IN THE BANKRUPTCY COURT FOR THE DISTRICT OF

x : In re: : Chapter 11 : ULTIMATE ELECTRONICS, INC., et al., : Case No. 05-______(_____) : Debtors. : Jointly Administered : : Hearing Date: x Objection Due:

MOTION FOR ORDER PURSUANT TO 11 U.S.C. §§ 105(a), 327 AND 331 AUTHORIZING RETENTION OF PROFESSIONALS UTILIZED BY DEBTORS IN THE ORDINARY COURSE OF BUSINESS

Ultimate Electronics, Inc. ("Ultimate Electronics") and six (6) of its subsidiaries and affiliates (the "Affiliate Debtors"), debtors and debt- ors-in-possession in the above-captioned cases (Ultimate Electronics and the

Affiliate Debtors collectively, the "Debtors"), hereby move (the "Motion") this Court

for entry of an order, pursuant to sections 105(a), 327 and 331 of chapter 11 of title

11 of the United States Code, 11 U.S.C. §§ 101, et seq. (the "Bankruptcy Code"),

authorizing the retention of professionals utilized by the Debtors in the ordinary

course of business. In support of this Motion, the Debtors rely on the Affidavit of

David A. Carter in Support of Chapter 11 Petitions and First Day Orders, sworn to

on January 11, 2005 (the "Carter Affidavit"). In further support of this Motion, the

Debtors respectfully represent as follows:

BACKGROUND

A. The Chapter 11 Filings

1. On January 11, 2005 (the "Petition Date"), the Debtors filed voluntary petitions in this Court for reorganization relief under chapter 11 of the

Bankruptcy Code. The Debtors continue to operate their businesses and manage their properties as debtors-in-possession pursuant to sections 1107(a) and 1108 of the

Bankruptcy Code. The Debtors have moved this Court for an order for joint admin- istration of these chapter 11 cases.

2. No creditors' committee has yet been appointed in these cases.

No trustee or examiner has been appointed.

3. This Court has jurisdiction over this Motion pursuant to 28

U.S.C. §§ 157 and 1334. Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409.

This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2).

4. The statutory predicates for the relief requested herein are sections 105(a), 327 and 331 of the Bankruptcy Code.

B. Current Business Operations of the Debtors and Events Leading to Chapter 11 Filing

5. Ultimate Electronics is a leading specialty retailer of high-end home entertainment and consumer electronics with sixty-five (65) stores. In addi-

2 tion, the Debtors operate Fast Trak, Inc., an independent electronics repair company

based in . The Debtors employ more than 3,300 full and part-time employ- ees. For the year ended January 31, 2004, the Debtors had sales of $712 million and administered approximately $329 million of assets at book value.

6. In fiscal 2001, the Debtors embarked on an aggressive expansion strategy opening 34 new stores over a three year period. This expansion severely stretched the Debtors' financial and operational resources. Moreover, the new stores did not perform up to expectations. Indeed, sales have continued to decline since the completion of the expansion program. Most recently, sales declines during the third and fourth quarter of fiscal 2004 caused some vendors to reduce credit lines or shorten payments terms and have led to additional reserves in the

Debtors' credit facility. The sales declines and resulting reduction in credit support has created severe liquidity difficulties for the Debtors.

7. Accordingly, the Debtors explored various strategic alterna-

tives. The Debtors ultimately decided that an equity infusion to be provided by an

entity owned by Mr. Mark Wattles and a new credit facility to be provided by Wells

Fargo in which Mr. Wattles would be a "silent" minority participant, provided the

best alterative to the Debtors to enable them to address their operational and finan-

cial needs and to thereby maximize value for their constituents.

3 8. The Debtors believe that Mr. Wattles' substantial commit- ment, both in his time, talent and resources, is a positive and compelling statement both to the Debtors' constituents and for the Debtors' future prospects. However, much work is left to be done. The Debtors now have adequate liquidity with which to take stock of their businesses in a rational and deliberate manner and to formulate a business plan upon which to develop their exit strategy. The chapter 11 filing was necessary to permit the funding described above, to provide the Debtors with a breathing spell from the demands being placed on them as a result of their lack of liquidity and to enable them to rationally address their other operational and financial challenges.

