<PAGE>
<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996.
REGISTRATION NO. 333-
________________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
OFFERING PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF PRICE PER AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED AMOUNT TO BE REGISTERED(1) SHARE(2) OFFERING PRICE(2) FEE(3)
<S> <C> <C> <C> <C>
Shares of Common Stock, par value $.01 per
share....................................... 1,581,250 shares $12.00 $18,975,000.00 $6,544.00
</TABLE>
(1) Includes up to 206,250 shares of Common Stock subject to the over-allotment
options granted to the Underwriter by the Company.
(2) Estimated solely for purposes of calculating the registration fee.
(3) Calculated pursuant to Rule 457(a).
------------------------
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>
SUBJECT TO COMPLETION -- DATED JUNE 7, 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 67.8% of the
outstanding Common Stock.
Application has been made to have the Common Stock approved for quotation
on the Nasdaq National Market 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
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.
<PAGE>
<PAGE>
[MAP SHOWING STORE LOCATIONS]
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.
2
<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'sTM stores,
which address a broad customer base and offer an extensive selection of
bedding merchandise in a wide range of prices; (ii) 20 KleinsleepTM 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'STM
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:
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.
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.
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 newspapers, radio
stations and television stations through which it advertises to ensure
the cost-effectiveness of its advertising spending.
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 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, which 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 greater 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 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. 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.
4
<PAGE>
<PAGE>
<TABLE>
<S> <C>
THE OFFERING
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
current 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 current
shareholder of the Company and to a bank, in each case
incurred in order to provide working capital to the
Company; and for general working capital purposes. See
'Reorganization of the Company and Change in Tax Status'
and 'Use of Proceeds.'
Proposed 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
234,400 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
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. See Notes to
Consolidated Financial Statements.
(3)The Company has elected to report as an S corporation for federal and state
income tax purposes. Accordingly, the Company's shareholder has included
the Company's taxable income in his individual income tax returns. 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 was $0.61 for fiscal 1995 and
$0.07 for the three months ended March 30, 1996. 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 cash distribution to the Company's 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 assumed vendor
loans, all of which
(footnotes continued on next page)
6
<PAGE>
<PAGE>
(footnotes continued from previous page)
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 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) 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 '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 affect 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
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 Realty Corp.
8
<PAGE>
<PAGE>
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.'
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 expects to obtain $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 EXISTING SHAREHOLDER
Upon completion of this offering, Harry Acker will beneficially own
approximately 67.8% of the outstanding Common Stock. Accordingly, Mr. Acker,
individually, will have the ability to control the 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 assurances
that the Company will not be required in the future to incur expense and/or
modify its operations in order to ensure such compliance.
9
<PAGE>
<PAGE>
The Company further 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
assurances 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 Company has applied to have the Common Stock approved
for quotation on the Nasdaq National Market, 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 per share. 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 234,400 shares of
Common Stock under the 1996 Stock Option Plan at the initial public
10
<PAGE>
<PAGE>
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
shareholder, including amounts sufficient to reimburse him for federal (and some
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 closing
of this offering, 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
<PAGE>
<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'sTM stores, which address a broad
customer base and offer an extensive selection of bedding merchandise in a wide
range of prices; (ii) 20 KleinsleepTM 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'STM 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. 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, the sole owner of all such
shares. 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, the sole owner of all such shares (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 taxable income of
the Company has been reported, for federal and state income tax purposes,
directly by the shareholder of the Company. Mr. Acker, as the 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 effectiveness of this
offering. The S corporation election of the Company, including the Contributed
Corporations, will terminate upon consummation of this offering. 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 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). In addition, due to the change in tax status the Company will
record a deferred tax asset of approximately $428,000.
Further, 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.
The foregoing transactions collectively are referred to herein as the
'Reorganization.'
12
<PAGE>
<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
shareholder of the Company with respect to taxable income of the Company through
the closing of this offering, 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 shareholder 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 savings and management 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 by a corporation controlled by its shareholder to provide
working capital to the Company. This indebtedness is unsecured and bears
interest at the rate of 12% per annum.
13
<PAGE>
<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
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 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 state income tax purposes
prior to consummation of this offering. Prior to the closing of this offering,
the Company will make distributions representing the Company's taxable income
through such date. Upon consummation of this offering, 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.
14
<PAGE>
<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
shareholder 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 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. In addition, it 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 shareholder 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 shareholder..................... 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.
15
<PAGE>
<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>
THREE
MONTHS
FISCAL YEAR ENDED ENDED
-------------------------------------------------------------------- -----------
DECEMBER 28, JANUARY 2, JANUARY 1, DECEMBER 31, DECEMBER 30, APRIL 1,
1991 1993 1994 1994 1995 1995
------------ ---------- ---------- ------------ ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales....................... $ 29,620 $ 35,305 $ 41,402 $ 49,644 $ 59,763 $13,115
Cost of sales, buying and
occupancy..................... 14,330 18,034 21,028 26,418 30,694 6,846
Gross profit.................... 15,290 17,271 20,374 23,226 29,069 6,269
Store expenses.................. 10,442 12,397 14,332 16,512 19,298 4,793
General and administrative
expenses...................... 3,619 3,992 4,825 5,583 5,967 1,451
Total operating expenses........ 14,061 16,389 19,157 22,095 25,265 6,244
Income from operations.......... 1,229 882 1,217 1,131 3,804 25
Other income (expenses)......... (138) (102) 293 (455) (235) (71)
Income before taxes............. 1,091 780 1,510 676 3,569 (46)
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
OPERATING DATA (UNAUDITED):
Stores open at end of period.... 56 63 66 75 87 78
Inventory turnover(4)........... 11.5x 8.3x 10.4x 10.7x 10.9x 9.3x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................. $ (1,413) $ (1,424) $ (658) $ (3,062) $ (1,034) $(2,062)
Total assets.................... 4,770 5,370 9,446 13,792 15,615 11,620
Long-term debt and capital lease
obligations................... 624 679 1,039 1,941 3,094 1,494
Total shareholder's equity...... 214 504 2,533 2,728 4,424 2,754
<CAPTION>
MARCH 30,
1996
-----------
<S> <C>
INCOME STATEMENT DATA:
Net sales....................... $16,045
Cost of sales, buying and
occupancy..................... 8,125
Gross profit.................... 7,920
Store expenses.................. 5,168
General and administrative
expenses...................... 2,039
Total operating expenses........ 7,207
Income from operations.......... 713
Other income (expenses)......... (294)
Income before taxes............. 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
OPERATING DATA (UNAUDITED):
Stores open at end of period.... 88
Inventory turnover(4)........... 13.5x
BALANCE SHEET DATA
(AT PERIOD END):
Working capital................. $(1,980)
Total assets.................... 17,278
Long-term debt and capital lease
obligations................... 2,686
Total shareholder's equity...... 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. See Notes to Consolidated
Financial Statements.
(2) The Company has elected to report as an S corporation for federal and state
income tax purposes. Accordingly, the Company's shareholder has included the
Company's taxable income in his individual income tax returns. 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.'
(3) Supplemental pro forma net income per share was $0.61 for fiscal 1995 and
$0.07 for the three months ended March 30, 1996. 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
(footnotes continued on next page)
16
<PAGE>
<PAGE>
(footnotes continued from previous page)
in order to fund the net cash distribution to the Company's 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 assumed vendor loans of $540,000
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.
17
<PAGE>
<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. 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 centralized facility's costs over
the anticipated increase in sales volume from the addition of new stores and the
expansion of its telemarketing operations.
18
<PAGE>
<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 primarily was a result of new store openings and
acquisitions, increased sales in existing stores and an increase in
telemarketing sales. As of March 30, 1996, the Company had 88 stores compared to
78 stores as of April 1, 1995.
Cost of sales, buying and occupancy 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 and to management's continued practice
of closing and relocating under-performing stores.
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. Store expenses in
the recent period were 32.2% of sales as compared to 36.5% for the earlier
period. This
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favorable decrease in store expenses as a percentage of net sales was due in
part to the increase in 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 additional management salaries needed 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
primarily was a result of new store openings, the subletting of ten stores from
a competitor, the commencement of telemarketing operations and increased sales
in existing stores, including an increase of 4.8% in comparable store sales over
the periods. 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 12 new stores
while closing only two stores, 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 and to management's continued practice
of closing or relocating underperforming stores.
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. This increase includes a
6.5% increase in comparable store sales. During fiscal 1994, the Company opened
or acquired 12 new stores while closing only two stores, resulting in a total of
75 stores in operation at the end of the year. During fiscal 1993, the Company
opened or acquired 12 new stores while closing 10 stores, resulting in a total
of 66 stores open at the end of the year. The
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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.
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 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.
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.
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.
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.
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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 shareholder of $1,400,000 in connection with the
acquisition of certain assets.
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 state income tax purposes,
directly by the shareholder of the Company. Harry Acker, as the 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 consummation of this
offering. The S corporation election of the Company will terminate in connection
with this offering. 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 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 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.'
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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 newspapers, radio stations and television
stations through which it advertises to ensure the cost-effectiveness of
its advertising spending.
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
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store format. 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, which 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 expansion of these operations, which are conducted from
the Company's main facilities, 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. 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 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.
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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, which 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, thereby minimizing lease costs prior to commencement of store
operations.
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.
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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.
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.
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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 main facility 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 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
27
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<PAGE>
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.
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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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<PAGE>
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
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.
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 purpose of
accommodating the inventory needs for the Company's recent growth and planned
expansion.
The lease for the facility 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 options to purchase the facility and land at fair
market value on each of the eighth, 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 in an amount up to the amount of such 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
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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 trademarks with the United States Patent and
Trademark Office for 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 is not aware of any adverse claim concerning its 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.
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. The Company continues to vigorously defend the
actions. Trial in the actions, as to which all parties have waived their rights
to a jury, is scheduled for June 1996.
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.
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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, as Bedding Discount Centers, Inc.
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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<PAGE>
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DIRECTORS COMPENSATION
Each non-employee director will be paid 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. Prior to the effective date of 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.
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
------------------------------------------
OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION
- --------------------------------------------------------------------- ---- -------- ------ ------------
<S> <C> <C> <C> <C>
Harry Acker ......................................................... 1995 $150,000 $ 0 $0
Chairman of the Board and
Chief Executive Officer
David Acker ......................................................... 1995 $163,000 0 0
Chief Operating Officer
Jay Borofsky ........................................................ 1995 $100,000 $6,600 0
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 circumstances continue Mr. Acker's
then current employee benefits for the remainder of the term of the
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<PAGE>
<PAGE>
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 15% of the excess of (i) the Company's annual pre-tax income in
a given year over (ii) a specified level for such year (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.
1996 STOCK OPTION PLAN
In June 1996, the Board of Directors adopted and the shareholder of the
Company 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.
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
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<PAGE>
<PAGE>
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
shareholder of the Company, principally determined executive officer
compensation, including his compensation and decisions concerning the
transactions described in 'Certain Transactions' below.
35
<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, the sole owner of all such
shares. In connection with the contribution of the shares of capital stock of
KSAC, the Company will assume two loans in the aggregate 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, the sole owner of all such shares (which corporations, with KSAC, SII and
1-800, are collectively referred to herein as the 'Contributed Corporations').
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 state income tax purposes,
directly by the shareholder of the Company. Mr. Acker, as the 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 consummation of this
offering. The S corporation election of the Company, including the Contributed
Corporations, will terminate upon consummation of this offering. 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 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).
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
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. 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 will be evidenced by
demand promissory notes of BDC Realty Corp. to the Company bearing interest at
8% per annum. As of June 7, 1996, approximately $200,000 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 provides for
an annual rental of $4.50 per square foot, which represents aggregate annual
rental of approximately $680,000 before this warehouse 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 each of the eighth,
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 in an amount up to the amount
of such 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 an independent survey. In addition, the Company believes
that the
36
<PAGE>
<PAGE>
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.'
From the net proceeds of this offering the Company intends to repay
approximately $750,000 of outstanding indebtedness to a bank (the 'Bank
Indebtedness') and approximately $1,000,000 of outstanding indebtedness to a
corporation controlled by Harry Acker. 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. The Company continues to vigorously defend the
actions. Trial in the actions is scheduled for June 1996.
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.
37
<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.
<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 ........................................................... 2,900,000 100.0% 67.8%
175 Central Avenue South
Bethpage, NY 11714
David Acker ........................................................... 0 0 0
175 Central Avenue South
Bethpage, NY 11714
A.J. Acker(2) ......................................................... 2,900,000 100.0% 67.8%
175 Central Avenue South
Bethpage, NY 11714
Jay Borofsky .......................................................... 0 0 0
175 Central Avenue South
Bethpage, NY 11714
All directors and officers as a group
(8 persons).......................................................... 2,900,000 100.0% 67.8%
</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) Ms. Acker disclaims beneficial ownership of all shares of Common Stock held
by her spouse Mr. Harry Acker.
38
<PAGE>
<PAGE>
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. As of the date of this Prospectus, all of the Common
Stock of the Company was held of record by Mr. Harry Acker.
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 67.8% 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
39
<PAGE>
<PAGE>
voting stock not beneficially owned by such interested shareholder, or (c) the
business combination 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 Company has applied to have the Common Stock approved for quotation on
the Nasdaq National Market 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.
40
<PAGE>
<PAGE>
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 shareholder 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
234,400 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.'
41
<PAGE>
<PAGE>
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
42
<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
shareholder 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 designated for inclusion
on the Nasdaq National Market under the symbol 'SLPY', subject to official
notice of issuance.
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.
43
<PAGE>
<PAGE>
ADDITIONAL INFORMATION
A Registration Statement on Form S-1 under the Act, including amendments
thereto, relating to the Common Stock offered hereby 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. Electronic registration statements made
through the Electronic Data Gathering, Analysis and Retrieval ('EDGAR') system
are 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.
44
<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>
[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 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.
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
------------ ------------ ----------- -----------
(IN THOUSANDS) (UNAUDITED) (UNAUDITED)
<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
Write off of 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 sole stockholder of Sleepy's and sole
owner of all such shares. In connection with the contribution of KSAC, the
Company will assume the 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 effectiveness of the Offering, 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
state income taxes purposes, directly by the shareholder of the Company. The S
corporation election of the Company will terminate upon effectiveness of this
offering. In connection with the foregoing, on the closing date of this
Offering, the stockholder 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 stockholder 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 held by the sole
stockholder 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 1 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
stockholder 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 to additional
paid in capital, and;
(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.
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)
(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 lessors 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. 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 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
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)
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 stockholder, elected to be treated as
an S Corporation. As a result of the election, all earnings of the Company were
taxed directly to the stockholder. 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.
(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.
(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.
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)
(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 on income from operations for the years ended January 1, 1994,
December 31, 1994 and December 30, 1995 was 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) STOCKHOLDER SALARY
In accordance with Staff Accounting Bulletin ('SAB') No. 79, the Company
recorded a salary expense for the services rendered by the stockholder 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 April 1,
1995 and March 30, 1996, respectively.
(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
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)
adjustments consist solely of normal recurring accruals. The interim results are
not necessarily indicative of the results for any future period.
(V) STORE OPENING COSTS
The Company expenses store opening costs as incurred.
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 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.
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, thirteenth,
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)
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 stockholder of the
Company. The receivable is unsecured, non-interest bearing and has no
established repayment terms.
Rent expense paid to the Company's 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 stockholder 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 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. On April 12, 1988, an action was commenced against BDC and its
stockholder (Note 10).
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)
5. INTANGIBLE ASSETS
On February 5, 1993, Kleinsleep Products, Inc. (an unrelated third party)
who 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 stockholder 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 stockholder, 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 stockholder 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 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. The
Company continues to vigorously defend the actions.
The stockholder 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 sole 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 , 1996, 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, have been granted under the Stock Option Plan, none of which
options have been exercised.
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. 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.
F-18
<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............................................................................................................. 13
Capitalization.............................................................................................................. 14
Dividend Policy............................................................................................................. 14
Dilution.................................................................................................................... 15
Selected Consolidated Financial Data........................................................................................ 16
Management's Discussion and Analysis of Financial Condition and Results of Operations....................................... 18
Business.................................................................................................................... 23
Management.................................................................................................................. 32
Certain Transactions........................................................................................................ 36
Principal Shareholders...................................................................................................... 38
Description of Capital Stock................................................................................................ 39
Shares Eligible for Future Sale............................................................................................. 41
Underwriting................................................................................................................ 42
Legal Matters............................................................................................................... 43
Experts..................................................................................................................... 43
Additional Information...................................................................................................... 44
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.............................................. *
Blue sky fees and expenses (including legal and filing fees)......................... *
Printing expenses (other than stock certificates).................................... *
Printing and engraving of stock certificates......................................... *
Legal fees and expenses (other than Blue sky)........................................ *
Accounting fees and expenses......................................................... *
Transfer Agent and Registrar fees and expenses....................................... *
Miscellaneous expenses............................................................... *
------
Total........................................................................... *
------
------
</TABLE>
- ------------
* To be filed by amendment.
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
- ------ -----------------------------------------------------------------------------------------------------------
<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.
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* -- Lease Agreement between the Company and BDC Realty Corp.
10.6* -- Indemnification Agreement between the Company and Harry Acker.
10.7* -- Escrow Agreement among the Company, Harry Acker and Parker Chapin Flattau & Klimpl, LLP, as escrow
agent.
10.8 -- Note of the Company relating to its bank working capital facility.
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, contained on page II-4.
27.1 -- Financial Data Schedule.
</TABLE>
- ------------
* To be filed by amendment.
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 5th day of June 1996.
SLEEPY'S, INC.
By: /s/ HARRY ACKER
...................................
HARRY ACKER
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Harry Acker and David Acker, and each of them, as
his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this registration statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or any of
them, may lawfully do or cause to be done by virtue hereof.
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 June 5, 1996
......................................... Officer and Director
(HARRY ACKER)
/s/ DAVID ACKER Chief Operating Officer and Director June 5, 1996
.........................................
(DAVID ACKER)
/s/ A.J. ACKER Executive Vice President and Director June 5, 1996
.........................................
(A.J. ACKER)
/s/ JAY BOROFSKY Vice President of Finance and Chief June 5, 1996
......................................... Financial Officer (principal financial and
(JAY BOROFSKY) accounting officer)
</TABLE>
II-4
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RESTATED CERTIFICATE OF INCORPORATION
OF
BEDDING DISCOUNT CENTER INC.
UNDER SECTION 807 OF THE BUSINESS CORPORATION LAW
The undersigned, being the holder of all the outstanding
shares of BEDDING DISCOUNT CENTER INC. (the "Corporation") entitled to vote
hereon, does hereby certify as follows:
1. The name of the Corporation is BEDDING DISCOUNT CENTER INC.
2. The Certificate of Incorporation of the Corporation was
filed by the Department of State of the State of New York on the 4th day of
October, 1957.
3. The Certificate of Incorporation, as heretofore amended, is
hereby amended or changed to effect one or more of the amendments or changes
authorized by the Business Corporation Law, to wit:
(a) To effect a change in corporate name.
