<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 2, 1996.
REGISTRATION NO. 333-5543
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
SLEEPY'S, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------
<TABLE>
<S> <C> <C>
NEW YORK 5712 11-2125264
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
175 CENTRAL AVENUE SOUTH
BETHPAGE, NY 11714
(516) 844-8800
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
------------------------
HARRY ACKER, CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
SLEEPY'S, INC.
175 CENTRAL AVENUE SOUTH
BETHPAGE, NY 11714
(516) 844-8800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES OF COMMUNICATIONS TO:
<TABLE>
<S> <C>
GARY J. SIMON, ESQ. MITCHELL S. FISHMAN, ESQ.
PARKER CHAPIN FLATTAU & KLIMPL, LLP PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1211 AVENUE OF THE AMERICAS 1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10036-8701 NEW YORK, NEW YORK 10019-6064
(212) 704-6000 (212) 373-3000
</TABLE>
------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
________________________________________________________________________________
<PAGE>
<PAGE>
SLEEPY'S, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(b) OF REGULATION S-K
REFERENCING ITEMS IN PART I OF FORM S-1 TO THE PROSPECTUS
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION PROSPECTUS CAPTION OF PAGE
--------------------------------------------------------------- ------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and Outside Front Cover
Page of Prospectus........................................... Facing Page of Registration Statement;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages of Prospectus........ Inside Front Cover Page of Prospectus;
Outside Back Cover Page of Prospectus
3. Summary Information, Risk Factors and Ratio of Earnings to
Fixed Charges................................................ Prospectus Summary; Risk Factors
4. Use of Proceeds................................................ Prospectus Summary; Use of Proceeds
5. Determination of Offering Price................................ Outside Front Cover Page of Prospectus;
Risk Factors; Underwriting
6. Dilution....................................................... Prospectus Summary; Risk Factors; Dilution
7. Selling Security Holders....................................... Not Applicable
8. Plan of Distribution........................................... Outside Front Cover Page of Prospectus;
Underwriting
9. Description of Securities to be Registered..................... Outside Front Cover Page of Prospectus;
Prospectus Summary; Description of
Capital Stock
10. Interests of Named Experts and Counsel......................... Legal Matters; Experts
11. Information with Respect to the Registrant..................... Outside Front Cover Page of Prospectus;
Inside Front Cover Page of Prospectus;
Prospectus Summary; Risk Factors; Use of
Proceeds; Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management;
Principal Shareholders; Description of
Capital Stock; Shares Eligible for
Future Sale; Financial Statements
12. Disclosure of Commission Position on Indemnification for
Securities Act Liabilities................................... Part II
</TABLE>
<PAGE>
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT
BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE
WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE
SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION -- DATED AUGUST 2, 1996
PROSPECTUS
1,375,000 SHARES
[LOGO]
COMMON STOCK
The 1,375,000 shares of common stock (the 'Common Stock') being offered
hereby are being sold by Sleepy's, Inc., a New York corporation (the 'Company').
Prior to this offering, there has been no public market for the Common Stock. It
presently is estimated that the initial public offering price will be between
$10.00 and $12.00 per share. See 'Underwriting' for a discussion of the factors
considered in determining the initial public offering price. Upon completion of
this offering, Harry Acker, the Chairman of the Board and Chief Executive
Officer of the Company, will beneficially own approximately 67.9% of the
outstanding Common Stock.
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol 'SLPY.'
------------------------
SEE 'RISK FACTORS' BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1)(2) COMPANY(3)
<S> <C> <C> <C>
Per Share................................. $ $ $
Total(4).................................. $ $ $
</TABLE>
(1) Excludes the value of warrants to purchase up to 137,500 shares of Common
Stock to be issued to the Representative of the Underwriters as additional
compensation.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
'Underwriting.'
(3) Before deducting expenses estimated at $525,000, which will be paid by the
Company.
(4) The Company has granted the Underwriters a 45-day option to purchase up to
206,250 additional shares solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to the Company will be $ ,
$ and $ , respectively. See 'Underwriting.'
------------------------
This Common Stock is offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted by the Underwriters, and subject to
the right of the Underwriters to reject any order in whole or in part and
certain other conditions. It is expected that delivery of certificates for the
shares of Common Stock will be made at the offices of Bear, Stearns Securities
Corp., 1 Metrotech Center No., Brooklyn, New York, 11201, as agent for Gerard
Klauer Mattison & Co., LLC, on or about , 1996.
GERARD KLAUER MATTISON & CO., LLC
------------------------
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
<PAGE>
[PHOTO OF OUTSIDE OF STAND-ALONE SLEEPY'S STORE]
[PHOTO OF OUTSIDE OF SHOPPING CENTER KLEINSLEEP STORE]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, THE OVER-THE-COUNTER
MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY
TIME.
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
NEW YORK, NY LONG ISLAND, NY
<S> <C> <C> <C>
Sleepy's Store Locations: Kleinsleep Store Locations: Sleepy's Store Locations:
Bronx (4) Brooklyn Bay Shore Massapequa
Brooklyn (6) Manhattan (3) Bohemia Merrick
Manhattan (5) Ozone Park Bridgehampton New Hyde Park
Queens (7) Rego Park Carle Place (2) Oceanside
Staten Island (3) NEW JERSEY Commack Patchogue
WESTCHESTER & Sleepy's Store Locations: Farmingdale Plainedge
ROCKLAND CO., NY East Hanover Hicksville Riverhead
Sleepy's Store Locations: Edison Huntington Rocky Point
Mamaroneck Hasbrouck Heights Lawrence (2) Selden
Mount Kisco Hoboken Levittown Smithtown
Nanuet Little Falls Lynbrook West Babylon
White Plains Paramus Manhasset West Hempstead
Yonkers Secaucus Kleinsleep Store Locations:
Yorktown Heights Somerville Carle Place Lake Grove
Kleinsleep Store Springfield Commack Manhasset
Locations: Watchung Garden City Sayville
Nanuet West New York Hicksville Southampton
Yonkers Kleinsleep Store Locations: Huntington Valley Stream
FAIRFIELD CO., CT Paramus
Kleinsleep Store
Location:
Westport
TRI-STATE METROPOLITAN AREA
1-800 Sleepy's Telemarketing:
Entire Tri-State Metropolitan Area
</TABLE>
[MAP OF STORE LOCATIONS]
[SLEEPY'S LOGO]
[KLEINSLEEP LOGO]
<PAGE>
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements (including the notes thereto) appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information in
this Prospectus assumes no exercise of the Underwriter's over-allotment option
and reflects (i) the 29,000-to-one stock split of the Common Stock effected in
June 1996, and (ii) the Reorganization of the Company, as described below,
which will be effected immediately prior to the consummation of this offering.
Prospective investors should carefully consider the information set forth
under the caption 'Risk Factors.' Unless the context otherwise requires, the
'Company' or 'Sleepy's' refers to Sleepy's, Inc. and its subsidiaries as
reorganized prior to the consummation of this offering. See 'Reorganization of
the Company and Change in Tax Status.' References in this Prospectus to a
fiscal year of the Company refer to the fiscal year of the Company ended or
ending on the Saturday closest to December 31 of that fiscal year.
THE COMPANY
The Company is one of the leading specialty retailers of bedding in the
New York, New Jersey and Connecticut tri-state metropolitan area (the
'Tri-state area'), where it currently operates 88 stores. Based on the number
of its stores, the Company believes that it also is one of the largest
specialty retailers of bedding in the United States. The Company's sales
operations are conducted through three formats: (i) 68 Sleepy's'tm' stores,
which address a broad customer base and offer an extensive selection of
bedding merchandise in a wide range of prices; (ii) 20 Kleinsleep'tm' stores,
which generally are located in more affluent areas and offer a greater mix of
higher-priced bedding merchandise; and (iii) the Company's 1-800-SLEEPY'S'tm'
telemarketing operations, which commenced in 1995 and offer only products of
the nation's three largest bedding manufacturers to the most
convenience-oriented and cost-conscious consumers.
The Company has experienced significant growth in revenues and earnings
over the past two years. Net sales increased from $49,644,000 in fiscal 1994
to $59,763,000 in fiscal 1995 and from $13,115,000 in the first quarter of
fiscal 1995 to $16,045,000 in the first quarter of fiscal 1996. Net income
also increased, from $676,000 in fiscal 1994 to $3,569,000 in fiscal 1995 and
from $(46,000) in the first quarter of fiscal 1995 to $419,000 in the first
quarter of fiscal 1996. The Company attributes these increases primarily to
the growth during fiscal 1995 in the number of its stores, from 75 to 87, the
leveraging of fixed expenses over the additional stores and the commencement
of telemarketing operations.
The Company's stores offer a wide variety of bedding merchandise. Sales
of mattresses and box springs ('bed sets') currently account for approximately
84% of the Company's revenues, although the Company's stores offer a variety
of other bedding products, including brass beds, iron beds, headboards,
footboards, high risers, day beds, bunk beds, futons, motorized beds, bed
frames and related items. The Company offers only brand name products from all
of the major mattress manufacturers in the United States, including Simmons,
Sealy, Serta, Spring Air, Stearns & Foster, Kingsdown, Aireloom, Eclipse and
Eastern. Each store displays approximately 50 varieties of bed sets. In
addition to its broad selection of merchandise, the Company offers a wide
choice of bed sets and other bedding products through manufacturers' catalogs.
OPERATING STRATEGY
The Company believes that its current operating strategy offers
competitive advantages, including the following (for more information
concerning the Company's operating strategy, see 'Business -- Operating
Strategy'):
Broad Market Coverage. By marketing and selling its products through its
three different formats, the Company covers virtually all consumers
throughout the Tri-state area.
Competitive Pricing. In order to achieve competitive pricing, the
Company maintains relatively low costs of occupancy, labor, distribution
of merchandise and other aspects of its operations.
3
<PAGE>
<PAGE>
Aggressive Marketing. The Company effectively uses print, radio,
television and other advertising to promote each of its three sales
formats and has achieved broad name recognition in the Tri-state area.
Centralized Distribution Facility. The Company realizes economies of
scale by servicing stores from its leased centralized distribution
facility/headquarters. The Company expects that its proposed expansion
strategy will permit further leveraging of the centralized facility's
costs over the anticipated increase in sales volume from the addition of
new stores and the expansion of its telemarketing operations.
Ongoing Review of Store Performance and Location. The Company
continually reviews the profitability trends and prospects of its stores
and evaluates whether underperforming stores should be closed, relocated
to more desirable locations or converted to the Company's other store
format.
GROWTH STRATEGY
The Company's goal is to become the dominant retailer of bedding in the
Tri-state area. The Company intends to increase its market penetration in this
area and to expand its operations into contiguous geographic areas. The
Company intends to open or acquire more than 15 stores during the 12 months
following the date of this Prospectus. The Company believes that by opening
these new stores it will realize greater economies of scale in distribution,
advertising and management. The principal elements of the Company's growth
strategy include the following (for more information concerning the Company's
growth strategy, see 'Business -- Growth Strategy'):
Store Expansion. The Company intends to pursue an aggressive expansion
strategy, primarily through new store openings and acquisitions in the
Tri-state area, as well as in markets contiguous to that area.
Expanded Telemarketing. The Company intends to expand its telemarketing
operations. The expansion of these operations, which are conducted from
the Company's main facility, primarily involves the addition of
personnel and generally does not require significant capital
expenditures.
Increased Advertising. The Company intends to significantly increase its
advertising efforts. As a result of the extensive penetration in the
Tri-state area of the advertising media used by the Company, the Company
believes that its advertising efforts will be effective in reaching
virtually all consumers throughout its market.
Warehouse Expansion. Currently, the Company's centralized distribution
facility/headquarters is being expanded by the landlord/owner in
accordance with the Company's requirements and specifications. The
Company believes that these improvements will enable the Company to
maintain a larger inventory of products and continue to fulfill its
customers' needs as the Company increases its market share.
4
<PAGE>
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock Offered by the Company................ 1,375,000 shares
Common Stock Outstanding after the Offering........ 4,275,000 shares(1)
Use of Proceeds.................................... The net proceeds of this offering will be used to finance
the Company's planned expansion, through the opening and
acquisition of new stores and increased warehouse
inventory relating thereto; to make a distribution to the
principal shareholder of the Company in connection with
the change in the Company's tax status; to repay
outstanding indebtedness to a corporation controlled by
the principal shareholder of the Company and to a bank,
in each case incurred in order to provide working capital
to the Company; to repay outstanding indebtedness assumed
by the Company in the Reorganization; and for general
working capital purposes and potential acquisitions. See
'Reorganization of the Company and Change in Tax Status'
and 'Use of Proceeds.'
Risk Factors....................................... The purchase of the Common Stock offered hereby involves
risks, including risks relating to the Company's
expansion plans, dependence on certain suppliers,
competition and proposed warehouse expansion project. See
'Risk Factors.'
Nasdaq National Market Symbol...................... SLPY
</TABLE>
--------------
(1)Does not include up to 400,000 shares of Common Stock reserved for issuance
pursuant to the Company's 1996 Stock Option Plan. On or prior to the date
of this Prospectus, the Company will have granted options to purchase
232,000 shares of Common Stock under the 1996 Stock Option Plan at the
initial public offering price, none of which options has been exercised.
See 'Risk Factors -- Shares Eligible for Future Sale.'
5
<PAGE>
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT OPERATING AND PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED(1) THREE MONTHS ENDED
------------------------------------------------------------------------ -------------------------
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1991 1993 1994 1994 1995 1995 1996
------------ ------------ ------------ ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales......... $29,620 $35,305 $41,402 $49,644 $59,763 $13,115 $16,045
Gross profit...... 15,290 17,271 20,374 23,226 29,069 6,269 7,920
Income from
operations...... 1,229 882 1,217 1,131 3,804 25 713
Pro forma
provision for
income
taxes(3)........ 1,328 143
Pro forma net
income(2)(3).... 1,991 214
Pro forma net
income per
share(3)(4)..... $ 0.69 $ 0.07
Weighted average
common shares
outstanding(3)(4).. 2,900 2,900
Supplemental pro
forma net income
per share(4).... $ 0.61 $ 0.07
OPERATING DATA
(UNAUDITED):
Stores open at end
of period....... 56 63 66 75 87 78 88
Inventory
turnover(5)..... 11.5x 8.3x 10.4x 10.7x 10.9x 9.3x 13.5x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 30, 1996
-----------------------------------------
PRO PRO FORMA
ACTUAL FORMA(6) AS ADJUSTED(6)(7)
------- --------- -----------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $(1,980) $(5,273) $11,486
Total assets......................................................... 17,278 19,261 26,591
Long-term debt and obligations under capital lease................... 2,686 5,747 5,747
Shareholder's equity................................................. 4,493 122 13,588
</TABLE>
- ------------
(1)The Company's fiscal year-end is the Saturday closest to December 31 in
each year. References to 'fiscal 1991,' 'fiscal 1992,' 'fiscal 1993,'
'fiscal 1994' and 'fiscal 1995' are to the fiscal years ended December 28,
1991, January 2, 1993, January 1, 1994, December 31, 1994 and December 30,
1995, respectively.
(2)For fiscal 1995 and the three months ended March 30, 1996, pro forma net
income reflects a pro forma adjustment in accordance with the increase in
the annual salary of the Company's Chairman of the Board and Chief
Executive Officer to $400,000 from an imputed $150,000. In addition,
commencing May 1, 1996, the Company entered into an employment agreement
with the new President of the Company providing for a salary of $200,000
during the first year thereof, which amount is not reflected in pro forma
net income. See Notes to Consolidated Financial Statements and
'Management.'
(3)Prior to the date of this Prospectus, the Company reported as an S
corporation for federal and certain state income tax purposes. Accordingly,
the Company was not subject to federal and certain state income taxes
during that period. The pro forma income taxes reflect the taxes which
would have been accrued if the Company had elected to report as a C
corporation. See 'Reorganization of the Company and Change in Tax Status.'
(4)Supplemental pro forma net income per share is based on the weighted
average number of shares of Common Stock used in the calculation of pro
forma net income per share plus the estimated
(footnotes continued on next page)
6
<PAGE>
<PAGE>
(footnotes continued from previous page)
number of shares that would need to be sold by the Company in order to fund
the cash distribution to the Company's principal shareholder of
approximately $1,900,000 (representing approximately $3,600,000 of
undistributed S corporation taxable income less advances of approximately
$1,700,000 at March 30, 1996), the repayment of a $1,000,000 loan payable
to an affiliate, $750,000 of bank debt and $540,000 of vendor loans to be
assumed in the Reorganization, all of which are to be paid out of the net
proceeds of this offering. See 'Use of Proceeds' and 'Reorganization of the
Company and Change in Tax Status.'
(5)Inventory turnover is determined by dividing cost of sales, which is
included in the cost of sales, buying and occupancy, by the annual average
inventory, which represents the average inventory at the beginning and end
of each fiscal period.
(6)Includes pro forma adjustments to reflect (i) the Reorganization of the
Company, including the cash distribution to the Company's principal
shareholder of approximately $1,900,000 (representing approximately
$3,600,000 of undistributed S corporation taxable income less advances of
approximately $1,700,000 at March 30, 1996), the Company's assumption of
loans payable to vendors of $540,000, and the recording of a $428,000
deferred tax asset and (ii) $5,077,000 and $5,786,000, respectively, of
property and obligations under a capital lease and $613,000 of capital
distributions resulting from the recording of the new lease agreement for
the Company's centralized distribution facility/headquarters as a capital
lease. See 'Reorganization of the Company and Change in Tax Status' and
'Use of Proceeds.'
(7)Adjusted to reflect the sale of shares of Common Stock offered hereby and
the application of net proceeds therefrom. See 'Use of Proceeds.'
7
<PAGE>
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating an
investment in the shares of Common Stock offered by this Prospectus.
EXPANSION
The Company's planned growth depends, in part, on its ability to open new
stores in existing markets, successfully relocate stores which have been
underperforming and expand into new markets. There can be no assurance, however,
that the Company will be able to identify and obtain favorable store sites,
arrange favorable leases for new stores, open new stores in a timely manner or
hire, train and integrate qualified sales associates in those new stores. The
failure by the Company to obtain new leases, open new stores or retain qualified
sales associates could have a material adverse impact on the Company's proposed
growth and future results of operations. Similarly, there can be no assurances
that the Company will be successful in expanding into existing or contiguous
markets. See 'Management's Discussion and Analysis of Financial Condition and
Results of Operations' and 'Business.'
DEPENDENCE ON CERTAIN SUPPLIERS
The Company purchases merchandise from approximately 20 vendors. During
fiscal 1995, the Company's five largest suppliers accounted for approximately
21.4%, 15.7%, 14.3%, 9.6% and 9.4%, respectively, of the Company's total
merchandise purchased. The Company typically does not maintain long-term
purchase contracts with suppliers and operates principally on a purchase order
basis. There can be no assurance that the loss of any one or more of its
suppliers would not have a material adverse effect on the Company or that
suppliers could not increase prices such as to have an adverse effect on the
Company's results of operations.
COMPETITION
The retail bedding industry in the United States in general and in the
Company's existing geographic markets in particular is highly competitive and
highly fragmented. The Company's store competitors include a variety of national
and regional chains of retail furniture stores carrying bedding (such as Seaman
Furniture Company, Inc. and Levitz Furniture, Inc.), department store chains
with bedding departments (such as Sears Roebuck and Co. and the Macy's and
Bloomingdales stores of Federated Department Stores, Inc.), regional and local
independent furniture stores carrying bedding and other regional and local
specialty retailers of bedding. The Company's stores also compete with at least
one national and one regional specialty retail bedding chain. In the past, the
Company faced periods of heightened competition that materially affected its
results of operations. In addition, the Company competes with several regional
telemarketers of bedding. Certain of the Company's competitors have
substantially greater financial and other resources than the Company.
Accordingly, the Company may face periods of intense competition in the future
that could have a material adverse effect on the Company's planned growth and
future results of operations. See 'Business -- Competition.'
COMPLETION OF WAREHOUSE EXPANSION PROJECT
The success of the Company's proposed store expansion strategy depends to a
significant extent on the completion of the planned 79,000 square foot expansion
of its centralized distribution facility/ headquarters in Bethpage, New York.
This facility is currently leased on a triple net lease basis from BDC Realty
Corp., a corporation owned by David Acker and A. J. Acker, both of whom are
executive officers of the Company and who are, respectively, the son and wife of
Harry Acker, the Company's Chairman of the Board, Chief Executive Officer and
principal shareholder. The proposed expansion project is expected to be
substantially completed by the end of the Company's current fiscal year in
accordance with the Company's requirements and specifications. The expanded
facility, when completed, is expected to accommodate the Company's warehouse
inventory needs for both its recent growth and planned expansion. The failure of
BDC Realty Corp. to complete the construction project on time or in accordance
with the Company's specifications could have a material adverse effect on the
Company's proposed growth and future results of operations. There can be no
assurance that BDC
8
<PAGE>
<PAGE>
Realty Corp. will have available to it sufficient funds in order to complete the
warehouse expansion project. In the event that BDC Realty Corp. fails to have
funds available to it sufficient to complete the proposed warehouse expansion,
the Company may elect to apply its payments under the lease with BDC Realty
Corp. to complete the warehouse expansion and, to assist in completion of the
warehouse expansion on schedule, the Company under certain circumstances may
elect to assume from BDC Realty Corp. management of the warehouse expansion
project. The Company has no experience in the management of construction
projects and there can be no assurance that it would be able to complete the
proposed expansion at a reasonable cost and without significant delays in such
event. See 'Certain Transactions.'
REQUIRED LESSOR CONSENTS
Leases for certain of the Company's stores that, prior to the
Reorganization, are leased by separate corporations (the 'Lessee Corporations')
require or may require the consent of the lessors thereunder to the contribution
of the stock of the relevant Lessee Corporation to the Company in the
Reorganization. If consents of the relevant lessors are not obtained, these
corporations will not be included in the Reorganization as of the date of this
Prospectus. Instead, the Company will seek to obtain such consents and
contribution of the stock of such Lessee Corporations to the Company after the
closing. If such consents cannot be obtained, the Company will seek to develop
alternative approaches so that, to the maximum extent possible, the Company will
receive the benefits of each such lease. Although failure by the Company to
acquire the stock of certain Lessee Corporations may, in the aggregate, have a
material adverse effect on the Company, the Company believes that the
Contributed Corporations will give the Company rights under leases sufficient
for the Company to conduct its business in all material respects as disclosed in
this Prospectus. See 'Business -- Properties.'
QUARTERLY FLUCTUATIONS IN EARNINGS
The Company historically has experienced and expects to continue to
experience quarterly fluctuations in its net sales and net income. The Company
generally has experienced more sales and a greater portion of income during the
second and third quarters of the year. The Company expects this trend to
continue for the foreseeable future. See 'Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Quarterly Fluctuations and
Seasonality.' In addition, the Company's quarterly results of operations may
fluctuate as a result of a variety of factors, including the weather
(particularly during the first quarter of the year), the timing of new store
openings and the net sales contributed by the new stores. Because of
fluctuations in net sales and net income, the results of operations for any
quarter are not necessarily indicative of the results that may be achieved for a
full fiscal year or for any future quarter. See 'Business.'
DEPENDENCE UPON KEY PERSONNEL; MANAGEMENT OF GROWTH
The success of the Company's operations during the foreseeable future will
depend largely upon the continued services of Harry Acker, Chairman of the Board
and Chief Executive Officer, and the loss of his services could have a material
adverse impact on the Company. Mr. Acker has entered into an employment
agreement with the Company which contains a non-competition covenant that
extends for a period of two years following termination of employment. In
addition, the Company has obtained $1,000,000 of key man life insurance on the
life of Mr. Acker. See 'Management -- Employment Agreements.'
The Company's success also depends in part on its ability to manage,
attract and retain qualified sales personnel. Competition for such personnel is
intense. There can be no assurance that the Company will be successful in
attracting and retaining the personnel it requires to conduct its operations
successfully. The Company's results of operations could be adversely affected if
the Company were unable to attract, manage and retain these personnel or if
revenue fails to increase at a rate sufficient to absorb the resulting increase
in expenses.
CONTROL BY PRINCIPAL SHAREHOLDER
Upon completion of this offering, Harry Acker will beneficially own
approximately 67.9% of the outstanding Common Stock. Accordingly, Mr. Acker,
individually, will have the ability to control the
9
<PAGE>
<PAGE>
election of all of the members of the Company's Board of Directors and the
outcome of corporate actions requiring majority shareholder approval. Even as to
corporate actions in which super-majority approval may be required, such as
certain fundamental corporate transactions, Mr. Acker will effectively control
the outcome of such actions.
