<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
ULTIMATE ELECTRONICS, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
ALAN E. KESSOCK, CHIEF FINANCIAL OFFICER
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how it
was determined.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------------------
<PAGE>
ULTIMATE ELECTRONICS, INC.
321A W. 84TH AVENUE
THORNTON, COLORADO 80221
April 25, 1997
TO THE STOCKHOLDERS OF
ULTIMATE ELECTRONICS, INC.:
You are cordially invited to attend the 1997 Annual Meeting of Stockholders of
Ultimate Electronics, Inc. to be held on Tuesday June 10, 1997 at the
Company's office, 321A West 84th Avenue, Thornton, Colorado (the "Annual
Meeting") at 8:30 a.m., Mountain Time, for the purpose of electing directors,
approving a replacement stock option plan for the two stock option plans
currently in effect and ratifying the appointment of Ernst & Young LLP as the
Company's independent auditors for the current year.
Enclosed is a Notice of the Annual Meeting and a Proxy Statement. You are
urged to read the Proxy Statement carefully. A proxy card is also enclosed
for your convenience. Please complete, sign, date and return the proxy card
promptly. If you attend the Annual Meeting, you may vote your shares
personally, whether or not you have previously submitted a proxy card.
Your Board of Directors strongly supports and recommends these actions.
Accordingly, we request that you vote in favor of all proposals. We also urge
you to make plans if at all possible to attend the meeting in person. Thank
you for your consideration.
FOR THE BOARD OF DIRECTORS,
William J. Pearse
Chairman of the Board and Chief Executive Officer
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, PLEASE COMPLETE AND SIGN
THE ENCLOSED PROXY CARD, RETURNING IT PROMPTLY TO ENSURE THAT YOUR SHARES ARE
VOTED. A BUSINESS REPLY ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO
POSTAGE IS REQUIRED IF YOU MAIL THIS PROXY CARD FROM ANYWHERE IN THE UNITED
STATES.
<PAGE>
ULTIMATE ELECTRONICS, INC.
321A W. 84TH AVENUE
THORNTON, COLORADO 80221
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 10, 1997
TO THE STOCKHOLDERS OF ULTIMATE ELECTRONICS, INC.:
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders (the
"Meeting") of Ultimate Electronics, Inc., a Delaware corporation (the
"Company"), will be held on Tuesday, June 10, 1997, at 8:30 a.m., (Mountain
Time), at the Company's office, 321 W. 84th Avenue, Thornton, Colorado 80221,
for the following purposes:
(1) To elect one director to Class III to serve for a term of three
years, who will serve until his successor has been duly elected and
qualified.
(2) To consider and vote upon a proposal to adopt an Equity Incentive
Plan, which plan will replace the Company's employee Stock Option
Plan and Nonemployee Directors Stock Option Plan, and to provide for
the authorization for issuance under the Equity Incentive Plan of up
to 750,000 shares of the Company's common stock.
(3) To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending January 31, 1998.
(4) To transact such other business as may properly come before the
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the accompanying
Proxy Statement. The Board of Directors of the Company fixed the close of
business on April 15, 1997 as the record date for the determination of
stockholders entitled to notice of and to vote at the Meeting and at any
adjournment or postponement thereof. Consequently, only holders of the
Company's common stock at the close of business on April 15, 1997 will be
entitled to notice of and to vote at the Meeting. A complete list of
stockholders entitled to vote at the Meeting will be available for examination
during normal business hours by any stockholder, for purposes related to the
Meeting, for a period of ten days prior to the Meeting at the Company's
corporate office located at 321A West 84th Avenue, Thornton, Colorado 80221.
Whether or not you plan to attend the Meeting in person, please complete, date
and sign the accompanying proxy card and return it promptly in the enclosed
envelope to ensure your representation at the Meeting. You are cordially
invited to attend the Meeting and, if you do so, you may personally vote,
regardless of whether you have signed a proxy.
By order of the Board of Directors
Alan E. Kessock
Secretary
Thornton, Colorado
April 25, 1997
<PAGE>
ULTIMATE ELECTRONICS, INC.
321A W. 84TH AVENUE
THORNTON, COLORADO 80221
__________________
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 10, 1997
__________________
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are being furnished in
connection with the solicitation of proxies by and on behalf of the Board of
Directors of Ultimate Electronics, Inc., a Delaware corporation (the
"Company"), to be used at the 1997 Annual Meeting of Stockholders (the
"Meeting") of the Company to be held on Tuesday, June 10, 1997 at 8:30 a.m.
(Mountain Time), at the Company's office, 321A W. 84th Avenue, Thornton,
Colorado 80221, and at any adjournment or postponement thereof. This Proxy
Statement and the accompanying proxy card are first being mailed to the
holders of record of the Company's common stock, $.01 par value per share (the
"Common Stock"), on or about April 25, 1997.
Stockholders of the Company represented at the Meeting will consider and vote
upon (i) the election of one director to Class III, (ii) the proposal to adopt
the Equity Incentive Plan, (iii) the ratification of the appointment of Ernst
& Young LLP as the Company's independent auditors for the fiscal year ending
January 31, 1998 and (iv) such other business as may properly come before the
Meeting. The Company is not aware of any other business to be presented for
consideration at the Meeting.
VOTING AND SOLICITATION OF PROXIES
Only holders of record of the Common Stock at the close of business on April
15, 1997 (the "Record Date") will be entitled to notice of and to vote at the
Meeting. As of the Record Date, 6,995,000 shares of Common Stock were
outstanding. Each stockholder is entitled to one vote for each share held of
record on the Record Date for each proposal submitted for stockholder
consideration at the Meeting. The presence, in person or by proxy, of the
holders of not less than one-third of the shares of Common Stock entitled to
vote at the Meeting is necessary to constitute a quorum for the conduct of
business at the Meeting. The act of the majority of such quorum will be the
act of the stockholders.
All shares represented by properly executed proxies will, unless such proxies
have previously been revoked, be voted at the Meeting in accordance with the
directions on the proxies. A proxy may be revoked at any time so long as it
has been exercised. Stockholders may revoke proxies by written notice to the
Secretary of the Company, or by delivery of a proxy bearing a later date, or
by personally appearing at the Meeting and casting a contrary vote. If no
direction is indicated, the shares will be voted in favor of the Board of
Directors' nominee for director, for approval of the Equity Incentive Plan and
for the ratification of Ernst & Young as independent auditors as listed in
this Proxy Statement. The persons named in the proxies will have
discretionary authority to vote all proxies with respect to additional matters
that are properly presented for action at the Meeting.
The proxy solicitation is made by and on behalf of the Board of Directors.
Solicitation of proxies for use at the Meeting may be made in person or by
mail, telephone or telegram, by directors, officers and regular employees of
1
<PAGE>
the Company. Such persons will receive no additional compensation for any
solicitation activities. Copies of solicitation materials will be furnished
to banks, brokerage houses, fiduciaries and custodians holding in their names
shares of Common Stock beneficially owned by others to forward to such
beneficial owners. The Company may reimburse persons representing beneficial
owners of Common Stock for their costs of forwarding solicitation materials to
such beneficial owners. The Company will bear the entire cost of solicitation
of proxies, including the preparation, assembly, printing and mailing of this
Proxy Statement, the proxy and any additional information furnished to
stockholders.
PROPOSAL 1 - ELECTION OF DIRECTOR
The Company's Amended and Restated Certificate of Incorporation and Bylaws
provide that the Board of Directors shall be divided into three classes, each
class consisting, as nearly as possible, of one-third of the total number of
directors. At the Meeting, a Class III director shall be elected for a
three-year term. At each successive annual meeting of stockholders,
successors to the class of directors whose terms expired at that annual
meeting shall be elected for a three-year term. Vacancies on the Board may be
filled by the affirmative vote of a majority of the remaining directors then
in office. A director elected to fill a vacancy (including a vacancy created
by an increase in the Board of Directors) shall serve for the remainder of the
full term of the new directorship or of the class of directors in which the
vacancy occurred.
The shares represented by the proxy card will be voted in favor of the
election of the person named below unless authorization to do so is withheld
in the proxy. If the nominee is unavailable to serve as director, which event
is not presently anticipated, persons named in the proxy card intend to cast
votes for which they hold proxies in favor of the election of such other
person as the Board of Directors may designate.
The Board is presently composed of five members. The nominee for election as
director to Class III who will serve for a three-year term expiring at the
2000 Annual Meeting is William J. Pearse, currently a director. If elected,
the director will serve until his term expires or until his successor has been
duly elected and qualified or until his earlier resignation or removal. See
"Directors and Executive Officers" below for biographical information for the
director nominee.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE NOMINEE
2
<PAGE>
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
CLASS AND
SERVED AS YEAR IN
OFFICER OR WHICH TERM
NAME AGE POSITIONS DIRECTOR SINCE WILL EXPIRE
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
William J. Pearse 55 Chairman, Chief Executive Officer, 1968 Class III/1997
Director and Founder
David J. Workman 40 President, Chief Operating Officer 1985 Class II/1999
and Director
Alan E. Kessock 37 Vice President, Chief Financial 1988 Class I/1998
Officer, Secretary and Director
Neal A. Bobrick 36 Vice President - Sales and Store 1992 -
Operations
J. Edward McEntire 53 Vice President - Operations 1993 -
Robert W. Beale 60 Director 1993 Class I/1998
Randall F. Bellows 68 Director 1995 Class II/1999
</TABLE>
All executive officers hold office at the discretion of the Board of Directors.
WILLIAM J. PEARSE. Mr. Pearse is Chairman of the Board of Directors and Chief
Executive Officer of the Company. He founded the Company with his wife,
Barbara, in 1968. Mr. Pearse is a founding member and former president of
Progressive Retailers' Organization, a current member of the Chief Executives
Organization, a former member and chairman of the Rocky Mountain Young
Presidents Organization, and he presently serves on various private corporate
and charitable boards.
DAVID J. WORKMAN. Mr. Workman has been President and Chief Operating Officer
of the Company since 1992. He joined the Company in 1979 as a sales consultant
and was promoted to store manager in 1982. From 1985 until 1991, Mr. Workman
worked with the Company as Vice President of Sales and Store Operations. He
was promoted to Executive Vice President and General Manager in 1991. Mr.
Workman was part owner of Dakota Sight and Sound from 1976 until 1979.
ALAN E. KESSOCK. Mr. Kessock has been Secretary and Treasurer since April
1993 and Vice President of Finance and Administration since 1988. He joined
the Company in 1985 as Controller. Mr. Kessock worked two years with the
accounting firm of KPMG Peat Marwick and two years with American Home Video
Corporation DBA Video Concepts prior to joining the Company. Mr. Kessock is
currently a member of the Colorado Society of CPAs and he taught a national
CPA review course from 1983 until 1991.
NEAL A. BOBRICK. Mr. Bobrick has been Vice President of Sales and Store
Operations since 1992. Mr. Bobrick joined the Company in 1981 as a sales
consultant and was promoted to store manager in 1984. He was made Director of
Sales in 1989 and promoted again in 1992 to his current position. Mr. Bobrick
has worked in the consumer electronics industry since 1979.
J. EDWARD MCENTIRE. Mr. McEntire became Vice President - Operations of the
Company on February 1, 1995. He was a Director of the Company from August 1993
to January 31, 1995. From 1993 to January 31, 1995, Mr. McEntire operated JEM
Enterprises, a private investing and consulting firm. From 1991 until 1993,
he was the President of the Regulatory Products Division of IHS Group, an
information publishing company. From 1989 until 1991, Mr. McEntire was the
Executive Vice President - Investor Services and, from 1981 until 1988, was
the Group Vice President of Standard & Poor's Corporation.
3
<PAGE>
ROBERT W. BEALE. Mr. Beale has been a Director of the Company since April
1993 and is the President of Beale International, a management consulting firm
specializing in support to mid-sized businesses. Mr. Beale was formerly the
Chief Executive Officer and founder of Management Design Associates, a
national management consulting firm. He was also an employee of IBM in the
marketing division, and a consultant on the staff of Deloitte & Touche.
RANDALL F. BELLOWS. Mr. Bellows became a Director of the Company on January
31, 1995. Mr. Bellows was a co-founder of Cobe Laboratories, Inc. in 1965.
