<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1999
REGISTRATION NO. 333-87341
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1 TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ULTIMATE ELECTRONICS, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 84-0585211
(State or other jurisdiction (I.R.S. Employer
of Identification
incorporation or organization) No.)
</TABLE>
321 WEST 84TH AVENUE, SUITE A
THORNTON, COLORADO 80260
(303) 412-2500
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ALAN E. KESSOCK
ULTIMATE ELECTRONICS, INC.
321 WEST 84TH AVENUE, SUITE A
THORNTON, COLORADO 80260
(303) 412-2500
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
----------------------------------
WITH COPIES TO:
PAUL HILTON, ESQ. VALERIE FORD JACOB, ESQ.
Davis, Graham & Stubbs LLP STUART H. GELFOND, ESQ.
370 17th Street, Suite 4700 Fried, Frank, Harris, Shriver &
Jacobson
Denver, Colorado 80202 One New York Plaza
Telephone: (303) 892-9400 New York, New York 10004-1980
Facsimile: (303) 892-7400 Telephone: (212) 859-8000
Facsimile: (212) 859-4000
----------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / / ____________________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / / ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) UNIT(2) OFFERING PRICE(2) FEE(2)(3)
<S> <C> <C> <C> <C>
Common Stock, $.01 par value(4)............. 2,587,500 $17.875 $46,251,562.50 $12,857.93
</TABLE>
(1) Includes 337,500 shares subject to the underwriters' over-allotment option.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) on the basis of the average of the high and low prices
reported on the NASDAQ National Market System on September 15, 1999.
(3) Previously paid.
(4) The common stock offered by this registration statement includes preferred
stock purchase rights. The rights will be associated with and will trade
with the common stock. The value, if any, of the rights will be reflected in
the market price of the common stock.
----------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Prospectus (Not Complete)
Issued September 29, 1999
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED WITHOUT
NOTICE. ULTIMATE ELECTRONICS AND THE SELLING STOCKHOLDERS MAY NOT SELL THESE
SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND
EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES, AND ULTIMATE ELECTRONICS AND THE SELLING STOCKHOLDERS ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES, IN ANY STATE WHERE THE OFFER OR SALE
OF THESE SECURITIES IS NOT PERMITTED.
<PAGE>
2,250,000 SHARES
[LOGO]
ULTIMATE ELECTRONICS, INC.
COMMON STOCK
----------------
Ultimate Electronics, Inc. and the selling stockholders are offering shares
of common stock in a firmly underwritten offering. Ultimate Electronics is
offering 2,000,000 shares and the selling stockholders are offering 250,000
shares. The company will not receive any of the proceeds of shares sold by the
selling stockholders.
------------------------
The common stock is traded on the Nasdaq National Market under the symbol
"ULTE." On September 24, 1999, the last reported sale price for the common stock
on the Nasdaq National Market was $15 7/8 per share.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 8.
---------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------------------- ---------------------
<S> <C> <C>
Offering Price.................................................... $ $
Discounts and Commissions to Underwriters......................... $ $
Offering Proceeds to Ultimate Electronics......................... $ $
Offering Proceeds to the Selling Stockholders..................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
Ultimate Electronics has granted the underwriters the right to purchase up
to an additional 337,500 shares of common stock to cover any over-allotments.
The underwriters can exercise this right at any time from time to time within
thirty days after the offering. Banc of America Securities LLC expects to
deliver the shares of common stock to investors on or about October , 1999.
BANC OF AMERICA SECURITIES LLC U.S. BANCORP PIPER JAFFRAY
----------------
October , 1999
<PAGE>
[INSIDE COVER DESIGN]
[picture of Boise, Idaho store exterior]
[picture of Big Screen TV Room, Lakewood, Colorado store]
Ultimate Electronics-Registered Trademark-, Audio King-Registered Trademark-,
Fast Trak-Registered Trademark-, and Big Names. Little Prices.
Guaranteed.-Registered Trademark- are federally registered trademarks and
service marks owned by Ultimate Electronics, Inc. SoundTrack-TM-, Simple
Solution-TM-, and Ultimate Electronics Express-TM- are also trademarks owned by
Ultimate Electronics, Inc., for which there are pending applications for federal
registration. The Ultimate SoundTrack is a registered trademark in the State of
Colorado. Audio King and Fast Trak are registered trademarks in the State of
Minnesota. This prospectus also contains trademarks of companies other than
Ultimate Electronics, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Forward-Looking Statements................................................................................. i
Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 8
Use of Proceeds............................................................................................ 16
Dividend Policy............................................................................................ 16
Price Range of Common Stock................................................................................ 17
Capitalization............................................................................................. 18
Selected Financial Data.................................................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 20
Business................................................................................................... 28
Management................................................................................................. 41
Principal and Selling Stockholders......................................................................... 43
Description of Capital Stock............................................................................... 45
United States Tax Consequences to Non-United States Holders................................................ 49
Underwriting............................................................................................... 52
Legal Matters.............................................................................................. 53
Experts.................................................................................................... 54
Where You Can Find Additional Information.................................................................. 54
Incorporation of Information by Reference.................................................................. 54
Index to Consolidated Financial Statements................................................................. F-1
</TABLE>
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference into the
prospectus include forward-looking statements within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. We use words such as "may," "believe," "estimate," "expect," "plan,"
"intend," "project," "anticipate" and similar expressions to identify
forward-looking statements. We have based these forward-looking statements on
our current expectations and projections about future events, activities or
developments. Our actual results could differ materially from those discussed in
or implied by these forward-looking statements. Forward-looking statements
include statements relating to, among other things:
- our growth strategy and plans regarding opening new stores and entering
new markets;
- our intention to relocate and/or expand existing stores;
- expected capital and other expenditures to open new and relocated and/or
expanded existing stores;
- our current and future plans with respect to our web site, including
investigation of Internet sales;
- growth trends and projected sales in the consumer electronics business;
- technological and market developments in the consumer electronics
business, including trends with respect to digital products like DVD, HDTV
and other new products;
- our relationships with key suppliers;
- the anticipated consequences of the Year 2000 issue; and
- our expectations regarding competition, including competition on the
Internet.
i
<PAGE>
These forward-looking statements are subject to numerous risks,
uncertainties and assumptions about our company, including the factors described
under "Risk Factors" and including, among other things:
- risks related to our ability to open and profitably operate new stores;
- our ability to profitably relocate and/or expand existing stores;
- the willingness of vendors to permit product sales over the Internet;
- significant competition, including new competition from Internet
retailers;
- seasonal fluctuations in our business;
- changes in trade regulations and currency fluctuations;
- risks regarding increases in promotional activities of competitors;
- the presence or absence of new products or product features in our
merchandise categories;
- changes in the distribution strategy of our vendors;
- changes in vendor support for advertising and promotional programs;
- changes in our merchandise sales mix;
- the results of financing efforts;
- fluctuations in consumer demand and preferences;
- the risks associated with Year 2000 issues; and
- general economic conditions.
The forward-looking events we discuss in this prospectus might not occur in
light of these risks, uncertainties and assumptions. We undertake no obligation,
and disclaim any obligation, to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
------------------------
You should rely only on the information contained or incorporated by
reference in this prospectus. We have not, and the underwriters have not,
authorized any other person to provide you with different information. If anyone
provides you with different or inconsistent information, you should not rely on
it. We are not, and the underwriters are not, making an offer to sell these
securities in any jurisdiction where the offer or sale is not permitted. You
should assume that the information appearing in this prospectus is accurate only
as of the date on the front cover of this prospectus. Our business, financial
condition, results of operations and prospects may have changed since that date.
Information on our web site or in our promotional literature is not incorporated
into this document.
ii
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY IS NOT COMPLETE AND DOES NOT CONTAIN ALL OF THE INFORMATION YOU
SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE "RISK FACTORS" SECTION AND OUR CONSOLIDATED
FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS. REFERENCES TO ULTIMATE
ELECTRONICS, "WE" AND "OUR" REFER TO ULTIMATE ELECTRONICS, INC. AND OUR
CONSOLIDATED SUBSIDIARIES AND NOT TO THE UNDERWRITERS; REFERENCES TO "YOU" REFER
TO PROSPECTIVE INVESTORS IN OUR COMMON STOCK. REFERENCES TO FISCAL YEARS IN THIS
PROSPECTUS REFER TO THE TWELVE MONTHS ENDED JANUARY 31 OF THAT YEAR, E.G.,
"FISCAL 1999" REFERS TO THE TWELVE MONTHS ENDED JANUARY 31, 1999.
OVERVIEW
Ultimate Electronics is a leading specialty retailer of consumer electronics
and home entertainment products in the Rocky Mountain, Midwest and Southwest
regions of the United States. We appeal to a wide range of consumers and focus
on mid to high-end products sold by a highly-trained, knowledgeable, full-time
sales force in a full service retail environment. We seek to differentiate
Ultimate Electronics from its national, regional and local competitors by:
- focusing on audio, video, television and mobile electronics products;
- offering over 125 brands including a majority of the most popular names
and a large selection of limited-distribution, upscale brands and lines;
- emphasizing products with the latest technology by dedicating significant
resources to their promotion, advertising, merchandising and related
product training;
- offering Simple Solution packages created by us for home theater, mobile
electronics and home computing to make purchasing consumer electronics
systems simple;
- utilizing an upscale, demonstration-oriented store format with an emphasis
on presentation of large screen televisions, home theater systems and
mobile electronics;
- featuring highly-trained, knowledgeable, full-time sales associates and
installation technicians; and
- providing a complete menu of value-added services including home
installation by our own technicians.
We believe that our differentiating characteristics, together with our policy of
offering the same price as our competitors on identical merchandise, makes us an
attractive alternative to volume driven appliance/electronics superstores, as
well as to other national, regional and local merchants. In addition, our
commitment to technologically advanced products, combined with our
highly-trained sales force, positions us to take advantage of the evolution in
consumer electronics products that is being led by digital technology.
We operate 30 stores, including 10 stores in Colorado under the trade name
SoundTrack, 11 stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma and Utah
under the trade name Ultimate Electronics and nine stores in Minnesota and South
Dakota under the trade name Audio King. Our large format store, which is our
prototype store, generally ranges from 30,000 to 36,000 square feet and displays
products in an upscale retail environment. Fifteen of our 30 stores are
currently considered large format stores. Our large format stores have typically
been profitable on a store operating basis within their first 12 months of
operation and had an average initial store investment pay-back period, excluding
inventory, within 24 months. These large format stores feature an extensive
selection of over 4,000 items with products in the following categories:
<TABLE>
<S> <C> <C>
- - televisions - camcorders - mobile navigational
systems
- - home theater systems - home audio - wireless communications
- - direct broadcast satellite - portable audio - home office/computer
- - VCR - car stereo - home theater furniture
- - digital versatile disc - car security - audio and video
(DVD) accessories
</TABLE>
1
<PAGE>
In fiscal 1999, our sales increased 10% to $337.5 million compared to the
prior year. In May 1998, we executed a major strategic initiative by
significantly reducing our assortment of computers, peripherals and related
products. Comparable store sales for fiscal 1999 increased 2% (7% excluding the
computer category). This initiative also contributed to our improvement in gross
margin to 28.9% of sales in fiscal 1999 from 27.0% of sales in fiscal 1998. Our
earnings per share increased significantly to $.35 in fiscal 1999 from $.02 in
fiscal 1998.
During the first half of fiscal 2000, our sales were $166.6 million and
comparable stores sales increased 17% (20% excluding the computer category). Our
gross margin improved to 30.0% of sales in the first six months of fiscal 2000
from 28.3% of sales for the first six months of fiscal 1999. Our earnings per
share was $.20 during the first half of fiscal 2000, compared to a loss per
share of $.26 for the first half of fiscal 1999.
THE CONSUMER ELECTRONICS INDUSTRY
The consumer electronics industry is defined to include television, audio,
video, mobile electronics, home information (including computers and related
products) and gaming products. According to the Consumer Electronics
Manufacturing Association, total industry factory sales (domestic and imports to
the U.S.) by manufacturers of consumer electronics products were estimated to be
$76 billion in 1998 and projected to exceed $80 billion in 2000. We believe that
growth in the consumer electronics industry is driven by the introduction of new
products and technological advancements.
We believe that growth in this industry will largely be generated in the
coming years by the introduction of products that incorporate digital technology
such as DVD players, digital camcorders and high definition televisions (HDTVs).
Digital products offer significant advantages over their analog counterparts,
such as clarity and quality of video and audio, durability of recording and
compatibility with computers. Due to these advantages, many in the industry
expect the digital evolution in the consumer electronics industry to drive
growth well beyond the year 2000 as consumers seek new technology and replace
their existing analog-based products with digital products. We believe that
specialty retailers with sales personnel trained to demonstrate the benefits of
technologically-advanced products are well positioned to capture increased sales
that should result as such products achieve market acceptance.
BUSINESS STRATEGY
Key elements of our business strategy include:
FOCUSING ON AUDIO, VIDEO, TELEVISION AND MOBILE ELECTRONICS PRODUCTS. We
focus primarily on audio, video, television and mobile electronics products, and
provide our customers with a comprehensive and informative experience when
making the decision to purchase consumer electronics products. We believe that
this specialized focus enhances the reputation of our stores as being a premier
place to purchase products in these core categories.
OFFERING AN EXTENSIVE SELECTION OF MID TO HIGH-END AUDIO AND VIDEO
PRODUCTS. We offer over 4,000 items, representing over 125 brand names across a
broad selection of audio and video products. A significant portion of these
brands, such as Boston Acoustics, Denon, Krell, Martin Logan, Mitsubishi and
Sony ES, are only available through select retailers. We believe our extensive
selection helps customers make a better informed buying decision.
BEING A LEADER IN OFFERING NEW TECHNOLOGY. We strive to be recognized by
consumers and vendors as a leader in presenting the latest technology. We devote
significant resources to marketing and substantial floor space and inventory to
displaying new technologies. For example, as a result of this focus, we were
able to sell and deliver the first high definition television for residential
use in the
2
<PAGE>
United States in July 1998. We believe that showcasing the latest technology
differentiates us from less specialized competitors and stimulates the sales of
our other products and services.
OFFERING SIMPLE SOLUTION PRODUCT PACKAGES. We assist our customers in
making larger and more complex consumer electronics purchases with our Simple
Solution program. Our Simple Solution program, which provides complete system
packages to our customers, makes home theater, car audio and computer purchase
decisions simpler, and offers the consumer an excellent value when compared to
purchasing the same components separately.
PROVIDING AN UPSCALE, DEMONSTRATION-ORIENTED STORE FORMAT. We have
developed an upscale, demonstration-oriented store format that showcases our
merchandise and encourages our customers to fully experience our products. We
believe that this format assists our customers in understanding the benefits of
upscale products and new technology.
TRAINING AND DEVELOPING A PREMIER SALES AND INSTALLATION TEAM. We believe
that the quality and knowledge of our sales associates and installation
technicians is critical to our success and represents a significant competitive
advantage. We also believe that our specialized training leads to a superior
customer experience that stimulates sales of our products. We ensure that our
sales associates receive comprehensive on-going technical product and sales
training prior to our introduction of significant new products, which helps us
maintain our new technology product leadership. Our installation technicians
also receive comprehensive technical product and installation training.
PROVIDING "RED CARPET" CUSTOMER SERVICE. We have always been committed to
providing excellent customer service. We support our product sales by providing
many important customer services, including home delivery and set-up, home
theater and audio design and installation, home satellite installation, mobile
electronics installation, extended service contracts and regional service
centers that offer in-home and carry-in repair services. We believe that our
in-home installation service provided by our own employees is a competitive
advantage.
PROMOTING OUR MERCHANDISE THROUGH DIFFERENTIATED MARKETING AND
ADVERTISING. We recently redesigned our marketing program to create awareness
of our comprehensive selection of mid to high-end brand name merchandise sold at
competitive prices. Our advertising strategy primarily uses newspaper, radio and
targeted direct mail media. The cornerstone of our direct mail campaign is a 70
to 80 page full color catalog published four times a year that emphasizes the
breadth of our selection and new technology.
OFFERING COMPETITIVE PRICING AND SATISFACTION GUARANTEE. Our goal is to
advertise and sell products at the same price as our competitors. We reinforce
this strategy in our advertising and with our "30 day satisfaction guarantee"
backed by our "60 day price guarantee." Our price guarantee and satisfaction
guarantee are designed to remove pricing and suitability concerns from the
purchase decision and allow the customer and the sales staff to focus on product
features, performance and quality.
GROWTH STRATEGY
In addition to our business strategy that is focused on generating
comparable store sales increases, key elements of our growth strategy include:
OPENING NEW STORES. We intend to expand into select metropolitan areas in
the Rocky Mountain, Midwest and Southwest regions with our prototype 30,000 to
36,000 square foot stores (with a few as small as 20,000 square feet in smaller
markets). We are currently constructing a new 36,000 square foot store in
Davenport, Iowa that is expected to open in fiscal 2000. We expect to open an
additional six to eight new stores in fiscal 2001 primarily in the Phoenix area
and eight to 12 additional stores in fiscal 2002. We believe there are many
additional markets for future expansion within an 850 mile radius of our
distribution center located in Colorado, as well as new store opportunities in
our existing markets.
3
<PAGE>
RELOCATING AND/OR EXPANDING EXISTING STORES. We are currently planning to
relocate and/or expand several of our smaller locations. In particular:
- we are currently expanding a Minneapolis, Minnesota area store from 9,700
to 18,000 square feet;
- we are currently relocating and expanding our Sioux Falls, South Dakota
store from 3,200 to 22,000 square feet;
- we plan to relocate a 9,300 square foot store in the St. Paul, Minnesota
area to a 35,000 square foot store in the second quarter of fiscal year
2001;
- we expect to expand our Fort Collins, Colorado store from 16,600 to 22,000
square feet in the first quarter of fiscal 2001; and
- we plan to relocate and expand one of our Denver, Colorado area stores
within the next 18 months.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Ultimate
Electronics.......................... 2,000,000 shares
Common stock offered by the selling
stockholders......................... 250,000 shares
Total shares offered................... 2,250,000 shares
Common stock to be outstanding after
the offering......................... 10,238,393 shares(1)
Use of proceeds........................ We expect to receive approximately $29.6 million in
net proceeds in this offering, assuming an offering
price of $15.875 per share. We intend to use these
net proceeds:
- to repay approximately $12 million under our
revolving credit facility, any part of which
is available to be reborrowed;
- to prepay on or after March 31, 2000 $13
million of mortgage bonds optionally redeemable
after such date;
- for development of new stores and for
relocation and/or expansion of existing stores;
and
- for general corporate purposes.
We will not receive any proceeds of shares sold by
the selling stockholders. See "Use of Proceeds."
Nasdaq National Market symbol.......... ULTE
</TABLE>
- ------------------------
(1) The number of shares that will be outstanding after the offering is based on
the actual number of shares as of September 24, 1999 and assumes that the
underwriters do not exercise their over-allotment option. It also excludes
998,771 shares of common stock reserved for issuance under our stock option
plans, of which options to purchase 946,921 shares were outstanding as of
September 24, 1999, at a weighted average exercise price of $4.41 per share.
5
<PAGE>
SUMMARY FINANCIAL AND OPERATING DATA
(in thousands, except per share and operating data)
The following table contains our summary consolidated financial and
operating data. Information for each fiscal year is derived from our financial
statements which have been audited by Ernst & Young LLP, independent auditors.
Interim period information is derived from our unaudited financial statements
which include, in the view of management, all adjustments necessary for a fair
presentation of such data. Interim period results are not indicative of full
year results. You should read this information together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JANUARY 31, JULY 31,
--------------------------------- --------------------------
<S> <C> <C> <C> <C> <C>
1997 1998(1) 1999 1998 1999
--------- --------- --------- ---------- ---------
INCOME STATEMENT DATA:
Sales............................ $ 261,154 $ 306,306 $ 337,454 $ 142,064 $ 166,612
Gross profit..................... 69,251 82,842 97,600 40,163 49,996
Selling, general and
administrative expenses........ 64,786 78,621 89,010 41,373 45,814
Income (loss) from operations.... 4,465 4,221 8,590 (1,210) 4,182
Income (loss) before income
taxes.......................... 1,255 236 4,633 (3,408) 2,794
Net income (loss)................ $ 785 $ 148 $ 2,910 $ (2,153) $ 1,757
Earnings (loss) per
share--Basic................... $ 0.11 $ 0.02 $ 0.36 $ (0.26) $ 0.21
Earnings (loss) per
share--Diluted................. $ 0.11 $ 0.02 $ 0.35 $ (0.26) $ 0.20
Weighted average shares
outstanding-- Basic............ 6,995 7,626 8,150 8,145 8,187
Weighted average shares
outstanding-- Diluted.......... 7,125 7,737 8,317 8,145 8,866
SELECTED OPERATING DATA:
Number of stores open at end of
period......................... 18 30 30 30 30
Inventory turns(2)............... 4.7 4.9 5.1 5.0 5.3
Average square footage per store
at end of period............... 30,200 25,600 25,600 25,600 25,600
Sales growth..................... 4% 17% 10% 21%(1) 17%
Comparable stores sales
growth(3)...................... (16)% (6)% 2% (1)% 17%
Store contribution margin(4)..... 6.8% 6.5% 8.7% 5.6% 8.5%
Gross profit margin.............. 26.5% 27.0% 28.9% 28.3% 30.0%
Operating margin................. 1.7% 1.4% 2.5% (0.8)% 2.5%
Net income margin................ 0.3% 0.1% 0.9% (1.5)% 1.1%
</TABLE>
(continued on next page)
6
<PAGE>
<TABLE>
<CAPTION>
AS OF JULY 31, 1999
-----------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(5)
---------- -----------
BALANCE SHEET DATA:
Working capital.......................................................................... $ 29,140 $ 33,726
Total assets............................................................................. 121,388 125,974
Long-term debt(6)(7)..................................................................... 25,143 165
Capital lease obligations(7)............................................................. 1,810 1,810
Stockholders' equity..................................................................... 49,644 79,208
</TABLE>
- ------------------------
(1) On June 27, 1997, we acquired Audio King, which has 11 stores with an
average size of 13,700 square feet. The results of operations of Audio King
since the acquisition date are included in our consolidated financial
statements.
(2) Inventory turns are calculated based upon the average of the prior 12 months
inventory levels.
(3) Comparable store sales are for stores open at least 13 months and exclude
recently relocated and expanded stores for 13 months after their opening
date.
(4) Store contribution margin includes all store sales less direct and allocated
expenses as a percentage of store sales. Allocated expenses do not include
corporate and warehouse/distribution expenses, interest expense and
corporate income taxes.
(5) Adjusted to reflect the sale of 2,000,000 shares of common stock being sold
by Ultimate Electronics in this offering and the use of the net proceeds
from such sale, as described under "Use of Proceeds."
(6) Our $13 million of 10.25% mortgage bonds cannot be redeemed until March 31,
2000.
(7) Does not include current portions.
7
<PAGE>
RISK FACTORS
INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THESE RISK FACTORS, TOGETHER WITH ALL OF THE OTHER
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS PROSPECTUS, BEFORE YOU
DECIDE TO INVEST IN SHARES OF OUR COMMON STOCK. IF ANY OF THE FOLLOWING RISKS,
OR OTHER RISKS NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY BELIEVE NOT TO BE
SIGNIFICANT, DEVELOP INTO ACTUAL EVENTS, THEN OUR BUSINESS, FINANCIAL CONDITION,
RESULTS OF OPERATIONS OR PROSPECTS COULD BE MATERIALLY ADVERSELY AFFECTED. IF
THAT HAPPENS, THE MARKET PRICE OF OUR COMMON STOCK WOULD LIKELY DECLINE, AND YOU
MAY LOSE ALL OR PART OF YOUR INVESTMENT.
OUR SUCCESS DEPENDS IN LARGE PART ON OUR ABILITY TO OPEN AND PROFITABLY OPERATE
NEW OR RELOCATED AND/OR EXPANDED STORES IN EXISTING AND NEW GEOGRAPHIC MARKETS
We may not be able to open, relocate and/or expand all of the stores
discussed in our growth strategy and any new stores that we open, relocate
and/or expand may not be profitable, either of which would have a material
adverse impact on our financial results. We have not entered into leases for
most of the stores that we expect to open or relocate over the next 18 months.
We have not yet selected all sites for stores that we may open in fiscal 2001
and 2002. Opening a new store typically requires six to nine months of
construction and preopening activity. The opening of additional stores in new
geographic markets could present competitive and merchandising challenges
significantly different from those we currently face or previously have faced
within our existing geographic markets. In addition, we will incur higher costs
related to advertising, administration and distribution as we enter new markets,
and our large store format may not be as successful in new markets. Also,
opening new stores in markets where we already have existing stores could result
in decreased sales at our other stores in that market. If we do not open a
significant number of new stores in new markets as anticipated, our sales and
earnings will be significantly negatively impacted and we will not be able to
achieve our current business plan.
There are a number of other factors that could affect our ability to open
and operate new stores consistent with our business plan. These factors also
affect the ability of any newly opened or acquired stores to achieve sales and
profitability levels comparable with our existing stores, or to become
profitable at all. These factors include:
- competition in our targeted markets;
- the lack of consumer demand for our products at levels that can support
acceptable profit margins;
- the inability to identify and acquire suitable sites and to negotiate
acceptable leases for such sites due to the large size of our stores or
other factors;
- difficulties associated with the hiring, training and retention of skilled
personnel, including store managers;
- problems in adaptation of our distribution and other operational and
management systems to an expanded network of stores;
- higher costs for print, television and radio advertising;
- the availability of adequate financial resources;
- the inability and unwillingness of vendors to supply product on a timely
basis at competitive prices;
- difficulty in obtaining governmental and other third-party consents,
permits and licenses needed to operate such additional sites;
- challenges associated with the financing, consummation and integration of
any acquisitions; and
- the ability to secure our existing brands in new markets.
8
<PAGE>
Our growth plans will require us to expend significant management time and
effort and additional resources to ensure the continuing adequacy of our
financial controls, operating procedures, information systems, product
purchasing and distribution systems and employee training programs. We also need
to attract and retain additional qualified personnel, including new store
managers, for new stores. We currently seek to transfer existing managers and
other personnel to our new stores who are familiar with our procedures but who
may not be familiar with the new market. If we are unable to take these steps,
our business will be adversely affected. We believe that our current
distribution center will be able to support the majority of our expansion
efforts over the next two years. However, we may need to expand or add to our
current facility in the future to fully accommodate our growth.
We estimate that the average cash investment, including preopening costs,
costs of tenant improvements and inventory (net of payables), required to open a
store to be approximately $3.0 million. However, the actual cost of opening any
particular store may be significantly greater than this current estimate. We may
need to seek additional debt and/or equity financing in order to fund our
continued expansion beyond fiscal 2001, depending on the number of stores we
actually open and the actual preopening costs. Any such debt or equity financing
may not be available on terms acceptable to us, if at all. In particular, we
will need to re-borrow amounts we are repaying with the proceeds of this
offering or obtain other financing in order to consummate our growth plan. Any
such re-borrowing may not be on as favorable terms as our current financing. In
addition, our ability to incur additional indebtedness or issue debt securities
is limited by covenants in our present debt instruments. Additional issuances of
equity by Ultimate Electronics will result in dilution to our existing
stockholders.
WE FACE SIGNIFICANT COMPETITION FROM NATIONAL, REGIONAL AND LOCAL CONSUMER
ELECTRONICS RETAILERS AND MAY EXPERIENCE HEIGHTENED COMPETITION FROM INTERNET
RETAILERS
The retail consumer electronics industry is highly competitive. We currently
compete against a diverse group of retailers, including several national,
regional and local merchants and appliance/electronics superstores, such as
Circuit City and Best Buy, which sell, among other products, audio and video
consumer electronics products similar and often identical to those we sell. Each
of our stores competes directly with either a Circuit City or a Best Buy, and
two-thirds of our stores compete with both. We also compete in particular
markets with a substantial number of retailers that specialize in one or more
types of consumer electronics products that we sell. Some of our competitors
have financial resources that are substantially greater than ours and may be
able to purchase inventory at lower costs, initiate and sustain predatory price
competition and better sustain economic downturns. In addition, other
appliance/electronic superstores, warehouse clubs, home improvement retailers
and mass merchants selling consumer electronics, such as Sears, Wal-mart and
Target, are continuing to expand their geographic markets, and such expansion
may increase price competition and reduce gross margins within those markets.
A number of different competitive factors could have a material adverse
effect on our results of operations and financial condition, including:
- expansion by existing competitors;
- entry by new competitors into markets in which Ultimate Electronics is
currently operating;
- competitive pricing strategies by competitors;
- increased sales by our competitors of upscale products;
- larger size and greater operational efficiencies of competitors; and
- adoption by existing competitors of promotional pricing, innovative store
formats or improved retail sales methods.
We also compete with retailers of consumer electronics on the Internet.
Internet sales of consumer electronics excluding computers are currently
estimated by Forrester Research to reach 10% of industry
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<PAGE>
sales by 2003. We expect that competition from the Internet will increase in the
future as a result of, among other things, the following factors:
- customers can more easily conduct price comparisons on the Internet, which
could result in decreased margins to us;
- Internet sales by our competitors could enhance price competition;
- the inapplicability of sales tax to Internet sales provides Internet sales
with a competitive advantage and that makes them attractive to consumers;
- lower-end products are currently more susceptible to Internet sales; and
- high-end manufacturers who currently do not allow their products to be
sold over the Internet may change their strategies, an action that could
significantly impact our margins on those high margin products and which
would be beyond our control.
Although we currently operate an information-based web site on the Internet,
we have not yet invested in the capability to engage in sales directly from the
site. Most of the high-end manufacturers of products we sell currently do not
allow their products to be sold over the Internet. In conjunction with our
manufacturers and their strategies, we continue to actively investigate adding a
sales function to our site. If we make an investment to sell over the Internet,
such investment could be very costly and our sales site may not attract
sufficient profitable sales to justify our investment.
BECAUSE WE EXPERIENCE SEASONAL FLUCTUATIONS IN OUR SALES, OUR QUARTERLY RESULTS
WILL FLUCTUATE AND OUR ANNUAL RESULTS COULD BE BELOW EXPECTATIONS
Seasonal consumer shopping patterns affect our business. Our fourth fiscal
quarter includes the holiday shopping period and has historically contributed,
and is expected to continue to represent, a substantial portion of our sales,
income from operations and net income for our entire fiscal year. The fourth
quarter of fiscal 1999 contributed 34% of sales, 80% of income from operations
and 131% of net income. As a result, any factors negatively affecting Ultimate
Electronics during the fourth quarter of any year, including adverse weather or
unfavorable economic conditions, would have a material adverse effect on our
results of operations for the entire year. More generally, our quarterly results
of operations and financial condition may fluctuate based upon such factors as:
- the timing of new store openings and store relocations;
- the amount of store preopening expenses;
- the amount of grand opening expenses incurred in new markets;
- the mix of consumer electronics products sold in our stores;
- timing of availability of new products;
- profitability of sales of particular products; and
- actions by our competitors, including grand opening and store closing
sales by competitors.
OUR COMPARABLE STORE SALES RESULTS WILL FLUCTUATE AND THIS MAY CAUSE OUR STOCK
PRICE TO FLUCTUATE
A number of factors have historically affected, and will continue to affect,
our comparable store sales results including among other factors:
- changes in competition;
- general regional and national economic conditions;
- new product introductions;
- consumer trends;
- changes in our product mix;
- weather conditions in our regions;
- timing of promotional events; and
- our ability to execute our business strategy effectively.
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<PAGE>
We do not expect comparable store sales to increase at recent historical
rates, and comparable store sales may be negative in the future. Our historical
results have fluctuated significantly from quarter to quarter. Changes in our
quarterly and annual comparable store sales results could cause the price of our
common stock to fluctuate substantially. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Seasonality."
OUR LIMITED GEOGRAPHICAL DISPERSION MAY REDUCE OUR ABILITY TO WEATHER ADVERSE
MARKET EVENTS
Ultimate Electronics currently operates 30 stores in nine states in the
Rocky Mountain, Midwest and Southwest regions of the United States. We are
vulnerable to adverse market events in these locations including weather-related
conditions, regional competition and unfavorable economic conditions.
A DISRUPTION IN OUR RELATIONSHIP WITH, OR IN THE OPERATIONS OF, ANY OF OUR KEY
SUPPLIERS COULD CAUSE OUR SALES TO DECLINE
The success of our business and growth strategy depends to a significant
degree upon our suppliers, particularly our brand name suppliers of audio and
video equipment such as Sony, Mitsubishi, Panasonic, JVC, Yamaha and RCA. We
rely on a number of suppliers for limited distribution upscale items. We also
rely on our suppliers for cooperative advertising support. Ultimate Electronics
does not have any long-term supply agreements or exclusive arrangements with any
vendors. We typically order our inventory through the issuance of individual
purchase orders to vendors. In addition, we rely heavily on a relatively small
number of suppliers. Our top five suppliers represented 63% of our purchases in
fiscal 1999. The loss of any of these key vendors or the failure by us to
establish and maintain relationships with these or other vendors could have a
material adverse effect on our results of operations and financial condition.
Our ability to establish additional stores in existing markets and to penetrate
new markets depends to a significant extent on the willingness and ability of
our vendors to supply those additional stores, and vendors may not be willing or
able to do so. As we continue to open or acquire new stores, the inability or
unwillingness of suppliers to supply some or all of their products to us at
acceptable prices in one or more markets could have a material adverse effect on
our results of operations and financial condition.
IF WE ARE UNABLE TO TIMELY RESPOND TO CHANGES IN CONSUMER DEMAND AND
PREFERENCES, WE MAY LOSE CUSTOMERS AND OUR SALES MAY DECLINE
Our success depends on our ability to anticipate and respond in a timely
manner to consumer demand and preferences regarding audio and video consumer
electronics products and changes in such demand and preferences. Any sustained
failure by us to identify and respond to changes in consumer demand and
preferences would have a material adverse effect on our results of operations
and financial condition.
IF NEW PRODUCTS ARE NOT INTRODUCED OR CONSUMERS DO NOT ACCEPT NEW PRODUCTS, OUR
SALES MAY DECLINE
We depend to a large extent on the periodic introduction and availability of
new products and technologies. Many products that incorporate the newest
technologies, such as DVD and HDTV, are subject to significant technological
changes and pricing limitations. They are also subject to the actions and
cooperation of third parties such as television broadcasters and movie
distributors. It is possible that these products or other new products,
including new digital formats, will never achieve widespread consumer
acceptance. Furthermore, the introduction or expected introduction of new
products or technologies may depress sales of existing products and
technologies, without a comparable increase in sales of new products in the same
period due to uncertainty regarding consumer acceptance of the new products.
Significant deviation from the projected demand for products we sell may have a
material
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<PAGE>
adverse effect on our results of operations and financial condition, either from
lost sales or lower margins due to the need to mark down excess inventory.
Our historical growth rate has been directly related to our ability to be a
leader in sales of new technology products. In the future, other retailers may
increase their focus on newer technologies. In addition, there may not be
significant technologically advanced products.
A DECLINE IN GENERAL ECONOMIC CONDITIONS COULD LEAD TO REDUCED CONSUMER DEMAND
FOR THE PRODUCTS WE SELL
Consumer spending patterns, particularly discretionary spending for products
such as consumer electronics, are affected by, among other things, prevailing
economic conditions, wage rates, inflation, new housing starts, consumer
confidence and consumer perception of economic conditions. A general slowdown in
the U.S. economy or an uncertain economic outlook would adversely affect
consumer spending habits.
CHANGES IN TRADE REGULATIONS, CURRENCY FLUCTUATIONS AND OTHER FACTORS BEYOND OUR
CONTROL WOULD IMPACT INVENTORY PURCHASED FROM FOREIGN VENDORS
We purchase a significant portion of our inventory from overseas vendors,
particularly vendors headquartered in Japan. Changes in trade regulations,
currency fluctuations or other factors may increase the cost of items we
purchase from foreign vendors or create shortages of such items, which could in
turn have a material adverse effect on our results of operations and financial
condition. Conversely, significant reductions in the cost of such items in U.S.
dollars may cause a significant reduction in retail price levels of those
products, thereby resulting in a material adverse effect on our sales, margins
or competitive position.
OUR BUYING POWER IS SOMEWHAT DEPENDENT UPON MEMBERSHIP IN A BUYING GROUP
We are the largest member of the Progressive Retailers Organization, a
volume buying group currently comprised of 14 consumer electronics retailers
located throughout the country. This organization provides its members with
market information and negotiates purchase terms with vendors on behalf of its
members. Any future termination of our membership in this group could have an
adverse effect on our results of operations and financial condition. In
addition, rebates paid to us by product manufacturers through this group depend
not only on our sales volumes but on the sales volumes achieved by the group's
other members, and therefore decreased sales performance by us or these other
members could reduce the amounts of such rebates payable to us. Any such
reduction could in turn have an adverse effect on our results of operations and
financial condition.
THE LOSS OF THE SERVICES OF OUR CHAIRMAN, CHIEF EXECUTIVE OFFICER, PRESIDENT OR
OTHER KEY EMPLOYEES COULD JEOPARDIZE OUR ABILITY TO MAINTAIN OUR COMPETITIVE
POSITION
We believe that our success depends on the continued service of our key
executive management personnel. Loss of the services of William J. Pearse, our
Chairman, J. Edward McEntire, our Chief Executive Officer, and David J. Workman,
our President and Chief Operating Officer, or other key employees could
jeopardize our ability to maintain our competitive position in the industry. We
do not currently have employment agreements with any of our executives or key
person life insurance for any of our officers or directors.
Our success also depends to a large extent on our ability to recruit, train
and retain qualified personnel throughout our organization and in our stores and
distribution facilities. As is typical in our industry, from time to time we
have had difficulty recruiting sufficient qualified personnel.
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<PAGE>
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS, WHICH COULD IMPAIR
OUR NAME AND REPUTATION
Ultimate Electronics-Registered Trademark-, Audio King-Registered
Trademark-, Fast Trak-Registered Trademark- and Big Names. Little Prices.
Guaranteed.-Registered Trademark- are federally registered trademarks and
service marks owned by Ultimate Electronics, Inc. SoundTrack-TM-, Simple
Solution-TM- and Ultimate Electronics Express-TM- are also trademarks owned by
Ultimate Electronics, Inc. for which there are pending applications for federal
registration. The Ultimate SoundTrack is a registered trademark in the State of
Colorado and Audio King and Fast Trak are registered trademarks in the State of
Minnesota that are owned by Ultimate Electronics, Inc. We actively protect our
rights associated with our portfolio of marks to ensure that the quality
associated with them and the value of our proprietary rights are maintained. Our
marks, however, may not be effective to protect our intellectual property
rights, and infringement or invalidity claims may be asserted by third parties
in the future. Any such assertions, if proven to be true, could have a material
adverse effect on our operational results and financial condition.
OUR CHARTER, BYLAWS AND ANTI-TAKEOVER PROTECTIONS COULD DELAY OR PREVENT AN
ACQUISITION OR SALE OF ULTIMATE ELECTRONICS
Our corporate charter and bylaws, as well as certain provisions of the
Delaware General Corporation Law, contain provisions which may deter, discourage
or make more difficult a change in control, even if such a change in control
would be in the interest of a significant number of our stockholders or if such
change in control would provide such stockholders with a substantial premium for
their shares over then current market prices. In particular:
- our charter authorizes the board of directors to issue one or more classes
of preferred stock having such designations, rights and preferences as
they determine, which issuances may have a material adverse effect on the
rights of holders of common stock;
- our stockholders have no right to take action by written consent;
- our stockholders may not call special meetings of stockholders;
- our charter and bylaws provide for the staggered election of directors to
serve for three-year terms, subject to removal only for cause;
- our bylaws contain advance notice provisions for presentation of new
business and nominations of directors at meetings of stockholders; and
- our bylaws may be amended only by the board of directors or by a majority
vote of the shares represented and entitled to vote at an annual or a
special meeting of stockholders.
In addition, Section 203 of the Delaware General Corporation Law prohibits us
from engaging in a business combination with an interested stockholder for a
period of three years after such person becomes an interested stockholder,
unless various conditions are satisfied. See "Description of Capital Stock."
In addition, under the terms of Ultimate Electronics' Stockholder Rights
Plan, in general, if a person or group acquires more than 15% of the outstanding
shares of common stock (an "Acquiring Person"), all of or our other stockholders
would have the right to purchase securities from Ultimate Electronics at a
discount to such securities' fair market value, thus causing substantial
dilution to the holdings of the Acquiring Person. The Stockholder Rights Plan
may inhibit a change in control and, therefore, could materially adversely
affect the stockholders' ability to realize a premium over the then-prevailing
market price for the common stock in connection with such a transaction.
OUR MANAGEMENT, INCLUDING OUR PRINCIPAL STOCKHOLDER, OWNS A SIGNIFICANT PORTION
OF OUR COMMON STOCK AND WILL BE ABLE TO EXERCISE SIGNIFICANT INFLUENCE OVER OUR
AFFAIRS
After this offering, William J. Pearse, our Chairman, will beneficially own
approximately 18.43% of our outstanding common stock. In addition, our directors
and executive officers as a group (including
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Mr. Pearse) will beneficially own approximately 22.27% of our common stock after
this offering and will hold additional options to acquire 251,501 shares not
currently exercisable. As a result of this share ownership, our management, and
in particular Mr. Pearse, will be able to exert significant influence on
corporate action requiring stockholder approval, including the election of
directors. This share ownership could delay or prevent a change in control. It
could also prevent our stockholders from realizing a premium over the market
price for their common stock or making a change in management.
THE SUBSTANTIAL NUMBER OF SHARES THAT ARE ELIGIBLE FOR PUBLIC SALE AFTER THIS
OFFERING MAY ADVERSELY AFFECT OUR STOCK PRICE
After this offering, there will be 10,238,393 shares of our common stock
outstanding. Of these outstanding shares, all 2,000,000 shares sold in this
offering and 8,238,393 shares currently outstanding will be freely tradable
without restriction or registration under the Securities Act, other than shares
held by affiliates that may be sold pursuant to the requirements of Rule 144,
another exemption from registration, or an effective registration statement.
Rule 144 allows affiliates of an issuer to sell such issuer's common stock
subject to certain volume, notice, manner of sale and informational
requirements.
As of September 15, 1999, 946,921 shares of common stock were issuable
pursuant to options granted under our stock option plans. Of these option
shares, 447,078 shares are currently exercisable. All shares issuable under our
stock option plans have been registered under the Securities Act.
Sales of substantial amounts of common stock in the public market, including
shares issued upon the exercise of stock options, or the perception that such
sales could occur, could materially adversely impact the market price for our
common stock.
Ultimate Electronics, our officers and directors, and the selling
stockholders (who will beneficially own 2,375,776 shares after the offering)
have agreed not to sell any shares for 120 days after the date of this
prospectus, without the prior written consent of Banc of America Securities LLC
on behalf of the underwriters. At any time and without notice Banc of America
Securities may, in its sole discretion, release all or some of the securities
from these lockup agreements.
