Ultimate Electronics files for Chapter 11

By Jeff Pines

Washington, Jan. 11 - Ultimate Electronics Inc. filed for Chapter 11 with the U.S. Bankruptcy Court for the District of Delaware Tuesday.

The Thornton, Colo.-based consumer electronics retailer with 65 stores attributed its filing to over-expansion which led to stretching the company's resources too thin. The stores failed to live up to sales expectations, which resulted in the company violating a covenant in its credit agreement in the fourth quarter of 2004.

Mark Wattles, an investor in Ultimate who will become its new chairman, has agreed to buy 6.85 million shares for $4.4 million and taken a 2-year option to buy 1.85 million more shares for $1.2 million. Wattles also founded and is chief executive of Hollywood Entertainment Corp.

In addition, Wattles also acquired an option to buy 1.8 million more shares from Ultimate's founder and former chairman David Pearse with an exercise price of 65 cents per share.

Wells Fargo Retail Finance LLC has agreed to provide a $113 million debtor-in-possession facility. Wattles has agreed to provide $5.6 million more. The company owes it pre-petition lenders $71.65 million. It will use a portion of the DIP to pay them off.

The DIP will include a $100 million revolver, a $13 million tranche B term loan and Wattles's $5.6 million tranche C loan.

The facility will mature in 18 months or sooner if the company's reorganization or sale occurs. Interest on the revolver will be Libor plus 200 basis points. Interest on the tranche B loan will be Prime plus 600 basis points and interest rate on the Wattles loan will be 20% payable in kind.

The revolver will have a commitment closing fee of $375,000 and $200,000 for the tranche B loan. The closing fee for the tranche C loan will be 150 basis points. Wells Fargo will also get a $375,000 arrangement fee and a 25 basis point unused line fee for the revolver.

Ultimate reported total assets of $329.11 million and total liabilities of $160.59 million.

The company's largest unsecured creditor is Monster Cable Products Inc. with a $6.63 million trade claim. It is followed by Monster LLC with a $4.2 million claim and then by Vertis with a $3.06 million claim.

Ultimate's Chapter 11 case number is 05-10104.

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