<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended July 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From _____________ to ____________
Commission file number 0-22532
ULTIMATE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 84-0585211
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
321A WEST 84TH AVENUE, THORNTON, COLORADO 80221
(Address of principal executive offices, zip code)
(303) 412-2500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of outstanding shares of common stock as of September 12, 1997 was
8,003,132.
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ULTIMATE ELECTRONICS, INC.
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited): Page No.
Condensed Consolidated Balance Sheets as of July 31, 1997
and January 31, 1997 3
Consolidated Statements of Operations for the three and
six months ended July 31, 1997 and July 31, 1996 4
Condensed Consolidated Statements of Cash Flows for the
six months ended July 31, 1997 and July 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 12
2
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Part I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
ULTIMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
(Unaudited)
July 31, January 31,
1997 1997
-------- --------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $ 2,864 $ 764
Accounts receivable 16,449 13,788
Merchandise inventories 44,954 41,414
Other assets 2,866 642
-------- --------
Total current assets 67,133 56,608
Property and equipment, net 50,013 44,632
Property under capital leases, including related parties, net 2,238 1,019
Other assets 3,337 1,051
-------- --------
Total assets $122,721 $103,310
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 28,303 $ 21,651
Other current liabilities 10,763 7,089
-------- --------
Total current liabilities 39,066 28,740
Note payable 23,235 17,237
Bonds payable 13,000 13,000
Term loans 788 928
Capital lease obligations, including related parties 2,213 1,007
Deferred tax liability 860 695
Commitments
Stockholders' equity:
Preferred stock, par value $.01 per share
Authorized shares - 10,000,000
No shares issued and outstanding -- --
Common stock, par value $.01 per share
Authorized shares - 10,000,000
Issued and outstanding shares, 7,981,432
at July 31, 1997 and 6,995,000 at January 31, 1997 80 70
Additional paid-in capital 33,589 31,009
Retained earnings 9,890 10,624
-------- --------
Total stockholders' equity 43,559 41,703
-------- --------
Total liabilities and stockholders' equity $122,721 $103,310
-------- --------
-------- --------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
3
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ULTIMATE ELECTRONICS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(amounts in thousands, except per share data)
<TABLE>
Three Months Ended Six Months Ended
July 31, July 31,
------------------- ---------------------
1997 1996 1997 1996
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales $61,944 $57,144 $117,452 $116,759
Cost of goods sold 45,030 41,410 86,088 86,123
------- ------- -------- --------
Gross profit 16,914 15,734 31,364 30,636
Selling, general and administrative
expenses 16,615 14,594 30,775 29,789
------- ------- -------- --------
Income from operations 299 1,140 589 847
Interest expense, net 971 854 1,754 1,597
------- ------- -------- --------
Income (loss) before income taxes (672) 286 (1,165) (750)
Provision (benefit) for income taxes (250) 106 (432) (277)
------- ------- -------- --------
Net income (loss) $ (422) $ 180 $ (733) $ (473)
------- ------- -------- --------
------- ------- -------- --------
Earnings (loss) per share of common stock $ (. 06) $ .03 $ (.10) $ (.07)
Weighted average shares outstanding 7,327 6,995 7,164 6,995
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
4
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ULTIMATE ELECTRONICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(amounts in thousands)
Six Months Ended
July 31,
------------------
1997 1996
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 6,903 $ 362
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (2,503) (3,161)
Purchase of Audio King (836) -
------- ------
Net cash used in investing activities (3,339) (3,161)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from note payable - 2,000
Principal payments on note payable (1,172) -
Proceeds from term loans - 225
Principal payments on term loans and capital
lease obligations (292) (231)
------- ------
Net cash provided by (used in) financing activities (1,464) 1,994
------- ------
Net increase (decrease) in cash and cash equivalents 2,100 (805)
Cash and cash equivalents at beginning of period 764 979
------- ------
Cash and cash equivalents at end of period $ 2,864 $ 174
------- ------
------- ------
See accompanying notes to Condensed Consolidated Financial Statements.
5
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ULTIMATE ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 31, 1997
1. ACCOUNTING POLICIES
The Company's unaudited condensed consolidated financial statements have
been prepared by the Company in accordance with generally accepted
accounting principles for interim financial reporting and the regulations
of the Securities and Exchange Commission for quarterly reporting.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements.
In the opinion of the Company, the statements include all adjustments,
consisting only of normal recurring adjustments, which are necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods. Operating results for the six month period
ended July 31, 1997 are not necessarily indicative of the results that may
be expected for the year ending January 31, 1998. Seasonal fluctuations in
sales of the Company's products result primarily from the purchasing
patterns of individual consumers during the Christmas holiday season. These
patterns tend to moderately concentrate sales in the latter half of the
year, particularly in the fourth quarter. For further information, refer
to the financial statements and footnotes thereto included in the Company's
Annual Report to Stockholders for the year ended January 31, 1997.
2. PRINCIPLES OF CONSOLIDATION
The unaudited condensed consolidated financial statements include the
accounts of all subsidiaries. All intercompany accounts and transactions
have been eliminated upon consolidation.
3. ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings Per Share," which is required to be adopted on January
31, 1998. At such time, the Company will be required to change the method
it currently uses to compute earnings per share and to restate all prior
periods. Under the new requirements for calculating primary earnings per
share, the dilutive effect of stock options will be excluded. The impact of
Statement No. 128 on prior periods is not expected to be material.
4. MERGER
On June 27, 1997, the Company completed a merger in which the Company
acquired all of the outstanding shares of Audio King Corporation ("Audio
King"). Audio King, a consumer specialty electronics company, operated 11
retail stores; eight in Minnesota, two in Iowa and one in South Dakota. The
purchase price consisted of $2.5 million in cash, 986,432 shares of
Ultimate's common stock valued at $2.6 million, assumed debt of $7.2
million, and other expenses and severance costs of $1.2 million. The
transaction was accounted for as a purchase, whereby the purchase price has
been allocated to the acquired assets and liabilities based on estimated
fair value at the acquisition date. The transaction resulted in the Company
recording goodwill in the amount of $2.3 million. The results of operations
since the acquisition date are included in the accompanying condensed
consolidated financial statements.
6
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ULTIMATE ELECTRONICS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
4. MERGER (CONTINUED)
The following unaudited pro forma combined net sales, net income (loss)
and earnings (loss) per share data summarize the results of operations
for the six month periods ended July 31, 1997 and 1996 as if Audio King
had been acquired at the beginning of fiscal year 1997.