GOVERNMENT REGULATION
The Company's operations are subject to state and local consumer protection
and other regulation relating to the bedding industry. These regulations vary
among the states constituting the Tri-state area. The regulations generally
impose requirements as to the proper labeling of bedding merchandise,
restrictions regarding the identification of merchandise as 'new' or otherwise,
controls as to hygiene and other aspects of product handling and sale and
penalties for violations. Although the Company believes that it is in
substantial compliance with these regulations and currently is implementing a
variety of measures to promote continuing compliance, there can be no assurance
that the Company will not be required in the future to incur expense and/or
modify its operations in order to ensure such compliance.
The Company also believes that its operations currently comply in all
material respects with applicable Federal, state and local environmental laws
and regulations. Although the Company does not anticipate any significant
expenditures in order to comply with such laws and regulations, there can be no
assurance that such expenditures will not be required in the future, which
expenditures could have a material adverse effect on the Company.
POTENTIAL ANTI-TAKEOVER EFFECTS OF PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
5,000,000 shares of 'blank check' preferred stock with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval (but subject to applicable government regulatory restrictions), to
issue preferred stock with dividend, liquidation, conversion, voting or other
rights which could adversely affect the voting power or other rights of the
holders of the Company's Common Stock. In the event of issuance, the preferred
stock could be utilized, under certain circumstances, as a method of
discouraging, delaying or preventing a change in control of the Company.
Although the Company has no present intention to issue any shares of its
preferred stock, there can be no assurance that the Company will not do so in
the future. In certain circumstances, the existence of provisions that inhibit
or discourage take-over transactions could reduce the market value of the Common
Stock. See 'Description of Capital Stock -- Preferred Stock.'
ABSENCE OF PRIOR TRADING MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and, although the Common Stock has been approved for quotation on the
Nasdaq National Market, subject to official notice of issuance, there can be no
assurance that following this offering an actual trading market will develop or
be maintained. The initial public offering price of the Common Stock offered
hereby has been determined by negotiations between the Company and the
representative of the Underwriters and may not be indicative of the market price
of the Common Stock in the future. For a description of the factors considered
in determining the initial public offering price, see 'Underwriting.' The market
price of the shares of Common Stock may be highly volatile. Factors such as
fluctuation in the Company's operating results, the introduction of new
commercial products or services by the Company or its competitors and general
market conditions may have a significant effect on the market price of the
Common Stock. Under Nasdaq rules, in order to avoid delisting once approved, the
Company is required to establish an independent audit committee within 90 days
following the date of this Prospectus. See 'Management -- Executive Officers and
Directors.'
DILUTION TO PURCHASERS OF COMMON STOCK
The initial public offering price is substantially higher than the book
value per share of Common Stock. Investors purchasing shares of Common Stock in
this offering therefore will incur immediate substantial dilution in net
tangible book value of $8.02 per share (assuming an initial public offering
10
<PAGE>
<PAGE>
price of $11.00 per share, representing the midpoint of the range set forth on
the cover page of this Prospectus). See 'Dilution.'
SHARES ELIGIBLE FOR FUTURE SALE
Future sales of substantial amounts of the Company's Common Stock could
adversely affect the market price of the Common Stock. Upon completion of this
offering, the 1,375,000 shares offered hereby will be freely tradeable by
persons other than 'affiliates' of the Company without restriction. All of the
remaining 2,900,000 shares are subject to 'lock-up' agreements under which the
holders of such shares have agreed not to offer, sell, pledge, grant an option
for the sale of, or otherwise dispose of any shares of Common Stock without the
prior written consent of the Representative of the Underwriters for a period of
180 days after the date of this Prospectus. Under current interpretations, all
such shares of Common Stock will be eligible for resale after the expiration of
the lock-up period pursuant to Rule 144 under the Securities Act of 1933 (the
'Act'). Following this offering, Harry Acker will hold a majority of the
outstanding Common Stock and a decision by Mr. Acker to sell his shares could
adversely affect the market price of the Common Stock. The Company also may
grant stock options to purchase in the aggregate up to 400,000 shares of Common
Stock pursuant to its 1996 Stock Option Plan. On or prior to the date of this
Prospectus, the Company will have granted options to purchase 232,000 shares of
Common Stock under the 1996 Stock Option Plan at the initial public offering
price. Sales of substantial amounts of the Common Stock in the public market,
whether by purchasers in the offering or by other shareholders of the Company,
or the perception that such sales could occur, may adversely affect the market
price of the Common Stock. See 'Shares Eligible for Future Sale' and
'Underwriting.'
NO DIVIDENDS
Prior to this offering, the Company made distributions to the Company's
principal shareholder, including amounts sufficient to reimburse him for federal
and certain state income tax liabilities arising from the Company's status as an
S corporation. Except for the payment of approximately $1,900,000 (consisting of
approximately $3,600,000 of retained earnings net of approximately $1,700,000 of
advances) with respect to the taxable income of the Company through the date of
this Prospectus, the Company does not intend to pay any dividends to its
shareholders in the foreseeable future. The Company currently intends to
reinvest earnings, if any, in the development and expansion of its business. See
'Reorganization of the Company and Change in Tax Status,' 'Use of Proceeds,'
'Dividend Policy' and 'Management's Discussion and Analysis of Financial
Condition and Results of Operations.'
11
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<PAGE>
THE COMPANY
The Company is one of the leading specialty retailers of bedding in the New
York, New Jersey and Connecticut tri-state metropolitan area (the 'Tri-state
area'), where it currently operates 88 stores. Based on the number of its
stores, the Company believes that it also is one of the largest specialty
retailers of bedding in the United States. The Company's sales operations are
conducted through three formats: (i) 68 Sleepy's'tm' stores, which address a
broad customer base and offer an extensive selection of bedding merchandise in a
wide range of prices; (ii) 20 Kleinsleep'tm' stores, which generally are located
in more affluent areas and offer a greater mix of higher-priced bedding
merchandise; and (iii) the Company's 1-800-SLEEPY'S'tm' telemarketing
operations, which commenced in 1995 and offer only products of the nation's
three largest bedding manufacturers to the most convenience-oriented and
cost-conscious consumers.
The Company was founded in 1957 by Harry Acker, its current Chairman of the
Board and Chief Executive Officer, when he opened his first specialty retail
bedding store in Brooklyn, New York. In 1993, in addition to operating under the
Sleepy's name, the Company commenced operating stores under the Kleinsleep name
and, in 1995, the Company initiated its telemarketing operations. The number of
stores operated by the Company grew to approximately 46 in fiscal 1990, 66 in
fiscal 1993 and 88 as of the date of this Prospectus. The Company's stores
average approximately 3,500 square feet in size, generally are positioned in
high-traffic and high-visibility locations and follow relatively low-cost
opening and operating procedures.
The Company was incorporated in New York in 1957. The address of the
Company's principal executive offices is 175 Central Avenue South, Bethpage, New
York 11714, and its telephone number is (516) 844-8800.
REORGANIZATION OF THE COMPANY AND CHANGE IN TAX STATUS
During 1996, the Company changed its name from Bedding Discount Center Inc.
to Sleepy's, Inc. In June 1996, the Company effected a 29,000-to-one stock split
which increased the issued and outstanding shares of the Company from 100 to
2,900,000 shares. Prior to the consummation of this offering, all of the issued
and outstanding shares of capital stock of each of KS Acquisition Corp., a New
York corporation ('KSAC'), Sleepy's International, Inc., a Florida corporation
('SII'), and 1-800-Sleepy's, Inc., a New York corporation ('1-800'), will be
contributed to the Company by Harry Acker and three trusts formed by Mr. Acker
for the benefit of his children, of each of which trusts Mr. Acker is the sole
trustee. Mr. Acker and the trusts collectively own all such shares to be
contributed. In connection with the contribution of the shares of capital stock
of KSAC, the Company will assume two loans in the aggregate amount of
approximately $540,000 payable by Mr. Acker to vendors. In addition, prior to
the effectiveness of this offering, all of the issued and outstanding shares of
capital stock of certain corporations, which collectively are the lessees of the
sites of all of the Company's stores, will be contributed to the Company by Mr.
Acker and the trusts, which collectively own all such shares to be contributed
(which corporations, with KSAC, SII and 1-800, are collectively referred to
herein as the 'Contributed Corporations').
Prior to the effectiveness of this offering, the Company, including each of
the Contributed Corporations, has been taxed as an S corporation under the
Internal Revenue Code of 1986, as amended. As a result, the Company was not
subject to federal and certain state income tax purposes during that period. Mr.
Acker, as the principal shareholder of the Company, has had and will continue to
have obligations for federal and certain state income taxes on the Company's
taxable income through the date of this Prospectus. The S corporation election
of the Company, including the Contributed Corporations, will terminate on the
date of this Prospectus. In connection with the foregoing, on the closing date
of this offering Mr. Acker will receive distributions with respect to the
Company's taxable income through the date of this Prospectus in the aggregate
amount of approximately $1,900,000 (consisting of approximately $3,600,000 of
retained earnings net of approximately $1,700,000 of advances). The amount of
the distribution to Mr. Acker on the closing date of this offering will be
calculated based on estimates of the Company's S corporation earnings, advances
against such earnings and amounts owed by Mr. Acker to the Company as of June
30, 1996. Mr. Acker will be liable to the Company for distributions made on such
date, if any, that are determined after the closing to exceed the Company's
actual S corporation earnings net of advances against such earnings and amounts
owed by
12
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<PAGE>
Mr. Acker to the Company. To secure performance of this obligation, on the
closing date of this offering, the Company will deposit 5% of Mr. Acker's
distribution in escrow pursuant to an agreement among the Company, Mr. Acker and
an escrow agent (the 'Reorganization Escrow Agreement'). The amount in this
escrow fund will be held by the escrow agent until the Company prepares a
balance sheet reflecting such amounts as of the date of this Prospectus and
receives a report on such amounts by a firm of independent certified
accountants, which balance sheet and report are required to be available within
60 days after the date of this Prospectus. In addition, due to the change in tax
status the Company will record a deferred tax asset of approximately $428,000.
The foregoing transactions collectively are referred to herein as the
'Reorganization.'
13
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the shares of Common Stock offered hereby
(assuming an initial public offering price of $11.00 per share, representing the
midpoint of the range set forth on the cover page of this Prospectus), after
deducting underwriting discounts and expenses payable by the Company, are
estimated to be approximately $13,466,000 (approximately $15,564,000 if the
Underwriters' over-allotment option is exercised in full). The Company intends
to use approximately $1,000,000 to finance the opening or acquisition during the
12-month period following the date of this Prospectus of approximately 15 new
stores in the Tri-state area; approximately $1,000,000 to finance increased
warehouse inventory in connection with the Company's planned new store openings
and acquisitions; approximately $1,900,000 to make a distribution to the
principal shareholder of the Company with respect to taxable income of the
Company through the date of this Prospectus, during which period the Company was
an S corporation for tax purposes (which amount consists of approximately
$3,600,000 of retained earnings net of approximately $1,700,000 of advances);
approximately $750,000 to repay outstanding indebtedness to a bank (the 'Bank
Indebtedness'); approximately $1,000,000 to repay outstanding demand
indebtedness to a corporation controlled by the principal shareholder of the
Company and his wife, each a director and executive officer of the Company (the
'Shareholder Indebtedness'); approximately $540,000 to repay indebtedness
assumed by the Company in connection with the Reorganization; and the balance
for working capital purposes. See 'Reorganization of the Company and Change in
Tax Status' and 'Certain Transactions.' The Company continuously reviews
potential acquisitions to complement its current operations and may seek to
utilize funds allocated to working capital, in whole or in part, for these
acquisitions. The Company presently does not have any agreements, commitments or
arrangements with respect to any proposed acquisitions and there can be no
assurance that any acquisition will be consummated in the future.
The allocation of the net proceeds of this offering set forth above
represents the Company's best estimates based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
future revenues, expenditures and prospects. The Company reserves the right to
reallocate the proceeds within the above described categories or to other
purposes in response to, among other things, changes in its plans, industry
conditions and the Company's future revenues, expenditures and prospects.
Proceeds not immediately required for the purposes described above will be
invested principally in United States government securities, investment-grade,
interest bearing securities, short-term certificates of deposit, money market
funds and/or interest-bearing accounts.
The Bank Indebtedness was incurred pursuant to an existing working capital
facility. This indebtedness matures in January 1997, bears interest at the
bank's prime rate and is secured by a lien on the Company's inventory. The
Shareholder Indebtedness was incurred in connection with two loans made to the
Company during 1995 to provide working capital to the Company. This indebtedness
is unsecured and bears interest at the rate of 12% per annum.
14
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 30, 1996, (i) on an actual basis, (ii) on a pro forma basis to give effect
to the Reorganization and the recording as a capital lease of the Company's new
lease agreement for its centralized distribution facility/headquarters and (iii)
on a pro forma as adjusted basis to give effect to the Reorganization, the
recording as a capital lease of the Company's new lease agreement for its
centralized distribution facility/headquarters, the issuance and sale of
1,375,000 shares of Common Stock in this offering and the application of the
estimated net proceeds therefrom as described in 'Use of Proceeds' and
'Business -- Properties.'
<TABLE>
<CAPTION>
AS OF MARCH 30, 1996
------------------------------------
PRO FORMA
PRO FORMA AS ADJUSTED
ACTUAL (1) (2)(3)
------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Short term debt and capital lease obligations............................... $ 993 $ 2,423 $ 133
------ ----------- -----------
Long term debt and obligations under capital lease.......................... 2,686 5,747 5,747
------ ----------- -----------
Shareholder's equity:
Preferred Stock, $.01 par value, 5,000,000 shares authorized; no shares
outstanding.......................................................... -- --
Common Stock, $.01 par value, 10,000,000 shares authorized; 2,900,000
shares issued and outstanding, actual; 4,275,000 issued and
outstanding, pro forma as adjusted................................... 29 29 43
Additional paid-in capital............................................. 1,855 93 13,545
Retained earnings...................................................... 2,609 -- --
------ ----------- -----------
Total shareholder's equity............................................. 4,493 122 13,588
------ ----------- -----------
Total capitalization.............................................. $8,172 $ 8,292 $19,468
------ ----------- -----------
------ ----------- -----------
</TABLE>
- ------------
(1) Gives effect to the Reorganization, including the distribution to the
Company's principal shareholder of the Company's taxable income through the
closing of this offering in the aggregate amount of approximately $1,900,000
(consisting of approximately $3,600,000 of retained earnings net of
approximately $1,700,000 of advances) as well as the recording as a capital
lease of the new lease agreement. See Note 3 to Consolidated Financial
Statements, 'Reorganization of the Company and Change in Tax Status' and
'Certain Transactions.'
(2) Gives effect to the issuance of 1,375,000 shares of Common Stock in this
offering net of estimated underwriting discounts and expenses payable by the
Company.
(3) Total capitalization assuming the Underwriters' over-allotment option is
exercised in full would be approximately $21,566,000.
DIVIDEND POLICY
The Company was an S corporation for federal and certain state income tax
purposes prior to the date of this Prospectus. Upon the closing of this
offering, the Company will make distributions representing the Company's taxable
income through the date of this Prospectus and the Company's S corporation
status will be terminated. The Company currently intends to retain all future
earnings for use in the operation of its business and, therefore, does not
anticipate paying any cash dividends in the foreseeable future. The declaration
and payment of any cash dividends will be at the election of the Company's Board
of Directors and will depend upon, among other things, the earnings, capital
requirements and financial position of the Company, future loan covenants and
general economic conditions.
15
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<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock as of March 30,
1996 was approximately $3,637,000 or $1.25 per share. Net tangible book value
per share is determined by dividing the net tangible book value of the Company
(tangible assets less total liabilities) by the number of shares of Common Stock
outstanding. Net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the offering made hereby and the pro forma net tangible book value per
share of Common Stock immediately after completion of the offering. Without
taking into account any changes in such net tangible book value after March 30,
1996, other than to give effect to the net proceeds from the sale of the shares
of Common Stock offered hereby, and the distribution of the Company's taxable
income immediately prior to the effective date of this Prospectus, the recording
as a capital lease of the Company's new lease agreement for its centralized
distribution facility/headquarters and the Reorganization, the pro forma net
tangible book value of the Company as of March 30, 1996 would have been
approximately $12,732,000 or $2.98 per share. This represents an immediate
increase in net tangible book value of $3.24 per share to the existing
shareholders and an immediate dilution in net tangible book value of $8.02 per
share to new investors. The following table illustrates this dilution on a per
share basis:
<TABLE>
<S> <C> <C>
Initial public offering price per share(1)................................. $11.00
Net tangible book value per share before the offering................. $ 1.25
Pro forma reduction to shareholders equity(2)......................... (1.51)
Increase attributable to new investors................................ 3.24
------
Pro forma net tangible book value per share after the offering............. 2.98
------
Dilution per share to new investors........................................ $ 8.02
------
------
</TABLE>
- ------------
(1) Representing the midpoint of the range set forth on the cover page of this
Prospectus.
(2) Assuming distribution of $1,900,000 to the Company's principal shareholder,
the assumption of indebtedness in the aggregate amount of $540,000 and
recording of a deferred tax asset of $428,000 all made in connection with
the Reorganization. Also gives effect to the recording as a capital lease of
the new lease agreement for the Company's centralized distribution facility/
headquarters. See 'Reorganization of the Company and Change in Tax Status'
and 'Certain Transactions.'
------------------------
The following table summarizes, on a pro forma basis as of March 30, 1996,
the difference between the existing shareholders and new investors with respect
to the number of shares of the Company owned, the total consideration paid and
the average price paid per share:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.................... 2,900,000 67.8% $ 1,884,000 11.1% $ 0.65
New investors............................ 1,375,000 32.2% $15,125,000 88.9% $ 11.00
--------- ------- ----------- ------- ---------
Total............................... 4,275,000 100.0% $17,009,000 100.0% $ 3.98
--------- ------- ----------- ------- ---------
--------- ------- ----------- ------- ---------
</TABLE>
The foregoing tables assume no exercise of any outstanding options to
purchase shares of Common Stock. At March 30, 1996, there were no outstanding
stock options.
16
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<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for fiscal 1993, 1994
and 1995 are derived from the consolidated financial statements of the Company,
which have been audited by BDO Seidman, LLP, independent certified public
accountants, whose report thereon is included elsewhere herein. The following
selected consolidated financial data for the years ended December 28, 1991 and
January 2, 1993 and for the three months ended April 1, 1995 and March 30, 1996
are derived from the unaudited consolidated financial statements of the Company.
In the opinion of management, the unaudited consolidated financial statements
have been prepared on the same basis as the audited consolidated financial
statements and include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for such periods. The selected consolidated financial data
should be read in conjunction with, and are qualified in their entirety by,
'Management's Discussion and Analysis of Financial Condition and Results of
Operations' and the Company's consolidated financial statements, related notes
and other financial information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------------------------------------
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30,
1991 1993 1994 1994 1995
------------ ---------- ---------- ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $ 29,620 $ 35,305 $ 41,402 $ 49,644 $ 59,763
Cost of sales, buying and
occupancy..................... 14,330 18,034 21,028 26,418 30,694
Gross profit.................... 15,290 17,271 20,374 23,226 29,069
Store expenses.................. 10,442 12,397 14,332 16,512 19,298
General and administrative
expenses...................... 3,619 3,992 4,825 5,583 5,967
Total operating expenses........ 14,061 16,389 19,157 22,095 25,265
Income from operations.......... 1,229 882 1,217 1,131 3,804
Other income (expenses)......... (138) (102) 293 (455) (235)
Income before taxes............. 1,091 780 1,510 676 3,569
Pro forma provision for income
taxes(2)...................... 1,328
Pro forma net income(1)(2)...... 1,991
Pro forma net income per
share(2)(3)................... $ 0.69
Weighted average common shares
outstanding(2)(3)............. 2,900
Supplemental pro forma net
income per share(3)........... $ 0.61
OPERATING DATA (UNAUDITED):
Stores open at end of period.... 56 63 66 75 87
Inventory turnover(4)........... 11.5x 8.3x 10.4x 10.7x 10.9x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................. $ (1,413) $ (1,424) $ (658) $ (3,062) $ (1,034)
Total assets.................... 4,770 5,370 9,446 13,792 15,615
Long-term debt and capital lease
obligations................... 624 679 1,039 1,941 3,094
Total shareholder's equity...... 214 504 2,533 2,728 4,424
<CAPTION>
THREE MONTHS ENDED
--------------------
APRIL 1, MARCH 30,
1995 1996
------- -----------
<S> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $13,115 $16,045
Cost of sales, buying and
occupancy..................... 6,846 8,125
Gross profit.................... 6,269 7,920
Store expenses.................. 4,793 5,168
General and administrative
expenses...................... 1,451 2,039
Total operating expenses........ 6,244 7,207
Income from operations.......... 25 713
Other income (expenses)......... (71) (294)
Income before taxes............. (46) 419
Pro forma provision for income
taxes(2)...................... 143
Pro forma net income(1)(2)...... 214
Pro forma net income per
share(2)(3)................... $ 0.07
Weighted average common shares
outstanding(2)(3)............. 2,900
Supplemental pro forma net
income per share(3)........... $ 0.07
OPERATING DATA (UNAUDITED):
Stores open at end of period.... 78 88
Inventory turnover(4)........... 9.3x 13.5x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................. $(2,062) $(1,980)
Total assets.................... 11,620 17,278
Long-term debt and capital lease
obligations................... 1,494 2,686
Total shareholder's equity...... 2,754 4,493
</TABLE>
- ------------
(1) For fiscal 1995 and for the three months ended March 30, 1996, pro forma net
income reflects a pro forma adjustment in accordance with the increase in
the annual salary of the Company's Chairman of the Board and Chief Executive
Officer to $400,000 from an imputed $150,000. In addition, commencing May 1,
1996, the Company entered into an employment agreement with the new
President of the Company providing for a salary of $200,000 during the first
year thereof, which amount is not reflected in pro forma net income. See
Notes to Consolidated Financial Statements and 'Management.'
(2) Prior to the date of this Prospectus, the Company reported as an S
corporation for federal and certain state income tax purposes. Accordingly,
the Company was not subject to federal and certain state income taxes during
that period. The pro forma income taxes reflect the taxes which would have
been accrued if the Company had elected to report as a C corporation. See
'Reorganization of the Company and Change in Tax Status.'
(footnotes continued on next page)
17
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<PAGE>
(footnotes continued from previous page)
(3) Supplemental pro forma net income per share is based on the weighted average
number of shares of Common Stock used in the calculation of pro forma net
income per share plus the estimated number of shares that would need to be
sold by the Company in order to fund the net cash distribution to the
Company's principal shareholder of approximately $1,900,000 (representing
approximately $3,600,000 of undistributed S corporation taxable income less
advances of approximately $1,700,000 at March 30, 1996), the repayment of a
$1,000,000 loan payable to an affiliate, $750,000 of bank debt and the
vendor loans of $540,000 to be assumed in the Reorganization, all of which
are to be paid out of the net proceeds of this offering. See 'Use of
Proceeds' and 'Reorganization of the Company and Change in Tax Status.'
(4) Inventory turnover is determined by dividing cost of sales by the annual
average inventory, which represents the average inventory at the beginning
and end of each fiscal period.
18
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements (including the notes thereto) included in this
Prospectus.
GENERAL
The Company was founded in 1957 when Harry Acker, its current Chairman of
the Board and Chief Executive Officer, opened his first specialty retail bedding
store in Brooklyn, New York. In 1993, in addition to operating under the
Sleepy's name, the Company commenced operating its Kleinsleep stores and in 1995
the Company initiated its telemarketing operations. The number of stores
operated by the Company grew to 46 in 1990, 66 in 1993 and 88 as of the date of
this Prospectus. The Company's stores are located exclusively in the Tri-state
area.
The Company derives all of its revenues from the retail sale of bedding
products, primarily consisting of bed sets. During the last five years, the
Company's net sales increased 100% from approximately $30 million in fiscal 1991
to approximately $60 million in fiscal 1995, primarily as a result of new store
openings, sales growth in existing stores and acquisitions. During the same
five-year period, net income before taxes increased 227% from $1.1 million to
$3.6 million. After giving effect to the increase in the annual salary of the
Company's Chairman of the Board and Chief Executive Officer and for income
taxes, pro forma net income for fiscal 1995 was approximately $2.0 million. The
Company believes that its increased profitability largely is due to economies
created by its distribution capabilities, store operating efficiencies,
relationships with suppliers and knowledge of its market areas and customers. In
addition to opening new stores and expanding its telemarketing operations,
management intends to continue its practice of reviewing the profitability
trends and prospects of existing stores and redeploying capital by closing or
relocating underperforming stores or converting existing stores to the Company's
other store format.
