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CLEf:3 IN THE DISTRICT COURT FOR THE DISTRICT OF 3 y_ CEP. CLK

Civil Action No. 03-N-0597(PAC)

In re ULTIMATE ELECTRONICS, INC. SECURITIES LITIGATION

LEAD PLAINTIFF'S COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 INTRODUCTION

1. This is a securities class action on behalf of purchasers of Ultimate Electronics, Inc.

("Ultimate Electronics" or the "Company") common stock pursuant to a May 1, 2002 Secondary

Public Offering ("Secondary Offering").

2. On May 6, 2002, Ultimate Electronics completed the Secondary Offering of

3,162,500 million shares of stock (including the underwriters' over-allotment) pursuant to the

Prospectus/Registration Statement ("Prospectus"). The offering was priced at $28.50 per share for total proceeds of approximately $85 million to the Company.

3. Lead Plaintiffbrings this action against Ultimate Electronics and certain ofits officers and directors (collectively "Defendants"), for violations ofthe Securities Act of 1933 (the "Securities

Act") in connection with Ultimate Electronics' May 2002 Secondary Offering.

4. Ultimate Electronics describes itself as a leading speciality retailer of consumer electronics and home entertainment products in the Rocky Mountain, Midwest, and Southwest regions of the United States. At the time of the Secondary Offering, Ultimate Electronics operated

46 stores in , Colorado, , , , , , , ,

South Dakota, and . At that time, stores operated under the trade name Sound Track, Audio

King, or Ultimate Electronics.

5. As a consumer electronics retailer, Ultimate Electronics historically offered, sold and

installed digital broadcast satellite systems (commonly referred to as satellite TV or "DBS" systems).

Ultimate Electronics offered, sold and installed the DBS systems known as DIRECTV. As such, in

the Prospectus, Defendants repeated their claim that Ultimate Electronics offered, sold and installed

DBS systems. However, although such statements were historically accurate and complete, such

unqualified statements made by Defendants in the Prospectus were untrue because they omitted

material facts necessary to make the statements not misleading when made. The statements were

untrue because at the time of the Secondary Offering, Ultimate Electronics could no longer sell and

install DIRECTV in vast rural regions of the country. This was a material limitation which was

-1- required to be disclosed because it put millions of previously potential customers off-limits. Such a disclosure was required, given the Company's emphasis on the importance of revenue generated from DBS sales and installations as being vital to the Company's business strategy and growth plans.

Defendants also failed to disclose the dire consequences to Ultimate Electronics' revenue potential,

net income, gross margins, and earning per share as a result of the Company's inability to access a

huge market previously available. When Defendants chose to speak about Ultimate Electronics'

ability to offer, sell, and install DIRECTV, they had a duty to speak the full and complete truth - yet,

nowhere in the Prospectus did Defendants indicate that there existed a then-current material

limitation on their ability to offer, sell and install D]RECTV in regions in which Ultimate Electronics

operated, nor of the consequences of that material limitation.

6. In actuality, by the time of the Secondary Offering, it was no longer viable for

Ultimate Electronics to sell and install DBS systems in a vast geographic market encompassing

millions ofpotential rural customers. This was because prior to the Secondary Offering, DIRECTV

changed policies and thereafter refused to pay Ultimate Electronics for the sale and installation of

DIRECTV to millions of rural customers. This was a material event because Ultimate Electronics'

largest source of revenue was the Television/DBS product category, representing about 38% of the

Company's sales. Nevertheless, not only was this loss of the vast U.S. rural market in which to offer,

sell and install DBS systems not disclosed in the Prospectus, but the potential negative financial

consequences of the material event was not discussed or disclosed in the Prospectus. Failing to

inform investors of DIRECTV's refusal to pay Ultimate Electronics for such sales and installations

and the financial repercussions of that fact, rendered Defendants' statements regarding Ultimate

Electronics' ability to sell and install DIRECTV materially incomplete and, therefore, untrue when

made.