UNAUDITED PRO FORMA
(amounts in thousands, except per share data)
Six Months Ended
------------------------------
July 31, 1997 July 31, 1996
------------- -------------
Net sales $139,227 $147,904
-------- --------
-------- --------
Net income (loss) $ (1,702) $ (1,186)
-------- --------
-------- --------
Earnings (loss) per share $ (.21) $ (.15)
-------- --------
-------- --------
The unaudited pro forma combined financial results do not purport to
represent the actual results of operations which would have occurred had
such transactions been at the beginning of the period indicated or the
Company's results of operations for any future period. Anticipated
operational efficiencies from the integration of the acquisition are not
fully reflected in the above pro forma data and there can be no
assurance that such efficiencies will be achieved in the future.
The above pro forma data include adjustments to: eliminate Audio King
consulting, legal and accounting costs directly related to the acquisition;
eliminate duplicate executive managements' and buyers' salaries; adjust
interest expense for the cash outlay for the purchase of Audio King;
eliminate Audio King goodwill amortization and amortize the new goodwill;
and reflect the tax effects of the above adjustments.
7
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and results of
operations and the financial statements and accompanying notes contain forward-
looking information which is subject to risks and uncertainties, including, but
not limited to, the effects of the completed merger, the ability of the Company
to combine the two companies profitably, increases in promotional activities of
competitors, further expansion by competitors into the Company's markets,
changes in consumer buying attitudes, the presence or absence of new products or
product features in the Company's merchandise categories, changes in vendor
support for advertising and promotional programs, changes in the Company's
merchandise sales mix and general economic conditions. Please refer to a
discussion of these and other factors in the Company's Annual Report on Form
10-K for the year ended January 31, 1997 and other filings with the Securities
and Exchange Commission. The Company disclaims any intent or obligation to
update publicly these forward-looking statements, whether as a result of new
information, future events or otherwise.
RESULTS OF OPERATIONS
Net sales for the three months ended July 31, 1997 increased 8% to $61.9
million from $57.1 million for the three months ended July 31, 1996. Net
sales for the six months ending July 31, 1997 increased 1% to $117.5 million
from $116.8 million for the six months ended July 31, 1996. The increase in
sales during these periods was due primarily to the acquisition of Audio King
effective June 27, 1997. Comparable store sales decreased 6% and 11% for the
three and six months ended July 31, 1997, respectively. The decrease in
comparable store sales for the three and six months ended July 31, 1997 was
due in part to a continuing sluggish retail environment and the openings of
competitors' stores within markets the Company already serves, which openings
adversely affected sales at the Company's existing stores in these markets.
Gross profit for the three months ended July 31, 1997 increased 8% to $16.9
million (27.3% of net sales) from $15.7 million (27.5% of net sales) for the
three months ended July 31, 1996. Gross profit for the three months ended July
31, 1997 was negatively impacted by a reduction of inventory as the Company
closed out certain products and phased out two product lines at Audio King.
Gross profit for the six months ended July 31, 1997 increased 2% to $31.4
million (26.7% of net sales) from $30.6 million (26.2% of net sales) for the six
months ended July 31, 1996. The increase in gross profit as a percentage of net
sales for the six months ended July 31, 1997 was primarily attributable to a
higher mix of sales of discontinued and promotional computer products sold in
the prior year period.
Selling, general and administrative expenses for the three months ended July 31,
1997 increased to $16.6 million (26.8% of net sales) from $14.6 million (25.5%
of net sales) for the three months ended July 31, 1996. The $2.0 million
increase in expenses was due primarily to higher sales commissions, bankcard
fees and other sales related costs associated with the higher sales volume,
higher store facility expenses associated with the Company's larger and newer
stores, as well as the acquisition of Audio King. Selling, general and
administrative expenses for the six months ending July 31, 1997 increased to
$30.8 million (26.2% of net sales) from $29.8 million (25.5% of net sales) for
the six months ended July 31, 1996.
As a result of the foregoing, income from operations decreased 74% to $299,000
(0.5% of net sales) for the three months ended July 31, 1997, compared to income
from operations of $1.1 million (2.0% of net sales) for the three months ended
July 31, 1996. Income from operations decreased 30% to $589,000 (0.5% of net
sales) for the six months ended July 31, 1997 from $847,000 (0.7% of net sales)
for the six months ended July 31, 1996.
Interest expense increased to $971,000 and $1.8 million for the three and six
months ended July 31, 1997, respectively, from $854,000 and $1.6 million for
the three and six months ended July 31, 1996, respectively. These increases
were due primarily to a slightly higher interest rate on amounts outstanding
under the Company's revolving line of credit as well as the additional
borrowings for the month of July 1997 as a result of the acquisition of Audio
King.
8
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LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company's primary sources of liquidity have been net cash from
operations and from revolving credit lines and term loans. With the addition of
Audio King and the opening of a new store in August 1997 in Lakewood, Colorado,
the Company now operates a total of 30 stores in nine states. The Company has
funded this expansion in part through two public offerings of its common stock
and additional borrowings under the Company's line of credit facility with
Norwest Bank Colorado, N.A. ("Norwest Bank").
In March 1995, the Company received proceeds of $12.3 million (net of the
underwriting discount and other associated costs) from the sale of $13.0 million
aggregate principal amount of 10.25% First Mortgage Bonds (the "Bond Offering").
The proceeds of the Bond Offering were used to fund a substantial portion of the
construction of the Company's warehouse, office, service and store facility in
Thornton, Colorado (the "Thornton Facility"). Interest on the bonds accrues at
the rate of 10.25% per year until maturity or earlier redemption. The Company
is required to redeem $3.25 million aggregate principal amount of the bonds
annually (reduced to the extent of the bonds purchased or redeemed by the
Company earlier) on January 31, 2002 and on January 31 of each of the three
years thereafter, at a redemption price equal to par plus accrued interest to
the date of redemption. The bonds are not redeemable prior to March 31, 2000
and are secured by the Thornton Facility.
Net cash provided by operations was $6.9 million for the six months ended July,
31, 1997 compared to net cash provided by operations of $362,000 for the six
months ended July 31, 1996. The increase in cash provided by operations for the
six months ending July 31, 1997 was primarily the result of the Company's
efforts to reduce inventory levels in the current year.
