Document:

Exhibit
10.1

 

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.

 

 

“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

 

 

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.

 

 

(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.

 

 

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.

 

 

(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

 

 

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

 

 

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

 

 

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.

 

 

(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

 

 

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

 

 

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

 

 

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.

 

 

(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

 

 

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]

 

 

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]Exhibit 10.2

 

 

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”).

 

W I T N E S S E T H:

 

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

 

 

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

 

 

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

 

 

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

 

 

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.

 

 

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]

 

 

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]

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