STOCK PURCHASE AGREEMENT

STOCK PURCHASE AGREEMENT

This STOCK PURCHASE AGREEMENT (the “ Agreement ”) is entered into as of January 11, 2005 by and between ULTIMATE ELECTRONICS, INC., a Delaware corporation (the “ Company ”), and MARK WATTLES ENTERPRISES, LLC, a Delaware limited liability company (the “ Investor ”).

WHEREAS, the Company desires to issue and sell to the Investor, and the Investor desires to purchase and acquire from the Company, the Shares (as hereinafter defined);

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties to this Agreement hereby agree as follows:

SECTION 1.                                 Definitions .

(a)                                   For the purposes of this Agreement, the following terms have the meanings set forth below:

“ Affiliate ” means, with respect to any Person, any other Person that directly or indirectly, through one or more intermediaries, has control of or is controlled by, or is under common control with, the first Person on the date hereof, but prior to giving effect to the consummation of the transactions contemplated hereby.

“ Bankruptcy Code ” means the United States Bankruptcy Code, as in effect from time to time.

“ Business ” means all business operations and activities currently conducted by the Company and its Subsidiaries.

“ Common Stock ” means the Common Stock, par value $0.01 per share, of the Company.

“ Company Option ” means the option to purchase shares of Common Stock of the Company granted pursuant to the Company Option Agreement.

“ Company Option Agreement ” means the Option Agreement, dated as of the date hereof, between the Investor and the Company.

“ DGCL ” means the Delaware General Corporation Law.

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the SEC promulgated thereunder.

“ Lien ” means any mortgage, pledge, security interest, encumbrance, lien or charge of any kind.

“ Material Adverse Effect ” means a material adverse effect on the business, operations, financial condition, operating results, assets or liabilities of the Company and its Subsidiaries, taken as a whole; provided, however , that no effect arising from any of the following events shall constitute a material adverse effect hereunder (i) any actions taken by the Company pursuant to the terms of this Agreement or the Company Option Agreement, (ii) the failure of the Company to maintain the listing of its Common Stock on the Nasdaq National Market, (iii) actions taken in good faith in anticipation of the filing by the Company of a petition for relief under Chapter 11 of the Bankruptcy Code, (iv) the information regarding the results of operations and financial condition of the Company publicly disclosed by it in its Current Report on Form 8-K dated January 10, 2005 and (v) any breach of or default under the existing credit facilities of the Company publicly disclosed by it in its Current Report on Form 8-K dated January 4, 2005.

“ Person ” means any individual, corporation, partnership, limited liability company, association, joint stock company, trust, joint venture, unincorporated organization or governmental entity or department, agency or political subdivision thereof.

“ SEC ” means the Securities and Exchange Commission.

“ Securities Act ” means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder.

“ Stockholder Option ” means the option to purchase shares of Common Stock of the Company granted pursuant to the Stockholder Option Agreement.

“ Stockholder Option Agreement ” means the Option Agreement, dated as of the date hereof, among the Investor on the one hand and William J. Pearse and Barbara A. Pearse and Thomas R. Hoffman, trustee, in their capacities as holders of certain shares of Common Stock.

“ Subsidiary ” of any specified Person (excluding an individual) means a corporation or other entity of which the majority of the voting power of the equity securities having the right to vote for the election of directors or any other class of equity securities that has a right to vote with respect to matters submitted to the security holders of such

Person is owned, directly or indirectly, by such specified Person or any Subsidiary of such specified Person.

“ Voting Agreements ” means the Voting Agreements, dated as of the date hereof, between the Investor on the one hand and (i) William J. Pearse and Barbara A. Pearse and (ii) Thomas R. Hoffman, as trustee, in each case in their capacities as holders of certain shares of Common Stock.

(b)                                  Each of the terms below has the meaning set forth in the provision of this Agreement identified opposite such term in the following table:

(c)                                   For purposes of this Agreement, “knowledge” or “known” or a similar phrase shall mean the actual knowledge of the officers of the Company or its Subsidiaries.

