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<head><TITLE>Lithia Motors, Inc. Form S-8 2001 Stock Option Plan</TITLE></head>
<body>

<p><font face="Times New Roman, Times, Serif" Size=2>Filed with the Securities and Exchange Commission on May ____, 2001</font></p>

<p align=right><font face="Times New Roman, Times, Serif" Size=2>Securities Act Registration No. 333-_______</font></p>

<h1 align=center><font face="Times New Roman, Times, Serif" Size=2>SECURITIES AND EXCHANGE COMMISSION<br>
Washington, D.C. 20549</font></h1>

<p align=center><font face="Times New Roman, Times, Serif" Size=2><b>FORM S-8</b><br><br>
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933<br><br>
<b>LITHIA MOTORS, INC.</b><br>
(Exact name of registrant as specified in its charter)</font></p>

<TABLE WIDTH=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
     <TD width=50% align=center><font face="Times New Roman, Times, Serif" Size=2><u><b>Oregon</b></u></font></TD>
     <TD width=50% align=center><font face="Times New Roman, Times, Serif" Size=2><u><b>93-0572810</b></u></font></TD>
</TR>

<TR>
     <TD width=50% align=center><font face="Times New Roman, Times, Serif" Size=1>(State of Incorporation)<br><Br></font></TD>
     <TD width=50% align=center><font face="Times New Roman, Times, Serif" Size=1>(I.R.S. Employer Identification No.)<br><Br></font></TD>
</TR>

<TR>
     <TD width=50% align=center><font face="Times New Roman, Times, Serif" Size=2><u><b>360 E. Jackson St., Medford, Oregon</b></u></font></TD>
     <TD width=50% align=center><font face="Times New Roman, Times, Serif" Size=2><u><b>97501</b></u></font></TD>
</TR>

<TR>
     <TD width=50% align=center><font face="Times New Roman, Times, Serif" Size=1>(Address of Principal Executive Offices)</font></TD>
     <TD width=50% align=center><font face="Times New Roman, Times, Serif" Size=1>(Zip Code)</font></TD>
</TR>
</TABLE>


<p align=center><font face="Times New Roman, Times, Serif" Size=2><b>2001 STOCK OPTION PLAN</b></font></p>
<p align=center><font face="Times New Roman, Times, Serif" Size=2>(Full title of the plan)<br><br>

                       <b>Sidney B. DeBoer, Chief Executive Officer<br>
                       360 E. Jackson St.<br>
                       Medford, Oregon  97501<br>
                       (541) 776-6899</b><br>
            (Name, address and telephone number of agent for service)<br><br>

                                   Copies to:<br>
                       Kenneth E. Roberts, Esq.<br>
                          Foster Pepper &amp; Shefelman LLP<br>
                           101 S.W. Main St., 15th Fl.<br>
                             Portland, Oregon 97204</font></p>


<TABLE width=100% CELLPADDING=0 CELLSPACING=3 BORDER=0>
<TR>
     <TD COLSPAN=5 align=center><font face="Times New Roman, Times, Serif" Size=2><u>CALCULATION OF REGISTRATION FEE</u></font></TD>
</TR>

<TR valign=bottom>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>Title of Securities Being Registered</font></td>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>Number of Shares Being Registered <sup>(1)</sup></font></td>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>Proposed Maximum Offering Price Per Share <sup>(2)</sup></font></td>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>Proposed Maximum Aggregate Offering Price <sup>(2)</sup></font></td>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>Amount of Registration Fee <sup>(3)</sup></font></td>
</tr>

<TR>
     <TD colspan=5><font face="Times New Roman, Times, Serif" Size=2><HR SIZE=1 NOSHADE></font></td>
</TR>

<TR>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>Class A Common Stock</font></td>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>600,000</font></td>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>$19.55</font></td>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>$11,730,000</font></td>
        <TD WIDTH=20%><font face="Times New Roman, Times, Serif" Size=1>$1,531.74</font></td>
</tr>

<TR>
     <TD colspan=5><font face="Times New Roman, Times, Serif" Size=2><HR SIZE=1 NOSHADE></font></td>
</TR>
</TABLE>

<p><font face="Times New Roman, Times, Serif" Size=1>
<ol type=1>
          <li> The shares of Common Stock represent the number of shares which
          may be issued  pursuant to the 2001 Stock Option Plan.  In addition,
          pursuant to Rule 416,  this  Registration  Statement  also covers an
          indeterminate number of additional shares which may be issuable as a
          result of the anti-dilution provisions of Plan.

          <li> The maximum  offering price for the shares cannot  presently be
          determined as the offering  price is  established at the time shares
          are issued. Pursuant to Rule 457(h), the offering price is estimated
          based on the last sale price  reported  for the Common Stock on NYSE
          on May 24, 2001,  and the maximum  offering  price is calculated for
          the sole purpose of determining the Registration Fee.

<li>Pursuant to Rule 457(p), the filing fee due with this registration is offset by $1,400.76 that
was previously paid in the registration of a prior employee benefit plan on Form S-8
filed by Lithia Motors, Inc. on June 11, 1999 (SEC File No. 333-80459) and the
registration of those shares registered with that fee will subsequently be withdrawn.
</ol></font></p>

<PAGE>

<p align=center><font face="Times New Roman, Times, Serif" Size=2>PART II<br><br>
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT</font></p>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 3.&nbsp;&nbsp;&nbsp;&nbsp;Incorporation
of Documents by Reference.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The following documents
filed by Lithia Motors, Inc. (the &#147;Company&#148;) with the Securities and
Exchange Commission are incorporated by reference in this registration
statement: </FONT></P>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR valign=top>
        <TD width=10%></TD>
        <td width=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1.<br><br></font></td>
        <td width=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company's annual report on Form 10-K filed with the Commission on March 31, 2001 (File No. 000-21789).<br><Br></font></td>
</TR>