The Company's expansion strategy focuses on new store openings and
acquisitions in existing and contiguous market areas, relocating existing stores
and increasing its telemarketing operations. The Company believes that by
opening new stores it will realize economies of scale in distribution,
advertising and management. The Company expects that its planned expansion
strategy will permit further leveraging of the costs of its centralized
distribution facility/headquarters over the anticipated increase in sales volume
from the addition of new stores and the expansion of its telemarketing
operations.
19
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain financial
data as a percentage of net sales and the percentage change in the dollar amount
of such data compared to the prior comparable period:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
------------------------------------------------------------------------
FISCAL YEAR ENDED THREE MONTHS ENDED
------------------------------------------ --------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
---------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales............................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and
occupancy...................... 50.8 53.2 51.4 52.2 50.6
---------- ------ ------ ----------- -----------
Gross profit..................... 49.2 46.8 48.6 47.8 49.4
Operating expenses:
Store expenses.............. 34.6 33.3 32.3 36.5 32.2
General and
administrative............ 11.6 11.2 9.9 11.1 12.8
---------- ------ ------ ----------- -----------
Operating income............ 3.0 2.3 6.4 0.2 4.4
Other income (expense),
net....................... 0.7 (0.9) (0.5) (0.5) (1.8)
---------- ------ ------ ----------- -----------
Income before income
taxes..................... 3.7% 1.4% 5.9 0.3% 2.6
---------- ------ -----------
---------- ------ -----------
Pro forma adjustment for
officer's salary(1)....... -- -- (0.4) -- (0.4)
Pro forma provision for
income taxes.............. (2.2) (0.9)
------ -----------
Pro forma net income........ 3.3% 1.3%
------ -----------
------ -----------
</TABLE>
- ------------
(1) For fiscal 1995 and the three months ended March 30, 1996, total operating
expenses reflects a pro forma adjustment in accordance with the increase in
the annual salary of the Company's Chairman of the Board and Chief Executive
Officer to $400,000 from an imputed $150,000. See Notes to Consolidated
Financial Statements.
THREE MONTHS ENDED MARCH 30, 1996 COMPARED TO THREE MONTHS ENDED APRIL 1, 1995
Net sales for the three months ended March 30, 1996 were $16,045,000, an
increase of $2,930,000, or 22.3%, over net sales of $13,115,000 for the three
months ended April 1, 1995. This increase includes a 5.2% increase in comparable
store sales over the periods. Comparable store sales in any year consist of
sales in stores open during the entirety of that year and that had been in
continuous operation for at least the 13-month period immediately preceding that
year. The increase in net sales was a result of new store openings, increased
sales in existing stores and an increase in telemarketing sales, which
contributed $1,203,000, $1,060,000 and $667,000, respectively, to the increase
in net sales. As of March 30, 1996, the Company had 88 stores compared to 78
stores as of April 1, 1995. Net sales from telemarketing for the three months
ended March 30, 1996, were $848,000 as compared to $181,000 for the same period
in the prior year.
Cost of sales, buying and occupancy (which occupancy costs consist
primarily of costs associated with the receiving department at the Company's
main warehouse facility, including rent, utilities, insurance, salaries and
benefits allocable thereto) for the three months ended March 30, 1996 was
$8,125,000, an increase of $1,279,000, or 18.7%, over cost of sales, buying and
occupancy for the same period a year earlier of $6,846,000. Cost of sales,
buying and occupancy as a percentage of net sales were 50.6% for the recent
period as compared to 52.2% for the earlier period. The resulting improvement in
the gross profit margin over the periods is attributable primarily to the
reduction of competition, principally as a result of the cessation in October
1995 of certain of the operations in New York State of one of the Company's
major competitors.
20
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<PAGE>
During the periods, the gross profit margin relating to telemarketing
operations was approximately 7% lower than the gross profit margin on the
Company's store operations. This lower gross profit margin was directly related
to the merchandise mix sold through telemarketing. Since telemarketing
operations contributed only a small portion of net sales during the periods
(1.4% in the first quarter of 1995 and 5.3% in the first quarter of 1996), these
operations did not have a material impact on the Company's overall gross profit
margin during the periods. The Company believes that, as telemarketing
operations grow, the lower gross profit margin for these operations generally
will be substantially offset as a result of the leveraging of the significantly
lower fixed costs of the telemarketing operations over net sales of these
operations.
Store expenses, which consist of advertising, rent and related occupancy
costs, selling salaries, utilities, insurance and depreciation, for the three
months ended March 30, 1996 were $5,168,000, an increase of $375,000, or 7.8%,
as compared to $4,793,000 for the same period a year earlier. The increase in
store expenses over the periods principally was due to an increase of $312,000
in rent expense related to 13 additional stores opened in the recent period and
an increase of $106,000 in selling salaries related to these additional stores.
Store expenses in the recent period were 32.2% of sales as compared to 36.5% for
the earlier period. This favorable decrease in store expenses as a percentage of
net sales was due in part to the increase from $181,000 to $848,000 in net sales
from the Company's telemarketing operations, which require no rent costs, as
well as a continued improvement in store operating economies.
General and administrative expenses for the three months ended March 30,
1996 were $2,039,000, an increase of $588,000, or 40.5%, as compared to
$1,451,000 for the same period a year earlier. General and administrative
expenses as a percentage of net sales were 12.8% for the recent period as
compared to 11.1% for the earlier period. This increase is attributable
primarily to an increase in management and administrative salaries in the
aggregate amount of approximately $270,000 in order to support expansion of the
Company's business.
Interest expense for the three months ended March 30, 1996 was $94,000, an
increase of $23,000 over the $71,000 for the same period a year earlier. The
increase is attributable to increased borrowing for working capital purposes,
including renovation and store expansion. For the three months ended March 30,
1996, other expense was offset by an unrealized gain on investment securities in
the amount of $123,000.
FISCAL 1995 COMPARED TO FISCAL 1994
Net sales for fiscal 1995 were $59,763,000, an increase of $10,119,000, or
20.4%, over net sales for fiscal 1994 of $49,644,000. The increase in net sales
was a result of new store openings (including the subletting of ten stores from
a competitor), increased sales in existing stores (including an increase of 4.8%
in comparable store sales over the periods) and the commencement of
telemarketing operations, which contributed $7,525,000, $1,465,000 and
$1,129,000, respectively, to the increase in net sales. During fiscal 1995, the
Company opened or acquired 15 new stores while closing only three stores,
resulting in a total of 87 stores in operation at the end of the year. During
fiscal 1994, the Company opened ten new stores while closing only one store,
resulting in a total of 75 stores open at the end of the year.
Cost of sales, buying and occupancy for fiscal 1995 was $30,694,000, an
increase of $4,276,000, or 16.2%, over cost of sales, buying and occupancy for
fiscal 1994 of $26,418,000. Cost of sales, buying and occupancy as a percentage
of net sales was 51.4% for fiscal 1995 as compared to 53.2% for fiscal 1994.
This improvement in gross profit margin over the periods is attributable
primarily to the reduction of competition (principally as a result of the
cessation in October 1995 of certain of the operations in New York State of one
of the Company's major competitors) and to management's continued practice of
closing or relocating underperforming stores. During fiscal 1995, the Company
closed three stores and relocated eight stores. Although the gross profit margin
relating to telemarketing operations during fiscal 1995 was approximately 7%
lower than the gross profit margin on the Company's store operations during that
year, telemarketing operations contributed only 1.9% of net sales during that
year and, therefore, did not have material impact on the company's overall gross
profit margin.
21
<PAGE>
<PAGE>
Store expenses, which consist of advertising, rent and related occupancy
costs, selling salaries, utilities, insurance and depreciation, for fiscal 1995
were $19,298,000, an increase of $2,786,000, or 16.9%, over store expenses for
fiscal 1994 of $16,512,000. This increase in store expenses is directly related
to the increase in the number of stores during 1995. Store expenses as a
percentage of net sales were 32.3% for fiscal 1995 as compared to 33.3% for
fiscal 1994. This percentage decrease over the periods reflects an improvement
in store operating economies.
General and administrative expenses for fiscal 1995 were $5,967,000, an
increase of $384,000, or 6.9%, over general and administrative expenses for
fiscal 1994 of $5,583,000. General and administrative expenses as a percentage
of net sales were 9.9% for fiscal 1995 as compared to 11.1% for fiscal 1994.
This percentage decrease is attributable primarily to the Company's ability to
leverage fixed expenses over increased net sales through additional stores. The
Company intends to continue this leveraging through its expansion strategy.
Interest expense for fiscal 1995 was $323,000, an increase of $178,000 over
interest expense for fiscal 1994 of $145,000. The increase was due principally
to additional borrowing in connection with increased capital expenditures for
renovations and store openings, as well as the completion of improvements to the
Company's main headquarters and warehousing facility.
FISCAL 1994 COMPARED TO FISCAL 1993
Net sales for fiscal 1994 were $49,644,000, an increase of $8,242,000, or
19.9%, over net sales for fiscal 1993 of $41,402,000. The increase in net sales
was a result of new store openings and increased sales in existing stores
(including an increase of 6.5% in comparable store sales over the periods),
which contributed $4,622,000 and $3,620,000, respectively, to the increase in
net sales. During fiscal 1994, the Company opened or acquired ten new stores
while closing only one store, resulting in a total of 75 stores in operation at
the end of the year. During fiscal 1993, the Company opened or acquired nine new
stores while closing six stores, resulting in a total of 66 stores open at the
end of the year. The Company also believes that net sales for fiscal 1994
increased in part as a result of the Company's initial occupancy in September
1994 of its main warehouse and distribution facility.
Cost of sales, buying and occupancy for fiscal 1994 was $26,418,000, an
increase of $5,390,000, or 25.6%, over cost of sales, buying and occupancy for
fiscal 1993 of $21,028,000. Cost of sales, buying and occupancy as a percentage
of net sales was 53.2% for fiscal 1994 as compared to 50.8% for fiscal 1993.
This decline in gross profit margin is primarily attributable to heightened
competition from department stores and other speciality retailers of bedding.
Store expenses for fiscal 1994 were $16,512,000, an increase of $2,180,000,
or 15.2%, over store expenses for fiscal 1993 of $14,332,000. The increase in
store expenses was attributable primarily to the increase in the number of
stores over the periods. Store expenses as a percentage of net sales were 33.3%
for fiscal 1994 as compared to 34.6% in fiscal 1993. This percentage decrease
over the periods reflects management's continued strategy to reduce controllable
store operating expenses such as utilities, insurance and payroll.
General and administrative expenses for fiscal 1994 were $5,583,000, an
increase of $758,000, or 15.7%, over general and administrative expenses for
fiscal 1993 of $4,825,000. The increase over the period was attributable
primarily to the effects of the Company's relocation to its new centralized
distribution facility/headquarters in the fall of 1994, during which the Company
incurred costs of operating two warehouse facilities for a four-month period.
General and administrative expenses as a percentage of net sales were 11.2% for
fiscal 1994 as compared to 11.6% for fiscal 1993 as the Company continued to
leverage these expenses against increased net sales through additional store
growth.
Interest expense for fiscal 1994 was $145,000 as compared to $11,000 in
fiscal 1993. The increase was related to interest expense on the capital lease
for the Company's centralized distribution facility/headquarters entered into
during fiscal 1994.
22
<PAGE>
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company historically has funded its working capital and capital
expenditure requirements from net cash provided by operating activities and
through borrowings under bank credit facilities and a $1,000,000 loan that is
due to a corporation controlled by the principal shareholder of the Company. The
Company believes that the proceeds from this offering, borrowings that will be
available under existing or replacement credit facilities and anticipated cash
flow from operations will be sufficient to meet the Company's working capital
needs and to fund anticipated expansion for at least 12 months from the date of
this Prospectus. The Company intends to use the net proceeds from this offering,
which are estimated to be approximately $13,466,000, to finance planned
expansion (through the opening of new stores and increased warehouse inventory
related thereto), to make a distribution to the principal shareholder of the
Company, and to repay various outstanding indebtedness. After giving effect to
these proposed uses, the expected remaining amount of approximately $7,276,000
will be available for the Company's working capital purposes and potential
acquisitions.
The Company anticipates incurring additional rental and executive
compensation costs following this offering. Upon completion of the planned
expansion of the Company's centralized distribution facility/headquarters, the
annual rental for that facility will increase by approximately $356,000. In
connection with the Company's employment agreements with Harry Acker and Howard
Roeder, the Company will also incur additional annual compensation expense in
the aggregate amount of approximately $450,000, exclusive of bonuses. All of
these costs also will be funded by the Company through the proceeds from this
offering, borrowings and anticipated cash flow from operations.
To date, during the current fiscal year, the Company has opened three
stores and closed two stores. During the 12-month period following the date of
this Prospectus, the Company intends to open a total of 15 additional stores and
anticipates closing three stores (all in connection with the expirations of the
leases relating thereto) and relocating one store. The Company expects to incur
initial investment costs of approximately $65,000 to open each new store,
representing the aggregate costs of leasehold improvements, furniture, fixtures,
equipment and inventory. During the 12-month period following the date of this
Prospectus, the Company expects to incur aggregate initial investment costs of
approximately $1,000,000 in connection with its store expansion plans and
approximately $1,000,000 in warehouse inventory to accommodate this expansion.
Management believes that the proceeds of this offering, together with net cash
provided by operating activities, will be sufficient to fund this store
expansion. The Company generally opens new stores within 30 days of signing
leases for new store sites, thereby minimizing lease costs prior to commencement
of store operations. The Company believes that the aggregate costs to be
incurred as a result of store closings and relocation anticipated to take place
during the 12-month period following the date of this Prospectus will be
approximately $75,000.
Net cash provided by operating activities during fiscal 1995, 1994 and 1993
was $3,212,000, $3,556,000 and $1,741,000, respectively. Income from operations
was $3,569,000, $676,000 and $1,510,000 for fiscal 1995, 1994 and 1993,
respectively, which was partially offset by an investment in inventory of
$1,061,000 and $1,088,000 during fiscal 1995 and 1993, respectively. The
investment in inventory during fiscal 1993 was financed by growth in accounts
payable of $2,290,000. Accounts payable in fiscal 1994 grew by $1,188,000 to
finance operations.
Capital expenditures for fiscal 1995, 1994 and 1993 were $2,271,000,
$1,929,000 and $1,139,000, respectively, primarily related to store and building
improvements. The Company expects that capital expenditures for fiscal 1996 will
be approximately $1,800,000. In addition, to date, the Company has advanced
approximately $320,000 to BDC Realty Corp. in connection with planned expansion
of the Company's centralized distribution facility/headquarters, which advances
are evidenced by a demand note of BDC Realty Corp. payable to the Company.
Net cash provided by (used in) financing activities for fiscal 1995, 1994
and 1993 were ($1,698,000), ($835,000) and $314,000, respectively. This was
primarily the result of S corporation distributions of $2,023,000, $624,000 and
$1,005,000 in fiscal 1995, 1994 and 1993, respectively. In 1993 a capital
contribution was made by the principal shareholder of $1,400,000 in connection
with the acquisition of certain assets.
23
<PAGE>
<PAGE>
The Company has a $2,000,000 line of credit with a bank expiring on January
31, 1997. Borrowings under the line of credit bear interest at the bank's
commercial prime lending rate and are collateralized by certain assets of the
Company. As of March 30, 1996, there were $800,000 of borrowings under the line
of credit as compared with $370,000 as of December 30, 1995. The Company intends
to pay in full the borrowings under the line of credit and to evaluate various
possible replacement credit facilities.
QUARTERLY FLUCTUATIONS AND SEASONALITY
The Company's business, like that of most retailers, is subject to seasonal
influences. Accordingly, the Company has experienced and expects to continue to
experience quarterly fluctuations in its net sales and net income. The Company
historically has had higher sales and a greater portion of income during the
second and third quarters of the year. The Company expects this trend of
quarterly fluctuations to continue for the foreseeable future. Since basic
bedding merchandise ordinarily constitutes home necessities rather than elective
purchases, the Company believes that it has tended to experience less seasonal
fluctuation than many other retailers. The Company's quarterly results of
operations also may fluctuate as a result of a variety of factors, including the
weather (particularly during the first quarter of the year), the timing of new
store openings and the net sales contributed by the new stores.
INFLATION
Historically, as merchandise costs have increased due to inflation, the
Company has been able to pass those price increases on to its customers. As a
result, the effect of inflation on the Company's results of operations and
financial condition has been immaterial. There can be no assurance, however,
that in the future the Company will be able to continue to pass on price
increases resulting from inflation.
INCOME TAXES
Prior to the consummation of this offering, the Company, including each of
the Contributed Corporations, has been taxed as an S corporation under the
Internal Revenue Code of 1986, as amended. As a result, the taxable income of
the Company has been reported, for federal and certain state income tax
purposes, directly by the principal shareholder of the Company. Harry Acker, as
the principal shareholder of the Company, has had and will continue to have
obligations for federal and certain state income taxes on the Company's taxable
income through the date of this Prospectus. The S corporation election of the
Company will terminate on the date of this Prospectus. In connection with the
foregoing, on the closing date of this offering Mr. Acker will receive
distributions with respect to the Company's taxable income through the date of
this Prospectus in the aggregate amount of approximately $1,900,000 (consisting
of approximately $3,600,000 of retained earnings net of approximately $1,700,000
of advances against retained earnings). In connection with terminating the
Company's S corporation status, the Company will record deferred taxes for the
effect of cumulative temporary differences, in accordance with Statement of
Financial Accounting Standard No. 109 'Accounting for Income Taxes.' This amount
is estimated to be a deferred tax asset of approximately $428,000, and will be
recorded as income tax credit in the statement of operations upon the
termination of the Company's S corporation status. The deferred tax asset
results from temporary differences between the tax and financial statement
accounting for the Company's operating leases and depreciation. See 'Use of
Proceeds' and 'Reorganization of the Company and Change in Tax Status.'
24
<PAGE>
<PAGE>
BUSINESS
GENERAL
The Company is one of the leading specialty retailers of bedding in the New
York, New Jersey and Connecticut tri-state metropolitan area (the 'Tri-state
area'), where it currently operates 88 stores. Based on the number of its
stores, the Company believes that it also is one of the largest specialty
retailers of bedding in the United States. The Company's sales operations are
conducted through three formats: (i) 68 Sleepy's'tm' stores, which address a
broad customer base and offer an extensive selection of bedding merchandise in a
wide range of prices; (ii) 20 Kleinsleep'tm' stores, which generally are located
in more affluent areas and offer a greater mix of higher-priced bedding
merchandise; and (iii) the Company's 1-800-SLEEPY'S'tm' telemarketing
operations, which commenced in 1995 and offer only products of the nation's
three largest bedding manufacturers to the most convenience-oriented and cost-
conscious consumers.
The Company was founded in 1957 when Harry Acker, its current Chairman of
the Board and Chief Executive Officer, opened his first specialty retail bedding
store in Brooklyn, New York. In 1993, in addition to operating under the
Sleepy's name, the Company commenced operating stores under the Kleinsleep name
and, in 1995, the Company initiated its telemarketing operations. The number of
stores operated by the Company grew to 46 in 1990, 66 in 1993 and 88 as of the
date of this Prospectus. The Company's stores average approximately 3,500 square
feet in size, generally are positioned in high-traffic and high-visibility
locations and follow relatively low-cost opening and operating procedures.
OPERATING STRATEGY
The Company believes that its current operating strategy offers competitive
advantages, including the following:
Broad Market Coverage. By marketing and selling its products through its
three different formats, the Company covers virtually all consumers
throughout the Tri-state area. Sleepy's stores are located in a wide
variety of communities, Kleinsleep stores generally are located in more
affluent areas and the Company's telemarketing operations target the most
convenience-oriented and cost-conscious consumers.
Competitive Pricing. In order to achieve competitive pricing, the Company
maintains relatively low costs of occupancy, labor, distribution of
merchandise and other aspects of its operations. The Company actively
monitors prices of its competitors, including other telemarketers. In
addition, the Company often uses promotional programs and seasonal
specials.
Aggressive Marketing. The Company effectively uses print, radio,
television and other advertising to promote each of its three sales
formats and has achieved broad name recognition in the Tri-state area. The
Company's advertisements for its 1-800-SLEEPY'S telemarketing services
also serve to promote the Sleepy's stores within the same markets. The
Company monitors the effectiveness of its advertising by tracking customer
purchases and has developed a survey system to measure the success of its
advertising's influence on its customers. With this information, the
Company regularly reviews the cost-effectiveness of its spending on
various advertising media.
Centralized Distribution Facility. The Company realizes economies of scale
by servicing stores from its leased centralized distribution
facility/headquarters. This facility enables the Company (i) to reduce the
initial investment costs required to open new stores because significant
inventory does not have to be shipped to or maintained at individual
stores and (ii) to achieve operating efficiencies by consolidating the
receiving, handling, inventory management and distribution functions at a
single location. The Company expects that its proposed expansion strategy
will permit further leveraging of the centralized facility's costs over
the anticipated increase in sales volume from the addition of new stores
and the expansion of its telemarketing operations.
Ongoing Review of Store Performance and Location. The Company continually
reviews the profitability trends and prospects of its stores and evaluates
whether underperforming stores should be closed, relocated to more
desirable locations or converted to the Company's other store format. The
Company believes that it maintains a competitive advantage by utilizing
its
25
<PAGE>
<PAGE>
knowledge of its market areas to negotiate favorable lease terms at many
of its store locations, thereby lowering occupancy costs and permitting
more cost-effective operations. The Company also generally negotiates for
store leases with terms that provide management the flexibility to pursue
various expansion opportunities resulting from changing market conditions.
GROWTH STRATEGY
The Company's goal is to become the dominant retailer of bedding in the
Tri-state area. The Company intends to increase its market penetration in this
area and to expand its operations into contiguous geographic areas. The Company
intends to open or acquire more than 15 stores during the 12 months following
the date of this Prospectus. The Company believes that by opening these new
stores it will realize economies of scale in distribution, advertising and
management. The principal elements of the Company's growth strategy include the
following:
Store Expansion. The Company intends to pursue an aggressive expansion
strategy, primarily through new store openings and acquisitions in the
Tri-state area, as well as in markets contiguous to that area. The Company
believes that opening or acquiring additional stores will increase the
Company's market share and afford greater economies of scale in
distribution, advertising and management.
Expanded Telemarketing. The Company intends to expand its telemarketing
operations. The Company's telemarketing operations currently consist of
dedicated space at its centralized distribution facility/headquarters
containing partitioned telephone operator cubicles, a staff of ten
telephone operators and two department managers and management information
systems and telephone equipment. The telemarketing operators receive
incoming merchandise orders, which are otherwise processed generally in
the same manner as are the Company's store sales. The expansion of these
operations primarily involves the addition of personnel (who are
compensated on a commission basis) and generally does not require
significant capital expenditures other than additional programming of
management information systems and telephone equipment and service, and is
anticipated to cost approximately $250,000 over the next 12 months.
Increased Advertising. The Company intends to significantly increase its
advertising efforts. During fiscal 1995, the Company's advertising expense
was approximately $3,300,000. The Company intends to increase advertising
expense to approximately $4,000,000 during fiscal 1996, depending on sales
growth. As a result of the extensive penetration in the Tri-state area of
the advertising media used by the Company, the Company believes that its
advertising efforts will be effective in reaching virtually all consumers
throughout its market. The Company also believes that advertising for its
telemarketing operations serves to market its Sleepy's store format, and
vice versa.
Warehouse Expansion. Currently, the Company's centralized distribution
facility/headquarters is being expanded by the landlord/owner from
approximately 151,000 square feet to approximately 230,000 square feet in
accordance with the Company's requirements and specifications. The Company
believes that these improvements will enable the Company to maintain a
larger inventory of products and continue to fulfill its customers' needs
as the Company increases its market share.
STORES
All of the Company's stores are located in high-visibility, high-traffic
commercial areas, including strip shopping centers, major regional shopping
areas, stand-alone sites and malls. Each store has large, readily identifiable
signage, easy access from major roads and adequate customer parking. The stores
range in size from approximately 1,400 square feet to 11,500 square feet, almost
all of which constitutes selling space. The average store consists of
approximately 3,500 square feet.
The Company's stores are open seven days per week, from 10:00 a.m. to 9:00
p.m., Monday through Friday, 10:00 a.m. to 7:00 p.m. on Saturday and 11:00 a.m.
to 6:00 p.m. on Sunday, except where prohibited by local law. The Company's
telemarketing operations are open from 6:00 a.m. to 12:00
26
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<PAGE>
midnight, Monday through Friday, 7:00 a.m. to 11:00 p.m. on Saturday and 7:00
a.m. to 10:00 p.m. on Sunday. The Company attains store operating efficiencies
through comprehensive merchandise, personnel and information controls. Changes
in store operating procedures and pricing policies are established by senior
management at the Company's headquarters and are disseminated to each store
through the Company's information systems and frequent sales manager meetings.