(d)                                  The words “hereof”, “herein”, and “hereunder” and words of similar import, when used in this Agreement, shall refer to this Agreement as a whole and not to any particular provision of this Agreement.

(e)                                   The terms defined in the singular shall have a comparable meaning when used in the plural, and vice versa.

(f)                                     The term “dollars” and the symbol “$” shall be deemed to refer to United States Dollars.

SECTION 2.                                 Issuance and Sale; Closing .

(a)                                   Issuance and Sale .  Immediately upon the execution and delivery of this Agreement, (i) the Company will issue and sell to the Investor 6,850,000 shares (the “ Shares ”) of Common Stock and (ii) the Investor will purchase such shares from the Company in exchange for aggregate consideration consisting of $4,452,000 in cash (the “ Purchase Price ”), which consideration will be paid by wire transfer of immediately available funds to the Company.

(b)                                  Closing .  The closing of the transactions contemplated hereby (the “ Closing ”) shall take place at the offices of Hogan & Hartson , 1200 Seventeenth Street, Suite 1500, Denver, Colorado 80202 on the date of this Agreement (the “ Closing Date ”).

(c)                                   Deliveries .   At the Closing, the Company shall deliver, or shall cause to be delivered, to the Investor the following:

(i)                                      the certificates evidencing the Shares, duly registered in the name of the Investor (which certificates may be temporary certificates manually executed by the appropriate officers of the Company);

(ii)                                   the opinion of counsel referred to in Section 5(b);

(iii)                                evidence reasonably satisfactory to the Investor that the restructuring of the Board of Directors of the Company contemplated by Section 5(c) is being effected concurrently with the Closing, including the resignations of directors obtained by it pursuant to Section 5(c);

(iv)                               a certificate of the Secretary of the Company attesting to (A) the resolutions of the Board of Directors of the Company authorizing this Agreement and the transactions contemplated hereby and (B) the incumbency and signature of the officer of the Company who executed this Agreement; and

(v)                                  a certificate of good standing of recent date issued by the Secretary of State of the State of Delaware with respect to the existence and good standing of the Company.

SECTION 3.                                 Representations and Warranties of the Company .  As a material inducement to the Investor to enter into this Agreement and purchase the Common Stock hereunder, the Company hereby represents and warrants that:

(a)                                   Organization; Corporate Power .  The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and is qualified to do business in every jurisdiction in which it is required to be qualified, except where the failure to so qualify has not had and could not reasonably be expected to have a Material Adverse Effect.  The Company possesses all requisite corporate power and authority to enter into, and perform its obligations under this Agreement.  The Company has delivered to the Investor correct and complete copies of the charter documents and bylaws of the Company reflecting all amendments made thereto at any time prior to or on the date of this Agreement.

(b)                                  Authorization; No Breach .  The execution, delivery and performance of this Agreement by the Company have been duly authorized by the Company.  The Agreement has been duly executed by the Company and constitutes a valid and legally binding obligation of the Company, enforceable in accordance with its terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.  Except as set forth on Schedule 3(b) hereto, the execution and delivery of this Agreement, the fulfillment of and compliance with the terms hereof and the consummation of the transactions contemplated hereby do not and will not conflict with or result in a breach of the terms, conditions or provisions of, constitute a default under, result in the creation of any Lien upon the Company’s or any Subsidiary’s capital stock or assets pursuant to, give any third party the right to modify, terminate or accelerate any obligation under, result in a violation of, or require any authorization, consent, approval, exemption or other action by or notice or declaration to, or filing with, any court or administrative or governmental body or agency or other Person pursuant to, (i) the charter or bylaws of the Company or any Subsidiary, (ii) any law, statute, rule, regulation, order, judgment, decree to which the Company or any Subsidiary is subject and which is material to the Business or (iii) any contract, agreement or other instrument to which the Company or any Subsidiary is a party, except, in the case of clause (iii) above, for any conflict, breach, default, Lien, modification, termination, acceleration, violation or other matter referred to above that could not reasonably be expected to have a Material Adverse Effect.