9. Notwithstanding these circumstances, the Debtors remain a leading retailer of high-end consumer electronics, furnishings and installation services for the car and home. The Debtors intend to use the breathing spell afforded under chapter 11 and the reinvigoration of the enterprise occasioned by Mr. Wattles involvement to re-examine all aspects of their operations and to improve their cost structure and return to profitability. The Debtors have begun to evaluate all of their business segments including their underperforming stores and will be quickly turning to address those issues in a manner that is expected to offer the best return for their stakeholders.

4 RELIEF REQUESTED

10. The Debtors customarily retain the services of various attorneys, accountants and other professionals to represent them in matters arising in the ordinary course of business (the "Ordinary Course Professionals"). A list of the current Ordinary Course Professionals is attached as Exhibit 1 to the proposed order.

Additional Ordinary Course Professionals may be retained from time to time.

11. By this Motion, the Debtors seek authorization (a) to retain the

Ordinary Course Professionals pursuant to sections 105(a) and 327 of the Bank- ruptcy Code without the necessity of a separate, formal retention application ap- proved by this Court for each Ordinary Course Professional and (b) to compensate the Ordinary Course Professionals for postpetition services rendered, subject to certain limits set forth below, without the necessity of additional Court approval.

12. Although certain of the Ordinary Course Professionals may not be "professional persons" as contemplated by section 327 of the Bankruptcy

Code, out of an abundance of caution, the Debtors are moving this Court for an order authorizing the retention of all Ordinary Course Professionals.

BASIS FOR RELIEF

13. Prior to the Petition Date, the Debtors employed, from time to time, Ordinary Course Professionals to render services relating to, among others,

(a) tax preparation and other tax advice, (b) legal advice pertaining to general

5 commercial, corporate and securities, and regulatory matters, (c) legal representation for real estate matters, (d) real estate brokerage and consulting, (e) information technology consulting and (f) other matters requiring the expertise and assistance of professionals.

14. The Debtors would like to continue to employ and retain

Ordinary Course Professionals to render services to their estates that are similar to those rendered prior to the commencement of these chapter 11 cases. The number of

Ordinary Course Professionals involved, however, renders it costly and inefficient for the Debtors to submit individual applications and proposed retention orders to the

Court for each such Ordinary Course Professional.

15. The Debtors submit that the retention of the Ordinary Course

Professionals and the payment of interim compensation on the basis set forth herein are in the best interests of the Debtors' estates. While generally the Ordinary Course

Professionals with whom the Debtors have previously dealt wish to represent the

Debtors on an ongoing basis, many might be unwilling to do so if they may be paid only through a formal application process.

16. Moreover, if the expertise and background knowledge of certain of these Ordinary Course Professionals with respect to the particular areas and matters for which they were responsible prior to the Petition Date are lost, the estates undoubtedly will incur additional and unnecessary expense because the

6 Debtors will be forced to retain other professionals without such background knowledge and expertise. It is therefore in the best interests of the Debtors' estates to avoid any disruption in the professional services required in the day-to-day operation of the Debtors' businesses.

17. Consistent with the dimensions of these cases, the Debtors request that they be permitted to employ and retain Ordinary Course Professionals on terms substantially similar to those in effect prior to the Petition Date, subject to the terms described below.

A. Payment of Fees and Expenses

18. The Debtors propose that they be permitted to pay, without formal application to the Court by any Ordinary Course Professional, one hundred percent (100%) of the postpetition interim fees and disbursements to each Ordinary

Course Professional upon the submission to the Debtors of an appropriate invoice setting forth in reasonable detail the nature of the services rendered after the Petition

Date.

