIVE DATE OF THE PLAN. This Plan will be effective as of the
Effective Date, subject to the provisions of Section 4.2.
4.2 SHAREHOLDER APPROVAL OF THE PLAN. This Plan will be submitted for
the approval of the shareholders of the Company within twelve (12) months of the
Effective Date. 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. No Awards will
be made under this Plan prior to such shareholder approval. Upon such approval,
the Company's 1996 Stock Incentive Plan, as amended, and the 1997
Non-Discretionary Stock Option Plan for Non-Employee Directors will terminate
and no new options will be granted thereunder.
4.3 TERMINATION OF THE PLAN. This Plan will terminate ten years from
the Effective Date. In addition, the Board of Directors will have the right to
suspend or terminate this Plan at any time. Any termination of this Plan will
not affect the exercisability of any Incentive Stock Options or Nonqualified
Stock Options granted under this Plan prior to such termination. Termination of
the Plan will not terminate or otherwise affect any Incentive Stock Option
Agreement (as defined in Section 6.1) or Nonqualified Stock Option Agreement (as
defined in Section 7.1).
ARTICLE V
ADMINISTRATION OF THE PLAN
Subject to the provisions of this Plan and any additional terms or
conditions which may, from time to time, be imposed by the Board of Directors,
the Committee will administer this Plan and will have the authority, in its sole
discretion, to grant Incentive Stock Options or grant Nonqualified Stock Options
in accordance with Articles VI and VII, respectively. The Committee may, from
time to time, adopt rules and regulations relating to the administration of this
Plan and may, but is not required to, 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 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.
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The Board of Directors shall appoint the members of the Committee,
which shall consist of at least two directors from the Board of Directors. For
purposes of this paragraph, directors who are not "outside directors" as such
term is defined in Treasury Regulationss.1.162-27(e)(3) and directors who are
not "nonemployee 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, shall be referred to as "nonqualified directors."
Nonqualified directors may serve on the Committee. However, nonqualified
directors shall be deemed (notwithstanding any statement to the contrary which
may be contained in minutes of a meeting of the Committee) to have abstained
from any action requiring under Section 162(m) the approval of a committee
consisting solely of outside directors or from any action requiring under Rule
16b-3 the approval of a committee consisting solely of nonemployee directors and
the assent of any such disqualified director shall be ignored for purposes of
determining whether or not an such actions were approved by the Committee. If
the Committee proposes to take an action by unanimous consent in lieu of a
meeting and such action would require under Section 162(m) the approval of a
committee consisting solely of outside directors or such action would require
under Rule 16b-3 the approval of a committee consisting solely of nonemployee
directors, the disqualified director shall, for purposes of such consent, be
deemed to not be a member of the Committee.
If no Committee is appointed, the Board of Directors will have all the
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 if it elects to do so in a
resolution adopted by the Board of Directors.
ARTICLE VI
INCENTIVE STOCK OPTION TERMS AND CONDITIONS
Incentive Stock Options may be granted under this Plan in accordance
with the following terms and conditions.
6.1 REQUIREMENT FOR A WRITTEN INCENTIVE STOCK OPTION AGREEMENT. Each
Incentive Stock Option will be evidenced by a written option agreement
("Incentive Stock Option Agreement"). The Committee will determine from time to
time the form of Incentive Stock Option Agreement to be used. The terms of the
Incentive Stock Option Agreement must be consistent with this Plan and any
inconsistencies will be resolved in accordance with the terms and conditions
specified in this Plan. Except as otherwise required by this Section 6, the
terms and conditions of each Incentive Stock Option do not need to be identical.
6.2 WHO MAY BE GRANTED AN INCENTIVE STOCK OPTION. An Incentive Stock
Option may be granted to any Employee who, in the judgment of the Committee, has
performed or will perform services of importance to the Company in the
management, operation and development of the business of the Company or of one
or more of its Subsidiaries. The Committee, in its sole discretion, shall
determine when and to which Employees Incentive Stock Options are granted under
this Plan.