(b) To expand the purposes of the Corporation.
(c) To amend the provision regarding the address
of the Corporation.
(d) To change (i) 200 shares of Class A Voting
Common Stock with no par value ("Class A Common Stock") and 200 shares of Class
B Non-Voting Common Stock with no par value ("Class B Common Stock") into
10,000,000 shares of Common Stock with a par value
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of $.01 per share, (ii) to change 50 issued shares of Class A Common Stock and
50 issued shares of Class B Common Stock into 100 issued shares of Common Stock
with a par value of $.01 per share, the rate of change being one for one, (iii)
to change 150 shares of unissued Class A Common Stock and 150 shares of unissued
Class B Common Stock into 9,999,900 shares of Common Stock with a par value of
$.01 per share, the rate of change being 33,333 shares of Common Stock with a
par value of $.01 per share for each currently authorized, but unissued share of
Class A Common Stock and Class B Common Stock, and (iv) to authorize 5,000,000
shares of Preferred Stock with a par value of $.01 per share.
(e) To provide that the Corporation's Board of
Directors shall be authorized to issue the Preferred Stock in series, to
establish the number of shares to be included in each such series, and to fix
the designation, relative rights, preferences and limitations of the shares of
each such series.
(f) To provide for indemnification of directors
and officers, that the Corporation shall have the power to purchase and maintain
insurance for such indemnification and limit the liability of directors to the
Corporation or its shareholders.
(g) To provide that no holder of any of the
shares of any class, and no holder of any of the shares of any series of any
class, of the Corporation shall have any preemptive rights.
4. To accomplish the foregoing amendments:
(a) Article First relating to the name of the
Corporation, Article Second relating to the purposes of the Corporation, Article
Third relating to the address of the Corporation and Article Fourth relating to
the capital stock of the Corporation are amended to read as set forth
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in the same numbered Articles of the Certificate of Incorporation of the
Corporation as hereinafter restated.
(b) New Article Fifth relating to the designation of the
Secretary of State as agent for service of process of the Corporation, new
Article Sixth relating to preemptive rights of shareholders and new Article
Seventh relating to indemnification of directors and officers are added as set
forth in the Certificate of Incorporation of the Corporation as hereinafter
restated.
5. The text of the Certificate of Incorporation of the
Corporation is hereby restated as further amended or changed herein to read in
its entirety as follows:
"CERTIFICATE OF INCORPORATION
OF
SLEEPY'S, INC.
FIRST: The name of the Corporation is SLEEPY'S, INC.
SECOND: The purposes for which the Corporation is formed are
as follows:
To engage in any lawful act or activity for which
corporations may be organized under the New York Business
Corporation Law, provided that the Corporation is not formed
to engaged in any act or activity requiring the consent or
approval of any state official, department, board, agency or
other body without such consent or approval first being
obtained.
THIRD: The office of the Corporation within the State of New
York shall be located in the County of Nassau.
FOURTH: The aggregate number of shares which the Corporation
is authorized to issue is 15,000,000 shares, consisting of 10,000,000 shares of
Common Stock of the par value of $.01 per share and 5,000,000 shares of
Preferred Stock of the par value of $.01 per share.
3
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The relative rights, preferences and limitations of the shares
of each class of capital stock are as follows:
(a) Common Stock.
(1) Subject to the rights of any other class or series of
stock, the holders of shares of Common Stock shall be entitled to receive, when
and as declared by the Board of Directors, out of the assets of the Corporation
legally available therefor, such dividends as may be declared from time to time
by the Board of Directors.
(2) Subject to such rights of any other class or series of
securities as may be granted from time to time, the holders of shares of Common
Stock shall be entitled to receive all the assets of the Corporation available
for distribution to shareholders in the event of the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, ratably, in
proportion to the number of shares of Common Stock held by them. Neither the
merger or consolidation of the Corporation into or with any other corporation
nor the merger or consolidation of any other corporation into or with the
Corporation nor the sale, lease, exchange or other disposition (for cash, shares
of stock, securities or other consideration) of all or substantially all the
assets of the Corporation shall be deemed to be a dissolution, liquidation or
winding up, voluntary or involuntary, of the Corporation
(3) Common Stock shall not be subject to redemption.
(4) Subject to such voting rights of any other class or series
of securities as may be granted from time to time pursuant to this Certificate
of Incorporation, any amendment thereto, or the provisions of the laws of the
State of New York governing business corporations, voting rights shall be vested
exclusively in the holders of Common Stock. Each holder of Common Stock shall
have one vote in respect of each share of such stock held.
(b) Preferred Stock. The Board of Directors of the Corporation
is authorized, subject to limitations prescribed by law and the provisions of
this Certificate of Incorporation, to provide for the issuance of the Preferred
Stock in series, and by filing a certificate pursuant to the New York Business
Corporation Law, to establish the number of shares to be included in each such
series, and to fix the designation, relative rights, preferences and limitations
of the shares of each such series. The authority of the Board of Directors with
respect to each series shall include, but not be limited to, determination of
the following:
(1) the number of shares constituting that series and the
distinctive designation of that series;
(2) whether the holders of shares of that series shall be
entitled to receive dividends and, if so, the rates of such dividends,
conditions under which and times such dividends may be declared or paid, any
preference of any such dividends to, and the relation to, the dividends payable
on any other class or classes of stock or any other series of the same class and
whether dividends shall be cumulative or non-cumulative and, if cumulative, from
which date or dates;
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(3) whether the holders of shares of that series have voting
rights in addition to the voting rights provided by law and, if so, the terms
and conditions of exercise of such voting rights;
(4) whether shares of that series shall be convertible into or
exchangeable for shares of any other class, or any series of the same or any
other class, and, if so, the terms and conditions thereof, including the date or
dates when such shares shall be convertible into or exchangeable for shares of
any other class, or any series of the same or any other class, the price or
prices of or the rate or rates at which shares of such series shall be so
convertible or exchangeable, and any adjustments which shall be made, and the
circumstances in which any such adjustments shall be made, in such conversion or
exchange prices or rates;
(5) whether the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall be redeemable and the amount per share
payable in case of redemption, which amount may vary under different conditions
and at different redemption dates;
(6) whether the shares of that series shall be subject to the
operation of a retirement or sinking fund and, if so subject, the extent to and
the manner in which it shall be applied to the purchase or redemption of the
shares of that series, and the terms and provisions relative to the operation
thereof;
(7) the rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding up of the
Corporation and any presence of any such rights to, and the relation to, the
rights in respect thereto of any class or classes of stock or any other series
of the same class; and
(8) any other relative rights, preferences and limitations of
that series;
provided, however, that if the stated dividends and amounts payable on
liquidation with respect to shares of any series of the Preferred Stock are not
paid in full, the shares of all series of the Preferred Stocks shall share
ratably in the payment of dividends including accumulations, if any, in
accordance with the sums which would be payable on such shares if all dividends
were declared and paid in full, and in any distribution of assets (other than by
way of dividends) in accordance with the sums which would be payable on such
distribution if all sums payable were discharged in full.
FIFTH: The Secretary of State of the State of New York is
hereby designated as the agent of the Corporation upon whom any process in any
action or proceeding against the Corporation may be served, and the address to
which the Secretary of State shall mail a copy of process in any action or
proceeding against the Corporation which may be served upon him is: Sleepy's,
Inc., 175 Central Avenue South, Bethpage, New York 11714, Attn: Mr. Harry Acker.
SIXTH: No holder of any of the shares of any class, and no
holder of any of the shares of any series of any class, of the Corporation shall
have any preemptive rights and, as such, no holder of any of the shares of any
class, and no holder of any of the shares of any series of any class, of the
Corporation shall be entitled as of right to subscribe for, purchase or
otherwise acquire
5
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<PAGE>
any shares of any class, or shares of any series of any class, of the
Corporation that the Corporation proposes to issue or any rights or options that
the Corporation proposes to grant for the purchase of shares of any class, or
shares of any series of any class, of the Corporation or for the purchase of any
shares, bonds, securities or obligations of the Corporation that are convertible
into or exchangeable for, or that carry any rights to subscribe for, purchase or
otherwise acquire shares of any class, or shares of any series of any class, of
the Corporation, and any and all such shares, bonds, securities or obligations
of the Corporation, whether now or hereafter authorized or created, may be
issued, or may be reissued or transferred if the same have been reacquired and
have treasury status, and any and all of such rights and options may be granted
by the Board of Directors in its discretion may determine, without first
offering the same, or any thereof, to any said holder.
SEVENTH: (a) The Corporation shall be permitted to indemnify,
and advance expenses to, any officer, director or other person to the fullest
extent from time to time permitted by law, and, to the extent consistent
therewith, shall indemnify or advance expenses to any such officer, director or
other person to the fullest extent required by or pursuant to any present or
future by-law of the Corporation, agreement approved by the Board of Directors,
or resolution of shareholders or directors; and the adoption of any such
resolution or entering into of any such agreement approved by the Board of
Directors is hereby authorized.
(b) A director of the Corporation shall not be
personally liable to the Corporation or its shareholders for damages for any
breach of duty as a director; provided that, except as hereinafter provided,
this Section SEVENTH shall neither eliminate nor limit liability: (a) if a
judgment or final adjudication adverse to the director establishes that (i) the
director's acts or omissions were in bad faith or involved intentional
misconduct or knowing violation of law, (ii) the director personally gained in
fact a financial profit or other advantage to which the director was not legally
entitled, or (iii) the director's acts violated Section 719 of the New York
Business Corporation Law; or (b) for any act or omission prior to the
effectiveness of this Section SEVENTH. If the Corporation hereafter may by law
be permitted to further eliminate or limit the personal liability of directors,
then pursuant hereto the liability of a director of the Corporation shall, at
such time, automatically be further eliminated or limited to the fullest extent
permitted by law. Any repeal of or modification to the provisions of this
Section SEVENTH shall not adversely affect any right or protection of a director
of the Corporation existing pursuant to this Section SEVENTH immediately prior
to such repeal or modification."
6. The amendments to, and restatement of, the Certificate of
Incorporation of the Corporation herein provided for were authorized by the
unanimous written consent of the Board of Directors of the Corporation and the
holder of all the outstanding shares of the Corporation's Common Stock entitled
to vote hereon.
6
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IN WITNESS WHEREOF, I have subscribed this document this 5th
day of June, 1995, and do hereby affirm, under penalty of perjury, that the
statements contained herein have been examined by me and are true and correct.
/s/ DAVID ACKER
---------------------------------------------
DAVID ACKER, as trustee of the Harold
Acker Irrevocable Trust dated December 27,
1995, the sole shareholder of the Corporation
7
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<PAGE>
SLEEPY'S, INC.
BY-LAWS
ARTICLE I
SHAREHOLDERS
1.1 TIME OF SHAREHOLDER MEETINGS
The annual meeting of shareholders of the Company for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held on such date and at such time and
place as designated by the Board of Directors, or if no such designation is
made, at 10:00 A.M. on the fifteenth day of the fifth month following the close
of the Company's fiscal year (or if that is a legal holiday, then on the next
succeeding business day at 10:00 a.m.).
Special meetings of shareholders shall be held on the date
fixed by the Board of Directors or the Chairman of the Board or the President or
the shareholders of the Company calling the special meeting of shareholders
pursuant to Section 1.3.
1.2 PLACE OF SHAREHOLDER MEETINGS
Annual meetings and special Meetings of shareholders shall be
held at such place, within or without the State of New York, as the Board of
Directors, or in the case of special meetings of shareholders, at such place as
the Board of Directors or the Chairman of the Board of Directors or the
President of the Company calling the special meeting of shareholders pursuant to
Section 1.3, may from time to time fix, either by resolution or by inclusion in
notice of meeting. In the event of a failure to fix such place, the meeting
shall be held at the office of the Company in the State of New York.
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1.3 CALLING OF SHAREHOLDER MEETINGS
Annual meetings of shareholders will be called by the Board of
Directors, by an officer instructed by the Board of Directors to call meetings
or by the Chairman of the Board of Directors or Chief Operating Officer of the
Company. Special meetings of shareholders may be called by the Board of
Directors, the Chairman of the Board of Directors or Chief Operating Officer of
the Company or at the request in writing by shareholders owning a majority of
the shares of capital stock of the Company issued and outstanding and entitled
to vote.
1.4 NOTICE OF SHAREHOLDER MEETINGS, WAIVER
The notice of all meetings shall be written or printed, shall
state the place, date, and hour of the meeting, and in case of a special meeting
of shareholders, shall indicate the purpose or purposes for which the meeting is
called. A copy of the notice of all meetings shall be given, personally or by
mail, not less than ten days nor more than fifty days before the date of the
meeting, to each shareholder of record entitled to vote at such meeting, and, if
mailed, it shall be directed to such shareholder at his record address or at
such other address which he may have furnished in writing to the Secretary of
the Company. If action is proposed to be taken that might entitle shareholders
to payment for their shares, the notice shall include a statement of that
purpose and to that effect. If a meeting is adjourned to another time or place,
and, if any announcement of the adjourned time or place is made at the meeting,
it shall not be necessary to give notice of the adjourned meeting unless the
directors, after adjournment, fix a new record date for the adjourned meeting.
Notice of any meeting need not be given to any shareholder who
submits a signed waiver of notice before or after the meeting. The attendance of
a shareholder at a meeting
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without protesting the lack of notice of such meeting prior to the conclusion
of the meeting, shall constitute a waiver of notice by him.
1.5 RECORD DATE FOR SHAREHOLDERS
For the purpose of determining the shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or to express consent to or dissent from any proposal without a meeting, or for
the purpose of determining shareholders entitled to receive payment of any
dividend or the distribution or allotment of any rights or evidences of
interests arising out of any change, conversion, or exchange of capital stock,
or for the purpose of any other action, the Board of Directors may fix, in
advance, a date as the record date for any such determination of shareholders.
Such date shall not be more than fifty days nor less than ten days before the
date of such meeting, nor more than fifty days prior to any other action. When a
determination of shareholders of record entitled to notice of or to vote at any
meeting has been made as provided in this Section 1.5, such determination shall
apply to any adjournment thereof, unless the Board of Directors fix a new record
date under this Section 1.5 for the adjourned meeting. Only shareholders of
record on a record date fixed for determining shareholders entitled to receive
payment of any dividend or the distribution or allotment of any rights or
evidences of interests arising out of any change, conversion, or exchange of
capital stock, shall be entitled to receive such dividend, rights or interests.
1.6 CONDUCT OF MEETINGS
Meetings of the shareholders shall be presided over by the
Chairman of the Board, or in his absence, by the Chief Operating Officer,
or in the Chief Operating Officer's absence, by the President, or in the
President's absence, by any Vice President as directed by the Chairman of the
Board or the President. The Secretary of the Company, or in his absence,
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any Assistant Secretary selected by the chairman of the meeting, shall act as
secretary of the meeting.
1.7 PROXY REPRESENTATION
Every shareholder may authorize another person or persons to
act for him by proxy in all matters in which a shareholder is entitled to
participate, whether by waiving notice of any meeting, voting or participating
at a meeting or expressing consent or dissent without a meeting. Every proxy
must be in writing and signed by the shareholder or his attorney-in-fact. No
proxy shall be valid after the expiration of eleven months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the share holder executing it, except as otherwise provided by the
Business Corporation Law of the State of New York.
1.8 QUORUM
The holders of record of a majority of the shares of stock
issued and outstanding and entitled to vote thereat, present in person or by
proxy, shall be requisite and shall constitute a quorum at each meeting of
shareholders for the transaction of business, except as otherwise provided by
law, by the Certificate of Incorporation or by these By-Laws; provided that,
when any specified action is required to be voted upon by a class of stock
voting as a class, the holders of a majority of the shares of such class shall
be requisite and shall constitute a quorum for the transaction of such specified
action. When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any shareholders. The shareholders present may
adjourn the meeting despite the absence of a quorum. At the meeting to which
such adjourned meeting is reconvened, any business may be transacted which might
have been transacted at the meeting as first convened had there been a quorum.
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1.9 VOTING
Each shareholder entitled to vote on any action proposed at a
meeting of shareholders shall be entitled to one vote in person or by proxy for
each share of voting stock held of record by him, unless otherwise provided in
the Certificate of Incorporation. The vote for directors shall be by vote of
shareholders represented either in person or by proxy at the meeting, and the
election of each director shall be decided by a plurality vote. Except as
otherwise provided by law, by the Certificate of Incorporation, by other
certificate filed pursuant to law or by these By-Laws, votes on any other
matters coming before any meeting of shareholders shall be decided by the vote
of the holders of a majority of the shares represented at such meeting, in
person or by proxy, and entitled to vote on the specific matter. Except as
required by law, by the Certificate of Incorporation, by other certificate filed
pursuant to law or by these By-Laws, the chairman presiding at any meeting of
shareholders may rule on questions of order or procedure coming before the
meeting or submit such questions to the vote of the meeting, with each
shareholder entitled to one vote in person or by proxy for each share of voting
stock held of record by him, which vote may at the direction of the chairman at
the meeting be by ballot.
1.10 WRITTEN CONSENT OF SHAREHOLDERS
Any action that may be taken by vote may be taken without a
meeting on written consent, setting forth the action so taken, signed by the
holders of all the outstanding shares entitled to vote thereon or signed by such
lesser number of holders as may be provided for in the Certificate of
Incorporation.
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ARTICLE II
BOARD OF DIRECTORS
2.1 QUALIFICATIONS AND NUMBER
Each director shall be at least 21 years of age. A director
need not be a shareholder, a citizen of the United States, or a resident of the
State of New York. The number of directors constituting the entire Board of
Directors shall consist of not less than three (3) nor more than seven (7)
directors (except that where all of the shares are owned beneficially and of
record by less than three (3) shareholders, the number of directors may be less
than three (3) but not less than the number of shareholders), the exact number
to be determined from time to time by resolution of the Board of Directors;
provided, however, that the number of directors shall be increased beyond the
foregoing limit, to the extent required, in the event that (and for so long as)
the holders of any Preferred Stock of the Company, voting as a separate class or
series under any provisions of the Certificate of Incorporation, shall be
entitled to elect any directors.
2.2 ELECTION AND TERM
At each annual meeting of shareholders, the shareholders shall
elect directors to hold office until the next annual meeting. Each director
shall hold office until the expiration of the term for which he is elected and
until his successor has been elected and qualified, or until his prior
resignation or removal.
2.3 VACANCIES
Any vacancy in the Board of Directors, whether caused by
resignation, death, increase in the number of directors, disqualification or
otherwise, may be filled by a majority of the directors then in office after the
vacancy has occurred, although less than a quorum (except that a vacancy created
by the removal of a director by shareholders for cause or without cause
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may be filled by the shareholders at the meeting at which the director is
removed or, if not so filled, then by the remaining directors) and provided that
any vacancies with respect to directors elected by holders of any Preferred
Stock of the Company voting as a separate class or series under any provisions
of the Certificate of Incorporation shall be filled as provided in the
provisions of the Certificate of Incorporation relating to any such Preferred
Stock. Any director elected by the Board to fill a vacancy shall hold office
until the next meeting of shareholders at which the election of directors is in
the regular order of business, and until his successor has been elected and
qualified. At such meeting, if the term of the class in which such director has
been elected does not then expire, the shareholders shall elect a director to
fill the unexpired term.
