Sleepy's offers $2.1M for 1-800
By Larry Thomas -- Furniture Today, March 30, 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 until mid-May to allow other potential suitors to submit bids.
1800mattress.com said it has reached a 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.
Specific dates for the bidding and sale were not available by late last week.
The judge 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 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, it said 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 also said 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.
"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.
JP Morgan Chase, one of 1800mattress.com's secured creditors, also objected to the Sleepy's debtor-in-possession financing proposal. The bank said that 1800mattress.com failed to notify the bank about a $150,000 bridge loan it received from Sleepy's on March 17 — a move that violated their loan agreements.
According to court documents, Sealy is the largest unsecured creditor, owed $1.19 million.
Other home furnishings industry companies among the 30 largest unsecured creditors are:
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Serta Mattress Co., $913,003
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King Koil Northeast, $504,858
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Simmons Mfg., $475,183
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Tempur-Pedic, $315,614
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Rex Bedding Sleep Products, $190,338
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L&P Financial Services, $164,170
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S&S Mattress Distribution, $95,798
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Knickerbocker Bed, $78,572
Southern Textiles, $72,491 -
Magniflex USA, $59,638
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Serta Mattress Co.-Moreno Valley, $58,405
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Steinreich Communications, $53,620
Rex Bedding also is the retailer's largest secured creditor, having loaned 1800mattress.com $700,000 in 2008 and an additional $192,090 earlier this month.
Judge OKs Sleepy's bid
07/05/20091800mattress.com seeks quick ruling
06/25/2009