<TR valign=top>
        <TD width=10%></TD>
        <td width=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2.</font></td>
        <td width=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The  description  of the Class A Common  Stock  contained  in the  Company's  registration  statement on Form S-1, as
         amended and filed with the Commission on May 1, 1998, (File No. 333-47525).</font></td>
</TR>
</TABLE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>All documents filed by the
Company subsequent to those listed above pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934, as amended, prior to the filing
of a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such documents. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 4.&nbsp;&nbsp;&nbsp;&nbsp;Description of Securities.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Not Applicable.</font></p>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 5.&nbsp;&nbsp;&nbsp;&nbsp;Interests of Named Experts and Counsel.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Not Applicable.</font></p>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 6.&nbsp;&nbsp;&nbsp;&nbsp;Indemnification of Directors and Officers.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Under the Oregon Business
Corporation Act (Oregon Revised Statutes (&#147;ORS&#148;) Sections 60.387 to
60.414), applicable to the Company, a person who is made a party to a proceeding
because such person is or was an officer or director of a corporation may be
indemnified by the corporation against liability incurred by such person in
connection with the proceeding if (i) the person&#146;s conduct was in good
faith and in a manner he or she reasonably believed was in the
corporation&#146;s best interest or at least not opposed to its best interests
and (ii) if the proceeding was a criminal proceeding, the Indemnitee had no
reasonable cause to believe his or her conduct was unlawful. Indemnification is
not permitted if the person was adjudged liable to the corporation in a
proceeding by or in the right of the corporation, or if the Indemnitee was
adjudged liable on the basis that he or she improperly received a personal
benefit. Unless the articles of the corporation provide otherwise, such
indemnification is mandatory if the Indemnitee is wholly successful on the
merits or otherwise, or if ordered by a court of competent jurisdiction. </FONT></P>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Oregon Business
Corporation Act also provides that a company&#146;s Articles of Incorporation
may limit or eliminate the personal liability of a director to the corporation
or its shareholders for monetary damages for conduct as a director, provided
that no such provision shall eliminate the liability of a director for (i) any
breach of the directors&#146; duty of loyalty to the corporation or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) any unlawful
distribution; or (iv) any transaction from which the director derived an
improper personal benefit. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Company&#146;s Articles
of Incorporation (the &#147;Articles&#148;) provide that the Company will
indemnify its directors and officers, to the fullest extent permissible under
the Oregon Business Corporation Act against all expense liability and loss
(including attorney fees) incurred or suffered by reason of service as a
director or officer of the company or is or was serving at the request of the
company as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The effect of these
provisions is to limit the liability of directors for monetary damages, and to
indemnify the directors and officers of the Company for all costs and expenses
for liability incurred by them in connection with any action, suit or proceeding
in which they may become involved by reason of their affiliation with the
Company, to the fullest extent permitted by law. These provisions do not limit
the rights of the Company or any shareholder to see non-monetary relief, and do
not affect a director&#146;s or officer&#146;s responsibilities under any other
laws, such as securities or environmental laws. </FONT></P>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 7.&nbsp;&nbsp;&nbsp;&nbsp;Exemption from Registration Claimed.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Not applicable.</font></p>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 8.&nbsp;&nbsp;&nbsp;&nbsp;Exhibits.</FONT></H2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The exhibits required by
Item 601 of Regulation S-K being filed herewith or incorporated herein by
reference are as follows:<br><br>

<u>Exhibit</u></FONT></P>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.1</font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Opinion of Foster Pepper &amp; Shefelman LLP</font></td>
</TR>

<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.1</font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of KPMG LLP</font></td>
</TR>

<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.2</font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of Foster Pepper &amp; Shefelman LLP (included in Exhibit 5.1)</font></td>
</TR>

<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24.1</font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Power of Attorney (Included in the signature page)</font></td>
</TR>

<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>99</font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2001 Stock Option Plan</font></td>
</TR>
</TABLE>

<PAGE>

<H2 ALIGN=LEFT><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Item 9.&nbsp;&nbsp;&nbsp;&nbsp;Undertakings.</font></h2>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The undersigned registrant hereby undertakes:<br><br>

(A)&nbsp;&nbsp;&nbsp;&nbsp;To file,  during any period in which  offers or sales are being made,  a  post-effective  amendment  to this  registration
statement:</font></p>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR valign=top>
        <TD width=10%></TD>
        <td width=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(1)<br><br></font></td>
        <td width=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;<br><Br></font></td>
</TR>

<TR valign=top>
        <TD width=10%></TD>
        <td width=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(2)<br><br></font></td>
        <td width=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To reflect in the prospectus any facts or events arising after the effective date of the  registration  statement
                      (or the most recent  post-effective  amendment  thereof)  which,  individually  or in the aggregate,  represent a
                      fundamental change in the information set forth in the registration statement;<br><Br></font></td>
</TR>

<TR valign=top>
        <TD width=10%></TD>
        <td width=10%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(3)<br><br></font></td>
        <td width=80%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>To include any material  information  with respect to the plan of  distribution  not previously  disclosed in the
                      registration statement or any material change to such information in the registration statement;<br><Br></font></td>
</TR>
</TABLE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Provided however, that
paragraphs 1 and 2 do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(B)&nbsp;&nbsp;&nbsp;&nbsp;That, for the purpose of determining any liability under the Securities Act of 1933,  each such  post-effective  amendment
shall be deemed to be a new registration  statement relating to the securities offered therein,  and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.<br><br>

(C)&nbsp;&nbsp;&nbsp;&nbsp;To remove from  registration by means of a  post-effective  amendment any of the securities  being registered which remain
unsold at the termination of the offering.<br><br>

(D)&nbsp;&nbsp;&nbsp;&nbsp;That,  for purposes of  determining  any  liability  under the  Securities  Act of 1933,  each filing of the  registrant's
annual report  pursuant to Section 13(a) or Section 15(d) of the Securities  Exchange Act of 1934 that is  incorporated by reference in
the  registration  statement shall be deemed to be a new  registration  statement  relating to the securities  offered herein,  and the
offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.<br><br>

(E)&nbsp;&nbsp;&nbsp;&nbsp;Insofar as  indemnification  for  liabilities  arising  under the  Securities  Act of 1933 may be permitted to  directors,
officers and controlling persons of the registrant,  pursuant to the provisions  described in Item 6, or otherwise,  the registrant has
been advised that in the opinion of the Securities and Exchange  Commission such  indemnification is against public policy as expressed
in the Act and is,  therefore,  unenforceable.  In the event that the claim for  indemnification  against such liabilities  (other than
the payment by the  registrant  of expenses  incurred or paid by a director,  officer or  controlling  person of the  registrant in the
successful  defense of any action,  suit or proceeding) is asserted by such director,  officer or controlling person in connection with
the securities being  registered,  the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent,  submit to a court of appropriate  jurisdiction the question whether such  indemnification by it is against public policy as
expressed  in the Act and will be governed  by the final  adjudication  of such issue.  The  foregoing  undertaking  shall not apply to
indemnification which is covered by insurance.</font></p>