2.4 TIME OF BOARD MEETINGS
An annual meeting of the Board shall be held in each year
immediately following the annual meeting of shareholders or if such meeting be
adjourned, the final adjournment thereof at the same place as such meeting of
shareholders. Regular meetings of the Board may be held without notice at such
time and place as shall from time to time be determined by resolution of the
Board.
Special meetings of the Board may be called pursuant to the
provision of Section 2.6 hereof.
2.5 PLACE OF BOARD MEETINGS
Regular and special meetings of the Board, except as otherwise
provided in the Company's Certificate of Incorporation or in these By-laws,
shall be held at such place within or without the State of New York as shall be
fixed by the Board. The annual meeting of a newly elected Board shall be held at
the same place where the meeting of the shareholders at which the election of
the new Board is held.
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2.6 CALLING OF BOARD MEETINGS
No call shall be required for the annual or any regular
meetings of the Board for which the time and place have been fixed. Special
Meetings of the Board may be called by the Chairman of the Board, the President,
or by the Secretary on written request of two directors.
2.7 NOTICE OF BOARD MEETINGS
No notice shall be required for the annual meeting of a newly
elected Board and for regular meetings for which the time and place have been
fixed. Except as otherwise provided by law, notice of each special meeting of
the Board shall be mailed to each director, addressed to him at his residence or
usual place of business, at least five days before the day on which such meeting
is to be held, or shall be sent addressed to him at such place by telegraph,
cable or wireless, or be delivered personally or by telephone, not later than 48
hours before the time on which such meeting is to be held. The notice of any
meeting need not specify the purpose of the meeting. Any requirement of
furnishing a notice shall be waived by any director who signs a waiver of notice
before or after the meeting, or who attends the meeting without protesting,
prior thereto or at its commencement, the lack of notice to him.
2.8 QUORUM AND ACTION
A majority of the entire Board shall constitute a quorum
except when a vacancy or vacancies prevent such majority, whereupon a majority
of the directors then in office shall con stitute a quorum, provided such
majority shall constitute at least one-third of the entire Board of Directors. A
majority of the directors present, whether or not a quorum is present, may
adjourn a meeting to another time and place. Notice need not be given of any
adjourned meeting. Except as otherwise provided herein, the act of the Board
shall be the act, at a meeting duly assembled, by
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vote of a majority of the directors present at the time of the vote, a quorum
being present at such time.
2.9 CHAIRMAN OF THE MEETING
The Chairman of the Board or, in his absence or inability to
act, the President of the Company or, in his absence or inability to act,
another director chosen by a majority of the directors present shall act as
chairman of meetings of the Board and preside at all such meetings. The
Secretary of the Company or, in his absence or inability to act, any person
appointed by the chairman of the meeting, shall act as secretary of the meeting.
2.10 RESIGNATION OR REMOVAL OF DIRECTORS
Any director may resign at any time and such resignation shall
take effect upon receipt thereof by the Chairman of the Board, the President or
the Secretary unless otherwise specified in the resignation. No director of the
Company shall be removed from office as a director except (i) for cause by the
vote of (A) the holders of at least a majority of the outstanding shares of
capital stock of the Company entitled to vote at an election of directors
(considered for this purpose as one class) or (B) a majority of the entire Board
of Directors or (ii) without cause by the vote of the holders of at least a
majority of the outstanding shares of capital stock of the Company entitled to
vote at an election of directors (considered for this purpose as one class),
provided that this provision shall not apply to any directors elected by holders
of any Preferred Stock voting as a separate class or series under any provisions
of the Certificate of Incorporation, which directors may be removed only by the
vote of the holders of at least a majority of the outstanding shares of such
Preferred Stock.
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2.11 COMMITTEES
By resolution adopted by a majority of the entire Board of
Directors, the directors may designate from their number three or more
directors, to constitute an Executive Committee and other committees, each of
which, to the extent provided in the resolution designating it, shall have the
authority of the Board of Directors with the exception of any authority the
delegation of which is prohibited by the New York Business Corporation Law. All
committees so appointed shall keep regular minutes of the business transacted at
their meeting. Each committee establishe by the Board of Directors shall serve
at the pleasure of the Board of Directors, which may fill vacancies in any such
committee.
2.12 ACTION IN LIEU OF MEETING
Any action required or permitted to be taken by the Board or
any committee thereof may be taken without a meeting if all members of the Board
or the committee consent in writing to the adoption of a resolution authorizing
the action. The resolution and the written consents thereto shall be filed with
the minutes of the proceedings of the Board or committee.
2.13 TELEPHONE PARTICIPATION
One or more members of the Board or any committee thereof may
participate in a meeting of the Board or committee by means of a telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at a meeting.
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ARTICLE III
OFFICERS
3.1 ELECTION
The Board of Directors at its first meeting after the annual
meeting of shareholders, or as soon as practicable after the election of
directors in each year, shall elect or appoint from their number a Chairman of
the Board of Directors. The Board of Directors shall elect or appoint a
Chief Operating Officer, President, a Secretary and a Treasurer, none of
whom need be members of the Board, and may also elect or appoint one or more
Vice Presidents and such other officers as they may deem proper setting forth
the powers and duties of said officers in the resolution by which they are
elected or appointed. Any two of the aforesaid offices, except those of
President and Vice President, or President and Secretary, may be held by the
same person.
3.2 TERM OF OFFICE
Each officer shall hold office at the pleasure of the Board.
The Board of Directors may remove any officer for cause or without cause. Any
officer may resign his office at any time, such resignation to take effect upon
receipt of written notice thereof by the Company unless otherwise specified in
the resignation. If the office of any officer becomes vacant for any reason, the
vacancy may be filled by the Board.
3.3 THE CHAIRMAN OF THE BOARD
The Chairman of the Board of Directors shall be the chief
executive officer of the Company and shall have the general and active
supervision and direction over the other officers, agents and employees and
shall see that their duties are properly performed. He shall, if present,
preside at each meeting of the shareholders and of the Board and shall be an ex
officio member of all committees of the Board. He shall perform all duties
incident to the office of Chairman of the
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Board and chief executive officer and such other duties as may from time to time
be assigned to him by the Board or these By-Laws.
3.4 THE CHIEF OPERATING OFFICER
The Chief Operating Officer shall have general
and active supervision and direction over the business and affairs of the
Company and over its several officers, subject, however, to the control of the
Board. In the case of the absence or inability to act of the Chairman of the
Board, the Chief Operating Officer shall perform the duties of the Chairman of
the Board and when so acting shall have all the powers of, and be subject to
all the restrictions upon, the Chairman of the Board. He shall perform all
duties incident to the office of Chief Operating Officer and such other duties
as from time to time may be assigned to him by the Board, the Chairman of the
Board or these By-Laws.
3.5 PRESIDENT AND VICE PRESIDENTS
The President and each Vice President shall have such powers
and perform such duties as from time to time may be assigned to them,
respectively by the Board.
3.6 THE TREASURER
The Treasurer shall
(a) have charge and custody of, and be responsible for, all
the funds and securities of the Company;
(b) keep full and accurate accounts of receipts and
disbursements in books belonging to the Company;
(c) cause all moneys and other valuables to be deposited to
the credit of the Company in such depositories as may be designated by
the Board;
(d) receive, and give receipts for, moneys due and payable to
the Company from any source whatsoever;
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(e) disburse the funds of the Company and supervise the
investment of its funds as ordered or authorized by the Board, taking
proper vouchers therefor; and
(f) in general, have all the powers and perform all the duties
incident to the office of Treasurer and such other duties as from time
to time may be assigned to him by the Board, the Chairman of the Board
or the President.
3.7 THE SECRETARY. The Secretary shall
(a) keep or cause to be kept, in one or more books provided
for the purpose, the minutes of all meetings of the Board, the
committees of the Board and the shareholders;
(b) see that all notices are duly given in accordance with the
provisions of these By-laws and as required by law;
(c) be custodian of the records and the seal of the Company
and affix and attest the seal to all share certificates of the Company
(unless the seal of the Company on such certificates shall be a
facsimile, as hereinafter provided) and affix and attest the seal to
all other documents to be executed on behalf of the Company under its
seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and filed are
properly kept and filed; and
(e) in general, have all the powers and perform all the duties
incident to the office of Secretary and such other duties as from time
to time may be assigned to him by the Board, the Chairman of the Board
or the President.
3.8 DUTIES OF OFFICERS MAY BE DELEGATED
In the case of the absence of any officer, or for any other
reason that the Board may deem sufficient, the Chairman of the Board, the
Chief Operating Officer, the President or the Board may delegate for the time
being the powers or duties of such officer to any other officer or to any
director.
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ARTICLE IV
SHARE CERTIFICATES
4.1 ISSUANCE OF SHARE CERTIFICATES
The capital stock of the Company shall be represented by
certificates signed by the Chairman of the Board, the President or a Vice
President and by the Secretary or an Assistant Secretary or the Treasurer or any
Assistant Treasurer and sealed with the seal of the Company. Such seal may be a
facsimile, engraved or printed and where any such certificate is signed by a
transfer agent or transfer clerk and by a registrar, the signatures of any
officers appearing thereon may be facsimiles, engraved or printed.
4.2 LOST SHARE CERTIFICATES
The Board of Directors may issue or cause to be issued new or
duplicate certificates for lost, stolen or destroyed share certificates of the
Company upon written notification of the facts of such loss, theft or
destruction and subject, in the discretion of the Board of Directors, to the
deposit of a bond or other indemnity by the shareholder seeking the new
certificate in such form and with such sureties and in such sum as the Board may
require.
4.3 TRANSFERS OF SHARES
Transfers of shares shall be made only on the share transfer
books of the Company, and, except in the case of any such certificate which has
been lost, stolen or destroyed, such transfer shall only be made upon surrender
to the Company of a certificate for shares for cancellation duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer. Upon the issue of a new certificate to the person entitled thereto,
the Company shall cancel the old certificate and record the transaction upon its
books.
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4.4 REGULATIONS
Except to the extent that the exercise of such power shall be
prohibited or circumscribed by these By-Laws, by the Certificate of
Incorporation, or other certificate filed pursuant to law, or by statute, the
Board of Directors shall have power to make such rules and regulations
concerning the issuance, registration, transfer and cancellation of share
certificates as it shall deem appropriate.
ARTICLE V
SEAL
The seal of the Company shall be circular in form, shall bear
the name of the Company and shall contain in the center the year in which the
Company was incorporated and the words "Corporate Seal", "New York".
ARTICLE VI
FISCAL YEAR
The fiscal year of the Company shall end on such date and
shall consist of such accounting periods as may be fixed by the Board.
ARTICLE VII
VOTING SECURITIES
Unless otherwise directed by the Board, the Chairman of the
Board, or, in the case of his absence or inability to act, the Chief Operating
Officer, or, in the case of the Chief Operating Officer's absence or inability
to act, the President, or, in the case of the President's absence or inability
to act, the Vice Presidents, in order of their seniority, shall have full power
and authority on behalf of the Company to attend and to act and to vote, or to
execute in the name or on behalf
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of the Company a proxy authorizing an agent or attorney-in-fact for the Company
to attend and vote at any meetings of security holders of corporations in which
the Company may hold securities, and at such meetings he or his duly authorized
agent or attorney-in-fact shall possess and may exercise any and all rights and
powers incident to the ownership of such securities and which, as the owner
thereof, the Company might have possessed and exercised if present. The Board by
resolution from time to time may confer like power upon any other person or
persons.
ARTICLE VIII
BOOKS AND RECORDS
The Company shall keep correct and complete books and records
of account and shall keep minutes of the proceedings of the shareholders, the
Board of Directors, and any committee which the directors may appoint, and shall
keep at the office of the Company in the State of New York or at the office of
the transfer agent or registrar, if any, in said State, a record containing the
names and addresses of all shareholders, the number of shares held by each, and
the dates when they respectively became the owners of record thereof. Any of the
foregoing books, minutes, or records may be in written form or in any other form
capable of being converted into written form within a reasonable time.
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ARTICLE IX
INDEMNIFICATION OF DIRECTORS, OFFICERS AND EMPLOYEES
9.1 GENERAL
The Company shall indemnify any officer or director of the
Company made, or threatened to be made, a party to an action or proceeding,
whether civil, criminal, administrative or investigative and including an action
by or in the right of a Company or by or in the right of any other corporation
of any type or kind, domestic or foreign, or any partnership, joint venture,
trust, employee benefit plan or other enterprise, which any director or officer
of the Company served in any capacity at the request of the Company (any such
action or proceeding being hereinafter referred to as an "Action"), by reason of
the fact that he, his testator or intestate was a director or officer of the
Company, or served such other corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise in any capacity, against judgments,
fines, amounts paid in settlement and reasonable expenses, including attorney's
fees incurred as a result of such Action, or any appeal therein, provided that
no indemnification shall be made to or on behalf of any director or officer 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. The Company may indemnify and advance expenses to any other person to
whom the Company is permitted to provide indemnification or the advancement of
expenses to the fullest extent permitted by applicable law, whether pursuant to
rights granted pursuant to, or provided by, the New York Business Corporation
Law or other law, or other rights create by an agreement approved by the Board,
or resolution of shareholders or the Board, and the adoption of
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any such resolution or the entering into of any such agreement approved by the
Board is hereby authorized.
9.2 EXPENSE ADVANCES
The Company shall, from time to time, advance to any director
or officer of the Company expenses (including attorneys' fees) incurred in
defending any Action in advance of the final disposition of such Action;
provided that no such advancement shall be made until receipt of any undertaking
by or on behalf of such director or officer to repay such amount as and to the
extent required by law.
9.3 PROCEDURE FOR INDEMNIFICATION
Indemnification and advancement of expenses under this Article
IX shall be made promptly and, in any event, no later than thirty (30) days in
the case of indemnification and fifteen (15) days in the case of expense
advancement following the request of the person entitled to such indemnification
or advancement of expenses hereunder, as the case may be. The Board shall
promptly (but, in any event, within such thirty (30) or fifteen (15) day period,
as the case may be) take all such actions (including, without limitation, any
authorizations and findings required by law) as may be necessary to indemnify,
and advance expenses to, each person entitled thereto pursuant to this Article
IX. If the Board is or may be disqualified by law from granting any
authorization, making any finding or taking any other action necessary or
appropriate for such indemnification or advancement, then the Board shall use
its best efforts to cause appropriate person(s) to promptly so authorize, find
or act.
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9.4 INSURANCE
The Company shall be permitted to purchase and maintain
insurance for its own indemnification and that of its directors and officers and
any other proper persons to the maxi mum extent permitted by law.
9.5 NON-EXCLUSIVITY
Nothing contained in this Article IX shall limit the right to
indemnification and advancement of expenses to which any person would be
entitled by law in the absence of this Article IX, or shall be deemed exclusive
of any other rights to which those seeking indemnification or advancement of
expenses may have or hereafter be entitled under any law, provision of the
Certificate of Incorporation, By-Law, agreement approved by the Board, or
resolution of shareholders or directors; and the adoption of any such resolution
or entering into of any such agreement approved by the Board is hereby
authorized.
9.6 CONTINUITY OF RIGHTS
The indemnification and advancement of expenses provided by,
or granted pursuant to, this Article IX shall (i) continue as to a person who
has ceased to serve in a capacity which would entitle such person to
indemnification or advancement of expenses pursuant to this Article IX with
respect to acts or omissions occurring prior to such cessation, (ii) inure to
the benefit of the heirs, executors and administrators of a person entitled to
the benefits of this Article IX, (iii) apply with respect to acts or omissions
occurring prior to the adoption of this Article IX to the fullest extent
permitted by law and (iv) survive the full or partial repeal or restrictive
amendment hereof with respect to events occurring prior thereto.
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9.7 ENFORCEMENT
The right to indemnification and advancement of expenses
provided by this Article IX shall be enforceable by any person entitled to
indemnification or advancement of expenses hereunder in any court of competent
jurisdiction. In such an enforcement action, the burden shall be on the Company
to prove that the indemnification and advancement of expenses being sought are
not appropriate. Neither the failure of the Company to determine whether
indemnification or the advancement of expenses is proper in the circumstances
nor an actual determination by the Company thereon adverse to the person seeking
such indemnification or advancement shall constitute a defense to the action or
create a presumption that such person is not so entitled. Without limiting the
scope of section 9.1, (a) a person who has been successful on the merits or
otherwise in the defense of an Action shall be entitled to indemnification as
authorized in section 9.1 and (b) the termination of any Action by judgment,
settlement, conviction or plea of nolo contendere or its equivalent shall not in
itself create a presumption that such person has not met the standard of conduct
set forth in section 9.1. Such person's reasonable expenses incurred in
connection with successfully establishing such person's right to indemnification
or advancement or expenses, in whole or in part, in any such proceeding shall
also be indemnified by the Company.
9.8 SEVERABILITY
If this Article IX or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company
nevertheless shall indemnify and advance expenses to each person otherwise
entitled thereto to the fullest extent permitted by any applicable portion of
this Article IX that shall not have been invalidated.
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ARTICLE X
AMENDMENT
Except as otherwise provided in the Company's Certificate of
Incorporation, these By-Laws may be amended, altered, changed, added to or
repealed by the affirmative vote of the holders of a majority of the outstanding
shares of capital stock of the Company entitled to vote at an election of
directors (considered for this purpose as one class).
Except as otherwise provided in the Company's Certificate of
Incorporation, the Board of Directors, at any regular or special meeting, by a
majority vote of the whole Board, may amend, alter, change, add to or repeal
these By-Laws, provided that if any By-Law regulating an impending election of
directors is adopted or amended or repealed by the Board, there shall be set
forth in the notice of the next shareholders meeting for the election of
directors, the By-Laws so adopted or amended or repealed, together with a
concise statement of the changes made.
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EMPLOYMENT AGREEMENT
This EMPLOYMENT AGREEMENT dated as of , 1996, between
SLEEPY'S, INC., a New York corporation currently having an address at 175
Central Avenue South, Bethpage, New York 11714 (the "Company"), and HARRY ACKER,
an individual residing at 61 Bay Colony Drive, Ft. Lauderdale, Florida 33308
("Employee").
W I T N E S S E T H :
WHEREAS, the Company desires that Employee be employed by it
and render services to it, and Employee is willing to be so employed and to
render such services to the Company, all upon the terms and subject to the
conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties agree as
follows:
1. Employment. Subject to and upon the terms and conditions
contained in this Agreement, the Company hereby agrees to employ Employee and
Employee agrees to enter the employ of the Company, for the period set forth in
Paragraph 2 hereof, to render the services to the Company, its affiliates and/or
subsidiaries described in Paragraph 3 hereof.