The Company intends to continue its expansion into select metropolitan areas
in the Rocky Mountain, Midwest and Southwest regions with its larger format
stores. In fiscal 1998, the Company replaced its Aurora, Colorado store with
a larger format store in Englewood, Colorado. In August 1997, the Company
opened a larger format store in Lakewood, Colorado and is currently in the
process of remodeling six of the eleven Audio King stores to allow for
increased selection in those stores in the key area of larger format
television as well as other product categories. In fiscal 1999, the Company
expects to expand or relocate and expand one to two of the remaining Audio
King stores into a larger store format.
The Company's primary capital requirements are directly related to expenditures
for new store openings and the remodeling and upgrading of existing store
locations. With the exception of Thornton, all stores are leased.
Capital expenditures to open these new stores have averaged $2.3 million,
excluding preopening costs ranging from $300,000 to $600,000. Capital
expenditures to relocate and expand existing stores in fiscal 1998 are expected
to average $2.0 million per store, excluding preopening expenses ranging from
$100,000 to $300,000. Preopening costs include such items as advertising prior
to opening, recruitment and training of new employees and any costs of early
termination of store leases. The initial inventory requirement for the Company's
new larger format stores averages approximately $2.4 million per store,
approximately $1.0 million of which is financed through trade credit.
The Company executed a new revolving line of credit agreement with Norwest
Bank on November 21, 1996 that expires on September 30, 1998. Borrowings
under the revolving line of credit are limited to the lesser of $35 million
or 70% of eligible inventory. Borrowings under this credit facility in the
amount of $23.2 million were outstanding as of July 31, 1997. Due to lower
than expected sales performance in the fourth quarter of fiscal 1997, the
Company was in violation of certain of its financial covenants under the
current credit agreement and received a waiver from the bank for the
violations. On March 11, 1997, the credit agreement was amended to reduce
the minimum net worth requirement and the maximum ratio of funded debt to
earnings before interest, taxes, depreciation and amortization. On June 27,
1997, the credit agreement was further amended to adjust covenant
requirements to levels conforming with the Audio King acquisition.
Management believes the Company's operations for fiscal 1998 will be
sufficient to enable the Company to be in compliance with the amended
covenants for all periods of fiscal year 1998.
9
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Accordingly, amounts payable under the term loan agreement are classified as
long term in the accompanying balance sheet.
The Company believes that its cash flow from operations and borrowings under
existing and new credit facilities will be sufficient to fund the Company's
operations and its store relocation plans for fiscal 1998. There can be no
assurance that the Company will not experience significant delays, cost overruns
or completion problems in connection with the relocation of existing stores or
additional unanticipated costs associated with the acquisition of Audio King.
Moreover, there can be no assurance that the capital requirements for the
Company's stores will not exceed the Company's current estimates. In order to
fund the capital requirements for its anticipated expansion plans beyond fiscal
1998, the Company may be required to seek additional financing, which may take
the form of expansion of its existing credit facility or possibly additional
debt or equity financings. There can be no assurance that the Company will be
able to obtain such funds on favorable terms, if at all.
SEASONALITY
The Company's business is affected by seasonal consumer buying patterns. As is
the case with other retailers, the Company's sales and profits have been
greatest in the fourth quarter (which includes the Christmas selling season).
If, for any reason, the Company's sales were to be substantially below
expectations during these months, the Company's annual results would be affected
in an adverse and disproportionate manner. Operating results are dependent upon
a number of factors, including discretionary consumer spending, which is in turn
affected by local, regional or national economic conditions affecting disposable
consumer income, such as employment, business conditions, interest rates and
taxation. The Company's quarterly results of operations may fluctuate
significantly as a result of a number of factors, including the timing of new or
relocated and expanded store openings and related expenses, the success of new
stores and the impact of new stores on existing stores, among others. As the
Company has opened additional stores or relocated and expanded stores within
markets it already serves, sales at existing stores have been adversely
affected. Such adverse effects may occur in the future. The Company's
quarterly operating results also may be affected by increases in merchandise
costs, price changes in response to competitive factors, new and increased
competition, product availability and the costs associated with the opening of
new stores.
10
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is a party to certain legal proceedings
arising in the ordinary course of its business. Management believes
that any resulting liability, individually or in the aggregate, will
either be covered by insurance or will not have a material adverse
effect on the Company's financial condition.
ITEM 2. CHANGES IN SECURITIES.
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1997 Annual Meeting of Stockholders of Ultimate Electronics, Inc.
was held on June 10, 1997. At the meeting, William J. Pearse was
elected as a Class III director for a three-year term expiring at
the 2000 Annual Meeting of Stockholders. David J. Workman, Alan E.
Kessock, Randall F. Bellows and Robert W. Beale continue their
respective terms as directors of the Company.
The matters voted upon and passed at the Meeting were (i) the election
of the above noted director (ii) a proposal to adopt the Equity
Incentive Plan which replaces the Company's Employee Stock Option Plan
and authorizes 750,000 shares of common stock under the new plan
(iii) the ratification of the appointment of Ernst & Young LLP as the
Company's independent public accountants for the fiscal year ending
January 31, 1998. The results of the voting on these matters is
outlined in the following table.
VOTES VOTES VOTES
PROPOSAL FOR AGAINST ABSTAINED
-----------------------------------------------------------------
Election of Director:
William J. Pearse 6,318,801 - 412,845
Adopt Equity Incentive Plan and
authorize 750,000 shares of the 4,057,401 799,500 40,109
Company's common stock under the
new plan
Ratification of Ernst & Young LLP 6,615,285 85,028 31,333
ITEM 5. OTHER INFORMATION.
On September 4, 1997 at the Company's quarterly Board meeting, the
Board of Directors amended the Company's By-laws, increasing the Board
of Director's size from five to six members. J. Edward McEntire, the
Company's Chief Executive Officer, was elected to fill the vacancy
as a Class III director whose term will expire at the 2000 Annual
meeting.
11
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Documents filed with this report:
10.21 Third Amendment to Credit Agreement between Ultimate
Electronics, Inc. and Norwest Bank Colorado, National
Association and Norwest Business Credit, Inc. dated
June 27, 1997.
10.30 Ultimate Electronics, Inc. Form of Change of Control
Agreement dated June 27, 1997 with each of William J.
Pearse, J. Edward McEntire, David J. Workman, Alan E.
Kessock, and Neal A. Bobrick.
27 Financial Data Schedule
(b) Reports on Form 8-K:
None.
12
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Ultimate Electronics, Inc.