<PAGE>

<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b><u>SIGNATURES</u></b></font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to the
requirements of the Securities Act of 1933, the registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-8 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Medford,
State of Oregon, on the 17<SUP>th</SUP> day of May 2001. </FONT></P>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
        <TD width=50%></TD>
        <td width=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LITHIA MOTORS, INC.<br><br></font></td>
</TR>

<TR>
        <TD width=50%></TD>
        <td width=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By:&nbsp;&nbsp;&nbsp;&nbsp;<u>/s/ Sidney B. DeBoer</u></font></td>
</TR>

<TR>
        <TD width=50%></TD>
        <td width=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sidney B. DeBoer,<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chairman of the Board<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Executive Officer</font></td>
</TR>
</TABLE>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>POWER OF ATTORNEY</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Each person whose
individual signature appears below hereby authorizes and appoints SIDNEY B.
DEBOER and JEFFREY B. DEBOER, and each of them, with full power of substitution
to act as his true and lawful attorney in fact and agent to act in his name,
place and stead, and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file any and all
amendments to this registration, including any and all post-effective amendments
or new registration pursuant to Rule 462. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated. </FONT></P>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By:&nbsp;&nbsp;&nbsp;&nbsp;<u>/s/ Sidney B. DeBoer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date:&nbsp;&nbsp;May 17, 2001</font></TD>
</TR>

<TR valign=top>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Sidney B. DeBoer<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chief Executive Officer and<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Chairman of the Board of Directors<br><br></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><br><br></font></TD>
</TR>

<TR>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By:&nbsp;&nbsp;&nbsp;&nbsp;<u>/s/ M.L. Dick Heimann&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date:&nbsp;&nbsp;May 17, 2001</font></TD>
</TR>

<TR valign=top>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;M.L. Dick Heimann<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;President, Chief Operating Officer, Director<br><br></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><br><br></font></TD>
</TR>

<TR>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By:&nbsp;&nbsp;&nbsp;&nbsp;<u>/s/ Brad Gray&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;
</u></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date:&nbsp;&nbsp;May 17, 2001</font></TD>
</TR>

<TR valign=top>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Brad Gray<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Director<br><br></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><br><br></font></TD>
</TR>

<TR>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By:&nbsp;&nbsp;&nbsp;&nbsp;<u>/s/ Thomas Becker&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date:&nbsp;&nbsp;May 17, 2001</font></TD>
</TR>

<TR valign=top>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Thomas Becker<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Director<br><br></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><br><br></font></TD>
</TR>

<TR>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By:&nbsp;&nbsp;&nbsp;&nbsp;<u>/s/ William Young&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date:&nbsp;&nbsp;May 17, 2001</font></TD>
</TR>

<TR valign=top>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;William Young<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Director<br><br></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><br><br></font></TD>
</TR>

<TR>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By:&nbsp;&nbsp;&nbsp;&nbsp;<u>/s/ Gerald F. Taylor&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date:&nbsp;&nbsp;May 17, 2001</font></TD>
</TR>

<TR valign=top>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Gerald F. Taylor<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Director<br><br></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><br><br></font></TD>
</TR>

<TR>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>By:&nbsp;&nbsp;&nbsp;&nbsp;<u>/s/ Jeffrey B. DeBoer&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Date:&nbsp;&nbsp;May 17, 2001</font></TD>
</TR>

<TR valign=top>
     <TD width=60%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Jeffrey B. DeBoer<br>
&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Senior Vice President, Chief Financial Officer<br><br></font></TD>
     <TD width=40%><FONT FACE="Times New Roman, Times, Serif" SIZE=2><br><br></font></TD>
</TR>
</TABLE>

<PAGE>

<P align=center><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b><u>EXHIBIT INDEX</u></b></font></p>

<p><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>Exhibit</u></font></p>

<TABLE CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>5.1<br><br></font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Opinion of Foster Pepper &amp; Shefelman LLP<br><br></font></td>
</TR>

<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.1<br><br></font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consent of KPMG LLP<br><br></font></td>
</TR>

<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>23.2<br><br></font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Consnt of Foster Pepper &amp; Shefelman LLP (included in Exhibit 5.1)<br><br></font></td>
</TR>

<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>24.1<br><br></font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Power of Attorney (Included in the signature page)<br><br></font></td>
</TR>

<TR>
        <TD width=15%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>99<br><br></font></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2001 Stock Option Plan<br><br></font></td>
</TR>
</TABLE>

<PAGE>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>EXHIBIT 5.1</u><br><br>

                                                 [FOSTER PEPPER &amp; SHEFELMAN LETTERHEAD]</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>May 17, 2001<br><br><br>




Board of Directors<br>
Lithia Motors, Inc.<br>
360 E. Jackson St.<br>
Medford, Oregon 97501</font></p>

<TABLE width=50% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR valign=top>
        <TD width=5%></TD>
        <td width=5%><font FACE="Times New Roman, Times, Serif" SIZE=2>Re:</font></td>
        <td width=40%><font FACE="Times New Roman, Times, Serif" SIZE=2>Form S-8 Registration<br>
                  2001 Stock Option Plan</font></td>
</TR>
</TABLE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Gentlemen:<br><br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This firm is special  counsel to Lithia Motors,  Inc., an Oregon  corporation,  (the  "Company")  and, in that  capacity,  has
assisted in the  preparation  of certain  documents,  including the  Company's  Registration  Statement on Form S-8 (the  "Registration
Statement")  relating to the issuance of up to 600,000 shares of the Company's  Class A Common stock  ("Shares") in accordance with the
Company's 2001 Stock Option Plan (the "Plan");<br><br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;In the course of our  representation  described above, we have examined the Plan, the  Registration  Statement as prepared for
filing with the Securities and Exchange  Commission and related  documents and  correspondence.  We have reviewed the Restated Articles
of Incorporation and the Bylaws of the Company,  as amended,  and excerpts of minutes of certain meetings of the Board of Directors and
shareholders  of the  Company.  We have  also  received  from the  officers  of the  Company  certificates  and  other  representations
concerning  factual  matters  relevant to this opinion.  We have received such  certificates  from,  and have made  inquiries of public
officials in those jurisdictions in which we have deemed it appropriate.<br><br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;As to matters of fact,  we have relied upon the above  certificates,  documents  and  investigation.  We have assumed  without
investigation  the  genuineness of all signatures and the  authenticity  and  completeness  of all of the documents  submitted to us as
originals  and the  conformity  to  authentic  and  complete  original  documents  of all  documents  submitted  to us as  certified or
photostatic copies.<br><br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Based upon and subject to all of the foregoing, we are of the opinion that:</font></p>