SIGNIFICANT PROBLEMS RELATING TO THE YEAR 2000 ISSUE COULD ADVERSELY AFFECT OUR
BUSINESS
Until recently, most computer programs were written to store only two digits
of date-related information in order to more efficiently handle and sort data.
As a result, these programs were unable to properly distinguish between dates
occurring in the year 1900 and dates occurring in the year 2000. This is
referred to as the "Year 2000 Issue." During 1998 and 1999, we reviewed all
applications and equipment to evaluate our exposure to the Year 2000 Issue. The
required modifications to existing systems were identified, and plans were
developed for upgrades or remediation. We anticipate that all upgrades and
remediation will be completed by October 31, 1999.
Our primary information system software is provided by Tyler Retail Systems,
Inc. of Clearwater, Florida. This software operates the vast majority of our
systems and has been evaluated for Year 2000 compliance. Tyler has stated that
with the current software and the pending upgrade, our system should be Year
2000 compliant by October 31, 1999. We began the upgrade process in the first
quarter of fiscal 2000. We believe that no other significant modifications to
the Tyler software will be necessary. Our system review also identified that
some older hardware and software were not Year 2000 compliant. These items were
few in number and have been or will be replaced with Year 2000 compliant
products. In our opinion, costs of these upgrades will not be material to our
financial condition or operations.
We are also in communication with third parties with whom we do significant
business in order to assess their Year 2000 compliance and minimize the
potential for adverse consequences, if any, that
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<PAGE>
could result from failure of such entities to address this issue. Year 2000
Issues do present risks that are outside of our control, including, but not
limited to, the potential for significant volumes of product returns due to
widespread product failure, the failure of utility companies to provide
electricity, the failure of telecommunication companies to provide voice and
data transfer services, the failure of store security systems, the failure of
financial services companies to process transactions or transfer funds and the
failure of third-party vendors or suppliers to become Year 2000 compliant.
We have contacted our significant suppliers to determine the Year 2000
functionality of their current products to minimize any disruption to our
business. However, we cannot assure you that our vendors will be Year 2000
compliant. Any significant disruption to our supply of goods could have a
material adverse effect on our business, results of operations and financial
condition, particularly during our peak holiday season. We believe that our
vendors are responsible for the Year 2000 functionality of the products they
currently supply to us for resale. However, if we are required to handle product
returns or repairs with respect to those failures on a large-scale basis, it
could have a material adverse effect on our business, results of operations and
financial condition.
In the event of our failure or Tyler's failure to become timely Year 2000
compliant, we have not identified a near-term economically feasible alternative
for operations support. Our most likely worst case scenario is that we would be
required to resort to manual or other processing methods. With regard to any
Year 2000 failure by third-party product suppliers, we plan to pursue
alternative suppliers for Year 2000 compliant products where appropriate, but we
anticipate that our competitors will be similarly impacted in any such event. We
can make no assurances that Year 2000 Issues will not have a material adverse
effect on our business, financial condition, or future operations, particularly
during our peak holiday season. The information provided in this disclosure
constitutes a "Year 2000 Readiness Disclosure" under the Year 2000 Information
and Readiness Disclosure Act of 1998.
WE DO NOT ANTICIPATE PAYING DIVIDENDS ON THE COMMON STOCK FOR THE FORESEEABLE
FUTURE
We have never declared or paid any dividends on our common stock and do not
intend to do so for the foreseeable future. Our credit facility currently
restricts our ability to pay dividends.
OUR COMMON STOCK PRICE MAY BE VOLATILE, WHICH COULD RESULT IN SUBSTANTIAL LOSSES
TO STOCKHOLDERS
Our common stock trading price has been and is likely to continue to be
highly volatile and subject to wide fluctuations in response to a variety of
internal and external factors, some of which are beyond our control, including:
- actual or anticipated variations in our quarterly operating results;
- announcement of new technologies or of new products or services;
- changes in financial estimates or changes in recommendations by securities
analysts;
- additions or departures of key personnel; and
- changes in economic performance and/or market valuations of other consumer
electronics retailers.
Investors may not be able to resell their Ultimate Electronics common stock
at or above the public offering price as a result of a possible decline in price
after this offering. The stock market has experienced significant price and
volume fluctuations over the past several years that have often been unrelated
or disproportionate to the operating performance of particular companies. The
trading prices of many companies' stocks, including ours, are at or near
historical highs. These trading prices may not be sustained. Broad market
factors may have a material adverse effect on our stock price, regardless of our
actual operating performance.
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USE OF PROCEEDS
The net proceeds we receive from the sale of 2,000,000 shares of common
stock in this offering at an assumed public offering price of $15.875 per share
are expected to be approximately $29.6 million, after deducting the estimated
underwriting discount and offering expenses that we will pay. If the
underwriters exercise their over-allotment option in full, the net proceeds we
receive will be approximately $34.6 million. We will not receive any proceeds
from the sale of common stock by the selling stockholders, who are selling
250,000 shares of common stock in this offering.
We expect to use the net proceeds:
- to repay approximately $12 million of existing indebtedness under our
revolving credit facility, which will be available to be reborrowed;
- to prepay on or after March 31, 2000 the $13 million of our 10.25%
mortgage bonds optionally redeemable after such date;
- for development of new stores and for relocation and/or expansion of
existing stores; and
- for general corporate purposes.
In addition, we may pursue acquisitions of businesses that are complementary
to ours, although no such transaction is currently being negotiated. We may also
decide to expand our Internet site to conduct retail sales. We could use
proceeds of this offering for these purposes in the event we decide to pursue
such matters.
Indebtedness under our revolving credit facility accrues interest at 7.25%
as of July 31, 1999. The revolving credit facility matures on September 30,
2001. In order to finance our growth strategy, we will need to use all or a
portion of our revolving credit facility which is being paid down with the
proceeds of this offering.
The mortgage bonds accrue interest at 10.25% annually and mature in 2005.
The mortgage bonds are optionally redeemable on or after March 31, 2000 at par
plus accrued interest to the date of redemption. We are required to redeem $3.25
million aggregate principal amount of the mortgage bonds (reduced to the extent
of the bonds previously purchased or redeemed by us) 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. Because we are not required
to redeem the mortgage bonds, except as provided in the preceding sentence, if
there were a significant increase in interest rates prior to the expected
redemption date, or if unanticipated working capital needs or opportunities were
presented, we could elect not to redeem the mortgage bonds. The mortgage debt
was originally incurred in 1995 to finance a substantial portion of the
construction of our warehouses, offices, service and store facility in Thornton,
Colorado. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Pending these uses, we intend to invest the net proceeds from this offering
in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
As a public company, we have never declared or paid any cash dividends on
our common stock. We currently intend to retain future earnings for use in the
operation and expansion of our business and therefore do not anticipate paying
cash dividends in the foreseeable future. Our current credit facility also
restricts our ability to pay dividends.
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PRICE RANGE OF COMMON STOCK
Ultimate Electronics' common stock trades on the Nasdaq National Market
under the symbol "ULTE." Public trading of our common stock commenced on October
15, 1993. The following table shows, for the periods indicated, the high and low
closing prices for the common stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
------- ---------
<S> <C> <C>
FISCAL 1998
First Quarter................................................................... 4 2 5/8
Second Quarter.................................................................. 3 5/8 2 11/16
Third Quarter................................................................... 5 3 1/16
Fourth Quarter.................................................................. 4 1/4 2 3/4
FISCAL 1999
First Quarter................................................................... 4 1/4 2 7/8
Second Quarter.................................................................. 4 3/8 2 13/16
Third Quarter................................................................... 4 1/4 2 1/4
Fourth Quarter.................................................................. 9 3/8 2 7/16
FISCAL 2000
First Quarter................................................................... 14 8 3/16
Second Quarter.................................................................. 20 1/8 12 15/16
Third Quarter (through September 24, 1999)...................................... 20 1/4 14
</TABLE>
As of September 3, 1999, there were approximately 117 holders of record of
our common stock. As of September 24, 1999, the closing sale price of our common
stock was $15 7/8.
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CAPITALIZATION
The following table sets forth our capitalization plus cash and cash
equivalents as of July 31, 1999, (i) on an actual basis and (ii) as adjusted to
reflect the application of the estimated net proceeds from the sale of the
2,000,000 shares of common stock offered by Ultimate Electronics pursuant to
this prospectus at an assumed public offering price of $15.875 per share. This
table should be read in conjunction with our "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Use of Proceeds,"
"Selected Financial Data" and our consolidated financial statements and the
accompanying notes.
<TABLE>
<CAPTION>
JULY 31, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents:............................................................... $ 6,113 $ 10,699
--------- ------------
--------- ------------
Debt:
Revolving line of credit............................................................... $ 11,978 $ 0
Long-term debt, including current portion.............................................. 13,490 490(3)
Capital lease obligations, including current portion................................... 1,887 1,887
--------- ------------
Total debt........................................................................... 27,355 2,377
Stockholders' equity:
Preferred stock, $.01 par value, 10,000,000 shares authorized; no shares issued and
outstanding actual and as adjusted................................................... -- --
Common stock, $.01 par value, 10,000,000 shares authorized actual, 15,000,000 shares
authorized as adjusted (1); 8,232,645 shares outstanding actual and 10,232,645 shares
outstanding as adjusted (2).......................................................... 82 102
Additional paid-in capital............................................................. 34,123 63,667
Retained earnings...................................................................... 15,439 15,439
--------- ------------
Total stockholders' equity........................................................... 49,644 79,208
--------- ------------
Total capitalization................................................................. $ 76,999 $ 81,585
--------- ------------
--------- ------------
</TABLE>
- ------------------------
(1) We amended our certificate of incorporation to increase the number of
authorized shares of common stock from 10,000,000 to 15,000,000 on September
29, 1999.
(2) Excludes 998,771 shares of common stock reserved for issuance under our
stock option plans, of which options to purchase 946,921 shares were
outstanding as of September 24, 1999, with a weighted average exercise price
of $4.41 per share.
(3) Our $13 million of 10.25% mortgage bonds cannot be redeemed until March 31,
2000.
18
<PAGE>
SELECTED FINANCIAL DATA
The following table contains our selected consolidated financial and
operating data. Information for each fiscal year is derived from our financial
statements which have been audited by Ernst & Young LLP, independent auditors.
Interim period information is derived from our unaudited financial statements
which include, in the view of management, all adjustments necessary for a fair
presentation of such data. Interim period results are not indicative of full
year results. You should read this information together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our consolidated financial statements.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED JANUARY 31, ENDED JULY 31,
------------------------------------------------------------ ---------------------------
1995 1996 1997 1998(1) 1999 1998 1999
---------- ---------- --------- ---------- --------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Sales......................... $ 165,069 $ 251,807 $ 261,154 $ 306,306 $ 337,454 $ 142,064 $ 166,612
Costs of goods sold........... 120,588 184,343 191,903 223,464 239,854 101,901 116,616
---------- ---------- --------- ---------- --------- ---------- ----------
Gross profit.................. 44,481 67,464 69,251 82,842 97,600 40,163 49,996
Selling, general and
administrative expenses..... 36,276 59,525 64,786 78,621 89,010 41,373 45,814
---------- ---------- --------- ---------- --------- ---------- ----------
Income (loss) from
operations.................. 8,205 7,939 4,465 4,221 8,590 (1,210) 4,182
Interest expense, net......... 407 1,866 3,210 3,985 3,957 2,198 1,388
---------- ---------- --------- ---------- --------- ---------- ----------
Income (loss) before income
taxes and cumulative effect
of change in accounting
method...................... 7,798 6,073 1,255 236 4,633 (3,408) 2,794
Income tax expense
(benefit)................... 2,908 2,241 470 88 1,723 (1,255) 1,037
---------- ---------- --------- ---------- --------- ---------- ----------
Income before cumulative
effect of change in
accounting method........... $ 4,890 $ 3,832 $ 785 $ 148 $ 2,910 $ (2,153) $ 1,757
Cumulative effect of change in
accounting for preopening
expenses, net of taxes(2)... -- (988) -- -- -- -- --
---------- ---------- --------- ---------- --------- ---------- ----------
Net income (loss)............. $ 4,890 $ 2,844 $ 785 $ 148 $ 2,910 $ (2,153) $ 1,757
---------- ---------- --------- ---------- --------- ---------- ----------
---------- ---------- --------- ---------- --------- ---------- ----------
Earnings per (loss)
share--Basic................ $ 0.88 $ 0.48 $ 0.11 $ 0.02 $ 0.36 $ (0.26) $ 0.21
Earnings per (loss)
share--Diluted.............. $ 0.88 $ 0.48 $ 0.11 $ 0.02 $ 0.35 $ (0.26) $ 0.20
Pro forma earnings per share
(2)......................... $ 0.76 $ 0.65 -- -- -- -- --
Weighted average shares
outstanding--Basic.......... 5,500 5,861 6,995 7,626 8,150 8,145 8,187
Weighted average shares
outstanding--Diluted........ 5,583 5,906 7,125 7,737 8,317 8,145 8,866
SELECTED OPERATING DATA:
Number of stores open at end
of period................... 14 18 18 30 30 30 30
Inventory turns (3)........... 5.5 5.1 4.7 4.9 5.1 5.0 5.3
Average square footage per
store at end of period...... 22,000 26,000 30,200 25,600 25,600 25,600 25,600
Sales growth.................. 87% 53% 4% 17% 10% 21%(1) 17%
Comparable stores sales growth
(4)......................... 29% (2)% (16)% (6)% 2% (1)% 17%
Store contribution margin
(5)......................... 10.5% 8.0% 6.8% 6.5% 8.7% 5.6% 8.5%
Gross profit margin........... 26.9% 26.8% 26.5% 27.0% 28.9% 28.3% 30.0%
Operating margin.............. 5.0% 3.2% 1.7% 1.4% 2.5% (0.8)% 2.5%
Net income margin............. 3.0% 1.1% 0.3% 0.1% 0.9% (1.5)% 1.1%
BALANCE SHEET DATA: (at period
end)
Working capital............... $ 4,061 $ 30,995 $ 27,868 $ 5,578 $ 26,740 $ 4,973 $ 29,140
Total assets.................. 69,194 100,466 103,310 123,446 121,904 117,073 121,388
Long-term debt................ -- 31,996 31,165 13,642 26,518 13,490 25,143
Capital lease obligations
(6)......................... 3,120 1,295 1,007 2,049 1,841 1,888 1,810
Stockholders' equity.......... 25,611 40,918 41,703 44,721 47,675 42,584 49,644
</TABLE>
- ------------------------------
(1) On June 27, 1997, we acquired Audio King, which has 11 stores with an
average size of 13,700 square feet. The results of operations of Audio King
since the acquisition date are included in our consolidated financial
statements.
(2) During fiscal 1996, we changed our accounting method for preopening
expenses, resulting in a cumulative effect adjustment of ($0.17) per share,
net of taxes. For fiscal 1995, the pro forma effect of this change in
accounting method was $678,000 which resulted in pro forma net income for
the year of $4,212,000.
(3) Inventory turns are calculated based upon the average of the prior 12 months
inventory levels.
(4) Comparable store sales are for stores open at least 13 months and exclude
recently relocated and expanded stores for 13 months after their completion
date.
(5) Store contribution margin includes all store sales less direct and allocated
expenses as a percentage of store sales. Allocated expenses do not include
corporate and warehouse/distribution expenses, interest expense and
corporate income taxes.
(6) Does not include current portions.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Ultimate Electronics is a leading specialty retailer of consumer electronics
and home entertainment products in the Rocky Mountain, Midwest and Southwest
regions of the United States. We appeal to a wide range of consumers and focus
on mid to high-end products sold by a highly-trained, knowledgeable, full-time
sales force in a full service retail environment. We believe that our
differentiating characteristics, together with our policy of offering the same
prices as our competitors on identical merchandise, makes us an attractive
alternative to volume driven appliance/electronics superstores, as well as other
national, regional and local merchants.
We opened our first store in 1968. We grew to nine stores in Colorado by
1993 and then adopted an expansion strategy to enter new markets in the Rocky
Mountain, Midwest and Southwest regions. By January 31, 1997, we had grown to 18
stores. In June 1997, we acquired Audio King Corporation, a consumer electronics
specialty retailer with 11 retail stores in Minnesota, Iowa and South Dakota.
Beginning in fiscal 1996 and through fiscal 1998, our results were significantly
impacted by new competition, including the entry of several new competitors in
our markets, as well as a lack of significant new products in our core
categories.
In response to increasing competitive pressures and an industry wide decline
in audio and video product sales, we adopted a revised operating strategy in May
1998. Our new strategy, along with a more favorable retail environment,
contributed to our increased sales, profitability and comparable store sales. In
particular:
- we elected to de-emphasize the computer category and to focus our computer
mix on Sony computers and Canon printers;
- we added additional higher-end products and increased our focus on four
major product categories--audio, video, television and mobile electronics;
- we significantly revitalized our marketing and advertising by promoting
more mid to high-end products and distributing a new 70 to 80 page full
color catalog as part of our direct mail campaign; and
- we adjusted our commission structure to provide improved incentives to our
sales associates to maximize incremental sales of high margin
complementary products and services.
As a result of these initiatives and the acquisition of Audio King, our sales in
fiscal 1999 increased 10% compared to the prior year, with comparable store
sales increasing 2% (7% excluding the computer category). Similarly, in the six
months ended July 31, 1999, sales increased 17%, comparable store sales
increased 17% (20% excluding the computer category) and gross profit increased
24%, in each case compared to the six months ended July 31, 1998.
We intend to build on this success by opening new stores in current and new
markets and relocating and/or expanding selected smaller stores to more
favorable sites. In the current fiscal year, we are constructing a new large
format store in Davenport, Iowa that we expect to open by the end of fiscal
2000. We expect to open an additional six to eight new stores in fiscal 2001
primarily in the Phoenix area, and eight to 12 additional stores in fiscal 2002.
At the present time no leases have been signed for the Phoenix stores, but we
have entered into letters of intent and are negotiating leases for several of
the sites. We have not entered into letters of intent or negotiated leases for
most of the other new stores we may open in fiscal 2001 and 2002. In addition,
we are currently expanding a Minneapolis, Minnesota area store, and relocating
and expanding our Sioux Falls, South Dakota store. In fiscal 2001 we plan to
relocate and expand a St. Paul, Minnesota area store, remodel and expand our
Fort Collins, Colorado store, and relocate and expand one of our Denver,
Colorado stores.
20
<PAGE>
Our investment for large format stores opened since 1993 has been
approximately $2.8 million per store, and includes leasehold improvements,
fixtures and equipment, inventory (net of payables) and preopening expenses. Our
large format stores have typically been profitable on a store operating basis
within their first 12 months of operation and had an average initial store
investment pay-back period, excluding inventory, within 24 months. The timing of
our new store openings and relocations will significantly impact our results of
operations and financial condition in future periods.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the relative
percentages that certain income and expense items bear to sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31, SIX MONTHS ENDED
JULY 31,
------------------------------- --------------------
<S> <C> <C> <C> <C> <C>
1997 1998 1999 1998 1999
--------- --------- --------- --------- ---------
Sales.................................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................................................... 73.5 73.0 71.1 71.7 70.0
--------- --------- --------- --------- ---------
Gross profit......................................................... 26.5 27.0 28.9 28.3 30.0
Selling, general and administrative expenses........................... 24.8 25.6 26.4 29.1 27.5
--------- --------- --------- --------- ---------
Income (loss) from operations........................................ 1.7 1.4 2.5 (0.8) 2.5
Interest expense, net.................................................. 1.2 1.3 1.1 1.6 0.8
--------- --------- --------- --------- ---------
Income (loss) before taxes........................................... 0.5 0.1 1.4 (2.4) 1.7
Income tax expense (benefit)........................................... 0.2 -- 0.5 (0.9) 0.6
--------- --------- --------- --------- ---------
Net income (loss).................................................... 0.3% 0.1% 0.9% (1.5)% 1.1%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JULY 31, 1999 COMPARED TO SIX MONTHS ENDED JULY 31, 1998
SALES. Sales for the six months ended July 31, 1999 were $166.6 million, a
17% increase from sales of $142.1 million for the same period in the prior year.
Sales of comparable stores increased 17% for the six months ended July 31, 1999.
In May 1998, we significantly reduced our computer assortment. Excluding the
computer category, comparable store sales increased 20% for the six months ended
July 31, 1999. Sales of new technology products such as DVD, HDTV and digital
camcorders were the primary drivers of comparable store sales growth during this
six-month period. Beginning in November 1998, we began mailing a 70 to 80 page
full color catalog to our existing customer base and prospective customers on a
quarterly basis. The catalog, along with refinements to our merchandising and
sales systems and a favorable consumer electronics market, contributed to the
increase in comparable store sales in the current year.
GROSS PROFIT. Cost of goods sold includes merchandise costs, buying costs
and warehousing/distribution costs less vendor purchase discounts and volume
rebates. Cost of goods sold increased by $14.7 million to $116.6 million for the
six months ended July 31, 1999 from $101.9 million during the six months ended
July 31, 1998. Gross profit for the six months ended July 31, 1999 increased to
$50.0 million (30.0% of sales) from $40.2 million (28.3% of sales) for the six
months ended July 31, 1998. The improved gross margin was primarily the result
of increased sales in our higher margin categories including audio, television
and mobile electronics. Sales of digital technology products tend to realize
higher gross margins than their analog counterparts. In association with the
decision to reduce our computer assortment, we recorded a $700,000 increase in
inventory reserves during the six months ended July 31, 1998. This adjustment
negatively impacted that period's margin by 0.5%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses include occupancy costs, payroll, depreciation, computer
costs and all other expenses necessary to operate our
21
<PAGE>
business. Selling, general and administrative expenses for the six months ended
July 31, 1999 increased to $45.8 million (27.5% of sales) from $41.4 million
(29.1% of sales) for the six months ended July 31, 1998. The decrease in
selling, general and administrative expenses as a percentage of sales was
primarily due to the leveraging of our fixed expenses against the 17% comparable
store sales increase that we achieved in the first six months of the current
year as well as the cost control measures implemented after the first quarter of
the prior year. These cost control measures included new commission plans
emphasizing specific profit opportunities, reduced travel expenses, store
support expenses closely tied to volume and increased awareness of controllable
expenses throughout the organization.
INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations for the six months ended July 31, 1999 was $4.2 million (2.5% of
sales) compared to a loss from operations of $1.2 million (0.8% of sales) for
the six months ended July 31, 1998.
INTEREST EXPENSE. Interest expense consists primarily of interest payable
on outstanding balances under our revolving line of credit as well as on our
outstanding mortgage bonds. Interest expense decreased to $1.4 million for the
six months ended July 31, 1999 from $2.2 million for the six months ended July
31, 1998. We attribute this decrease primarily to lower average amounts
outstanding under our revolving line of credit as well as a reduction in the
interest rate associated with the new line of credit from Foothill Capital
Corporation.
INCOME TAXES. Income tax expense for the six months ended July 31, 1999 was
$1.0 million compared to an income tax benefit of $1.3 million for the same
period in the prior year.
NET INCOME. Net income for the six months ended July 31, 1999 was $1.8
million compared to a loss of $2.2 million for the same period in the prior year
for the reasons described above.
FISCAL 1999 COMPARED TO FISCAL 1998
SALES. For the year ended January 31, 1999, sales were $337.5 million, a
10% increase from sales of $306.3 million for the prior year. The increase in
sales during fiscal 1999 was due primarily to the effect of having the Audio
King stores for a full year along with an increase in sales of comparable
stores. Comparable store sales increased 2% for the year ended January 31, 1999
compared to a decrease of 6% in comparable store sales for the year ended
January 31, 1998. In May 1998, we significantly reduced our computer assortment.
Excluding the computer category, comparable store sales increased 7% for the
year.
GROSS PROFIT. Gross profit in fiscal 1999 increased 18% to $97.6 million
(28.9% of sales) from $82.8 million (27.0% of sales) in fiscal 1998. The
improvement in gross profit was due primarily to the impact of the reduced
computer assortment along with an increase in sales of higher margin products in
our core categories of audio, video, television and mobile electronics.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in fiscal 1999 increased 13% to $89.0 million (26.4% of
sales) from $78.6 million (25.6% of sales) in fiscal 1998. The percentage
increase in selling, general and administrative expenses was due primarily to
higher fixed store expenses as a percentage of sales as well as slightly higher
net advertising expenses.
INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations more than doubled in fiscal 1999, increasing to $8.6 million (2.5% of
sales) from $4.2 million (1.4% of sales) in fiscal 1998.
INTEREST EXPENSE. Interest expense was $4.0 million for both fiscal 1999
and 1998.
INCOME TAXES. Our effective tax rate of 37.2% in fiscal 1999 was also the
same as the prior year.
22
<PAGE>
NET INCOME. Net income for fiscal 1999 was $2.9 million compared to
$148,000 for the prior year, for the reasons described above.
FISCAL 1998 COMPARED TO FISCAL 1997
SALES. For the year ended January 31, 1998, sales were $306.3 million, a
17% increase from sales of $261.2 million for the prior year. The increase in
sales during fiscal 1998 was due primarily to the acquisition of Audio King in
June 1997. Comparable store sales decreased 6% for the year ended January 31,
1998 compared to a decrease of 16% in comparable store sales for the year ended
January 31, 1997. We believe the decrease in comparable store sales over the
prior two years resulted primarily from an industry-wide decline in audio and
video product sales and increased competition in our markets.
GROSS PROFIT. Gross profit in fiscal 1998 increased 20% to $82.8 million
(27.0% of sales) from $69.3 million (26.5% of sales) in fiscal 1997. The slight
increase in the gross profit percentage was due to a larger mix of higher margin
product categories as a result of the acquisition of Audio King.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses in fiscal 1998 increased 21% to $78.6 million (25.6% of
sales) from $64.8 million (24.8% of sales) in fiscal 1997. The percentage
increase in selling, general and administrative expenses was due primarily to
higher fixed store expenses as a percentage of sales caused by lower comparable
store sales, partially offset by the leverage gained through the increase in
sales generated from the Audio King merger.
INCOME FROM OPERATIONS. As a result of the foregoing, income from
operations in fiscal 1998 decreased 5% to $4.2 million (1.4% of sales) from $4.5
million (1.7% of sales) in fiscal 1997.
INTEREST EXPENSE. Interest expense for fiscal 1998 increased to $4.0
million from $3.2 million in fiscal 1997 due to higher average amounts
outstanding under our revolving line of credit that were used for the Audio King
acquisition, the remodeling of six Audio King stores and an additional store
opening in Colorado in fiscal 1998.
INCOME TAXES. Our effective tax rate of 37.2% in fiscal 1998 decreased
slightly from the 37.4% tax rate in fiscal 1997.
NET INCOME. As a result of the foregoing, net income for fiscal 1998 was
$148,000 compared to $785,000 for the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Historically, our primary sources of liquidity for funding working capital
expansion and growth have been net cash from operations, revolving credit lines,
term debt and issuances of common stock. Our primary cash requirements are
related to expenditures for new store openings and the relocation and/or
remodeling of existing store locations, including preopening expenses and
beginning inventory for new or relocated stores, as well as working capital to
support our inventory requirements and selling, general and administrative
expenses.
Net cash provided by operating activities equaled $4.6 million for the six
months ended July 31, 1999 compared to $1.6 million for the six months ended
July 31, 1998. The increase in cash provided by operating activities resulted
primarily from an increase in net income as well as higher accounts payable
balances during the six months ended July 31, 1999. Net cash provided by
operating activities was $17.9 million for fiscal 1999 compared to net cash
provided by operating activities of $9.4 million in fiscal 1998. The increase in
cash provided by operating activities resulted from an increase in net income as
well as increases in accounts payable and decreases in accounts receivable,
offset by an increase in merchandise inventory.
23
<PAGE>
Net cash used in investing activities during the six months ended July 31,
1999 was $1.6 million compared to $0.5 million during the six months ended July
31, 1998. The increase reflects increased purchases of property and equipment
during 1999. Net cash used in investing activities during fiscal 1999 was $1.6
million compared to $10.0 million during fiscal 1998. Investing activities were
higher in fiscal 1998 primarily as a result of the purchase of Audio King, one
new store opening and one store relocation.
Net cash used in financing activities totaled $1.3 million during the six
months ended July 31, 1999 compared to $0.5 million during the six months ended
July 31, 1998. The increase reflects primarily a greater pay down on our
revolving line of credit during the 1999 period. Principal payments on term
loans and capital lease obligations remained constant during these periods. Net
cash used in financing activities during fiscal 1999 was $13.9 million compared
to net cash provided by financing activities of $1.9 million during fiscal 1998,
reflecting further repayment during fiscal 1999 of our revolving line of credit.
On September 30, 1998, we executed a three-year $40 million credit agreement
with Foothill Capital Corporation, a wholly owned subsidiary of Norwest Bank.
Borrowings under this revolving line of credit are limited to the lesser of $40
million or 80% of eligible inventory and a portion of accounts receivable. As of
July 31, 1999, the entire $40 million facility was available to us, and $12
million was outstanding. Borrowings bear interest, payable monthly, based on a
blend of LIBOR plus 2% and Norwest Bank's prime rate minus 0.375%. Inventories,
accounts receivable, equipment and intangibles secure our borrowings. The
facility includes negative covenants that limit our ability to, without the
bank's prior approval and subject to various exceptions, incur indebtedness,
create liens, enter into mergers and consolidations, pay dividends, repurchase
our capital stock, issue guarantees, sell or transfer assets, consign inventory,
prepay or retire any debt owed to third parties, make investments or engage in
transactions with affiliates. The facility also contains covenants regulating
our gross margins, inventory levels, tangible net worth and capital
expenditures. We were in compliance with all covenants for all periods of fiscal
1999 and through July 31, 1999. We expect to use a portion of the proceeds of
this offering to repay all of our indebtedness outstanding under this credit
agreement, which amounts may be reborrowed in order to finance our growth.
In March 1995, we issued $13.0 million aggregate principal amount of 10.25%
first mortgage bonds and received net proceeds of $12.7 million. We used the
proceeds of the bond offering to fund a substantial portion of the construction
of our warehouse, offices, service and store facility in Thornton, Colorado.
Interest on the bonds accrues at a rate of 10.25% per year until maturity or
earlier redemption. We are required to redeem $3.25 million aggregate principal
amount of the bonds (reduced to the extent of the bonds previously purchased or
redeemed by us) 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 redeemable at par on or after March 31, 2000 at our
option and are secured by our Thornton facility. We are also required to make an
offer to purchase all of the outstanding bonds, at par plus accrued interest,
following the occurrence of any change of control. The indenture governing the
bonds includes covenants which, among other things, subject to various
exceptions, restricts our ability to incur additional indebtedness, declare
dividends on our equity interests, purchase or redeem any of our equity
interests, create liens, enter into mergers and consolidations or engage in
transactions with affiliates. We expect to use a portion of the proceeds of this
offering to redeem all of the outstanding mortgage bonds on or after March 31,
2000. Our credit agreement provides that we may redeem the mortgage bonds at any
time prior to June 30, 2000.
In June 1997, we acquired all of the outstanding shares of Audio King
Corporation, a consumer electronics specialty retailer operating 11 retail
stores in Minnesota, Iowa and South Dakota. The purchase price consisted of $2.5
million in cash, 986,432 shares of our common stock, assumed debt of $7.2
million and other expenses and severance costs of $1.4 million. The transaction
was accounted for as a purchase. The transaction resulted in our recording
goodwill in the amount of $2.7 million, which
24
<PAGE>
is being amortized over a 10-year life. Our financial statements include the
operating results of Audio King beginning on June 27, 1997.
We received proceeds of $17.8 million (net of offering costs) in October
1993 in connection with the initial public offering of our common stock. We
received proceeds of $12.5 million (net of offering costs) in November 1995 in
connection with a second public offering of our common stock.
Capital expenditures for fiscal 1999 were $1.6 million. During fiscal 2000
we plan to construct a new large format store in Davenport, Iowa and to expand
or relocate two other stores. Our capital expenditures budget for fiscal year
2000 is $10.0 million, of which $1.6 million had been spent through July 31,
1999. We expect capital expenditures of $18 million to $24 million in fiscal
2001, primarily for new store openings and store relocations and expansions.
We believe that our cash flow from operations and borrowings under our
current credit facility, together with proceeds of this offering, will be
sufficient to fund our operations, debt repayment and expansion through fiscal
2001. To fund the capital requirements for our anticipated plans beyond that
time, we may be required to seek additional financing, which may take the form
of expansion of our existing credit facility, or possibly additional debt or
equity financings. We may also re-mortgage our Thornton facility. There can be
no assurance that we will be able to obtain such funds on favorable terms, if at
all. Furthermore, due to the seasonality of our business, our working capital
needs are significantly higher during the fiscal third and fourth quarters.
SEASONALITY
The following table shows our sales, income from operations and net income
for each of the most recent ten quarters. The quarterly information is unaudited
but has been prepared on the same basis as our audited financial statements
included elsewhere in the prospectus. In the view of management, this unaudited
data includes all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the unaudited quarterly results when read in
conjunction with our audited financial statements. The results of operations for
any quarter are not necessarily indicative of the results for any future period.
See "Risk Factors--Because We Experience Seasonal Fluctuations in Our Net Sales,
Our Quarterly Results Will Fluctuate and Our Annual Results Could Be Below
Expectations."
<TABLE>
<CAPTION>
FISCAL
2000
FISCAL 1998 FISCAL 1999 QUARTER
QUARTER ENDED QUARTER ENDED ENDED
---------------------------------------------- ---------------------------------------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31, APRIL 30,
1997 1997 1997 1998 1998 1998 1998 1999 1999
--------- --------- ----------- ----------- --------- --------- ----------- ----------- ---------
<CAPTION>
(IN
(IN THOUSANDS) (IN THOUSANDS) THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales............... $ 55,508 $ 61,944 $ 81,990 $ 106,864 $ 70,882 $ 71,182 $ 79,441 $ 115,949 $ 80,303
Income (loss) from
operations........ $ 290 $ 299 $ 927 $ 2,705 $ (2,438) $ 1,228 $ 2,952 $ 6,848 $ 1,389
Net income (loss)... $ (311) $ (422) $ (115) $ 996 $ (2,211) $ 58 $ 1,250 $ 3,813 $ 439
<CAPTION>
<S> <C>
JULY 31,
1999
---------
<S> <C>
Sales............... $ 86,309
Income (loss) from
operations........ $ 2,793
Net income (loss)... $ 1,318
</TABLE>
Seasonal consumer buying patterns affect our business. As is the case with
many other retailers, our sales and profits have been greatest in the fourth
quarter (which includes the holiday selling season). In fiscal 1999, the fourth
quarter represented 34% of sales, 80% of income from operations and 131% of net
income. Due to the importance of the holiday shopping season, any factors
negatively impacting the holiday selling season could have a material adverse
effect on our financial condition and results of operations. Operating results
are dependent upon a number of factors, including discretionary consumer
spending, which is affected by local, regional and national economic conditions
affecting
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disposable consumer income, such as employment, business conditions, interest
rates and taxation. Our 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;
- expenses related to relocation and expansion;
- unexpected changes in volume related rebates from manufacturers;
- the success of new stores; and
- the impact of new stores on existing stores.
As we have opened additional stores or relocated and expanded stores within
markets we already serve, sales at existing stores have been adversely affected.
Such adverse effects may occur in the future. Our quarterly operating results
also may be affected by increases in merchandise costs, price changes in
response to competitive factors, new and increased competition and product
availability.
INFLATION
We believe, because of competition among manufacturers and technological
changes in the consumer electronics industry, inflation has not had a
significant effect on results of operations during the last few years.
YEAR 2000 ISSUE
Until recently, most computer programs were written to store only two digits
of date-related information in order to more efficiently handle and sort data.
As a result, these programs were unable to properly distinguish between dates
occurring in the year 1900 and dates occurring in the year 2000. This is
referred to as the "Year 2000 Issue." During 1998 and 1999, we reviewed all
applications and equipment to evaluate our exposure to the Year 2000 Issue. The
required modifications to existing systems were identified, and plans were
developed for upgrades or remediation. We anticipate that all upgrades and
remediation will be completed by October 31, 1999.
Our primary information system software is provided by Tyler Retail Systems,
Inc. of Clearwater, Florida. This software operates the vast majority of our
systems and has been evaluated for Year 2000 compliance. Tyler has stated that
with the current software and the pending upgrade, our system should be Year
2000 compliant by October 31, 1999. We began the upgrade process in the first
quarter of fiscal 2000. We believe that no other significant modifications to
the Tyler software will be necessary. Our system review also identified that
some older hardware and software were not Year 2000 compliant. These items were
few in number and have been replaced with Year 2000 compliant products. In our
opinion, costs of these upgrades will not be material to our financial condition
or operations. We are also in communication with third parties with whom we do
significant business in order to assess their Year 2000 compliance and minimize
the potential for adverse consequences, if any, that could result from failure
of such entities to address this issue. Year 2000 issues do present risks that
are outside of our control, including, but not limited to, the failure of
utility companies to provide electricity, the failure of telecommunications
companies to provide voice and data transfer services, the failure of financial
services companies to process transactions or transfer funds and the failure of
third-party vendors or suppliers to become Year 2000 compliant. In the event of
our failure or Tyler's failure to become timely Year 2000 compliant, we have not
identified a near-term economically feasible alternative for operations support,
and would be required to resort to manual or other processing methods. With
regard to any Year 2000 failure by third-party product suppliers, we plan to
pursue alternative suppliers for Year 2000 compliant products, where
appropriate, but we anticipate that our competitors will be similarly impacted
in any such event. We can make no assurances that Year 2000 issues will not have
an adverse effect on our business, financial condition, or future operations.
The information provided in this disclosure constitutes a "Year 2000 Readiness
Disclosure" under the Year 2000 Information and Readiness Disclosure Act of
1998.
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NEW ACCOUNTING PRONOUNCEMENTS
We adopted Statements of Financial Accounting Standards (SFAS) No. 130
"Reporting Comprehensive Income" and SFAS No. 131 "Disclosure about Segment
Reporting of an Enterprise and Related Information" in fiscal 1999 with no
material impact to our financial statements.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
As of July 31, 1999, we had outstanding long-term debt of approximately
$25.1 million, $13.0 million of which bears interest at an annual fixed rate of
10.25%. A hypothetical 10.0% decrease in interest rates would not have a
material impact on us. Increases in interest rates could, however, increase
interest expense associated with our future borrowings, if any. For example, we
frequently effect borrowings under our $40.0 million revolving line of credit
for general corporate purposes, capital expenditures and other purposes related
to expansion of our capacity. Borrowings under the $40.0 million line of credit
bear interest based on a blend of LIBOR plus 2.0% and Norwest Bank's prime rate
minus 0.375%. Borrowings under this credit facility in the amount of $12.0
million were outstanding as of July 31, 1999. We have not hedged against
interest rate changes.
FORWARD-LOOKING STATEMENTS
Management's discussion and analysis of financial condition and results of
operations contain statements that are not historical facts but are
forward-looking statements that involve risks and uncertainties that could cause
future results to vary materially from projected results. Such statements
address activities, events or developments that we expect, believe, project,
intend, estimate, plan or anticipate will, should, could or may occur, including
reference to future profitability and steps being taken to achieve that result.
Factors that could cause actual results to differ materially from our
projections, forecasts, estimates and expectations include, but are not limited
to:
- risks related to our ability to open and profitably operate new stores;
- our ability to profitably relocate and/or expand existing stores and the
willingness of vendors to permit product sales over the Internet;
- significant competition, including new competition from internet
retailers;
- seasonal fluctuations in our business;
- changes in trade regulations and currency fluctuations;
- risks regarding increases in promotional activities of competitors;
- the presence or absence of new products or product features in our
merchandise categories;
- changes in the distribution strategy of our vendors;
- changes in vendor support for advertising and promotional programs;
- changes in our merchandise sales mix;
- the results of financing efforts;
- fluctuations in consumer demand and preferences;
- the risks associated with Year 2000 issues; and
- general economic conditions.
Please refer to a discussion of these and other factors in our Annual Report on
Form 10-K for the year ended January 31, 1999, in this prospectus under "Risk
Factors" and in our other filings with the Securities and Exchange Commission.
We disclaim any intent or obligation to update publicly these forward-looking
statements, whether as a result of new information, future events or otherwise.
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BUSINESS
OVERVIEW
Ultimate Electronics is a leading specialty retailer of consumer electronics
and home entertainment products in the Rocky Mountain, Midwest and Southwest
regions of the United States. We appeal to a wide range of consumers and focus
on mid to high-end products sold by a highly-trained, knowledgeable, full-time
sales force in a full service retail environment. We seek to differentiate
Ultimate Electronics from its national, regional and local competitors by:
- focusing on audio, video, television and mobile electronics products;
- offering over 125 brands including a majority of the most popular names
and a large selection of limited-distribution, upscale brands and lines;
- emphasizing products with the latest technology by dedicating significant
resources to their promotion, advertising, merchandising and related
product training;
- offering Simple Solution packages created by us for home theater, mobile
electronics and home computing to make purchasing consumer electronics
systems simple;
- utilizing an upscale, demonstration-oriented store format with an emphasis
on presentation of large screen televisions, home theater systems and
mobile electronics;
- featuring highly-trained, knowledgeable, full-time sales associates and
installation technicians; and
- providing a complete menu of value-added services including home
installation by our own technicians.
We believe that our differentiating characteristics, together with our policy of
offering the same price as our competitors on identical merchandise, makes us an
attractive alternative to volume driven appliance/electronics superstores, as
well as other national, regional and local merchants. In addition, our early
commitment to technologically advanced products, combined with our
highly-trained sales force, positions us to take advantage of the evolution in
consumer electronics products that is being led by digital technology.
We operate 30 stores, including 10 stores in Colorado under the trade name
SoundTrack, 11 stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma and Utah
under the trade name Ultimate Electronics and nine stores in Minnesota and South
Dakota under the trade name Audio King. Our large format store generally ranges
from 30,000 to 36,000 square feet and displays products in an upscale retail
environment. Our large format stores have typically been profitable on a store
operating basis within their first 12 months of operation and achieved an
average initial store investment pay-back period, excluding inventory, within 24
months. These stores feature an extensive selection of over 4,000 items with
products from the following categories:
- televisions
- home theater systems
- direct broadcast satellite
- VCR
- DVD
- camcorders
- home audio
- portable audio
- car stereo
- car security
- mobile navigational systems
- wireless communications
- home office/computer
- home theater furniture
- audio and video accessories
In fiscal 1999, our sales increased 10% to $337.5 million compared to the
prior year. In May 1998, we executed a major strategic initiative by
significantly reducing our assortment of computers, peripherals and related
products. Comparable store sales for fiscal 1999 increased 2% (7% excluding the
computer category). This initiative also contributed to our improvement in gross
margin to 28.9% of sales in fiscal 1999 from 27.0% of sales in fiscal 1998. Our
earnings per share increased significantly to $.35 in fiscal 1999 from $.02 in
fiscal 1998.
