0000950134-05-000550.txt : 20120626 0000950134-05-000550.hdr.sgml : 20120626 20050111191057 ACCESSION NUMBER: 0000950134-05-000550 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 20050112 DATE AS OF CHANGE: 20050111 GROUP MEMBERS: MARK WATTLES ENTERPRISES LLC SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: ULTIMATE ELECTRONICS INC CENTRAL INDEX KEY: 0000911626 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-RADIO TV & CONSUMER ELECTRONICS STORES [5731] IRS NUMBER: 840585211 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-50453 FILM NUMBER: 05524469 BUSINESS ADDRESS: STREET 1: 321 WEST 84TH AVE STREET 2: SUITE A CITY: THORNTON STATE: CO ZIP: 80260 BUSINESS PHONE: 303-412-2500 MAIL ADDRESS: STREET 1: 321 WEST 84TH AVE STREET 2: SUITE A CITY: THORNTON STATE: CO ZIP: 80260 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: WATTLES MARK J CENTRAL INDEX KEY: 0000938576 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 9275 SW PEYTON LANE CITY: WILSONVILLE STATE: OR ZIP: 97070 BUSINESS PHONE: 5035701615 MAIL ADDRESS: STREET 1: 9275 SW PEYTON LANE STREET 2: ATTN: BETH M. PIERSON CITY: WILSONVILLE STATE: OR ZIP: 97070 SC 13D/A 1 d21663asc13dza.htm AMENDMENT TO SCHEDULE 13D sc13dza
 

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 13D

Under the Securities Exchange Act of 1934
(Amendment No. 2)*

ULTIMATE ELECTRONICS, INC.
(Name of Issuer)

Common Stock, par value $.01 per share
(Title of Class of Securities)

903849107
(Cusip Number)

Mark J. Wattles
7945 W. Sahara #205
Las Vegas, Nevada 89117
(503) 570-1601
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)

January 11, 2005
(Date of Event Which Requires Filing of this Statement)

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. o

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See §240.13d-7 for other parties to whom copies are to be sent.

* The remainder of this cover page shall be filled out for a reporting person’s initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

 

             
CUSIP No. 903849107
  1. Name of Reporting Person:
Mark J. Wattles		 I.R.S. Identification Nos. of above persons (entities only):
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) o  
    (b) x  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
PF
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
U.S. Citizen
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
1,467,000
8. Shared Voting Power:
11,411,134
9. Sole Dispositive Power:
1,467,000
10.Shared Dispositive Power:
8,700,000
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
12,878,134
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
54.1%
  14.Type of Reporting Person (See Instructions):
IN

 

 

             
CUSIP No. 903849107
  1. Name of Reporting Person:
Mark Wattles Enterprises, LLC		 I.R.S. Identification Nos. of above persons (entities only):
  2. Check the Appropriate Box if a Member of a Group (See Instructions):
    (a) o  
    (b) x  
  3. SEC Use Only:
  4. Source of Funds (See Instructions):
AF
  5. Check if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e): o
  6. Citizenship or Place of Organization:
Delaware
Number of
Shares
Beneficially
Owned by
Each Reporting
Person With
7. Sole Voting Power:
0
8. Shared Voting Power:
11,411,134
9. Sole Dispositive Power:
0
10.Shared Dispositive Power:
8,700,000
  11.Aggregate Amount Beneficially Owned by Each Reporting Person:
11,411,134
  12.Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions):
o
  13.Percent of Class Represented by Amount in Row (11):
47.9%
  14.Type of Reporting Person (See Instructions):
OO

 

 

INTRODUCTION

     This Amendment No. 2 amends and supplements the Statement on Schedule 13D originally filed with the Securities and Exchange Commission on December 14, 2004 by Mr. Mark J. Wattles, as heretofore amended. Unless otherwise indicated, each capitalized term used but not defined herein shall have the meaning assigned to such term in the Statement. From and after the date hereof, all references in the Statement to such statement or terms of similar import shall be deemed to refer to the Statement as amended and supplemented hereby

Item 1. Security and Issuer

     The class of securities to which this Statement relates is the common stock, par value $.01 per share (“Common Stock”), of Ultimate Electronics, Inc., a Delaware corporation (the “Company”). The address of the Company’s principal executive offices is 321 W. 84th Avenue, Suite A, Thornton, CO 80260.

Item 2. Identity and Background.

     (a) This Statement is being filed jointly by Mark J. Wattles (“Mr. Wattles”) and Mark Wattles Enterprises, LLC, a Delaware limited liability company (“MWE”) wholly owned by Mr. Wattles.

     (b) The business address of each of the reporting persons is 7945 W. Sahara #205, Las Vegas, Nevada 89117.

     (c) Mr. Wattles’ principal occupation and employment is Chairman of the Board and Chief Executive Officer of Hollywood Entertainment Corporation. The address of the principal executive offices of Hollywood Entertainment Corporation is 9275 SW Peyton Lane, Wilsonville, Oregon 97070.

     MWE is a newly formed entity through which Mr. Wattles has made an investment in the Company. The address of the offices of MWE is 7945 W. Sahara #205, Las Vegas, Nevada 89117.

     (d)-(e) During the last five years, neither of the reporting persons has (i) been convicted in any criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

     (f) Mr. Wattles is a citizen of the United States of America.

Item 3. Source and Amount of Funds or Other Consideration.

 

 

     On January 11, 2005, MWE acquired an aggregate of 6,850,000 shares of Common Stock from the Company pursuant to a Stock Purchase Agreement between the Company and MWE (the “Stock Purchase Agreement”), a copy of which is attached as Exhibit 99.2. The total amount of funds used to make this purchase of shares of Common Stock was $4,452,000 in cash. The source of such funds was a capital contribution by Mr. Wattles to the capital of MWE, which Mr. Wattles made from his personal funds.

Item 4. Purpose of Transaction.

     Item 4 of this Statement is hereby supplemented as follows:

     On January 11, 2005, MWE and Mr. Wattles effected a number of simultaneous transactions with the Company and certain of its principal stockholders and lenders. These transactions consisted of the following:

  •   the acquisition by MWE of 6,850,000 shares of Common Stock from the Company;
 
  •   the grant by the Company to MWE of an option to purchase 1,850,000 shares of Common Stock;
 
  •   the execution by certain of the principal stockholders of the Company of voting agreements in favor of MWE covering an aggregate of 2,711,134 shares of Common Stock;
 
  •   the grant by certain of the principal stockholders of the Company to MWE of an option to purchase 1,804,324 shares of Common Stock; and
 
  •   the commitment by Mr. Wattles to provide loans in the amount of $5.6 million in connection with a $118.6 million debtor in possession facility to be provided by certain lenders to the Company in connection with the filing of its petition for relief under Chapter 11 of the U.S. Bankruptcy Code, as amended (the “Bankruptcy Code”).

     The following is a more detailed description of these transactions and the purposes thereof:

     Stock Purchase Transaction. The Company entered into the Stock Purchase Agreement, a copy of which is attached as Exhibit 99.2. Pursuant to the Stock Purchase Agreement, the Company issued and sold a total of 6,850,000 shares of Common Stock to MWE at a price of $0.65 per share. In addition, the Company agreed to restructure the Board of Directors by (i) reducing the total number of directors to five; (ii) appointing Mr. Wattles and two of his designees, Mr. Bruce Giesbreacht and Mr. James Marcum, to serve as directors; (iii) obtaining resignations from all of the individuals serving as directors of the Company immediately prior to the closing date of the transactions contemplated by the Stock Purchase Agreement (the “Closing Date”); (iv) making arrangements to appoint two additional directors (both of whom are to be selected from among the individuals who were directors of the Company immediately prior to the Closing Date, if they are willing to serve) within 30 days after

 

 

the Closing Date. In connection with the foregoing restructuring of the Board of Directors, MWE agreed that, within 30 days after the Closing Date, two members of the Board of Directors would be “independent” within the meaning of the Nasdaq listing standards applicable to the Company. The purpose of the acquisition pursuant to the Stock Purchase Agreement was to permit the reporting persons to acquire a substantial equity interest in the Company and to be able to designate a majority of the members of the Board of Directors of the Company.

     Company Option. The Company and MWE entered into an Option Agreement (the “Company Option Agreement”), a copy of which is attached hereto as Exhibit 99.3. Under the terms of the Company Option Agreement, the Company granted an option (the “Company Option”) to MWE to purchase 1,850,000 shares of Common Stock at an exercise price of $0.65 per share. The Company Option will be exercisable during the period beginning on January 25, 2005, which is the fourteenth calendar day after the filing by the Company of its petition for relief under Chapter 11 of the Bankruptcy Code, and ending on the earlier of (i) two years after the commencement of the Exercise Period or (ii) the effective date of any plan of reorganization approved by the Bankruptcy Court (each, a “Termination Event”). The purpose of the Company Option is to provide an additional opportunity for MWE to make an equity investment in the Company and to obtain additional voting rights on matters submitted to a vote of the stockholders of the Company.

     Voting Agreements. Certain principal stockholders of the Company (the “Principal Stockholders”), consisting of (i) William J. Pearse and his spouse, Barbara A. Pearse (collectively, the “Pearse Parties”) and (ii) Thomas R. Hoffman, as trustee for various family trusts established for the benefit of family members of the Pearse Parties (the “Trustee”), entered into Voting Agreements with MWE (the “Voting Agreements”), copies of which are attached hereto as Exhibits 99.4 and 99.5. Pursuant to the Voting Agreements, the Principal Stockholders (i) agreed to vote the shares of Common Stock beneficially owned by them, on any matter submitted to the stockholders of the Company, in accordance with the directions of MWE and (ii) granted to MWE an irrevocable proxy with respect to the shares of Common Stock beneficially owned by them. The Pearse Parties beneficially own an aggregate of 1,804,324 shares of Common Stock and the Trustee beneficially owns an aggregate of 906,810 shares of Common Stock. Each of the Voting Agreements will continue in effect until the occurrence of a Termination Event. The purpose of the Voting Agreements is to provide MWE with additional voting rights on matters submitted to a vote of the stockholders of the Company.

     Pearse Option. The Pearse Parties entered into an Option Agreement with MWE (the “Pearse Option Agreement”), a copy of which is attached hereto as Exhibit 99.6. Under the terms of the Pearse Option Agreement, the Pearse Parties granted to MWE an option (the “Pearse Option”) to purchase all of the 1,804,324 shares of Common Stock beneficially owned by them at an exercise price equal to the lesser of (i) $0.65 per share or (ii) if the Common Stock is traded on a nationally recognized securities market, the average of the last sale prices per share of Common Stock during a specified five-day period preceding the exercise of the Pearse Option. The exercise period of the Pearse Option will commence on January 25, 2005 and will end upon the occurrence of a Termination Event. The purpose of the Pearse Option is to provide an

 

 

additional opportunity for MWE to make an equity investment in the Company and to obtain additional voting rights on matters submitted to a vote of the stockholders of the Company.

     DIP Financing Commitment. Mr. Wattles executed a commitment letter (the “Commitment Letter”) providing that he will participate in a $118.6 million debtor in possession facility (the “DIP Facility”) for the Company, upon the terms and subject to the conditions set forth in a related Summary of Terms and Conditions (the “DIP Term Sheet”). The DIP Facility will include two tranches of loans (the “Senior Tranche Loans”) to be provided by Wells Fargo Retail Finance, LLC and certain other banks or financial institutions and a separate $5.6 million loan tranche (the “Tranche C Loan”) to be provided by Mr. Wattles. Under the terms contemplated by the Commitment Letter and DIP Term Sheet, the Tranche C Loan will (i) be secured by the same collateral as the Senior Tranche Loans, (ii) be subordinated in right of payment to the prior payment in full of the Senior Tranche Loans and (iii) bear interest at the rate of 20% per annum, payable in kind until payment in full of the Senior Tranche Loans. The availability of the DIP Facility is subject to various conditions, including negotiation, execution and delivery of loan documentation satisfactory to the lenders and approval of the facility by the Bankruptcy Court. In addition to other customary events of default, if Mr. Wattles ceases to be Chairman of the Board and Chief Restructuring Officer of the Company, an event of default would occur under the DIP Facility.

     As a result of the consummation of the transactions described above among MWE, the Company and certain of its principal stockholders, the reporting persons will be able to exercise control over the Company through their designees on the Board of Directors of the Company, their ownership of shares of Common Stock and the terms of the Voting Agreements. Furthermore, Mr. Wattles has been elected Chairman of the Board of the Company.