<PAGE>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR valign=top>
        <TD width=15%></TD>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Shares have been validly  authorized,  and when (i) the  Registration  Statement  has become  effective;
                  (ii) the applicable  provisions of the Securities Act of 1933, as amended, and such state securities laws as
                  may be applicable  have been complied  with,  and (iii) the  Shares have been issued in accordance  with the
                  Plan as  contemplated  by the  Registration  Statement,  the Shares will be validly  issued,  fully paid and
                  non-assessable.</font></td>
</TR>
</TABLE>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Regardless of the states in which  members of this firm are licensed to practice,  this opinion is limited to the present laws
of the State of Oregon and the  United  States of America  and to the facts  bearing on this  opinion as they exist on the date of this
letter.  We disclaim any  obligation to review or supplement  this opinion or to advise you of any changes in the  circumstances,  laws
or events that may occur after this date or otherwise update this opinion.<br><br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;This opinion is provided to you as a legal opinion only,  and not as a guaranty or warranty of the matters  discussed  herein.
Our opinion is limited to the matters expressly stated herein, and no other opinions may be implied or inferred.<br><br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;The  opinions  expressed  herein  are for the  benefit  of and may be  relied  upon only by you in  connection  with the Plan.
Neither this opinion nor any extract  therefrom nor reference  thereto shall be published or delivered to any other person or otherwise
relied upon without our expressed written consent.<br><br>

&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;We  hereby  consent  to the  filing  of this  opinion  with the  Securities  and  Exchange  Commission  as an  exhibit  to the
Registration  Statement.  In giving this consent,  we do not admit that we are within the category of persons whose consent is required
under Section 7 of the Act or the General Rules and Regulations of the Commission.</font></p>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR>
        <TD width=50%></TD>
        <TD width=50%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Very truly yours,<br><br>
                                                     FOSTER PEPPER &amp; SHEFELMAN, LLP<br><br>
                                                     By:&nbsp;&nbsp;<u>/s/  Kenneth E. Roberts&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;</u><br>
                                                     &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Kenneth E. Roberts</font></td>
</TR>
</TABLE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Portland, Oregon</font></p>

<PAGE>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>EXHIBIT 23.1</u><br><br><br>
                                          <b>Independent Auditors' Consent</b></font></p>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The Board of Directors<br>
Lithia Motors, Inc. and Affiliated Companies:</font></p>


<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>We consent to the incorporation
by reference in the registration statement on Form S-8 of our report dated
February 9, 2001 relating to the consolidated balance sheets of Lithia Motors, Inc.
as of December 31, 2000 and 1999, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2000, which report appears in
Lithia Motors, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2000.</FONT></P>

<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>KPMG LLP</font></p>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Portland, Oregon<br>
May 22, 2001</font></p>

<PAGE>


<P ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2><u>EXHIBIT 99</u></font></p>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>LITHIA
MOTORS, INC.</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2001 STOCK
OPTION PLAN</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE I</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>PURPOSE OF THE
PLAN</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>The purpose of this 2001
Stock Option Plan (the &#147;Plan&#148;) is to advance the interests of Lithia
Motors, Inc. (the &#147;Company&#148;) 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. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE II</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DEFINITIONS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>As used herein, the following definitions will apply:<br><br>

(a)&nbsp;&nbsp;&#147;Available Shares&#148; 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. <br><br>

(b) &nbsp;&nbsp;&#147;Award&#148; means any grant of an Incentive Stock Option or any grant of a
Nonqualified Stock Option under this Plan. <br><br>

(c)&nbsp;&nbsp;"Board of Directors" means the Board of Directors of the Company.<br><br>

(d)&nbsp;&nbsp;"Internal Revenue Code" means the Internal Revenue Code of 1986, as amended.<br><br>

(e)&nbsp;&nbsp;&#147;Committee&#148; 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&#146;s
Compensation Committee shall serve as the Committee. <br><br>

(f)&nbsp;&nbsp;"Common Stock" means the Common Stock of the Company.<br><br>

(g)&nbsp;&nbsp;"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.<br><br>

(h)&nbsp;&nbsp;&#147;Disabled&#148; 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&#146;s sole discretion, of
performing the duties which were assigned to the Optionee during the 12 month
period prior to such determination. The Committee&#146;s determination of the</font></p>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>existence of an individual&#146;s disability will be effective when communicated
in writing to the Optionee and will be conclusive on all of the parties.<br><br>

(i)&nbsp;&nbsp;"Effective Date" means the date on which this Plan is approved by the Board of Directors.<br><br>

(j)&nbsp;&nbsp;"Employee" means any person employed by the Company.<br><br>

(k)&nbsp;&nbsp;"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.<br><br>

(l)&nbsp;&nbsp;"Fair Market Value" with respect to shares of Common Stock for any date means:</font></p>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR valign=top>
        <TD width=10%></TD>
        <td width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>1)</font></td>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 &#147;Fair Market Value&#148;
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; </FONT></td>
</tr>

<TR valign=top>
        <TD width=10%></TD>
        <td width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>2)</font></td>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=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 &#147;Fair
Market Value&#148; 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 </font></td>
</tr>

<TR valign=top>
        <TD width=10%></TD>
        <td width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>3)</font></td>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>If there is no
public trading of the Common Stock within the terms of subparagraphs A or B, the
&#147;Fair Market Value&#148; of a share of Common Stock shall be as determined
by the Committee in its sole discretion.</font></td>
</tr>
</TABLE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(m)&nbsp;&nbsp;&#147;Incentive
Stock Option&#148; 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.<br><br>

(n)&nbsp;&nbsp; &#147;Nonqualified Stock Option&#148; 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 <U>not</U> 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. <br><br>

(o)&nbsp;&nbsp;"Optionee" means any individual who is granted either an Incentive Stock Option or a Nonqualified Stock Option under this
              Plan.<br><br>

(p)&nbsp;&nbsp;"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.<br><br>

(q)&nbsp;&nbsp;"Securities Act" means the Securities Act of 1933, as amended.<br><br>

