<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
<TABLE>
<S> <C>
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or
Section 240.14a-12
ULTIMATE ELECTRONICS, INC.
- -----------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
ALAN E. KESSOCK, CHIEF FINANCIAL OFFICER
- -----------------------------------------------------------------------
(Name of Person Filing Proxy Statement)
</TABLE>
Payment of Filing Fee (Check the appropriate box):
<TABLE>
<S> <C> <C>
/X/ No fee required.
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1),
14a-6(j)(2) or Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to whom transaction
applies:
----------------------------------------------------------
(2) Aggregate number of securities to which transaction
applies:
----------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11:*
----------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
----------------------------------------------------------
(5) Total fee paid:
----------------------------------------------------------
* Set forth the amount on which the filing fee is calculated and state how
it was determined.
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
----------------------------------------------------------
(3) Filing Party:
----------------------------------------------------------
(4) Date Filed:
----------------------------------------------------------
</TABLE>
<PAGE>
ULTIMATE ELECTRONICS, INC.
321 WEST 84TH AVENUE, SUITE A
THORNTON, COLORADO 80260
May 22, 2000
To Our Stockholders:
You are cordially invited to attend the 2000 Annual Meeting of Stockholders
of Ultimate Electronics, Inc. (the "Company") to be held on Thursday, June 22,
2000 at the Company's headquarters, 321 West 84th Avenue, Suite A, Thornton,
Colorado at 8:30 a.m. (Mountain time).
At the Annual Meeting, the Stockholders will:
1. Elect two persons to serve as Class III directors of the Company to hold
office until their terms expire in 2003 or until their respective
successors are elected;
2. Vote on the proposal to adopt the 2000 Equity Incentive Plan;
3. Vote on the proposal to adopt an Employee Stock Purchase Plan;
4. Ratify the appointment of Ernst & Young LLP as the Company's independent
auditors for the current year; and
5. Transact such other business as may properly come before the meeting or
any postponements or adjournments thereof.
Enclosed is a Notice of the Annual Meeting and a Proxy Statement. You are
urged to read these documents carefully. A proxy card is also enclosed for your
convenience. Please sign, date and return the proxy card promptly.
Your Board strongly supports and recommends these actions. Accordingly, we
request that you vote in favor of all proposals. Thank you for
your consideration.
Sincerely,
[SIGNATURE]
William J. Pearse,
CHAIRMAN OF THE BOARD
<PAGE>
ULTIMATE ELECTRONICS, INC.
321 WEST 84TH AVENUE, SUITE A
THORNTON, COLORADO 80260
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD JUNE 22, 2000
TO THE STOCKHOLDERS OF ULTIMATE ELECTRONICS, INC.:
NOTICE IS HEREBY GIVEN that the 2000 Annual Meeting of Stockholders of
Ultimate Electronics, Inc., a Delaware corporation (the "Company"), will be held
on Thursday, June 22, 2000, at 8:30 a.m. (Mountain time), at the Company's
headquarters, 321 West 84th Avenue, Suite A, Thornton, Colorado, for the
following purposes:
1. To elect two persons to serve as Class III directors of the Company to
hold office until their terms expire in 2003 or until their respective
successors are elected;
2. To adopt the 2000 Equity Incentive Plan;
3. To adopt an Employee Stock Purchase Plan;
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the current year; and
5. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
This Notice, the accompanying Proxy Statement and proxy card are first being
sent to stockholders of the Company on or about May 22, 2000.
By order of the Board of Directors,
[SIGNATURE]
Alan E. Kessock,
SECRETARY
Thornton, Colorado
May 22, 2000
TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE SIGN, DATE, AND
RETURN YOUR PROXY CARD IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU EXPECT TO
ATTEND IN PERSON. STOCKHOLDERS WHO ATTEND THE MEETING MAY REVOKE THEIR PROXIES
AND VOTE IN PERSON.
<PAGE>
ULTIMATE ELECTRONICS, INC.
321 WEST 84TH AVENUE, SUITE A
THORNTON, COLORADO 80260
------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
JUNE 22, 2000
------------------------
GENERAL INFORMATION
This Proxy Statement and the accompanying proxy card are being furnished to
the stockholders of Ultimate Electronics, Inc., a Delaware corporation (the
"Company"), in connection with the solicitation by the Board of Directors of the
Company (the "Board") of proxies to be voted at the 2000 Annual Meeting of
Stockholders of the Company (the "Annual Meeting") to be held on Thursday,
June 22, 2000 at 8:30 a.m. (Mountain time) at the Company's headquarters,
321 West 84th Avenue, Suite A, Thornton, Colorado, and at any adjournment or
postponement thereof. This Proxy Statement and the accompanying proxy card are
first being mailed to the holders of record of the Company's Common Stock on or
about May 22, 2000.
PURPOSES OF THE ANNUAL MEETING
At the Annual Meeting, holders of record of the Company's Common Stock, par
value $.01 per share (the "Common Stock"), will be asked to consider and vote
upon the following matters:
1. To elect two persons to serve as Class III directors of the Company to
hold office until their terms expire in 2003 or until their respective
successors are elected;
2. To adopt the 2000 Equity Incentive Plan;
3. To adopt an Employee Stock Purchase Plan;
4. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the current year; and
5. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
RECORD DATE; QUORUM; VOTE REQUIRED
The Board has fixed the close of business on May 9, 2000, as the record date
for determination of the stockholders entitled to notice of, and to vote at, the
Annual Meeting (the "Record Date"). As of the Record Date, 10,729,899 shares of
Common Stock were issued, outstanding and entitled to vote. The presence, either
in person or by properly executed proxy, of the holders of not less than
one-third of the outstanding shares of Common Stock as of the Record Date is
necessary to constitute a quorum for the conduct of business at the Annual
Meeting. Each share of Common Stock outstanding on the Record Date entitles the
holder thereof to one vote on each proposal that may properly come before the
Annual Meeting. Directors are elected by a plurality of the votes of the shares
entitled to vote on the election and present, in person or by proxy, at the
Annual Meeting. The affirmative vote of a majority of the shares of Common Stock
represented in person or by properly executed proxy is required to approve the
adoption of the 2000 Equity Incentive Plan, as set forth in Proposal Two, the
approval of the Employee Stock Purchase
<PAGE>
Plan, as set forth in Proposal Three, and the ratification of accountants, as
set forth in Proposal Four. There is no cumulative voting in the election
of directors.
PROXIES
All shares of Common Stock that are represented at the Annual Meeting by
properly executed proxies received prior to or at the Annual Meeting, and not
revoked, will be voted at the Annual Meeting in accordance with the instructions
indicated on such proxies.
If no instructions are indicated, such proxies will be voted FOR the
approval of the election of the two nominees as directors of the Company, FOR
the proposals to adopt the 2000 Equity Incentive Plan and the Employee Stock
Purchase Plan and FOR ratification of the appointment of Ernst & Young. Although
the Company has no reason to believe that either of the nominees will be
unwilling or unable to serve as a director, if either of the nominees is not
available for election, properly executed proxies will be voted for the election
of such substitute nominees as may be designated by the Board.
Any stockholder present (including broker non-votes) at the Annual Meeting,
but who abstains from voting, shall be counted for purposes of determining
whether a quorum exists. With respect to the approval of Proposals One, Two,
Three and Four, abstentions will have the same effect as a vote against the
nominee or proposal and broker non-votes will have no effect on the proposals
(except for purposes of determining whether a quorum is present at the Annual
Meeting). A broker non-vote occurs when a nominee holding shares for a
beneficial owner votes on one proposal, but does not vote on another proposal
because the nominee does not have discretionary voting power and has not
received instructions from the beneficial owner.
Any proxy may be revoked at any time before it is voted by (i) written
notice to the Secretary of the Company, (ii) receipt of a proxy properly signed
and dated subsequent to an earlier proxy, or (iii) request in person at the
Annual Meeting. If not revoked, the shares of Common Stock represented by a
properly executed proxy will be voted according to the proxy. The persons named
in the proxies will have discretionary authority to vote all proxies with
respect to additional matters that are properly presented for action at the
Annual Meeting.
The enclosed proxy is being solicited by the Board of Directors of the
Company on behalf of the Company. The cost of the solicitation shall be borne by
the Company. In addition to solicitation by mail, the officers, directors and
employees of the Company may solicit proxies by telephone or telegram or in
person. Although no compensation will be paid for such solicitation of proxies,
the Company may also request banks and brokers to solicit their customers who
have a beneficial ownership interest in the Company's Common Stock, registered
in the names of nominees. The Company will reimburse such banks and brokers for
their reasonable out-of-pocket expenses. The Company will also bear the entire
cost of the preparation, assembly, printing and mailing of this Proxy Statement,
the proxy card and any additional information furnished to stockholders.
The Company's Annual Report to Stockholders containing the Company's
financial statements for the fiscal year ended January 31, 2000 is being mailed
to the Stockholders with this Proxy Statement. The Annual Report does not
constitute a part of the proxy soliciting material.
PROPOSAL 1--ELECTION OF DIRECTORS
The Board has nominated for election at the Annual Meeting William J. Pearse
and J. Edward McEntire to serve as Class III directors of the Company until
their terms expire in 2003 or until their respective successors are elected.
Messrs. Pearse and McEntire have each consented to being named as a nominee.
Both of the nominees are currently directors of the Company. Biographical
information regarding each nominee is set forth under "--Biographical
Information; Directors Standing for Election--Class III."
2
<PAGE>
Directors are elected by a plurality of the votes of the shares entitled to
vote in the election and, present, in person or by proxy, at the
Annual Meeting.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
TWO NOMINEES TO SERVE AS CLASS III DIRECTORS
It is anticipated that proxies will be voted for the nominees and the Board
has no reason to believe that either nominee will not continue to be a candidate
or will not be able to serve as a director if elected. In the event that either
nominee named below is unable to serve as a director, the proxy holders named in
the proxies will vote for the election of such substitute or additional nominees
as the Board may propose.
NOMINEES AND MEMBERS OF THE BOARD OF DIRECTORS
The Board consists of three classes of directors, designated as Class I,
Class II and Class III, respectively. Each class serves for a three-year term
ending in successive years. The authorized number of directors is currently six.
The Class III directors whose terms expire at the 2000 Annual Meeting are
William J. Pearse and J. Edward McEntire. The Class I directors whose terms will
expire at the 2001 Annual Meeting are Alan E. Kessock and Robert W. Beale. The
Class II directors whose terms will expire at the 2002 Annual Meeting are David
J. Workman and Randall F. Bellows. Vacancies on the Board may be filled by the
affirmative vote of a majority of the remaining directors then in office. A
director elected to fill a vacancy (including a vacancy created by an increase
in the Board of Directors) shall serve for the full term of the new directorship
or of the remainder of the term of the class of directors in which the
vacancy occurred.
DIRECTORS AND EXECUTIVE OFFICERS
The Company's directors and executive officers are as follows:
<TABLE>
<CAPTION>
SERVED AS CLASS AND YEAR IN
OFFICER OR WHICH TERM WILL
NAME AGE POSITIONS DIRECTOR SINCE EXPIRE
- ---- -------- ---------------------------------------- -------------- -----------------
<S> <C> <C> <C> <C>
William J. Pearse..... 58 Chairman of the Board, 1968 Class III/2000
Founder and Director
J. Edward McEntire.... 56 Chief Executive Officer and Director 1993 Class III/2000
David J. Workman...... 43 President, Chief Operating Officer and 1985 Class II/2002
Director
Alan E. Kessock....... 40 Senior Vice President--Finance and 1988 Class I/2001
Administration, Chief Financial Officer,
Secretary, Treasurer and Director
Neal A. Bobrick....... 39 Senior Vice President--Sales and Store 1992 Not applicable
Operations
Robert W. Beale....... 63 Director 1993 Class I/2001
Randall F. Bellows.... 71 Director 1995 Class II/2002
</TABLE>
All executive officers hold office at the discretion of the Board.
3
<PAGE>
BIOGRAPHICAL INFORMATION
DIRECTORS STANDING FOR ELECTION--CLASS III
WILLIAM J. PEARSE. Mr. Pearse is Chairman of the Board and has been an
officer and director of Ultimate Electronics since he founded the Company with
his wife, Barbara, in 1968. Mr. Pearse is a founding member and former president
of the 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
the Company and elected a director in August of 1997. Mr. McEntire had
previously held the position of Vice President--Operations for the Company since
February 1995. He was also a non-employee director of the Company from
August 1993 to January 31, 1995. From 1993 to January 31, 1995, Mr. McEntire
operated JEM Enterprises, a private investing and consulting firm. From 1991
until 1993, he was the President of the Regulatory Products Division of IHS
Group, an information publishing company. From 1989 until 1991, Mr. McEntire was
the Executive Vice President--Investor Services and, from 1981 until 1988, was
the Group Vice President of Standard & Poor's Corporation.
DIRECTORS CONTINUING IN OFFICE
CLASS I--TERM EXPIRES AT THE 2001 ANNUAL MEETING
ALAN E. KESSOCK. Mr. Kessock is the Company's Senior Vice President of
Finance and Administration, Chief Financial Officer and has been Secretary and
Treasurer and a director of the Company since April 1993. He was the Company's
Vice President of Finance and Administration from 1988 to 1999. Mr. Kessock
joined the Company in 1985 as Controller. Prior to joining the Company, he
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.
ROBERT W. BEALE. Mr. Beale has been a director of the Company since
April 1993 and is the President of Beale International, a management consulting
firm specializing in 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.
CLASS II--TERM EXPIRES AT THE 2002 ANNUAL MEETING
DAVID J. WORKMAN. Mr. Workman is the Company's President and Chief
Operating Officer. He has been a director since 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
the Company as Vice President of Sales and Store Operations. He joined the
Company in 1979 as a sales consultant and was promoted to store manager in 1982.
Mr. Workman was part owner of Dakota Sight and Sound from 1976 until 1979.
RANDALL F. BELLOWS. Mr. Bellows became a director of the Company in
January 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.
