Wattles Becomes Chmn. of Ultimate Electronics, Which Files for Bankruptcy
Just a day after his investor group lost out to Movie Gallery in its Hollywood Entertainment buyout bid, Hollywood CEO Mark Wattles on Tues. bought a majority of financially ailing Ultimate Electronics and became its chmn., it was disclosed Wed. in an SEC filing. The same day, Ultimate also filed for Chapter 11 protection in U.S. Bankruptcy Court, Del.
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As the result of stock purchases completed Jan. 11, Wattles and the equity group he controls -- Mark Wattles Enterprises (MWE) -- now own 12,878,134 shares of Ultimate common stock, or 54.1% of the total shares outstanding, the filing said. On top of the $1.9 million Wattles paid last month from his personal assets to buy 9.8% of Ultimate (CED Dec 28 p2), he paid an additional $4.45 million in cash from his personal funds to acquire 6,850,000 shares, the filing said. He and MWE also were granted options, exercisable beginning Jan. 25, on the purchase of millions more shares from Ultimate and its key stockholders, including William Pearse, Ultimate’s former chmn. and founder, and his wife Barbara. Of the shares he owns, Wattles has sole voting and dispositive power over the original 1,467,000 shares he acquired last month, shares voting power with MWE on 11,411,134 shares and shares dispositive power with MWE on 8,700,000 shares, the filing said.
Wattles has agreed to invest an additional $5.547 million of his personal funds as part of a $118.6 million debtor-in-possession (DIP) credit facility with Wells Fargo. In return, in addition to becoming Ultimate chmn. and a dir., Wattles and his interests will control a majority vote on the Ultimate board, which has been reduced to 5 members. In addition to himself, Wattles has designated Bruce Giesbreacht and James Marcum as dirs.; Giesbreacht is Hollywood Entertainment COO. Those who sat on Ultimate’s 11-member board have resigned, but 2 former dirs. will be elected to fill the remaining board seats.
In a letter sent Tues. to major vendors, Ultimate CEO Dave Workman and CFO David Carter said the DIP financing would be used to fund ongoing operations. The letter praised Wattles as bringing “a wealth of experience to the table,” having founded and overseen the growth of Hollywood Entertainment. “It is important to understand that Chapter 11 enables us to continue to operate business as usual,” they told vendors. “During this Chapter 11 period, you will be paid in the ordinary course of business for products and services you provide after the filing.” They said payments will be made possible “in part from the additional funds made available pursuant to the DIP facility. The actions we have taken today set in motion the preliminary steps of a plan that we believe will help us create a stronger, more profitable business. To do so, however, we must continue purchasing goods and services from you on favorable terms. We will be talking to you shortly about future orders and terms, but suffice to say that your support will not go unrecognized.” The letter ended by saying Ultimate was “excited about the future and looks forward to continuing our relationship with you.”