Form SC 13D/A MATTRESS FIRM HOLDING Filed by: 40 North Management LLC

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

SCHEDULE 13D

(Amendment No. 9)*

 

Under the Securities Exchange Act of 1934

 

 

MATTRESS FIRM HOLDING CORP.

(Name of Issuer)

 

Common Stock, par value $0.01 per share

(Title of Class of Securities)

 

57722W106

(CUSIP Number)

 

David S. Winter

40 North Management LLC

9 West 57th Street, 30th Floor

New York, New York 10019

(212) 821-1600

(Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications)

 

COPIES TO:

Robert W. Downes, Esq.

Sullivan & Cromwell LLP

125 Broad Street

New York, New York 10004-2498

(212) 558-4312

 

February 8, 2016

(Date of Event which Requires Filing of this Statement)

 

 

If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of §§240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the following box. ¨ 

 

 

Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule §240.13d-7 for other parties to whom copies are to be sent. 

 

 

*

The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page.

 

The information required on the remainder of this cover page shall not be deemed to be “filed” for the purpose of Section 18 of the Securities Exchange Act of 1934 (“Act”) or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes).

 

Continued on following pages

Page 1 of 20 Pages

 

 

CUSIP No. 57722W106	Page 2 of 13 Pages

 

	1.	Names of Reporting Persons   40 NORTH MANAGEMENT LLC
	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)	¨
		(b)	x
	3.	SEC Use Only
	4.	Source of Funds (See Instructions)   AF
	5.	Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)     ¨
	6.	Citizenship or Place of Organization   DELAWARE

Number of Shares Beneficially Owned by Each Reporting Person With	7.	Sole Voting Power   3,157,933
	8.	Shared Voting Power   0
	9.	Sole Dispositive Power   3,157,933
	10.	Shared Dispositive Power   0

	11.	Aggregate Amount Beneficially Owned by Each Reporting Person   3,157,933
	12.	Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)   ¨
	13.	Percent of Class Represented by Amount in Row (11)   8.5%
	14.	Type of Reporting Person (See Instructions)   IA

 

 

CUSIP No. 57722W106	Page 3 of 13 Pages

 

	1.	Names of Reporting Persons   40 NORTH LATITUDE MASTER FUND LTD.
	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)	¨
		(b)	x
	3.	SEC Use Only
	4.	Source of Funds (See Instructions)   WC; OO
	5.	Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)     ¨
	6.	Citizenship or Place of Organization   CAYMAN ISLANDS

Number of Shares Beneficially Owned by Each Reporting Person With	7.	Sole Voting Power   0
	8.	Shared Voting Power   3,157,933
	9.	Sole Dispositive Power   0
	10.	Shared Dispositive Power   3,157,933

11.

Aggregate Amount Beneficially Owned by Each Reporting Person   3,157,933

	12.	Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)   ¨
	13.	Percent of Class Represented by Amount in Row (11)   8.5%
	14.	Type of Reporting Person (See Instructions)   CO

 

 

CUSIP No. 57722W106	Page 4 of 13 Pages

 

	1.	Names of Reporting Persons   40 NORTH LATITUDE SPV-B LLC
	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)	¨
		(b)	x
	3.	SEC Use Only
	4.	Source of Funds (See Instructions)   WC; OO
	5.	Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)     ¨
	6.	Citizenship or Place of Organization   DELAWARE

Number of Shares Beneficially Owned by Each Reporting Person With	7.	Sole Voting Power   0
	8.	Shared Voting Power   2,293,356
	9.	Sole Dispositive Power   0
	10.	Shared Dispositive Power   2,293,356

11.

Aggregate Amount Beneficially Owned by Each Reporting Person   2,293,356

	12.	Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)   ¨
	13.	Percent of Class Represented by Amount in Row (11)   6.2%
	14.	Type of Reporting Person (See Instructions)   OO

 

 

CUSIP No. 57722W106	Page 5 of 13 Pages

 

	1.	Names of Reporting Persons   40 NORTH LATITUDE FUND LP
	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)	¨
		(b)	x
	3.	SEC Use Only
	4.	Source of Funds (See Instructions)   WC; OO
	5.	Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)     ¨
	6.	Citizenship or Place of Organization   DELAWARE

Number of Shares Beneficially Owned by Each Reporting Person With	7.	Sole Voting Power   0
	8.	Shared Voting Power   3,157,933
	9.	Sole Dispositive Power   0
	10.	Shared Dispositive Power   3,157,933

11.