4
<PAGE>
OTHER EXECUTIVE OFFICERS
NEAL A. BOBRICK. Mr. Bobrick is Senior Vice President of Sales and Store
Operations of the Company. He was Vice President of Sales and Store Operations
from 1992 to 1999. Mr. Bobrick joined the Company in 1981 as a sales consultant
and was promoted to store manager in 1984. He was made Director of Sales in
1989. Mr. Bobrick has worked in the consumer electronics industry since 1979.
BOARD COMMITTEES AND MEETINGS
The Board held four meetings during the fiscal year ended January 31, 2000.
All of the directors attended at least 75% of the Board meetings held during the
fiscal year and at least 75% of the meetings of each committee on which they
served. The Board has an Audit Committee and a Compensation Committee but does
not have a Nominating Committee or any committee performing a similar function.
COMPENSATION COMMITTEE. The Compensation Committee held one meeting during
the fiscal year. The Compensation Committee administers and grants awards to
officers under the 1997 Equity Incentive Plan. It also makes recommendations to
the Board concerning the annual salaries for senior management. The current
members of the Compensation Committee are Messrs. Beale and Bellows.
AUDIT COMMITTEE. The Audit Committee held one meeting during the fiscal
year. The Audit Committee meets periodically with representatives of the
Company's independent auditors to review the general scope of audit coverage,
including consideration of the Company's accounting practices and procedures and
system of internal accounting controls, and to report to the Board with respect
thereto. The Audit Committee also recommends to the Board the appointment of the
Company's independent auditors. The current members of the Audit Committee are
Messrs. Beale and Bellows.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, executive officers and
persons who beneficially own greater than ten percent of a registered class of
the Company's equity securities to file initial reports of ownership and changes
in ownership with the Securities and Exchange Commission (the "Commission").
Directors, officers and greater than ten percent shareholders are required by
SEC regulation to furnish the Company with copies of all Section 16(a)
reports filed.
Based solely upon its review of copies of the Commission's Forms 3, 4 and 5
and amendments thereto submitted to it during the most recent fiscal year, the
Company has identified the following persons who failed to file such forms on a
timely basis with the Commission, as required by Section 16(a), during the most
recent fiscal year or prior fiscal years. Mr. Beale filed his Form 5 report late
for the fiscal year ended January 31, 1999 reporting one transaction.
Mr. Bellows filed his Form 5 report late for the fiscal years ended January 31,
1999 and January 31, 2000, each report covering one transaction. Mr. Bobrick
also filed his Form 5 report late for the fiscal year ended January 31, 2000
reporting one transaction.
COMPENSATION OF DIRECTORS
The Company has adopted compensation and incentive benefit plans to enhance
its ability to continue to attract, retain and motivate qualified persons to
serve as non-employee directors of the Company. The Company pays its
non-employee directors $8,000 per year and reimburses each non-employee director
for reasonable expenses in attending board meetings. Under the Company's 1997
Equity Incentive Plan, each non-employee director receives an annual automatic
grant of 4,000 non-statutory options ("NSOs") for his or her Board service. The
Company has two non-employee directors. Prior to the adoption of the 1997 Equity
Incentive Plan, an aggregate of 20,000 shares of Common Stock had been reserved
for issuance under the Company's non-employee Directors' Plan ("Directors'
Plan") which was administered by the Board. The Company has outstanding options
to purchase 16,000 shares of Common Stock under this plan
5
<PAGE>
at exercise prices ranging from $2.75 per share to $12.88 per share, all of
which were exercisable at January 31, 2000. Each option granted under the
Directors' Plan expires ten years from the date of grant. Upon the termination
of a director's status following his resignation, retirement or a change in
control of the Company, options outstanding under the Directors' Plan will
immediately become fully vested and exercisable for a period of three months.
The Directors' Plan was discontinued and replaced by the 1997 Equity Incentive
Plan, adopted at the 1997 Annual Meeting. Options issued under the Directors'
Plan continue to be exercisable and outstanding. As of January 31, 2000, the
Company's non-employee directors have been granted 16,000 options under the
automatic grant provision of the 1997 Equity Incentive Plan at exercise prices
between $3.125 and $9.625 per share, 8,000 of which were exercisable at
January 31, 2000. Stock options issued to non-employee directors under the 1997
Equity Incentive Plan vest in their entirety and become exercisable one year
from the date of grant.
EXECUTIVE COMPENSATION
The following table (the "Executive Compensation Table") sets forth the
compensation paid by the Company to its Chief Executive Officer, and its four
most highly compensated executive officers, other than its Chief Executive
Officer, whose salary and bonus exceeded $100,000 for services rendered for the
fiscal years ended January 31, 2000, 1999 and 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND FISCAL --------------------------- UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR SALARY ($) BONUS ($)(1) OPTIONS (#) ($)(2)
- ------------------ -------- ----------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
William J. Pearse ...................... 2000 275,000 455,103 -- --
Chairman of the Board 1999 236,538 229,282 -- --
1998 312,500 2,000 22,500 --
J. Edward McEntire ..................... 2000 325,000 494,486 -- --
Chief Executive Officer (3) 1999 286,538 246,059 -- 784
1998 240,500 17,000 152,156 1,118
David J. Workman ....................... 2000 300,000 474,795 -- --
President and Chief Operating Officer 1999 276,923 222,285 -- 737
1998 300,000 17,000 89,732 1,003
Alan E. Kessock ........................ 2000 180,000 380,274 -- --
Senior Vice President--Finance and 1999 165,000 153,910 -- 422
Administration, Chief Financial 1998 165,000 17,000 66,489 1,283
Officer,
Treasurer and Secretary
Neal A. Bobrick ........................ 2000 180,000 380,274 -- --
Senior Vice President-- 1999 165,000 153,910 -- 422
Sales and Store Operations 1998 165,000 17,000 61,323 1,392
</TABLE>
- ------------------------
(1) Amounts reflect bonuses paid under the Company's bonus plans.
(2) Consists of the Company's contributions pursuant to the Company's 401(k)
defined contribution plan.
(3) Mr. McEntire was promoted from Vice President of Operations to Chief
Executive Officer of the Company in August 1997. Amounts shown for fiscal
1998 reflect compensation in both capacities.
Under the Company's bonus plans, the executive officers of the Company may
be awarded bonuses from an annual bonus pool, quarterly performance bonuses and
discretionary bonuses determined by the
6
<PAGE>
Board. The amounts stated above include the bonuses paid under these plans. In
fiscal 2000, the annual bonus pool was equal to 15% of pretax earnings in excess
of $2,230,000. In fiscal 1999, the annual bonus pool was equal to 15% of pretax
earnings in excess of the previous fiscal year's pretax earnings. For fiscal
1998, quarterly performance and discretionary bonuses were paid to the Company's
executives but no bonuses were paid from the annual bonus pool. The parameters
under the annual bonus pool are changed from year to year at the discretion of
the Board.
OPTION GRANTS IN THE LAST FISCAL YEAR
There were no options granted to the named executive officers during the
fiscal year ended January 31, 2000.
FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning option exercises and
outstanding options held by the executives named in the Summary Compensation
Table at January 31, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF SHARES OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON FISCAL YEAR END (#) FISCAL YEAR END ($)
NAME EXERCISE VALUE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE (1)
- ---- ---------------- -------------- ------------------------- ------------------------------
<S> <C> <C> <C> <C>
William J. Pearse.... 0 $ 0 27,300/ 7,500 388,373/ 107,625
J. Edward McEntire... 18,000 305,000 90,501/91,499 1,277,735/1,290,831
David J. Workman..... 50,000 825,000 100,250/49,750 1,432,238/ 704,425
Alan E. Kessock...... 60,000 890,000 43,333/36,667 615,758/ 518,684
Neal A. Bobrick...... 47,161 661,915 46,756/46,083 672,118/ 655,007
</TABLE>
- ------------------------
(1) Based on the price of the Company's common stock at January 31, 2000
of $17.375.
EMPLOYMENT AGREEMENTS
The Company currently has no employment agreements with any of its officers
or employees. However, in June 1997 the Company entered into agreements (each an
"Agreement") that each of William J. Pearse, J. Edward McEntire, David J.
Workman, Alan E. Kessock and Neal A. Bobrick which establish the terms of the
employment of such individuals with the Company in the event of a change in
control of the Company, as defined in the Agreements. In the event of any such
change in control, or the termination of any such executive's employment in
anticipation of a change in control, each executive would, pursuant to the terms
of his Agreement, have the right to remain employed by the Company for a period
of three years from the date of the change in control, at a level of
responsibility and compensation commensurate with his individual
responsibilities and compensation in place prior to the change in control. If an
executive's employment following a change in control is terminated by the
Company for any reason other than cause (as defined in the Agreements) or
disability, or the executive terminates his employment because the Company has
violated the provision of its Agreement with such executive or because of
certain other specified events, the Company is obligated to pay the executive in
a cash lump sum, within five days following such termination, all salary and
deferred or accrued compensation due the executive, a prorated annual bonus for
the portion of the fiscal year for which the executive was employed and two
additional years' salary and annual bonus, with the bonus to be based upon the
higher of the preceding years' bonus and the annualized bonus for the year in
which termination occurs. In the event of any such termination, all options and
restricted stock held by the executive also vest in full, and all options remain
exercisable for a period of twelve months following termination.
Four of the Company's officers, J. Edward McEntire, David J. Workman, Alan
E. Kessock and Neal A. Bobrick, have each also entered into a non-compete
agreement with the Company. Each agreement
7
<PAGE>
provides that none of Mr. McEntire, Mr. Workman, Mr. Kessock or Mr. Bobrick, as
the case may be, will work for any competitor in particular geographic areas for
two years after he voluntarily leaves, or is terminated for cause by,
the Company.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board (the "Committee"). Robert Beale and Randall
Bellows, the Committee's only members, are non-employee directors. The Committee
recommends the compensation of all executive officers of the Company to the
Board, including the compensation of the executive officers named in the Summary
Compensation Table. In reviewing the compensation of individual executive
officers, the Committee takes under consideration the recommendations of
management, published compensation surveys and current market conditions.
COMPENSATION PROGRAMS. The Company's compensation programs are aimed at
enabling it to attract and retain the best possible executive talent and
rewarding those executives commensurate with their ability and performance. The
Company's compensation programs consist primarily of base salary, a bonus plan
and an employee stock option plan.
BASE SALARY. Base salaries for executive officers are determined in the
same manner as that of other salaried employees. Salary guidelines are
established by comparing the responsibilities of the individual's position in
relation to similar positions in other retail companies. Individual salaries
were again this year determined by considering (i) the officer's performance as
measured against objectives set for such officer for the year and (ii) the
Company's performance as measured against certain corporate objectives, such as
increases in comparable store sales that exceed increases experienced by
competitors, meeting or exceeding budget and overall profitability of the
Company as compared to peers in the industry.
BONUS PLAN. The Company's bonus program is tied closely to Company
performance, which the Board believes leads to overall increases in stockholder
value. Pursuant to the Company's fiscal 2000 annual bonus plan, pretax earnings
exceeded $2,230,000 and, as a result, automatic annual bonuses were paid to the
Company's executives.
LONG-TERM INCENTIVE COMPENSATION. The Company's executive compensation
program also includes long term incentives, including stock options. In fiscal
1999, the Committee granted an aggregate of 139,700 stock options to selected
individuals employed by the Company. None of those options were granted to any
member of the executive management team. In fiscal 2000, the Committee granted
an aggregate of 104,000 stock options to selected individuals employed by the
Company. None of those options were granted to any member of the executive
management team. The Committee periodically has awarded in the past and plans to
award in the future, stock options to a broad spectrum of employees based on
continuing progress of the Company and improvements in individual performance.
Robert W. Beale
Randall F. Bellows
Compensation Committee Members
8
<PAGE>
PERFORMANCE GRAPH
The following graph provides a comparison of the cumulative total return for
the Nasdaq U.S. Stock Market Index, the Nasdaq Retail Trade Stocks Index and the
Company since January 31, 1995.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ULTIMATE NASDAQ U.S. NASDAQ RETAIL
<S> <C> <C> <C>
Electronics, Inc. Stock Market Trade Stock
Index Index Index
Jan. '95 $100.00 $100.00 $100.00
Jan. '96 $57.14 $141.30 $112.99
Jan. '97 $24.49 $185.26 $138.98
Jan. '98 $27.02 $218.67 $162.16
Jan. '99 $73.96 $342.05 $198.28
Jan. '00 $141.84 $524.67 $165.42
</TABLE>
- $100 invested January 31, 1995 in the Company's Stock or in the index
indicated, including reinvestment of dividends.
Corresponding index values and Common Stock price values are given below.
The dates in such table are utilized because they correspond with the last
trading day of the Company's fiscal years.
<TABLE>
<CAPTION>
ULTIMATE
ULTIMATE NASDAQ U.S. NASDAQ RETAIL ELECTRONICS, INC.
ELECTRONICS, INC. STOCK MARKET TRADE STOCKS CLOSING STOCK
LAST TRADING DAY OF FISCAL YEAR ENDED INDEX INDEX INDEX PRICE
- ------------------------------------- ------------------ ------------ ------------- ------------------
<S> <C> <C> <C> <C>
January 31, 1995........................ 100.00 100.00 100.00 12.25
January 31, 1996........................ 57.14 141.30 112.99 7.00
January 31, 1997........................ 24.49 185.26 138.98 3.00
January 31, 1998........................ 27.02 218.67 162.16 3.31
January 31, 1999........................ 73.96 342.05 198.28 9.06
January 31, 2000........................ 141.84 524.67 165.42 17.38
</TABLE>
9
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of May 9, 2000 regarding
beneficial ownership of the Company's Common Stock by (i) each person or group
of persons known by the Company to own beneficially five percent (5%) or more of
the outstanding shares of Common Stock, (ii) each director and nominee for
director of the Company, (iii) each executive officer named in the Summary
Compensation Table and (iv) all executive officers and directors of the Company
as a group. All information is taken from or based upon ownership filings made
by such persons with the Commission or upon information provided by such persons
to the Company. Unless otherwise indicated, the stockholders listed below have
sole voting and investment power with respect to the shares reported as owned.