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6.3 NUMBER OF SHARES COVERED BY AN INCENTIVE STOCK OPTION. The
Committee, in its sole discretion, shall determine the number of shares of
Common Stock covered by each Incentive Stock Option granted under this Plan and
such number shall be specified in the written agreement evidencing such
Incentive Stock Option.
6.4 VESTING SCHEDULE UNDER AN INCENTIVE STOCK OPTION. The Committee, in
its sole discretion, shall determine whether an Incentive Stock Option is
immediately exercisable as to all of the shares of Common Stock covered by such
option or whether it is only exercisable in accordance with a vesting schedule
as determined by the Committee, in its sole discretion. The vesting terms and
conditions, if any, of each Incentive Stock Option as determined by the
Committee shall be specified in the Incentive Stock Option Agreement evidencing
such option. Notwithstanding the foregoing, to the extent that an Incentive
Stock Option (together with other incentive stock options within the meaning of
Section 422 of the Internal Revenue Code held by such Optionee with an equal or
lower exercise price per share) purports to become exercisable for the first
time during any calendar year as to shares of Common Stock with a Fair Market
Value (determined at the time of grant) in excess of $100,000, such excess
shares shall be considered to be covered by a nonqualified stock option and not
an incentive stock option within the meaning of Section 422 of the Internal
Revenue Code. Notwithstanding Section 9.2 of this Plan or the terms set forth in
the Incentive Stock Option Agreement, any Incentive Stock Option granted under
this Plan that was not either approved by (i) a committee of non-employee
directors within the requirements of Rule 16b-3 or (ii) the full board of
directors of the Company, shall not be exercisable until at least six months
after the date of such grant.
6.5 EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. The Exercise Price
under each Incentive 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 Incentive Stock Option
was granted. However, the Exercise Price under each Incentive Stock Option
granted to an Optionee who is a Significant Shareholder will be at least 110% of
the Fair Market Value of a share of Common Stock as of the date on which the
Incentive Stock Option was granted.
6.6 DURATION OF AN INCENTIVE STOCK OPTION--GENERALLY. The Committee
will determine, in its sole discretion, the term of each Incentive Stock Option
provided that such term will not exceed 10 years from the date on which such
option was granted or, in the case of a Significant Shareholder, will not exceed
5 years from the date on which such option was granted. The term of each
Incentive Stock Option shall be set forth in the written option agreement
evidencing such option. The Optionee shall have no further right to exercise an
Incentive Stock Option following the expiration of such term.
6.7 THE EFFECT OF TERMINATION OF THE OPTIONEE'S EMPLOYMENT ON THE TERM
OF AN INCENTIVE STOCK OPTION. If an Optionee, while possessing an Incentive
Stock Option that has not expired or been fully exercised, ceases to be an
Employee of the Company for any reason other than as a result of the death or
disability of the Optionee (as provided for in Section 6.8 and 6.9,
respectively), the Incentive Stock Option may be exercised, to the extent not
previously exercised and subject to any vesting provisions contained in the
written option agreement, at any time within three months following the date the
Optionee ceased to be an Employee of the Company except that this provision will
not extend the time within which an Incentive Stock Option may be exercised
beyond the expiration of the term of such option. The Committee may provide that
if the Optionee's employment is terminated by the Company for cause, as
determined by the Company's President or Board of Directors in their reasonable
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discretion, the Incentive Stock Option will terminate immediately upon the
Company's notice to the Optionee of such termination.
6.8 THE EFFECT OF THE DEATH OF AN OPTIONEE ON THE TERM OF AN INCENTIVE
STOCK OPTION. If an Optionee, while possessing an Incentive Stock Option that
has not expired or been fully exercised, ceases to be an Employee of the Company
as a result of the death of the Optionee, the Incentive Stock Option may be
exercised, to the extent not previously exercised and subject to any vesting
provisions contained in the written option agreement, at any time within 12
months following the date of the Optionee's death except that this provision
will not extend the time within which an Incentive Stock Option may be exercised
beyond the expiration of the term of such option.
