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 ADMINISTRATIVE ORDER PURSUANT TO 11 U.S.C. §§ 105(a) AND 331 ESTABLISHING PROCEDURES FOR INTERIM COMPENSATION AND REIMBURSEMENT OF EXPENSES OF PROFESSIONALS 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 administrative order, under 11 U.S.C. §§ 105 and 331, establishing procedures for interim compensation and reimbursement of expenses of professionals. 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. 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 creditor's 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) 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- 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- 2 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. 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, 3 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. RELIEF REQUESTED 10. Contemporaneously with the filing of this Motion, the Debtors are seeking approval of the employment of (a) Skadden, Arps, Slate, Meagher & Flom LLP and its affiliated law practice entities as restructuring and bankruptcy 4 counsel; (b) FTI Consulting, Inc. as financial advisor; and (c) Hogan & Hartson L.L.P. as Special Corporate Counsel to the Debtors. The Debtors anticipate that they may retain other professionals and special counsel in these cases as well. A statutory committee of unsecured creditors (the "Committee") may be appointed in these cases and likely will retain counsel, and possibly other professionals, to assist it. 11. By this Motion, the Debtors request the entry of an order authorizing and establishing procedures for the compensation and reimbursement of court-approved professionals (the "Professionals") on a monthly basis, on terms comparable to those procedures established in other large chapter 11 cases filed in this and other Districts. Such an order will streamline the professional compensation process and enable the Court and all other parties to monitor the professional fees incurred in these chapter 11 cases more effectively. BASIS FOR RELIEF 12. As detailed below, the proposed procedures set forth herein will permit each Professional to file with the Court a monthly application for interim approval and allowance of fees for services rendered and expenses incurred by each Professional during the immediately preceding month (the "Compensation Period"). 13. The Debtors propose specifically that the monthly payment of compensation and reimbursement of expenses of the Professionals be structured as follows: 5 (a) No earlier than the 25th day of each month following the month for which compensation is sought (the "Monthly Fee Application Date"), each Professional will file a monthly fee application (the "Monthly Fee Application") with the Court and shall serve the same on the following parties (collectively, the "Notice Parties"): (i) the Debtors at Ultimate Electronics, Inc., 321 W. 84th Avenue, Suite A, Thornton, CO 80260 (Attn: David A. Carter); (ii) counsel to the Debtors, Skadden, Arps, Slate, Meagher & Flom LLP, 333 West Wacker Drive, Suite 2100, Chicago, IL 60606 (Attn: J. Eric Ivester); (iii) counsel to the Debtors' postpetition lenders, Bingham McCutchen LLP, 150 Federal Street, Boston, MA 02110-1726 (Attn: Robert Barry) and Baker Botts L.L.P., 2001 Ross Avenue, Dallas, TX 75201-2980 (Attn: Jack Kenzie); (iv) counsel to any official committee appointed in these cases; and (v) the United States Trustee. The first Monthly Fee Application shall be filed on or about February 25, 2005 for the period ending January 31, 2005. (b) Each Notice Party will have twenty (20) days after service of a Monthly Fee Application to object (the "Objection Deadline") to such application. Upon the expiration of the Objection Deadline, each Profes- sional may file a certificate of no objection or a certificate of partial objection with the Court, whichever is applicable, after which the Debtors are directed 6 to pay each Professional an amount (the "Actual Interim Payment") equal to the lesser of (i) 80% of the fees and 100% of the expenses requested in the Monthly Fee Application (the "Maximum Payment") or (ii) 80% of the fees and 100% of the expenses not subject to an objection. (c) If any Notice Party objects to a Professional's Monthly Fee Application, the objecting party must file a written objection (each, an "Objection") with the Court and serve such Objection on the Professional and each of the Notice Parties so that such Objection is received on or before the Objection Deadline. Thereafter the objecting party and the Professional may attempt to resolve the Objection on a consensual basis. If the parties are unable to reach a resolution of the Objection within 20 days after service of the Objection, then the Professional may either (i) file a response to the Objection with the Court, together with a request for payment of the differ- ence, if any, between the Maximum Payment and the Actual Interim Payment made to the affected Professional (the "Incremental Amount"), or (ii) forgo payment of the Incremental Amount until the next interim or final fee application hearing, at which time the Court will consider and dispose of the Objection, if requested by the parties. (d) Beginning with the period ending March 31, 2005, at three- month intervals

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