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF
OF BENEFICIAL OWNER (1) BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ----------------------- -------------------- ----------------
<S> <C> <C>
William J. and Barbara A. Pearse (2)........................ 1,899,800 17.65%
Various family trusts of William and Barbara Pearse (3)..... 960,000 8.95%
J. Edward McEntire (4)...................................... 132,225 1.22%
David J. Workman (5)........................................ 163,667 1.51%
Alan E. Kessock (6)......................................... 94,908 *
Neal A. Bobrick (7)......................................... 86,633 *
Robert W. Beale (8)......................................... 22,000 *
Randall F. Bellows (9)...................................... 17,000 *
All directors and officers as a group (7 persons)........... 2,416,233 21.76%
STOCKHOLDERS
Dresdner RCM Global Investors LLC (10)...................... 1,042,600 9.72%
Founders Asset Management LLP (11).......................... 586,618 5.47%
Dimensional Fund Advisors, Inc. (12)........................ 537,200 5.01%
</TABLE>
- ------------------------
* less than 1%.
(1) The address of each 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 is based on 10,729,899 shares outstanding as
of May 9, 2000. In presenting shares beneficially owned and in calculating
each holder's percentage ownership, only options exercisable by such person
within 60 days of May 9, 2000 and not options exercisable by any other
person are deemed to be outstanding.
(2) Includes 34,800 shares underlying stock options exercisable within
60 days. Excludes shares held by various family trusts of William J. and
Barbara A. Pearse.
(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) Includes 97,475 shares underlying stock options exercisable within
60 days.
(5) Includes 110,628 shares underlying stock options exercisable within
60 days.
(6) Includes 50,307 shares underlying stock options exercisable within
60 days.
(7) Includes 53,730 shares underlying stock options exercisable within
60 days.
(8) Includes 18,000 shares underlying stock options exercisable within
60 days.
(9) Includes 10,000 shares underlying stock options exercisable within
60 days.
10
<PAGE>
(10) According to information on Form 13F made available to the Company by
NASDAQ, on March 31, 2000 Dresdner RCM Global Investors, an investment
advisor, organized under the laws of the state of Delaware, located at Four
Embarcadero Center, San Francisco, California 94111, holds
1,042,600 shares of Company Common Stock.
(11) According to information on Form 13F made available to the Company by
NASDAQ, on March 31, 2000 Founders Asset Management LLP, an investment
advisor, organized under the laws of the state of Delaware, located at
2930 East Third Avenue, Denver, Colorado 80206, holds 586,618 shares of
Company Common Stock.
(12) According to information on Form 13F made available to the Company by
NASDAQ, on March 31, 2000 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 537,200 shares of Company
Common Stock.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company entered into a lease agreement with William J. and Barbara A.
Pearse (the "Lessors") on April 1, 1989 for the lease of the Company's store in
Colorado Springs, Colorado. The lease was for a term of 10 years and three
months and expired on April 30, 1999. The Company renewed the lease on the
property for 2 years at an annual base rent of $122,400 with a six-month notice
of termination. The Company paid $116,275 in lease payments during fiscal 2000
for the property. In addition, the Company is responsible for all real property
taxes and insurance premiums on the property.
The Company entered into a lease agreement with the Lessors on October 13,
1989 for the lease of the Company's store in Fort Collins, Colorado. The lease
is for a term of 15 years, commencing on April 1, 1990, at an annual base rent
of $120,000. Commencing April 1, 1992, the rent increased annually at a rate
equal to the lesser of (i) $6,000 or (ii) an amount based upon the increase, if
any, over the prior year in the DCPI. The Company paid $149,040 in lease
payments during fiscal 2000 for the property. The Company is also responsible
for all real property taxes and insurance premiums on the property.
Although the Company did not obtain independent appraisals in connection
with these transactions, the Company believes that the terms of all of the
foregoing transactions were comparable to the terms that the Company would have
reached with independent third parties. All future transactions with the Lessors
or any other affiliate of the Company will be subject to the approval of the
Company's disinterested directors and will be on terms believed by such
directors to be no less favorable to the Company than those available from
unaffiliated third parties.
William J. Pearse III, the son of William J. and Barbara A. Pearse, is
employed by the Company as Vice President--Marketing. His total compensation
(salary and bonus) in fiscal 2000 was $174,407. Daniel N. Workman, the brother
of David J. Workman, is employed by the Company as a Regional Sales Manager. His
total compensation (salary and bonus) in fiscal 2000 was $174,559.
PROPOSAL 2--APPROVAL OF THE ADOPTION OF THE 2000 EQUITY INCENTIVE PLAN
INTRODUCTION
In March 2000, the Board of Directors of the Company adopted an equity
incentive plan to replace the Company's existing plan subject to stockholder
approval. The Company is proposing to replace the 1997 Equity Incentive Plan
with a new 2000 Equity Incentive Plan (the "2000 Plan"). The 2000 Plan provides
for similar types of equity awards as were provided in the 1997 Equity Incentive
Plan. The 2000 Plan is attached hereto as Appendix A and the following
description is qualified in its entirety by reference to the 2000 Plan.
11
<PAGE>
The 1997 Equity Incentive Plan provided for an aggregate of 750,000 shares
of Common Stock, $.01 par value ("Common Stock"), to be available for grant, of
which no shares remain available for grant as of the date hereof. The 2000 Plan
provides for an aggregate of 300,000 shares of Common Stock to be initially
available for issuance, subject to an annual increase of 100,000 shares of
Common Stock at the beginning of each subsequent fiscal year, provided that the
aggregate number of shares that may be issued under the 2000 Plan may not exceed
1,200,000. The 2000 Plan will be terminated no later than March 13, 2010. Under
the 2000 Plan, options in excess of the number of shares then available for
issuance may be granted, provided, however, that any such excess shares actually
issued shall be held in escrow until the action that is necessary to approve a
sufficient increase in the number of shares available for issuance under the
2000 Plan is taken. If such action has not been taken within 12 months after the
date such excess grants are first made, then (i) any unexercised options granted
on the basis of such excess shares shall terminate and (ii) the Company shall
promptly refund to the option holders the option price paid for any excess
options that were exercised or issued under the 2000 Plan and held in escrow,
together with interest on the option price that was held in escrow.
In June 1996, the Securities and Exchange Commission revised Rule 16b-3 and
the related rules promulgated under Section 16(b) of the Securities Exchange Act
of 1934, as amended, which Section imposes short-swing profit liability on
officers, directors and 10% stockholders under certain circumstances. As a
general matter, Rule 16b-3 sets forth exemptions from Section 16(b) liability
for an officer's, director's or 10% stockholder's transactions in equity
securities of the Company. The 2000 Plan is intended to comply with the revised
Rule 16b-3 and eliminates certain restrictions no longer required under
Rule 16b-3.
DESCRIPTION OF THE 2000 EQUITY INCENTIVE PLAN
The purposes of the 2000 Plan are: (i) to attract and retain directors,
officers, key employees and consultants of the Company, (ii) to provide such
persons with incentives to continue in the long-term service of the Company, and
(iii) to create in such persons a more direct interest in the future success of
the operations of the Company by relating incentive compensation directly to
increases in stockholder value.
The 2000 Plan contains the following four equity incentive components:
(i) performance share and performance unit awards, (ii) discretionary stock
options for employees, directors and consultants, (iii) automatic stock options
for non-employee directors, and (iv) restricted stock awards. 300,000 SHARES OF
COMMON STOCK HAVE BEEN INITIALLY RESERVED FOR ISSUANCE UNDER THE 2000 PLAN,
SUBJECT TO AN ANNUAL INCREASE OF 100,000 SHARES OF COMMON STOCK AT THE BEGINNING
OF EACH SUBSEQUENT FISCAL YEAR, PROVIDED THAT THE AGGREGATE NUMBER OF SHARES
THAT MAY BE ISSUED UNDER THE 2000 PLAN MAY NOT EXCEED 1,200,000. Based on the
$28.75 closing price of the Company's Common Stock on May 9, 2000, the market
value of the 300,000 shares of Common Stock underlying the options available for
issuance under the 2000 Plan is $8,625,000.
The 2000 Plan will be administered by the Company's Board of Directors or a
committee of the Board of Directors (collectively, the "Board"). Subject to the
terms of the 2000 Plan, the Board will determine the persons to whom awards are
granted and the type, amount and terms of such awards. If a committee is used to
approve awards to officers or directors, such committee must be comprised solely
of two or more "non-employee directors," as such term or similar term is defined
in Rule 16b-3. The Board may also take any action necessary or advisable to
obtain an exemption under Rule 16b-3, including but not limited to: (i) seeking
stockholder ratification of a particular award or awards or (ii) imposing a
six-month holding period between the date of the grant of an option and the
disposition (other than the exercise of such option) of either the option or the
Common Stock underlying such option.
Under the performance units award component of the 2000 Plan, the Board may
establish an employee's award, which award will be denominated in either shares
of Common Stock ("Performance Shares"), dollars or a combination thereof. In
accordance with the 2000 Plan, the Board may establish the
12
<PAGE>
maximum and minimum performance targets to be achieved during an applicable time
period (a "Performance Cycle"). Performance targets established by the Board
relate to corporate, group, unit, or individual performance and may be
established in terms of earnings, earnings growth and/or ratio of earnings to
equity or assets. Following the conclusion of each Performance Cycle, the Board
will then determine the extent to which performance targets have been attained
and what, if any, payment is due with respect to an award and whether such
payment will be made in cash, shares of Common Stock or some combination.
Payment of an award may be made in a lump sum or in installments following the
end of the applicable Performance Cycle. The fair market value of performance
units (other than performance shares) that may be granted pursuant to the
performance units award component of the 2000 Plan to any employee in any plan
year may not exceed $100,000, subject to Section 4.3 of the 2000 Plan, no more
than 100,000 shares may be issued to any employee in any plan year as
performance shares, and no options may be issued pursuant to the 2000 Plan in
any plan year for the purchase of more than 100,000 Shares.
Under the discretionary stock option component of the 2000 Plan, the Board
may grant both incentive stock options ("ISOs") intended to qualify under
Section 422 of the Internal Revenue Code of 1986, as amended, and non-statutory
options ("NSOs"). Only employees of the Company are eligible to receive ISOs.
Non-employee directors, employees and consultants are eligible to receive NSOs.
ISOs and NSOs must be granted to employees at an exercise price no less than the
fair market value of the Common Stock on the date of the grant, but NSOs may be
granted to non-employee directors or consultants at a price that is less than
fair market value of the Common Stock on the date of grant. Any option granted
under the 2000 Plan must have a term no greater than ten years. The exercise
price of an ISO granted to a holder of more than 10% of the Common Stock must be
at least 110% of fair market value and the term of such option cannot exceed
five years. The Company estimates that there are currently 1,800 employees
eligible to participate in the stock option component of the 2000 Plan.
Under the restricted stock award component of the 2000 Plan, the Board may
grant one or more awards consisting of shares of Common Stock ("Restricted
Stock"). A recipient's right to retain an award of restricted stock shall be
subject to such restrictions as may be established by the Board with respect to
such award. Restrictions may include continued employment with the Company or
the attainment of specified goals and objectives. A recipient has full voting
and dividend rights with respect to Restricted Stock from the date of
the awards.
The automatic stock option component of the 2000 Plan provides for an annual
grant to non-employee directors. On the first day of each fiscal year, each
non-employee director will be automatically granted a non-qualified stock option
to purchase 4,000 shares of Common Stock. The NSOs will vest in their entirety
and be exercisable one year from the date of grant.
The exercise price of any options granted under the 2000 Plan may be paid:
(i) in cash, (ii) by cashier's check payable to the order of the Company,
(iii) by delivery of shares of Common Stock already owned by the holder, the
fair market value of which equals the exercise price of the Common Stock to be
purchased pursuant to the exercise of the option, (iv) by delivery to the
Company of a properly executed notice of exercise together with irrevocable
instructions to a broker to deliver to the Company the amount of the exercise
price from the proceeds of the sale of the Common Stock underlying the option or
(v) by a loan from the Company, a third party or a broker to the optionee in an
amount necessary to pay the exercise price.
If an optionee's employment with the Company is terminated for cause, which
is defined to be a gross violation of the Company's established policies and
procedures, participation in the 2000 Plan ceases and all options held by such
optionee will be cancelled. If an optionee's employment is terminated for any
reason other than cause, retirement, disability or death, (i) options that are
exercisable on the date of termination will remain exercisable for three months
after termination, but in no event beyond term of the option and (ii) any award
of Restricted Stock as to which the employment period or other restrictions have
not been satisfied shall be forfeited. If a non-employee director's directorship
is terminated for any reason
13
<PAGE>
other than death or disability, any option held by the optionee, to the extent
exercisable, will remain exercisable after termination of his director status
for a period of three months, but in no event beyond the term of the option.
If an optionee's employment is terminated due to death or disability,
(i) options, to the extent exercisable, remain exercisable for a period of
twelve months following the optionee's death or disability, but in no event will
the options be exercisable beyond the term of the option and (ii) all
restrictions on Restricted Stock lapse and the Restricted Stock becomes
unforfeitable. If a non-employee director's directorship is terminated due to
death or disability, options to the extent then exercisable, will remain
exercisable for a period of twelve months after the termination of the
directorship, but in no event beyond the term of the option.
If an optionee's employment is terminated in a manner determined by the
Board, in its sole discretion, to constitute retirement, (i) options may be
exercised by the optionee within three months following his or her retirement if
the option is an ISO or within twelve months following his or her retirement if
the option is an NSO, but in no event beyond the term of the option.