Date: September 12, 1997 By: /s/ Alan E. Kessock
-------------------------- ------------------------------------
Alan E. Kessock
Vice President, Chief Financial Officer,
Secretary and a Director (Principal
Financial and Accounting Officer)
13
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EXHIBIT 10.21
THIRD AMENDMENT
TO
CREDIT AGREEMENT
This Third Amendment is made this 27th day of June, 1997, by and between
ULTIMATE ELECTRONICS, INC., a Delaware corporation (the "Borrower"), NORWEST
BANK COLORADO, NATIONAL ASSOCIATION (the "Lender") and NORWEST BUSINESS CREDIT,
INC, a Minnesota corporation, as administrative agent for the Lender (the
"Administrative Agent").
RECITALS
The Borrower, the Lender and the Administrative Agent entered into a Credit
Agreement dated as of November 21, 1996, as amended (the "Credit Agreement").
The Borrower has requested that the Lender change certain definitions and
affirmative covenants in the Credit Agreement. The Lender is willing to do so
on the terms and subject to the conditions set forth herein.
NOW THEREFORE, in consideration of the premises and the mutual promises
herein contained, the parties hereto agree as follows:
1. The definition of Acceptable Facility set forth in Section 1.1 of the
Credit Agreement is hereby amended to read in its entirety as follows:
"`Acceptable Facility' means a distribution facility or retail store
(a) either (i) owned by the Borrower or (ii) leased by the Borrower or any
of its subsidiaries subject to a lease acceptable to the Administrative
Agent pursuant to which the landlord under such lease has executed a
landlord's waiver acceptable to the Administrative Agent, and (b)
identified in the Security Agreement as a location at which Inventory will
be located or otherwise identified in writing by the Borrower to the
Administrative Agent as a location at which Inventory will be located."
2. The definition of Acceptable Inventory set forth in Section 1.1 of the
Credit Agreement is hereby amended to read in its entirety as follows:
"`Acceptable Inventory' means consumer electronics products held for
sale, net of any unearned vendors' discounts (a) in which the Lender has a
valid perfected first priority security interest, (b) which are located in
an Acceptable Facility, (c) which are subject to no other lien, encumbrance
or security interest, and (d) which are owned
<PAGE>
(i) by Borrower or (ii) by Audio King, Inc. on June 27, 1997. Without
limiting the foregoing, the following shall not be Acceptable Inventory:
(1) Supplies and packaging inventory;
(2) Inventory that is damaged, defective, obsolete or not currently
saleable in the normal course of the Borrower's operations;
(3) Inventory that the Borrower has returned, has attempted to
return, is in the process of returning or intends to return to the vendor
thereof, including, without limitation, factory returns;
(4) Inventory in an amount equal to the Borrower's invoice variance
reserves;
(5) Discontinued inventory in an amount in excess of 12% of total
Inventory (determined after deducting unearned vendors' discounts);
(6) Free goods;
(7) That portion of the Borrower's aggregate service and parts
Inventory, and Inventory consisting of cellular phones, promotional items,
custom items and third party warranties which, in the aggregate, exceeds
12% of total Inventory (determined after deducting unearned vendors'
discounts); and
(8) Inventory otherwise deemed ineligible by the Administrative Agent
in its sole discretion; provided, however, that unless an Event of Default
or event that with notice or the passage of time would constitute an Event
of Default then exists, the Administrative Agent will give Borrower (20)
days' notice of any change in the types or amount of Inventory which shall
be Acceptable Inventory and shall base any such change on the
Administrative Agent's good faith judgment as to the liquidation value of
such Inventory."
3. The definition of Net Worth set forth in Section 1.1 of the Credit
Agreement is hereby amended to read in its entirety as follows:
"`Net Worth' shall mean the sum of the par or stated value of all
outstanding capital stock, surplus and undivided profits of the Borrower,
less any amounts attributable to treasury stock and any intangible assets,
including, but not limited to, goodwill, patents, copyrights, mailing
lists, catalogues, trademarks, bond discount and underwriting expenses,
organization expenses and other like intangibles, all as
-2-
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determined in accordance with generally accepted accounting principles, in
excess of $3,200,000."
4. Section 5.13 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 5.13 SUBSIDIARIES AND AFFILIATES. Borrower does not have any
affiliates or Subsidiaries other than those Subsidiaries described on
Exhibit D hereto."
5. Section 6.13 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 6.13 FINANCIAL COVENANTS. Maintain the following:
(a) A ratio of current assets to the sum of current liabilities plus
the aggregate outstanding balance under the Loan of at least 1.00 to 1.00
computed monthly as of the end of each month. Current assets and current
liabilities shall be calculated in accordance with GAAP. For purposes of
this Section 6.13(a), prepaid expenses and stockholder receivables included
in the calculation of current assets shall not exceed $1,600,000.
(b) Maintain during each of the periods set forth below, a minimum
Net Worth calculated as at the end of each month in such period in an
amount which is greater than or equal to the amount set forth opposite such
period; PROVIDED THAT the minimum Net Worth that the Borrower is required
to maintain shall be increased by the sum of 100% of the net proceeds
received by the Borrower for the sale of any equity securities after the
date of this Agreement:
Period Minimum Net Worth
------ -----------------
February 28, 1997 to and including $41,000,000
June 30, 1997
July 1, 1997 to and including $42,800,000
November 30, 1997
December 1, 1997 to and including $44,300,000
January 31, 1998
February 1, 1998 to and including $43,950,000
September 30, 1998
-3-
<PAGE>
(c) Maintain on each of the dates set forth below a maximum ratio of
Funded Indebtedness to EBITDA determined for the four fiscal quarters of
the Borrower ending on such date that is less than or equal to the ratio
set forth opposite such date:
Date Ratio
---- -----
July 31, 1997 5.55 to 1.00
October 31, 1997 5.55 to 1.00
January 31, 1998 4.75 to 1.00
April 30, 1998 4.25 to 1.00
July 31, 1998 3.75 to 1.00"
6. Section 7.1 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 7.1 FIXED ASSETS EXPENDITURES. Make any capital
expenditures (as such term is defined in accordance with GAAP) or
expenditures for fixed assets, excluding the purchase by the Borrower of
all of the issued and outstanding shares of Audio King Corporation (a) in
excess of $6,600,000 during the Borrower's 1998 fiscal year, and (b) in an
aggregate amount in excess of $400,000 per quarter cumulating quarterly
with respect to unused amounts during its 1999 fiscal year."