19. Except as provided in paragraphs 17 through 18, the Debtors warrant that such interim fees and disbursements will not exceed a total of $30,000 per month, or $300,000 for the pendency of these chapter 11 cases, per Ordinary

Course Professional. The Debtors propose that in the event that an Ordinary Course

Professional's payments exceed $30,000 in a given month, or $300,000 for the

7 pendency of these chapter 11 cases, such Ordinary Course Professional will be required to submit an application to the Court for allowance of compensation and reimbursement of expenses pursuant to sections 330 and 331 of the Bankruptcy

Code. With respect to the Ordinary Course Professionals retained by the Debtors, the Debtors anticipate the total fees to be between $200,000 and $350,000 per month.

B. The Submission of Rule 2014 Affidavits

20. Pursuant to this Motion, the Debtors therefore request that

Ordinary Course Professionals be excused from submitting separate applications for proposed retention unless otherwise provided herein. The Debtors recognize, however, the importance of giving information regarding each Ordinary Course

Professional that is an attorney to the Court and the U.S. Trustee.

21. The Debtors therefore propose that each Ordinary Course

Professional that is an attorney be required to file with the Court and serve upon

(a) the Office of the U.S. Trustee, (b) counsel for the Debtors' postpetition lenders

(the "Lenders"), (c) counsel for any official creditors' committee appointed in these cases (the "Committees") and (d) counsel for the Debtors, an Affidavit of Ordinary

Course Professional pursuant to Rule 2014 of the Federal Rules of Bankruptcy

Procedure (the "Affidavit") within twenty (20) days of the date of an Order granting this Motion. A form of the Affidavit is attached as Exhibit 2 to the proposed order.

8 C. Additional Ordinary Course Professionals

22. The Debtors also request that they be authorized and empow- ered to employ and retain additional Ordinary Course Professionals needed by the

Debtors in the ordinary course of their businesses without the need to file individual retention applications for each by filing a supplement (the "Supplement") to Exhibit

1 attached to the proposed order with the Court and serving the Supplement on the

U.S. Trustee, counsel for the Committees and counsel for the Lenders, without the need for any further hearing or notice to any other party.

23. For purposes of complying with the Affidavit procedures set forth above, the Debtors request that the time for additional Ordinary Course

Professionals that are attorneys to file the Affidavit with the Court and serve the

Affidavit upon counsel for the Debtors, the U.S. Trustee, counsel for the Committees and counsel for the Lenders, run from the filing of the Supplement but that all other requirements remain the same.

D. Objections to the Retention of an Ordinary Course Professional

24. The Debtors propose that the U.S. Trustee, the Committees and the Lenders shall have twenty (20) days after receiving each Ordinary Course

Professional's Affidavit (the "Objection Deadline") to object to the retention of such

Ordinary Course Professional. Such objecting party shall serve any such objections upon the Debtors, the U.S. Trustee, the Ordinary Course Professional, counsel for the

9 Lenders and counsel for any Committee appointed in these cases on or before the

Objection Deadline.

25. If any such objection cannot be resolved within twenty (20)

days, the matter shall be scheduled for hearing before the Court at the next regularly

scheduled omnibus hearing date or date otherwise agreeable to the Ordinary Course

Professional, the Debtors, the U.S. Trustee, the Lenders or the Committees (which-

ever objected to the retention of the Ordinary Course Professional). If no objection

is received within twenty (20) days after the filing of an Affidavit, the Debtors shall

be deemed authorized to retain such Ordinary Course Professional as a final matter.

E. Statement of Ordinary Course Professionals

26. The Debtors further propose to file with the Court approxi-

mately every one hundred twenty (120) days, or such other period as the Court shall

order, and serve upon the U.S. Trustee, counsel for the Lenders and counsel for the

Committees, a statement that includes the following information for each Ordinary

Course Professional: (a) the name of such Ordinary Course Professional; (b) the

aggregate amounts paid as compensation for services rendered and reimbursement of

expenses incurred by such Ordinary Course Professional during the one hundred

twenty (120) days; and (c) a general description of the services rendered by such

Ordinary Course Professional.