6.9 THE EFFECT OF THE DISABILITY OF AN OPTIONEE ON THE TERM OF AN
INCENTIVE STOCK OPTION. If an Optionee, while possessing an Incentive Stock
Option that has not expired or been fully exercised, ceases to be an Employee of
the Company as a result of the Optionee becoming Disabled, the Incentive Stock
Option may be exercised, to the extent not previously exercised and subject to
any vesting provisions contained in the written option agreement, at any time
within 12 months following the date of the Optionee becoming Disabled except
that this provision will not extend the time within which an Incentive Stock
Option may be exercised beyond the expiration of the term of such option.
6.10 TRANSFERABILITY. No Incentive Stock Option may be transferred by
the Optionee other than by will or the laws of descent and distribution upon the
death of the Optionee.
6.11 TAX TREATMENT AND SAVINGS CLAUSE. Nothing contained in this Plan,
any written option agreement representing an Incentive Stock Option, any
document provided by the Company to an Option or any statement made by or on
behalf of the Company shall constitute a representation or warranty of the tax
treatment of any option or that such option shall qualify as an incentive stock
option under Section 422 of the Internal Revenue Code. Any option which is
designated as an Incentive Stock Option but which, either in whole or in part,
fails for any reason to qualify as an incentive stock option within the meaning
of Section 422 of the Internal Revenue Code or which fails to satisfy
requirements under this Plan which apply only to Incentive Stock Options, shall
be treated as an incentive stock option to the fullest extent permitted under
Section 422 of the Internal Revenue Code and this Plan and otherwise shall,
notwithstanding such designation, be treated as a Nonqualified Stock Option
under this Plan.
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ARTICLE VII
NONQUALIFIED STOCK OPTION TERMS AND CONDITIONS
Nonqualified Stock Options may be granted under this Plan in accordance
with the following terms and conditions.
7.1 REQUIREMENT FOR A WRITTEN NONQUALIFIED STOCK OPTION AGREEMENT. Each
Nonqualified Stock Option will be evidenced by a written option agreement
("Nonqualified Stock Option Agreement"). The Committee will determine from
time-to-time the form of Nonqualified Stock Option Agreement to be used under
this Plan. The terms of the Nonqualified Stock Option Agreement must be
consistent with this Plan and any inconsistencies will be resolved in accordance
with the terms and conditions specified in this Plan. Except as otherwise
required by this Section 7, the terms and conditions of each Nonqualified Stock
Option do not need to be identical.
7.2 WHO MAY BE GRANTED A NONQUALIFIED STOCK OPTION. A Nonqualified
Stock Option may be granted to any Employee, any director of the Company and any
other individual who, in the judgment of the Committee, has performed or will
perform services of importance to the Company in the management, operation and
development of the business of the Company or of one or more of its
Subsidiaries. The Committee, in its sole discretion, shall determine when and to
whom Nonqualified Stock Options are granted under this Plan.
7.3 NUMBER OF SHARES COVERED BY A NONQUALIFIED STOCK OPTION. The
Committee, in its sole discretion, shall determine the number of shares of
Common Stock covered by each Nonqualified Stock Option granted under this Plan.
The number of shares covered by each Nonqualified Stock Option shall be
specified in the Nonqualified Stock Option Agreement evidencing such option.
7.4 VESTING SCHEDULE UNDER A NONQUALIFIED STOCK OPTION. The Committee,
in its sole discretion, shall determine whether a Nonqualified Stock Option is
immediately exercisable as to all of the shares of Common Stock covered by such
option or whether it is only exercisable in accordance with a vesting schedule
as determined by the Committee, in its sole discretion. The vesting terms and
conditions, if any, of each Nonqualified Stock Option as determined by the
Committee shall be specified in the Nonqualified Stock Option Agreement
evidencing such option. Notwithstanding Section 9.2 of this Plan or the terms
set forth in the written option agreement, any Nonqualified Stock Option granted
under this Plan that was not either approved by (i) a committee of non-employee
directors within the requirements of Rule 16b-3 or (ii) the full board of
directors of the Company, shall not be exercisable until at least six months
after the date of such grant.