7. Section 7.2 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 7.2 INDEBTEDNESS. Create, incur, permit, assume or suffer to
exist any Indebtedness, except (a) the obligations created hereby; (b)
Indebtedness created or incurred in the ordinary course of business which
constitutes trade payables or obligations other than indebtedness for
borrowed money or Indebtedness representing the deferred purchase price of
goods, (c) leases which are or should be classified as operating leases in
accordance with GAAP; (d) Manufacturer Payables, (e) the Bond Indebtedness,
(f) the capital leases and term debt described on Schedule 7.2 hereto and
additional capital leases for store locations entered into in the ordinary
course of business, and (g) indebtedness assumed by Borrower pursuant to a
letter agreement between Borrower and Audio King, Inc., dated June 27,
1997."
8. Section 7.7 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 7.7 LOAN. Make any loan or salary advance to any Person;
except loans or salary advances to Borrower's officers, directors,
shareholders or employees not in
-4-
<PAGE>
excess of $100,000 in the aggregate outstanding at any one time for all such
loans and advances and loans made by Borrower to Audio King, Inc. pursuant
to a letter agreement between Borrower and Audio King, Inc., dated June 27,
1997."
9. Section 7.11 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 7.11 USE OF FUNDS. Use funds advanced under this Agreement
for any purpose other than for ordinary working capital purposes or the
acquisition of all of the capital stock of Audio King Corporation."
10. Section 7.14 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 7.14 SUBSIDIARY OR AFFILIATE. Form or consent to or take
part in the formation of any Subsidiary or affiliate other than those
subsidiaries described on Exhibit D hereto."
11. Section 7.16 of the Credit Agreement is hereby amended to read in its
entirety as follows:
"Section 7.16 INVESTMENTS AND NEW BUSINESSES. Make any acquisitions
of or capital contributions to or other investments in any Person other
than (a) investments in open market commercial paper, maturing within 365
days after acquisition thereof, with a credit rating of at least A-1 or P-1
by either Standard & Poor's Corporation or Moody's Investors Service, Inc.,
(b) marketable obligations issued or unconditionally guaranteed by the
United States of America or an instrumentality or agency thereof and
entitled to the full faith and credit of the United States of America, (c)
municipal bonds with a credit rating of at least A by either Standard &
Poor's or Moody's, (d) demand deposits, time deposits (including
certificates of deposit), and money market accounts, or (e) the acquisition
of all of the capital stock of Audio King Corporation."
12. The Credit Agreement is hereby amended to add an Exhibit D which shall
read in its entirety as follows:
"EXHIBIT D
(Attached to and forming a part of Credit
Agreement between Ultimate Electronics, Inc. and
NORWEST Business Credit, Inc. and
NORWEST Bank Colorado, National Association)
-5-
<PAGE>
LIST OF SUBSIDIARIES
Ultimate AKquisition Corp.
Audio King, Inc.*
Audio King Iowa, Inc.**
Specialty Home Electronics Repair, Inc.
Fast Trak, Inc.***
- ------------------------------------------------
* To be merged into Ultimate AKquisition Corp.
** To be merged into Audio King, Inc.
*** To be merged into Specialty Home Electronics Repair, Inc."
13. Except as specifically amended hereby, the Credit Agreement shall
remain in full force and effect.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to
be duly executed as of the day and year first above written.
ULTIMATE ELECTRONICS, INC.
By: /s/ Alan E. Kessock
----------------------------------------------
Its: Vice President of Finance
----------------------------------------------
NORWEST BANK COLORADO, NATIONAL ASSOCIATION
By: /s/ Karen I. Hardy
----------------------------------------------
Its: Vice President
----------------------------------------------
NORWEST BUSINESS CREDIT, INC.
By: /s/ Pamela Klempel
----------------------------------------------
Its: Assistant Vice President
----------------------------------------------
-7-
<PAGE>
EXHIBIT 10.30
ULTIMATE ELECTRONICS, INC.
CHANGE OF CONTROL EMPLOYMENT AGREEMENT
AGREEMENT by and between ULTIMATE ELECTRONICS, INC. a Delaware corporation
(the "Company") and _____________ (the "Officer"), dated as of June 27, 1997.
The Board of Directors of the Company (the "Board"), has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication of the Officer, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below) of
the Company. The Board believes it is imperative to limit, as much as possible,
the inevitable distraction of the Officer by virtue of the personal
uncertainties and risks created by a pending or threatened Change of Control and
to encourage the Officer's full attention and dedication to the Company
currently and in the event of any threatened or pending Change of Control. In
order to accomplish such objectives, the Board believes it is in the best
interests of the Company and its stockholders to provide the Officer with
compensation and benefits arrangements upon a Change of Control that ensure that
the compensation and benefits expectations of the Officer will be satisfied and
that are competitive with those of other corporations. Therefore, in order to
accomplish these objectives, the Board has caused the Company to enter into this
Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) The "Effective Date" shall mean the first date during the Change
of Control Period (as defined in Section 1(b)) on which a Change of Control (as
defined in Section 2) occurs. Anything in this Agreement to the contrary
notwithstanding, if a Change of Control occurs and if the Officer's employment
with the Company is terminated prior to the date on which the Change of Control
occurs, and if it is reasonably demonstrated by the Officer that such
termination of employment (i) was at the request of a third party who has taken
steps reasonably calculated to effect a Change of Control or (ii) otherwise
arose in connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment. For purposes of this
Agreement, the Committee, which shall include one or more independant persons
appointed from time to time by the Chief Executive Officer, may clarify the date
as of which a Change of Control shall be deemed to have occurred.
(b) The "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the third anniversary of the date hereof;
PROVIDED, HOWEVER, that commencing on the date one year after the date hereof,
and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
unless previously terminated, the Change of Control Period shall be
automatically extended so as to terminate three years from such Renewal Date,
unless at least 60 days prior to the Renewal Date (and prior to the Effective
Date), the Company shall give notice to the Officer that the Change of Control
Period shall not be so extended.
2. CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) Any "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Securities Exchange Act of 1934, as amended (the "1934 Act")),
other than a trustee or other fiduciary holding securities under an employee
benefit plan of the Company or Mr. William J. Pearse, directly or indirectly, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the 1934 Act),
directly or indirectly, of more than fifteen percent (15%) of the then
outstanding voting stock of the Company and the Committee shall have the right,
in its sole discretion, to increase such percentage up to thirty-three percent
(33%) in the event the fifteen percent threshold is crossed; or
(b) Individuals who, as of the date hereof, 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 as of the date hereof
or
<PAGE>
whose election or nomination for 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 51% 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; PROVIDED, HOWEVER, that if the
merger, plan of liquidation or sale of substantially all assets is not
consummated following such stockholder approval and the transaction is
abandoned, then the Change of Control shall be deemed not to have occurred.