7. On August 8, 2002, Ultimate Electronics disclosed the negative financial impact

resulting from its inability to offer, sell and install DIRECTV to millions of potential customers

within Ultimate Electronics' markets. On that date, Defendants disclosed that the lack of DBS

-2- system sales and installations in these rural markets was the primary cause for their significantly lower gross margins and earnings per share of $0.06 - seven cents short of analysts' expectations of

$0.13 per share and ten cents short of $0.16 per share for Ultimate Electronics' second quarter 2002.

The market for Ultimate Electronics stock reacted swiftly and negatively to the news falling over

$13.16 to $9.00 on huge volume of 4,673,000 shares the following trading day. While Defendants initially blamed the DBS sales and installation drop-off on a "lack of industry promotions," on

August 26, 2002, Defendants disclosed the true reason for the shortfall - Ultimate Electronics' inability to offer, sell and install DIRECTV in a vast geographical market encompassing millions of potential rural customers.

8. In addition, the Prospectus also contains untrue statements concerning Ultimate

Electronics' purported "Red Carpet" installation service. In particular, Defendants highlighted

Ultimate Electronics' ability to efficiently and effectively install DBS systems as one of the

Company's attributes. The Prospectus is replete with representations that Ultimate Electronics provided superior customer service and that this service differentiated the Company from its competitors and gave it a competitive advantage. So important was its claim of superior customer service that the Prospectus claimed that its customers' experiences would be so positive that the service would stimulate product sales.

9. Defendants' statements in the Prospectus regarding the Company's purported superior customer service were untrue and failed to disclose material facts required to be stated in the

Prospectus. In fact, prior to the May 1, 2002 Secondary Offering, Ultimate Electronics' service level had already precipitously declined. The material decline in customer service was in large part due to a botched company-wide consolidation effort. In or around October 2001, Ultimate Electronics

consolidated its home (residential) delivery and installation service. Because of inexperienced

installers, a lack of adequate training, and a lack of adequate supervision, customer service and

customer satisfaction significantly deteriorated. This was particularly true regarding the installation

of DBS systems. As a result of substandard installation services, the number of dissatisfied

-3- customers and returns ofDBS systems rose exponentially rendering Defendants' positive statements regarding customer service untrue when made.

10. Public investors who purchased shares traceable to the Secondary Offering based on

Defendants' representations, paying $28.50 per share for Ultimate Electronics stock, have suffered damages.

JURISDICTION AND VENUE

11. The claims herein arise under §§11, 12(a)(2), and 15 of the Securities Act, 15 U.S.C.

§ § 77k, 771(a)(2), and 77o. Jurisdiction is proper under §22 of the Securities Act. Venue is proper in this District under §22 of the Securities Act and 28 U.S.C. §1391(b).

12. The violations of law complained of herein occurred in substantial part in this

District, including the preparation and dissemination of untrue statements and statements that

omitted material facts required to be disclosed in the Prospectus. Ultimate Electronics maintains its

corporate headquarters and principal place ofbusiness at 321 West 84th Avenue, Suite A, Thornton,

Colorado 80260 . In connection with the conduct complained of herein, Defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including the mails and

interstate telephone communications, and the facilities of a national securities exchange.

PARTIES

13. Lead Plaintiff, Alaska Electrical Pension Fund, purchased at least 9,500 shares of

Ultimate Electronics common stock, at $28.50 per share, in or traceable to the Company's May 1,

2002 Secondary Offering. Representatives of Alaska Electrical Pension Fund signed a certification

executed pursuant to the Federal Securities laws, attached as Exhibit A to the Alaska Electrical

Pension Fund's Motion to be Appointed Lead Plaintiff and for Approval of Lead Plaintiffs Choice

of Lead Counsel, filed on June 9, 2003.

14. Defendant Ultimate Electronics is a specialty retailer of consumer electronics and

home entertainment products. The Company operates 53 stores, including 34 stores in Arizona,

Idaho, Iowa, Missouri, Nevada, New Mexico, Oklahoma, , and Utah under the

-4- trade name Ultimate Electronics, 11 stores in Colorado under the trade name SoundTrack, and 8 stores in Minnesota under the trade name Audio King. Ultimate Electronics' common stock traded at all relevant times in an efficient market on the Nasdaq National Market.