2. Term. Employee's term of employment under this Agreement
shall commence on the date hereof (the "Commencement Date") and shall continue
for a period through and including the second anniversary of the Commencement
Date (the "Employment Term") unless extended in writing by both parties or
earlier terminated pursuant to the terms and conditions set forth herein.
3. Duties. (a) Subject to the authority of the Board of
Directors of the Company, Employee shall be employed solely as the Company's
Chairman of the Board and Chief Executive Officer. It is agreed that Employee
shall perform his services in the Company's Bethpage, New York facility, or any
other facilities mutually agreeable to the parties. The rights and duties of
Employee shall not in any way be curtailed by the Company without his consent
nor shall he be deprived of the dignity ordinarily associated with his offices.
(b) Employee agrees to abide by all By-laws and
applicable policies of the Company promulgated from time to time by the Board of
Directors of the Company.
4. Exclusive Services and Best Efforts. Employee shall
devote his entire working time, attention, best efforts and ability during
regular business hours exclusively to the service of the Company, its affiliates
and subsidiaries during the term of this Agreement.
5. Compensation. As compensation for his services and
covenants hereunder, the Company shall pay Employee the following:
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(a) Base Salary. The Company shall pay Employee a minimum
base salary ("Salary") of Four Hundred Thousand Dollars ($400,000) per year.
(b) Bonus Compensation. The Company also shall pay Employee
annual bonus compensation ("Bonus Compensation") based on the success of
business operations and the pre-tax profits of the Company and upon the
performance of the Employee as determined by the Board of Directors of the
Company, which Bonus Compensation shall be paid by the Company within thirty
(30) days after completion of the audited financial results of the Company.
6. Business Expenses. Employee shall be reimbursed for, and
entitled to advances (subject to repayment to the Company if not actually
incurred by Employee) with respect to, reasonable expenses incurred by him in
connection with his duties under this Agreement in accordance with policies
established from time to time by the Company.
7. Employee Benefits. (a) During the Employment Term,
Employee shall be entitled to such insurance, disability and health and medical
benefits and be entitled to participate in such retirement plans or programs as
generally made available to executive officers of the Company pursuant to the
policies of the Company; provided that Employee shall be required to comply with
the conditions attendant to coverage by such plans and shall comply with and be
entitled to benefits only in accordance with the terms and conditions of such
plans. Employee shall be entitled to paid vacation each year during the
Employment Term of such duration and at such times as does not, in the opinion
of the Board of Directors, interfere with Employee's performance of his duties
hereunder. The Company may withhold from any benefits payable to Employee all
federal, state, local and other taxes and amounts as shall be permitted or
required pursuant to law, rule or regulation.
(b) Employee shall be entitled to receive the sum
of Two Thousand Dollars ($2,000) per month as an automobile allowance provided
at the expense of the Company from the Commencement Date and during the
Employment Term, which allowance shall be exclusive of all expenses related to
insurance, repairs, maintenance, fuel and oil for such automobile, which
expenses also shall be the responsibility of the Company. Employee acknowledges
that some or all of the foregoing may be deemed compensation to him.
(c) During the Employment Term, the Company agrees
to maintain, for the benefit of Employee's estate, a full-pay split-dollar life
insurance policy on the life of Employee, which policy shall be reasonably
acceptable to Employee; provided that in no event shall the annual premium on
such policy exceed $100,000 per year.
8. Death and Disability. (a) The Employment Term shall
terminate on the date of Employee's death, in which event Employee's Salary,
reimbursable expenses and benefits owing to Employee through the date of
Employee's death shall be paid to his estate. Employee's estate will not be
entitled to any other compensation upon termination of this Agreement pursuant
to this Paragraph 8(a).
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(b) If, during the Employment Term, in the opinion
of a duly licensed physician selected by Employee and reasonably acceptable to
the Company and Employee, Employee, because of physical or mental illness or
incapacity, shall become substantially unable to perform the duties and services
required of him under this Agreement for a period of six consecutive months the
Company may, upon at least twenty (20) days' prior written notice given at any
time after the expiration of such six-month period to Employee of its intention
to do so, terminate this Agreement as of such date as may be set forth in the
notice. In case of such termination, Employee shall be entitled to receive his
Salary, reimbursable expenses and benefits owing to Employee through the date of
termination. Employee will not be entitled to any other compensation upon
termination of this Agreement pursuant to this Paragraph 8(b).
9. Termination for Cause. (a) The Company may terminate the
employment of Employee for Cause (as hereinafter defined). Upon such
termination, the Company shall be released from any and all further obligations
under this Agreement, except that the Company shall be obligated to pay Employee
his Salary, reimbursable expenses and benefits owing to Employee through the day
on which Employee is terminated. Employee will not be entitled to any other
compensation upon termination of this Agreement pursuant to this Paragraph 9(a).
(b) As used herein, the term "Cause" shall mean:
(i) the willful failure of Employee to perform his duties pursuant to Paragraph
3 hereof, which failure is not cured by Employee within 20 days following notice
thereof from the Company; (ii) any other material breach of this Agreement by
Employee, including any of the material representations or warranties made by
Employee; (iii) any act, or failure to act, by Employee in bad faith or to the
detriment of the Company; (iv) the commission by Employee of an act involving
moral turpitude, dishonesty, theft, unethical business conduct, or any other
conduct which significantly impairs the reputation of, or harms, the Company,
its subsidiaries or affiliates; (v) any misrepresentation, concealment or
omission by Employee of any material fact in seeking employment hereunder; or
(vi) any other occurrence or circumstance generally recognized a "cause" for
employment termination under applicable law.
10. Termination for Good Reason. (a) Employee may
voluntarily terminate his employment for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean, without Employee's express written consent,
the occurrence after a Change in Control, as defined below, of the Company of
any of the following circumstances unless, in the case of paragraphs (i), (v),
(vi), (vii), or (viii) such circumstances are fully corrected prior to the
Termination Date (as hereinafter defined) specified in the Notice of Termination
given in respect thereof:
(i) the assignment to Employee of any
duties substantially inconsistent with the duties set forth in Paragraph 3
hereof and with the position in the Company that Employee held immediately prior
to the Change in Control of the Company, or a significant adverse alteration in
the nature or status of Employee's responsibilities or the conditions of such
employment from those in effect immediately prior to such Change in Control;
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(ii) a reduction by the Company in
Employee's Salary as in effect on the date hereof or as the same may be
increased from time to time;
(iii) the relocation of the Company's
offices at which Employee is principally employed immediately prior to the date
of the Change in Control of the Company to a location more than 35 miles from
such location, or the Company requiring Employee to be based anywhere other than
the Company's offices at such location except for required travel on the
Company's business to an extent substantially consistent with Employee's
business travel obligations immediately prior to the Change in Control;
(iv) the failure by the Company to pay to
Employee any portion of Employee's current compensation or to pay to Employee
any portion of an installment of deferred compensation under any deferred
compensation program of the Company, now or hereafter in existence, within seven
(7) days of the date such compensation is due;
(v) the failure by the Company to continue
to provide Employee with benefits substantially similar to those enjoyed by
Employee under any of the Company's life insurance, medical, accident,
disability or other employee benefit or compensation plans in which Employee was
participating at the time of the Change in Control of the Company, the taking of
any action by the Company which would directly or indirectly materially reduce
any of such benefits, or the failure by the Company to provide Employee with the
number of paid vacation days to which Employee is entitled on the basis of years
of service with the Company in accordance with the Company's normal vacation
policy in effect at the time of the Change in Control of the Company, unless
such failure or taking of action similarly affects all key personnel of the
Company and all key personnel of any person in control of the Company;
(vi) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree to perform this
Agreement, as contemplated in Section 20 hereof;
(vii) any purported termination of
Employee's employment that is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection 10(b) hereof, which purported
termination shall not be effective for purposes of this Agreement; or
(viii) a breach by the Company of any
provision of this Agreement not embraced in the foregoing clauses (i), (ii),
(iii), (iv), (v), (vi) and (vii).
(b) Employee's employment will not be considered to
have been terminated by the Company if the employment is discontinued due to the
sale of a facility of the Company in which Employee works if Employee is offered
substantially equivalent employment by the purchaser of the facility (or an
affiliated company of the purchaser); and the purchaser (or an affiliated
company) agrees to assume the Company's responsibilities under this Agreement
with
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respect to Employee as if the purchaser (or an affiliated company) were the
Company hereunder and no such sale had occurred.
(c) Any termination by the Company or by Employee
pursuant to this Agreement shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 16. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon,
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Employee's employment under the provisions so
indicated.
(d) "Termination Date" shall mean if Employee's
employment is terminated pursuant to Subsection 10(a) hereof, the date specified
in the Notice of Termination (which, in the case of a termination for Good
Reason shall not be less than fifteen (15) nor more than sixty (60) days from
the date such Notice of Termination is given); provided, however, that if within
fifteen (15) days after any Notice of Termination is given, or, if later, prior
to the Termination Date (as determined without regard to this proviso), the
party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, then the Termination Date shall be
the date on which the dispute is finally determined, either by mutual written
agreement of the parties or by a final judgment, order or decree of a court of
competent jurisdiction (which is not appealable or with respect to which the
time for appeal therefrom has expired and no appeal has been perfected); and
provided, further, that the Termination Date shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will continue to
pay Employee's full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue
Employee as a participant in all compensation, benefit and insurance plans in
which Employee was participating when the notice giving rise to the dispute was
given, until the dispute is finally resolved in accordance with this Subsection.
Amounts paid under this Subsection are in addition to all other amounts due
under this Agreement, and shall not be offset against or reduce any other
amounts due under this Agreement.
(e) For purposes of this Agreement, a "Change in
Control" shall have occurred if:
(i) any "person", as such term is used in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company or any corporation
owned, directly or indirectly, by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company),
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
30% or more of the combined voting power of the Company's then outstanding
securities;
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(ii) during any period of not more than two
consecutive years (not including any period prior to the execution of this
Agreement), individuals who at the beginning of such period constitute the
Board, and any new director (other than a director designated by a person who
has entered into an agreement with the Company to effect a transaction described
in clause (a), (c) or (d) of this Section) whose election by the Board or
nomination for election by the Company's shareholders was approved by a vote of
at least two-thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or nomination for
election was previously so approved, cease for any reason to constitute at least
a majority thereof;
(iii) the shareholders of the Company
approve a merger or consolidation of the Company with any other corporation,
other than (A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 80% of the combined voting power
of the voting securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation or (B) a merger or consolidation
effected to implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than 30% of the
combined voting power of the Company's then outstanding securities; or
(iv) the shareholders of the Company
approve a plan of complete liquidation of the Company or an agreement for the
sale or disposition by the Company of all or substantially all of the Company's
assets.
11. Compensation and Certain Other Provisions in the Event
of Termination of Employment For Good Reason. If the Company shall terminate
Employee's employment other than pursuant to the provisions of Sections 8 or 9
hereof, or if Employee shall voluntarily terminate employment pursuant to the
provisions of Subsection 10(a), then the Company, as liquidated damages or
severance pay or both, shall pay to Employee and provide Employee and Employee's
dependents with the following:
(a) The Company shall pay Employee (i) Salary
through the Termination Date at the annual rate of compensation in effect
immediately prior to the Termination Date, any accrued bonuses owing to Employee
for any past fiscal years and not previously paid, and a bonus for the period
from the first day of the fiscal year in which the Termination Date occurs to
the Termination Date, computed at an annual rate equal to the higher of (A) the
average bonus paid to Employee for the three fiscal years of the Company
immediately preceding the fiscal year in which Change in Control occurs and (B)
the average bonus paid to Employee for the three fiscal years of the Company
immediately preceding the fiscal year in which the Termination Date occurs (the
"Bonus Rate"), and (ii) three times the sum of such Salary plus the Bonus Rate
(the "Termination Compensation"). For the purposes of the foregoing payments,
the annual rate of compensation shall be the rate paid to Employee without
regard to any purported reduction or attempted reduction of such rate by the
Company. The amount specified in clauses (i) and (ii) shall be payable in a lump
sum within ten (10) days after the Termination Date.
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(b) During the five months following the
Termination Date (the "Payout Period"), the Company shall arrange to provide
Employee with life, disability, accident, group health insurance and other
employee benefits substantially similar to those which Employee was receiving
immediately prior to the Notice of Termination. Benefits otherwise receivable by
Employee pursuant to this Section shall be reduced to the extent comparable
benefits are actually received by Employee during the Payout Period, and any
such benefits actually received by Employee shall be reported by Employee to the
Company. In addition, the remainder of the Payout Period until Employee reaches
retirement, or the period until Employee's death if earlier, shall be considered
service with the Company for the purpose of continued service credits under
applicable pension and retirement plans of the Company.
(c) If and to the extent that benefits or service
credits for benefits provided under clause (b) above shall not be payable or
provided under any such plans to Employee and Employee's dependents by reason of
Employee no longer being an employee of the Company as the result of termination
of Employee's employment, the Company shall itself pay or provide for payment of
such benefits and service credit for benefits to Employee and Employee's
dependents.
(d) The termination of Employee's employment shall
not affect any vested benefits under the Company's pension plans to which
Employee may be entitled (including any additional service credits for benefits
as provided in Subsections (b) and (c) above), and Employee may receive
retirement payments under such pension plans on any date selected by Employee,
which must be a date on which retirement payments under such plans may commence.
(e) The Company shall pay the one-time individual
conversion fee required by the carrier in connection with Employee's conversion
of any insurance policies carried by the Company on Employee's life.
(f) In the event that, by reason of section 280G of
the Internal Revenue Code of 1986 (the "Code"), any payment or benefit received
or to be received by Employee in connection with a Change in Control of the
Company or the termination of Employee's employment (whether payable pursuant to
the terms of this Agreement ("Contract Payments") or any other plan, arrangement
or agreement with the Company, its successors, any person whose actions result
in a Change in Control or any corporation ("Affiliate") affiliated (or which, as
a result of the completion of the transactions causing a Change in Control will
become affiliated) with the Company within the meaning of section 1504 of the
Code (collectively with the Contract Payments, "Total Payments")), would not be
deductible (in whole or in part) by the Company, an Affiliate or other person
making such payment or providing such benefit, the Termination Compensation
shall be reduced (and, if the Termination Compensation is reduced to zero, other
Contract Payments shall first be reduced and other Total Payments shall
thereafter be reduced) until no portion of the Total Payments is not deductible
by reason of section 280G of the Code. For purposes of this limitation, (i) no
portion of the Total Payments the receipt or enjoyment of which Employee shall
have effectively waived in writing prior to the date of payment of the
Termination Compensation shall be taken into account, (ii) no portion of the
Total Payments shall be taken into account which in the opinion of tax counsel
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selected by the Company's independent auditors and acceptable to Employee does
not constitute a "parachute payment" within the meaning of section 280G(b)(2) of
the Code (without regard to subsection (A)(ii) thereof), (iii) the Termination
Compensation (and, thereafter, other Contract Payments and other Total Payments)
shall be reduced only to the extent necessary so that the Total Payments (other
than those referred to in clause (i) and (ii)) in their entirety constitute
reasonable compensation for services actually rendered within the meaning of
section 280G(b)(4) of the Code, in the opinion of the tax counsel referred to in
clause (ii), and (iv) the value of any noncash benefit or any deferred payment
or benefit included in the Total Payments shall be determined by the Company's
independent auditors in accordance with the principles of sections 280G(d)(3)
and (4) of the Code.
(g) Employee shall not be required to mitigate the
amount of any payment provided for in this Section 11 by seeking employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 11 be reduced by any compensation earned by Employee as the result of
employment by another employer, by retirement benefits, by offset against any
amount claimed to be owed by Employee to the Company, or otherwise.
(h) Any reduction in Termination Compensation
pursuant to Subsection 11(f) shall, in the event of any question, be determined
jointly by the independent public accountants of the Company and a firm of
independent public accountants selected by Employee, and in the event such
accountants are unable to agree on a resolution of the question, such reduction
shall be determined by a third firm of independent public accountants selected
jointly by the foregoing two firms and shall be binding on Employee and the
Company. The expense for any such determination shall be borne by the Company.
12. Disclosure of Information and Restrictive Covenant.
Employee acknowledges that, by his employment, he has been and will be in a
confidential relationship with the Company and will have access to confidential
information and trade secrets of the Company, its subsidiaries and affiliates.
Confidential information and trade secrets include, but are not limited to,
customer, supplier and client lists, price lists, marketing, distribution and
sales strategies and procedures, operational and equipment techniques, business
plans and systems, quality control procedures and systems, special projects and
technological research, including projects, research and reports for any entity
or client or any project, research, report or the like concerning sales or
manufacturing or new technology, employee compensation plans and any other
information relating thereto, and any other records, files, drawings,
inventions, discoveries, applications, processes, data and information
concerning the business of the Company which are not in the public domain.
Employee agrees that in consideration of the execution of this Agreement by the
Company, except in any way with respect to foreign affiliates of the Company as
of the date hereof:
(a) Employee will not, during the term of this
Agreement or at any time thereafter, use, or disclose to any third party, trade
secrets or confidential information of the Company, including, but not limited
to, confidential information or trade secrets belonging or relating to the
Company, its subsidiaries, affiliates, customers and clients or proprietary
processes or
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procedures of the Company, its subsidiaries, affiliates, customers and clients.
Proprietary processes and procedures shall include, but shall not be limited to,
all information which is known or intended to be known only to employees of the
Company, its respective subsidiaries and affiliates or others in a confidential
relationship with the Company or its respective subsidiaries and affiliates
which relates to business matters.
(b) Employee will not, during the term of this
Agreement and for a period of two (2) years thereafter, directly or indirectly,
under any circumstance other than at the direction and for the benefit of the
Company, engage in or participate in any business activity, including, but not
limited to, acting as a director, officer, employee, agent, independent
contractor, partner, consultant, licensor or licensee, franchisor or franchisee,
proprietor, syndicate member, shareholder or creditor or with a person having
any other relationship with any other business, company, firm occupation or
business activity, in any geographic area within the United States that is,
directly or indirectly, competitive with any business completed by the Company
or any of its subsidiaries or affiliates during the term of this Agreement or
thereafter. Should Employee own 5% or less of the issued and outstanding shares
of a class of securities of a corporation the securities of which are traded on
a national securities exchange or in the over-the-counter market, such ownership
shall not cause Employee to be deemed a shareholder under this Paragraph 10(b).
(c) Employee will not, during the term of this
Agreement and for a period of two (2) years thereafter, on his behalf or on
behalf of any other business enterprise, directly or indirectly, under any
circumstance other than at the direction and for the benefit of the Company,
solicit or induce any creditor, customer, supplier, officer, employee or agent
of the Company or any of its subsidiaries or affiliates to sever its
relationship with or leave the employ of any of such entities.
(d) This Paragraph 10 and Paragraphs 11, 12 and 13
hereof shall survive the expiration or termination of this Agreement for any
reason.
