<PAGE>
EXHIBIT 4.2
ULTIMATE ELECTRONICS, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE. The purpose of the Plan is to provide employees of the
Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock
Purchase Plan" under Section 423 of the Internal Revenue Code of 1986, as
amended. The provisions of the Plan, accordingly, shall be construed so as to
extend and limit participation in a manner consistent with the requirements
of that section of the Code.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Company.
(b) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(c) "Common Stock" shall mean the Common Stock of the Company.
(d) "Company" shall mean Ultimate Electronics, Inc., a
Delaware corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base salary and straight
time gross earnings and commissions, as well as any payments for
overtime and any cash bonuses, but shall not include any other form of
incentive compensation, incentive payments, stock option, perquisites
or other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary which
has been designated by the Board from time to time in its sole
discretion as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an employee of
the Company for tax purposes whose customary employment with the
Company is at least twenty (20) hours per week and more than five (5)
months in any calendar year. For purposes of the Plan, the employment
relationship shall be treated as continuing intact while the individual
is on sick leave or other leave of absence approved by the Company.
Where the period of leave exceeds 90 days and the individual's right to
reemployment is not guaranteed either by statute or by contract, the
employment relationship shall be deemed to have terminated on the 91st
day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each Offering
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value
of Common Stock determined as follows:
(i) If the Common Stock is listed on any established
stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap
Market of The Nasdaq Stock Market, its Fair Market Value shall
be the closing sales price for such stock (or the closing bid,
if no sales were reported) as quoted on such exchange or
system on the date of such determination (or, if such date is
not a Trading Day, for the immediately preceding Trading Day),
as reported in The Wall Street Journal or such other source as
the Board deems reliable, or;
(ii) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not
reported, its Fair Market Value shall be the mean of the
closing bid and asked prices for the Common Stock on the date
of such determination, as reported in The Wall Street Journal
or such other source as the Board deems reliable, or;
(iii) In the absence of an established market for the
Common Stock, the Fair Market Value thereof shall be
determined in good faith by the Board.
(k) "Offering Period" shall mean a period of either
approximately six (6) months or three (3) months, at the election of
the Board, during which an option granted pursuant to the Plan may be
exercised, commencing on the first Trading Day and terminating on the
last Trading Day as such dates will be determined and announced by the
Board at least five (5) days prior to the beginning of any such
Offering Period. The duration of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of the
Fair Market Value of a share of Common Stock on the Enrollment Date or
on the Exercise Date, whichever is lower; provided, however, that the
Purchase Price may be adjusted by the Board pursuant to Section 20.
(n) "Reserves" shall mean the number of shares of Common Stock
covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but not yet placed under option.
(o) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by
the Company or a Subsidiary, whether or not such corporation now exists
or is hereafter organized or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national stock
exchanges
<PAGE>
and the Nasdaq System are open for trading.
3. ELIGIBILITY.
(a) Any Employee who shall have been employed by the Company,
or by a predecessor company that the Company has acquired, for at least
three (3) months on a given Enrollment Date shall be eligible to
participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan
(i) to the extent that, immediately after the grant, such Employee (or
any other person whose stock would be attributed to such Employee
pursuant to Section 424(d) of the Code) would own capital stock of the
Company and/or hold outstanding options to purchase such stock
possessing five percent (5%) or more of the total combined voting power
or value of all classes of the capital stock of the Company or of any
Subsidiary, or (ii) to the extent that his or her rights to purchase
stock under all employee stock purchase plans of the Company and its
Subsidiaries accrues at a rate which exceeds Twenty-Five Thousand
Dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar
year in which such option is outstanding at any time.
4. OFFERING PERIODS. The Plan shall be implemented by consecutive
Offering Periods with a new Offering Period commencing on the first Trading
Day, as such dates will be determined and announced by the Board, and
continuing thereafter until terminated in accordance with Section 20 hereof.
The Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without stockholder approval if such change is announced at least five (5)
days prior to the scheduled beginning of the first Offering Period to be
affected thereafter.
5. PARTICIPATION.
(a) An eligible Employee may become a participant in the Plan
by completing a subscription agreement authorizing payroll deductions
in the form provided by the Company and filing it with the Company's
payroll office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the
first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is
applicable, unless sooner terminated by the participant as provided in
Section 10 hereof.
6. PAYROLL DEDUCTIONS.
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on
each pay day during the Offering Period in an amount not exceeding ten
percent (10%) of the Compensation that he or she receives on each pay
day during the Offering Period.
<PAGE>
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan and shall be withheld in
whole percentages only. A participant may not make any additional
payments into such account.
(c) A participant may discontinue his or her participation in
the Plan as provided in Section 10 hereof, or may increase or decrease
the rate of his or her payroll deductions during the Offering Period by
completing or filing with the Company a new subscription agreement
authorizing a change in payroll deduction rate. The Board may, in its
discretion, limit the number of participation rate changes during any
Offering Period. The change in rate shall be effective with the first
full payroll period following five (5) business days after the
Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A
participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10
hereof.