The Company's store level management structure consists of a full-time
salesperson, as well as additional sales associates. Store operations are
supervised by approximately seven district sales managers, each covering a
specific geographic area. The district sales managers, who generally operate in
the field and maintain continuous contact at the store level, report to the
Company's senior sales team, which generally is based at the Company's
headquarters.
The Company's sales personnel at its stores are provided extensive training
prior to assignment and receive continuing education through updates on products
and the industry, including through the Company's point-of-sale computer system.
The Company maintains an in-house training program conducted by experienced
sales personnel and management. The sales training includes extensive education
regarding the bedding market and the wide variety of merchandise offered by the
Company. The training also integrates the trainee into the Company-wide sales
strategy and operations. The Company compensates its sales associates through a
combination of salary and commissions on sales. The Company also implements a
variety of sales incentives and benefits to further encourage sales performance.
The following table provides a history of the Company's new store openings
(including acquisitions) and closings over the past five fiscal years and during
the current fiscal year, through the date of this Prospectus:
<TABLE>
<CAPTION>
1996,
1991 1992 1993 1994 1995 TO DATE
---- ---- ---- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
Stores open at beginning of period.......................... 46 56 63 66 75 87
Stores opened/acquired during period(1)..................... 11 8 9 10 15 3
Stores closed during period(1).............................. (1) (1) (6) (1) (3) (2)
---- ---- ---- ---- ---- -------
Stores open at end of period................................ 56 63 66 75 87 88
---- ---- ---- ---- ---- -------
---- ---- ---- ---- ---- -------
</TABLE>
- ------------
(1) Excludes the relocation of one, five, four, two, eight and zero stores in
fiscal 1991, 1992, 1993, 1994, 1995 and 1996, to date, respectively.
The Company's expansion strategy includes consideration of the store format
to be opened. Sleepy's stores generally will be located in a wide variety of
communities. Kleinsleep stores, which are designed and equipped to appeal to a
more upscale customer base, generally will be located in more affluent
communities. In addition to new store openings, the Company will continue its
practice of reviewing the profitability and prospects of existing stores and
redeploying capital by relocating underperforming stores or converting stores to
the Company's other store format.
In choosing specific store sites within a market area, the Company applies
standardized site selection criteria that take into account numerous factors,
including the local demographics, the desirability of available leasing
arrangements, the proximity to existing Company operations and the overall level
of retail activity. The Company believes that it maintains a competitive
advantage by utilizing its knowledge of its market areas to negotiate favorable
lease terms at many of its store locations, thereby lowering occupancy costs and
permitting more cost-effective operations. The Company also generally negotiates
for store leases with terms that provide management the flexibility to pursue
various expansion opportunities resulting from changing market conditions.
The Company expects to incur initial investment costs of approximately
$65,000 to open or relocate a store, exclusive of acquisition costs,
representing the aggregate costs of leasehold improvements, furniture, fixtures,
equipment and inventory. During the 12-month period following the date of this
Prospectus, the Company expects to incur aggregate initial investment costs of
approximately $1,000,000, excluding acquisition costs, in connection with its
15-store planned expansion. In addition, the financing of warehouse inventory
for these new stores is expected to aggregate to approximately $1,000,000. The
Company generally opens new stores within 30 days of signing leases for new
store sites,
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thereby minimizing lease costs prior to commencement of store operations. The
Company believes that its stores generally become profitable at the store level
within the first four to eight months of operation.
The Company believes that the geographic concentration of the Company's
stores provides the Company with competitive advantages that enhance the
Company's control of store operations and enable the Company to respond more
quickly to changing market conditions. District and regional sales managers are
able to visit the stores within their respective geographic areas on a regular
basis. Visits by these sales managers assist in ensuring adherence to the
Company's operating standards, in discerning current market information and in
facilitating the Company's sales training efforts.
PRODUCTS
The Company's stores offer a wide variety of bedding merchandise. Sales of
mattresses and box springs ('bed sets') currently account for approximately 84%
of the Company's revenues, although the Company's stores offer a variety of
other bedding products, including brass beds, iron beds, headboards, footboards,
high risers, day beds, bunk beds, futons, motorized beds, bed frames and related
items. The Company offers only brand name products from all of the major
mattress manufacturers in the United States, including Simmons, Sealy, Serta,
Spring Air, Stearns & Foster, Kingsdown, Aireloom, Eclipse and Eastern. Each
store displays approximately 50 varieties of bed sets. In addition to its broad
selection of merchandise, the Company offers a wide choice of bed sets and other
bedding products, through manufacturers' catalogs.
The merchandise offered at a particular store depends upon the store
format. The Company's Kleinsleep stores offer higher-priced merchandise,
including in particular Stearns & Foster and Aireloom products. The average
retail sale at the Kleinsleep stores is approximately $550. The average retail
sale at the Sleepy's stores, which offer merchandise in a wider range of prices,
is approximately $480. The average retail sale through the 1-800-SLEEPY'S
telemarketing operations, which offer standard national lines of major brand
merchandise similar to that offered by its direct telemarketing competitors, is
approximately $390. The Kleinsleep and Sleepy's stores generally sell different
products to different segments of the market, thereby reducing competition
between the Company's store formats. In addition, the Kleinsleep and Sleepy's
stores offer merchandise not typically available through the Company's
telemarketing operations, thereby reducing competition between the Company's
stores and its telemarketing operations.
The Company's policy is to offer its merchandise at competitive prices in
each of its markets. The Company monitors pricing at competing stores on a
regular basis through pricing surveys to ensure competitive positioning. The
Company's commitment to offer low prices often is supported by price guarantees.
The Company does not ordinarily engage in promotional advertising that
emphasizes 'sale' pricing, but rather emphasizes its policy of consistent
everyday low price leadership. All pricing policies are set centrally by the
Company's management.
PURCHASING
The Company purchases its merchandise directly from the manufacturers. The
purchasing department is assisted by the Company's management information
systems, which provide current inventory, price and volume information by stock
keeping unit ('SKU'), thus allowing quick response to market changes.
The Company annually purchases in excess of 1,200 SKUs of merchandise from
approximately 20 vendors. The Company believes that its volume of purchases and
long-established name and expertise in the bedding industry enable it to obtain
discounts from its principal vendors. During fiscal 1995, the Company's five
largest suppliers accounted for approximately 21.4%, 15.7%, 14.3%, 9.6% and
9.4%, respectively, of the Company's total merchandise purchased. The Company
typically does not maintain long-term purchase contracts with suppliers and
operates principally on a purchase order basis. The Company believes that its
relationship with each of its material vendors is excellent and that its vendors
are highly competitive with each other. Although the Company believes that there
is intense competition among bedding manufacturers and that bedding merchandise
is readily available from
28
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alternative suppliers, there can be no assurance that the loss of any one or
more of its suppliers would not have a material adverse effect on the Company or
that suppliers could not increase prices such as to have an adverse effect on
the Company's results of operations.
MARKETING
The Company uses a multi-media approach in its advertising programs,
employing a combination of print, radio and television advertising. The Company
advertises its store operations primarily through print advertising and its
telemarketing operations primarily through radio and television advertising. The
Company believes that its telemarketing advertising complements its store
operations by promoting the Sleepy's name in general and by improving awareness
of the Company's store locations. The Company advertises continuously throughout
the year, with an emphasis during peak retailing seasons. The Company engages in
repeat and volume advertising with most of the high circulation publications and
certain broadcasters in its markets in order to obtain greater efficiencies and
reduced costs.
The Company maintains its own advertising department for the planning,
preparation and production of virtually all print advertising and for the
coordination of advertising with the Company's merchandising policies and
programs. The Company's print advertising process is highly automated, utilizing
state-of-the-art computer assisted design systems for layout and production. The
Company believes that its automated advertising process provides the Company
with efficient turn-around, flexibility and greater control of all print
production. Advertising in all markets is developed around common themes and
promotions and is designed to maximize exposure of a clear and consistent
message regarding the Company's competitive pricing.
DISTRIBUTION
The Company's distribution capabilities, which are enhanced by the
geographic concentration of its stores, provide significant competitive
advantages and cost efficiencies. The Company's centralized distribution
facility/headquarters consists of approximately 151,000 square feet,
approximately 120,000 square feet of which consists of warehouse space. This
facility currently is being expanded to approximately 230,000 square feet,
approximately 188,000 square feet of which will consist of warehouse space, in
accordance with the Company's requirements and specifications. The Company
believes that these improvements will enable the Company to maintain a larger
inventory of products and continue to fulfill its customers' needs as the
Company increases its market share. This main facility is the Company's sole
centralized distribution center, other than certain limited warehouse space
maintained in Paramus, New Jersey and New Hyde Park, New York. The distribution
center allows the Company to purchase large quantities of merchandise, to
consolidate freight and to facilitate prompt delivery of all items to its
consumers. In order to reduce costs, the Company generally uses numerous
independently contracted delivery services in order to distribute its products
to its consumers. In addition, the Company owns and maintains a fleet of 13 vans
and trucks for inter-store deliveries of merchandise, late-scheduled deliveries
and other purposes. The Company believes that its distribution center, following
the contemplated expansion of the facility, will be sufficient to service all of
the Company's stores to be added in connection with the Company's planned
expansion of stores and telemarketing operations. See 'Business -- Properties'
and 'Certain Transactions.'
The Company's distribution operations commence with the placement of orders
for merchandise directly with the warehouse through a store's point-of-sale
computer terminal. The sale is recorded in the warehouse's mainframe computer
and is printed out in the Company's delivery department. Merchandise generally
is available at the warehouse for delivery within 24 hours. Deliveries to
customers from both store and telemarketing purchases generally are available on
a two-hour, four-hour, same-day, next-day or other basis. Except for two-hour,
four-hour and same-day deliveries, customers routinely are advised on the
morning following their order as to the general time of day at which delivery
will occur. The Company believes that its delivery system offers competitive
advantages and a high degree of customer satisfaction on a cost-effective basis.
As a result of the distribution and warehousing capabilities of its
centralized facility, the Company generally does not maintain inventory at its
stores, but rather consolidates all inventory at its main
29
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<PAGE>
facility. This practice reduces the initial investment costs required for
opening new stores and permits increased operating cost efficiencies by
consolidating all receiving, handling, inventory management and distribution
operations at a single location. It is expected that the Company's planned
expansion strategy will permit further leveraging of the centralized facility's
costs against the expected increase in sales volume from the addition of new
stores and expanded telemarketing operations, thereby improving profit margins.
MANAGEMENT INFORMATION SYSTEMS
The Company uses information technology to improve customer service, reduce
operating costs and provide the information needed to support management
decisions. The Company has implemented in all of its stores a point-of-sale
computer system utilizing an IBM RS6000 computer and customized software to link
each store to the Company's corporate headquarters and distribution center. This
point-of-sale computer system provides management with operational information
on a daily, per store basis, including inventory, price and sales information by
SKU. This information is used at the store level to respond to local sales
trends. Senior management uses this information to forecast inventory
requirements, which enables the Company to purchase for its distribution center
the appropriate merchandise and quantities needed for distribution to its stores
each week. The Company's point-of-sale computer system also provides real time
information, which reduces cashiers' errors, speeds checkout time and increases
overall store efficiency. Management believes that its point of-sale computer
system and inventory control systems enable the Company to maintain lower
inventory levels, reduce operating costs and respond more promptly to overall
market conditions.
COMPETITION
The retail bedding industry in the United States in general and in the
Company's existing geographic markets in particular is highly competitive and
highly fragmented. The Company's store competitors include a variety of national
and regional chains of retail furniture stores carrying bedding (such as Seaman
Furniture Company, Inc. and Levitz Furniture, Inc.), department store chains
with bedding departments (such as Sears Roebuck and Co. and the Macy's and
Bloomingdales stores of Federated Department Stores, Inc.), regional and local
independent furniture stores carrying bedding and other regional and local
specialty retailers of bedding. The Company's stores also compete with at least
one national and one regional specialty retail bedding chain.
The Company believes that its most significant competitor in New York is a
telemarketer with no retail stores that engages in aggressive broadcast
advertising for its toll-free telephone number. Although the Company's
traditional operations have been through the ownership and operation of retail
stores and therefore not in direct competition with this other telemarketer, the
Company views that company as its largest competitor based on sales volume. In
order to compete more effectively, in 1995 the Company implemented its own
1-800-SLEEPY'S telemarketing operations.
The Company believes that the primary elements of competition in its
industry are merchandise quality, selection, competitive pricing, prompt and
convenient delivery, customer service and store location and design. The Company
believes that it competes successfully with respect to each of these elements
and that its success to date is also attributable to its industry expertise,
long-standing relationships with vendors, experienced sales personnel,
personalized customer service, well-defined merchandising and advertising
programs, careful maintenance of inventory and advantageous arrangements with
vendors. In addition, the Company believes that its buying power gives it a
competitive advantage with respect to the price and value of its offered
merchandise. The Company also believes that its nearly 40 years of operations,
aggressive advertising and 88 stores afford it superior name recognition for
retail bedding in its markets.
30
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PROPERTIES
The following tables set forth certain information regarding the Company's
current Sleepy's and Kleinsleep stores:
SLEEPY'S STORE LOCATIONS
<TABLE>
<CAPTION>
GROSS SQUARE
LOCATION: FOOTAGE:
- ------------------------------- --------------------
<S> <C>
Bayshore, NY 4,000
Bohemia, NY 5,400
Bridgehampton, NY 2,400
Bronx, NY 2,500
Bronx, NY 1,800
Bronx, NY 5,000
Bronx, NY 2,500
Brooklyn, NY 2,800
Brooklyn, NY 2,140
Brooklyn, NY 3,686
Brooklyn, NY 2,000
Brooklyn, NY 2,850
Brooklyn, NY 1,400
Carle Place, NY 3,300
Carle Place, NY 3,147
Commack, NY 4,000
East Hanover, NJ 6,480
Edison, NJ 3,938
Farmingdale, NY 4,585
Hasbrouck Heights, NJ 3,500
Hicksville, NY 2,680
Hoboken, NJ 2,500
Huntington, NY 5,000
Lawrence, NY 4,200
Lawrence, NY 2,304
Levittown, NY 5,000
Little Falls, NJ 4,400
Lynbrook, NY 2,080
Mamaroneck, NY 3,500
Manhasset, NY 3,296
Manhattan, NY 2,700
Manhattan, NY 2,300
Manhattan, NY 1,800
Manhattan, NY 2,440
<CAPTION>
GROSS SQUARE
LOCATION: FOOTAGE:
- ------------------------------- --------------------
<S> <C>
Manhattan, NY 2,200
Massapequa, NY 5,200
Merrick, NY 3,050
Mount Kisco, NY 2,700
Nanuet, NY 9,200
New Hyde Park, NY 3,500
Oceanside, NY 3,000
Paramus, NJ 11,500
Patchogue, NY 3,000
Plainedge, NY 3,100
Queens, NY 10,000
Queens, NY 2,300
Queens, NY 3,000
Queens, NY 1,600
Queens, NY 2,000
Queens, NY 5,000
Queens, NY 2,900
Riverhead, NY 5,000
Rocky Point, NY 5,100
Secaucus, NJ 4,800
Selden, NY 3,100
Smithtown, NY 3,000
Somerville, NJ 5,000
Springfield, NJ 4,125
Staten Island, NY 4,155
Staten Island, NY 3,300
Staten Island, NY 2,559
Watchung, NJ 2,250
West Babylon, NY 5,000
West Hempstead, NY 2,630
West New York, NJ 2,400
White Plains, NY 2,872
Yonkers, NY 3,278
Yorktown Heights, NY 3,800
</TABLE>
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KLEINSLEEP STORE LOCATIONS
<TABLE>
<CAPTION>
GROSS SQUARE
LOCATION: FOOTAGE:
- ------------------------------- --------------------
<S> <C>
Brooklyn, NY 2,550
Carle Place, NY 3,200
Commack, NY 4,648
Garden City, NY 3,300
Hicksville, NY 3,360
Huntington, NY 3,500
Lake Grove, NY 3,667
Manhasset, NY 2,850
Manhattan, NY 2,500
Manhattan, NY 3,150
<CAPTION>
GROSS SQUARE
LOCATION: FOOTAGE:
- ------------------------------- --------------------
<S> <C>
Manhattan, NY 3,000
Nanuet, NY 5,800
Paramus, NJ 2,900
Ozone Park, NY 5,215
Rego Park, NY 2,700
Sayville, NY 4,850
Southampton, NY 6,000
Valley Stream, NY 3,054
Westport, CT 3,120
Yonkers, NY 5,202
</TABLE>
The table below reflects (i) in column A, the number of the Company's store
leases that will expire each calendar year if the Company does not exercise any
of its renewal options or elects to terminate at the earliest possible date
under the terms of the respective lease and (ii) in column B, the number of the
Company's store leases that will expire each calendar year if the Company
exercises all of its renewal options and does not elect to terminate early.
<TABLE>
<CAPTION>
A B
EARLIEST POSSIBLE LATEST POSSIBLE
EXPIRATION DATE EXPIRATION DATE
----------------- ---------------
<S> <C> <C>
1996................................................................. 28 6
1997................................................................. 18 4
1998................................................................. 13 1
1999................................................................. 11 3
2000................................................................. 4 3
2001 and thereafter(1)............................................... 15 72
</TABLE>
- ------------
(1) Includes one location not currently used by the Company as a store. The
Company currently is subletting 60% of the space at this location.
------------------------
Leases for certain of the Company's stores that, prior to the
Reorganization, are leased by separate corporations (the 'Lessee Corporations')
require or may require the consent of the lessors thereunder to the contribution
of the stock of the relevant Lessee Corporation to the Company in the
Reorganization. If consents of the relevant lessors are not obtained, these
corporations will not be included in the Reorganization as of the date of this
Prospectus. Instead, the Company will seek to obtain such consents and
contribution of the stock of such Lessee Corporations to the Company after the
closing. If such consents cannot be obtained, the Company will seek to develop
alternative approaches so that, to the maximum extent possible, the Company will
receive the benefits of each such lease. Although failure by the Company to
acquire the stock of certain Lessee Corporations may, in the aggregate, have a
material adverse effect on the Company, the Company believes that the
Contributed Corporations included in the Reorganization will give the Company
rights under leases sufficient for the Company to conduct its business in all
material respects as disclosed in this Prospectus.
CENTRALIZED DISTRIBUTION FACILITY/HEADQUARTERS
The Company's centralized distribution facility/headquarters located in
Bethpage, New York is leased on a triple net basis from BDC Realty Corp., a
corporation owned by David Acker and A. J. Acker, executive officers of the
Company. This facility includes the Company's sole distribution center, with the
exception of limited satellite warehouse space maintained at the Paramus, New
Jersey and New Hyde Park, New York stores. The facility presently consists of
approximately 151,000 square feet, of which approximately 120,000 square feet
consist of warehouse space. In addition, BDC Realty Corp. has agreed to expand
the facility by constructing approximately 79,000 square feet of additional
space. Approximately 188,000 square feet of the expanded facility's 230,000
square feet will consist of warehouse space. This expansion is expected to be
substantially completed by the end of the current fiscal year and in accordance
with the Company's requirements and specifications for the general
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purpose of accommodating the inventory needs for the Company's recent growth and
planned expansion.
The lease for the facility currently provides for an annual rental of $4.50
per square foot, which represents an aggregate annual rental of approximately
$680,000 before the warehouse expansion and approximately $1,035,000 after the
warehouse expansion, subject to annual adjustments for increases in the consumer
price index. The lease extends through June 2009 and includes two five-year
renewal options, as well as an option to purchase the facility and land at fair
market value on the eighth anniversary and, assuming no transfer gains taxes are
payable in connection therewith (other than upon exercise), each of the
thirteenth, eighteenth and twenty-third anniversaries of the date of the lease.
In addition, on the fifth anniversary of the date of the lease, the Company has
the right to require that BDC Realty Corp. at its option, either (i) sell the
facility and the land to the Company at their then fair market value, or (ii)
reduce the then-current annual rental under the lease to the fair market rate
thereof; provided, however, that the amount of such reduction shall not be
greater than $100,000. Thereafter, the then-current annual rental is subject to
an increase on the eighth anniversary of the date of the lease to the
then-current fair market rental rate up to the amount of the previous reduction,
if any, in the event that the Company does not exercise its purchase option on
such eighth anniversary date. The Company also has a right of first refusal to
purchase the facility in the event that BDC Realty Corp. elects to sell it. The
Company believes that the facility provides sufficient office and warehouse
space for the Company's present needs and that, following the proposed
improvements, it will satisfy the Company's requirements for the foreseeable
future. See 'Certain Transactions.'
TRADEMARKS
The Company has registered certain trademarks with the United States Patent
and Trademark Office, including its principal logo design and the names
'Sleepy's' and related design, 'Kleinsleep,' 'Sleepy's The Mattress
Professionals, We're Wide Awake to Save You Money' and related design, 'Sleepy
Bedding Centers' and related design, 'Sleepy' and related design,
'1-800-Sleepy's,' 'The Mattress Professionals' and 'Sleepy's #1 Sleep Shop In
The Country,' as well as for the trade slogans 'Have More Fun In Bed,' 'We've
Got Your Daybed,' 'We've Got Your Genuine Brass Bed,' 'We've Got Your Hi-Riser,'
'We've Got Your Brass Bed,' 'We've Got Your Electric Bed,' 'We've Got Your Bunk
Bed,' 'We've Got Your Mattress,' 'Sleepy's Crushes The Competition,' 'We've Got
Your Canopy Bed,' 'The Secret Of A Good Night's Sleep' and '1-800-Sleepy's The
Rest is Easy.' The Company's rights to such trademarks will last indefinitely so
long as the Company continues to use and police the marks and to renew filings
with the applicable government agencies. The Company is not aware of any adverse
claim concerning these marks.
GOVERNMENT REGULATION
The Company's operations are subject to state and local consumer protection
and other regulation relating to the bedding industry. These regulations vary
among the states constituting the Tri-state area. The regulations generally
impose requirements as to the proper labeling of bedding merchandise,
restrictions regarding the identification of merchandise as 'new' or otherwise,
controls as to product handling and sale and penalties for violations. The
Company believes that it is in substantial compliance with these regulations and
currently is implementing a variety of measures to promote continuing
compliance.
The Company further believes that its operations currently comply in all
material respects with applicable Federal, state and local environmental laws
and regulations. The Company does not anticipate any significant expenditures in
order to comply with such laws and regulations.
EMPLOYEES
The Company has approximately 375 full time employees, of which
approximately 125 are administrative and warehouse personnel and 250 are sales
personnel, including store managers, district managers and regional managers.
None of the Company's employees is a party to any collective bargaining
agreement. The Company has not experienced any work stoppages and considers its
employee relations to be good.
33
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LEGAL PROCEEDINGS
In April 1988, Mr. Sid Paterson filed a purported derivative lawsuit on
behalf of Hapat Bedding Corp. ('Hapat') against the Company, Harry Acker,
another individual and, as nominal defendant, Hapat in the Supreme Court of the
State of New York, County of New York. In July 1988, Mr. Paterson filed a
similar derivative lawsuit on behalf of M.J.R. Bedding Co., Inc. ('M.J.R.')
against the Company, Harry Acker, another individual and, as nominal defendant,
M.J.R. in the same Court. Each of Hapat and M.J.R. was a corporation operating a
store under the name Sleepy's and receiving various services from the Company
commencing in 1979. At the time of the commencement of the actions, the
plaintiffs sought (i) in the Hapat action, $1,000,000 in compensatory damages,
plus interest, and $2,000,000 in punitive damages, and (ii) in the M.J.R.
action, $2,560,000 in compensatory damages, plus interest, and $1,000,000 in
punitive damages, in each case for damages allegedly resulting from excessive
fees charged by and payments to the Company in connection with the Company's
provision of these services. A trial in the actions was concluded on July 26,
1996. Although no judgment has been entered in the actions, the Company has been
advised by its counsel in the actions that it has been found liable for certain
overcharges of fees, royalties and other expenses in an as yet undetermined
amount.
Harry Acker has agreed to indemnify and hold harmless the Company against
the net amount of any judgment rendered against the Company or any settlement in
the actions, in each case, in excess of the amount currently reserved by the
Company in connection with the actions, including costs and expenses incurred
after the date of this Prospectus. In light of this indemnification arrangement,
the Company does not believe that the actions will have a material adverse
effect on the financial condition of the Company. Notwithstanding reimbursement
or payment on behalf of the Company by Mr. Acker, the amount of any judgment
or settlement payable by the Company will be recorded by the Company as an
expense (with a corresponding contribution to additional paid-in capital) in the
period for which financial statements next will be prepared.