15. Defendant J. Edward McEntire ("McEntire") was, at all relevant times, Chief

Executive Officer and a director of Ultimate Electronics . McEntire prepared , reviewed and signed the Prospectus filed with the SEC in connection with the May 1, 2002 Secondary Offering.

16. Defendant William J. Pearse ("Pearse") was, at all relevant times, Chairman of the

Board ofUltimate Electronics. Pearse signed the Prospectus filed with the SEC in connection with the May 1, 2002 Secondary Offering.

17. Defendant David J. Workman ("Workman") was, at all relevant times, President,

Chief Operating Officer and a director of Ultimate Electronics. Workman prepared, reviewed and signed the Prospectus filed with the SEC in connection with the May 1, 2002 Secondary Offering.

18. Defendant Alan E. Kessock ("Kessock") was, at all relevant times, Chief Financial

Officer, Secretary, Treasurer and a director ofUltimate Electronics. Kessock prepared, reviewed and signed the Prospectus filed with the SEC in connection with the May 1, 2002 Secondary Offering.

19. Defendant Robert W. Beale ("Beale") was, at all relevant times, a director ofUltimate

Electronics. Beale prepared, reviewed and signed the Prospectus filed with the SEC in connection

with the May 1, 2002 Secondary Offering.

20. Defendant Randall F. Bellows ("Bellows") was, at all relevant times, a director of

Ultimate Electronics. Bellows prepared, reviewed and signed the Prospectus filed with the SEC in

connection with the May 1, 2002 Secondary Offering.

21. Defendant Larry D. Strutton (" Strutton ") was, at all relevant times, a director of

Ultimate Electronics. Strutton prepared, reviewed and signed the Prospectus filed with the SEC in

connection with the May 1, 2002 Secondary Offering.

22. The individual defendants named in ¶1115 -21 are sometimes referred to as the

"Individual Defendants." At all relevant times, each of the Individual Defendants was the agent of

-5- the Company, and at all relevant times acted within the course and scope of said agency. Each

Individual Defendant, by reason of his management position, stock ownership and/or membership on the Board ofDirectors ofUltimate Electronics, was a controlling person of the Company and had

the power and influence, and exercised same, to cause Ultimate Electronics to make the untrue

statements and omissions of material facts required to be disclosed in the Prospectus and challenged

in the Complaint.

23. As officers, directors and/or controlling persons ofa publicly-traded company whose

stock is registered with the SEC under the Securities Act and traded on the Nasdaq, the Individual

Defendants had a duty to promptly disseminate accurate and truthful information concerning the

Company's business, earnings, operations and future business prospects, to correct any previously

issued statements that had become untrue, and to disclose any adverse trends that would materially

affect the present and/or future financial operating results of the Company so that the market price

of Ultimate Electronics' common stock would be based upon accurate and truthful information. As

officers, directors and/or controlling persons of Ultimate Electronics, Defendants received and had

unfettered access to the Company's Tyler information and management system (the "Tyler System").

By using the Tyler System, Defendants were able to track all SKUs in Ultimate Electronics' stores

on a real or near real-time basis, as well as generate daily, weekly, monthly and quarterly sales

reports comparing the Company's actual performance to plan by product category, store, region

and/or corporate basis.

UNTRUE STATEMENTS AND OMISSIONS OF MATERIAL FACTS CONTAINED IN THE PROSPECTUS FOR THE MAY 1, 2002 SECONDARY OFFERING

The Secondary Offering

24. On May 1, 2002, Ultimate Electronics commenced the sale of 3,162,500 shares of

Ultimate Electronics common stock, at $28.50 per share, in a Secondary Offering. As a result ofthe

successful completion ofthe Secondary Offering, Ultimate Electronics pocketed approximately S85

-6- million in proceeds. But for the Secondary Offering, the Defendants would not have been able to continue Ultimate Electronics' aggressive growth by expansion program.

25. The May 1, 2002 Secondary Offering was accomplished via a Prospectus filed with the SEC and declared effective on April 30, 2002. The Individual Defendants authored the

Prospectus, and collectively were responsible for the accuracy of the offering documents. The

Prospectus was signed by each of the Individual Defendants.