     Notwithstanding the fact that additional funds were made available to the Company through the equity investment made by MWE pursuant to the Stock Purchase Agreement, shortly after the closing of such investment, the Company filed a petition with the Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) seeking bankruptcy protection under Chapter 11 of the Bankruptcy Code. During the course of the Company’s bankruptcy proceedings, the reporting persons will, in cooperation with management and the Board of Directors of the Company, review the alternatives available to the Company as debtor in possession, and the Company will attempt to formulate a plan of reorganization to be submitted to the Bankruptcy Court. Although the Company has not yet formulated any specific plan of reorganization, it is possible that such a plan of reorganization could relate to or involve one or more of the matters referred to in paragraphs (a) and (j), inclusive, of Item 4 of Schedule 13D.

Item 5. Interest in Securities of the Company.

     The aggregate number of shares of Common Stock of the Company deemed to be beneficially owned for the purposes of this Statement by Mr. Wattles is 12,878,134 shares of Common Stock, representing approximately 54.1% of the outstanding shares of Common Stock of the Company as of January 11, 2005. Of such shares, Mr. Wattles (i) has sole voting and dispositive power over 1,467,000 shares, (ii) shares voting power with respect to 11,411,134 shares with MWE and (iii) shares dispositive power with respect to 8,700,000 shares with MWE.

 

 

     The aggregate number of shares of Common Stock of the Company deemed to be beneficially owned for the purposes of this Statement by MWE is 11,411,134 shares of Common Stock, representing approximately 47.9% of the outstanding shares of Common Stock of the Company as of January 11, 2005. Of such shares, MWE, (i) shares voting power with respect to 11,411,134 shares with Mr. Wattles and (ii) shares dispositive power with respect to 8,700,000 shares with Mr. Wattles.

Item 6. Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Company.

     Reference is made to the information provided in response to Item 4 above with respect to the Stock Purchase Agreement, the Company Option Agreement, the Voting Agreements and the Pearse Option Agreement. For additional information regarding such agreements, please see the copies of such agreements attached as Exhibits 99.2 through 99.6 to this Statement. The summaries of the terms and provisions of such agreements contained in this Statement are not complete, and are subject in all respects to the full text of such agreements.

Item 7. Material to Be Filed as Exhibits.

     Exhibit 99.1 — Joint Filing Agreement dated as of January 11, 2005 between the reporting persons pursuant to which this Statement on Schedule 13D is filed on behalf of each of them.

     Exhibit 99.2 — Stock Purchase Agreement, dated as of January 11, 2005, by and between Ultimate Electronics, Inc. and Mark Wattles Enterprises, LLC.

     Exhibit 99.3 — Option Agreement, dated as of January 11, 2005, by and between Ultimate Electronics, Inc. and Mark Wattle Enterprises, LLC.

     Exhibit 99.4 — Voting Agreement, dated as of January 11, 2005, by and among William J. Pearse, Barbara A. Pearse and Mark Wattle Enterprises, LLC.

     Exhibit 99.5 — Voting Agreement, dated as of January 11, 2005, by and among, Thomas R. Hoffman, as trustee, and Mark Wattle Enterprises, LLC.

     Exhibit 99.6 — Option Agreement, dated as of January 11, 2005, by and among William J. Pearse, Barbara A. Pearse and Mark Wattle Enterprises, LLC.

 

 

Signature

     After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct.

Date: January 11, 2005

         
 
   MARK WATTLES ENTERPRISES, LLC
 
        
  By:   /s/ Mark J. Wattles
       
  Name:   Mark J. Wattles
  Title:   President
 
        
 
   /s/ Mark J. Wattles
 
    
 
   Mark J. Wattles

 