He had been an Executive Vice President of Cobe Laboratories from 1965 until
its acquisition by Gambro A.B. in 1990. Mr. Bellows has also served as a
director of Scimed Life Systems, Inc. from 1992 to the present. Scimed Life
Systems, Inc. was acquired by Boston Scientific Corp. in February 1996. Mr.
Bellows continues to serve as a director for Boston Scientific Corp.
BOARD COMMITTEES AND MEETINGS
The Board of Directors held five meetings during the Company's 1997 fiscal
year. With the exception of Mr. Workman who missed one meeting of the Board
of Directors, all of the directors participated in each meeting held during
the period as well as each committee on which they served. The Board has an
Audit Committee and a Compensation Committee but does not have a Nominating
Committee or any committee performing a similar function.
COMPENSATION COMMITTEE
The principal responsibilities of the Compensation Committee are for the
administration and grant of awards under the Employees' Plan as well as the
recommendation of annual salaries for senior management to the Company's Board
of Directors. The current members of the Compensation Committee are Messrs.
Beale and Bellows.
AUDIT COMMITTEE
The principal responsibilities of the Audit Committee are to meet periodically
with representatives of the Company's independent auditors to review the
general scope of audit coverage, including consideration of the Company's
accounting practices and procedures and system of internal accounting
controls, and to report to the Board with respect thereto. The Audit
Committee also recommends to the Board of Directors the appointment of the
Company's independent auditors. The current members of the Audit Committee
are Messrs. Beale and Bellows.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who beneficially own greater than 10% of a registered class of the
Company's equity securities to file initial reports of ownership and changes
in ownership with the Securities and Exchange Commission (the "Commission")
and the Nasdaq National Market. Based solely upon its review of copies of the
Section 16(a) reports the Company has received and written representations for
certain reporting persons, the Company believes that during its fiscal year
ended January 31, 1997, all of its directors, executive officers and greater
than 10% beneficial owners were in compliance with their filing requirements.
COMPENSATION OF DIRECTORS
The Company has adopted compensation and incentive benefit plans to enhance
its ability to continue to attract, retain and motivate qualified persons to
serve as nonemployee directors of the Company. The Company pays its
nonemployee directors $4,000 per year, $8,000 per year beginning in fiscal
1998, and reimburses each nonemployee director for reasonable expenses in
attending Company meetings. Under the Nonemployee Directors' Stock Option
Plan (the "Directors' Plan"), which was approved by the Company's stockholders
in October 1993 and became effective upon consummation of the Company's
initial public offering, nonemployee directors of the Company receive stock
options. Only directors who are not also employees of the Company are
eligible to participate in the Directors' Plan. The Company has two
nonemployee directors.
4
<PAGE>
An aggregate of 20,000 shares of Common Stock has been reserved for issuance
under the Directors' Plan and is administered by the Board of Directors. On
October 15, 1993, the Company granted options for a total of 4,000 shares at
an exercise price equal to the Company's initial public offering price of
$8.50 per share, which options vested immediately. In addition, each
nonemployee director is granted an option to purchase 2,000 shares of Common
Stock on February 1 of each year, which options vest one year from the date
of grant. Upon the termination of a director's status following his
resignation, retirement or a change in control of the Company, options
outstanding under the Directors' Plan will immediately become fully vested
and exercisable for a period of three months.
Each option granted under the Directors' Plan expires ten years from the date
of grant. The option exercise price must be equal to 100% of the fair market
value of the Common Stock on the date of grant of the option. Options
granted to directors under the Directors' Plan will be treated as
non-statutory stock options under the Internal Revenue Code of 1986, as
amended (the "Code"). To date, the Company has granted options to purchase
20,000 shares of Common Stock under this plan (4,000 of which have been
canceled) at exercise prices ranging from $2.75 per share to $12.75 per
share, of which 12,000 options are currently exercisable.
The Board of Directors may amend the Directors' Plan at any time or may
terminate such plan without approval of the stockholders. However,
stockholder approval is required for any amendment which increases the number
of shares for which options may be granted, changes the designation of the
class of persons eligible to participate or changes in any material respect
the limitation or provisions of the options subject to the Directors' Plan.
However, no action by the Board of Directors or stockholders may alter or
impair any award previously granted without the consent of the award holder.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid by the Company to its
Chief Executive Officer and its four most highly compensated executive
officers whose salary and bonus exceeded $100,000, other than its Chief
Executive Officer, for services rendered for the fiscal years ended January
31, 1997, 1996, and 1995.
<TABLE>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------- ------------
SECURITIES ALL OTHER
NAME AND FISCAL UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($)(1) OPTIONS(#) ($)(2)
- ------------------ ------ -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
William J. Pearse 1997 350,000 500 12,300(3) 9,606
Chairman and Chief 1996 350,000 - - 2,250
Executive Officer 1995 300,000 259,126 - -
David J. Workman 1997 250,000 500 110,268(3) 10,445
President and Chief 1996 250,000 2,000 - 2,346
Operating Officer 1995 200,000 174,750 - 250
Alan E. Kessock
Vice President, Chief 1997 150,000 500 73,511(3) 9,781
Financial Officer and 1996 150,000 2,000 - 2,308
Secretary 1995 140,000 122,925 250
Neal A. Bobrick 1997 150,000 500 78,677(3) 9,983
Vice President - Sales and 1996 150,000 2,000 - 1,863
Store Operations 1995 110,000 97,013 50,000(4) 489
J. Edward McEntire 1997 115,000 500 47,844(3) 686
Vice President - Operations 1996 115,000 7,000 50,000(4) -
1995 - - - -
</TABLE>
- ---------------
5
<PAGE>
(1) Amounts reflect annual, quarterly and discretionary bonuses paid under the
Company's Bonus Plan.
(2) Consists of the Company's contributions pursuant to the Company's 401(k)
defined contribution plan.
(3) Represents all options granted to the named executive officer in fiscal
1997, net of options subsequently canceled during the year.
(4) These options were canceled in exchange for new options included in the
fiscal 1997 grants.
The executive officers of the Company are awarded annual bonuses from a bonus
pool in proportion to their salaries. In fiscal 1997 and 1996, the
calculation of the bonus pool was as follows: if pretax earnings exceeded
2.5% of net sales but did not exceed 3.5% of net sales, the bonus pool was
equal to 10% of the pretax earnings in excess of 2.5% of net sales. If
pretax earnings exceeded 3.5% of net sales, the bonus pool was equal to 15%
of the pretax earnings in excess of 2.5% of net sales. For fiscal 1997 and
1996, pretax earnings did not exceed 2.5% of net sales, and as a result, no
bonuses were paid to the Company's executives from this bonus pool. The
Company expects to adopt a similar plan in fiscal 1998 based upon revised
parameters, as well as a discretionary plan based upon the meeting of certain
goals.
OPTION GRANTS IN THE LAST FISCAL YEAR
The following table sets forth information regarding options granted to the
executives named in the Summary Compensation Table above during the fiscal
year ended January 31, 1997.
<TABLE>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF PERCENT OF ASSUMED ANNUAL RATES OF
SECURITIES TOTAL OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM (6)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -----------------------------
NAME GRANTED # FISCAL YEAR ($/SHARE) DATE 5%($) 10%($)
- ----------------- --------- ------------ --------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C>
William J. Pearse 12,300(1) 3% 3.3000 02/01/01 4,305 13,407
22,500(2) - 7.3563 02/01/01 - -
David J. Workman 93,000(3) 23% 3.0000 10/15/03 104,160 239,010
17,268(4) 4% 3.0000 02/01/06 28,492 70,281
22,500(5) - 6.6875 02/01/06 - -
Alan E. Kessock 61,667(3) 15% 3.0000 10/15/03 69,067 158,484
11,844(4) 3% 3.0000 02/01/06 19,543 48,205
15,000(5) - 6.6875 02/01/06 - -
Neal A. Bobrick 30,833(3) 8% 3.0000 10/15/03 34,533 79,241
36,000(3) 9% 3.0000 02/01/06 59,400 146,520
11,844(4) 3% 3.0000 02/01/06 19,543 48,205
15,000(5) - 6.6875 02/01/06 - -
J. Edward McEntire 36,000(3) 9% 3.0000 02/01/06 59,400 146,520
11,844(4) 3% 3.0000 02/01/06 19,543 48,205
15,000(5) - 6.6875 02/01/06 - -
</TABLE>
- ----------------
(1) These options were granted on January 31, 1997 in exchange for certain
options granted on February 1, 1996 - see note (2). These options will
vest and become exercisable in equal annual installments over the three
years following February 1, 1996.
(2) These options were granted on February 1, 1996 and would have become
exercisable in equal annual installments over the three years following
their date of grant. These options were canceled and exchanged for the
stock options described in note (1).
(3) These options were granted on January 31, 1997 in exchange for the
cancellation of options granted to these officers in fiscal 1994, 1995, and
1996. These options will vest and become exercisable in equal annual
installments over the six years following the date of grant of the options
for which they were exchanged.
(4) These options were granted on January 31, 1997 in exchange for certain
options granted on February 1, 1996 - see note (5). These options will
vest and become exercisable in equal annual installments over the six years
following February 1, 1996.
(5) These options were granted on February 1, 1996 and would have become
exercisable in equal annual installments over the six years following their
date of grant. These options were canceled and exchanged for the stock
options described in note (4).
(6) Amounts reflect certain assumed rates of appreciation set forth in the
Commission's executive compensation disclosure rules. Actual gains, if
any, on stock option exercises, will depend on future performances of the
Common Stock. No assurance can be made that the amounts reflected in these
columns will be achieved.
6
<PAGE>
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning outstanding options held
by the executives named in the Summary Compensation Table above as of the fiscal
year ended January 31, 1997. No executive exercised any options during the
fiscal year ending January 31, 1997.
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END (#) AT FISCAL YEAR END ($)
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ---- --------------------------- -----------------------------
William J. Pearse 0 / 12,300 0 / 0
David J. Workman 46,500 / 63,768 0 / 0
Alan E. Kessock 30,833 / 42,678 0 / 0
Neal A. Bobrick 15,416 / 63,261 0 / 0
J. Edward McEntire 0 / 47,844 0 / 0
- -------------------
(1) These options are not in-the-money options as the exercise prices of
these options equal or exceed the fair market value of the common stock
underlying the options ($3.00 per share on the last trading day of the
fiscal year).
TEN YEAR OPTION REPRICINGS
The following table provides information concerning the grant of certain options
to the executives named in the Summary Compensation Table in exchange for the
cancellation of certain existing options.
<TABLE>
NUMBER OF
SHARES NUMBER OF
UNDERLYING SHARES MARKET PRICE EXERCISE LENGTH OF ORIGINAL
OPTIONS UNDERLYING OF STOCK AT PRICE AT NEW OPTION TERM
DATE OF BEFORE OPTIONS AFTER THE TIME TIME OF EXERCISE REMAINING AT DATE
NAME EXCHANGE EXCHANGE EXCHANGE OF EXCHANGE EXCHANGE PRICE OF EXCHANGE
- ---- -------- ---------- ------------- ------------ -------- -------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
William J. Pearse 01/31/97 22,500 12,300 $3.00 $7.3563 $3.30 4 years
David J. Workman 01/31/97 150,000 93,000 $3.00 $8.50 $3.00 6.67 years
22,500 17,268 $3.00 $6.6875 $3.00 9 years
Alan E. Kessock 01/31/97 100,000 61,667 $3.00 $8.50 $3.00 6.67 years
15,000 11,844 $3.00 $6.6875 $3.00 9 years
Neal A. Bobrick 01/31/97 100,000 66,833 $3.00 $8.50 $3.00 50,000 @ 6.67
years and 50,000
@ 9 years
01/31/97 15,000 11,844 $3.00 $3.00 $3.00 9 years
J. Edward McEntire 01/31/97 50,000 36,000 $3.00 $8.50 $3.00 9 years
15,000 11,844 $3.00 $3.00 $3.00 9 years
</TABLE>
- -------------------
On January 31, 1997, the Board of Directors' Compensation Committee determined
that it was in the best interests of the Company and its stockholders to offer
to grant new stock options to the Company's employees, with exercise
prices equal to the current market prices of the Company's common stock, in
exchange for the stock options then held by the Company's employees with the
exercise prices well in excess of such market price.