Upon a change in control of the Company, the Board may, in its sole
discretion: (i) accelerate the exercise dates of any outstanding options or make
such options fully vested and exercisable; (ii) grant a cash bonus award to any
optionee in an amount necessary to pay the exercise price of all or any portion
of the options then held by such optionee; (iii) pay cash to any or all
optionees in exchange for the cancellation of their outstanding options in an
amount equal to the difference between the exercise price of such options and
the greater of the price offered by a third party for the underlying Common
Stock or the fair market value of the Common Stock on the date of cancellation
of the option; (iv) make any other adjustments or amendments to the outstanding
options; or (v) eliminate all restrictions with respect to restricted stock and
deliver shares of Common Stock free of restrictive legends to any Participant.
In addition, the Board may provide for payment of outstanding performance units
at the maximum award level or any percentage thereof.
A "change in control" would be deemed to occur when: (i) any person or group
other than William J. Pearse acquired directly or indirectly more than 33 1/3%
of the Company's voting shares, (ii) 50% or more of the Board members are
replaced in a 36-month period, except by persons nominated by the directors
holding office at the beginning of such period, or persons nominated by them,
(iii) a merger or consolidation occurs, other than a merger or consolidation in
which shares of the Company outstanding prior to the merger continue to
represent at least 80% of the combined voting power of the voting securities of
the Company or the surviving entity outstanding immediately after such merger or
consolidation or (iv) a sale of all or substantially all of the Company's
assets occurs.
In the event that the Company is merged or consolidated with another
corporation, or if substantially all of the assets or more than 50% of the
voting stock of the Company is acquired by any other corporation (other than a
sale or conveyance in which the Company continues as a holding company), or in
the case of a reorganization (other than a reorganization under the United
States Bankruptcy Code) or liquidation of the Company, and if the provision of
the "change of control" section do not apply, the Board, or the board of
directors of any corporation assuming the obligations of the Company, will have
the power and the discretion to prescribe the terms and conditions for the
exercise of, or modification of, any outstanding awards. This includes, but is
not limited to: acceleration of the dates of exercise of the options, exchanging
or converting such options into options to acquire securities of the surviving
or acquiring corporation, cancellation of options in exchange for payment,
mandatory exercise prior to the date of the transaction, removal of restrictions
on restricted stock and modification of performance requirements for any
other awards.
An optionee is permitted to transfer NSOs to one or more of the optionee's
immediate family or a family trust, but only upon the prior written consent of
the Board and subject to any conditions imposed by the Board. ISOs are not
transferable except in the event of the optionee's death.
14
<PAGE>
The Board has complete and exclusive authority to amend the 2000 Plan in any
respect, however such amendment may not adversely affect the rights of any
holder of an outstanding award or option without such holder's consent.
Stockholder approval of any amendment is not required unless mandated by
applicable law. The 2000 Plan shall terminate no later than 10 years after the
date it becomes effective. The effective date of the 2000 Plan was
March 13, 2000.
Subject to certain limitations contained in Section 15 of the 2000 Plan, the
Board may make any adjustment in the option price, the number of shares subject
to, or the terms of, an outstanding option and a subsequent granting of an
option by amendment or by substitution of an outstanding option. Such amendment,
substitution or re-grant may result in terms and conditions that differ from the
terms and conditions of the original option. However, the Board may not
adversely affect the rights of any participant to previously granted options
without the consent of such participant.
Because the awards authorized in the 2000 Plan (other than the automatic
options for non-employee directors) are discretionary, the Company is unable to
calculate the amount of any awards that may be granted pursuant to the 2000 Plan
for the fiscal year ending January 31, 2001 or any subsequent years.
Nonetheless, as of May 9, 2000, J. Edward McEntire had been granted 25,750
options under the 2000 Plan and John Bauer-Martinez had been granted 7,500
options under the 2000 Plan. These options were granted subject to the approval
of the 2000 Plan by the Company's shareholders.
FEDERAL INCOME TAX CONSEQUENCES OF THE 2000 PLAN
The following is a general summary of the federal income tax consequences
that may apply to recipients of the options under the 2000 Plan. BECAUSE THE
APPLICATION OF THE TAX LAWS VARIES ACCORDING TO INDIVIDUAL CIRCUMSTANCES, A
PARTICIPANT SHOULD SEEK PROFESSIONAL TAX ADVICE CONCERNING THE TAX CONSEQUENCES
OF HIS OR HER PARTICIPATION IN THE 2000 PLAN, INCLUDING THE POTENTIAL
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS AND ESTATE AND GIFT
TAX CONSIDERATIONS.
NON-STATUTORY STOCK OPTIONS. The tax treatment of NSOs differs
significantly from the tax treatment of ISOs. No taxable income is recognized
when an NSO is granted but, upon the exercise of an NSO, the difference between
the fair market value of the shares underlying the option on the date of
exercise (or up to 6 months later if the option is subject to Section 16(b) of
the Securities Exchange Act of 1934) and the exercise price is taxable as
ordinary income to the recipient and is generally deductible by the Company. The
recipient will take the shares with a basis equal to the fair market value on
the date of exercise and the holding period for the shares will begin on the day
after the date the option is exercised. For long-term capital gain treatment,
the shares must be held for more than one year.
INCENTIVE STOCK OPTIONS. A participant who is granted an ISO recognizes no
taxable income when the ISO is granted. Generally, no income is recognized upon
exercise of an ISO for regular income tax purposes, however, income is generally
recognized upon the exercise of an ISO for alternative minimum tax ("AMT")
purposes (see below). However, a participant who exercises an ISO recognizes
taxable gain or loss upon the sale of the shares underlying the option. Any gain
or loss recognized on the sale of shares acquired upon exercise of an ISO is
taxed as capital gain or loss if the shares have been held for more than one
year after the option was exercised and for more than two years after the option
was granted. In either event, the Company receives no deduction with respect to
the ISO shares. If the participant disposes of the shares before the required
holding periods have elapsed (a "disqualifying disposition"), the participant is
taxed as though he or she had exercised an NSO, except that the ordinary income
on exercise of the option is recognized in the year of the disqualifying
disposition and generally is the lesser of the original spread upon exercise or
the excess of the amount realized in the sale of the stock over the original
option price.
ALTERNATIVE MINIMUM TAX. The exercise of an ISO may result in tax liability
under the AMT. The AMT provides for additional tax equal to the excess, if any,
of (a) 26% or 28% after "alternative minimum taxable income" in excess of a
certain exception amount, over (b) regular tax for the taxable year. For
15
<PAGE>
purposes of calculating alternative minimum taxable income, an ISO is treated as
if it were an NSO, so the difference between the fair market value of the shares
on the date of exercise and the option price will be deemed as income for this
purpose and the taxpayer takes the shares with a basis equal to such fair market
value on the date of exercise for subsequent AMT purposes. However, regular tax
treatment will apply for AMT purposes if a disqualifying disposition occurs in
the same taxable year that options are exercised.
WITHHOLDING. The Company may withhold any taxes required by federal, state
or local law or regulation in connection with any stock option or other award
under the 2000 Plan, including, but not limited to, withholding of any portion
of any payment or withholding from other compensation payable to the
participant, unless such person reimburses the Company for such amount.
RESTRICTED STOCK AND PERFORMANCE SHARES. Grantees of Restricted Stock and
Performance Shares do not recognize income at the time of the grant of such
awards. However, when shares of Restricted Stock are no longer subject to a
substantial risk of forfeiture or when Performance Shares are paid, grantees
recognize ordinary income in an amount equal to the fair market value of the
stock less, in the case of Restricted Stock, the amount paid, if any, for the
stock. Alternatively, the grantee of Restricted Stock may elect to recognize
income upon the grant of the stock and not at the time the restrictions lapse.
The Company generally is entitled to deduct an amount equal to the income
recognized by the grantee at the time the grantee recognizes the income.
CASH AWARDS, DIVIDENDS, AND DIVIDEND EQUIVALENTS. Cash awards, dividends
and dividend equivalent payments are taxable as ordinary income when paid. The
Company is entitled to deduct the amount of a cash award, dividends on
Restricted Stock and dividend equivalent payments when such amounts are taxable
to the recipient.
CHANGE OF CONTROL. If there is an acceleration of the vesting or payment of
awards and/or an acceleration of the exercisability of options upon a change of
control, all or a portion of the accelerated awards may constitute "Excess
Parachute Payments" under Section 280G of the Code. The employee receiving an
Excess Parachute Payment incurs an excise tax of 20% of the amount of the
payment in excess of the employee's average annual compensation over the five
calendar years preceding the year of the change of control and the Company is
not entitled to a deduction for such excess amount.
The foregoing summary of the federal income tax consequences of the 2000
Plan is based on the Company's understanding of present federal tax law and
regulations. The summary does not purport to be complete or applicable to every
specific situation.
DISCONTINUANCE OF THE 1997 EQUITY INCENTIVE PLAN
If the stockholders approve the 2000 Plan, the Company will immediately
discontinue the 1997 Equity Incentive Plan and no further awards will be granted
under such plans. Awards granted under the 1997 Equity Incentive Plan will
remain outstanding pursuant to the terms of such plan and any documents
evidencing such awards.
VOTE REQUIRED. Approval of the 2000 Plan requires the affirmative vote of a
majority of the voters present in person or represented by proxy and entitled to
vote on the subject matter, if a quorum exists.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
ADOPTION OF THE 2000 EQUITY INCENTIVE PLAN
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PROPOSAL 3--APPROVAL OF THE ADOPTION OF THE EMPLOYEE STOCK PURCHASE PLAN
In March 2000, the board of directors of the Company adopted an employee
stock purchase plan (the "Employee Stock Purchase Plan"), subject to stockholder
approval. The Employee Stock Purchase Plan provides an opportunity for the
Company's employees to purchase shares of the Company's Common Stock at a
discount from market price through accumulated payroll deductions. The Employee
Stock Purchase Plan is attached hereto as APPENDIX B and the following
description is qualified in its entirety by reference to the Employee Stock
Purchase Plan.
GENERAL. The Employee Stock Purchase Plan provides Eligible Employees (see
"Eligibility") the opportunity to purchase shares of the Company's Common Stock
through accumulated payroll deductions at either quarterly or semi-annual
offerings, as determined at the election of the Board, under the Employee Stock
Purchase Plan (each an "Offering Period"), commencing no earlier than August 1,
2000. The Board will determine and announce the starting and ending dates of any
Offering Period at least five (5) days prior to the scheduled beginning of the
first Offering Period to be affected thereafter.
STOCK SUBJECT TO THE EMPLOYEE STOCK PURCHASE PLAN. The number of shares of
Common Stock that shall initially be made available for sale under the Employee
Stock Purchase Plan shall be 400,000. 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. On May 9, 2000 there were
10,729,899 shares of Common Stock outstanding. The Employee Stock Purchase Plan
has a ten (10) year term and will expire on March 13, 2010. The Company may
issue treasury shares or authorized and unissued shares of Common Stock under
the Plan. If, on a given Exercise Date (as defined herein), the number of shares
with respect to which options are to be exercised exceeds the number of shares
available under the Employee Stock Purchase Plan, the Company shall make a pro
rata allocation of the shares remaining available for purchase in as uniform a
manner as practicable and as it shall determine to be equitable. If any option
in the Employee Stock Purchase Plan is unexercised, the number of shares covered
by that option again become available for sale under the Employee Stock
Purchase Plan.
ADMINISTRATION. The Employee Stock Purchase Plan shall be administered by
the Company's Board of Directors or a committee of members of the Board of
Directors (collectively, the "Board"). The Board shall have full and exclusive
discretionary authority to construe, interpret and apply the terms of the
Employee Stock Purchase Plan, to determine eligibility and to adjudicate all
disputed claims filed under the Employee Stock Purchase Plan. Every finding,
decision and determination made by the Board shall, to the fullest extent
permitted by law, be final and binding on all parties.
ELIGIBILITY. Only Eligible Employees will receive options under the
Employee Stock Purchase Plan. "Employees" are persons whose customary employment
with the Company, or by a predecessor of the Company that the Company has
acquired, is at least twenty (20) hours per week and more than five (5) months
in any calendar year. "Eligible Employees" are Employees of the Company who have
been employed by the Company for at least three (3) months on a given Enrollment
Date (as defined herein). Non-employee directors of the Company or persons who
are treated for federal tax purposes as holding 5% or more of the total combined
voting power or value of all classes of stock of the Company may not
participate. In addition, any employee whose right to purchase stock under all
employee stock purchase plans of the Company accrues at a rate exceeding $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, is ineligible to participate in the Employee Stock
Purchase Plan.
PURCHASE PRICE. The purchase price per share of Common Stock under each
option is 85% of the market price of the Common Stock on the Enrollment Date or
Exercise Date, whichever is lower. "Market Price" means the closing sale price
for the shares on a given date (as reported in the Nasdaq National
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Market issues listing in The Wall Street Journal). If no sales of Common Stock
were made on a particular day, the Company will use the closing price on the
next day on which sales were made. "Enrollment Date" means the first day of each
Offering Period. "Exercise Date" means the last day of each Offering Period.
PAYROLL DEDUCTIONS. At the time that each Eligible Employee elects to
participate in the Employee Stock Purchase Plan, such Eligible Employee shall
complete a subscription agreement authorizing payroll deductions, which
agreement shall be filed with the Company's payroll office prior to the
applicable Enrollment Date. Such subscription agreement will designate the
amount of the payroll deduction to be taken on each pay day in an amount not
exceeding ten percent (10%) of the compensation the Eligible Employee receives
on each pay day during the Offering Period. All payroll deductions will be
credited to an account maintained by the Company on behalf of the Eligible
Employee. An Employee may not make any additional payments into such account.
Any Employee Stock Purchase Plan participant may increase or decrease the
rate of his or her payroll deduction by completing a new subscription agreement.
Any withholding rate change shall be effective with the first full payroll
period following five (5) business days after the Company receives a new
subscription agreement. The Company reserves the right to unilaterally decrease
any Eligible Employee's withholding to zero percent (0%) in order to comply with
applicable portions of the Internal Revenue Service Code of 1986, as amended.
An Eligible Employee who elects to participate in the Employee Stock
Purchase Plan does not have the rights of a stockholder until the option granted
pursuant to the Employee Stock Purchase Plan has been exercised.