(r)&nbsp;&nbsp;&#147;Significant Shareholder&#148; 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&#146;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</font></p>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE III</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>STOCK
SUBJECT TO THE PLAN</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>3.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Aggregate Number of Reserved Shares</U>.</B>&nbsp;&nbsp;Subject to adjustment in
accordance with Section&#160;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.<br><br>

<b>3.2&nbsp;&nbsp;&nbsp;&nbsp;<u>Number of Available Shares</u>.</b>&nbsp;&nbsp;At any point in time, the number of Available Shares shall be the number of Reserved
Shares at such time minus:</font></p>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR valign=top>
        <TD width=10%></TD>
        <td width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(a)</font></td>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>the number of shares of Common Stock issued upon the exercise of Incentive Stock Options and Nonqualified Stock Options
                  prior to such time; and</font></td>
</tr>

<TR valign=top>
        <TD width=10%></TD>
        <td width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>(b)</font></td>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></td>
</tr>
</TABLE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. <br><br>

<B>3.3&nbsp;&nbsp;&nbsp;&nbsp;<U>Reservation of Shares</U>.</b>&nbsp;&nbsp;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.<br><br>

<B>3.4&nbsp;&nbsp;&nbsp;&nbsp;<U>Annual Limit on Number of Shares to Any One Person</U>.</B>&nbsp;&nbsp;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. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE IV</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>COMMENCEMENT
AND DURATION OF THE PLAN</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><b>4.1&nbsp;&nbsp;&nbsp;&nbsp;<u>Effective Date of the Plan</u>.</b>&nbsp;&nbsp;This Plan will be effective as of the Effective Date, subject to the provisions of
Section 4.2.</font></p>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>4.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Shareholder Approval of the Plan</U>.</B>&nbsp;&nbsp;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&#146;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&#146;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.<br><br>

<B>4.3&nbsp;&nbsp;&nbsp;&nbsp;<U>Termination of the Plan</U>.</B>&nbsp;&nbsp;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). </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE V</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ADMINISTRATION
OF THE PLAN</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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.<br><br>

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 &#147;outside directors&#148; as such term is defined in Treasury
Regulation &#167;1.162-27(e)(3) and directors who are not &#147;nonemployee
directors&#148; 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 &#147;nonqualified directors.&#148;
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. </FONT></P>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE VI</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>INCENTIVE
STOCK OPTION TERMS AND CONDITIONS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Incentive Stock Options may
be granted under this Plan in accordance with the following terms and
conditions. <br><br>

<B>6.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Requirement for a Written Incentive Stock Option Agreement</U>.</B>&nbsp;&nbsp;Each
Incentive Stock Option will be evidenced by a written option agreement
(&#147;Incentive Stock Option Agreement&#148;). 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. <br><br>

<B>6.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Who May be Granted an Incentive Stock Option</U>.</B>&nbsp;&nbsp;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. <br><br>

<B>6.3&nbsp;&nbsp;&nbsp;&nbsp;<U>Number of Shares Covered by an Incentive Stock Option</U>.</B>&nbsp;&nbsp;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.<br><br>

<B>6.4&nbsp;&nbsp;&nbsp;&nbsp;<U>Vesting Schedule Under an Incentive Stock Option</U>.</B>&nbsp;&nbsp;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. </FONT></P>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>6.5&nbsp;&nbsp;&nbsp;&nbsp;<U>Exercise Price of an Incentive Stock Option</U>.</B>&nbsp;&nbsp;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. <br><br>

<B>6.6&nbsp;&nbsp;&nbsp;&nbsp;<U>Duration of an Incentive Stock Option--Generally</U>.</B>&nbsp;&nbsp;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.<br><br>

<B>6.7&nbsp;&nbsp;&nbsp;&nbsp;<U>The Effect of Termination of the Optionee&#146;s Employment on the Term of an
Incentive Stock Option</U>.</B>&nbsp;&nbsp;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&#146;s employment is terminated by the Company for cause, as
determined by the Company&#146;s President or Board of Directors in their
reasonable discretion, the Incentive Stock Option will terminate immediately
upon the Company&#146;s notice to the Optionee of such termination.<br><br>

<B>6.8&nbsp;&nbsp;&nbsp;&nbsp;<U>The Effect of the Death of an Optionee on the Term of an Incentive Stock
Option</U>.</B>&nbsp;&nbsp;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&#146;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. <br><br>

<B>6.9&nbsp;&nbsp;&nbsp;&nbsp;<U>The Effect of the Disability of an Optionee on the Term of an Incentive Stock
Option</U>.</B>&nbsp;&nbsp;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.<br><br>

<b>6.10&nbsp;&nbsp;&nbsp;&nbsp;<u>Transferability</u>.</b>&nbsp;&nbsp;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.<br><br>

<B>6.11&nbsp;&nbsp;&nbsp;&nbsp;<U>Tax Treatment and Savings Clause</U>.</B>&nbsp;&nbsp;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. </FONT></P>

<PAGE>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE VII</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>NONQUALIFIED
STOCK OPTION TERMS AND CONDITIONS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>Nonqualified Stock Options may
be granted under this Plan in accordance with the following terms and
conditions. <br><br>

<B>7.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Requirement for a Written Nonqualified Stock Option Agreement</U>.</B>&nbsp;&nbsp;Each Nonqualified Stock Option will be evidenced by a written option agreement
(&#147;Nonqualified Stock Option Agreement&#148;). 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. <br><br>

<B>7.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Who
May be Granted an Nonqualified Stock Option</U>.</B>&nbsp;&nbsp;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. <br><br>

<B>7.3&nbsp;&nbsp;&nbsp;&nbsp;<U>Number of Shares Covered by a Nonqualified Stock Option</U>.</B>&nbsp;&nbsp; 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. <br><br>

<B>7.4&nbsp;&nbsp;&nbsp;&nbsp;<U>Vesting Schedule Under a Nonqualified Stock Option</U>.</B>&nbsp;&nbsp;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. <br><br>

<B>7.5&nbsp;&nbsp;&nbsp;&nbsp;<U>Exercise Price of a Nonqualified Stock Option</U>.</B>&nbsp;&nbsp;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. </FONT></P>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>7.6&nbsp;&nbsp;&nbsp;&nbsp;<U>Duration of a Nonqualified Stock Option--Generally</U>.</B>&nbsp;&nbsp;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. <br><br>