During the first half of fiscal 2000, our sales were $166.6 million and
comparable stores sales increased 17% (20% excluding the computer category). Our
gross margin improved to 30.0% of sales
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in the first six months of fiscal 2000 from 28.3% of sales for first six months
of fiscal 1999. Our earnings per share was $.20 during the first half of fiscal
2000, compared to a loss per share of $.26 for the first half of fiscal 1999.
THE CONSUMER ELECTRONICS INDUSTRY
The consumer electronics industry is defined to include television, audio,
video, mobile electronics, home information (including computers and related
products) and gaming products. According to the Consumer Electronics
Manufacturing Association, total industry factory sales (domestic and imports to
the U.S.) by manufacturers of consumer electronics products were estimated to be
$76 billion in 1998 and are projected to exceed $80 billion in 2000. We believe
that growth in the consumer electronics industry is driven by the introduction
of new products and technological advancements.
In the 1990s, consumer electronics retailing has become increasingly
competitive due to the increased presence of large national chains, numerous
smaller specialty stores and consumer electronics departments of many
department, discount and home improvement stores. Many of these retailers have
sought to capitalize on the growth of certain product categories within the
overall consumer electronics industry, including personal computers, software,
home office/computer equipment and telecommunications equipment. The large
national chains typically rely on high sales volumes by marketing a wide variety
of products including appliances and software to a broad group of consumers,
with an emphasis on low to mid level products. We believe these dynamics have
contributed to a decrease in emphasis by the national chains on audio and video
products. We also believe that because our competitors emphasize broad product
categories, they do not provide the knowledgeable sales force, customer service
and inviting shopping environment available at a specialty retailer such as
Ultimate Electronics.
The introduction of new products and technological advancements have driven
growth in the consumer electronics market. In recent years, a large portion of
the growth in our industry has been in the computer sector. More recently,
industry growth has been generated by the introduction of products that
incorporate digital technology such as DVD players, digital camcorders and
HDTVs. Digital products offer significant advantages over their analog
counterparts such as clarity and quality of video and audio, durability of
recording and compatibility with computers. Due to these advantages, many in the
industry believe the digital evolution in the consumer electronics industry will
drive growth well beyond the year 2000 as consumers seek new technology and
replace their existing analog-based products with digital products. The Consumer
Electronics Manufacturing Association estimates that digital video products will
average 35% annual growth from 1999 through 2002. Among the digital product
developments that we believe support this growth are the following:
- DIGITAL VERSATILE DISC (DVD). According to the Consumer Electronics
Manufacturing Association, DVD player sales reached an estimated 800,000
units in 1998 and are estimated by CEMA to total over 3,000,000 units in
1999.
- HIGH DEFINITION TELEVISION (HDTV). The Federal Communication Commission
has set a target of 2006 for all commercial television stations to
transition from broadcasting analog signals to digital signals. In order
to receive a digital transmission, consumers will need either a digital-
ready television or a set-top box converter capable of converting the
digital broadcast for viewing on an analog set. As there are roughly 250
million televisions in the United States today, the HDTV market
opportunity for retailers is significant.
- NEW DIGITAL PRODUCT INTRODUCTIONS. The expected introduction of various
new digital products in the next two years should provide consumer
electronics retailers with significant additional growth opportunities.
Some of these products include MP3 players (for playing audio downloaded
from the Internet), digital radio, TiVo/Replay TV (digital video recording
and playback devices) and DVD car audio and mobile video systems.
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We believe that specialty retailers with sales personnel trained to
demonstrate the benefits of technologically-advanced products are well
positioned to capture the increased sales that should result as such products
achieve market acceptance.
BUSINESS STRATEGY
Our business strategy is to capitalize on our position as the upscale, full
service consumer electronics alternative to our competitors. We seek to satisfy
consumer demand for consumer electronics and home entertainment products,
particularly in the core categories of audio, video, television and mobile
electronics. Key elements of this strategy include:
FOCUSING ON AUDIO, VIDEO, TELEVISION AND MOBILE ELECTRONICS PRODUCTS. We
focus primarily on audio, video, television and mobile electronics products, and
provide our customers with a comprehensive and informative experience when
making the decision to purchase consumer electronics products. We believe that
this specialized focus enhances the reputation of our stores as being a premier
place to purchase products in these core categories.
OFFERING AN EXTENSIVE SELECTION OF MID TO HIGH-END AUDIO AND VIDEO
PRODUCTS. We offer a broad selection of mid to high-end audio and video brand
name consumer electronics and home entertainment products. We offer over 4,000
items representing over 125 brand names across a broad selection of audio and
video products. A significant portion of these brands, such as Boston Acoustics,
Denon, Krell, Martin Logan, Mitsubishi and Sony ES, are only available through
select retailers. We believe our extensive selection helps customers make a
better informed buying decision. In addition, we offer merchandise in each of
our product categories at a range of price points and generally maintain
sufficient product stock for immediate delivery to our customers.
BEING A LEADER IN OFFERING NEW TECHNOLOGY. We strive to be recognized by
consumers and vendors as a leader in presenting the latest technology. We devote
significant resources to marketing and substantial floor space and inventory to
the display of new technologies. For example, as a result of this focus, we were
able to sell and deliver the first HDTV for residential use in the United States
in July 1998. We believe that showcasing the latest technology differentiates us
from less specialized competitors and stimulates the sales of other products and
services. We offer such leading edge products as HDTV, DVD players, vehicle
navigational systems and digital camcorders. In addition, we provide our sales
associates with specialized training in order to present the advantages of new
technology to our customers, and we frequently hold special events at our stores
to introduce and promote new products.
OFFERING SIMPLE SOLUTION PRODUCT PACKAGES. We assist our customers in
making larger and more complex consumer electronics purchases with our Simple
Solution program. The Simple Solution program provides complete packages that
make home theater, car audio and computer purchase decisions simpler. This
program also offers the consumer with an excellent value when compared with
purchasing the same components separately. Our Simple Solution product packages
generally range across several price points in each of these product categories.
We frequently negotiate special purchases from manufacturers for our Simple
Solution program that allow us to provide lower prices to our customers while
achieving attractive gross margins on the products.
PROVIDING AN UPSCALE, DEMONSTRATION-ORIENTED STORE FORMAT. We have
developed an upscale, demonstration-oriented store format that showcases our
merchandise and encourages customers to fully experience our products. We
believe that this format assists our customers in understanding the benefits of
upscale products and new technology. Our stores have acoustically designed home
audio and car stereo demonstration rooms, fully furnished home theater rooms and
automobiles equipped with the latest in car stereo and car security products.
Carpeted and hardwood floors, soft lighting and high quality merchandise
fixtures further enhance the appeal of the stores.
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TRAINING AND DEVELOPING A PREMIER SALES AND INSTALLATION TEAM. We conduct
an extensive ongoing training program designed to ensure that our sales
associates are armed with the most up-to-date sales techniques and product
knowledge. We believe that the quality and knowledge of our sales associates and
installation technicians is critical to our success and represents a significant
competitive advantage. We also believe that our ongoing, specialized training
leads to a superior customer experience that stimulates sales of our products.
We ensure that our sales associates receive comprehensive technical product and
sales training prior to our introduction of significant new products, which
helps us maintain our new technology product leadership. We also ensure that our
installation technicians receive comprehensive technical product and
installation training.
PROVIDING "RED CARPET" CUSTOMER SERVICE. We have always been committed to
providing excellent customer service. We support our product sales by providing
many important customer services, including home delivery and set-up, home
theater and audio design and installation, home satellite installation, mobile
electronics installation, extended service contracts and regional service
centers that offer in-home and carry-in repair services. We believe that our
in-home installation service provided by our own employees is an important
competitive advantage. We also provide in-store product instruction and will
provide follow-up instruction at a customer's home upon request. In addition, we
offer a 30-day money-back satisfaction guarantee on most products and an
in-stock guarantee on advertised products.
PROMOTING OUR MERCHANDISE THROUGH DIFFERENTIATED MARKETING AND
ADVERTISING. We recently redesigned our marketing program to create awareness
of our comprehensive selection of mid to high-end brand name merchandise at
competitive prices. Our advertising strategy primarily uses newspaper, radio and
targeted direct mail media. The cornerstone of our direct mail campaign is a 70
to 80 page full color catalog that we publish four times a year that emphasizes
the breadth of our selection and new technology. The catalog educates our
customers on the features and benefits of the latest consumer electronics
products and advertises the full array of products and services available at our
stores. This catalog is currently mailed to approximately 800,000 current and
400,000 prospective customers in our operating regions.
OFFERING COMPETITIVE PRICING AND SATISFACTION GUARANTEE. Our goal is to
advertise and sell products at the same price as our competitors. We reinforce
this strategy in our advertising and with our "30 day satisfaction guarantee"
backed by our "60 day price guarantee." Our price guarantee and our satisfaction
guarantee are designed to remove pricing concerns from the purchase decision and
allow the customer and the sales staff to focus on product features, performance
and quality.
GROWTH STRATEGY
In addition to our business strategy that is focused on generating
comparable store sales increases, we intend to grow our business by opening new
stores and relocating and/or expanding existing stores.
OPENING NEW STORES. We intend to expand into select metropolitan areas in
the Rocky Mountain, Midwest and Southwest regions with 30,000 to 36,000 square
foot stores (with a few as small as 20,000 square feet in smaller markets). We
are currently constructing a new 36,000 square foot store in Davenport, Iowa
that is expected to open in fiscal 2000. We expect to open an additional six to
eight new stores in fiscal 2001 primarily in the Phoenix area and eight to 12
additional stores in fiscal 2002. At the present time no leases have been signed
for the Phoenix stores but we have entered into letters of intent and are
negotiating leases for several of the sites. We believe there are many
additional markets for future expansion within an 850 mile radius of our
distribution center located in Colorado, as well as new store opportunities in
our existing markets.
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RELOCATING AND/OR EXPANDING EXISTING STORES. We are currently planning to
relocate and/or expand several of our smaller locations. In particular:
- we are currently expanding a Minneapolis, Minnesota area store from 9,700
to 18,000 square feet;
- we are currently relocating and expanding our Sioux Falls, South Dakota
store from 3,200 to 22,000 square feet;
- we plan to relocate a 9,300 square foot store in the St. Paul, Minnesota
area to a 35,000 square foot store in the second quarter of fiscal year
2001;
- we expect to expand our Fort Collins, Colorado store from 16,600 to 22,000
square feet in the first quarter of fiscal 2001; and
- we plan to relocate and expand one of our Denver, Colorado area stores
within the next 18 months.
In addition to these planned relocations and expansions, we are currently
analyzing opportunities in existing markets to relocate and/or expand several of
the remaining smaller stores.
STORE OPERATIONS
STORES. We currently operate 30 stores, comprised of 10 SoundTrack stores
in Colorado, 11 Ultimate Electronics stores in Idaho, Iowa, Nevada, New Mexico,
Oklahoma and Utah and nine Audio King stores in Minnesota and South Dakota. Of
these 30 stores, 15 are larger format stores and the balance are smaller format
stores.
While our 15 larger stores vary in size from 31,500 to 51,700 square feet,
our current prototype store generally ranges from 30,000 to 36,000 square feet,
with approximately 55% to 60% of the square footage devoted to selling space.
The remaining space is dedicated to a car audio installation facility, a store
warehouse, general office space and, in selected stores, a service facility.
This store format emphasizes mid to high-end products, and features multiple
home audio and car demonstration rooms, multiple home theater settings,
extensive portable electronics displays and an area displaying 35 to 45
projection televisions. Each of these stores has displays designed to provide
the customer with a full spectrum of our products upon entering the store. At
these locations we offer home installation of audio, video and satellite
products, installation of mobile electronics, a home theater planning center and
two automobiles equipped with the latest in car stereo and car security
products.
Thirteen of our stores range in size from 9,300 to 28,200 square feet, with
approximately 60 to 65% of the square footage devoted to selling space. These
stores generally contain the same products and services available at our large
format stores except that they typically contain fewer large screen televisions
and fewer demonstration rooms for home and mobile electronics. We may relocate
and/or expand a number of these stores as opportunities become available. We
currently have plans to relocate and/or expand four of these stores by the end
of fiscal 2001. We also operate two mall-based stores that we acquired as part
of the 1997 merger with Audio King, one of which we are currently relocating and
expanding.
SITE SELECTION. Our new stores are expected to range from 30,000 to 36,000
square feet. We typically locate these stores in power centers, freestanding
locations near shopping malls and other major retail shopping areas. We select
locations for future stores based on our evaluation of individual site economics
and market conditions. When deciding to enter a new market, we evaluate a number
of criteria, including the following:
- sales volume potential;
- distance from our current distribution center;
- existing and potential competition in the market, including their size,
strength and merchandising philosophy;
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- marketing and advertising costs; and
- size, demographic makeup and growth potential of the market.
In choosing specific sites in a new or existing market, we apply site
selection criteria taking into account numerous factors, including the
following:
- store locations of our competition;
- local demographics;
- proximity to our existing or proposed store locations;
- real estate occupancy expenses and tenant build-out costs;
- store visibility;
- traffic patterns; and
- overall retail activity.
STORE ECONOMICS. We believe that we benefit from attractive store level
economics. Our average investment for the 15 large format stores we opened since
1993 was approximately $2.8 million including leasehold improvements, fixtures
and equipment, inventory (net of payables) and preopening expenses. The average
sales per store and store level contribution for these 15 stores, which excludes
corporate and warehouse/distribution expenses, interest expense and corporate
income taxes, for the four quarters ending July 31, 1999 were approximately
$15.0 million and $1.4 million.
The cost of future stores is anticipated to average approximately $3.0
million per store, which includes leasehold improvements, fixtures and
equipment, inventory (net of payables) and preopening expenses. Leasehold
improvements, fixtures and equipment are expected to average approximately $1.9
million per store. Preopening expenses for these stores are expected to average
approximately $350,000, and include such items as advertising prior to opening,
recruitment and training of new employees and other costs of opening stores. The
inventory requirement for our new stores is expected to average approximately
$1.5 million, of which $750,000 is typically financed through trade credit. For
relocations of existing stores, preopening costs are expected to average
approximately $150,000 and will be higher if we terminate existing store leases
prior to their maturity.
TRAINING. We provide new sales associates with a minimum of three weeks of
intensive classroom training. Our sales associates also receive additional
weekly training at the store, weekly self study programs and testing. Our
training program begins with an orientation by one or more of our executive
officers and continues with instruction in areas such as technical knowledge by
product category, selling techniques and policies and procedures of Ultimate
Electronics. Further, in conjunction with our vendors, we conduct day long
training seminars five to six times a year that all sales associates are
required to attend. Our sales force also receives technical product and sales
training prior to our introduction of significant new products, which helps us
maintain our new technology product leadership. Our installation technicians
also receive comprehensive product installation training.
STORE MANAGEMENT. An average large format store is generally staffed with a
store manager, an operations manager, an installation supervisor, 10 to 12
installers and 10 support personnel including five warehouse employees and five
customer service representatives. Each large format store also has two sales
managers, one for home electronics and one for mobile electronics, and
approximately 30 to 35 sales associates. All of our store management personnel
have been promoted from within the company. The staffing of our smaller stores
generally follows the same format as our larger stores but includes fewer
employees.
STORE PERSONNEL COMPENSATION. Our compensation plan is designed to provide
greater incentives to our sales associates to sell more than one product to a
customer. Our sales associates are compensated pursuant to a flexible incentive
pay plan with commissions determined on the basis of sales and gross margins.
Installers are also paid based on commissions. Store managers receive a base
salary, monthly and annual bonuses and opportunities for commissions. Sales
managers similarly receive a
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small base salary, bonuses and earned commissions. Bonuses are calculated on a
store-by-store basis. Support staff are typically paid an hourly wage plus
bonuses and may also earn commissions. We also motivate our employees by
providing opportunities for advancement within the company.
SERVICES. We support our product sales by providing many important customer
services, including the following:
- home delivery and set-up
- home audio installation and design
- home satellite installation
- home theater installation and design
- mobile electronics installation
- regional service centers
- in-store product instruction
- home instruction upon request
Virtually all merchandise purchased from us may be taken to any of our
stores for repair, whether or not the product is currently under the
manufacturer's warranty or an extended service contract. In order to provide
maximum service to our customers, we have regional service centers in
Albuquerque, New Mexico; Boise, Idaho; Denver, Colorado; Des Moines, Iowa; Las
Vegas, Nevada; Minneapolis, Minnesota; Salt Lake City, Utah; and Tulsa,
Oklahoma. Our largest service facilities, located in metropolitan Denver and
Minneapolis, provide backup for our other regional service centers. We employ
approximately 150 employees in connection with our service business. Each
service department is staffed with product specialists capable of making complex
repairs. In addition, we operate a fleet of approximately 120 customer service
vehicles to provide in-home repair and delivery, installation and setup of home
satellites, home theater components and televisions.
We offer a private label credit card that is financed, operated and serviced
by a third party finance company on a non-recourse basis. We entered into an
agreement with the finance company whereby the finance company retains all
credit risk associated with the private label credit card. In addition, certain
manufacturers sponsor their own private label credit cards. These arrangements
permit us to provide our customers with financing promotions, including
interest-free and deferred payments, without using Ultimate Electronics' working
capital. During fiscal 1999, approximately 26% of our sales were purchased
through our private label and manufacturer sponsored credit cards.
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MERCHANDISING
PRODUCTS. We offer our customers a comprehensive selection of high quality,
brand name televisions, video, audio, mobile electronics and home office
products. We emphasize depth of product selection within key product categories
as follows:
<TABLE>
<CAPTION>
CATEGORY PRODUCTS SELECTED BRANDS
- ------------------------------------ ------------------------------------ ------------------------------------
<S> <C> <C>
Television.......................... Conventional televisions, projection Echostar, GE, JVC, Magnavox,
televisions and digital satellite Mitsubishi, Panasonic, Pioneer,
systems Proscan, RCA, Samsung, Sharp, Sony
and Zenith
Audio............................... Audio components, compact disc Adcom, Aiwa, Bose, Boston Acoustics,
players, speakers and portable Definitive Technology, Denon,
electronics Infinity, JVC, Klipsch, Krell,
Martin Logan, Monster Cable,
Pioneer, Sunfire, Sony, Technics,
Yamaha
Mobile Electronics.................. Car stereo components, car stereo Alpine, Boston Acoustics, Clarion,
speakers, wireless communications, Infinity, JVC, Motorola, Nokia,
installation services and cellular Panasonic, Pioneer, Rockford
phones Fosgate, Sony, XTANT
Video............................... VCRs, camcorders, digital cameras, Canon, Denon, JVC, Monster Cable,
DVD players and editing equipment Mitsubishi, Olympus, Panasonic,
Pioneer, Samsung, Sony, Yamaha
Home Office......................... Computers, computer peripherals, fax Canon, Panasonic, Sony, US Robotics,
machines and telephones VTech
Other............................... Audio and video furniture, blank Bell'ogetti, Bush, Great American
tapes, batteries, extended service Oak, Sanus, Sony, TDK, Wambold
contracts and repair services
</TABLE>
We offer customers a wide range of price points within each product
category, with the greatest depth in middle to higher priced items. Within our
product categories, we carry and actively promote new models as they become
available. We do not carry home appliances or music, video or computer software.
During the second quarter of fiscal 1999, we significantly reduced our computer
assortment, concentrating on a limited number of computer packages offering Sony
personal computers and Canon printers. At that time we also discontinued 35mm
and Advanced Photo System cameras.
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The following table shows the approximate percent of sales for each major
product category for the last three fiscal years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------
<S> <C> <C> <C>
PRODUCT CATEGORY 1997 1998 1999
- --------------------------------------------------------------- ----------- ----------- -----------
Television..................................................... 29% 28% 31%
Audio.......................................................... 22 23 24
Mobile Electronics............................................. 12 14 15
Video.......................................................... 13 14 15
Home Office.................................................... 16 12 7
Other.......................................................... 8 9 8
--- --- ---
100% 100% 100%
--- --- ---
--- --- ---
</TABLE>
We offer extended service contracts to our customers for most categories of
our products. The extended service contracts cover parts and labor for service
periods not covered by the manufacturer's warranty on such products. These
contracts are administered for us by an unaffiliated third party warrantor that
pays for the repair service. We sell all of our extended service contracts to
the warrantor on a non-recourse basis. The warrantor is required by its
agreement with us to maintain insurance to protect us in the event that the
warrantor fails to fulfill its obligations under the extended service contracts
and we are a named loss-payee under the agreement. Gross margins from the sale
of extended service contracts are higher than the average gross margins of our
other products.
PRICING. We emphasize competitive pricing on all items and reinforce this
strategy with extensive advertising of our "60 day price guarantee" and our "30
day satisfaction guarantee." Our "60 day price guarantee" allows our customers
to receive 110% of the difference between the original purchase price and any
locally available lower price for the identical product under the same purchase
conditions. This guarantee applies to all products, excluding computer products
and digital cameras which are covered by a 30 day price guarantee. Our "30 day
satisfaction guarantee" allows our customers to return most products within 30
days for a full refund. Our price guarantee and our satisfaction guarantee are
designed to remove pricing and suitability concerns from the purchase decision
and allow the customer and the sales staff to focus on product functionality,
performance and quality. Sales and other special events that we conduct may have
lower than normal prices on selected products and product categories. In
addition, we offer an in-stock guarantee on advertised products.
ADVERTISING AND MARKETING. Our marketing program is designed to create
awareness of our comprehensive selection of mid to high-end brand name
merchandise at competitive prices. Our advertising strategy primarily uses
newspaper, radio and targeted direct mail media. We present a blend of
aggressive promotional price points on products sold by our competitors as well
as an extensive selection of mid to high-end products. We primarily advertise
through newspaper in every market we serve, producing six to eight-page full
color weekly inserts. We also conduct a direct mail campaign, the cornerstone of
which is a 70 to 80 page full color catalog that we publish four times a year
that emphasizes the breadth of our selection and new technology. The catalog
educates our customers on the features and benefits of the latest consumer
electronics products as well as advertises the full array of products and
services available at our stores. The catalog is currently mailed to
approximately 800,000 current and 400,000 prospective customers in our operating
regions. We also hold special events at our stores to introduce or promote new
products. We produce prominent and colorful in-store signage that describe
differentiating product features, new technology and promotional information.
The specific allocation of advertising dollars among the various types of
advertising media is reviewed from time to time by management and, if necessary,
adjusted to reflect our assessment of advertising results and market conditions.
36
<PAGE>
WEB SITE. Our web site, WWW.ULTIMATEELECTRONICS.COM, is currently content
based and designed to provide product information and enhance our advertising
and marketing for our stores. We have not made the investment to enable us to
conduct sales through our web site because a significant number of our major and
high-end manufacturers currently restrict the sale of mid and upscale products
via the Internet. We are currently investigating the feasibility of initiating
an e-tailing strategy. Any e-tailing strategy will depend on whether a
significant number of our product manufacturers redesign their distribution
strategy and allow Internet distribution of our mid to high-end products. See
"Risk Factors--We Face Significant Competition from National, Regional and Local
Consumer Electronics Retailers and May Experience Heightened Competition from
Internet Retailers."
PURCHASING. Substantially all of our products are purchased directly from
manufacturers. Each of our buyers has responsibility for specified product
categories. Buyers are assisted by a management information system that provides
them with current inventory quantity, price and sales information by item, thus
allowing them to react quickly to market changes.
We are the largest member of a volume-buying group, Progressive Retailers'
Organization, consisting of other companies similar to Ultimate Electronics with
respect to the types of merchandise sold. Membership in this organization helps
us to obtain additional volume rebates, special buys and access to closeout and
final production items.
During the fiscal year ended January 31, 1999, our ten largest suppliers
accounted for approximately 76% of the merchandise purchased by Ultimate
Electronics. Two of our suppliers, Sony and Mitsubishi, each accounted for more
than 10% of our merchandise mix. The master agreements under which we operate
with each of our suppliers are normally terminable upon 30 to 60 days' notice by
either party. As is customary in the industry, we do not have commitments of
longer than one year with the majority of our product suppliers. We believe that
our relationship with our large vendors is excellent and that our focused
merchandising and high degree of customer service makes us an important
distribution channel, particularly for the introduction of new products. See
"Risk Factors--A Disruption in Our Relationship With, or in the Operations of
Any of, Our Key Suppliers Could Cause Our Sales to Decline."
DISTRIBUTION. Ultimate Electronics currently distributes products to all of
its stores from a 175,000 square foot warehouse located in Thornton, Colorado, a
suburb of Denver. All of our stores in Colorado are located within 75 miles of
this warehouse. For stores over 75 miles away from this facility, we use
contract carriers for distribution. Our distribution center reduces our
inventory requirements at individual stores, while preserving the benefits of
volume purchasing and facilitating centralized inventory and accounting
controls. Virtually all of our merchandise is distributed through our
distribution center.
MANAGEMENT INFORMATION SYSTEMS
We installed our management information system using proven third party
software in August 1990 and have upgraded with enhancements nearly every year.
The system runs on Unix-based Hewlett-Packard computer hardware that can be
upgraded to accommodate future growth. We believe this system will be Year 2000
compliant by October 31, 1999. This on-line system connects all of our
facilities and allows sales associates to determine the location of all of our
inventory at any time. Pricing can be changed immediately by our buyers and
store management to react to competitor pricing. See "Risk Factors--Significant
Problems Relating to Year 2000 Issues Could Adversely Affect Our Business."
37
<PAGE>
COMPETITION
We operate in a highly competitive and price sensitive industry. The
principal competitive factors in the consumer electronics industry are breadth
of product selection, price, store location and customer service. We face
competition from large national chains, numerous smaller specialty stores and
consumer electronics departments of many department, discount, and home
improvement stores. We consider our primary competitors to include consumer
electronics retailers such as Best Buy and Circuit City as well as mass
merchants such as Sears, Wal-Mart and Target. We compete with Circuit City in
every market except Sioux Falls, South Dakota; Rochester, Minnesota; and
Boulder, Colorado and our two stores in Iowa. We compete with Best Buy in every
market except those in Utah and Idaho. We expect to face competition from
Circuit City in Boulder, Colorado during the next few months. We will be
competing with both Best Buy and Circuit City when we enter the Phoenix market
and we expect to compete with both of them in each of our other markets at some
point in the future. Our primary competitors have financial and other resources
greater than ours. There can be no assurance that our operating results will not
be adversely affected for the balance of fiscal 2000 and beyond by such
increased competition. In addition, if such competitors seek to gain or retain
market share by reducing prices, we may be required to reduce our prices,
thereby reducing gross margins and profits. Also, as we expand into markets
where our name may not be recognized, our success will depend in part on our
ability to compete with established and future competitors in such markets.
We also compete with retailers of consumer electronics on the Internet.
Internet sales of consumer electronics excluding computers are currently
estimated by Forrester Research to reach 10% of industry sales by 2003. We
expect that competition from the Internet will increase in the future. See "Risk
Factors--We Face Significant Competition from National, Regional and Local
Consumer Electronics Retailers and May Experience Heightened Competition from
Internet Retailers."
38
<PAGE>
PROPERTIES
We operate 30 stores in nine states. Each store, other than the store
located in Thornton, Colorado, is leased. The following table sets forth data
regarding our store locations.
<TABLE>
<CAPTION>
LEASE
APPROXIMATE EXPIRATION
YEAR LATEST YEAR APPROXIMATE RETAIL DATE
ORIGINALLY REMODELED TOTAL SELLING PRIMARY/WITH
CURRENT STORE LOCATIONS OPENED OR RELOCATED SQUARE FEET SQUARE FEET OPTIONS
- ------------------------------------------ ----------- ------------- ------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
COLORADO:
Arvada, CO................................ 1968 1991 14,500 9,500 2001/2006
Boulder, CO............................... 1985 1996 34,700 20,300 2017/2047
Colorado Springs, CO...................... 1989 N/A 14,900 9,800 2000/2001
Denver, CO................................ 1976 1994 31,600 16,700 2004/2009
Englewood, CO............................. 1983 1997 41,300 23,000 2017/2027
Fort Collins, CO.......................... 1990 (1) 16,600 8,400 2005/2005
Lakewood, CO.............................. 1997 N/A 40,400 23,000 2013/2028
Littleton, CO............................. 1986 1998 16,600 9,900 2004/2007
Littleton, CO............................. 1984 1996 39,100 22,600 2017/2027
Thornton, CO.............................. 1985 1996 40,300 25,900 N/A
IDAHO:
Boise, ID................................. 1995 N/A 37,800(2) 19,500 2010/2025
IOWA:
Cedar Rapids, IA.......................... 1995 1997 15,400 10,300 2015/2035
Des Moines, IA............................ 1994 1997 20,700(2) 12,200 2009/2019
MINNESOTA:
Brooklyn Center, MN....................... 1980 1997 15,000 9,200 2008/2023
Burnsville, MN............................ 1979 (3) 9,700 6,600 2007/2017
Maplewood, MN............................. 1989 (4) 9,300 5,600 1999/1999
Minnetonka, MN............................ 1977 1997 15,000 9,100 2008/2023
Rochester, MN............................. 1986 N/A 3,900 2,700 1999/1999
Roseville, MN............................. 1977 1997 17,400 11,300 2015/2035
Edina, MN................................. 1974 1997 28,200 17,900 2015/2025
St. Cloud, MN............................. 1987 N/A 10,000 7,100 2001/2011
NEVADA:
Las Vegas, NV............................. 1995 N/A 37,300(2) 17,900 2015/2035
Las Vegas, NV............................. 1994 N/A 31,500 17,600 2014/2024
NEW MEXICO:
Albuquerque, NM........................... 1994 N/A 37,100(2) 17,700 2004/2014
OKLAHOMA:
Tulsa, OK................................. 1995 N/A 50,500(2) 30,400 2011/2026
SOUTH DAKOTA:
Sioux Falls, SD........................... 1986 (5) 3,200 2,400 2000/2000
UTAH:
Layton, UT................................ 1995 N/A 34,400 18,600 2010/2025
Murray, UT................................ 1994 N/A 32,200 18,000 2009/2024
Orem, UT.................................. 1993 N/A 32,900 17,100 2005/2010
Salt Lake City, UT........................ 1993 N/A 33,400 18,200 2005/2013
</TABLE>
- ------------------------
(1) We are currently negotiating to expand and to remodel this store.
(2) Includes regional service center.
(3) We have signed an agreement to expand this store and it is currently under
construction.
(4) We have signed a new lease and are expecting to relocate this store.
(5) We have signed a lease to relocate this store to a 22,000 square-foot site
and the new site is currently under construction.
39
<PAGE>
Our main warehouse, business office and a main service center is located in
Thornton, Colorado. This facility, in addition to the retail store in this
facility noted in the table above, is comprised of 175,000 square feet of
warehouse space, 30,000 square feet for our business offices, 21,000 square feet
devoted to a service department and 18,000 square feet for a training and
employee facility. We lease a 45,000 square foot facility in Minneapolis,
Minnesota that we use as a training center, office space, service center for the
greater Minneapolis/St. Paul area and warehouse space for our delivery
department. We lease an 8,500 square foot service center in Salt Lake City,
Utah. The store locations in Colorado Springs, Colorado and Fort Collins,
Colorado are leased from the selling stockholders. We also are in the process of
negotiating leases to relocate stores and are analyzing lease opportunities in
new markets. See "--Growth Strategy."
INTELLECTUAL PROPERTY
We believe our trademark and service mark portfolio includes marks that have
developed public recognition and are of significant value. Our portfolio of
marks include Ultimate Electronics, Audio King, Fast Trak, and Big Names. Little
Prices. Guaranteed. which are federally registered trademarks and service marks
owned by Ultimate Electronics, Inc. In addition, SoundTrack, Simple Solution,
and Ultimate Electronics Express are Ultimate Electronics, Inc. marks for which
there are pending applications for federal registration. The Ultimate SoundTrack
is a registered trademark in the State of Colorado and Audio King and Fast Trak
are registered trademarks in the State of Minnesota that are owned by Ultimate
Electronics, Inc. We actively protect our rights associated with our portfolio
of marks to ensure that the quality associated with them and the value of our
proprietary rights are maintained. We are not aware of any adverse claims
concerning our trademarks and service marks.
EMPLOYEES
As of July 31, 1999, we employed approximately 1,700 persons, approximately
1,450 of whom were store, customer delivery or service employees and
approximately 250 of whom were main warehouse or corporate personnel. We
consider our employee relations to be good. Most employees, other than corporate
and store support personnel, are paid pursuant to a flexible pay plan. We
believe that we provide working conditions and wages that compare favorably with
those of other companies within the industry. None of our employees are covered
by collective bargaining agreements.
LITIGATION
We are subject to litigation from time to time in the ordinary course of
business. However, we are not currently subject to any litigation which,
singularly or in the aggregate, could reasonably be expected to have a material
adverse effect on our financial condition or results of operations.
40
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers include the following persons:
<TABLE>
<CAPTION>
SERVED AS OFFICER
NAME AGE POSITIONS OR DIRECTOR SINCE
- ----------------------------------- --- ----------------------------------------------------- -------------------
<S> <C> <C> <C>
William J. Pearse.................. 58 Chairman of the Board and Founder 1968
J. Edward McEntire................. 55 Chief Executive Officer and Director 1993
David J. Workman................... 43 President, Chief Operating Officer and Director 1985
Alan E. Kessock.................... 40 Senior Vice President--Finance and Administration, 1988
Chief Financial Officer, Treasurer, Secretary and
Director
Neal A. Bobrick.................... 38 Senior Vice President--Sales and Store Operations 1992
Robert W. Beale.................... 63 Director 1993
Randall F. Bellows................. 71 Director 1995
</TABLE>
All executive officers hold office at the discretion of the board of
directors.
WILLIAM J. PEARSE. Mr. Pearse is Chairman of the Board and has been an
officer and director of Ultimate Electronics since he founded Ultimate
Electronics 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 presently serves on various private
corporate and charitable boards.
J. EDWARD MCENTIRE. Mr. McEntire was promoted to Chief Executive Officer of
Ultimate Electronics and elected a director in August of 1997. Mr. McEntire had
previously held the position of Vice President--Operations for Ultimate
Electronics since February 1995. He was also a non-employee Director of Ultimate
Electronics 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.
DAVID J. WORKMAN. Mr. Workman is our President and Chief Operating Officer.
He has been a director since April 1993. He was promoted to Executive Vice
President and General Manager in 1991 and then to President and Chief Operating
Officer in 1992. From 1985 until 1991, Mr. Workman worked with Ultimate
Electronics as Vice President of Sales and Store Operations. He joined us in
1979 as a sales associate and was promoted to store manager in 1982. Mr. Workman
was part owner of Dakota Sight and Sound from 1976 until 1979.
ALAN E. KESSOCK. Mr. Kessock is our Senior Vice President of Finance and
Administration, Chief Financial Officer and has been Secretary and Treasurer and
a director of Ultimate Electronics since April 1993 and was our Vice President
of Finance and Administration from 1988-1999. He joined us in 1985 as
Controller. Prior to joining us, Mr. Kessock worked two years with the
accounting firm of KPMG Peat Marwick and two years with American Home Video
Corporation. Mr. Kessock is currently a member of the Colorado Society of CPAs,
and taught a national CPA review course from 1983 until 1991.
41
<PAGE>
NEAL A. BOBRICK. Mr. Bobrick is our Senior Vice President of Sales and
Store Operations. He was a Vice President of Sales and Store Operations from
1992 to 1999. Mr. Bobrick joined us in 1981 as a sales associate and was
promoted to store manager in 1984. He was made Director of Sales in 1989. Mr.
Bobrick has worked in the consumer electronics industry since 1979.
ROBERT W. BEALE. Mr. Beale has been a director of Ultimate Electronics
since April 1993 and is the President of Beale International, a management
consulting firm specializing in 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 Ultimate Electronics
on January 31, 1995. Mr. Bellows was a co-founder of Cobe Laboratories, Inc. in
1965. He served as an Executive Vice President of Cobe Laboratories from 1965
until its acquisition by Gambro A.B. in 1990 and as a Director until 1995. 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 served as a director for Boston Scientific Corp.
until May 1999.
The board of directors is divided into three classes, each class consisting
as nearly as possible of one-third of the total number of directors. Directors
hold office for staggered terms of three years or until their successors have
been duly elected and qualified. Directors in one of the three classes are
elected each year at the annual meeting of shareholders to succeed the directors
whose terms are expiring. Class I directors include Alan E. Kessock and Robert
W. Beale and will serve as directors until the 2001 annual meeting. Class II
directors include David J. Workman and Randall F. Bellows and will serve as
directors until the 2002 annual meeting. Class III directors include William J.
Pearse and J. Edward McEntire and will serve until the 2000 annual meeting.
42
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
Ultimate Electronics' common stock and stock options exercisable within 60 days
of September 15, 1999 held by (i) each person or group of persons known by us to
own beneficially five percent (5%) or more of the outstanding shares of common
stock, (ii) each director of Ultimate Electronics, (iii) our chief executive
officer and each of the next four most highly compensated executive officers and
(iv) all executive officers and directors of Ultimate Electronics as a group.
All information is taken from or based upon ownership filings made by such
persons with the Securities and Exchange Commission or upon information provided
by such persons to us. Unless otherwise indicated, the stockholders listed below
have sole voting and investment power with respect to the shares reported as
owned.
<TABLE>
<CAPTION>
SHARES OWNED PRIOR SHARES OWNED
TO THE OFFERING AFTER THE OFFERING
----------------------- AMOUNT SOLD IN -----------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) AMOUNT PERCENT THE OFFERING AMOUNT PERCENT
- ----------------------------------------------------- ---------- ----------- -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
William J. and Barbara A. Pearse(2).................. 2,142,300 25.92% 250,000 1,892,300 18.43%
Various family trusts of William and
Barbara Pearse(3).................................. 960,000 11.65% -- 960,000 9.38%
Dimensional Fund Advisors, Inc.(4)................... 471,200 5.72% -- 471,200 4.60%
J. Edward McEntire(5)................................ 119,600 1.43% -- 119,600 1.16%
David J. Workman(6).................................. 153,209 1.83% -- 153,209 1.47%
Alan E. Kessock(7)................................... 96,061 1.16% -- 96,061 *
Neal A. Bobrick(8)................................... 75,606 * -- 75,606 *
Robert W. Beale(9)................................... 18,000 * -- 18,000 *
Randall F. Bellows(10)............................... 21,000 * -- 21,000 *
All directors and officers as a group (7 persons).... 2,625,776 30.3% 250,000 2,375,776 22.27%
</TABLE>
- ------------------------
(1) The address of each of such persons, unless otherwise noted, is c/o
Ultimate Electronics, Inc., 321 West 84th Avenue, Suite A, Thornton,
Colorado 80260. The percentage of shares owned prior to the offering is
based on 8,238,393 shares outstanding as of September 15, 1999 and
10,238,393 shares outstanding after the offering (in each case, assuming
the underwriters do not exercise their over-allotment option). In
presenting shares beneficially owned and in calculating each holder's
percentage ownership, only options exercisable by such person within 60
days of September 15, 1999 and not options exercisable by any other person
are deemed to be outstanding.
(2) Includes 27,300 shares underlying stock options exercisable within 60 days.
(3) Mr. Thomas Hoffman, SKB Business Services, 6530 South Yosemite, Englewood,
Colorado 80111, is the trustee of the various family trusts with sole
voting and dispositive power over the shares held in the trusts.
(4) According to Form 13F dated July 31, 1999, Dimensional Fund Advisors, an
investment advisor, organized under the laws of the state of Delaware,
located at 1299 Ocean Avenue, Santa Monica, California 90401, holds 471,200
shares of our common stock.
(5) Includes 102,500 shares underlying options exercisable within 60 days.
(6) Includes 150,250 shares underlying options exercisable within 60 days.
(7) Includes 63,333 shares underlying options exercisable within 60 days.
(8) Includes 63,916 shares underlying options exercisable within 60 days.
(9) Includes 14,000 shares underlying options exercisable within 60 days.
(10) Includes 10,000 shares underlying options exercisable within 60 days.
43
<PAGE>
In addition to serving as our Chairman, Mr. William J. Pearse has entered
into an Indemnification Agreement and a Change of Control Agreement with us. In
addition, in 1989, William J. and Barbara A. Pearse entered into leases with us
for our Colorado Springs and Fort Collins stores, pursuant to which we paid rent
of $114,238 and $146,670 to them in fiscal 1999. Jim Pearse, the son of Mr. and
Mrs. Pearse, serves as Vice President, Marketing of Ultimate Electronics. See
"Certain Relationships and Related Transactions" and "Employment Agreements" in
the proxy statement for our 1999 annual meeting of stockholders and Form 10-K
for the fiscal year ended January 31, 1999, which are incorporated by reference
into this prospectus.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Ultimate Electronics consists of 15,000,000
shares of common stock, par value $.01, of which 8,238,393 shares were
outstanding on September 15, 1999, and 10,000,000 shares of preferred stock, par
value $.01, none of which is outstanding.
The following summary description of Ultimate Electronics capital stock is
not intended to be complete and is qualified in its entirety by reference to the
provisions of applicable law and to Ultimate Electronics' Amended and Restated
Certificate of Incorporation and bylaws, filed as exhibits to the registration
statement of which this prospectus is a part.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share of common
stock held on all matters as to which holders of common stock are entitled to
vote. Except for and subject to those preferences, rights and privileges
expressly granted to the holders of preferred stock, and except as may be
provided by the laws of the State of Delaware, the holders of common stock have
exclusively all other rights of stockholders of Ultimate Electronics, including,
but not by way of limitation, (1) the right to receive dividends, when, as and
if declared by the board of directors out of assets lawfully available therefor,
and (2) in the event of any distribution of assets upon the dissolution and
liquidation of Ultimate Electronics, the right to receive ratably and equally
all of the assets of Ultimate Electronics remaining after the payment to the
holders of preferred stock of the specific amounts, if any, which they are
entitled to receive. Holders of common stock have no preemptive or similar
rights or cumulative voting rights. The outstanding shares of common stock are,
and all of the shares offered by this prospectus will be upon issuance, validly
issued and fully paid and nonassessable.