The Represented Ability to Offer, Sell and Install DIRECTV

26. The Prospectus highlighted that "Ultimate Electronics is a leading specialty retailer

ofconsumer electronics and home entertainment products..." and identified the "digital technology"

revolution as a fundamental ingredient for the Company's continued growth. For example, the

Defendants stated in the Prospectus that:

The Consumer Electronics Industry

We believe the advantages of digital technology... will continue to drive growth in consumer electronics, as consumers replace their analog-based products with digitalproducts. Among the digital product developments that we believe support this growth are the following:

Home Networking. Home networking devices combine the interface and operability of all electronic devices in the home by connecting to a variety of content sources, such as cable systems, satellite, telephone and the Internet. We believe home networking devices will continue to become more standardized, easier to use and more broadly distributed. We expect sales of home networking devices to grow significantly over the next fire years.

27. When describing the products and services that the Company sold in all its stores, the

Prospectus highlights "DIRECTV" as its only "direct broadcast satellite" (i.e., DBS) product.

Moreover, of the 46 stores that Ultimate Electronics then operated, Defendants differentiated

between 32 "large format stores" and 14 smaller stores. Among the product offerings of Ultimate

Electronics' large stores was DBS:

-7- Store Operations

These large format stores feature an extensive selection of-products in the following categories:

Conventional and projection televisions HDTVs and DTVs Home theater systems [and] Direct broadcast satellite

At these locations [i.e., the large stores], we offer home installation of-satellite products...

Our 14 smaller stores average approximately 18,000 square feet, with approximately 60% to 65% of the square footage devoted to selling space....These stores generally contain the same products and services available at our largeformat stores except that they typically contain fewer large screen televisions and fewer demonstration rooms for home and mobile electronics.

28. Not only did Defendants misstate in the Prospectus that the Company maintained an unlimited ability to offer and sell DBS products in all its markets, but they also claimed to be able to support those sales with "value-added services," which purportedly served as a leg up on the

Company's rivals. For instance, at page 28 the Prospectus stated:

Training and Developing a Premier Sales and Installation Team.... We believe that the quality and knowledge of our... installation technicians is critical to our success and represents a significant competitive advantage...

Providing "Red Carpet" Customer Service. We support our product sales by providing many important customer services, including home delivery and set-tip [and] home satellite installation....

29. Defendants' repeated emphasis ofUltimate Electronics' ability to offer, sell and install

DIRECTV at all its stores without any material limitation, underscores the importance of that product to the fundamental health of the Company's business and financial condition . That fact is further reflected in the immense pressure Defendants put on sales people to sell DIRECTV. Indeed, as set forth in the Prospectus , the Television/DBS product category was by far Ultimate Electronics' most important and largest source of revenue in the last three prior fiscal years, accounting for 38% of total 2002 sales.

-8- Fiscal Year Ended January 31, Product Category 2000 2001 2002 Television/DBS 31% 33% 38% Audio 24% 22% 22% Video/DVD 17% 17% 17%

Mobile Electronics 12% 10% 9%

Home Office 6% 5% 4% Other 10% 12% 12%

A critical component of the Company's DBS system revenues was comprised of "high margin" installation services of the satellite systems. As a result, the loss of the vast U.S. rural market in which to sell and install DBS systems had a an immediate adverse material impact on the Company's

DBS related revenues; and, therefore, the Company's ability to generate substantial net income in

2002 and beyond.

The Inability to Sell and Install DIRECTV to Millions of Rural Customers

30. Founded in 1986, the National Rural Telecommunications Cooperative (1\TRTC) represents the advanced telecommunications and information technology interests of more than

1,000 rural utilities and affiliates in 46 states. In the early 1990s, NRTC partnered with DIRECTV.

Under the partnership, NRTC members paid DIRECTV more than $100 million toward the launching the United States' first high-powered DBS system. This ensured that rural Americans who

lived beyond the reach of cable and over-the-air television would be able to benefit from satellite television. In return, NRTC acquired the exclusive sales rights to distribute to eight percent of

DIRECTV households. The NRTC is the leading distributor of satellite television services and

hardware to rural America. Currently, the NRTC serves more than 1.7 million rural consumers,

nearly 20% of all DIRECTV subscribers.