34
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS:
The executive officers, directors and nominees for director of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------- --- -----------------------------------------------------------------------
<S> <C> <C>
Harry Acker........ 65 Chairman of the Board and Chief Executive Officer
David Acker........ 39 Chief Operating Officer and Director
Howard Roeder...... 38 President
A.J. Acker......... 52 Executive Vice President and Director
Jay Borofsky....... 58 Vice President of Finance and Chief Financial Officer
Joseph Graci....... 37 Controller
Jacqueline Long.... 44 Secretary and Treasurer
</TABLE>
Harry Acker has served as Chairman of the Board and Chief Executive Officer
of the Company since its inception in 1957. Mr. Acker is the spouse of A.J.
Acker and the father of David Acker.
David Acker has served as Chief Operating Officer of the Company since June
1996 and was elected a director of the Company in June 1996. Mr. Acker served as
President of the Company since prior to 1991. Mr. Acker is the son of Harry
Acker.
Howard M. Roeder has served as the President of the Company since May 1996.
Prior to joining the Company and since prior to 1991, Mr. Roeder served as a
director and President of Ortho Mattress, Inc. ('Ortho'), a retailer and
manufacturer of mattresses and related sleep products. Ortho filed for
bankruptcy in 1991 and was reorganized in 1992.
A.J. Acker has served as the Executive Vice President of the Company since
1980 and was elected a director of the Company in June 1996. Ms. Acker oversees
showroom display and public relations for the Company. Ms. Acker is the spouse
of Harry Acker.
Jay Borofsky, a certified public accountant, joined the Company in February
1993 as Vice President of Finance and Chief Financial Officer. From 1988 until
1993, Mr. Borofsky served as Vice President and Chief Financial Officer of
Howard Systems, Inc. a systems consulting firm. Prior thereto, Mr. Borofsky
served as Vice President and Controller of HBSA Industries, Inc., a manufacturer
and builder of retail stores, and as Vice President and Controller of Hayden
Stone & Co., an investment banking company.
Joseph Graci has served as the Controller of the Company since April 1993.
Prior thereto, Mr. Graci worked as Accounting Manager for Saks Fifth Avenue, a
specialty retailer, from 1988 until 1993. From 1984 until 1988, Mr. Graci served
as Senior Auditor, Accounting Analyst and Manager of Expense Payable for
Bloomingdale's, a department store.
Jacqueline Long has served as Secretary and Treasurer of the Company for at
least the last five years and has been employed by the Company for more than 13
years.
All directors of the Company hold office until the next annual meeting of
shareholders and until their successors have been duly elected and qualified. No
committees of the Board have been established to date. Pursuant to the listing
requirements for the Nasdaq National Market, the Company is required to
establish an independent audit committee, which will oversee the auditing
procedures of the Company, receive and accept the reports of the Company's
independent certified public accountants, oversee the Company's internal systems
of accounting and management controls and make recommendations to the Board of
Directors as to the selection and appointment of the auditors for the Company.
Within 90 days following the date of this Prospectus, the Company intends to
satisfy this requirement. A failure by the Company to comply with this
requirement may result in the delisting of the Common Stock from the Nasdaq
National Market. In addition, after the effective date of this offering, the
Company's Executive Bonus Plan and 1996 Stock Option Plan will be administered
by the Compensation Committee of the Board of Directors, which will be comprised
of a majority of independent directors.
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DIRECTORS COMPENSATION
Each non-employee director will be paid an annual fee not in excess of
$12,000, a fee of $1,000 for each meeting of the Board of Directors attended and
$500 for each meeting of a Committee of the Board of Directors attended and is
reimbursed reasonable out-of-pocket expenses in connection therewith.
In addition, the Company's 1996 Stock Option Plan (the 'Stock Option Plan')
provides that each non-employee director of the Company receives formula grants
of stock options as described below. On the effective date of this offering,
each non-employee director of the Company will receive an award under the Stock
Option Plan of immediately-exercisable ten-year options to purchase 1,200 shares
of Common Stock at an exercise price per share equal to the price per share in
this offering. Following this offering, each person who served as a non-employee
director of the Company during all or a part of a fiscal year (the 'Fiscal
Year') of the Company will receive on the immediately following January 31 (the
'Award Date'), as compensation for services rendered in that Fiscal Year, an
award under the Stock Option Plan of immediately exercisable ten-year options to
purchase 1,200 shares of Common Stock (a 'Full Award') at an exercise price
equal to the fair market value of the Common Stock on the Award Date; provided
that each non-employee director who served during less than all of the Fiscal
Year will receive an award equal to one-twelfth of a Full Award for each month
or portion thereof that he or she served as a non-employee director of the
Company. As formula grants under the Stock Option Plan, the foregoing grants of
options to non-employee directors are not subject to the determinations of the
Board of Directors or the Compensation Committee.
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities expensed, awarded to, earned by or paid to of the
Company's Chief Executive Officer and other most highly compensated executive
officers of the Company whose salary and bonus exceeded $100,000 during fiscal
1995 (collectively, the 'Named Executives').
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS
- ------------------------------------------------------------------------------------ ---- -------- ------
<S> <C> <C> <C>
Harry Acker ........................................................................ 1995 $150,000 $ 0
Chairman of the Board and
Chief Executive Officer
David Acker ........................................................................ 1995 $163,000 0
Chief Operating Officer
Jay Borofsky ....................................................................... 1995 $100,000 $6,600
Vice President of Finance and
Chief Financial Officer
</TABLE>
EMPLOYMENT AGREEMENTS
Prior to the date of this Prospectus, the Company will enter into an
employment agreement with Harry Acker, pursuant to which he will be employed
full time as the Company's Chairman of the Board and Chief Executive Officer.
The agreement will expire on the second anniversary of its commencement date and
will provide for an annual base salary of $400,000. In addition to his cash
compensation, Mr. Acker receives an automobile allowance, participation in the
Executive Bonus Plan and other benefits, including those generally provided to
other executive officers of the Company. The agreement further provides for a
severance payment of one year's salary upon termination of employment under
certain circumstances. In addition, in the event of the termination of
employment (including termination by Mr. Acker for 'good reason') within two
years after a 'change in control' of the Company, Mr. Acker will (except if
termination is for cause) be entitled to receive a lump-sum payment equal in
amount to the sum of (i) Mr. Acker's base salary and average three-year bonus
through the termination date and (ii) three times the sum of such salary and
bonus. In addition, the Company must in such
36
<PAGE>
<PAGE>
circumstances continue Mr. Acker's then current employee benefits for the
remainder of the term of the employment agreement. In no case, however, may Mr.
Acker receive any payment or benefit in connection with a change in control in
excess of 2.99 times his 'base amount' (as that term is defined in Section 280G
of the Internal Revenue Code of 1986, as amended (the 'Code').
Commencing May 1, 1996, the Company entered into an employment agreement
with Howard Roeder, pursuant to which he presently is employed full time as the
Company's President. The agreement expires on the third anniversary of its
commencement date and provides for a salary of $200,000 during the first year,
$220,000 during the second year and $242,000 during the third year of the term
of the agreement. In addition to his salary, Mr. Roeder receives an automobile
allowance and participates in various benefits offered by the Company. The
agreement further provides for a severance payment of six months of his annual
salary upon termination of employment under certain circumstances, the amount of
which severance payment would be greater if such termination were to occur
during the first six months of the agreement.
The Company's employment agreement with Harry Acker contains
non-competition provisions that preclude him from competing with the Company for
a period of one year from the date of termination of his employment. The
Company's employment agreement with Howard Roeder contains a non-competition
arrangement of either one or two years following termination of employment,
depending on the circumstances of such termination. In conformity with the
Company's policy, all of its other directors and officers execute
confidentiality and nondisclosure agreements upon the commencement of employment
with the Company. The agreements generally provide that all inventions or
discoveries by the employee related to the Company's business and all
confidential information developed or made known to the employee during the term
of employment shall be the exclusive property of the Company and shall not be
disclosed to third parties without prior approval of the Company. Public policy
limitations and the difficulty of obtaining injunctive relief may impair the
Company's ability to enforce the non-competition and nondisclosure covenants
made by its employees.
EXECUTIVE BONUS PLAN
The Company has established a two-year executive officer bonus plan (the
'Executive Bonus Plan') pursuant to which the Company may pay bonuses to its
current Chief Executive Officer and Executive Vice President in an aggregate
amount equal to (i) for fiscal 1996, 15% of the excess of the Company's pre-tax
income from the date of this Prospectus to the end of fiscal 1996 (less the
amount of executive officer bonus awarded for such period) over $2,336,000 and
(ii) for fiscal 1997, 15% of the excess of the Company's annual pre-tax income
for such fiscal year (less the amount of executive officer bonus awarded for
such fiscal year) over $5,328,000. No bonus payments will be made in a given
year if the Company's annual pre-tax income does not exceed the specified
level for that year. Commencing January 1, 1998, the payment of bonuses for
future years will be at the discretion of the Compensation Committee.
1996 STOCK OPTION PLAN
In June 1996, the Board of Directors adopted and the sole shareholder of
the Company at that time approved the Stock Option Plan. The Stock Option Plan
provides for the grant, at the discretion of the Board of Directors, of (i)
options that are intended to qualify as incentive stock options ('Incentive
Stock Options') within the meaning of Section 422A of the Code to certain
employees and directors, and (ii) options not intended to so qualify
('Nonqualified Stock Options') to employees, directors and consultants. The
total number of shares of Common Stock for which options may be granted under
the Stock Option Plan is 400,000 shares. Other than outstanding options to
purchase Common Stock that have been granted to A.J. Acker, Executive Vice
President and a Director of the Company, no options may be granted under the
Stock Option Plan to Harry Acker or A.J. Acker.
The Stock Option Plan is administered by the Compensation Committee of the
Board of Directors, which determines the terms of options exercised, including
the exercise price, the number of shares subject to the option and the terms and
conditions of exercise. No option granted under the Stock Option Plan is
transferable by the optionee other than by will or the laws of descent and
distribution and each option is exercisable during the lifetime of the optionee
only by such optionee.
37
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<PAGE>
The Stock Option Plan provides that each non-employee director of the
Company receives formula grants of stock options as described below. Prior to
this Offering, each non-employee director of the Company will receive an award
under the Stock Option Plan of ten-year options to purchase 1,200 shares of
Common Stock at an exercise price per share equal to the price per share in
this offering, exercisable upon the effective date of this offering. Following
this offering, each person who served as a non-employee director of the Company
during all or a part of a fiscal year (the 'Fiscal Year') of the Company will
receive on the immediately following January 31 (the 'Award Date'), as
compensation for services rendered in that Fiscal Year, an award under the
Stock Option Plan of immediately exercisable ten-year options to purchase 1,200
shares of Common Stock (a 'Full Award') at an exercise price equal to the
fair market value of the Common Stock on the Award Date; provided that each
non-employee director who served during less than all of the Fiscal Year will
receive an award equal to one-twelfth of a Full Award for each month or portion
thereof that he or she served as a non-employee director of the Company. As
formula grants under the Stock Option Plan, the foregoing grants of options to
non-employee directors are not subject to the determinations of the Board of
Directors or the Compensation Committee.
The exercise price of all stock options under the Stock Option Plan must be
at least equal to the fair market value of such shares on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting rights of the Company's outstanding capital stock, the exercise price of
any Incentive Stock Option must be not less than 110% of the fair market value
on the date of grant. The term of each option granted pursuant to the Stock
Option Plan may be established by the board, or a committee of the board, in its
sole discretion; provided, however, that the maximum term of each Incentive
Stock Option granted pursuant to the Stock Option Plan is ten years. With
respect to any Incentive Stock Option granted to a participant who owns stock
possessing more than 10% of the total combined voting power of all classes of
the company's outstanding capital stock, the maximum term is five years. Options
shall become exercisable at such times and in such installments as the
Compensation Committee shall provide in the terms of each individual option.
On or prior to the date of this Prospectus, options to purchase 234,400
shares of Common Stock, each having an exercise price per share equal to the
price per share in this offering, will have been granted under the Stock Option
Plan, none of which options has been exercised.
401(K) PLAN
The Company has a deferred compensation plan (the '401(k) Plan') under
Section 401(k) of the Code for all employees who have completed at least 90 days
of service and attained the age of 21. A participant is normally credited with a
year of service for each plan year in which he or she completes at least 1,500
hours of service to the Company. A plan year begins on January 1 and ends
December 31. Each highly compensated participant (as defined in Section 414(q)
of the Code) in the 401(k) Plan may choose to make an elective deferral
contribution (as defined in the 401(k) Plan) by reducing his or her annual
compensation by a minimum of 1% up to a maximum of 15%, up to a current maximum
of $9,500 (as increased each year under the Internal Revenue Service
guidelines). Each non-highly compensated participant in the 401(k) Plan may
elect to make an elective deferral contribution by reducing his or her annual
compensation (as defined in the 401(k) Plan) by a minimum of 1% up to a maximum
of 15%, up to a current maximum of $9,500 (as increased each year under the
Internal Revenue Service guidelines).
A participant is 100% vested in the plan accounts at all times. Each
participant's account receives its pro rata share of the earnings and losses of
the investment funds in which the account was invested.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Board of Directors currently does not, and during 1995 did
not, have a Compensation Committee. Prior to the Reorganization, Harry Acker as
principal shareholder of the Company, determined executive officer compensation,
including his compensation and decisions concerning the transactions described
in 'Certain Transactions' below.
38
<PAGE>
<PAGE>
CERTAIN TRANSACTIONS
During 1996, the Company changed its name from Bedding Discount Center Inc.
to Sleepy's, Inc. Prior to the consummation of this offering, all of the issued
and outstanding shares of capital stock of each of KS Acquisition Corp., a New
York corporation ('KSAC'), Sleepy's International, Inc., a Florida corporation
('SII'), and 1-800-Sleepy's, Inc., a New York corporation ('1-800'), will be
contributed to the Company by Harry Acker and three trusts formed by Mr. Acker
for the benefit of his children, of each of which trusts Mr. Acker is the sole
trustee. Mr. Acker and the trusts collectively own all of such shares to be
contributed. In connection with the contribution of the shares of capital stock
of KSAC, the Company will assume two loans in the aggregate amount of
approximately $540,000 payable by Mr. Acker to vendors. In addition, prior to
the effectiveness of this offering, all of the issued and outstanding shares of
capital stock of certain corporations, which collectively are the lessees of the
sites of all of the Company's stores, will be contributed to the Company by Mr.
Acker and the trusts, which collectively own all such shares to be contributed.
Prior to the consummation of this offering, the Company, including each of
the Contributed Corporations, has been taxed as an S corporation under the
Internal Revenue Code of 1986, as amended. As a result, the Company was not
subject to federal and certain state income tax purposes during that period. Mr.
Acker, as the principal shareholder of the Company, has had and will continue to
have obligations for federal and state income taxes on the Company's taxable
income through the date of this Prospectus. The S corporation election of the
Company, including the Contributed Corporations, will terminate on the date of
this Prospectus. In connection with the foregoing, on the closing date of this
offering Mr. Acker will receive distributions with respect to the Company's
taxable income through the date of this Prospectus in the aggregate amount of
approximately $1,900,000 (consisting of approximately $3,600,000 of retained
earnings net of approximately $1,700,000 of advances). The amount of the
distribution to Mr. Acker on the closing date of this offering will be
calculated based on estimates of the Company's S corporation earnings, advances
against such earnings and amounts owed by Mr. Acker to the Company as of June
30, 1996. Mr. Acker will be liable to the Company for distributions made on such
date, if any, that are determined after the closing to exceed the Company's
actual S corporation earnings net of advances against such earnings and amounts
owed by Mr. Acker to the Company. To secure performance of this obligation, on
the closing date of this offering, the Company will deposit 5% of Mr. Acker's
distribution in escrow pursuant to the Reorganization Escrow Agreement. The
amount in this escrow fund will be held by the escrow agent until the Company
prepares a balance sheet reflecting such amounts as of the date of this
Prospectus and receives a report on such amounts by a firm of independent
certified accountants, which balance sheet and report are required to be
available within 60 days after the date of this Prospectus.
The Company's centralized distribution facility/headquarters facility
located in Bethpage, New York is leased on a triple net basis from BDC Realty
Corp., a corporation owned by David Acker and A.J. Acker, directors and
executive officers of the Company, and the son and spouse, respectively, of the
principal shareholder of the Company. This facility includes the Company's sole
distribution center, with the exception of limited satellite warehouse space
maintained at two of the Company's stores. The facility presently consists of
approximately 151,000 square feet, of which approximately 120,000 square feet
consist of warehouse space. In addition, BDC Realty Corp. has agreed to expand
the facility by constructing approximately 79,000 square feet of additional
warehouse space. BDC Realty Corp. will finance this construction with funds
borrowed from an institutional lender (from which a binding commitment for such
funding shall be obtained prior to the date of this Prospectus) and from Harry
Acker. This expansion would be in accordance with the Company's requirements and
specifications for the general purpose of accommodating the inventory needs for
the Company's recent growth and proposed expansion. The Company has advanced and
will continue to advance funds on behalf of BDC Realty Corp. in connection with
this construction, which advances are and will continue to be evidenced by
demand promissory notes of BDC Realty Corp. to the Company bearing interest at
8% per annum. As of June 30, 1996, approximately $320,000 had been so advanced.
In fiscal 1995, the Company paid approximately $594,000 in rent under its
lease arrangements with BDC Realty Corp. The lease for the facility currently
provides for an annual rental of $4.50 per square foot, which represents
aggregate annual rental of approximately $680,000 before this warehouse
39
<PAGE>
<PAGE>
expansion and approximately $1,035,000 after this warehouse expansion, subject
to annual adjustments for increases in the consumer price index. The lease
extends through June 2009 and includes two five-year renewal options, as well as
options to purchase the facility and land at fair market value on the eighth
anniversary and, assuming no transfer gains taxes are payable in connection
therewith (other than upon exercise), each of the thirteenth, eighteenth and
twenty-third anniversaries of the date of the lease. In addition, on the fifth
anniversary of the date of the lease, the Company has the right to require that
BDC Realty Corp., at its option, either (i) sell the facility and the land to
the Company at their then fair market value, or (ii) reduce the then-current
annual rental under the lease to the fair market rate thereof; provided that the
amount of such reduction shall not be greater than $100,000. Thereafter, the
then-current annual rental is subject to an increase on the eighth anniversary
of the date of the lease to the then-current fair market rental rate up to the
amount of the previous reduction in the event that the Company does not exercise
its purchase option on such eighth anniversary date. The Company also has a
right of first refusal to purchase the facility in the event that BDC Realty
Corp. elects to sell it. The Company believes that the rental rate for the
facility is the fair market rate, based on advice of an independent real estate
professional. In addition, the Company believes that the aggregate terms of the
lease are at least as favorable to the Company as could have been obtained from
unrelated third parties at a comparable facility on a triple net basis.
'Business -- Properties.'
In 1995, a corporation controlled by the Company's principal shareholder
and his wife, each a director and executive officer of the Company, advanced a
total of $1,000,000 to the Company for working capital purposes. These loans are
evidenced by notes bearing interest at 12% per annum. From the net proceeds of
this offering, the Company intends to repay approximately $1,000,000 of
outstanding indebtedness to this corporation and approximately $750,000 of
outstanding indebtedness to a bank (the 'Bank Indebtedness'). In each case, the
indebtedness was incurred in order to provide working capital for the Company.
The Bank Indebtedness is personally guaranteed by Mr. Acker. See 'Use of
Proceeds.'
In April 1988, Mr. Sid Paterson filed a purported derivative lawsuit on
behalf of Hapat Bedding Corp. ('Hapat') against the Company, Harry Acker,
another individual and, as nominal defendant, Hapat in the Supreme Court of the
State of New York, County of New York. In July 1988, Mr. Paterson filed a
similar derivative lawsuit on behalf of M.J.R. Bedding Co., Inc. ('M.J.R.')
against the Company, Harry Acker, another individual and, as nominal defendant,
M.J.R. in the same Court. Each of Hapat and M.J.R. was a corporation operating a
store under the name Sleepy's and receiving various services from the Company
commencing in 1979. At the time of the commencement of the actions, the
plaintiffs sought (i) in the Hapat action, $1,000,000 in compensatory damages,
plus interest, and $2,000,000 in punitive damages, and (ii) in the M.J.R.
action, $2,560,000 in compensatory damages, plus interest, and $1,000,000 in
punitive damages, in each case for damages allegedly resulting from excessive
fees charged by and payments to the Company in connection with the Company's
provision of these services. A trial in the actions was concluded on July 26,
1996. Although no judgment has been entered in the actions, the Company has been
advised by its counsel in the actions that it has been found liable for certain
overcharges of fees, royalties and other expenses in an as yet undetermined
amount.
Harry Acker has agreed to indemnify and hold harmless the Company against
the net amount of any judgment rendered against the Company or any settlement in
the actions, in each case, in excess of the amount currently reserved by the
Company in connection with the actions, including costs and expenses incurred
after the date of this Prospectus. In light of this indemnification arrangement,
the Company does not believe that the actions will have a material adverse
effect on the financial condition of the Company. Notwithstanding reimbursement
or payment on behalf of the Company by Mr. Acker, the amount of any judgment
or settlement payable by the Company will be recorded by the Company as an
expense (with a corresponding contribution to additional paid-in capital) in the
period for which financial statements next will be prepared.
40
<PAGE>
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of June 7, 1996, as adjusted to
reflect the Reorganization and the sale of the shares of Common Stock offered
hereby, by (i) each person who is known to the Company to own beneficially more
than 5% of the outstanding shares of Common Stock, (ii) each of the Company's
directors and Named Executives, and (iii) all current directors and executive
officers of the Company as a group. Unless otherwise indicated, each person
named below has sole voting and investment power with respect to all shares of
Common Stock shown as beneficially owned by such person or entity, subject to
community property laws where applicable, and the information set forth in the
footnotes to the table below. The business address of each person named below,
unless otherwise noted, is 175 Central Avenue South, Bethpage, NY 11714.
<TABLE>
<CAPTION>
PERCENT OF SHARES
BENEFICIALLY OWNED
--------------------
NUMBER OF SHARES PRIOR TO AFTER
NAME BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------------------- --------------------- -------- --------
<S> <C> <C> <C>
Harry Acker............................................................ 2,903,000(2) 100.0% 67.9%
David Acker............................................................ 8,750(3) * *
Harry Acker Grantor Retained Annuity Trust for the Benefit of Harry
Acker and David Acker................................................ 203,000 7.0% 4.8%
A.J. Acker............................................................. 2,903,000(4) 100.0% 67.9%
Jay Borofsky........................................................... 6,250(3) * *
All directors and officers as a group
(8 persons).......................................................... 2,911,750 100.0% 67.9%
</TABLE>
- ------------
(1) The securities 'beneficially owned' by a person are determined in accordance
with the definition of 'beneficial ownership' set forth in the regulations
of the Commission and, accordingly, may include securities owned by or for,
among others, the spouse, children or certain other relative of such person
as well as other securities as to which the person has or shares voting of
investment power or has the right to acquire within 60 days after March 30,
1996. The same shares may be beneficially owned by more than one person.
Beneficial ownership may be disclaimed as to certain of the securities.
(2) Includes (i) 203,000 shares owned of record by the Harry Acker Grantor
Retained Trust for the Benefit of Harry Acker and David Acker, (ii) 87,000
shares owned of record by the Harry Acker Grantor Retained Trust for the
Benefit of Harry Acker and Robert Acker, and (iii) 58,000 shares owned of
record by the Harry Acker Grantor Retained Trust for the Benefit of Harry
Acker and Stuart Gregg, as to all of which shares Harry Acker may be deemed
the beneficial owner by virtue of his position as trustee over each trust.
Also includes 3,000 shares deemed to be beneficially owned by his spouse,
A.J. Acker, as to which shares Harry Acker disclaims beneficial ownership.
(3) Consists of shares issuable pursuant to currently-exercisable stock options.
(4) Includes 3,000 shares issuable pursuant to currently-exercisable stock
options. Also includes 2,900,000 shares deemed to be beneficially owned by
her spouse, Harry Acker, as to which shares Ms. Acker disclaims beneficial
ownership.
* Less than 1%.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of the Company's capital stock is
qualified in its entirety by reference to the Company's Certificate of
Incorporation.
COMMON STOCK
The Company is authorized to issue up to 10,000,000 shares of Common Stock,
par value $.01 per share.
Holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of shareholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of preferred stock which may from time to time be outstanding, if any,
holders of Common Stock are entitled to receive ratably dividends when, as, and
if declared by the Board of Directors out of funds legally available therefore
and, upon the liquidation, dissolution or winding up of the Company, are
entitled to share ratably in all assets remaining after payment of liabilities
and payment of accrued dividends and liquidation preferences on the preferred
stock, if any. Holders of Common Stock have no preemptive rights and have no
rights to convert their Common Stock into any other securities. The outstanding
Common Stock is, and the Common Stock to be outstanding upon completion of this
Offering will be, duly authorized and validly issued, fully paid and
nonassessable.
Subsequent to the completion of this Offering, Mr. Harry Acker will own
approximately 67.9% of the then-outstanding shares of Common Stock (64.7% if the
Underwriter's over-allotment options are exercised in full) and will be able to
elect all of the members of the Board of Directors and exercise substantial
influence over the outcome of any issues which may be subject to a vote of the
Company's shareholders. See 'Risk Factors -- Control by Principal Shareholder.'
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of preferred
stock, par value $.01 per share. The preferred stock may be issued in one or
more series, the terms of which may be determined at the time of issuance by the
Board of Directors, without further action by shareholders, and may include
voting rights (including the right to vote as a series on particular matters),
preferences as to dividends and liquidation, conversion and redemption rights
and sinking fund provisions.
No shares of preferred stock will be outstanding as of the closing of this
offering, and the Company has no present plans for the issuance thereof. The
issuance of any such preferred stock could adversely affect the rights of the
holders of Common Stock and therefore, reduce the value of the Common Stock. The
ability of the Board of Directors to issue preferred stock could discourage,
delay or prevent a change in control to the Company. See 'Risk
Factors -- Potential Anti-Takeover Effects of Preferred Stock.'
NEW YORK ANTI-TAKEOVER LAW
The Company, as a New York corporation, is subject to the provisions of
Section 912 of the New York Business Corporation Law and will continue to be so
subject if and for so long as it has a class of securities registered under
Section 12 of the Exchange Act, either (i) it has its principal executive office
and significant business operations or (ii) at least 25% of its total employees
are employed primarily within New York or at least 250 employees are so employed
and at least 10% of the Company's voting stock is owned beneficially by
residents of the State of New York. Section 912 provides, with certain
exceptions, that a New York corporation may not engage in a 'business
combination' (e.g, merger, consolidation, recapitalization or disposition of
stock) with any 'interested shareholder' for a period of five years from the
date that such person first became an interested shareholder unless: (a) the
transaction resulting in a person becoming an interested shareholder, or the
business combination, was approved by the Board of Directors of such corporation
prior to that person becoming an interested shareholder; (b) the business
combination is approved by the holders of a majority of the outstanding voting
stock not beneficially owned by such interested shareholder, or (c) the business
combination
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meets certain valuation requirements for the stock of such corporation. An
'interested shareholder' is defined as any person that (a) is the beneficial
owner of 20% or more of the then outstanding voting stock. These provisions are
likely to impose greater restrictions on an unaffiliated shareholder than on the
existing shareholder who will continue to own a majority of the Company's
outstanding Common Stock after this offering.
TRANSFER AGENT
The Company has appointed Continental Stock Transfer & Trust Company, New
York, New York as Transfer Agent for the Common Stock.
LISTING ON NASDAQ
The Common Stock has been approved for quotation on the Nasdaq National
Market, subject to official notice of issuance, under the symbol 'SLPY'. No
assurance can be given that an active trading market for the Common Stock will
develop, or at what price the Common Stock will trade.
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
4,275,000 shares of Common Stock. Of these shares, the 1,375,000 shares sold in
this offering will be freely transferable by persons other than 'affiliates' of
the Company without restriction or further registration under the Act. The
remaining 2,900,000 shares of Common Stock outstanding are 'restricted
securities' ('Restricted Shares') within the meaning of Rule 144 under the Act
and may not be sold in the absence of registration under the Act unless an
exemption from registration is available, including an exemption afforded by
Rule 144.
The Company's current shareholders and all of its directors and executive
officers have entered into 'lock-up' agreements with the Representative of the
Underwriters, or are otherwise subject to restrictions provides that, subject to
certain exceptions, they will not offer, sell, contract to sell, pledge, grant
any option for the sale of or otherwise dispose of any shares of Common Stock
for a period of 180 days after the date of this Prospectus without the prior
written consent of the Representative (as defined below). In addition, the
Company may grant stock options to purchase in the aggregate up to 400,000
shares of Common Stock pursuant to the Stock Option Plan; on or prior to the
date of this Prospectus, the Company will have granted options to purchase
232,000 shares of Common Stock under the Stock Option Plan at the initial public
offering price.
Rule 144, as currently in effect, provides that an affiliate of the Company
or a person (or persons whose sales are aggregated) who has beneficially owned
Restricted Shares for at least two years but less than three years is entitled
to sell commencing 90 days after the date of this Prospectus, within any
three-month period a number of shares that does not exceed the greater of one
percent of the then outstanding shares of Common Stock (42,750 shares
immediately after this offering) or the average weekly trading volume in the
Common Stock during the four calendar weeks preceding such sale. Sales under
Rule 144 also are subject to certain manner-of-sale provisions, notice
requirements and the availability of current public information about the
Company. However, a person who is not an 'affiliate' of the Company at any time
during the three months preceding a sale, and who has beneficially owned
Restricted Shares for at least three years, is entitled to sell such shares
under Rule 144(k) without regard to the limitations described above.
Since there has been no public market for shares of the Common Stock, the
Company is unable to predict the effect that sales made pursuant to Rules 144 or
otherwise may have on the prevailing market price at such times for shares of
the Common Stock. Nevertheless, sales of a substantial amount of the Common
Stock in the public market, or the perception that such sales could occur, could
adversely affect market prices. See 'Risk Factors -- Shares Eligible for Future
Sale.'
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UNDERWRITING
The Underwriters named below, for whom Gerard Klauer Mattison & Co., LLC is
acting as the representative (the 'Representative'), have severally agreed,
subject to the terms and conditions of an underwriting agreement (the
'Underwriting Agreement'), to purchase the respective numbers of shares of
Common Stock set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- --------------------------------------------------------------------------------- ---------
<S> <C>
Gerard Klauer Mattison & Co., LLC................................................
---------
Total....................................................................... 1,375,000
---------
---------
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to approval of certain legal matters by counsel and
to certain other conditions. The Underwriters are obligated to take and pay for
all the shares of Common Stock if any are taken.
The Representative has advised the Company that the Underwriters propose to
offer the shares of Common Stock offered hereby initially at the public offering
price per share set forth on the cover page of this Prospectus and in part,
through the Representative, to certain other dealers at such prices less a
concession not in excess of $ per share; that the Underwriters may
allow, and such dealers may reallow, a discount not in excess of $ per
share on sales to other dealers; and that after the initial public offering, the
public offering price, concession and the discount selling terms may be changed
by the Representative. The Underwriters have informed the Company that they do
not intend to confirm sales to any accounts over which they exercise
discretionary authority.
The Company has granted the Underwriters an option, exercisable for 45 days
from the date of this Prospectus, to purchase up to an additional 206,250 shares
of Common Stock, at the initial public offering price less underwriting
discounts. The Underwriters may exercise such option only for the purpose of
covering over-allotments, if any, incurred in connection with the sale of Common
Stock offered hereby. To the extent that the Underwriters exercise such option,
each Underwriter will become obligated, subject to certain conditions, to
purchase the same percentage of such additional shares as the number of other
shares of Common Stock to be purchased by that Underwriter shown on the
foregoing table bears to the total number of shares initially offered hereby.
The Company has agreed to issue the Representative of the Underwriters
warrants to purchase from the Company up to 137,500 shares of Common Stock at an
exercise price per share equal to 120% of the offering price (the 'Warrants').
The Warrants are exercisable for a period of four years beginning one year after
the date of this offering. The Warrants may not be transferred, sold, assigned
or hypothecated for a period of one year commencing from the date of this
offering, except that they may be transferred to successors of the holder, and
may be assigned in whole or in part to any person who is an officer or partner
of the holder or to any of the several Underwriters or members of the selling
group and/or the officers or partners thereof during such period, subject to
compliance with applicable securities laws, and contain provisions for
appropriate adjustments in the event of stock splits, stock dividends,
combinations, reorganizations, recapitalizations and other customary anti-
dilution provisions. The holders of the Warrants have the right, under certain
conditions, to participate
45
<PAGE>
<PAGE>
in future registrations of Common Stock for a period of seven years after the
date of this offering. In addition, the holders of the Warrants have the right,
under certain circumstances, to require the Company to register its Common Stock
for public offering, (i) at the Company's expense, once during the period of
five years after the date of this offering, and (ii) at the expense of the
requesting Warrant holders, once during the period of four years commencing one
year after the date of this offering.
The Company has agreed to grant the Representative the right of first
refusal to act as exclusive underwriter in connection with any future equity or
debt financing, any merger or acquisition activity or any other investment
banking services being considered by the Company (to the extent an investment
banker or other financial advisor or placement agent is retained by the Company)
for a period of two years after the date of this offering.
The Company and substantially all of its officers and directors and
shareholders have agreed with the Underwriters, subject to limited exceptions,
not to offer, sell, pledge, contract to sell, grant any other option to purchase
or otherwise dispose of any shares of Common Stock or any securities convertible
into or exchangeable or exercisable for, or warrants, rights or options to
acquire shares of Common Stock, for a period of 180 days without the prior
written consent of the Representative.
The Company has agreed to pay the Representative a non-accountable expense
allowance of one-half of one percent of the gross proceeds of the offering. The
Company also has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Act, or to contribute to payments
that may be required to make in respect thereof.
Prior to this offering, there has been no public trading market for the
Common Stock of the Company. The Common Stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance, under the
symbol 'SLPY.'
The initial public offering price will be determined through negotiations
between the Company and the Representative. Among the factors to be considered
in such negotiations are the Company's results of operations, the Company's
current financial condition, its future prospects, earnings potential, the state
of the markets for its merchandise, the experience of its management, the
economics of the industry in general, the general condition of the equity
securities market, the demand for similar securities of companies considered
comparable to the Company and other relevant factors. There can be no assurance
that an active trading market will develop for the Common Stock or that the
Common Stock will trade in the public market subsequent to this offering at or
above the initial offering price.
LEGAL MATTERS
The validity of the Common Stock offered hereby has been passed upon for
the Company by Parker Chapin Flattau & Klimpl, LLP, New York, New York. Certain
legal matters will be passed upon for the Underwriters by Paul, Weiss, Rifkind,
Wharton & Garrison, New York, New York.
EXPERTS
The financial statements included in this Prospectus have been audited by
BDO Seidman, LLP, independent certified public accountants, to the extent and
for the periods set forth in their report appearing elsewhere herein, and are
included in reliance upon such report given upon the authority of said firm as
experts in auditing and accounting.
46
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 under the Act, including amendments
thereto, relating to the Common Stock offered hereby (the 'Registration
Statement') has been filed by the Company with the Securities and Exchange
Commission (the 'Commission'), Washington D.C. This Prospectus does not contain
all of the information set forth in the Registration Statement and the exhibits
and schedules thereto. For further information with respect to the Company and
the Common Stock offered hereby, reference is made to such Registration
Statement and exhibits and schedules filed as a part thereof. A copy of the
Registration Statement may be inspected by anyone without charge at the Public
Reference Section of the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the regional offices of the
Commission located at 7 World Trade Center, Suite 1300, New York, New York 10048
and Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of all or any portion of the Registration Statement may
be obtained from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Washington, D.C. 20549, upon payment of prescribed fees. The
Registration Statement was filed through the Commission's Electronic Data
Gathering, Analysis and Retrieval system and is publicly available through the
Commission's Web site (http://www.sec.gov).
Statements made in this Prospectus as to the contents of any contract,
agreement or other document referred to are not necessarily complete. With
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved, and each such statement shall be
deemed qualified in its entirety by such reference.
The Company intends to furnish to its shareholders annual reports
containing audited consolidated financial statements certified by independent
public accountants and quarterly reports containing unaudited consolidated
financial data for the first three quarters of each fiscal year following the
end of each such quarter.
47
<PAGE>
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Certified Public Accountants...................................................... F-2
Consolidated balance sheets as of December 31, 1994, December 30, 1995 and March 30, 1996 (unaudited)... F-3
Consolidated statements of income for the years ended January 1, 1994, December 31, 1994 and December
30, 1995 and for the three months ended April 1, 1995 (unaudited) and March 30, 1996 (unaudited)...... F-4
Consolidated statements of stockholder's equity for the years ended January 1, 1994, December 31, 1994
and December 30, 1995 and for the three months ended March 30, 1996 (unaudited)....................... F-5
Consolidated statements of cash flows for the years ended January 1, 1994, December 31, 1994 and
December 30, 1995 and for the three months ended April 1, 1995 (unaudited) and March 30, 1996
(unaudited)........................................................................................... F-6
Notes to consolidated financial statements.............................................................. F-7
</TABLE>
F-1
<PAGE>
<PAGE>
[BDO Seidman, LLP Logo]
[THE FOLLOWING IS THE FORM OF OPINION WE WILL BE IN A POSITION TO ISSUE UPON THE
COMPLETION OF THE EVENTS DESCRIBED IN NOTE 1(a).]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Sleepy's, Inc.
We have audited the accompanying consolidated balance sheets of Sleepy's, Inc.
and subsidiaries as of December 31, 1994 and December 30, 1995, and the related
consolidated statements of income, stockholder's equity and cash flows for each
of the three years in the period ended December 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Sleepy's, Inc. and
subsidiaries as of December 31, 1994 and December 30, 1995 and the results of
their operations and their cash flows for each of the three years in the period
ended December 30, 1995 in conformity with generally accepted accounting
principles.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Mitchel Field, New York
March 7, 1996, except for Notes 1(a), 1(h), 3, 7, 10(c)
and 11 which are dated , 1996
F-2
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 30, MARCH 30, MARCH 30,
1994 1995 1996 1996
------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS (NOTE 6)
Current:
Cash and cash equivalents............................. $ 393 $ 250 $ 255 $ 255
Marketable securities................................. -- 166 656 656
Accounts receivable................................... 400 760 413 413
Merchandise inventories............................... 2,567 3,629 4,527 4,527
Prepaid expenses and other current assets............. 910 959 922 922
Advances to affiliate................................. 662 -- -- --
------------ ------------ ----------- -----------
Total current assets.......................... 4,932 5,764 6,773 6,773
Property and equipment, at cost, less accumulated
depreciation and
amortization (Note 2).............................. 3,995 5,419 5,591 5,591
Property under capital leases less accumulated
amortization (Notes 3 and 7)....................... 1,990 1,788 1,739 5,077
Note and loans receivable -- related parties (Note 4)... 1,412 1,243 1,783 --
Intangible assets, net (Note 5)......................... 860 817 856 856
Deposits with lessors and others........................ 603 584 536 536
Deferred tax asset (Note 8)............................. -- -- -- 428
------------ ------------ ----------- -----------
$ 13,792 $ 15,615 $17,278 $19,261
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY
Current:
Accounts payable...................................... $ 5,794 $ 5,520 $ 6,151 $ 6,151
Bank credit line (Note 6)............................. 975 -- 800 800
Customer deposits payable............................. 299 638 833 833
Current maturities of obligations under capital lease
(Note 7)......................................... 238 217 193 83
Accrued expenses and taxes payable.................... 688 423 776 776
Loans from vendors (Note 1(a))........................ -- -- -- 540
Loan from affiliate (Note 4).......................... -- -- -- 1,000
S distributions payable (Note 1(a))................... -- -- -- 1,863
------------ ------------ ----------- -----------
Total current liabilities..................... 7,994 6,798 8,753 12,046
Obligations under capital lease (Note 7)................ 1,941 1,724 1,686 5,747
Bank credit line (Note 6)............................... -- 370 -- --
Deferred rent........................................... 1,129 1,299 1,346 1,346
Loan from affiliate (Note 4)............................ -- 1,000 1,000 --
------------ ------------ ----------- -----------
Total liabilities............................. 11,064 11,191 12,785 19,139
------------ ------------ ----------- -----------
Commitments and Contingencies (Notes 4, 7, 10 and 11)...
Stockholders' equity (Notes 1(a) and 11):
Preferred stock, $.01 par value, 5,000,000 shares
authorized; no shares outstanding................ -- -- -- --
Common stock -- $0.01 par value, 10,000,000 shares
authorized; 2,900,000 issued and outstanding..... 29 29 29 29
Additional paid-in capital............................ 1,667 1,817 1,855 93
Retained earnings..................................... 1,032 2,578 2,609 --
------------ ------------ ----------- -----------
Total stockholders' equity.................... 2,728 4,424 4,493 122
------------ ------------ ----------- -----------
$ 13,792 $ 15,615 $17,278 $19,261
------------ ------------ ----------- -----------
------------ ------------ ----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
------------------------------------------- --------------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
----------- ------------ ------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Net sales................................. $41,402 $ 49,644 $ 59,763 $13,115 $16,045
Cost of sales, buying and
occupancy............................... 21,028 26,418 30,694 6,846 8,125
----------- ------------ ------------ ----------- -----------
Gross profit.................... 20,374 23,226 29,069 6,269 7,920
----------- ------------ ------------ ----------- -----------
Operating expenses:
Store expenses....................... 14,332 16,512 19,298 4,793 5,168
General and administrative expenses
(Note 4)........................... 4,825 5,583 5,967 1,451 2,039
----------- ------------ ------------ ----------- -----------
Total operating expenses........ 19,157 22,095 25,265 6,244 7,207
----------- ------------ ------------ ----------- -----------
Income from operations............... 1,217 1,131 3,804 25 713
----------- ------------ ------------ ----------- -----------
Other income (expense):
Interest expense..................... (11) (145) (323) (71) (94)
Loss on disposal of fixed assets
(Note 4)........................... -- (338) (11) -- (25)
Gain on sale of investment
securities......................... -- -- 57 -- --
Miscellaneous income (expenses)
(Note 1(f))........................ 304 28 42 -- (175)
----------- ------------ ------------ ----------- -----------
Total other income (expense),
net........................... 293 (455) (235) (71) (294)
----------- ------------ ------------ ----------- -----------
Net income........................... $ 1,510 $ 676 $ 3,569 $ (46) $ 419
----------- ------------ ------------ ----------- -----------
----------- ------------ ------------ ----------- -----------
Pro forma (Note 1(h)):
Historical net income................ $3,569 $419
Pro forma adjustment to reflect
increase in officers'
compensation....................... (250) (62)
------------ -----------
3,319 357
Pro forma provision for income taxes
(Note 8)........................... 1,328 143
------------ -----------
Pro forma net income................. $1,991 $214
------------ -----------
------------ -----------
Pro forma net income per share (Note
1(j)).............................. $0.69 $0.07
------------ -----------
Weighted average common shares and
share equivalents outstanding (Note
1(j)).............................. 2,900 2,900
------------ -----------
------------ -----------
Supplemental net income per share
(Note (1(j))....................... $0.61 $0.07
------------ -----------
------------ -----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
$0.01 PAR VALUE
------------------- ADDITIONAL TOTAL
NUMBER PAID-IN RETAINED STOCKHOLDER'S
OF SHARES AMOUNT CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance, January 3, 1993.............................. 2,900 $ 29 $ -- $ 475 $ 504
Capital contribution............................. -- -- 1,400 -- 1,400
S Corporation distributions...................... -- -- -- (1,005) (1,005)
Contribution of stockholder salary (Note 1(t))... -- -- 124 -- 124
Net income....................................... -- -- -- 1,510 1,510
--------- ------ ---------- -------- -------------
Balance, January 1, 1994.............................. 2,900 29 1,524 980 2,533
S Corporation distributions...................... -- -- -- (624) (624)
Contribution of stockholder salary (Note 1(t))... -- -- 143 143
Net income....................................... -- -- -- 676 676
--------- ------ ---------- -------- -------------
Balance, December 31, 1994............................ 2,900 29 1,667 1,032 2,728
S Corporation distributions...................... -- -- -- (2,023) (2,023)
Contribution of stockholder salary (Note 1(t))... -- -- 150 150
Net income....................................... -- -- -- 3,569 3,569
--------- ------ ---------- -------- -------------
Balance, December 30, 1995............................ 2,900 29 1,817 2,578 4,424
S Corporation distributions (unaudited).......... -- -- -- (388) (388)
Contribution of stockholder salary (Note 1(t))
(unaudited).................................... -- -- 38 -- 38
Net income for three months ended March 30, 1996
(unaudited).................................... 419 419
--------- ------ ---------- -------- -------------
Balance, March 30, 1996 (unaudited)................... 2,900 29 1,855 2,609 4,493
Pro forma adjustments (unaudited -- Note 1(a)):
Distributions of previously taxed earnings....... -- -- -- (3,646) (3,646)
Assumption of loans.............................. -- -- -- (540) (540)
Capital distribution (Note 3).................... -- -- -- (613) (613)
Deferred income taxes (Note 8)................... -- -- -- 428 428
Reclassification of S corporation deficit........ -- -- (1,762) 1,762 --
--------- ------ ---------- -------- -------------
Pro forma balance March 30, 1996 (unaudited).......... 2,900 $ 29 $ 93 $ -- $ 122
--------- ------ ---------- -------- -------------
--------- ------ ---------- -------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (NOTE 9)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
---------------------------------------- ---------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
---------- ------------ ------------ -------- ----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 1,510 $ 676 $ 3,569 $ (46) $ 419
---------- ------------ ------------ -------- ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on disposal of fixed assets................. -- 338 11 -- 25
Depreciation and amortization.................... 795 696 1,040 244 222
Allowance for uncollectible balances............. 440 71 -- -- --
Gain on sale of securities....................... -- -- (57) -- --
Deferred rent.................................... 177 273 170 18 47
Other............................................ -- -- (21) -- 177
Stockholder salary............................... 124 143 150 38 38
(Increase) decrease in:
Accounts receivable......................... (273) (471) (360) 359 347
Merchandise inventories..................... (1,088) 55 (1,061) 394 (897)
Prepaid expenses and other current assets... (1,254) 627 (49) (160) 81
Deposit with lessors and others............. (30) (114) 19 (11) 48
Increase (decrease) in:
Accounts payable............................ 2,290 1,188 (274) (412) 630
Customer deposits payable................... (96) 88 339 (109) 195
Accrued expenses and taxes payable.......... (854) (14) (264) (138) 53
---------- ------------ ------------ -------- ----------
Total adjustments...................... 231 2,880 (357) 223 966
---------- ------------ ------------ -------- ----------
Net cash provided by operating
activities.......................... 1,741 3,556 3,212 177 1,385
---------- ------------ ------------ -------- ----------
Cash flows from investing activities:
Capital expenditures.................................. (1,139) (2,220) (2,231) (644) (366)
Acquisition of Kleinsleep assets...................... (1,400) -- -- -- --
Purchase of marketable securities..................... -- -- (268) -- (366)
Proceeds from sale of marketable securities........... -- -- 180 -- --
Loan to affiliate..................................... -- (662) -- (33) (44)
Repayments of loan to affiliate....................... -- -- 662 -- --
---------- ------------ ------------ -------- ----------
Net cash used in investing
activities.......................... (2,539) (2,882) (1,657) (677) (776)
---------- ------------ ------------ -------- ----------
Cash flows from financing activities:
S Corporation distributions........................... (1,005) (624) (2,023) (11) (388)
Repayments of long-term borrowings and obligations
under capital lease................................ -- (131) (238) (46) (61)
Borrowings from affiliate............................. -- -- 1,000 300 --
Repayments of short term borrowings................... -- -- (605) -- --
Advances (repayments) from/to related parties......... (577) (787) 168 (128) (540)
Proceeds from debt.................................... 496 707 -- 175 385
Capital contribution.................................. 1,400 -- -- -- --
---------- ------------ ------------ -------- ----------
Net cash provided by (used in)
financing activities................ 314 (835) (1,698) 290 (604)
---------- ------------ ------------ -------- ----------
Net increase (decrease) in cash and cash equivalents.... (484) (161) (143) (210) 5
Cash and cash equivalents -- beginning of period........ 1,038 554 393 393 250
---------- ------------ ------------ -------- ----------
Cash and cash equivalents -- end of period.............. $ 554 $ 393 $ 250 $ 183 $ 255
---------- ------------ ------------ -------- ----------
---------- ------------ ------------ -------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
1. SIGNIFICANT ACCOUNTING POLICIES
(a) REORGANIZATION
During June 1996, Bedding Discount Center Inc. changed its name to
Sleepy's, Inc. ('Sleepy's'). Prior to the effectiveness of the Company's planned
initial public offering (the 'Offering'), all of the issued and outstanding
shares of capital stock of KS Acquisition Corp., a New York corporation
('KSAC'), Sleepy's International, Inc., a Florida corporation ('SII'), and 1-800
Sleepy's, Inc., a New York corporation ('1-800') and certain shell corporations
which collectively are the lessees of the sites of most of the Company's stores,
will be contributed to the Company by the principal shareholder of Sleepy's and
the three trusts formed by the principal shareholder (Note 11). The principal
shareholder and the trusts collectively own all such shares. In connection with
the contribution of KSAC, the Company will assume the principal shareholder's
personal loans from vendors related to the original acquisition of KSAC. The
loans are approximately $540,000 and will be accounted for as a distribution of
capital.