PREFERRED STOCK
The board of directors of Ultimate Electronics is authorized to provide by
resolution or resolutions for the issuance of the shares of preferred stock as a
class or in series and, by filing a certificate of designations, pursuant to the
Delaware General Corporation Law, or the DGCL, setting forth a copy of which
resolution or resolutions, to establish from time to time the number of shares
to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of the class or of each such series and the
qualifications, limitations and restrictions thereof. The authority of the board
of directors with respect to the class or each series include, but are not
limited to, determination of the following:
- the number of shares constituting any series and the distinctive
designation of that series;
- the dividend rate on the shares of the class or of any series, whether
dividends are cumulative and, if so, from which date or dates, and the
relative rights of priority, if any, of payment of dividends on shares of
the class or of that series;
- whether the class or any series have voting rights, in addition to the
voting right provided by law and, if so, the terms of such voting rights;
- whether the class or any series have conversion privileges and, if so, the
terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the board of directors
determines;
- whether or not the shares of the class or of any series are redeemable
and, if so, the terms and conditions of such redemption, including the
date or dates upon or after which they are redeemable and the amount per
share payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
- whether the class or any series have a sinking fund for the redemption or
purchase of shares of the class or of that series and, if so, the terms
and amount of such sinking fund;
45
<PAGE>
- the rights of the shares of the class or of any series in the event of
voluntary or involuntary dissolution or winding up of the corporation and
the relative rights of priority, if any, of payment of shares of the class
or of that series; and
- any other powers, preferences, rights, qualifications, limitations and
restrictions of the class or of any series.
Ultimate Electronics filed a Certificate of Designations for our Series A Junior
Participating Preferred Stock with the Delaware Secretary of State on February
10, 1995, pursuant to the implementation of the Stockholder Rights Plan, as
described below.
DELAWARE LAW AND CERTAIN CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS;
ANTI-TAKEOVER EFFECTS
Ultimate Electronics is subject to the provisions of Section 203 of the
DGCL. Subject to certain exceptions, Section 203 prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction in which the person became an interested stockholder, unless the
interested stockholder attained such status with the approval of the board of
directors or the business combination is approved in a prescribed manner, or
certain other conditions are satisfied. A "business combination" includes
mergers, asset sales and other transactions resulting in a financial benefit to
the interested stockholder. Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within three years did own, 15% or more of a corporation's voting stock.
In addition, our bylaws provide that:
- the number of directors shall be determined from time to time by
resolution adopted by a majority of the board of directors, but shall in
no event be less than three nor more than 11;
- vacancies on the board of directors shall be filled solely by the
affirmative vote of a majority of the remaining directors then in office,
or a sole remaining director, even though less than a quorum of the board
of directors; and
- the presence of a majority of the entire board of directors is required to
constitute a quorum.
Our certificate of incorporation and bylaws also provide for a classified
board of directors consisting of three classes of directors having staggered
terms of three years each, with each of the classes being as nearly equal as
possible. A single class of directors will be elected each year at Ultimate
Electronics' annual meeting of stockholders. Subject to transition provisions,
each director elected at each such meeting will serve for a term ending on the
date of the third annual meeting of stockholders after his election and until
his successor has been elected and duly qualified.
Under our certificate of incorporation and bylaws, special meetings of the
stockholders may be called only by the chairman of the board, the chief
executive officer, the president or the board of directors pursuant to a
resolution approved by a majority of the entire board of directors. The entire
board of directors means the total number of directors we have when there were
no vacancies. Our certificate of incorporation also states that any action
required or permitted to be taken by the shareholders must be effected at a duly
called annual or special meeting of such shareholders and may not be effected by
any consent in writing of such shareholders. Our bylaws provide that at least
one-third of the shares entitled to vote at any meeting of stockholders will
constitute a quorum and the act of the majority of such quorum will be deemed
the act of the stockholders.
Our bylaws also contain advance notice provisions for raising business and
nominating directors at shareholder meetings. For business to be properly
brought before an annual meeting by a stockholder, notice of such business must
be delivered to or mailed and received at our principal executive offices not
less than ninety days prior to the anniversary date of the immediately preceding
annual meeting. The stockholder's notice must include a brief description of the
business desired to be discussed, the name and address of such stockholder, the
class and number of shares owned by such stockholder and
46
<PAGE>
any material interest of such stockholder in such business. Similarly, any
stockholder entitled to vote at an annual or special meeting may nominate
directors only if written notice of such nomination, meeting specified
requirements, is provided (1) with respect to an annual meeting, ninety days
prior to the anniversary date of the immediately preceding annual meeting and
(2) with respect to a special meting, the tenth day following the date on which
notice of such meeting is given to stockholders.
The DGCL provides generally that the affirmative vote of a majority of the
shares entitled to vote on any matter is required to amend a corporation's
certificate of incorporation or bylaws, unless a corporation's certificate of
incorporation or bylaws, as the case may be, requires a greater percentage.
STOCKHOLDER RIGHTS PLAN
The description and terms of the rights are set forth in a rights agreement
dated as of January 31, 1995 by and between Ultimate Electronics and Norwest
Bank Minnesota, N.A., as rights agent. The following description of the rights
and the rights agreement does not purport to be complete and is qualified in its
entirety by the rights agreement, a copy of which is included as an exhibit to
the registration statement of which this prospectus is a part, which is
incorporated herein by reference.
On January 31, 1995, our board of directors adopted a stockholder rights
plan. The rights plan makes it more difficult for a third party to acquire us or
large portions of our common stock. Each right entitles the registered holder to
purchase from us one one-hundredth of a share of Series A Junior Participating
Preferred Stock of Ultimate Electronics at a price of $75 per one one-hundredth
of a preferred share, subject to adjustment.
If any person becomes the beneficial owner of 15% or more of our outstanding
common stock (more than 60% in the case of Mr. Pearse and his family), then each
right not owned by such person or certain related parties will entitle its
holder to purchase, at the right's then current exercise price, shares of our
Series A Junior Participating Preferred Stock (or, in certain circumstances, our
common stock, cash, property or other of our securities) having a market value
equal to twice the then-current exercise price. In addition, if we are involved
in a merger or other business combination transaction with another person after
which none of our common stock remains outstanding, or we sell 25% or more of
our assets or earning power to another person, each right will entitle its
holder to purchase, at the right's then-current exercise price, shares of common
stock of such other person having a market value equal to twice the right's
then-current exercise price.
One preferred stock purchase right is attached to each share of common stock
including the shares of common stock issued and sold in this offering. The
rights will become exercisable on the distribution date, which is the earlier of
(1) 10 business days following a public announcement that a person or group or
affiliated or associated persons has acquired beneficial ownership of 15% or
more of the outstanding common shares (more than 60% in the case of our Chief
Executive Officer, William J. Pearse, and his family) or (2) 10 business days
(or such later date as may be determined by action by the board of directors
prior to such time as any person or group of affiliated persons becomes an
acquiring person) following the commencement or announcement of an intention to
make a tender offer or exchange offer the consummation of which would result in
the beneficial ownership by a person or group of 15% or more of the outstanding
common shares (more than 60% in the case of Mr. Pearse and his family). The
rights will be evidenced, with respect to any of the common share certificates
outstanding as of the record date, by such common share certificate.
47
<PAGE>
LIMITATION OF LIABILITY AND INDEMNIFICATION
Our certificate of incorporation contains certain provisions permitted under
the DGCL relating to the liability of directors, officers and employees. These
provisions eliminate a director's personal liability for monetary damages
resulting from a breach of fiduciary duty, except in connection with:
- any breach of the director's duty of loyalty to Ultimate Electronics or
our stockholders;
- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- violations of Section 174 of the DGCL; or
- any transaction from which the director derives an improper personal
benefit.
The certificate of incorporation and our bylaws also contain provisions
indemnifying our directors and officers to the fullest extent permitted under
applicable laws and the laws of the State of Delaware currently in effect and as
amended from time to time, against all liability and expense incurred by reason
of the fact that he or she is or was a director or officer of Ultimate
Electronics or serving Ultimate Electronics in other capacities. We believe that
these provisions will assist us in attracting and retaining qualified
individuals to serve as directors.
Ultimate Electronics has entered into agreements to indemnify our directors
and officers which are intended to provide the maximum indemnification permitted
by Delaware law. These agreements, among other things, indemnify each of them
for certain liabilities and expenses (including attorneys' fees), judgments,
fines and settlement amounts incurred by them in any action or proceeding,
including any action by or in the right of Ultimate Electronics, on account of
such director's service with Ultimate Electronics.
TRANSFER AGENT AND REGISTRAR
The transfer agent for our common stock is Norwest Bank Minnesota, N.A.
48
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the principal United States federal
income and estate tax consequences of the ownership and disposition of our
common stock by a Non-U.S. Holder. As used in this prospectus, the term
"Non-U.S. Holder" is a person other than:
- a citizen or individual resident of the United States;
- a corporation or partnership created or organized in or under the laws of
the United States or of any political subdivision of the United States,
other than a partnership treated as foreign under U.S. Treasury
regulations;
- an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source; or
- a trust, in general, if it is subject to the primary supervision of a
court within the U.S. and the control of one or more U.S. persons.
An individual may, subject to certain exceptions, be treated as a resident
of the U.S. for U.S. federal income tax purposes, instead of a nonresident, by,
among other things, being present in the United States for at least 31 days in
the calendar year and for an aggregate of at least 183 days during a three-year
period ending in the current calendar year--counting for these purposes all of
the days present in the current year, one-third of the days present in the
immediately preceding year and one-sixth of the days present in the second
preceding year. Residents are subject to U.S. federal tax as if they were U.S.
citizens.
This discussion does not consider:
- U.S. state and local or non-U.S. tax consequences;
- specific facts and circumstances that may be relevant to a particular
Non-U.S. Holder's tax position, including, if the U.S. Holder is a
partnership, that the U.S. tax consequences of holding and disposing of
our common stock may be affected by certain determinations made at the
partner level;
- the tax consequences for the shareholders, partners or beneficiaries of a
Non-U.S. Holder;
- special tax rules that may apply to certain Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities and
traders in securities; or
- special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion transaction."
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, as amended, applicable Treasury regulations and administrative and
judicial interpretations, all as of the date of this prospectus, and all of
which are subject to change, retroactively or prospectively. The following
summary is for general information. ACCORDINGLY, EACH NON-U.S. HOLDER SHOULD
CONSULT A TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE, LOCAL AND
NON-U.S. INCOME AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING
OF SHARES OF OUR COMMON STOCK.
DIVIDENDS
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that dividends
are paid on shares of common stock, dividends paid to a Non-U.S. Holder of
common stock generally will be subject to withholding of United States federal
income tax at a 30% rate, or such lower rate as may be provided by an applicable
income tax treaty. Non-U.S. Holders should consult their tax advisors regarding
their entitlement to benefits under a relevant income tax treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment in the United States ("U.S. trade or
business income"), are generally subject to U.S. federal income tax
49
<PAGE>
on a net income basis at regular graduated rates, but are not generally subject
to the 30% withholding tax if the Non-U.S. Holder files the appropriate U.S.
Internal Revenue Service form with the payor. Any U.S. trade or business income
received by a Non-U.S. Holder that is a corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate or
such lower rate as specified by an applicable income tax treaty.
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes of
determining the applicability of a tax treaty rate. For dividends paid after
2000:
- a Non-U.S. Holder of common stock who claims the benefit of an applicable
income tax treaty rate generally will be required to satisfy applicable
certification and other requirements;
- in the case of common stock held by a foreign partnership, the
certification requirement will generally be applied to the partners of the
partnership and the partnership will be required to provide certain
information, including a United States taxpayer identification number; and
- look-through rules will apply for tiered partnerships.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit of
any excess amounts withheld by filing an appropriate claim for a refund with the
U.S. Internal Revenue Service.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
- the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S. Holder;
- the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the U.S. Internal
Revenue Code, is present in the United States for more than 182 days in
the taxable year of the disposition and meets certain other requirements;
- the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to certain United States expatriates; or
- we are or have been a "U.S. real property holding corporation" for federal
income tax purposes at any time during the shorter of the five-year period
ending on the date of disposition or the period that the Non-U.S. Holder
held the common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property interests
plus its other assets used or held for use in a trade or business. We believe
that we have not been, are not currently, and do not anticipate becoming, a
"U.S. real property holding corporation" for U.S. federal income tax purposes.
The tax relating to stock in a "U.S. real property holding corporation" will not
apply to a Non-U.S. Holder whose holdings, direct and indirect, at all times
during the applicable period, constituted 5% or less of the common stock,
provided that the common stock was regularly traded on an established securities
market.
FEDERAL ESTATE TAX
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for United States federal estate tax purposes, unless an applicable estate tax
or other treaty provides otherwise and, therefore, may be subject to United
States federal estate tax.
50
<PAGE>
INFORMATION REPORTING AND BACKUP WITHHOLDING TAX
We must report annually to the U.S. Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to that holder and the tax withheld
with respect to those dividends. Copies of the information returns reporting
those dividends and withholding may also be made available to the tax
authorities in the country in which the Non-U.S. Holder is a resident under the
provisions of an applicable income tax treaty or agreement.
Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
backup withholding on dividends paid prior to 2001 to an address outside the
U.S. For dividends paid after 2000, however, a Non-U.S. Holder of common stock
that fails to certify its Non-U.S. Holder status in accordance with applicable
U.S. Treasury Regulations may, in certain circumstances, be subject to backup
withholding at a rate of 31% on payments of dividends.
51
<PAGE>
UNDERWRITING
Ultimate Electronics and the selling stockholders are offering the shares of
common stock described in this prospectus through a number of underwriters. Banc
of America Securities LLC and U.S. Bancorp Piper Jaffray Inc. are the
representatives of the underwriters. We and the selling stockholders have
entered into a firm commitment underwriting agreement with the representatives.
Subject to the terms and conditions of the underwriting agreement, we and the
selling stockholders have agreed to sell to the underwriters, and the
underwriters have each agreed to purchase, the number of shares of common stock
listed next to its name in the following table:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Banc of America Securities LLC.............................................
U.S. Bancorp Piper Jaffray Inc.............................................
-----------------
Total...................................................................... 2,250,000
-----------------
-----------------
</TABLE>
The underwriting agreement provides that the underwriters must buy all of
the shares if they buy any of them. The underwriters will sell the shares to the
public when and if the underwriters buy the shares from us and the selling
stockholders.
The underwriters initially will offer shares to the public at the price
specified on the cover page of this prospectus. The underwriters may allow to
some dealers a concession of not more than $ per share. The underwriters
may also allow, and any other dealers may reallow, a concession of not more than
$ per share to some other dealers. If all the shares are not sold at
the initial public offering price, the underwriters may change the offering
price and the other selling terms. The common stock is offered subject to a
number of conditions, including:
- receipt and acceptance of the common stock by the underwriters; and
- the right on the part of the underwriters to reject orders in whole or in
part.
We have granted the underwriters an option to buy up to 337,500 additional
shares of common stock. These additional shares would cover sales of shares by
the underwriters that exceed the number of shares specified in the table above.
The underwriters may exercise this option from time to time on one or more
occasions for 30 days after the date of this prospectus. If the underwriters
exercise this option, they will each purchase additional shares approximately in
proportion to the amounts specified in the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the underwriters. These amounts are shown assuming no
exercise and full exercise of the underwriters' option to purchase additional
shares.
<TABLE>
<CAPTION>
NO FULL
EXERCISE EXERCISE
---------- ----------
<S> <C> <C>
Per share underwriting discounts and commissions...................... $ $
Total underwriting discounts and commissions to be paid by
us.................................................................. $ $
Total underwriting discounts and commissions to be paid by the selling
stockholders........................................................ $ $
</TABLE>
The expenses of the offering, not including underwriting discounts and
commissions, are estimated to be approximately $400,000 and will be paid by us.
We, our executive officers and directors and the selling stockholders have
entered into lock-up agreements with the underwriters. Under these agreements,
subject to exceptions, we may not issue any new shares of common stock, and our
executive officers and directors and the selling stockholders may
52
<PAGE>
not dispose of or hedge any common stock or securities convertible into or
exchangeable for shares of common stock. These restrictions will be in effect
for a period of 120 days after the date of this prospectus. At any time and
without notice, Banc of America Securities LLC may, in its sole discretion,
release all or some of the securities from these lock-up agreements.
We and the selling stockholders will indemnify the underwriters against some
liabilities, including some liabilities under the Securities Act. If we or the
selling stockholders are unable to provide this indemnification, we and the
selling stockholders will contribute to payments the underwriters may be
required to make in respect of those liabilities.
The common stock is quoted on the Nasdaq National Market System under the
symbol "ULTE."
In connection with this offering, the underwriters may engage in activities
that stabilize, maintain or otherwise affect the price of the common stock.
These transactions may include:
- short sales;
- over allotment;
- purchases to cover positions created by short sales; and
- stabilizing transactions.
Short sales involve the sale by the underwriters of a greater number of
shares than they are required to purchase in this offering. In order to cover a
short position, the underwriters may bid for and purchase shares of common stock
in the open market or may exercise their overallotment option. Stabilizing
transactions consist of bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the common stock while this offering
is in progress.
The underwriters may also impose a penalty bid. This means that if the
representatives purchase shares in the open market in stabilizing transactions
or to cover short sales, the representatives can require the underwriters that
sold those shares as part of this offering to repay the underwriting discount
received by them.
As a result of these activities, the price of the common stock may be higher
than the price that otherwise might exist in the open market. If the
underwriters commence these activities, they may discontinue them at any time.
The underwriters may carry out these transactions on the Nasdaq National Market,
in the over-the-counter market or otherwise.
In connection with this offering, some underwriters and any selling group
members who are qualified market makers on the Nasdaq National Market may engage
in passive market making transactions in the common stock on the Nasdaq National
Market in accordance with Rule 103 of Regulation M. Rule 103 permits passive
market making during the period when Regulation M would otherwise prohibit
market making activity by the participants in this offering. Passive market
making may occur during the business day before the pricing of the offering,
before the commencement of offers or sales of the common stock. Passive market
makers must comply with applicable volume and price limitations and must be
identified as a passive market maker. In general, a passive market maker must
display its bid at a price not in excess of the highest independent bid for the
security. If all independent bids are lowered below the passive market maker's
bid, however, the bid must then be lowered when purchase limits are exceeded.
Net purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
common stock during a specified period and must be discontinued when such limit
is reached. Underwriters and dealers are not required to engage in passive
market making and may end passive market making activities at any time.
LEGAL MATTERS
The validity of the common stock being offered by this prospectus will be
passed upon for Ultimate Electronics by Davis, Graham & Stubbs LLP, Denver,
Colorado and for the underwriters by
53
<PAGE>
Fried, Frank, Harris, Shriver & Jacobson (a partnership including professional
corporations), New York, New York.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements at January 31, 1999 and 1998, and for each of the three
years in the period ended January 31, 1999, as set forth in their report. We
have included our financial statements in the prospectus and elsewhere in the
registration statement in reliance on Ernst & Young LLP's report, given on their
authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-3 under the
Securities Act with respect to the common stock offered by this prospectus. This
prospectus does not contain all of the information included in the registration
statement, certain portions of which are omitted as permitted by the rules and
regulations of the Commission. For further information pertaining to our company
and our common stock offered hereby, reference is made to the registration
statement, including the exhibits and the financial statements, notes and
schedules filed as a part of the registration statement. Statements contained in
this prospectus regarding the contents of any contract or other document
referred to in the prospectus or registration statement are not necessarily
complete. In each instance reference is made to the copy of such contract or
other document filed as an exhibit to the registration statement or such other
document, each such statement being qualified in all respects by such reference.
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and file reports, proxy statements and other
information with the Commission. These reports, proxy statements and other
information, as well as the registration statement, exhibits and schedules,
maybe inspected, without charge, or copied, at prescribed rates, at the public
reference facility maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. In addition, the Commission maintains an Internet
site that contains reports, proxy and information statements and other
information, regarding issuers that file electronically with the Commission. The
address of the Commission's site is http:www.sec.gov.
INCORPORATION OF INFORMATION BY REFERENCE
We incorporate by reference the following documents which we have filed with
the Securities and Exchange Commission under the Exchange Act:
- our Annual Report on Form 10-K for the fiscal year ended January 31, 1999;
and
- our Quarterly Report on Form 10-Q for the period ended April 30, 1999; and
- our Quarterly Report on Form 10-Q for the period ended July 31, 1999; and
- the description of our common stock on our registration statement on Form
8-A filed on October 5, 1993.
You should consider all documents we file pursuant to sections 13(a), 13(c),
14 or 15(d) of the Exchange Act subsequent to the date of this document and
prior to the consummation of this offering of our common stock to be
incorporated by reference in this document. In addition, all reports filed by us
pursuant to the Exchange Act after the date of the initial registration
statement and prior to effectiveness of the registration statement will be
deemed to be incorporated by reference into this prospectus. You should consider
any statement contained in this document or in a document incorporated or
considered to be incorporated by reference in this document to be modified or
superseded for purposes of this document to the extent that a statement
contained in any subsequently filed document
54
<PAGE>
that also is or is considered to be incorporated by reference in this document
modifies or supersedes this statement. You should not consider any statement
modified or superseded in this manner except as so modified or superseded, to
constitute a part of this document.
We will provide without charge to each person whom this document is
delivered, upon written or oral request of that person, a copy of any and all of
the information that has been incorporated by reference in this document
(excluding exhibits unless exhibits are specifically incorporated by reference
in the requested documents). Please direct such requests to Alison Schlomer,
Ultimate Electronics, Inc., 321 West 84th Avenue, Suite A, Thornton, CO 80260.
Our telephone number is (303) 412-2500.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Auditors............................................................................. F-2
Consolidated Balance Sheets as of January 31, 1999, January 31, 1998, July 31, 1999 (unaudited), and July
31, 1998 (unaudited)..................................................................................... F-3
Consolidated Statements of Income for the fiscal years ended January 31, 1999, January 31, 1998 and January
31, 1997 and for the six month periods ended July 31, 1999 (unaudited) and July 31, 1998 (unaudited)..... F-5
Consolidated Statements of Stockholders' Equity for the fiscal years ended January 31, 1997, January 31,
1998 and January 31, 1999 and for the six month period ended July 31, 1999 (unaudited)................... F-6
Consolidated Statements of Cash Flows for the fiscal years ended January 31, 1999, January 31, 1998 and
January 31, 1997 and for the six month periods ended July 31, 1999 (unaudited) and July 31, 1998
(unaudited).............................................................................................. F-7
Notes to Consolidated Financial Statements................................................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Stockholders and Board of Directors
Ultimate Electronics, Inc.:
We have audited the accompanying consolidated balance sheets of Ultimate
Electronics, Inc. and subsidiary ("the Company") as of January 31, 1999 and
1998, and the related consolidated statements of income, stockholders' equity,
and cash flows for each of the three years in the period ended January 31, 1999.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Ultimate
Electronics, Inc. and subsidiary at January 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 31, 1999, in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
Denver, Colorado
March 10, 1999
F-2
<PAGE>
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents...................................... $ 4,421 $ 2,006 $ 6,113 $ 2,503
Accounts receivable, net....................................... 17,814 19,826 17,108 14,777
Merchandise inventories........................................ 46,908 43,908 46,722 43,895
Prepaid expenses and other..................................... 1,087 1,362 1,608 2,099
---------- ---------- ---------- ----------
Total Current Assets............................................. 70,230 67,102 71,551 63,274
Property and equipment, at cost:
Furniture, fixtures and equipment.............................. 25,704 23,907 26,409 24,621
Leasehold improvements......................................... 21,920 22,219 21,905 21,848
Autos and trucks............................................... 454 356 466 404
Land and buildings............................................. 17,748 17,773 17,748 17,748
Construction-in-progress....................................... 18 5 910 181
---------- ---------- ---------- ----------
65,844 64,260 67,438 64,802
Less accumulated depreciation.................................. 19,208 13,405 22,320 16,284
---------- ---------- ---------- ----------
46,636 50,855 45,118 48,518
Property under capital leases, including related
parties, net................................................... 1,729 2,068 1,564 1,899
Goodwill, net.................................................... 2,300 2,385 2,163 2,388
Other assets..................................................... 1,009 1,036 992 994
---------- ---------- ---------- ----------
Total Assets..................................................... $ 121,904 $ 123,446 $ 121,388 $ 117,073
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
(UNAUDITED)
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolving line of credit.......................... $ -- $ 26,564 $ -- $ 26,291
Accounts payable.................................. 29,888 25,550 28,626 22,119
Accrued liabilities............................... 12,564 8,807 12,819 8,969
Current portion of term loans..................... 312 286 325 298
Current portion of capital lease obligations,
including related parties....................... 208 317 77 325
Deferred tax liability............................ 518 -- 564 299
--------- --------- --------- ---------
Total Current Liabilities........................... 43,490 61,524 42,411 58,301
Revolving line of credit............................ 13,188 -- 11,978 --
Term loans, less current portion.................... 330 642 165 490
Bonds payable....................................... 13,000 13,000 13,000 13,000
Capital lease obligations, including related
parties, less current portion..................... 1,841 2,049 1,810 1,888
Deferred tax liability.............................. 2,380 1,510 2,380 810
--------- --------- --------- ---------
Total Liabilities................................... 74,229 78,725 71,744 74,489
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, 8,160,796 and
8,139,548 at January 31, 1999 and 1998 and
8,232,645 and 8,150,748 at July 31, 1999 and
1998............................................ 81 81 82 82
Additional paid-in capital........................ 33,912 33,868 34,123 33,883
Retained earnings................................. 13,682 10,772 15,439 8,619
--------- --------- --------- ---------
Total Stockholders' Equity.......................... 47,675 44,721 49,644 42,584
--------- --------- --------- ---------
Total Liabilities and Stockholders' Equity.......... $ 121,904 $ 123,446 $ 121,388 $ 117,073
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED JANUARY 31, ENDED JULY 31,
---------------------------------- ----------------------
1999 1998 1997 1999 1998
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
Sales................................................ $ 337,454 $ 306,306 $ 261,154 $ 166,612 $ 142,064
Cost of goods sold................................... 239,854 223,464 191,903 116,616 101,901
---------- ---------- ---------- ---------- ----------
Gross profit......................................... 97,600 82,842 69,251 49,996 40,163
Selling, general and administrative expenses......... 89,010 78,621 64,786 45,814 41,373
---------- ---------- ---------- ---------- ----------
Income (loss) from operations........................ 8,590 4,221 4,465 4,182 (1,210)
Interest expense, net................................ 3,957 3,985 3,210 1,388 2,198
---------- ---------- ---------- ---------- ----------
Income (loss) before taxes........................... 4,633 236 1,255 2,794 (3,408)
Income tax expense (benefit)......................... 1,723 88 470 1,037 (1,255)
---------- ---------- ---------- ---------- ----------
Net income (loss).................................... $ 2,910 $ 148 $ 785 $ 1,757 $ (2,153)
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Earnings (loss) per share--Basic..................... $ .36 $ .02 $ .11 $ .21 $ (.26)
Earnings (loss) per share--Diluted................... $ .35 $ .02 $ .11 $ .20 $ (.26)
Weighted average shares
outstanding--Basic................................. 8,150 7,626 6,995 8,187 8,145
Weighted average shares
outstanding--Diluted............................... 8,317 7,737 7,125 8,866 8,145
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL
----------------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
---------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balances, January 31, 1996............................... 6,995,000 $ 70 $ 31,009 $ 9,839 $ 40,918
Net income............................................. 785 785
---------- --- ----------- --------- ---------
Balances, January 31, 1997............................... 6,995,000 70 31,009 10,624 41,703
Acquisition of Audio King,
net of registration fees............................. 986,432 10 2,562 2,572
Exercise of stock options.............................. 158,116 1 297 298
Net income............................................. 148 148
---------- --- ----------- --------- ---------
Balances, January 31, 1998............................... 8,139,548 81 33,868 10,772 44,721
Exercise of stock options.............................. 21,248 44 44
Net income............................................. 2,910 2,910
---------- --- ----------- --------- ---------
Balances, January 31, 1999............................... 8,160,796 81 33,912 13,682 47,675
Exercise of stock options (unaudited).................. 71,849 1 211 212
Net income (unaudited)................................. 1,757 1,757
---------- --- ----------- --------- ---------
Balances, July 31, 1999 (unaudited)...................... 8,232,645 $ 82 $ 34,123 $ 15,439 $ 49,644
---------- --- ----------- --------- ---------
---------- --- ----------- --------- ---------
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JULY
YEAR ENDED JANUARY 31, 31,
------------------------------------ ------------------------
1999 1998 1997 1999 1998
----------- ----------- ---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)...................................... $ 2,910 $ 148 $ 785 $ 1,757 $ (2,153)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization...................... 6,390 5,550 4,449 3,429 3,179
Deferred tax expense............................... 1,388 502 573 46 (371)
Changes in operating assets and liabilities:
Accounts receivable.............................. 2,012 (4,705) 2,618 706 5,049
Merchandise inventories.......................... (3,000) 6,178 (3,361) 186 13
Prepaid expenses and other....................... 275 (328) 243 (521) (767)
Other assets..................................... (156) 1,104 44 17 (91)
Accounts payable and accrued liabilities......... 8,095 903 2,773 (1,007) (3,270)
----------- ----------- ---------- ----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES.............. 17,914 9,352 8,124 4,613 1,589
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment.................... (1,564) (6,159) (7,314) (1,609) (543)
Acquisition of Audio King, net of cash acquired........ -- (3,857) -- -- --
----------- ----------- ---------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES.................. (1,564) (10,016) (7,314) (1,609) (543)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under long-term revolving credit
agreement............................................ 303,744 321,689 72,227 167,135 147,452
Repayments under long-term revolving credit
agreement............................................ (317,120) (319,532) (72,990) (168,345) (147,725)
Proceeds from term loans............................... -- -- 225 -- --
Principal payments on term loans and capital lease
obligations.......................................... (603) (549) (487) (314) (292)
Proceeds from exercise of stock options................ 44 298 -- 212 16
----------- ----------- ---------- ----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.... (13,935) 1,906 (1,025) (1,312) (549)
Net increase (decrease) in cash and cash equivalents... 2,415 1,242 (215) 1,692 497
Cash and cash equivalents at beginning of period....... 2,006 764 979 4,421 2,006
----------- ----------- ---------- ----------- -----------
Cash and cash equivalents at end of period............. $ 4,421 $ 2,006 $ 764 $ 6,113 $ 2,503
----------- ----------- ---------- ----------- -----------
----------- ----------- ---------- ----------- -----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest........................................... $ 4,144 $ 3,892 $ 3,210 $ 1,390 $ 2,199
Income taxes....................................... -- -- 353 -- --
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
BACKGROUND
Ultimate Electronics, Inc. is a leading specialty retailer of home
entertainment and consumer electronics. The Company currently operates thirty
stores, including ten stores in Colorado under the trade name SoundTrack, eleven
stores in Idaho, Iowa, Nevada, New Mexico, Oklahoma, and Utah under the trade
name Ultimate Electronics and nine stores in Minnesota and South Dakota under
the trade name Audio King.
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, 1999 are not
necessarily indicative of the results that may be expected for the year ending
January 31, 2000. Seasonal fluctuations in sales of the Company's products
result primarily from the purchasing patterns of individual consumers during the
holiday shopping season. These patterns tend to moderately concentrate sales in
the latter half of the year, particularly in the fourth quarter.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of all
subsidiaries. All intercompany accounts and transactions have been eliminated
upon consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
The Company states merchandise inventories at the lower of cost (weighted
average cost) or market.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEPRECIATION AND AMORTIZATION
Depreciation is provided principally using the straight-line method based
upon the following useful lives:
<TABLE>
<S> <C>
Furniture, fixtures and equipment.............................. 5 - 7 years
7 - 20
Leasehold improvements......................................... years
Autos and trucks............................................... 5 years
5 - 15
Property under capital leases.................................. years
Buildings...................................................... 30 years
</TABLE>
CAPITALIZED INTEREST
For the fiscal years ended January 31, 1999, 1998 and 1997, the Company
capitalized interest of $0, $52,000 and $160,000, respectively, associated with
the construction of new stores, remodeled stores and the Thornton Facility.
ACCRUED LIABILITIES (IN THOUSANDS)
Accrued liabilities are comprised of the following:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Compensation............................................................. $ 4,643 $ 3,007
Sales taxes.............................................................. 1,694 1,803
Customer deposits........................................................ 2,564 2,363
Income taxes............................................................. 1,539 --
Other.................................................................... 2,124 1,634
--------- ---------
Total.................................................................... $ 12,564 $ 8,807
--------- ---------
--------- ---------
</TABLE>
REVENUE RECOGNITION
Revenue is recognized at the time the customer takes possession of the
merchandise or such merchandise is delivered to the customer. Sales, which
includes warranty service and installation revenue, is presented net of
discounts, price guarantees, returns and allowances. The Company grants credit
to customers through independent, third-party finance companies, which companies
assume the credit risk for the collection of the related accounts receivable.
When free interest promotions are offered by the Company, a fee is normally paid
by the Company at the time of the transaction. This fee typically ranges between
1% and 6% of the amount financed by the customer.
DEFERRED REVENUE AND COMMISSIONS
The Company sells extended warranty contracts on behalf of an unrelated
party. The contracts extend beyond the normal manufacturer's warranty period,
usually with terms of coverage (including the manufacturer's warranty period)
between 12 and 60 months. Extended warranty contracts are accounted for in
accordance with FASB Technical Bulletin No. 90-1, "Accounting for Separately
Priced Extended Warranty and Product Maintenance Contracts."
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVERTISING COSTS AND COOPERATIVE REVENUE
In accordance with AICPA Statement of Position 93-7, "Reporting on
Advertising Costs," all advertising costs are deferred until the first time the
advertising takes place. In addition, the Company accrues rebates based on
varying percentages of inventory purchases and records such amounts as a
reduction of advertising expense. The Company also deducts amounts for
cooperative advertising directly from payment to manufacturers for inventory
purchases based on individual agreements with the Company's manufacturers. Net
advertising expense charged to operations was $6,021,000, $5,476,000 and
$5,485,000 for the years ended January 31, 1999, 1998 and 1997, respectively.
LONG LIVED ASSETS
In March 1995 the Financial Accounting Standards Board (FASB) issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of" (SFAS 121), which required impairment
losses to be recorded on long-lived assets used in operations when indications
of impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS 121
also addresses the accounting for long-lived assets that are expected to be
disposed of. The Company adopted the provisions of SFAS 121 in the first quarter
of fiscal 1997, with no material effect to its financial statements.
EARNINGS PER SHARE OF COMMON STOCK
In 1997, the FASB issued Statement No. 128, "Earnings per Share" (SFAS 128).
SFAS 128 replaced the calculation of primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any diluted effects of options,
warrants and convertible securities. Diluted earnings per share is very similar
to the previously reported fully diluted earnings per share. The calculation of
weighted average shares outstanding-- diluted for the fiscal years ending
January 31, 1999, 1998, and 1997 include 167,692, 111,267 and 130,472
outstanding shares to give effect to the potential exercise of options under the
Company's stock option plans, respectively.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments, including cash, accounts receivable,
revolving line of credit and other long-term debt, have fair values that
approximate their recorded values, as the financial instruments are either short
term in nature or carry interest rates that approximate market rates except
bonds payable, which were trading at 97% of face value at January 31, 1999.
NEW ACCOUNTING STANDARDS
During 1997, the FASB issued Statement No. 130, "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains and losses) in a full set
of general-purpose financial statements. This Statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. In addition, this Statement
requires that an enterprise classify items of other comprehensive income by
their nature in a financial statement and display the accumulated balance of
other comprehensive income separately from the retained earnings and additional
paid in capital in the
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
equity section of a statement of financial position. The Company does not have
any components of comprehensive income, and accordingly, adoption of this
Statement during fiscal 1999 had no effect on the Company's financial reporting,
During 1997, the FASB issued Statement No. 131, "Disclosures about Segment
Reporting of an Enterprise and Related Information", which establishes standards
for the way public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosure about products and services, geographic areas and major customers.
The Company conducts business in one operating segment and determined its
operating segment based on the individual operations that the chief operating
decision maker reviews for purposes of assessing performance and making
operating decisions. These individual operations have been aggregated into one
segment because the Company believes doing so helps users understand the
Company's performance and assess its prospects. The combined operations have
similar economic characteristics and each operation has similar products,
services, customers and distribution methods.
2. PUBLIC STOCK OFFERINGS
On October 15, 1993, the Company completed an initial public offering (the
"Offering") for the sale of 2,300,000 shares of common stock (including
Underwriters overallotment of 300,000 shares) at the Offering price of $8.50 per
share. The Company received proceeds from the Offering of $17,805,000, net of
all offering costs. On November 1, 1995, the Company completed a second public
offering (the "Second Offering") for the sale of 1,495,000 shares of common
stock (including underwriters overallotment of 195,000 shares) at the Second
Offering price of $9.00 per share. The Company received proceeds from the Second
Offering of $12,463,000, net of all offering costs.
3. REVOLVING LINE OF CREDIT AGREEMENT AND TERM LOANS
On September 30, 1998, the Company executed a three year $40 million credit
agreement with Foothill Capital Corporation (a wholly owned subsidiary of
Norwest Bank). Borrowings under the Company's revolving line of credit are
limited to the lesser of $40 million or 80% of eligible inventory and a portion
of accounts receivable. As of July 31, 1999, the entire $40 million facility was
available to the Company, of which $12.0 million was outstanding. Borrowings
bear interest, payable monthly, based on a blend of LIBOR plus 2.0% and Norwest
Bank's prime rate minus 0.375%. Borrowings are secured by inventories, accounts
receivable, equipment and intangibles. The facility includes negative covenants
which limit the Company's ability to, among other things, subject to various
exceptions, incur indebtedness, create liens, enter into mergers and
consolidations, issue guarantees, sell or transfer assets, foreign inventory,
prepay or retire any debt owed to third parties, make investments or engage in
transactions with affiliates. The facility also contains covenants regulating
the Company's gross margin, inventory levels, tangible net worth and capital
expenditures. The Company was in compliance with all borrowing covenants for all
periods of fiscal year 1999 and through July 31, 1999.
The Company has four Commercial Promissory Notes and Security Agreements
with Colorado National Leasing, Inc. Borrowings under the loans totaled $642,000
at January 31, 1999, and $928,000 at January 31, 1998. Each loan is secured by
warehouse equipment and office furniture, and interest
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
3. REVOLVING LINE OF CREDIT AGREEMENT AND TERM LOANS (CONTINUED)
rates on the loans range from 8.52% to 8.57%. As of January 31, 1999, the
aggregate maturities of the term loans are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
- ------------------------------------------------------------------------
<S> <C>
2000.................................................................... $ 312,000
2001.................................................................... 311,000
2002.................................................................... 19,000
----------
$ 642,000
----------
----------
</TABLE>
4. BONDS PAYABLE
On March 23, 1995, the Company completed an offering for the sale of
$13,000,000 aggregate principal amount of Bonds. Interest on the Bonds accrues
at the rate of 10.25% per year until maturity or earlier redemption and is
payable on the last day of each month. The Company is required to redeem $3.25
million aggregate principal amount of the Bonds annually (reduced to the extent
of the Bonds previously purchased or redeemed by the Company) 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 redeemable by the Company at par at any time after March 31, 2000. The Bonds
are full recourse obligations of the Company and are secured by, among other
things, a first priority lien on the Company's real property, including all
facilities and fixtures thereon, located at the Thornton Facility. The purchase,
construction and development of the property was financed in part by the net
proceeds of the Bonds.
5. STOCK OPTION PLANS
Under the terms of the Company's original stock option plan (the "Plan"),
the Company granted to officers, employees and consultants awards of options to
purchase shares of common stock and other types of awards. The Plan provided for
an authorization of 900,000 shares of common stock. Under the terms of the
nonemployee directors' stock option plan (the "Directors' Plan"), the Company
granted awards of stock options to nonemployee directors. The Directors' Plan
provided for an initial authorization of 20,000 shares of common stock. Each
nonemployee director received options to purchase 2,000 shares of common stock
effective February 1 of each year, which options were exercisable one year from
the date of grant. On January 31, 1999, options to purchase 16,000 shares of
common stock were outstanding, all of which are exercisable.
In June, 1997, at the Company's annual meeting, the Company's shareholders
approved a new stock option plan known as the Equity Incentive Plan (the "New
Plan") which replaced both the original Plan and the Directors' Plan. Grants
issued under the Plan and the Directors' Plan continue to be exercisable
according to their original terms but no additional grants can be issued under
these plans. The New Plan made available 750,000 shares to be awarded to
employees, nonemployee directors and/or outside consultants. The Board of
Directors continues to determine the persons to whom employee awards are
granted, the types of awards granted, the number of shares granted, the vesting
schedule and the term of any option (which cannot exceed ten years). The
exercise price for incentive stock options for employees and non-qualified
options for outside directors is the market value of the underlying common stock
at the date of grant. Options issued to the Chairman of the Board are at an
exercise price of 110% of market value of the underlying common stock at the
date of grant. During
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
5. STOCK OPTION PLANS (CONTINUED)
fiscal 1999, 139,700 options were granted under the New Plan. The options were
granted at prices of $3.125 and $5.50. The options available for grant at
January 31, 1999 and July 31, 1999 include only the options available under the
New Plan.
Changes in the options outstanding (and option exercise prices for such
options) are as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED JANUARY 31,
ENDED JULY 31, -------------------------------
1999 1999 1998 1997
-------------- --------- --------- ---------
<S> <C> <C> <C> <C>
Options outstanding at beginning of period....................... 948,517 833,984 420,850 496,000
Granted ($1.07 to $12.875)....................................... 8,000 139,700 572,450 95,000
Canceled ($1.07 to $12.875)...................................... -- 3,919 1,200 170,150
Exercised ($1.07 to $3.125)...................................... 71,849 21,248 158,116 --
------- --------- --------- ---------
Options outstanding at end of period............................. 884,668 948,517 833,984 420,850
------- --------- --------- ---------
------- --------- --------- ---------
Options exercisable at end of period............................. 372,777 390,384 237,370 118,042
------- --------- --------- ---------
------- --------- --------- ---------
Options available for grant at end of period..................... 119,850 127,850 267,550 495,150
------- --------- --------- ---------
------- --------- --------- ---------
</TABLE>
The weighted average exercise price of options outstanding at January 31,
1999, 1998 and 1997 was $3.48, $3.09, and $3.01, respectively. The weighted
average exercise price of options outstanding at July 31, 1999 was $3.58. The
weighted average contractual life of the options outstanding at January 31,
1999, 1998 and 1997 was 7.2, 6.5 and 6.0 years, respectively. The weighted
average contractual life of the options outstanding at July 31, 1999 was 6.9
years.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations, in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," requires use of
option valuation models that were developed for use in valuing employee stock
options. Under APB 25, because the exercise price of the Company's employee
stock options equals the market price of the underlying stock on the date of
grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to January 31, 1995 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
or the date of repricing using a Black-Scholes option pricing model with the
following weighted average assumptions: risk-free interest rates of 5.50%; a
dividend yield of 0%; volatility factors of the expected market price of the
Company's common stock for fiscal years 1999, 1998 and 1997, respectively, of
.842, .609 and .573, and a weighted average expected life of the options of five
years. The weighted average fair value of stock options granted during January
31, 1999, 1998 and 1997 was $4.96, $1.85 and $3.36, respectively.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options, which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
5. STOCK OPTION PLANS (CONTINUED)
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options. For purposes of pro
forma disclosures, the estimated fair value of the options is amortized to
expense over the options' vesting period.
