Exhibit 10.1

 

STOCK PURCHASE AGREEMENT

 

by and between

 

 

ULTIMATE ELECTRONICS, INC.,

As Issuer

 

 

and

 

 

MARK WATTLES ENTERPRISES, LLC,

As Investor

 

 

January 11, 2005

 

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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.

 

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“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

 

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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.

 

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(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.

 

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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.

 

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(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

 

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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

 

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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

 

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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.

 

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(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

 

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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

 

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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

 

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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.

 

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(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

 

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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]

 

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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]

 

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