7
<PAGE>
The Compensation Committee believed that stock options with exercise prices
substantially above the current market price of the Company's common stock were
viewed negatively by the Company's employees, and provided little, if any,
incentive to these employees. The Compensation Committee thus concluded that
such options did not fulfill the Employees' Plan's objectives to provide an
incentive to the Company's employees to acquire a proprietary interest in the
Company and to continue to render services to the Company.
The Compensation Committee structured the exchange of the options to offset the
decreased exercise price of the stock options (and, thus, their increased value
to their holders) against a decrease in the number of shares of the Company's
common stock for which the stock options are exercisable. Based on this
approach, and on the Company's calculations of the value of the "original stock
options" and the "new stock options" under the Black-Scholes option pricing
model, the new stock options have an exercise price of $3.00 per share (other
than those granted to Mr. Pearse with an exercise price of $3.30 per share), the
fair market value of the Company's common stock on the date of the grant, but
are exercisable for only 66% as many shares of common stock as the original
stock options.
The Compensation Committee believes that the terms of the exchange will provide
appropriate incentives to the Company's officers and key employees and are fair
to the Company and its stockholders.
Robert Beale
Randall Bellows
Compensation Committee Members
EMPLOYMENT AGREEMENTS
The Company currently has no employment agreements with any of its officers or
employees. Four of the Company's officers, David J. Workman, Alan E. Kessock,
Neal A. Bobrick and J. Edward McEntire have each entered into a non-compete
agreement with the Company. Each agreement provides that none of Mr. Workman,
Mr. Kessock, Mr. Bobrick or Mr. McEntire, as the case may be, will work for any
competitor in particular geographic areas for two years after he voluntarily
leaves, or is terminated for cause by the Company.
EMPLOYEE STOCK OPTION PLAN
In August 1993, the Company adopted an employees' stock option plan (the
"Employees' Plan"). The purpose of the Employees' Plan is to provide long-term
incentives to the Company's officers, employees and consultants. There are
currently 900,000 shares of Common Stock reserved for issuance under the
Employees' Plan. For a discussion of the Employees' Plan and the proposed
amendment, see "PROPOSAL 2 - ADOPTION OF THE EQUITY INCENTIVE PLAN".
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the Compensation
Committee of the Board of Directors (the "Committee"). Robert Beale and Randall
Bellows, the Committee's only members, are nonemployee directors. The Committee
recommends the compensation of all executive officers of the Company to the
Board of Directors, including the compensation of the executive officers named
in the Summary Compensation Table. In reviewing the compensation of individual
executive officers, the Committee takes under consideration the recommendations
of management, published compensation surveys and current market conditions.
8
<PAGE>
COMPENSATION PROGRAMS
The Company's compensation programs are aimed at enabling management to attract
and retain the best possible executive talent and rewarding those executives
commensurately with their ability and performance. The Company's compensation
programs consist primarily of base salary, a bonus plan and an employee stock
option plan.
BASE SALARY
Base salaries for executive officers are determined in the same manner as that
of other salaried employees. Salary guidelines are established by comparing the
responsibilities of the individual's position in relation to similar positions
in other retail companies. Individual salaries are determined by considering
the person's performance against objectives set for such officer for the year,
as well as the Company's performance against certain corporate objectives, such
as increases in comparable store sales in comparison to levels of competition,
comparisons of budgeted amounts to actual amounts and overall profitability of
the Company as compared to peers in the industry.
BONUS PLAN
The Company's bonus program is tied closely to Company performance which the
Board of Directors believes leads to overall increases in stockholder value.
Pursuant to the Company's fiscal 1997 bonus plan, pretax earnings did not exceed
2.5% of net sales, and as a result, no bonuses were paid to the Company's
executives.
EMPLOYEE STOCK OPTION PLAN
Under the terms of the Employees' Plan, the Company may grant to officers,
employees and consultants awards of restricted stock options, performance awards
or other types of incentive-based awards. There are currently 900,000 shares of
Common Stock reserved for issuance under the Employees' Plan. The Committee
determines the persons to whom awards are granted, the type of award granted,
the number of shares granted, the vesting schedule and the term of any option
(which cannot exceed ten years).
In August 1993, options to purchase 312,000 shares of Common Stock vesting in
equal installments over six years with a ten-year term were granted at an
exercise price equal to the Company's initial public offering price of $8.50 per
share. In August 1994 and November 1994, the Committee granted options to
purchase an additional 10,000 and 125,000 shares of Common Stock at exercise
prices of $10.50 per share and $12.875 per share, respectively. As of January
31, 1996, the Committee had granted options to purchase an additional 60,000
shares of Common Stock at exercise prices ranging from $9.00 to $12.75 per
share, 50,000 of which were granted to Mr. McEntire, the Company's Vice
President of Operations at the commencement of his employment. On February 1,
1996, 90,000 options were granted to the executives listed in the Executive
Compensation Tables at an exercise price of $6.6875 with the exception of Mr.
Pearse, whose 22,500 options were at $7.3563, 10% above market price on February
1, 1996. During fiscal 1997, the Committee had granted an additional 5,000
options at an exercise price of $3.25. On January 31, 1997 the Committee
repriced and reduced the number of options held by the executives to $3.00. The
number of options held by Mr. Pearse, Chairman and CEO, were repriced to $3.30
and also reduced. Options held by other managers within the Company were also
reduced to $3.00. Please see "Ten Year Option Repricings Table" on page 7 for
additional information. The options granted were intended to provide senior
management of the Company with a significant ownership position in order to more
closely align their compensation with returns to stockholders. Options to
purchase 118,042 shares of Common Stock granted under the Employees' Plan are
currently exercisable. No options have been exercised and no performance awards
or restricted stock awards have been granted under the Plan.
Robert Beale
Randall Bellows
Compensation Committee Members
9
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PERFORMANCE GRAPH
The following graph provides a comparison of the cumulative total return* for
the Nasdaq U.S. Stock Market Index, the Nasdaq Retail Trade Stocks Index and the
Company since the Company's initial public offering on October 15, 1993.
[GRAPH]
* $100 invested October 15, 1993 in the Company's Stock or in the index
indicated, including reinvestment of dividends.
Corresponding index values and Common Stock price values are given below. The
dates in such table are utilized because they correspond with the last trading
day of the Company's fiscal years.
<TABLE>
ULTIMATE
LAST TRADING ULTIMATE NASDAQ U.S. NASDAQ RETAIL ELECTRONICS, INC.
DAY OF ELECTRONICS, INC. STOCK MARKET TRADE STOCKS CLOSING STOCK
QUARTERLY PERIOD INDEX INDEX INDEX PRICE
- ------------------- ----------------- ------------ ------------- -----------------
<S> <C> <C> <C> <C>
October 15, 1993
(IPO date) $100.00 $100.00 $100.00 $ 8.50
January 31, 1994 150.00 103.89 99.53 12.75
January 31, 1995 144.12 99.11 87.75 12.25
January 31, 1996 82.35 140.07 99.17 7.00
January 31, 1997 35.29 183.61 121.94 3.00
</TABLE>
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of the
Company's Common Stock and stock options exercisable within sixty days of April
15, 1997 held by (i) each person or group of persons known by the Company to own
beneficially five percent (5%) or more of the outstanding shares of Common
Stock, (ii) each director and nominee for director of the Company, (iii) each
executive officer named in the Summary Compensation Table and (iv) all executive
officers and directors of the Company as a group. All information is taken from
or based upon ownership filings made by such persons with the Commission or upon
information provided by such persons to the Company. Unless otherwise
indicated, the stockholders listed below have sole voting and investment power
with respect to the shares reported as owned.
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ----------------------- -------------------- ----------------
William J. Pearse (2) 1,124,100 16.1%
Barbara A. Pearse (3) 1,120,000 16.0%
Various family trusts of
William and Barbara Pearse (4) 960,000 13.7%
David J. Workman (5) 51,830 *
Alan E. Kessock (6) 39,201 *
Neal A. Bobrick (7) 24,377 *
J. Edward McEntire (8) 15,574 *
Randall F. Bellows (9) 16,000 *
Robert Beale (10) 10,000 *
All directors and officers
as a group (7 persons) 1,281,082 18.3%
- -------------------
* less than 1%.
(1) The address of each such persons, unless otherwise noted, is c/o Ultimate
Electronics, Inc., 321A W. 84th Avenue, Thornton, Colorado 80221.
(2) Includes 4,100 shares obtainable upon exercise of options granted pursuant
to the Employees' Plan and excludes 1,120,000 shares of Common Stock owned
by Mr. Pearse's wife, Barbara A. Pearse, as to which shares he may be
deemed a beneficial owner.
(3) Excludes 1,120,000 shares of Common Stock and 4,100 shares obtainable upon
exercise of options granted pursuant to the Employees' Plan owned by Ms.
Pearse's husband, William J. Pearse, as to which shares she may be deemed
a beneficial owner.
(4) Arthur Shenkin, 5251 DTC Parkway, Suite 1200, Englewood, Colorado 80111,
is the trustee of the various family trusts with sole voting and
dispositive power over the shares held in the trusts.
(5) Includes 49,378 shares obtainable upon exercise of options granted
pursuant to the Employees' Plan.
(6) Includes 32,808 shares obtainable upon exercise of options granted
pursuant to the Employees' Plan.
(7) Includes 23,391 shares obtainable upon exercise of options granted
pursuant to the Employees' Plan.
(8) Includes 7,974 shares obtainable upon exercise of options granted pursuant
to the Employees' Plan.
(9) Includes 4,000 shares obtainable upon exercise of options granted pursuant
to the Directors' Plan.
(10) Includes 8,000 shares obtainable upon exercise of options granted pursuant
to the Directors' Plan.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a lease agreement with William J. and Barbara A.
Pearse (the "Lessors") on April 1, 1989 for the lease of the Company's store
in Colorado Springs, Colorado. The lease is for a term of 10 years and three
months, commencing on April 1, 1989, at an annual base rent of $97,500. The
Company paid $110,337 in fiscal 1997 for the property. In addition, the
Company is responsible for all real property taxes and insurance premiums on
the property.
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The Company entered into a lease agreement with the Lessors on October 13,
1989 for the lease of the Company's store in Fort Collins, Colorado. The
lease is for a term of 15 years, commencing on April 1, 1990, at an annual
base rent of $120,000. Commencing April 1, 1992, the rent increases annually
at a rate equal to the lesser of (i) $6,000 or (ii) an amount based upon the
increase, if any, over the prior year in the DCPI. The Company paid $140,400
in fiscal 1997 for the property. The Company is also responsible for all
real property taxes and insurance premiums on the property.
Although the Company did not obtain independent appraisals in connection with
these transactions, the Company believes that the terms of all of the
forgoing transactions were comparable to the terms that the Company would
have reached with independent third parties. All future transactions with
the Lessors or any other affiliate of the Company will be subject to the
approval of the Company's disinterested directors and will be on terms
believed by such directors to be no less favorable to the company than those
available from unaffiliated third parties.
Jim Pearse, the son of William J. and Barbara A. Pearse, is employed by the
Company as a Marketing Manager. His total compensation (salary and bonus) in
fiscal 1997 was $79,022 and his total compensation for fiscal 1998 is likely
to exceed $60,000.
PROPOSAL 2 - ADOPTION OF THE EQUITY INCENTIVE PLAN
INTRODUCTION
In March 1997, the board of directors of the Company (the "Board") resolved
to adopt a combined stock option plan to replace the Company's existing plans
in order to comply with recently adopted federal securities laws, subject to
stockholder approval. The Company is proposing to replace its current
Employee Stock Option Plan and Nonemployee Directors' Stock Option Plan with
a new Equity Incentive Plan. (The Equity Incentive Plan is referred to herein
as the "New Plan" and the Company's existing Employee Stock Option Plan and
Nonemployee Directors' Stock Option Plan are referred to respectively as the
"Employee Plan," the "Director Plan" and collectively as the "Old Plans.")
The New Plan provides for the same types of equity awards as were provided in
the Old Plans. The New Plan is attached hereto as APPENDIX A and the
following description is qualified in its entirety by reference to the New
Plan.