3. EMPLOYMENT PERIOD. The Company hereby agrees to continue the Officer
in its employ, and the Officer hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Effective Date and ending on the third anniversary of such
date (the "Employment Period").
4. TERMS OF EMPLOYMENT.
(a) POSITION AND DUTIES.
(i) During the Employment Period, (A) the Officer's position
(including status, offices, titles and reporting requirements),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 120-day
period immediately preceding the Effective Date and (B) the
Officer's services shall be performed at the location where the
Officer was employed 120 days immediately preceding the Effective
Date or at any office or location less than 30 miles from such
location.
(ii) During the Employment Period, and excluding any periods of
vacation and sick leave to which the Officer is entitled, the
Officer agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company
and, to the extent necessary to discharge the responsibilities
assigned to the Officer hereunder, to use the Officer's reasonable
best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Officer (A) to serve on
corporate, civic or charitable boards or committees, (B) to deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (C) to manage personal investments, so long as
such activities do not interfere significantly with the performance
of the Officer's responsibilities as an employee of the Company in
accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been
conducted by the Officer prior to the Effective Date, the continued
conduct of such activities (or the conduct of activities similar in
nature and scope thereto) subsequent to the Effective Date shall
not thereafter be deemed to interfere with the performance of the
Officer's responsibilities to the Company.
(b) COMPENSATION.
(i) BASE SALARY. During the Employment Period, the Officer
shall receive an annual base salary ("Annual Base Salary"), which
shall be paid at a monthly rate, at least equal to 12 times the
highest monthly base salary paid or payable, including any base
salary which has been earned but deferred, to the Officer by the
Company and its affiliated companies in respect of the 12-month
period immediately preceding the month in which the Effective Date
occurs. During the Employment Period, the Annual Base Salary shall
be reviewed no more than 12 months after the last salary increase
awarded to the Officer prior to the Effective Date and thereafter
at least annually. Any increase in Annual Base Salary shall not
serve to limit or reduce any other
<PAGE>
obligation to the Officer under this Agreement. Annual Base Salary
shall not be reduced after any such increase and the term Annual
Base Salary as utilized in this Agreement shall refer to Annual
Base Salary as so increased. As used in this Agreement, the term
"affiliated companies" shall include any company controlled by,
controlling or under common control with the Company.
(ii) ANNUAL BONUS. In addition to Annual Base Salary, the Officer
shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") in cash at least equal
to the average of the Officer's bonuses over the last three fiscal
years, or such lesser number of years as the Officer may have been
employed by the Company, prior to the Effective Date (annualized in
the event that the Officer was not employed by the Company for an
entire fiscal year) (the "Recent Annual Bonus"). Each such Annual
Bonus shall be paid no later than the end of the third month of the
fiscal year next following the fiscal year for which the Annual
Bonus is awarded, unless the Officer shall elect to defer the
receipt of such Annual Bonus.
(iii) INCENTIVE, SAVINGS AND RETIREMENT PLANS. During the
Employment Period, the Officer shall be entitled to participate in
all incentive, savings and retirement plans, practices, policies
and programs applicable generally to other peer executives of the
Company and its affiliated companies but in no event shall such
plans, practices, policies and programs provide the Officer with
incentive opportunities (measured with respect to both regular and
special incentive opportunities to the extent, if any, that such
distinction is applicable), savings opportunities and retirement
benefit opportunities, in each case, less favorable, in the
aggregate, than the most favorable of those provided by the Company
and its affiliated companies for the Officer under such plans,
practices, policies and programs as in effect at any time during
the 120-day period immediately preceding the Effective Date or if
more favorable to the Officer, those provided generally at any time
after the Effective Date to other peer executives of the Company
and its affiliated companies.
(iv) WELFARE BENEFIT PLANS. During the Employment Period, the
Officer and/or the Officer's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies
(including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life,
accidental death and travel accident insurance plans and programs)
to the extent applicable generally to other peer executives of the
Company and its affiliated companies, but in no event shall such
plans, practices, policies and programs provide the Officer with
benefits which are less favorable, in the aggregate, than the most
favorable of such plans, practices, policies and programs in effect
for the Officer at any time during the 120-day period immediately
preceding the Effective Date or, if more favorable to the Officer,
those provided generally at any time after the Effective Date to
other peer executives of the Company and its affiliated companies.
(v) EXPENSES. During the Employment Period, the Officer shall be
entitled to receive prompt reimbursement for all reasonable
expenses incurred by the Officer in accordance with the most
favorable policies, practices, and procedures of the Company and
its affiliated companies in effect for the Officer at any time
during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Officer, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies.
(vi) FRINGE BENEFITS. During the Employment Period, the Officer
shall be entitled to fringe benefits, including, without
limitation, in accordance with the most favorable plans, practices,
programs and policies of the Company and its affiliated companies
in effect for the Officer at any time during the 120-day period
immediately preceding the Effective Date or, if more favorable to
the Officer, as in effect generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
<PAGE>
(vii) VACATION. During the Employment Period, the Officer shall
be entitled to paid vacation in accordance with the most favorable
plans, policies, programs and practices of the Company and its
affiliated companies as in effect for the Officer at any time
during the 120-day period immediately preceding the Effective Date
or, if more favorable to the Officer, as in effect generally at any
time thereafter with respect to other peer executives of the
Company and its affiliated companies.
5. TERMINATION OF EMPLOYMENT.
(a) DEATH OR DISABILITY. The Officer's employment shall terminate
automatically upon the Officer's death during the Employment Period. If the
Company determines in good faith that the Disability of the Officer has occurred
during the Employment Period (pursuant to the definition of Disability set forth
below), it may give to the Officer written notice in accordance with
Section 12(b) of this Agreement of its intention to terminate the Officer's
employment. In such event, the Officer's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the Officer
(the "Disability Effective Date"), provided that, within the 30 days after such
receipt, the Officer shall not have returned to full-time performance of the
Officer's duties. For purposes of this Agreement, "Disability" shall mean the
absence of the Officer from the Officer's duties with the Company on a full-time
basis for 180 consecutive business days as a result of incapacity due to mental
or physical illness which is determined to be total and permanent by a physician
selected by the Company or its insurers and acceptable to the Officer or the
Officer's legal representative.