<B>7.7&nbsp;&nbsp;&nbsp;&nbsp;<U>The
Effect of Termination of the Optionee&#146;s Employment or Service as a Director
on the Term of a Nonqualified Stock Option</U>.</B>&nbsp;&nbsp;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&#146;s employment is
terminated by the Company for cause, as determined by the Company&#146;s
President or Board of Directors in their reasonable discretion, the Nonqualified
Stock Option will terminate immediately upon the Company&#146;s notice to the
Optionee of such termination. <br><br>

<B>7.8&nbsp;&nbsp;&nbsp;&nbsp;<U>The Effect of the Death of an Optionee on the Term of a Nonqualified Stock
Option</U>.</B>&nbsp;&nbsp;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&#146;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&#146;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.<br><br>

<B>7.9&nbsp;&nbsp;&nbsp;&nbsp;<U>The Effect of the Disability of an Optionee on the Term of a Nonqualified Stock
Option</U>.</B>&nbsp;&nbsp;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.<br><br>

<B>7.10&nbsp;&nbsp;&nbsp;&nbsp;<U>Transferability</U>.</B>&nbsp;&nbsp;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&#146;s spouse,
children or a trust for the exclusive benefit of any combination of the
Optionee, the Optionee&#146;s spouse and the Optionee&#146;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 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&#146;s
sole discretion. </FONT></P>

<PAGE>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE VIII</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EXERCISE OF
OPTIONS TO PURCHASE SHARES</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>8.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Notice of Exercise</U>.</B>&nbsp;&nbsp;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. <br><br>

<B>8.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Payment of Exercise Price</U>.</B>&nbsp;&nbsp;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. <br><br>

<B>8.3&nbsp;&nbsp;&nbsp;&nbsp;<U>Payment of Tax Withholding Amounts</U>.</B>&nbsp;&nbsp;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
withholding requirements (&#147;Tax Withholding&#148;). 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)&#160;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. </FONT></P>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 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.<br><br>

<B>8.4&nbsp;&nbsp;&nbsp;&nbsp;<U>Payment  of Exercise Price or Withholding  with
Other  Securities</U>.</B>&nbsp;&nbsp;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)&#160;delivering to the Company an attestation in such form as
the  Company  may deem to be  appropriate  with  respect to the  Optionee&#146;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&#146;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&#146;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&#146;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&#146;s  notice. Any
such  application  shall be  considered an exercise of the other stock option to
the extent that shares are so applied. <br><br>

<B>8.5&nbsp;&nbsp;&nbsp;&nbsp;<U>Compliance with Securities Laws</U>.</B>&nbsp;&nbsp;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&#146;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. </FONT></P>

<PAGE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>8.6&nbsp;&nbsp;&nbsp;&nbsp;<U>Issuance of Shares</U>.</B>&nbsp;&nbsp;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.<br><br>

<B>8.7&nbsp;&nbsp;&nbsp;&nbsp;<U>Notice of any Disqualifying Disposition and Provision for Tax
Withholding</U>.</B>&nbsp;&nbsp;Any Optionee that exercises an Incentive Stock Option and
then makes a &#147;disqualifying disposition&#148; (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. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE IX</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>CHANGES IN
CAPITAL STRUCTURE</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2><B>9.1&nbsp;&nbsp;&nbsp;&nbsp;<U>Adjustments of Number of Shares and Exercise Price</U>.</B>&nbsp;&nbsp;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
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.<br><br>

<B>9.2&nbsp;&nbsp;&nbsp;&nbsp;<U>Acceleration of Vesting</U>.</B>&nbsp;&nbsp;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. </FONT></P>

<PAGE>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE X</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>UNDERWRITERS
LOCK-UP</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE XI</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>EMPLOYMENT
RIGHTS</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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: </FONT></P>

<TABLE width=100% CELLPADDING=0 CELLSPACING=0 BORDER=0>
<TR valign=top>
        <TD width=10%></TD>
        <td width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>a)</font></td>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>for Employees of the Company, the continued employment of the Optionee;</font></td>
</tr>

<TR valign=top>
        <TD width=10%></TD>
        <td width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>b)</font></td>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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 </FONT></td>
</tr>

<TR valign=top>
        <TD width=10%></TD>
        <td width=5%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>c)</font></td>
        <td width=85%><FONT FACE="Times New Roman, Times, Serif" SIZE=2>for directors who are not Employees, the Optionee continuing to serve as a director of the Company;</font></td>
</tr>
</TABLE>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>ARTICLE XII</FONT></H1>

<H1 ALIGN=CENTER><FONT FACE="Times New Roman, Times, Serif" SIZE=2>AMENDMENT OF
PLAN</FONT></H1>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>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. </FONT></P>

<P><FONT FACE="Times New Roman, Times, Serif" SIZE=2>DATED as of and approved by
the Board of Directors of the Company effective as of April 9, 2001.<br><br>