The Old Plans provided for an aggregate of 920,000 shares of common stock,
$.01 par value ("Common Stock"), to be available for issuance, of which
approximately 409,150 shares remain available for issuance as of the date
hereof. The New Plan provides for an aggregate of 750,000 shares to be
available for future issuance. If the New Plan is adopted, no further grants
would be made under the Old Plans and the approximately 409,150 shares still
available under the Old Plans would not be issued.
In June 1996, the Securities and Exchange Commission revised Rule 16b-3 and
the related rules promulgated under Section 16(b) of the Securities Exchange
Act of 1934, as amended, which Section imposes short-swing profit liability
on officers, directors and 10% stockholders under certain circumstances. As
a general matter, Rule 16b-3 sets forth exemptions from Section 16(b)
liability for an officer's, director's or 10% stockholder's transactions in
equity securities of the Company. The New Plan is intended to comply with
the revised Rule 16b-3 and eliminates certain restrictions no longer required
under Rule 16b-3.
DESCRIPTION OF THE EQUITY INCENTIVE PLAN
The purpose of the New Plan is: (i) to attract and retain directors, officers,
key employees and consultants of the Company, (ii) to provide such persons with
incentives to continue in the long-term service of the Company and (iii) to
create in such persons a more direct interest in the future success of the
operations of the Company by relating incentive compensation directly to
increases in stockholder value.
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<PAGE>
The New Plan contains the following three equity incentive components: (i)
performance share and performance unit awards, (ii) discretionary stock options
for employees, directors, and consultants and (iii) automatic stock options for
non-employee directors. A total of 750,000 shares of Common Stock will be
reserved for issuance under the New Plan. Based on the $3.125 closing price of
the Company's Common Stock on April 18, 1997, the market value of the 750,000
shares of Common Stock underlying the options available for issuance under the
New Plan is $2,343,750.
The New Plan will be administered by the Company's board of directors or a
committee of the board of directors (collectively the "Board"). Subject to the
terms of the New Plan, the Board will determine the persons to whom awards are
granted and the type, amount and terms of such awards. If a committee is used
to approve awards to officers or directors, it is intended that such committee
would be composed solely of two or more "non-employee directors," as such term
or similar term is defined in Rule 16b-3. The Board may also take any action
necessary or advisable to obtain an exemption under Rule 16b-3, including but
not limited to: (i) seeking stockholder ratification of a particular award or
awards or (ii) imposing a six-month holding period between the date of the grant
of an option and the disposition (other than the exercise of such option) of
either the option or the Common Stock underlying such option.
Under the performance units award component of the New Plan, the Board may
establish an employee's award, which award will be denominated in either shares
of Common Stock, dollars or a combination thereof. In accordance with the New
Plan, the Board may establish the maximum and minimum performance targets to be
achieved during an applicable time period ("Performance Cycle"). Performance
targets established by the Board relate to corporate, group, unit or individual
performance and may be established in terms of earnings, earnings growth or such
other measures determined by the Board. Following the conclusion of each
Performance Cycle, the Board will then determine the extent to which performance
targets have been attained and what, if any, payment is due with respect to an
award and whether such payment will be made in cash, shares of Common Stock or
some combination. Payment of an award will be made in a lump sum or in
installments commencing as soon as practicable following the end of the
applicable Performance Cycle.
Under the discretionary stock option component of the New Plan, the Board may
grant both incentive stock options ("ISOs") intended to qualify under Section
422 of the Code and non-statutory options ("NSOs"). Only employees of the
Company are eligible to receive ISOs. Nonemployee directors, employees and
consultants are eligible to receive NSOs. ISOs must be granted at an exercise
price no less than the fair market value of the Common Stock on the date of the
grant, while NSOs generally have no similar limitation. Any option granted
under the New Plan must have a term no greater than ten years. The exercise
price of an ISO granted to a holder of more than 10% of the Common Stock must be
at least 110% of fair market value and the term of such option cannot exceed
five years. The Company estimates that 50 employees will be eligible to
participate in the discretionary option awards for the remainder of the current
fiscal year.
The automatic stock option component of the New Plan provides for an annual
grant to non-employee directors. On the first day of each fiscal year, each
non-employee director will be automatically granted NSOs to purchase 4,000
shares of Common Stock. The NSOs will vest in their entirety and be
exercisable one year from the date of grant. Pursuant to the automatic option
grant program, the Company's two current non-employee directors will
collectively receive options to purchase 4,000 shares of Common Stock for their
Board service commencing February 1, 1998.
The exercise price of any options granted under the New Plan may be paid: (i)
in cash, (ii) by delivery of shares of Common Stock already owned by the holder,
the fair market value of which equals the exercise price of the Common Stock to
be purchased pursuant to the exercise of the option, or (iii) by delivery to the
Company of a properly executed notice of exercise together with irrevocable
instructions to a broker to deliver to the Company the amount of the exercise
price from the proceeds of the sale of the Common Stock underlying the option or
(iv) by a loan from the Company, a third party or a broker to the optionee in an
amount necessary to pay the exercise price.
If an optionee's employment is terminated with the Company for cause, which
is defined to be a gross violation of the Company's established policies and
procedures, participation in the New Plan ceases and all exercisable options
held by such optionee will be canceled. If an optionee's employment is
terminated for any reason other than cause,
13
<PAGE>
retirement, disability or death, the options that are exercisable on the date
of termination will remain exercisable for three months after termination,
but in no event beyond the term of the option. If a non-employee director's
directorship is terminated for any reason other than death or disability, any
option held by the optionee will remain exercisable after termination of his
director status for a period of three months, but in no event beyond the term
of the option.
If an optionee's employment is terminated due to death or disability, the
options remain exercisable for a period of twelve months following the
optionee's death or disability, but in no event will the options be exercisable
beyond the term of the option. If the non-employee director's directorship is
terminated due to death or disability, any options held by the non-employee
director, to the extent then exercisable, will remain exercisable for a period
of twelve months after the termination of his directorship, but in no event
beyond the term of the option.
If an optionee's employment is terminated in a manner determined by the Board,
in its sole discretion, to constitute retirement, the option may be exercised by
the optionee within three months following his or her retirement if the option
is an ISO or within twelve months following his or her retirement if the option
is an NSO, but in no event beyond the term date of the option.
Upon a change in control of the Company, the Board may, in its sole discretion:
(i) accelerate the exercise dates of any outstanding options or make such
options fully vested and exercisable; (ii) grant a cash bonus award to any
optionee in an amount necessary to pay the exercise price of all or any portion
of the options then held by such optionee; (iii) pay cash to any or all
optionees in exchange for the cancellation of their outstanding options in an
amount equal to the difference between the exercise price of such options and
the greater of the price offered by a third party for the underlying Common
Stock or the fair market value of the Common Stock on the date of cancellation
of the option; or (iv) make any other adjustments or amendments to the
outstanding options.
A "change in control" would be deemed to occur when: (i) any person or group
other than William J. Pearse acquired directly or indirectly more than 33% of
the Company's voting shares, (ii) 50% or more of the Board members are replaced
in a 36-month period, (iii) a merger or consolidation occurs in which the
Company is not the surviving entity or more than 20% of the voting securities of
the Company are transferred or (iv) a sale of all or substantially all of the
Company's assets occurs.
In the event that the Company is merged or consolidated with another
corporation, or if substantially all of the assets or more than 50% of the
voting stock of the Company is acquired by any other corporation (other than a
sale or conveyance in which the Company continues as a holding company), or in
the case of a reorganization (other than a reorganization under the United
States Bankruptcy Code) or liquidation of the Company, and if the provision of
the "change of control" section do not apply, the Board, or the board of
directors of any corporation assuming the obligations of the Company, will have
the power and the discretion to prescribe the terms and conditions for the
exercise of, or modification of, any outstanding options. This includes, but is
not limited to: acceleration of the dates of exercise of the options, exchanging
or converting such options into options to acquire securities of the surviving
corporation, removal of restrictions on restricted stock and modification of
performance requirements for any other awards.
Additionally, an optionee is permitted to transfer NSOs to one or more of the
optionee's immediate family or a family trust, but only upon the prior written
consent of the Board and subject to any conditions imposed by the Board. ISOs
are not transferable except in the event of the optionee's death.
The Board has complete and exclusive authority to amend the New Plan in any
respect, as long as such amendment does not adversely affect the rights of any
holder of an outstanding award or option without such holder's consent.
Stockholder approval of any amendment is not required unless mandated by
applicable law. The New Plan shall terminate no later than 10 years after the
date it becomes effective.
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<PAGE>
Because the awards authorized in the New Plan (other than the automatic options
for non-employee directors) are discretionary, the Company is unable to
calculate the amount of any awards that may be granted pursuant to the New Plan
for the fiscal year ending January 31, 1998 or any subsequent years.
Nonetheless, the Company anticipates that the number of awards to be granted
annually under the New Plan will be comparable to the number of awards that were
granted annually under the Old Plans. The table below sets forth the number of
options which were granted under the Old Plans for the fiscal year ended January
31, 1997.
NAME AND POSITION NUMBER OF SHARES
- ----------------- ----------------
William J. Pearse 12,300(1)
Chairman of the Board and Chief Executive Officer 22,500(2)
David J. Workman 93,000(3)
President, Chief Operating Officer and Director 17,268(4)
22,500(5)
Alan E. Kessock 61,667(3)
Vice President - Finance, Secretary, Treasurer and Director 11,844(4)
15,000(5)
Neal A. Bobrick 30,833(3)
Vice President - Sales and Store Operations 36,000(3)
11,844(4)
15,000(5)
J. Edward McEntire 36,000(3)
Vice President - Operations 11,844(4)
15,000(5)
Non-Executive Director Group 16,000
Non-Executive Officer Employee Group 82,250
Executive Group 412,600
___________________
(1) These options were granted on January 31, 1997 in exchange for certain
options granted on February 1, 1996 - see note (2). These options will
vest and become exercisable in equal annual installments over the three
years following February 1, 1996.
(2) These options were granted on February 1, 1996 and would have become
exercisable in equal annual installments over the three years following
their date of grant. These options were canceled and exchanged for the
stock options described in note (1).
(3) These options were granted on January 31, 1997 in exchange for the
cancellation of options granted to these officers in fiscal 1994, 1995, and
1996. These options will vest and become exercisable in equal annual
installments over the six years following the date of grant of the options
for which they were exchanged.
(4) These options were granted on January 31, 1997 in exchange for certain
options granted on February 1, 1996 - see note (5). These options will
vest and become exercisable in equal annual installments over the six years
following February 1, 1996.
(5) These options were granted on February 1, 1996 and would have become
exercisable in equal annual installments over the six years following their
date of grant. These options were canceled and exchanged for the stock
options described in note (4).
FEDERAL INCOME TAX CONSEQUENCES OF THE NEW PLAN
The following is a general summary of the federal income tax consequences that
may apply to recipients of the options under the New Plan. BECAUSE THE
APPLICATION OF THE TAX LAWS VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES, A
PARTICIPANT SHOULD SEEK PROFESSIONAL TAX ADVICE CONCERNING THE TAX CONSEQUENCES
OF HIS OR HER PARTICIPATION IN THE NEW PLAN, INCLUDING THE POTENTIAL APPLICATION
AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND ESTATE AND GIFT TAX
CONSIDERATIONS.
NON-STATUTORY STOCK OPTIONS. The tax treatment of NSOs differs significantly
from the tax treatment of ISOs. No taxable income is recognized when an NSO is
granted but, upon the exercise of an NSO, the difference between the fair market
value of the shares underlying the option on the date of exercise and the
exercise price is taxable as ordinary income to the recipient and is generally
deductible by the Company. The recipient will take the shares
15
<PAGE>
with a basis equal to the fair market value on the date of exercise and the
holding period for the shares will begin on the day after the date the option
is exercised. For long-term capital gain treatment, the shares must be held
for more than one year.