(b) CAUSE. The Company may terminate the Officer's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause" shall
mean:
(i) the Officer's gross violation of the terms of this Agreement,
if such violation has not been substantially cured within thirty
(30) days following written notice to the Officer from the Company
of such violation setting forth with specificity the nature of the
violation or, if cure cannot reasonably be effected within such
30-day period, if the Officer does not commence such cure within
such 30-day period and thereafter pursue such cure continuously and
with due diligence until cure has been effected; or
(ii) the Officer's willful dishonesty towards, fraud upon, felony
crime against, deliberate material injury or material bad faith
ction with respect to, or deliberate or attempted injury to the
Company.
(c) GOOD REASON; WINDOW PERIOD. The Officer's employment may be
terminated (i) during the Employment Period by the Officer for Good Reason or
(ii) during the Window Period by the Officer without any reason. For purposes
of this Agreement, "Window Period" shall mean the 30-day period immediately
following the Effective Date. For purposes of this Agreement, any termination
by the Officer during the Window Period shall be deemed a termination by the
Officer for Good Reason and, in addition, "Good Reason" shall mean:
(i) the assignment to the Officer by the Company following the
Effective Date of any duties inconsistent with, or a substantial
alteration in the nature or status of, the Officer's
responsibilities as in effect during the 120-day period prior to
the Effective Date, including a change in the Officer's title or
the level of supervisor to whom the Officer is required to report;
(ii) a failure by the Company to comply with any of the provisions
of Section 4(b) of this Agreement other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith
and which is remedied by the Company promptly after receipt of
notice thereof given by the Officer;
(iii) a relocation of the Company's principal offices to a
location outside a 30-mile radius of Denver, Colorado, or the
Officer's relocation to any place other than the offices of the
Company located in Denver, Colorado or within 30 miles of Denver,
Colorado, except for reasonably required travel by the Officer on
the Company's business to an extent
<PAGE>
substantially consistent with the Officer's business travel
obligations immediately preceding the Effective Date;
(iv) any material breach by the Company of any provision of this
Agreement, if such material breach has not been cured within thirty
(30) days following written notice by the Officer to the Company of
such breach setting forth with specificity the nature of the breach;
(v) any failure by the Company to obtain the assumption and
performance of this Agreement by any successor (by merger,
consolidation or otherwise) or assign of the Company; or
(vi) the voluntary termination by William J. Pearse of his
employment as Chairman of the Company or the termination of his
employment as Chairman in the event of a Change of Control;
provided that such termination shall constitute Good Reason only
for a period of 120 days from the date of termination of Mr.
Pearse's employment as Chairman.
For purposes of this Section 5(c), any good faith determination of "Good Reason"
made by the Officer shall be conclusive.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by the Officer for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Officer's employment under the provision so indicated and (iii) if the Date
of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
days after the giving of such notice). The failure by the Officer or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Officer or the Company, respectively, hereunder or preclude the Officer or
the Company, respectively, from asserting such fact or circumstance in enforcing
the Officer's or the Company's rights hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Officer's employment is terminated by the Company for Cause, or by the Officer
for Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be, (ii) if the Officer's employment is
terminated by the Company other than for Cause or Disability, the Date of
Termination shall be the date on which the Company notifies the Officer of such
termination, (iii) if the Officer's employment is terminated by reason of
Disability, the Date of Termination shall be the Disability Effective Date, and
(iv) if the Officer's employment is terminated by reason of his death, the Date
of Termination shall be the last day of the month during which his death occurs.
6. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON; OTHER THAN FOR CAUSE, DEATH OR DISABILITY. If,
during the Employment Period, the Company shall terminate the Officer's
employment other than for Cause or Disability or the Officer shall terminate
employment for Good Reason, the parties acknowledge that the Officer will
sustain actual damages, the amount of which is indefinite, uncertain and
difficult of exact ascertainment because of the uncertainties of successfully
relocating and seeking a comparable position. In order to avoid dispute as to
the amount of such damages and the mutual expense and inconvenience such dispute
would entail, the Company and the Officer have agreed hereby that the Company
shall pay to the Officer compensation as provided below. It is hereby agreed
that in the event of such termination by the Company, the Officer shall receive
such amounts as herein provided, not as a penalty, but as the Officer's agreed
compensation and sole damages for the termination of this Agreement, in lieu of
the Officer's proof of his actual damages on that account. If, during the
Employment Period, the Company shall terminate the Officer's employment other
than for Cause or Disability or the Officer shall terminate employment for Good
Reason, the Company shall pay to the Officer in a lump sum in cash within five
days after the Date of Termination the aggregate of the following amounts:
<PAGE>
(i) the sum of (1) the Officer's Annual Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the
product of (x) the higher of (I) the Recent Annual Bonus and (II)
the Annual Bonus paid or payable, including any bonus or portion
thereof which has been earned but deferred (and annualized for any
fiscal year consisting of less than 12 full months or during which
the Officer was employed for less than 12 full months), for the
most recently completed fiscal year during the Employment Period,
if any (such higher amount being referred to as the "Highest Annual
Bonus") and (y) a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of Termination,
and the denominator of which is 365 and (3) any compensation
previously deferred by the Officer (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each
case to the extent not theretofore paid (the sum of the amounts
described in clauses (1), (2), and (3) shall be hereinafter
referred to as the "Accrued Obligations"); and
(ii) the amount equal to the product of (1) two and (2) the sum of
(x) the Officer's Annual Base Salary and (y) the Highest Annual Bonus.
To the extent not theretofore paid or provided, the Company shall timely
pay or provide to the Officer any other amounts or benefits required to be paid
or provided or which the Officer is eligible to receive under any plan, program,
policy or practice or contract or agreement of the Company and its affiliated
companies (such other amounts and benefits shall be hereinafter referred to as
the "Other Benefits").
In addition, any options to purchase shares of the Company's common stock
shall immediately vest and become exercisable as of the Date of Termination and,
notwithstanding anything to the contrary in the Officer's option agreements with
the Company, the options shall be exercisable for a period of 12 months after
the Date of Termination (but in no event beyond the expiration date applicable
to such options). Notwithstanding anything to the contrary in the Officer's
restricted stock award agreements with the Company, any restrictions on
restricted stock grants shall also be eliminated.
(b) DEATH. If the Officer's employment is terminated by reason of
the Officer's death during the Employment Period, this Agreement shall terminate
without further obligations to the Officer's legal representatives under this
Agreement, other than for payment by the Company of Accrued Obligations and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Officer's estate or beneficiary, as applicable, in a lump sum in
cash within five days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(b)
shall include, without limitation, and the Officer's estate and/or beneficiaries
shall be entitled to receive, benefits at least equal to the most favorable
benefits provided by the Company and affiliated companies to the estates and
beneficiaries of peer executives of the Company and such affiliated companies
under such plans, programs, practices and policies relating to death benefits,
if any, as in effect with respect to other peer executives and their
beneficiaries at any time during the 120-day period immediately preceding the
Effective Date or, if more favorable to the Officer's estate and/or the
Officer's beneficiaries, as in effect on the date of the Officer's death with
respect to other peer executives of the Company and its affiliated companies and
their beneficiaries.