10 APPLICABLE AUTHORITY

27. Because the nature of the work performed by the Ordinary

Course Professionals is only indirectly related to the type of work carried out by the

Debtors, because the degree of discretion afforded the Ordinary Course Professionals

in performing such work is marginal and because the Ordinary Course Professionals

will not be involved in the administration of these chapter 11 cases, the Debtors do

not believe that the Ordinary Course Professionals are "professionals," within the

meaning of section 327 of the Bankruptcy Code, whose retention must be approved

by the Court. See In re First Merchants Acceptance Corp., Case No. 97-1500, 1997

Bankr. LEXIS 2245, at *8–9 (Bankr. D. Del. Dec. 15, 1997).

28. The First Merchants criteria are consistent with those utilized

by other courts when examining the types of duties to be undertaken by a "profes-

sional." See, e.g., Elstead v. Nolden (In re That's Entm't Mktg. Group), 168 B.R.

226, 230 (N.D. Cal. 1994) (only retention of professionals whose duties are central to

administration of estate requires prior court approval under section 327); In re

Madison Mgmt. Group, Inc., 137 B.R. 275, 283 (Bankr. N.D. Ill. 1992) (same); In re

Metro. Hosp., 119 B.R. 910, 915 (Bankr. E.D. Pa. 1990); In re D'Lites of Am., Inc.,

108 B.R. 352, 355 (Bankr. N.D. Ga. 1989) (section 327 approval not necessary for

"one who provides services to the debtor that are necessary whether the petition was filed or not").

11 29. Nevertheless, out of an abundance of caution, the Debtors

seek the relief requested herein to avoid any subsequent controversy as to the

Debtors' employment and payment of the Ordinary Course Professionals during the

pendency of these chapter 11 cases. The Debtors shall seek specific Court authority

under section 327 to employ any professionals involved in the actual administration

of these chapter 11 cases.

30. Similar relief has been granted by this Court in comparable

chapter 11 cases. See, e.g., In re Aurora Foods, Inc., Case No. 03-13744 (MFW)

(Bankr. D. Del. Jan. 7, 2004); In re Chart Industries, Inc., Case No. 03-12114 (JWV)

(Bankr. D. Del. Aug. 13, 2003); In re GenTek Inc., Case No. 02-12986 (MFW)

(Bankr. D. Del. Nov. 7, 2002); In re Hayes Lemmerz International, Inc., Case No.

01-11490 (MFW) (Bankr. D. Del. Dec. 5, 2001).

31. The Debtors submit that their proposed employment of the

Ordinary Course Professionals and the payment of compensation on the basis set

forth above is in the best interests of the Debtors' estates and their creditors.

32. Although certain of the Ordinary Course Professionals may

hold unsecured claims against the Debtors, the Debtors do not believe that any of the

Ordinary Course Professionals has an interest materially adverse to the Debtors or

their estates, creditors or shareholders.

12 33. No previous request for the relief sought in this Motion has been made to this Court or any other court.

13 WHEREFORE, the Debtors respectfully request that the Court enter an order (i) authorizing the retention of Ordinary Course Professionals without the necessity of a separate, formal retention application approved by this Court for each

Ordinary Course Professional, (ii) authorizing the compensation of Ordinary Course

Professionals for postpetition services rendered, subject to the limits set forth above, without the necessity of additional Court approval and (iii) granting such other and further relief as is just and proper.

Dated: Wilmington, Delaware SKADDEN ARPS SLATE MEAGHER January 11, 2005 & FLOM LLP J. Eric Ivester Felicia Gerber Perlman Kristin E. Rooney 333 West Wacker Drive, Suite 2100 Chicago, 60606-1285 Telephone: (312) 407-0700 Facsimile: (312) 407-0411

- and -

/s/ Gregg M. Galardi Gregg M. Galardi (I.D. No. 2991) Matthew P. Ward (I.D. No. 4471) One Rodney Square P.O. Box 636 Wilmington, Delaware 19899-0636 Telephone: (302) 651-3000 Facsimile: (302) 651-3001

Attorneys for the Debtors and Debtors-in-Possession

433315-Chicago S1A 14