The consolidated financial statements include the accounts of Sleepy's,
KSAC, SII, 1-800 and the related real estate companies, (collectively the
'Company'). The financial statements have been prepared as if the entities had
operated as a single consolidated group since their respective dates of
organization because of their common ownership and the planned contribution of
shares to Sleepy's. All significant intercompany balances and transactions have
been eliminated.
Prior to the date of this Prospectus, the Company has been taxed as an S
corporation under the Internal Revenue Code of 1986, as amended. As a result,
the taxable income of the Company has been reported, for federal and certain
state income taxes purposes, directly by the principal shareholder of the
Company. The S corporation election of the Company will terminate on the date of
this Prospectus. In connection with the foregoing, on the closing date of this
Offering, the principal shareholder will receive a distribution of approximately
$1.9 million representing the Company's previously taxed and undistributed S
Corporation income through the closing of this Offering (approximately $3.6
million at March 30, 1996) less loans receivable from the principal shareholder
of approximately $1.7 million (Note 4).
In addition, in June 1996, Sleepy's effected a 29,000 to one stock split
which increased the issued and outstanding shares of Sleepy's to 2,900,000
shares.
The equity accounts of Sleepy's have been retroactively adjusted to reflect
the common stock of Sleepy's as the only class of common stock and to reflect
(i) the 29,000 to one stock split of Sleepy's common stock; and (ii) the
contribution of the common stock of KSAC, SII, 1-800 and the related real estate
companies to Sleepy's. The transactions described above are collectively
referred to as the 'Reorganization.'
The pro forma consolidated balance sheet and consolidated statement of
stockholder's equity have been presented to reflect the following transactions
as if they occurred at March 30, 1996:
(a) The recording of the distribution for the previously taxed
undistributed S Corporation earnings of approximately $3,600,000
at March 30, 1996 less the related party loans from the principal
shareholder of approximately $1,700,000 resulting in net a
liability of approximately $1,900,000;
(b) The assumption of $540,000 of loans outstanding to certain
vendors;
(c) The recording of a deferred tax asset of $428,000 (Note 8)
resulting from the termination of S corporation status;
(d) The recording of the capital lease described in Note 3;
(e) The reclassification of the S corporation deficit of $1,762,000 to
additional paid in capital, and;
F-7
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
(f) Reclassification to current liabilities of $1,000,000 loans
payable to affiliate (Note 4) expected to be paid out of the
proceeds of the Offering.
(b) DESCRIPTION OF THE COMPANY
Sleepy's and KSAC (d/b/a 'Kleinsleep') are retail distributors of bedding
products (mattresses, frames and headboards) throughout the New York, New Jersey
and Connecticut tri-state metropolitan area. SII owns certain trademarks used in
the operations. 1-800 operates the Company's telemarketing division. Included in
the accounts of the Company in 1994 and 1995, are the accounts and transactions
of 68 and 67, respectively, real estate shell companies which collectively are
the lessees of most of the Company's stores.
(c) COMPANY'S YEAR END
The Company's financial statements are prepared on a fifty-two, fifty-three
week year which ends on the Saturday closest to December 31 each year. The years
ended January 1, 1994, December 31, 1994 and December 30, 1995 were 52 week
years.
(d) PROPERTY, EQUIPMENT AND DEPRECIATION AND AMORTIZATION
Property and equipment are recorded at cost. Depreciation has been
calculated principally on the straight-line and the declining balance methods
over the estimated useful lives of property and equipment. Amortization of
assets under capital lease is calculated on a straight-line basis over the term
of the lease.
(e) USE OF ESTIMATES
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
(f) MARKETABLE SECURITIES
All of the Company's marketable securities are classified as trading
securities and have been so classified since the Company originally purchased
them with the intention of selling them in the short term. As such, the
securities are carried at market value with unrealized gains and losses included
as current period income or expense. Unrealized gains on investments in
securities of $21,000 and $123,000 in fiscal 1995 and the three months ending
March 30, 1996, respectively, are included in other income.
(g) MERCHANDISE INVENTORIES
Inventories, consisting of finished bedding products, are stated at the
lower of cost or market. Cost is determined by the first-in, first-out method.
(h) PRO FORMA OPERATING ADJUSTMENTS
The Company's Chairman of the Board and Chief Executive Officer has agreed
to enter into a two-year employment agreement with the Company prior to the
effective date of the Offering providing a base salary of $400,000. A pro forma
adjustment for the excess of the aggregate annual amount of the compensation
that would have been due under this agreement over the actual compensation
expense
F-8
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
during the year ended December 30, 1995 and the three months ended March 30,
1996 is provided for a more indicative presentation of the effect of future
compensation.
Pro forma tax provisions have been calculated as if the Company's results
of operations were taxable as a C Corporation (the Company's expected tax
status) under the Internal Revenue Service Code for the year ended December 30,
1995 and for the three months ended March 30, 1996 (Notes 1(i) and 8).
(i) INCOME TAXES
The Company, with the consent of its principal shareholder, elected to be
treated as an S Corporation. As a result of the election, all earnings of the
Company were taxed directly to the principal shareholder. The Company has
provided for certain minimum taxes and taxes applicable to taxing authorities
that do not recognize S Corporation status. The aggregate of such taxes is not
material and is included in general and administrative expenses.
(j) PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is based on the weighed average number of
shares of common stock outstanding during each period. All references in the
financial statements with regard to average number of shares of common stock and
related per share amounts have been calculated giving retroactive effect to the
stock split and the exchange of shares in the Reorganization.
Supplemental pro forma net income per share is based on the weighted
average number of shares of common stock and common stock equivalents used in
the calculation of pro forma income per share (2,900,000 at December 30, 1995
and March 30, 1996), plus the estimated number of shares (378,000) that would
need to be sold by the Company in order to fund the net cash distribution of the
Company's previously taxed undistributed S Corporation earnings (approximately
$1,900,000 as of March 30, 1996 (Note 1(a)) the repayment of $540,000 of assumed
vendor loans payable in connection with the Reorganization and the repayment of
the $1,000,000 loans payable to an affiliate (Note 4) and $750,000 of
outstanding bank debt all of which are to be paid out of the proceeds of the
initial public offering.
(k) REVENUE RECOGNITION
Sales are recorded upon the delivery of products. Any customer deposits
received are recorded as a liability until the Company completes delivery, at
which time the deposits are recorded as sales. Allowances for estimated sales
returns are provided for when sales are recorded.
(l) ADVERTISING COSTS
The Company capitalizes the cost of advertisements which meet the criteria
of direct-response advertising and amortizes such costs over 12 months or the
period of running the advertisement, whichever is shorter. All other costs are
expensed as incurred. Advertising expenses for the three fiscal years in the
period ended December 30, 1995 was $2,744,000, $2,801,000 and $3,244,000,
respectively. Advertising expenses for the three months ended April 1, 1995 and
March 30, 1996 were $1,066,000 and $723,000, respectively.
(m) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments with a maturity of
three months or less when purchased to be cash equivalents.
F-9
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
(n) CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentration of credit risk consist principally of temporary cash investments.
The Company places its temporary cash investments with financial institutions
insured by the FDIC. At times, such investments were in excess of the FDIC
insurance limit.
(o) INTANGIBLE ASSETS
Intangible assets, which consist of trademarks, leases and deferred
mortgage costs, are amortized on a straight-line basis over their estimated
useful lives.
(p) DEFERRED RENT
The Company accounts for rent on a straight line basis. The effect of such
adjustment for the years ended January 1, 1994, December 31, 1994 and December
30, 1995 was to reduce income from operations by approximately $177,000,
$273,000 and $169,000, respectively. For the three months ended April 1, 1995
and March 30, 1996, the effect on income from operations was $18,100 and
$47,100, respectively.
(q) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of financial instruments, including cash, marketable
securities and short-term debt, approximated fair value as of December 31, 1994
and December 30, 1995. The carrying value of long-term debt, including the
current portion, approximated fair value as of December 31, 1994 and December
30, 1995, based upon the borrowing rates currently available to the Company for
bank loans with similar terms and maturities.
(r) RECENT ACCOUNTING PRONOUNCEMENTS
The Company adopted Statement of Financial Accounting Standard ('SFAS') No.
121 'Accounting for Long Lived Assets and for Assets to be Disposed Of' for the
year ended December 30, 1995. The adoption of FAS 121 did not have a material
effect on the consolidated financial statements.
In October 1995, SFAS No. 123, 'Accounting for Stock-Based Compensation',
was issued. SFAS No. 123 establishes a fair value method for accounting for
stock-based compensation plans either through recognition or disclosure. The
Company intends to adopt the employee stock-based compensation provisions of
SFAS No. 123 by disclosing the pro forma net income and pro forma net income per
share amounts assuming the fair value method was adopted January 1, 1995. The
adoption of this standard will not impact the Company's consolidated results of
operations, financial position or cash flows.
(s) CREDIT RISK
Finance options are offered to consumers through non-affiliated third
parties, at no material risk to the Company. Non-financed retail consumer
receivables are collected during the normal course of operations. There is no
significant concentration of credit risk and credit losses have been minimal.
(t) PRINCIPAL SHAREHOLDER SALARY
In accordance with Staff Accounting Bulletin ('SAB') No. 79, the Company
recorded a salary expense for the services rendered by the principal shareholder
to the Company. The Company recorded additional salary expense over amounts paid
and a capital contribution of $124,000, $143,000, $150,000, for the three years
in the period ended December 30, 1995 and $38,000 for the three months ended
F-10
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
April 1, 1995 and March 30, 1996, respectively. The imputed amounts are based on
the historical salary drawn by the principal shareholder in prior years.
(u) INTERIM PERIODS
The financial statements and related notes thereto as of March 30, 1996 and
for the three months ended April 1, 1995 and March 30, 1996 are unaudited and
have been prepared on the same basis as the audited financial statements
included herein. In the opinion of management, such unaudited financial
statements include all adjustments necessary to present fairly the information
set forth therein. These adjustments consist solely of normal recurring
accruals. The interim results are not necessarily indicative of the results for
any future period.
(v) STORE OPENING AND CLOSING COSTS
The Company expenses store opening costs as incurred. All expenses related
to a store closing are accrued commencing upon management's decision to cause
such a closure.
2. PROPERTY AND EQUIPMENT
A summary of property and equipment and the estimated lives used in the
computation of depreciation and amortization is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, MARCH 30, USEFUL
1994 1995 1996 LIVES
------------ ------------ --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Building and leasehold improvements.................. $4,508 $6,100 $ 6,326 5-20
Computer and computer software....................... 1,049 1,351 1,460 5-7
Machinery and equipment.............................. 633 773 788 5
Furniture and fixtures............................... 666 690 701 5-10
Automotive equipment................................. 195 282 282 5
Office equipment..................................... 200 227 231 5
Other................................................ -- 47 47
------------ ------------ ---------
7,251 9,470 9,835
Less accumulated depreciation and amortization....... 3,256 4,051 4,244
------------ ------------ ---------
$3,995 $5,419 $ 5,591
------------ ------------ ---------
------------ ------------ ---------
</TABLE>
3. PROPERTY UNDER CAPITAL LEASES
Property under capital leases consist of the following:
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 30, MARCH 30, MARCH 30,
1994 1995 1996 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Warehouse and office facility.................... $2,023 $2,023 $ 2,023 $ 2,673
Construction in progress......................... -- -- -- 2,404
------------ ------------ --------- ---------
2,023 2,023 2,023 5,077
Less: accumulated amortization................... (33) (235) (284) --
------------ ------------ --------- ---------
$1,990 $1,788 $ 1,739 $ 5,077
------------ ------------ --------- ---------
------------ ------------ --------- ---------
</TABLE>
On June 14, 1994, the Company entered into a ten year lease with an
affiliate under common control for the Company's current distribution and office
facility (Note 4). The present value of the rental payments under the lease
exceed 90% of the fair market value of the leased property at the
F-11
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
inception of the lease, qualifying the lease to be accounted for as a capital
lease. However, since the land value was greater than 25% of the total property
value, the portion of the rental payments attributable to land is treated as an
operating lease under Financial Accounting Standards No. 13, 'Accounting for
Leases' (Note 10). The portion attributable to the warehouse and office facility
was recorded at the fair value of such property at the inception of the lease.
The net present value of such rental payments approximated the cost basis of the
property. The Company is required to comply with certain financial covenants in
connection with a mortgage commitment received by the affiliate.
On , 1996, the Company terminated the existing lease and
entered into a new lease for the facility. The lease provides for a term of 13
years, with two five-year renewal options, as well as options to purchase the
facility and land at fair market value on each of the eighth and, assuming no
transfer gains taxes are payable in connection therewith (other than upon
exercise), each of the thirteenth, eighteenth and twenty-third anniversaries of
the date of the lease. In addition, on the fifth anniversary of the date of the
lease the Company has the right to make an election, in response to which the
affiliate must either sell the facility and land at fair market value or reduce
the then-current annual rental under the lease to the fair market rate thereof,
provided that the amount of such annual reduction shall not be greater than
$100,000. The lease also provides for the Company to occupy an additional 79,000
square feet upon completion of the buildout of such space by the lessor. The pro
forma balance sheet at March 30, 1996 reflects the new capital lease as though
it was recorded as of March 30, 1996. In accordance with SAB No. 48, the
recording of assets under the new capital lease was recorded at the cost basis
of the affiliate. The present value of the lease payments under the new lease
exceeded the cost basis by $613,000, which amount will be recorded as a capital
distribution.
No pro forma adjustments have been reflected in the statements of income
for the year ended December 30, 1995 and the three months ended March 30, 1996
since the effects of the lease were not material.
4. RELATED PARTY TRANSACTIONS
At December 31, 1994, December 30, 1995 and March 30, 1996, the Company was
owed $1,366,000, $1,243,000, $1,783,000 respectively, by the principal
shareholder of the Company. The receivable is unsecured, non-interest bearing
and has no established repayment terms.
Rent expense paid to the Company's principal stockholder for the Company's
former administrative and distribution facility aggregated $564,000 and $277,000
for the fiscal years ended January 1, 1994 and December 31, 1994. In October
1994, the Company relocated to its current facility which it leases from an
affiliated entity. Rent paid to the affiliate for the years ended December 31,
1994 and December 30, 1995 and for the three months ended April 1, 1995 and
March 30, 1996 was $225,000, $594,000, $135,000 and $162,000, respectively,
including amounts capitalized for the warehouse and office facility. In
connection with the relocation, the Company incurred a loss of $338,000 in 1994
from disposal of fixed assets located at the former facility.
At December 30, 1995, the Company had outstanding a $1,000,000 loan which
is due to an affiliate. The loan bears interest at 12% per annum. Interest
expense on this loan for the year ended December 30, 1995 and for the three
months ended April 1, 1995 and March 30, 1996 was approximately $80,000, $0 and
$30,000, respectively. As a result of certain provisions within the bank
agreement, which the affiliate has agreed to, this loan has been classified as
long term. The affiliate, which has no significant operations, is owned by the
Company's principal shareholder and his spouse.
The Company performed certain administrative services for M.J.R. Bedding
Company, Inc. ('M.J.R.') through February 1994. M.J.R. operated a single retail
location doing business as Sleepy's and was related to the Company through
common minority ownership. The Company charged M.J.R. for administrative
expenses incurred on its behalf as well as for the use of the Sleepy's
trademark. In February 1994, M.J.R's lease expired and M.J.R. ceased doing
business as 'Sleepy's'. The Company
F-12
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
charged M.J.R. approximately $440,000 and $71,000 during the years ended January
1, 1994 and December 31, 1994, respectively which is unpaid and was fully
reserved in each of the respective periods. At each of December 30, 1995 and
March 30, 1996, a receivable of $511,000 and a reserve for uncollectible
receivable in the same amount remained on the books of the Company. On April 12,
1988, an action was commenced against the Company and its principal shareholder
(Note 10).
5. INTANGIBLE ASSETS
On February 5, 1993, Kleinsleep Products, Inc. (an unrelated third party),
which had previously filed for bankruptcy and closed all operations, auctioned
off its assets. Intangibles acquired at that auction are as follows:
<TABLE>
<CAPTION>
USEFUL DECEMBER 31, DECEMBER 30, MARCH 30,
LIVES 1994 1995 1996
--------------- ------------ ------------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Trademarks.............................. 40 years $ 748 $ 748 $ 748
Leases.................................. 17 to 94 months 302 302 302
Other................................... 10 to 20 years 19 19 69
------------ ------------ ---------
Intangible assets, at cost................................ 1,069 1,069 1,119
Accumulated amortization.................................. 209 252 263
------------ ------------ ---------
Intangible assets, net.................................... $ 860 $ 817 $ 856
------------ ------------ ---------
------------ ------------ ---------
</TABLE>
6. BANK CREDIT LINE
The Company has a $1,750,000 line of credit with a bank. The line is also
available for standby letters of credit up to an aggregate total of $750,000
with up to a one year duration. Borrowings under the line of credit bear
interest at the bank's commercial prime lending rate (8.5% at December 30, 1995)
plus .5% and are collateralized by the assets of the Company. Standby letters of
credit bear interest at 2% per annum. Additionally, all borrowings are
personally guaranteed by the Company's principal shareholder and his spouse,
SII, KSAC and 1-800. The line of credit includes limitations on loans to any
related parties based on a formula contained in the agreement. The agreement
contains certain financial covenants and restrictions which the Company is in
compliance with at December 30, 1995. At December 30, 1995 there were $370,000
of borrowings under the aforementioned line of credit. At December 31, 1994
there was $975,000 of borrowings under the prior years available line of credit
of $1,750,000.
On January 31, 1996 the line of credit was increased to $2,000,000 and the
line was extended to January 31, 1997. The interest rate on the line was reduced
to the bank's commercial prime lending rate (8.25% at March 30, 1996). As a
result of the refinancing the bank credit line was classified as long term at
December 30, 1995. The balance outstanding under the line of credit at March 30,
1996 was $800,000.
F-13
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
7. OBLIGATIONS UNDER CAPITAL LEASE
Obligations under capital lease consists of:
<TABLE>
<CAPTION>
PRO FORMA
DECEMBER 31, DECEMBER 30, MARCH 30, MARCH 30,
1994 1995 1996 1996
------------ ------------ --------- ---------
<S> <C> <C> <C> <C>
Obligation under capital lease of warehouse and
office space (Note 3), with an annual aggregate
rental of $299,529 including interest at 8.5%
($750,396 and 8.0% at March 30, 1996 pro forma)
per annum. Secured by interest in distribution
and office facility............................ $2,005 $1,871 $ 1,835 $ 5,786
Other............................................ 174 70 44 44
------------ ------------ --------- ---------
2,179 1,941 1,879 5,830
Less current portion............................. 238 217 193 83
------------ ------------ --------- ---------
Long-term portion................................ $1,941 $1,724 $ 1,686 $ 5,747
------------ ------------ --------- ---------
------------ ------------ --------- ---------
</TABLE>
The following is a schedule by years of future minimum lease payments under
capital leases as of December 30, 1995:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING (IN THOUSANDS)
- ------------------------------------------------------------------------------ --------------
<S> <C>
1996.................................................................... $ 300
1997.................................................................... 300
1998.................................................................... 300
1999.................................................................... 300
2000.................................................................... 300
Thereafter.............................................................. 1,255
-------
Total minimum lease payments............................................ 2,755
Less: amount representing interest...................................... 814
-------
Present value of net minimum lease payments............................. $1,941
-------
-------
</TABLE>
8. INCOME TAXES
With the consent of its principal shareholder, the Company elected to be
taxed as an S Corporation pursuant to the Internal Revenue Code. In connection
with this Offering, the Company will no longer be treated as an S corporation
effective with the Reorganization (Note 1(a)) and, accordingly, the Company will
be subject to Federal income tax. The pro forma taxes on income represent the
income taxes that would have been reported for Federal, State and local income
taxes had the Company accounted for its income taxes under FAS 109 as a C
Corporation. The effective rate utilized the year ended December 30, 1995 and
for three months ended March 30, 1996 was 40%.
The following summarizes the provision for pro forma income taxes:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 30, 1995
-----------------
<S> <C>
Current:
Federal........................................................................ $ 1,026
State and local................................................................ 302
-------
Pro forma provision for income taxes................................................ $ 1,328
-------
-------
</TABLE>
F-14
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
The provision for income taxes on adjusted historical income differs from
the amounts computed by applying the applicable Federal statutory rates due to
the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 30, 1995
--------------------
<S> <C> <C>
Provision for Federal income taxes at the statutory rate.......................... $1,162 35.0%
State and local income taxes, net of Federal benefit.............................. 198 6.0
Other............................................................................. (32) (1.0)
-------- --------
Provision for income taxes........................................................ $1,328 40.0%
-------- --------
-------- --------
</TABLE>
Upon termination of S Corporation status, the Company will record a
deferred tax asset (approximately $428,000 at March 30, 1996). The deferred tax
asset results from the following temporary differences between financial and tax
reporting basis:
<TABLE>
<CAPTION>
MARCH 30, 1996
--------------
<S> <C>
Deferred tax asset:
Deferred rent...................................................................... $ 551,000
Other.............................................................................. 20,000
--------------
571,000
Less: Future book depreciation in excess of tax depreciation............................ (143,000)
--------------
Net deferred tax asset.................................................................. $ 428,000
--------------
--------------
</TABLE>
No valuation allowance has been provided since in the opinion of
management, the deferred tax asset will be fully utilized.
9. STATEMENTS OF CASH FLOW
Supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
----------------------
JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1, MARCH 30,
1994 1994 1995 1995 1996
---------- ------------ ------------ --------- ---------
<S> <C> <C> <C> <C> <C>
Cash paid during the period for
interest............................ $ 11 $ 59 $157 $29 $54
--- --- ------ --- ---
--- --- ------ --- ---
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
(a) LEASES
The Company leases land (Note 3), retail showrooms and equipment under
various noncancellable operating leases. The leases expire at various times
through the year 2013, contain option clauses and are subject to escalation
clauses for taxes and expenses. Future minimum rentals required as of December
30, 1995 under all non-cancelable operating leases (exclusive of renewals) are
as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED (IN THOUSANDS)
- -------------------------------------------------------------------------------------------------- --------------
<S> <C>
1996......................................................................................... $ 6,875
1997......................................................................................... 6,384
1998......................................................................................... 5,944
1999......................................................................................... 5,119
2000......................................................................................... 4,434
Thereafter................................................................................... 17,897
--------------
Total................................................................................... $ 46,653
--------------
--------------
</TABLE>
F-15
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
Rent expense was approximately $5,392,000, $6,040,000 and $6,814,000 for
the three years in the period ended December 30, 1995, and $1,577,000 and
$2,001,000 for the three months ended April 1, 1995 and March 30, 1996,
respectively, including amounts paid to the Company's stockholder (Note 4).
(b) LETTERS OF CREDIT
The Company was liable under standby letters of credit amounting to
approximately $444,000, $446,000 and $442,000 at December 31, 1994, December 30,
1995 and March 30, 1996 which are principally used as collateral for rental
deposits.
(c) LITIGATION
In April 1988, a lawsuit was filed against Hapat Bedding Corp. ('Hapat'),
Sleepy's and the principal shareholder of Sleepy's in the Supreme Court of the
State of New York, County of New York. In July 1988, a similar lawsuit was filed
against M.J.R. Bedding Co., Inc. ('M.J.R.'), Sleepy's and the principal
stockholder of Sleepy's in the same Court. Hapat and M.J.R. were corporations
with each operating a store under the name 'Sleepy's' and receiving various
services from the Company commencing in 1979. At the time of the commencement of
the actions, the plaintiffs sought (i) in the Hapat action, $1,000,000 in
compensatory damages and $2,000,000 in punitive damages, and (ii) in the M.J.R.
action, $2,560,000 in compensatory damages and $1,000,000 in punitive damages,
in each case for damages allegedly resulting from excessive fees charged by and
payments to the Company in connection with the Company's provision of these
services. A trial in the actions was concluded on July 26, 1996. Although no
judgment has been entered in the actions, the Company has been advised by its
counsel in the actions that it has been found liable for certain overcharges of
fees, royalties and other expenses in an as yet undetermined amount. The
Company's counsel in the actions has indicated that it is unable to determine
with any certainty that the range of loss will exceed the amount currently
reserved by the Company due to certain matters that can materially affect the
judgment amounts in the actions.