The Company's pro forma information follows:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
--------------------------------------
1999 1998 1997
------------ ------------ ----------
<S> <C> <C> <C>
Pro forma net income (loss)........................... $ 2,188,000 $ (245,000) $ 688,000
Pro forma earnings (loss) per share--basic............ $ 0.27 $ (0.03) $ 0.10
</TABLE>
Because the Statement No. 123 method of accounting has not been applied to
options granted prior to February 1, 1995, the resulting pro forma net income
(loss) may not be representative of that to be expected in future years.
6. PROVISION (BENEFIT) FOR INCOME TAXES (IN THOUSANDS)
Under the liability method of accounting for income taxes as prescribed by
FASB Statement No. 109, "Accounting for Income Taxes", deferred income taxes
reflect the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and amounts
used for income tax purposes. The components of the provision (benefit) for
income taxes as of January 31, 1999, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- ----------- ---------
<S> <C> <C> <C>
January 31, 1997
Federal....................................................... $ (90) $ 501 $ 411
State......................................................... (13) 72 59
----------- ----------- ---------
Total........................................................... $ (103) $ 573 $ 470
----------- ----------- ---------
----------- ----------- ---------
January 31, 1998
Federal....................................................... $ (363) $ 439 $ 76
State......................................................... (51) 63 12
----------- ----------- ---------
Total........................................................... $ (414) $ 502 $ 88
----------- ----------- ---------
----------- ----------- ---------
January 31, 1999
Federal....................................................... $ 267 $ 1,242 $ 1,509
State......................................................... 38 176 214
----------- ----------- ---------
Total........................................................... $ 305 $ 1,418 $ 1,723
----------- ----------- ---------
----------- ----------- ---------
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
6. PROVISION (BENEFIT) FOR INCOME TAXES (IN THOUSANDS)
The following is a reconciliation of the provision (benefit) for income
taxes to the federal statutory rate for the years ended January 31, 1999, 1998
and 1997:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
-------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Income taxes at the federal statutory rate....................... $ 1,575 $ 80 $ 427
State income taxes, net of federal benefit....................... 148 8 41
Other............................................................ -- -- 2
--------- --------- ---------
Provision for income taxes....................................... $ 1,723 $ 88 $ 470
--------- --------- ---------
--------- --------- ---------
</TABLE>
The tax effects of temporary differences that give rise to a significant
portion of the deferred tax assets and liabilities at January 31, 1999 and 1998
are as follows:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Deferred tax assets:
Volume/cash discounts................................................ $ 430 $ --
Accrued liabilities.................................................. 440 380
Valuation reserves................................................... 672 240
Uniform capitalization............................................... 300 80
Capital leases....................................................... 118 80
--------- ---------
$ 1,960 $ 780
--------- ---------
--------- ---------
Deferred tax liabilities:
Volume/cash discounts................................................ $ -- $ (670)
Purchase incentives.................................................. (2,360) (690)
Depreciation and amortization........................................ (2,498) (900)
--------- ---------
(4,858) (2,260)
--------- ---------
Net deferred tax liability............................................. $ (2,898) $ (1,480)
--------- ---------
--------- ---------
</TABLE>
7. LEASES
OPERATING LEASES
The Company leases retail stores under agreements which expire at various
dates through 2017. Several leases contain escalation clauses and/or options to
renew at negotiated or specified minimum lease payments for periods ranging from
one to 30 years beyond the initial noncancelable lease terms. Total rent expense
charged to operations was $7,226,000, $6,132,000 and $4,119,000 for the years
ended January 31, 1999, 1998 and 1997, respectively.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
7. LEASES (CONTINUED)
CAPITAL LEASES, INCLUDING RELATED PARTY LEASES (IN THOUSANDS)
The following property is held under capital leases:
<TABLE>
<CAPTION>
JANUARY 31,
--------------------
1999 1998
--------- ---------
<S> <C> <C>
Buildings and improvements................................................. $ 2,877 $ 2,877
Computer equipment......................................................... 711 711
--------- ---------
3,588 3,588
Less accumulated amortization.............................................. 1,859 1,520
--------- ---------
$ 1,729 $ 2,068
--------- ---------
--------- ---------
</TABLE>
The Company leases two retail stores under capital lease agreements with two
principal stockholders of the Company. The lease agreements for the two retail
stores provide for annual rent increases over the initial noncancelable lease
terms. Total rental payments to related parties under these leases were
$261,000, $257,000 and $250,000 for the years ended January 31, 1999, 1998 and
1997, respectively.
The aggregate minimum annual rental commitments as of January 31, 1999 are
as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR ENDED JANUARY 31, LEASES LEASES
- ------------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
2000..................................................................... $ 7,404 $ 466
2001..................................................................... 7,428 333
2002..................................................................... 7,432 347
2003..................................................................... 7,136 352
2004..................................................................... 7,229 356
2005-2017................................................................ 62,867 2,623
----------- ---------
Total minimum lease payments............................................. $ 99,496 4,477
----------- ---------
----------- ---------
Less amount representing interest........................................ 2,428
---------
Present value of net minimum lease payments.............................. 2,049
Less portion due within one year......................................... 208
---------
Long term capital lease obligations...................................... $ 1,841
---------
---------
</TABLE>
8. EMPLOYEE BENEFIT PLAN
The Company has a 401(k) Savings Plan for the benefit of substantially all
employees. The Plan provides for both employee and employer contributions. The
Company matches 25% of the employee's contribution limited to 1.5% of the
employee's annual compensation subject to limitations set annually by the
Internal Revenue Service. The Company's contributions were $274,000, $268,000
and $235,000 for the years ended January 31, 1999, 1998 and 1997, respectively.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO JANUARY 31, 1999 IS UNAUDITED)
9. 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, 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 Electronics' common stock
valued at $2.6 million, assumed debt of $7.2 million, and other expenses and
severance costs of $1.4 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 $2.7
million, which is being amortized over a 10 year life. Amortization expense for
fiscal years 1999 and 1998 was $268,000 and $142,000, respectively. Total
accumulated amortization was $410,000 at January 31, 1999.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------
APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
--------- --------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
FISCAL 1998
Sales......................................... $ 55,508 $ 61,944 $ 81,990 $ 106,864
Gross profit.................................. 14,450 16,914 22,850 28,628
Income from operations........................ 290 299 927 2,705
Net income (loss)............................. (311) (422) (115) 996
Earnings (loss) per share--basic.............. (.04) (.06) (.01) .12
Earnings (loss) per share--diluted............ (.04) (.06) (.01) .12
FISCAL 1999
Sales......................................... $ 70,882 $ 71,182 $ 79,441 $ 115,949
Gross profit.................................. 18,260 21,903 24,403 33,034
Income (loss) from operations................. (2,438) 1,228 2,952 6,848
Net income (loss)............................. (2,211) 58 1,250 3,813
Earnings (loss) per share--basic.............. (.27) .01 .15 .47
Earnings (loss) per share--diluted............ (.27) .01 .15 .45
FISCAL 2000
Sales......................................... $ 80,303 $ 86,309
Gross profit.................................. 23,515 26,481
Income from operations........................ 1,389 2,793
Net income.................................... 439 1,318
Earnings per share--basic..................... .05 .16
Earnings per share--diluted................... .05 .15
</TABLE>
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,250,000 SHARES
[LOGO]
----------------
PROSPECTUS
OCTOBER , 1999
------------------------
BANC OF AMERICA SECURITIES LLC
U.S. BANCORP PIPER JAFFRAY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the offering are as follows:
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 12,857.93
NASD Filing Fee............................................... 5,125.15
Printing Expenses............................................. 100,000.00*
Legal Fees and Expenses....................................... 150,000.00*
Accounting Fees and Expenses.................................. 30,000.00*
Transfer Agent Fee............................................ 3,000.00*
Nasdaq Listing Fees........................................... 17,500.00
Miscellaneous................................................. 81,516.92*
-----------
Total....................................................... $400,000.00
-----------
-----------
</TABLE>
- ------------------------
* Estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Our Certificate of Incorporation limits the liability of directors (in their
capacity as directors but not in their capacity as officers) to Ultimate
Electronics or our stockholders to the fullest extent permitted by the DGCL.
Specifically, no director of Ultimate Electronics will be personally liable for
monetary damages for breach of the director's fiduciary duty as a director,
except for liability: (i) for any breach of the director's duty of loyalty to
the Company or our stockholders; (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (iii) for
violations of Section 174 of the DGCL, which relates to unlawful payments of
dividends or unlawful stock repurchases or redemptions, or any successor
provision thereto; or (iv) for any transaction from which the director derived
an improper personal benefit. The inclusion of this provision in the Certificate
of Incorporation may have the effect of reducing the likelihood of derivative
litigation against directors, and may discourage or deter stockholders or
management from bringing a lawsuit against directors for breach of their duty of
care, even though such an action, if successful, might otherwise have benefited
Ultimate Electronics and our stockholders.
Under the Certificate of Incorporation, to the fullest extent permitted by
applicable law as from time to time may be in effect, any person against all
liability and expense (including attorneys' fees) incurred by reason of the fact
that he or she is or was a director or officer of Ultimate Electronics, or while
serving as a director or officer of Ultimate Electronics, he or she is or was
serving at the request of Ultimate Electronics as a director, officer, partner
or trustee of, or in any similar managerial or fiduciary position of, or as an
employee or agent of, another corporation, partnership, joint venture, trust,
association, or other entity. Expenses (including attorneys' fees) incurred in
defending an action, suit or proceeding shall be paid by Ultimate Electronics in
advance of the final disposition of such action, suit or proceeding to the
fullest extent and under the circumstances permitted by the laws of the State of
Delaware.
The Certificate of Incorporation provides that Ultimate Electronics will
advance expenses to the fullest extent permitted by Section 145 of the DGCL.
Accordingly, Ultimate Electronics, in accordance therewith, will pay for the
expenses incurred by an indemnified person in defending the proceedings
specified in the preceding paragraph in advance of their final disposition,
provided that, if the DGCL so requires, such person agrees to reimburse Ultimate
Electronics if it is ultimately determined that such person is not entitled to
indemnification. In addition, pursuant to the DGCL we may purchase
II-1
<PAGE>
and maintain insurance on behalf of any person who is or was a director,
employee or agent of Ultimate Electronics against any liability asserted against
and incurred by such person in such capacity, or arising out of the person's
status as such whether or not we would have the power or obligation to indemnify
such person against such liability under the provisions of DGCL. In addition,
our certificate provides that we may purchase and maintain insurance on behalf
of any person who is or was a director, officer, employee, fiduciary or agent of
Ultimate Electronics against any liability asserted against and incurred by such
person in any such capacity or arising out of such person's position, whether or
not we would have the power to indemnify against such liability under the
provisions of the Certificate of Incorporation. We maintain insurance for the
benefit of Ultimate Electronics' officers and directors insuring such persons
against certain liabilities, including liabilities under the securities laws.
Ultimate Electronics has entered into agreements to indemnify our directors
and officers which are intended to provide the maximum indemnification permitted
by Delaware law. These agreements, among other things, indemnify each of them
for certain liabilities and expenses (including attorneys' fees), judgments,
fines and settlement amounts incurred by them in any action or proceeding,
including any action by or in the right of Ultimate Electronics, on account of
such director's service with Ultimate Electronics.
ITEM 16. EXHIBITS
(a) List of Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement**
4.1 Amended and Restated Certificate of Incorporation of the Company(1)
4.2 Amendment to Amended and Restated Certificate of Incorporation of the Company.**
4.3 Bylaws of the Company(1)
4.4 Form of Indenture, dated as of March 23, 1995, between the Registrant and Colorado
National Bank, as Trustee for the 10.25% First Mortgage Bonds due 2005(2)
4.5 Rights Agreement, dated as of January 31, 1995, by and between the Company and Norwest
Bank Minnesota, National Association, as rights agent(3)
4.6 Amendment No. 1, dated as of January 31, 1995, to the Rights Agreement, dated as of
January 31, 1995, by and between the Company and Norwest Bank Minnesota, N.A., as
rights agent(4)
5.1 Opinion of Davis, Graham & Stubbs LLP, counsel for Registrant**
10.1 Amended and Restated Loan and Security Agreement by and among Ultimate Electronics,
Inc., Ultimate Akquisition Corp., Fast Trak Inc. and Foothill Capital Corporation,
dated as of November 24, 1998(5)
10.2 First Amendment to the Amended and Restated Loan and Security Agreement by and among
Ultimate Electronics, Inc., Ultimate Akquisition Corp., Fast Trak Inc. and Foothill
Capital Corporation**
10.3 Dealer Agreement by and between Mitsubishi Electronics America, Inc. and Ultimate
Electronics, Inc. dated as of February 27, 1996 and Letter dated June 30, 1999
renewing said agreement.**
10.4 Form of Indemnification Agreement between the Company and each executive officer and
director.**
10.5 Form of Indemnity Agreement to be entered into between William J. Pearse and Ultimate
Electronics, Inc.**
10.6 Form of Indemnity Agreement to be entered into between Barbara A. Pearse and Ultimate
Electronics, Inc.**
23.1 Consent of Davis, Graham & Stubbs LLP (included in Exhibit 5.1 hereof)**
23.2 Consent of Independent Public Accountants**
24.1 Power of Attorney (included on signature page hereto)*
</TABLE>
II-2
<PAGE>
(b) Reports on Form 8-K:
None.
- ------------------------
* Previously filed.
** Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 33-68314), filed with the Commission on September 2, 1993.
(2) Incorporated by reference to Amendment No. 3 to the Registrant's
Registration Statement on From S-1 (File No. 33-88740), filed with the
Commission on March 14, 1995.
(3) Incorporated by reference to the Registrant's Form 8-K filed with the
Commission on February 10, 1995.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended April 30, 1995.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended October 31, 1998.
II-3
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the registrant's annual report pursuant to Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be
deemed to be part of this registration statement as of the time it was
declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions,
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this amendment to the
registration statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Denver, State of Colorado, on September 28,
1999.
<TABLE>
<S> <C> <C>
ULTIMATE ELECTRONICS, INC.
By /s/ J. EDWARD MCENTIRE
------------------------------------------
J. Edward McEntire,
CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed on September 28, 1999, by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
September 28, 1999 *
- ------------------------------ --------------------------
Date William J. Pearse,
Chairman of the Board of
Directors
<S> <C>
September 28, 1999 /s/ J. EDWARD MCENTIRE
- ------------------------------ --------------------------
Date J. Edward McEntire,
Director and Chief
Executive Officer
(Principal Executive
Officer)
September 28, 1999 *
- ------------------------------ --------------------------
Date David J. Workman,
Director, President and
Chief Operating Officer
September 28, 1999 /s/ ALAN E. KESSOCK
- ------------------------------ --------------------------
Date Alan E. Kessock,
Director, Senior Vice
President--Finance and
Administration, Chief
Financial Officer,
Treasurer, Secretary
(Principal Financial
Officer and Accounting
Officer)
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C>
September 28, 1999 *
- ------------------------------ --------------------------
Date Robert W. Beale,
Director
September 28, 1999 *
- ------------------------------ --------------------------
Date Randall F. Bellows,
Director
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ ALAN E. KESSOCK
-------------------------
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBITS
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement**
4.1 Amended and Restated Certificate of Incorporation of the Company(1)
4.2 Amendment to Amended and Restated Certificate of Incorporation of the Company.**
4.3 Bylaws of the Company(1)
4.4 Form of Indenture, dated as of March 23, 1995, between the Registrant and Colorado National Bank, as
Trustee for the 10.25% First Mortgage Bonds due 2005(2)
4.5 Rights Agreement, dated as of January 31, 1995, by and between the Company and Norwest Bank
Minnesota, National Association, as rights agent(3)
4.6 Amendment No. 1, dated as of January 31, 1995, to the Rights Agreement, dated as of January 31, 1995,
by and between the Company and Norwest Bank Minnesota, N.A., as rights agent(4)
5.1 Opinion of Davis, Graham & Stubbs LLP, counsel for Registrant**
10.1 Amended and Restated Loan and Security Agreement by and among Ultimate Electronics, Inc., Ultimate
Akquisition Corp., Fast Trak Inc. and Foothill Capital Corporation, dated as of November 24,
1998(5)
10.2 First Amendment to the Amended and Restated Loan and Security Agreement by and among Ultimate
Electronics, Inc., Ultimate Akquisition Corp., Fast Trak Inc. and Foothill Capital Corporation**
10.3 Dealer Agreement by and between Mitsubishi Electronics America, Inc. and Ultimate Electronics, Inc.
dated as of February 27, 1996 and Letter dated June 30, 1999 renewing said agreement.**
10.4 Form of Indemnification Agreement between the Company and each executive officer and director.**
10.5 Form of Indemnity Agreement to be entered into between William J. Pearse and Ultimate Electronics,
Inc.**
10.6 Form of Indemnity Agreement to be entered into between Barbara A. Pearse and Ultimate Electronics,
Inc.**
23.1 Consent of Davis, Graham & Stubbs LLP (included in Exhibit 5.1 hereof)**
23.2 Consent of Independent Public Accountants**
24.1 Power of Attorney (included on signature page hereto)*
</TABLE>
- ------------------------
* Previously filed.
** Filed herewith.
(1) Incorporated by reference to the Registrant's Registration Statement on Form
S-1 (File No. 33-68314), filed with the Commission on September 2, 1993.
(2) Incorporated by reference to Amendment No. 3 to the Registrant's
Registration Statement on From S-1 (File No. 33-88740), filed with the
Commission on March 14, 1995.
(3) Incorporated by reference to the Registrant's Form 8-K filed with the
Commission on February 10, 1995.
(4) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended April 30, 1995.
(5) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for the period ended October 31, 1998.
II-7
<PAGE>
Draft of September 28, 1999
2,250,000 SHARES
ULTIMATE ELECTRONICS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED OCTOBER , 1999
----
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
SECTION 1. REPRESENTATIONS AND WARRANTIES ..............................................................2
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING STOCKHOLDERS.......................2
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS..................................................2
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS...............................................3
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY...........................................3
(d) THE UNDERWRITING AGREEMENT.................................................................3
(e) AUTHORIZATION OF THE COMMON SHARES.........................................................3
(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS.........................................4
(g) NO MATERIAL ADVERSE CHANGE.................................................................4
(h) INDEPENDENT ACCOUNTANTS....................................................................4
(i) PREPARATION OF THE FINANCIAL STATEMENTS....................................................4
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS SUBSIDIARIES........................4
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS.............................................5
(l) STOCK EXCHANGE LISTING.....................................................................5
(m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER AUTHORIZATIONS OR
APPROVALS REQUIRED....................................................................5
(n) NO MATERIAL ACTIONS OR PROCEEDINGS.........................................................6
(o) INTELLECTUAL PROPERTY RIGHTS...............................................................6
(p) ALL NECESSARY PERMITS, ETC.................................................................7
(q) TITLE TO PROPERTIES........................................................................7
(r) TAX LAW COMPLIANCE.........................................................................7
(s) COMPANY NOT AN INVESTMENT COMPANY..........................................................7
(t) INSURANCE..................................................................................7
(u) NO PRICE STABILIZATION OR MANIPULATION.....................................................8
(v) RELATED PARTY TRANSACTIONS.................................................................8
(w) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS................................................8
(x) COMPANY'S ACCOUNTING SYSTEM................................................................8
(y) COMPLIANCE WITH ENVIRONMENTAL LAWS.........................................................8
(z) ERISA COMPLIANCE...........................................................................9
(aa) YEAR 2000..................................................................................9
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS......................................10
(a) THE UNDERWRITING AGREEMENT................................................................10
(b) THE CUSTODY AGREEMENT.....................................................................10
(c) TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS OBTAINED............................10
(d) DELIVERY OF THE COMMON SHARES TO BE SOLD..................................................10
(e) NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS REQUIRED........................10
(f) NO REGISTRATION OR OTHER SIMILAR RIGHTS...................................................11
(g) NO FURTHER CONSENTS, ETC..................................................................11
(h) DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE PROSPECTUS.............................11
(i) NO PRICE STABILIZATION OR MANIPULATION....................................................11
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES............................................11
(a) THE FIRM COMMON SHARES....................................................................11
(b) THE FIRST CLOSING DATE....................................................................12
(c) THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE.......................................12
(d) PUBLIC OFFERING OF THE COMMON SHARES......................................................13
(e) PAYMENT FOR THE COMMON SHARES.............................................................13
(f) DELIVERY OF THE COMMON SHARES.............................................................13
i
<PAGE>
(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS................................................14
SECTION 3. ADDITIONAL COVENANTS........................................................................14
A. COVENANTS OF THE COMPANY.......................................................................14
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND SUPPLEMENTS............................14
(b) SECURITIES ACT COMPLIANCE.................................................................14
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER SECURITIES
ACT MATTERS..........................................................................14
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS................................15
(e) BLUE SKY COMPLIANCE.......................................................................15
(f) USE OF PROCEEDS...........................................................................15
(g) TRANSFER AGENT............................................................................15
(h) EARNINGS STATEMENT........................................................................15
(i) PERIODIC REPORTING OBLIGATIONS............................................................15
(j) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES......................................15
(k) EXCHANGE ACT COMPLIANCE...................................................................16
B. COVENANTS OF THE SELLING STOCKHOLDERS..........................................................16
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES......................................16
(b) DELIVERY OF FORMS W-9.....................................................................16
SECTION 4. PAYMENT OF EXPENSES.........................................................................16
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS...........................................17
(a) ACCOUNTANTS' COMFORT LETTER...............................................................18
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO OBJECTION
FROM NASD............................................................................18
(c) NO MATERIAL ADVERSE CHANGE................................................................18
(d) OPINION OF COUNSEL FOR THE COMPANY........................................................18
(e) OPINION OF COUNSEL FOR THE UNDERWRITERS...................................................19
(f) OFFICERS' CERTIFICATE.....................................................................19
(g) BRING-DOWN COMFORT LETTER.................................................................19
(h) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS...........................................19
(i) SELLING STOCKHOLDERS' CERTIFICATE.........................................................19
(j) SELLING STOCKHOLDERS' DOCUMENTS...........................................................20
(k) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY OTHER THAN
SELLING STOCKHOLDERS.................................................................20
(l) ADDITIONAL DOCUMENTS......................................................................20
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES.....................................................20
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.............................................................21
SECTION 8. INDEMNIFICATION.............................................................................21
(a) INDEMNIFICATION OF THE UNDERWRITERS.......................................................21
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS................................22
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES........................................23
(d) SETTLEMENTS...............................................................................23
SECTION 9. CONTRIBUTION................................................................................24
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS.........................................25
SECTION 11. TERMINATION OF THIS AGREEMENT..............................................................26
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY........................................26
SECTION 13. NOTICES....................................................................................27
SECTION 14. SUCCESSORS.................................................................................28
SECTION 15. PARTIAL UNENFORCEABILITY...................................................................28
SECTION 16. GOVERNING LAW PROVISIONS...................................................................28
ii
<PAGE>
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS TO SELL AND
DELIVER COMMON SHARES.........................................................................29
SECTION 18. GENERAL PROVISIONS.........................................................................29
</TABLE>
iii
<PAGE>
UNDERWRITING AGREEMENT
October ____, 1999
BANC OF AMERICA SECURITIES LLC
U.S. Bancorp Piper Jaffray Inc.
As Representatives of the several Underwriters
c/o BANC OF AMERICA SECURITIES LLC
9 West 57th Street
New York, New York 10019
Ladies and Gentlemen:
INTRODUCTORY. Ultimate Electronics, Inc., a Delaware corporation
(the "Company), proposes to issue and sell to the several underwriters named
in SCHEDULE A (the "Underwriters") an aggregate of 2,000,000 shares of its
Common Stock, par value $0.01 per share (the "Common Stock"); and the
stockholders of the Company named in SCHEDULE B (collectively, the "Selling
Stockholders") severally propose to sell to the Underwriters an aggregate of
250,000 shares of Common Stock. The 2,000,000 shares of Common Stock to be
sold by the Company and the 250,000 shares of Common Stock to be sold by the
Selling Stockholders are collectively called the "Firm Common Shares". In
addition, the Company has granted to the Underwriters an option to purchase
up to an additional 337,500 shares (the "Optional Common Shares") of Common
Stock as provided in Section 2. The Firm Common Shares and, if and to the
extent such option is exercised, the Optional Common Shares are collectively
called the "Common Shares". Banc of America Securities LLC ("BAS") and U.S.
Bancorp Piper Jaffray Inc. have agreed to act as representatives of the
several Underwriters (in such capacity, the "Representatives") in connection
with the offering and sale of the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-3 (File No.
333-87341), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration
statement, as amended, including the financial statements, exhibits and
schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933 and the rules and regulations
promulgated thereunder (collectively, the "Securities Act"), all documents
incorporated or deemed to be incorporated by reference therein, as well as
any information deemed to be a part thereof at the time of effectiveness
pursuant to Rule 430A or Rule 434 under the Securities Act, is called the
"Registration Statement". Any registration statement filed by the Company
pursuant to Rule 462(b) under the Securities Act is called the "Rule 462(b)
Registration Statement", and from and after the date and time of filing of
the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Common Shares, is
called the "Prospectus"; PROVIDED, HOWEVER, if the Company has, with the
consent of BAS, elected to rely upon Rule 434 under the Securities Act, the
term "Prospectus" shall mean the Company's prospectus subject to completion
(each, a "preliminary prospectus") dated
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September 29, 1999 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to
the date of the Prospectus shall mean the date of the Term Sheet. All
references in this Agreement to the Registration Statement, the Rule 462(b)
Registration Statement, a preliminary prospectus, the Prospectus or the Term
Sheet, or any amendments or supplements to any of the foregoing, shall
include any copy thereof filed with the Commission pursuant to its Electronic
Data Gathering, Analysis and Retrieval System ("EDGAR").
All references in this Agreement to financial statements and
schedules and other information which is "contained," "included" or "stated"
in the Registration Statement or the Prospectus (and all other references of
like import) shall be deemed to mean and include all such financial
statements and schedules and other information which is or is deemed to be
incorporated by reference in the Registration Statement or the Prospectus, as
the case may be; and all references in this Agreement to amendments or
supplements to the Registration Statement or the Prospectus shall be deemed
to mean and include the filing of any document under the Securities Exchange
Act of 1934 and the rules and regulations promulgated thereunder
(collectively, the "Exchange Act") which is or is deemed to be incorporated
by reference in the Registration Statement or the Prospectus, as the case may
be.
The Company and each of the Selling Stockholders hereby confirm
their respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SELLING
STOCKHOLDERS. The Company and, to the knowledge of each Selling Stockholder
after due inquiry, each of the Selling Stockholders represents, warrants and
covenants to each Underwriter as follows:
(a) COMPLIANCE WITH REGISTRATION REQUIREMENTS. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has
complied to the Commission's satisfaction with all requests of the
Commission for additional or supplemental information. No stop order
suspending the effectiveness of the Registration Statement or any Rule
462(b) Registration Statement is in effect and no proceedings for such
purpose have been instituted or are pending or, to the best knowledge of
the Company, are contemplated or threatened by the Commission. The Company
is qualified and eligible under the requirements of Form S-3 and the
Securities Act to file the Registration Statement on Form S-3.
Each preliminary prospectus and the Prospectus when filed complied
in all material respects with the Securities Act and, if filed by
electronic transmission pursuant to EDGAR (except as may be permitted by
Regulation S-T under the Securities Act), was identical to the copy
thereof delivered to the Underwriters for use in connection with the
offer and sale of the Common Shares. Each of the Registration Statement,
any Rule 462(b) Registration Statement and any post-effective amendment
thereto, at the time it became effective and at all subsequent times,
complied and will comply in all material respects with the Securities
Act and did not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the
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statements therein not misleading. The Prospectus, as amended or
supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements therein,
in the light of the circumstances under which they were made, not
misleading. The representations and warranties set forth in the two
immediately preceding sentences do not apply to statements in or
omissions from the Registration Statement, any Rule 462(b) Registration
Statement, or any post-effective amendment thereto, or the Prospectus,
or any amendments or supplements thereto, made in reliance upon and in
conformity with information relating to any Underwriter furnished to the
Company in writing by the Representatives expressly for use therein.
There are no contracts or other documents required to be described in
the Prospectus or to be filed as exhibits to the Registration Statement
which have not been described or filed as required.
The documents incorporated or deemed to be incorporated by
reference in the Prospectus, at the time they were or hereafter are
filed with the Commission, complied and will comply in all material
respects with the requirements of the Exchange Act, and, when read
together with the other information in the Prospectus, at the time the
Registration Statement and any amendments thereto become effective and
at the First Closing Date and any Second Closing Date (as defined
below), as the case may be, will not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) OFFERING MATERIALS FURNISHED TO UNDERWRITERS. The Company
has delivered to each Representative one complete manually signed copy
of the Registration Statement and of each consent and certificate of
experts filed as a part thereof, and conformed copies of the
Registration Statement (without exhibits) and preliminary prospectuses
and the Prospectus, as amended or supplemented, in such quantities and
at such places as the Representatives have reasonably requested for each
of the Underwriters.
(c) DISTRIBUTION OF OFFERING MATERIAL BY THE COMPANY. The
Company has not distributed and will not distribute, prior to the later
of any Second Closing Date (as defined below) and the completion of the
Underwriters' distribution of the Common Shares, any offering material
in connection with the offering and sale of the Common Shares other than
a preliminary prospectus, the Prospectus or the Registration Statement.
(d) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of, the Company, enforceable in accordance with its terms,
except as rights to indemnification hereunder may be limited by
applicable law and except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights and remedies of creditors or by
general equitable principles.
(e) AUTHORIZATION OF THE COMMON SHARES. The Common Shares to
be purchased by the Underwriters from the Company have been duly
authorized for issuance and sale pursuant to this Agreement and, when
issued and delivered by the Company pursuant to this Agreement, will be
validly issued, fully paid and nonassessable.
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(f) NO APPLICABLE REGISTRATION OR OTHER SIMILAR RIGHTS. There
are no persons with registration or other similar rights to have any
equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by this Agreement,
and there are no persons with registration or other similar rights to
have any equity or debt securities registered by the Company.
(g) NO MATERIAL ADVERSE CHANGE. Except as otherwise disclosed
in the Prospectus, subsequent to the respective dates as of which
information is given in the Prospectus: (i) there has been no material
adverse change, or any development that could reasonably be expected to
result in a material adverse change, in the condition, financial or
otherwise, or in the earnings, business, operations or prospects,
whether or not arising from transactions in the ordinary course of
business, of the Company and its subsidiaries, considered as one entity
(any such change is called a "Material Adverse Change"); (ii) the
Company and its subsidiaries, considered as one entity, have not
incurred any material liability or obligation, indirect, direct or
contingent, not in the ordinary course of business nor entered into any
material transaction or agreement not in the ordinary course of
business; and (iii) there has been no dividend or distribution of any
kind declared, paid or made by the Company or, except for dividends paid
to the Company or other subsidiaries, any of its subsidiaries on any
class of capital stock or repurchase or redemption by the Company or any
of its subsidiaries of any class of capital stock.
(h) INDEPENDENT ACCOUNTANTS. Ernst & Young LLP, who have
expressed their opinion with respect to the financial statements (which
term as used in this Agreement includes the related notes thereto) and
supporting schedules filed with the Commission as a part of the
Registration Statement and included and/or incorporated by reference in
the Prospectus, are independent public or certified public accountants
as required by the Securities Act and the Exchange Act.
(i) PREPARATION OF THE FINANCIAL STATEMENTS. The financial
statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the consolidated
financial position of the Company and its subsidiaries as of and at the
dates indicated and the results of their operations and cash flows for
the periods specified. The supporting schedules included and/or
incorporated by reference in the Registration Statement present fairly
the information required to be stated therein. Such financial statements
and supporting schedules have been prepared in conformity with generally
accepted accounting principles as applied in the United States applied
on a consistent basis throughout the periods involved, except as may be
expressly stated in the related notes thereto. No other financial
statements or supporting schedules or pro forma financial statements are
required to be included in the Registration Statement. The financial
data set forth in the Prospectus under the captions "Prospectus
Summary--Summary Financial and Operating Data", "Selected Financial
Data" and "Capitalization" fairly present the information set forth
therein on a basis consistent with that of the audited financial
statements contained in the Registration Statement.
(j) INCORPORATION AND GOOD STANDING OF THE COMPANY AND ITS
SUBSIDIARIES. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and, in the
case of the Company, to enter into and
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perform its obligations under this Agreement. Each of the Company and
each subsidiary is duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except for such jurisdictions
where the failure to so qualify or to be in good standing would not,
individually or in the aggregate, result in a Material Adverse Change.
All of the issued and outstanding capital stock of each subsidiary has
been duly authorized and validly issued, is fully paid and nonassessable
and is owned by the Company, directly or through subsidiaries, free and
clear of any security interest, mortgage, pledge, lien, encumbrance or
claim, except for the pledge of all of the common stock of such
subsidiaries to Foothill Capital Corporation pursuant to the Amended and
Restated Loan and Security Agreement dated as of November 24, 1998. The
Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries
listed on Schedule C to this Agreement.
(k) CAPITALIZATION AND OTHER CAPITAL STOCK MATTERS. The
authorized, issued and outstanding capital stock of the Company is as
set forth in the Prospectus under the caption "Capitalization" (other
than for subsequent issuances, if any, pursuant to employee benefit
plans described in the Prospectus or upon exercise of outstanding
options described in the Prospectus). The Common Stock (including the
Common Shares) conforms in all material respects to the description
thereof contained in the Prospectus. All of the issued and outstanding
shares of Common Stock (including the shares of Common Stock owned by
the Selling Stockholders) have been duly authorized and validly issued,
are fully paid and nonassessable and have been issued in compliance with
federal and state securities laws. None of the outstanding shares of
Common Stock were issued in violation of any preemptive rights, rights
of first refusal or other similar rights to subscribe for or purchase
securities of the Company. There are no authorized or outstanding
options, warrants, preemptive rights, rights of first refusal or other
rights to purchase, or equity or debt securities convertible into or
exchangeable or exercisable for, any capital stock of the Company or any
of its subsidiaries other than those accurately described in the
Prospectus. The description of the Company's stock option, stock bonus
and other stock plans or arrangements, and the options or other rights
granted thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(l) STOCK EXCHANGE LISTING. The Common Stock (including the
Common Shares) is registered pursuant to Section 12(g) of the Exchange
Act and is included on the Nasdaq National Market, and the Company has
taken no action designed to, or likely to have the effect of,
terminating the registration of the Common Stock under the Exchange Act
or delisting the Common Stock from the Nasdaq National Market, nor has
the Company received any notification that the Commission or the
National Association of Securities Dealers, Inc. (the "NASD") is
contemplating terminating such registration or listing.
(m) NON-CONTRAVENTION OF EXISTING INSTRUMENTS; NO FURTHER
AUTHORIZATIONS OR APPROVALS REQUIRED. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default
(or, with the giving of notice or lapse of time, would be in default)
("Default") under any indenture, mortgage, loan or credit agreement,
note, contract, franchise, lease or other instrument to which the
Company or any of its subsidiaries is a party or by which it or any of
them may be bound (including, without limitation, the Company's 10.25%
First Mortgage Notes due 2005 and the related
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Indenture, dated as of March 23, 1995, between the Company and Colorado
National Bank, and the Amended and Restated Loan and Security Agreement
by and among Ultimate Electronics, Inc., Ultimate Akquisition Corp., and
Fast Trak, Inc. and Foothill Capital Corporation, dated as of November
24, 1998), or to which any of the property or assets of the Company or
any of its subsidiaries is subject (each, an "Existing Instrument"),
except for such Defaults as would not, individually or in the aggregate,
result in a Material Adverse Change. The Company's execution, delivery
and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus (i) have been duly authorized
by all necessary corporate action and will not result in any violation
of the provisions of the charter or by-laws of the Company or any
subsidiary, (ii) will not conflict with or constitute a breach of, or
Default or a Debt Repayment Triggering Event (as defined below) under,
or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to,
any Existing Instrument, and (iii) will not result in any violation of
any law, administrative regulation or administrative or court judgment,
order or decree applicable to the Company or any subsidiary. No consent,
approval, authorization or other order of, or registration or filing
with, any court or other governmental or regulatory authority or agency,
is required for the Company's execution, delivery and performance of
this Agreement and consummation of the transactions contemplated hereby
and by the Prospectus, except such as have been obtained or made by the
Company and are in full force and effect under the Securities Act, or as
may be required under applicable state securities or blue sky laws and
from the NASD. As used herein, a "Debt Repayment Triggering Event" means
any event or condition which gives, or with the giving of notice or
lapse of time would give, the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any of its subsidiaries.
(n) NO MATERIAL ACTIONS OR PROCEEDINGS. There are no legal or
governmental actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened (i) against or affecting the Company
or any of its subsidiaries, (ii) which has as the subject thereof any
officer or director of, or property owned or leased by, the Company or
any of its subsidiaries or (iii) relating to environmental or
discrimination matters, where in any such case (i), (ii) or (iii) (A)
there is a reasonable likelihood that such action, suit or proceeding
will be determined adversely to the Company or such subsidiary and (B)
any such action, suit or proceeding, if so determined adversely, would
reasonably be expected to result in a Material Adverse Change or
adversely affect the consummation of the transactions contemplated by
this Agreement. No material labor dispute with the employees of the
Company or any of its subsidiaries exists or, to the best of the
Company's knowledge, is threatened or imminent.
(o) INTELLECTUAL PROPERTY RIGHTS. The Company and its
subsidiaries own or possess all trademarks, trade names, patent rights,
copyrights, licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to
conduct their businesses as now conducted; and the expected expiration
of any of such Intellectual Property Rights would not result in a
Material Adverse Change. Neither the Company nor any of its subsidiaries
has received any notice of infringement or conflict with asserted
Intellectual Property Rights of others, which infringement or conflict,
if the subject of an unfavorable decision, would result in a Material
Adverse Change.
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(p) ALL NECESSARY PERMITS, ETC. The Company and each
subsidiary possess such valid and current certificates, authorizations
or permits issued by the appropriate state, federal or foreign
regulatory agencies or bodies necessary to conduct their respective
businesses, and neither the Company nor any subsidiary has received any
notice of proceedings relating to the revocation or modification of, or
non-compliance with, any such certificate, authorization or permit which
is reasonably likely to be the subject of an unfavorable decision and
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, is reasonably likely to result in a
Material Adverse Change.
(q) TITLE TO PROPERTIES. The Company and each of its
subsidiaries has good and marketable title to all the properties and
assets reflected as owned in the financial statements referred to in
Section 1(A)(i) above (or elsewhere in the Prospectus), in each case
free and clear of any security interests, mortgages, liens,
encumbrances, equities, claims and other defects, except such as (i) are
described in the notes to the Company's financial statements included in
the Prospectus or (ii) do not materially and adversely affect the value
of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company or such subsidiary.
The real property, improvements, equipment and personal property held
under lease by the Company or any subsidiary are held under valid and
enforceable leases, with such exceptions as are not material and do not
materially interfere with the use made or proposed to be made of such
real property, improvements, equipment or personal property by the
Company or such subsidiary.
(r) TAX LAW COMPLIANCE. The Company and its consolidated
subsidiaries have filed all necessary federal, state and foreign income
and franchise tax returns and have paid all taxes required to be paid by
any of them and, if due and payable, any related or similar assessment,
fine or penalty levied against any of them except as may be being
contested in good faith and by appropriate proceedings. The Company has
made adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1(A)(i) above in respect of all
federal, state and foreign income and franchise taxes for all periods as
to which the tax liability of the Company or any of its consolidated
subsidiaries has not been finally determined.
(s) COMPANY NOT AN INVESTMENT COMPANY. The Company is not, and
after receipt of payment for the Common Shares will not be, an
"investment company" within the meaning of the Investment Company Act of
1940, as amended (the "Investment Company Act"), and will conduct its
business in a manner so that it will not become subject to the
Investment Company Act.
(t) INSURANCE. Each of the Company and its subsidiaries are
insured by recognized, financially sound and reputable institutions with
policies in such amounts and with such deductibles and covering such
risks as are generally deemed adequate and customary for their
businesses including, but not limited to, policies covering real and
personal property owned or leased by the Company and its subsidiaries
against theft, damage, destruction and acts of vandalism. The Company
has no reason to believe that it or any subsidiary will not be able (i)
to renew its existing insurance coverage as and when such policies
expire or (ii) to obtain comparable coverage from similar institutions
as may be necessary or appropriate to conduct its business as now
conducted and at a cost that
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would not result in a Material Adverse Change. Neither of the Company
nor any subsidiary has been denied any insurance coverage which it has
sought or for which it has applied.
(u) NO PRICE STABILIZATION OR MANIPULATION. The Company has
not taken and will not take, directly or indirectly, any action designed
to or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Common Shares.
(v) RELATED PARTY TRANSACTIONS. There are no business
relationships or related-party transactions involving the Company or any
subsidiary or any other person required to be described in the
Prospectus which have not been described as required.
(w) NO UNLAWFUL CONTRIBUTIONS OR OTHER PAYMENTS. Neither the
Company nor any of its subsidiaries nor, to the best of the Company's
knowledge, any employee or agent of the Company or any subsidiary, has
made any contribution or other payment to any official of, or candidate
for, any federal, state or foreign office in violation of any law or of
the character required to be disclosed in the Prospectus.
(x) COMPANY'S ACCOUNTING SYSTEM. The Company maintains a
system of accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles as applied in
the United States and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(y) COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as would not,
individually or in the aggregate, result in a Material Adverse Change
(i) neither the Company nor any of its subsidiaries is in violation of
any federal, state, local or foreign law or regulation relating to
pollution or protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including without limitation,
laws and regulations relating to emissions, discharges, releases or
threatened releases of chemicals, pollutants, contaminants, wastes,
toxic substances, hazardous substances, petroleum and petroleum products
(collectively, "Materials of Environmental Concern"), or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environment
Concern (collectively, "Environmental Laws"), which violation includes,
but is not limited to, noncompliance with any permits or other
governmental authorizations required for the operation of the business
of the Company or its subsidiaries under applicable Environmental Laws,
or noncompliance with the terms and conditions thereof, nor has the
Company or any of its subsidiaries received any written communication,
whether from a governmental authority, citizens group, employee or
otherwise, that alleges that the Company or any of its subsidiaries is
in violation of any Environmental Law; (ii) there is no claim, action or
cause of action filed with a court or governmental authority, no
investigation with respect to which the Company has received written
notice, and no written notice by any person or entity alleging potential
liability for
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investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries,
attorneys' fees or penalties arising out of, based on or resulting from
the presence, or release into the environment, of any Material of
Environmental Concern at any location owned, leased or operated by the
Company or any of its subsidiaries, now or in the past (collectively,
"Environmental Claims"), pending or, to the best of the Company's
knowledge, threatened against the Company or any of its subsidiaries or
any person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law; and (iii) to the best of the
Company's knowledge, there are no past or present actions, activities,
circumstances, conditions, events or incidents, including, without
limitation, the release, emission, discharge, presence or disposal of
any Material of Environmental Concern, that reasonably could result in a
violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or any of its subsidiaries or
against any person or entity whose liability for any Environmental Claim
the Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law. Based on the Company's review and
any other information brought to its attention, the Company has
reasonably concluded that costs and liabilities associated with
compliance with environmental laws (including, without limitation, any
capital or operating expenditures required for clean-up, closure of
properties or compliance with Environmental Laws or any permit, license
or approval, any related constraints on operating activities and any
potential liabilities to third parties) would not, individually or in
the aggregate, result in a Material Adverse Change.