(e) It is expressly agreed by Employee that the
nature and scope of each of the provisions set forth above in this Paragraph 10
are reasonable and necessary. If, for any reason, any aspect of the above
provisions as it applies to Employee is determined by a court of competent
jurisdiction to be unreasonable or unenforceable, the provisions shall only be
modified to the minimum extent required to make the provisions reasonable and/or
enforceable, as the case may be. Employee acknowledges and agrees that his
services are of a unique character and expressly grants to the Company or any
subsidiary, successor or assignee of the Company, the right to enforce the
provisions above through the use of all remedies available at law or in equity,
including, but not limited to, injunctive relief.
13. Company Property. (a) Any patents, inventions,
discoveries, applications or processes, designs, devised, planned, applied,
created, discovered or invented by Employee in the course of Employee's
employment under this Agreement and which pertain to any aspect of the Company's
or its respective subsidiaries' or affiliates' business shall be the sole and
absolute property of the Company, and Employee shall make prompt report thereof
to the Company and promptly
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execute any and all documents reasonably requested to assure the Company the
full and complete ownership thereof.
(b) All records, files, lists, including computer
generated lists, drawings, documents, equipment and similar items relating to
the Company's business which Employee shall prepare or receive from the Company
shall remain the Company's sole and exclusive property. Upon termination of this
Agreement, Employee shall promptly return to the Company all property of the
Company in his possession. Employee further represents that he will not copy or
cause to be copied, print out or cause to be printed out any software, documents
or other materials originating with or belonging to the Company. Employee
additionally represents that, upon termination of his employment with the
Company, he will not retain in his possession any such software, documents or
other materials.
14. Remedy. It is mutually understood and agreed that
Employee's services are special, unique, unusual, extraordinary and of an
intellectual character giving them a peculiar value, the loss of which cannot be
reasonably or adequately compensated in damages in an action at law.
Accordingly, in the event of any breach of this Agreement by Employee,
including, but not limited to, the breach of the non-disclosure,
non-solicitation and non-compete clauses under Paragraph 10 hereof, the Company
shall be entitled to equitable relief by way of injunction or otherwise in
addition to damages the Company may be entitled to recover. In addition, the
Company shall be entitled to reimbursement from Employee, upon request, of any
and all reasonable attorneys' fees and expenses incurred by it in enforcing any
term or provision of this Agreement.
15. Representations and Warranties of Employee. (a) In order
to induce the Company to enter into this Agreement, Employee hereby represents
and warrants to the Company as follows: (i) Employee has the legal capacity and
unrestricted right to execute and deliver this Agreement and to perform all of
his obligations hereunder; (ii) the execution and delivery of this Agreement by
Employee and the performance of his obligations hereunder will not violate or be
in conflict with any fiduciary or other duty, instrument, agreement, document,
arrangement or other understanding to which Employee is a party or by which he
is or may be bound or subject; and (iii) Employee is not a party to any
instrument, agreement, document, arrangement or other understanding with any
person (other than the Company) requiring or restricting the use or disclosure
of any confidential information or the provision of any employment, consulting
or other services.
(b) Employee hereby agrees to indemnify and hold
harmless the Company from and against any and all losses, costs, damages and
expenses (including, without limitation, its reasonable attorneys' fees)
incurred or suffered by the Company resulting from any breach by Employee of any
of his representations or warranties set forth in Paragraph 13(a) hereof.
16. Notices. All notices given hereunder shall be in writing
and shall be deemed effectively given when mailed, if sent by registered or
certified mail, return receipt requested, addressed to Employee at his address
set forth on the first page of this Agreement and to the Company at its address
set forth on the first page of this Agreement, with a copy to Parker Chapin
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Flattau & Klimpl, LLP, 1211 Avenue of the Americas, New York, New York 10036,
Attention: Gary J. Simon, Esq., or at such address as such party shall have
designated by a notice given in accordance with this Paragraph 14, or when
actually received by the party for whom intended, if sent by any other means.
17. Entire Agreement. This Agreement constitutes the entire
understanding of the parties with respect to its subject matter and no change,
alteration or modification hereof may be made except in writing signed by the
parties hereto. Any prior or other agreements, promises, negotiations or
representations not expressly set forth in this Agreement are of no force or
effect.
18. Severability. If any provision of this Agreement shall
be unenforceable under any applicable law, then notwithstanding such
unenforceability, the remainder of this Agreement shall continue in full force
and effect.
19. Waivers, Modifications, Etc. No amendment, modification
or waiver of any provision of this Agreement shall be effective unless the same
shall be in writing and signed by each of the parties hereto, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given.
20. Assignment. Neither this Agreement, nor any of
Employee's rights, powers, duties or obligations hereunder, may be assigned by
Employee. This Agreement shall be binding upon and inure to the benefit of
Employee and his heirs and legal representatives and the Company and its
successors and assigns. Successors of the Company shall include, without
limitation, any corporation or corporations acquiring, directly or indirectly,
all or substantially all of the assets of the Company, whether by merger,
consolidation, purchase, lease or otherwise, and such successor shall thereafter
be deemed "the Company" for the purpose hereof.
21. Applicable Law. This Agreement shall be deemed to have
been made, drafted, negotiated and the transactions contemplated hereby
consummated and fully performed in the State of New York and shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to the conflicts of law rules thereof. Nothing contained in this
Agreement shall be construed so as to require the commission of any act contrary
to law, and whenever there is any conflict between any provision of this
Agreement and any statute, law, ordinance, order or regulation, contrary to
which the parties hereto have no legal right to contract, the latter shall
prevail, but in such event any provision of this Agreement so affected shall be
curtailed and limited only to the extent necessary to bring it within the legal
requirements.
22. Jurisdiction and Venue. It is hereby irrevocably agreed
that all disputes or controversies between the Company and Employee arising out
of, in connection with or relating to this Agreement shall be exclusively heard,
settled and determined by arbitration to be held in the City of New York, County
of New York, in accordance with the Commercial Arbitration Rules of the American
Arbitration Association then in effect. The parties also agree that judgment may
be entered
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on the arbitrator's award by any court having jurisdiction thereof and the
parties consent to the jurisdiction of any court located in the City of New
York, County of New York, for this purpose.
23. Full Understanding. Employee represents and agrees that
he fully understands his right to discuss all aspects of this Agreement with his
private attorney, that to the extent, if any that he desired, he availed himself
of this right, that he has carefully read and fully understands all of the
provisions of this Agreement, that he is competent to execute this Agreement,
that his agreement to execute this Agreement has not been obtained by any duress
and that he freely and voluntarily enters into it, and that he has read this
document in its entirety and fully understands the meaning, intent and
consequences of this document which is that it constitutes an agreement of
employment.
24. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original and all of
which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SLEEPY'S INC.
By: ___________________________________
Name:
Title:
___________________________________
HARRY ACKER
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[SLEEPY'S LOGO]
April 1, 1996
Mr. Howard Roeder
3109 Yale Avenue
Marina del Rey, California 90292
Dear Howard:
We, Bedding Discount Center Inc., are pleased to send you this letter of
agreement to confirm the details of your employment by us. During conversations
between you and us, you and we have negotiated and agreed as follows:
1. Upon the terms and conditions hereinafter set forth, we hereby employ
you and you hereby accept such employment and agree to serve our corporation in
the capacity of Co-President or, at our option, President, for a period of three
(3) years commencing on May 1, 1996, unless sooner terminated in accordance with
this letter agreement (the "term"). If. at the conclusion of the three (3)
years, you are then employed by us pursuant to this letter agreement, then, (a)
unless sooner terminated in accordance with this letter agreement. the terms
shall be extended until ninety (90) days after you or we shall provide to the
other notice of termination, which may given at any time and for any reason or
no reason, and (b) the terms and conditions of this letter agreement shall
continue to apply to your continued employment except you shall not be entitled
to severance, or any other damages, pursuant to paragraph 5 below or otherwise,
in the event of the termination of your employment for any reason.
2. The term of this agreement shall be terminated upon your death and may
be terminated by us by reason of your disability (as defined below), for cause
(as defined below), or without cause (but subject to the severance provisions
below), and, in such event, we shall have no further liability or obligation to
you hereunder except as expressly provided herein.
3 During your employment by us, you shall devote your full time and
attention and best effort, to the exclusion of all other businesses and
ventures, to our business. including the business of our affiliates, in
accordance with our policies established from time to time by us. You shall be
under and subject to the supervision of, and directly responsible to, the Board
of Directors of this corporation. or its designee, and the Chairman of our Board
of
175 Central Avenue South Bethpage, New York 11714-4940 (516) 844-8800
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Mr. Howard Roeder
April 1, 1996
Page 2
Directors, who shall direct, define and may revise from time to time your
responsibilities hereunder consistent with your position of Co-President or
President, as the case may be. Nothing herein contained shall be construed to
prohibit you from holding, solely as an investment, five percent (5%) of the
securities of any entity which are publicly trade over a recognized exchange
and such entity does not compete, direction or indirectly, with our business.
4. During the term, you shall be paid by us (in addition to the other
benefits provided under this letter Agreement), in consideration of all services
rendered by you, a salary as follows: during the first year of the term, at the
annual rate of Two Hundred Thousand Dollars ($200,000.00); during the second
year of the term, at the annual rate of Two Hundred Twenty Thousand Dollars
($220,000.00); during the third year of the term, at the annual rate of Two
Hundred Forty Two Thousand Dollars ($242,000.00). If the term shall be extended
as provided above, then your salary shall be determined by our Board of
Directors, in its discretion, but in no event shall such salary be less than the
annual rate of Two Hundred Forty Two Thousand Dollars ($242,000.00). The salary
shall be payable in equal monthly installments or other installments in
accordance with our general practice. If your employment shall be terminated for
any reason, your salary shall cease and you shall be paid your salary pro-rated
to the date of such termination.
5. If we terminate your employment during the term other than for cause,
death or disability, then, provided you shall fully and timely comply with all
of the terms and conditions of paragraphs 6 and 12 below, we shall pay to you,
as liquidated damages, severance of, (a) if the termination is effective within
the first six (6) months of the term. an amount equal to the remainder of the
salary payable to you during the first year of the term, or (b) if the
termination is effective on or after the first six (6) months of the term, an
amount equal to six (6) months of salary calculated at the rate then payable to
you. The severance amount shall be payable in equal monthly on the first day of
the first month after termination and continuing on the first day of each month
thereafter until completely paid, and shall be subject to withholding
requirements.
6. You have advised us that prior to commencement of your employment, you
will be relocating from the State of California to Long Island, State of New
York. We shall pay to you the reasonable expenses incurred by you in moving
furniture, normal household goods and personal belongings to your new residence
and incidental expenses (including airfare for you and your family and hotel
accommodations on Long Island, New York, if necessary, pending relocation to
permanent lodging), provided, however, the aggregate of all amounts for which we
shall reimburse you under this provision shall not exceed Fifteen Thousand
Dollars ($15,000.00) and further provided that you shall submit to us
satisfactory documentation supporting your expenditures. However, if you shall
terminate your employment with us within the first year of the term, you shall
repay to us all monies paid or advanced to you pursuant to this paragraph.
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Mr. Howard Roeder
April 1, 1996
Page 3
7. During the term, we shall provide you with the use, in correction with
your duties, of an automobile suitable and typical for a person occupying your
position (for example, a Lexus 400) and we shall pay the costs of insurance,
repairs and maintenance thereon to the extent such costs are directly related to
your performance of your duties hereunder. You shall take good care of such
automobile and promptly return it to us upon termination of your employment.
8. We shall include you, your spouse and your eligible children during the
term under the group medical insurance coverage customarily maintained by us for
our employees as same exists from time to time; the premiums or costs charged by
the provider of such coverage shall be born by us, provided, however, we shall
not be required to expend more than the customary amount incurred for individual
or family coverage, as the case may be. We shall not be liable for any loss or
damage sustained by you or any member of your family by reason of the failure of
the insurance provider to provide coverage to you or any member of your family
or to approve any claim made by or on behalf of you or any member of your
family. You acknowledge that we have made and are making no representation that
you or your family members are or will be eligible for coverage under such
insurance plans; if you or any family members are not eligible, neither you nor
any member of your family shall be entitled to any compensation from us on
account thereof.
9. You shall be entitled to three (3) weeks paid vacation during each year
of the term, provided that the scheduling of your vacations shall be subject to
our business exigencies as determined by us from time to time. In addition, you
shall be entitled to paid sick and personal days in accordance with our policy,
as amended from time to time, for our executives and key management employees in
general. The foregoing benefits shall not be cumulative. compensatory or
vesting.
10. You shall receive reimbursement for all ordinary and necessary
vouchered expenses incurred in the course of your employment by us, properly
documented and directly related to your responsibilities hereunder; in addition,
upon request, advances will be provided for such expenses. All such expenses
must be reasonable and must be incurred in accordance with our procedures and
principles, as established and revised from time to time by us.
11. In the event that we shall have received a written statement from a
reputable independent physician chosen by us to the effect that your shall have
become so incapacitated as to be unable to resume, within ninety (90) days after
the commencement of your incapacity, your full time employment hereunder by
reason of physical or mental illnesses or injury, or you have not substantially
performed your duties hereunder for ninety (90) days (exclusive of any vacation
permitted hereunder and any period of less than two (2) weeks during ,which you
have resumed your duties hereunder) by reason of any such physical or mental
illness, you shall be considered "disabled" or subject to a "disability" and we
may terminate your employment in which event your salary shall be paid to you,
on a pro-rated basis, through
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Mr. Howard Roeder
April 1, 1996
Page 4
the week in which the termination occurs, and we shall have no further liability
or obligation to you hereunder.
12. a. You covenant and agree that during the period between your execution
of this letter agreement and the commencement of the term, during your
employment, whether or not pursuant to this agreement, and for a period
commencing on the cessation of such employment and ending on the
"Post-Employment Termination Date" (defined below) (the aggregate of said
periods constituting the "covenant term"), within the states of New York, New
Jersey and Connecticut and within such other states for which, during your
employment, we have formulated plans to commence retail bedding operations whose
implementation is imminent, that is, within six (6) months thereafter, you will
not, directly or indirectly, whether as a shareholder, officer, director, sole
proprietor, partner, employee, consultant, representative, independent
contractor, agent, lender or otherwise, engage in the business of the sale at
retail of bedding, whether or not such business is conducted in person, via
telephone or otherwise. As used herein, "bedding" includes bedding, beds
(including day beds, bunk beds, electric beds, metal beds, futons), mattresses,
box springs, head and foot boards. As used herein, "Post-Employment Termination
Date" means (1) if your employment is terminated by you for any reason, or if
your employment is terminated by us for cause, then two (2) years after the
cessation of your employment and (2) if your employment is terminated by us
other than for cause, then one (1) year after the cessation of your employment.
b. You recognize and acknowledge that the information and data about
our business and our affiliates' businesses regarding costs, purchasing,
vendors, profits, markets, sales, products, personnel, pricing policies,
operational methods, advertising and similar information as they exist from time
to time ("Confidential Information"), have been developed by us and our
affiliates at great effort and expense, are not readily available to the public
are highly confidential and proprietary, and are valuable, special and unique
assets of our business and of the businesses of our affiliates, access to and
knowledge of which are essential to the performance of your duties during your
employment by us. You will not, without the written consent of our Board of
Directors and except as may be required by applicable law, by court order after
reasonable prior notice to us and as may be necessary in the performance by you
of your duties hereunder, during or after the covenant term, in whole or in
part, disclose any Confidential Information to any person, firm, corporation, or
other entity for any reason or purpose whatsoever, nor shall you make use of any
such information for your own purposes or for the benefit of any person, firm,
corporation or other entity (except us or our affiliates at our or their
specific request in each instance) under any circumstances during or after the
covenant term.
c. You recognize that all materials that are or which may come into
your possession or control relating to Confidential Information remain our or
our affiliates' property. Such materials may consist of audio or video tapes,
agreements, invoices, memorandum, books, forms, reference materials, promotional
material, advertising material,
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Mr. Howard Roeder
April 1, 1996
Page 5
sale material, financial material, address books, lists, rolodexes, notes,
software, electronic data, and the like. You will not copy or make extracts from
any of such materials and, upon demand, whether such demand is made during or
after your employment by us, you will promptly return to us or our affiliates
all of such materials in your possession or control.
d. You shall not, during the covenant term, interfere with, disrupt or
attempt to disrupt the relationship, contractual or otherwise, between us or our
affiliates and any of our or their vendors, suppliers or employees. Any contact
or communication with, or solicitation of, any of our or our affiliate's
employees with the intent, purpose or effect of inducing or encouraging said
employee to leave his or her employment with us or with our affiliate, or to
breach his or her employment agreement with, or other obligations to, us or to
our affiliate, and any contact or communication with, or solicitation of. any
vendors or suppliers of ours or of our affiliates with the intent, purpose or
effect of inducing or encouraging such vendor or supplier to alter, terminate or
reduce its business relationship with us or our affiliate, shall constitute a
breach of this provision.
e. You hereby sell, transfer and assign to us, or to any person or
entity designated by us, the your entire right, title and interest in and to all
inventions, processes, formulae, ideas, disclosures and improvements, whether
patented or unpatented, and copyrightable material, trademarks and trade names
made or conceived by you, solely or jointly, during your employment by us, which
relate to methods, apparatus, designs, logos, names, marks, products, processes
or devices, promoted, sold, leased, used or under consideration or development
by us, or which otherwise relate to or pertain to our business, functions or
operations. You shall communicate promptly and disclose to us, in such form as
we may request, all information, details and data pertaining to the
aforementioned, and shall execute and deliver to us such formal transfers and
assignments and such other papers and documents as may be required of you or
desirable to permit us or any person or entity designated by us to file and
prosecute patent, copyright and trademark applications, as the case may be, and
such other registrable (and non-registrable) rights and protections as we shall
deem appropriate. Any design, logo, name or marks relating to our business,
functions or operations and disclosed within one (1) years following the
termination of your employment shall be deemed to fall within the provisions of
this subparagraph unless proved to have been first conceived and made following
such termination.
f. Except as may be required by law, you shall not disclose, before,
during or after your employment, this agreement or any of the terms or
conditions hereof, other than to your attorneys, accountants and similar agents,
and then, only to the extent necessary to services rendered by them to you and
provided in each such instance, you shall impose the sarne responsibilities and
duty of confidentiality upon such agents.
g. You acknowledge that the foregoing provisions, restrictions and time
limitations contained in this paragraph are reasonable and properly required for
the
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Mr. Howard Roeder
April 1, 1996
Page 6
adequate protection of our business and the business of our affiliates, and that
in the event that any such provision, restriction or limitation is deemed to be
unreasonable by a court, then you agree to submit to the reduction of said
provision, restriction or limitation to such as said court shall deem
reasonable.
h. You agree that in the event you should be in violation of the
aforementioned covenants, then the time limitations thereof shall be extended
for a period of time equal to the period of time during which such breach or
breaches should occur; in the event we or an affiliates of us should seek relief
in court, then the covenant shall also be extended for a period of time equal to
the pendency of such proceedings, including appeals.
i. The provisions of this paragraph 12 shall be enforced to the fullest
extent possible under the laws and public policies applied in each jurisdiction
in which enforcement is sought. Accordingly, if any particular provision of this
paragraph 12 shall be adjudicated to be invalid or unenforceable, this paragraph
12 shall be deemed amended to delete therefrom the portion thus adjudicated to
be invalid and unenforceable and revised in accordance with any such
jurisdiction, such deletion and revision to apply only with respect to the
operation of this paragraph 12 in the particular jurisdiction in which such
adjudication is made.
j. You acknowledge that in the event of a breach of, or threatened
breach by you of, the provisions of this paragraph 12, such breach will give
rise to irreparable harm to us and our affiliates, and may not be adequately
compensable in monetary damages; we and our affiliates shall be entitled,
without showing any actual damage, to a temporary injunction pending the
determination of the controversy, and a permanent injunction, without our
posting a bond or providing other security, restraining you from violating these
covenants and payment by you of the expenses of obtaining and enforcing such
relief. Nothing herein shall be construed as prohibiting us and our affiliates
from pursuing any other remedies available us or our affiliates for such breach
or threatened breach, including the recovery of damages from you which such
damages you shall promptly pay, including the costs of collection thereof. These
covenants on your part shall be construed as agreements independent of any other
provisions in this agreement; the existence of any claim or cause of action of
you against us or an affiliate of us, whether predicated on this agreement or
otherwise, shall not constitute a defense to the enforcement by us our
affiliates of these covenants.