31. Prior to the April 30, 2002 effective date ofthe Prospectus, Ultimate Electronics had

the ability to offer, sell and install in rural areas served by NRTC members and affiliates without any

-9- material limitation. This represented millions ofpotential customers. When, for example, Ultimate

Electronics sold to a rural customer served by a NRTC member or affiliate, DIRECTV would pay

Ultimate Electronics a commission. Prior to the Secondary Offering, DIRECTV stopped paying commissions to Ultimate Electronics on sales and installations made to rural customers served by the NRTC members and affiliates. Thus, prior to the Secondary Offering, Ultimate Electronics lost all economic incentive to offer, sell and install DIRECTV to millions of potential rural customers.

Thereafter, Ultimate Electronics stopped selling DIRECTV in those rural areas. When the

Defendants portrayed the Company as having an unfettered ability to offer, sell and install DIR.ECTV in the Prospectus, they made untrue statements and omitted to disclose that even before the

Secondary Offering, Ultimate Electronics could not sell or install DIRECTV in numerous rural areas where the Company did business.

Untrue Statements and Omissions Regarding Customer Service

32. In the Prospectus, Defendants also made untrue statements and omitted material facts required to be disclosed regarding Ultimate Electronics' purported "Red Carpet" installation service.

More specifically, in the MD&A section of the Prospectus, defendants stated:

Training and Developing a Premier Sales and Installation Team. We conduct an extensive ongoing training program designed to ensure that our sales associates are equipped with the most up-to-date sales techniques and product knowledge. We believe that the quality and knowledge of our sales associates and installation technicians is critical to our success and represents a significant competitive advantage. We also believe that our ongoing, specialized training creates a superior customer experience that stimulates sales of our products.

Providing "Red Carpet" Customer Service. We support our product sales by providing many important customer services, including home delivery and set-up, home theater and audio design and installation, home satellite installation, mobile electronics installation and regional service centers that offer in-home and carry-in repair services....

33. However, Defendants' statements regarding Ultimate Electronics' ability to provide

"Red Carpet" customer service and the Company's purported "significant competitive advantage"

flowing from the quality and knowledge of its installation technicians were untrue and made and/or

omitted material facts required to be disclosed. During October 2001, Ultimate Electronics enacted

-10- a company-wide policy to consolidate its installation and delivery services of products sold to its customers. Because of difficulties and deficiencies in cross-training the employees responsible for both installation and delivery services, however, the consolidation effort was an abysmal failure at the time of the Secondary Offering and directly impacted Company's ability to generate high margin

installation services, including the installation of DBS systems. Further, as a result of botched

deliveries and installation services performed by untrained and inexperienced Ultimate Electronics

employees before, during and after the Secondary Offering, a significant amount ofcustomers simply

returned equipment they had purchased from the Company. Here, Ultimate Electronics lost

twice-sacrificing both equipment and high margin installation service revenues.

34. Based on the foregoing untrue statements and material omissions, Defendants

successfully completed the Secondary Offering. Following the Secondary Offering, Ultimate

Electronics' stock continued to trade at artificially inflated prices as Defendants continued to flood

the market with positive statements about the Company's business strategy, expansion program,

digital product sales and customer service. In fact, however, Ultimate Electronics continued to

experience declining sales and net income as new and existing stores experienced declining customer

traffic, declining DBS sales and declining customer satisfaction with Ultimate Electronics' home

installation and so-called Red Carpet service.

The Truth Emerges

35. Ultimate Electronics' common stock continued to trade at artificially inflated prices

until early August 2002. Then, on August 8, 2002, Defendants suddenly announced that the

Company would report revenues and net income at levels far lower below the levels that Defendants

had previously led the market to expect. In an August 8, 2002 press release, Defendants stated:

The DBS category suffered in the second quarter due to a lack ofindustry promotions as compared to the previous year. Since we install a majority of our DBS products, our installation revenues for the quarter were significantly less than we had anticipated. About 50% of the shortfall in the gross margin is attributable to the DBS category.

- ii - 36. The shortfall in DBS sales and installations had a dramatic impact on Ultimate

Electronics' second quarter 2003 earnings. The Company revealed that its second quarter earnings per share not only were down to $0.06 from analysts' expectations of $0.13, but also down $0.10 from second quarter 2002.