EX-99.1 2 d21663aexv99w1.txt JOINT FILING AGREEMENT EXHIBIT 99.1 JOINT FILING AGREEMENT In accordance with Rule 13d-1(k) of the Securities Exchange Act of 1934, as amended, the undersigned agree to the joint filing on behalf of each of them a Statement on Schedule 13D (including any and all amendments thereto) with respect to the Common Stock of Ultimate Electronics, Inc. and further agree that this agreement shall be included as an exhibit to such joint filings. The undersigned further agree that each party hereto is responsible for the timely filing of such Statement on Schedule 13D and any amendments thereto and for the completeness and accuracy of the information concerning such party contained therein; provided that no party is responsible for the completeness or accuracy of the information concerning the other party, unless such party knows or has reason to believe that such information is inaccurate. This agreement may be executed in one or more counterparts, each of which shall be deemed to be an original instrument, but all of such counterparts together shall constitute but one agreement. Dated as of January 11, 2005 /s/ Mark J. Wattles ------------------------------------ Mark J. Wattles, individually MARK WATTLES ENTERPRISES, LLC By: /s/ Mark J. Wattles -------------------------------- Name: Mark J. Wattles Title: President EX-99.2 3 d21663aexv99w2.txt STOCK PURCHASE AGREEMENT EXHIBIT 99.2 STOCK PURCHASE AGREEMENT BY AND BETWEEN ULTIMATE ELECTRONICS, INC., AS ISSUER AND MARK WATTLES ENTERPRISES, LLC, AS INVESTOR January 11, 2005 STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of January 11, 2005 by and between ULTIMATE ELECTRONICS, INC., a Delaware corporation (the "Company"), and MARK WATTLES ENTERPRISES, LLC, a Delaware limited liability company (the "Investor"). WHEREAS, the Company desires to issue and sell to the Investor, and the Investor desires to purchase and acquire from the Company, the Shares (as hereinafter defined); NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows: SECTION 1. Definitions. (a) For the purposes of this Agreement, the following terms have the meanings set forth below: "Affiliate" means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, has control of or is controlled by, or is under common control with, the first Person on the date hereof, but prior to giving effect to the consummation of the transactions contemplated hereby. "Bankruptcy Code" means the United States Bankruptcy Code, as in effect from time to time. "Business" means all business operations and activities currently conducted by the Company and its Subsidiaries. "Common Stock" means the Common Stock, par value $0.01 per share, of the Company. "Company Option" means the option to purchase shares of Common Stock of the Company granted pursuant to the Company Option Agreement. "Company Option Agreement" means the Option Agreement, dated as of the date hereof, between the Investor and the Company. "DGCL" means the Delaware General Corporation Law. -1- "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder. "Lien" means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind. "Material Adverse Effect" means a material adverse effect on the business, operations, financial condition, operating results, assets or liabilities of the Company and its Subsidiaries, taken as a whole; provided, however, that no effect arising from any of the following events shall constitute a material adverse effect hereunder (i) any actions taken by the Company pursuant to the terms of this Agreement or the Company Option Agreement, (ii) the failure of the Company to maintain the listing of its Common Stock on the Nasdaq National Market, (iii) actions taken in good faith in anticipation of the filing by the Company of a petition for relief under Chapter 11 of the Bankruptcy Code, (iv) the information regarding the results of operations and financial condition of the Company publicly disclosed by it in its Current Report on Form 8-K dated January 10, 2005 and (v) any breach of or default under the existing credit facilities of the Company publicly disclosed by it in its Current Report on Form 8-K dated January 4, 2005. "Person" means any individual, corporation, partnership, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity or department, agency or political subdivision thereof. "SEC" means the Securities and Exchange Commission. "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder. "Stockholder Option" means the option to purchase shares of Common Stock of the Company granted pursuant to the Stockholder Option Agreement. "Stockholder Option Agreement" means the Option Agreement, dated as of the date hereof, among the Investor on the one hand and William J. Pearse and Barbara A. Pearse and Thomas R. Hoffman, trustee, in their capacities as holders of certain shares of Common Stock. "Subsidiary" of any specified Person (excluding an individual) means a corporation or other entity of which the majority of the voting power of the equity securities having the right to vote for the election of directors or any other class of equity securities that has a right to vote with respect to matters submitted to the security holders of such -2- Person is owned, directly or indirectly, by such specified Person or any Subsidiary of such specified Person. "Voting Agreements" means the Voting Agreements, dated as of the date hereof, between the Investor on the one hand and (i) William J. Pearse and Barbara A. Pearse and (ii) Thomas R. Hoffman, as trustee, in each case in their capacities as holders of certain shares of Common Stock. (b) Each of the terms below has the meaning set forth in the provision of this Agreement identified opposite such term in the following table:
Term Provision -------------------------- ---------------------- Agreement Introductory paragraph Closing Section 2(b) Closing Date Section 2(b) Company Introductory paragraph Company Reports Section 3(g) DIP Facility Section 5(e) DIP Summary of Terms Section 5(e) Indemnified Person Section 6(d) Indemnifying Party Section 6(d) Investor Introductory paragraph GAAP Section 3(g) Independent Directors Section 5(c) Liabilities Section 6(b) Purchase Price Section 2(a) Resigning Directors Section 5(c) Rights Agreement Section 3(e) Shares Section 2(a) Supplemental D&O Insurance Section 5(d) Third-Party Claim Section 6(d) Wells Fargo Section 5(e)
(c) For purposes of this Agreement, "knowledge" or "known" or a similar phrase shall mean the actual knowledge of the officers of the Company or its Subsidiaries. (d) The words "hereof", "herein", and "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. -3- (e) The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa. (f) The term "dollars" and the symbol "$" shall be deemed to refer to United States Dollars. SECTION 2. Issuance and Sale; Closing. (a) Issuance and Sale. Immediately upon the execution and delivery of this Agreement, (i) the Company will issue and sell to the Investor 6,850,000 shares (the "Shares") of Common Stock and (ii) the Investor will purchase such shares from the Company in exchange for aggregate consideration consisting of $4,452,000 in cash (the "Purchase Price"), which consideration will be paid by wire transfer of immediately available funds to the Company. (b) Closing. The closing of the transactions contemplated hereby (the "Closing") shall take place at the offices of Hogan & Hartson , 1200 Seventeenth Street, Suite 1500, Denver, Colorado 80202 on the date of this Agreement (the "Closing Date"). (c) Deliveries. At the Closing, the Company shall deliver, or shall cause to be delivered, to the Investor the following: (i) the certificates evidencing the Shares, duly registered in the name of the Investor (which certificates may be temporary certificates manually executed by the appropriate officers of the Company); (ii) the opinion of counsel referred to in Section 5(b); (iii) evidence reasonably satisfactory to the Investor that the restructuring of the Board of Directors of the Company contemplated by Section 5(c) is being effected concurrently with the Closing, including the resignations of directors obtained by it pursuant to Section 5(c); (iv) a certificate of the Secretary of the Company attesting to (A) the resolutions of the Board of Directors of the Company authorizing this Agreement and the transactions contemplated hereby and (B) the incumbency and signature of the officer of the Company who executed this Agreement; and (v) a certificate of good standing of recent date issued by the Secretary of State of the State of Delaware with respect to the existence and good standing of the Company. -4- SECTION 3. Representations and Warranties of the Company. As a material inducement to the Investor to enter into this Agreement and purchase the Common Stock hereunder, the Company hereby represents and warrants that: (a) Organization; Corporate Power. The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in every jurisdiction in which it is required to be qualified, except where the failure to so qualify has not had and could not reasonably be expected to have a Material Adverse Effect. The Company possesses all requisite corporate power and authority to enter into, and perform its obligations under this Agreement. The Company has delivered to the Investor correct and complete copies of the charter documents and bylaws of the Company reflecting all amendments made thereto at any time prior to or on the date of this Agreement. (b) Authorization; No Breach. The execution, delivery and performance of this Agreement by the Company have been duly authorized by the Company. The Agreement has been duly executed by the Company and constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. Except as set forth on Schedule 3(b) hereto, the execution and delivery of this Agreement, the fulfillment of and compliance with the terms hereof and the consummation of the transactions contemplated hereby do not and will not conflict with or result in a breach of the terms, conditions or provisions of, constitute a default under, result in the creation of any Lien upon the Company's or any Subsidiary's capital stock or assets pursuant to, give any third party the right to modify, terminate or accelerate any obligation under, result in a violation of, or require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or governmental body or agency or other Person pursuant to, (i) the charter or bylaws of the Company or any Subsidiary, (ii) any law, statute, rule, regulation, order, judgment, decree to which the Company or any Subsidiary is subject and which is material to the Business or (iii) any contract, agreement or other instrument to which the Company or any Subsidiary is a party, except, in the case of clause (iii) above, for any conflict, breach, default, Lien, modification, termination, acceleration, violation or other matter referred to above that could not reasonably be expected to have a Material Adverse Effect. (c) Governmental Authorizations. Except as set forth on Schedule 3(c) hereto, there is no requirement applicable to the Company to obtain any consent, approval or authorization of, or to make or effect any declaration, filing or registration with, any governmental agency or body for the valid execution and delivery of this Agreement, the fulfillment of and compliance with the terms hereof and the lawful consummation of the transactions contemplated hereby. -5- (d) Capital Stock. (i) The authorized capital stock of the Company consists of 40,000,000 shares of Common Stock, of which 15,110,323 shares are outstanding as of the date hereof and no shares are held in the treasury of the Company, and 10,000,000 shares of preferred stock, par value $0.01 per share, none of which are issued or outstanding. All of the outstanding shares of the Company's capital stock are duly authorized, validly issued, fully paid and nonassessable. Except for the Company Option and except as described in Schedule 3(d) hereto, there are no outstanding options, warrants, calls, rights, convertible securities or other agreements or commitments of any character pursuant to which the Company is or may be obligated to issue or sell any issued or unissued shares of its capital stock or other equity securities or to purchase or redeem any shares of its capital stock or other equity securities or make any other payments in respect thereof, and there are no shares of its capital stock or other equity securities reserved for issuance for any purpose. (ii) There are no statutory stockholders preemptive rights or similar contractual rights to which the Company is subject or rights of refusal to which the Company is subject with respect to the issuance of capital stock of the Company. There are no agreements to which the Company or, to the knowledge of the Company, any holders of the capital stock of the Company is a party with respect to the voting or transfer of the Company's capital stock, except for the Voting Agreements. (iii) The issuance and sale of the Shares to the Investor pursuant to this Agreement has been duly authorized by all necessary corporate action on the part of the Company and all necessary action, if any, on the part of its shareholders required pursuant to the DGCL or the certificate or incorporation or bylaws of the Company. The Shares, when issued and delivered to and paid for by the Investor, will be validly issued, fully paid and nonassessable. None of the Shares will be issued in violation of, or subject to, any statutory stockholders preemptive or similar contractual rights. Assuming that the representations and warranties of the Investor contained in Section 4(b) are true and correct, the offer, issuance and sale of the Shares by the Company do not require registration under, and have been and will be made in compliance with, the applicable securities laws of the United States of America and any state or other political subdivision thereof. (e) Rights Agreement. The Board of Directors of the Company has irrevocably and unconditionally amended the Rights Agreement, dated as of January 31, 1994 (the "Rights Agreement"), by and between the Company and Norwest Bank -6- Minnesota, N.A. as rights agent, to provide that (i) upon execution and delivery of this Agreement and issuance and delivery of the Shares and upon the execution of the Company Option Agreement, the Voting Agreements and the Stockholder Option Agreement and the consummation of the transactions contemplated hereby and thereby, including, but not limited to the exercise of the Company Option and the Stockholder Option, a Distribution Date (as such term is defined in the Rights Agreement) shall not occur or be deemed to occur, and (ii) Investor, Mark J. Wattles and any Person controlled by Mark J. Wattles shall not become an Acquiring Persons (as such term is defined in the Rights Agreement), whether as a result of the execution and delivery of this Agreement and issuance and delivery of the Shares or the execution of the Company Option Agreement, the Voting Agreements or the Stockholder Option Agreement or the consummation of the transactions contemplated hereby and thereby, including, but not limited to the exercise of the Company Option or the Stockholder Option, or any transaction or series of transactions effected by the Investor, Mark J. Wattles or their Affiliates subsequent to the Closing. (f) State Takeover Statutes. The Board of Directors of the Company has taken all necessary action to approve, for purposes of Section 203(a)(1) of the DGCL, the execution and delivery of this Agreement and issuance and delivery of the Shares and the execution and delivery of the Company Option Agreement, the Voting Agreements and the Stockholder Option Agreement and the consummation of the transactions contemplated hereby and thereby. No state takeover, anti-takeover, moratorium, fair price, interested stockholder, business combination or similar statute or rule is applicable to the Investor, this Agreement, and the issuance and delivery of the Shares. (g) SEC Reports. The Company has made available to the Investor each registration statement, report, proxy statement or information statement filed by it with the SEC since January 1, 2004 in the form (including exhibits, annexes and any amendments thereto) filed with the SEC (collectively, the "Company Reports"). Except as set forth in Schedule 3(g) hereto, as of their respective dates, the Company Reports complied as to form in all material respects with the applicable requirements of the Exchange Act and the Securities Act, as applicable, and the Company Reports did not, at the time of their filing, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances in which they were made, not misleading. The Company has heretofore made available to the Investor a complete and correct copy of all amendments or modifications to the Company Reports which the Company currently proposes to file with the SEC but have not yet been filed with the SEC. Each of the consolidated balance sheets included in or incorporated by reference into the Company Reports (including the related notes and schedules) fairly presents the consolidated financial position of the Company and its consolidated subsidiaries as of its date and each of the consolidated statements of operations and cash flows included in or incorporated by reference into the Company Reports (including any related notes and schedules) fairly presents the results of operations -7- or cash flows of the Company and its consolidated subsidiaries for the periods set forth therein (subject, in the case of unaudited statements, to the absence of notes and normal year-end audit adjustments that will not be material in