NUMBER OF SHARES ELIGIBLE FOR PURCHASE. Each Eligible Employee's option
will allow the employee to elect to purchase up to the number of shares that can
be purchased with such Eligible Employee's accumulated payroll deductions as of
each Exercise Date of each Offering Period. However, no Eligible Employee shall
be permitted to purchase more than the number of shares during any Offering
Period, which should cause such Employee to exceed the limitations set forth
above in "Eligibility." Unless an Eligible Employee withdraws from the Plan,
such Eligible Employee's options shall be exercised automatically on each
Exercise Date.
The Employee Stock Purchase Plan contains provisions that prevent any
Eligible Employee from violating provisions of the Internal Revenue Code that
prohibit purchasing a number of shares under the Employee Stock Purchase Plan
that cause an employee to have 5% or more of the total combined voting power or
value of all classes of the Company's Common Stock. In addition, no Eligible
Employee may be granted an option to purchase Common Stock under this or any
other qualified stock purchase plan of the Company worth more than $25,000 for
each calendar year based on the fair market value of shares (at the time of
grant). The Company has no other qualified stock purchase plan at this time.
If all Eligible Employees in any one offering elect to purchase more than
the number of shares available for that offering, the Committee will prorate the
shares in accordance with the number of shares subscribed for by each Eligible
Employee, so the total number of shares purchased under that offering does not
exceed the available shares.
WITHDRAWAL. 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 Employee Stock Purchase Plan by giving written
notice to the Company. All of such participant's payroll deductions credited to
his or her account shall be paid to such participant promptly upon receipt of
notice of withdrawal and such participant's option shall automatically
terminate. If a participant withdraws during an Offering Period, payroll
deductions shall not resume at the beginning of the next or any other Offering
Period unless the participant delivers a new subscription agreement to
the Company.
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DESIGNATION OF BENEFICIARY. A participant may file a written designation of
a beneficiary who is to receive any shares and cash from the participant's
account under the Employee Stock Purchase Plan if such participant dies
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
such participant's account under the Employee Stock Purchase Plan if such
participant dies prior to the exercise of the option. If the participant is
married and the designated beneficiary is not the spouse, spousal consent is
required for such designation to be effective. Such designation may be changed
by the participant at any time by delivery of written notice to the Company.
NONTRANSFERABILITY. An Eligible Employee's rights under the Employee Stock
Purchase Plan and options are not transferable except by will or the laws of
descent and distribution. If an Eligible Employee attempts to sell, pledge,
assign or transfer his or her rights, the Eligible Employee's option will
terminate and such attempted assignment will be treated as a withdrawal from the
Employee Stock Purchase Plan.
CHANGES IN CAPITALIZATION. The number of shares covered by each option
under the Employee Stock Purchase Plan, which have not yet been exercised, the
number of shares which have been authorized for issuance under the Employee
Stock Purchase Plan but not yet placed under option, the maximum number of
shares each participant may purchase per Offering Period, the price per share
and the number of shares covered by each option that has not yet been exercised
shall be proportionately adjusted for any increase or decrease in the number of
issued shares resulting from a stock split, reverse stock split, stock dividend,
combination or reclassification of the Company's common stock.
DISSOLUTION. If there is a proposed dissolution or liquidation of the
Company, the Offering Period then in progress shall be shortened by setting a
new exercise date, and shall terminate immediately prior to the consummation of
such proposed dissolution or liquidation, unless otherwise provided 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.
MERGER OR ASSET SALE. If there is 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 parent or subsidiary of the
successor corporation. If 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 the
date 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.
AMENDMENT AND TERMINATION. The Board of Directors may at any time for any
reason amend or terminate the Employee Stock Purchase Plan. However, no such
amendment or termination shall affect options granted prior to the date of such
amendment or termination. The Employee Stock Purchase Plan will terminate on
March 13, 2010 unless earlier terminated by the Board.
FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS. The following summary generally
describes the principal federal (and not state and local) income tax
consequences of options granted under the Employee Stock Purchase Plan. It is
not intended to cover all tax consequences that may apply. Each Eligible
Employee that elects to participate in the Employee Stock Purchase Plan should
consult his or her own accountant, legal counsel or other financial advisor
regarding the tax consequences of participation in
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the Employee Stock Purchase Plan. This discussion is based on the Internal
Revenue Code as currently in effect.
If an option is granted to an employee under the Employee Stock Purchase
Plan, the Eligible Employee will not have taxable income at the time the option
is granted or exercised. However, the Eligible Employee must include as ordinary
taxable income at the time of sale or other taxable disposition of the Common
Stock, the 15% discount of the option price. In general, the Eligible Employee
will also recognize long-term capital gain on any increase in fair market value
in the Common Stock (in excess of the purchase price and the 15% discount) or
will recognize a long-term capital loss, if the disposition occurs at least two
years after the date on which the option is granted and if the Eligible Employee
has held the Common Stock at least twelve months. If the Eligible Employee
disposes of the Common Stock before the expiration of the two-year and
twelve-month holding periods, the Eligible Employee must recognize as ordinary
income in the year of the disposition the difference between the Common Stock's
option price and the fair market value of the Common Stock on the date
exercised. In that case, the Eligible Employee will recognize a capital gain or
loss equal to the difference between the Eligible Employee's basis (the Common
Stock's fair market value on the date exercised) and the Common Stock's fair
market value on the date of disposition.
WITHHOLDING. The Company may withhold any taxes required by any federal,
state or local law or regulation in connection with any stock option or other
award under the Employee Stock Purchase Plan, including, but not limited to,
withholding of any portion of any payment or withholding from other compensation
payable to the participant, unless such person reimburses the Company for
such amount.
VOTE REQUIRED. Approval of the Employee Stock Purchase Plan requires the
affirmative vote of a majority of the votes present in person or represented by
proxy and entitled to vote on the subject matter, if a quorum exists.
THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN.
PROPOSAL 4--RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The firm of Ernst & Young LLP served as independent auditors of the Company
for the year ended January 31, 2000. Upon recommendation of the Audit Committee,
the Board of Directors has appointed Ernst & Young LLP to serve for the current
fiscal year ending January 31, 2001. The Board of Directors is requesting
ratification by the stockholders of Ernst & Young LLP's appointment.
Representatives of Ernst & Young LLP will be present at the Annual Meeting and
will be available to respond to any questions that might arise.
In the event this proposal is defeated, the vote will be considered as a
direction to the Board of Directors to select other auditors for the next fiscal
year. However, because of the difficulty and expense of making any substitution
of auditors after the beginning of a fiscal year, Ernst & Young LLP's
appointment for the 2001 fiscal year will be permitted to stand unless the Board
of Directors finds other reasons for making a change.
Services to be performed by Ernst & Young LLP for the 2001 fiscal year will
include, among other things, audit of annual statements, limited reviews of
quarterly financial information and consultation in connection with various
financial reporting, accounting and tax matters. Ratification of Ernst & Young
LLP's appointment requires the affirmative vote of the holders of a majority of
the shares of Common Stock present at the Annual Meeting, in person or by proxy,
and entitled to vote.
VOTE REQUIREMENT. Approval of Proposal 4 requires the affirmative vote of a
majority of the votes present in person or represented by proxy and entitled to
vote on the subject matter, if a quorum exists.
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THE BOARD RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
RATIFICATION OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS
STOCKHOLDER PROPOSALS FOR NEXT ANNUAL MEETING
Stockholders may submit proposals on matters appropriate for stockholder
action at the Company's 2001 Annual Meeting. Such proposals must be received by
the Company not later than January 23, 2001 to be considered for inclusion in
the proxy statement and proxy relating to the 2001 Annual Meeting of
Stockholders. Any such proposals should be addressed to: Corporate Secretary,
Ultimate Electronics, Inc., 321 West 84th Avenue, Suite A, Thornton,
Colorado 80260.
OTHER MATTERS
The Board of Directors is not aware of any business to be presented at the
Annual Meeting except the matters set forth in the Notice and described in this
Proxy Statement. If any other matters properly come before the Annual Meeting,
the persons designated as agents in the enclosed proxy will vote on such matters
in accordance with their best judgment.
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APPENDIX A
ULTIMATE ELECTRONICS, INC.
2000 EQUITY INCENTIVE PLAN
SECTION 1
INTRODUCTION
1.1 ESTABLISHMENT. Ultimate Electronics, Inc., a Delaware corporation
(together with its subsidiaries, the "Company"), hereby establishes the 2000
Equity Incentive Plan (the "Plan") for certain key employees, non-employee
directors and consultants of the Company.
1.2 PURPOSES. The purposes of the Plan are to provide Participants with
added incentives to continue in the long-term service of the Company and to
create in such persons a more direct interest in the future success of the
operations of the Company by relating incentive compensation to increases in
stockholder value. The Plan is also designed to attract key employees and to
retain and motivate key employees by providing an opportunity for investment in
the Company.
SECTION 2
DEFINITIONS
2.1 DEFINITIONS. The following terms shall have the meanings set forth
below:
(a) "AWARD" means a grant made under this Plan in the form of Stock,
Options, Restricted Stock, Performance Units or Performance Shares.
(b) "BOARD" means the board of directors of the Company.
(c) "EFFECTIVE DATE" means the date of the adoption of the Plan by the
Board.
(d) "ELIGIBLE EMPLOYEES" means key employees (including, without
limitation, officers and directors who are also employees) of the Company
whose judgment, initiative and efforts is, or will be, important to the
successful conduct of the Company's business.
(e) "FAIR MARKET VALUE" shall be determined in good faith by the Plan
Administrator after such consultation with outside legal, accounting and
other experts as the Plan Administrator may deem advisable.
(f) "INSIDER" means any person who is a beneficial owner, directly or
indirectly, of more than 10% of any equity securities of the Company
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended (the "1934 Act").
(g) "INCENTIVE STOCK OPTION" means any Option designated as such and
granted in accordance with the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code").
(h) "NON-EMPLOYEE DIRECTOR" means, at any time, any member of the Board
who is not also an employee of the Company.
(i) "NON-INSIDER" means any person who is not an Insider.
(j) "NON-STATUTORY OPTION" means any Option other than an Incentive
Stock Option.
(k) "OPTION" means a right to purchase Stock at a stated price for a
specified period of time.
(l) "OPTION PRICE" means the price at which Shares subject to an Option
may be purchased, determined in accordance with Section 7.3(b) of
this Plan.
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(m) "PARTICIPANT" means an Eligible Employee, Non-employee Director or
consultant to the Company designated by the Plan Administrator from time to
time during the term of the Plan to receive one or more Awards under
the Plan.
(n) "PERFORMANCE CYCLE" means the period of time as specified by the
Plan Administrator over which Performance Units are to be earned.
(o) "PERFORMANCE SHARES" means an Award made pursuant to Section 9 which
entitles a Participant to receive Shares based on the achievement of
performance targets during a Performance Cycle.
(p) "PERFORMANCE UNITS" means an Award made pursuant to Section 9 which
entitles a Participant to receive cash, Shares or a combination thereof
based on the achievement of performance targets during a Performance Cycle.
(q) "PLAN ADMINISTRATOR" shall mean the particular entity, whether the
Plan Committee or Board, that is authorized to administer Incentive Stock
Options or Non-Statutory Options to the extent such entity is carrying out
its administrative functions under those programs with respect to the
persons under its jurisdiction.
(r) "PLAN COMMITTEE" means a committee consisting of at least two
Non-employee Directors who are authorized by the Board hereunder to take
actions in the administration of the Plan. No Member of the Plan Committee
may be a person who (i) is a current employee of the Company, (ii) is a
former employee who receives compensation for prior services (other than
benefits under a tax-qualified retirement plan) during the current Plan
Year, (iii) is a former officer of the Company, or (iv) receives
remuneration, directly or indirectly, in exchange for any goods or services,
from the Company in any capacity other than director. The Plan Committee
shall be so constituted at all times as to permit the Plan to comply with
Rule 16b-3 or any successor rule promulgated under the 1934 Act and Treasury
Regulation Section 1.162-27(e)(3). Members of the Plan Committee shall:
(i) be appointed from time to time by the Board and (ii) serve at the
pleasure of the Board and may resign at any time upon written notice to
the Board.
(s) "PLAN YEAR" means each 12-month period beginning February 1 and
ending the following January 31, except that for the first year of the Plan
it shall begin on the Effective Date and extend to January 31 of the
following year.
(t) "PREDECESSOR PLAN" shall mean the Company's Employee Stock Purchase
Plan as in effect prior to the adoption of the Plan.
(u) "RESTRICTED STOCK" means Stock granted under Section 8 that is
subject to restrictions imposed pursuant to said Section.
(v) "SHARE" means a share of Stock.
(w) "STOCK" means the common stock, $.01 par value, of the Company.
2.2 GENDER AND NUMBER. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definition of
any term herein in the singular shall also include the plural.
SECTION 3
PLAN ADMINISTRATION
3.1 GENERAL. The Plan shall be administered by the Board, which may from
time to time delegate all or part of its authority under this Plan to a Plan
Committee. If authorized by duly passed resolutions of the Board, the Plan
Committee shall have sole and exclusive authority to administer the Incentive
Stock Option grants and Non-Statutory Option grants with respect to Insiders.
The Plan Committee may also, at
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the Board's discretion, administer Incentive Stock Options and Non-Statutory
Stock Options to Non-Insiders.
3.2 PLAN ADMINISTRATOR'S AUTHORITY. References in this Plan to the Plan
Administrator refer to the Board or, to the extent the Board delegates its
administrative authority to the Plan Committee, to the Plan Committee. In
accordance with the provisions of the Plan, the Plan Administrator shall, in its
sole discretion, select Participants to whom Awards will be granted, the form of
each Award, the amount of each Award and any other terms and conditions of each
Award as the Plan Administrator may deem necessary or desirable and consistent
with the terms of the Plan. The Plan Administrator shall determine the form or
forms of the agreements which shall evidence the particular provisions, terms,
conditions, rights and duties of the Company and the Participants with respect
to Awards granted pursuant to the Plan, which provisions need not be identical
except as may be provided herein. The Plan Administrator may from time to time
adopt such rules and regulations for carrying out the purposes of the Plan as it
may deem proper and in the best interests of the Company. The Plan Administrator
may correct any defect, supply any omission or reconcile any inconsistency in
the Plan or in any agreement entered into hereunder in the manner and to the
extent it shall deem proper and in the best interest of the Company. No member
of the Plan Administrator shall be liable for any action or determination made
in good faith, and all members of the Plan Administrator shall, in addition to
their rights as directors, be fully indemnified by the Company with respect to
any such action, determination or interpretation. The determination,
interpretations and other actions of the Plan Administrator pursuant to the
provisions of the Plan shall be binding and conclusive for all purposes and on
all persons.