7.5 EXERCISE PRICE OF A NONQUALIFIED STOCK OPTION. The Committee, in
its sole discretion, shall establish the Exercise Price of Nonqualified Stock
Option, which Exercise Price may be less than 100% of the Fair Market Value of a
share of Common Stock as of the date on which the Nonqualified Stock Option was
granted.
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7.6 DURATION OF A NONQUALIFIED STOCK OPTION--GENERALLY. The Committee
will determine, in its sole discretion, the term of each Nonqualified Stock
Option provided that such term will not exceed 10 years from the date on which
such option was granted. The term of each Nonqualified Stock Option shall be set
forth in the written option agreement evidencing such option. The Optionee shall
have no further right to exercise a Nonqualified Stock Option following the
expiration of such term.
7.7 THE EFFECT OF TERMINATION OF THE OPTIONEE'S EMPLOYMENT OR SERVICE
AS A DIRECTOR ON THE TERM OF A NONQUALIFIED STOCK OPTION. If an Optionee, while
possessing a Nonqualified Stock Option that has not expired or been fully
exercised, ceases to be an Employee of the Company (or, in the case of an
Optionee who is not an Employee but is a director of the Company, ceases to be a
director of the Company) for any reason other than as a result of the death or
disability of the Optionee (as provided for in Section 7.8 and 7.9,
respectively), the Nonqualified Stock Option may be exercised, to the extent not
previously exercised and subject to any vesting provisions contained in the
written option agreement, at any time within three months following the date the
Optionee ceased to be an Employee (or a director as the case may be) of the
Company except that this provision will not extend the time within which an
Nonqualified Stock Option may be exercised beyond the expiration of the term of
such option. The Committee may provide that if the Optionee's employment is
terminated by the Company for cause, as determined by the Company's President or
Board of Directorsin their reasonable discretion, the Nonqualified Stock Option
will terminate immediately upon the Company's notice to the Optionee of such
termination.
7.8 THE EFFECT OF THE DEATH OF AN OPTIONEE ON THE TERM OF A
NONQUALIFIED STOCK OPTION. If an Optionee, while possessing a Nonqualified Stock
Option that has not expired or been fully exercised, ceases to be an Employee,
ceases to serve as a director of the Company or ceases to provide services to
the Company as a result of the Optionee's death, the Nonqualified Stock Option
may be exercised, to the extent not previously exercised and subject to any
vesting provisions contained in the written option agreement, at any time within
12 months following the date of the Optionee's death except that this provision
will not extend the time within which a Nonqualified Stock Option may be
exercised beyond the expiration of the term of such option.
7.9 THE EFFECT OF THE DISABILITY OF AN OPTIONEE ON THE TERM OF A
NONQUALIFIED STOCK OPTION. If an Optionee, while possessing a Nonqualified Stock
Option that has not expired or been fully exercised, ceases to be an Employee,
ceases to serve as a director of the Company or ceases to provide services to
the Company as a result of the Optionee becoming Disabled, the Nonqualified
Stock Option may be exercised, to the extent not previously exercised and
subject to any vesting provisions contained in the written option agreement, at
any time within 12 months following the date of the Optionee becoming Disabled
except that this provision will not extend the time within which a Nonqualified
Stock Option may be exercised beyond the expiration of the term of such option.
7.10 TRANSFERABILITY. The Committee may, in the Nonqualified Stock
Option Agreement evidencing any Nonqualified Stock Option, provide that such
Nonqualified Stock Option be transferred by gift to the Optionee's spouse,
children or a trust for the exclusive benefit of any combination of the
Optionee, the Optionee's spouse and the Optionee's children provided that any
transfer of a Nonqualified Option shall be conditioned upon the Optionee and the
transferee of such Nonqualified Stock Option executing and delivering to the
Company a form of Transfer/Assumption of Nonqualified Stock Option Agreement as
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the Company may request. Notwithstanding any transfer of a Nonqualified Stock
Option, the Optionee shall remain liable to the Company for any income tax
withholding amounts which the Company is required to withhold at the time that
the transferred Nonqualified Stock Option is exercised. If the Nonqualified
Stock Option Agreement does not expressly provide that such Nonqualified Stock
Option is transferable, such Nonqualified Stock Option may not be transferred by
the Optionee, other than by will or the laws of descent and distribution upon
the death of the Optionee, without the prior written consent of the Committee,
which consent may be withheld in the Committee's sole discretion.
