ULTIMATE ELECTRONICS, INC., Et Al., Debtors. X

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE 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 debtors-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 Colorado. 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 financial 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.

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