amount or effect), in each case in accordance with United States generally accepted accounting principles ("GAAP") consistently applied during the periods involved, except as specifically noted therein. (h) Litigation. There are no actions, suits, proceedings, orders, investigations or claims pending or, to the Company's knowledge, threatened against the Company or any of its Subsidiaries or its officers or directors at law or in equity, or before or by any court or other governmental agency or body, any of which seek to enjoin or prevent the consummation of or otherwise relate specifically to the transactions contemplated by this Agreement. (i) Compliance with Laws. Except with respect to the Nasdaq Stock Marketplace rules and regulations, neither the Company, nor any of its Subsidiaries has violated any law or any governmental rule, order or regulation or requirement which violation has had or could reasonably be expected to have a Material Adverse Effect, and neither the Company nor any Subsidiary has received written notice of any such violation. SECTION 4. Representations and Warranties of the Investor. As a material inducement to the Company to enter into this Agreement and issue and sell the Shares hereunder, the Investor hereby represents and warrants that: (a) Execution; Authorization; No Contravention. The execution, delivery and performance of this Agreement by the Investor have been duly authorized by the Investor. The Agreement has been duly executed by the Investor and constitutes a valid and legally binding obligation of the Investor, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. The execution and delivery of this Agreement, the fulfillment of and compliance with the terms hereof and the consummation of the transactions contemplated hereby do not and shall not conflict with or result in a breach of the terms, conditions or provisions of, or require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or governmental body or agency or other Person pursuant to, (i) the organizational documents of the Investor, (ii) any law, statute, rule, regulation, order, judgment, decree to which the Investor is subject or (iii) any contract, agreement or other instrument to which the Investor is a party, in each case with such exceptions as would not have a material adverse effect on the ability of the Investor to fulfill and comply with its obligations under this Agreement. (b) Securities Act. The Investor is acquiring the Shares for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof -8- in violation of the Securities Act. The Investor acknowledges that the Shares are not registered under the Securities Act or any applicable state securities law, and that it has no contractual right to require such registration. In addition, the Investor acknowledges that the Shares may not be transferred or sold except pursuant to the registration provisions of such Securities Act or pursuant to an applicable exemption therefrom and pursuant to state securities laws and regulations as applicable. The Investor is an "accredited investor" within the meaning of Rule 501(a) of Regulation D under the Securities Act. The Investor is knowledgeable, sophisticated and experienced in business and financial matters of the type contemplated by this Agreement and is able to bear the economic risks associated with its investment in the Company. SECTION 5. Certain Covenants. (a) Further Assurances. If at any time after the Closing Date any further action is necessary or desirable to carry out the purposes of this Agreement, the proper officers or directors of the Company or the Investor, as the case may be, shall execute and deliver any further instruments or documents and take all such necessary action that may reasonably be requested by the other party. (b) Delivery of Legal Opinion. Immediately prior to the consummation of and as a condition to the obligations of the Investor to consummate the purchase of the Shares, the Company shall cause to be delivered to the Investor an opinion, dated as of the Closing Date, of Hogan & Hartson L.L.P., counsel to the Company, to the effect set forth in Exhibit A hereto. (c) Board of Directors. Immediately prior to the consummation of and as a condition to the obligations of the Investor to consummate the purchase of the Shares, the Company shall take all action required to cause the total number of members of the Board of Directors to consist of five persons and to cause the persons serving as members of the Board of Directors as of the Closing to be three designees of the Investor, who shall be Mark J. Wattles, Bruce Giesbreacht and James Marcum. In addition, within 30 days after the Closing Date, the Board of Directors shall fill the remaining vacancy on the Board of Directors with two additional persons who are serving as members of the Board of Directors immediately prior to the Closing to the extent such persons are willing to serve. Within 30 days after the Closing Date, at least two of the individuals serving as members of the Board of Directors in accordance with the foregoing provisions shall be "independent" within the meaning of the Nasdaq listing standards applicable to the Company (the "Independent Directors"). The Company has obtained resignations from all of the current members of the Board of Directors (the "Resigning Directors") that are to become effective as of the Closing Date. -9- (d) Supplemental D&O Insurance. To the extent that the Company has not already done so prior to the Closing, the Company shall use commercially reasonable efforts after the Closing to obtain policies of insurance ("Supplemental D&O Insurance") from one or more insurers selected by it covering the Resigning Directors; provided, however, that the premiums paid by the Company for such Supplemental D&O Insurance shall not exceed $500,000 and that, to the extent required, the purchase of such insurance shall be subject to approval by the bankruptcy court in which the Company has filed a petition for relief under Chapter 11 of the Bankruptcy Code; provided, further, that in the event the approval of the bankruptcy court is required and the bankruptcy court does not approve the Supplemental D&O Insurance then the Investor or its Affiliates shall provide such Supplemental D&O Insurance for the benefit of the Resigning Directors, but in no event shall the Investor or its Affiliate be responsible for any Supplemental D&O Insurance premiums in excess of $500,000. The Supplemental D&O Insurance shall have a term ending no earlier than three years from the date of the expiration of the existing policies of insurance listed in Schedule 5(d) and shall provide substantially the same coverage to the Resigning Directors as such existing policies, with such exceptions as shall have been approved by the Independent Directors. Except to the extent the Supplemental D&O Insurance is rejected by the bankruptcy court and subject to the limitation set forth above regarding the Investor's or its Affiliates' financial obligations in such event, the premiums and other costs of obtaining and maintaining in effect the Supplemental D&O Insurance shall be borne by the Company. (e) DIP Financing. The Investor has advised Wells Fargo Retail Finance, LLC ("Wells Fargo") and the Company that it is willing to participate by making loans in an amount equal to $5,547,500 in the proposed $118,600,000 secured super priority priming debtor in possession facility ("DIP Facility") described in the Summary of Terms and Conditions provided to the Company on the date hereof (the "DIP Summary of Terms"), on the terms and subject to the conditions described therein. The Investor shall cooperate in a commercially reasonable manner with Wells Fargo in connection with (i) the submission of a motion to the bankruptcy court for the District of Delaware seeking interim and final approval of the DIP Facility, (ii) the documentation and negotiation of all orders, agreements and other documents to be prepared, submitted to the Bankruptcy Court or entered into in connection with such DIP Facility, including all orders, agreements and other documents relating to the Tranche C Loans (as defined in the DIP Summary of Terms) proposed to be made by the Investor or one of its Affiliates to the Company and (iii) the effectuation of the transactions contemplated by the DIP Summary of Terms, including the Tranche C Loans. SECTION 6. Survival and Indemnification. (a) Survival; Reliance. The representations and warranties of each of the Investor and the Company, respectively, included or provided for herein shall survive -10- the execution and delivery of this Agreement until the expiration of the applicable statute of limitations (including any waivers or extensions thereof) with respect to such matters; provided, however, that the representations and warranties of the Company contained in Sections 3(b)(iii) and 3(g) and (i) shall only survive until the second anniversary of the Closing Date (and shall be effective after such date only in respect of claims for indemnification submitted by the Investor to the Company prior to such second anniversary). Each covenant and agreement set forth in this Agreement to be performed after the Closing Date shall survive the Closing in accordance with its terms. (b) Indemnification by the Company. From and after the Closing, the Company will indemnify and hold the Investor and its stockholders, directors, officers, employees, agents and Affiliates, harmless against any and all damages, losses, deficiencies, liabilities, obligations, commitments, costs or expenses, including legal and other expenses reasonably incurred in investigating and defending against the same (collectively, "Liabilities"), which are asserted against, imposed on or incurred by any of them, whether or not arising from any Third-Party Claim, as a result of or in connection with the breach of any representation or warranty of the Company contained in this Agreement or the Company Option Agreement. The indemnification provided for by this Section 6(b) shall apply notwithstanding any investigation made by or on behalf of the Investor in connection with the transactions contemplated by this Agreement, except to the extent that any information provided to the Investor in connection with such investigation is reflected as an exception to the representations and warranties of the Company contained in this Agreement or is contained in any filing made by the Company with the SEC. The maximum liability of the Company to all Indemnified Persons pursuant to this Section 6(b) shall be equal to the sum of (i) the Purchase Price paid to the Company by the Investor pursuant to this Agreement and (ii) any amounts paid to the Company under the Company Option Agreement. (c) Indemnification by the Investor. From and after the Closing, the Investor will indemnify and hold the Company and its directors, officers, employees, agents and Affiliates, harmless against any and all Liabilities asserted against, imposed on or incurred by any of them as a result of or in connection with the breach of any representation or warranty of the Investor contained in this Agreement. (d) Procedures for Third-Party Claims. The following procedures shall be applicable with respect to indemnification pursuant to paragraphs (b) and (c) above for Liabilities arising from a claim, action or cause of action asserted by a Person other than a party to this Agreement (a "Third-Party Claim"): (i) Promptly after receipt by the party seeking indemnification hereunder (an "Indemnified Person") of written notice of any Third-Party Claim with respect to any matter within the scope of paragraphs (b) or (c) above, the -11- Indemnified Party shall give written notice thereof to the party from whom indemnification is sought hereunder (the "Indemnifying Party") and shall thereafter keep the Indemnifying Party reasonably informed with respect thereto; provided that the failure of the Indemnified Person to give the Indemnifying Party prompt notice as provided herein shall not relieve the Indemnifying Party of its obligations hereunder except to the extent that such failure results in material prejudice to the defense of such Third-Party Claim. (ii) Promptly after notification of a Third-Party Claim as contemplated by subparagraph (i) above, the Indemnifying Party may assume the defense of such Third-Party Claim with counsel reasonably acceptable to the Indemnified Person; provided, however, that (A) if the Indemnifying Party fails, within a reasonable time after receipt of written notice of such Third-Party Claim, to assume the defense thereof, the Indemnified Person shall have the right to undertake the defense, compromise and settlement of such Third-Party Claim on behalf of and for the account and risk of the Indemnifying Party, to the extent of and subject to the limitations applicable to the indemnity provided by the Indemnifying Party herein, (B) if in the reasonable judgment of the Indemnified Person, the assumption of the defense of such Third-Party Claim could adversely affect in any material respect the conduct of the defense of such Third-Party Claim, the Indemnified Person shall (upon notifying the Indemnifying Party of its election to do so) have the right to undertake the defense, compromise and settlement of such Third-Party Claim on behalf of and for the account and risk of the Indemnifying Party, to the extent of and subject to the limitations applicable to the indemnity provided by the Indemnifying Party herein (it being understood and agreed that the Indemnifying Party shall not be entitled to control the defense of such Third-Party Claim), (C) if the Indemnified Person in its sole discretion so elects, it shall (upon notifying the Indemnifying Party of its election to do so) be entitled to employ separate counsel and to participate in the defense of such Third-Party Claim, but the fees and expenses of counsel so employed shall (except as contemplated by clauses (A) and (B) above) be borne solely by the Indemnified Person and (D) the Indemnifying Party shall not settle or compromise any Third-Party Claim or consent to the entry of any judgment without the prior written consent of the Indemnified Party that does not include as an unconditional term thereof the grant by the claimant or plaintiff to each Indemnified Person of a release from any and all liability in respect thereof or that requires an admission of fault or wrongdoing on the part of the Indemnified Party. (e) Decisions with Respect to Rights and Liabilities of the Company. All material decisions with respect to the exercise by the Company of its rights and performance by it of its obligations under this Section 6 at any time from and after the Closing shall be made by the Company with the approval of either (i) the Independent Directors or (ii) if there has been filed by or against the Company a petition under Chapter -12- 11 or any other applicable section or chapter of the Bankruptcy Code that is then pending, the bankruptcy court before which the applicable bankruptcy proceedings are pending. SECTION 7. Miscellaneous. (a) Expenses. The Company shall bear all costs, expenses and fees incurred by any of the parties in connection with this Agreement and the transactions contemplated hereby (including, but not limited to, all fees and expenses of counsel, financial advisors, consultants, actuaries and independent accountants). Without limiting the generality of the foregoing, the Company shall bear the fees and expenses of the financial advisor to the Investor described in Schedule 7(a) hereto. (b) Public Disclosure. Each of the parties to this Agreement hereby agrees with the other parties hereto that, except as may be required by the Exchange Act or other applicable provisions of applicable law or the rules and regulations of each stock exchange or of the Nasdaq National Market or other automated quotation system upon which the securities of one of the parties is listed or to which such securities are admitted for trading, no press release or similar public announcement or communication will be made or caused to be made concerning the execution or performance of this Agreement unless specifically approved in advance by both parties hereto; provided, however, that to the extent that either party to this Agreement is required by law or the rules and regulations of any stock exchange or of the Nasdaq National Market or other automated quotation system upon which the securities of one of the parties is listed or to which such securities are admitted for trading, to make such a public disclosure, such public disclosure shall only be made after prior consultation with the other party to this Agreement. (c) Successors and Assigns; Assignment. Except as otherwise expressly provided herein, all covenants and agreements contained in this Agreement by or on behalf of any of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not. No party to this Agreement may assign any of its rights or obligations under this Agreement without the prior written consent of the other party hereto, except that the Investor may assign its rights hereunder to an Affiliate of the Investor; provided, however, that no such designation shall relieve the Investor of its obligations under this Agreement. (d) Remedies. Any Person having any rights under any provision of this Agreement will be entitled to proceed to enforce such rights specifically, to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law. -13- (e) Amendments and Waivers. This Agreement and any of the terms contained herein may only be amended or modified by the Company and the Investor in writing. (f) Severability. In the event that any one or more of the provisions contained herein, or the application thereof in any circumstances, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions contained herein shall not be in any way impaired thereby. (g) Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to constitute one and the same agreement. (h) Descriptive Headings. The headings of the sections contained in this Agreement are solely for the purpose of reference, are not part of the agreement of the parties and shall not affect the meaning or interpretation of this Agreement. (i) Governing Law. This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of New York without giving effect to the conflict of laws provisions thereof. (j) Notices. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement shall be in writing and shall be deemed to have been given when delivered personally to the recipient, sent to the recipient by reputable overnight courier service (charges prepaid) or mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid. Such notices, demands and other communications shall be sent to the Investor and to the Company at the addresses indicated below: if to the Investor, to: Mark Wattles Enterprises, LLC 7945 W. Sahara #205 Las Vegas, Nevada 89117 Attention: Mark J. Wattles Facsimile: 702-341-1603 -14- with a copy to: Baker & Botts, L.L.P. 2001 Ross Avenue Dallas, Texas 75201 Attention: Geoffrey L. Newton Facsimile: (214) 953-6503 if to the Company, to: Ultimate Electronics, Inc. 321 West 84th Avenue, Suite A Thornton, Colorado 80260 Attention: Chief Executive Officer Facsimile: (303) 412-2501 with a copy to: Hogan & Hartson L.L.P. 1200 17th Street, Suite 1500 Denver, Colorado 80202 Attention: Paul Hilton Facsimile: (303) 899-7333 or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party. (k) Entire Agreement. This Agreement and the Schedules hereto represent the entire agreement between the Investor and the Company with respect to the subject matter hereof, and such agreements supersede all prior agreements between such parties with respect to the subject matter hereof. [Signature page follows] -15- - IN WITNESS WHEREOF, the undersigned parties have duly executed this Agreement as of the date first above written. ULTIMATE ELECTRONICS, INC. By: /s/ David J. Workman ----------------------------------------- Name: David J. Workman --------------------------------------- Title: President and Chief Executive Officer -------------------------------------- MARK WATTLES ENTERPRISES, LLC By: /s/ Mark J. Wattles ----------------------------------------- Name: Mark J. Wattles --------------------------------------- Title: President -------------------------------------- [Signature page to Stock Purchase Agreement] EX-99.3 4 d21663aexv99w3.txt OPTION AGREEMENT EXHIBIT 99.3 OPTION AGREEMENT BY AND BETWEEN ULTIMATE ELECTRONICS, INC. AND MARK WATTLES ENTERPRISES, LLC Dated as of January 11, 2005 OPTION AGREEMENT This OPTION AGREEMENT, entered into as of January 11, 2005 (the "Agreement") by and between ULTIMATE ELECTRONICS, INC., a Delaware corporation (the "Company"), and MARK WATTLES ENTERPRISES, LLC, a Delaware limited liability company (the "Investor"). WITNESSETH: WHEREAS, as of the date hereof, the Company and the Investor are entering into a Stock Purchase Agreement (the "Stock Purchase Agreement") pursuant to which the Investor is agreeing to purchase from the Company certain shares of its common stock, par value $.01 per share ("Common Stock"); WHEREAS, in order to induce the Investor to enter into the Stock Purchase Agreement and consummate the transactions contemplated thereby, the Company is willing to grant an option to the Investor to acquire certain additional authorized but unissued shares of Common Stock from the Company upon the terms and conditions set forth herein; and WHEREAS, capitalized terms used herein without definition have the respective meanings set forth in the Stock Purchase Agreement; NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Grant of Option. Upon the terms and subject to the conditions set forth in this Agreement, the Company hereby grants to the Investor an option (the "Option") to purchase an aggregate of 1,850,000 authorized but unissued shares of Common Stock (the "Option Shares"), which Option shall be exercisable in whole or in part at any time during the Exercise Period (as hereinafter defined). SECTION 2. Exercise of Option. (a) The Option shall be exercisable during the period (the "Exercise Period") commencing fourteen calendar days after the filing by or against the Company of a petition under Chapter 11 or any other applicable section or chapter of the United States Bankruptcy Code, as amended from time to time (the "Bankruptcy Code"), and ending on the earlier of (i) two years after the commencement of the Exercise Period or (ii) the effective date of any plan or reorganization approved by the bankruptcy court in 2 any bankruptcy proceedings commenced by or against the Company under Chapter 11 or any other applicable section or chapter of the Bankruptcy Code. The Option shall expire and be of no further effect if the Exercise Period has not commenced prior to or on the date that is six months from the date hereof. (b) The Option may be exercised by the Investor with respect to all or any part of the Option Shares at any time during the Exercise Period by delivering a written notice (the "Exercise Notice") to the Company, which notice shall state that the Investor irrevocably elects to exercise the Option with respect to the Option Shares identified in such notice and pay the exercise price therefor, which shall be equal to $0.65 per Option Share to be purchased by the Investor (the "Exercise Price"). SECTION 3. Closing. The closing of any exercise of the Option pursuant to this Agreement (a "Closing") shall take place at the offices of Baker Botts L.L.P., 2001 Ross Avenue, Dallas, Texas 75201 at 10:00 a.m., Dallas, Texas time, on the second business day following the delivery of the Exercise Notice by the Investor pursuant to Section 2(b), or on such other date as shall have been mutually agreed by the parties. At any Closing, (i) the Investor shall make payment to the Company of the aggregate Exercise Price for the Option Shares being purchased upon the exercise of the Option by delivery to the Company of a certified bank cashier's check or wire transfer of funds and (ii) the Company shall deliver, or shall cause to be delivered, to the Investor a stock certificate or certificates representing the aggregate number of Option Shares being purchased by the Investor, registered in the name of the Investor (which certificate may be a temporary certificate manually executed by the appropriate officers of the Company). SECTION 4. Representations and Warranties of the Company. The Company represents and warrants to the Investor as follows: (a) Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. (b) Authorization; No Breach. The execution, delivery and performance of this Agreement by the Company have been duly authorized by the Company. This Agreement has been duly executed by the Company and constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms. The execution and delivery of this Agreement, the fulfillment of and compliance with the terms hereof and the consummation of the transactions contemplated hereby do not and will not conflict with or result in a breach of the terms, conditions or provisions of, constitute a default under, result in the creation of any Lien upon the Company's or any Subsidiary's capital stock or assets pursuant to, give any third party the right to modify, terminate or accelerate any obligation under, result in a violation of, or require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or governmental body or agency or other Person pursuant to, (i) the charter or bylaws of the Company or any 3 Subsidiary, (ii) any law, statute, rule, regulation, order, judgment, decree to which the Company or any Subsidiary is subject and which is material to the business of the Company or any Subsidiary or (iii) any contract, agreement or other instrument to which the Company or any Subsidiary is a party. (c) Governmental Authorizations. There is no requirement applicable to the Company to obtain any consent, approval or authorization of, or to make or effect any declaration, filing or registration with, any governmental agency or body for the valid execution and delivery of this Agreement, the fulfillment of and compliance with the terms hereof and the lawful consummation of the transactions contemplated hereby. (d) Option Shares. The issuance and sale of the Option Shares to the Investor upon the exercise of the Option has been duly authorized by all necessary corporate action on the part of the Company and all necessary action, if any, on the part of its shareholders. The Option Shares have been reserved for issuance pursuant to this Agreement and, when issued and delivered to and paid for by the Investor, will be validly issued, fully paid and nonassessable. None of the Option Shares will be issued in violation of, or subject to, any statutory stockholders preemptive or similar contractual rights. The offer, issuance and sale of the Option Shares upon the exercise of the Option do not require registration under, and have been and will be made in compliance with, the applicable securities laws of the United States of America and any state or other political subdivision thereof. (e) Stock Purchase Agreement Representations. Each of the representations and warranties of the Company contained in the Stock Purchase Agreement is true and correct as of the date hereof (including all schedules attached thereto). SECTION 5. Representations and Warranties of the Investor. The Investor represent and warrant to the Company as follows: (a) Enforceability. This Agreement has been duly authorized, executed and delivered by the Investor and constitutes a valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms. (b) No Conflict. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement and shall not conflict with, or result in any violation of, any United States or foreign Law applicable to the Investor or by which any property or asset of the Investor is bound or affected. (c) Consents, Approvals, Etc. No consent, approval, order or authorization of, or registration, declaration or filing with, or notification to, any governmental authority or body is required by or with respect to the Investor in connection with the execution and delivery of this Agreement by the Investor or the 4 consummation by the Investor of the transactions contemplated by this Agreement, except the filing with the SEC of such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby. SECTION 6. Notices. All notices and other communications hereunder shall be in writing and shall be given by delivery in person, by registered or certified mail (return receipt requested and with postage prepaid thereon) or by cable, telex or facsimile transmission to the parties at the following addresses (or at such other address as either party shall have furnished to the other in accordance with the terms of this Section 6): if to the Investor: Mark Wattles Enterpises, LLC 7945 W. Sahara #205 Las Vegas, Nevada 89114 Facsimile: (702) 341-1603 with copies to: Baker & Botts L.L.P. 2001 Ross Avenue Dallas, Texas 75201 Facsimile: (214) 953-6503 Attention: Geoffrey L. Newton if to the Company, to: Ultimate Electronics, Inc. 321 West 84th Avenue, Suite A Thornton, Colorado 80260 Attention: Chief Executive Officer Facsimile: (303) 412-2501 with a copy to: Hogan & Hartson L.L.P. 1200 17th Street, Suite 1500 Denver, Colorado 80202 Attention: Paul Hilton Facsimile: (303) 899-7333 All notices and other communications hereunder that are addressed as provided in or pursuant to this Section 6 shall be deemed duly and validly given (a) if delivered in person, upon delivery, (b) if delivered by registered or certified mail (return receipt 5 requested and with postage paid thereon), 72 hours after being placed in a depository of the United States mails and (c) if delivered by cable, telex or facsimile transmission, upon transmission thereof and receipt of the appropriate answerback. SECTION 7. Further Assurances. Each of the Company and the Investor hereby covenant and agree to execute and deliver any additional documents reasonably necessary to complete the issuance and sale of all or any portion of the Option Shares with respect to which an Option is exercised and consummate the other transactions contemplated by this Agreement. SECTION 8. Expenses. The Company shall bear all costs, expenses and fees incurred by any of the parties in connection with this Agreement and the transactions contemplated hereby (including, but not limited to, all fees and expenses of counsel, financial advisors, consultants, actuaries and independent accountants). SECTION 9. Amendments. The terms and provisions of this Agreement may be modified or amended only by a written instrument executed by each of the parties hereto, and compliance with the terms and provisions hereof may be waived only by a written instrument executed by each party entitled to the benefits of the same. SECTION 10. Assignment. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. SECTION 11. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of New York, without regard to the principles of conflicts of law that would result in the application of the laws of any other jurisdiction. SECTION 12. Severability. In the event any provision contained in this Agreement shall be held to be invalid, illegal or unenforceable for any reason, the invalidity, illegality or unenforceability thereof shall not affect any other provisions hereof, all of which shall remain in full force and effect. SECTION 13. Interpretation. When a reference is made in this Agreement to a party or to a Section or Schedule, such reference shall be to a party to, or a Section of or a Schedule to, this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein," "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. 6 SECTION 14. Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and instruments referred to herein) (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; and (ii) is not intended to confer upon any Person other than the parties any rights or remedies hereunder. SECTION 15. Non-Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. SECTION 16. Counterparts; Effectiveness. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. [Signature page follows] 7 IN WITNESS WHEREOF, the undersigned parties have duly executed this Agreement as of the date first above written. ULTIMATE ELECTRONICS, INC. By: /s/ David J. Workman ------------------------------------------------ Name: David J. Workman ---------------------------------------------- Title: President and Chief Executive Officer -------------------------------------------- MARK WATTLES ENTERPRISES, LLC By: /s/ Mark J. Wattles ------------------------------------------------ Name: Mark J. Wattles ---------------------------------------------- Title: President --------------------------------------------- [Signature Page to Company Option Agreement] EX-99.4 5 d21663aexv99w4.txt VOTING AGREEMENT EXHIBIT 99.4 VOTING AGREEMENT BY AND AMONG MARK WATTLES ENTERPRISES, LLC WILLIAM J. PEARSE, AND BARBARA A. PEARSE Dated as of January 11, 2005 1 VOTING AGREEMENT This VOTING AGREEMENT, dated as of January 11, 2005 (the "Agreement"), among William J. Pearse and Barbara A. Pearse (collectively, the "Stockholders") and Mark Wattles Enterprises, LLC, a Delaware limited liability company (the "Investor"). Capitalized terms used and not otherwise defined herein have the meanings given to them in the Option Agreement, dated as of the date hereof, by and among the parties hereto (the "Option Agreement"). WHEREAS, as of the date hereof, William J. Pearse is the sole record holder and beneficial owner of 11,334 shares of common stock, par value $.01 per share ("Common Stock"), of Ultimate Electronics, Inc. (the "Company"); WHEREAS, as of the date hereof, William J. Pearse and Barbara A. Pearse are the joint record holders and beneficial owners of 1,792,990 shares of Common Stock (together with the shares held solely by William J. Pearse, the "Original Shares", and the Original Shares, together with any other shares of capital stock of the Company or other voting securities of the Company acquired (of record or beneficially) by the Stockholders during the term of this Agreement (including through the exercise of any warrants, stock options or similar instruments), being collectively referred to herein as the "Subject Shares"); WHEREAS, concurrently with the execution and delivery of this Agreement, each Stockholder is entering into an Option Agreement with the Investor, pursuant to which the Stockholders have granted an option (the "Option") to the Investor to acquire the Subject Shares, upon the terms and subject to the conditions set forth therein; NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: SECTION 1. Representations and Warranties of the Stockholders. Each of the Stockholders hereby represents and warrants to the Investor as follows: (a) Enforceability. Such Stockholder has all necessary power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by such Stockholder and constitutes a valid and binding obligation of each such Stockholder, enforceable against such Stockholder in accordance with its terms. (b) No Conflict. The execution and delivery of this Agreement by such Stockholder does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, (A) conflict with, or result in any violation of, any United States or foreign Law (as hereinafter