ARTICLE VIII
EXERCISE OF OPTIONS TO PURCHASE SHARES
8.1 NOTICE OF EXERCISE. An Incentive Stock Option or Nonqualified Stock
Option may only be exercised by delivery to the Company of written notice signed
by the Optionee or a permitted transferee under Section 7.10 (or, in the case of
exercise after death of the Optionee, by the executor, administrator, heir or
legatee of the Optionee, as the case may be) 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, (iii) the method of payment of the Tax Withholding if the option is a
Nonqualified Stock Option, 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 or other applicable state securities laws.
8.2 PAYMENT OF EXERCISE PRICE. No shares of Common Stock will be issued
upon the exercise of any Incentive Stock Option or Nonqualified 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 the Incentive Stock Option Agreement or
the Nonqualified Stock Option Agreement for the payment of the Exercise Price in
cash, by delivery of a full-recourse promissory note, by the surrender of shares
of Common Stock or other securities issued by the Company (provided that such
other securities have been held by the Optionee for at least six months prior to
the date on which the Option is being exercised) in accordance with Section 8.4,
or by any combination of the foregoing. The Committee may, in its sole
discretion, permit an Optionee 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. Unless the Committee, in its
sole discretion, determines otherwise, each Optionee must, upon the exercise of
any Incentive Stock Option or Nonqualified Stock Option (including a
Nonqualified Stock Option transferred by the Optionee), either with the delivery
of the notice of exercise or upon notification of the amount due, pay to the
Company or make adequate provision for the payment of all amounts determined by
the Company to be required to satisfy applicable federal, state and local tax
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withholding requirements ("Tax Withholding"). The Incentive Stock Option or
Nonqualified Option Agreement may provide for, or the Committee may allow in its
sole discretion, the payment by the Optionee of the Tax Withholding (i) in cash,
(ii) by the Company withholding such amount from other amounts payable by the
Company to the Optionee, including salary, (iii) by surrender of shares of
Common Stock or other securities of the Company in accordance with Section 8.4,
(iv) by the application of shares that could be received upon exercise of the
Incentive Stock Option or Nonqualified Stock Option in accordance with Section
8.4, or (v) any combination of the foregoing.
By receiving and upon exercise of an Incentive Stock Option or a
Nonqualified Stock Option, the Optionee 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 Optionee. The Committee may, in its sole discretion,
permit an Optionee 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
upon an exercise of an Incentive Stock Option or a Nonqualified Stock Option
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 an Incentive
Stock Option or a Nonqualified Stock Option or the subsequent disqualifying
disposition of shares acquired through such exercises, the Company determines
that additional withholding is or becomes required beyond any amount paid or
provided for by the Optionee, the Optionee will pay such additional amount to
the Company immediately upon demand by the Company. If the Optionee fails to pay
the amount demanded, the Company may withhold that amount from other amounts
payable by the Company to the Optionee, including salary.
8.4 PAYMENT OF EXERCISE PRICE OR WITHHOLDING WITH OTHER SECURITIES. To
the extent permitted in Section 8.2 and Section 8.3 above, the Exercise Price
and Tax Withholding may be paid by the surrender of shares of Common Stock or
other securities of the Company. The notice of exercise shall indicate that
payment is being made 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 to be appropriate
with respect to the Optionee's ownership of the shares of Common Stock or other
securities of the Company. Shares of Common Stock shall, for purposes of this
Section 8 be valued at their Fair Market Value as of the last business day
preceding the day the Company receives the Optionee's notice of exercise. Other
securities of the Company shall, for purposes of this Section 8, be valued at
the publicly reported price, if any, for the last sale on the last business day
preceding the day the Company receives the Optionee's notice of exercise, or, if
there are no publicly reported prices of such other securities of the Company,
at the fair market value of such other securities as determined in good faith by
the Board of Directors. To the extent permitted in Section 8.3 above, Tax
Withholding may, if the Optionee so notifies the Company at the time of the
notice of exercise, be paid by the application of shares which could be received
upon exercise of any other stock option issued by the Company. This application
of shares shall be accomplished by crediting toward the Optionee's Tax
Withholding obligation the difference between the Fair Market Value of a share
of Common Stock and the Exercise Price of the stock option specified in the
Optionee's notice. Any such application shall be considered an exercise of the
other stock option to the extent that shares are so applied.