37. On this news, Ultimate Electronics common stock collapsed by 31 %, falling from

S13.16 on August 7, 2002 to $9.00 on August 8, 2002, on heavy trading volume of 4.6 million shares.

38. Following this debacle, on August 26, 2002, Defendants hosted a conference call for investors to discuss Ultimate Electronics' horrible second quarter 2003 results. During the conference call, defendant Dave Workman admitted the true reasons for the shortfall. First, he admitted that there had only been a "slight shift" in promotions by the industry, whereas on August 8,

2002, Workman blamed only the lack of industry promotions for the 50% collapse in Ultimate

Electronics' earnings. Second, Workman revealed that the Company's inability to sell DBS in certain rural areas had materially adversely impacted Ultimate Electronics' sales, stating:

In addition, there was a policy change on thepart ofDIRECTV earlier in the year, known as the NRTC zones, and these zones were taken out ofour numbers, urn, or, urn, we were disallowedfirorn selling into that location as those are carried by contracts with other companies. We have been, urn, since that tin:e, currently negotiating with the NRTC carriers to try to regain that territory, but to date have only been able to make progress with one of the more significant carriers, which is called Pegasus. The result of that was that, tint, the labor line, which was directly influenced by the DIRECTV sales, as, urn, well over 85% ofour DIRECTV units are installed, tint, was hurt by that slowdown, tint, that, of course, resulted in the margin - the margin loss directly associated with that category.

39. In response to a follow-up question concerning the Company's DIRECTV sales,

Workman admitted that as much as 30% of Ultimate Electronics ' DIRECTV market had been

adversely affected by the Company's inability to sell DBS in certain rural areas:

KELLY CHASE: Okay, great, and then, Dave, on the DIRECTV issue, what percentage of your market, um, of the markets in which you serve are impacted by the NRTC zone issue?

DAVID WORKMAN: Well, everybody market is to some extent or another. NRTC was basically when DIRECTV was originally established, they sold off a certain amount ofthe rural zones basically to these various NRTC carriers. So everymarket

-12- is effected by it one way or another. It's probably less of an issue, I guess in the east coast maybe the west coast as it is in the middle ofthe country, where you have to drive 500 miles to get to the next major city, but in some markets, obviously, it can be as much as 30% of the business that was, tun, effected. Those are the smaller stores and major cities are less effected by it. In all cases, there is some effect. We're negotiating, to try to recover that business, but again, currently, we are close with only really one ofthe utajorNRTCcarriers, um, as we speak.

40. Through the August 8, 2002 press release and August 26, 2002 conference call

Defendants have basically admitted the Prospectus contained untrue statements and omitted material facts required to be disclosed. Defendants acknowledge that the problems with DIRECTV began early in 2002, when DIRECTV stopped paying commissions on sales and installation by Ultimate

Electronics to rural customers served by NRTC members and affiliates. Defendants further acknowledge that Ultimate Electronics was still working with NRTC carriers (i.e., members and

affiliates) to "regain territory," and that, as of August 26, 2002, Ultimate Electronics still had not

reentered the rural market. Defendants further still acknowledge that the loss of revenue from DBS

system sales and installation was directly related to an adverse material fact that existed at the time

of the May 1, 2002 Secondary Offering, as Defendants admit that 50% of the Company's gross

margin shortfall was related to DIRECTV's refusal to pay commissions, and that DIRECTV's refusal

to pay commissions to Ultimate Electronics impacted Ultimate Electronics more than other retailers

whom were less dependent on sales to rural areas.

41. By stating that Ultimate Electronics sold DBS everywhere and by omitting to disclose

the fact that Ultimate Electronics was prohibited from offering, selling and installing DBS systems

to its rural customer base, rendered Defendants' positive statements regarding Ultimate Electronics'

digital product sales untrue at the time the Prospectus issued. A reasonable investor would have

wanted to know that a vast geographic market covering millions of potential DBS customers within

Ultimate Electronics' market was off limits to Ultimate Electronics.