13. As an inducement to us to enter into this agreement and consummate the
transactions contemplated hereby, you represent and warrant that: you are an
individual residing in the State of California; this agreement has been duly and
validly executed and delivered by you and constitutes your valid, binding and
enforceable obligation; you have the right, power, legal capacity and authority
to enter into and perform your obligations under this agreement, and no consent
of any third party is necessary with respect thereto; the execution and delivery
of this letter agreement by you, the consummation of the transaction
contemplated herein, and the performance of, fulfillment of and compliance with
the terms and conditions hereof by you do
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Mr. Howard Roeder
April 1, 1996
Page 7
not and will not (either immediately or with lapse of time, or both) (i) violate
any provisions of any judicial or administrative order, award, judgment or
decree applicable to you, (ii) conflict with or result in a breach of, or
constitute a default under any agreement or instrument to which you are a party
or by which you are bound; there is no litigation, proceeding or governmental
investigation existing or pending, or any order, injunction or decree
outstanding, against you nor do you know or have reasonable grounds to know of
any basis for any such litigation, proceeding or governmental investigation.
14. As an inducement to you to enter into this agreement and consummate the
transactions contemplated hereby, we hereby represent and warrant to you that
we are a corporation duly organized, validly existing and in good standing under
the laws of the State of New York and have all requisite corporate power and
authority to enter into this agreement and consummate the transactions
contemplated hereby; this agreement, the consummation of the transactions
contemplated herein and the performance, observance and fulfillment by us of all
of the terms and conditions hereof on our part to be performed, observed and
fulfilled, have all been approved and authorized by our shareholders and board
of directors; this agreement has been duly and validly executed and delivered by
us and constitutes our valid, binding and enforceable obligation; the execution
and delivery of this agreement, the consummation of the transactions
contemplated herein and the performance of, fulfillment of and compliance with
the terms and conditions hereof by us do not (either immediately or with lapse
of time, or both) (i) violate any provision of any judicial or administrative
order, award, judgment or decree applicable to us, (ii) conflict with any of the
provisions of our Articles of Incorporation or By-Laws, or (iii) conflict with,
result in a breach of or constitute a default under any agreement or instrument
to which we are a party or by which we are bound; we have the right, power,
legal capacity and authority to enter into and perform our obligations under
this agreement, and no consent of any third party is necessary with respect
thereto.
15. Subject to the provisions of our certificate of incorporation and
bylaws, each as amended from time to time, we shall indemnify you to the
fullest extent allowed by, and subject to the provisions of, Section 722 of the
Business Corporation Law of the State of New York for all amounts (including
judgments, fines, settlement payments, expense and reasonable attorney's fees)
incurred or paid by you in connection with any action, suit, investigation or
proceeding arising out of or relating to the performance by you of services for,
or the acting by you as an officer, director or employee of our corporation, or
any other person or enterprise at our request, provided that (1) we shall have
the sole right to defend you with counsel of our choice, (2) you shall fully
cooperate with us in the defense of such matters, and (3) we shall have the sole
right to settle all such matters provided that you shall have no liability
resulting therefrom.
16. As used in this agreement,
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Mr. Howard Roeder
April 1, 1996
Page 8
a. "Affiliate" shall mean any person in common control with, in control
of or controlled by another person, or a spouse, descendent, ancestor of such
other person or spouse of such other person.
b. "Cause" shall mean (1) your failure to comply with any of the
material terms of this letter agreement, (2) your failure to perform your duties
hereunder, (3) your disregard of policy directions from the Board of Directors
of our corporation, (4) your engagement, in your capacity as an officer of this
corporation, in gross misconduct injurious to us, or (5) your conviction of a
crime involving moral turpitude or a violation or crime whose effect is to
materially interfere with your performance of your obligations hereunder. For
purposes of this definition, an act, or failure to act, on your part under (1),
(2) or (3) of the preceding sentence shall be excused if such act, or failure to
act, on your part was undertaken or omitted by you in good faith, under a
reasonable belief that your act or ommission was in our best interests and was
not contrary to an express directive of our Board of Directors.
c. The terms "hereby", "hereof", "herein", "hereunder", and any similar
terms as used in this agreement refer to this agreement, and the term
"heretofore" shall mean before, and the term "hereafter" shall mean after, the
date of this agreement.
d. The words importing persons shall include natural persons, sole
proprietorships, firms, associations, partnerships (including limited
partnerships), joint ventures, trusts, associations, corporations and other
legal entities or government (whether Federal, state, county, city, municipal,
town, village or otherwise, including any instrumentality, division, agency,
body or department thereof).
e. The word "shall" is mandatory; the word "may" is permissive.
f. Whenever used herein, words importing the singular shall include the
plural, and vice versa, and words importing the masculine shall include the
feminine, and vice versa, unless the context requires otherwise.
17. This agreement and your engagement by us shall be construed under the
internal laws of the State of New York without regard to principle of conflict
of laws. In the event that any dispute should arise under or by virtue of this
agreement or otherwise as between you and us, or you and any of our affiliates,
you agree that the dispute shall be litigated and the form for such litigation
shall be either the State Courts of New York or a Federal Court, with venue in
either case in the County of Nassau, State of New York. You hereby consent to
the in personam jurisdiction of such courts and you hereby waive trial by jury
in any action or proceeding arising out of this agreement or any other matter
between or among you and us or any of our affiliates.
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Mr. Howard Roeder
April 1, 1996
Page 9
18. In case any one or more of the provisions contained in this agreement
shall be invalid,l illegal or unenforceable in any respect under any law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
19. No remedy conferred herein, or provided at law or in equity, is
intended to be exclusive of any other available remedy, but each and every such
remedy shall be cumulative and in addition to every other remedy given under or
in connection with this agreement or now or hereafter existing at law or in
equity.
20. The failure to insist upon the strict performance of all or any part of
any provision hereof, or to seek remedies for a default or breach in connection
therewith, shall not be construed as a waiver or impair any right or power, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient. The waiver of all or any part of any provision shall not
affect or alter this agreement or all or any part of any other provision hereof,
nor shall it render unnecessary consent to, or approval of, any subsequent
similar act
21. This agreement supersedes all previous agreements and understandings
between you and us and constitutes the entire understanding between you and us.
No term provision or condition of agreement may be modified or discharged
unless such modification or discharge is authorized by our Board of Directors
and is agreed to in writing and signed by our authorized representative and you.
22. This agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and shall not be assigned by
you nor shall your responsibilities hereunder be delegated by you.
23. You and we intend that this agreement shall not benefit or create any
night or cause of action in or on behalf of any person other than you, us and
our affiliates.
24. You acknowledge that you have had the opportunity to consult with an
attorney of your choice concerning, and you fully understand, this agreement,
its meaning and implications, that you fully understand this agreement and enter
into this agreement freely and voluntarily.
25. Each of us has contributed to the preparation of this agreement and no
party shall be considered the draftsman hereof for purposes of construction of
its terms or drawing inferences in favor or against any either of us.
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Mr. Howard Roeder
April 1, 1996
Page 10
If this letter agreement correctly sets forth our full and complete
understanding with respect to the subject matter hereof, please sign the
enclosed copy and return it to us as soon as possible.
BEDDING DISCOUNT CENTER INC.
By /s/ DAVID ACKER
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David Acker, President
READ AND AGREED THIS 2nd
DAY OF APRIL, 1996.
/s/ HOWARD ROEDER
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HOWARD ROEDER
Witness:
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1996 STOCK OPTION PLAN
OF
SLEEPY'S, INC.
1. PURPOSES OF THE PLAN. This stock option plan (the "Plan")
is designed to provide an incentive to key employees (including officers and
directors who are key employees), Outside Directors (as defined in Paragraph 19)
and consultants of Sleepy's, Inc., a New York corporation (the "Company"), and
its present and future subsidiary corporations, as defined in Paragraph 19
("Subsidiaries"), and to offer an additional inducement in obtaining the
services of such individuals. The Plan provides for the grant of "incentive
stock options" ("ISOs") within the meaning of Section 422 of the Internal
Revenue Code of 1986, as amended (the "Code"), and nonqualified stock options
("NQSOs"), but the Company makes no warranty as to the qualification of any
option as an "incentive stock option" under the Code.
2. STOCK SUBJECT TO THE PLAN. Subject to the provisions of
Paragraph 12, the aggregate number of shares of Common Stock, $.01 par value per
share, of the Company ("Common Stock") for which options may be granted under
the Plan shall not exceed 400,000. Such shares of Common Stock may, in the
discretion of the Board of Directors of the Company (the "Board of Directors"),
consist either in whole or in part of authorized but unissued shares of Common
Stock or shares of Common Stock held in the treasury of the Company. The Company
shall at all times during the term of the Plan reserve and keep available such
number of shares of Common Stock as will be sufficient to satisfy the
requirements of the Plan. Subject to the provisions of Paragraph 13, any shares
of Common Stock subject to an option which for any reason expires, is cancelled
or is terminated unexercised or which ceases for any reason to be exercisable
shall again become available for the granting of options under the Plan.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered
by a committee of the Board of Directors (the "Committee") consisting of not
less than three Directors, each of whom shall be a "disinterested person" within
the meaning of Rule 16b-3 (or any successor rule or regulation) promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"). A
majority of the members of the Committee shall constitute a quorum, and the acts
of a majority of the members present at any meeting at which a quorum is
present, and any acts approved in writing by all members without a meeting,
shall be the acts of the Committee.
Subject to the express provisions of the Plan, the Committee
shall have the authority, in its sole discretion, with respect to Employee
Options (as defined in Paragraph 19) and Consultant Options (as defined in
Paragraph 19): to determine the key employees and consultants who shall receive
options; the times when they shall receive options; whether an Employee Option
shall be an ISO or a NQSO; the number of shares of Common Stock to be
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subject to each option; the term of each option; the date each option shall
become exercisable; whether an option shall be exercisable in whole, in part or
in installments, and, if in installments, the number of shares of Common Stock
to be subject to each installment; whether the installments shall be cumulative;
the date each installment shall become exercisable and the term of each
installment; whether to accelerate the date of exercise of any installment;
whether shares of Common Stock may be issued on exercise of an option as partly
paid, and, if so, the dates when future installments of the exercise price shall
become due and the amounts of such installments; the exercise price of each
option; the form of payment of the exercise price; whether to restrict the sale
or other disposition of the shares of Common Stock acquired upon the exercise of
an option and to waive any such restriction; whether to subject the exercise of
all or any portion of an option to the fulfillment of contingencies as specified
in the Contract (as described in Paragraph 11), including without limitations,
contingencies relating to entering into a covenant not to compete with the
Company and its Parent and Subsidiaries, to financial objectives for the
Company, a Subsidiary, a division, a product line or other category, and/or the
period of continued employment of the optionee with the Company or its
Subsidiaries, and to determine whether such contingencies have been met; and,
with respect to Employee Options, Consultant Options and Director Options (as
defined in Paragraph 19): to construe the respective Contracts and the Plan; to
determine the amount, if any, necessary to satisfy the Company's obligation to
withhold taxes; with the consent of the optionee, to cancel or modify an option,
provided such option as modified would be permitted to be granted on such date
under the terms of the Plan; to prescribe, amend and rescind rules and
regulations relating to the Plan; and to make all other determinations necessary
or advisable for administering the Plan. The determinations of the Committee on
the matters referred to in this Paragraph 3 shall be conclusive. No member or
former member of the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any option granted hereunder.
4. ELIGIBILITY; GRANTS. The Committee may, consistent with the
purposes of the Plan, grant Employee Options from time to time, to key employees
(including officers and directors who are key employees) and Consultant Options
to consultants of the Company or any of its Subsidiaries. Options granted shall
cover such number of shares of Common Stock as the Committee may determine;
provided, however, that the aggregate market value (determined at the time the
option is granted) of the shares of Common Stock for which any eligible employee
may be granted ISOs under the Plan or any other plan of the Company, or of a
Parent or a Subsidiary of the Company, which are exercisable for the first time
by such optionee during any calendar year shall not exceed $100,000. The
$100,000 ISO limitation shall be applied by taking ISOs into account in the
order in which they were granted. Any option (or the portion thereof) granted in
excess of such amount shall be treated as a NQSO.
Beginning on January 31, 1997 and on each January 31
thereafter during the term of the Plan, each person who is an Outside Director
on the immediately preceding December 31 shall be granted an option to purchase
100 shares of Common Stock for each month or portion thereof during the 12-month
period ended on such December 31 that such person served as an Outside Director.
In addition, prior to the effective date of the Company's initial public
offering,
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on the date that each Outside Director first becomes an Outside Director, such
Outside Director shall be granted an option to purchase 1,200 shares of Common
Stock, the exercise price of each such share being hereby determined to be the
initial public offering price per share. In the event the remaining shares
available for grant under the Plan are not sufficient to grant the Director
Options to each such Outside Director in any year, the number of shares subject
to the Director Options for such year shall be reduced proportionately. The
Committee shall not have any discretion with respect to the selection of
Directors to receive Director Options or the amount, the price or the timing
with respect thereto. An Outside Director shall not be entitled to receive any
option under the Plan, other than a Director Option.
5. EXERCISE PRICE. The exercise price of the shares of Common
Stock under each Employee Option and Consultant Option shall be determined by
the Committee; provided, however, that the exercise price shall not be less than
100% of the fair market value of the Common Stock subject to such option on the
date of grant; and further provided, that if, at the time an ISO is granted, the
optionee owns (or is deemed to own under Section 424(d) of the Code) stock
possessing more than 10% of the total combined voting power of all classes of
stock of the Company, of any of its Subsidiaries or of a Parent, the exercise
price of such ISO shall not be less than 110% of the fair market value of the
Common Stock subject to such ISO on the date of grant. The exercise price of the
shares of Common Stock under each Director Option shall be equal to the fair
market value of the Common Stock subject to the option on the date of grant.
The fair market value of a share of Common Stock on any day
shall be (a) if the principal market for the Common Stock is a national
securities exchange, the average between the high and low sales prices per share
of the Common Stock on such day as reported by such exchange or on a
consolidated tape reflecting transactions on such exchange, (b) if the principal
market for the Common Stock is not a national securities exchange and the Common
Stock is quoted on the National Association of Securities Dealers Automated
Quotations System ("NASDAQ"), and (i) if actual sales price information is
available with respect to the Common Stock, the average between the high and low
sales prices per share of the Common Stock on such day on NASDAQ, or (ii) if
such information is not available, the average between the highest bid and the
lowest asked prices for the Common Stock on such day on NASDAQ, or (c) if the
principal market for the Common Stock is not a national securities exchange and
the Common Stock is not quoted on NASDAQ, the average between the highest bid
and lowest asked prices per share for the Common Stock on such day as reported
on the NASDAQ OTC Bulletin Board Service, National Quotation Bureau,
Incorporated or a comparable service; provided that if clauses (a), (b) and (c)
of this Paragraph are all inapplicable, or if no trades have been made or no
quotes are available for such day, the fair market value of a share of Common
Stock shall be determined by the Committee by any method consistent with
applicable regulations adopted by the Treasury Department relating to stock
options. The determination of the Committee shall be conclusive in determining
the fair market value of the stock.
6. TERM. The term of each Employee Option and Consultant
Option granted pursuant to the Plan shall be such term as is established by the
Committee, in its sole
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discretion, at or before the time such option is granted; provided, however,
that the term of each ISO granted pursuant to the Plan shall be for a period not
exceeding 10 years from the date of grant thereof, and further, provided, that
if, at the time an ISO is granted, the optionee owns (or is deemed to own under
Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, of any of its Subsidiaries
or of a Parent, the term of the ISO shall be for a period not exceeding five
years from the date of grant. Employee Options and Consultant Options shall be
subject to earlier termination as hereinafter provided. Each Director Option
shall be exercisable for a term of 10 years commencing on the date of grant.
7. EXERCISE. An option (or any part or installment thereof),
to the extent then exercisable, shall be exercised by giving written notice to
the Company at its principal office (at present 175 Central Avenue South,
Bethpage, New York 11714, Attn: Chairman of the Board), stating which ISO or
NQSO is being exercised, specifying the number of shares of Common Stock as to
which such option is being exercised and accompanied by payment in full of the
aggregate exercise price therefor (or the amount due on exercise if the Contract
permits installment payments) (a) in cash or by certified check or (b) in the
case of an Employee Option or a Consultant Option, if the Contract at the time
of grant so permits, with previously acquired shares of Common Stock having an
aggregate fair market value, on the date of exercise, equal to the aggregate
exercise price of all options being exercised, or with any combination of cash,
certi fied check or shares of Common Stock.
The Committee may, in its discretion, permit payment of the
exercise price of an option by delivery by the optionee of a properly executed
exercise notice, together with a copy of his irrevocable instructions to a
broker acceptable to the Committee to deliver promptly to the Company the amount
of sale or loan proceeds sufficient to pay such exercise price. In connection
therewith, the Company may enter into agreements for coordinated procedures with
one or more brokerage firms.
A person entitled to receive Common Stock upon the exercise of
an option shall not have the rights of a shareholder with respect to such shares
of Common Stock until the date of issuance of a stock certificate to him for
such shares; provided, however, that until such stock certificate is issued, any
option holder using previously acquired shares of Common Stock in payment of an
option exercise price shall continue to have the rights of a shareholder with
respect to such previously acquired shares.
8. TERMINATION OF RELATIONSHIP. Any holder of an Employee
Option whose employment with the Company (and its Parent and Subsidiaries) has
terminated for any reason other than his death or Disability (as defined in
Paragraph 19) may exercise such option, to the extent exercisable on the date of
such termination, at any time within three months after the date of termination,
but not thereafter and in no event after the date the option would otherwise
have expired; provided, however, that if his employment shall be terminated
either (a) for cause, or (b) without the consent of the Company, said option
shall terminate immediately.