(d) Notwithstanding the foregoing, to the extent necessary to
comply with Section 423(b)(8) of the Code and Section 3(b) hereof, a
participant's payroll deductions may be decreased to zero percent (0%)
at any time during an Offering Period. Payroll deductions shall
recommence at the rate provided in such participant's subscription
agreement at the beginning of the first Offering Period which is
scheduled to end in the following calendar year, unless terminated by
the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part,
or at the time some or all of the Company's Common Stock issued under
the Plan is disposed of, the participant must make adequate provision
for the Company's federal, state, or other tax withholding obligations,
if any, which arise upon the exercise of the option or the disposition
of the Common Stock. At any time, the Company may, but shall not be
obligated to, withhold from the participant's compensation the amount
necessary for the Company to meet applicable federal and state
withholding obligations, including without limitation any withholding
required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common Stock by
the Employee. The form of subscription agreement may provide that
shares of Common Stock issued under the Plan may be held in escrow or
legended to provide for satisfaction of withholding obligations.
7. GRANT OF OPTION. On the Enrollment Date of each Offering Period,
each eligible Employee participating in such Offering Period shall be granted
an option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of
the Exercise Date by the applicable Purchase Price; provided that such
purchase shall be subject to the limitations set forth in Sections 3(b) and
12 hereof. Exercise of the option shall occur as provided in Section 8
hereof, unless the participant has withdrawn pursuant to Section 10 hereof.
The Option shall expire on the last day of the Offering Period.
<PAGE>
8. EXERCISE OF OPTION. Unless a participant withdraws from the Plan
as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such
participant at the applicable Purchase Price with the accumulated payroll
deductions in his or her account. No fractional shares shall be purchased;
any payroll deductions accumulated in a participant's account which are not
sufficient to purchase a full share shall be retained in the participant's
account for the subsequent Offering Period, subject to earlier withdrawal by
the participant as provided in Section 10 hereof. Any other monies left over
in a participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. DELIVERY. As promptly as practicable after each Exercise Date on
which a purchase of shares occurs, the Company shall arrange for the delivery
to each participant, as appropriate, the shares purchased upon exercise of
his or her option.
10. WITHDRAWAL.
(a) A participant may withdraw all but not less than all the
payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written
notice to the Company in a form acceptable to the Company. All of the
participant's payroll deductions credited to his or her account shall
be paid to such participant promptly after receipt of notice of
withdrawal and such participant's option for the Offering Period shall
be automatically terminated, and no further payroll deductions for the
purchase of shares shall be made for such Offering Period. If a
participant withdraws from an Offering Period, payroll deductions shall
not resume at the beginning of the succeeding Offering Period unless
the participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall
not have any effect upon his or her eligibility to participate in any
similar plan that may hereafter be adopted by the Company or in
succeeding Offering Periods that commence after the termination of the
Offering Period from which the participant withdraws.
11. TERMINATION OF EMPLOYMENT. Upon a participant's ceasing to be an
Employee for any reason, he or she shall be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such
participant's account during the Offering Period but not yet used to exercise
the option shall be returned to such participant or, in the case of his or
her death, to the person or persons entitled thereto under Section 15 hereof,
and such participant's option shall be automatically terminated. The
preceding sentence notwithstanding, a participant who receives payment in
lieu of notice of termination of employment shall be treated as continuing to
be an Employee for the participant's customary number of hours per week of
employment during the period in which the participant is subject to such
payment in lieu of notice.
12. INTEREST. No interest shall accrue on the payroll deductions of
a participant in
<PAGE>
the Plan.
13. STOCK.
(a) Subject to adjustment upon changes in capitalization of
the Company as provided in Section 19 hereof, the number of shares of
the Company's Common Stock that shall initially be made available for
sale under the Plan shall be 400,000 shares. THIS NUMBER OF SHARES WILL
BE INCREASED EVERY YEAR, BEGINNING IN FISCAL 2002, ON THE FIRST DAY OF
THE COMPANY'S FISCAL YEAR. THE INCREASE WILL BE EQUAL TO THE LESSER OF
(i) 2% OF THE OUTSTANDING SHARES OF THE COMPANY'S COMMON STOCK ON SUCH
DATE, OR (ii) A LESSER AMOUNT DETERMINED BY THE BOARD, PROVIDED THAT
THE AGGREGATE NUMBER OF SHARES THAT MAY BE ISSUED UNDER THE PLAN SHALL
NEVER EXCEED 2,000,000. The Plan has a ten (10) year term and expires
in March 2010. If, on a given Exercise Date, the number of shares with
respect to which options are to be exercised exceeds the number of
shares then available under the Plan, the Company shall make a pro rata
allocation of the shares remaining available for purchase in as uniform
a manner as shall be practicable and as it shall determine to be
equitable.