The principal shareholder has agreed prior to effectiveness of this
Offering to indemnify and hold harmless the Company against any net judgement
amount rendered against the Company or settlement in the actions, in excess of
the amount currently reserved by the Company in connection with the actions,
including costs and expenses incurred after the effective date of this Offering,
following all appeals. In light of this indemnification arrangement, the Company
does not believe that the actions will have a material adverse effect on the
financial position or liquidity of the Company. Any settlement paid by the
stockholder on behalf of the Company will be recorded as an expense to
operations with a corresponding contribution to additional paid-in capital in
accordance with SAB No. 79.
As of December 30, 1995, the Company is involved in various other legal
actions none of which management believes will have a material adverse effect on
the Company's consolidated financial statements.
(d) CONSIGNMENT INVENTORY
At December 31, 1994, December 30, 1995 and March 30, 1996, the Company had
approximately $797,000, $697,000 and $258,000, respectively, of consignment
inventory from certain vendors located throughout its store locations. There are
no limits as to the level of goods the Company may hold under the consignment
arrangements.
(e) EMPLOYMENT AGREEMENTS
The Company has employment agreements with two key employees expiring
through April 1999. The agreements include severance of six months to one year's
salary upon termination with increasing amounts if termination occurs under
certain conditions.
F-16
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
Total future minimum commitments under these employment agreements at
December 30, 1995 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
- --------------------------------------------------------------------------------
<S> <C>
1996...................................................................... $ 266,666
1997...................................................................... 620,000
1998...................................................................... 494,674
1999...................................................................... 80,660
----------
$1,462,000
----------
----------
</TABLE>
(f) EMPLOYEE BONUS PLAN
The Company has established a two-year executive officer bonus plan
pursuant to which the Company may pay bonuses to its current Chief Executive
Officer and Executive Vice President in an aggregate amount equal to 15% of the
excess of (i) the Company's annual pre-tax income in a given year over (ii) a
specified level (the 'Specified Level'). No bonus payments will be made in a
given year if the Company's annual pre-tax income does not exceed the Specified
Level in that year. Commencing January 1, 1998, the payment of bonuses for
future years will be at the discretion of the compensation committee of the
Board of Directors.
11. SUBSEQUENT EVENTS
(a) PUBLIC OFFERING
The Company has signed an engagement letter with an underwriter in
connection with a proposed public offering of 1,375,000 shares of the Company's
common stock.
(b) PREFERRED STOCK
In June 1996, the Company authorized 5,000,000 shares of Preferred Stock,
$.01 par value per share. The rights, preferences and limitations of the
Preferred Stock may be designated by the Company's Board of Directors at any
time.
(c) STOCK OPTION PLAN
In June 1996, the Board of Directors adopted and the principal shareholder
of the Company approved the 1996 Stock Option Plan (the 'Stock Option Plan').
The Stock Option Plan provides for the grant, at the discretion of the Board of
Directors, of (i) options that are intended to qualify as incentive stock
options ('Incentive Stock Options') within the meaning of section 422A of the
Code to certain employees and directors, and (ii) options not intended to so
qualify ('Nonqualified Stock Option') to employees, directors and consultants.
The total number of shares of Common Stock for which options may be granted
under the Stock Option Plan is 400,000 shares.
The Stock Option Plan will be administered by the compensation committee of
the Board of Directors, which determines the terms of options exercised,
including the exercise price, the number of shares subject to the option and
terms and conditions of exercise. No option granted under the Stock Option Plan
is transferable by the optionee other than by will or the laws of descent and
distribution and each option is exercisable during the lifetime of the optionee
only by such optionee.
The exercise price of all stock options under the Stock Option Plan must be
at least equal to the fair market value of such shares on the date of grant.
With respect to any participant who owns stock possessing more than 10% of the
voting rights of the Company's outstanding common stock, the exercise price of
any Incentive Stock Option must be not less than 110% of the fair market value
on the
F-17
<PAGE>
<PAGE>
SLEEPY'S, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INFORMATION WITH RESPECT TO THE THREE MONTHS ENDED APRIL 1, 1995 AND MARCH 30,
1996 IS UNAUDITED)
date of grant. The term of each option granted pursuant to the Stock Option Plan
may be established by the compensation committee of the Board of Directors, in
its sole discretion; provided, however, that the maximum term of each Incentive
Stock Option granted pursuant to the Stock Option Plan is ten years. With
respect to any Incentive Stock Option granted to a participant who owns stock
possessing more than 10% of the total combined voting power of all classes of
the Company's outstanding common stock, the maximum term is five years. Options
shall become exercisable at such times and in such installments as the
compensation committee of the Board of Directors shall provide in the terms of
each individual option.
As of July 15, 1996, options to purchase 232,000 shares of Common Stock,
each having an exercise price per share equal to the price per share in the
Offering, have been granted under the Stock Option Plan, none of which options
have been exercised.
In addition, the Stock Option Plan provides that each non-employee director
of the Company receives formula grants of stock options as described below.
Prior to the Offering, each non-employee director of the Company will receive an
award under the Stock Option Plan of ten-year options to purchase 1,200 shares
of common stock at an exercise price per share equal to the price per share in
the Offering, exercisable upon the effective date of the Offering. Following
this offering, each person who served as a non-employee director of the Company
during all or a part of a fiscal year (the 'Fiscal Year') of the Company will
receive on the immediately following January 31 (the 'Award Date'), as
compensation for services rendered in that Fiscal Year, an award under the Stock
Option Plan of immediately exercisable ten-year options to purchase 1,200 shares
of common stock (a 'Full Award') at an exercise price equal to the fair market
value of the common stock on the Award Date; provided that each non-employee
director who served during less than all of the Fiscal Year will receive an
award equal to one-twelfth of a Full Award for each month or portion thereof
that he or she served as a non-employee director of the Company. As formula
grants under the Stock Option Plan, the foregoing grants of options to
non-employee directors are not subject to the determinations of the Board of
Directors or the compensation committee.
(d) GRANTOR RETAINED ANNUITY TRUSTS
In June 1996, the principal shareholder transferred ownership interests in
each of Sleepy's, KSAC, SII, 1-800 and certain shell corporations to three
grantor retained annuity trusts. Prior to effectiveness, the ownership interests
in all such corporations, except Sleepy's, will be contributed to Sleepy's by
these trusts as part of the Reorganization. The trusts currently, and upon the
Reorganization will, own 348,000 shares of the Company. Children of the
principal shareholder are beneficiaries of the trusts, with the principal
shareholder acting as the sole trustee of each trust.
F-18
<PAGE>
<PAGE>
[PHOTO OF A SLEEPY'S SHOWROOM]
[PHOTO OF TELEMARKETING CENTER, BETHPAGE, N.Y.]
[PHOTO OF HEADQUARTERS, BETHPAGE, N.Y.]
[PHOTO (OUTDOOR) OF DISTRIBUTION CENTER, BETHPAGE, N.Y.]
[PHOTO (INDOOR) OF DISTRIBUTION CENTER, BETHPAGE, N.Y.]
<PAGE>
<PAGE>
_____________________________ _____________________________
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED IN
CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE
COMMON STOCK OFFERED BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANYONE TO WHOM IT IS UNLAWFUL TO
MAKE SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................................................................................... 3
Risk Factors................................................................................................................ 8
The Company................................................................................................................. 12
Reorganization of the Company and Change in Tax Status...................................................................... 12
Use of Proceeds............................................................................................................. 14
Capitalization.............................................................................................................. 15
Dividend Policy............................................................................................................. 15
Dilution.................................................................................................................... 16
Selected Consolidated Financial Data........................................................................................ 17
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 19
Business.................................................................................................................... 25
Management.................................................................................................................. 35
Certain Transactions........................................................................................................ 39
Principal Shareholders...................................................................................................... 41
Description of Capital Stock................................................................................................ 42
Shares Eligible for Future Sale............................................................................................. 44
Underwriting................................................................................................................ 45
Legal Matters............................................................................................................... 46
Experts..................................................................................................................... 46
Additional Information...................................................................................................... 47
Index to Financial Statements............................................................................................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR ALLOTMENTS OR SUBSCRIPTIONS.
[LOGO]
1,375,000 SHARES
OF
COMMON STOCK
---------------------------------
PROSPECTUS
---------------------------------
GERARD KLAUER MATTISON & CO., LLC
, 1996
_____________________________ _____________________________
<PAGE>
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 722 of the New York Business Corporation Law ('NYBCL') permits, in
general, a New York corporation to indemnify any person made, or threatened to
be made, a party to an action or proceeding by reason of the fact that he or she
was a director or officer of the corporation, or served another entity in any
capacity at the request of the corporation, against any judgment, fines, amounts
paid in settlement and reasonable expenses, including attorney's fees actually
and necessarily incurred as a result of such action or proceeding, or any appeal
therein, if such person acted in good faith, for a purpose he or she reasonably
believed to be in, or, in the case of service for another entity, not opposed
to, the best interests of the corporation and, in criminal actions or
proceedings, in addition had no reasonable cause to believe that his or her
conduct was unlawful. Section 723 of the NYBCL permits the corporation to pay in
advance of a final disposition of such action or proceeding the expenses
incurred in defending such action or proceeding upon receipt of an undertaking
by or on behalf of the director or officer to repay such amount as, and to the
extent, required by statute. Section 721 of the NYBCL provides that
indemnification and advancement of expense provisions contained in the NYBCL
shall not be deemed exclusive of any rights to which a director or officer
seeking indemnification or advancement of expenses may be entitled, provided no
indemnification may be made on behalf of any director or officer if a judgment
or other final adjudication adverse to the director or officer establishes that
his or her acts were committed in bad faith or were the result of active or
deliberate dishonesty and were material to the cause of action so adjudicated,
or that he or she personally gained in fact a financial profit or other
advantage to which he or she was not legally entitled.
Article Seventh of the Company's Certificate of Incorporation provides, in
general, that the Company may indemnify, to the fullest extent permitted by
applicable law, every person threatened to be made a party to any action, suit
or proceeding by reason of the fact that such person is or was an officer or
director or was serving at the request of the Company as a director, officer,
employee, agent or trustee of another corporation, business, partnership, joint
venture, trust, employee benefit plan, or other enterprise, against expenses,
judgments, fines and amounts paid in settlement in connection with such suit or
proceeding. Article Seventh of the Certificate of Incorporation also provides
that the Company may indemnify and advance expenses to those persons as
authorized by resolutions of a majority of the Board of Directors or
shareholders, agreement, directors' or officers' liability insurance policies,
or any other form of indemnification agreement.
In accordance with that provision of the Certificate of Incorporation, the
Company shall indemnify any officer or director (including officers and
directors serving another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity at the Company's
request) made, or threatened to be made, a party to an action or proceeding
(whether civil, criminal, administrative or investigative) by reason of the fact
that he or she was serving in any of those capacities against judgments, fines,
amounts paid in settlement and reasonable expenses (including attorney's fees)
incurred as a result of such action or proceeding. Indemnification would not be
available under Article Seventh of the Certificate of Incorporation if a
judgment or other final adjudication adverse to such director or officer
establishes that (i) his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and, in either case, were material to
the cause of action so adjudicated, or (ii) he or she personally gained in fact
a financial profit or other advantage to which he or she was not legally
entitled. Article Seventh of the Certificate of Incorporation further stipulates
that the rights granted therein are contractual in nature.
The Underwriting Agreement contains, among other things, provisions whereby
the Underwriter agrees to indemnify the Company, each officer and director of
the Company who has signed the Registration Statement and each person who
controls the Company within the meaning of Section 15 of the Securities Act
against any losses, liabilities, claims or damages arising out of alleged untrue
statements or alleged omissions of material facts with respect to information
furnished to the Company by the Underwriter for use in the Registration
Statement or Prospectus. See Item 28 'Undertakings.'
II-1
<PAGE>
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than selling
commissions and other fees paid to the underwriter) which will be paid by the
Registrant in connection with the issuance and distribution of the securities
being registered. With the exception of the registration fee and the NASD filing
fee, all amounts shown are estimates.
<TABLE>
<S> <C>
Registration fee.................................................................. $ 6,544
NASD filing fee................................................................... 2,398
Nasdaq National Market listing expenses........................................... 25,000
Blue sky fees and expenses (including legal and filing fees)...................... 10,000
Printing expenses (other than stock certificates)................................. 90,000
Printing and engraving of stock certificates...................................... 5,000
Legal fees and expenses (other than Blue Sky)..................................... 165,000
Accounting fees and expenses...................................................... 100,000
Transfer Agent and Registrar fees and expenses.................................... 5,000
Miscellaneous expenses............................................................ 33,558
--------
Total........................................................................ $442,500
--------
--------
</TABLE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
During the last three years, the Company has made no sales of unregistered
securities.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------------------------------------------------------------------------------------------
<S> <C>
1.1 -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation of the Company.
3.2 -- By-Laws of the Company.
4.1 -- Specimen Certificate of the Company's Common Stock.
4.2 -- Form of Representative's Warrant Agreement.
5.1* -- Opinion of Parker Chapin Flattau & Klimpl, LLP, counsel to the Company.
10.1 -- Form of Employment Agreement between the Company and Harry Acker.
10.2 -- Employment Agreement between the Company and Howard Roeder.
10.3 -- 1996 Stock Option Plan of the Company.
10.4* -- Executive Bonus Plan of the Company.
10.5 -- Form of Lease Agreement between the Company and BDC Realty Corp.
10.6 -- Form of Indemnification Agreement between the Company and Harry Acker.
10.7 -- Form of Escrow Agreement among the Company, Harry Acker and escrow agent.
10.8 -- Note of the Company relating to its bank working capital facility.
10.9 -- Form of Shareholder Distribution and Escrow Agreement among the Company, Harry Acker and escrow agent.
22.1 -- List of Subsidiaries.
23.1* -- Consent of BDO Seidman, LLP.
23.2* -- Consent of Parker Chapin Flattau & Klimpl, LLP, contained in Exhibit 5.1.
24.1 -- Power of Attorney.
</TABLE>
- ------------
* Filed herewith.
ITEM 28. UNDERTAKINGS.
The undersigned Company hereby undertakes:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule
II-2
<PAGE>
<PAGE>
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new Registration Statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
(3) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered
in such names as required by the underwriter to permit prompt delivery to
each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
II-3
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned thereunto duly authorized, in the City of New York, State of New
York, on the 22nd day of July 1996.
SLEEPY'S, INC.
By: /S/ HARRY ACKER
...................................
HARRY ACKER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------ -------------------------------------------- -------------------
<C> <S> <C>
/S/ HARRY ACKER Chairman of the Board, Chief Executive July 22, 1996
......................................... Officer and Director
HARRY ACKER
* Chief Operating Officer and Director July 22, 1996
.........................................
DAVID ACKER
* Executive Vice President and Director July 22, 1996
.........................................
A.J. ACKER
* Vice President of Finance and Chief July 22, 1996
......................................... Financial Officer (principal financial and
JAY BOROFSKY accounting officer)
*By: /S/ HARRY ACKER
.........................................
HARRY ACKER
ATTORNEY-IN-FACT
</TABLE>
II-4
<PAGE>
<PAGE>
INDEX TO S-X SCHEDULE
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of Independent Certified Public Accountants...................................................... S-2
Schedule II--Valuation & Qualifying Accounts............................................................ S-3
</TABLE>
S-1
<PAGE>
<PAGE>
[THE FOLLOWING IS THE FORM OF OPINION WE WILL BE IN A POSITION TO ISSUE UPON THE
COMPLETION OF THE EVENTS DESCRIBED IN NOTE 1(a).]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Sleepy's Inc.
The audits referred to in our report to Sleepy's Inc., dated March 7, 1996
(except for Notes 1(a), 1(h), 3, 7, 10(c) and 11 which are dated
_______________, 1996), which is contained in the Prospectus constituting part
of this Registration Statement included the audits of the consolidated schedule
listed in the accompanying index for each of the three years in the period ended
December 30, 1995. This consolidated financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this consolidated financial statement schedule based upon our audits.
In our opinion, the consolidated schedule presents fairly, in all material
respects, the information set forth therein.
/s/BDO SEIDMAN, LLP
BDO Seidman, LLP
March 7, 1996
S-2
<PAGE>
<PAGE>
SCHEDULE II
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C-ADDITIONS
COLUMN B- ----------------------- COLUMN E-
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER COLUMN D- END OF
COLUMN A - DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ---------------------------------------------------- ------------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
For the year ended January 1, 1994
Allowance for uncollectible balances.............. $ 0 $440 -- -- $ 440
For the year ended December 31, 1994
Allowance for uncollectible balances.............. $ 440 $ 71 -- -- $ 511
For the year ended December 30, 1995
Allowance for uncollectible balances.............. $ 511 -- -- -- $ 511
</TABLE>
- ------------
(1) Write-offs, net of recoveries.
S-3
<TABLE>
<CAPTION>
NUMBER DESCRIPTION OF EXHIBIT
- ------ ----------------------------------------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement.
3.1 -- Restated Certificate of Incorporation of the Company.
3.2 -- By-Laws of the Company.
4.1 -- Specimen Certificate of the Company's Common Stock.
4.2 -- Form of Representative's Warrant Agreement.
5.1* -- Opinion of Parker Chapin Flattau & Klimpl, LLP, counsel to the Company.
10.1 -- Form of Employment Agreement between the Company and Harry Acker.
10.2 -- Employment Agreement between the Company and Howard Roeder.
10.3 -- 1996 Stock Option Plan of the Company.
10.4* -- Executive Bonus Plan of the Company.
10.5 -- Form of Lease Agreement between the Company and BDC Realty Corp.
10.6 -- Form of Indemnification Agreement between the Company and Harry Acker.
10.7 -- Form of Escrow Agreement among the Company, Harry Acker and escrow agent.
10.8 -- Note of the Company relating to its bank working capital facility.
10.9 -- Form of Shareholder Distribution and Escrow Agreement among the Company, Harry Acker and escrow agent.
22.1 -- List of Subsidiaries.
23.1* -- Consent of BDO Seidman, LLP.
23.2* -- Consent of Parker Chapin Flattau & Klimpl, LLP, contained in Exhibit 5.1.
24.1 -- Power of Attorney.
</TABLE>
- ------------
* Filed herewith.
STATEMENT OF DIFFERENCES
The trademark symbol shall be expressed as 'tm'
<PAGE>
<PAGE>
[LETTERHEAD OF PARKER CHAPIN FLATTAU & KLIMPL, LLP]
July 30, 1996
Sleepy's, Inc.
175 Central Avenue South
Bethpage, New York 11714
Re: Sleepy's, Inc.
Gentlemen:
We have acted as counsel to Sleepy's, Inc. (the 'Company') in connection
with its filing of a registration statement on Form S-1 (File No. 333-5543, the
'Registration Statement') covering 1,581,250 shares (the 'Shares') of Common
Stock, par value $.01 per share.
In our capacity as counsel to the Company, we have examined the Company's
Certificate of Incorporation and By-laws, as amended to date, and the minutes of
the Company and such other documents as we have considered appropriate for
purposes of this opinion.
With respect to factual matters, we have relied upon statements and
certificates of officers of the Company. We have also reviewed such other
matters of law and examined and relied upon such other documents, records and
certificates as we have deemed relevant hereto. In all such examinations we have
assumed conformity with the original documents of all documents submitted to us
as conformed or photostatic copies, the authenticity of all documents submitted
to us as originals and the genuineness of all signatures on all documents
submitted to us.
On the basis of the foregoing, we are of the opinion that the Shares have
been validly authorized and, when sold as contemplated in the Registration
Statement, will be legally issued, fully paid and non-assessable, subject to the
provisions of Section 630 of the New York Business Corporation Law.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference made to us under the caption 'Legal
Matters' in the prospectus constituting part of the Registration Statement.
Very truly yours,
/s/ PARKER CHAPIN FLATTAU & KLIMPL, LLP
PARKER CHAPIN FLATTAU & KLIMPL, LLP
<PAGE>
<PAGE>
EXHIBIT 10.4
SLEEPY'S INC.
1996 EXECUTIVE BONUS PLAN
(AS AMENDED ON JULY 22, 1996)
1. PURPOSE
The purpose of the Sleepy's Inc. (the "Company") 1996 Executive Bonus
Plan ("Plan") is to reward the current Chief Executive Officer and Executive
Vice President ("Executives") of the Company, so as to provide incentive to such
Executives to continue within the employ of the Company and to assist in the
enhancement of the Company's productivity. These purposes will be achieved in
accordance with the terms of this Plan set forth below. "Fiscal 1996" means the
Company's fiscal year ended December 28, 1996. "Fiscal 1997" means the Company's
fiscal year ended January 3, 1997.
2. PLAN PROVISIONS
2.1 The Plan commenced as of June 6, 1996 and shall terminate as of
December 31, 1997.
2.2 With respect to fiscal 1996, the Company may pay bonuses to the
Executives in an aggregate amount of 15.0% of the excess of the Company's net
income before income taxes (computed in accordance with generally accepted
accounting principles consistently applied) ("Pre-Tax Net Income") from the
effective date of the Company's initial public offering to the end of fiscal
1996 (less the amount of bonus awarded to the Executives for such period) over
$2,336,000.
2.3 With respect to fiscal 1997, the Company may pay bonuses to the
Executives in an aggregate amount of 15.0% of the excess of the Company's
Pre-Tax Net Income for fiscal 1997 (less the amount of bonus awarded to the
Executives for fiscal 1997) over $5,328,000.
2.4 Bonus payments under this Plan shall not be made for any year unless
the Pre-Tax Net Income meets the specified levels attributable to such years as
set forth in Sections 2.2 and 2.3, respectively.
3. ADMINISTRATION
3.1 This Plan shall be administered by the Compensation Committee of the
Board of Directors (the "Compensation Committee"). The Compensation Committee
shall have the authority to determine, in its sole discretion: (a) the date on
which such bonuses under this Plan shall be paid and (b) all other matters
relating to this Plan.
3.2 The Compensation Committee may adopt such rules for the
administration of this Plan as it deems necessary or advisable, in its sole
discretion. The Compensation Committee shall have the exclusive right to
construe this Plan and to correct defects and omissions in this Plan, and to
take further actions as it deems necessary or advisable, in its sole discretion,
to carry out the purpose and intent of this Plan. Such actions shall be final,
binding and conclusive upon all parties concerned.
1
<PAGE>
<PAGE>
3.3 The Compensation Committee shall not be liable for any act or
omission (whether or not negligent) taken or omitted in good faith in connection
with this Plan.
3.4 All costs incurred in connection with the administration and
operation of this Plan shall be paid by the Company. Except for the express
obligations of the Company under this Plan, the Company shall have no liability
with respect to any matter related to the Plan or the Executives, including, but
not limited to, any tax liabilities or other costs.
4. AMENDMENT, SUSPENSION AND TERMINATION OF PLAN
The Compensation Committee reserves the right, at any time and from time
to time, to amend this Plan in any way, or to suspend or terminate this Plan,
effective as of the date specified by the Compensation Committee when it takes
such action, which date may be before or after the date the Compensation
Committee takes such action.
5. OTHER PROVISIONS
5.1 Nothing contained in this Plan shall confer upon the Executives the
right to continue in the employ of the Company or any affiliated entity, or
interfere in any way with the right of the Company or any affiliated entity, to
terminate the employment of the Executives for any reason.
5.2 This Plan, and all matters related hereunder, shall be governed by
and construed in accordance with the laws of the State of New York. The headings
of the Sections of this Plan are for convenience of reference only and shall not
affect the interpretation of this Plan. All pronouns and similar references in
this Plan shall be construed to be of such number and gender as the context
requires or permits. If any provision of this Plan is determined to be
unenforceable for any reason, then that provision shall be deemed to have been
deleted or modified to the extent necessary to make it enforceable, and the
remaining provisions of this Plan shall not be affected.
2
<PAGE>
<PAGE>
CONSENT OF BDO SEIDMAN, LLP
Sleepy's, Inc.
Bethpage, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 7, 1996 (except for Note 1(a),
1(h), 3, 7, 10(c) and 11 which are dated ___________________, 1996), relating
to the consolidated financial statements of Sleepy's, Inc. and subsidiaries,
which is contained in that Prospectus, and of our report dated March 7, 1996,
relating to the schedule, which is contained in Part II of the Registration
Statement.
We also consent to the reference to us under the captions 'Selected Financial
Data' and 'Experts' in the Prospectus.
/s/ BDO SEIDMAN, LLP
BDO Seidman, LLP
Mitchel Field, New York
August 2, 1996
<PAGE>