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Employee Options granted under the Plan shall not be affected by any change in
the status of the holder so long as he continues to be a full-time employee of
the Company, its Parent or any of the Subsidiaries (regardless of having been
transferred from one corporation to another).
For purposes of the Plan, an employment relationship shall be
deemed to exist between an individual and a corporation if, at the time of the
determination, the individual was an employee of such corporation for purposes
of Section 422(a) of the Code. As a result, an individual on military, sick
leave or other bona fide leave of absence shall continue to be considered an
employee for purposes of the Plan during such leave if the period of the leave
does not exceed 90 days, or, if longer, so long as the individual's right to
reemployment with the Company (or a related corporation) is guaranteed either by
statute or by contract. If the period of leave exceeds 90 days and the
individual's right to reemployment is not guaranteed by statute or by contract,
the employment relationship shall be deemed to have terminated on the 91st day
of such leave. In addition, for purposes of the Plan, an optionee's employment
with a Subsidiary or Parent of the Company shall be deemed to have terminated on
the date such corporation ceases to be a Subsidiary or Parent of the Company.
The termination of an optionee's relationship as a consultant
of the Company or of a Subsidiary of the Company shall not affect the option
except as may otherwise be provided in the Contract. A Director Option may be
exercised at any time during its 10 year term. The Director Option shall not be
affected by the holder ceasing to be a director of the Company or becoming an
employee or consultant of the Company or any of its subsidiaries.
Nothing in the Plan or in any option granted under the Plan
shall confer on any individual any right to continue in the employ or as a
consultant or director of the Company, its Parent or any of its Subsidiaries, or
interfere in any way with the right of the Company, its Parent or any of its
Subsidiaries to terminate such relationship at any time for any reason
whatsoever without liability to the Company, its Parent or any of its
Subsidiaries.
9. DEATH OR DISABILITY OF AN OPTIONEE. If an optionee dies (a)
while he is employed by the Company, its Parent or any of its Subsidiaries, (b)
within three months after the termination of his employment (unless such
termination was for cause or without the consent of the Company) or (c) within
one year following the termination of his employment by reason of Disability, an
Employee Option may be exercised, to the extent exercisable on the date of his
death, by his executor, administrator or other person at the time entitled by
law to his rights under such option, at any time within one year after death,
but not thereafter and in no event after the date the option would otherwise
have expired.
Any optionee whose employment has terminated by reason of
Disability may exercise his Employee Option, to the extent exercisable upon the
effective date of such termination, at any time within one year after such date,
but not thereafter and in no event after the date the option would otherwise
have expired.
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The death or Disability of an optionee to whom a Consultant
Option has been granted under the Plan shall not affect the option, except as
may otherwise be provided in the Contract. The term of a Director Option shall
not be affected by the death or Disability of the optionee. In such case, the
option may be exercised at any time during its term by his executor,
administrator or other person at the time entitled by law to the optionee's
rights under such option.
10. COMPLIANCE WITH SECURITIES LAWS. The Committee may
require, in its discretion, as a condition to the exercise of any option that
either (a) a Registration Statement under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the shares of Common Stock to be issued
upon such exercise shall be effective and current at the time of exercise, or
(b) there is an exemption from registration under the Securities Act for the
issuance of shares of Common Stock upon such exercise. Nothing herein shall be
construed as requiring the Company to register shares subject to any option
under the Securities Act.
The Committee may require the optionee to execute and deliver
to the Company his representations and warranties, in form and substance
satisfactory to the Committee, that (i) the shares of Common Stock to be issued
upon the exercise of the option are being acquired by the optionee for his own
account, for investment only and not with a view to the resale or distribution
thereof, and (ii) any subsequent resale or distribution of shares of Common
Stock by such optionee will be made only pursuant to (a) a Registration
Statement under the Securities Act which is effective and current with respect
to the shares of Common Stock being sold, or (b) a specific exemption from the
registration requirements of the Securities Act, but in claiming such exemption,
the optionee shall prior to any offer of sale or sale of such shares of Common
Stock provide the Company with a favorable written opinion of counsel, in form
and substance satisfactory to the Company, as to the applicability of such
exemption to the proposed sale or distribution.
In addition, if at any time the Committee shall determine in
its discretion that the listing or qualification of the shares of Common Stock
subject to such option on any securities exchange or under any applicable law,
or the consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the granting of an option,
or the issuance of shares of Common Stock thereunder, such option may not be
exercised in whole or in part unless such listing, qualification, consent or
approval shall have been effected or obtained free of any conditions not
acceptable to the Committee.
11. STOCK OPTION CONTRACTS. Each option shall be evidenced by
an appropriate Contract which shall be duly executed by the Company and the
optionee, and shall contain such terms and conditions not inconsistent herewith
as may be determined by the Committee.
12. ADJUSTMENTS UPON CHANGES IN COMMON STOCK. Notwithstanding
any other provisions of the Plan, in the event of any change in the outstanding
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Common Stock by reason of a stock dividend, recapitalization, merger or
consolidation in which the Company is the surviving corporation, split-up,
combination or exchange of shares or the like, the aggregate number and kind of
shares subject to the Plan, the aggregate number and kind of shares subject to
each outstanding option and the exercise price thereof shall be appropriately
adjusted by the Board of Directors, whose determination shall be conclusive.
In the event of (a) the liquidation or dissolution of the
Company, (b) a merger or consolidation in which the Company is not the surviving
corporation, or (c) any other capital reorganization (other than a
recapitalization) in which more than 50% of the shares of Common Stock of the
Company entitled to vote are exchanged, any outstanding options shall terminate,
unless other provision is made therefor in the transaction.
13. AMENDMENTS AND TERMINATION OF THE PLAN. The Plan was
adopted by the Board of Directors on June 5, 1996. No option may be granted
under the Plan after June 4, 2006. The Board of Directors, without further
approval of the Company's shareholders, may at any time suspend or terminate
the Plan, in whole or in part, or amend it from time to time in such respects as
it may deem advisable, including, without limitation, in order that ISO granted
hereunder meet the requirements for "incentive stock options" under the Code, to
comply with the provisions of Rule 16b-3 promulgated under the Exchange Act, and
to conform to any change in applicable law or to regulations or rulings of
administrative agencies; provided, however, that no amendment shall be effective
without the requisite prior or subsequent shareholder approval which would (a)
except as contemplated in Paragraph 12, increase the maximum number of shares of
Common Stock for which options may be granted under the Plan, (b) materially
increase the benefits to participants under the Plan or (c) change the
eligibility requirements for individuals entitled to receive options hereunder.
Notwithstanding the foregoing, the provisions regarding the selection of
Directors for participation in, and the amount, the price or the timing of,
Director Options shall not be amended more than once every six months, other
than to comport with changes in the Code, the Employee Retirement Income
Security Act or the rules thereunder. No termination, suspension or amendment of
the Plan shall, without the consent of the holder of an existing option affected
thereby, adversely affect his rights under such option. The power of the
Committee to construe and administer any options granted under the Plan prior to
the termination or suspension of the Plan nevertheless shall continue after such
termination or during such suspension.
14. NON-TRANSFERABILITY OF OPTIONS. No option granted under
the Plan shall be transferable otherwise than by will or the laws of descent and
distribution, and options may be exercised, during the lifetime of the holder
thereof, only by him or his legal representatives. Except to the extent provided
above, options may not be assigned, transferred, pledged, hypothecated or
disposed of in any way (whether by operation of law or otherwise) and shall not
be subject to execution, attachment or similar process.
15. WITHHOLDING TAXES. The Company may withhold cash and/or
shares of Common Stock to be issued with respect thereto having an aggregate
fair market value
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<PAGE>
<PAGE>
equal to the amount which it determines is necessary to satisfy its obligation
to withhold Federal, state and local income taxes or other taxes incurred by
reason of the grant or exercise of an option, its disposition, or the
disposition of the underlying shares of Common Stock. Alternatively, the Company
may require the holder to pay to the Company such amount, in cash, promptly upon
demand. The Company shall not be required to issue any shares of Common Stock
pursuant to any such option until all required payments have been made. Fair
market value of the shares of Common Stock shall be determined in accordance
with Paragraph 5.
Notwithstanding anything in the Plan or in any Contract to the
contrary, the Company may not withhold shares of Common Stock to satisfy the tax
withholding consequences of the exercise of an option by a holder who is subject
to the reporting requirements of Section 16(a) of the Exchange Act (as it
constitutes a deemed exercise of a stock appreciation right ("SAR") under Rule
16b-3 under the Exchange Act), unless (a) the Company has filed all periodic
reports and statements required to be filed by it pursuant to Section 13(a) of
the Exchange Act for at least one year prior to the date of such exercise, (b)
the Company on a regular basis releases for publication quarterly and annual
summary statements of sales and earnings in the manner contemplated in the rules
promulgated under Section 16 of the Exchange Act, (c) except when the date of
exercise of such SAR is automatic or fixed in advance under the Plan and is
outside the control of the holder, the election by the holder to receive cash in
full or partial settlement of the SAR, as well as the exercise of the SAR for
cash, is made during the period beginning on the third business day following
the date of release of the summary statements referred to in clause (b) and
ending on the 12th business day following such date, and (d) the option has been
held for at least six months from the date of grant to the date of cash
settlement.
16. LEGENDS; PAYMENT OF EXPENSES. The Company may endorse such
legend or legends upon the certificates for shares of Common Stock issued upon
exercise of an option under the Plan and may issue such "stop transfer"
instructions to its transfer agent in respect of such shares as it determines,
in its discretion, to be necessary or appropriate to (a) prevent a violation of,
or to perfect an exemption from, the registration requirements of the Securities
Act, (b) implement the provisions of the Plan or any agreement between the
Company and the optionee with respect to such shares of Common Stock, or (c)
permit the Company to determine the occurrence of a "disqualifying disposition,"
as described in Section 421(b) of the Code, of the shares of Common Stock
transferred upon the exercise of an ISO granted under the Plan.
The Company shall pay all issuance taxes with respect to the
issuance of shares of Common Stock upon the exercise of an option granted under
the Plan, as well as all fees and expenses incurred by the Company in connection
with such issuance.
17. USE OF PROCEEDS. The cash proceeds from the sale of
shares of Common Stock pursuant to the exercise of options under the Plan shall
be added to the general funds of the Company and used for its general corporate
purposes as the Board of Directors may determine.
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<PAGE>
<PAGE>
18. SUBSTITUTIONS AND ASSUMPTIONS OF OPTIONS OF CERTAIN
CONSTITUENT CORPORATIONS. Anything in this Plan to the contrary notwithstanding,
the Board of Directors may, without further approval by the shareholders,
substitute new options for prior options of a Constituent Corporation (as
defined in Paragraph 19) or assume the prior options of such Constituent
Corporation.
19. DEFINITIONS.
(a) Subsidiary. The term "Subsidiary" shall have the
same definition as "subsidiary corporation" in Section 424(f) of the Code.
(b) Parent. The term "Parent" shall have the same
definition as "parent corporation" in Section 424(e) of the Code.
(c) Constituent Corporation. The term "Constituent
Corporation" shall mean any corporation which engages with the Company, its
Parent or any Subsidiary in a transaction to which Section 424(a) of the Code
applies (or would apply if the option assumed or substituted were an ISO), or
any Parent or any Subsidiary of such corporation.
(d) Disability. The term "Disability" shall mean a
permanent and total disability within the meaning of Section 22(e)(3) of the
Code.
(e) Outside Director. The term "Outside Director"
shall mean an individual who, on the date of grant of a NQSO hereunder, is a
director of the Company but is not a common law employee of the Company or of
any of its Subsidiaries or its Parent.
(f) Employee Option. The term "Employee Option" shall
mean an option granted pursuant to the Plan to an individual who, on the date of
grant, is a key employee of the Company or a Subsidiary of the Company.
(g) Consultant Option. The term "Consultant Option"
shall mean a NQSO granted pursuant to the Plan to a person who, on the date of
grant, is a consultant to the Company or a Subsidiary of the Company and who is
not an employee of the Company or any of its Subsidiaries on such date.
(h) Director Option. The term "Director Option" shall
mean a NQSO granted pursuant to the Plan to a director of the Company who, on
the date of grant, is not an employee or consultant of the Company or a
Subsidiary of the Company.
20. GOVERNING LAW. The Plan, such options as may be granted
hereunder and all related matters shall be governed by, and construed in
accordance with, the laws of the State of New York.
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<PAGE>
<PAGE>
21. PARTIAL INVALIDITY. The invalidity or illegality of any
provision herein shall not affect the validity of any other provision.
22. SHAREHOLDER APPROVAL. The Plan shall be subject to
approval by a majority of the votes cast at the next duly held meeting of the
Company's shareholders at which a majority of the outstanding voting shares are
present, in person or by proxy, and voting on the Plan. No options granted
pursuant to the Plan may be exercised prior to such approval, provided that the
date of grant of any options granted thereunder shall be determined as if the
Plan had not been subject to such approval. Notwithstanding the foregoing, if
the Plan is not approved by a vote of the shareholders of the Company on or
before June 5, 1997, the Plan and any options granted thereunder shall
terminate.
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<PAGE>
<PAGE>
EXHIBIT 10.4
SLEEPY'S INC.
1996 EXECUTIVE BONUS PLAN
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.
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 1996, the Company may pay bonuses to the Executives in
an aggregate amount of 15.0% of the excess of the Company's 1996 net income
before income taxes (computed in accordance with generally accepted accounting
principles consistently applied) ('Pre-Tax Net Income') over 4,844,000.
2.3 With respect to 1997, the Company may pay bonuses to the Executives in
an aggregate amount of 15.0% of the excess of the Company's 1997 Pre-Tax Net
Income 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.
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.
<PAGE>
<PAGE>
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>
Interest Bearing Grid Note [NAT WEST BANK LOGO]
$2,000,000 Office Address: 100 Jericho Quadrangle January 31, 1996
On January 31, 1997, 1997, for value received, the undersigned jointly and
severally promise(s) to pay to the order of NatWest Bank N.A. (hereinafter
called the Bank) at its Office in the place first above stated, or if no place
is stated, at 10 Exchange Place, Jersey City, New Jersey, in immediately
available funds, the sum of
Two Million Dollars & 00/100****
...............................................................................
($2,000,000.00) Dollars, or if less than such principal sum, the aggregate
unpaid principal amount of all loans made by the Bank to the undersigned
hereunder as indicated on the schedule on the reverse side hereof. The
undersigned also promises to pay interest at said office in like money on the
unpaid principal amount hereof from time to time outstanding prior to maturity
at an annual rate equal to the Bank's Prime Rate (the rate of interest
established from time to time by the Bank as its 'prime rate') plus 0%, which
interest rate shall change when and as the Prime Rate changes. Interest shall be
payable on the first day of each month commencing the first such day to occur
after the date hereof and on the maturity hereof. Upon and following an Event of
Default (as defined below) and/or after maturity, whether after stated maturity,
acceleration or otherwise, this note, and, to the extent not specifically
provided elsewhere to the contrary and to the extent permitted by applicable
law, any interest, fee or other amount due in connection with the Liabilities
(as hereinafter defined), shall bear interest at a per annum rate determined
daily and payable on demand which shall be the higher of 2% in excess of the
rate hereinbefore provided, or 4% in excess of the Bank's Prime Rate, but in no
event in excess of the maximum rate of interest permitted under applicable law.
The Bank shall have no obligation to make any loan hereunder.
The undersigned hereby expressly authorizes the Bank to record on the schedule
on the reverse hereof the amount and date of each loan made hereunder and the
date and amount of each payment of principal thereon. All such notations shall
be presumptive as to the correctness thereof and the aggregate unpaid amount of
loans set forth on such schedule shall be presumed to be the unpaid principal
amount hereof.
Any loan may be prepaid in whole or in part at any time and from time to time
without premium or penalty together with interest accrued on the amount prepaid
to the date of any such prepayment.
<PAGE>
As collateral security for the payment of this note and for all other notes
and/or obligations or Liabilities (as hereinafter defined) of the Obligors
(which term as used herein shall be deemed to include each and all of the
undersigned and each and every endorser or guarantor hereof), or any one or more
of them, now or hereafter owed to, or held by, the Bank (and/or any entity
controlling, controlled by or under common control with the Bank, each such
entity referred to herein as an 'Affiliate'), the undersigned hereby grants to
the Bank a security interest in and transfers and assigns to the Bank the
following property: (i) any and all monies and/or other property now or
hereafter held by the Bank and/or any Affiliate on deposit, in safekeeping, or
otherwise, for the account of or to the credit of or belonging to any Obligor or
in which any Obligor shall have any interest and (ii) any and all property
described on the 'Schedule of Specific Possessory Collateral' on the reverse
side hereof, together with any additions and accessions thereto and
substitutions therefore and the products and proceeds thereof. This note and all
of the aforementioned obligations and Liabilities are also secured by (a) any
and all property of any Obligor now or hereafter subject to a security
agreement, mortgage, pledge agreement, assignment, hypothecation or other
document granting the Bank or any Affiliate a security interest or other lien or
encumbrance and (b) any and all collateral described in any and all credit
accommodations, notes, loan agreements, and any other agreements and documents,
now or hereafter existing, creating, evidencing, guaranteeing, securing or
relating to any or all of the Liabilities, together with all amendments,
modifications, renewals, or extensions thereof. All of the property described in
clauses (i), (ii), (a) and (b) shall be collectively referred to herein as the
'Collateral'. The Bank at any time, before or after an Event of Default (as
hereinafter defined), may, but shall not be obligated to, transfer into or out
of its own name or that of its nominee all or any of the Collateral,
including stocks, bonds, and other securities, and the Bank or
its nominee may demand, sue for, collect, receive and hold as like
Collateral any or all interest, dividends and income thereon and if any
securities are held in the name of the Bank or its nominee, the Banks may, after
an Event of Default exercise all voting and other rights pertaining thereto as
if the Bank were the absolute owner thereof; but the Bank shall not be obligated
to demand payment of, protest, or take any steps necessary to preserve any
rights in the Collateral against prior parties, or to take any action whatsoever
in regard to the Collateral or any part thereof, all of which the Obligor
assumes and agrees to do. Without limiting the generality of the foregoing, the
Bank shall not be obligated to take any action in connection with any
conversion, call, redemption, retirement or any other event relating to any
Collateral, unless the Obligor gives written notice to the Bank that such action
shall be taken not more than thirty (30) days prior to the time such action may
first be taken and not less than ten (10) days prior to the expiration of the
time during which such action may be taken. The term 'Liabilities' shall include
this note and all other indebtedness and obligations and liabilities of any kind
of any Obligor to the Bank, now or hereafter existing, arising directly between
any Obligor and the Bank or acquired by assignment. conditionally or as
collateral security by the Bank, absolute or contingent, joint and/or several,
secured or unsecured, due or not due, contractual or tortious, liquidated or
unliquidated, arising by operation of law or otherwise, direct or indirect,
including, but without limiting the generality of the foregoing, indebtedness,
obligations or liabilities to the Bank or any Obligor as a member of any
partnership, syndicate, association or other group, and whether incurred by any
Obligor as principal, surety, endorser, guarantor, accommodation party or
otherwise. Each Obligor (if more than one, jointly and severally) hereby agrees
that on demand at any time and from time to time they will deposit and pledge
with the Bank additional collateral of a kind and of a market value required by
it further to secure any indebtedness or liabilities aforesaid.