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8.5 COMPLIANCE WITH SECURITIES LAWS. No Shares will be issued with
respect to the exercise of any Incentive Stock Option or Nonqualified Stock
Option unless the exercise and the issuance of the Shares will comply with all
relevant provisions of law, including, without limitation, the Securities Act,
any registration under the Securities Act in effect with respect to the Plan,
all applicable state securities laws, the Securities Exchange Act of 1934, as
amended, the Internal Revenue Code, the respective rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the Common Stock may then be listed, and will be further subject to the approval
of counsel for the Company with respect to such compliance. The Company will not
be liable to any Optionee or any other person for failure to issue Shares upon
the exercise of an option where such failure is due to the inability of the
Company to obtain all permits, exemptions or approvals from regulatory
authorities which are deemed by the Company's counsel to be necessary. The Board
may require any action or agreement by an Optionee as may from time to time be
necessary 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.
8.6 ISSUANCE OF SHARES. Notwithstanding the good faith compliance by
the Optionee with all of the terms and conditions of an Incentive Option
Agreement or Nonqualified Option Agreement and with this Article VIII, the
Optionee will not become a shareholder and will have no rights as a shareholder
with respect to the shares covered by such option until the issuance of shares
pursuant to the exercise of such option is recorded on the stock transfer record
of the Company. Notwithstanding the foregoing, the Company shall not
unreasonably delay the issuance of a stock certificate and shall exercise
commercially reasonable efforts to cause such stock certificate to be issued to
the Optionee as soon as is practicable after the compliance by the Optionee with
all of the terms and conditions of the Incentive Option Agreement or
Nonqualified Option Agreement, as the case may be, and with this Article VIII.
8.7 NOTICE OF ANY DISQUALIFYING DISPOSITION AND PROVISION FOR TAX
WITHHOLDING. Any Optionee that exercises an Incentive Stock Option and then
makes a "disqualifying disposition" (as such term is defined under Section 422
of the Internal Revenue Code) of the shares so purchased, shall immediately
notify the Company in writing of such disqualifying disposition and shall pay or
make adequate provision for all Tax Withholding as if such Incentive Stock
Option was a Nonqualified Stock Option in accordance with Section 8.3.
ARTICLE IX
CHANGES IN CAPITAL STRUCTURE
9.1 ADJUSTMENTS OF NUMBER OF SHARES AND EXERCISE PRICE. Except as
provided in Section 9.2, 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 shares of Common Stock or other securities covered by subsequent
Awards. In addition, the Committee will at such time make such adjustment in the
number and kind of shares of Common Stock or other securities covered by
outstanding Incentive Stock Options and outstanding Nonqualified Stock Options,
as well as make an adjustment in the Exercise Price under each option as the
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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.
9.2 ACCELERATION OF VESTING. In the event of any dissolution or
liquidation of the Company, or any plan of exchange, merger or consolidation
with one or more corporations in which the Company is not the surviving entity,
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 which will be outstanding immediately
after such transaction, each outstanding Incentive Stock Option and each
outstanding Nonqualified Stock Option shall become immediately exercisable in
its entirety, notwithstanding any vesting schedule included in the written
agreement evidencing such option, fifteen (15) days prior to such event and upon
such event, such options will expire unless, as an expressed term of such
transaction, adequate provision is made for the continuation of the rights of
holders of such outstanding option after the consummation of such transaction.
Any exercise of an option the vesting of which is accelerated pursuant to this
Section 9.2 will be subject to the event actually occurring.