Approved by the shareholders of the Company on May 17, 2001.</font></p>

</body>
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Lithia Motors, Inc. Form S-8 2001 Stock Option Plan
Filed with the Securities and Exchange Commission on May ____, 2001
Securities Act Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-8
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
LITHIA MOTORS, INC.
(Exact name of registrant as specified in its charter)
Oregon
93-0572810
(State of Incorporation)
(I.R.S. Employer Identification No.)
360 E. Jackson St., Medford, Oregon
97501
(Address of Principal Executive Offices)
(Zip Code)
2001 STOCK OPTION PLAN
(Full title of the plan)
Sidney B. DeBoer, Chief Executive Officer
360 E. Jackson St.
Medford, Oregon  97501
(541) 776-6899
(Name, address and telephone number of agent for service)
Copies to:
Kenneth E. Roberts, Esq.
Foster Pepper & Shefelman LLP
101 S.W. Main St., 15th Fl.
Portland, Oregon 97204
CALCULATION OF REGISTRATION FEE
Title of Securities Being Registered
Number of Shares Being Registered
(1)
Proposed Maximum Offering Price Per Share
(2)
Proposed Maximum Aggregate Offering Price
(2)
Amount of Registration Fee
(3)
Class A Common Stock
600,000
$19.55
$11,730,000
$1,531.74
The shares of Common Stock represent the number of shares which
          may be issued  pursuant to the 2001 Stock Option Plan.  In addition,
          pursuant to Rule 416,  this  Registration  Statement  also covers an
          indeterminate number of additional shares which may be issuable as a
          result of the anti-dilution provisions of Plan.
The maximum  offering price for the shares cannot  presently be
          determined as the offering  price is  established at the time shares
          are issued. Pursuant to Rule 457(h), the offering price is estimated
          based on the last sale price  reported  for the Common Stock on NYSE
          on May 24, 2001,  and the maximum  offering  price is calculated for
          the sole purpose of determining the Registration Fee.
Pursuant to Rule 457(p), the filing fee due with this registration is offset by $1,400.76 that
was previously paid in the registration of a prior employee benefit plan on Form S-8
filed by Lithia Motors, Inc. on June 11, 1999 (SEC File No. 333-80459) and the
registration of those shares registered with that fee will subsequently be withdrawn.
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3.    Incorporation
of Documents by Reference.
The following documents
filed by Lithia Motors, Inc. (the "Company") with the Securities and
Exchange Commission are incorporated by reference in this registration
statement:
1.
The Company's annual report on Form 10-K filed with the Commission on March 31, 2001 (File No. 000-21789).
2.
The  description  of the Class A Common  Stock  contained  in the  Company's  registration  statement on Form S-1, as
         amended and filed with the Commission on May 1, 1998, (File No. 333-47525).
All documents filed by the
Company subsequent to those listed above pursuant to Sections 13(a), 13(c), 14,
or 15(d) of the Securities Exchange Act of 1934, as amended, prior to the filing
of a post-effective amendment which indicates that all securities offered hereby
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference herein and to be a part hereof from
the date of filing of such documents.
Item 4.    Description of Securities.
Not Applicable.
Item 5.    Interests of Named Experts and Counsel.
Not Applicable.
Item 6.    Indemnification of Directors and Officers.
Under the Oregon Business
Corporation Act (Oregon Revised Statutes ("ORS") Sections 60.387 to
60.414), applicable to the Company, a person who is made a party to a proceeding
because such person is or was an officer or director of a corporation may be
indemnified by the corporation against liability incurred by such person in
connection with the proceeding if (i) the person's conduct was in good
faith and in a manner he or she reasonably believed was in the
corporation's best interest or at least not opposed to its best interests
and (ii) if the proceeding was a criminal proceeding, the Indemnitee had no
reasonable cause to believe his or her conduct was unlawful. Indemnification is
not permitted if the person was adjudged liable to the corporation in a
proceeding by or in the right of the corporation, or if the Indemnitee was
adjudged liable on the basis that he or she improperly received a personal
benefit. Unless the articles of the corporation provide otherwise, such
indemnification is mandatory if the Indemnitee is wholly successful on the
merits or otherwise, or if ordered by a court of competent jurisdiction.
The Oregon Business
Corporation Act also provides that a company's Articles of Incorporation
may limit or eliminate the personal liability of a director to the corporation
or its shareholders for monetary damages for conduct as a director, provided
that no such provision shall eliminate the liability of a director for (i) any
breach of the directors' duty of loyalty to the corporation or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) any unlawful
distribution; or (iv) any transaction from which the director derived an
improper personal benefit.
The Company's Articles
of Incorporation (the "Articles") provide that the Company will
indemnify its directors and officers, to the fullest extent permissible under
the Oregon Business Corporation Act against all expense liability and loss
(including attorney fees) incurred or suffered by reason of service as a
director or officer of the company or is or was serving at the request of the
company as a director, officer, partner, trustee, employee or agent of another
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise.
The effect of these
provisions is to limit the liability of directors for monetary damages, and to
indemnify the directors and officers of the Company for all costs and expenses
for liability incurred by them in connection with any action, suit or proceeding
in which they may become involved by reason of their affiliation with the
Company, to the fullest extent permitted by law. These provisions do not limit
the rights of the Company or any shareholder to see non-monetary relief, and do
not affect a director's or officer's responsibilities under any other
laws, such as securities or environmental laws.
Item 7.    Exemption from Registration Claimed.
Not applicable.
Item 8.    Exhibits.
The exhibits required by
Item 601 of Regulation S-K being filed herewith or incorporated herein by
reference are as follows:
Exhibit
5.1
Opinion of Foster Pepper & Shefelman LLP
23.1
Consent of KPMG LLP
23.2
Consent of Foster Pepper & Shefelman LLP (included in Exhibit 5.1)
24.1
Power of Attorney (Included in the signature page)
99
2001 Stock Option Plan
Item 9.    Undertakings.
The undersigned registrant hereby undertakes:
(A)    To file,  during any period in which  offers or sales are being made,  a  post-effective  amendment  to this  registration
statement:
(1)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(2)
To reflect in the prospectus any facts or events arising after the effective date of the  registration  statement
                      (or the most recent  post-effective  amendment  thereof)  which,  individually  or in the aggregate,  represent a
                      fundamental change in the information set forth in the registration statement;
(3)
To include any material  information  with respect to the plan of  distribution  not previously  disclosed in the
                      registration statement or any material change to such information in the registration statement;
Provided however, that
paragraphs 1 and 2 do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic reports
filed by the registrant pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(B)    That, for the purpose of determining any liability under the Securities Act of 1933,  each such  post-effective  amendment
shall be deemed to be a new registration  statement relating to the securities offered therein,  and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(C)    To remove from  registration by means of a  post-effective  amendment any of the securities  being registered which remain
unsold at the termination of the offering.
(D)    That,  for purposes of  determining  any  liability  under the  Securities  Act of 1933,  each filing of the  registrant's
annual report  pursuant to Section 13(a) or Section 15(d) of the Securities  Exchange Act of 1934 that is  incorporated by reference in
the  registration  statement shall be deemed to be a new  registration  statement  relating to the securities  offered herein,  and the
offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(E)    Insofar as  indemnification  for  liabilities  arising  under the  Securities  Act of 1933 may be permitted to  directors,
officers and controlling persons of the registrant,  pursuant to the provisions  described in Item 6, or otherwise,  the registrant has
been advised that in the opinion of the Securities and Exchange  Commission such  indemnification is against public policy as expressed
in the Act and is,  therefore,  unenforceable.  In the event that the claim for  indemnification  against such liabilities  (other than
the payment by the  registrant  of expenses  incurred or paid by a director,  officer or  controlling  person of the  registrant in the
successful  defense of any action,  suit or proceeding) is asserted by such director,  officer or controlling person in connection with
the securities being  registered,  the registrant will, unless in the opinion of its counsel the matter has been settled by controlling
precedent,  submit to a court of appropriate  jurisdiction the question whether such  indemnification by it is against public policy as
expressed  in the Act and will be governed  by the final  adjudication  of such issue.  The  foregoing  undertaking  shall not apply to
indemnification which is covered by insurance.
SIGNATURES
Pursuant to the
requirements of the Securities Act of 1933, the registrant certifies that it has
reasonable grounds to believe that it meets all of the requirements for filing
on Form S-8 and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Medford,
State of Oregon, on the 17
th
day of May 2001.
LITHIA MOTORS, INC.
By:
/s/ Sidney B. DeBoer
Sidney B. DeBoer,
Chairman of the Board
Chief Executive Officer
POWER OF ATTORNEY
Each person whose
individual signature appears below hereby authorizes and appoints SIDNEY B.
DEBOER and JEFFREY B. DEBOER, and each of them, with full power of substitution
to act as his true and lawful attorney in fact and agent to act in his name,
place and stead, and to execute in the name and on behalf of each person,
individually and in each capacity stated below, and to file any and all
amendments to this registration, including any and all post-effective amendments
or new registration pursuant to Rule 462.
Pursuant to the
requirements of the Securities Act of 1933, this Registration Statement has been
signed below by the following persons in the capacities and on the date
indicated.
By:
/s/ Sidney B. DeBoer
Date:  May 17, 2001
Sidney B. DeBoer
Chief Executive Officer and
Chairman of the Board of Directors
By:
/s/ M.L. Dick Heimann
Date:  May 17, 2001
M.L. Dick Heimann
President, Chief Operating Officer, Director
By:
/s/ Brad Gray
Date:  May 17, 2001
Brad Gray
Director
By:
/s/ Thomas Becker
Date:  May 17, 2001
Thomas Becker
Director
By:
/s/ William Young
Date:  May 17, 2001
William Young
Director
By:
/s/ Gerald F. Taylor
Date:  May 17, 2001
Gerald F. Taylor
Director
By:
/s/ Jeffrey B. DeBoer
Date:  May 17, 2001
Jeffrey B. DeBoer
Senior Vice President, Chief Financial Officer
EXHIBIT INDEX
Exhibit
5.1
Opinion of Foster Pepper & Shefelman LLP
23.1
Consent of KPMG LLP
23.2
Consnt of Foster Pepper & Shefelman LLP (included in Exhibit 5.1)
24.1
Power of Attorney (Included in the signature page)
99
2001 Stock Option Plan
EXHIBIT 5.1
[FOSTER PEPPER & SHEFELMAN LETTERHEAD]
May 17, 2001
Board of Directors
Lithia Motors, Inc.
360 E. Jackson St.
Medford, Oregon 97501
Re:
Form S-8 Registration
2001 Stock Option Plan
Gentlemen:
This firm is special  counsel to Lithia Motors,  Inc., an Oregon  corporation,  (the  "Company")  and, in that  capacity,  has
assisted in the  preparation  of certain  documents,  including the  Company's  Registration  Statement on Form S-8 (the  "Registration
Statement")  relating to the issuance of up to 600,000 shares of the Company's  Class A Common stock  ("Shares") in accordance with the
Company's 2001 Stock Option Plan (the "Plan");
In the course of our  representation  described above, we have examined the Plan, the  Registration  Statement as prepared for
filing with the Securities and Exchange  Commission and related  documents and  correspondence.  We have reviewed the Restated Articles
of Incorporation and the Bylaws of the Company,  as amended,  and excerpts of minutes of certain meetings of the Board of Directors and
shareholders  of the  Company.  We have  also  received  from the  officers  of the  Company  certificates  and  other  representations
concerning  factual  matters  relevant to this opinion.  We have received such  certificates  from,  and have made  inquiries of public
officials in those jurisdictions in which we have deemed it appropriate.
As to matters of fact,  we have relied upon the above  certificates,  documents  and  investigation.  We have assumed  without
investigation  the  genuineness of all signatures and the  authenticity  and  completeness  of all of the documents  submitted to us as
originals  and the  conformity  to  authentic  and  complete  original  documents  of all  documents  submitted  to us as  certified or
photostatic copies.
Based upon and subject to all of the foregoing, we are of the opinion that:
The Shares have been validly  authorized,  and when (i) the  Registration  Statement  has become  effective;
                  (ii) the applicable  provisions of the Securities Act of 1933, as amended, and such state securities laws as
                  may be applicable  have been complied  with,  and (iii) the  Shares have been issued in accordance  with the
                  Plan as  contemplated  by the  Registration  Statement,  the Shares will be validly  issued,  fully paid and
                  non-assessable.
Regardless of the states in which  members of this firm are licensed to practice,  this opinion is limited to the present laws
of the State of Oregon and the  United  States of America  and to the facts  bearing on this  opinion as they exist on the date of this
letter.  We disclaim any  obligation to review or supplement  this opinion or to advise you of any changes in the  circumstances,  laws
or events that may occur after this date or otherwise update this opinion.
This opinion is provided to you as a legal opinion only,  and not as a guaranty or warranty of the matters  discussed  herein.
Our opinion is limited to the matters expressly stated herein, and no other opinions may be implied or inferred.
The  opinions  expressed  herein  are for the  benefit  of and may be  relied  upon only by you in  connection  with the Plan.
Neither this opinion nor any extract  therefrom nor reference  thereto shall be published or delivered to any other person or otherwise
relied upon without our expressed written consent.
We  hereby  consent  to the  filing  of this  opinion  with the  Securities  and  Exchange  Commission  as an  exhibit  to the
Registration  Statement.  In giving this consent,  we do not admit that we are within the category of persons whose consent is required
under Section 7 of the Act or the General Rules and Regulations of the Commission.
Very truly yours,
FOSTER PEPPER & SHEFELMAN, LLP
By:
/s/  Kenneth E. Roberts
Kenneth E. Roberts
Portland, Oregon
EXHIBIT 23.1
Independent Auditors' Consent
The Board of Directors
Lithia Motors, Inc. and Affiliated Companies:
We consent to the incorporation
by reference in the registration statement on Form S-8 of our report dated
February 9, 2001 relating to the consolidated balance sheets of Lithia Motors, Inc.
as of December 31, 2000 and 1999, and the related consolidated statements of
operations, changes in shareholders' equity and cash flows for each of the years
in the three-year period ended December 31, 2000, which report appears in
Lithia Motors, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2000.
KPMG LLP
Portland, Oregon
May 22, 2001
EXHIBIT 99
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.
(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.
(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.
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.
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
Regulation §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.
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 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.
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 an 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.
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 Directors in 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 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
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 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.
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
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;
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 May 17, 2001.