(b) The participant shall have no interest or voting right in
shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan
shall be registered in the name of the participant or in the name of
the participant and his or her spouse.
14. ADMINISTRATION. The Plan shall be administered by the Board or a
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full
extent permitted by law, be final and binding upon all parties.
15. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's
death subsequent to an Exercise Date on which the option is exercised
but prior to delivery to such participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary
who is to receive any cash from the participant's account under the
Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is
not the spouse, spousal consent shall be required for such designation
to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of
a participant and in the absence
<PAGE>
of a beneficiary validly designated under the Plan who is living at the
time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may
deliver such shares and/or cash to the spouse or to any one or more
dependents or relatives of the participant, or if no spouse, dependent
or relative is known to the Company, then to such other person as the
Company may designate.
16. TRANSFERABILITY. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Company may treat such act as an election to
withdraw funds from an Offering Period in accordance with Section 10 hereof.
17. USE OF FUNDS. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose,
and the Company shall not be obligated to segregate such payroll deductions.
18. REPORTS. Individual account records shall be maintained for each
participant in the Plan. Statements of account shall be given to
participating Employees at least annually, which statements shall set forth
the amounts of payroll deductions, the Purchase Price, the number of shares
purchased and the remaining cash balance, if any.
19. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION,
LIQUIDATION, MERGER OR ASSET SALE.
(a) CHANGES IN CAPITALIZATION. Subject to any required action
by the stockholders of the Company, the Reserves, the maximum number of
shares each participant may purchase per Offering Period (pursuant to
Section 7), as well as the price per share and the number of shares of
Common Stock covered by each option under the Plan that has not yet
been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from
a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease
in the number of shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be
made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number
or price of shares of Common Stock subject to an option.
(b) DISSOLUTION OR LIQUIDATION. In the event of the proposed
dissolution or liquidation of the Company, the Offering Period then in
progress shall be shortened
<PAGE>
by setting a new Exercise Date (the "New Exercise Date"), and shall
terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The
New Exercise Date shall be before the date of the Company's proposed
dissolution or liquidation. The Board shall notify each participant in
writing, at least ten (10) business days prior to the New Exercise
Date, that the Exercise Date for the participant's option has been
changed to the New Exercise Date and that the participant's option
shall be exercised automatically on the New Exercise Date, unless prior
to such date the participant has withdrawn from the Offering Period as
provided in Section 10 hereof.
(c) MERGER OR ASSET SALE. In the event of a proposed sale of
all or substantially all of the assets of the Company, or the merger of
the Company with or into another corporation, each outstanding option
shall be assumed or an equivalent option substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In
the event that the successor corporation refuses to assume or
substitute for the option, the Offering Period then in progress shall
be shortened by setting a new Exercise Date. The New Exercise Date
shall be before the date of the Company's proposed sale or merger. The
Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date
for the participant's option has been changed to the New Exercise Date
and that the participant's option shall be exercised automatically on
the New Exercise Date, unless prior to such date the participant has
withdrawn from the Offering Period as provided in Section 10 hereof.
20. AMENDMENT OR TERMINATION.
(a) The Board of Directors of the Company may at any time and
for any reason terminate or amend the Plan. Except as provided in
Section 19 hereof, no such termination can affect options previously
granted, provided that an Offering Period may be terminated by the
Board of Directors on any Exercise Date if the Board determines that
the termination of the Offering Period or the Plan is in the best
interests of the Company and its stockholders. Except as provided in
Section 19 and Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of
any participant. To the extent necessary to comply with Section 423 of
the Code (or any other applicable law, regulation or stock exchange
rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without stockholder consent and without regard to whether
any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the
Offering Periods, limit the frequency and/or number of changes in the
amount withheld during an Offering Period, establish the exchange ratio
applicable to amounts withheld in a currency other than U.S. dollars,
permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Company's
processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and
crediting procedures to ensure that amounts applied toward
<PAGE>
the purchase of Common Stock for each participant properly correspond
with amounts withheld from the participant's Compensation, and
establish such other limitations or procedures as the Board (or its
committee) determines in its sole discretion advisable which are
consistent with the Plan.
(c) In the event the Board determines that the ongoing
operation of the Plan may result in unfavorable financial accounting
consequences, the Board may, in its discretion and, to the extent
necessary or desirable, modify or amend the Plan to reduce or eliminate
such accounting consequence including, but not limited to:
(i) altering the Purchase Price for any Offering
Period including an Offering Period underway at the time of
the change in Purchase Price;
(ii) shortening any Offering Period so that Offering
Period ends on a new Exercise Date, including an Offering
Period underway at the time of the Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. NOTICES. All notices or other communications by a participant to
the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the
location, or by the person, designated by the Company for the receipt thereof.
22. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any
of the aforementioned applicable provisions of law.
23. TERM OF PLAN. The Plan Shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