Aggregate Amount Beneficially Owned by Each Reporting Person   3,157,933

	12.	Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)   ¨
	13.	Percent of Class Represented by Amount in Row (11)   8.5%
	14.	Type of Reporting Person (See Instructions)   PN

 

 

CUSIP No. 57722W106	Page 6 of 13 Pages

 

	1.	Names of Reporting Persons   40 NORTH GP III LLC
	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)	¨
		(b)	x
	3.	SEC Use Only
	4.	Source of Funds (See Instructions)   AF
	5.	Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)     ¨
	6.	Citizenship or Place of Organization   DELAWARE

Number of Shares Beneficially Owned by Each Reporting Person With	7.	Sole Voting Power   0
	8.	Shared Voting Power   3,157,933
	9.	Sole Dispositive Power   0
	10.	Shared Dispositive Power   3,157,933

11.

Aggregate Amount Beneficially Owned by Each Reporting Person   3,157,933

	12.	Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)   ¨
	13.	Percent of Class Represented by Amount in Row (11)   8.5%
	14.	Type of Reporting Person (See Instructions)   OO

 

 

CUSIP No. 57722W106	Page 7 of 13 Pages

 

	1.	Names of Reporting Persons   DAVID S. WINTER
	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)	¨
		(b)	x
	3.	SEC Use Only
	4.	Source of Funds (See Instructions)   AF
	5.	Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)     ¨
	6.	Citizenship or Place of Organization   UNITED STATES

Number of Shares Beneficially Owned by Each Reporting Person With	7.	Sole Voting Power   0
	8.	Shared Voting Power   3,157,933
	9.	Sole Dispositive Power   0
	10.	Shared Dispositive Power   3,157,933

11.

Aggregate Amount Beneficially Owned by Each Reporting Person   3,157,933

	12.	Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)   ¨
	13.	Percent of Class Represented by Amount in Row (11)   8.5%
	14.	Type of Reporting Person (See Instructions)   IN

 

 

CUSIP No. 57722W106	Page 8 of 13 Pages

 

	1.	Names of Reporting Persons   DAVID J. MILLSTONE
	2.	Check the Appropriate Box if a Member of a Group (See Instructions)
		(a)	¨
		(b)	x
	3.	SEC Use Only
	4.	Source of Funds (See Instructions)   AF
	5.	Check Box if Disclosure of Legal Proceedings Is Required Pursuant to Items 2(d) or 2(e)     ¨
	6.	Citizenship or Place of Organization   UNITED STATES

Number of Shares Beneficially Owned by Each Reporting Person With	7.	Sole Voting Power   0
	8.	Shared Voting Power   3,157,933
	9.	Sole Dispositive Power   0
	10.	Shared Dispositive Power   3,157,933

11.

Aggregate Amount Beneficially Owned by Each Reporting Person   3,157,933

	12.	Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares (See Instructions)   ¨
	13.	Percent of Class Represented by Amount in Row (11)   8.5%
	14.	Type of Reporting Person (See Instructions)   IN

 

 

CUSIP No. 57722W106

Page 9 of 13 Pages

 

AMENDMENT NO. 9 TO SCHEDULE 13D

 

This Amendment No. 9 supplements the information set forth in the Schedule 13D filed by 40 North Management LLC, a Delaware limited liability company, 40 North Investments LP, a Delaware limited partnership, David S. Winter, an American citizen, and David J. Millstone, an American citizen, with the United States Securities and Exchange Commission (the “SEC”) on August 6, 2013, as heretofore amended (the “Schedule 13D”), relating to Common Stock, par value $0.01 per share (the “Shares”), of Mattress Firm Holding Corp., a Delaware corporation (the “Issuer”).  All capitalized terms contained herein but not otherwise defined shall have the meanings ascribed to such terms in the Schedule 13D.

 

The information set forth in response to each separate Item below shall be deemed to be a response to all Items where such information is relevant.  The Schedule 13D is hereby supplementally amended as follows:

 

Item 2.

Identity and Background.

