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Now that it has emerged from Chapter 11 bankruptcy, LoveSac Corp.'s founder Shawn Nelson says the company will pursue a slower, more measured expansion strategy rather than try to return to the blistering growth pace of the past.

LoveSac, the Salt Lake City-based maker of "oversized" stuffed furniture, filed to reorganize its debts under Chapter 11 in January. It emerged late last week from bankruptcy protection after selling its assets to a group of private investors who previously held preferred stock in the company.

Nelson, who early last year won the "Rebel Billionaire" reality TV contest, said the company's problems prior to its bankruptcy court filing could be traced to its over expansion and resultant heavy debt load.

"We opened a lot of stores that weren't profitable, but at the same time we were able to build LoveSac into a national brand," Nelson said. "So that expansion really did have both a good and bad side to it."

Nelson said while in Chapter 11 LoveSac took advantage of the situation to fix some of the problems created by its rapid expansion.

It closed down unprofitable stores and was able to step away from agreements with its under performing franchisees. It entered bankruptcy court with 78 stores and exited with 20 retail outlets in the United States and Australia.

Among the remaining 20 stores are four Utah outlets in Sandy, Murray, Salt Lake City and Layton.

Moving forward, the company intends to reintroduce its new "Sactionals" line of modular furniture in September. Using two modular components, or base and side pieces, the product can be arranged into any number of positions to create different size sofas, chairs, loungers and playpens.

"We're counting on the Sactionals to bring back a sense of excitement to company," he said.

said.

Nelson founded LoveSac in 1995 in his parent's basement. Inspired by the bean-bag chairs of the 1970s, he experimented with foam that molded around a person's body and stitched together the first prototype on his mother's sewing machine.

At the time of its Chapter 11 filing, the company reported it owed $3.2 million to its 30 largest unsecured creditors. Those unsecured creditors, who provided materials, assembly and shipping services, only received a portion of what they were owed.

"A lot of those vendors will have to get back what we still owe them through continued business with LoveSac," Nelson said.

Under LoveSac's Chapter 11 plan, an investment group known as SAC Acquisition that is controlled by the company's largest preferred shareholders, agreed to pay $600,000 in cash for all the company's assets.

The SAC Acquisition group includes Walnut Investment Partners, Walnut Private Equity Fund, Brand Equity Ventures and Hauser 41 LLC.

Those investment funds first acquired a major ownership interest in LoveSac in early 2005, said Scott McDonough, who was president of the company at that time. "They were really impressed with Shawn's creativity and I'm sure that is probably still the case," he said.

As part of the plan to help LoveSac emerge from Chapter 11 those investors promised to contribute $150,000 to a liquidation trust for settlement of potential litigation and 1 percent, or at least $150,000, of the gross receipts of LoveSac for the next year and a half.

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Tribune wire services contributed to this story.

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