<PAGE>
If any of the following events shall occur with respect to any Obligor (each an
'Event of Default'): failure to comply forthwith with any such demand for
additional collateral; default in payment of any liability to the holder hereof
(however acquired); default in the due payment of any other indebtedness for
borrowed money or default in the observance or performance of any covenant or
condition in any agreement or instrument evidencing, securing or relating to any
such indebtedness which causes or permits the acceleration of the maturity
thereof; suspension or liquidation of usual business; calling of a meeting of
creditors; assignment for the benefit of creditors; dissolution, bulk sale or
notice thereof; mortgage or pledge of, creation of a security interest in, any
assets without consent of the holder of the note; insolvency of any kind,
attachment, distraint, garnishment, levy, execution, judgment, death,
application for appointment of a receiver, filing of a voluntary or involuntary
petition or entry of any order for relief under any provision of the Federal
Bankruptcy Code as now or hereafter in effect; failure to pay its debts as they
become due; failure to comply with the terms of any agreement with the Bank;
failure on request of any Obligor or any Obligor's accountant, to furnish any
financial information, or to permit inspection of any books or records; any
change in, or discovery with regard to, the condition or affairs which, in the
Bank's opinion, increases its credit risk; or if the Bank for any other reason
deems itself insecure; the Liabilities shall become absolute, due and payable
without demand or notice to any Obligor. Upon default in the due payment of this
note or any other Event of Default, or whenever this note or any payment of
principal or interest hereof shall become due in accordance with any of the
provisions hereof, the Bank may, but shall not be required to (1) proceed to
apply to the payment hereof the balance of the credit of any account or accounts
maintained with the Bank or any Affiliate by any Obligor and (2) sell (without
demand or performance, advertisement, notice of intention to sell, notice of
time or place of sale, notice to redeem or other notice whatsoever, all of which
are hereby waived) all or any part of the Collateral (on all of which the
Obligor does hereby give to the Bank a continuing lien, security interest and/or
right of set-off) at public or private sale or sales, or at any exchange or
broker's board, or at the Bank's office, at such prices as it shall deem best,
for cash or credit, with the right of the Bank at such sale to purchase all or
any part thereof, free from any right or equity of redemption, applying the net
proceeds of such sale to the payment of this note and of any other liabilities,
claims or obligations to the Bank of any of the Obligors, or of any partnership
in which any of the Obligors is a partner, all of whom together with any
endorser or guarantor hereby expressly agree to remain jointly and severally
liable for any deficiency. The Bank may exercise any other right or
remedy hereby granted or allowed to it by law, including but not
limited to, the rights and remedies of a Secured Party under the
Uniform Commercial Code of the Governing State (which term as used in
this Note shall mean the state in which the office indicated above opposite
'Office Address' is located; provided, that, if no such office is so indicated
then Governing State shall mean the state where the Bank's office that
originated the loan evidenced by this note is located), and each and every right
and remedy hereby granted to the Bank or allowed to it by laws shall be
cumulative and not exclusive of one of the other rights or remedies, and may be
exercised by the Bank from time to time and as often as may be necessary. The
Bank shall have at any time in its discretion the right to enforce collection
and payment or liquidation of any of the collateral by appropriate action or
proceedings, and the net amounts received therefrom, after deducting all costs
and expenses incurred in connection therewith, shall be applied on account of
this note and any other indebtedness or liabilities of the Obligor aforesaid,
all without notice to any Obligor. Any demand or notice, if made or given, shall
be sufficiently made upon or given to any Obligor if left at or mailed to the
last address of such Obligor known to the Bank or if made or given in any other
manner reasonably calculated to come to the attention of such Obligor or the
personal representatives, successors or assigns of such Obligor, whether or not
in fact received by them respectively. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Bank will give the undersigned reasonable notice of the
time and place of any public sale thereof or of the time after which any private
sale or other intended disposition is to be made. Five (5) days prior notice
shall be deemed reasonable notice. The Bank may assign and transfer this note to
any other person, firm or corporation and may deliver and repledge the
Collateral or any part thereof to the assignee or transferee of this note, who
shall thereupon become vested with all the powers and rights above given to the
Bank in respect thereof, and the Bank shall thereafter be forever released and
discharged of and from all responsibility or liability to the Obligor for or on
account of the Collateral so delivered. If an attorney is used to enforce or
collect this note, the Obligor agrees to pay attorneys fees in the amount of 20%
of the unpaid principal and interest due, which the Obligor agrees to be
reasonable. The Obligor jointly and severally promises to pay all expenses of
any nature as soon as incurred whether in or out of court and whether incurred
before or after this note shall become due at its maturity date or otherwise and
costs which the Bank may deem necessary or proper in connection with the
satisfaction of the indebtedness or the administration, supervision,
preservation, protection (including but not limited to maintenance of adequate
insurance) or of the realization upon the Collateral. EACH OBLIGOR ABSOLUTELY,
UNCONDITIONALLY AND IRREVOCABLY WAIVES (A) THE RIGHT TO A TRIAL BY JURY IN ANY
LITIGATION WITH THE BANK (WHETHER OR NOT ARISING OUT OF OR RELATING TO THIS
NOTE) AND (B) ALL RIGHT TO ASSERT ANY DEFENSE, SET-OFF, COUNTERCLAIM OR
CROSS-CLAIM OF ANY NATURE WHATSOEVER WITH RESPECT TO THIS NOTE OR OTHERWISE WITH
RESPECT TO THE LIABILITIES IN ANY ACTION OR PROCEEDING BROUGHT BY THE HOLDER
HEREOF TO ENFORCE ITS RIGHTS AND REMEDIES WITH RESPECT TO THIS NOTE, THE
LIABILITIES OR ANY PORTION THEREOF. The note shall be deemed to have been made
and delivered in the Governing State, the Obligor consents to the jurisdiction
of the state and federal courts of the Governing State in any action brought to
enforce any rights of the Bank under this note and the Bank and the Obligor
shall be determined in accordance with the laws of the Governing State. Interest
shall be calculated on the basis of a 360-day year and actual days elapsed,
provided that any interest so calculated hereunder shall in no event be in
excess of the maximum permitted under applicable law. This note and any other
agreements, documents and instruments executed and delivered pursuant to or in
connection with the Liabilities contain the entire agreement between the
<PAGE>
<PAGE>
parties relating to the subject matter hereof and thereof. The undersigned
expressly acknowledges that the Bank has not made and the undersigned is not
relying on any oral representations, agreements or commitments of the Bank or of
any officer, employee, agent or representative thereof. No change, modification,
termination, waiver, or discharge, in whole or in part, of this instrument shall
be effective unless in writing and signed by the party against whom such change,
modification, termination, waiver, or discharge is sought to be enforced.
NO CLAIM MAY BE MADE BY THE UNDERSIGNED, ANY OBLIGOR OR ANY OTHER PERSON,
AGAINST THE BANK OR THE AFFILIATES, DIRECTORS, OFFICERS, EMPLOYEES, ATTORNEYS OR
AGENTS OF THE BANK FOR ANY SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES OR, TO THE
FULLEST EXTENT PERMITTED BY LAW, FOR ANY PUNITIVE DAMAGES IN RESPECT OF ANY
CLAIM OR CAUSE OF ACTION (WHETHER BASED ON CONTRACT, TORT, STATUTORY LIABILITY,
OR ANY OTHER GROUND) BASED ON, ARISING OUT OF OR RELATED TO THIS NOTE OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION OR EVENT OCCURRING IN
CONNECTION THEREWITH, AND THE UNDERSIGNED (FOR ITSELF AND ON BEHALF OF EACH
OBLIGOR) HEREBY WAIVE, RELEASE AND AGREE NEVER TO SUE UPON ANY CLAIM FOR ANY
SUCH DAMAGES, WHETHER SUCH CLAIM NOW EXISTS OR HEREAFTER ARISES AND WHETHER OR
NOT IT IS NOW KNOWN OR SUSPECTED TO EXIST IN ITS FAVOR. The Obligors, and each
of them, hereby waive presentment, demand for payment, protest, notice of
protest, notice of dishonor, and any and all other notices or demands in
connection with the delivery, acceptance, performance, default, or enforcement
of this note, consents to any and all delays, extensions of time, renewals,
releases of any Obligor and of any available security, waivers or modifications
that may be granted or consented to by the Bank with regard to the time of
payment or with respect to any other provisions of this note and agrees that no
such action or failure to act on the part of the Bank shall in any way affect or
impair the obligations of any Obligor or be construed as a waiver by the Bank
of, or otherwise affect, its right to avail itself of any remedy hereunder with
the same force and effect as if each Obligor had expressly consented to such
action or inaction upon the part of the Bank. Each Obligor hereby authorizes the
Bank to request his accountant or accountants to furnish such financial
information relating to such Obligor as the Bank shall from time to time desire;
each such accountant is hereby authorized to deliver such financial information
to the Bank. The invalidity or unenforceability of any portion of this note
shall in no way affect the validity or enforceability of any other portion of
this note. The Obligors hereby authorize the Bank to date this note as of the
day when the first loan evidenced hereby is made and to complete and fill in any
blank spaces in this note in order to conform to the terms upon which any loan
is granted. Each Obligor further authorizes the Bank to execute and file one or
more financing statements covering the Collateral or any part thereof and the
Obligors agree to bear the cost of such filing(s). The term 'Bank' as used
herein shall be deemed to include the Bank and its successors, endorsees and
assigns.
Special provisions: This note is secured by the collateral as more fully
described in the Security Agreement dated 12/13/90 from the Borrower to the
Bank. UCC-l filing on all assets of borrower & affiliated guarantors.
Schedule of Specific Possessory Collateral
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATION, PARTNERSHIP, OR LIMITED LIABILITY COMPANY SIGNORS:
Bedding Discount Center, Inc.
________________________________________________________________________________
Name of Corporation, Partnership or Limited Liability Company
By: /s/ JAY BOROFSKY
----------------------------------------------------------------------------
Name: Jay Borofsky
Title: V.P. Finance
175 Central Avenue South, Bethpage NY 11714
________________________________________________________________________________
(Address)
INDIVIDUAL SIGNORS:
- --------------------------------------------------------------------------------
Name: , Individually
- --------------------------------------------------------------------------------
(Address)
- --------------------------------------------------------------------------------
Name: , Individually
- --------------------------------------------------------------------------------
(Address)
Schedule of Loans and Payments
<TABLE>
<CAPTION>
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DATE AMOUNT OF LOAN AMOUNT OF PRINCIPAL PAID BALANCE REMAINING UNPAID NOTATION MADE BY
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</TABLE>
LOAN NO. ________________________
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Sleepy's, Inc & Affiliates
Listing of Corporations
The following is a list of corporations that are currently wholly-owned by
Harry Acker, Chairman of the Board and Chief Executive Officer of the Company.
Prior to the effectiveness of this offering, all of the outstanding capital
stock of each of these corporations will be contributed to the Company.
<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
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<S> <C>
Active Sleepy's Stores
----------------------
Sleepy's of Patchogue, Inc. New York
Sleepy's of West Babylon, Inc. New York
Sleepy's of Bay Shore, Inc. New York
Sleepy's of Bensonhurst, Inc. New York
Sleepy's of Broadway, Inc. New York
Sleepy's of Livingston Street Inc. New York
Sleepy's of Kings Highway, Inc. New York
Sleepy's of Selden, Inc. New York
Sleepy's of Yonkers, Inc. (Commack) New York
Barthel Inc.-Bay Ridge New York
Sleepy's of Edison, Inc. New Jersey
Sleepy's of Hanover, Inc. New Jersey
Sleepy's of Queens Boulevard, Inc. New York
Sleepy's of 57th Street, Inc. New York
Sleepy's of Forest Avenue, Inc. New York
Sleepy's of Forest Hills, Inc. New York
Sleepy's of Farmingdale, Inc. New York
Barthel Inc.-Kings Plaza New York
Sleepy's of Oakdale, Inc. New York
Sleepy's of Hoboken, Inc. New Jersey
Sleepy's of Hasbrouck Heights, Inc. New Jersey
Sleepy's of West Hempstead, Inc. New York
Sleepy's of Herald Square, Inc. New York
Sleepy's of Hylan Boulevard, Inc. New York
Sleepy's of Oceanside, Inc. New York
Sleepy's of Manhasset, Inc. New York
Sleepy's of Rockaway Turnpike, Inc. New York
Sleepy's of Mamaroneck, Inc. New York
Sleepy's of Mt. Kisco, Inc. New York
Merrick Sleep Center, Inc. New York
Sleepy's of Huntington, Inc. New York
Sleepy's of Parkchester, Inc. New York
Sleepy's of Route 4, Inc. New Jersey
Sleepy's of Park Slope, Inc. New York
Sleepy's of Ridgewood, Inc. New York
Sleepy's of Richmond Hill, Inc. New York
Sleepy's of Riverhead, Inc. New York
Sleepy's of Rocky Point, Inc. New York
Sleepy's of Rosedale, Inc. New York
</TABLE>
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<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
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<S> <C>
1453 Center Corporation-Carle Place New York
Sleepy's of Sixth Avenue, Inc. New York
Sleepy's of Nanuet, Inc. New York
Sleepy's of Lynbrook, Inc. New York
Sleepy's of Third Avenue, Inc. New York
Plainedge Bedding Corporation, Inc. New York
Sleepy's of 86th Street, Inc. New York
Sleepy's of Little Falls, Inc. New Jersey
Sleepy's of Watchung, Inc. New Jersey
Sleepy's of White Plains, Inc. New York
Sleepy's of Bridgehampton, Inc. New York
Sleepy's of Route 107, Inc. New York
K.S. Acquisitions Corporation-Carle Place New York
Sleepy's of Secaucus, Inc. New Jersey
Sleepy's of West New York, Inc. New Jersey
Sleepy's of Lawrence, Inc. New York
Sleepy's of Massapequa, Inc. New York
Sleepy's of Yonkers, Inc. (Yonkers) New York
Sleepy's of Smithtown, Inc. New York
Sleepy's of Ozone Park, Inc. New York
Active Kleinsleep Stores
------------------------
K.S. Acquisition Corporation New York
K.S. Acquisition Corporation New York
Sleepy's of Rego Park, Inc. New York
Kleinsleep of Paramus, Inc. New Jersey
Kleinsleep Of Southampton, Inc. New York
Sleepy's of Yonkers, Inc. (Hicksville) New York
Kleinsleep of Broadway, Inc. New York
Kleinsleep of Westport, Inc. Connecticut
Kleinsleep of Manhasset, Inc. New York
Kleinsleep of Upper Broadway Inc. New York
</TABLE>
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<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
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<S> <C>
Inactive Stores & Other Corporations
------------------------------------
K.S. Acquisition Corporation New York
Kleinsleep of Queens Boulevard, Inc. New York
Kleinsleep of Westbury, Inc. New York
Barthel Inc.-Flushing New York
Sleepy's of Bayside, Inc. New York
Sleepy's of Downtown, Inc. New York
Sleepy's of East Meadow, Inc. New York
Sleepy's of Hempstead Turnpike, Inc. New York
Sleepy's of Staten Island, Inc. New York
Sleepy's of Route 17, Inc. New Jersey
Sleepy's of Hicksville, Inc. New York
Sleepy's of Astoria, Inc. New York
Sleepy's of Heartland, Inc. New York
Sleepy's of Levittown New York
Sleepy's of Paramus, Inc. New York
Sleepy's of Port Jefferson, Inc. New York
Sleepy's of 23rd Street, Inc. New York
Sleepy's of East Brunswick, Inc. New Jersey
Sleepy's of Ramsey, Inc. New Jersey
Sleepy's of Totowa, Inc. New Jersey
Sleepy's of Wappingers Falls, Inc. New York
Sleepy's of the Village, Inc. New York
Sleepy's of Wainscott, Inc. New York
Sleepy's Bedding Centers Inc. (CT) Connecticut
Sleepy's Bedding Centers Inc. (MD) Maryland
Sleepy's Bedding Centers, Inc. (FL) Florida
Sleepy's Inc. New Jersey
Sleepy's Location of New Jersey, Inc. New Jersey
Sleepy's Location Holding, Inc. New York
Sleepy's of 59th Street, Inc. New York
Sleepworld of Biscayne, Inc. Florida
Sleepworld of Kendall, Inc. Florida
Sleepy's of Plantation, Inc. Florida
Andhar, Inc. Florida
DAV Consulting, Inc. New York
Harand, Inc. Florida
</TABLE>
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<TABLE>
<CAPTION>
STATE OF
NAME OF CORPORATION INCORPORATION
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<S> <C>
Bedding Discount Center, Inc. (FL) Florida
BDC Realty Corporation New York
Ackers Bedding Centers, Inc. New York
David Acker Associates, Inc. New York
Acker & Wexler, Inc. New York
</TABLE>
<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.
We also consent to the reference to us under the captions 'Selected Financial
Data' and 'Experts' in the Prospectus.
BDO SEIDMAN, LLP
BDO Seidman, LLP
Mitchel Field, New York
June 6, 1996
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<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 30, 1995 AND MARCH 30, 1996
(UNAUDITED) AND THE CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED
DECEMBER 30, 1995 AND THE THREE MONTHS ENDED MARCH 30, 1996 (UNAUDITED),
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C> <C>
<FISCAL-YEAR-END> Dec-30-1995 Dec-30-1995
<PERIOD-START> Jan-01-1995 Dec-31-1995
<PERIOD-END> Dec-30-1995 Mar-30-1996
<PERIOD-TYPE> Year 3-Mos
<CASH> 250,000 255,000
<SECURITIES> 166,000 656,000
<RECEIVABLES> 760,000 413,000
<ALLOWANCES> 0 0
<INVENTORY> 3,629,000 4,527,000
<CURRENT-ASSETS> 5,764,000 6,773,000
<PP&E> 11,493,000 11,858,000
<DEPRECIATION> 4,286,000 4,528,000
<TOTAL-ASSETS> 15,615,000 17,278,000
<CURRENT-LIABILITIES> 6,798,000 8,753,000
<BONDS> 0 0
<COMMON> 29,000 29,000
0 0
0 0
<OTHER-SE> 4,395,000 4,464,000
<TOTAL-LIABILITY-AND-EQUITY> 15,615,000 17,278,000
<SALES> 59,763,000 16,045,000
<TOTAL-REVENUES> 59,763,000 16,045,000
<CGS> 30,694,000 8,125,000
<TOTAL-COSTS> 30,694,000 8,125,000
<OTHER-EXPENSES> 25,265,000 7,207,000
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 323,000 94,000
<INCOME-PRETAX> 3,569,000 419,000
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 3,569,000 419,000
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,569,000 419,000
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<PAGE>