(Z) ERISA COMPLIANCE. The Company and its subsidiaries and any
"employee benefit plan" (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or
maintained by the Company, its subsidiaries or their "ERISA Affiliates"
(as defined below) are in compliance in all material respects with
ERISA. "ERISA Affiliate" means, with respect to the Company or a
subsidiary, any member of any group of organizations described in
Sections 414(b), (c), (m) or (o) of the Internal Revenue Code of 1986,
as amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No
"reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of
their ERISA Affiliates. No "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfunded benefit liabilities" (as defined under ERISA).
Neither the Company, its subsidiaries nor any of their ERISA Affiliates
has incurred or reasonably expects to incur any liability under (i)
Title IV of ERISA with respect to termination of, or withdrawal from,
any "employee benefit plan" or (ii) Sections 412, 4971, 4975 or 4980B of
the Code. Each "employee benefit plan" established or maintained by the
Company, its subsidiaries or any of their ERISA Affiliates that is
intended to be qualified under Section 401(a) of the Code is so
qualified and nothing has occurred, whether by action or failure to act,
which would cause the loss of such qualification.
(aa) YEAR 2000. All disclosure regarding year 2000 compliance
that is required to be described under the Securities Act (including
disclosures required by Staff Legal Bulletin No. 5) has been included in
the Prospectus. The Company will not incur
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significant operating expenses or costs to ensure that its information
systems will be year 2000 compliant, other than as disclosed in the
Prospectus.
Any certificate signed by an officer of the Company and delivered
to the Representatives or to counsel for the Underwriters shall be deemed to
be a representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS. In
addition to the representations, warranties and covenants set forth in
Section 1(A), each Selling Stockholder represents, warrants and covenants to
each Underwriter as follows:
(a) THE UNDERWRITING AGREEMENT. This Agreement has been duly
authorized, executed and delivered by or on behalf of such Selling
Stockholder and is a valid and binding agreement of such Selling
Stockholder, enforceable in accordance with its terms, except as rights
to indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(b) THE CUSTODY AGREEMENT. The Custody Agreement signed by
such Selling Stockholder and ________________, as custodian (the
"Custodian"), relating to the deposit of the Common Shares to be sold by
such Selling Stockholder (the "Custody Agreement") has been duly
authorized, executed and delivered by such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(c) TITLE TO COMMON SHARES TO BE SOLD; ALL AUTHORIZATIONS
OBTAINED. Such Selling Stockholder has, and at all times through the
First Closing Date will have, good and valid title to all of the Common
Shares which may be sold by such Selling Stockholder pursuant to this
Agreement on such date and the legal right and power, and all
authorizations and approvals required by law and, with respect to any
entity, under its charter, by-laws, trust agreement or other
organizational documents, to enter into this Agreement and its Custody
Agreement, to sell, transfer and deliver all of the Common Shares which
may be sold by such Selling Stockholder pursuant to this Agreement and
to comply with its other obligations hereunder and thereunder.
(d) DELIVERY OF THE COMMON SHARES TO BE SOLD. Delivery of the
Common Shares which are sold by such Selling Stockholder pursuant to
this Agreement will pass good and valid title to such Common Shares,
free and clear of any security interest, mortgage, pledge, lien,
encumbrance or other claim.
(e) NON-CONTRAVENTION; NO FURTHER AUTHORIZATIONS OR APPROVALS
REQUIRED. The execution and delivery by such Selling Stockholder of, and
the performance by such Selling Stockholder of its obligations under,
this Agreement and the Custody Agreement will not contravene or conflict
with, result in a breach of, or constitute a Default under, or require
the consent of any other party to, any charter, by-laws, trust agreement
or other
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organizational documents of such Selling Stockholder or any other
agreement or instrument to which such Selling Stockholder is a party or
by which it is bound or under which it is entitled to any right or
benefit, any provision of applicable law or any judgment, order, decree
or regulation applicable to such Selling Stockholder of any court,
regulatory body, administrative agency, governmental body or arbitrator
having jurisdiction over such Selling Stockholder. No consent, approval,
authorization or other order of, or registration or filing with, any
court or other governmental authority or agency, is required for the
consummation by such Selling Stockholder of the transactions
contemplated in this Agreement, except such as have been obtained or
made and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the NASD.
(f) NO REGISTRATION OR OTHER SIMILAR RIGHTS. Such Selling
Stockholder does not have any registration or other similar rights to
have any equity or debt securities registered for sale by the Company
under the Registration Statement or included in the offering
contemplated by this Agreement.
(g) NO FURTHER CONSENTS, ETC. No consent, approval or waiver
is required under any instrument or agreement to which such Selling
Stockholder is a party or by which it is bound or under which it is
entitled to any right or benefit, in connection with the offering, sale
or purchase by the Underwriters of any of the Common Shares which may be
sold by such Selling Stockholder under this Agreement or the
consummation by such Selling Stockholder of any of the other
transactions contemplated hereby.
(h) DISCLOSURE MADE BY SUCH SELLING STOCKHOLDER IN THE
PROSPECTUS. All information furnished by or on behalf of such Selling
Stockholder in writing expressly for use in the Registration Statement
and Prospectus is, and on the First Closing Date will be, true, correct,
and complete in all material respects, and does not, and on the First
Closing Date will not, contain any untrue statement of a material fact
or omit to state any material fact necessary to make such information
not misleading. Such Selling Stockholder confirms as accurate the number
of shares of Common Stock set forth opposite such Selling Stockholder's
name in the Prospectus under the caption "Principal and Selling
Stockholders" (both prior to and after giving effect to the sale of the
Common Shares).
(i) NO PRICE STABILIZATION OR MANIPULATION. Such Selling
Stockholder has not taken and will not take, directly or indirectly, any
action designed to or that might be reasonably expected to cause or
result in stabilization or manipulation of the price of the Common Stock
to facilitate the sale or resale of the Common Shares.
Any certificate signed by or on behalf of any Selling Stockholder
and delivered to the Representatives or to counsel for the Underwriters shall
be deemed to be a representation and warranty by such Selling Stockholder to
each Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) THE FIRM COMMON SHARES. Upon the terms herein set forth, (i)
the Company agrees to issue and sell to the several Underwriters an aggregate
of 2,000,000 Firm Common Shares and (ii) the Selling Stockholders agree to
sell to the several Underwriters an aggregate of 250,000 Firm Common Shares,
each Selling Stockholder selling the number of Firm Common Shares set forth
opposite such Selling Stockholder's name on Schedule B. On
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the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company
and the Selling Stockholders the respective number of Firm Common Shares set
forth opposite their names on SCHEDULE A. The purchase price per Firm Common
Share to be paid by the several Underwriters to the Company and the Selling
Stockholders shall be $___ per share.
(b) THE FIRST CLOSING DATE. Delivery of certificates for the Firm
Common Shares to be purchased by the Underwriters shall be made at the offices
of Fried, Frank, Harris, Shriver & Jacobson, 1 New York Plaza, New York, New
York (or such other place as may be agreed to by the Company and the
Representatives) at 9:00 a.m. East Coast time, on [___], or such other time and
date not later than 1:30 p.m. East Coast time, on [___] as the Representatives
shall designate by notice to the Company (the time and date of such closing are
called the "First Closing Date"). The Company and the Selling Stockholders
hereby acknowledge that circumstances under which the Representatives may
provide notice to postpone the First Closing Date as originally scheduled
include, but are in no way limited to, any determination by the Company, the
Selling Stockholders or the Representatives to recirculate to the public copies
of an amended or supplemented Prospectus or a delay as contemplated by the
provisions of Section 10.
(c) THE OPTIONAL COMMON SHARES; THE SECOND CLOSING DATE. In addition,
on the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of 337,500 Optional Common Shares from the
Company at the purchase price per share to be paid by the Underwriters for the
Firm Common Shares. The option granted hereunder is for use by the Underwriters
solely in covering any over-allotments in connection with the sale and
distribution of the Firm Common Shares. The option granted hereunder may be
exercised from time to time on one or more occasions upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term "First Closing Date" shall refer to the time and date
of delivery of certificates for the Firm Common Shares and the Optional Common
Shares). Any such time and date of delivery, if subsequent to the First Closing
Date, is called the "Second Closing Date" and shall be determined by the
Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, (a) each Underwriter agrees, severally and not
jointly, to purchase the number of Optional Common Shares (subject to such
adjustments to eliminate fractional shares as the Representatives may determine)
that bears the same proportion to the total number of Optional Common Shares to
be purchased as the number of Firm Common Shares set forth on SCHEDULE A
opposite the name of such Underwriter bears to the total number of Firm Common
Shares and (b) the Company agrees to sell the total number of Optional Common
Shares (subject to such adjustments to eliminate fractional shares as the
Representatives may determine) requested by the Representatives to be sold. The
Representatives may, but have no
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obligation to, cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
(d) PUBLIC OFFERING OF THE COMMON SHARES. The Representatives hereby
advise the Company and the Selling Stockholders that the Underwriters intend to
offer for sale to the public, as described in the Prospectus, their respective
portions of the Common Shares as soon after this Agreement has been executed and
the Registration Statement has been declared effective as the Representatives,
in their sole judgment, have determined is advisable and practicable.
(e) PAYMENT FOR THE COMMON SHARES. Payment for the Common Shares to
be sold by the Company shall be made at the First Closing Date (and, if
applicable, at any Second Closing Date) by wire transfer of immediately
available funds to the order of the Company. Payment for the Common Shares to
be sold by the Selling Stockholders shall be made at the First Closing Date
by wire transfer of immediately available funds to the order of the Selling
Stockholders.
It is understood that the Representatives have been authorized, for
their own account and the accounts of the several Underwriters, to accept
delivery of and receipt for, and make payment of the purchase price for, the
Firm Common Shares and any Optional Common Shares the Underwriters have
agreed to purchase. BAS, individually and not as a Representative of the
Underwriters, may (but shall not be obligated to) make payment for any Common
Shares to be purchased by any Underwriter whose funds shall not have been
received by the Representatives by the First Closing Date or any Second
Closing Date, as the case may be, for the account of such Underwriter, but
any such payment shall not relieve such Underwriter from any of its
obligations under this Agreement.
Each Selling Stockholder hereby agrees to pay all stock transfer taxes,
stamp duties and other similar taxes, if any, payable upon the sale or delivery
of the Common Shares to be sold by such Selling Stockholder to the several
Underwriters, or otherwise in connection with the performance of such Selling
Stockholder's obligations hereunder.
(f) DELIVERY OF THE COMMON SHARES. The Company and the Selling
Stockholders shall deliver, or cause to be delivered, to the Representatives for
the accounts of the several Underwriters certificates for the Firm Common Shares
to be sold by them at the First Closing Date, against the irrevocable release of
wire transfers of immediately available funds for the amount of the purchase
price therefor. The Company shall also deliver, or cause to be delivered, to the
Representatives for the accounts of the several Underwriters, certificates for
the Optional Common Shares the Underwriters have agreed to purchase from it at
the First Closing Date or any Second Closing Date, as the case may be, against
the irrevocable release of a wire transfer of immediately available funds for
the amount of the purchase price therefor. The certificates for the Common
Shares shall be in definitive form and registered in such names and
denominations as the Representatives shall have requested at least one full
business day prior to the First Closing Date (or any Second Closing Date, as the
case may be) and shall be made available for inspection on the business day
preceding the First Closing Date (or any Second Closing Date, as the case may
be) at a location in New York City as the Representatives may designate. Time
shall be of the essence, and delivery at the time and place specified in this
Agreement is a further condition to the obligations of the Underwriters.
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(g) DELIVERY OF PROSPECTUS TO THE UNDERWRITERS. Not later than 5:00
p.m. on the first business day following the date the Common Shares are first
released by the Underwriters for sale to the public, the Company shall deliver,
or cause to be delivered, copies of the Prospectus in such quantities and at
such places as the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS.
A. COVENANTS OF THE COMPANY. The Company further covenants and
agrees with each Underwriter as follows:
(a) REPRESENTATIVES' REVIEW OF PROPOSED AMENDMENTS AND
SUPPLEMENTS. During such period beginning on the date hereof and ending on
the later of the First Closing Date or such date, as in the opinion of
counsel for the Underwriters, the Prospectus is no longer required by law
to be delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed under
Rule 462(b) under the Securities Act) or the Prospectus (including any
amendment or supplement through incorporation by reference of any report
filed under the Exchange Act), the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or
supplement, and the Company shall not file any such proposed amendment or
supplement to which the Representatives or their counsel reasonably object.
(b) SECURITIES ACT COMPLIANCE. After the date of this Agreement,
the Company shall promptly advise the Representatives in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any filing
of any post-effective amendment to the Registration Statement or any
amendment or supplement to any preliminary prospectus or the Prospectus,
(iii) of the time and date that any post-effective amendment to the
Registration Statement becomes effective and (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or any post-effective amendment thereto or of any
order preventing or suspending the use of any preliminary prospectus or the
Prospectus, or of any proceedings to remove, suspend or terminate from
listing or quotation the Common Stock from any securities exchange upon
which it is listed for trading or included or designated for quotation, or
of the threatening or initiation of any proceedings for any of such
purposes. If the Commission shall enter any such stop order at any time,
the Company will use its best efforts to obtain the lifting of such order
at the earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A, 434 and 462(b), as
applicable, under the Securities Act and will use its reasonable efforts to
confirm that any filings made by the Company under such Rule 424(b) or
462(b) were received in a timely manner by the Commission.
(c) AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS AND OTHER
SECURITIES ACT MATTERS. If, during the Prospectus Delivery Period, any
event shall occur or condition exist as a result of which it is necessary
in the view of the Company, the Representatives or their respective counsel
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered
to a purchaser, not misleading, or if in the opinion of the Company, the
Representatives or their respective counsel it is otherwise necessary or
appropriate to amend or supplement the Prospectus to comply with law, the
Company agrees to promptly prepare (subject to
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Section 3(A)(a) hereof), file with the Commission and furnish at its own
expense to the Underwriters and to dealers, amendments or supplements to
the Prospectus so that the statements in the Prospectus as so amended or
supplemented will not, in the light of the circumstances when the
Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus, as amended or supplemented, will comply with law.
(d) COPIES OF ANY AMENDMENTS AND SUPPLEMENTS TO THE PROSPECTUS.
The Company agrees to furnish the Representatives, without charge, during
the Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto (including any documents incorporated or
deemed incorporated by reference therein) as the Representatives may
request.
(e) BLUE SKY COMPLIANCE. The Company shall cooperate with the
Representatives and counsel for the Underwriters to qualify or register the
Common Shares for sale under (or obtain exemptions from the application of)
the state securities or blue sky laws or Canadian provincial securities
laws of those jurisdictions designated by the Representatives, shall comply
with such laws and shall continue such qualifications, registrations and
exemptions in effect so long as required for the distribution of the Common
Shares. The Company shall not be required to qualify as a foreign
corporation or to take any action that would subject it to general service
of process in any such jurisdiction where it is not presently qualified or
where it would be subject to taxation as a foreign corporation. The Company
will advise the Representatives promptly of the suspension of the
qualification or registration of (or any such exemption relating to) the
Common Shares for offering, sale or trading in any jurisdiction or any
initiation or threat of any proceeding for any such purpose, and in the
event of the issuance of any order suspending such qualification,
registration or exemption, the Company shall use its best efforts to obtain
the withdrawal thereof at the earliest possible moment.
(f) USE OF PROCEEDS. The Company shall apply the net proceeds
from the sale of the Common Shares sold by it in the manner described under
the caption "Use of Proceeds" in the Prospectus.
(g) TRANSFER AGENT. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(h) EARNINGS STATEMENT. As soon as practicable, the Company will
make generally available to its security holders and to the Representatives
an earnings statement (which need not be audited) covering the twelve-month
period ending [last day of first quarter ending after one year following
the effective date] that satisfies the provisions of Section 11(a) of the
Securities Act.
(i) PERIODIC REPORTING OBLIGATIONS. During the Prospectus
Delivery Period the Company shall file, on a timely basis, with the
Commission and the Nasdaq National Market all reports and documents
required to be filed under the Exchange Act.
(j) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES During
the period of 120 days following the date of the Prospectus, the Company
will not, without the prior written consent of BAS (which consent may be
withheld at the sole discretion of BAS), directly or indirectly, sell,
offer, contract or grant any option to sell, pledge, transfer or
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establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, or otherwise dispose of or transfer, or
announce the offering of, or file any registration statement under the
Securities Act in respect of, any shares of Common Stock, options or
warrants to acquire shares of the Common Stock or securities exchangeable
or exercisable for or convertible into shares of Common Stock (other than
as contemplated by this Agreement with respect to the Common Shares);
PROVIDED, HOWEVER, that the Company may issue shares of its Common Stock or
options to purchase its Common Stock, or Common Stock upon exercise of
options, pursuant to any stock option, stock bonus or other stock plan or
arrangement described in the Prospectus, but only if the holders listed on
Schedule D hereto of such shares, options, or shares issued upon exercise
of such options, agree in writing not to sell, offer, dispose of or
otherwise transfer any such shares or options during such 120 day period
without the prior written consent of BAS (which consent may be withheld at
the sole discretion of BAS).
(k) EXCHANGE ACT COMPLIANCE. During the Prospectus Delivery
Period, the Company will file all documents required to be filed with the
Commission pursuant to Sections 13, 14 or 15 of the Exchange Act in the
manner and within the time periods required by the Exchange Act.
B. COVENANTS OF THE SELLING STOCKHOLDERS. Each Selling Stockholder
further covenants and agrees with each Underwriter:
(a) AGREEMENT NOT TO OFFER OR SELL ADDITIONAL SECURITIES. Such Selling
Stockholder will not, without the prior written consent of BAS (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose of any
shares of Common Stock, options or warrants to acquire shares of Common Stock,
or securities exchangeable or exercisable for or convertible into shares of
Common Stock currently or hereafter owned either of record or beneficially (as
defined in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or enter into any swap or any other agreement or transaction that
transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the Common Stock, whether any such swap or transaction is to be
settled by delivery of Common Stock or other securities, in cash or otherwise,
or publicly announce the undersigned's intention to do any of the foregoing, for
a period commencing on the date hereof and continuing through the close of
trading on the date 120 days after the date of the Prospectus.
(b) DELIVERY OF FORMS W-9. To deliver to the Representatives
prior to the First Closing Date a properly completed and executed United States
Treasury Department Form W-9 (if the Selling Stockholder is a United States
Person).
BAS, on behalf of the several Underwriters, may, in its sole
discretion, waive in writing the performance by the Company or the Selling
Stockholders of any one or more of the foregoing covenants or extend the time
for their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all
costs, fees and expenses incurred in connection with the performance of its
obligations hereunder and in connection with the transactions contemplated
hereby, including without limitation (i) all
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expenses incident to the issuance and delivery of the Common Shares
(including all printing and engraving costs), (ii) all fees and expenses of
the registrar and transfer agent of the Common Stock, (iii) all necessary
issue, transfer and other stamp taxes in connection with the issuance and
sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified public accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) subject to
the final proviso of this sentence, all filing fees, attorneys' fees and
expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale
under the state securities or blue sky laws or the provincial securities laws
of Canada, and, if requested by the Representatives, preparing and printing a
"Blue Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii)
subject to the final proviso of this sentence, the filing fees incident to,
and the reasonable fees and expenses of counsel for the Underwriters in
connection with, the NASD's review and approval of the Underwriters'
participation in the offering and distribution of the Common Shares, (viii)
the fees and expenses associated with including the Common Shares on the
Nasdaq National Market, and (ix) all other fees, costs and expenses of the
Company referred to in Item 14 of Part II of the Registration Statement;
provided, however, that the total costs, fees and expenses incurred pursuant
to clauses (vi) and (vii) by the Underwriters for purposes of U.S. blue sky
and NASD regulation shall not, in the aggregate, exceed $10,000 and the total
costs, fees and expenses incurred pursuant to clause (vi) for purposes of
Canadian securities law compliance shall not exceed $4,000. Except as
provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and
disbursements of their counsel.
Each Selling Stockholder further agrees with each Underwriter
to pay (directly or by reimbursement) all fees and expenses incident to the
performance of its obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to (i) fees and
expenses of counsel and other advisors for such Selling Stockholder, (ii) fees
and expenses of the Custodian and (iii) expenses and taxes incident to the sale
and delivery of the Common Shares to be sold by such Selling Stockholder to the
Underwriters hereunder.
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholders, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS.
The obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, any Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholders set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of any Second Closing Date as though
then made, to the timely performance by the Company and the Selling Stockholders
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
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(a) ACCOUNTANTS' COMFORT LETTER. On the date hereof, the
Representatives shall have received from Ernst & Young LLP, independent
public or certified public accountants for the Company, a letter dated the
date hereof addressed to the Underwriters, in form and substance
satisfactory to the Representatives, containing statements and information
of the type ordinarily included in accountant's "comfort letters" to
underwriters, delivered according to Statement of Auditing Standards No. 72
(or any successor bulletin), with respect to the audited and unaudited
financial statements and certain financial information contained in the
Registration Statement and the Prospectus (and the Representatives shall
have received an additional conformed copy of such accountants' letter for
each of the several Underwriters).
(b) COMPLIANCE WITH REGISTRATION REQUIREMENTS; NO STOP ORDER; NO
OBJECTION FROM NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, any Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A under the
Securities Act) in the manner and within the time period required by
Rule 424(b) under the Securities Act; or the Company shall have filed a
post-effective amendment to the Registration Statement containing the
information required by such Rule 430A, and such post-effective
amendment shall have become effective; or, if the Company elected to
rely upon Rule 434 under the Securities Act and obtained the
Representatives' consent thereto, the Company shall have filed a Term
Sheet with the Commission in the manner and within the time period
required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall be in
effect and no proceedings for such purpose shall have been instituted
or to the knowledge of the Company threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness
and reasonableness of the underwriting terms and arrangements.
(c) NO MATERIAL ADVERSE CHANGE OR RATINGS AGENCY CHANGE . For the
period from and after the date of this Agreement and prior to the First
Closing Date and, with respect to the Optional Common Shares, the Second
Closing Date, in the judgment of the Representatives there shall not have
occurred any Material Adverse Change.
(d) OPINION OF COUNSEL FOR THE COMPANY. On each of the First
Closing Date and any Second Closing Date the Representatives shall have
received the favorable opinion of Davis, Graham & Stubbs LLP, counsel for
the Company, dated as of such Closing Date, the form of which is attached
as part of EXHIBIT A (and the Representatives shall have received an
additional conformed copy of such counsel's legal opinion for each of the
several Underwriters).
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(e) OPINION OF COUNSEL FOR THE UNDERWRITERS. On each of the First
Closing Date and any Second Closing Date the Representatives shall have
received the favorable opinion of Fried, Frank, Harris, Shriver & Jacobson,
counsel for the Underwriters, dated as of such Closing Date, with respect
to the matters set forth in paragraphs 1, 7 (with respect to subparagraph
(i) only), 8, 9, 10, and 11 and the third-to-last paragraph of EXHIBIT A
(and the Representatives shall have received an additional conformed copy
of such counsel's legal opinion for each of the several Underwriters).
(f) OFFICERS' CERTIFICATE. On each of the First Closing Date and
any Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer
or President of the Company and the Chief Financial Officer of the Company,
dated as of such Closing Date, to the effect set forth in subsections
(b)(ii) of this Section 5, and further to the effect that:
(i) for the periods from and after January 31, 1999 and from
and after the date of this Agreement and prior to such Closing Date,
there has not occurred any Material Adverse Change;
(ii) the representations, warranties and covenants of the
Company set forth in Section 1(A) of this Agreement are true and
correct with the same force and effect as though expressly made on and
as of such Closing Date; and
(iii) the Company has complied with all the agreements
hereunder and satisfied all the conditions on its part to be performed
or satisfied hereunder at or prior to such Closing Date.
(g) BRING-DOWN COMFORT LETTER. On each of the First Closing Date
and any Second Closing Date the Representatives shall have received from
Ernst & Young LLP, independent public or certified public accountants for
the Company, a letter dated such date, in form and substance satisfactory
to the Representatives, to the effect that they reaffirm the statements
made in the letter furnished by them pursuant to subsection (a) of this
Section 5, except that the specified date referred to therein for the
carrying out of procedures shall be no more than three business days prior
to the First Closing Date or Second Closing Date, as the case may be (and
the Representatives shall have received an additional conformed copy of
such accountants' letter for each of the several Underwriters).
(h) OPINION OF COUNSEL FOR THE SELLING STOCKHOLDERS. On each of
the First Closing Date and any Second Closing Date the Representatives
shall have received the favorable opinion of Davis, Graham & Stubbs LLP,
counsel for the Selling Stockholders, dated as of such Closing Date, the
form of which is included as part of EXHIBIT A (and the Representatives
shall have received an additional conformed copy of such counsel's legal
opinion for each of the several Underwriters).
(i) SELLING STOCKHOLDERS' CERTIFICATE. On the First Closing Date
the Representatives shall receive a written certificate executed by each
Selling Stockholder, dated as of such Closing Date, to the effect that:
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(i) the representations, warranties and covenants of such
Selling Stockholder set forth in Sections 1(A) and 1(B) of this
Agreement are true and correct with the same force and effect as though
expressly made by such Selling Stockholder on and as of such Closing
Date; and
(ii) such Selling Stockholder has complied with all the
agreements and satisfied all the conditions on its part to be performed
or satisfied at or prior to such Closing Date.
(j) SELLING STOCKHOLDERS' DOCUMENTS. On the date hereof, the
Company and the Selling Stockholders shall have furnished for review by the
Representatives copies of the Custody Agreement executed by the Selling
Stockholders and such further information, certificates and documents as
the Representatives may reasonably request.
(k) LOCK-UP AGREEMENT FROM CERTAIN STOCKHOLDERS OF THE COMPANY
OTHER THAN THE SELLING Stockholders. On the date hereof, the Company shall
have furnished to the Representatives an agreement in the form of EXHIBIT B
hereto from each person listed on Schedule D hereto, and such agreement
shall be in full force and effect on each of the First Closing Date and any
Second Closing Date.
(l) ADDITIONAL DOCUMENTS. On or before each of the First Closing
Date and any Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions
as they may reasonably require for the purposes of enabling them to pass
upon the issuance and sale of the Common Shares as contemplated herein, or
in order to evidence the accuracy of any of the representations and
warranties, or the satisfaction of any of the conditions or agreements,
herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company and the Selling Stockholders at any
time on or prior to the First Closing Date and, with respect to the Optional
Common Shares, at any time prior to any Second Closing Date, which termination
shall be without liability on the part of any party to any other party, except
that Section 4, Section 6, Section 8 and Section 9 shall at all times be
effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this
Agreement is terminated by the Representatives pursuant to Section 5 (other than
Section 5(b)(iii)), Section 7, Section 10, Section 11 or Section 17, or if the
sale to the Underwriters of the Common Shares on the First Closing Date or any
Second Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company or either Selling Stockholder to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse the Representatives and the other Underwriters (or such Underwriters
as have terminated this Agreement with respect to themselves), severally, upon
demand for all out-of-pocket expenses that shall have been reasonably incurred
by the Representatives and the Underwriters in connection with the proposed
purchase and the offering and sale of the Common Shares, including but not
limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, facsimile and telephone charges.
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SECTION 7. EFFECTIVENESS OF THIS AGREEMENT.
This Agreement shall not become effective until the later of
(i) the execution of this Agreement by the parties hereto and (ii) notification
by the Commission to the Company and the Representatives of the effectiveness of
the Registration Statement under the Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company or the
Selling Stockholders to any Underwriter, except that the Company and the Selling
Stockholders shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) any Underwriter to
the Company or the Selling Stockholders, or (c) any party hereto to any other
party except that the provisions of Section 8 and Section 9 shall at all times
be effective and shall survive such termination.
SECTION 8. INDEMNIFICATION.
(a) INDEMNIFICATION OF THE UNDERWRITERS. Each of the Company and each
of the Selling Stockholders, jointly and severally, agree (a) to indemnify and
hold harmless each Underwriter, its officers and employees, and each person, if
any, who controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense, as
incurred, to which such Underwriter or such controlling person may become
subject, under the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including in
settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company or the Selling Stockholders
contained herein; or (iv) in whole or in part upon any failure of the Company or
the Selling Stockholders to perform their respective obligations hereunder or
under law; and (b) to reimburse each Underwriter and each such controlling
person for any and all expenses (including the fees and disbursements of counsel
chosen by BAS) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action in accordance with the terms hereof; PROVIDED, HOWEVER, that the
foregoing indemnity agreement shall not apply to any loss, claim, damage,
liability or expense to the extent, but only to the extent, arising out of or
based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in reliance upon and in conformity with written
information furnished to the Company by the Representatives expressly for use in
the Registration Statement, any preliminary prospectus or the Prospectus
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(or any amendment or supplement thereto); and provided, further, that with
respect to any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person
asserting any loss, claim, damage, liability or expense purchased Common
Shares, or any person controlling such Underwriter, if copies of the
Prospectus were timely delivered to the Underwriter pursuant to Section 2
(reasonably in advance of the First Closing Date in order to enable the
Underwriter to deliver the Prospectus in a timely manner) and a copy of the
Prospectus (as then amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or
on behalf of such Underwriter to such person, if required by law so to have
been delivered, at or prior to the written confirmation of the sale of the
Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense; and PROVIDED, FURTHER, that in no event shall
any Selling Stockholder be liable under the provisions of this Section 8 for
any amount in excess of the net proceeds (after deducting underwriting
commissions but before expenses and taxes) such Selling Stockholder received
from the sale of Common Shares pursuant to this Agreement. Notwithstanding
the foregoing, no Selling Stockholder shall be required to provide
indemnification under this Section 8(a) unless (1) the Underwriters shall
have made a demand for payment to the Company with respect to the loss,
claim, damage, liability or expense and (2) payment shall not have been
received from the Company within 30 calendar days after making such demand on
the Company. The Company and any Selling Stockholder may agree, as among
themselves and without limiting the rights of the Underwriters under this
Agreement, as to their respective liability with respect to indemnification
and the reimbursement of expenses for which they each may be responsible. The
indemnity agreement set forth in this Section 8(a) shall be in addition to
any liabilities that the Company and the Selling Stockholders may otherwise
have.
(b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement, each Selling Stockholder and each person, if any, who
controls the Company within the meaning of the Securities Act or the Exchange
Act, against any loss, claim, damage, liability or expense, as incurred, to
which the Company, or any such director, officer, Selling Stockholder or
controlling person may become subject, under the Securities Act, the Exchange
Act, or other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of such Underwriter), insofar as such loss,
claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information furnished to the Company by the
Representatives expressly for use therein; and to reimburse the Company, or any
such director, officer, Selling Stockholder or controlling person for any legal
and other expense reasonably incurred by the Company, or any such director,
officer, Selling Stockholder or controlling person in connection with
investigating, defending, settling, compromising or paying any such loss, claim,
damage, liability, expense or action. Each of the Company and
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each Selling Stockholder hereby acknowledges that the only information that
the Underwriters have furnished to the Company expressly for use in the
Registration Statement, any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto) are the statements set forth in the table,
in the 3rd paragraph, in the 10th paragraph, in the second sentence of the
11th paragraph, in the first sentence of the 12th paragraph, in the second
and third sentences of the 13th paragraph and in the first sentence and last
sentence of the 14th paragraph under the caption "Underwriting" in the
Prospectus; and the Underwriters confirm that such statements are correct.
The indemnity agreement set forth in this Section 8(b) shall be in addition
to any liabilities that each Underwriter may otherwise have.
(c) NOTIFICATIONS AND OTHER INDEMNIFICATION PROCEDURES. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; PROVIDED, HOWEVER, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel) representing the
indemnified parties who are parties to such action) or (ii) the indemnifying
party shall not have employed counsel satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(d) SETTLEMENTS. The indemnifying party under this Section 8 shall not
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an
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indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying party
shall not have reimbursed the indemnified party in accordance with such
request prior to the date of such settlement; provided that, if at any time
an indemnified party requests an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel, the indemnifying party
shall not be liable for any such settlement effected without its consent if
such indemnifying party in good faith (A) reimburses such indemnified party
in accordance with such request to the extent it considers such fees and
expenses to be reasonable and (B) provides written notice to the indemnified
party substantiating the unpaid balance as unreasonable, in each case prior
to the date of such settlement. No indemnifying party shall, without the
prior written consent of the indemnified party, effect any settlement,
compromise or consent to the entry of judgment in any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity was or could have been sought hereunder
by such indemnified party, unless such settlement, compromise or consent (a)
includes an unconditional release of such indemnified party from all
liability on claims that are the subject matter of such action, suit or
proceeding and (b) does not include a statement as to or an admission of
fault, culpability or a failure to act by or on behalf of any indemnified
party.
SECTION 9. CONTRIBUTION.
If the indemnification provided for in Section 8 is for any
reason held to be unavailable to or otherwise insufficient to hold harmless an
indemnified party in respect of any losses, claims, damages, liabilities or
expenses referred to therein, then each indemnifying party shall contribute to
the aggregate amount paid or payable by such indemnified party, as incurred, as
a result of any losses, claims, damages, liabilities or expenses referred to
therein (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Selling Stockholders, on the one hand,
and the Underwriters, on the other hand, from the offering of the Common Shares
pursuant to this Agreement or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but
also the relative fault of the Company and the Selling Stockholders, on the one
hand, and the Underwriters, on the other hand, in connection with the statements
or omissions or inaccuracies in the representations and warranties herein which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Selling Stockholders, on the one hand, and the Underwriters,
on the other hand, in connection with the offering of the Common Shares pursuant
to this Agreement shall be deemed to be in the same respective proportions as
the total net proceeds from the offering of the Common Shares pursuant to this
Agreement (before deducting expenses) received by the Company and the Selling
Stockholders, and the total underwriting discount received by the Underwriters,
in each case as set forth on the front cover page of the Prospectus (or, if Rule
434 under the Securities Act is used, the corresponding location on the Term
Sheet) bear to the aggregate initial public offering price of the Common Shares
as set forth on such cover. The relative fault of the Company and the Selling
Stockholders, on the one hand, and the Underwriters, on the other hand, shall be
determined by reference to, among other things, whether any such untrue or
alleged untrue statement of a material fact or
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omission or alleged omission to state a material fact or any such inaccurate
or alleged inaccurate representation or warranty relates to information
supplied by the Company or the Selling Stockholders, on the one hand, or the
Underwriters, on the other hand, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; PROVIDED, HOWEVER,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholders and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 9.
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such Underwriter in connection with the
Common Shares underwritten by it and distributed to the public, and no Selling
Stockholder shall be required to contribute any amount in excess of the net
proceeds (after deducting underwriting commissions but before expenses and
taxes) such Selling Stockholder received from the sale of Common Shares pursuant
to this Agreement. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several, and not joint, in proportion to their respective
underwriting commitments as set forth opposite their names in SCHEDULE A. For
purposes of this Section 9, each officer and employee of an Underwriter and each
person, if any, who controls an Underwriter within the meaning of the Securities
Act and the Exchange Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Securities Act and the Exchange Act shall have
the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL
UNDERWRITERS. If, on the First Closing Date or any Second Closing Date, as the
case may be, any one or more of the several Underwriters shall fail or refuse to
purchase Common Shares that it or they have agreed to purchase hereunder on such
date, and the aggregate number of Common Shares which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase does not
exceed 10% of the aggregate number of the Common Shares to be purchased on such
date, the other Underwriters shall be obligated, severally, in the proportions
that the number of Firm Common Shares set forth opposite their respective names
on SCHEDULE A bears to the aggregate number of Firm Common Shares set forth
opposite the names of all such non-defaulting Underwriters, or in such other
proportions as may be specified by the
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Representatives with the consent of the non-defaulting Underwriters, to
purchase the Common Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase on such date. If, on the First
Closing Date or any Second Closing Date, as the case may be, any one or more
of the Underwriters shall fail or refuse to purchase Common Shares and the
aggregate number of Common Shares with respect to which such default occurs
exceeds 10% of the aggregate number of Common Shares to be purchased on such
date, and arrangements satisfactory to the Representatives and the Company
for the purchase of such Common Shares are not made within 48 hours after
such default, this Agreement shall terminate without liability of any party
to any other party except that the provisions of Section 4, Section 6,
Section 8 and Section 9 shall at all times be effective and shall survive
such termination. In any such case either the Representatives or the Company
shall have the right to postpone the First Closing Date or any Second Closing
Date, as the case may be, but in no event for longer than seven days in order
that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First
Closing Date this Agreement may be terminated by the Representatives by notice
given to the Company and the Selling Stockholders if at any time (i) trading or
quotation in any of the Company's securities shall have been suspended or
limited by the Commission or by the Nasdaq National Market, or trading in
securities generally on either the Nasdaq Stock Market or the New York Stock
Exchange shall have been suspended or limited, or minimum or maximum prices
shall have been generally established on any of such stock exchanges by the
Commission or the NASD; (ii) a general banking moratorium shall have been
declared by any federal or New York authorities; (iii) there shall have occurred
any outbreak or escalation of national or international hostilities or any
crisis or calamity, or any change in the United States or international
financial markets, or any substantial change or development involving a
prospective substantial change in United States' or international political,
financial or economic conditions, as in the judgment of the Representatives is
material and adverse and makes it impracticable to market the Common Shares in
the manner and on the terms described in the Prospectus or to enforce contracts
for the sale of securities; (iv) in the judgment of the Representatives there
shall have occurred any Material Adverse Change since the execution of this
Agreement; or (v) the Company shall have sustained a loss by strike, fire,
flood, earthquake, accident or other calamity of such character as in the
judgment of the Representatives may interfere materially with the conduct of the
business and operations of the Company regardless of whether or not such loss
shall have been insured. Any termination pursuant to this Section 11 shall be
without liability on the part of (a) the Company or the Selling Stockholders to
any Underwriter, except that the Company and the Selling Stockholders shall be
obligated to reimburse the expenses of the Representatives and the Underwriters
pursuant to Sections 4 and 6 hereof, (b) any Underwriter to the Company or the
Selling Stockholders, or (c) of any party hereto to any other party except that
the provisions of Section 8 and Section 9 shall at all times be effective and
shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE
DELIVERY. The respective indemnities, agreements, representations, warranties
and other statements of the
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Company, of its officers, of the Selling Stockholders and of the several
Underwriters set forth in or made pursuant to this Agreement will remain in
full force and effect, regardless of any investigation made by or on behalf
of any Underwriter or the Company or any of its or their partners, officers
or directors or any controlling person, or the Selling Stockholders, as the
case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13 NOTICES. All communications hereunder shall be in
writing and shall be mailed, hand delivered or telecopied and confirmed to the
parties hereto as follows:
If to the Representatives:
Banc of America Securities LLC
9 West 57th Street
New York, New York 10019
Facsimile: (212) 847-5565
Attention: Joel Van Dusen
with a copy to:
Banc of America Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 913-5553
Attention: Jeffrey R. Lapic, Esq.
Fried, Frank, Harris, Shriver & Jacobson
1 New York Plaza
New York, New York 10004
Facsimile: (212) 859-4000
Attention: Valerie Ford Jacob, Esq.
If to the Company:
Ultimate Electronics, Inc.
321 West 84th Avenue, Suite A
Thornton, CO 80260
Facsimile: (303) 412-2502
Attention: Alan E. Kessock
with a copy to:
Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Facsimile: (303) 892-9400
Attention: Paul Hilton, Esq.
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If to the Selling Stockholders:
Mr. William J. Pearse
Mrs. Barbara A. Pearse
c/o Ultimate Electronics, Inc.
321 West 84th Avenue, Suite A
Thornton, CO 80260
Facsimile: (303) 412-2502
with a copy to:
Davis, Graham & Stubbs LLP
370 17th Street, Suite 4700
Denver, Colorado 80202
Facsimile: (303) 892-9400
Attention: Paul Hilton, Esq.
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the
benefit of and be binding upon the parties hereto, including any substitute
Underwriters pursuant to Section 10 hereof, and to the benefit of the employees,
officers and directors and controlling persons referred to in Section 8 and
Section 9, and in each case their respective successors, and personal
representatives, and no other person will have any right or obligation
hereunder. The term "successors" shall not include any purchaser of the Common
Shares as such from any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. (a) GOVERNING LAW PROVISIONS. THIS AGREEMENT
SHALL BE GOVERNED BY AND COSNTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN
SUCH STATE.
(b) CONSENT TO JURISDICTION. Any legal suit, action or
proceeding arising out of or based upon this Agreement or the transactions
contemplated hereby ("Related Proceedings") may be instituted in the federal
courts of the United States of America located in the City and County of New
York or the courts of the State of New York in each case located in the City and
County of New York (collectively, the "Specified Courts"), and each party
irrevocably submits to the jurisdiction of such courts in any such suit, action
or proceeding. Service of any process, summons, notice or document by mail to
such party's address set forth above shall be effective service of process for
any suit, action or other proceeding brought in any such court. The parties
irrevocably and unconditionally waive any objection to the laying of
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venue of any suit, action or other proceeding in the Specified Courts and
irrevocably and unconditionally waive and agree not to plead or claim in any
such court that any such suit, action or other proceeding brought in any such
court has been brought in an inconvenient forum.
SECTION 17. FAILURE OF ONE OR MORE OF THE SELLING STOCKHOLDERS
TO SELL AND DELIVER COMMON SHARES. If one or more of the Selling Stockholders
shall fail to sell and deliver to the Underwriters the Common Shares to be sold
and delivered by such Selling Stockholder at the First Closing Date pursuant to
this Agreement, then the Underwriters may at their option, by written notice
from the Representatives to the Company and the Selling Stockholders, either (i)
terminate this Agreement without any liability on the part of any Underwriter
or, except as provided in Sections 4, 6, 8 and 9 hereof, the Company or the
Selling Stockholders, or (ii) purchase the shares which the Company and other
Selling Stockholders have agreed to sell and deliver in accordance with the
terms hereof. If one or more of the Selling Stockholders shall fail to sell and
deliver to the Underwriters the Common Shares to be sold and delivered by such
Selling Stockholder pursuant to this Agreement at the First Closing Date, then
the Underwriters shall have the right, by written notice from the
Representatives to the Company and the Selling Stockholders, to postpone the
First Closing Date, but in no event for longer than seven days in order that the
required changes, if any, to the Registration Statement and the Prospectus or
any other documents or arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the
entire agreement of the parties to this Agreement and supersedes all prior
written or oral and all contemporaneous oral agreements, understandings and
negotiations with respect to the subject matter hereof. This Agreement may be
executed in two or more counterparts, each one of which shall be an original,
with the same effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement may not be amended or modified unless in writing by
all of the parties hereto, and no condition herein (express or implied) may be
waived unless waived in writing by each party whom the condition is meant to
benefit. The Table of Contents and the Section headings herein are for the
convenience of the parties only and shall not affect the construction or
interpretation of this Agreement.