INCENTIVE STOCK OPTIONS. A participant who is granted an ISO recognizes no
taxable income when the ISO is granted. Generally, no taxable income is
recognized upon exercise of an ISO unless the alternative minimum tax ("AMT")
applies (see below). However, a participant who exercises an ISO recognizes
taxable gain or loss upon the sale of the shares underlying the option. Any
gain or loss recognized on the sale of shares acquired upon exercise of an ISO
is taxed as capital gain or loss if the shares have been held for more than one
year after the option was exercised and for more than two years after the option
was granted. In either event, the Company receives no deduction with respect to
the ISO shares. If the participant disposes of the shares before the required
holding periods have elapsed (a "disqualifying disposition"), the participant is
taxed as though he or she had exercised an NSO, except that the ordinary income
on exercise of the option is recognized in the year of the disqualifying
disposition and generally is the lesser of the original spread upon exercise or
the excess of the amount realized in the sale of the stock over the original
option price.
ALTERNATIVE MINIMUM TAX. Certain taxpayers who have significant tax preferences
(and other items allowed favorable treatment for regular tax purposes) may be
subject to the AMT. If a participant is subject to the AMT, an ISO is treated
as if it were an NSO, so the difference between the fair market value of the
shares on the date of exercise and the option price will be deemed as income for
the purpose of computing the AMT and the taxpayer takes the shares with a basis
equal to such fair market value on the date of exercise for subsequent AMT
purposes. However, regular tax treatment will apply for AMT purposes if a
disqualifying disposition occurs in the same taxable year that options are
exercised.
WITHHOLDING. The Company may withhold any taxes required by any federal, state
or local law or regulation in connection with any stock option or other award
under the New Plan, including, but not limited to, withholding of any portion of
any payment or withholding from other compensation payable to the participant,
unless such person reimburses the Company for such amount.
COMPARISON OF THE NEW PLAN AND OLD PLANS
Set forth below is a summary of the principal changes implemented by the New
Plan as compared to the Old Plans. The New Plan is intended to implement
changes permitted by revised Rule 16b-3, including greater flexibility in plan
administration, the ability to grant discretionary awards to non-employee
directors, the ability to grant transferable options under certain circumstances
and the removal of the requirement that stockholders approve all material plan
amendments, among other matters. Beyond matters affected by changes in Rule
16b-3, the New Plan combines the elements of the Old Plans into a more
manageable single plan and increases the number of shares available to be issued
pursuant to options.
The New Plan complies with revised Rule 16b-3 and now provides for greater
flexibility in administration of the Plan by the Board or a committee of the
board of directors. Awards to officers or directors would generally be approved
by a committee of non-employee directors, although the Board must approve
discretionary awards to non-employee directors and the Board has the
flexibility of utilizing alternate Rule 16b-3 exemptions for any award,
including seeking stockholder ratification or imposing a six-month holding
period on the option (or the shares underlying the option upon exercise) from
the date of grant.
Also as permitted under revised Rule 16b-3, under the New Plan, an optionee may
be permitted to transfer an NSO in whole or in part to immediate family
member(s) or to a trust established for such person(s); PROVIDED, HOWEVER, that
the Board must approve such transfer. In addition, the board of directors, in
its discretion, may allow an NSO to be assigned in other circumstances it deems
appropriate. The Old Plans did not permit option transfers during the
optionee's lifetime. While only Company employees were eligible to receive
discretionary awards under the Employee Plan, non-employee directors and
consultants of the Company will be eligible for such awards under the New Plan.
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The Board would have exclusive authority to amend the New Plan except to the
extent that stockholder approval of an amendment is required by law, thereby
allowing the Board greater flexibility to administer the New Plan and conform it
to future changes in law or regulations and removing the Old Plans' requirement
for stockholder approval for substantive changes to the Plans. In contrast to
the Old Plans, the Board will also have authority to grant stock options in
excess of the number of shares then available for issuance, provided that any
excess shares actually issued would be held in escrow pending the requisite
approval of additional shares by stockholders.
DISCONTINUANCE OF OLD PLANS
If the stockholders approve the New Plan, the Company will immediately
discontinue the Old Plans and no further awards will be granted under such
plans. Awards granted under the Old Plans will remain outstanding pursuant to
the terms of such plans and any documents evidencing such awards.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF
THE ADOPTION OF THE EQUITY INCENTIVE PLAN
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PROPOSAL 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as independent auditors of the Company for
the year ended January 31, 1997. Upon recommendation of the Audit Committee,
the Board of Directors has appointed Ernst & Young LLP to serve for the current
fiscal year ending January 31, 1998. The Board of Directors is requesting
ratification by the stockholders of Ernst & Young LLP's appointment.
Representatives of Ernst & Young LLP are expected to attend the Meeting. The
representatives will have an opportunity to make a statement and will be
available to respond to appropriate questions.
In the event this proposal is defeated, the vote will be considered as a
direction to the Board of Directors to select other auditors for the next fiscal
year. However, because of the difficulty and expense of making any substitution
of auditors after the beginning of a fiscal year, Ernst & Young LLP's
appointment for the 1998 fiscal year will be permitted to stand unless the Board
of Directors finds other reasons for making a change.
Services to be performed by Ernst & Young LLP for the 1998 fiscal year will
include, among other things, audit of annual statements, limited reviews of
quarterly financial information and consultation in connection with various
financial reporting, accounting and tax matters. Ratification of Ernst & Young
LLP's appointment requires the affirmative vote of the holders of a majority of
the shares of Common Stock present at the Meeting, in person or by proxy, and
entitled to vote.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF THE
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at the Company's annual Stockholder meetings. Such proposals must be
received by the Company not later than February 14, 1998 to be considered for
inclusion in the proxy statement and proxy relating to the 1998 Annual Meeting
of Stockholders. Any such proposals should be addressed to: Corporate
Secretary, Ultimate Electronics, Inc., 321A West 84th Avenue, Thornton,
Colorado 80221.
ANNUAL REPORT TO STOCKHOLDERS
The 1997 Annual Report of the Company, as filed with the Commission, is
being mailed to the stockholders with this Proxy Statement. The Annual Report
is not to be considered part of the soliciting material.
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at the
Meeting except the matters set forth in the Notice and described in this Proxy
Statement. If any other matters properly come before the Meeting, the persons
designated as agents in the enclosed proxy will vote on such matters in
accordance with their best judgment.
By order of the Board of Directors
Alan E. Kessock
Secretary
Thornton, Colorado
April 25, 1997
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APPENDIX A
ULTIMATE ELECTRONICS, INC.
EQUITY INCENTIVE PLAN
SECTION 1
INTRODUCTION
1.1 ESTABLISHMENT. Ultimate Electronics, Inc., a Delaware corporation
(together with its subsidiaries, the "Company"), hereby establishes the Equity
Incentive Plan (the "Plan") for certain key employees, non-employee directors
and consultants of the Company.
1.2 PURPOSES. The purposes of the Plan are to provide Participants with
added incentives to continue in the long-term service of the Company and to
create in such persons a more direct interest in the future success of the
operations of the Company by relating incentive compensation to increases in
stockholder value. The Plan is also designed to attract key employees and to
retain and motivate key employees by providing an opportunity for investment in
the Company.
SECTION 2
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "AWARD" means a grant made under this Plan in the form of Stock,
Options, Restricted Stock or Performance Units.
(b) "BOARD" means the board of directors of the Company.
(c) "EFFECTIVE DATE" means the effective date of the Plan, June 10, 1997.
(d) "ELIGIBLE EMPLOYEES" means full-time key employees (including, without
limitation, officers and directors who are also employees) of the
Company whose judgment, initiative and efforts is, or will be,
important to the successful conduct of the Company's business.
(e) "FAIR MARKET VALUE" shall be determined in good faith by the Plan
Administrator after such consultation with outside legal, accounting
and other experts as the Plan Administrator may deem advisable.
(f) "INSIDER" means any person who is a beneficial owner, directly or
indirectly, of more than 10% of any equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of
1934, as amended (the "1934 Act").
(g) "INCENTIVE STOCK OPTION" means any Option designated as such and
granted in accordance with the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code").
(h) "NON-EMPLOYEE DIRECTOR" means any member of the Board who is not also
an employee of the Company.
(i) "NON-INSIDER" means any person who is not an Insider.
(j) "NON-STATUTORY OPTION" means any Option other than an Incentive Stock
Option.
(k) "OPTION" means a right to purchase Stock at a stated price for a
specified period of time.
(l) "OPTION PRICE" means the price at which Shares subject to an Option
may be purchased, determined in accordance with Section 7.3(b) of
this Plan.
(m) "PARTICIPANT" means an Eligible Employee, Non-employee Director or
consultant to the Company designated by the Plan Administrator
from time to time during the term of the Plan to receive one or more
Awards under the Plan.
(n) "PERFORMANCE CYCLE" means the period of time as specified by the Plan
Administrator over which Performance Units are to be earned.
(o) "PERFORMANCE UNITS" means an Award made pursuant to Section 9 which
entitles a Participant to receive cash, Shares or a combination
thereof based on the achievement of performance targets during a
Performance Cycle.
(p) "PLAN ADMINISTRATOR" shall mean the particular entity, whether the
Plan Committee or Board, that is authorized to administer Incentive
Stock Options or Non-Statutory Options to the extent such entity is
carrying out its administrative functions under those programs with
respect to the persons under its jurisdiction.
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(q) "PLAN COMMITTEE" means a committee consisting of at least two
Non-employee Directors who are authorized by the Board hereunder to
take actions in the administration of the Plan. The Plan Committee
shall be so constituted at all times as to permit the Plan to comply
with Rule 16b-3 or any successor rule promulgated under the 1934 Act.
Members of the Plan Committee shall: (i) at all times be Non-employee
Directors, (ii) be appointed from time to time by the Board and
(iii) serve at the pleasure of the Board and may resign at any time
upon written notice to the Board.
(r) "PLAN YEAR" means each 12-month period beginning February 1 and
ending the following January 31, except that for the first year
of the Plan it shall begin on the Effective Date and extend to
January 31 of the following year.
(s) "RESTRICTED STOCK" means Stock granted under Section 8 that is
subject to restrictions imposed pursuant to said Section.
(t) "SHARE" means a share of Stock.
(u) "STOCK" means the common stock, $.01 par value, of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context,
the masculine gender shall also include the feminine gender, and the
definition of any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
3.1 GENERAL. The Plan shall be administered by the Board, which may from
time to time delegate all or part of its authority under this Plan to a Plan
Committee. If authorized by duly passed resolutions of the Board, the Plan
Committee shall have sole and exclusive authority to administer the Incentive
Stock Option grants and Non-Statutory Option grants with respect to Insiders.
The Plan Committee may also, at the Board's discretion, administer Incentive
Stock Options and Non-Statutory Stock Options to Non-Insiders.
3.2 PLAN ADMINISTRATOR'S AUTHORITY. References in this Plan to the Plan
Administrator refer to the Board or, to the extent the Board delegates its
administrative authority to the Plan Committee, to the Plan Committee. In
accordance with the provisions of the Plan, the Plan Administrator shall, in its
sole discretion, select Participants to whom Awards will be granted, the form of
each Award, the amount of each Award and any other terms and conditions of each
Award as the Plan Administrator may deem necessary or desirable and consistent
with the terms of the Plan. The Plan Administrator shall determine the form or
forms of the agreements which shall evidence the particular provisions, terms,
conditions, rights and duties of the Company and the Participants with respect
to Awards granted pursuant to the Plan, which provisions need not be identical
except as may be provided herein. The Plan Administrator may from time to time
adopt such rules and regulations for carrying out the purposes of the Plan as it
may deem proper and in the best interests of the Company. The Plan
Administrator may correct any defect, supply any omission or reconcile any
inconsistency in the Plan or in any agreement entered into hereunder in the
manner and to the extent it shall deem proper and in the best interest of the
Company. No member of the Plan Administrator shall be liable for any action or
determination made in good faith, and all members of the Plan Administrator
shall, in addition to their rights as directors, be fully indemnified by the
Company with respect to any such action, determination or interpretation. The
determination, interpretations and other actions of the Plan Administrator
pursuant to the provisions of the Plan shall be binding and conclusive for all
purposes and on all persons.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. Initially, 750,000 Shares are authorized for
issuance under the Plan in accordance with the provisions of the Plan and
subject to such restrictions or other provisions as the Plan Administrator
may from time to time deem necessary. The Shares may be divided among the
various Plan components as the Plan Administrator shall determine.