defined) applicable to such Stockholder or by which any property or asset of such Stockholder is bound or affected or (B) result in any breach of, or constitute a 1 default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, amendment, cancellation or acceleration of any obligation or to a loss of a material benefit under, or result in the creation of any liens in or upon any of the properties or assets of such Stockholder, pursuant to any loan or credit agreement, note, bond, mortgage, indenture, lease, license, sublease, easement, covenant, condition, restriction, contract, instrument, permit, concession, franchise license or other instrument or obligation. As used herein, the term "Law" means any statute, law (including common law), ordinance, rule or regulation. (c) Consents, Approvals, Etc. No consent, approval, order or authorization of, or registration, declaration or filing with, or notification to, any governmental authority or body is required by or with respect to such Stockholder in connection with the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated by this Agreement, except the filing with the Securities and Exchange Commission (the "SEC") of such reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement and the transactions contemplated hereby. (d) Absence of Litigation. As of the date of this Agreement, there is no suit, action or proceeding ("Proceeding") pending or, to the knowledge of such Stockholder, threatened against such Stockholder, or any property or asset of such Stockholder, before any governmental authority or body that seeks to delay or prevent the consummation of the transactions contemplated by this Agreement. (e) The Subject Shares. Such Stockholder is the record and beneficial owner (as defined in Rule 13d-3 under the Exchange Act, which meaning will apply for all purposes of this Agreement) of, and has good and marketable title to Original Shares shown as owned by such Stockholder on Schedule A hereto, free and clear of any and all liens, claims and encumbrances. Other than as set forth on Schedule A hereto or as otherwise reported in such Stockholder's filings pursuant to Section 16 of the Exchange Act, such Stockholder does not own (of record or beneficially) any shares of capital stock of the Company or any options, warrants, rights or other similar instruments to acquire any capital stock or other voting securities of the Company. Such Stockholder has the sole right to vote and Transfer (as hereinafter defined) the Original Shares shown as owned by such Stockholder on Schedule A hereto, and such Stockholder is not subject to any proxies, voting trusts or other agreements, understandings, arrangements or restrictions with respect to the voting or the Transfer of the Pearse Shares, except as set forth in Sections 4 and 5. SECTION 2. Representations and Warranties of the Investor. The Investor represents and warrants to each Stockholder as follows: (a) Enforceability. This Agreement has been duly authorized, executed and delivered by the Investor and constitutes a valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms. 2 (b) No Conflict. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement shall not conflict with, or result in any violation of, any United States or foreign Law applicable to the Investor or by which any property or asset of the Investor is bound or affected. (c) Consents, Approvals, Etc. No consent, approval, order or authorization of, or registration, declaration or filing with, or notification to, any governmental authority or body is required by or with respect to the Investor in connection with the execution and delivery of this Agreement by the Investor or the consummation by the Investor of the transactions contemplated by this Agreement, except the filing with the SEC of such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby. SECTION 3. Covenants of the Stockholders. Each Stockholder covenants and agrees that, during the period commencing on the date hereof and ending on the date as of which the Option shall have expired and been terminated in accordance with the terms of the Option Agreement: (a) Voting; Investor Instructions. At any meeting of the stockholders of the Company called to vote upon any matter whatsoever submitted to a vote of the stockholders of the Company (a "Covered Matter"), or at any adjournment thereof, or in any other circumstances upon which a vote, consent or other approval with respect to a Covered Matter is sought by the Company, the Investor or any other Person (as hereinafter defined), such Stockholder shall vote (or cause to be voted) the Subject Shares in accordance with the written instructions delivered to such Stockholder by the Investor. The Investor may deliver to such Stockholder written instructions of the type contemplated by the immediately preceding sentence at any time or from time to time, and if requested such Stockholder shall acknowledge receipt thereof. (b) Voting; Frustrating Transactions. At any meeting of the stockholders of the Company, or at any adjournment thereof, or in any other circumstances upon which a vote, consent or other approval is sought, unless otherwise instructed by the Investor pursuant to paragraph (a) above, such Stockholder shall vote (or cause to be voted) all of the Subject Shares against any amendment of the Company's certificate of incorporation or by-laws or other proposal, action or transaction involving the Company or any of its subsidiaries or any of its stockholders, which amendment or other proposal, action or transaction would in any manner impede, frustrate, prevent or delay the consummation of the transactions contemplated by the Option Agreement or this Agreement (collectively, "Frustrating Transactions"). Such Stockholder shall not commit to or agree to take any action inconsistent with the foregoing or that would otherwise facilitate a Frustrating Transaction. (c) Transfer Restrictions. Such Stockholder shall not (i) sell, transfer, pledge, assign or otherwise dispose of (including by gift) (collectively, "Transfer"), or consent to or permit any Transfer of, any Subject Shares or any interest therein, or enter into any loan or credit agreement, bond, debenture, note, mortgage, indenture, lease or 3 other contract, commitment, agreement, option, instrument, arrangement, understanding, obligation or undertaking, with respect to the Transfer (including any profit sharing or other derivative arrangement) of any Subject Shares or any interest therein, to any individual, corporation, partnership, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity or department, agency or political subdivision thereof (collectively, a "Person"), in each case except as required by the express terms of this Agreement or the Option Agreement, (ii) enter into any voting arrangement, whether by proxy, voting agreement or otherwise, with respect to any Subject Shares and shall not commit or agree to take any of the foregoing actions, other than pursuant to this Agreement or (iii) take any other action that would in any way restrict, limit or interfere with the performance by such Stockholder of their obligations under this Agreement or the Option Agreement or the consummation of the transactions contemplated hereby. Such Stockholder shall not, nor shall such Stockholder permit any entity under their control to, deposit any Subject Shares in a voting trust. SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy. (a) Grant of Proxy. Each Stockholder hereby irrevocably grants to, and appoints, the Investor and any individual designated in writing by the Investor, as such Stockholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of such Stockholder, to vote all of his, her or its Subject Shares, or grant any consent or approval in respect of such Subject Shares with respect to any Covered Matter. (b) Revocation of Other Proxies. Each Stockholder represents that any proxies heretofore given in respect of his, her or its Subject Shares are not irrevocable and that all such proxies are hereby revoked. (c) Proxy Coupled with an Interest. Each Stockholder hereby affirms that the irrevocable proxy provided for in this Section 4 is given in connection with the execution of the Option Agreement and the grant of the Option and that such irrevocable proxy is given to secure the performance of the duties of such Stockholder under this Agreement. Each Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest is intended to be irrevocable in accordance with the provisions of Section 212 of the Delaware General Corporation Law. If for any reason the proxy granted by any Stockholder herein is not binding, effective or irrevocable, then such Stockholder agrees to execute any additional agreement or document required to make such proxy binding, effective and irrevocable. Each Stockholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. SECTION 5. Further Assurances. Each Stockholder shall use his, her or its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement and the Option Agreement. 4 No Stockholder shall commit or agree to take any action inconsistent with the transactions contemplated by this Agreement or the transactions contemplated by the Option Agreement. Without limiting the generality of the foregoing, each Stockholder shall, from time to time, execute and deliver, or cause to be executed and delivered, such additional or further consents, documents and other instruments as the Investor may request for the purpose of effectuating the matters covered by this Agreement, including with respect to the grant of the proxy set forth in Section 4. SECTION 6. Certain Events. Each Stockholder agrees that this Agreement and the obligations hereunder shall attach to his, her or its Subject Shares and shall be binding upon any Person to which legal or beneficial ownership of the Subject Shares shall pass, whether by operation of law or otherwise, including such Stockholder's heirs, guardians, administrators or successors. If requested by the Investor, a Stockholder shall cause each certificate representing his, her or its Subject Shares to be inscribed with a legend to such effect. In the event of any stock split, stock dividend, reclassification, merger, reorganization, recapitalization or other change in the capital structure of the Company affecting the capital stock of the Company, the number of Original Shares and the number of applicable Subject Shares shall be adjusted appropriately. In addition, in the event that any Stockholder acquires any additional shares of capital stock of the Company or other voting securities of the Company (including through the exercise of any warrants, stock options or similar instruments), the number of applicable Subject Shares shall be adjusted appropriately. This Agreement and the representations, warranties, covenants, agreements and obligations hereunder shall attach to any additional shares of capital stock of the Company or other voting securities of the Company issued to or acquired by the Stockholder (including through the exercise of any warrants, stock options or similar instruments). SECTION 7. Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties hereto without the prior written consent of each of the other parties; provided, however, that the Investor shall be entitled to assign this Agreement to any Person controlled by Mark J. Wattles without the prior written consent of any other party. Any purported assignment in violation of this Section 7 shall be null and void. Subject to the preceding sentences of this Section 7, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. SECTION 8. Termination. This Agreement and the proxy granted hereby shall terminate upon the earlier of (i) the exercise of the Option under the Option Agreement and the transfer of the shares of Common Stock subject thereto to the Investor or (ii) the expiration of the Option in accordance with the Option Agreement; provided, however, that termination of this Agreement shall not prevent any party hereunder from seeking any remedies (at law or in equity) against any other party hereto for such party's breach of any of the terms of this Agreement prior to termination. 5 SECTION 9. General Provisions. (a) Amendments. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. (b) Notices. All notices and other communications hereunder shall be in writing and shall be given by delivery in person, by registered or certified mail (return receipt requested and with postage prepaid thereon) or by cable, telex or facsimile transmission to the parties at the following addresses (or at such other address as either party shall have furnished to the other in accordance with the terms of this Section 9(b)): if to the Investor: Mark Wattles Enterprises, LLC 7945 W. Sahara #205 Las Vegas, Nevada 89114 Facs.: (702) 431-1603 Attention: Mark J. Wattles with copies to: Baker & Botts, L.L.P. 2001 Ross Avenue Dallas, Texas 75201 Facs.: (214) 953-6503 Attention: Geoffrey L. Newton if to the Stockholders: 9779 East Madera Scottsdale, Arizona 85262 Attention: William Pearse with copies to: Baker & Hostetler LLP 303 East 17th Avenue Suite 1100 Denver, Colorado 80203 Attention: John B. Moorhead All notices and other communications hereunder that are addressed as provided in or pursuant to this Section 9(b) shall be deemed duly and validly given (a) if delivered in person, upon delivery, (b) if delivered by registered or certified mail (return receipt requested and with postage paid thereon), 72 hours after being placed in a depository of 6 the United States mails and (c) if delivered by cable, telex or facsimile transmission, upon transmission thereof and receipt of the appropriate answerback. (c) Interpretation. When a reference is made in this Agreement to a party or to a Section or Schedule, such reference shall be to a party to, or a Section of or a Schedule to, this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein," "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. (d) Counterparts; Effectiveness. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. (e) Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and instruments referred to herein) (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; and (ii) other than with respect to the persons specified as proxies in Section 4, is not intended to confer upon any Person other than the parties any rights or remedies hereunder. (f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to any principles of conflicts of law of such state. (g) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. (h) Non-Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. 7 SECTION 10. Stockholders Capacity. Each Stockholder who is a director or officer of the Company does not make any agreement or understanding herein in his or her capacity as a director or officer of the Company. Such Stockholder signs solely in his or her capacity as the record holder and beneficial owner of the Subject Shares. [Signature page follows] 8 IN WITNESS WHEREOF, each party hereto has signed this Agreement, all as of the date first written above. THE INVESTOR: MARK WATTLES ENTERPRISES, LLC By: /s/ Mark J. Wattles ----------------------------------- Name: Mark J. Wattles --------------------------------- Title: President -------------------------------- THE STOCKHOLDERS: /s/ William J. Pearse -------------------------------------- William J. Pearse /s/ Barbara A. Pearse -------------------------------------- Barbara A. Pearse 9 SCHEDULE A SHARE OWNERSHIP STOCKHOLDER NAME NUMBER OF SHARES OWNED William J. Pearse 11,334 William J. and Barbara A. Pearse, in joint tenancy 1,792,990 EX-99.5 6 d21663aexv99w5.txt VOTING AGREEMENT EXHIBIT 99.5 VOTING AGREEMENT BY AND BETWEEN MARK WATTLES ENTERPRISES, LLC AND THOMAS R. HOFFMAN, TRUSTEE Dated as of January 11, 2005 1 VOTING AGREEMENT This VOTING AGREEMENT, dated as of January 11, 2005 (the "Agreement"), by and among Thomas R. Hoffman, as trustee of each of the following trusts: (i) the FBO Megan Pearse Trust 1 created by instrument dated December 23, 1992, (ii) the FBO Bradford Pearse Trust 1 created by instrument dated December 23, 1992, (iii) the FBO William James Pearse III Trust 1 created by instrument dated December 23, 1992, (iv) the FBO Megan Pearse Trust 2 created by instrument dated December 23, 1992, (v) the FBO Bradford Pearse Trust 2 created by instrument dated December 23, 1992 and (vi) the FBO William James Pearse III Trust 2 created by instrument dated December 23, 1992 (collectively, the "Stockholders"), and Mark Wattles Enterprises, LLC, a Delaware limited liability company (the "Investor"). WHEREAS, as of the date hereof, the Stockholders are the record holders and beneficial owners of an aggregate of 906,810 shares of Common Stock (the "Original Shares", and the Original Shares, together with any other shares of capital stock of the Company or other voting securities of the Company acquired (of record or beneficially) by any Stockholder during the term of this Agreement (including through the exercise of any warrants, stock options or similar instruments), being collectively referred to herein as the "Subject Shares"); NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements set forth herein, the parties hereto agree as follows: SECTION 1. Representations and Warranties of the Stockholders. Each of the Stockholders hereby represents and warrants to the Investor as follows: (a) Enforceability. Such Stockholder has all necessary power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. This Agreement has been duly authorized, executed and delivered by such Stockholder and constitutes a valid and binding obligation of each such Stockholder, enforceable