(c) DISABILITY. If the Officer's employment is terminated by reason
of the Officer's Disability during the Employment Period, this Agreement shall
terminate without further obligations to the Officer, other than for payment by
the Company of Accrued Obligations and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Officer in a lump sum in
cash within five days of the Date of Termination. With respect to the provision
of Other Benefits, the term Other Benefits as utilized in this Section 6(c)
shall include, and the Officer shall be entitled after the Disability Effective
Date to receive, disability and other benefits at least equal to the most
favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding the Effective Date or, if
more favorable to the Officer and/or the Officer's family, as in effect at any
time thereafter generally with respect to other peer executives of the Company
and its affiliated companies and their families.
<PAGE>
(d) CAUSE. If the Officer's employment shall be terminated for Cause
during the Employment Period, this Agreement shall terminate without further
obligations to the Officer other than the obligation to pay to the Officer
(x) his Annual Base Salary through the Date of Termination, (y) the amount of
any compensation previously deferred by the Officer and (z) Other Benefits, in
each case to the extent theretofore unpaid.
(e) OTHER THAN FOR GOOD REASON. If the Officer voluntarily
terminates employment during the Employment Period, excluding a termination for
Good Reason, this Agreement shall terminate without further obligations to the
Officer, other than for payment by the Company of Accrued Obligations and the
timely payment or provision of Other Benefits. In such case, all Accrued
Obligations shall be paid to the Officer in a lump sum in cash within five days
of the Date of Termination.
7. NON-EXCLUSIVITY OF RIGHTS. Except as provided in Sections 6(a)(ii),
6(b) and 6(c), nothing in this Agreement shall prevent or limit the Officer's
continuing or future participation in any plan, program, policy or practice
provided by the Company or any of its affiliated companies and for which the
Officer may qualify nor, subject to Section 12(f), shall anything herein limit
or otherwise affect such rights as the Officer may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts that are
vested benefits or that the Officer is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement.
8. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Officer or others. In no event shall the Officer be obligated to seek other
employment or take any other action by way of mitigation of the amounts payable
to the Officer under any of the provisions of this Agreement and such amounts
shall not be reduced whether or not the Officer obtains other employment. The
Company agrees to pay as incurred, to the full extent permitted by law, all
legal fees and expenses which the Officer may reasonably incur as a result of
any contest (regardless of the outcome thereof, except in the case of fees
incurred with respect to a claim brought in bad faith) by the Company, the
Officer or others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof (including
as a result of any contest by the Officer about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code").
9. LIMITATION ON AMOUNT OF PAYMENT. Notwithstanding anything else in
this Agreement, solely in the event of a termination by the Company without
Cause or a termination by the Officer for Good Reason, the aggregate of the
amount of compensation paid to the Officer under this Agreement or otherwise,
but exclusive of any payments to the Officer by virtue of the Officer's exercise
of any right or payment of any kind under the Equity Incentive Plan upon a
Change in Control, shall not include any amount that the Company is prohibited
from deducting for federal income tax purposes by virtue of Section 280G of the
Code or any successor provision.
10. CONFIDENTIAL INFORMATION. The Officer shall not, during his
employment by the Company or at any time thereafter, directly or indirectly use,
divulge, furnish or make accessible to anyone other than the Company, its
directors or officers (otherwise than in the regular course of the business of
the Company), any knowledge or information regarding any confidential or secret
activities, prospects, technical data, analysis and interpretations, projects,
plans, reports, customer names or lists, financial or marketing information or
documentary material relating to the existing, planned or contemplated business
or activities of the Company. The Officer, upon leaving the employ of the
Company, shall not take with him or retain any books, records, data, reports,
letters, memoranda, notes or other writings or documents whatsoever, or copies
thereof, which reflect or deal with any secret, proprietary or confidential
information or material relating to the business or activities of the Company.
The obligations of the Officer under this Section 10 shall not apply to (i)
information which at the time of disclosure is readily available to the public,
(ii) information which is or becomes available to the general public other than
through acts or omissions attributable to the Officer, or (iii) information
obtained from a third party who is lawfully in possession of the same other than
through breach of a confidentiality or nonuse obligation
<PAGE>
owed to the Company or others with respect to that information.
11. SUCCESSORS.
(a) This Agreement is personal to the Officer and, without the prior
written consent of the Company, shall not be assignable by the Officer otherwise
than by will or the laws of descent and distribution. This Agreement shall
inure to the benefit of and be enforceable by the Officer's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Companyas
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) NOTICES. All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Officer:
__________________________
__________________________
__________________________
If to the Company:
Ultimate Electronics, Inc.
321-A West 84th Avenue
Denver, Colorado 80221
Attention: Chief Executive Officer, President or Secretary
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) WITHHOLDINGS. The Company may withhold from any amounts payable
under this Agreement the minimum amounts of any such federal, state, local or
foreign taxes as shall be required to be withheld pursuant to any applicable law
or regulation.
(e) MODIFICATIONS. The Officer's or the Company's failure to insist
upon strict compliance with any provision of this Agreement or the failure to
assert any right the Officer or the Company may have
<PAGE>
hereunder, including, without limitation, the right of the Officer to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
(f) ACKNOWLEDGMENT OF EMPLOYMENT AT WILL. The Officer and the
Company acknowledge that, except as may otherwise be provided under any other
written agreement between the Officer and the Company, the employment of the
Officer by the Company is "at will" and, subject to Section 1(a) hereof, prior
to the Effective Date, the Officer's employment and/or this Agreement may be
terminated by either the Officer or the Company at any time prior to the
Effective Date, in which case the Officer shall have no further rights under
this Agreement. From and after the Effective Date, this Agreement shall
supersede any other agreement between the parties with respect to the subject
matter hereof.
IN WITNESS WHEREOF, the Officer has hereunto set the Officer's hand and,
pursuant to the authorization from its Board of Directors, the Company has
caused these presents to be executed in its name on its behalf, all as of the
day and year first above written.
(Officer)
ULTIMATE ELECTRONICS, INC.
By:
Name: William J. Pearse
Title: Chairman of the Board
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