- 13 - CLASS ACTION ALLEGATIONS

42. Lead Plaintiff brings this action pursuant to Fed. R. Civ. P. 23(a) and (b)(3), on behalf of all persons who purchased Ultimate Electronics common stock in or traceable to the Company's

May 1, 2002 Secondary Offering (the "Class"). Excluded from the Class are the Defendants and members of their immediate families, any entity in which a Defendant has a controlling interest and the heirs of any such excluded person. The Class members are so numerous that joinder is impracticable. Common questions of law and fact predominate and include: (i) whether Defendants violated the Securities Act; (ii) whether the Prospectus contained untrue statements and/or omitted material facts required to be disclosed in the Prospectus; and (iii) the extent of and appropriate measure of damages.

43. Lead Plaintiffs claims are typical of other class members' claims. Lead Plaintiff has

selected counsel experienced in class action and securities litigation and will fairly and adequately protect the interests of the Class. Lead Plaintiff has no interests antagonistic to those of the Class.

44. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy. Since the damages suffered by individual class members may be

relatively small, the expense and burden of individual litigation make it virtually impossible for

members of the Class individually to seek redress for the wrongful conduct alleged.

CLAIMS FOR RELIEF

FIRST CLAIM FOR RELIEF

(Against All Defendants for Violations of Section 11 of the Securities Act)

45. Lead Plaintiff incorporates 11111-44, above.

46. This claim is asserted against all Defendants for violations of § 11 of the Securities

Act, 15 U.S.C. §77k, on behalf of all persons who purchased shares of Ultimate Electronics stock

issued in or traceable to the Secondary Offering commenced on May 1, 2002, as described above.

47. Ultimate Electronics was the registrant for the securities issued in the Secondary

Offering made on May 1, 2002 pursuant to the Prospectus. Ultimate Electronics was also the issuer

-14- of the stock sold via the Prospectus. As the issuer of shares, Ultimate Electronics is liable to the

Class for the untrue statements and omissions of material facts required to be disclosed in the

Prospectus. The Individual Defendants were directors of the Company at the time of the Secondary

Offering and, along with Ultimate Electronics, were responsible for the contents of the Prospectus.

The Individual Defendants are signatories ofthe Prospectus, either personally or by attorney-in-fact.

48. Defendants issued, caused to be issued, and participated in the issuance of the

Prospectus, which contained untrue facts and omitted material facts required to be disclosed in the

Prospectus.

49. The Company is strictly liable for the untrue statements and omitted material facts

contained in the Prospectus. The Individual Defendants are liable to purchasers of Ultimate

Electronics stock, including Lead Plaintiff and members of the Class, by failing to fulfill their

statutory duty to make a reasonable and diligent investigation of the statements contained in the

Prospectus, the time it became effective, to assure that those statements were true and that there was

no omission to state material facts required to be stated in order to make the statements contained

therein not misleading.

50. Lead Plaintiff and members of the Class suffered substantial damage in comlection

with their purchases of Ultimate Electronics stock. By reason of the conduct alleged herein,

Defendants violated § 11 of the Securities Act.

51. Lead Plaintiff and the Class purchased Ultimate Electronics common stock in or

traceable to the Secondary Offering without knowledge of the untrue statements and omissions of

material facts required to be disclosed in the Prospectus.

SECOND CLAIM FOR RELIEF

(Against All Defendants for Violations of Section 12(a)(2) of the Securities Act)

52. Lead Plaintiff incorporates ¶¶ 1-44 above.

53. This claim is asserted against all Defendants for violations of §12(a)(2) of the

Securities Act, 15 U.S.C. §771(a)(2), on behalf of Lead Plaintiff and all persons who purchased

-15- shares issued in the offering commenced on May 1, 2002. Defendants, and each of them, were sellers, offerors, and/or solicitors of sales of the shares offered in connection with the Prospectus.

54. The Prospectus contained untrue statements and omitted material facts required to be disclosed in order to make the statements not incorrect.

55. Defendants, and each of them, solicited and/or played a substantial role in the

Secondary Offering ofUltimate Electronics common stock. But for the participation and solicitation by Defendants, the Secondary Offering could not and would not have been accomplished.