ARTICLE X
UNDERWRITERS LOCK-UP
Each written agreement evidencing an Award will specify that the
Optionee, by accepting the Award agrees that whenever the Company undertakes a
firmly underwritten public offering of its securities, the Optionee 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 Optionee provided that such restriction will not extend beyond
12 months from the effective date of the registration statement filed in
connection with such offering.
ARTICLE XI
EMPLOYMENT RIGHTS
Nothing in this Plan nor in any written agreement evidencing an Award
will confer upon any Optionee any right to be continued in the employment of 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 Optionee at any time, with
or without cause, (b) change the duties of such Optionee, or (c) increase or
decrease the compensation of the Optionee at any time. Unless the written
agreement evidencing an Award expressly provides otherwise, vesting under such
agreement shall be conditioned upon:
a) for Employees of the Company, the continued employment of the
Optionee;
b) for independent contractors, the Optionee 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
c) for directors who are not Employees, the Optionee continuing
to serve as a director of the Company;
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and 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.
ARTICLE XII
AMENDMENT OF PLAN
The Board of Directors may, at any time and from time to time, modify
or amend this Plan as it deems advisable except that any amendment increasing
the number of shares of Common Stock reserved under this Plan or expanding the
persons eligible to receive Awards shall only become effective if and when such
amendment is approved by the shareholders of the Company. Except as provided in
Section 9 hereof, no amendment shall be made to the terms or conditions of an
outstanding Incentive Stock Option or Nonqualified Stock Option without the
written consent of the Optionee.
DATED as of and approved by the Board of Directors of the Company effective as
of April 9, 2001.
Approved by the shareholders of the Company on ___________, 2001.
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APPENDIX C
1998 Employee Stock Purchase Plan Summary
GENERAL
The Board approved the 1998 Employee Stock Purchase Plan (the "Purchase Plan")
and, as amended, has reserved a total of 500,000 shares of Class A Common Stock
for issuance thereunder, 237,979 of which remain available for future issuance.
In April 2001, subject to shareholder approval, the Board approved an amendment
to the Purchase Plan to modify certain eligibility requirements. See Proposal
No. 3.
ADMINISTRATION
The Purchase Plan is intended to qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended, and is
administered by the Compensation Committee of the Board.
ELIGIBILITY
Employees of the Company and its subsidiaries are eligible to participate in the
Purchase Plan after they have completed at least six months of continuous
employment and work at least 20 hours per week. See Proposal No. 3 for the
proposed amendment to this eligibility requirement. Messrs. Sidney DeBoer,
Heimann, Gray, and Moreland are not currently eligible to participate in the
Purchase Plan since employees who control 5% or more of the total voting power
of all classes of the Company's stock are not eligible. Messrs. Jeffrey DeBoer,
Bryan DeBoer, and Mark DeBoer are not able to participate because of their
family relationship with Sidney DeBoer. Employees may end their participation in
the Purchase Plan at any time during the calendar quarter and their
participation ends automatically on the termination of their employment.
PURCHASE PRICE
The Purchase Plan allows eligible employees to purchase shares of the Company's
Class A Common Stock through payroll deductions, which may not exceed 15% of an
employee's total pay, nor 10% of their base pay. The price of shares purchased
under the Purchase Plan will be 85% of the lower of the fair market value of the
Class A Common Stock at the beginning or at the end of each calendar quarter.
AMENDMENT OF THE PURCHASE PLAN
The Board may amend or terminate the Purchase Plan at any time but may not
increase the number of shares covered by the Purchase Plan, amend the
eligibility requirements or permit members of the Compensation Committee to
participate in the Purchase Plan, without subsequent shareholder approval.
TERM OF PURCHASE PLAN
The Purchase Plan will terminate on December 31, 2007.