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
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If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to the Company and the Custodian the enclosed
copies hereof, whereupon this instrument, along with all counterparts hereof,
shall become a binding agreement in accordance with its terms.
Very truly yours,
ULTIMATE ELECTRONICS, INC.
By:
---------------------
WILLIAM J. PEARSE
--------------------------
BARBARA A. PEARSE
--------------------------
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Representatives in New York, New York as of the date first above written.
BANC OF AMERICA SECURITIES LLC
U.S. BANCORP PIPER JAFFRAY INC.
Acting as Representatives of the several Underwriters named in the attached
Schedule A.
By BANC OF AMERICA SECURITIES LLC
By:
--------------------------------
30
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
MAXIMUM
UNDERWRITER NUMBER OF FIRM NUMBER OF OPTIONAL
COMMON SHARES COMMON SHARES TO
TO BE PURCHASED BE PURCHASED
--------------- ------------
<S> <C> <C>
Banc of America Securities LLC............................
U.S. Bancorp Piper Jaffray Inc............................
--------- -------
Total.................................................. 2,000,000 337,500
</TABLE>
<PAGE>
SCHEDULE B
<TABLE>
<CAPTION>
SELLING STOCKHOLDER NUMBER OF FIRM MAXIMUM NUMBER
COMMON SHARES OF OPTIONAL
TO BE SOLD COMMON SHARES
TO BE SOLD
<S> <C> <C>
William J. Pearse 125,000 0
Barbara A. Pearse 125,000 0
</TABLE>
1
<PAGE>
SCHEDULE C
SUBSIDIARIES
Ultimate Akquisition Corp.
Fast Trak, Inc.
1
<PAGE>
SCHEDULE D
PERSONS SUBJECT TO LOCK-UP
William J. Pearse
Barbara A. Pearse
Thomas Hoffman (for trusts)
J. Edward McEntire
David J. Workman
Alan E. Kessock
Neal A. Bobrick
Robert W. Beale
Randall F. Bellows
1
<PAGE>
EXHIBIT A
Opinion of counsel for the Company to be delivered pursuant to
Section 5(d) of the Underwriting Agreement
October __, 1999
Banc of America Securities LLC
U.S. Bancorp Piper Jaffray Inc.
As representatives of the several
Underwriters named in Schedule I to the
Underwriting Agreement referred to below
c/o Banc of America Securities LLC
9 West 57th Street
New York, New York 10019
Re: ULTIMATE ELECTRONICS, INC.
Ladies and Gentlemen:
We have acted as counsel to Ultimate Electronics, Inc., a
Delaware corporation (the "Company"), and to the Selling Stockholders (as
defined below) in connection with the issuance and sale (i) by the Company of
2,000,000 shares of the Company's common stock, par value $.01 per share (the
"Company Shares"), and (ii) by certain selling stockholders (the "Selling
Stockholders") of an aggregate of 250,000 shares of the Company's common
stock (the "Selling Stockholder Shares" and, with the Company Shares, the
"Shares"), pursuant to the Underwriting Agreement dated October __, 1999 (the
"Underwriting Agreement") among the Company, Banc of America Securities LLC
and U.S. Bancorp Piper Jaffray Inc., as representatives of the several
underwriters named in Schedule I to the Underwriting Agreement (the
"Underwriters") and the Selling Stockholders.
This opinion is being furnished to you pursuant to
Sections 5(d) and 5(h) of the Underwriting Agreement. Unless otherwise
indicated, all capitalized terms used but not otherwise defined herein shall
have the meanings given to such terms in the Purchase Agreement.
In arriving at the opinions expressed below, we have
examined signed copies of the registration statement on Form S-3
(Registration No. 333-87341) filed under the Securities Act of 1933, as
amended (the "Act"), by the Company with the Securities and Exchange
Commission (the "Commission") on September 17, 1999, as amended by Amendment
No. 1 filed on September 29, 1999 [and as further amended by Amendment No. 2
filed on October __, 1999] (the "Registration Statement") and the preliminary
prospectus, dated September 29, 1999 and the final prospectus filed with the
Commission, dated October __, 1999 (the "Prospectus"). We have also examined
searches conducted by Search Company International of the court records of
(a) the United States District Court for the District of Colorado and (b) the
District Court for the City and County of Denver, pertaining to litigation,
tax liens, and judgments involving the Company on file as of various dates no
earlier than September __, 1999 (the "Litigation Searches").
<PAGE>
In addition, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the certificate of
incorporation and bylaws of the Company, as amended to the date hereof, such
certificates of public officials, officers and representatives of the Company
and such other persons and such other documents, and we have made such
examinations of law, as we have deemed necessary or appropriate to enable us
to render the opinions expressed below. In all such examinations, we have
assumed the genuineness of all signatures on original or certified documents
and the conformity to the original or certified documents of all documents
submitted to us as conformed or photostatic copies.
As to certain matters of fact relating to our opinion, with
your consent, we have relied upon certificates of officers of the Company. We
have assumed the accuracy of all information furnished to us in such
certificates and have not independently verified the accuracy of such
information. We have also relied upon the accuracy and completeness of the
Litigation Searches and the records upon which such searches were based. In
rendering the opinions, or portions thereof, in paragraphs 14, 17 and 23
pertaining to the existence of legal or governmental proceedings or orders
and court decrees, we have relied solely on the above-referenced officers'
certificates and the Litigation Searches.
The following opinions are limited solely to applicable
federal law of the United States of America, the laws of the State of
Colorado and the General Corporation Law of the State of Delaware. We note
that the Underwriting Agreement and the Custody Agreement are expressed to be
governed by and construed in accordance with the laws of the State of New
York. Accordingly, with your consent, all of our opinions regarding the
enforceability of the Underwriting Agreement and the Custody Agreement are
given based on the assumption that the laws of the State of Colorado are
identical with the laws of the State of New York. While we are not licensed
to practice law in the State of Delaware, we have reviewed applicable
provisions of the General Corporation Law of Delaware as we have deemed
appropriate in connection with the opinions expressed herein. The opinions in
paragraphs 1, 3 and 4 as to the qualification of the Company and its
subsidiaries to do business and good standing are based solely on good
standing certificates from the specified jurisdictions.
The phrase "to our knowledge," "known to us" or "known" as
used in the opinions expressed herein shall mean the conscious awareness of
facts or other information by the attorney signing this opinion and any
attorney or paralegal at Davis, Graham & Stubbs who has had active
involvement in negotiating the Underwriting Agreement or in preparing or
reviewing any part of the Underwriting Agreement, the Registration Statement,
the Prospectus or this opinion letter or in performing legal services for the
Company during the past twelve months.
Based upon and subject to the foregoing and in reliance
thereon, we are of the opinion that:
1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Delaware.
2. The Company has corporate power and authority to own,
lease and operate its properties and to conduct its business as described in
the Prospectus and to enter into and perform its obligations under the
Underwriting Agreement.
3. The Company is duly qualified as a foreign corporation
to transact business and is in good standing in the jurisdictions set forth
in Exhibit A.
<PAGE>
4. Each subsidiary of the Company has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has corporate power and
authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and, to our knowledge, is duly
qualified as a foreign corporation to transact business and is in good
standing in each jurisdiction set forth in Exhibit B.
5. All of the issued and outstanding capital stock of each
subsidiary of the Company has been duly authorized and validly issued, is
fully paid and non-assessable and is owned by the Company, directly or
through subsidiaries, free and clear of any security interest, mortgage,
pledge, lien, encumbrance or, to our knowledge, any pending or threatened
claim, except for the pledge of all of the stock of each such subsidiary to
Foothill Capital Corporation pursuant to the Amended and Restated Loan and
Security Agreement dated as of November 24, 1998.
6. The authorized, issued and outstanding capital stock of
the Company (including the Common Stock) conforms to the descriptions thereof
set forth or incorporated by reference in the Prospectus. All of the
outstanding shares of Common Stock (including the shares of Common Stock
owned by the Selling Stockholders) have been duly authorized and validly
issued, and are fully paid and nonassessable. The form of certificate used to
evidence the Common Stock is in due and proper form and complies with all
applicable requirements of the charter and by-laws of the Company and the
General Corporation Law of the State of Delaware. The description of the
Company's stock option, stock bonus and other stock plans or arrangements,
and the options or other rights granted and exercised thereunder, set forth
or incorporated by reference into the Prospectus complies as to form with the
requirements for disclosure of such plans, arrangements, options and rights.
7. No stockholder of the Company or any other person has
any preemptive right, right of first refusal or other similar right to
subscribe for or purchase securities of the Company arising (i) by operation
of the charter or by-laws of the Company or the General Corporation Law of
the State of Delaware or (ii) to our knowledge, otherwise.
8. The Underwriting Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to or
affecting creditors' rights generally or by general equitable principles.
9. The Company Shares to be purchased by the Underwriters
from the Company have been duly authorized for issuance and sale pursuant to
the Underwriting Agreement and, when issued and delivered by the Company
pursuant to the Underwriting Agreement against payment of the consideration
set forth therein, will be validly issued, fully paid and nonassessable.
10. Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by the Commission
under the Securities Act. To our knowledge, no stop order suspending the
effectiveness of either of the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued under the Securities Act and
no proceedings for such purpose have been instituted or are pending,
contemplated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period
required by such Rule 424(b).
<PAGE>
11. The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, including any document incorporated
by reference therein, and each amendment or supplement to the Registration
Statement and the Prospectus, including any document incorporated by
reference therein, as of their respective effective or issue dates (other
than the financial statements and supporting schedules included or
incorporated by reference therein or in exhibits to or excluded from the
Registration Statement, as to which no opinion is rendered) comply as to form
in all material respects with the applicable requirements of the Securities
Act and the Exchange Act.
12. The Shares have been approved for listing on the Nasdaq
National Market.
13. The statements (i) in the Prospectus under the captions
"Risk Factors--Our Charter, By-Laws and Anti-takeover Protections Could Delay
or Prevent an Acquisition or Sale of Ultimate Electronics," "Description of
Capital Stock," and "United States Tax Consequences to Non-United States
Holders" and (ii) in Item 15 of the Registration Statement, insofar as such
statements constitute matters of law, summaries of legal matters or the
Company's charter or by-law provisions, have been reviewed by us and fairly
present in summary form and summarize in all material respects the matters
referred to therein.
14. To our knowledge, there are no legal or governmental
actions, suits or proceedings pending or threatened which are required to be
disclosed in the Registration Statement, other than those disclosed therein.
15. To our knowledge, there are no Existing Instruments
required to be described in the Registration Statement or to be filed as
exhibits thereto other than those described therein or filed or incorporated
by reference as exhibits thereto; and the descriptions thereof are correct in
all material respects.
16. No consent, approval, authorization or other order of,
or registration or filing with, any court or other governmental authority or
agency is required for the Company's execution, delivery and performance of
the Underwriting Agreement and consummation of the transactions contemplated
thereby and by the Prospectus, except as have been obtained under the
Securities Act and as required under applicable state securities or blue sky
laws and from the NASD.
17. The execution and delivery of the Underwriting
Agreement by the Company and the performance by the Company of its
obligations thereunder (i) have been duly authorized by all necessary
corporate action on the part of the Company; (ii) will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary; (iii) will not constitute a breach of, or Default or a Debt
Repayment Triggering Event under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets of the Company or
any of its subsidiaries pursuant to, (A) the Company's 10.25% First Mortgage
Notes due 2005 and the related Indenture, dated as of March 23, 1995, between
the Company and Colorado National Bank, and the Amended and Restated Loan and
Security Agreement by and among Ultimate Electronics, Inc., Ultimate
Akquisition Corp., Fast Trak, Inc. and Foothill Capital Corporation, dated as
of November 24, 1998 (other than a Default arising under a financial covenant
included in the Company's borrowing agreements as a result of performance by
the Company of its obligations under the indemnification section of the
Underwriting Agreement, as to which no opinion is rendered) or (B) any other
Existing Instrument filed or incorporated by reference as exhibits to the
Registration Statement, the
<PAGE>
Company's most recent Form 10-K and all periodic reports filed
thereafter or (C) any document listed on Exhibit C hereto; or (iv) will not
result in any violation of any law, administrative regulation or administrative
or court judgment, order or decree applicable to the Company or any subsidiary
(other than performance by the Company of its obligations under the
indemnification section of the Underwriting Agreement, as to which no opinion is
rendered).
18. The Company is not, and after receipt of payment for the
Company Shares will not be, an "investment company" within the meaning of
Investment Company Act.
19. To our knowledge, there are no persons with registration
or other similar rights to have any equity or debt securities registered for
sale under the Registration Statement or included in the offering contemplated
by the Underwriting Agreement.
20. To our knowledge, neither the Company nor any subsidiary
is in violation of its charter or by-laws.
21. Each document filed pursuant to the Exchange Act (other
than the financial statements and supporting schedules included therein, as to
which no opinion is rendered) and incorporated or deemed to be incorporated by
reference in the Prospectus complied as to form in all material respects when so
filed with the Exchange Act.
22. The Underwriting Agreement has been duly authorized,
executed and delivered by or on behalf of, and is a valid and binding agreement
of, each Selling Stockholder, enforceable in accordance with its terms, except
as rights to indemnification thereunder may be limited by applicable law and
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, fraudulent conveyance, moratorium or other similar laws relating
to or affecting creditors' rights generally or by general equitable principles.
23. The execution and delivery by each Selling Stockholder of,
and the performance by each Selling Stockholder of its obligations under, the
Underwriting Agreement and its Custody Agreement will not contravene or conflict
with, result in a breach of, or constitute a default under, the charter or
by-laws, partnership agreement, trust agreement or other organizational
documents, as the case may be, of such Selling Stockholder, or, to our
knowledge, violate or contravene any provision of applicable law or regulation,
or violate, result in a breach of or constitute a default under the terms of any
other agreement or instrument to which such Selling Stockholder is a party or by
which it is bound, or any judgment, order or decree applicable to such Selling
Stockholder of any court, regulatory body, administrative agency, governmental
body or arbitrator having jurisdiction over such Selling Stockholder.
24. Each Selling Stockholder has good and valid title to all
of the Selling Stockholder Shares which may be sold by such Selling Stockholder
under the Underwriting Agreement and has the legal right and power, and all
authorizations and approvals required, if an entity, under its charter and
by-laws, trust agreement or other organizational documents, as the case may be,
to enter into the Underwriting Agreement and its Custody Agreement, to sell,
transfer and deliver all of the Selling Stockholder Shares which may be sold by
such Selling Stockholder under the Underwriting Agreement and to comply with its
other obligations under the Underwriting Agreement and its Custody Agreement.
<PAGE>
25. The Custody Agreement of each Selling Stockholder has been
duly authorized, executed and delivered by such Selling Stockholder and is a
valid and binding agreement of such Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification thereunder may be
limited by applicable law and except as the enforcement thereof may be limited
by bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
26. Assuming that the Underwriters purchase the Selling
Stockholder Shares which are sold by the Selling Stockholders pursuant to the
Underwriting Agreement for value, in good faith and without notice of any
adverse claim, the delivery of such Selling Stockholder Shares pursuant to the
Underwriting Agreement will pass good and valid title to such Selling
Stockholder Shares, free and clear of any adverse claim.
27. To our knowledge, no consent, approval, authorization or
other order of, or registration or filing with, any court or governmental
authority or agency, is required for the consummation by each Selling
Stockholder of the transactions contemplated in the Underwriting Agreement,
except as have been obtained under the Act and as required under applicable
state securities or blue sky laws, and from the NASD.
In addition, we have participated in conferences with officers
and other representatives of the Company, representatives of the independent
public or certified public accountants for the Company and with representatives
of the Underwriters at which the contents of the Registration Statement and the
Prospectus, and any supplements or amendments thereto, and related matters were
discussed and, although we are not passing upon and do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus (other than as
specified above), and any supplements or amendments thereto, on the basis of the
foregoing, nothing has come to our attention which would lead us to believe that
either the Registration Statement or any amendments thereto, at the time the
Registration Statement or such amendments became effective, contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading or
that the Prospectus, as of its date and at the date hereof, contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading (it being understood that we express no
opinion as to (i) the financial statements or schedules or other financial
data derived therefrom or (ii) statistical data relating to the real estate
matters], included or incorporated by reference in the Registration Statement or
the Prospectus or any amendments or supplements thereto).
To the extent that the obligations of the Company may be
dependent upon such matters, we assume for purposes of this opinion that the
Underwriting Agreement is within the capacity and power of, and has been duly
authorized, executed and delivered by, the Underwriters; that it is the legal,
valid, binding and enforceable obligation of the Underwriters; and that the
Underwriters have the requisite corporate or other organizational power and
authority to perform their obligations under the Underwriting Agreement.
This opinion is as of the date hereof and we disclaim any
undertaking or obligation to advise you of changes which may hereafter be
brought to our attention. This opinion is rendered only to you and is solely for
your benefit in connection with the above transaction. This opinion may not be
relied
<PAGE>
upon by you for any other purpose or relied upon by any other person,
firm or corporation for any purpose without our prior written consent.
Very truly yours,
DAVIS, GRAHAM & STUBBS LLP
<PAGE>
EXHIBIT A
Colorado
Idaho
Iowa
Minnesota
New Mexico
Nevada
Oklahoma
South Dakota
Utah
<PAGE>
EXHIBIT B
ULTIMATE AKQUSITION CORP.
Iowa
Minnesota
South Dakota
FAST TRAK INC.
Minnesota
Iowa
<PAGE>
EXHIBIT B
September ____, 1999
Banc of America Securities LLC
U.S. Bancorp Piper Jaffray Inc.
As Representatives of the Several Underwriters
c/o Banc of America Securities LLC
9 West 57th Street
New York, New York 10019
RE: ULTIMATE ELECTRONICS, INC. (the "Company")
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
representatives of the underwriters. The undersigned recognizes that the
Offering will be of benefit to the undersigned and will benefit the Company by,
among other things, raising additional capital for its operations. The
undersigned acknowledges that you and the other underwriters are relying on the
representations and agreements of the undersigned contained in this letter in
carrying out the Offering and in entering into underwriting arrangements with
the Company with respect to the Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of BAS (which consent
may be withheld in its sole discretion), directly or indirectly, sell, offer,
contract or grant any option to sell (including without limitation any short
sale), pledge, transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Securities Exchange Act of 1934, or otherwise
dispose of any shares of Common Stock, options or warrants to acquire shares of
Common Stock, or securities exchangeable or exercisable for or convertible into
shares of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under the Securities Exchange Act of
1934, as amended) by the undersigned, or enter into any swap or any other
agreement or transaction that transfers, in whole or in part, directly or
indirectly, the economic consequence of ownership of the Common Stock, whether
any such swap or transaction is to be settled by delivery of Common Stock or
other securities, in cash or otherwise, or publicly announce the undersigned's
intention to do any of the foregoing, for a period commencing on the date hereof
and continuing through the close of trading on the date 120 days after the date
of the Prospectus. The undersigned also agrees and consents to the entry of stop
transfer instructions with the Company's transfer agent and registrar against
the transfer of shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock held by the undersigned except in
compliance with the foregoing restrictions. Notwithstanding the foregoing, (1)
the undersigned may transfer shares of Common Stock to family trusts for tax
planning purposes if such trust agrees in writing to
<PAGE>
abide by the terms of this letter agreement for the remainder of the 120 day
period covered by this agreement and (2) this letter agreement shall not
prohibit the disposition of shares of Common Stock by the laws of descent
and distribution in the event of the death of the undersigned during the 120
day period covered by this agreement.
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- ----------------------
Printed Name of Holder
By: ----------------------
Signature
- ------------------------------
Printed Name of Person Signing
(AND INDICATE CAPACITY OF PERSON SIGNING IF
SIGNING AS CUSTODIAN, TRUSTEE, OR ON BEHALF
OF AN ENTITY)
<PAGE>
CERTIFICATE OF AMENDMENT TO THE
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION OF
ULTIMATE ELECTRONICS, INC.
ADOPTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 242 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Ultimate Electronics, Inc., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Company"), DOES HEREBY CERTIFY:
FIRST: The Board of Directors of the Company has adopted the following
resolution proposing and declaring advisable an amendment (the "Amendment") to
the Amended and Restated Certificate of Incorporation of the Company:
RESOLVED, that Article 4 of the Certificate of Incorporation of the
Corporation be amended by amending Section 4.1, which shall read as
follows:
"Section 4.1 AUTHORIZED SHARES. The total number of shares that the
Corporation shall have authority to issue is twenty-five million
(25,000,000) shares of which fifteen million (15,000,000) shares shall be
common stock, each with a par value of $.01, and ten million (10,000,000)
shares shall be preferred stock, each with a par value of $.01."
SECOND: The Amendment was duly adopted by the Company's stockholders at a
special meeting duly called and held for that purpose on September 29, 1999 in
accordance with the provisions of Sections 242 of the General Corporation Law of
the State of Delaware.
THIRD: This Certificate of Amendment of the Amended and Restated Certificate
of Incorporation of the Company has been executed and shall be filed and
recorded in accordance with Section 103 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF the Company has caused this Certificate to be signed by
Alan E. Kessock, its Senior Vice President Finance, this 29th day of September,
1999.
ULTIMATE ELECTRONICS, INC.,
a Delaware corporation
By:
-------------------------------------
Name: Alan E. Kessock
-----------------------------------
Title: Senior Vice President Finance
----------------------------------
<PAGE>
EXHIBIT 5.1
September 29, 1999
Ultimate Electronics, Inc.
321 West 84th Avenue, Suite A
Thornton, CO 80260
Re: Registration Statement No. 333-87341 on Form S-3
Prospectus relating to 2,250,000 Shares of Common
Stock of Ultimate Electronics, Inc.
Dear Ladies and Gentlemen:
We have acted as counsel for Ultimate Electronics, Inc., a Delaware
corporation (the "Company"), in connection with the preparation of a
Registration Statement on Form S-3 (the "Registration Statement") filed by the
Company with the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "1933 Act"), relating to the offer and sale of up to
2,587,500 shares (the "Shares") of the Company's common stock, par value $.01
per share (the "Common Stock").
This opinion is delivered pursuant to the requirements of Item
601(b)(5) of Regulation S-K under the 1933 Act.
We have examined and relied on originals or copies, certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments, have made such inquiries as to questions of fact of
officers and representatives of the Company and have made such examinations of
law, as we have deemed necessary or appropriate for purposes of giving the
opinions expressed below. In such examination, we have assumed the genuineness
of all signatures, the authenticity of all documents submitted to us as
originals and the conformity with the originals of all documents submitted to us
as copies.
The following opinions are limited solely to the applicable federal law
of the United States of America, the law of the State of Colorado, and the
General Corporation Law of the State of Delaware. While we are not licensed to
practice in the State of Delaware, we have reviewed applicable provisions of the
General Corporation Law of the State of Delaware as we have deemed appropriate
in connection with the opinions expressed herein. Except as described, we have
neither examined nor do we express any opinions with respect to Delaware law.
<PAGE>
September 29, 1999
Page 2
Based upon and subject to the foregoing, we are of the opinion that the
Shares and the Preferred Stock Purchase Rights appertaining thereto, when issued
and sold in conformity with the resolutions of the board of directors of the
Company and as contemplated in the Registration Statement and the prospectus
included therein, will be validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
this firm under the heading "Legal Matters" in the Registration Statement as the
counsel who will pass upon the validity of the Shares. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the 1933 Act or the rules of the Securities and
Exchange Commission thereunder.
Sincerely,
DAVIS, GRAHAM & STUBBS LLP
<PAGE>
FIRST AMENDMENT TO AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO AMENDED AND RESTATED LOAN AND SECURITY
AGREEMENT (this "AMENDMENT") is made and entered into this 24TH day of
September, 1999, to be effective as of the respective date herein indicated, by
and among ULTIMATE ELECTRONICS, INC., a Delaware corporation ("ULTIMATE"),
ULTIMATE AKQUISITION CORP., a Delaware corporation ("AKQUISITION"), and FAST
TRAK, INC., a Minnesota corporation ("FAST TRAK") (Ultimate, Akquisition and
Fast Trak being hereinafter individually and collectively referred to as
"BORROWER," as governed by the provisions of SECTION 1.6 of the Loan Agreement,
as hereinafter defined), and FOOTHILL CAPITAL CORPORATION, a California
corporation ("LENDER").
RECITALS
A. Borrower and Lender have entered into that certain Amended and
Restated Loan and Security Agreement, dated as of November 24, 1998 (as amended
from time to time, the "Loan Agreement").
B. Borrower and Lender desire to amend the Loan Agreement as
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
AGREEMENT
ARTICLE I
DEFINITIONS
1.01 Capitalized terms used in this Amendment are defined in the Loan
Agreement, as amended hereby, unless otherwise stated.
ARTICLE II
AMENDMENTS TO LOAN AGREEMENT
Effective as of the date hereof, the Loan Agreement is hereby amended
as follows:
2.01 AMENDMENT TO SECTION 1.1 OF THE LOAN AGREEMENT; ADDITION OF
CERTAIN DEFINITIONS. SECTION 1.1 of the Loan Agreement is hereby amended by
adding the following definitions thereto to be inserted in proper alphabetical
order:
1
<PAGE>
"`FIRST AMENDMENT' means that certain First Amendment to
Amended and Restated Loan and Security Agreement, dated September 24,
1999, executed by Lender and Borrower.
`OFFERING' means the underwritten public offering by Ultimate
of Ultimate's equity securities, provided that such underwritten public
offering is (i) completed by November 30, 1999, (ii) results in net
proceeds to Ultimate of at least $25,000,000, and (iii) is upon the
terms described in the registration statement filed in connection with
the Offering."
2.02 AMENDMENT AND RESTATEMENT OF SECTION 7.21 OF THE LOAN AGREEMENT.
SECTION 7.21 of the Loan Agreement is amended and restated to read in its
entirety as follows:
"7.21 CAPITAL EXPENDITURES. Make capital expenditures in any
period set forth below in excess of the corresponding aggregate amount
set forth below (exclusive of capitalized leased financing incurred for
financing the acquisition of real estate in conjunction with the
opening of a new store located on such real estate):
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
February 1, 1999 through January 31, 2000 (if Offering is
consummated during such period of time) $12,000,000
February 1, 1999 through January 31, 2000 (if Offering is
not consummated during such period of time) $12,000,000
February 1, 2000 through January 31, 2001 (if Offering
has been consummated) $30,000,000
February 1, 2000 through January 31, 2001 (if Offering
has not been consummated)
$16,000,000
February 1, 2001 through September 30, 2001 (if Offering
has been consummated) $15,000,000
February 1, 2001 through September 30, 2001 (if Offering
has not been consummated) $5,000,000"
</TABLE>
2
<PAGE>
ARTICLE III
LIMITED CONSENT TO AND WAIVER REGARDING OFFERING
AND RELATED TRANSACTIONS
3.01 LIMITED CONSENT TO AND WAIVER REGARDING OFFERING AND RELATED
TRANSACTIONS. Borrower (i) has requested permission from the Lender for Ultimate
to consummate the following transactions (collectively, the "Transactions"):
(a) The completion by Ultimate of the Offering;
(b) The sale by William Pearse and his wife in the Offering of
250,000 shares of the equity securities of Ultimate owned by William
Pearse and his wife and the payment by Ultimate of the expenses of the
Offering, other than the selling commissions on the sale of the shares
of Ultimate equity securities owned by William Pearse and his wife (the
"Pearse Transaction"); and
(c) Redemption in full or in part on or before June 30, 2000,
of the 10.25% first mortgage bonds due January 31, 2005 of Ultimate
("First Mortgage Bonds Redemption"); and
(ii) has requested that Lender waive the covenants embodied in SECTION 7.3 and
SECTION 7.4 of the Loan Agreement to the extent such covenants would be deemed
violated solely due to the consummation of the Offering, waive the covenants
embodied in SECTION 7.14 of the Loan Agreement to the extent such covenants
would be deemed violated solely due to the consummation of the Pearse
Transaction, and waive the covenants embodied in SECTION 7.8(a) and SECTION 7.11
of the Loan Agreement to the extent such covenants would be deemed violated
solely due to the consummation of the First Mortgage Bonds Redemption. Subject
to the conditions specified in SECTION 3.02 of this Amendment and to the other
terms, conditions and provisions of this Amendment, Lender hereby (i) consents
to the consummation by Ultimate of the Transactions, and (ii) waives the
covenants embodied in SECTION 7.3 and SECTION 7.4 of the Loan Agreement to the
extent such covenants would be deemed violated solely due to the consummation of
the Offering, waives the covenants embodied in SECTION 7.14 of the Loan
Agreement to the extent such covenants would be deemed violated solely due to
the consummation of the Pearse Transaction, and waives the covenants embodied in
SECTION 7.8(a) and SECTION 7.11 of the Loan Agreement to the extent such
covenants would be deemed violated solely due to the consummation of the First
Mortgage Bonds Redemption; provided, however, the consent and waiver described
in this SECTION 3.01 of the Amendment is strictly limited to the Transactions
and to the above-described Sections of the Loan Agreement as they relate to the
Transactions.
SECTION 3.02 CONDITIONS TO CONSENT AND WAIVER. The effectiveness of the
consent and waiver described above in SECTION 3.01 is subject to the following
conditions precedent, unless specifically waived by Lender:
3
<PAGE>
(i) As to all the Transactions, each of the conditions
specified in ARTICLE IV of this Amendment regarding the effectiveness
of this Amendment shall have been satisfied in a manner satisfactory to
Lender;
(ii) As to the Offering and the Pearse Transaction, the
Offering must be consummated on or prior to November 30, 1999, Ultimate
must receive at least $25,000,000 in net proceeds from the Offering,
and the net proceeds from the Offering must be wired to Lender
according to the following wire transfer instructions:
The Chase Manhattan Bank
New York, NY
ABA 021000021
Credit: Foothill Capital Corporation
Account: 323-266193
Re: Ultimate Electronics
, with such net proceeds to be applied to the Obligations in conformity
with the provisions of the Loan Agreement; and
(iii) As to the First Mortgage Bonds Redemption, the date of
redemption must be June 30, 2000 or earlier, and each of the following
statements must be true on the date of redemption:
(a) No Default or Event of Default exists on the date
of redemption; and
(b) The Offering shall have been consummated on or
prior to November 30, 1999, Ultimate shall have received at
least $25,000,000 in net proceeds from the Offering and the
net proceeds of the Offering shall have been wired to Lender
in the manner described above in PARAGRAPH (ii) of this
SECTION 3.02.
3.03 NO OTHER WAIVERS. Except as otherwise specifically provided for in
SECTION 3.01 of this Amendment, nothing contained herein shall be construed as a
waiver by Lender of any covenant or provision of the Loan Agreement, the other
Loan Documents, this Amendment or of any other contract or instrument between
Borrower and Lender, and the failure of Lender at any time or times hereafter to
require strict performance by Borrower of any provision thereof shall not waive,
affect or diminish any right of Lender to thereafter demand strict compliance
therewith. Lender hereby reserves all rights granted under the Loan Agreement,
the other Loan Documents, this Amendment and any other contract or instrument
between Borrower and Lender.
4
<PAGE>
ARTICLE IV
CONDITIONS PRECEDENT
4.01 CONDITIONS TO EFFECTIVENESS. The effectiveness of this
Amendment is subject to the satisfaction of the following conditions precedent
in a manner satisfactory to Lender, unless specifically waived in writing by
Lender:
(a) Lender shall have received this Amendment, duly executed
by each Borrower.
(b) The representations and warranties contained herein and in
the Loan Agreement and the other Loan Documents, as each is amended hereby,
shall be true and correct as of the date hereof, as if made on the date hereof.
(c) No Default or Event of Default shall have occurred and be
continuing, unless such Default or Event of Default has been otherwise
specifically waived in writing by Lender.
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment and all documents, instruments and
other legal matters incident thereto shall be satisfactory to Lender and its
legal counsel.
ARTICLE V
RATIFICATIONS, REPRESENTATIONS AND WARRANTIES
5.01 RATIFICATIONS. The terms and provisions set forth in this
Amendment shall modify and supersede all inconsistent terms and provisions set
forth in the Loan Agreement and the other Loan Documents, and, except as
expressly modified and superseded by this Amendment, the terms and provisions of
the Loan Agreement and the other Loan Documents are ratified and confirmed and
shall continue in full force and effect. Each Borrower and Lender agree that the
Loan Agreement and the other Loan Documents, as amended hereby, shall continue
to be legal, valid, binding and enforceable in accordance with their respective
terms.
5.02 REPRESENTATIONS AND WARRANTIES. Each Borrower hereby represents
and warrants to Lender that (a) the execution, delivery and performance of this
Amendment and any and all other Loan Documents executed and/or delivered in
connection herewith have been authorized by all requisite corporate action on
the part of such Borrower and will not violate the Articles of Incorporation or
Bylaws of such Borrower; (b) attached hereto as ANNEX A is a true, correct and
complete copy of presently effective resolutions of each Borrower's Board of
Directors authorizing the execution, delivery and performance of this Amendment
and any and all other Loan Documents executed and/or delivered in connection
herewith, certified by the Secretary of such Borrower; (c) the representations
and warranties contained in the Loan Agreement, as amended hereby, and any other
Loan Document are true and correct on and as of the date hereof and on and as of
the date of execution hereof as though made on and as of each such date; (d) no
Default or Event of Default under the Loan Agreement, as amended hereby, has
5
<PAGE>
occurred and is continuing, unless such Default or Event of Default has been
specifically waived in writing by Lender; (e) each Borrower is in full
compliance with all covenants and agreements contained in the Loan Agreement and
the other Loan Documents, as amended hereby; and (f) no Borrower has amended its
Articles of Incorporation or its Bylaws since the date of the Loan Agreement.
ARTICLE VI
MISCELLANEOUS PROVISIONS
6.01 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in the Loan Agreement or any other Loan Document, including,
without limitation, any document furnished in connection with this Amendment,
shall survive the execution and delivery of this Amendment and the other Loan
Documents, and no investigation by Lender or any closing shall affect the
representations and warranties or the right of Lender to rely upon them.
6.02 REFERENCE TO LOAN AGREEMENT. Each of the Loan Agreement and the
other Loan Documents, and any and all other Loan Documents, documents or
instruments now or hereafter executed and delivered pursuant to the terms hereof
or pursuant to the terms of the Loan Agreement, as amended hereby, are hereby
amended so that any reference in the Loan Agreement and such other Loan
Documents to the Loan Agreement shall mean a reference to the Loan Agreement, as
amended hereby.
6.03 EXPENSES OF LENDER. As provided in the Loan Agreement, each
Borrower agrees to pay on demand all costs and expenses incurred by Lender in
connection with the preparation, negotiation, and execution of this Amendment
and the other Loan Documents executed pursuant hereto and any and all
amendments, modifications, and supplements thereto, including, without
limitation, the costs and fees of Lender's legal counsel, and all costs and
expenses incurred by Lender in connection with the enforcement or preservation
of any rights under the Loan Agreement, as amended hereby, or any other Loan
Documents, including, without, limitation, the costs and fees of Lender's legal
counsel.
6.04 SEVERABILITY. Any provision of this Amendment held by a court of
competent jurisdiction to be invalid or unenforceable shall not impair or
invalidate the remainder of this Amendment and the effect thereof shall be
confined to the provision so held to be invalid or unenforceable.
6.05 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and shall
inure to the benefit of Lender and each Borrower and their respective successors
and assigns, except that no Borrower may assign or transfer any of its rights or
obligations hereunder without the prior written consent of Lender.
6.06 COUNTERPARTS. This Amendment may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original,
but all of which when taken together shall constitute one and the same
instrument.
6
<PAGE>
6.07 EFFECT OF WAIVER. No consent or waiver, express or implied, by
Lender to or for any breach of or deviation from any covenant or condition by
any Borrower shall be deemed a consent to or waiver of any other breach of the
same or any other covenant, condition or duty.
6.08 HEADINGS. The headings, captions, and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
6.09 APPLICABLE LAW. THIS AMENDMENT AND ALL OTHER LOAN DOCUMENTS
EXECUTED PURSUANT HERETO SHALL BE DEEMED TO HAVE BEEN MADE AND TO BE PERFORMABLE
IN AND SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
STATE OF CALIFORNIA.
6.10 FINAL AGREEMENT. THE LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS,
EACH AS AMENDED HEREBY, REPRESENT THE ENTIRE EXPRESSION OF THE PARTIES WITH
RESPECT TO THE SUBJECT MATTER HEREOF ON THE DATE THIS AMENDMENT IS EXECUTED. THE
LOAN AGREEMENT AND THE OTHER LOAN DOCUMENTS, AS AMENDED HEREBY, MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES. NO
MODIFICATION, RESCISSION, WAIVER, RELEASE OR AMENDMENT OF ANY PROVISION OF THIS
AMENDMENT SHALL BE MADE, EXCEPT BY A WRITTEN AGREEMENT SIGNED BY EACH BORROWER
AND LENDER.
[The Remainder of this Page Intentionally Left Blank]
7
<PAGE>
IN WITNESS WHEREOF, this Amendment has been executed and is effective
as of the date first above-written.
"BORROWER"
ULTIMATE ELECTRONICS, INC.,
a Delaware corporation
By: /s/ Alan E. Kessock
-----------------------------------
Name: Alan E. Kessock
-----------------------------------
Title: Senior Vice President Finance
-----------------------------------
ULTIMATE AKQUISITION CORP.,
a Delaware corporation
By: /s/ Alan E. Kessock
-----------------------------------
Name: Alan E. Kessock
-----------------------------------
Title: Senior Vice President Finance
-----------------------------------
FAST TRAK, INC.,
a Minnesota corporation
By: /s/ Alan E. Kessock
-----------------------------------
Name: Alan E. Kessock
-----------------------------------
Title: Senior Vice President Finance
-----------------------------------
"LENDER"
FOOTHILL CAPITAL CORPORATION,
a California corporation
By: /s/ Katy J. Brooks
-----------------------------------
Name: Katy J. Brooks
-----------------------------------
Title: Vice President
-----------------------------------
ANNEXES:
A-1 Certified Resolutions of Ultimate Electronics, Inc.
A-2 Certified Resolutions of Ultimate Akquisition Corp.
A-3 Certified Resolutions of Fast Trak, Inc.
<PAGE>
June 30, 1999
VIA CERTIFIED MAIL -
RETURN RECEIPT REQUESTED
Dave Workman
Ultimate Electronics
d/b/a/ Soundtrack
321-A West 84th Avenue
Thornton, CO 80221
RE: ACCOUNT # 104509 - RENEWAL
Dear Dave:
I am pleased to extend this renewal offer to you in accordance with Paragraph
V(A) of the current Dealer Agreement between your company and Mitsubishi Digital
Electronics America, Inc., ("MDEA").
Accordingly, unless we receive a notice to the contrary from you, this letter
serves to notify you and your company that the Dealer Agreement between our two
companies is hereby extended for an additional year, effective July 1, 1999
through June 30, 2000.
Please accept our best wishes for the upcoming year. We look forward to a
continued, mutually beneficial relationship.
Sincerely,
MITSUBISHI DIGITAL ELECTRONICS AMERICA, INC.
/s/ Max Wasinger
Max Wasinger
Vice President - National Sales
cc: McClung
MW/rbs
<PAGE>
DEALER AGREEMENT
THIS AGREEMENT is made and entered into as of the 27th day of February,
1996 by and between Mitsubishi Electronics America, Inc., a Delaware
corporation, acting by and through its Consumer Electronics Group, with its
principal office at 6100 Atlantic Blvd., Norcross, Georgia 30071-1305 ("MELA"),
and Ultimate Electronics, a corporation with its principal office at 321-A West
84th Avenue, Thornton, Colorado 80221 ("Dealer").
WITNESSETH:
WHEREAS, MELA distributes consumer electronic products and accessories
therefor; and
WHEREAS, Dealer desires to sell some of the aforesaid products at retail
at specified locations; and
WHEREAS, Dealer recognizes and acknowledges the importance to MELA and its
trademarks and trade names of selling such products only through authorized
dealers which have or acquire specialized skills in promoting and selling such
products and are otherwise able to fully carry out the obligations of a dealer
for such products as hereinafter set forth and only at authorized retail
locations which are fully owned and controlled by Dealer and maintained and
staffed in accordance with the requirements of this Agreement.
NOW, THEREFORE, in consideration of these premises and the mutual
covenants hereinafter set forth, the parties hereby agree as follows:
I. DEFINITIONS.
(A) "Products" means only consumer electronic goods bearing the
trademark MITSUBISHI and/or such other trademarks as are owned or used by
MELA. MELA shall have no obligation to sell all the Products to Dealer. MELA
may select, within MELA's sole discretion, certain Products to be sold only
by certain dealers, which may or may not include Dealer.
(B) "Retail Locations" mean Dealer's retail stores which are fully
owned and controlled by Dealer and located under the store name(s) at the
address(es) set forth in the Schedule of Retail Locations attached hereto as
Exhibit A and as such Schedule may be amended by MELA from time to time upon
notice to Dealer, either upon approval by MELA of Dealer' s notice of its
desire for such change pursuant to Section II hereof or upon MELA's
determination that Dealer has failed to fulfill its obligations under this
Agreement with respect to any Retail Location.
II. APPOINTMENT OF DEALER.
MELA hereby appoints Dealer and Dealer accepts appointment, on a
non-exclusive basis, to promote the retail sale of and sell the Products it is
offered by and purchases from MELA only at the Retail Locations and otherwise in
accordance with the applicable provisions of this Agreement. Such appointment
shall not constitute a grant of any specific territory or geographical area.
Dealer shall
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<PAGE>
give MELA at least three (3) months notice should it desire MELA to add any
additional Retail Location and reasonable notice should it desire to
discontinue any Retail Location.
III. DEALER'S OBLIGATIONS.
(A) Dealer shall have the following obligations under this Agreement:
(1) Dealer shall use its best efforts to promote and sell the
products at retail and to maintain and promote the goodwill of MELA.
(2) Dealer shall display and sell the Products only from the Retail
Locations and only to bona fide retail customers.
(3) Dealer shall comply with all applicable present and future
federal, state, county and local laws, ordinances and regulations in
connection with its promotion and sale of the Products.