SECTION 4
SHARES SUBJECT TO THE PLAN
4.1 NUMBER OF SHARES. 300,000 Shares are authorized for issuance under the
Plan in accordance with the provisions of the Plan and subject to such
restrictions or other provisions as the Plan Administrator may from time to time
deem necessary. The number of Shares authorized for issuance under the Plan
shall automatically increase on the first trading day of each fiscal year during
the term of the Plan, beginning with the fiscal year 2002, by 100,000 Shares.
The aggregate number of shares that may be issued under the Plan shall not
exceed 1,200,000. The Shares may be divided among the various Plan components as
the Plan Administrator shall determine.
4.2 UNUSED AND FORFEITED STOCK. Any Shares that are subject to an Award
under this Plan that are not used because the terms and conditions of the Award
are not met, including any Shares that are subject to an Option that expires or
is terminated for any reason, any Shares which are used for full or partial
payment of the purchase price of Shares with respect to which an Option is
exercised and any Shares retained by the Company pursuant to Section 16 of this
Plan, shall automatically become available for use under the Plan.
Notwithstanding the foregoing, with respect to any Shares withheld by the
Company in satisfaction of withholding taxes incurred upon the exercise of
Incentive Stock Options or as part of the purchase price of the Shares
underlying such Incentive Stock Options, the number of Shares available for
issuance under this Plan shall be reduced by the number of Shares so withheld.
4.3 ADJUSTMENTS FOR STOCK SPLIT, STOCK DIVIDEND, ETC. If the Company shall
at any time increase or decrease the number of its outstanding Shares or change
in any way the rights and privileges of such Shares by means of the payment of a
stock dividend or any other distribution upon such Shares payable in Shares, or
through a stock split, subdivision, consolidation, combination, reclassification
or recapitalization involving the Shares, then in relation to the Shares that
are affected by one or more of the above events, the numbers, rights and
privileges of the following shall be increased, decreased or changed in like
manner as if they had been issued and outstanding, fully paid and nonassessable
at the time of such occurrence: (i) the Shares as to which Awards may be granted
under the Plan and (ii) the Shares then included in each outstanding Option or
Performance Unit granted hereunder.
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4.4 DIVIDEND PAYABLE IN STOCK OF ANOTHER CORPORATION, ETC. If the Company
shall at any time pay or make any dividend or other distribution upon the Shares
payable in securities of another corporation or other property (except money or
Shares), a proportionate part of such securities or other property shall be set
aside and delivered to any Participant then holding an Award for the particular
type of Shares for which the dividend or other distribution was made, upon
exercise thereof in the case of Options, and the vesting thereof in the case of
other Awards. Prior to the time that any such securities or other property are
delivered to a Participant in accordance with the foregoing, the Company shall
be the owner of such securities or other property and shall have the right to
vote the securities, receive any dividends payable on such securities, and in
all other respects shall be treated as the owner. If securities or other
property which have been set aside by the Company in accordance with this
Section 4.4 are not delivered to a Participant because an Award is not exercised
or otherwise vested, then such securities or other property shall remain the
property of the Company and shall be dealt with by the Company as it shall
determine in its sole discretion.
4.5 OTHER CHANGES IN SHARES. In the event there shall be any change, other
than as specified in Sections 4.3 and 4.4, in the number or kind of outstanding
Shares of any stock or other securities into which the Shares shall be changed
or for which it shall have been exchanged, and if the Plan Administrator shall
in its discretion determine that such change equitably requires an adjustment in
the number or kind of Shares subject to outstanding Awards or which have been
reserved for issuance pursuant to the Plan but are not then subject to an Award,
then such adjustments shall be made by the Plan Administrator and shall be
effective for all purposes of the Plan and on each outstanding Award that
involves the particular type of stock for which a change was effected.
4.6 RIGHTS TO SUBSCRIBE. If the Company shall at any time grant to the
holders of its Shares rights to subscribe pro rata for additional Shares thereof
or for any other securities of the Company or of any other corporation, there
shall be reserved with respect to the Shares then subject to an Award held by
any Participant of the particular class of Shares involved, the Shares or other
securities which the Participant would have been entitled to subscribe for if
immediately prior to such grant the Participant had exercised his entire Option,
or otherwise vested in his entire Award. If, upon exercise of any such Option or
the vesting of any other Award, the Participant subscribes for the additional
Shares or other securities, the Participant shall pay to the Company the price
that is payable by the Participant for such Shares or other securities.
4.7 GENERAL ADJUSTMENT RULES. If any adjustment or substitution provided
for in this Section 4 shall result in the creation of a fractional Share under
any Award, the Company shall, in lieu of selling or otherwise issuing such
fractional Share, pay to the Participant a cash sum in an amount equal to the
product of such fraction multiplied by the Fair Market Value of a Share on the
date the fractional Share would otherwise have been issued. In the case of any
such substitution or adjustment affecting an Option, the total Option Price for
the Shares then subject to an Option shall remain unchanged but the Option Price
per Share under each such Option shall be equitably adjusted by the Plan
Administrator to reflect the greater or lesser number of Shares or other
securities into which the Shares subject to the Option may have been changed.
4.8 DETERMINATION BY THE PLAN ADMINISTRATOR. Adjustments under this
Section 4 shall be made by the Plan Administrator, whose determinations with
regard thereto shall be final and binding upon all parties thereto.
4.9 INDIVIDUAL LIMITATIONS ON AWARDS. The fair market value of Performance
Units (other than Performance Shares) that may be granted pursuant to this 2000
Plan to any employee in any Plan Year shall not exceed $100,000, Subject to
Section 4.3, no more than 100,000 Shares may be issued to any employee in any
Plan Year as Performance Shares, and no Options may be issued pursuant to this
Plan in any Plan Year to any employee for the purchase of more than
100,000 Shares.
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4.10 TREATMENT OF PREDECESSOR PLAN. This 2000 Plan shall serve as the
successor to the Predecessor Plan, and no further Awards shall be made under the
Predecessor Plan after the Effective Date. Each outstanding Award under
Predecessor Plan shall continue to be governed solely by the terms of the
documents evidencing such Award, and no provision of the 2000 Plan shall affect
or otherwise modify the rights or obligations of the holder of such Award.
SECTION 5
PARTICIPATION
Participants in the Plan shall be Non-employee Directors and those Eligible
Employees or consultants who, in the judgment of the Plan Administrator, are
performing, or during the term of their incentive arrangement will perform,
important services in the management, operation and development of the Company,
and significantly contribute, or are expected to significantly contribute, to
the achievement of long-term corporate economic objectives. Participants may be
granted from time to time one or more Awards; provided, however, that the grant
of each such Award shall be separately approved by the Plan Administrator, and
receipt of one such Award shall not result in automatic receipt of any other
Award. Written notice shall be given to such person, specifying the terms,
conditions, rights and duties related to each Award.
SECTION 6
REORGANIZATION OR LIQUIDATION
In the event that the Company is merged or consolidated with another
corporation (other than a merger or consolidation in which the Company is the
continuing corporation and which does not result in any reclassification or
change of outstanding Shares), or if all or substantially all of the assets or
more than 50% of the outstanding voting stock of the Company is acquired by any
other corporation, business entity or person (other than a sale or conveyance in
which the Company continues as a holding company of an entity or entities that
conduct the business or businesses formerly conducted by the Company), or in the
case of a reorganization (other than a reorganization under the United States
Bankruptcy Code) or liquidation of the Company, and if the provisions of
Section 10 do not apply, the Plan Administrator, or the board of directors of
any corporation assuming the obligations of the Company, shall have the power
and discretion to prescribe the terms and conditions for the exercise of, or
modification of, any outstanding Awards granted hereunder. By way of
illustration, and not by way of limitation, the Plan Administrator or the board
of directors of the corporation assuming the obligations of the Company may
provide for the complete or partial acceleration of the dates of exercise of the
Options, or may provide that such Options will be exchanged or converted into
options to acquire securities of the surviving or acquiring corporation, or may
provide for a payment or distribution in respect of outstanding Options (or the
portion thereof that is currently exercisable) in cancellation thereof. The Plan
Administrator or the board of directors of the corporation assuming the
obligations of the Company may remove restrictions on Restricted Stock and may
modify the performance requirements for any other Awards. The Plan Administrator
may provide that Options or other Awards granted hereunder must be exercised in
connection with the closing of such transaction, and that if not so exercised
such Awards will expire. Any such determinations by the Plan Administrator or
the board of directors of the corporation assuming the obligations of the
Company may be made generally with respect to all Participants, or may be made
on a case-by-case basis with respect to particular Participants. The provisions
of this Section 6 shall not apply to any transaction undertaken for the purpose
of reincorporating the Company under the laws of another jurisdiction if such
transaction does not materially affect the beneficial ownership of the Company's
capital stock.
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SECTION 7
STOCK OPTIONS
7.1 AUTOMATIC GRANT OF OPTIONS. Each Non-employee Director shall be
automatically granted Non-Statutory Options to purchase 4,000 Shares (subject to
adjustment pursuant to Section 7.3(j) hereof) effective as of February 1 of each
year, which Options will become exercisable one year from the date of grant.
7.2 DISCRETIONARY GRANT OF OPTIONS. The Plan Committee may make
discretionary grants of Options to Non-employee Directors, Eligible Employees
and consultants. The Plan Administrator in its sole discretion shall designate
whether an Option is to be considered an Incentive Stock Option or a
Non-Statutory Option. Notwithstanding any other provision of the Plan,
Non-employee Directors and consultants may only be awarded Non-Statutory
Options, provided, however, that the Board must approve such Award and the
interested Non-employee Director must abstain from voting on the Award. Eligible
Employees may be awarded Non-Statutory Options, Incentive Stock Options, or
both. The Plan Administrator may grant both an Incentive Stock Option and a
Non-Statutory Option to the same employee at the same time (which Options may or
may not be evidenced in the same agreement) or at different times. Incentive
Stock Options and Non-Statutory Options, whether granted at the same or
different times, shall be deemed to have been awarded in separate grants, shall
be clearly identified, and in no event shall the exercise of one Option affect
the right to exercise any other Option or affect the number of Shares for which
any other Option may be exercised.
7.3 AN OPTION AGREEMENT IS REQUIRED FOR EACH AWARD. Each Option granted
under the Plan shall be evidenced by a written stock option agreement which
shall be entered into and signed by a representative of the Company and the
Participant to whom the Option is granted (the "Option Holder"), and which
agreement shall contain the following terms and conditions, as well as such
other terms and conditions not inconsistent therewith, as the Plan Administrator
may consider appropriate in each case.
(a) NUMBER OF SHARES. Each stock option agreement shall state that it
covers a specified number of Shares, as determined by the Plan
Administrator. Notwithstanding any other provision of the Plan, the
aggregate Fair Market Value of the Shares relating to Incentive Stock
Options exercisable for the first time in any one calendar year by any
individual, under the Plan or otherwise, shall not exceed $100,000. For this
purpose, the Fair Market Value of the Shares shall be determined as of the
time an Option is granted.
(b) PRICE. The price at which each Share covered by an Option may be
purchased shall be determined in each case by the Plan Administrator and set
forth in the stock option agreement. In no event shall the Option Price for
each Share covered by an Option grant to an Eligible Employee be granted at
any price less than the Fair Market Value of the Stock on the date the
Option is granted. In addition, the Option Price for each Share covered by
an Incentive Stock Option awarded to an Eligible Employee who then owns
stock representing more than 10% of the total combined voting power of all
classes of stock of the Company or any parent or subsidiary corporation of
the Company must be at least 110% of the Fair Market Value of the Stock
subject to the Incentive Stock Option on the date the Option is granted. The
Option Price for each Share covered by a Non-Statutory Option awarded to a
Non-employee Director, or a consultant may be granted at a price less than
the Fair Market Value of the Stock on the date of the grant.
(c) DURATION OF OPTIONS. Each stock option agreement shall state the
period of time, determined by the Plan Administrator, within which the
Option may be exercised by the Option Holder (the "Option Period").
(i) The Option Period for Incentive Stock Options and Non-Statutory
Stock Options, must expire not more than ten years from the date the
Option is granted.
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(ii) The Option Period of an Incentive Stock Option granted to an
Eligible Employee who then owns stock representing more than 10% of the
total combined voting power of all classes of stock of the Company or any
parent or subsidiary corporation of the Company must expire not more than
five years from the date such an Option is granted.
(d) VESTING OPTIONS. Each stock option agreement shall also state the
periods of time, if any, as determined by the Plan Administrator, when
incremental portions of each Option shall vest.
(e) TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. Except as
otherwise determined by the Plan Administrator, each stock option agreement
shall provide as follows with respect to the exercise of the Option upon
termination of the employment or the death of the Option Holder:
(i) TERMINATION OF DIRECTORSHIP OF NON-EMPLOYEE DIRECTORS.
(A) If a Non-employee Director's term as a director of the
Company shall terminate for any reason other than death or
disability, any Option held by the Option Holder, to the extent
exercisable under the applicable stock option agreement shall remain
exercisable after termination of his director status for a period of
three months, but in no event beyond the Option Period.
(B) If a Non-employee Director's term as a director of the
Company terminates because the Participant dies while, or within
three months after, serving as a director, or is disabled within the
meaning of Section 22(e)(3) of the Code, any Options then held by the
Participant, to the extent then exercisable under the applicable
stock option agreement(s), shall remain exercisable after the
termination of his directorship for a period of twelve months, but in
no event beyond the Option Period. If the Options are not exercised
during the applicable period, they shall be deemed to have been
forfeited and of no further force or effect.