 

This statement on Schedule 13D is filed on behalf of 40 North Management LLC, a Delaware limited liability company (“40 North Management”), 40 North Latitude Master Fund Ltd., a Cayman Islands exempted company incorporated with limited liability (“40 North Latitude Master”), 40 North Latitude SPV-B LLC, a Delaware limited liability company (“40 North Latitude SPV”), 40 North Latitude Fund LP, a Delaware limited partnership (“40 North Latitude Feeder”), 40 North GP III LLC, a Delaware limited liability company (“40 North GP III”), David S. Winter, an American citizen, and David J. Millstone, an American citizen (collectively, the “Reporting Persons”).  This statement relates to Shares held by (i) 40 North Latitude SPV, a wholly owned subsidiary of 40 North Latitude Master, the “master” fund in a “master-feeder” structure in which 40 North Latitude Feeder is a “feeder” fund, and (ii) 40 North Latitude Master.

 

The principal business of each of 40 North Latitude Feeder, 40 North Latitude Master and 40 North Latitude SPV is the making of investments in securities and other assets.  The principal business of 40 North GP III is to serve as general partner of 40 North Latitude Feeder.  40 North Management serves as principal investment manager to 40 North Latitude Feeder and 40 North Latitude Master. As such, 40 North Management has been granted investment discretion over various portfolio investments, including the Shares.  David S. Winter and David J. Millstone serve as the sole members and principals of each of 40 North Management and 40 North GP III, as the principals of 40 North Latitude SPV and as the sole directors of 40 North Latitude Master.  The principal business address of each of the Reporting Persons is 9 West 57th Street, 30th Floor, New York, New York 10019.  A joint filing agreement of the Reporting Persons is attached hereto as Exhibit 1.

 

During the last five years, none of the Reporting Persons has been convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or has been a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws.

 

 

CUSIP No. 57722W106

Page 10 of 13 Pages

 

Item 3.

Source and Amount of Funds or Other Consideration.

 

The responses to Items 4, 5 and 6 of this Schedule 13D are incorporated herein by reference.

 

2,421,345 of the Shares reported herein were acquired by 40 North Latitude Feeder on September 1, 2015 via distributions from 40 North Investments LP and 40 North Investment Partners LP (other investment subsidiaries of 40 North Latitude Feeder), and then contributed by 40 North Latitude Feeder to 40 North Latitude Master.  Of such Shares, 2,293,356 were then contributed by 40 North Latitude Master to 40 North Latitude SPV.  The balance of the Shares reported herein were purchased by 40 North Latitude Master using working capital and on margin. The total purchase price for the Shares reported herein was $121,752,096. The Reporting Persons’ margin transactions are with 40 North Latitude Master’s usual brokers, on such brokers’ usual terms and conditions. All or part of the Shares owned by the Reporting Persons may from time to time be pledged with one or more banking institutions or brokerage firms as collateral for loans made by such bank(s) or brokerage firm(s) to the Reporting Persons. Such indebtedness may be refinanced with other banks or broker-dealers.

 

Item 4.

Purpose of Transaction.

 

Item 4 of this Schedule 13D is hereby amended and supplemented by adding the following information:  On February 8, 2016, Messrs. David Winter and David Millstone, on behalf of the Reporting Persons, sent a letter to the Board of Directors of the Issuer. That letter is filed as Exhibit 3 hereto and incorporated by reference.

 

Item 5.

Interest in Securities of the Issuer.

 

(a) – (b) 40 North Latitude SPV may be deemed to be the beneficial owner of  2,293,356 of the Shares reported herein, which represent approximately 6.2% of the Issuer’s outstanding Shares.  Each of 40 North Management, 40 North Latitude Master, 40 North Latitude Feeder, 40 North GP III, Mr. Winter and Mr. Millstone may be deemed the beneficial owner of all of the 3,157,933 Shares reported herein, which represent approximately 8.5% of the Issuer’s outstanding Shares.  40 North Management may be deemed to have sole power to vote and sole power to dispose of all of such Shares, whereas the other Reporting Persons having beneficial ownership may be deemed to have shared power to vote and shared power to dispose of such Shares as they may be deemed to have beneficial ownership of.