56. Defendants did the following acts in furtherance of the sale of Ultimate Electronics common stock:

(a) They actively and jointly drafted, revised and approved the Prospectus and other written selling materials by which the offering of Ultimate Electronics common stock was made;

(b) They finalized the Prospectus relating to the Secondary Offering of Ultimate

Electronics common stock and caused it to become effective. But for the defendants having drafted, filed, signed and/or authorized the signing ofthe Prospectus, the Secondary Offering could not have been accomplished; and

(c) They conceived and planned the offering of Ultimate Electronics common stock and jointly orchestrated all activities necessary to effect the sale of these shares by issuing the common stock, promoting the stock, supervising the distribution of the common stock, and ultimately selling the shares.

57. Defendants were obligated to make a reasonable and diligent investigation of the written statements made in the Prospectus related to the transactions referenced herein to insure that such statements were true and that there was no omission to state a material fact required to be stated in order to make the statement contained therein not incorrect.

58. Lead Plaintiff and the other members of the Class purchased or otherwise acquired

Ultimate Electronics common stock in or traceable to the Prospectus. Plaintiffs did not know, or in

-16- the exercise of due diligence could not have known, of the untrue statements and material omissions contained in the Prospectus.

59. Lead Plaintiff, individually and representatively, hereby tenders to the Defendants those Ultimate Electronics shares which Lead Plaintiff and members of the Class continue to own, in return for the consideration paid for those shares together with interest thereon.

THIRD CLAIM FOR RELIEF

(Against the Individual Defendants for Violations of Section 15 of the Securities Act)

60. Lead Plaintiff incorporates 11J1-44 above.

61. This claim is asserted against the Individual Defendants for violation of § 15 of the

Securities Act, 15 U.S.C. §77o.

62. Each of the Individual Defendants, by virtue of their executive positions, board

memberships and stock ownership, and specific acts as described herein, was a controlling person

of Ultimate Electronics and had the power, and exercised the same, to control the representations

and actions ofUltimate Electronics and cause Ultimate Electronics to engage in the violations of law

complained of herein.

63. Each of the Individual Defendants was a culpable participant and is jointly and

severally liable to Lead Plaintiff and the members of the Class as a "control person" pursuant to § 15

of the Securities Act.

64. As a result of the foregoing, Lead Plaintiff and the members of the Class have

suffered damages.

PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiff, on its own behalf and on behalf of the other members of the

Class, prays for judgment as follows:

A. Declaring this action to be a proper class action, certifying Lead Plaintiff as the Class

representative and its counsel as Class Counsel;

-17- B. Declaring and detennining that the Defendants violated the federal securities laws by reason of their conduct as alleged herein;

C. Awarding money damages against the Defendants, jointly and severally, in favor of the Class for all losses and injuries suffered as a result of the acts and transactions complained of herein, together with prejudgment interest on all of the aforesaid damages, which the Court shall award from the date of said wrongs to the date ofjudgment herein at a rate the Court shall fix;

D. Awarding rescission and/or rescissory damages;

E. Awarding plaintiff its costs and expenses incurred in this action, including reasonable attorneys', accountants', and experts' fees; and

F. Awarding such other relief as may be just and proper.

JURY DEMAND

Lead Plaintiff demands a trial by jury.

DATED: August 11, 2003 DYER & SHUMAN, P

13CQBBRT J. DYER III KIP B. SHUMAN TRIG R. SMITH 801 East 17th Avenue Denver, CO 80218-1417 Telephone: 303/861-3003 303/830-6920 (fax)

MILBERG WEISS BERSHAD HYNES & LERACH LLP WILLIAM S. LERACH TRAVIS E. DOWNS III JONAH H. GOLDSTEIN Colorado Bar #026027 RYAN A. LLORENS 401 B Street, Suite 1700 San Diego, CA 92101 Telephone : 619/231-1058 619/231-7423 (fax)

Co-Lead Counsel for Plaintiffs

-18- CERTIFICATE OF SERVICE

I hereby certify that a true and correct copy of the foregoing LEAD PLAINTIFF'S COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 was hand delivered, on this 11th day of August, 2003 addressed to the following:

DAVIS GRAHAM & STUBBS LLP Jonathon D. Bergman Alan M. Loeb 1550 17`'' Street, Suite 500 Denver, CO 80202 (303) 892-9400