(ii) TERMINATION OF EMPLOYMENT.
(A) If the employment of the Option Holder is terminated within
the Option Period for cause, as determined by the Company, the Option
shall thereafter be void for all purposes. As used in this
subsection 7.2(e)(ii), "cause" shall mean a gross violation, as
determined by the Board, of the Company's established policies and
procedures. The effect of this subsection 7.2(e)(ii) shall be limited
to determining the consequences of a termination, and nothing in this
subsection 7.2(e)(ii) shall restrict or otherwise interfere with the
Company's discretion with respect to the termination of
any employee.
(B) If the Option Holder terminates his employment with the
Company in a manner determined by the Board, in its sole discretion,
to constitute retirement (which determination shall be communicated
to the Option Holder within 10 days of such termination), the Option
may be exercised by the Option Holder, or in the case of death, by
the persons specified in subsection 7.2(e)(ii)(C), within three
months following his or her retirement if the Option is an Incentive
Stock Option or within twelve months following his or her retirement
if the Option is a Non-Statutory Stock Option (provided in each case
that such exercise must occur within the Option Period), but not
thereafter. In any such case, the Option may be exercised only as to
the Shares as to which the Option had become exercisable on or before
the date of the Option Holder's termination of employment.
(C) If the Option Holder dies, or if the Option Holder becomes
disabled (within the meaning of Section 22(e)(3) of the Code, during
the Option Period while still employed, the Option may, in the case
of death, be exercised by those entitled to do so under the Option
Holder's will or by the laws of descent and distribution within
twelve months following the Option Holder's death, but not thereafter
(provided that such exercise must occur within the
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Option Period). In the case of disability, the Option may be
exercised within twelve months following the Option Holder's
disability, but not thereafter (provided that such exercise must
occur within the Option Period). In any such case, the Option may be
exercised only as to the number of Shares exercisable on or before
the date of the Option Holder's death or disability (provided that
such exercise must occur within the Option Period).
(D) If the employment of the Option Holder by the Company is
terminated within the Option Period for any reason other than cause,
retirement as provided in subsection 7.2(e)(ii)(B) above, disability
or the Option Holder's death, the Option may be exercised by the
Option Holder within three months following the date of such
termination (provided that such exercise must occur within the Option
Period), but not thereafter. In any such case, the Option may be
exercised only as to the number of Shares exercisable on or before
the date of termination of employment.
(f) TRANSFERABILITY. Each stock option agreement shall provide that
during the lifetime of the Option Holder, Incentive Stock Options shall be
exercisable only by the Option Holder and Non-Statutory Options shall not be
assignable or transferable except in the limited circumstances as set forth
in Section 12 of this Plan.
(g) EXERCISE, PAYMENTS, ETC.
(i) Each stock option agreement shall provide that the method for
exercising the Option granted therein shall be by delivery to the
Secretary of the Company (the "Secretary") of written notice specifying
the number of Shares with respect to which such Option is exercised and
payment of the Option Price. Such notice shall be in a form satisfactory
to the Plan Administrator and shall specify the particular Option (or
portion thereof) that is being exercised and the number of Shares with
respect to which the Option is being exercised. The exercise of the
Option shall be deemed effective upon receipt of such notice by the
Secretary and payment to the Company of the appropriate Option Price. The
purchase of Shares shall take place at the principal offices of the
Company upon delivery of such notice, at which time the Option Price
shall be paid in full by any of the methods or any combination of the
methods set forth in (ii) below. A properly executed certificate or
certificates representing the Shares shall be issued by the Company and
delivered to the Option Holder as soon as practicable after payment of
the Option Price.
(ii) The Option Price shall be paid by any of the following methods
or any combination of the following methods:
(A) in cash;
(B) by cashier's check payable to the order of the Company;
(C) by delivery to the Company of certificates representing the
number of Shares then owned by the Option Holder, the Fair Market
Value of which equals the Option Price for the Shares to be purchased
pursuant to the Option, properly endorsed for transfer to the
Company; provided however, that Shares used for this purpose must
have been held by the Option Holder for such minimum period of time
as may be established from time to time by the Plan Administrator.
For purposes of this Plan, the Fair Market Value of any Shares
delivered in payment of the Option Price upon exercise of the Option
shall be the Fair Market Value as of the exercise date and the
exercise date shall be the day the delivery of the certificates for
the Shares used as payment of the Option Price; or
(D) by delivery to the Company of a properly executed notice of
exercise together with irrevocable instructions to a broker to
deliver to the Company promptly the amount of the proceeds of the
sale of all or a portion of the Shares or of a loan from the broker
to the Option Holder necessary to pay the Option Price.
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(iii) In the discretion of the Plan Administrator, the Company may
provide a loan or guaranty a third-party loan obtained by a Participant
to pay part or all of the Option Price of the Shares provided that such
loan or the Company's guaranty is properly secured by the Shares.
(h) WITHHOLDING.
(i) NON-STATUTORY OPTIONS. Each stock option agreement covering
Non-Statutory Options shall provide that, upon exercise of the Option,
the Option Holder shall make appropriate arrangements with the Company to
provide for the amount of additional withholding required by applicable
federal and state income tax laws, including payment of such taxes
through delivery of Shares or by withholding Shares to be issued upon the
exercise of the Option, as provided in Section 16.
(ii) INCENTIVE STOCK OPTIONS. In the event that a Participant makes
a disposition (as defined in Section 424(c) of the Code) of any Stock
acquired pursuant to the exercise of an Incentive Stock Option prior to
the expiration of two years from the date on which the Incentive Stock
Option was granted or prior to the expiration of one year from the date
on which the Option was exercised, the Participant shall send written
notice to the Secretary at the Company's principal office in Denver,
Colorado of the date of such disposition, and any other information
relating to such disposition as the Company may reasonably request. The
Participant shall, in the event of such a disposition, make appropriate
arrangements with the Company to provide for the amount of additional
withholding, if any, required by applicable federal and state income
tax laws.
(i) DATE OF GRANT. An Option shall be considered as having been granted
on the date specified in the grant resolution of the Plan Administrator.
(j) ADJUSTMENT OF OPTIONS. Subject to the limitations contained in
Section 15, the Plan Administrator may make any adjustment in the Option
Price, the number of Shares subject to, or the terms of, an outstanding
Option and a subsequent granting of an Option by amendment or by
substitution of an outstanding Option. Such amendment, substitution or
re-grant may result in terms and conditions (including Option Price, number
of Shares covered, vesting schedule or exercise period) that differ from the
terms and conditions of the original Option. The Plan Administrator may not,
however, adversely affect the rights of any Participant to previously
granted Options without the consent of such Participant.
7.4 NO RIGHTS AS A STOCKHOLDER. No Option Holder shall have any rights as
a stockholder with respect to any Shares covered by an Option until the Option
Holder becomes the holder of record of such Shares, and no adjustments shall be
made for dividends or other distributions or other rights as to which there is a
record date preceding the date such Option Holder becomes the holder of record
of such Shares, except as provided in herein.
SECTION 8
RESTRICTED STOCK AWARDS
8.1 AWARDS GRANTED BY THE PLAN ADMINISTRATOR. Coincident with or following
designation for participation in the Plan, a Participant may be granted one or
more Awards of Restricted Stock consisting of Shares. The number of Shares
granted as an Award of Restricted Stock shall be determined by the
Plan Administrator.
8.2 RESTRICTIONS. A Participant's right to retain an Award of Restricted
Stock granted to him under Section 8.1 shall be subject to such restrictions,
including but not limited to his continuous employment by the Company for a
certain period specified by the Plan Administrator, or the attainment of
specified performance goals and objectives, as may be established by the Plan
Administrator with respect to such Award. The Plan Administrator may in its sole
discretion require different periods of employment or different performance
goals and objectives with respect to different Participants, to different Awards
of
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Restricted Stock or to separate, designated portions of the Shares constituting
an Award of Restricted Stock.
8.3 PRIVILEGES OF A STOCKHOLDER, TRANSFERABILITY. A Participant shall have
all voting, dividend, liquidation and other rights with respect to Stock in
accordance with the terms of the Award of Restricted Stock upon his becoming the
holder of record of such Restricted Stock; provided, however, that the
Participant's right to sell, encumber or otherwise transfer such Restricted
Stock shall be subject to the limitations of Section 12 hereof.
8.4 ENFORCEMENT OF RESTRICTIONS. The Plan Administrator may in its sole
discretion require one or more of the following methods of enforcing the
restrictions referred to in Section 8.2 and 8.3:
(a) Placing a legend on the stock certificates referring to the
restrictions;
(b) Requiring the Participant to keep the stock certificates, duly
endorsed, in the custody of the Company while the restrictions remain in
effect; or
(c) Requiring that the stock certificates, duly endorsed, be held in the
custody of a third party while the restrictions remain in effect.
8.5 TERMINATION OF EMPLOYMENT, DEATH, DISABILITY, ETC. In the event of the
death or disability (within the meaning of Section 22(e)(3) of the Code) of a
Participant, or the retirement of a Participant as provided in
Section 7.3(e)(ii), all employment period and other restrictions applicable to
Awards of Restricted Stock then held by him shall lapse, and such awards shall
become fully nonforfeitable. Subject to Sections 6 and 10, in the event of a
Participant's termination of employment for any other reason, any Award of
Restricted Stock as to which the employment period or other restrictions have
not been satisfied shall be forfeited.
SECTION 9
PERFORMANCE UNITS
9.1 PERFORMANCE RELATED AWARDS. Coincident with or following designation
for participation in the Plan, a Participant may be granted Performance Units.
9.2 AMOUNT OF AWARD. The Plan Administrator shall establish a maximum
amount of a Participant's Award, which amount shall be denominated in Shares or
in dollars.
9.3 COMMUNICATION OF AWARD. Written notice of the maximum amount of a
Participant's Award and the Performance Cycle determined by the Plan
Administrator shall be given to a Participant as soon as practicable after grant
of the Award by the Plan Administrator.
9.4 AMOUNT OF AWARD PAYABLE. The Plan Committee shall establish maximum
and minimum performance targets to be achieved during the applicable Performance
Cycle. Performance targets established by the Plan Committee shall relate to
corporate, group, unit or individual performance and may be established in terms
of earnings, growth in earnings, ratios of earnings to equity or assets. The
Plan Committee shall establish the method for computing the amount of an Award
payable to a Participant upon satisfaction of each of the performance targets,
and shall designate the Participants who are eligible for such Awards, within
90 days after the commencement of the Performance Cycle to which the Awards
relate or, if earlier, before 25 percent of such Performance Cycle has elapsed.
Multiple performance targets may be used and the components of multiple
performance targets may be given the same or different weight in determining the
amount of an Award earned, and may relate to absolute performance or relative
performance measured against other groups, units, individuals or entities. Each
performance target, and the methods for computing the amount of an Award to
which an employee shall be entitled as a result of the achievement of one or
more performance targets, shall be stated in terms of an objective formula or
standard. Achievement of the maximum performance target shall entitle the
Participant to payment (subject to Section 9.5) at the full or maximum amount
specified with respect to the Award;
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provided, however, that notwithstanding any other provisions of this Plan, in
the case of an Award of Performance Units, the Plan Administrator in its
discretion may establish an upper limit on the amount payable (whether in cash
or Shares) as a result of the achievement of the maximum performance target. The
Plan Committee may also establish that a portion of a full or maximum amount of
a Participant's Award will be paid (subject to Section 9.5) for performance
which exceeds the minimum performance target but falls below the maximum
performance target applicable to such Award.
9.5 ADJUSTMENTS. At any time prior to payment of an Award of Performance
Units, the Plan Committee may adjust previously established performance targets
or other terms and conditions to reflect events such as changes in laws,
regulations, or accounting practice, or mergers, acquisitions or divestitures,
or such other events as the Plan Administrator deems appropriate, in its sole
discretion, provided that the Plan Committee may not, at any time after 90 days
have elapsed from the commencement of the Performance Cycle to which the Award
relates, or, if earlier, after 25 percent of the Performance Cycle to which the
Award relates has elapsed, increase the amount of any Award payable that would
otherwise be due upon attainment of one or more performance targets.
9.6 PAYMENTS OF AWARDS. Following the conclusion of each Performance
Cycle, the Plan Committee shall determine the extent to which performance
targets have been attained, and the satisfaction of any other terms and
conditions with respect to an Award relating to such Performance Cycle. The Plan
Administrator shall certify what, if any, payment is due with respect to an
Award and whether such payment shall be made in cash, Shares or some
combination. Payment shall be made in a lump sum or installments, as determined
by the Plan Committee, commencing as promptly as practicable following the end
of the applicable Performance Cycle, subject to such terms and conditions and in
such form as may be prescribed by the Plan Committee.
9.7 TERMINATION OF EMPLOYMENT. If a Participant ceases to be a employee
before the end of a Performance Cycle by reason of his death, permanent
disability or retirement as provided in Section 7.3(e)(ii), the Performance
Cycle for such Participant for the purpose of determining the amount of the
Award payable shall end at the end of the calendar quarter immediately preceding
the date on which such Participant ceased to be an employee. The amount of an
Award payable to a Participant to whom the preceding sentence is applicable
shall be paid at the end of the Performance Cycle and shall be that fraction of
the Award computed pursuant to the preceding sentence, the numerator of which is
the number of calendar quarters during the Performance Cycle during all of which
said Participant was an employee and the denominator of which is the number of
full calendar quarters in the Performance Cycle. Upon any other termination of
employment of a Participant during a Performance Cycle, participation in the
Plan shall cease and all outstanding Awards of Performance Units to such
Participant shall be canceled.