FEDERAL TAX EFFECTS
A participant acquiring stock pursuant to a qualified employee stock purchase
plan receives favorable tax treatment in that the participant does not recognize
any taxable income at the time of the grant of the option to purchase or upon
exercise of such option to purchase. The tax treatment of the disposition of the
stock depends upon whether the stock is disposed of within the holding period,
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which is two years from the date of grant. If the participant disposes of the
stock after completion of the holding period, the lesser of (a) the sales price
less the purchase price, or (b) 15 percent of the market value of the shares on
the first day of the offering period, is taxable as ordinary income, and any
further profit is taxable as long-term capital gain. Any loss is treated as a
capital loss. If the participant disposes of the stock before the holding period
expires (disqualifying disposition), the difference between the price paid by
the employee and the market value of the shares at the date of purchase is
taxable as ordinary income, and the difference between the amount received by
the employee on the disposition of the shares and the market value of the shares
at the date of purchase is treated as a capital gain or loss. Upon a
disqualifying disposition of the stock, the Company may deduct from taxable
income in the year of the disqualifying disposition an amount equal to the
difference between the price paid by the employee and the market value of the
shares at the date of purchase.
NEW PLAN BENEFITS
1998 EMPLOYEE STOCK PURCHASE PLAN
The following table summarizes shares purchased under the Purchase Plan from
January 1, 2001 through April 2, 2001.
Name and Position Number of Shares (A)
--------------------------------------------------- --------------------
Sidney B. DeBoer, Chairman, Chief Executive Officer -
and Secretary
M. L. Dick Heimann, President, Chief Operating -
Officer and Director
R. Bradford Gray, Executive Vice President -
Don Jones, Jr., Senior Vice President, Retail 799
Operations
Bryan DeBoer, Senior Vice President, Mergers and
Acquisitions/Operations -
Thomas Becker, Director -
W. Douglas Moreland, Regional Vice President-Inter -
Mountain Region and Director
Gerald F. Taylor, Director -
William J. Young, Director -
All Current Executive Officers as a Group (7 people) 799
All Non-Executive Officer Directors as a Group (3 -
people)
All Non-Executive Officer Employees as a Group 68,730
(approximately 3,600 people)
(A) A total of 69,529 shares of the Company's Class A Common Stock were
purchased between January 1, 2001 and April 2, 2001, the date of the
last Offering Period, under the Purchase Plan. The average purchase
price of the shares purchased was $10.61 per share.
Participation in the Purchase Plan is voluntary and is dependent on each
eligible employee's election to participate and his or her determination as to
the level of payroll deductions. Accordingly, future purchases under the
Purchase Plan are not determinable. Non-employee directors are not eligible to
participate.
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LITHIA MOTORS, INC.
Revocable Proxy for Annual Meeting of Shareholders to be Held on May 17, 2001
The undersigned hereby appoints Sidney B. DeBoer and M. L. Dick Heimann, and
each of them, proxies with power of substitution to represent and to vote on
behalf of the undersigned all shares of Common Stock of Lithia Motors, Inc. at
the annual meeting to be held at 4:00 p.m. on Thursday, May 17, 2001, and any
adjournments thereof, with all powers the undersigned would possess if
personally present, with respect to the following:
1. Election of Directors [_] FOR all nominees listed below
[_] WITHHOLD AUTHORITY to vote for all nominees
listed below
To withhold authority to vote for any individual nominee, strike a line
through the nominee's name in the list below:
Sidney B. DeBoer M. L. Dick Heimann Thomas Becker
R. Bradford Gray William J. Young W. Douglas Moreland
Gerald F. Taylor
2. To approve the Lithia Motors, Inc. 2001 Stock Option Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
3. To approve an amendment to the Lithia Motors, Inc. 1998 Employee Stock
Purchase Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
4. Other Matters. At the discretion of the proxy holder, on such other
business as may properly come before the meeting and any adjournments
thereof.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF THE COMPANY. IF NO SPECIFIC
DIRECTION IS GIVEN AS TO ANY OF THE ABOVE ITEMS, THIS PROXY WILL BE VOTED FOR
EACH OF THE NOMINEES FOR DIRECTOR AND FOR THE TWO PROPOSALS.
Dated: _________________________, 2001
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Signature of Stockholder(s)
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Signature of Stockholder(s)
Please date and sign above exactly as your name appears on your stock
certificate(s) (which should be the same as the name on the address label on the
envelope in which this proxy was sent to you), including designation as
executor, trustee, etc., if applicable. A corporation must sign its name by the
president or other authorized officer. All co-owners must sign.