(4) Dealer shall maintain the Retail Locations in an attractive,
clean, orderly and sanitary condition and maintain all of the fixtures and
furnishings therein in good condition and repair.
(5) Dealer shall display and demonstrate the Products in an
attractive and prominent manner and maintain adequate stocks of and
facilities for the Products.
(6) Dealer shall maintain an adequate sales force to carry out its
obligations under this Agreement and train its sales personnel in connection
with the demonstration, use and sale of the Products so that such personnel
will actively inform, advise and assist retail customers for the Products in
manners of Product use, care, application, installation and service.
(7) Dealer shall maintain current information and records of the
identity, location and telephone numbers of authorized local service centers
with whom MELA has an agreement covering warranty service of Products. Dealer
shall provide such information to retail customers upon request.
(8) Dealer shall designate an employee to act as Service Liaison to
MELA's Service Department and either provide service to retail customers or
direct them to authorized service centers in such manner as to eliminate
calls by customers to MELA regarding operation, installation and service.
(9) Dealer shall make prompt payment of all invoices rendered by
MELA to Dealer in accordance with the terms thereof. Dealer shall not make
any deductions or set-offs of any kind from any payments becoming due to
MELA, unless Dealer shall have first received a credit memorandum from MELA
authorizing such deduction.
(10) Dealer shall promptly report to MELA any serious or
potentially serious charge, complaint or claim involving any Product or the
manner of offering or selling any Product.
-2-
<PAGE>
(11) In accordance with applicable federal law pertaining to
consumer radiation protection, Dealer shall maintain for at least five (5)
years records regarding each Product sold by Dealer identifying the model and
serial number, date of sale and name and address of the purchaser. Depending
upon separate agreement with MELA's Service Department, Dealer shall either
maintain such records at Dealer's place of business or promptly transmit them
to MELA at least monthly. Dealer shall promptly transmit to MELA all such
records whenever required by law and in the event Dealer discontinues dealing
in the Products.
(B) The following provisions shall also apply under this Agreement:
(1) Notwithstanding the foregoing provisions of this Agreement,
Dealer may sell products to other authorized dealers who have current dealer
agreements with MELA, but only for sale at their authorized retail locations
under such agreements. Dealer shall in no event be authorized to sell the
Products to any other merchant(s) with the intent or for the purpose of
resale.
(2) In no event shall Dealer be authorized to sell to or through
mail orders or mail order catalogs, TV shopping networks and/or on-line
services unless Dealer shall have been specifically and expressly authorized
for such sales in writing by MELA, within MELA's sole discretion. For
purposes of this provision, "mail orders" shall include any sales resulting
from advertising published or broadcast beyond the geographical business
service areas of Dealer's Retail Locations, regardless of whether "catalogs"
are involved.
(3) To qualify for co-op advertising funds and other promotional
allowances which may be offered by MELA, Dealer shall strictly comply with
all applicable, written MELA guidelines, policies and procedures as shall be
in effect from time to time. Failure to comply with any such guideline,
policy and procedure or with any provision of this Agreement may render
Dealer ineligible to receive all or any portion of such funds or allowances,
as determined by MELA in its discretion. No such funds or allowances shall be
earned until and unless the underlying Products are paid for in full.
(4) Dealer represents and warrants that all of the information
Dealer provides to MELA or to any third party in connection with its
obligations under this Agreement or the purchase or sale of Products shall be
accurate and complete to the best of Dealer's knowledge and shall not be
false or misleading.
IV. DEALER'S MINIMUM PURCHASE.
(A) Dealer shall order and take delivery of Products for not less than an
aggregate of $100,000 per Retail Location, annually. Dealer understands and
agrees that failing to achieve this minimum may result in the termination of
this Agreement by MELA, but achieving it does not preclude such termination in
accordance with Section V(B) of this Agreement.
(B) MELA may, at its sole discretion and upon thirty (30) days prior
notice to Dealer, increase such minimum annual purchase for any succeeding year.
Dealer shall notify MELA within thirty (30) days of such notice in the event
Dealer declines to purchase such minimum amount for the
-3-
<PAGE>
succeeding year, in which case this Agreement shall automatically expire at the
end of its then current term.
(C) Nothing contained in this section shall preclude any separately
designed business plan(s) or quota(s) which may be mutually agreed upon between
Dealer and MELA based on Dealer's specific circumstances and/or location.
V. TERM AND TERMINATION.
(A) The term of this Agreement shall become effective on the date first
above written and, unless terminated in accordance with Section V(B) hereof,
shall continue in effect until June 30 1997, after which it shall automatically
expire; provided that MELA may extend the term of this Agreement for successive
one-year terms from July 1 to June 30, subject to Dealer's concurrence. MELA
shall give Dealer notice prior to each expiration date if it elects to extend
the Agreement.
(B) Notwithstanding anything to the contrary contained in this Agreement,
either party may terminate this Agreement, with or without cause, at any time
upon giving the other party notice, such termination to be effective immediately
upon receipt of such notice by such other party or after any applicable minimum
notice as may be required by law under the circumstances. Grounds for cause
shall include, but not be limited to, (1) non-payment by Dealer of any
indebtedness of Dealer to MELA whether arising by virtue of this Agreement or
otherwise when due or declared due, (2) violation of Subsection III(B)(1) or (2)
hereof, (3) failure to meet or exceed the minimum purchase required under
Subsection IV(A) hereof or other mutually agreed quota(s) or business plan(s),
if applicable, (4) unethical or unlawful practices, (5) a material change in
ownership or control of Dealer or (6) the breach of any other obligation of
Dealer under this Agreement.
(C) Upon termination of this Agreement, MELA shall have the option to
repurchase from Dealer all or any part of Dealer's inventory of Products at the
then prevailing price to Dealer or the price paid therefor by Dealer, whichever
may be the lesser (the "Repurchase Price"), pursuant to the following procedure:
(1) within five (5) days after the effective date of termination,
Dealer shall submit to MELA a written schedule reflecting all Products then
owned by or in the Possession of Dealer, which schedule shall identify each
Product by model number and shall indicate the quantity thereof on hand;
(2) within ten (10) days after the receipt of such schedule by MELA,
MELA shall have the right to inspect the inventory reflected on such schedule;
(3) within twenty (20) days after completion of MELA's inspection of
such inventory or after expiration of the inspection period if no inspection is
conducted, MELA shall give notice of its election to repurchase all or any part
of such inventory;
(4) upon receipt of such notice to repurchase, Dealer shall forthwith
deliver such Products as may be specified therein to a carrier designated by
MELA; and
-4-
<PAGE>
(5) MELA shall pay the Repurchase Price to the extent such Products
are delivered to MELA in good condition, in the original packaging, by the
issuance to Dealer of a credit corresponding to the Repurchase Price to be
applied to the reduction of any current indebtedness of Dealer to MELA, and, if
the Repurchase Price shall exceed the indebtedness of Dealer to MELA, by payment
of such excess to Dealer within thirty (30) days after the delivery of such
Products to MELA.
(D) Immediately upon the termination of this Agreement, Dealer shall cease
to represent itself as an authorized Dealer of MELA with respect to the Products
and shall otherwise discontinue all conduct and activities which might lead the
public to believe that Dealer is authorized by MELA to sell Products. Dealer
shall cease to advertise and shall remove all signs, posters, plaques and the
like regarding the Products and Dealer's relationship with MELA, and Dealer
shall promptly destroy, if so directed by MELA in writing, or otherwise shall
return to MELA's regional salesperson or corporate offices, all such materials,
any postage for which MELA shall reimburse Dealer upon receipt. Notwithstanding
the foregoing provisions of this subsection, Dealer shall have the right to sell
in accordance with the provisions of this Agreement those Products which shall
be in its inventory on the date of termination and which MELA shall not
repurchase pursuant to the provisions of Subsection V(C) hereof.
(E) Termination of this Agreement shall not release Dealer from the
obligation to pay any sum that may be owing to MELA (whether then or thereafter
due to MELA) or operate to discharge any liability that has been incurred by
Dealer prior to termination or may be incurred by Dealer after termination.
Except as qualified by the preceding sentence, neither party shall, by reason of
the termination of this Agreement, be liable to the other for loss of business,
loss of profits, loss of goodwill or any other losses, costs, damages or
expenses, whether direct, indirect, special, incidental, consequential or
otherwise, sustained by reason of any such termination.
VI. DEALER'S FINANCIAL CONDITION.
Dealer shall make available to MELA such statements of Dealer's financial
condition as MELA may from time to time request. MELA reserves the right at all
times, either generally or with respect to any specific purchase order of
Dealer, to vary, change or limit the amount or duration of credit to be allowed
to Dealer. MELA shall have the right at any time to require payment for any
Products on a cash-in-advance basis.
VII. TERMS OF SALE TO DEALER.
(A) MELA shall, during the term of this Agreement, sell Products to
Dealer solely upon the terms and conditions contained in this Agreement. Any
different terms and conditions which may be contained in Dealer's purchase
order forms or other such writings are hereby rejected by MELA and shall not
be binding upon the parties, except as to the identification of the Products
and the quantities involved. Prices to dealer shall be in accordance with
applicable price quotations or periodic price sheets issued by MELA and shall
be F.O.B. MELA's shipping point. Prices are subject to change at any time.
Payment terms shall be in accordance with schedules issued by MELA from time
to time and may be modified by MELA on a monthly or other periodic basis
either for dealers generally or as to Dealer individually.
-5-
<PAGE>
(B) Title and risk of loss to all Products sold by MELA to Dealer shall
pass to Dealer upon delivery of the Products by MELA to the carrier.
Accordingly, Dealer shall have the responsibility to file any claims with the
carrier. MELA shall, without incurring any liability, exercise its own
discretion in selecting the method of shipment and the carrier.
(C) Prices do not include, and Dealer shall bear the cost of, any taxes,
levies, duties and fees of any kind, nature or description whatsoever applicable
to the sale of any Products by MELA to dealer, and Dealer shall forthwith pay to
MELA all such sums upon demand, except for any such taxes or other charges as to
which Dealer shall provide MELA, at the time of the submission of its purchase
order to MELA, documentation establishing exemption therefrom acceptable to MELA
and the appropriate taxing authority.
(D) Delivery dates as set forth in any purchase order or confirmation
thereof are only estimates. MELA shall in no event be liable to Dealer for any
delay or failure of delivery. Delay or failure of delivery of any shipment shall
not relieve Dealer of its obligations to accept such shipment or any other
shipment.
(E) Each shipment of Products to Dealer shall constitute a separate sale,
obligating Dealer to pay therefor, whether such shipment be in whole or only
partial fulfillment of any purchase order or confirmation issued in connection
therewith.
(F) MELA shall have the right to allocate its inventory of Products in
such manner as it may, in its sole discretion, from time to time determine.
(G) MELA shall have the right at any time, in its sole discretion, to
reject or to decline to fill any purchase order, either in whole or in part,
placed by Dealer.
(H) MELA shall have the right, in its sole discretion, to sell exclusively
and/or to cease selling any one or more Products to any individual dealer or
category of dealers, including Dealer, at any time.
(I) MELA shall have the right, in its sole discretion, to cancel or reduce
the quantities of any Products included in any purchase order accepted by MELA
or to delay the shipment thereof if Dealer shall fail to meet payment schedules
or other credit, financial or business requirements established by MELA.
(J) MELA shall have the right, at any time, to effect changes in, or
discontinue the sale of, any of its Products, as well as any parts thereof of
accessories therefor.
(K) MELA MAKES NO WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PRODUCTS EXCEPT AS EXPRESSLY STATED IN A WRITTEN LIMITED WARRANTY FOR THE
BENEFIT OF THE CONSUMER ACCOMPANYING THE PRODUCTS AND/OR AS EXPRESSLY STATED IN
A SEPARATE SERVICE CENTER AGREEMENT WITH DEALER. MELA DISCLAIMS ANY IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE WITH RESPECT
TO THE PRODUCTS. UNDER NO
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<PAGE>
CIRCUMSTANCES SHALL MELA BE LIABLE TO DEALER OR ANY OTHER PERSON FOR ANY LOSSES,
COSTS, DAMAGES OR EXPENSES, WHETHER DIRECT, INDIRECT, SPECIAL, INCIDENTAL,
CONSEQUENTIAL OR OTHERWISE, SUSTAINED BY REASON OF ANY BREACH OF ANY WARRANTY.
(L) If Dealer shall default in the payment of any indebtedness to MELA
when and as the same shall become due and payable and such default shall
continue for a period of ten (10) days, then all the liabilities and obligations
of Dealer to MELA, whether or not then due, shall, at MELA's option, without
regard to whether MELA shall elect to terminate this Agreement by virtue of such
default and without notice to Dealer, become immediately due and payable. All
past due invoices of MELA to Dealer shall bear interest at the rate of 1-1/2%
per month or the highest applicable rate permitted by law, whichever is less,
and Dealer shall also be liable to MELA for all costs incurred, including
attorneys' fees and costs, in pursuing collection of its invoices from Dealer
or otherwise enforcing any other provisions of this Agreement.
(M) MELA confirms that product liability insurance written by an insurance
company licensed to do business in the United States in the amount of not less
than $2,000,000 combined single limit is maintained with respect to the
Products. Except to the extent of the applicable coverage under such product
liability insurance, Dealer shall have no claim or right against MELA with
respect to any suits or claims against Dealer by any third persons resulting
from the occurrence of any event within the scope of the coverage of such
insurance (without reference to the dollar amount of coverage), and MELA shall
bear no responsibility or liability to Dealer with respect to any such suits or
claims by any third persons or any liabilities, losses, expenses or damages
incurred or suffered by Dealer as a result thereof.
(N) The Products are being sold to Dealer in the United States. If
applicable, any exporting of Products is by Dealer and not MELA. Accordingly,
Dealer shall be responsible for, at its own risk and expense, any necessary
export license or permit and any other approval or documentation which may be
required for or in connection with the export of any Products.
VIII. NO AGENCY.
The relationship established between MELA and Dealer by this Agreement is
that of vendor and vendee, and Dealer shall not be deemed an agent of MELA for
any purpose whatsoever. Dealer shall have no right or authority to assume or
create any liability or obligations of any kind, whether express or implied, on
behalf of MELA. Dealer shall not make any claims, warranties or representations
on behalf of MELA, except such as may be provided by MELA or approved in writing
by MELA. Dealer shall indemnify and hold harmless MELA from and against any and
all claims, actions, liabilities, losses, costs, damages and expenses, including
attorneys' fees and costs, arising out of any breach by Dealer of the foregoing
provision or of Subsection III(B)(4) hereof.
IX. INTELLECTUAL PROPERTY RIGHTS MATTERS.
(A) Subject to the terms and conditions set forth in this Section, MELA
shall, at its own expense, defend or at its option settle any claim, suit or
proceeding brought against Dealer on the issue of infringement of any United
States patent or copyright in connection with any Product
-7-
<PAGE>
supplied by MELA to Dealer in accordance with this Agreement. MELA agrees to
pay, subject to the limitations hereinafter set forth, any final judgment
entered against Dealer on such issue in any such claim, suit or proceeding
defended by MELA. MELA's obligations hereunder shall be subject to the
conditions that Dealer notify MELA in writing of any such claim, suit or
proceeding promptly after Dealer shall have received notice or obtained
knowledge thereof, and, at Dealer's expense, provide MELA full information
and assistance as requested by MELA in such defense. MELA reserves the right
in the event of any such claim, suit or proceeding to modify or replace the
affected Products to eliminate the alleged infringement, to obtain a license
to eliminate the alleged infringement or to give Dealer a refund of the price
of the affected Products in lieu of any other obligations or responsibilities
hereunder. MELA shall have no liability for any infringement arising out of:
(i) the combination of any Product with any other Product whether or not
furnished to Dealer by MELA; (ii) the modification of any Product unless such
modification was made by MELA; or (iii) any information, data, service or
application assistance not furnished to Dealer by MELA. MELA shall not be
liable for any costs or expenses incurred without MELA's written
authorization, and in no event shall MELA's total liability to Dealer under,
or as a result of compliance with, this provision exceed the aggregate sum
paid to MELA by Dealer for the affected Products. The foregoing states the
entire responsibility of MELA, and the exclusive remedy of Dealer, with
respect to any alleged intellectual property right infringement or violation
in connection with the Products, and MELA shall in no event be liable for
loss of use or for incidental, indirect or consequential damages, whether in
contract or in tort, by virtue of any such infringement or violation. No sale
under this Agreement shall convey any license by implication, estoppel or
otherwise under any proprietary or patent rights of MELA except for the right
to resell the Products in accordance with this Agreement.
(B) Dealer shall not acquire any right to or interest in any trademark or
trade name owned or used by MELA, except the right to use such trademarks and
trade names as appear on the Products and on MELA's promotional materials
therefor when received by Dealer in any manner approved by MELA and shall
discontinue all such use upon the termination of this Agreement except as
permitted by Section V(D) hereof. Dealer shall not use any trademark or trade
name of MELA as part of its corporate or business name.
X. GENERAL PROVISIONS.
(A) Dealer shall not assign or otherwise transfer this Agreement or any
interest in or rights under this Agreement without the prior written consent of
MELA. Any such purported assignment or transfer shall be null, void and of no
effect.
(B) Dealer shall give MELA notice of any proposed transaction affecting
the ownership of ten percent or more of Dealer's capital stock, if Dealer
shall be a corporation, the interest or any portion of the interest of any
partner, if Dealer shall be a partnership, or the ownership of all or any
part of the business, if Dealer shall be an individual proprietorship.
(C) EXCEPT AS HEREINAFTER PROVIDED, ALL QUESTIONS OR CONTROVERSIES ARISING
OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT SHALL BE SUBMITTED TO
ARBITRATION IN ATLANTA, GEORGIA ACCORDING TO THE COMMERCIAL RULES OF THE
AMERICAN ARBITRATION ASSOCIATION, AND THE AWARD OR DECISION MADE BY THE
ARBITRATOR OR ARBITRATORS THEREIN SHALL BE BINDING UPON THE PARTIES.
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<PAGE>
A JUDGMENT CONSISTENT THEREWITH MAY BE ENTERED IN ANY COURT OF COMPETENT
JURISDICTION. NOTHING HEREIN CONTAINED SHALL BE CONSTRUED AS IN ANY WAY
AFFECTING MELA'S RIGHT TO INSTITUTE AND PROSECUTE A LAWSUIT IN ANY COURT OF
COMPETENT JURISDICTION TO EFFECT THE COLLECTION OF ANY MONIES DUE TO MELA
FROM DEALER OR TO PROTECT TRADEMARK RIGHTS.
(D) Any failure on the part of MELA to enforce at any time or for any
period of time any provision of this Agreement shall not be deemed or construed
to be a waiver of such provision or of the right of MELA thereafter to enforce
such provision or any other provision of this Agreement.
(E) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF GEORGIA, EXCEPT AS TO QUESTIONS OF ARBITRABILITY, WHICH
SHALL BE DETERMINED BY THE FEDERAL ARBITRATION ACT.
(F) This Agreement supersedes any and all prior understandings and
agreements, whether written or oral, entered into between Dealer and MELA with
respect to the subject matter of this Agreement.
(G) This Agreement represents and incorporates the entire understanding of
the parties with respect to its subject matter, and each party acknowledges that
there are no warranties, representations, covenants or understandings of any
kind, nature or description whatsoever made by either party to the other with
respect to such subject matter, except such as are expressly contained in this
Agreement.
(H) Except as otherwise provided in Section X(I) hereof, neither this
Agreement nor the exhibits hereto shall be subject to change or modification,
except by the execution of another written agreement duly executed by the
parties.
(I) If and to the extent that any provision of this Agreement or portion
thereof shall be determined by any legislature or court to be in whole or in
part invalid and unenforceable, such provision or portion thereof shall be
deemed to be surplusage and, to the extent not so determined to be invalid or
unenforceable, each provision or part of this Agreement shall remain in full
force and effect.
(J) All notices under this Agreement shall be in writing and shall be sent
by recognized overnight delivery service or registered or certified mail, return
receipt requested and with all postage prepaid, to each party at its address set
forth on the first page hereof, in the case of MELA to the attention of the
President, Consumer Electronics Group or, in the case of either party, to such
other address as is provided by notice given in accordance herewith.
(K) The headings to the sections of this Agreement are included merely for
convenience of reference and shall not affect the meaning of the language
included therein.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
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<PAGE>
MITSUBISHI ELECTRONICS AMERICA, INC. ULTIMATE ELECTRONICS
By: _________________________ By: __________________________
Name: _______________________ Name: ________________________
Title:_______________________ Title: _______________________
(In the event Dealer is a corporation, only a duly authorized officer may sign
this Agreement and the title of the officer should be specified. In the event
Dealer is a partnership, only a partner may sign this Agreement, and "partner"
should be indicated as title. In the event Dealer is a sole proprietor-ship,
this should be indicated.)
THE COMPLETED APPLICATION AND DEALER AGREEMENT SHALL NOT TAKE EFFECT UNTIL
APPROVED AT MELA'S CONSUMER ELECTRONICS GROUP HEADQUARTERS IN NORCROSS, GEORGIA
AND SIGNED BY AN AUTHORIZED OFFICER OF MELA.
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<PAGE>
EXHIBIT A - SCHEDULE OF RETAIL LOCATIONS
DEALER CERTIFIES THAT DEALER IS THE SOLE OWNER OF EACH STORE AT EVERY RETAIL
LOCATION LISTED BELOW.
1 ATTACHED
----------------------------------------------------------------------------
(Name of Store) (Street)
- -------------------------------------------------------------------------------
(City) (State) (Zip) (Telephone)
2.
----------------------------------------------------------------------------
(Name of Store) (Street)
- -------------------------------------------------------------------------------
(City) (State) (Zip) (Telephone)
3.
----------------------------------------------------------------------------
(Name of Store) (Street)
- -------------------------------------------------------------------------------
(City) (State) (Zip) (Telephone)
4.
----------------------------------------------------------------------------
(Name of Store) (Street)
- -------------------------------------------------------------------------------
(City) (State) (Zip) (Telephone)
5.
----------------------------------------------------------------------------
(Name of Store) (Street)
- -------------------------------------------------------------------------------
(City) (State) (Zip) (Telephone)
IF A SEPARATE LIST OF LOCATIONS IS ATTACHED, PLEASE SO INDICATE ABOVE AND MAKE
SURE ALL OF THE INFORMATION REQUESTED ABOVE APPEARS ON SUCH LIST).
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<PAGE>
ULTIMATE ELECTRONICS, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is effective as
of this _____ day of ____________, 1993, by and between Ultimate Electronics,
Inc., a Delaware corporation (the "Company"), and __________________________
("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the continued
difficulty in obtaining liability insurance for its directors, officers,
employees, agents and fiduciaries, the significant increases in the cost of such
insurance and the general reductions in the coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the
substantial increase in corporate litigation in general, subjecting directors,
officers, employees, agents and fiduciaries to expensive litigation risks at the
same time as the availability and coverage of liability insurance has been
severely limited;
WHEREAS, Indemnitee does not regard the current protection
available as adequate under the present circumstances, and the Indemnitee and
other directors, officers, employees, agents and fiduciaries of the Company may
not be willing to continue to serve in such capacities without additional
protection;
WHEREAS, the Company desires to attract and retain the
services of highly qualified individuals, such as Indemnitee, to serve the
Company and, in part, in order to induce Indemnitee to continue to provide
services to the Company, and the Company wishes to provide for the
indemnification and advancing of expenses to Indemnitee to the maximum extent
permitted by law; and
WHEREAS, in view of the considerations set forth above, the
Company desires that Indemnitee shall be indemnified by the Company as set forth
herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as
follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall
indemnify Indemnitee to the fullest extent permitted by law if Indemnitee
was or is or becomes a party to or witness or other participant in, or is
threatened to be made a party to or witness or other participant in, any
threatened, pending or completed action, suit, proceeding or alternative
dispute resolution mechanism, or any hearing, inquiry or investigation that
Indemnitee in good faith believes might lead to the institution of any such
action, suit, proceeding or alternative dispute resolution mechanism, whether
civil, criminal, administrative, investigative or other (hereinafter a
"Claim") by reason of (or arising in part out of) any event or occurrence
related to the fact that Indemnitee is
<PAGE>
or was a director, officer, employee, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the request of the Company
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, trust or other enterprise, or by reason of any
action or inaction on the part of Indemnitee while serving in such capacity
(hereinafter an "Indemnifiable Event") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending, being a witness in or participant in,
any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts
paid in settlement (if such settlement is approved in advance by the Company,
which approval shall not be unreasonably withheld) of such Claim and any
federal, state, local or foreign taxes imposed on the Indemnitee as a result of
the actual or deemed receipt of any payments under this Agreement
(collectively, hereinafter "Expenses"), including all interest, assessments and
other charges paid or payable in connection with or in respect of such
Expenses. Such payment of Expenses shall be made by the Company as soon as
practicable but in any event no later than five (5) days after written demand
by Indemnitee therefor is presented to the Company.
(b) REVIEWING PARTY. Notwithstanding the foregoing,
(i) the obligations of the Company under Section 1(a) shall be subject to the
condition that the Reviewing Party (as described in Section 10(e) hereof)
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 1(c) hereof is involved)
that Indemnitee would not be permitted to be indemnified under applicable
law, and (ii) the obligation of the Company to make an advance payment of
Expenses to Indemnitee pursuant to Section 2(a) (an "Expense Advance") shall
be subject to the condition that, if, when and to the extent that the
Reviewing Party determines that Indemnitee would not be permitted to be so
indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitee's obligation to reimburse the Company for
any Expense Advance shall be unsecured and no interest shall be charged
thereon. If there has not been a Change in Control (as defined in Section
10(c) hereof), the Reviewing Party shall be selected by the Board of
Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control), the Reviewing Party shall be the Independent Legal Counsel referred
to in Section 1(c) hereof. If there has been no determination by the
Reviewing Party or if the Reviewing Party determines that Indemnitee
substantively would not be permitted to be indemnified in whole or in part
under applicable law, Indemnitee shall have the right to commence litigation
seeking an initial determination by the court or challenging any such
determination by the Reviewing Party or any aspect thereof, including the
legal or factual bases therefor, and the Company hereby consents to service
of process and to appear in any such proceeding. Any determination by the
Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
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<PAGE>
(c) CHANGE IN CONTROL. The Company agrees that if
there is a Change in Control of the Company (other than a Change in Control
which has been approved by a majority of the Company's Board of Directors who
were directors immediately prior to such Change in Control) then with respect
to all matters thereafter arising concerning the rights of Indemnitee to
payments of Expenses and Expense Advances under this Agreement or any other
agreement or under the Company's Certificate of Incorporation or Bylaws as now
or hereafter in effect, Independent Legal Counsel (as defined in Section 10(d)
hereof) shall be selected by Indemnitee and approved by the Company (which
approval shall not be unreasonably withheld). Such counsel, among other things,
shall render its written opinion to the Company and Indemnitee as to whether
and to what extent Indemnitee would be permitted to be indemnified under
applicable law and the Company agrees to abide by such opinion. The Company
agrees to pay the reasonable fees of the Independent Legal Counsel referred to
above and to fully indemnify such counsel against any and all expenses
(including attorneys' fees), claims, liabilities and damages arising out of or
relating to this Agreement or its engagement pursuant hereto.
(d) MANDATORY PAYMENT OF EXPENSES. Notwithstanding
any other provision of this Agreement other than Section 9 hereof, to the
extent that Indemnitee has been successful on the merits or otherwise,
including, without limitation, the dismissal of an action without prejudice,
in defense of any action, suit, proceeding, inquiry or investigation referred
to in Section 1(a) hereof or in the defense of any claim, issue or matter
therein, Indemnitee shall be indemnified against all Expenses incurred by
Indemnitee in connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall
advance all Expenses incurred by Indemnitee. The advances to be made hereunder
shall be paid by the Company to Indemnitee as soon as practicable but in any
event no later than five (5) days after written demand by Indemnitee therefor
to the Company
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee
shall, as a condition precedent to Indemnitee's right to be indemnified under
this Agreement, give the Company notice in writing as soon as practicable of
any Claim made against Indemnitee for which indemnification will or could be
sought under this Agreement. Notice to the Company shall be directed to the
Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate in
writing to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
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<PAGE>
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of
this Agreement, the termination of any Claim by judgment, order, settlement
(whether with or without court approval) or conviction, or upon a plea of NOLO
CONTENDERE, or its equivalent, shall not create a presumption that Indemnitee
did not meet any particular standard of conduct or have any particular belief
or that a court has determined that indemnification is not permitted by
applicable law. In addition, neither the failure of the Reviewing Party to have
made a determination as to whether Indemnitee has met any particular standard
of conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a
presumption that Indemnitee has not met any particular standard of conduct or
did not have any particular belief. In connection with any determination by the
Reviewing Party or otherwise as to whether the Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the
receipt by the Company of a notice of a Claim pursuant to Section 2(b) hereof,
the Company has liability insurance in effect which may cover such Claim, the
Company shall give prompt notice of the commencement of such Claim to the
insurers in accordance with the procedures set forth in the respective
policies. The Company shall thereafter take all necessary or desirable action
to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable
as a result of such action, suit, proceeding, inquiry or investigation in
accordance with the terms of such policies. The Company shall thereafter take
all necessary or desirable action to cause such insurers to pay, on behalf of
the Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company
shall be obligated hereunder to pay the Expenses of any Claim, the Company, if
appropriate, shall be entitled to assume the defense of such Claim with counsel
approved by Indemnitee, upon the delivery to Indemnitee of written notice of
its election so to do. After delivery of such notice, approval of such counsel
by Indemnitee and the retention of such counsel by the Company, the Company
will not be liable to Indemnitee under this Agreement for any fees of counsel
subsequently incurred by Indemnitee with respect to the same Claim; provided
that, (i) Indemnitee shall have the right to employ Indemnitee's counsel in any
such Claim at Indemnitee's expense and (ii) if (A) the employment of counsel by
Indemnitee has been previously authorized by the Company, (B) Indemnitee shall
have reasonably concluded that there may be a conflict of interest between the
Company and Indemnitee in the conduct of any such defense, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of Indemnitee's counsel shall be at the expense of the Company.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify the
Indemnitee to the fullest extent permitted by law, notwithstanding that such
indemnification is not specifically
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<PAGE>
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change after the date of this Agreement in any applicable law, statute or rule
which expands the right of a Delaware corporation to indemnify a member of its
board of directors or an officer, employee, agent or fiduciary, it is the
intent of the parties hereto that Indemnitee shall enjoy by this Agreement the
greater benefits afforded by such change. In the event of any change in any
applicable law, statute or rule which narrows the right of a Delaware
corporation to indemnify a member of its board of directors or an officer,
employee, agent or fiduciary, such change, to the extent not otherwise required
by such law, statute or rule to be applied to this Agreement, shall have no
effect on this Agreement or the parties' rights and obligations hereunder
except as set forth in Section 8(a) hereof.
(b) NONEXCLUSIVITY. This indemnification provided by
this Agreement shall be in addition to any rights to which Indemnitee may be
entitled under the Company's Certificate of Incorporation, its Bylaws, any
agreement, any vote of stockholders or disinterested directors, the General
Corporation Law of the State of Delaware or otherwise. The indemnification
provided under this Agreement shall continue as to Indemnitee for any action
taken or not taken while serving in an indemnified capacity even though
Indemnitee may have ceased to serve in such capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be
liable under this Agreement to make any payment in connection with any Claim
made against Indemnitee to the extent Indemnitee has otherwise actually
received payment (under any insurance policy, Certificate of Incorporation,
Bylaw or otherwise) of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under
any provision of this Agreement to indemnification by the Company for some or a
portion of the expenses incurred in connection with any Claim, but not,
however, for all of the total amount thereof, the Company shall nevertheless
indemnify Indemnitee for the portion of such Expenses to which Indemnitee is
entitled.
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors, officers, employees,
agents or fiduciaries under this Agreement or otherwise. Indemnitee understands
and acknowledges that the Company has undertaken or may be required in the
future to undertake with the Securities and Exchange Commission to submit the
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. LIABILITY INSURANCE. To the extent the Company maintains
liability insurance applicable to directors, officers, employees, agents or
fiduciaries, Indemnitee shall be covered by such policies in such a manner as to
provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee is a director; or of
the Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
-5-
<PAGE>
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify
Indemnitee for acts, omissions or transactions from which Indemnitee may not
be relieved of liability under applicable law.
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or
advance expenses to Indemnitee with respect to Claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except (i) with respect to
actions or proceedings brought to establish or enforce a right to
indemnification under this Agreement or any other agreement or insurance policy
or under the Company's Certificate of Incorporation or Bylaws now or hereafter
in effect relating to Claims for Indemnifiable Events, (ii) in specific cases
if the Board of directors has approved the initiation or bringing of such
Claim, or (iii) as otherwise as required under Section 145 of the Delaware
General Corporation law, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advance expense payment or
insurance recovery, as the case may be.
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for
any expenses incurred by the Indemnitee with respect to any proceeding
instituted by Indemnitee to enforce or interpret this Agreement, if a court of
competent jurisdiction determines that each of the material assertions made by
the Indemnitee in such proceeding was not made in good faith or was frivolous;
or
(d) CLAIMS UNDER SECTION 16(b). To indemnify
Indemnitee for expenses and the payment of profits arising from the purchase
and sale by Indemnitee of securities in violation of Section 16(b) of the
Securities Exchange Act of 1934, as amended, or any similar successor statute.
9. PERIOD OF LIMITATIONS. No legal action shall be brought
and no cause of action shall be asserted by or in the right of the Company
against Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal
or legal representatives after the expiration of two years from the date of
accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the timely
filing of a legal action within such two-year period; PROVIDED, HOWEVER, that
if any shorter period of limitations is otherwise applicable to any such cause
of action, such shorter period shall govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the
"Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed
in a consolidation or merger which, if its separate existence had continued,
would have had power and authority to indemnify its directors, officers,
employees,
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<PAGE>
agents or fiduciaries, so that if Indemnitee is or was a director, officer,
employee, agent or fiduciary of such constituent corporation, or is or was
serving at the request of such constituent corporation as a director,
officer, employee, agent or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, Indemnitee
shall stand in the same position under the provisions of this Agreement with
respect to the resulting or surviving corporation as Indemnitee would have
with respect to such constituent corporation if its separate existence had
continued.
(b) For purposes of this Agreement, references to
"other enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on Indemnitee with respect to an
employee benefit plan; and references to "serving at the request of the
Company" shall include any service as a director, officer, employee, agent or
fiduciary of the Company which imposes duties on, or involves services by, such
director, officer, employee, agent or fiduciary with respect to an employee
benefit plan, its participants or its beneficiaries; and if Indemnitee acted in
good faith and in a manner Indemnitee reasonably believed to be in the interest
of the participants and beneficiaries of an employee benefit plan, Indemnitee
shall be deemed to have acted in a manner "not opposed to the best interests of
the Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in
Control" shall be deemed to have occurred if (i) any "person" (as such term is
used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended), other than any member of the Pearse family, is or becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing more than 35% of the
total voting power represented by the Company's then outstanding Voting
Securities, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two
thirds (2/3) of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) 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 total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately
after such merger or consolidation, or the stockholders of the Company approve
a plan of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of transactions)
all of substantially all of the Company's assets.
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<PAGE>
(d) For purposes of this Agreement, "Independent Legal
Counsel" shall mean an attorney or firm of attorneys, selected in accordance
with the provisions of Section 1(c) hereof, who shall not have otherwise
performed services for the Company or Indemnitee within the last three years
(other than with respect to matters concerning the rights of Indemnitee under
this Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing
Party" shall mean any appropriate person or body consisting of a member or
members of the Company's Board of Directors or any other person or body
appointed by the Board of Directors who is not a party to the particular Claim
for which Indemnitee is seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting
Securities" shall mean any securities of the Company that vote generally in the
election of directors.
11. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall constitute an original.
12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
parties hereto and their respective successors, assigns, including any direct
or indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect regardless of whether Indemnitee continues to serve as a
director of the Company or of any other enterprise at the Company's request.
13. ATTORNEYS' FEES. In the event that any action is
instituted by Indemnitee under this Agreement or under any liability insurance
policies maintained by the Company to enforce or interpret any of the terms
hereof or thereof, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee with respect to such action, regardless of whether
Indemnitee is ultimately successful in such action, and shall be entitled to
the advancement of Expenses with respect to such action, unless as a part to
such action a court of competent jurisdiction over such action determined that
each of the material assertions made by Indemnitee as a basis for such action
were not made in good faith or were frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, Indemnitee shall be entitled to
be paid all Expenses incurred by Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee's
counterclaims and cross-claims made in such action), and shall be entitled to
the advancement of Expenses with respect to such action, unless as a part of
such action a court having jurisdiction over such action determines that each
of Indemnitee's material defenses to such action were made in bad faith or were
frivolous.
-8-
<PAGE>
14. NOTICE. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be deemed
duly given (i) if delivered by hand and signed for by the party addressed, on
the date of such delivery, or (ii) if mailed by domestic certified or
registered mail with postage prepaid, on the third business day after the date
postmarked. Addresses for notice to either party are as shown on the signature
page of this Agreement, or as subsequently modified by written notice.
15. CONSENT TO JURISDICTION. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the courts of the State of
Colorado for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
16. SEVERABILITY. The provisions of this Agreement shall be
severable in the event that any of the provisions hereof (including any
provision within a single section, paragraph or sentence) are held by a court
of competent jurisdiction to be invalid, void or otherwise unenforceable, and
the remaining provisions shall remain enforceable to the fullest extent
permitted by law. Furthermore, to the fullest extent possible, the provisions
of this Agreement (including, without limitation, each portion of this
Agreement containing any provision held to be invalid, void or otherwise
unenforceable, that is not itself invalid, void or unenforceable) shall be
construed so as to give effect to the intent manifested by the provision held
invalid, illegal or unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and
its provisions construed and enforced in accordance with the laws of the State
of Colorado, as applied to contracts between Colorado residents, entered into
and to be performed entirely within the State of Colorado, without regard to
the conflict of laws principles thereof.
18. SUBROGATION. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of Indemnitee, who shall execute all documents
required and shall do all acts that may be necessary to secure such rights and
to enable the Company effectively to bring suit to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification,
termination or cancellation of this Agreement shall be effective unless it is
in writing signed by both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provisions hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets
forth the entire understanding between the parties hereto and supersedes and
merges all previous written and oral negotiations, commitments, understandings
and agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing
contained in this Agreement shall be construed as giving Indemnitee any right
to be retained in the employ of the Company or any of its subsidiaries.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
ULTIMATE ELECTRONICS, INC.
By: __________________________________
Title: _______________________________
Address: 9901 West 50th Avenue
Wheat Ridge, Colorado 80033
AGREED TO AND ACCEPTED
INDEMNITEE:
(signature)
(name of Indemnitee)
(address)
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<PAGE>
EXHIBIT NO. 10.5
[LETTERHEAD OF ULTIMATE ELECTRONICS, INC.]
September 24, 1999
Mr. William J. Pearse
1913 Montane Drive East
Golden, CO 80401
Dear Mr. Pearse:
Ultimate Electronics, Inc. (the "Company") and you are parties to an
Underwriting Agreement dated __________, 1999 (the "Underwriting Agreement"),
pursuant to which the Company and you are selling to Banc of America Securities
LLC, and U.S. Bancorp Piper Jaffray Inc. (collectively, the "Underwriters")
2,000,000 and 125,000 shares, respectively, of the Company's common stock, $.01
par value per share, plus, if so elected by the Underwriters, up to an
additional 337,500 shares, from the Company to cover over-allotments (the
"Shares"). In the Underwriting Agreement, the Company and you have jointly and
severally agreed to indemnify the Underwriters against certain losses incurred
in connection with the offer and sale of the Shares, subject to the terms and
conditions set forth therein. By this letter, the Company agrees to indemnify
you from and against liabilities that you may incur pursuant to the Underwriting
Agreement, as set forth below. Capitalized terms used herein and not defined
herein have the meanings therefor set forth in the Underwriting Agreement.
The Company agrees to indemnify you and hold you harmless from and
against any and all losses, claims, damages, liabilities or expenses incurred by
you pursuant to the Underwriting Agreement, except insofar as such losses,
claims, damages, liabilities or expenses result from information relating to you
furnished in writing to the Company by you or on your behalf expressly for use
therein.
The Company and you agree that the indemnification procedures set forth
in the Underwriting Agreement, including those relating to notice and assumption
of defense, shall also govern the indemnity provided for herein.
ULTIMATE ELECTRONICS, INC.
By: ________________________________
Alan E. Kessock
Senior Vice President Finance
AGREED AND ACCEPTED:
- ---------------------------------
William J. Pearse
<PAGE>
EXHIBIT NO. 10.6
[LETTERHEAD OF ULTIMATE ELECTRONICS, INC.]
September 24, 1999
Ms. Barbara A. Pearse
1913 Montane Drive East
Golden, CO 80401
Dear Ms. Pearse:
Ultimate Electronics, Inc. (the "Company") and you are parties to an
Underwriting Agreement dated __________, 1999 (the "Underwriting Agreement"),
pursuant to which the Company and you are selling to Banc of America Securities
LLC, and U.S. Bancorp Piper Jaffray Inc. (collectively, the "Underwriters")
2,000,000 and 125,000 shares, respectively, of the Company's common stock, $.01
par value per share, plus, if so elected by the Underwriters, up to an
additional 337,500 shares, from the Company to cover over-allotments (the
"Shares"). In the Underwriting Agreement, the Company and you have jointly and
severally agreed to indemnify the Underwriters against certain losses incurred
in connection with the offer and sale of the Shares, subject to the terms and
conditions set forth therein. By this letter, the Company agrees to indemnify
you from and against liabilities that you may incur pursuant to the Underwriting
Agreement, as set forth below. Capitalized terms used herein and not defined
herein have the meanings therefor set forth in the Underwriting Agreement.
The Company agrees to indemnify you and hold you harmless from and against
any and all losses, claims, damages, liabilities or expenses incurred by you
pursuant to the Underwriting Agreement, except insofar as such losses, claims,
damages, liabilities or expenses result from information relating to you
furnished in writing to the Company by you or on your behalf expressly for use
therein.
The Company and you agree that the indemnification procedures set forth in
the Underwriting Agreement, including those relating to notice and assumption of
defense, shall also govern the indemnity provided for herein.
ULTIMATE ELECTRONICS, INC.
By: _______________________________
Alan E. Kessock
Senior Vice President Finance
AGREED AND ACCEPTED:
- -----------------------------
Barbara A. Pearse
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Summary
Financial and Operating Data," "Selected Financial Data" and "Experts" and to
the use of our report dated March 10, 1999, in Amendment No. 1 to the
Registration Statement on Form S-3 and related prospectus of Ultimate
Electronics, Inc. for the registration of 2,250,000 shares of its common stock.
Ernst & Young LLP
Denver, Colorado
September 28, 1999