 

The percentages in the immediately foregoing paragraph are calculated based on a total of 37,034,504 Shares outstanding, which is equal to the sum of 35,272,268 Shares outstanding as of December 7, 2015 (based on the Issuer’s Quarterly Report on Form 10-Q filed with the SEC on December 8, 2015) and the issuance of an aggregate of 1,762,236 shares of common stock of the Company on February 5, 2016 (as reported in the Issuer’s Current Report on Form 8-K filed with the SEC on February 3, 2016).

 

(c)           Except as set forth on Exhibit 2 attached hereto, there have been no transactions with respect to the Shares during the sixty days prior to the date hereof by any of the Reporting Persons.

 

(d)           In addition to the Reporting Persons, the limited partners of (or investors in) 40 North Latitude Feeder or its respective subsidiaries or affiliated entities have the right to participate in the receipt of dividends from, or proceeds from the sale of, the Shares held for the account of 40 North Latitude Feeder in accordance with their respective limited partnership interests (or investment percentages).

 

 

CUSIP No. 57722W106

Page 11 of 13 Pages

 

Item 6.

Contracts, Arrangements, Understandings or Relationships with Respect to Securities of the Issuer.

 

The responses to Items 3, 4 and 5 of this Schedule 13D are incorporated herein by reference.

 

40 North Latitude SPV has entered into swaps with respect to the Shares. Under the terms of the swaps, (i) 40 North Latitude SPV will be obligated to pay to the counterparty any negative price performance of the specified notional number of Shares subject to the swaps as of the expiration date of such swaps, plus interest rates set forth in the applicable contracts, and (ii) the counterparty will be obligated to pay 40 North Latitude SPV any positive price performance of the specified notional number of Shares subject to the swaps as of the expiration date of the swaps. Any dividends received by the counterparty on such notional Shares during the term of the swaps will be paid to 40 North Latitude SPV. All balances will be settled in cash. 40 North Latitude SPV’s counterparty for the swaps is Morgan Stanley Capital Services LLC. The number of Shares specified in such swaps is 205,900.  

 

The swaps do not give 40 North Latitude SPV or any of the other Reporting Persons direct or indirect voting, investment or dispositive control over any securities of the Issuer and do not require the counterparty thereto to acquire, hold, vote or dispose of any securities of the Issuer. Accordingly, 40 North Latitude SPV and the other Reporting Persons disclaim any beneficial ownership of any Shares that may be referenced in the swap contracts or Shares or other securities or financial instruments that may be held from time to time by any counterparty to the contracts.

 

Except for the arrangements described herein, to the best knowledge of the Reporting Persons, there are no contracts, arrangements, understandings or relationships (legal or otherwise) among the persons named in Item 2 and between such persons and any other person with respect to any securities of the Issuer, including but not limited to, transfer or voting of any of the securities, finder’s fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or loss or the giving or withholding of proxies.

 

Item 7.

Material to be Filed as Exhibits.

 

Exhibit 1 - Agreement between 40 North Management LLC, 40 North Latitude Master Fund Ltd., 40 North Latitude SPV-B LLC, 40 North Latitude Fund LP, 40 North GP III LLC, David S. Winter, and David J. Millstone to file this Schedule 13D and any amendments thereto jointly on behalf of each of them.

 

Exhibit 2 - Transactions in the Shares effected in the past 60 days.

 

Exhibit 3 - Letter to the Board of Directors of the Issuer, dated February 8, 2016.

 

 

CUSIP No. 57722W106

Page 12 of 13 Pages

 

SIGNATURES

 

After reasonable inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct.

 

Date:  February 8, 2016	40 NORTH MANAGEMENT LLC
	By:
		/s/ David S. Winter
		David S. Winter
		Principal

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Principal

  

Date: February 8, 2016	40 NORTH LATITUDE MASTER FUND LTD.
	By:
		/s/ David S. Winter
		David S. Winter
		Director

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Director

  

Date:  February 8, 2016	40 NORTH LATITUDE SPV-B LLC
	By:
		/s/ David S. Winter
		David S. Winter
		Principal

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Principal

 

 

CUSIP No. 57722W106

Page 13 of 13 Pages

 

Date:  February 8, 2016	40 NORTH LATITUDE FUND LP
	By 40 North GP III LLC, its General Partner
	By:
		/s/ David S. Winter
		David S. Winter
		Principal