(c)                                   Governmental Authorizations .  Except as set forth on Schedule 3(c) hereto, there is no requirement applicable to the Company to obtain any consent, approval or authorization of, or to make or effect any declaration, filing or registration with, any governmental agency or body for the valid execution and delivery of this Agreement, the fulfillment of and compliance with the terms hereof and the lawful consummation of the transactions contemplated hereby.

(d)                                  Capital Stock .

(i)                                      The authorized capital stock of the Company consists of 40,000,000 shares of Common Stock, of which 15,110,323 shares are outstanding as of the date hereof and no shares are held in the treasury of the Company, and 10,000,000 shares of preferred stock, par value $0.01 per share, none of which are issued or outstanding.  All of the outstanding shares of the Company’s capital stock are duly authorized, validly issued, fully paid and nonassessable.  Except for the Company Option and except as described in Schedule 3(d) hereto, there are no outstanding options, warrants, calls, rights, convertible securities or other agreements or commitments of any character pursuant to which the Company is or may be obligated to issue or sell any issued or unissued shares of its capital stock or other equity securities or to purchase or redeem any shares of its capital stock or other equity securities or make any other payments in respect thereof, and there are no shares of its capital stock or other equity securities reserved for issuance for any purpose.

(ii)                                   There are no statutory stockholders preemptive rights or similar contractual rights to which the Company is subject or rights of refusal to which the Company is subject with respect to the issuance of capital stock of the Company.   There are no agreements to which the Company or, to the knowledge of the Company, any holders of the capital stock of the Company is a party with respect to the voting or transfer of the Company’s capital stock, except for the Voting Agreements.

(iii)                                The issuance and sale of the Shares to the Investor pursuant to this Agreement has been duly authorized by all necessary corporate action on the part of the Company and all necessary action, if any, on the part of its shareholders required pursuant to the DGCL or the certificate or incorporation or bylaws of the Company.  The Shares, when issued and delivered to and paid for by the Investor, will be validly issued, fully paid and nonassessable.  None of the Shares will be issued in violation of, or subject to, any statutory stockholders preemptive or similar contractual rights.  Assuming that the representations and warranties of the Investor contained in Section 4(b) are true and correct, the offer, issuance and sale of the Shares by the Company do not require registration under, and have been and will be made in compliance with, the applicable securities laws of the United States of America and any state or other political subdivision thereof.

(e)                                   Rights Agreement .  The Board of Directors of the Company has irrevocably and unconditionally amended the Rights Agreement, dated as of January 31, 1994 (the “ Rights Agreement ”), by and between the Company and Norwest Bank

Minnesota, N.A. as rights agent, to provide that (i) upon execution and delivery of this Agreement and issuance and delivery of the Shares and upon the execution of the Company Option Agreement, the Voting Agreements and the Stockholder Option Agreement and the consummation of the transactions contemplated hereby and thereby, including, but not limited to the exercise of the Company Option and the Stockholder Option, a Distribution Date (as such term is defined in the Rights Agreement) shall not occur or be deemed to occur, and (ii) Investor, Mark J. Wattles and any Person controlled by Mark J. Wattles shall not become an Acquiring Persons (as such term is defined in the Rights Agreement), whether as a result of the execution and delivery of this Agreement and issuance and delivery of the Shares or the execution of the Company Option Agreement, the Voting Agreements or the Stockholder Option Agreement or the consummation of the transactions contemplated hereby and thereby, including, but not limited to the exercise of the Company Option or the Stockholder Option, or any transaction or series of transactions effected by the Investor, Mark J. Wattles or their Affiliates subsequent to the Closing.

(f)                                     State Takeover Statutes .  The Board of Directors of the Company has taken all necessary action to approve, for purposes of Section 203(a)(1) of the DGCL, the execution and delivery of this Agreement and issuance and delivery of the Shares and t