against such Stockholder in accordance with its terms. (b) No Conflict. The execution and delivery of this Agreement by such Stockholder does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, (A) conflict with, or result in any violation of, any United States or foreign Law (as hereinafter defined) applicable to such Stockholder or by which any property or asset of such Stockholder is bound or affected or (B) result in any breach of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, amendment, cancellation or acceleration of any obligation or to a loss of a material benefit under, or result in the creation of any liens in or upon any of the properties or assets of such Stockholder, pursuant to any loan or credit agreement, note, bond, mortgage, indenture, lease, license, sublease, easement, covenant, condition, restriction, contract, instrument, permit, concession, franchise license or other instrument or obligation, including the trust agreements or similar instruments governing each of the 1 Stockholders. As used herein, the term "Law" means any statute, law (including common law), ordinance, rule or regulation. (c) Consents, Approvals, Etc. No consent, approval, order or authorization of, or registration, declaration or filing with, or notification to, any governmental authority or body is required by or with respect to such Stockholder in connection with the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated by this Agreement, except the filing with the Securities and Exchange Commission (the "SEC") of such reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement and the transactions contemplated hereby. (d) Absence of Litigation. As of the date of this Agreement, there is no suit, action or proceeding ("Proceeding") pending or, to the knowledge of such Stockholder, threatened against such Stockholder, or any property or asset of such Stockholder, before any governmental authority or body that seeks to delay or prevent the consummation of the transactions contemplated by this Agreement. (e) The Subject Shares. Such Stockholder is the record and beneficial owner (as defined in Rule 13d-3 under the Exchange Act, which meaning will apply for all purposes of this Agreement) of, and has good and marketable title to Original Shares shown as owned by such Stockholder on Schedule A hereto, free and clear of any and all liens, claims and encumbrances, except as provided in Section 2(d). Other than as set forth on Schedule A hereto, such Stockholder does not own (of record or beneficially) any shares of capital stock of the Company or any options, warrants, rights or other similar instruments to acquire any capital stock or other voting securities of the Company. Such Stockholder has the sole right to vote and Transfer (as hereinafter defined) the Original Shares shown as owned by such Stockholder on Schedule A hereto, and such Stockholder is not subject to any proxies, voting trusts or other agreements, understandings, arrangements or restrictions with respect to the voting or the Transfer of the Subject Shares, except as set forth in Sections 4 and 5. SECTION 2. Representations and Warranties of the Investor. The Investor represents and warrants to each Stockholder as follows: (a) Enforceability. This Agreement has been duly authorized, executed and delivered by the Investor and constitutes a valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms. 2 (b) No Conflict. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement shall not conflict with, or result in any violation of, any United States or foreign Law applicable to the Investor or by which any property or asset of the Investor is bound or affected. (c) Consents, Approvals, Etc. No consent, approval, order or authorization of, or registration, declaration or filing with, or notification to, any governmental authority or body is required by or with respect to the Investor in connection with the execution and delivery of this Agreement by the Investor or the consummation by the Investor of the transactions contemplated by this Agreement, except the filing with the SEC of such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby. (d) Pledge of Original Shares. The Investor has been advised that the Original Shares have been pledged by the Stockholders in favor of William J. Pearse and Barbara A. Pearse pursuant to certain security agreements (the "Security Agreements"). SECTION 3. Covenants of the Stockholder. Each Stockholder covenants and agrees that, during the period commencing on the date hereof and ending on the earlier of (i) two years after the filing by or against the Company of a petition under Chapter 11 or any other applicable section or chapter of the United States Bankruptcy Code, as amended from time to time (the "Bankruptcy Code"), or (ii) the effective date of any plan or reorganization approved by the bankruptcy court in any bankruptcy proceedings commenced against the Company under Chapter 11 or any other applicable section of the Bankruptcy Code: (a) Voting; Investor Instructions. At any meeting of the stockholders of the Company called to vote upon any matter whatsoever submitted to a vote of the stockholders of the Company (a "Covered Matter"), or at any adjournment thereof, or in any other circumstances upon which a vote, consent or other approval with respect to a Covered Matter is sought by the Company, the Investor or any other Person (as hereinafter defined), such Stockholder shall vote (or cause to be voted) the Subject Shares in accordance with the written instructions delivered to such Stockholder by the Investor. The Investor may deliver to such Stockholder written instructions of the type contemplated by the immediately preceding sentence at any time or from time to time, and if requested the Stockholder shall acknowledge receipt thereof. (b) Voting; Frustrating Transactions. At any meeting of the stockholders of the Company, or at any adjournment thereof, or in any other circumstances upon which a vote, consent or other approval is sought, unless otherwise instructed by the Investor pursuant to paragraph (a) above, such Stockholder shall vote (or cause to be voted) all of the Subject Shares against any amendment of the Company's certificate of incorporation or by-laws or other proposal, action or transaction involving the Company or any of its subsidiaries or any of its stockholders, which amendment or other proposal, action or transaction would in any manner impede, frustrate, prevent or delay the consummation of the transactions contemplated by this Agreement 3 (collectively, "Frustrating Transactions"). Such Stockholder shall not commit to or agree to take any action inconsistent with the foregoing or that would otherwise facilitate a Frustrating Transaction. (c) Transfer Restrictions. Such Stockholder shall not (i) sell, transfer, pledge, assign or otherwise dispose of (including by gift) (collectively, "Transfer"), or consent to or permit any Transfer of, any Subject Shares or any interest therein, or enter into any loan or credit agreement, bond, debenture, note, mortgage, indenture, lease or other contract, commitment, agreement, option, instrument, arrangement, understanding, obligation or undertaking, with respect to the Transfer (including any profit sharing or other derivative arrangement) of any Subject Shares or any interest therein, to any individual, corporation, partnership, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity or department, agency or political subdivision thereof (collectively, a "Person"), in each case (i) except as required by the express terms of this Agreement and (ii) except for a Transfer to William J. Pearse or Barbara A. Pearse upon foreclosure of the pledge made pursuant to the Security Agreements, (ii) enter into any voting arrangement, whether by proxy, voting agreement or otherwise, with respect to any Subject Shares and shall not commit or agree to take any of the foregoing actions, other than pursuant to this Agreement or (iii) take any other action that would in any way restrict, limit or interfere with the performance by such Stockholder of its obligations under this Agreement or the consummation of the transactions contemplated hereby. Such Stockholder shall not, nor shall such Stockholder permit any entity under their control to, deposit any Subject Shares in a voting trust. SECTION 4. Grant of Irrevocable Proxy; Appointment of Proxy. (a) Grant of Proxy. Each Stockholder hereby irrevocably grants to, and appoints, the Investor and any individual designated in writing by the Investor, as such Stockholder's proxy and attorney-in-fact (with full power of substitution), for and in the name, place and stead of such Stockholder, to vote all of his or its Subject Shares, or grant any consent or approval in respect of such Subject Shares with respect to any Covered Matter. (b) Revocation of Other Proxies. Each Stockholder represents that any proxies heretofore given in respect of his or its Subject Shares are not irrevocable and that all such proxies are hereby revoked. (c) Proxy Coupled with an Interest. Each Stockholder hereby affirms that the irrevocable proxy provided for in this Section 4 is given to secure the performance of the duties of the Stockholder under this Agreement. Each Stockholder hereby further affirms that the irrevocable proxy is coupled with an interest is intended to be irrevocable in accordance with the provisions of Section 212 of the Delaware General Corporation Law. If for any reason the proxy granted by any Stockholder herein is not binding, effective or irrevocable, then such Stockholder agrees to execute any additional agreement or document required to make such proxy binding, effective and irrevocable. 4 Each Stockholder hereby ratifies and confirms all that such irrevocable proxy may lawfully do or cause to be done by virtue hereof. SECTION 5. Further Assurances. Each Stockholder shall use its reasonable best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other parties in doing, all things necessary, proper or advisable to consummate and make effective, in the most expeditious manner practicable, the transactions contemplated by this Agreement. No Stockholder shall commit or agree to take any action inconsistent with the transactions contemplated by this Agreement. Without limiting the generality of the foregoing, each Stockholder shall, from time to time, execute and deliver, or cause to be executed and delivered, such additional or further consents, documents and other instruments as the Investor may request for the purpose of effectuating the matters covered by this Agreement, including with respect to the grant of the proxy set forth in Section 4. SECTION 6. Certain Events. Each Stockholder agrees that this Agreement and the obligations hereunder shall attach to his or its Subject Shares and shall be binding upon any Person to which legal or beneficial ownership of the Subject Shares shall pass, whether by operation of law or otherwise, including such Stockholder's heirs, guardians, administrators or successors. If requested by the Investor, such Stockholder shall cause each certificate representing his or its Subject Shares to be inscribed with a legend to such effect. In the event of any stock split, stock dividend, reclassification, merger, reorganization, recapitalization or other change in the capital structure of the Company affecting the capital stock of the Company, the number of Original Shares and the number of applicable Subject Shares shall be adjusted appropriately. In addition, in the event that any Stockholder acquires any additional shares of capital stock of the Company or other voting securities of the Company (including through the exercise of any warrants, stock options or similar instruments), the number of applicable Subject Shares shall be adjusted appropriately. This Agreement and the representations, warranties, covenants, agreements and obligations hereunder shall attach to any additional shares of capital stock of the Company or other voting securities of the Company issued to or acquired by the Stockholder (including through the exercise of any warrants, stock options or similar instruments). SECTION 7. Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties hereto without the prior written consent of each of the other parties; provided, however, that the Investor shall be entitled to assign this Agreement to any Person controlled by Mark Wattles without the prior written consent of any other party. Any purported assignment in violation of this Section 7 shall be null and void. Subject to the preceding sentences of this Section 7, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns. SECTION 8. Termination. This Agreement and the proxy granted hereby shall terminate (i) upon the earlier of (1) two years after the filing by or against the Company of a petition under Chapter 11 or any other applicable section or chapter of 5 the Bankruptcy Code or (2) the effective date of any plan or reorganization approved by the bankruptcy court in any bankruptcy proceedings commenced against the Company under Chapter 11 or any other applicable section of the Bankruptcy Code, or (ii) if a petition under Chapter 11 or any other applicable section or chapter of the Bankruptcy Code has not been filed by or against the Company, April 10, 2005; provided, however, that termination of this Agreement shall not prevent any party hereunder from seeking any remedies (at law or in equity) against any other party hereto for such party's breach of any of the terms of this Agreement prior to termination. SECTION 9. General Provisions. (a) Amendments. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties. (b) Notices. All notices and other communications hereunder shall be in writing and shall be given by delivery in person, by registered or certified mail (return receipt requested and with postage prepaid thereon) or by cable, telex or facsimile transmission to the parties at the following addresses (or at such other address as either party shall have furnished to the other in accordance with the terms of this Section 9(b)): if to the Investor: Mark Wattles Enterprises, LLC 7945 W. Sahara #205 Las Vegas, Nevada 89114 Facs.: (702) 341-1603 with copies to: Baker & Botts, L.L.P. 2001 Ross Avenue Dallas, Texas 75201 Facs.: (214) 953-6503 Attention: Geoffrey L. Newton if to the Stockholders: Thomas R. Hoffman 8181 East Tufts Avenue, Suite 600 Denver, CO 80237 with copies to: Baker & Hostetler LLP 303 East 17th Avenue Suite 1100 Denver, Colorado 80203 Attention: John B. Moorhead 6 All notices and other communications hereunder that are addressed as provided in or pursuant to this Section 9(b) shall be deemed duly and validly given (a) if delivered in person, upon delivery, (b) if delivered by registered or certified mail (return receipt requested and with postage paid thereon), 72 hours after being placed in a depository of the United States mails and (c) if delivered by cable, telex or facsimile transmission, upon transmission thereof and receipt of the appropriate answerback. (c) Interpretation. When a reference is made in this Agreement to a party or to a Section or Schedule, such reference shall be to a party to, or a Section of or a Schedule to, this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein," "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. (d) Counterparts; Effectiveness. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. (e) Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and instruments referred to herein) (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; and (ii) other than with respect to the persons specified as proxies in Section 4, is not intended to confer upon any Person other than the parties any rights or remedies hereunder. (f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to any principles of conflicts of law of such state. (g) Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule or law or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the extent possible. 