4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an Award
under this Plan that are not used because the terms and conditions of the
Award are not met, including any Shares that are subject to an Option that
expires or is terminated for any reason, any Shares which are used for full
or partial payment of the purchase price of Shares with respect to which an
Option is exercised and any Shares retained by the Company pursuant to
Section 16 of this Plan, shall automatically become available for use under
the Plan. Notwithstanding the foregoing, with respect to any Shares withheld
by the Company in satisfaction of withholding taxes incurred upon the
exercise of Incentive Stock Options or as part of the purchase price of the
Shares underlying such Incentive Stock Options, the number of Shares
available for issuance under this Plan shall be reduced by the number of
Shares so withheld.
4.3 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company
shall at any time increase or decrease the number of its outstanding Shares
or change in any way the rights and privileges of such Shares by means of the
payment of a stock dividend or any other distribution upon such Shares
payable in Shares, or through a stock split, subdivision, consolidation,
combination, reclassification or recapitalization involving the Shares, then
in relation to the Shares that are affected by one or more of the above
events, the numbers, rights and privileges of the following shall be
increased, decreased or changed in like manner as if they had been issued and
outstanding, fully paid and nonassessable at the time of such occurrence:
(i) the Shares as to which Awards may be granted under the Plan and (ii) the
Shares then included in each outstanding Option, Performance Share or
Performance Unit granted hereunder.
4.4 DIVIDEND PAYABLE IN STOCK OF ANOTHER CORPORATION, ETC. If the Company
shall at any time pay or make any dividend or other distribution upon the Shares
payable in securities of another corporation or other property (except money or
Shares), a proportionate part of
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such securities or other property shall be set aside and delivered to any
Participant then holding an Award for the particular type of Shares for which
the dividend or other distribution was made, upon exercise thereof in the case
of Options, and the vesting thereof in the case of other Awards. Prior to the
time that any such securities or other property are delivered to a Participant
in accordance with the foregoing, the Company shall be the owner of such
securities or other property and shall have the right to vote the securities,
receive any dividends payable on such securities, and in all other respects
shall be treated as the owner. If securities or other property which have been
set aside by the Company in accordance with this Section 4.4 are not delivered
to a Participant because an Award is not exercised or otherwise vested, then
such securities or other property shall remain the property of the Company and
shall be dealt with by the Company as it shall determine in its sole discretion.
4.5 OTHER CHANGES IN SHARES. In the event there shall be any change, other
than as specified in Sections 4.3 and 4.4, in the number or kind of outstanding
Shares of any stock or other securities into which the Shares shall be changed
or for which it shall have been exchanged, and if the Plan Administrator shall
in its discretion determine that such change equitably requires an adjustment in
the number or kind of Shares subject to outstanding Awards or which have been
reserved for issuance pursuant to the Plan but are not then subject to an Award,
then such adjustments shall be made by the Plan Administrator and shall be
effective for all purposes of the Plan and on each outstanding Award that
involves the particular type of stock for which a change was effected.
4.6 RIGHTS TO SUBSCRIBE. If the Company shall at any time grant to the
holders of its Shares rights to subscribe pro rata for additional Shares
thereof or for any other securities of the Company or of any other
corporation, there shall be reserved with respect to the Shares then subject
to an Award held by any Participant of the particular class of Shares
involved, the Shares or other securities which the Participant would have
been entitled to subscribe for if immediately prior to such grant the
Participant had exercised his entire Option, or otherwise vested in his
entire Award. If, upon exercise of any such Option or the vesting of any
other Award, the Participant subscribes for the additional Shares or other
securities, the Participant shall pay to the Company the price that is
payable by the Participant for such Shares or other securities.
4.7 GENERAL ADJUSTMENT RULES. If any adjustment or substitution
provided for in this Section 4 shall result in the creation of a fractional
Share under any Award, the Company shall, in lieu of selling or otherwise
issuing such fractional Share, pay to the Participant a cash sum in an amount
equal to the product of such fraction multiplied by the Fair Market Value of
a Share on the date the fractional Share would otherwise have been issued.
In the case of any such substitution or adjustment affecting an Option, the
total Option Price for the Shares then subject to an Option shall remain
unchanged but the Option Price per Share under each such Option shall be
equitably adjusted by the Plan Administrator to reflect the greater or lesser
number of Shares or other securities into which the Shares subject to the
Option may have been changed.
4.8 DETERMINATION BY THE PLAN ADMINISTRATOR. Adjustments under this
Section 4 shall be made by the Plan Administrator, whose determinations with
regard thereto shall be final and binding upon all parties thereto.
SECTION 5
PARTICIPATION
Participants in the Plan shall be Non-employee Directors and those Eligible
Employees or consultants who, in the judgment of the Plan Administrator, are
performing, or during the term of their incentive arrangement will perform,
important services in the management, operation and development of the Company,
and significantly contribute, or are expected to significantly contribute, to
the achievement of long-term corporate economic objectives. Participants may be
granted from time to time one or more Awards; PROVIDED, HOWEVER, that the grant
of each such Award shall be separately approved by the Plan Administrator, and
receipt of one such Award shall not result in automatic receipt of any other
Award. Written notice shall be given to such person, specifying the terms,
conditions, rights and duties related to each Award.
SECTION 6
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another corporation
(other than a merger or consolidation in which the Company is the continuing
corporation and which does not result in any reclassification or change of
outstanding Shares), or if all or substantially all of the assets or more than
50% of the outstanding voting stock of the Company is acquired by any other
corporation, business entity or person (other than a sale or conveyance in which
the Company continues as a holding company of an entity or entities that conduct
the business or businesses formerly conducted by the Company), or in the case of
a reorganization (other than a reorganization under the United States Bankruptcy
Code) or liquidation of the Company, and if the provisions of Section 10 do not
apply, the Plan Administrator, or the board of directors of any corporation
assuming the obligations of the Company, shall have the power and discretion to
prescribe the terms and conditions for the exercise of, or modification of, any
outstanding Awards granted hereunder. By way of illustration, and not by way of
limitation, the Plan Administrator or the board of directors of the corporation
assuming the obligations of the Company may provide for the complete or partial
acceleration of the dates of exercise of the Options, or may provide that such
Options will be exchanged or converted into options to acquire securities of the
surviving or acquiring corporation, or may provide for a payment or distribution
in respect of outstanding Options (or the portion thereof that is currently
exercisable) in cancellation thereof. The Plan Administrator or the board of
directors of the corporation assuming the obligations of the Company may remove
restrictions on Restricted Stock and may modify the performance requirements for
any other Awards. The Plan Administrator may provide that Options or other
Awards granted hereunder must be exercised in connection with the closing of
such transaction, and that if not so exercised such Awards will expire. Any
such determinations by the Plan Administrator or the board of directors of the
corporation assuming the obligations of the Company may be made generally with
respect to all Participants, or may be made on a case-by-case basis with respect
to particular Participants. The provisions of this Section 6 shall not apply to
any transaction undertaken for the purpose of reincorporating the Company under
the laws of another jurisdiction if such transaction does not materially affect
the beneficial ownership of the Company's capital stock.
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SECTION 7
STOCK OPTIONS
7.1 AUTOMATIC GRANT OF OPTIONS. Each Non-employee Director shall be
automatically granted Non-Statutory Options to purchase 4,000 Shares (subject to
adjustment pursuant to Section 7.3(j) hereof) effective as of February 1 of each
year, which Options will become exercisable one year from the date of grant.
7.2 DISCRETIONARY GRANT OF OPTIONS. The Plan Administrator may make
discretionary grants of Options to Non-employee Directors, Eligible Employees
and consultants. The Plan Administrator in its sole discretion shall
designate whether an Option is to be considered an Incentive Stock Option or
a Non-Statutory Option. Notwithstanding any other provision of the Plan,
Non-employee Directors and consultants may only be awarded Non-Statutory
Options, PROVIDED, HOWEVER, that the Board must approve such Award and the
interested Non-employee Director must abstain from voting on the Award.
Eligible Employees may be awarded Non-Statutory Options, Incentive Stock
Options, or both. The Plan Administrator may grant both an Incentive Stock
Option and a Non-Statutory Option to the same employee at the same time
(which Options may or may not be evidenced in the same agreement) or at
different times. Incentive Stock Options and Non-Statutory Options, whether
granted at the same or different times, shall be deemed to have been awarded
in separate grants, shall be clearly identified, and in no event shall the
exercise of one Option affect the right to exercise any other Option or
affect the number of Shares for which any other Option may be exercised.
7.3 AN OPTION AGREEMENT IS REQUIRED FOR EACH AWARD. Each Option granted
under the Plan shall be evidenced by a written stock option agreement which
shall be entered into and signed by a representative of the Company and the
Participant to whom the Option is granted (the "Option Holder"), and which
agreement shall contain the following terms and conditions, as well as such
other terms and conditions not inconsistent therewith, as the Plan
Administrator may consider appropriate in each case.
(a) NUMBER OF SHARES. Each stock option agreement shall state that it
covers a specified number of Shares, as determined by the Plan Administrator.
Notwithstanding any other provision of the Plan, the aggregate Fair Market Value
of the Shares relating to Incentive Stock Options exercisable for the first time
in any one calendar year by any individual, under the Plan or otherwise, shall
not exceed $100,000. For this purpose, the Fair Market Value of the Shares
shall be determined as of the time an Option is granted.
(b) PRICE. The price at which each Share covered by an Option may be
purchased shall be determined in each case by the Plan Administrator and set
forth in the stock option agreement. In no event shall the Option Price for
each Share covered by an Incentive Stock Option be granted at any price less
than the Fair Market Value of the Stock on the date the Option is granted. In
addition, the Option Price for each Share covered by an Incentive Stock Option
awarded to an Eligible Employee who then owns stock representing more than 10%
of the total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company must be at least 110% of the
Fair Market Value of the Stock subject to the Incentive Stock Option on the
date the Option is granted. The Option Price for each Share covered by a
Non-Statutory Option awarded to a Non-employee Director, an Eligible Employee
or a consultant may be granted at a price less than the Fair Market Value of
the Stock on the date of the grant.
(c) DURATION OF OPTIONS. Each stock option agreement shall state the
period of time, determined by the Plan Administrator, within which the Option
may be exercised by the Option Holder (the "Option Period").
(i) The Option Period for Incentive Stock Options and
Non-Statutory Stock Options, must expire not more than ten years from the
date the Option is granted.
(ii) The Option Period of an Incentive Stock Option granted to an
Eligible Employee who then owns stock representing more than 10% of the total
combined voting power of all classes of stock of the Company or any parent or
subsidiary corporation of the Company must expire not more than five years from
the date such an Option is granted.
(d) VESTING OPTIONS. Each stock option agreement shall also state
the periods of time, if any, as determined by the Plan Administrator, when
incremental portions of each Option shall vest.
(e) TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. Except as
otherwise determined by the Plan Administrator, each stock option agreement
shall provide as follows with respect to the exercise of the Option upon
termination of the employment or the death of the Option Holder:
(i) TERMINATION OF DIRECTORSHIP OF NON-EMPLOYEE DIRECTORS.
(A) If a Non-employee Director's term as a director of the
Company shall terminate for any reason other than death or disability, any
Option held by the Option Holder, to the extent exercisable under the applicable
stock option agreement shall remain exercisable after termination of his
director status for a period of three months, but in no event beyond the Option
Period.
(B) If a Non-employee Director's term as a director of the
Company terminates because the Participant dies while, or within three months
after, serving as a director, or is disabled within the meaning of Section
22(e)(3) of the Code, any Options then held by the Participant, to the extent
then exercisable under the applicable stock option agreement(s), shall remain
exercisable after the termination of his directorship for a period of twelve
months, but in no event beyond the Option Period. If the Options are not
exercised during the applicable period, they shall be deemed to have been
forfeited and of no further force or effect.
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(ii) TERMINATION OF EMPLOYMENT.
(A) If the employment of the Option Holder is terminated
within the Option Period for cause, as determined by the Company, the Option
shall thereafter be void for all purposes. As used in this subsection
7.2(e)(ii), "cause" shall mean a gross violation, as determined by the Board,
of the Company's established policies and procedures. The effect of this
subsection 7.2(e)(ii) shall be limited to determining the consequences of a
termination, and nothing in this subsection 7.2(e)(ii) shall restrict or
otherwise interfere with the Company's discretion with respect to the
termination of any employee.