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Principal

 

Date:  February 8, 2016	40 NORTH GP III LLC
	By:
		/s/ David S. Winter
		David S. Winter
		Principal

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Principal

 

Date:  February 8, 2016	DAVID S. WINTER
	By:
		/s/ David S. Winter

 

Date:  February 8, 2016	DAVID J. MILLSTONE
	By:
		/s/ David J. Millstone

 

 

EXHIBIT 1

 

AGREEMENT

JOINT FILING OF SCHEDULE 13D

 

The undersigned hereby agree to jointly prepare and file with regulatory authorities this Schedule 13D and any future amendments thereto reporting each of the undersigned’s ownership of securities of Mattress Firm Holding Corp., and hereby affirm that such Schedule 13D is being filed on behalf of each of the undersigned pursuant to and in accordance with the provisions of Rule 13d-1(k) under the Securities Exchange Act of 1934.  The undersigned acknowledge that each shall be responsible for the timely filing of such amendments, and for the completeness and accuracy of the information concerning him or it contained therein, but shall not be responsible for the completeness and accuracy of the information concerning the other, except to the extent that he or it knows or has reason to believe that such information is inaccurate.

 

Date:  February 8, 2016	40 NORTH MANAGEMENT LLC
	By:
		/s/ David S. Winter
		David S. Winter
		Principal

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Principal

 

Date:  February 8, 2016	40 NORTH LATITUDE MASTER FUND LTD.
	By:
		/s/ David S. Winter
		David S. Winter
		Director

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Director

 

Date:  February 8, 2016	40 NORTH LATITUDE SPV-B LLC
	By:
		/s/ David S. Winter
		David S. Winter
		Principal

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Principal

 

 

Date: February 8, 2016	40 NORTH LATITUDE FUND LP
	By 40 North GP III LLC, its General Partner
	By:
		/s/ David S. Winter
		David S. Winter
		Principal

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Principal

   

Date: February 8, 2016	40 NORTH GP III LLC
	By:
		/s/ David S. Winter
		David S. Winter
		Principal

 

	By:
		/s/ David J. Millstone
		David J. Millstone
		Principal

 

Date: February 8, 2016	DAVID S. WINTER
	By:
		/s/ David S. Winter

 

Date:  February 8, 2016	DAVID J. MILLSTONE
	By:
		/s/ David J. Millstone

 

EXHIBIT 2

 

TRANSACTIONS

 

Exhibit 2 to Schedule 13D (Amendment No. 8) filed on December 18, 2015 by the Reporting Persons (“Prior Exhibit 2”) is incorporated herein by reference.  Together with Prior Exhibit 2, the following table sets forth all transactions with respect to Shares effected in the last sixty days by the Reporting Persons on behalf of the Reporting Persons in respect of the Shares, inclusive of any transactions effected through 4:00 p.m., New York City time, on February 5, 2016.  Except as noted, all such transactions were purchases or sales of Shares effected in the open market, and the table includes commissions paid in per share prices.

 

Transaction Date

Reporting Person Effecting Transaction

Buy/Sell or Other Acquisition/Disposition

Quantity

Price

12/21/2015

40 North Latitude Master Fund Ltd.

Buy

70,314

45.23

12/22/2015

40 North Latitude Master Fund Ltd.

Buy

90,367

44.25

12/22/2015

40 North Latitude Master Fund Ltd.

Buy

5,015

44.70

12/22/2015

40 North Latitude Master Fund Ltd.

Buy

1,000

44.50

12/23/2015

40 North Latitude Master Fund Ltd.

Buy

301

45.01

01/15/2016

40 North Latitude Master Fund Ltd.

Buy*

71,000

45.01

________________

*On January 15, 2016, 40 North Master Latitude Fund Ltd. acquired 71,000 Shares pursuant to counterparty exercise of sold listed American-style put options.  This sale of put options was previously reported in Item 6 of the Schedule 13D/A filed by the Reporting Persons on December 18, 2015.

