Franchise group objects to 1800mattress.com sale
Says deal would put it out of business
Larry Thomas -- Furniture Today, March 26, 2009
NEW YORK — A 1800mattress.com franchise group is trying to stop the retailer's proposed sale to Sleepy's, arguing that the deal would enrich 1800mattress.com's senior executives and put the franchise operation out of business.
In a strongly worded objection filed with U.S. Bankruptcy Court here, franchisees Consolidated Mattress and Amalgamated Mattress said unsecured creditors probably would recover no money if the "woefully inadequate purchase price" of $2.1 million is approved.
The motion says 1800mattress.com executives "have abandoned any sense of duty and responsibility ... to the debtors, their creditors and their employees, in favor of their own personal, pecuniary interests."
The document also accuses 1800mattesss.com and Sleepy's of "blatant self dealing" because, among other things, Sleepy's is seeking to provide debtor-in-possession financing if the court allows 1800mattress.com to enter Chapter 11 bankruptcy protection.
Three creditors of 1800mattress.com earlier filed a petition to force the retailer into Chapter 7 bankruptcy liquidation, but 1800mattress.com has asked to switch the case to a Chapter 11 proceeding.
The franchise group's objection notes that the proposed sale agreement calls for founder Napoleon Barragan to receive $500,000 annually for 10 years, in addition to a $75,000 signing bonus.
Plus, the agreement allows Sleepy's to forgive a $2 million loan Barragan received from 1800mattress.com.
"While the (proposed sale agreement) is replete with goodies for debtor-executives, other parties in interest do not stand to fare as well if the proposed sale goes forward," the objection states.
The franchise group says it would be put out of business once the sale is completed because the sale agreement allows Sleepy's to exclude certain assets, including 1800mattress.com franchise agreements, three days before the sale closes.
"It is highly likely that Sleepy's, will, in fact, exclude the franchise agreements from the sale and force the debtor to reject them," the objection reads. "The debtors' franchises likely would be out of business immediately, and the nearly 100 people that are employed by them would lose their jobs."
A hearing is taking place today in U.S. Bankruptcy Court in Brooklyn on 1800mattress.com's motion to convert the case to a Chapter 11 proceeding, as well as its motion to sell the company.
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