(B) If the Option Holder terminates his employment with the
Company in a manner determined by the Board, in its sole discretion, to
constitute retirement (which determination shall be communicated to the Option
Holder within 10 days of such termination), the Option may be exercised by the
Option Holder, or in the case of death, by the persons specified in subsection
7.2(e)(ii)(C), within three months following his or her retirement if the Option
is an Incentive Stock Option or within twelve months following his or her
retirement if the Option is a Non-Statutory Stock Option (provided in each case
that such exercise must occur within the Option Period), but not thereafter. In
any such case, the Option may be exercised only as to the Shares as to which the
Option had become exercisable on or before the date of the Option Holder's
termination of employment.
(C) If the Option Holder dies, or if the Option Holder
becomes disabled (within the meaning of Section 22(e)(3) of the Code, during
the Option Period while still employed, the Option may, in the case of death,
be exercised by those entitled to do so under the Option Holder's will or by
the laws of descent and distribution within twelve months following the
Option Holder's death, but not thereafter (provided that such exercise must
occur within the Option Period). In the case of disability, the Option may
be exercised within twelve months following the Option Holder's disability,
but not thereafter (provided that such exercise must occur within the Option
Period). In any such case, the Option may be exercised only as to the number
of Shares exercisable on or before the date of the Option Holder's death or
disability (provided that such exercise must occur within the Option Period).
(D) If the employment of the Option Holder by the Company
is terminated within the Option Period for any reason other than cause,
retirement as provided in subsection 7.2(e)(ii)(B) above, disability or the
Option Holder's death, the Option may be exercised by the Option Holder
within three months following the date of such termination (provided that
such exercise must occur within the Option Period), but not thereafter. In
any such case, the Option may be exercised only as to the number of Shares
exercisable on or before the date of termination of employment.
(f) TRANSFERABILITY. Each stock option agreement shall provide that
during the lifetime of the Option Holder, Incentive Stock Options shall be
exercisable only by the Option Holder and Non-Statutory Options shall not be
assignable or transferable except in the limited circumstances as set forth in
Section 12 of this Plan.
(g) EXERCISE, PAYMENTS, ETC.
(i) Each stock option agreement shall provide that the method for
exercising the Option granted therein shall be by delivery to the Secretary of
the Company (the "Secretary") of written notice specifying the number of Shares
with respect to which such Option is exercised and payment of the Option Price.
Such notice shall be in a form satisfactory to the Plan Administrator and shall
specify the particular Option (or portion thereof) that is being exercised and
the number of Shares with respect to which the Option is being exercised. The
exercise of the Option shall be deemed effective upon receipt of such notice by
the Secretary and payment to the Company of the appropriate Option Price. The
purchase of Shares shall take place at the principal offices of the Company upon
delivery of such notice, at which time the Option Price shall be paid in full by
any of the methods or any combination of the methods set forth in (ii) below. A
properly executed certificate or certificates representing the Shares shall be
issued by the Company and delivered to the Option Holder as soon as practicable
after payment of the Option Price.
(ii) The Option Price shall be paid by any of the following
methods or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) by delivery to the Company of certificates
representing the number of Shares then owned by the Option Holder, the Fair
Market Value of which equals the Option Price for the Shares to be purchased
pursuant to the Option, properly endorsed for transfer to the Company;
PROVIDED HOWEVER, that Shares used for this purpose must have been held by
the Option Holder for such minimum period of time as may be established from
time to time by the Plan Administrator. For purposes of this Plan, the Fair
Market Value of any Shares delivered in payment of the Option Price upon
exercise of the Option shall be the Fair Market Value as of the exercise date
and the exercise date shall be the day the delivery of the certificates for
the Shares used as payment of the Option Price; or
(D) by delivery to the Company of a properly executed
notice of exercise together with irrevocable instructions to a broker to
deliver to the Company promptly the amount of the proceeds of the sale of all
or a portion of the Shares or of a loan from the broker to the Option Holder
necessary to pay the Option Price.
(iii) In the discretion of the Plan Administrator, the Company
may provide a loan or guaranty a third-party loan obtained by a Participant
to pay part or all of the Option Price of the Shares provided that such loan
or the Company's guaranty is properly secured by the Shares.
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(h) WITHHOLDING.
(i) NON-STATUTORY OPTIONS. Each stock option agreement
covering Non-Statutory Options shall provide that, upon exercise of the
Option, the Option Holder shall make appropriate arrangements with the
Company to provide for the amount of additional withholding required by
applicable federal and state income tax laws, including payment of such taxes
through delivery of Shares or by withholding Shares to be issued upon the
exercise of the Option, as provided in Section 16.
(ii) INCENTIVE STOCK OPTIONS. In the event that a Participant
makes a disposition (as defined in Section 424(c) of the Code) of any Stock
acquired pursuant to the exercise of an Incentive Stock Option prior to the
expiration of two years from the date on which the Incentive Stock Option was
granted or prior to the expiration of one year from the date on which the
Option was exercised, the Participant shall send written notice to the
Secretary at the Company's principal office in Denver, Colorado of the date
of such disposition, and any other information relating to such disposition
as the Company may reasonably request. The Participant shall, in the event
of such a disposition, make appropriate arrangements with the Company to
provide for the amount of additional withholding, if any, required by
applicable federal and state income tax laws.
(i) DATE OF GRANT. An Option shall be considered as having been
granted on the date specified in the grant resolution of the Plan
Administrator.
(j) ADJUSTMENT OF OPTIONS. Subject to the limitations contained in
Section 15, the Plan Administrator may make any adjustment in the Option
Price, the number of Shares subject to, or the terms of, an outstanding
Option and a subsequent granting of an Option by amendment or by substitution
of an outstanding Option. Such amendment, substitution or re-grant may
result in terms and conditions (including Option Price, number of Shares
covered, vesting schedule or exercise period) that differ from the terms and
conditions of the original Option. The Plan Administrator may not, however,
adversely affect the rights of any Participant to previously granted Options
without the consent of such Participant.
7.4 NO RIGHTS AS A STOCKHOLDER. No Option Holder shall have any rights as
a stockholder with respect to any Shares covered by an Option until the Option
Holder becomes the holder of record of such Shares, and no adjustments shall be
made for dividends or other distributions or other rights as to which there is a
record date preceding the date such Option Holder becomes the holder of record
of such Shares, except as provided in herein.
SECTION 8
RESTRICTED STOCK AWARDS
8.1 AWARDS GRANTED BY THE PLAN ADMINISTRATOR. Coincident with or following
designation for participation in the Plan, a Participant may be granted one or
more Awards of Restricted Stock consisting of Shares. The number of Shares
granted as an Award of Restricted Stock shall be determined by the Plan
Administrator.
8.2 RESTRICTIONS. A Participant's right to retain an Award of
Restricted Stock granted to him under Section 8.1 shall be subject to such
restrictions, including but not limited to his continuous employment by the
Company for a certain period specified by the Plan Administrator, or the
attainment of specified performance goals and objectives, as may be
established by the Plan Administrator with respect to such Award. The Plan
Administrator may in its sole discretion require different periods of
employment or different performance goals and objectives with respect to
different Participants, to different Awards of Restricted Stock or to
separate, designated portions of the Shares constituting an Award of
Restricted Stock.
8.3 PRIVILEGES OF A STOCKHOLDER, TRANSFERABILITY. A Participant shall
have all voting, dividend, liquidation and other rights with respect to Stock
in accordance with the terms of the Award of Restricted Stock upon his
becoming the holder of record of such Restricted Stock; PROVIDED, HOWEVER,
that the Participant's right to sell, encumber or otherwise transfer such
Restricted Stock shall be subject to the limitations of Section 12 hereof.
8.4 ENFORCEMENT OF RESTRICTIONS. The Plan Administrator may in its sole
discretion require one or more of the following methods of enforcing the
restrictions referred to in Section 8.2 and 8.3:
(a) Placing a legend on the stock certificates referring to the
restrictions;
(b) Requiring the Participant to keep the stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain in effect;
or
(c) Requiring that the stock certificates, duly endorsed, be held
in the custody of a third party while the restrictions remain in effect.
8.5 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. In the event of
the death or disability (within the meaning of Section 22(e)(3) of the Code)
of a Participant, or the retirement of a Participant as provided in Section
7.3(e)(ii), all employment period and other restrictions applicable to Awards
of Restricted Stock then held by him shall lapse, and such awards shall
become fully nonforfeitable. Subject to Sections 6 and 10, in the event of a
Participant's termination of employment for any other reason, any Award of
Restricted Stock as to which the employment period or other restrictions have
not been satisfied shall be forfeited.
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SECTION 9
PERFORMANCE UNITS
9.1 PERFORMANCE RELATED AWARDS. Coincident with or following
designation for participation in the Plan, a Participant may be granted
Performance Units.
9.2 AMOUNT OF AWARD. The Plan Administrator shall establish a maximum
amount of a Participant's Award, which amount shall be denominated in Shares
or in dollars.
9.3 COMMUNICATION OF AWARD. Written notice of the maximum amount of a
Participant's Award and the Performance Cycle determined by the Plan
Administrator shall be given to a Participant as soon as practicable after
grant of the Award by the Plan Administrator.
9.4 AMOUNT OF AWARD PAYABLE. The Plan Administrator shall establish
maximum and minimum performance targets to be achieved during the applicable
Performance Cycle. Performance targets established by the Plan Administrator
shall relate to corporate, group, unit or individual performance and may be
established in terms of earnings, growth in earnings, ratios of earnings to
equity or assets, or such other measures or standards determined by the Plan
Administrator. Multiple performance targets may be used and the components of
multiple performance targets may be given the same or different weight in
determining the amount of an Award earned, and may relate to absolute
performance or relative performance measured against other groups, units,
individuals or entities. Achievement of the maximum performance target shall
entitle the Participant to payment (subject to Section 9.5) at the full or
maximum amount specified with respect to the Award; PROVIDED, HOWEVER, that
notwithstanding any other provisions of this Plan, in the case of an Award of
Performance Units, the Plan Administrator in its discretion may establish an
upper limit on the amount payable (whether in cash or Shares) as a result of
the achievement of the maximum performance target. The Plan Administrator
may also establish that a portion of a full or maximum amount of a
Participant's Award will be paid (subject to Section 9.5) for performance
which exceeds the minimum performance target but falls below the maximum
performance target applicable to such Award.
9.5 ADJUSTMENTS. At any time prior to payment of an Award of
Performance Units, the Plan Administrator may adjust previously established
performance targets or other terms and conditions to reflect events such as
changes in laws, regulations, or accounting practice, or mergers,
acquisitions or divestitures, or such other events as the Plan Administrator
deems appropriate, in its sole discretion.
9.6 PAYMENTS OF AWARDS. Following the conclusion of each Performance
Cycle, the Plan Administrator shall determine the extent to which performance
targets have been attained, and the satisfaction of any other terms and
conditions with respect to an Award relating to such Performance Cycle. The
Plan Administrator shall determine what, if any, payment is due with respect
to an Award and whether such payment shall be made in cash, Shares or some
combination. Payment shall be made in a lump sum or installments, as
determined by the Plan Administrator, commencing as promptly as practicable
following the end of the applicable Performance Cycle, subject to such terms
and conditions and in such form as may be prescribed by the Plan
Administrator.
9.7 TERMINATION OF EMPLOYMENT. If a Participant ceases to be a employee
before the end of a Performance Cycle by reason of his death, permanent
disability or retirement as provided in Section 7.3(e)(ii), the Performance
Cycle for such Participant for the purpose of determining the amount of the
Award payable shall end at the end of the calendar quarter immediately
preceding the date on which such Participant ceased to be an employee. The
amount of an Award payable to a Participant to whom the preceding sentence is
applicable shall be paid at the end of the Performance Cycle and shall be
that fraction of the Award computed pursuant to the preceding sentence, the
numerator of which is the number of calendar quarters during the Performance
Cycle during all of which said Participant was an employee and the
denominator of which is the number of full calendar quarters in the
Performance Cycle. Upon any other termination of employment of a Participant
during a Performance Cycle, participation in the Plan shall cease and all
outstanding Awards of Performance Units to such Participant shall be canceled.
