Sleep Number Corporation (NASDAQ: SNBR) announced it has entered an asset purchase agreement with Sleep Country Canada and initiated a voluntary Chapter 11 bankruptcy process to facilitate the transaction.

The Minneapolis-based mattress company filed for bankruptcy in the U.S. Bankruptcy Court for the District of New York, with Sleep Country Canada serving as the stalking horse bidder in a court-supervised sale process. The transaction remains subject to higher offers, court approval and other closing conditions.

Sleep Number expects to secure up to $260 million in debtor-in-possession financing, including up to $65 million in new financing, to support operations during the bankruptcy process. The company stated it will continue serving customers through its retail stores and online platform while fulfilling existing orders and honoring warranties.

"While we have made meaningful progress advancing our turnaround efforts and strengthening our operations, our capital structure remains unsustainable," said Linda Findley, Sleep Number's president and chief executive officer, according to the company's statement.

The company operates over 570 stores nationwide and plans to maintain as many retail locations as possible based on profitability. Sleep Number filed a motion to reject leases of 44 non-operational locations that were already closed.

Sleep Number warned that common shareholders will likely experience a complete or significant loss on their investment, stating that based on the purchase price in the sale agreement, the common shares are significantly out of the money and would have no recovery. The company expects its common shares will be delisted from Nasdaq.

Stewart Schaefer, president and chief executive officer of Sleep Country Canada, said the combination would allow the companies to accelerate growth across the United States while introducing Sleep Number's products to consumers in Canada and other markets.