Bankruptcy judge agrees to convert 1800mattress.com case to Chapter 11
Delays proposed sale of retailer to allow more bids
Larry Thomas -- Furniture Today, March 27, 2009
NEW YORK — A U.S. Bankruptcy Court judge has agreed to convert the 1800mattress.com case to a Chapter 11 reorganization, but has delayed the proposed sale of the retailer to Sleepy's until mid-May to allow other potential suitors to submit bids.
1800mattress.com already has reached tentative agreement to sell the company to rival Sleepy's for $2.1 million, so the ruling by Judge Dennis Milton means that Sleepy's is the so-called stalking horse bidder in the bankruptcy reorganization effort.
If another buyer ultimately wins the bidding for 1800mattress.com, Sleepy's would be entitled to a $75,000 break-up fee, according to court documents.
Milton also granted a motion to allow Sleepy's to provide some $550,000 in debtor-in-possession financing, despite a strongly-worded objection filed by a 1800mattress.com franchise group.
The franchise group argued that Sleepy's and 1800mattress.com are engaging in "blatant self dealing" and argued that the deal would enrich 1800mattress.com's senior executives and put the franchise operation out of business.
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 objection 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 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."
Milton's rulings capped off a flurry of activity that began in early March when 1800mattress.com announced it had signed a letter of intent to sell the company to an investor group led by mattress industry veteran Ken Mazda.
On March 17, three 1800mattress.com creditors filed a petition to force the retailer into Chapter 7 bankruptcy liquidation, and the deal with the Mazda group was terminated.
Documents filed with the bankruptcy court say Mazda has threatened to sue Sleepy's and 1800mattress.com.
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Franchise group objects to 1800mattress.com sale
Mar 26, 2009 -
Sleepy's offers $2.1M for 1-800
Mar 30, 2009
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