7 (h) Non-Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. [Signature page follows] 8 IN WITNESS WHEREOF, each party hereto has signed this Agreement, all as of the date first written above. THE INVESTOR: MARK WATTLES ENTERPRISES, LLC By: /s/ Mark J. Wattles ---------------------------------------- Name: Mark J. Wattles -------------------------------------- Title: President ------------------------------------- THE STOCKHOLDERS: /s/ Thomas R. Hoffman ------------------------------------------- Thomas R. Hoffman, as trustee as trustee of each of the following trusts: (i) the FBO Megan Pearse Trust 1 created by instrument dated December 23, 1992, (ii) the FBO Bradford Pearse Trust 1 created by instrument dated December 23, 1992, (iii) the FBO William James Pearse III Trust 1 created by instrument dated December 23, 1992, (iv) the FBO Megan Pearse Trust 2 created by instrument dated December 23, 1992, (v) the FBO Bradford Pearse Trust 2 created by instrument dated December 23, 1992, and (vi) the FBO William James Pearse III Trust 2 created by instrument dated December 23, 1992 The undersigned have executed this Agreement for the purpose of indicating that (i) they consent to the execution, delivery and performance of this Agreement by the Stockholders and waive the application of any provision of the Security Agreements that may prohibit or otherwise adversely affect the performance by the Stockholders of their obligations hereunder and (ii) in the event of a foreclosure on any of the Subject Shares pursuant to the Security Agreements, they agree to be bound by the provisions of this Agreement as fully and to the same extent as if they were parties hereto. /s/ William J. Pearse ---------------------------------------- William J. Pearse /s/ Barbara A. Pearse ---------------------------------------- Barbara A. Pearse 9 SCHEDULE A SHARE OWNERSHIP STOCKHOLDER NAME NUMBER OF SHARES OWNED Thomas R. Hoffman TTEE 151,135 FBO Megan Pearse Trust 1 U/A dated 12/23/92 Thomas R. Hoffman TTEE 151,135 FBO Bradford Pearse Trust 1 U/A dated 12/23/92 Thomas R. Hoffman TTEE 151,135 FBO William James Pearse III Trust 1 U/A dated 12/23/92 Thomas R. Hoffman TTEE 151,135 FBO Megan Pearse Trust 2 U/A dated 12/23/92 Thomas R. Hoffman TTEE 151,135 FBO Bradford Pearse Trust 2 U/A dated 12/23/92 Thomas R. Hoffman TTEE 151,135 FBO William James Pearse III Trust 2 -------- U/A dated 12/23/92 906,810 EX-99.6 7 d21663aexv99w6.txt OPTION AGREEMENT EXHIBIT 99.6 OPTION AGREEMENT BY AND AMONG MARK WATTLES ENTERPRISES, LLC, WILLIAM J. PEARSE AND BARBARA A. PEARSE Dated as of January 11, 2005 OPTION AGREEMENT This OPTION AGREEMENT, entered into as of January 11, 2005 (the "Agreement") by and among William J. Pearse and Barbara A. Pearse (collectively, the "Stockholders") and Mark Wattles Enterprises, LLC, a Delaware limited liability company (the "Investor"), WITNESSETH: WHEREAS, as of the date hereof, William J. Pearse is the sole record holder and beneficial owner of 11,334 shares of common stock, par value $.01 per share ("Common Stock"), of Ultimate Electronics, Inc. (the "Company"); WHEREAS, as of the date hereof, William J. Pearse and Barbara A. Pearse are the joint record holders and beneficial owners of 1,792,990 shares of Common Stock (together with the shares held solely by William J. Pearse, the "Shares"); WHEREAS, concurrently with the execution and delivery of this Agreement, each Stockholder is entering into a Voting Agreement (the "Voting Agreement") with the Investor, pursuant to which the Stockholders have agreed to vote the Shares in accordance with the instructions received from the Investor from time to time; and WHEREAS, the Stockholders are willing to grant an option to the Investor to acquire all or any part of the Shares; NOW, THEREFORE, in consideration of the premises, the terms and provisions set forth herein, the mutual benefits to be gained by the performance thereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: SECTION 1. Grant of Option. Upon the terms and subject to the conditions set forth in this Agreement, each of the Stockholders hereby grants to the Investor an option (the "Option") to purchase the Shares set forth opposite the name of such Stockholder on Exhibit A hereto, or any securities or property of any kind or character received or receivable in respect of such Shares in connection with the Bankruptcy Proceedings (as hereinafter defined) in exchange for the Exercise Price (as hereinafter defined), which Option shall be exercisable at any time during the Exercise Period (as hereinafter defined). 1 SECTION 2. Exercise of Option. (a) The Option shall be exercisable during the period (the "Exercise Period") commencing fourteen calendar days after the filing by or against the Company of a petition under Chapter 11 or any other applicable section or chapter of the United States Bankruptcy Code, as amended from time to time (the "Bankruptcy Code"), and ending on the earlier of (i) two years after the commencement of the Exercise Period or (ii) the effective date of any plan or reorganization approved by the bankruptcy court in any bankruptcy proceedings (the "Bankruptcy Proceedings") commenced by or against the Company under Chapter 11 or any other applicable section or chapter of the Bankruptcy Code. The Option shall expire and be of no further effect if the Exercise Period has not commenced prior to or on April 10, 2005. (b) The Option may be exercised by the Investor with respect to any Stockholder and any portion of the Shares at any time or from time to time (subject to paragraph (c) below) during the Exercise Period by delivering a written notice (the "Exercise Notice") to such Stockholder, which notice shall state that the Investor irrevocably elects to exercise the Option with respect to the Shares identified in such notice and pay the Exercise Price therefor. As used herein, the term "Exercise Price" means $0.65 per Share; provided, however, that if on the date the Exercise Notice is delivered by the Investor to a Stockholder the Common Stock is traded on the Nasdaq National Market, the Nasdaq SmallCap Market, the OTC Bulliten Board, any national securities exchange or any other nationally recognized trading market, such term shall mean the lower of (i) $0.65 per Share or (ii) the average of the per share last sale prices of the Common Stock on the five most recent trading days prior to such date. (c) The Option may not be exercised by the Investor on more than two separate occasions. If any time the Option is exercised by the Investor in part, the Investor will exercise the Option with respect to the Option Shares held by the Stockholders on a pro rata basis, in proportion to the number of shares set forth opposite their names on Exhibit A hereto. SECTION 3. Closing. The closing of any exercise of the Option pursuant to this Agreement (a "Closing") shall take place at the offices of Baker Botts L.L.P., 2001 Ross Avenue, Dallas, Texas 75201 at 10:00 a.m., Dallas, Texas time, on the second business day following the delivery of the Exercise Notice by the Investor pursuant to Section 2(b), or on such other date as shall have been mutually agreed by the parties. At any Closing, (i) the Investor shall make payment to the applicable Stockholder of the aggregate Exercise Price for the Shares being purchased upon the exercise of the Option by wire transfer of immediately available funds and (ii) such Stockholder shall deliver to the Investor a stock certificate or certificates representing the aggregate number of Shares being purchased by the Investor, together with duly executed blank stock powers, in each case in proper form to transfer the Shares to the Investor. SECTION 4. Representations and Warranties of the Stockholders. Each of the Stockholders hereby represents and warrants to the Investor as follows: 1 (a) Enforceability. Such Stockholder has all necessary power and authority to execute and deliver this Agreement and to consummate the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered by such Stockholder and constitutes a valid and binding obligation of each such Stockholder, enforceable against such Stockholder in accordance with its terms. (b) No Conflict. The execution and delivery of this Agreement by such Stockholder does not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement will not, (A) conflict with, or result in any violation of, any United States or foreign Law (as hereinafter defined) applicable to such Stockholder or by which any property or asset of such Stockholder is bound or affected or (B) result in any breach of, or constitute a default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, amendment, cancellation or acceleration of any obligation or to a loss of a material benefit under, or result in the creation of any liens in or upon any of the properties or assets of such Stockholder, pursuant to any loan or credit agreement, note, bond, mortgage, indenture, lease, license, sublease, easement, covenant, condition, restriction, contract, instrument, permit, concession, franchise license or other instrument or obligation. As used herein, the term "Law" means any statute, law (including common law), ordinance, rule or regulation. (c) Consents, Approvals, Etc. No consent, approval, order or authorization of, or registration, declaration or filing with, or notification to, any governmental authority or body is required by or with respect to such Stockholder in connection with the execution and delivery of this Agreement by such Stockholder or the consummation by such Stockholder of the transactions contemplated by this Agreement, except the filing with the Securities and Exchange Commission (the "SEC") of such reports under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as may be required in connection with this Agreement and the transactions contemplated hereby. (d) Absence of Litigation. As of the date of this Agreement, there is no suit, action or proceeding ("Proceeding") pending or, to the knowledge of such Stockholder, threatened against such Stockholder, or any property or asset of such Stockholder, before any governmental authority or body that seeks to delay or prevent the consummation of the transactions contemplated by this Agreement. (e) The Shares. Such Stockholder is the record and beneficial owner (as defined in Rule 13d-3 under the Exchange Act, which meaning will apply for all purposes of this Agreement) of, and has good and marketable title to Shares shown as owned by such Stockholder on Schedule A hereto, free and clear of any and all liens, claims and encumbrances. Such Stockholder has the sole right to Transfer (as defined in the Voting Agreement) the Shares shown as owned by such Stockholder on Schedule A hereto, and such Stockholder is not subject to any agreements, understandings, arrangements or restrictions which prohibit or restrict the Transfer of the Shares to the Investor upon the exercise of the Option. Upon the exercise of the Option by the Investor 2 with respect to the Shares shown as owned by such Stockholder on Schedule A in accordance with the terms of this Agreement, the Investor will acquire good and marketable title to such Shares, free and clear of all liens, claims and encumbrances. SECTION 5. Representations and Warranties of the Investor. The Investor represents and warrants to each Stockholder as follows: (a) Enforceability. This Agreement has been duly authorized, executed and delivered by the Investor and constitutes a valid and binding obligation of the Investor, enforceable against the Investor in accordance with its terms. (b) No Conflict. The execution and delivery of this Agreement do not, and the consummation of the transactions contemplated by this Agreement and compliance with the provisions of this Agreement shall not conflict with, or result in any violation of, any United States or foreign Law applicable to the Investor or by which any property or asset of the Investor is bound or affected. (c) Consents, Approvals, Etc. No consent, approval, order or authorization of, or registration, declaration or filing with, or notification to, any governmental authority or body is required by or with respect to the Investor in connection with the execution and delivery of this Agreement by the Investor or the consummation by the Investor of the transactions contemplated by this Agreement, except the filing with the SEC of such reports under the Exchange Act as may be required in connection with this Agreement and the transactions contemplated hereby. (d) Securities Act. If the Investor exercises the Option, the Investor will acquire the Option Shares for the purpose of investment and not with a view to, or for sale in connection with, any distribution thereof in violation of the Securities Act of 1933, as amended (the "Securities Act"). The Investor acknowledges that any Option Shares to be acquired by it upon the exercise of the Option will not be registered under the Securities Act or any applicable state securities law, and that such Option Shares may not be transferred or sold except pursuant to the registration provisions of such Securities Act or pursuant to an applicable exemption therefrom and pursuant to state securities laws and regulations as applicable. The Investor is knowledgeable, sophisticated and experienced in business and financial matters of the type contemplated by this Agreement and is able to bear the economic risks associated with any investment to be made by it in the Option Shares. In addition, the Investor acknowledges that it is entering into this Agreement and the Voting Agreement based on publicly available information and information provided by the Company, and the Investor is not relying on any statements made or information provided by the Stockholders other than the representations and warranties contained in this Agreement. For avoidance of doubt and notwithstanding any other provision of this agreement, the Investor acknowledges that the Stockholders have not made and do not make any representation or warranty to the Investor regarding or the Company, its results of operations, financial condition, liquidity or prospects. SECTION 6. Notices. All notices and other communications hereunder shall be in writing and shall be given by delivery in person, by registered or certified mail 3 (return receipt requested and with postage prepaid thereon) or by cable, telex or facsimile transmission to the parties at the following addresses (or at such other address as either party shall have furnished to the other in accordance with the terms of this Section 6): if to the Investor: Mark Wattles Enterpises, LLC 7945 W. Sahara #205 Las Vegas, Nevada 89114 Facs.: (702) 341-1603 with copies to: Baker & Botts L.L.P. 2001 Ross Avenue Dallas, Texas 75201 Facs.: (214) 953-6503 Attention: Geoffrey L. Newton if to the Stockholders: William and Barbara Pearse 9779 East Madera Scottsdale, Arizona 85262 with copies to: Baker & Hostetler LLP 303 East 17th Avenue Suite 1100 Denver, Colorado 80203 Attention: John B. Moorhead All notices and other communications hereunder that are addressed as provided in or pursuant to this Section 6 shall be deemed duly and validly given (a) if delivered in person, upon delivery, (b) if delivered by registered or certified mail (return receipt requested and with postage paid thereon), 72 hours after being placed in a depository of the United States mails and (c) if delivered by cable, telex or facsimile transmission, upon transmission thereof and receipt of the appropriate answerback. SECTION 7. Further Assurances. Each of the Stockholders and the Investor hereby covenant and agree to execute and deliver any additional documents reasonably necessary to complete the sale and transfer of all or any portion of the Shares with respect to which an Option is exercised and consummate the other transactions contemplated by this Agreement. In the event of any stock split, stock dividend, reclassification, merger, reorganization, recapitalization or other change in the capital 4 structure of the Company affecting the capital stock of the Company, the number of Option Shares and the Exercise Price shall be adjusted appropriately, and the parties shall execute and deliver such instruments as are necessary to evidence any such adjustment. SECTION 8. Amendments. The terms and provisions of this Agreement may be modified or amended only by a written instrument executed by each of the parties hereto, and compliance with the terms and provisions hereof may be waived only by a written instrument executed by each party entitled to the benefits of the same. SECTION 9. Assignment. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned, in whole or in part, by operation of law or otherwise, by any of the parties hereto without the prior written consent of each of the other parties; provided, however, that the Investor shall be entitled to assign this Agreement to any Person controlled by Mark J. Wattles without the prior written consent of any other party. Any purported assignment in violation of this Section 9 shall be null and void. Subject to the preceding sentences of this Section 9, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the parties hereto and their respective successors and assigns.. SECTION 10. Governing Law. This Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Delaware, without regard to the principles of conflicts of law that would result in the application of the laws of any other jurisdiction. SECTION 11. Severability. In the event any provision contained in this Agreement shall be held to be invalid, illegal or unenforceable for any reason, the invalidity, illegality or unenforceability thereof shall not affect any other provisions hereof, all of which shall remain in full force and effect. SECTION 12. Interpretation. When a reference is made in this Agreement to a party or to a Section or Schedule, such reference shall be to a party to, or a Section of or a Schedule to, this Agreement unless otherwise indicated. The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation." The words "hereof," "herein," "hereunder" and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement. The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms. SECTION 13. Entire Agreement; No Third-Party Beneficiaries. This Agreement (including the documents and instruments referred to herein) (i) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof; and (ii) is not intended to confer upon any Person other than the parties any rights or remedies hereunder. 5 SECTION 14. Non-Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. SECTION 15. Counterparts; Effectiveness. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other party. [Signature page follows] 6 IN WITNESS WHEREOF, each party hereto has signed this Agreement, all as of the date first written above. THE INVESTOR: MARK WATTLES ENTERPRISES, LLC By: /s/ Mark J. Wattles ------------------------------- Name: Mark J. Wattles ----------------------------- Title: President ---------------------------- THE STOCKHOLDERS: /s/ William J. Pearse ---------------------------------- William J. Pearse /s/ Barbara A. Pearse ---------------------------------- Barbara A. Pearse 7 SCHEDULE A SHARE OWNERSHIP STOCKHOLDER NAME NUMBER OF SHARES OWNED William J. Pearse 11,334 William J. and Barbara A. Pearse, in joint tenancy 1,792,990