(CN) - A shareholder derivative complaint says that Sealy Corp. put the interests of its private equity backer above those of the mattress maker's shareholders by paying out more than $20 million in consulting fees.
Sealy shareholder Jay Plourde filed the shareholder derivative complaint in Delaware Chancery Court claiming that most of the Sealy board is "beholden" to Sealy director Dean Nelson, who is also head of Sealy's private equity backer and majority shareholder, New York-based Kohlberg Kravis Roberts and Co.
"Demonstrating that Sealy's board is currently comprised of directors who are both beholden to defendant Nelson and to the interests of KKR over those of Sealy, the individual defendants have permitted the company to make false and misleading statements regarding Sealy's payment of fees to KKR. Additionally, the individual defendants have failed to disclose information about the nature of KKR's relationship with the company and the provision of large payments to KKR," the lawsuit states.
Named defendants are Sealy CEO Lawrence Rogers and directors Paul Norris, James Johnston, Simon Brown, Gary Morin, Nelson, Richard Roedel, Deborah Ellinger and John Replogle. The shareholder says that many of those directors have ties to non-party Kohlberg Kravis Roberts.
According to the complaint, the Sealy made $20.9 million in payments to Kohlberg Kravis Roberts since the company's 2006 initial public offering.
"This amount included $9.7 million in questionable payments to KKR for advisory services only two years after Sealy paid $11 million to terminate KKR's advisory services," the lawsuit states.
"Additionally, the fee letter between Sealy and KKR included an open-ended payment provision of fees to KKR - a provision which benefits KKR rather than the company. KKR's interests, moreover, are to maximize fee-related earnings and to act with short-term interests. These interests conflict with the interests of the company to maximize long-term value," the complaint adds.
The shareholders also claim that Sealy board members issued false and misleading statements about the fee payments, "the nature of KKR's relationship with the company," and that the Sealy compensation committee adjusted executive pay in 2009 "to align with KKR's interests."
"According to Sealy's March 5, 2010 proxy statement, KKR owned approximately $93.8 million or 53 percent of the company's convertible notes. Thus, members of Sealy's board have breached their fiduciary duties to the company and have subjected the company to millions of dollars in losses, adverse publicity, additional potential costs, and other occurrences harmful to the company," the complaint states.
The shareholder is represented by Carmella Keener with Rosenthal Monhait & Goddess of Wilmington, Del.