SECTION 10
CHANGE IN CONTROL
10.1 OPTIONS, RESTRICTED STOCK. In the event of a change in control of the
Company as defined in Section 10.3, the Board may, in its sole discretion,
without obtaining stockholder approval, to the extent permitted in Section 15,
take any or all of the following actions: (a) accelerate the exercise dates of
any outstanding Options or make all such Options fully vested and exercisable;
(b) grant a cash bonus award to any Option Holder in an amount necessary to pay
the Option Price of all or any portion of the Options then held by such Option
Holder; (c) pay cash to any or all Option Holders in exchange for the
cancellation of their outstanding Options in an amount equal to the difference
between the Option Price of such Options and the greater of the price offered by
a third party for the Common Stock or the Fair Market Value of the Shares on the
date of the cancellation of the Options; (d) make any other adjustments or
amendments to the outstanding Options; and (e) eliminate all restrictions with
respect to Restricted Stock and deliver Shares free of restrictive legends to
any Participant.
10.2 PERFORMANCE UNITS. Under the circumstances described in Section 10.1,
the Board may, in its sole discretion, and without obtaining stockholder
approval, to the extent permitted in Section 15, provide for payment of
outstanding Performance Units at the maximum award level or any percentage
thereof.
10.3 DEFINITION. For purposes of the Plan, a "change in control" shall be
deemed to have occurred if (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act), other than William J. Pearse, a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of more than 33% of the then
outstanding voting stock of the Company; or (b) at any time during any period of
three consecutive years (not including any period prior to the Effective Date),
individuals who at the beginning of such period constitute the Board (and any
new director whose election by the Board or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for
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election was previously so approved) cease for any reason to constitute a
majority thereof; or (c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger
or consolidation which would result in the voting securities of the Company
outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of the
surviving entity) at least 80% of the combined voting power of the voting
securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders approve a plan of
complete liquidation of the Company or an agreement for the sale or
disposition by the Company of all or substantially all of the Company's
assets.
SECTION 11
RIGHTS OF EMPLOYEES AND OTHER PARTICIPANTS
Nothing contained in the Plan or in any Award granted under the Plan shall
confer upon any Participant any right with respect to the continuation of his or
her employment by the Company, or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Participant from the rate in existence at the time of
the grant of an Award. Whether an authorized leave of absence or absence due to
military or government service shall constitute a termination of employment
shall be determined by the Plan Administrator at the relevant time.
SECTION 12
TRANSFERABILITY
During the lifetime of the Option Holder, Incentive Stock Options shall be
exercisable only by the Option Holder and shall not be assignable or
transferable; PROVIDED, HOWEVER, that in the event of the Option Holder's death,
any Option may be exercised by the personal representative of the Option
Holder's estate, or by the person(s) to whom the option is transferred pursuant
to the Option Holder's will or in accordance with the laws of descent and
distribution. Upon the prior written consent of the Board and subject to any
conditions associated with such consent, a Non-Statutory Option may be assigned
in whole or in part during the Option Holder's lifetime to one or more members
of the Option Holder's immediate family or to a trust established exclusively
for one or more such family members. In addition, the Board, in its sole
discretion, may allow a Non-Statutory Option to be assigned in other
circumstances deemed appropriate. The terms applicable to the assigned portion
shall be the same as those in effect for the Option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Board may deem appropriate.
SECTION 13
GENERAL RESTRICTIONS
13.1 INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an Option or other Award is granted, as a condition of exercising such
Option or receiving Shares under the Award, to give written assurances in
substance and form satisfactory to the Company and its counsel to the effect
that such person is acquiring the Shares subject to the Option or the Award
for his own account for investment and not with any present intention of
selling or otherwise distributing the same and to such other effects as the
Company deems necessary or appropriate in order to comply with federal and
applicable state securities laws. Legends evidencing such restrictions may
be placed on the certificates evidencing the Shares.
13.2 COMPLIANCE WITH SECURITIES LAWS. Each Award shall be subject to the
requirement that, if at any time counsel to the Company shall determine that
the listing, registration or qualification of the Shares subject to such
Award upon any securities exchange or under any state or federal law, or the
consent or approval of any governmental or regulatory body, is necessary as a
condition of, or in connection with, the issuance or purchase of Shares
thereunder, such Award may not be accepted or exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall
have been effected or obtained on conditions acceptable to the Plan
Administrator. Nothing herein shall be deemed to require the Company to
apply for or to obtain such listing, registration or qualification.
13.3 STOCK RESTRICTION AGREEMENT. The Plan Administrator may provide
that Shares issuable upon the exercise of an Option shall, under certain
conditions, be subject to restrictions whereby the Company has a right of
first refusal with respect to such Shares or a right or obligation to
repurchase all or a portion of such Shares, which restrictions may survive a
Participant's term of employment with the Company. The acceleration of time
or times at which an Option becomes exercisable may be conditioned upon the
Participant's agreement to such restrictions.
SECTION 14
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or the grant or vesting of any other Award
shall not constitute "earnings" with respect to which any other employee
benefits of such employee are determined, including without limitation benefits
under any pension, profit sharing, life insurance or salary continuation plan.
SECTION 15
PLAN AMENDMENT, MODIFICATION AND TERMINATION BY THE BOARD
15.1 BOARD'S EXCLUSIVE AUTHORITY TO TERMINATE PLAN. The Board shall have
complete and exclusive authority to terminate and from time-to-time amend or
modify the Plan in any and all respects unless and only to the extent that
stockholder approval of such amendments or modifications is required under
applicable law or, if the Company, on the advice of its counsel, determines that
stockholder approval is
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otherwise necessary or desirable. No amendment, modification or termination
of the Plan shall in any manner adversely affect any Awards theretofore
granted under the Plan, without the consent of the Participant holding such
Awards.
15.2 OPTIONS IN EXCESS OF THE NUMBER OF AVAILABLE SHARES. Options in
excess of the number of Shares then available for issuance may be granted
under this Plan, PROVIDED, HOWEVER, that any excess Shares actually issued
under this Plan shall be held in escrow until the action that is necessary
to approve a sufficient increase in the number of Shares available for
issuance under the Plan is taken. If such further action is not obtained
within 12 months after the date the first such excess grants are made, then:
(i) any unexercised Options granted on the basis of such excess Shares shall
terminate and cease to be outstanding and (ii) the Company shall promptly
refund to the Option Holders the Option Price paid for any excess Options
that were exercised or issued under the Plan and held in escrow, together
with interest on the Option Price that was held in escrow, and any such
Options and Shares shall thereupon be automatically canceled and cease to be
outstanding.
SECTION 16
WITHHOLDING
16.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver
Shares upon the exercise of an Option, or upon the vesting of any other
Award, shall be subject to the Participant's satisfaction of all applicable
federal, state and local income and other tax withholding requirements.
16.2 WITHHOLDING WITH STOCK. The Board may, in its discretion, provide
any or all holders of Non-Statutory Options with the right to use Shares in
satisfaction of all or part of the taxes incurred by such holders in
connection with the exercise of such Options. Such right may be provided to
any such holder in either or both of the following formats:
(a) The election to have the Company withhold, from the Shares
otherwise issuable upon the exercise of such Non-Statutory
Option, a portion of those Shares with an aggregate Fair Market
Value less than or equal to the amount of taxes due as designated
by such holder; or
(b) The election to deliver to the Company, at the time the
Non-Statutory Option is exercised, one or more Shares previously
acquired by such holder with an aggregate Fair Market Value less
than or equal to the amount of taxes due as designated by such
holder.
SECTION 17
BROKERAGE ARRANGEMENTS
The Plan Administrator may, in its discretion, enter into arrangements with one
or more banks, brokers or other financial institutions to facilitate the
disposition of Shares acquired upon exercise of Options, including, without
limitation, arrangements for the simultaneous exercise of Options and sale of
the Shares acquired upon such exercise.
SECTION 18
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the Plan to
stockholders of the Company for approval shall be construed as creating any
limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company or any affiliated Corporation now has lawfully put into
effect, including, without limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
SECTION 19
REQUIREMENTS OF LAW
19.1 REQUIREMENTS OF LAW. The issuance of Shares and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules and
regulations.
19.2 FEDERAL SECURITIES LAW REQUIREMENTS. If a Participant is an officer or
director of the Company within the meaning of Section 16 of the 1934 Act, Awards
granted hereunder shall be subject to all conditions required under Rule 16b-3
of the 1934 Act, or any successor rule promulgated under the 1934 Act, to
qualify the Award for any exception from the provisions of Section 16(b) of the
1934 Act available under that Rule. Such conditions are hereby incorporated
herein by reference and shall be set forth in the agreement with the Participant
which describes the Award.
19.3 CONFLICTS. If the terms of a particular stock option agreement that
evidences an Award conflict with the terms of the Plan, the terms of the Plan
will control and such Participant will be subject to the terms and conditions of
the Plan.
19.4 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of
Delaware.
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SECTION 20
DURATION OF THE PLAN
The Plan shall terminate at such time as may be determined by the Board, and no
Award shall be granted after such termination. If not sooner terminated under
the preceding sentence, the Plan shall fully cease and expire at midnight on
June 10, 2007. Awards outstanding at the time of the Plan termination may
continue to be exercised or earned in accordance with their terms.
Dated: June __, 1997
ULTIMATE ELECTRONICS, INC.
By
------------------------------------
William J. Pearse
Chief Executive Officer
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PROXY
ULTIMATE ELECTRONICS, INC.
321A W. 84TH AVENUE
THORNTON, COLORADO 80221
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS OF ULTIMATE ELECTRONICS, INC.
The undersigned holder of shares of common stock of Ultimate Electronics,
Inc. (the "Company") hereby appoints William J. Pearse, David J. Workman and
Alan E. Kessock, or any of them, each with full power of substitution, to
vote all shares of said stock that the undersigned could vote if personally
present at the 1997 Annual Meeting of Stockholders of the Company (the
"Meeting") to be held on Tuesday, June 10, 1997 at 8:30 a.m., Mountain
Daylight Time, at the Company's office, 321 W. 84th Avenue, Thornton,
Colorado 80221, and at any adjournment or postponement thereof.
I. ELECTION OF DIRECTOR:
FOR the nominee listed below WITHHOLD AUTHORITY to vote
(except as marked to the contrary) / / for the nominee listed below / /
(Instruction: To withhold authority to vote for the individual nominee
strike a line through the nominee's name listed below).
CLASS III (to serve until the 2000 Annual Meeting) William J. Pearse
II. PROPOSAL TO ADOPT THE EQUITY INCENTIVE PLAN which plan will replace the
Company's Employee Stock Option plan and Nonemployee's Director's Stock
Option Plan, and to provide for authorization for issuance under the
Equity Incentive Plan of up to 750,000 shares of the Company's common
stock.
/ / FOR / / AGAINST / / ABSTAIN
III. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP as the independent
auditors of the Company for the fiscal year ending January 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
(CONTINUED ON THE OTHER SIDE)
<PAGE>
(CONTINUED FROM OTHER SIDE)
IV. In their discretion, the Proxies are authorized to vote upon such business
as may properly come before the Meeting.
Whether or not you plan to attend the Meeting, you are urged to execute
and return this Proxy, which may be revoked at any time prior to its use.
This Proxy, when properly executed, will be voted in the manner directed
herein by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR EACH NOMINEE AND PROPOSAL LISTED.
This proxy should be dated and signed by the
stockholder or his attorney authorized in
writing or in any other manner permitted by
law. If shares are held by two or more
persons, any one may sign. If signing as
executor, administrator, trustee or guardian
or as a corporate officer, please give full
title. If a corporation, please sign in
full corporate name by the president or other
authorized officer. If a partnership, please
sign in partnership name by an authorized
person.
Dated: ______________ ___, 1997
------------------------------------------
Signature of Stockholder
------------------------------------------
Signature of Stockholder (if held jointly)
PLEASE SIGN EXACTLY AS NAME APPEARS HEREON. DATE AND RETURN THIS PROXY IN THE
REPLY ENVELOPE PROVIDED. IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE
SIGN AND RETURN ALL CARDS RECEIVED.