 

 

EXHIBIT 3

 

 

February 8, 2016

 

Board of Directors
Mattress Firm Holding Corp.
5815 Gulf Freeway
Houston, TX 77023

 

To the Board of Directors:

 

For over three years, investment funds managed by 40 North Management LLC (“40 North”) have been shareholders of Mattress Firm Holding Corp. (“Mattress Firm” or the “Company”) and currently hold approximately 8.5% of the Company's common stock. As long-term shareholders, we have been supportive of the Company’s Chief Executive Officer, Steve Stagner, and his management team through Mattress Firm’s ups and downs, and we continue to stand behind him as he works to integrate the Sleepy’s acquisition. It is therefore not without serious consideration that we write this letter to express our tremendous concern regarding the Company’s worst-in-class corporate governance and its ongoing treatment by J.W. Childs – a minority shareholder who effectively controls the Board of Directors (the “Board”) – as a private company being run without regard for the interests of all shareholders. Significant changes to the governance of Mattress Firm are imperative, including the appointment of a Board that is comprised of a majority of truly independent directors.

 

As you must know, Mattress Firm is a publicly traded company and no longer a portfolio company of J.W. Childs. Notwithstanding the fact that J.W. Childs has been a consistent seller of the Company’s stock leaving them with a now minority 36% ownership, the Board continues to be controlled by J.W. Childs, their affiliates and other directors with whom they share close ties, leaving no true voice for all other public shareholders. Our long-standing concern was clearly detailed in December 2015 by former director Ron J. Mittelstaedt when he issued a highly uncommon public letter announcing his resignation from the Board, questioning the “true independence of the ‘independent’ Directors who are affiliated with J.W. Childs’” and expressing his belief that J.W. Childs’ disproportionate representation on the Board did not serve the interest of all shareholders. Shockingly, the Board has not even deemed the corporate governance issues raised worthy of a reply.

 

Unfortunately, we are compelled to write now given our recent dialogue with the Board and the Board’s decision to amend the terms of the Sleepy’s acquisition on February 3^rd and issue over half a million shares of Company common stock to Company insiders including J.W. Childs affiliates at a near two-year low, a transaction which can only be described as an egregious insider deal. We recognize the current volatility in the credit markets, which pushed the Board to consider various financing alternatives including further equitizing the Company. But rather than provide all shareholders the opportunity to participate in the contemplated dilutive share offering, the Board deplorably issued equity solely to its insiders when the Company’s stock was trading at what a J.W. Childs representative described as a significantly undervalued price. This fact is even more distasteful given J.W. Childs’ recent sales of the stock at opportunistic prices, including a sale in April 2015 at a price of $66.47 (or approximately 86% above the price per share at which J.W. Childs just acquired stock from the Company). 40 North would gladly have participated in the February 3^rd share issuance had it been offered the opportunity to do so, and we believe the Company would have been far better served by issuing the stock to its truly long-term shareholders rather than J.W. Childs who has been a consistent seller of the stock for years.

 

 

In recent conversations with members of the Board affiliated with J.W. Childs, we discussed changes to the makeup of the current Board to address our governance concerns, including a proposal made by members of the Board to add two 40 North representatives to the Board. While we are clearly willing to serve on the Board, we ultimately concluded that the appointment of 40 North representatives alone was inadequate and a broader transformation to the composition of the Board was required to ameliorate the Company’s significant corporate governance issues and shareholder misalignment. In particular, J.W. Childs must commit to taking a minority position, commensurate with its economic ownership, and to the appointment of new unaffiliated independent directors to serve as the majority. J.W. Childs’ refusal to do so is contrary to the basic tenets of good corporate governance. The February 3^rd stock issuance to insiders has only further highlighted the need for wholesale change in light of the current Board’s inability to look out for the interests of shareholders other than J.W. Childs. To be clear, we have no interest in putting ourselves in the same predicament Ron Mittelstaedt found himself in and participating in what is only a window-dressing exercise that will further entrench J.W. Childs in a disproportionately controlling position and will not provide all of Mattress Firm’s shareholders with the independent-minded Board that they deserve.

 

We are long-term owners and operators of both industrial and investment businesses ourselves, but having watched the Board’s inaction to appropriately represent all shareholders, we can no longer sit silent. We again implore the Board to take its credibility and good corporate governance seriously and give all shareholders the voice they have bargained for as the majority owners of the Company.

 

Sincerely,

 

/s/ David S. Winter		/s/ David J. Millstone
David S. Winter		David J. Millstone

 

 

 

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