SECTION 10
CHANGE IN CONTROL
10.1 OPTIONS, RESTRICTED STOCK. In the event of a change in control of the
Company as defined in Section 10.3, the Board may, in its sole discretion,
without obtaining stockholder approval, to the extent permitted in Section 15,
take any or all of the following actions: (a) accelerate the exercise dates of
any outstanding Options or make all such Options fully vested and exercisable;
(b) grant a cash bonus award to any Option Holder in an amount necessary to pay
the Option Price of all or any portion of the Options then held by such Option
Holder; (c) pay cash to any or all Option Holders in exchange for the
cancellation of their outstanding Options in an amount equal to the difference
between the Option Price of such Options and the greater of the price offered by
a third party for the Common Stock or the Fair Market Value of the Shares on the
date of the cancellation of the Options; (d) make any other adjustments or
amendments to the outstanding Options; and (e) eliminate all restrictions with
respect to Restricted Stock and deliver Shares free of restrictive legends to
any Participant.
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10.2 PERFORMANCE UNITS. Under the circumstances described in
Section 10.1, the Board may, in its sole discretion, and without obtaining
stockholder approval, to the extent permitted in Section 15, provide for payment
of outstanding Performance Units at the maximum award level or any
percentage thereof.
10.3 DEFINITION. For purposes of the Plan, a "change in control" shall be
deemed to have occurred if (a) any "person" or "group" (within the meaning of
Sections 13(d) and 14(d)(2) of the 1934 Act), other than William J. Pearse, a
trustee or other fiduciary holding securities under an employee benefit plan of
the Company, is or becomes the "beneficial owner" (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of more than 33 1/3% of the then
outstanding voting stock of the Company; or (b) at any time during any period of
three consecutive years (not including any period prior to the Effective Date),
individuals who at the beginning of such period constitute the Board (and any
new director whose election by the Board or whose nomination for election by the
Company's stockholders was approved by a vote of at least two-thirds of the
directors then still in office who either were directors at the beginning of
such period or whose election or nomination for election was previously so
approved) cease for any reason to constitute a majority thereof; or (c) the
stockholders of the Company approve a merger or consolidation of the Company
with any other corporation, other than a merger or consolidation which would
result in the voting securities of the Company outstanding immediately prior
thereto continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 80% of the
combined voting power of the voting securities of the Company or such surviving
entity outstanding immediately after such merger or consolidation, or the
stockholders approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company of all or substantially all
of the Company's assets.
SECTION 11
RIGHTS OF EMPLOYEES AND OTHER PARTICIPANTS
Nothing contained in the Plan or in any Award granted under the Plan shall
confer upon any Participant any right with respect to the continuation of his or
her employment by the Company, or interfere in any way with the right of the
Company, subject to the terms of any separate employment agreement to the
contrary, at any time to terminate such employment or to increase or decrease
the compensation of the Participant from the rate in existence at the time of
the grant of an Award. Whether an authorized leave of absence or absence due to
military or government service shall constitute a termination of employment
shall be determined by the Plan Administrator at the relevant time.
SECTION 12
TRANSFERABILITY
During the lifetime of the Option Holder, Incentive Stock Options shall be
exercisable only by the Option Holder and shall not be assignable or
transferable; provided, however, that in the event of the Option Holder's death,
any Option may be exercised by the personal representative of the Option
Holder's estate, or by the person(s) to whom the option is transferred pursuant
to the Option Holder's will or in accordance with the laws of descent and
distribution. Upon the prior written consent of the Board and subject to any
conditions associated with such consent, a Non-Statutory Option may be assigned
in whole or in part during the Option Holder's lifetime to one or more members
of the Option Holder's immediate family or to a trust established exclusively
for one or more such family members. In addition, the Board, in its sole
discretion, may allow a Non-Statutory Option to be assigned in other
circumstances deemed appropriate. The terms applicable to the assigned portion
shall be the same as those in effect for the Option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Board may deem appropriate.
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SECTION 13
GENERAL RESTRICTIONS
13.1 INVESTMENT REPRESENTATIONS. The Company may require any person to
whom an Option or other Award is granted, as a condition of exercising such
Option or receiving Shares under the Award, to give written assurances in
substance and form satisfactory to the Company and its counsel to the effect
that such person is acquiring the Shares subject to the Option or the Award for
his own account for investment and not with any present intention of selling or
otherwise distributing the same and to such other effects as the Company deems
necessary or appropriate in order to comply with federal and applicable state
securities laws. Legends evidencing such restrictions may be placed on the
certificates evidencing the Shares.
13.2 COMPLIANCE WITH SECURITIES LAWS. Each Award shall be subject to the
requirement that, if at any time counsel to the Company shall determine that the
listing, registration or qualification of the Shares subject to such Award upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental or regulatory body, is necessary as a condition of,
or in connection with, the issuance or purchase of Shares thereunder, such Award
may not be accepted or exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained on conditions acceptable to the Plan Administrator. Nothing herein
shall be deemed to require the Company to apply for or to obtain such listing,
registration or qualification.
13.3 STOCK RESTRICTION AGREEMENT. The Plan Administrator may provide that
Shares issuable upon the exercise of an Option shall, under certain conditions,
be subject to restrictions whereby the Company has a right of first refusal with
respect to such Shares or a right or obligation to repurchase all or a portion
of such Shares, which restrictions may survive a Participant's term of
employment with the Company. The acceleration of time or times at which an
Option becomes exercisable may be conditioned upon the Participant's agreement
to such restrictions.
SECTION 14
OTHER EMPLOYEE BENEFITS
The amount of any compensation deemed to be received by a Participant as a
result of the exercise of an Option or the grant or vesting of any other Award
shall not constitute "earnings" with respect to which any other employee
benefits of such employee are determined, including without limitation benefits
under any pension, profit sharing, stock purchase, life insurance or salary
continuation plan.
SECTION 15
PLAN AMENDMENT, MODIFICATION AND TERMINATION BY THE BOARD
15.1 BOARD'S EXCLUSIVE AUTHORITY TO TERMINATE, AMEND OR MODIFY PLAN. The
Board shall have complete and exclusive authority to terminate and from
time-to-time amend or modify the Plan in any and all respects unless and only to
the extent that stockholder approval of such amendments or modifications is
required under applicable law or, if the Company, on the advice of its counsel,
determines that stockholder approval is otherwise necessary or desirable. No
amendment, modification or termination of the Plan shall in any manner adversely
affect any Awards theretofore granted under the Plan, without the consent of the
Participant holding such Awards.
15.2 OPTIONS IN EXCESS OF THE NUMBER OF AVAILABLE SHARES. Options in
excess of the number of Shares then available for issuance may be granted under
this Plan, provided, however, that any excess Shares actually issued under this
Plan shall be held in escrow until the action that is necessary to approve a
sufficient increase in the number of Shares available for issuance under the
Plan is taken. If such further action is not obtained within 12 months after the
date the first such excess grants are made, then: (i) any unexercised Options
granted on the basis of such excess Shares shall terminate and cease to be
outstanding and (ii) the Company shall promptly refund to the Option Holders the
Option Price paid for any excess
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Options that were exercised or issued under the Plan and held in escrow,
together with interest on the Option Price that was held in escrow, and any such
Options and Shares shall thereupon be automatically canceled and cease to
be outstanding.
SECTION 16
WITHHOLDING
16.1 WITHHOLDING REQUIREMENT. The Company's obligations to deliver Shares
upon the exercise of an Option, or upon the vesting of any other Award, shall be
subject to the Participant's satisfaction of all applicable federal, state and
local income and other tax withholding requirements.
16.2 WITHHOLDING WITH STOCK. The Board may, in its discretion, provide any
or all holders of Non-Statutory Options with the right to use Shares in
satisfaction of all or part of the taxes incurred by such holders in connection
with the exercise of such Options. Such right may be provided to any such holder
in either or both of the following formats:
(a) The election to have the Company withhold, from the Shares otherwise
issuable upon the exercise of such Non-Statutory Option, a portion of those
Shares with an aggregate Fair Market Value less than or equal to the amount
of taxes due as designated by such holder; or
(b) The election to deliver to the Company, at the time the
Non-Statutory Option is exercised, one or more Shares previously acquired by
such holder with an aggregate Fair Market Value less than or equal to the
amount of taxes due as designated by such holder.
SECTION 17
BROKERAGE ARRANGEMENTS
The Plan Administrator may, in its discretion, enter into arrangements with
one or more banks, brokers or other financial institutions to facilitate the
disposition of Shares acquired upon exercise of Options, including, without
limitation, arrangements for the simultaneous exercise of Options and sale of
the Shares acquired upon such exercise.
SECTION 18
NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor the submission of the Plan
to stockholders of the Company for approval shall be construed as creating any
limitations on the power or authority of the Board to adopt such other or
additional incentive or other compensation arrangements of whatever nature as
the Board may deem necessary or desirable or preclude or limit the continuation
of any other plan, practice or arrangement for the payment of compensation or
fringe benefits to employees generally, or to any class or group of employees,
which the Company or any affiliated Corporation now has lawfully put into
effect, including, without limitation, any retirement, pension, savings and
stock purchase plan, insurance, death and disability benefits and executive
short-term incentive plans.
SECTION 19
REQUIREMENTS OF LAW
19.1 REQUIREMENTS OF LAW. The issuance of Shares and the payment of cash
pursuant to the Plan shall be subject to all applicable laws, rules
and regulations.
19.2 FEDERAL SECURITIES LAW REQUIREMENTS. If a Participant is an officer
or director of the Company within the meaning of Section 16 of the 1934 Act,
Awards granted hereunder shall be subject to all conditions required under
Rule 16b-3 of the 1934 Act, or any successor rule promulgated under the 1934
Act, to qualify the Award for any exception from the provisions of
Section 16(b) of the 1934 Act available
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under that Rule. Such conditions are hereby incorporated herein by reference and
shall be set forth in the agreement with the Participant which describes
the Award.
19.3 CONFLICTS. If the terms of a particular stock option agreement that
evidences an Award conflict with the terms of the Plan, the terms of the Plan
will control and such Participant will be subject to the terms and conditions of
the Plan.
19.4 GOVERNING LAW. The Plan and all agreements hereunder shall be
construed in accordance with and governed by the laws of the State of Delaware.
SECTION 20
DURATION OF THE PLAN
The Plan shall be effective on the Effective Date, provided that any Options
or Shares that may be granted or issued under the Plan prior to shareholder
approval will be granted or issued subject to the approval of the Company's
shareholders. The Plan shall terminate at such time as may be determined by the
Board, and no Award shall be granted after such termination. If not sooner
terminated under the preceding sentence, the Plan shall fully cease and expire
at midnight of the day which is ten years from the Effective Date. Awards
outstanding at the time of the Plan termination may continue to be exercised or
earned in accordance with their terms.
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APPENDIX B
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.
(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
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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 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.
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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.
(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;
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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.
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 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
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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 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
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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 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.
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(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 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.
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ULTIMATE ELECTRONICS, INC.
321A WEST 84TH AVENUE
THORNTON, COLORADO 80260
THIS PROXY IS BEING SOLICITED BY
THE BOARD OF DIRECTORS OF
ULTIMATE ELECTRONICS, INC.
The undersigned holder of shares of Common Stock of Ultimate
Electronics, Inc. (the "Company"), hereby acknowledges receipt of the Notice
and Proxy Statement dated May 22, 2000 in connection with the Annual Meeting
to be held at 8:30 a.m. on June 22, 2000 at the Company's headquarters, 321
West 84th Avenue, Suite A, Thornton, Colorado and hereby appoints William J.
Pearse, J. Edward McEntire, David J. Workman and Alan E. Kessock, or any of
them, with full power of substitution, to vote all shares of the Common Stock
of Ultimate Electronics, Inc. registered in the name provided herein that the
undersigned is entitled to vote at the Annual Meeting of stockholders, and at
any adjournment or adjournments thereof, with all the powers the undersigned
would have if personally present. Without limiting the general authorization
hereby given, said proxies are, and each of them is, instructed to vote or
act as follows on the proposals set forth in said proxy.
This Proxy when executed will be voted in the manner directed herein. If
no direction is made this Proxy will be voted FOR the approval of the
election of the two nominees as directors of the Company and FOR the
proposals to adopt the 2000 Equity Incentive Plan and the Employee Stock
Purchase Plan and FOR ratification of the appointment of Ernst & Young LLP.
With respect to the tabulation of proxies for purposes of Proposals One, Two,
Three and Four, abstentions will be treated as votes against the nominee or
proposal and broker non-votes will have no effect on the proposals (except
for purposes of determining whether a quorum is present at the Annual
Meeting).
In their discretion the proxies are authorized to vote upon such other
matters as may properly come before the meeting or any adjournments thereof.
SEE REVERSE SIDE FOR THE PROPOSALS. If you wish to vote in accordance with
the Board of Directors' recommendations, just sign on the reverse side. You need
not mark any boxes.
[SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE]
<PAGE>
1. To elect two persons to serve as Class III directors of the Company to hold
office until their terms expire in 2003 or their respective successors are
elected.
FOR ALL NOMINEES LISTED BELOW NOMINEES
(except as marked to the contrary below) [ ]
WITHOUT AUTHORITY
to vote for all nominees below [ ]
(INSTRUCTION: To withhold authority to vote for any individual, strike a
lie through the nominee's name on the list below.)
William J. Pearse J. Edward McEntire
2. To adopt the 2000 Equity Incentive Plan.
For Against Abstain
[ ] [ ] [ ]
3. To adopt the Employee Stock Purchase Plan.
For Against Abstain
[ ] [ ] [ ]
4. To ratify the appointment of Ernst & Young LLP as the independent auditors
of the Company for the fiscal year ending January 31, 2001.
For Against Abstain
[ ] [ ] [ ]
5. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any postponements or
adjournments thereof.
For Against Abstain
[ ] [ ] [ ]
MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW [ ]
The proxy should be dated and signed by the stockholder or his attorney
authorized in writing or in any other manner permitted by law. Joint owners
should each sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign in full
corporate name by the president or authorized officer. If a partnership, please
sign in partnership name by an authorized person.
Dated: , 2000
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Signature of Stockholder
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Signature of Stockholder (if held jointly)
Change of Address:
