SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-K

            [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1999

                                       OR

            [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934
             For the transition period from .......... to ..........

                         Commission file number: 0-22624

                            FOAMEX INTERNATIONAL INC.
             (Exact Name of registrant as Specified in its Charter)

         Delaware                                    05-0473908
(State or other jurisdiction of                   (I.R.S. Employer
incorporation or organization)                  Identification Number)

1000 Columbia Avenue, Linwood, PA                      19061
(Address of principal executive offices)             (Zip Code)

Registrant's telephone number, including area code:  (610) 859-3000
                                                     --------------

Securities registered pursuant to Section 12(b) of the Act:   None
                                                              ----

Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
                                             value $.01 per share, which is
                                             traded through the National
                                             Association of Securities Dealers,
                                             Inc. National Market System.

       Indicate by check mark whether the  registrant  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months  (or for such  shorter  periods  that the
registrant  was required to file such  reports) and (2) has been subject to such
filing requirements for the past 90 days. YES X NO

       Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Annual Report on Form
10-K or any amendment to this Annual Report on Form 10-K. [X]

       The aggregate  market value of the voting stock held by  nonaffiliates of
the registrant as of March 2, 2000, was $82.8 million.

       The number of shares  outstanding of the registrant's  common stock as of
March 14, 2000 was 25,059,994.

                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Company's definitive proxy statement to be filed within 120 days
pursuant to Reg. 12b-23 of the Securities Exchange Act of 1934, as amended.

<PAGE>
                            FOAMEX INTERNATIONAL INC.

                                      INDEX
<TABLE>
<CAPTION>
<S>                 <C>                                                                                       <C>
                                                                                                               Page
Part I
         Item  1.     Business                                                                                    3
         Item  2.     Properties                                                                                  9
         Item  3.     Legal Proceedings                                                                           9
         Item  4.     Submission of Matters to a Vote
                            of Security Holders                                                                  14

Part II
         Item  5.     Market for Registrant's Common Equity and
                            Related Stockholder Matters                                                          14
         Item  6.     Selected Consolidated Financial Data                                                       15
         Item  7.     Management's Discussion and Analysis of
                            Financial Condition and Results of Operations                                        16
         Item  7a.    Quantitative and Qualitative Disclosures about Market Risk                                 25
         Item  8.     Financial Statements and Supplementary Data                                                25
         Item  9.     Changes in and Disagreements with Accountants
                            on Accounting and Financial Disclosure                                               26

Part III
         Item 10.     Directors and Executive Officers of the Registrant                                         26
         Item 11.     Executive Compensation                                                                     26
         Item 12.     Security Ownership of Certain Beneficial Owners
                            and Management                                                                       26
         Item 13.     Certain Relationships and Related Transactions                                             26

Part IV
         Item 14.     Exhibits, Financial Statement Schedules
                            and Reports on Form 8-K                                                              27

         Signatures                                                                                              35
</TABLE>


The Registrant  will furnish a copy of any exhibit to this Annual Report on Form
10-K upon the payment of a fee equal to the Registrant's  reasonable  expense in
furnishing such exhibit.




                                       2
<PAGE>

PART I
ITEM l.  BUSINESS

General

       Foamex  International  Inc. (the  "Company") is engaged  primarily in the
manufacturing  and  distribution of flexible  polyurethane  and advanced polymer
foam products.  As of December 31, 1999, the Company's  operations are conducted
through its wholly owned  subsidiaries,  Foamex L.P. and Foamex Carpet  Cushion,
Inc. ("Foamex Carpet"). The Company was incorporated in 1993 to act as a holding
company for Foamex L.P.

       References  in this  Annual  Report  on Form 10-K to the  "Company"  mean
Foamex International Inc. and, where relevant or applicable, its subsidiaries.

Segments

       General

       The Company  operates in the flexible  polyurethane  and advanced polymer
foam products  industry and is one of the largest  manufacturers and distributor
of flexible  polyurethane  and advanced  polymer foam products in North America.
The Company has numerous  manufacturing  facilities dedicated to certain product
lines as well as  facilities  with the  capability to support  multiple  product
lines.  Each  business  segment has a diverse  customer  base and the  Company's
senior executive's direct sales efforts for each business segment.

       Business segments are listed below.

          o    Foam Products - manufactures and markets foam used by the bedding
               industry, the furniture industry and the retail industry.
          o    Carpet Cushion Products - manufactures and distributes prime,
               rebond, sponge rubber and felt carpet cushion.
          o    Automotive Products - supplies foam primarily for automotive
               interior applications to automotive manufacturers and tier one
               suppliers.
          o    Technical Products - manufactures and markets reticulated foams
               and other custom polyester and polyether foams for industrial,
               specialty and consumer and safety applications.
          o    Other - primarily consists of certain foreign manufacturing
               operations, corporate expenses not allocated to the other
               business segments and restructuring and other charges (credits).

       Segment financial  information is included in Note 16 to the consolidated
financial statements included in this Annual Report on Form 10-K.

       Foam Products

       Products are  distributed  directly  from  manufacturing  facilities  and
indirectly through independent fabricator distributors.  These foams are used by
the bedding industry in quilts,  toppers, cores and border rolls for mattresses.
In the furniture  industry,  they are  generally  used for  upholstered  seating
products  and in the retail  industry,  for a broad  range of  products  such as
mattress overlay pads, leisure furniture, futons, and pillows. Foam Products are
generally  sold in large  volumes on a regional  basis  because of high shipping
costs.

       The Company's  bedding products are sold to mattress  manufacturers.  The
Company also supplies cut-to-size seat cushions,  back cushions and other pieces
to the furniture industry. Furniture foams are sold directly to manufacturers as
well as through  distributors.  The consumer  products  group sells  therapeutic
sleep  products  such as  mattress  pads and bed pillows for the health care and
consumer  markets  and a broad line of home  furnishing  products  to  retailers
throughout the United States.


                                       3
<PAGE>

       The development and introduction of value added products  continues to be
a priority  including  viscoelastic or "memory" foams for the bedding  industry,
which  maintain  their  resiliency  better than other foams and  materials,  and
products incorporating Reflex(R).  Reflex(R) materials include cushion wraps and
cushion cores and are advanced polymer  cushioning  products designed to improve
comfort,  quality and durability in upholstered  furniture and bedding products.
Reflex(R) was created using the variable pressure foaming  manufacturing process
("VPFSM").  High efficiency thermal management foam products for applications in
work gloves and outerwear have also been introduced.

       Carpet Cushion Products

       The Company  manufactures and distributes Carpet Cushion Products,  which
include  prime,  rebond,  sponge  rubber and felt carpet  cushion.  Prime carpet
cushion is made from  polyurethane foam buns. Rebond carpet cushion is made from
various types of scrap foam which are shredded into small pieces,  processed and
then  bonded  using a  chemical  adhesive.  Rebond  manufacturing  requires  the
management  of a  comprehensive  recycling  business  that includes an extensive
collection network for the automotive and foam industries worldwide.

       Automotive Products

       The Company is one of the largest  suppliers of automotive  foam products
for the North American operations of original equipment  manufacturers ("OEMs").
Depending on the automotive manufacturer and/or the application, automotive foam
products are supplied by the Company  either  directly to the  manufacturers  or
indirectly through tier one suppliers. Automotive Products include foam for trim
pads, door panel parts, headliners and acoustical purposes, as well as flame and
adhesive laminates and rolls for  tri-lamination.  Tri-laminated foam is applied
to  automotive  fabrics to form a  foam/fabric  composite  that  results in cost
savings and aesthetic value for the automotive manufacturer.

       Domestic automotive  manufacturers have narrowed their supply base during
recent years and increased the percentage  and dollar amount of components  that
they purchase from outside suppliers. As a result, a smaller number of companies
are supplying an increasing  percentage of automotive foam products.  Automotive
suppliers are increasingly  offering  integrated systems which lower the overall
cost  and  improve  quality  relative  to  previous  sourcing  methods  in which
individually  sourced  components  were  assembled  and installed by the OEMs. A
continuing  focus  on  new  product   development  and  flexible   manufacturing
capabilities are essential to satisfy changing specifications.

       Examples  of  the  Company's   ability  to  react  to  changing  industry
requirements    include   its   development   of   thermoformable    headliners,
tri-laminates,  advanced  cutting  technology and energy  absorbing  foams.  For
example, the Company has introduced surface modification  technology  ("SMT(R)")
and continuous  platform cutting  ("CPCSM") used for vehicle  flooring  systems.
Also, the use of tri-laminates has increased due to the manufacturers'  need for
significant  cost  savings and  consumer  demand for  improved  aesthetics.  The
Company  intends to increase its production and  distribution of foam and fabric
components, such as tri-laminated material for automotive seating.

       Automotive   manufacturers  are  increasingly  requiring  the  production
facilities  of their  suppliers  to meet certain  high  quality  standards.  The
Company has achieved and expects to maintain the highest quality ratings awarded
to foam  suppliers by automotive  manufacturers.  In addition,  all tier one and
tier two automotive supplier facilities worldwide will eventually be required to
meet the  QS-9000  quality  manufacturing  standards  set by the  United  States
automotive  manufacturers.  In 1996, the Company  completed QS-9000 and ISO-9001
certification  for its eight  domestic  facilities  which supply the  automotive
industry.  The Company  was one of the first  polyurethane  manufacturers  to be
QS-9000  certified  which  demonstrates  its commitment to producing the highest
quality products and meeting the needs of its customers.

       Technical Products

       The  Company  believes  that  it is  one  of the  foam  industry's  prime
innovators  and producers of  industrial,  specialty,  consumer and safety foams
(collectively,  "Technical Products"). Technical Products consist of reticulated
foams and other  custom  polyester  and  polyether  foams,  which are  sometimes
combined with other materials to yield

                                       4
<PAGE>

specific  properties.  Reticulation  is the thermal or chemical  process used to
remove the membranes from the  interconnecting  cells within foam. This leaves a
porous,  skeletal  structure allowing for the free flow of gases and/or liquids.
Felting and  lamination  with other  foams or  materials  give these  composites
specific properties.

       Reticulated  foams are well suited for  filtration,  reservoiring,  sound
absorption and sound transmission.  Industrial applications include carburetors,
computer  cabinets,  inkpad  reservoirs,  high-speed inkjet printers and speaker
grills.  Medical applications  include oxygenators for cardiopulmonary  surgery,
instrument  holders  for  sterilization,   pre-op  scrubbers   impregnated  with
anti-microbial  agents and EKG pads containing  conductive gels. Other Technical
Products  have  unique  characteristics  such  as  flame  retardancy  and  fluid
absorption.  Additional  products  sold  within  this  group  include  foams for
refrigerated supermarket produce counters, mop heads, paint brushes and cosmetic
applications.

       The Company uses advertising in trade journals and related media in order
to attract  customers  and,  more  generally,  to increase an  awareness  of its
capabilities for Technical Products. In addition,  due to the highly specialized
nature of most  Technical  Products,  the  Company's  research  staff works with
customers to design, develop and manufacture each product to specification.

       Other

       Other consists  primarily of certain  foreign  manufacturing  operations,
corporate   expenses  not   allocated  to  the  other   business   segments  and
restructuring  and  other  charges  (credits).  See Note 16 to the  consolidated
financial statements.

       Marketing and Sales

       Foam  Products  are sold  directly  by the  Company to major  bedding and
furniture  manufacturers  such as Sealy,  Simmons and  Berkline and also through
third party independent  fabricators.  In addition, the Company manufactures and
distributes foam-based consumer products such as futons, pillows,  mattress pads
and juvenile  furniture to retailers such as Wal-Mart,  Kmart and JC Penney. The
Company's  foam-based  consumer products sales efforts are primarily  regionally
based with salespersons  selling to local accounts.  The key strategic  elements
supporting  growth in these areas are a focus on  marketing  and sales  efforts,
high quality,  cost-competitive  products and low freight costs through  optimal
plant  location.  Plant  locations  are  critical in this  regionalized  line of
business where the transportation cost typically comprises a significant portion
of product cost.

       Carpet  Cushion  Products  are sold to  distributors  and to major  floor
covering retailers such as Sears, CarpetMax and Home Depot.

       The Company has been a leading  supplier of automotive  products to OEMs,
including Ford, General Motors and  DaimlerChrysler  for more than 30 years. The
Company is also the primary supplier of Automotive  Products to certain tier one
suppliers, including Lear Corporation and Johnson Controls. The Company competes
for new business both at the beginning of development of new models and upon the
redesign of existing models.  Once a foam producer has been designated to supply
parts for a new model program,  the foam producer usually produces parts for the
life of the program.  Competitive  factors in the market include product quality
and reliability,  cost and timely service,  technical  expertise and development
capability, new product innovation and customer service.

       The Company's Technical Products are used for filtration and reservoiring
in a wide variety of  applications  by  companies  such as  Hewlett-Packard  and
Briggs & Stratton.  The Company markets most of its Technical Products through a
network of independent  fabrication and distribution companies in North America,
the United  Kingdom and South Korea.  Such  fabricators  or  distributors  often
further process or finish  Technical  Products to meet the specific needs of end
users.  The  Company's  specialty and  technical  foams service  unique end user
requirements  and are generally  sold at relatively  high margins.  This line of
business is  characterized  by a diversity and  complexity of both customers and
applications.

                                       5
<PAGE>

       International Operations and Export Sales

       The  Company's  geographical  information  is  included in Note 16 to the
consolidated financial statements.

       Major Customers

       During 1999, sales to Johnson Controls,  which are included in Automotive
Products,  accounted for approximately  11.6% of the Company's net sales. During
1998 and 1997,  no one customer  accounted  for more than 10.0% of the Company's
net sales.  During  the year  ended  December  31,  1999,  net sales to the five
largest  customers  comprised  approximately  $360.6  million  or  28.2%  of the
Company's  net  sales.  The  loss of any one of  these  customers  could  have a
material adverse effect on the Company.

       Manufacturing and Raw Materials

       As  of  December  31,  1999,  the  Company  conducted  operations  at  67
manufacturing  and  distribution  facilities with a total of  approximately  8.6
million square feet of floor space. The Company believes that its  manufacturing
and distribution  facilities are well suited for their intended purposes and are
in  good  condition.   The   manufacturing   and  distribution   facilities  are
strategically  located to service the Company's major customers because the high
freight  cost in relation to the cost of the foam product  generally  results in
distribution being most cost effective within a 200 to 300 mile radius.

       The Company's fabrication process involves cutting foam buns into various
shapes and sizes to meet  customer  specifications.  Fabricated  foam is sold to
customers  and is utilized by the  Company to produce  its  foam-based  consumer
products.  Scrap foam,  generated in  connection  with the  fabrication  of foam
products, is used by the Company to produce rebond carpet cushion.

       Raw  materials  account for a  significant  portion of the  manufacturing
costs of the Company  and,  historically,  the price of raw  materials  has been
cyclical and volatile.  The Company generally has alternative suppliers for each
major raw  material  and the  Company  believes  that it could find  alternative
sources  of supply  should  it cease  doing  business  with any one of its major
suppliers.  The Company  attempts to offset raw material cost increases  through
selling price  increases;  however,  there can be no assurance  that the Company
will be successful in implementing  selling price increases or that  competitive
pricing pressure will not require the Company to adjust selling prices.  Results
of  operations  have  been  and  could  be  adversely   affected  by  delays  in
implementing,  or the  inability  of the  Company to  implement,  selling  price
increases to offset raw material cost increases.

       The  two  principal   chemicals  used  in  the  manufacture  of  flexible
polyurethane foam are toluene diisocyanate ("TDI") and polyol. Lyondell Chemical
Company (formerly,  ARCO Chemical Company), BASF Corporation,  Bayer Corporation
and The Dow  Chemical  Company are the  Company's  largest  suppliers of TDI and
polyol.  The price of TDI and  polyol is  influenced  by  demand,  manufacturing
capacity and oil prices.  Significant  increases  in these raw  material  prices
could have a material  adverse  effect on the financial  condition or results of
operations of the Company.

       A key raw material  used in the  manufacture  of carpet  cushion is scrap
foam. The Company internally  generates a substantial  portion of the scrap foam
used in the  production  of rebond  carpet  cushion  from its other  operations.
Historically,  the market price of rebond carpet cushion has fluctuated with the
market price of scrap foam.

       Employees

       As of  December  31,  1999,  the  Company  employed  approximately  5,900
persons.  Approximately  1,500 of these employees are located outside the United
States and  approximately  1,200 of these  employees  are covered by  collective
bargaining  agreements  with labor unions,  which  agreements  expire on various
dates through 2002.  The Company  considers  relations  with its employees to be
good.

                                       6
<PAGE>
       Competition

       The flexible polyurethane foam industry is highly competitive with price,
quality  and  service  being  significant  competitive  factors.  The  Company's
competitors in the polyurethane  foam industry include E. R. Carpenter  Company,
Hickory Springs Manufacturing Company, Vitafoam, Inc., General Foam Corporation,
Flexible Foam Products,  Inc., and Future Foam,  Inc. None of these  competitors
individually  competes in all of the business segments in which the Company does
business.

       Patents and Trademarks

       The Company owns various patents and trademarks  registered in the United
States and in numerous foreign countries.  The registered processes and products
were developed  through ongoing  research and development  activities to improve
quality, reduce costs and expand markets through development of new applications
for flexible polyurethane foam products. While the Company considers its patents
and trademarks to be a valuable  asset, it does not believe that its competitive
position is dependent on patent  protection or that its operations are dependent
upon any individual patent, trademark or tradename.

       Research and Development

       The Company believes it has a leading research and development capability
in the flexible  polyurethane foam industry.  The Company's primary research and
development  facility is located in Eddystone,  Pennsylvania.  Expenditures  for
research  and  development  amounted to $3.3  million,  $3.3  million,  and $2.4
million  for  1999,  1998 and 1997,  respectively,  excluding  expenditures  for
research  and  development  by Crain  Industries,  Inc.  ("Crain")  prior to its
acquisition in December 1997 (the "Crain Acquisition").

       The Company,  Recticel,  s.a. ("Recticel"),  a European polyurethane foam
manufacturer,  whose  subsidiary  was a former  partner of Foamex L.P.  and is a
current  shareholder of the Company,  and Beamech Group Limited, an unaffiliated
third  party,  have  an  interest  in a  Swiss  corporation  that  develops  new
manufacturing  technology for the production of polyurethane  foam including the
VPFSM manufacturing  process. The Company,  Recticel and their affiliates have a
royalty-free license to use technology  developed by the Swiss corporation.  The
Company and Recticel,  have exchanged know-how,  trade secrets,  engineering and
other  data,   designs,   specifications,   chemical   formulations,   technical
information,  market  information and drawings which are necessary or useful for
the  manufacture,  use or sale of foam products and it is anticipated  that they
will continue to do so in the future.

Buyout Proposals

       On August 5, 1999,  the  Company  announced  that its Board of  Directors
signed a letter of intent with  Sorgenti  Chemical  Industries,  LLC and Liberty
Partners  Holdings  20,  LLC  (collectively,  the  "Purchasers")  for a business
combination  providing for $11.50 per share for all of the Company's outstanding
common  stock  (the  "Sorgenti  Transaction").  Under the terms of the letter of
intent,  if the Company entered into a business  combination with another party,
the  Purchasers  would  be  entitled  to a  break-up  fee of $6.0  million  plus
reimbursement of certain expenses, subject to certain conditions,  including the
willingness  of the  Purchasers  to enter  into a  definitive  merger  agreement
providing  for a price of at least $11.50 per share prior to the  expiration  of
the  letter of  intent.  The  proposed  transaction  was  subject to a number of
conditions,  including the negotiation of definitive documents regarding certain
conditions  relating  to the bank credit  facilities  and the public debt of the
Company's   subsidiaries.   Additional   issues   considered   included  minimum
shareholder  acceptance,  change  of  board  membership,  and  other  provisions
providing  for a higher  break-up fee and expense  reimbursement  if the Company
entered into a business combination providing a more favorable  transaction.  On
December  15,  1999,  the Company  announced  that the letter of intent with the
Purchasers,  which had been extended,  expired by its terms.  The Purchasers had
submitted  a revised bid at a price and on terms that were less  favorable  than
those  contained  in the letter of intent and the  Negotiating  Committee of the
Company's Board of Directors rejected the revised bid.

       On February 9, 2000, the Company announced that it is in discussions with
respect  to a  proposal  involving  the  acquisition  of all  of  the  Company's
outstanding  common  stock for cash.  The Company  stated  that the  proposal is
subject to a number of conditions,  including the buyer's  ongoing due diligence
and the execution of definitive  agreements.  If the proposal from the new group
leads to a  transaction,  it is  anticipated  that  John G.  Johnson,  Jr.,  the
Company's  President and Chief  Executive  Officer,  as well as other members of
current management, would

                                       7
<PAGE>
participate in the management of the Company  following such a transaction.  The
Company  agreed to an exclusive  negotiating  period  ending five  business days
after  delivery of its audited  financial  statements  included in the Company's
Annual Report on Form 10-K to the  prospective  buyer.  The Company expects such
delivery to be the same day as the filing of its Annual Report on Form 10-K with
the Securities and Exchange Commission.

       In 1998, the Company  received an unsolicited  buyout proposal from Trace
International Holdings, Inc. ("Trace"), the Company's principal stockholder. The
Company entered into two merger agreements,  which were subsequently  terminated
by Trace.

Change in Control

       Trace is a privately held company,  which owned  approximately 29% of the
Company's  outstanding  voting common stock at March 10, 2000,  and whose former
Chairman also serves as the Company's Chairman. The Company's common stock owned
by Trace is  pledged as  collateral  against  certain  of  Trace's  obligations.
Certain credit  agreements and promissory  notes of the Company's  subsidiaries,
pursuant to which  approximately  $467.1  million of debt was  outstanding as of
December  31,  1999,  provide  that a "change of  control"  would be an event of
default and could result in the  acceleration of such  indebtedness.  "Change of
control" means, for this purpose, that (i) a person or related group, other than
Trace, beneficially owns more than 25% of the Company's outstanding voting stock
and (ii) such voting stock constitutes a greater percentage of such voting stock
than the amount beneficially owned by Trace. Additionally, certain indentures of
Foamex L.P. and Foamex Capital Corporation relating to senior subordinated notes
of $248.0 million contain similar "change of control" provisions,  which require
the  issuers  to tender  for such  notes at a price in cash equal to 101% of the
aggregate principal amount thereof, plus accrued and unpaid interest thereon, if
there is such a "change of control".

       On July 21,  1999,  the  Company  was  informed  by Trace that it filed a
petition for relief under Chapter 11 of the Bankruptcy  Code in Federal Court in
New York City. Subsequently, on January 24, 2000, an order was signed converting
the Trace  bankruptcy  from  Chapter 11 to Chapter 7 of the  Bankruptcy  Code. A
trustee was  appointed to oversee the  liquidation  of Trace's  assets.  Neither
Trace's  bankruptcy filing nor the conversion to Chapter 7 constituted a "change
of control"  under the  provisions of the debt  agreements  described  above.  A
"change of control"  could take place however,  if the  bankruptcy  court allows
Trace's  creditors to foreclose on and take  ownership of the  Company's  common
stock  owned by Trace,  or  otherwise  authorizes  a sale or  transfer  of these
shares,  under  circumstances  in which a person or  related  group,  other than
Trace,  acquired  more than 25% of the  Company's  outstanding  voting stock and
owned a greater  percentage  of such voting  stock than the amount  beneficially
owned by Trace. On November 22, 1999, the bankruptcy court allowed two creditors
to take ownership of 11% and 6%,  respectively,  of the Company's  common stock.
Such an event did not  constitute a "change of control"  under the provisions of
the debt agreements.

       Management  believes  that it is unlikely that a "change of control" will
occur as a result of Trace's bankruptcy proceedings.  However, the Company would
seek to  resolve  the issues  that may arise  should  the  "change  of  control"
provisions  be  triggered,  by  requesting  waivers  of such  provisions  and/or
refinancing  certain  debt,  if  necessary.  There can be no assurance  that the
Company or its  subsidiaries  will be able to do so, or that the Company will be
able to obtain waivers of such provisions.  Such circumstances raise substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
accompanying  financial statements were prepared on a going-concern basis and do
not  include  any  adjustments  that might  result from the outcome of the Trace
bankruptcy filing.

Forward-Looking Information

       The Private  Securities  Litigation  Reform Act of 1995  provides a "safe
harbor"  for  forward-looking   statements  so  long  as  those  statements  are
identified as  forward-looking  and are  accompanied  by  meaningful  cautionary
statements  identifying  important  factors that could cause  actual  results to
differ  materially from those projected in such  statements.  In connection with
certain forward-looking  statements contained in this Annual Report on Form 10-K
and those  that may be made in the future by or on behalf of the  Company  which
are  identified  as  forward-looking,  the Company  notes that there are various

                                       8
<PAGE>

factors  that could cause  actual  results to differ  materially  from those set
forth  in any  such  forward-looking  statements,  such  as raw  material  price
increases,  general  economic  conditions,  the level of automotive  production,
carpet  cushion  production  and  housing  starts,  the  completion  of  various
restructuring/consolidation  plans,  the Company's  capital and debt  structure,
litigation  and  changes  in   environmental   legislation   and   environmental
conditions.  The forward-looking  statements  contained in this Annual Report on
Form 10-K were  prepared by  management  and are  qualified  by, and subject to,
significant business, economic, competitive,  regulatory and other uncertainties
and contingencies,  all of which are difficult or impossible to predict and many
of which are beyond the control of the Company.

       Accordingly,   there  can  be  no  assurance  that  the   forward-looking
statements contained in this Annual Report on Form 10-K will be realized or that
actual results will not be significantly  higher or lower.  The  forward-looking
statements  have not been audited by,  examined by,  compiled by or subjected to
agreed-upon  procedures  by  independent  accountants,  and no third  party  has
independently  verified  or  reviewed  such  statements.  Readers of this Annual
Report on Form 10-K should  consider these facts in evaluating  the  information
contained  herein.  In addition,  the business and operations of the Company are
subject to  substantial  risks which  increase the  uncertainty  inherent in the
forward-looking  statements  contained in this Annual  Report on Form 10-K.  The
inclusion of the forward-looking  statements  contained in this Annual Report on
Form 10-K should not be regarded as a representation by the Company or any other
person  that any of the  forward-looking  statements  contained  in this  Annual
Report on Form 10-K will be achieved. In light of the foregoing, readers of this
Annual  Report on Form 10-K are  cautioned  not to place  undue  reliance on the
forward-looking statements contained herein.

ITEM 2.  PROPERTIES

       As of December 31,  1999,  the Company  conducted  its  operations  at 67
manufacturing and distribution facilities. Total floor space in use at the owned
manufacturing  and distribution  facilities is approximately  3.2 million square
feet and total floor space in use at the leased  manufacturing  and distribution
facilities  is  approximately  5.4  million  square  feet.  Fifty-six  of  these
facilities  are  located  throughout  38  cities  in  the  United  States,  four
facilities are located in Canada and seven facilities are located in Mexico. The
2000 annual base rental with respect to such leased  facilities is approximately
$11.8  million  under leases  expiring  from 2000 to 2025.  The Company does not
anticipate  any  problem in renewing or  replacing  any such leases  expiring in
2000. In addition, the Company has approximately 1.8 million square feet of idle
space of which approximately 0.6 million is leased.

       The Company maintains its administrative office in Linwood, Pennsylvania.

       Property  information by business segment is not reported because many of
the Company's facilities produce products for multiple business segments.

ITEM 3.  LEGAL PROCEEDINGS

Litigation - Shareholders

       During 1999, the Company received several communications addressed to its
Board of Directors from certain of the Company's  stockholders regarding aspects
of the relationship between Trace and the Company. Such stockholders  questioned
the propriety of certain  relationships and related  transactions  between Trace
and the Company,  which previously had been disclosed in the Company's  periodic
filings.  On June 14, 1999, the Company  received a draft complaint from counsel
of certain  stockholders  naming the  Company  and  certain  current  and former
directors,  which  included  allegations  similar to those in the Second Amended
Complaint,  as defined below.  The Company was advised by such counsel that such
stockholders intended to file an action soon thereafter. On August 13, 1999, two
stockholders  filed an action on behalf  of an  alleged  class of the  Company's
shareholders,   entitled  Watchung  Road  Associates,   L.P.  et  al  v.  Foamex
International  Inc., et al., Civil Action No. 17370 (the "Watchung  Complaint"),
in the Court of Chancery of the State of Delaware,  New Castle County.  The suit
names the  Company,  Mr.  Marshall  S. Cogan,  Mr.  Etienne  Davignon,  Mr. John
Gutfreund,  Mr. Robert Hay, Dr. Stuart Hershon, Mr. John G. Johnson, Jr. and Mr.
John Tunney as defendants.  The Watchung  Complaint  alleges that the individual
defendants  breached their fiduciary  duties by agreeing to the potential buyout
of the  Company  by  Sorgenti  Chemical  Industries,  LLC and  Liberty  Partners
Holdings 20, LLC.

                                       9
<PAGE>


       The Watchung  Complaint alleges that the Sorgenti  Transaction's  buy-out
price of  $11.50  per  outstanding  share is  inadequate  and fails to take into
consideration  claims  the  Company  allegedly  has as a result of the  supposed
wrongful  diversions of Company assets in the Company's  dealings with Trace and
its affiliates.  The Watchung Complaint also alleges that the directors breached
their fiduciary duties by agreeing to the proposed Sorgenti  Transaction without
conducting an auction or active  market  check.  The suit alleges that the board
placed Mr. Cogan's  interest ahead of those of the Company's  stockholders,  and
alleges that a critical  condition of the Sorgenti  Transaction  is a consulting
agreement  for Mr.  Cogan.  The  Watchung  suit  seeks to  enjoin  the  Sorgenti
Transaction,  seeks  rescission  or  damages  if  the  Sorgenti  Transaction  is
consummated,  and seeks an accounting from the directors for plaintiffs  alleged
losses. The Sorgenti  Transaction was not consummated.  Defendants have moved to
consolidate  this  action  with In re  Foamex  International  Inc.  Shareholders
Litigation,  discussed  below,  and to dismiss the  complaint.  Plaintiffs  have
agreed to consolidate.

       On April 26, 1999, a putative securities class action entitled Molitor v.
Foamex  International Inc., et al., 99 Civ. 3004, was filed in the United States
District  court for the Southern  District of New York naming as defendants  the
Company,  Trace and certain  officers and  directors of the Company on behalf of
stockholders  who bought shares of the Company's  common stock during the period
from May 7, 1998 through and including  April 16, 1999. The lawsuit alleges that
the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 by  misrepresenting  and/or omitting  material  information about the
Company's  financial  situation and operations,  with the result of artificially
inflating the price of the Company's  stock. The lawsuit also alleges that Trace
and Marshall S. Cogan violated  Section 20(a) of the Securities  Exchange Act of
1934  as  controlling  persons  of  the  Company.   The  complaint  seeks  class
certification,  a declaration  that defendants  violated the federal  securities
laws, an award of money  damages,  and costs and  attorneys',  accountants'  and
experts'  fees. On May 18, 1999, a similar  action  entitled  Thomas W. Riley v.
Foamex International Inc., et al., 99 Civ. 3653 was filed in the same court. The
two actions have been  consolidated,  and the Consolidated  Amended Class Action
Complaint,  setting forth the  allegations  of the two earlier  complaints,  was
filed on  December  6,  1999.  The  defendants  filed  motions  to  dismiss  the
consolidated  complaint  on February 4, 2000.  No  discovery  has taken place to
date.

       Beginning  on or about  March 17,  1998,  six actions  (collectively  the
"Shareholder  Litigation")  were filed in the Court of  Chancery of the State of
Delaware,  New Castle County (the "Court"),  by stockholders of the Company. The
Shareholder  Litigation,  purportedly  brought as class actions on behalf of all
stockholders  of the  Company,  named the  Company,  certain  of its  directors,
certain of its  officers,  Trace and Trace Merger Sub,  Inc.  ("Merger  Sub") as
defendants  alleging  that  they had  breached  their  fiduciary  duties  to the
plaintiffs  and other  stockholders  of the Company  unaffiliated  with Trace in
connection  with the original  proposal of Trace to acquire the publicly  traded
outstanding  common stock of the Company for $17.00 per share under an Agreement
and Plan of Merger (the "First Merger Agreement").  The complaints sought, among
other things,  class  certification,  a declaration that the defendants breached
their  fiduciary  duties to the class,  preliminary  and  permanent  injunctions
barring   implementation  of  the  proposed   transaction,   rescission  of  the
transaction if  consummated,  unspecified  compensatory  damages,  and costs and
attorneys' fees. A stipulation and order  consolidating  these six actions under
the  caption  In  re  Foamex   International   Inc.   Shareholders   Litigation,
Consolidated Civil Action No. 16259NC, was entered by the Court on May 28, 1998.

       The parties to the  Shareholder  Litigation  entered into a Memorandum of
Understanding,  dated June 25,  1998 (the  "Memorandum  of  Understanding"),  to
settle the  Shareholder  Litigation,  subject  to,  inter alia,  execution  of a
definitive  Stipulation  of  Settlement  between the parties and approval by the
Court  following  notice  to  the  class  and  a  hearing.   The  Memorandum  of
Understanding  provided that as a result of, among other things, the Shareholder
Litigation and  negotiations  among counsel for the parties to the Memorandum of
Understanding,  a special meeting of stockholders would be held to vote upon and
approve the First Merger Agreement which provided,  among other things,  for all
of  the  Company's   outstanding  common  stock  not  owned  by  Trace  and  its
subsidiaries  (the "Public  Shares") to be  converted  into the right to receive
$18.75 in cash, without interest.

       The  Memorandum of  Understanding  also provided for  certification  of a
class,  for settlement  purposes only,  consisting of the Public Shares owned by
stockholders of the Company  unaffiliated  with Trace and its subsidiaries  (the
"Public  Shareholders"),  the  dismissal  of  the  Shareholder  Litigation  with
prejudice and the release by the  plaintiffs and all members of the class of all
claims and causes of action that were or could have been asserted against Trace,
the Company and the individual defendants in the Shareholder  Litigation or that
arise out of the

                                       10
<PAGE>
matters  alleged by  plaintiffs.  Following the  completion of the  confirmatory
discovery  which  was  provided  for  in the  Memorandum  of  Understanding,  on
September  9,  1998,  the  parties  entered  into a  definitive  Stipulation  of
Settlement and the Court set a hearing for October 27, 1998 to consider  whether
the settlement should be approved (the "Settlement Hearing"). In connection with
the  proposed  settlement,  the  plaintiffs  intended  to apply  for an award of
attorney's fees and litigation expenses in an amount not to exceed $925,000, and
the defendants agreed not to oppose this application.  Additionally, the Company
agreed to pay the cost,  if any,  of  sending  notice of the  settlement  to the
Public  Shareholders.  On  September  24,  1998,  a Notice of  Pendency of Class
Action, Proposed Settlement of Class Action and Settlement Hearing was mailed to
the members of the  settlement  class.  On October 20, 1998,  the parties to the
Shareholder Litigation requested that the Court cancel the Settlement Hearing in
light of the  announcement  made by Trace on October 16, 1998,  that it had been
unable to obtain the necessary  financing for the  contemplated  acquisition  by
Trace of the Company's common stock at a price of $18.75 per share which was the
subject  matter of the  proposed  settlement.  This  request was approved by the
Court on October 21, 1998, and the Company issued a press release on October 21,
1998, announcing that the Court had cancelled the Settlement Hearing.

       On  November  10,  1998,  counsel for  certain of the  defendants  in the
Shareholder  Litigation  gave notice  pursuant to the  Stipulation of Settlement
that such  defendants  were  withdrawing  from the  Stipulation of Settlement in
light of the notice  given by Trace to the Company and the special  committee of
the Board of Directors on November 5, 1998 whereby  Trace  terminated  the First
Merger Agreement on the grounds that the financing condition in the First Merger
Agreement was incapable of being satisfied.

       On November 12, 1998, the plaintiffs in the Shareholder  Litigation filed
an Amended  Class  Action  Complaint  (the  "Amended  Complaint").  The  Amended
Complaint  named the  Company,  Trace,  Merger Sub, Mr.  Marshall S. Cogan,  Mr.
Andrea Farace, Dr. Stuart Hershon,  Mr. John Tunney, and Mr. Etienne Davignon as
defendants, alleging that they breached their fiduciary duties to plaintiffs and
the other Public  Shareholders in connection with a second Agreement and Plan of
Merger (the "Second Merger Agreement"),  that the proposal to acquire the Public
Shares  for  $12.00  per  share  lacked  entire  fairness,  that the  individual
defendants  violated  8  Del.  Code  ss.  251 in  approving  the  Second  Merger
Agreement, and that Trace and Merger Sub breached the Stipulation of Settlement.
On December 2, 1998,  plaintiffs  served a motion for a preliminary  injunction,
seeking an Order to  preliminarily  enjoin the defendants from proceeding  with,
consummating or otherwise effecting the merger contemplated by the Second Merger
Agreement.  In January  1999,  Trace advised that it could not finance the offer
reflected  in  the  Second  Merger  Agreement.  As  a  result,  the  preliminary
injunction motion did not go forward.

       On June 9, 1999, the plaintiffs in the Shareholder  Litigation  moved for
leave to file a Second  Amended and  Supplemental  Class  Action and  Derivative
Complaint (the "Second  Amended  Complaint").  The Second Amended  Complaint was
filed on July 14, 1999, and named the Company,  Trace,  Merger Sub, Mr. Marshall
S. Cogan,  Mr. Andrea  Farace,  Dr.  Stuart  Hershon,  Mr. John Tunney,  and Mr.
Etienne  Davignon as defendants,  alleging that the named  individuals  breached
their  fiduciary   duties  by  causing  the  Company  to  waste  assets  in  its
transactions with Trace and by failing to enforce the Company's rights under the
First Merger Agreement,  seeking appointment of a receiver for the Company,  and
alleging that Trace and Merger Sub breached the Stipulation of Settlement.

       On August 26, 1999, the plaintiffs in the  Shareholder  Litigation  moved
for leave to file a Third Amended and  Supplemental  Class Action and Derivative
Complaint (the "Third Amended Complaint"). The Third Amended Complaint was filed
on October 27, 1999. The Third Amended  Complaint  alleges both class claims and
derivative  claims,  and names the Company,  Mr.  Marshall S. Cogan,  Mr. Andrea
Farace,  Dr. Stuart Hershon,  Mr. John Tunney,  Mr. Etienne  Davignon,  Mr. John
Gutfreund, Mr. Robert Hay and Mr. John Johnson as defendants.

       The  Third  Amended  Complaint  alleges  that the  individual  defendants
breached their duties to the Company's  Public  Shareholders  by agreeing to the
Sorgenti   Transaction   at  an  inadequate   price  that  fails  to  take  into
consideration the Company's  allegedly  valuable claims arising out of purported
diversions  of money  from the  Company to Trace,  and by  failing  to  maximize
shareholder value in a sale of the Company and instead agreeing to a deal with a
buyer who is willing to enter into a  consulting  deal with Mr. Cogan to get his
and the  board's  approval.  The Third  Amended  Complaint  purports to assert a
derivative  claim for waste and breach of fiduciary duty against Mr. Cogan,  Mr.
Farace, Dr. Hershon, Mr. Tunney, Mr. Davignon,  Mr. Gutfreund,  and Mr. Hay. The
Third Amended  Complaint  seeks the  appointment  of a receiver for the Company,
alleging  that the  directors  have  mismanaged  the Company.  The Third Amended
Complaint also alleges that Mr. Cogan,  Mr. Farace,  Dr. Hershon,

                                       11
<PAGE>
Mr. Davignon,  Mr. Tunney,  Mr. Gutfreund,  and Mr. Hay breached their fiduciary
duties by  failing  to  enforce  the  Company's  rights  under the First  Merger
Agreement.

       The Third Amended  Complaint  seeks:  a declaration  that the  individual
defendants have breached their fiduciary  duties;  damages;  the imposition of a
constructive  trust on profits and  benefits  Mr.  Cogan,  Trace,  and the other
individual  defendants allegedly received as a result of the alleged wrongdoing;
an  injunction  against  the  Sorgenti  Transaction  under  its  present  terms;
rescission  and damages if the deal is  consummated;  and the  appointment  of a
receiver for the Company.  Defendants have moved to consolidate this action with
Watchung Road  Associates,  L.P., et ano v. Foamex  International  Inc., et al.,
discussed  above,  and to  dismiss  the  complaint.  Plaintiffs  have  agreed to
consolidate and opposed the motion to dismiss.

       The defendants  intend to vigorously defend these  litigations,  which if
adversely  determined,  could have a material  adverse  effect on the  financial
position, results of operations and cash flows of the Company.

Litigation - Breast Implants

       As of  February  24,  2000,  the  Company  and Trace were two of multiple
defendants  in actions  filed on behalf of  approximately  3,857  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege  unspecified  damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant  recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 39 residents of Australia,  New Zealand,  England, and Ireland.
The Company believes that the number of suits and claimants may increase. During
1995,  the Company and Trace were granted  summary  judgments  and  dismissed as
defendants  from all cases in the  federal  courts of the United  States and the
state courts of California.  Appeals for these  decisions were withdrawn and the
decisions are final.

       Although  breast  implants  do not contain  foam,  certain  silicone  gel
implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
independent  distributors  or  fabricators  from  bulk foam  purchased  from the
Company or Trace.  Neither  the Company nor Trace  recommended,  authorized,  or
approved the use of its foam for these purposes. The Company is also indemnified
by Trace for any such liabilities relating to foam manufactured prior to October
1990.  Trace's insurance  carrier has continued to pay the Company's  litigation
expenses  after Trace's  filing under the  Bankruptcy  Code.  Trace's  insurance
policies  continue to cover  certain  liabilities  of Trace but if the limits of
those policies are exhausted, it is unlikely that Trace will be able to continue
to provide  additional  indemnification.  While it is not feasible to predict or
determine the outcome of these actions, based on management's present assessment
of the merits of pending claims,  after consultation with the general counsel of
the Company,  and without  taking into account the  indemnification  provided by
Trace, the coverage  provided by Trace's and the Company's  liability  insurance
and potential  indemnity from the  manufacturers of polyurethane  covered breast
implants,  management  believes  that the  disposition  of the matters  that are
pending or that may reasonably be  anticipated to be asserted  should not have a
material adverse effect on either the Company's  consolidated financial position
or results of operations.  If management's assessment of the Company's liability
with respect to these actions is  incorrect,  such actions could have a material
adverse effect on the financial  position,  results of operations and cash flows
of the Company.

Litigation - Other

       The Company is party to various  other  lawsuits,  both as defendant  and
plaintiff,  arising  in the  normal  course of  business.  It is the  opinion of
management that the  disposition of these lawsuits will not,  individually or in
the  aggregate,  have a material  adverse  effect on the  financial  position or
results  of  operations  of  the  Company.  If  management's  assessment  of the
Company's  liability  with respect to these actions is  incorrect,  such actions
could have a material  adverse  effect on the Company's  consolidated  financial
position.

                                       12
<PAGE>
Environmental

       The Company is subject to extensive and changing  federal,  state,  local
and foreign environmental laws and regulations,  including those relating to the
use, handling,  storage,  discharge and disposal of hazardous substances and the
remediation of  environmental  contamination,  and as a result,  is from time to
time involved in administrative and judicial  proceedings and inquiries relating
to environmental  matters.  As of December 31, 1999, the Company had accruals of
approximately $4.5 million for environmental  matters.  During 1998, the Company
established an allowance of $1.2 million  relating to receivables from Trace for
environmental indemnifications due to the financial difficulties of Trace.

       The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")  provide
for the establishment of federal emission standards for hazardous air pollutants
including  methylene  chloride,  propylene oxide and TDI,  materials used in the
manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
fabrication plants to reduce emissions of methylene chloride. The final National
Emission  Standard for  Hazardous  Air  Pollutants  ("NESHAP")  was  promulgated
October 7,  1998.  NESHAP  requires  a  reduction  of  approximately  70% of the
emission  of  methylene  chloride  for the slab  stock foam  industry  effective
October 7, 2001. The Company believes that the use of alternative  technologies,
including  VPFSM,  which do not utilize  methylene  chloride  and its ability to
shift  current   production  to  the  facilities  which  use  these  alternative
technologies  will  minimize  the  impact  of  these  regulations.  The 1990 CAA
Amendments also may result in the imposition of additional  standards regulating
air emissions from polyurethane foam manufacturers, but these standards have not
yet been proposed or promulgated.

       The Company has reported to  appropriate  state  authorities  that it has
found soil and groundwater  contamination  in excess of state standards at three
facilities and soil  contamination  in excess of state  standards at three other
facilities.  The  Company  has  begun  remediation  and  is  conducting  further
investigations  into the extent of the  contamination  at these  facilities and,
accordingly,  the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such  remediation  cannot be predicted with
any degree of certainty  at this time.  The Company has accruals of $3.3 million
for the  estimated  cost of  completing  remediation  at these  facilities.  The
Company  is  in  the  process  of  addressing  potential  contamination  at  its
Morristown,  Tennessee facility,  and has submitted a sampling plan to the State
of Tennessee.  The extent of the contamination and responsible  parties, if any,
has not yet been  determined.  A former  owner may be liable for cleanup  costs;
nevertheless,   the  cost  of  remediation,  if  any,  is  not  expected  to  be
significant.

       Federal  regulations  required  that by the end of 1998  all  underground
storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
standards.  The Company has upgraded all USTs at its  facilities  in  accordance
with these  regulations and recently  completed the closure of remaining USTs at
two sites to meet applicable  standards.  Some petroleum  contamination in soils
was found at one of the sites;  the  extent of the  contamination  is  currently
being investigated.  The Company has accrued  approximately $0.5 million for the
estimated  remediation costs associated with this site. However, the full extent
of contamination,  and accordingly, the actual cost of such remediation,  cannot
be  predicted  with  any  degree  of  certainty  at this  time.  Based  upon the
investigation conducted thus far, the Company believes that its USTs do not pose
a  significant  risk  of  environmental  liability.  However,  there  can  be no
assurances that such USTs will not result in significant environmental liability
in the future.

       On April 10,  1997,  the  Occupational  Health and Safety  Administration
promulgated new standards  governing  employee  exposure to methylene  chloride,
which  is used  as a  blowing  agent  in  some  of the  Company's  manufacturing
processes.  The phase-in of the  standards was completed in 1999 and the Company
has  developed  and  implemented  a  compliance  program.  Capital  expenditures
required  and  changes  in  operating   procedures   are  not   anticipated   to
significantly impact the Company's competitive position.

       The  Company  has been  designated  as a  Potentially  Responsible  Party
("PRP") by the EPA with respect to seven sites. Estimates of total cleanup costs
and fractional allocations of liability are generally provided by the EPA or the
committee of PRP's with respect to the  specified  site. In each case and in the
aggregate, the liability of the Company is not considered to be significant.

                                       13
<PAGE>
       In 2000 and  2001,  capital  expenditures  for  environmental  compliance
projects are anticipated to be approximately $2.0 million per year.  Although it
is  possible  that new  information  or future  developments  could  require the
Company to reassess its potential exposure relating to all pending environmental
matters, including those described herein, the Company believes that, based upon
all  currently  available  information,  the  resolution  of such  environmental
matters will not have a material  adverse  effect on the  Company's  operations,
financial  position,   capital   expenditures  or  competitive   position.   The
possibility  exists,   however,   that  new  environmental   legislation  and/or
environmental  regulations may be adopted, or other environmental conditions may
be found to exist, that may require  expenditures not currently  anticipated and
that may be significant.

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

       None

PART II
ITEM 5.  MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
         MATTERS.

       The Company's common stock is traded through the National  Association of
Securities Dealers,  Inc. National Market System (the "NASDAQ") under the symbol
"FMXI".

       The Company filed with the Securities and Exchange  Commission,  on March
31, 1999,  for an  extension  of time for filing its 1998 Annual  Report on Form
10-K pursuant to Rule 12b-25 of the Securities  Exchange Act of 1934, as amended
(the "Exchange Act"). The Company failed to file such Annual Report on Form 10-K
by April 15, 1999,  the date  required by the Exchange Act. The Annual Report on
Form 10-K was filed with the  Securities  and Exchange  Commission  on April 23,
1999 and an Annual Meeting of Stockholders was held on May 27, 1999.

       The following table sets forth the high and low bid prices for the common
stock.

                                                       High           Low
       1999
       Quarter Ended December 31, 1999                $ 9            $  6
       Quarter Ended September 30, 1999               $10 1/2        $  5 3/4
       Quarter Ended June 30, 1999                    $ 8 9/16       $  4
       Quarter Ended March 31, 1999                   $13 3/8        $  4 13/16

       1998
       Quarter Ended December 31, 1998                $14 3/8        $ 9 7/8
       Quarter Ended September 30, 1998               $17 9/16       $13 3/8
       Quarter Ended June 28, 1998                    $18 1/8        $14 3/4
       Quarter Ended March 29, 1998                   $18 3/8        $10 7/8

       As of December 31, 1999 there were approximately 162 holders of record of
the common stock.

       The Board of Directors approved a dividend of $0.05 per share for holders
of record as of January 9, 1998; and was paid on January 19, 1998.  This was the
only cash  dividend  paid by the Company on its common stock during the past two
fiscal  years.  The payment of any future  dividends  will be  determined by the
Board of Directors in light of conditions then existing, including the Company's
earnings,  financial  condition  and  requirements,  restrictions  in  financing
agreements,  business  conditions  and other  factors.  The Company is a holding
company whose assets consist primarily of its wholly owned  subsidiaries  Foamex
L.P. and Foamex Carpet. Consequently,  the Company's ability to pay dividends is
dependent  upon the  earnings  of Foamex L.P.  and Foamex  Carpet and any future
subsidiaries  of the  Company  and the  distribution  of those  earnings  to the
Company and loans or advances by Foamex L.P.,  Foamex Carpet and any such future
subsidiaries  of the Company.  The ability of Foamex L.P.  and Foamex  Carpet to
make  distributions  is  restricted by the terms of their  respective  financing
agreements. Due to such restrictions, the Company is not expected to have access
to the cash flow generated by Foamex L.P. and Foamex Carpet for the  foreseeable
future.

                                       14
<PAGE>
ITEM 6.  SELECTED CONSOLIDATED FINANCIAL DATA

       The following table presents selected historical  consolidated  financial
data of the Company.  The financial data should be read in conjunction  with the
financial statements and related notes thereto of the Company included elsewhere
in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
                                                                         Fiscal Year (1) (3)
                                                     1999          1998      1997 (6)         1996       1995 (2)
                                               -------------------------------------------------------------------
                                                          (thousands, except for earnings per share)
<S>                                             <C>            <C>           <C>            <C>         <C>
Statements of Operations Data
   Net sales                                    $1,279,993     $1,246,396    $931,095       $926,351    $862,834
   Income (loss) from continuing
   operations (4)                                   19,716        (69,853)      4,131         32,492     (50,750)
   Basic earnings (loss) per share from
   continuing operations                             0.79           (2.79)       0.16           1.28       (1.92)
   Diluted earnings (loss) per share from
   continuing operations                             0.78           (2.79)       0.16           1.26       (1.92)

Balance Sheet Data (at period end)
   Total assets                                   $781,313       $874,965    $893,623       $619,846    $748,242
   Total long-term debt, classified as current(5)        -        771,092           -              -           -
   Total long-term debt                            725,297          8,240     735,724        483,344     514,954
   Stockholders' equity (deficit)                 (166,381)      (204,119)   (113,419)       (58,103)     29,383
Dividends                                                -          1,245           -              -           -
<FN>
(1)  The Company changed its fiscal year to the calendar year during 1998. Prior
     to the  change,  the  Company had a 52 or 53 week fiscal year ending on the
     Sunday closest to the end of the calendar year.  Each fiscal year presented
     prior to 1998 was comprised of 52 weeks.

(2)  Fiscal 1995 was restated for discontinued operations.

(3)  Includes net  restructuring  and other charges  (credits),  as discussed in
     Note 4 to the  consolidated  financial  statements  included in this Annual
     Report on Form 10-K. Listed below are the pre-tax charges (credits).

         1999 - $10.5 million
         1998 - $(9.7) million
         1997 - $21.1 million
         1996 - $(6.5) million
         1995 - $41.4 million

(4)  The  provision for income taxes in 1999  reflected the partial  reversal of
     the deferred  income tax allowance  recognized in 1998.  The 1998 provision
     for income  taxes of $58.2  million  for  continuing  operations  consisted
     primarily of an increase in  valuation  allowance  for deferred  income tax
     assets.

(5)  As of December  31,  1998,  the  Company  classified  approximately  $771.1
     million  of  long-term  debt as  current,  as  discussed  in Note 13 to the
     consolidated  financial  statements  included in this Annual Report on Form
     10-K.

(6)  The balance sheet data included the estimated  fair value of the net assets
     acquired in the Crain  Acquisition in December  1997. The income  statement
     data  excludes the results of Crain from the  acquisition  date of December
     23, 1997, since the effect is insignificant.
</FN>
</TABLE>

                                       15
<PAGE>

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

Overview

       The Company  operates in the flexible  polyurethane  and advanced polymer
foam products  industry.  As of December 31, 1999, the Company's  operations are
conducted through its wholly owned subsidiaries,  Foamex L.P. and Foamex Carpet.
Business segments are listed below. Segment financial information is included in
Note 16 to the consolidated financial statements.

          o    Foam Products - manufactures and markets foam used by the bedding
               industry, the furniture industry and the retail industry.
          o    Carpet Cushion Products - manufactures and distributes prime,
               rebond, sponge rubber and felt carpet cushion.
          o    Automotive Products - supplies foam primarily for automotive
               interior applications to automotive manufacturers and tier one
               suppliers.
          o    Technical Products - manufactures and markets reticulated foams
               and other custom polyester and polyether foams for industrial,
               specialty and consumer and safety applications.
          o    Other - primarily consists of certain foreign manufacturing
               operations, corporate expenses not allocated to the other
               business segments and restructuring and other charges (credits).

       The Company's  sales are impacted by the sales of new and existing homes,
the  overall  level of  passenger  car and light  truck  production,  changes in
personal  disposable income and seasonality.  The Company typically  experiences
two  seasonally  slow  periods  during  each  year,  in  early  July and in late
December, due to scheduled plant shutdowns and holidays.

       The  following   discussion  should  be  read  in  conjunction  with  the
consolidated  financial  statements  and related  notes  included in this Annual
Report on Form 10-K.

RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                 Carpet
                                   Foam         Cushion     Automotive      Technical
                                 Products       Products       Products      Products        Other       Total
1999                                                        (thousands)
<S>                              <C>          <C>            <C>              <C>          <C>        <C>
Net sales                        $527,159     $271,200       $361,806         $92,180      $27,648    $1,279,993
Income (loss) from operations      57,028        8,512         22,547          22,588      (17,105)       93,570
Depreciation and amortization      17,432        8,096          4,823           2,724        2,675        35,750
Income (loss ) from operations
   as a percentage of net sales     10.8%         3.1%           6.2%           24.5%        n.m.*          7.3%

1998
Net sales                        $559,690     $300,791       $285,190         $79,140      $21,585    $1,246,396
Income (loss) from operations      35,313       12,005         16,788          14,571       (3,645)       75,032
Depreciation and amortization      18,300        5,529          6,424           2,929        2,203        35,385
Income (loss ) from operations
   as a percentage of net sales      6.3%         4.0%           5.9%           18.4%        n.m.*          6.0%

1997
Net sales                        $334,900     $273,920       $225,892         $76,254      $20,129      $931,095
Income (loss) from operations      30,665        8,548         24,638          17,886      (26,637)       55,100
Depreciation and amortization      10,539        4,407          3,550           2,470        1,081        22,047
Income (loss ) from operations
   as a percentage of net sales      9.2%         3.1%          10.9%           23.5%        n.m.*          5.9%
</TABLE>

*  not meaningful



                                       16
<PAGE>

Acquisitions and Dispositions

       On December 23, 1997,  the Company  acquired  Crain  pursuant to a merger
agreement with Crain Holdings Corp. for a purchase price of approximately $213.7
million,  including the  assumption  of debt with a face value of  approximately
$98.6 million (and an estimated fair value of approximately $112.3 million).  In
addition,   fees  and  expenses  associated  with  the  Crain  Acquisition  were
approximately  $13.2  million.  The Crain  Acquisition  was  accounted  for as a
purchase  and the  results of Crain were  included  from the  acquisition  date,
except the results from December 24, 1997 to December 28, 1997 were not included
in the  consolidated  statements  of operations or cash flows for 1997 since the
effect would be insignificant.

       On October 6, 1997, the Company sold  substantially all of its net assets
of its needlepunch  carpeting,  tufted  carpeting and artificial  grass products
business located in Dalton,  Georgia to Bretlin, Inc., a subsidiary of The Dixie
Group, Inc. The sale price was approximately $41.0 million. The Company realized
an insignificant gain on the sale in 1997.

1999 Compared to 1998

       Total net sales for 1999 increased 2.7% to $1,280.0 million from $1,246.4
million in 1998. The increase was primarily the result of stronger volume growth
in the Automotive  Products and Technical  Products segments partially offset by
sales declines in the Foam Products and Carpet Cushion Products segments.

       Income  from  operations  increased  24.7% to $93.6  million in 1999 from
$75.0 million in 1998.  Results in 1999 included $10.5 million of  restructuring
and other charges. In 1998, a net restructuring credit of previously established
restructuring  accruals  increased  operating  income  by  $9.7  million.  These
restructuring  and other charges  (credits) are discussed  further under "Other"
below.  Excluding the  restructuring  and other charges (credits) for comparison
purposes,  income from operations increased 59.3% to $104.1 million in 1999 from
$65.3 million in 1998. On this basis, income from operations represented 8.1% of
net  sales in 1999,  up from  5.2% of net  sales in 1998.  The  improvement  was
primarily  due to (i) the  increase in net sales,  (ii)  improved  gross  profit
margins and (iii) lower selling, general and administrative expenses at both the
business unit and  corporate  levels.  Improved  gross profit  margins  resulted
primarily  from  operating  efficiencies,  the  benefits  of the first  phase of
implementation of improved operating  practices across a number of the Company's
facilities,  enhanced raw material  utilization  and the full year benefits from
the  consolidation  of former  Crain  facilities.  Lower  selling,  general  and
administrative  expenses  primarily  reflected  the  integration  of  the  Crain
Acquisition,  staffing  reductions  in January  1999,  elimination  of the Trace
management fee, the closure the New York office and reduced operating costs as a
result of the sale of the corporate aircraft.

       Foam Products

       Foam Products net sales for 1999  decreased  5.8% to $527.2  million from
$559.7  million in 1998.  The decrease  was  primarily  due to  decreased  sales
volumes resulting from the Company's decision to exit certain business lines and
the closure of facilities related to the Crain Acquisition.  Despite the decline
in sales,  income from operations  increased 61.5% to $57.0 million in 1999 from
$35.3 million in 1998. Income from operations  represented 10.8% of net sales in
1999, up from 6.3% in 1998. The improvement was primarily driven by (i) enhanced
raw material utilization, (ii) the benefits of the first phase of implementation
of improved  operating  practices  across a number of the Company's  facilities,
(iii) the benefits of consolidation of facilities in the Southeast region of the
U.S.  and  in  Southern   California  and  (iv)  the  elimination  of  operating
inefficiencies  incurred in 1998.  Income from operations for 1998 was adversely
impacted by a number of  factors,  the most  significant  of which were (i) $4.0
million of costs  associated  with the Crain  Acquisition  transition  including
inventory   adjustments  for  facilities   affected  by  the   consolidation  of
manufacturing  facilities,  (ii) operating inefficiencies and logistics costs of
$2.5 million  associated with the sales of juvenile and other consumer  products
sold through mass  merchandisers  and discount stores and (iii) operating losses
and  inefficiencies  of $1.0  million  resulting  from  fires  at the  Company's
facilities in Orlando, Florida and Cornelius, North Carolina.


                                       17
<PAGE>
       Carpet Cushion Products

       Carpet  Cushion  Products  net  sales for 1999  decreased  9.8% to $271.2
million from $300.8  million in 1998  primarily due to lower selling  prices and
sales  volumes.   Competitive   pressures  in  the  carpet  cushion  marketplace
contributed to lower selling prices and lower sales volumes.  Sales volumes were
also  reduced due to limited  production  from the  Company's  Orlando,  Florida
facility as a result of the 1998 fire. Income from operations decreased 29.1% to
$8.5  million  in 1999  from  $12.0  million  in 1998.  Income  from  operations
represented  3.1% of net sales in 1999,  down from 4.0% in 1998.  The decline in
income from  operations  and the  related  margin  were  primarily  due to lower
selling  prices,  lower  sales  volumes and the Orlando  fire,  which  increased
product  transportation  costs as the  fulfillment  process  was shifted to less
geographically optimal facilities.  The Orlando, Florida carpet cushion line was
brought back on stream and  operational  in the fourth quarter of 1999. The Pico
Rivera,  California  rebond operation was consolidated into the other California
rebond  operations  during 1999.  These effects were  partially  offset by lower
selling  expenses  as a result  primarily  of the sales  force  integration  and
rationalization  associated  with the Crain  Acquisition.  Results  in 1998 were
impacted by a $1.0 million charge associated with the Orlando, Florida fire, and
costs related to the Crain Acquisition transition of $0.9 million.

       Automotive Products

       Automotive  Products net sales for 1999 increased 26.9% to $361.8 million
from $285.2  million in 1998,  primarily  as a result of higher  sales volume of
lamination products.  Income from operations increased 34.3% to $22.5 million in
1999 from $16.8 million in 1998. Income from operations  represented 6.2% of net
sales in 1999, up from 5.9% in 1998.  The  improvement  was primarily due to (i)
operating  efficiencies at the Company's  Mexican border  facilities that became
fully  operational  in the  fourth  quarter  of 1998  and (ii)  increased  sales
volumes.  Income from  operations  for 1998 was  reduced by (i) $3.0  million of
costs  incurred  during  the start up phase of new  lamination  business  at the
Mexican border, (ii) contract price reductions of approximately $1.1 million and
(iii) losses of $1.0 million  associated  with the production of  thermoformable
headliners.

       Technical Products

       Technical  Products net sales for 1999  increased  16.5% to $92.2 million
from $79.1  million in 1998.  Income from  operations  increased  55.0% to $22.6
million in 1999 from $14.6 million in 1998.  Income from operations  represented
24.5% of net sales in 1999, up from 18.4% in 1998. The improvement was primarily
driven  by  favorable  market  conditions,  strong  growth in sales  volumes,  a
higher-margin  product mix and  improved  manufacturing  efficiencies.  Plans to
expand capacity for Technical  Products were initiated during the second half of
1999.

       Other

       Other  primarily  consists of certain foreign  manufacturing  operations,
corporate  expenses not  allocated to business  segments and  restructuring  and
other charges (credits).  The increase in net sales associated with this segment
primarily  resulted from an increase in net sales from the Company's Mexico City
operation.  The loss from  operations in 1999 was primarily  associated with the
$10.5 million of restructuring  and other charges discussed below. The loss from
operations in 1998 included $9.7 million of net restructuring  credits discussed
below.  The loss from  operations for 1998 were impacted by accounts  receivable
and  inventory  writedowns  of  approximately  $8.5  million at the Mexico  City
facility  and  start up costs of $2.5  million  for the  Company's  Asian  joint
venture.

       Restructuring  and other  charges for 1999  amounted to $10.5 million and
were comprised of restructuring  charges of approximately  $9.5 million for four
restructuring  plans,  approximately  $0.7 million of restructuring  adjustments
related to changes in estimates  primarily to the 1998  restructuring  plans and
$0.3 million of other charges for additional reserves for Trace receivables. The
$9.5  million  1999  restructuring  charge was  comprised  of $7.0  million  for
personnel reductions, $1.0 million for plant closure and lease costs relating to
the closure of one facility and certain product line rationalizations during the
year and $1.5 million for asset writedowns associated with the plant closure and
consolidations.  See Note 4 to the consolidated financial statements for further
discussion.

                                       18
<PAGE>

       In 1998, net restructuring credits were approximately $9.7 million, which
reflect a $15.1 million reversal of prior year's  restructuring plans, offset by
other charges of $5.4 million.  The $5.4 million was comprised of a $3.1 million
reserve for net  receivables  due from Trace and a $2.3 million of impaired cost
in excess of assets acquired associated with a foreign facility.  However, these
charges were offset by a $15.1  million  restructuring  credit  associated  with
modifications to the 1997 restructuring plan. The $15.1 million credit reflected
the reversal of $10.2 million of fixed asset  writedowns,  $3.8 million of plant
closure and lease costs and $1.1 million of personnel reductions.

       As of December 31, 1999, all personnel affected by restructuring had been
terminated.  Cash spending during 1999 for implementation of restructuring plans
approximated  $8.9  million.  Future cash spending for the  restructuring  plans
approximates  $12.8 million.  The Company  expects to spend  approximately  $5.3
million during 2000 and the remaining $7.5 million (related principally to lease
runout payments) is expected to be spent through 2006.

       Interest and Debt Issuance Expense

       Interest  and  debt  issuance  expense  totaled  $72.9  million  in 1999,
slightly  higher than the 1998  expense of $72.3  million.  The benefit of lower
average debt levels was offset by higher effective  interest rates and increased
amortization expense related to additional debt issuance costs paid during 1999.

       Other Income (Expense), Net

       During the first quarter of 1999, a $4.2 million gain was recorded on the
sale of the corporate  aircraft.  Interest  income totaled $0.5 million in 1999.
Losses on the  disposal of fixed assets and letter of credit fees related to the
GFI Transaction (see Note 13 to the consolidated financial statements) partially
offset these income items.

       Other income (expense),  net in 1998 primarily consisted of: $6.5 million
of costs associated with the proposed Trace buyout transaction;  $3.1 million of
fees and costs related to the GFI Transaction;  $3.0 million of foreign currency
losses in Mexico;  and a $1.1 million  reduction  in the value of the  Company's
investment  in  the  Trace  Global  Opportunities  Fund  (see  Note  18  to  the
consolidated financial statements). These expenses in 1998 were partially offset
by approximately $1.9 million of interest income.

       Income Tax Expense

       The 1999 effective tax rate was 11.1% and reflected the partial  reversal
of the deferred  income tax asset  valuation  allowance  recognized in 1998. The
valuation allowance  reduction  primarily reflected  realization of Federal loss
carryforwards  that  reduced  the  current  tax  component  of the  Federal  tax
provision.  Additionally,  the valuation allowance was reduced to offset the net
deferred Federal tax liability generated in 1999.

       In 1998,  the provision for income taxes of $58.2 million for  continuing
operations  consisted  primarily  of an increase in the  valuation  allowance of
deferred  income tax assets.  The Company has determined that it was more likely
than not that the Company would not have sufficient future income to utilize its
net operating loss  carryforwards  and realize other deferred income tax assets.
In addition,  the Company did not  recognize  the tax benefits  associated  with
losses  in  Mexico  because  it  appeared  likely  that the net  operating  loss
carryforwards  would not be able to be realized in the near future.  At December
31, 1999, the Company had approximately $171.0 million of tax net operating loss
carryforwards  for Federal income tax purposes,  expiring from 2010 to 2018. See
Note 8 to the consolidated financial statements.

       Income (Loss) from Continuing Operations

       Income (loss) from continuing  operations  increased to $19.7 million for
1999 as compared to a loss of $69.9  million in 1998.  The increase is primarily
due to improved  operating results during 1999 as compared to 1998, as discussed
above, and the impact of the 1998 increase to the valuation allowance related to
deferred income tax assets.

                                       19
<PAGE>
       Extraordinary Loss

       The  extraordinary  loss on the early  extinguishment of debt in 1998 was
$1.9 million  (net of $1.3 million  income tax  benefit).  The charge  primarily
reflected  the  write-off  of debt  issuance  costs in  connection  with the GFI
Transaction.

1998 Compared to 1997

       Net sales for 1998 were $1,246.4 million as compared to $931.1 million in
1997, an increase of $315.3 million or 33.9%.  Income from operations  increased
$19.9 million or 36.2% to $75.0 million for 1998 from $55.1 million in 1997. The
increase in net sales and income from  operations was primarily  associated with
the Crain Acquisition in December 1997, reduced  restructuring and other charges
and the increase in  automotive  lamination  products  during the latter part of
1998 which were  offset by the sale of the Dalton,  Georgia  facility in October
1997. During 1998, selling,  general and administrative expenses increased $22.0
million  primarily due to costs  associated  with the  integration of Crain (the
"Transition").  Also during 1998, the Company  recorded  income of $15.1 million
for the reversal of 1997 restructuring charges,  offset by $5.4 million of other
charges  associated  with the  impairment  of goodwill on the  Montreal,  Canada
operations  ($2.3 million) and an allowance for receivables due from Trace ($3.1
million).

       Foam Products

       Foam Products net sales for 1998  increased  67.1% to $559.7 million from
$334.9  million  in 1997 and income  from  operations  increased  15.2% to $35.3
million  (6.3%  of net  sales)  from  $30.7  million  (9.2% of net  sales).  The
increases in net sales and income from operations were primarily associated with
the Crain  Acquisition in December 1997. The decrease in income from  operations
as a  percentage  of net sales  was  primarily  the  result of (i) costs of $4.0
million  associated with the  Transition,  including  inventory  adjustments for
facilities  affected by the  consolidation  of  manufacturing  facilities,  (ii)
operating inefficiencies and logistics costs of $2.5 million associated with the
sales of juvenile and other  consumer  products sold through mass  merchandisers
and discount stores;  (iii) operating losses and  inefficiencies of $1.0 million
resulting from the fires at Orlando, Florida and Cornelius, North Carolina, (iv)
selling  price  decreases of $0.5 million  resulting  from  competitive  pricing
pressures due to market share challenges from competitors and (v) the inherently
lower margins of Crain when compared with the Company's  historical  margins. In
addition,  operating  margins  decreased  in 1998 since the Company  carried the
operating costs of both companies during the Transition.

       Carpet Cushion Products

       Carpet  Cushion  Products  net  sales for 1998  increased  9.8% to $300.8
million from $273.9  million in 1997  primarily  due to an increase in net sales
associated with the Crain Acquisition in December 1997 offset by the sale of the
Dalton, Georgia facility in October 1997. Income from operations increased 40.4%
to $12.0 million (4.0% of net sales) from $8.5 million (3.1% of net sales).  The
increase was primarily  associated  with the Crain  Acquisition in December 1997
and was offset by increased  costs of $1.0 million  associated  with the Orlando
fire,  costs  related  to the  Transition  of $0.9  million  and the sale of the
Dalton, Georgia facility. In addition,  Crain's carpet cushion products provided
slightly higher margins than the Company's products.

       Automotive Products

       Automotive  Products net sales for 1998 increased 26.3% to $285.2 million
from $225.9 million in 1997 and income from operations  decreased 31.9% to $16.8
million  (5.9% of net  sales)  from  $24.6  million  (10.9% of net  sales).  The
increase  in net  sales  was  primarily  associated  with  increased  volume  of
lamination products. Income from operations decreased principally as a result of
(i)  higher  costs of $3.0  million  incurred  during  the start up phase of new
lamination  business at the Mexican  border,  (ii) contract price  reductions of
approximately  $1.1 million and (iii) losses of $1.0 million associated with the
production of thermoformable headliners.

                                       20
<PAGE>

       Technical Products

       Technical  Products net sales for 1998  increased  3.8% to $79.1  million
from $76.3 million in 1997 and income from  operations  decreased 18.5% to $14.6
million  (18.4% of net  sales)  from $17.9  million  (23.5% of net  sales).  The
increased net sales were  primarily  associated  with the  Company's  industrial
gasketing  and sealing  products.  The  decrease in income from  operations  was
primarily  associated with a higher mix of lower margin industrial  products and
production inefficiencies on certain products.

       Other

       Other  primarily  consists of certain foreign  manufacturing  operations,
corporate   expenses  not  allocated  to  the  other   operating   segments  and
restructuring and other charges.  The increase in net sales associated with this
segment was associated with the facility in Mexico City that began operations in
the second half of 1997.  The increase in income from  operations  was primarily
associated with a reversal of $15.1 million of  restructuring  charges set up in
1997, offset by accounts receivable and inventory  writedowns of $8.5 million at
the Mexico City facility, start up costs of $2.5 million for the Company's Asian
joint venture and duplicate administrative costs incurred during the Transition.

       Interest and Debt Issuance Expense

       Interest and debt issuance expense totaled $72.3 million in 1998 compared
to $50.6 million in 1997. The increase was primarily due to the debt incurred in
connection with the Crain  Acquisition  partially offset by the favorable effect
of a debt refinancing in June 1997.

       Other Income (Expense), Net

       Other income (expense),  net in 1998 primarily consisted of: $6.5 million
of costs associated with the proposed Trace buyout transaction;  $3.1 million of
fees and costs related to the GFI Transaction;  $3.0 million of foreign currency
losses in Mexico;  and a $1.1 million  reduction  in the value of the  Company's
investment in the Trace Global  Opportunities  Fund. Interest income in 1998 and
1997 was $1.9 million and $1.5 million, respectively.

       Income Tax Expense

       In 1998,  the provision for income taxes of $58.2 million for  continuing
operations  consisted  primarily  of an increase in the  valuation  allowance of
deferred income tax assets.  The Company determined that it was more likely than
not that the Company would not have sufficient  future income to utilize its net
operating loss  carryforwards  and realize other deferred income tax assets.  In
addition,  the Company did not  recognize the tax benefits  associated  with net
operating loss  carryforwards  in Mexico because it appeared likely that the net
operating  loss  carryforwards  would  not be able to be  realized  in the  near
future. See Note 8 to the consolidated financial statements.

       Income (Loss) from Continuing Operations

       Income  (loss) from  continuing  operations  decreased to a loss of $69.9
million for 1998 as compared to income of $4.1 million in 1997.  The decrease is
primarily due to an increase of approximately $21.7 million in interest and debt
issuance expense, a decrease of $16.5 million in other income (expense), net and
an increase of $55.7 million in the  provision  for income  taxes,  offset by an
increase in income from operations, as previously discussed.

       Extraordinary Loss

       The  extraordinary  loss on early  extinguishment of debt in 1998 of $1.9
million (net of $1.3 million income tax benefit) was primarily  associated  with
the write-off of debt issuance costs in connection with the GFI Transaction. The
extraordinary loss on early extinguishment of debt in 1997 of $44.5 million (net
of $27.3 million income tax benefit)  primarily relates to the write-off of debt
issuance costs and redemption premiums associated with the early  extinguishment
of long-term debt in June 1997.


                                       21
<PAGE>

Liquidity and Capital Resources

       The  Company's   operations  are  conducted   through  its  wholly  owned
subsidiaries,  Foamex L.P. and Foamex Carpet. The liquidity  requirements of the
Company  consist  primarily  of the  operating  cash  requirements  of  its  two
principal subsidiaries.

       Foamex L.P.'s operating cash requirements  consist principally of working
capital   requirements,   scheduled   payments  of  principal  and  interest  on
outstanding  indebtedness  and capital  expenditures.  The Company believes that
cash flow from Foamex  L.P.'s  operating  activities,  cash on hand and periodic
borrowings  under its credit  facility  will be adequate  to meet its  liquidity
requirements.  All  principal  and interest  payments  were made as scheduled in
1999.  The  ability  of Foamex  L.P.  to make  distributions  to the  Company is
restricted  by the terms of its  financing  agreements;  therefore,  neither the
Company nor Foamex Carpet is expected to have access to the cash flow  generated
by Foamex L.P. for the foreseeable future.

       Foamex  Carpet's  operating  cash  requirements  consist  principally  of
working capital  requirements,  scheduled  payments of principal and interest on
outstanding  indebtedness  and capital  expenditures.  The Company believes that
cash flow from Foamex Carpet's operating  activities,  cash on hand and periodic
borrowings  under its credit  facility  will be adequate  to meet its  liquidity
requirements.  The ability of Foamex Carpet to make distributions to the Company
is restricted by the terms of its financing agreements;  therefore,  neither the
Company nor Foamex L.P. is expected to have access to the cash flow generated by
Foamex Carpet for the foreseeable future.

       Cash and cash equivalents  totaled $6.6 million at year-end 1999 compared
to $12.6  million  at the end of 1998.  Working  capital  at the end of 1999 was
$105.6  million and the current ratio was 1.6 to 1. Excluding the $771.1 million
of  long-term  debt that was  classified  as a  current  liability  at  year-end
December 31, 1998 for comparative  purposes,  working capital at the end of 1998
was  $113.5  million  and the  current  ratio  was 1.5 to 1.  Improved  accounts
receivable and inventory management  contributed to a $62.7 million reduction in
accounts  payable.  Total debt at year-end 1999 was $745.3  million,  down $55.1
million, or 6.9% from the end of 1998.

       Cash Flow from Operating Activities

       Cash  provided  by  operating  activities  was $58.7  million for 1999 as
compared to cash used of $13.9 million in 1998.  The  improvement  was driven by
the increase in income from  operations  and improved  accounts  receivable  and
inventory management.

       Cash Flow from Investing Activities

       Cash used for investing  activities was $1.7 million for 1999 compared to
cash used of $32.8  million in 1998.  The decrease was  primarily  driven by the
sale of certain assets and lower capital spending.  Cash provided by the sale of
assets  primarily  represented  the  proceeds  from  the  sale of the  corporate
airplane  ($16.3  million),  discussed in Note 3 to the  consolidated  financial
statements,  and the sale of the Company's  packaging business ($1.5 million) in
October 1999 which was part of a 1998 restructuring plan. Additionally,  capital
expenditures  in 1999 of $20.1  million were down from prior years.  The Company
expects capital  expenditures  for 2000 to return to prior year levels and be in
excess of $30.0  million  primarily as a result of the  construction  of two new
VPFSM   machines.   In  addition,   the  Company  is   exploring   the  possible
implementation of a new ERP software system.

       Cash Flow from Financing Activities

       Cash used for financing activities was $63.1 million for 1999 compared to
cash provided of $47.2 million in 1998. Requirements in 1999 primarily reflected
net debt repayments and costs related to amending the debt agreements.


                                       22
<PAGE>

       Financial Condition

       As of December 31, 1998, certain subsidiaries were not in compliance with
various debt covenants  included in agreements  relating to debt totaling $480.4
million. Had the lenders under these debt agreements accelerated the maturity of
their  indebtedness  as  a  result  of  the  subsidiaries'  noncompliance,   the
acceleration  would have  constituted  an event of default and given the holders
the right to  require  the  repurchase  of  substantially  all of the  Company's
subsidiaries' long-term debt. As a result of these factors, approximately $771.1
million of  long-term  debt at  December  31, 1998 was  classified  as a current
liability in the  consolidated  balance sheet,  which produced a working capital
deficit.  As  discussed  below,  amendments  were  executed  to  modify  certain
financial covenants. As of December 31, 1999, the Company's subsidiaries were in
compliance  with their  respective  financial  covenants and long-term  debt was
classified based on its maturity schedule as of December 31, 1999.

       Foamex L.P. Credit Facility

       In response to financial conditions at year-end 1998,  amendments to debt
agreements  were executed  during the first half of 1999. As a result the Foamex
L.P.  credit  facility,  which was amended and  restated in February  1998,  was
further amended and restated in June 1999 (the "Foamex L.P. Credit Facility") to
modify  financial  covenants  for net worth,  interest  coverage,  fixed  charge
coverage and leverage  ratios  through  December  2006.  The  agreement was also
amended to no longer permit Foamex L.P. to make certain cash payments, including
the payment of an annual management fee of $3.0 million to a subsidiary of Trace
and  distributions  to the Company,  and to limit future  investments in foreign
subsidiaries  and joint ventures.  The "change of control"  definition under the
agreement was also modified to conform to the definition discussed in "change of
control"  in Note 1 to the  consolidated  financial  statements.  Changes in the
interest  rate  structure,  effective in 2000,  were also made and are discussed
below. Foamex L.P. was in compliance with this agreement at year-end 1999.

       At year-end  1999,  interest was based on the  combination  of a variable
rate consisting of the higher of (i) the base rate of The Bank of Nova Scotia or
(ii) the Federal Funds rate plus 0.5% plus a margin.  The margins for revolving,
Term  B,  Term  C and  Term  D  loans  were  2.25%,  2.50%,  2.75%  and  2.875%,
respectively.  At the option of Foamex L.P.,  portions of the outstanding  loans
are  convertible  into  LIBOR  based  loans  plus  1.0%  added  to  the  margins
identified.  The effective interest rates for the Foamex L.P. Credit Facility at
the end of 1999 ranged between 9.69% and 10.06%.

       Available  borrowings  under the revolving  credit facility totaled $24.2
million at year-end  1999.  Letters of credit  outstanding  at December 31, 1999
totaled $47.1  million.  Borrowings  under the Foamex L.P.  Credit  Facility are
collateralized by substantially all of the assets of Foamex L.P. on a pari passu
basis with the IRBs (see Note 13 to the consolidated financial statements).

       As part of the Foamex L.P.  Credit  Facility,  excess cash flow generated
annually,  as defined,  is required to prepay portions of Term B, C and D loans.
The prepayment amount determined for 1999 was $13.3 million and will be financed
through revolving loans under the facility.  The required payment is expected to
be made during the second quarter of 2000. The repayment  schedules for the Term
B, C and D loans  have been  adjusted,  as of  year-end  1999,  to  reflect  the
prepayment required.

       Effective  January 1, 2000, the interest rate on  outstanding  borrowings
under the Foamex L.P.  Credit  Facility  will  increase by 25 basis  points each
quarter that Foamex L.P.'s  leverage  ratio,  as defined,  exceeds 5.00 to 1.00.
Once the leverage ratio is reduced below this level,  the  cumulative  amount of
any 25 basis point  adjustments  to the  interest  rate on  borrowings  would be
eliminated.  At December 31, 1999,  the  calculated  leverage  ratio was 5.48 to
1.00.  Consequently,  the basis  point  adjustment  will be  applicable  for the
calculation of interest in the first quarter of 2000.

                                       23
<PAGE>

       Foamex Carpet Credit Facility

       During 1999,  Foamex Carpet  amended its revolving  credit  facility (the
"Foamex  Carpet  Credit  Facility"),  which  provides  up to  $15.0  million  of
available  borrowings  through February 2004, to modify the financial  covenants
for net worth,  interest  coverage,  fixed charge coverage and leverage  ratios.
Also, effective June 30, 1999, the interest rate on outstanding borrowings under
the Foamex Carpet Credit Facility increased by 25 basis points.

       At year-end  1999,  the interest rate was based on the  combination  of a
variable rate plus a margin. The variable rate is the same as the one defined in
the Foamex L.P. Credit  Facility,  discussed  above, and the margin is 2.25%. At
the option of Foamex Carpet,  portions of the outstanding  loans are convertible
into LIBOR based loans plus 3.25%.

       Borrowings under the Foamex Carpet Credit Facility are  collateralized by
substantially  all of the assets of Foamex Carpet on a pari passu basis with the
Note  Payable to Foam  Funding  LLC (see Note 13 to the  consolidated  financial
statements).

       There  were no  borrowings  outstanding  under  the  credit  facility  at
year-end  1999.  Borrowings  availability  totaled $14.7 million at December 31,
1999 after a reduction of $0.3 million for a letter of credit.

Buyout Proposals

       On February 9, 2000, the Company announced that it is in discussions with
respect  to a  proposal  involving  the  acquisition  of all  of  the  Company's
outstanding  common  stock for cash.  The Company  stated  that the  proposal is
subject to a number of conditions,  including the buyer's  ongoing due diligence
and the execution of definitive  agreements.  The Company agreed to an exclusive
negotiating  period  ending  five  business  days after  delivery of its audited
financial   statements  to  the  prospective   buyer.  See  "Business  -  Buyout
Proposals".

       On August 5, 1999,  the  Company  announced  that its Board of  Directors
signed a letter of intent with  Sorgenti  Chemical  Industries,  LLC and Liberty
Partners  Holdings  20,  LLC  (collectively,  the  "Purchasers")  for a business
combination.  On December 15,  1999,  the Company  announced  that the letter of
intent with the Purchasers, which had been extended, expired by its terms.

       In 1998, the Company received an unsolicited  buyout proposal from Trace,
the  Company's  principal  stockholder.  The  Company  entered  into two  merger
agreements,  which were  subsequently  terminated by Trace. The Company incurred
$6.5 million in fees associated with the proposed transactions.

Change in Control

       Trace is a privately held company,  which owned  approximately 29% of the
Company's  outstanding  voting common stock at March 10, 2000,  and whose former
Chairman also serves as the Company's Chairman. The Company's common stock owned
by Trace is  pledged as  collateral  against  certain  of  Trace's  obligations.
Certain credit  agreements and  promissory  notes of the Company's  subsidiaries
provide that a "change of control" would be an event of default and could result
in the acceleration of substantially all of the Company's long-term debt.

       Trace is  presently  in  bankruptcy  proceedings  under  Chapter 7 of the
Bankruptcy  Code in Federal Court in New York City.  Trace's  bankruptcy  filing
does not  constitute  a "change of  control"  under the  provisions  of the debt
agreements.  A "change of control" could take place  however,  if the bankruptcy
court  allows  Trace's  creditors  to  foreclose  on and take  ownership  of the
Company's  common  stock  owned by  Trace,  or  otherwise  authorizes  a sale or
transfer  of these  shares,  under  circumstances  in which a person or  related
group,  other than Trace,  acquired more than 25% of the  Company's  outstanding
voting stock and owned a greater percentage of such voting stock than the amount
beneficially owned by Trace.

       Management  believes  that it is unlikely that a "change of control" will
occur as a result of Trace's bankruptcy proceedings.  However, the Company would
seek to  resolve  the issues  that may arise  should  the  "change  of  control"
provisions  be  triggered,  by  requesting  waivers  of such  provisions  and/or
refinancing  certain  debt,  if  necessary.  There

                                       24
<PAGE>

can be no assurance that the Company or its subsidiaries  will be able to do so,
or that the  Company  will be able to obtain  waivers of such  provisions.  Such
circumstances raise substantial doubt about the Company's ability to continue as
a going  concern.  The  accompanying  financial  statements  were  prepared on a
going-concern  basis and do not include any  adjustments  that might result from
the outcome of the Trace bankruptcy filing.

Environmental Matters

       The Company is subject to extensive and changing  environmental  laws and
regulations.  Expenditures to date in connection  with the Company's  compliance
with  such  laws and  regulations  did not have a  material  adverse  effect  on
operations,  financial position,  capital expenditures or competitive  position.
Liabilities recorded by the Company in connection with environmental  matters as
of December  31, 1999  totaled $4.5  million.  Although it is possible  that new
information  or future  developments  could  require the Company to reassess its
potential  exposure  to  all  pending  environmental  matters,  including  those
described in the consolidated  financial statements,  the Company believes that,
based upon all  currently  available  information,  the  resolution  of all such
pending  environmental matters will not have a significant adverse effect on the
Company's  operations,  financial position,  capital expenditures or competitive
position.

Inflation and Other Matters

       On  average,  inflation  rates for the  domestic  economy  continue to be
relatively low. Although long-term inflation rates are difficult to predict, the
Company  believes it has the flexibility in operations and capital  structure to
maintain a competitive  position.  In recent years,  results of operations  were
adversely  affected  by raw  material  cost  increases.  The  price  of the  two
principal chemicals used, TDI and polyol, is influenced by demand, manufacturing
capacity and oil prices. The recent increase in oil prices did not significantly
impact raw material  costs in 1999.  Any  sustained  increase in oil prices will
likely  result in  higher  raw  material  costs  and also  increase  the cost of
operations.  Results  for the  first  quarter  of  2000  are  anticipated  to be
negatively  impacted  by  higher  transportation  costs  related  to  oil  price
increases and higher costs for raw materials. The Company attempts to offset raw
material cost increases through selling price increases;  however,  there can be
no assurance that the Company will be successful in  implementing  selling price
increases or that  competitive  pricing pressure will not require the Company to
adjust selling  prices.  Results of operations  have been and could be adversely
affected  by  delays  in  implementing,  or  the  inability  of the  Company  to
implement, selling price increases to offset raw material cost increases.

Year 2000 Compliance

       The Company's program to address potential  disruptions to operations and
relationships  with our  business  partners  related  to the Year 2000  software
problem was successful  and there were no significant  disruptions to operations
or administration.

       The cost to prevent the Year 2000 problem was approximately $2.0 million.
The majority of this total project cost was incurred  during 1998 and 1999.  The
project cost primarily  represented the cost for various  consultants and system
upgrades. Project cost included internal Company cost for information technology
employees that worked directly on software programming modifications.


ITEM 7a.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

       The Company's debt securities with variable interest rates are subject to
market risk for changes in interest  rates.  On December 31, 1999,  indebtedness
with variable interest rates totaled $482.2 million.  On an annualized basis, if
the interest rates on these debt instruments increased by 1.0%, interest expense
would increase by approximately $4.8 million.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

       An index to the financial statements and financial statement schedules is
included in Item 14(a).


                                       25
<PAGE>
ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

       None

PART III

       The  information  required  by this Part III (Items 10, 11, 12 and 13) is
hereby  incorporated by reference pursuant to Reg. 12b-23 of the Exchange Act to
the Company's  definitive proxy statement which is expected to be filed pursuant
to  Regulation  14A of the  Exchange Act no later than 120 days after the end of
the fiscal year covered by this Annual Report on Form 10-K.











                                       26
<PAGE>

PART IV
ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)    Financial statements.

       Foamex International Inc. and Subsidiaries:

         Report of Independent Accountants                                 F-2
         Consolidated Balance Sheets as of
               December 31, 1999 and 1998                                  F-3
         Consolidated Statements of Operations for the
               years 1999, 1998 and 1997                                   F-5
         Consolidated Statements of Cash Flows for the
               years 1999, 1998 and 1997                                   F-6
         Consolidated Statements of Stockholders' Equity (Deficit)
               for the years 1999, 1998 and 1997                           F-7
         Notes to Consolidated Financial Statements                        F-8

       Foamex International Inc. and Subsidiaries Financial
           Statement Schedules:
         Schedule I - Condensed Financial Information of Registrant        S-2
         Schedule II - Valuation and Qualifying Account                    S-5

(b)    Reports on Form 8-K.

         A report,  dated December 15, 1999, was filed for Item 5. Other Events,
         concerning the termination of a letter of intent for the acquisition of
         the Company.

         A report,  dated  February 9, 2000, was filed for Item 5. Other Events,
         concerning preliminary merger discussions.

         A report,  dated  March 2, 2000,  was filed for Item 5.  Other  Events,
         concerning a press release  announcing  its  financial  results for the
         year ended December 31, 1999.

(c)      Exhibits.

2.1(x)      - Transfer Agreement,  dated as of February 27, 1998, by and between
            Foam Funding LLC and Foamex L.P.
2.2(x)      - Asset  Purchase  Agreement,  dated as of February 27, 1998, by and
            among  Foamex  Carpet  Cushion,   Inc.  ("Foamex  Carpet"),   Foamex
            International  Inc. ("Foamex  International"),  Foam Funding LLC and
            General Felt Industries, Inc. ("General Felt").
2.3(z)      - Agreement and Plan of Merger, dated as of November 5, 1998, by and
            among  Foamex  International,  Trace  International  Holdings,  Inc.
            ("Trace Holdings") and Trace Merger Sub, Inc. ("Trace Sub").
2.4(aa)     - Agreement  and Plan of Merger,  dated as of June 25, 1998,  by and
            among Trace Holdings, Trace Sub and Foamex International.
2.5(z)      - Notice of termination of Agreement and Plan of Merger, dated as of
            November 5, 1998, from Trace International  Holdings, Inc. to Foamex
            International Inc.
3.1(a)      - Certificate of Limited Partnership of Foamex L.P.
3.2.1(a)    - Fourth  Amended and Restated  Agreement of Limited  Partnership of
            Foamex L.P.,  dated as of December 14, 1993, by and among FMXI, Inc.
            ("FMXI") and Trace Foam Company,  Inc.  ("Trace  Foam"),  as general
            partners,  and  Foamex  International,  as a  limited  partner  (the
            "Partnership Agreement").
3.2.2(b)    - First Amendment to the Partnership Agreement, dated June 28, 1994.
3.2.3(c)    - Second  Amendment  to the  Partnership  Agreement,  dated June 12,
            1997.
3.2.4(v)    - Third Amendment to the Partnership  Agreement,  dated December 23,
            1997.
3.2.5(x)    - Fourth Amendment to the Partnership Agreement,  dated February 27,
            1998.
3.3(y)      - Certificate of Incorporation of FMXI.
3.4(y)      - By-laws of FMXI.

                                       27
<PAGE>
3.5(k)      -  Certificate  of  Incorporation  of  Foamex  Capital   Corporation
            ("FCC").
3.6(k)      - By-laws of FCC.
3.7.1(a)    - Certificate of Incorporation of Foamex International.
3.7.1(dd)   - Amendment to Certificate of Incorporation of Foamex International.
3.7.2(cc)   -  Certificate  of  Incorporation  of Foamex  Carpet  Cushion,  Inc.
            ("Foamex Carpet")
3.8(a)      - By-laws of Foamex International.
3.8.1(cc)   - By-laws of Foamex Carpet.
4.1.1(d)    - Indenture,  dated as of June 12,  1997,  by and among Foamex L.P.,
            FCC, the Subsidiary Guarantors and The Bank of New York, as trustee,
            relating  to  $150,000,000   principal   amount  of  9  7/8%  Senior
            Subordinated Notes due 2007 (the "9 7/8% Notes"), including the form
            of Senior Subordinated Note and Subsidiary Guarantee.
4.1.2(v)    - First  Supplemental  Indenture,  dated as of  December  23,  1997,
            between  Foamex LLC ("FLLC")  and The Bank of New York,  as trustee,
            relating to the 9 7/8% Notes.
4.1.3(x)    - Second  Supplemental  Indenture,  dated as of February  27,  1998,
            among  Foamex L.P. and FCC, as joint and several  obligors,  General
            Felt,  Foamex  Fibers,   Inc.  ("Foamex   Fibers"),   and  FLLC,  as
            withdrawing  guarantors,  and The  Bank  of New  York,  as  trustee,
            relating to the 9 7/8% Notes.
4.1.4(d)    - Registration  Rights Agreement,  dated as of June 12, 1997, by and
            among Foamex L.P., FCC, General Felt, Foamex Fibers,  and all future
            direct or indirect domestic  subsidiaries of Foamex L.P. or FCC, and
            Donaldson,   Lufkin  &  Jenrette  Securities  Corporation,   Salomon
            Brothers Inc. and Scotia Capital Markets, as Initial Purchasers.
4.2.1(v)    -  Indenture,  dated as of December  23,  1997,  by and among Foamex
            L.P.,  FCC, the  Subsidiary  Guarantors,  Crain Holdings  Corp.,  as
            Intermediate  Obligator,  and The  Bank  of New  York,  as  trustee,
            relating  to  $98,000,000   principal   amount  of  13  1/2%  Senior
            Subordinated  Notes due 2005 (the "13 1/2%  Notes"),  including  the
            form of Senior Subordinated Note and Subsidiary Guarantee.
4.2.2(x)    - First Supplemental Indenture, dated as of February 27, 1998, among
            Foamex L.P. and FCC, as joint and several  obligors,  General  Felt,
            Foamex Fibers and FLLC, as withdrawing guarantors, Crain Industries,
            Inc., as withdrawing Intermediate Obligor, and The Bank of New York,
            as trustee, relating to the 13 1/2% Notes.
4.3(x)      - Discharge of  Indenture,  dated as of February  27,  1998,  by and
            among Foamex L.P.,  General  Felt,  Foamex  International  and State
            Street Bank and Trust  Company,  as trustee,  relating to the 9 1/2%
            Senior Secured Notes due 2000.
4.4.2(x)    - Second Amended and Restated Foamex International  Guaranty,  dated
            as of February 27, 1998,  made by Foamex  International  in favor of
            Citicorp USA, Inc., as Collateral Agent.
4.4.3(x)    - Amended and Restated  Partnership  Guaranty,  dated as of February
            27, 1998, made by FMXI in favor of Citicorp USA, Inc., as Collateral
            Agent.
4.4.4(p)    - Foamex Guaranty, dated as of June 12, 1997, made by Foamex L.P. in
            favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(p)    - Subsidiary  Guaranty,  dated as of June 12,  1997,  made by Foamex
            Latin  America,  Inc. in favor of Citicorp USA,  Inc., as Collateral
            Agent.
4.4.6(p)    - Subsidiary  Guaranty,  dated as of June 12,  1997,  made by Foamex
            Mexico, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.7(p)    - Subsidiary  Guaranty,  dated as of June 12,  1997,  made by FCC in
            favor of Citicorp USA, Inc., as Collateral Agent.
4.4.8(p)    - Subsidiary  Guaranty,  dated as of June 12,  1997,  made by Foamex
            Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.9(p)    - Subsidiary  Guaranty,  dated as of June 12,  1997,  made by Foamex
            Asia, Inc. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.10(p)   - Subsidiary  Pledge  Agreement,  dated as of June 12, 1997, made by
            FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.11(p)   - Subsidiary  Pledge  Agreement,  dated as of June 12, 1997, made by
            Foamex  Latin  America,  Inc. in favor of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.12(p)   - Subsidiary  Pledge  Agreement,  dated as of June 12, 1997, made by
            Foamex Asia,  Inc. in favor of Citicorp  USA,  Inc.,  as  Collateral
            Agent.


                                       28
<PAGE>
4.4.13(p)   - Subsidiary  Pledge  Agreement,  dated as of June 12, 1997, made by
            Foamex  Mexico,  Inc. in favor of Citicorp USA,  Inc., as Collateral
            Agent.
4.4.14(p)   - Subsidiary  Pledge  Agreement,  dated as of June 12, 1997, made by
            Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
            Agent.
4.4.15(p)   - Foamex  Security  Agreement,  dated as of June 12,  1997,  made by
            Foamex L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.16(p)   - Subsidiary Security Agreement,  dated as of June 12, 1997, made by
            Foamex  Latin  America,  Inc. in favor of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.17(p)   - Subsidiary Security Agreement,  dated as of June 12, 1997, made by
            Foamex  Mexico,  Inc. in favor of Citicorp USA,  Inc., as Collateral
            Agent.
4.4.18(p)   - Subsidiary Security Agreement,  dated as of June 12, 1997, made by
            Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as Collateral
            Agent.
4.4.19(p)   - Subsidiary Security Agreement,  dated as of June 12, 1997, made by
            Foamex Asia,  Inc. in favor of Citicorp  USA,  Inc.,  as  Collateral
            Agent.
4.4.20(p)   - Subsidiary Security Agreement,  dated as of June 12, 1997, made by
            FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.21(r)   - Foamex Pledge Agreement, dated as of June 12, 1997, made by Foamex
            L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.22(w)   - First Amendment to Foamex Pledge  Agreement,  dated as of December
            23,  1997,  by  Foamex  L.P.  in favor of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.23(w)   - First Amendment to Foamex Security Agreement, dated as of December
            23,  1997,  by  Foamex  L.P.  in favor of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.24(w)   - First Amendment to Foamex Patent  Agreement,  dated as of December
            23,  1997,  by  Foamex  L.P.  in favor of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.4.25(w)   - First  Amendment  to  Trademark  Security  Agreement,  dated as of
            December 23, 1997, by Foamex L.P. in favor of Citicorp USA, Inc., as
            Collateral Agent.
4.4.26(w)   - Acknowledgment of Guaranty by each of the guarantors to a Guaranty
            dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w)   - First  Amendment  to Pledge  Agreement,  dated as of December  23,
            1997, by pledgors in favor of Citicorp USA, Inc.
4.4.28(w)   - Crain Industries,  Inc. ("Crain")  Guaranty,  dated as of December
            23, 1997, made by Crain in favor of Citicorp USA, Inc.
4.4.29(x)   - Partnership Pledge Agreement,  dated as of February 27, 1998, made
            by Foamex  International and FMXI in favor of Citicorp USA, Inc., as
            Collateral Agent.
4.4.30(bb)  -  Amendment   No.  1  to  Second   Amended  and   Restated   Foamex
            International Guaranty, dated March 11, 1999.
4.4.31(bb)  - Amendment No. 1 to Foamex International Guaranty,  dated March 12,
            1999.
4.4.32(dd)  - Foamex Patent Agreement, dated as of June 12, 1997, by Foamex L.P.
            in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.33(dd)  - Trademark Security Agreement, dated as of June 12, 1997, by Foamex
            L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.34(ee)  - Amended and Restated Foamex Pledge Agreement, dated as of June 30,
            1999  made by  Foamex  L.P.  in favor of  Citicorp  U.S.A.  Inc.  as
            Collateral Agent.
4.4.35(ee)  - Amended and Restated  Partnership  Pledge  Agreement,  dated as of
            June 30, 1999 by FMXI, Inc. and Foamex  International  Inc. in favor
            of Citicorp USA Inc. as FII Intercreditor Collateral Agent.
4.5(ff)     - Commitment  letter,  dated  August 9, 1999,  from The Bank of Nova
            Scotia to Foamex Canada Inc.
4.6(a)      -  Subordinated  Promissory  Note,  dated as of May 6, 1993,  in the
            original  principal amount of $7,014,864  executed by Foamex L.P. to
            John Rallis ("Rallis").
4.7(a)      - Marely Loan Commitment  Agreement,  dated as of December 14, 1993,
            by and between Foamex L.P. and Marely s.a. ("Marely").
4.8(a)      - DLJ Loan Commitment  Agreement,  dated as of December 14, 1993, by
            and between Foamex L.P. and DLJ Funding, Inc. ("DLJ Funding").


                                       29
<PAGE>
4.9.1(p)    - Promissory Note,  dated June 12, 1997, in the aggregate  principal
            amount of $5,000,000, executed by Trace Holdings to Foamex L.P.
4.9.2(p)    - Promissory Note,  dated June 12, 1997, in the aggregate  principal
            amount of $4,794,828, executed by Trace Holdings to Foamex L.P.
4.10.1(x)   - Credit  Agreement,  dated as of February  27,  1998,  by and among
            Foamex Carpet,  the institutions  from time to time party thereto as
            lenders, the institutions from time to time party thereto as issuing
            banks  and  Citicorp  USA,  Inc.  and The  Bank of Nova  Scotia,  as
            administrative agents.
4.10.2(x)   - Foamex International Guaranty, dated as of February 27, 1998, made
            by  Foamex   International  in  favor  of  Citicorp  USA,  Inc.,  as
            Collateral Agent.
4.10.3(x)   - Foamex  International  Pledge Agreement,  dated as of February 27,
            1998, made by Foamex  International  in favor of Citicorp USA, Inc.,
            as Collateral Agent.
4.10.4(x)   - New GFI Security Agreement, dated as of February 27, 1998, made by
            Foamex Carpet in favor of Citicorp USA, Inc., as Collateral Agent.
4.10.5(x)   - New GFI Intercreditor Agreement, dated as of February 27, 1998, by
            and among Foamex Carpet,  The Bank of Nova Scotia, as Administrative
            Agent,  and  Citicorp  USA,  Inc.,  as   Administrative   Agent  and
            Collateral Agent.
4.10.6(x)   - FII Intercreditor Agreement, dated as of February 27, 1998, by and
            between Foamex  International  and Citicorp USA, Inc., as Collateral
            Agent.
4.10.9(dd)  - Amendment No. 1 to Foamex Carpet Credit  Agreement,  dated October
            30, 1998.
4.10.10(bb) - Amendment No. 2 to Foamex Carpet Credit Agreement, dated March 12,
            1999.
4.10.11(ee) - Foamex L.P. Credit Agreement,  dated June 12, 1997, as amended and
            restated as of February 27, 1998 as further  amended and restated as
            of June 29, 1999 among Foamex L.P., FMXI, the institutions from time
            to time party thereto as lenders, the institutions from time to time
            party  thereto as issuing  banks and Citicorp USA, Inc. and the Bank
            of Nova Scotia as Administrative Agents.
4.10.12(ee) - Amendment No. 3 to Foamex Carpet Credit Agreement,  dated June 30,
            1999.
4.10.13(ee) - Foamex International  Pledge Agreement,  dated June 30, 1999, made
            by Foamex  International  in favor of  Citicorp  U.S.A.  Inc. as FII
            Intercreditor Collateral Agent.
4.10.14     - Amendment No. 1 to Foamex L.P.  Credit  Agreement,  dated December
            23, 1999, as amended and restated as of February 27, 1998 as further
            amended and restated as of June 29, 1999 among  Foamex  L.P.,  FMXI,
            the  institutions  from time to time party  thereto as lenders,  the
            institutions  from time to time party  thereto as issuing  banks and
            Citicorp  USA,  Inc.  and the Bank of Nova Scotia as  Administrative
            Agents.
4.11.1(x)   - Promissory Note of Foamex L.P. in favor of Foam Funding LLC in the
            principal amount of $34 million, dated February 27, 1998.
4.12.1(x)   - Promissory  Note of Foamex  Carpet in favor of Foam Funding LLC in
            the principal amount of $70.2 million, dated February 27, 1998.
4.12.2(bb)  - Amendment  to  Promissory  Note of Foamex  Carpet in favor of Foam
            Funding LLC dated March 15, 1999.
4.12.3(ee)  -  Amendment  to  Promissory  Note of Foamex  L.P.  in favor of Foam
            Funding LLC dated as of June 30, 1999.
4.12.4(ee)  - Amendment to  Promissory  Note of Foamex Carpet in favor of Foam
            Funding LLC dated as of June 30, 1999.
4.13(dd)    - Waiver, dated as of April 15, 1999 to the Credit Agreement,  dated
            as of February 27, 1998, among Foamex Carpet, the institutions party
            thereto as Lenders, the institutions party thereto as Issuing Banks,
            and Citicorp USA, Inc. and The Bank of Nova Scotia as Administrative
            Agents.
4.13.1      - Waiver,  dated as of April 15, 1999 to the Promissory  Note, dated
            as of February  27, 1998,  payable by Foamex  Carpet to Foam Funding
            LLC.
4.13.2      - Waiver,  dated as of May 6, 1999 to the Promissory  Note, dated as
            of February 27, 1998, payable by Foamex Carpet to Foam Funding LLC.
10.1.1(p)   - Amendment to Master Agreement,  dated as of June 5, 1997,  between
            Citibank, N.A. and Foamex L.P.
10.1.2(p)   - Amended Confirmation, dated as of June 13, 1997, between Citibank,
            N.A. and Foamex L.P.

                                       30
<PAGE>
10.1.3(w)   -  Amended  Confirmation,  dated as of  February  2,  1998,  between
            Citibank, N.A. and Foamex L.P.
10.2(h)     - Reimbursement Agreement, dated as of March 23, 1993, between Trace
            Holdings and General Felt.
10.3(h)     - Shareholder  Agreement,  dated December 31, 1992,  among Recticel,
            s.a. ("Recticel"), Recticel Holding Noord B.V., Foamex L.P., Beamech
            Group Limited, LME-Beamech, Inc., James Brian Blackwell, and Prefoam
            AG relating to a foam technology-sharing arrangement.
10.4.1(k)   - Asset  Transfer  Agreement,  dated as of October 2, 1990,  between
            Trace  Holdings and Foamex L.P. (the "Trace  Holdings Asset Transfer
            Agreement").
10.4.2(k)   - First  Amendment,  dated as of  December  19,  1991,  to the Trace
            Holdings Asset Transfer Agreement.
10.4.3(k)   - Amended and Restated Guaranty, dated as of December 19, 1991, made
            by Trace Foam in favor of Foamex L.P.
10.5.1(k)   - Asset  Transfer  Agreement,  dated as of October 2, 1990,  between
            Recticel  Foam  Corporation  ("RFC") and Foamex L.P. (the "RFC Asset
            Transfer Agreement").
10.5.2(k)   - First  Amendment,  dated as of December 19, 1991, to the RFC Asset
            Transfer Agreement.
10.5.3(k)   -  Schedule  5.03 to the RFC Asset  Transfer  Agreement  (the  "5.03
            Protocol").
10.5.4(h)   - The 5.03 Protocol  Assumption  Agreement,  dated as of October 13,
            1992, between RFC and Foamex L.P.
10.5.5(h)   - Letter Agreement between Trace Holdings and Recticel regarding the
            Recticel Guaranty, dated as of July 22, 1992.
10.6(l)     - Supply  Agreement,  dated June 28, 1994,  between  Foamex L.P. and
            Foamex International.
10.7.1(l)   - First  Amended and  Restated  Tax Sharing  Agreement,  dated as of
            December 14, 1993,  among Foamex L.P.,  Trace Foam,  FMXI and Foamex
            International.
10.7.2(d)   -  First  Amendment  to  First  Amended  and  Restated  Tax  Sharing
            Agreement,  dated as of June 12,  1997,  by and among  Foamex  L.P.,
            Foamex International, FMXI and Trace Foam.
10.7.3(w)   - Second  Amendment  to  First  Amended  and  Restated  Tax  Sharing
            Agreement,  dated as of December 23, 1997, by and among Foamex L.P.,
            Foamex International, FMXI, and Trace Foam.
10.7.4(y)   -  Third  Amendment  to  First  Amended  and  Restated  Tax  Sharing
            Agreement,  dated as of February  27,  1998,  by and between  Foamex
            L.P., Foamex International and FMXI.
10.8.1(m)   - Tax Distribution Advance Agreement, dated as of December 11, 1996,
            by and between Foamex L.P. and Foamex-JPS Automotive L.P.
10.8.2(d)   - Amendment No. 1 to Tax Distribution Advance Agreement, dated as of
            June 12, 1997, by and between Foamex L.P. and Foamex International.
10.9.1(h)   - Trace Foam  Management  Agreement  between  Foamex L.P.  and Trace
            Foam, dated as of October 13, 1992.
10.9.2(l)   -  Affirmation  Agreement  re:  Management  Agreement,  dated  as of
            December 14, 1993, between Foamex L.P. and Trace Foam.
10.9.3(d)   - First  Amendment  to  Management  Agreement,  dated as of June 12,
            1997, by and between Foamex L.P. and Trace Foam.
10.10.1(k)  - Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.10.2(k)  - Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k)  - Equity Growth Participation Program.
10.10.4(o)  - The Foamex L.P. Salaried Pension Plan (formerly, "The General Felt
            Industries, Inc. Retirement Plan for Salaried Employees"), effective
            as of January 1, 1995.
10.10.5(u)  - The Foamex L.P. Hourly Pension Plan (formerly "The Foamex Products
            Inc.  Hourly Employee  Retirement  Plan"),  as amended  December 31,
            1995.
10.10.6(u)  - Foamex L.P. 401(k) Savings Plan effective October 1, 1997.
10.10.7(a)  - Foamex International's 1993 Stock Option Plan.
10.10.8(a)  - Foamex International's Non-Employee Director Compensation Plan.
10.11.1(o)  - Employment Agreement, dated as of February 1, 1994, by and between
            Foamex L.P. and William H. Bundy.
10.11.2(dd) - Employment  Agreement,  dated as of March 16, 1999, by and between
            Foamex International and John G. Johnson, Jr.

                                       31
<PAGE>
10.11.3     - Employment  Agreement,  dated as of March 16, 1999, by and between
            Foamex International and John Televantos.
10.12.1(a)  - Warrant Exchange Agreement,  dated as of December 14, 1993, by and
            between Foamex L.P. and Marely.
10.12.2(a)  - Warrant Exchange Agreement,  dated as of December 14, 1993, by and
            between Foamex L.P. and DLJ Funding.
10.13(t)    -  Warrant  Agreement,  dated as of June 28,  1994,  by and  between
            Foamex International and Shawmut Bank.
10.14(o)    - Stock  Purchase  Agreement,  dated as of December 23, 1993, by and
            between Transformacion de Espumas u Fieltros, S.A., the stockholders
            which are parties thereto, and Foamex L.P.
10.15.1(r)  - Asset  Purchase  Agreement,  dated as of August 29,  1997,  by and
            among General Felt, Foamex L.P., Bretlin, Inc. and The Dixie Group.
10.15.2(s)  - Addendum to Asset Purchase Agreement, dated as of October 1, 1997,
            by and among General Felt, Foamex L.P., Bretlin,  Inc. and The Dixie
            Group.
10.16.1(x)  - Supply  Agreement,  dated as of February 27, 1998,  by and between
            Foamex L.P. and General Felt (as assigned to Foamex Carpet).
10.16.2(x)  - Administrative Services Agreement,  dated as of February 27, 1998,
            by and between  Foamex L.P.  and General Felt (as assigned to Foamex
            Carpet).
10.17(y)    - Tax Sharing  Agreement,  dated as of February  27,  1998,  between
            Foamex International and Foamex Carpet.
10.18.1(w)  - Joint Venture Agreement between Hua Kee Company Limited and Foamex
            Asia, Inc., dated as of July 8, 1997.
10.18.2(w)  - Loan  Agreement  between Hua Kee Company  Limited and Foamex Asia,
            Inc., dated as of July 8, 1997.
21          - Subsidiaries of registrant.
23          - Consent of Independent Accountants, PricewaterhouseCoopers LLP.
27          - Financial Data Schedule for the year ended December 31, 1999.
----------------------------
(a)  Incorporated   herein  by  reference  to  the  Exhibit  to  Foamex   L.P.'s
     Registration Statement on Form S-1, Registration No. 33-69606.
(b)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal  year  ended  January 1,
     1995.
(c)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex  International  reporting an event that occurred May 28,
     1997.
(d)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex International  reporting an event that occurred June 12,
     1997.
(e)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement of Foamex L.P. and FCC on Form S-4, Registration No. 33-65158.
(f)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International for the quarterly period ended June 30, 1996.
(g)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement  of Foamex L.P.,  FCC and General Felt on Form S-1,  Registration
     Nos. 33-60888, 33-60888-01, and 33-60888-02.
(h)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K Statement of Foamex L.P. and FCC for fiscal 1992.

                                       32
<PAGE>
(i)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex L.P. for fiscal 1994.
(j)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     for the quarterly period ended September 30, 1996.
(k)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement of Foamex L.P. and FCC on Form S-1,  Registration  Nos.  33-49976
     and 33-49976-01.
(l)  Incorporated  herein  by  reference  to the  Exhibit  to  the  Registration
     Statement  of FJPS,  FJCC and Foamex  L.P.  on Form S-4,  Registration  No.
     33-82028.
(m)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 29,
     1996.
(n)  Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International for the quarterly period ended July 2, 1995.
(o)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex L.P. for fiscal 1993.
(p)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
     Statement of Foamex International on Form S-4, Registration No. 333-30291.
(q)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex L.P. for the fiscal year ended December 31, 1995.
(r)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
     Foamex L.P. reporting an event that occurred on August 29, 1997.
(s)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
     Foamex L.P. reporting an event that occurred on October 6, 1997.
(t)  Incorporated  by  reference  to the  Exhibit  to the  Form  10-Q of  Foamex
     International for the quarterly period ended July 3, 1994.
(u)  Incorporated  by  reference  to the Exhibit to the Form 10-Q of Foamex L.P.
     for the quarterly period ended September 28, 1997.
(v)  Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex L.P.,  FCC and Foamex  International  reporting an event
     that occurred December 23, 1997.
(w)  Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
     Statement of Foamex L.P. and FCC on Form S-4,  Registration No.  333-45733,
     filed February 6, 1998.
(x)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
     Foamex International reporting an event that occurred on February 27, 1998.
(y)  Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  for the fiscal year ended  December 28,
     1997.
(z)  Incorporated  herein  by  reference  to the  Current  Report on Form 8-K of
     Foamex International reporting an event that occurred on November 5, 1998.

                                       33
<PAGE>
(aa) Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex  International  reporting an event that occurred on June
     25, 1998.
(bb) Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex International  reporting an event that occurred on March
     11, 1999.
(cc) Incorporated  herein  by  reference  to the  Exhibit  in  the  Registration
     Statement of Foamex L.P. and FCC on Form S-4/A, Registration No. 333-45733,
     filed May 11, 1998.
(dd) Incorporated  herein by  reference  to the Exhibit to the Annual  Report on
     Form 10-K of Foamex  International  Inc. for the fiscal year ended December
     31, 1998.
(ee) Incorporated  herein by reference  to the Exhibit to the Current  Report on
     Form 8-K of Foamex  International  Inc. reporting an event that occurred on
     June 30, 1999.
(ff) Incorporated  herein by reference to the Exhibit to the Form 10-Q of Foamex
     International for the quarterly period ended September 30, 1999.


       Certain  instruments  defining  the rights of security  holders have been
excluded herefrom in accordance with Item  601(b)(4)(iii) of Regulation S-K. The
registrant  hereby  agrees  to  furnish  a copy of any  such  instrument  to the
Commission upon request.








                                       34
<PAGE>
                                   SIGNATURES

            Pursuant  to  the  requirements  of  Section  13 of  the  Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly authorized as of the 17th day of
March 2000.

                                    FOAMEX INTERNATIONAL INC.


                                    By: /s/ John G. Johnson, Jr.
                                        ------------------------
                                    Name:  John G. Johnson, Jr.
                                    Title: President and Chief Executive Officer


                                    By: /s/ David J. Prilutski
                                    Name:  David J. Prilutski
                                    Title: Senior Vice President, Planning
                                             and Acting Chief Financial Officer


                                    By: /s/ Robert S. Graham, Jr.
                                        -------------------------
                                    Name:  Robert S. Graham, Jr.
                                    Title: Senior Vice President, Corporate
                                             Controller and Chief Accounting
                                             Officer


















                                       35
<PAGE>


                                   SIGNATURES
                                   (continued)


            Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following  persons on its behalf by the
registrant and in the capacities and on the dates indicated:

Signature                       Title                           Date


/s/ Marshall S. Cogan           Chairman of the Board           March 17, 2000
-------------------------
     Marshall S. Cogan


/s/ Robert J. Hay               Chairman Emeritus               March 17, 2000
----------------------------    and Director
     Robert J. Hay


/s/ John G. Johnson, Jr.        President, Chief Executive      March 17, 2000
-------------------------        Officer and Director
    John G. Johnson, Jr.


/s/ Etienne Davignon            Director                        March 17, 2000
--------------------------
    Etienne Davignon


/s/ John H. Gutfreund           Director                        March 17, 2000
--------------------------
    John H. Gutfreund


/s/ Stuart J. Hershon           Director                        March 17, 2000
----------------------------
    Stuart J. Hershon


/s/ John V. Tunney              Director                        March 17, 2000
---------------------------
    John V. Tunney




                                       36
<PAGE>

                            FOAMEX INTERNATIONAL INC.
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>


Foamex International Inc.
<S>                                                                                                 <C>
  Index to Consolidated Financial Statements                                                          F-1

  Report of Independent Accountants                                                                   F-2

  Consolidated Balance Sheets as of December 31, 1999 and 1998                                        F-3

  Consolidated Statements of Operations for the years 1999, 1998 and 1997                             F-5

  Consolidated Statements of Cash Flows for the years 1999, 1998 and 1997                             F-6

  Consolidated Statements of Stockholders' Equity (Deficit) for the years 1999,
       1998 and 1997                                                                                  F-7

  Notes to Consolidated Financial Statements                                                          F-8


</TABLE>










                                      F-1
<PAGE>
                        REPORT OF INDEPENDENT ACCOUNTANTS



To the Board of Directors and Stockholders
of Foamex International Inc.:

In our opinion,  the  accompanying  consolidated  balance sheets and the related
consolidated statements of operations,  of stockholders' equity (deficit) and of
cash flows present fairly, in all material  respects,  the financial position of
Foamex  International  Inc. and its subsidiaries (the "Company") at December 31,
1999 and 1998 and the results of their  operations and their cash flows for each
of the three years in the period  ended  December  31, 1999 in  conformity  with
accounting  principles generally accepted in the United States. In addition,  in
our opinion,  the financial  statement schedules as of and for each of the three
years in the period ended  December 31, 1999 when  considered in relation to the
basic consolidated financial statements taken as a whole, present fairly, in all
material  respects,  the  information  required  to be included  therein.  These
financial statements and financial statement schedules 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 of these
statements  in  accordance  with auditing  standards  generally  accepted in the
United  States  which  require  that we plan and  perform  the  audit to  obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the  amounts  and  disclosures  in  the  financial  statements,   assessing  the
accounting  principles  used and significant  estimates made by management,  and
evaluating the overall  financial  statement  presentation.  We believe that our
audits provide a reasonable basis for the opinion expressed above.

The accompanying  financial  statements have been prepared  assuming the Company
will  continue as a going  concern.  As discussed in Note 1 to the  accompanying
financial  statements,  on July 21, 1999,  Trace  International  Holdings,  Inc.
("Trace"), a major stockholder of the Company, filed a petition for relief under
Chapter 11 of the  Bankruptcy  Code.  On January 24,  2000,  an order was signed
converting the Trace case from Chapter 11 to Chapter 7 of the Bankruptcy Code. A
trustee was appointed to oversee the liquidation of Trace's assets.  The outcome
of the Trace bankruptcy could result in the acceleration of substantially all of
the Company's  debt.  This matter raises  substantial  doubt about the Company's
ability to continue  as a going  concern.  Management's  plans in regard to this
matter are described in Note 1 to the  accompanying  financial  statements.  The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

The selected  quarterly  financial data in Note 21 contains  information that we
did not audit,  and  accordingly,  we do not express an opinion on that data. We
attempted  but were  unable to review the  quarterly  data within the year ended
December  31, 1998 in  accordance  with  standards  established  by the American
Institute of Certified Public Accountants  because we believe that the Company's
internal  control for the preparation of interim  financial  information did not
provide an adequate basis to enable us to complete such reviews.





PricewaterhouseCoopers LLP
Philadelphia, Pennsylvania
March 10, 2000



                                      F-2
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                               December 31,         December 31,
ASSETS                                                             1999                 1998
                                                                          (thousands)
<S>                                                             <C>                 <C>
CURRENT ASSETS
    Cash and cash equivalents                                   $   6,577           $  12,572
    Accounts receivable, net of allowance for doubtful
      accounts and discounts of $9,549 and $11,630                166,571             185,158
    Inventories                                                    97,882             136,658
    Deferred income taxes                                              60                  --
    Other current assets                                           23,602              29,446
                                                                ---------           ---------

            Total current assets                                  294,692             363,834
                                                                ---------           ---------

PROPERTY, PLANT AND EQUIPMENT
    Land and land improvements                                      6,947               7,142
    Buildings and leasehold improvements                           98,939              98,670
    Machinery, equipment and furnishings                          264,241             256,061
    Construction in progress                                       14,851              25,000
                                                                ---------           ---------

            Total                                                 384,978             386,873

    Less accumulated depreciation and amortization               (163,145)           (144,700)
                                                                ---------           ---------

       Property, plant and equipment, net                         221,833             242,173

COST IN EXCESS OF ASSETS ACQUIRED, net of
accumulated amortization of $23,252 in 1999 and
$17,131 in 1998                                                   215,258             220,934

DEBT ISSUANCE COSTS, net of
accumulated amortization of $6,791 in 1999 and
$3,038 in 1998                                                     18,966              14,852

DEFERRED INCOME TAXES                                                 285                  --

OTHER ASSETS                                                       30,279              33,172
                                                                ---------           ---------

TOTAL ASSETS                                                    $ 781,313           $ 874,965
                                                                =========           =========
</TABLE>


               The accompanying notes are an integral part of the
                       consolidated financial statements.



                                      F-3
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     December 31,         December 31,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                          1999                   1998
                                                                                        (thousands except share data)
CURRENT LIABILITIES
<S>                                                                                 <C>                   <C>
    Short-term borrowings                                                           $     1,627           $     2,957
    Current portion of long-term debt                                                     7,866               690,248
    Current portion of long-term debt - related party                                    10,530                98,935
    Accounts payable                                                                     86,576               149,268
    Accrued employee compensation and benefits                                           17,878                13,886
    Accrued interest                                                                      9,741                 7,851
    Accrued restructuring and plant consolidation                                         5,266                 2,947
    Accrued customer rebates                                                             22,823                15,993
    Other accrued liabilities                                                            23,519                37,270
    Deferred income taxes                                                                 3,220                 2,074
                                                                                    -----------           -----------

      Total current liabilities                                                         189,046             1,021,429

LONG-TERM DEBT                                                                          646,544                 8,240

LONG-TERM DEBT - RELATED PARTY                                                           78,753                    --

ACCRUED EMPLOYEE BENEFITS                                                                14,901                28,189

DEFERRED INCOME TAXES                                                                       997                   991

ACCRUED RESTRUCTURING AND
    PLANT CONSOLIDATION                                                                   7,533                 9,003

OTHER LIABILITIES                                                                         9,920                11,232
                                                                                    -----------           -----------

    Total liabilities                                                                   947,694             1,079,084
                                                                                    -----------           -----------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT) Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares - none issued                                              --                    --
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,045,480 and 27,005,752 shares, respectively;
      Outstanding 25,056,480 and 25,016,752 shares, respectively                            270                   270
    Additional paid-in capital                                                           87,475                86,990
    Accumulated deficit                                                                (217,945)             (237,661)
    Accumulated other comprehensive income (loss)                                        (7,758)              (24,721)
    Other:
      Common Stock held in treasury, at cost:
        1,989,000 shares                                                                (19,202)              (19,202)
      Shareholder note receivable                                                        (9,221)               (9,795)
                                                                                    -----------           -----------

      Total stockholders' equity (deficit)                                             (166,381)             (204,119)
                                                                                    -----------           -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                                $   781,313           $   874,965
                                                                                    ===========           ===========
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                      F-4
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                        For the Years 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                          1999                 1998                  1997
                                                      -----------          -----------           -----------
                                                              (thousands except per share amounts)
<S>                                                   <C>                  <C>                   <C>
NET SALES                                             $ 1,279,993          $ 1,246,396           $   931,095

COST OF GOODS SOLD                                      1,099,685            1,091,891               787,756
                                                      -----------          -----------           -----------

GROSS PROFIT                                              180,308              154,505               143,339

SELLING, GENERAL AND ADMINISTRATIVE
    EXPENSES                                               76,247               89,171                67,139

RESTRUCTURING AND OTHER CHARGES (CREDITS)                  10,491               (9,698)               21,100
                                                      -----------          -----------           -----------

INCOME FROM OPERATIONS                                     93,570               75,032                55,100

INTEREST AND DEBT ISSUANCE EXPENSE                         72,908               72,295                50,570

OTHER INCOME (EXPENSE), NET                                 1,516              (14,348)                2,126
                                                      -----------          -----------           -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS
    BEFORE PROVISION FOR INCOME TAXES                      22,178              (11,611)                6,656

PROVISION FOR INCOME TAXES                                  2,462               58,242                 2,525
                                                      -----------          -----------           -----------

INCOME (LOSS) FROM CONTINUING OPERATIONS                   19,716              (69,853)                4,131
                                                      -----------          -----------           -----------

LOSS ON DISPOSAL OF DISCONTINUED OPERATIONS,
    NET OF INCOME TAXES                                        --                   --                (1,994)
                                                      -----------          -----------           -----------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS                    19,716              (69,853)                2,137

EXTRAORDINARY LOSS ON EARLY EXTINGUISHMENT
    OF DEBT, NET OF INCOME TAXES                               --               (1,917)              (44,482)
                                                      -----------          -----------           -----------

NET INCOME (LOSS)                                     $    19,716          $   (71,770)          $   (42,345)
                                                      ===========          ===========           ===========

BASIC EARNINGS (LOSS) PER SHARE
   CONTINUING OPERATIONS                              $      0.79          $     (2.79)          $      0.16
                                                      ===========          ===========           ===========
   NET EARNINGS (LOSS)                                $      0.79          $     (2.87)          $     (1.68)
                                                      ===========          ===========           ===========

DILUTED EARNINGS (LOSS) PER SHARE
   CONTINUING OPERATIONS                              $      0.78          $     (2.79)          $      0.16
                                                      ===========          ===========           ===========
   NET EARNINGS (LOSS)                                $      0.78          $     (2.87)          $     (1.65)
                                                      ===========          ===========           ===========

</TABLE>


         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                      F-5
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                        For the Years 1999, 1998 and 1997
<TABLE>
<CAPTION>
                                                                             1999               1998                1997
                                                                          ---------           ---------           ---------
OPERATING ACTIVITIES                                                                          (thousands)
<S>                                                                       <C>                 <C>                 <C>
   Net income (loss)                                                      $  19,716           $ (71,770)          $ (42,345)
   Adjustments to reconcile net income (loss) to net
     cash provided by operating activities:
     Depreciation and amortization                                           35,750              35,385              22,047
     Amortization of debt issuance costs, debt premium, deferred
        swap adjustment and gain, and debt discount                           1,315                (100)              7,783
     Asset writedowns and other charges (credits)                               314              (7,972)             12,041
     Provision for uncollectible accounts                                     2,758               2,611               2,295
     Deferred income taxes                                                      807              54,178              (1,179)
     Net loss on disposal of discontinued operations                             --                  --               1,994
     Other, net                                                              (3,407)             (4,056)             (5,195)
   Changes in operating assets and liabilities,
     net of acquisitions and discontinued operations:
     Accounts receivable                                                     15,829             (12,085)             (4,037)
     Inventories                                                             38,776             (20,809)             12,882
     Accounts payable                                                       (62,692)             17,579              12,733
     Accrued restructuring and plant consolidation charges                      849             (14,946)              5,701
     Other assets and liabilities                                             8,704               8,059             (24,342)
                                                                          ---------           ---------           ---------

        Net cash provided by (used for) operating activities                 58,719             (13,926)                378
                                                                          ---------           ---------           ---------

INVESTING ACTIVITIES
   Capital expenditures                                                     (20,080)            (33,701)            (33,537)
   Proceeds from sale of assets                                              17,823               2,230              40,169
   Acquisitions, net of cash acquired                                            --                  --            (119,065)
   Settlement of discontinued operations                                         --                  --             (13,556)
   Purchase of note from related party                                           --                  --              (5,000)
   Decrease in restricted cash                                                   --                  --              12,143
   Other investing activities                                                   599              (1,290)             (1,888)
                                                                          ---------           ---------           ---------

        Net cash used for investing activities                               (1,658)            (32,761)           (120,734)
                                                                          ---------           ---------           ---------

FINANCING ACTIVITIES
   Net proceeds from (repayments of) short-term borrowings                   (1,330)             (3,641)              2,894
   Net proceeds from (repayments of) revolving loans                        (25,753)             84,511              54,928
   Proceeds from long-term debt                                                  --             138,810             594,499
   Repayments of long-term debt                                             (17,281)           (143,047)           (517,549)
   Repayments of long-term debt-related party                                (9,652)             (5,265)                 --
   Increase (decrease) in cash overdrafts                                    (1,444)              7,300                  --
   Debt issuance costs                                                       (7,866)             (2,029)            (18,410)
   GFI transaction costs                                                         --              (5,229)                 --
   GFI transaction payments of accounts payable                                  --              (4,800)                 --
   GFI transaction purchase of assets                                            --             (20,000)                 --
   Purchase of treasury stock                                                    --                  --              (5,739)
   Payment of dividends                                                          --              (1,245)                 --
   Other financing activities                                                   270               1,850                (426)
                                                                          ---------           ---------           ---------

        Net cash provided by (used for) financing activities                (63,056)             47,215             110,197
                                                                          ---------           ---------           ---------

Net increase (decrease) in cash and cash equivalents                         (5,995)                528             (10,159)

Cash and cash equivalents at beginning of period                             12,572              12,044              22,203
                                                                          ---------           ---------           ---------

Cash and cash equivalents at end of period                                $   6,577           $  12,572           $  12,044
                                                                          =========           =========           =========
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.


                                      F-6
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
                        For the Years 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                                  Accumulated
                                                        Additional                  Other
                                          Common Stock   Paid-in  (Accumulated  Comprehensive
                                         Shares  Amount  Capital     Deficit)    Income (Loss)   Other       Total
                                                                            (thousands)
<S>                                     <C>     <C>     <C>        <C>            <C>         <C>        <C>
Balances at December 29, 1996            26,753  $267    $84,579    $(120,174)     $(4,939)    $(17,836)  $(58,103)

Net loss                                                              (42,345)                             (42,345)
Minimum pension liability adjustment                                                  (786)                   (786)
Foreign currency translation adjustment                                               (873)                   (873)
                                                                                                        ----------
  Comprehensive income (loss)                                                                              (44,004)
Issuance of common stock                     10     -        161                                               161
Stock option compensation                                    282                                               282
Stock options exercised                     145     2      1,003                                             1,005
Purchase of treasury stock                                                                       (5,739)    (5,739)
Increase in note receivable from
    principal stockholder                                                                        (5,422)    (5,422)
Distribution to principal stockholder                                  (1,599)                              (1,599)
                                         ------  ----    -------    ---------    ---------     --------  ---------
Balances at December 28, 1997            26,908   269     86,025     (164,118)      (6,598)     (28,997)  (113,419)

Net loss                                                              (71,770)                             (71,770)
Minimum pension liability adjustment                                               (11,525)                (11,525)
Foreign currency translation adjustment                                             (6,598)                 (6,598)
                                                                                                         ---------
  Comprehensive income (loss)                                                                              (89,893)
Issuance of common stock                     15              163                                               163
Stock option compensation                                    208                                               208
Stock options exercised                      83     1        594                                               595
Cash dividend                                                          (1,245)                              (1,245)
Other                                                                    (528)                                (528)
                                         ------  ----    -------    ---------    ---------     --------  ---------
Balances at December 31, 1998            27,006   270     86,990     (237,661)     (24,721)     (28,997)  (204,119)

Net income                                                             19,716                               19,716
Minimum pension liability adjustment                                                12,009                  12,009
Foreign currency translation adjustment                                              4,954                   4,954
                                                                                                        ----------
  Comprehensive income (loss)                                                                               36,679
Stock option compensation                                    215                                               215
Stock options exercised                      39     -        270                                               270
Other                                                                                               574        574
                                         ------  ----    -------    ---------    ---------     --------  ---------

Balances at December 31, 1999            27,045  $270    $87,475    $(217,945)   $  (7,758)    $(28,423) $(166,381)
                                         ======  ====    =======    =========    =========     ========  =========
</TABLE>

         The accompanying notes are an integral part of the consolidated
                             financial statements.

                                      F-7
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.     ORGANIZATION AND BASIS OF PRESENTATION

       Organization

       Foamex  International  Inc.  (the  "Company")  operates  in the  flexible
polyurethane  and advanced  polymer foam products  industry.  As of December 31,
1999, the Company's  operations are primarily conducted through its wholly owned
subsidiaries,  Foamex L.P. and Foamex Carpet Cushion,  Inc.  ("Foamex  Carpet").
Financial  information  concerning  the  business  segments  of the  Company  is
included in Note 16.

       Change in Control

       Trace International Holdings, Inc. ("Trace") is a privately held company,
which owned  approximately 29% of the Company's  outstanding voting common stock
at March 10,  2000,  and whose  former  Chairman  also  serves as the  Company's
Chairman.  The  Company's  common stock owned by Trace is pledged as  collateral
against certain of Trace's obligations. Certain credit agreements and promissory
notes of the  Company's  subsidiaries,  pursuant to which  approximately  $467.1
million of debt was outstanding as of December 31, 1999,  provide that a "change
of control" would be an event of default and could result in the acceleration of
such  indebtedness.  "Change of control"  means,  for this  purpose,  that (i) a
person or related group,  other than Trace,  beneficially  owns more than 25% of
the Company's  outstanding voting stock and (ii) such voting stock constitutes a
greater  percentage of such voting stock than the amount  beneficially  owned by
Trace.  Additionally,  certain  indentures  of Foamex  L.P.  and Foamex  Capital
Corporation  ("FCC")  relating to senior  subordinated  notes of $248.0  million
contain  similar  "change of control"  provisions,  which require the issuers to
tender  for  such  notes  at a price  in  cash  equal  to 101% of the  aggregate
principal amount thereof,  plus accrued and unpaid interest thereon, if there is
such a "change of control".

       On July 21,  1999,  the  Company  was  informed  by Trace that it filed a
petition for relief under Chapter 11 of the Bankruptcy  Code in Federal Court in
New York City. Subsequently, on January 24, 2000, an order was signed converting
the Trace  bankruptcy  from  Chapter 11 to Chapter 7 of the  Bankruptcy  Code. A
trustee was  appointed to oversee the  liquidation  of Trace's  assets.  Neither
Trace's  bankruptcy filing nor the conversion to Chapter 7 constituted a "change
of control"  under the  provisions of the debt  agreements  described  above.  A
"change of control"  could take place however,  if the  bankruptcy  court allows
Trace's  creditors to foreclose on and take  ownership of the  Company's  common
stock  owned by Trace,  or  otherwise  authorizes  a sale or  transfer  of these
shares,  under  circumstances  in which a person or  related  group,  other than
Trace,  acquired  more than 25% of the  Company's  outstanding  voting stock and
owned a greater  percentage  of such voting  stock than the amount  beneficially
owned by Trace. On November 22, 1999, the bankruptcy court allowed two creditors
to take ownership of 11% and 6%,  respectively,  of the Company's  common stock.
Such an event did not  constitute a "change of control"  under the provisions of
the debt agreements.

       Management  believes  that it is unlikely that a "change of control" will
occur as a result of Trace's bankruptcy proceedings.  However, the Company would
seek to  resolve  the issues  that may arise  should  the  "change  of  control"
provisions  be  triggered,  by  requesting  waivers  of such  provisions  and/or
refinancing  certain  debt,  if  necessary.  There can be no assurance  that the
Company or its  subsidiaries  will be able to do so, or that the Company will be
able to obtain waivers of such provisions.  Such circumstances raise substantial
doubt  about  the  Company's  ability  to  continue  as  a  going  concern.  The
accompanying  financial statements were prepared on a going-concern basis and do
not  include  any  adjustments  that might  result from the outcome of the Trace
bankruptcy filing.

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

       The consolidated financial statements include the accounts of the Company
and  all  majority-owned  subsidiaries  where  control  exists.  Investments  in
affiliates  with 20% or greater  ownership  are  accounted  for using the equity
method.  All  significant  intercompany  accounts  and  transactions  have  been
eliminated in consolidation.

                                      F-8
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Reporting Period

       Effective  September 1998, the annual reporting period was changed from a
52 or 53  week  fiscal  year  ending  on the  Sunday  closest  to the end of the
calendar  year to a  calendar  year  ending on  December  31.  This  change  was
effective  for the third fiscal  quarter of 1998,  which ended on September  30,
1998. Fiscal year 1997 was a 52 week period that ended on December 28, 1997.

Accounting Estimates

       The  preparation  of financial  statements in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect the reported amounts and contingency disclosures. Actual
results could differ from those estimates.

Revenue Recognition, Discounts and Rebates

       Revenue from sales,  net of discounts and estimated  returns,  allowances
and rebates,  is recognized when products are shipped at which time title passes
to the customer.

Cash Equivalents

       Highly liquid  investments  with an original  maturity of three months or
less when  purchased are recognized as cash  equivalents.  On December 31, 1998,
cash and  cash  equivalents  included  $9.3  million  of  repurchase  agreements
collateralized  by U.S.  Government  securities.  There were no  investments  in
repurchase agreements at December 31, 1999.

Inventories

       Inventories are stated at the lower of cost or market. Cost is determined
on a first-in, first-out basis.

Property, Plant and Equipment

       Property,  plant and  equipment  are  stated at cost and are  depreciated
using the  straight-line  method over the estimated  useful lives of the assets.
The range of useful lives  estimated  for buildings is generally 20 to 35 years,
and the  range  for  machinery,  equipment  and  furnishings  is 5 to 12  years.
Leasehold  improvements  are  amortized  over the  shorter  of the  terms of the
respective  leases or the estimated useful lives of the leasehold  improvements.
Depreciation  expense for 1999,  1998 and 1997 was $27.9 million,  $27.3 million
and $18.8 million, respectively.

       Maintenance and repairs are charged to expense as incurred.  Renewals and
major  improvements  are  capitalized.  When  assets are  retired  or  otherwise
disposed of, the asset and related accumulated depreciation are removed from the
accounts and any gain or loss is recognized in operations.

Debt Issuance Costs

       Debt issuance  costs consist of amounts  incurred in obtaining  long-term
financing  and  are  disclosed  in  the  financing  activities  section  of  the
consolidated  statements of cash flows. These costs are being amortized over the
term of the related debt using the effective interest method.

Cost in Excess of Net Assets Acquired

       The  excess of the  acquisition  cost over the fair  value of net  assets
acquired in business combinations  accounted for as purchases is amortized using
the straight-line  method over 40 years. At each balance sheet date, the Company
evaluates  the  recoverability  of cost in excess of net assets  acquired  using
certain financial indicators such

                                      F-9
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

as  historical  and  future  ability  to  generate  income  and cash  flows from
operations  based on a going concern basis.  If an impairment loss has occurred,
based on expected future  (undiscounted)  cash flows,  the loss is recognized in
the income statement. During 1998, a $2.3 million impairment charge was recorded
associated with the cost in excess of net assets acquired related with a foreign
facility.

Environmental Remediation

       Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing condition
caused by past  operations,  and which do not  contribute  to  current or future
revenue  generation,  are expensed.  Liabilities are recorded when environmental
assessments and/or remedial efforts are probable and the costs can be reasonably
estimated.

Comprehensive Income

       Other comprehensive  income or loss items are revenues,  expenses,  gains
and losses that under generally accepted accounting principles are excluded from
net income and reflected as a component of equity, such as currency  translation
and minimum pension liability adjustments.

Foreign Currency Translation

       The  financial  statements of foreign  subsidiaries,  except in countries
that are  considered  as  highly  inflationary  as  discussed  below,  have been
translated into U.S. dollars by using the year-end exchange rates for the assets
and liabilities and the average exchange rates for the statements of operations.
Currency  translation  adjustments  are included in other  stockholders'  equity
(deficit).  In 1998 and  1997,  Mexico  was  considered  a  highly  inflationary
economy.  Accordingly,  certain  financial  statement  amounts  for the  Mexican
operations  were  translated at either current or historical  exchange rates, as
appropriate.  These  translation  adjustments  were  reflected in the results of
operations.  Transaction  gains  (losses) are  reflected in  operations  and are
insignificant.  The effect of foreign  currency  exchange rates on cash flows is
insignificant.

Start-Up Costs

       Costs  incurred in the  start-up of a facility,  including  training  and
production testing, are expensed as incurred.

Interest Rate Swap Agreement

       The  differential  to be paid or  received  under an  interest  rate swap
agreement is recognized  as an adjustment to interest and debt issuance  expense
in the current period as interest rates change.

Income Taxes

       Income  taxes are  accounted  for under the asset and  liability  method.
Under this method,  deferred income taxes are provided for temporary differences
between the financial  reporting and income tax basis of assets and  liabilities
using the income tax rates, under existing legislation, expected to be in effect
at the date such temporary differences are expected to reverse.  Deferred income
tax assets are  reduced by a  valuation  allowance  when it is  considered  more
likely  than not that a portion of the  deferred  income tax assets  will not be
realized  in a future  period.  The  estimates  utilized in the  recognition  of
deferred income tax assets are subject to revision in future periods.

Reclassifications

       Certain amounts have been reclassified to conform with the current year's
presentation.

                                      F-10
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Future Accounting Changes

       Statement of  Financial  Accounting  Standards  No. 133,  Accounting  for
Derivative  Instruments and Hedging Activities ("SFAS No. 133") will require the
fair value of  derivatives  be recognized in the  consolidated  balance  sheets.
Changes in the fair value of  derivatives  will be  recognized in earnings or in
other comprehensive  income,  essentially depending on the structure and purpose
of the derivatives. The statement will be effective (as amended by SFAS No. 137)
for all quarters of all fiscal years  beginning after June 15, 2000. The Company
has not  determined  the impact,  if any, that the adoption of SFAS No. 133 will
have on results of operations or financial position.

3.     ACQUISITIONS, ASSET SALES AND DISCONTINUED OPERATIONS

Acquisitions

       On  December  23,  1997,  the Company  acquired  Crain  Industries,  Inc.
("Crain")  pursuant to a merger  agreement with Crain Holdings Corp. (the "Crain
Acquisition")  for a purchase price of approximately  $213.7 million.  The Crain
Acquisition  was primarily  funded with  borrowings  under a Foamex L.P.  credit
facility and the  assumption  of debt with a face value of  approximately  $98.6
million  and an  estimated  fair  value  of  approximately  $112.3  million.  In
addition,   fees  and  expenses  associated  with  the  Crain  Acquisition  were
approximately $13.2 million.

       The Crain  Acquisition was accounted for as a purchase and the results of
Crain were included from the acquisition  date, except the results from December
24, 1997 to December 28, 1997 were not included in the  consolidated  statements
of  operations  or cash flows for 1997 since the effect would be  insignificant.
The cost of the Crain  Acquisition  has been  allocated on the basis of the fair
value of the assets  acquired and the  liabilities  assumed.  During  1998,  the
Company increased the cost in excess of the net assets acquired by approximately
$11.2 million as a result of the  finalization  of the fixed asset appraisal and
updated estimates of closing certain former Crain facilities.  The excess of the
purchase  price over the  estimated  fair value of the net  assets  acquired  of
$164.2 million is being amortized using the straight-line method over 40 years.

       In  connection  with  the  Crain  Acquisition,  the  Company  approved  a
consolidation plan to integrate the acquired Crain facilities into the Company's
existing  facilities.   The  Company  recorded,   after  changes  in  estimates,
approximately  $2.7 million of severance and related costs and $13.7 million for
costs  associated  with the shut  down of  certain  acquired  facilities.  These
liabilities were established in purchase accounting (see Note 4).

Asset Sales

       On March 31,  1999,  the Company  sold its  corporate  airplane for $16.3
million and recorded a gain of approximately $4.2 million. The gain was recorded
in other income  (expense) in the  consolidated  statements of operations.  Debt
associated  with the  airplane of $8.9  million was repaid with a portion of the
proceeds.

       The  sale  of  the  airplane  resulted  in  an  obligation  to  Trace  of
approximately  $0.6  million.  Under  the  terms  of  the  aircraft  acquisition
agreement  with Trace,  the Company was  obligated  to share the net proceeds in
excess of a specified amount defined in the agreement. The obligation was offset
against Trace's two promissory  notes payable to Foamex L.P.,  discussed in Note
18, at Trace's request.

       On October 6, 1997, the Company sold  substantially all of the net assets
of its needlepunch  carpeting,  tufted  carpeting and artificial  grass products
business  located at its facilities in Dalton,  Georgia to Bretlin,  Inc. for an
aggregate sale price of  approximately  $41.0 million.  The Company  realized an
insignificant  gain on the sale in 1997.  The Company used $38.8  million of the
net sale  proceeds to repay term loan  borrowings  under a credit  facility.  In
connection  with  this  repayment,  an  extraordinary  loss  was  recognized  as
discussed in Note 9.


                                      F-9
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3.     ACQUISITIONS, ASSET SALES AND DISCONTINUED OPERATIONS (continued)

Discontinued Operations

       In 1997, a loss of $2.0 million was recorded  (net of income  taxes) that
related  to  the  post-closing   settlement  regarding  discontinued  operations
recognized in 1996.

4.     RESTRUCTURING AND OTHER CHARGES (CREDITS)

1997

       During  1997,  net  restructuring  and other  charges  (credits) of $21.1
million were recorded.  In connection  with the Crain  Acquisition  discussed in
Note 3, a restructuring plan (the "1997 restructuring plan") to consolidate nine
foam production,  fabrication or branch locations was approved in December 1997.
The consolidation of foam production,  fabrication or branch locations  resulted
in a  restructuring  provision  that  totaled  $23.0  million.  Included  in the
provision was $12.1 million for fixed assets write downs (net of estimated  sale
proceeds),  $9.8 million for plant closure and operating  lease  obligations and
$1.1 million for personnel  reductions.  A $1.9 million favorable  adjustment to
prior year restructuring plans was also recorded in 1997.

1998

       Based on business  developments  during 1998, the Company  decided not to
close two facilities originally identified for closure in the 1997 restructuring
plan. One facility remained open to fill lost capacity  resulting from a fire in
April 1998 at the Orlando,  Florida facility,  which returned to full operations
during 1999. The other facility remained open during 1998 due to improved demand
on the West Coast. The 1997  restructuring plan also included the closure of two
facilities  associated with the Company's packaging  business.  During 1998, the
Company  modified the plan,  and decided to sell the packaging  business and did
not expect to incur the asset write-down and lease costs as originally  planned.
As a result,  the  Company  recorded a $15.1  million  restructuring  adjustment
associated with the 1997 restructuring plan. The components of the $15.1 million
restructuring  adjustment  included:  $10.2 million for fixed asset write-downs,
$3.8 million for plant closure and operating lease  obligations and $1.1 million
for personnel reductions.

       In  addition,  the  Company  recorded  restructuring  and  other  charges
(credits) of $5.4 million during 1998 to reserve for approximately  $3.1 million
of net receivables due from Trace and to write-down  approximately  $2.3 million
of  impaired  cost in excess of net assets  acquired  associated  with a foreign
facility.  Also during 1998, the Company incurred additional plant closure costs
of $5.2 million and personnel  reduction  costs of $1.2 million  associated with
the closure of the former Crain facilities. The additional costs associated with
the closure of the former  Crain  facilities  resulted in an increase in cost in
excess of net assets acquired.

1999

       During 1999,  the Company  approved and  implemented  four  restructuring
plans to  reduce  selling,  general  and  administrative  costs  and to  further
rationalize plant operations.

       The Company recorded  restructuring charges of approximately $2.4 million
relating to severance  costs in connection  with the first  restructuring  plan.
This plan reduced the Company's salaried work force by 82 employees.

       The Company recorded  restructuring charges of approximately $2.9 million
relating to severance costs in connection with the second restructuring plan for
replacing three of the Company's former  executives,  including its former Chief
Executive Officer.


                                      F-12

<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4.     RESTRUCTURING AND OTHER CHARGES (CREDITS) (continued)

       In connection  with the third  restructuring  plan, the Company  recorded
restructuring  charges of approximately  $1.7 million relating to the closure of
one facility and certain product line rationalizations.  The $1.7 million charge
was  comprised of  approximately  $0.1 million of severance  costs in connection
with the work force  reductions of 117 employees,  $0.1 million of plant closure
and carrying costs and $1.5 million of asset write-downs.

       In connection with the fourth  restructuring plan, the Company closed its
New York office (see Note 18). The Company recorded  approximately  $2.5 million
of restructuring  charges comprised of $1.6 million of severance costs for eight
employees  and  $0.9  million  of  costs  primarily  relating  to  future  lease
obligations, net of sublease proceeds.

       In addition,  the Company recorded restructuring charges of approximately
$0.7 million  relating to changes in estimates to prior years' plans,  primarily
for the sale of the  packaging  business  in 1999.  The $0.7  million  charge is
comprised of $0.2 million of severance, $1.3 million of lease and closure costs,
offset by $0.8 million of adjustments  for asset  write-downs.  The Company also
recorded $0.3 million of other  charges  relating to rent due from Trace for the
New York office prior to its closure.

       The  following   table  sets  forth  the   components  of  the  Company's
restructuring and other charges (credits):
<TABLE>
<CAPTION>
                                                       Asset        Plant Closure       Personnel
                                           Total   Writedowns         and Leases       Reductions        Other
                                        ---------------------       -------------      ----------     --------
                                                                       (millions)
<S>                                     <C>           <C>              <C>               <C>            <C>
       Balances at December 29, 1996     $  8.5        $(1.8)           $  8.9            $ 1.4          $   -
       Cash spending                       (2.3)          -               (1.4)            (0.9)             -
       1997 restructuring charge           23.0         12.1               9.8              1.1              -
       Restructuring adjustments           (1.9)         0.1              (2.3)             0.3              -
       Asset write-off/writedowns         (16.1)       (16.1)               -                 -              -
       Plant consolidation costs           10.0           -                8.5              1.5              -
                                           ----        -----             -----             ----          -----
       Balance at December 28, 1997        21.2         (5.7)             23.5              3.4              -

       Cash spending                      (15.7)          -              (12.2)            (3.5)             -
       Cash proceeds                        2.1          2.1                -                -               -
       1998 restructuring charge            5.4          5.4                -                -               -
       Restructuring adjustments          (15.1)       (10.2)             (3.8)            (1.1)             -
       Asset write-off/writedowns          (6.3)        (5.5)             (0.8)              -               -
       Reclassified fixed asset basis
         for restructuring credit           8.2          8.2                -                -               -
       Plant consolidation costs            6.4            -               5.2              1.2              -
                                           ----        -----             -----             ----          -----
       Balance at December 31, 1998         6.2         (5.7)             11.9                -              -

       Cash spending                       (8.9)          -               (4.1)            (4.5)          (0.3)
       Cash proceeds                        1.5          1.5                -                -               -
       1999 restructuring charge            9.8          1.5               1.0              7.0            0.3
       Restructuring adjustments            0.7         (0.8)              1.3              0.2              -
       Asset write-off/writedowns          (0.3)        (0.3)               -                 -              -
                                           ----        -----             -----             ----          -----
       Balance at December 31, 1999        $9.0        $(3.8)            $10.1             $2.7          $   -
                                           ====        =====             =====             ====          =====
</TABLE>

       As  indicated  in the table above,  the accrued  restructuring  and plant
consolidation balance at December 31, 1999 will be used for payments relating to
severance, plant closure and leases including runout costs at the facilities. As
of December 31, 1999, all employees  subject to the plans have been  terminated.
The $3.8  million of asset  writedowns  relates  to  estimated  proceeds  and is
included in noncurrent assets.  The Company expects to spend  approximately $5.3
million  during 2000 with the  remaining  $7.5 million to be spent through 2006,
principally for lease runout costs.

                                      F-13

<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     RETIREE BENEFIT PLANS

Pensions

       The Company  provides  pension and  survivor  benefits  for  salaried and
certain hourly employees in the United States.  Salaried  employees are provided
benefits  that are based  principally  on the  combination  of years of credited
service and compensation.  Hourly employees are provided benefits that are based
principally on stated amounts for each year of credited service.

       Effective  at the end of 1999,  the two  defined  benefit  plans  for the
salaried and hourly employees were merged into a single plan.  Benefits provided
to salary and hourly employees did not change as a result of the plan merger.

       The components of pension expense are listed below.

                                             1999        1998          1997
                                            ------      ------       -------
                                                      (thousands)
       Service cost                         $3,469      $2,833        $2,229
       Interest cost                         4,887       4,517         4,273
       Expected return on plan assets       (5,484)     (5,758)       (5,357)
       Amortization
         Transition asset                      (75)        (75)          (75)
         Prior service cost                   (240)       (245)         (245)
         (Gains) losses and other              819         104            72
                                            ------      ------       -------
           Total                            $3,376      $1,376       $   897
                                            ======      ======       =======

       The following table sets forth the changes in obligations and assets, and
outlines the  development  of the funded  status and amounts  recognized  in the
accompanying consolidated balance sheets.
<TABLE>
<CAPTION>
                                                                                December 31,     December 31,
                                                                                    1999            1998
                                                                                         (thousands)
       Change in Benefit Obligation
<S>                                                                                <C>               <C>
         Benefit obligations at beginning of year                                  $74,589           $65,948
         Service cost                                                                3,469             2,833
         Interest cost                                                               4,887             4,517
         Amendments                                                                     85                 -
         Benefits paid                                                              (3,809)           (4,043)
         Actuarial loss (gain)                                                      (7,249)            5,334
                                                                                ----------         ---------
           Projected benefit obligation at end of year                             $71,972           $74,589
                                                                                 =========         =========

       Change in Plan Assets
         Fair value of plan assets at beginning of year                            $55,546           $58,952
         Actual return on plan assets                                                9,011               439
         Company contributions                                                       1,440               200
         Benefits paid                                                              (3,809)           (4,043)
         Other                                                                        (690)               (2)
                                                                                ----------         ---------
           Fair value of plan assets at end of year                                $61,498           $55,546
                                                                                 =========         =========

       Funded Status
         Plan assets in excess of (less than) benefit obligation                  $(10,474)         $(19,043)
         Unamortized transition (asset) obligation                                    (665)             (740)
         Unamortized prior service cost                                             (2,072)           (2,397)
         Unamortized net (gains) losses                                              7,807            18,712
                                                                                ----------         ---------
           Net prepaid assets (accrued liabilities)                              $  (5,404)        $  (3,468)
                                                                                 =========         =========
</TABLE>

                                      F-14
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     RETIREE BENEFIT PLANS (continued)
<TABLE>
<CAPTION>
                                                                                December 31,     December 31,
                                                                                   1999              1998
                                                                                         (thousands)
       Amounts Recognized in the Consolidated Balance Sheets
<S>                                                                              <C>               <C>
         Prepaid benefit costs                                                   $       -         $   1,200
         Accrued benefit liability                                                  (8,613)          (20,150)
         Intangible assets                                                             296               239
         Accumulated other comprehensive income                                      2,913            15,243
                                                                                ----------         ---------
           Net amount recognized                                                 $  (5,404)        $  (3,468)
                                                                                 =========         =========
</TABLE>

       Significant  assumptions  used in the  calculation of pension expense and
obligations are listed below.

<TABLE>
<CAPTION>
                                                                          1999           1998           1997
                                                                       ----------     ----------     -------
<S>                                                                     <C>            <C>             <C>
       Expected long-term rate of return on plan assets                 10.0%          10.0%           10.0%
       Discount rate on projected benefit obligations                    7.5%           6.5%            7.0%
       Rate of compensation increase                                     4.0%           4.0%            4.0%
</TABLE>

       The Company's  funding  policy is to  contribute  annually an amount that
both  satisfies  the minimum  funding  requirements  of the Employee  Retirement
Income Security Act of 1974 and does not exceed the full funding  limitations of
the Internal Revenue Code of 1986, as amended (the "Code").

       In addition,  the Company also provides for  retirement  benefits for its
Canadian  employees.  Net periodic pension expense for these plans  approximated
$0.2  million,   $0.2  million  and  $0.3  million  for  1999,  1998  and  1997,
respectively.  Plan assets for these approximated $3.6 million and $2.8 million;
and plan liabilities  approximated $3.4 million and $2.8 million at December 31,
1999 and 1998, respectively.

       At  December  31, 1999 and 1998,  included  in plan  assets were  420,000
shares of the Company's  stock. In 1994,  250,000 shares were purchased for $2.5
million,  and in 1995, 170,000 shares were purchased for $1.6 million. The value
of the plan's investment in the Company's stock was  approximately  $3.5 million
and $5.2 million at December 31, 1999 and 1998, respectively. Plan assets at the
end of 1998  included  shares of Trace Global  Opportunities  Fund,  which was a
related party to Trace.  The shares were  purchased  during 1995 and 1997, at an
aggregate  cost of $5.0  million.  The value of the plan's  investment  in Trace
Global  Opportunities Fund, was approximately $4.3 million at December 31, 1998.
In 1999, Trace divested its interest in the Trace Global Opportunities Fund. The
fund  changed  its name to the GLS  Global  Opportunities  Fund,  which is not a
related party to the Company.  During 1998,  250,000 shares of United Auto Group
("UAG"),  which is a related party to Trace,  were  purchased for  approximately
$4.8  million.  The value of the UAG shares was $2.2 million and $2.3 million at
December 31, 1999 and 1998, respectively.

Retiree Medical and Life Insurance Benefits

       The Company  provides  postretirement  health care and life insurance for
eligible  employees,  limited  primarily  to one  manufacturing  facility in the
United States.  These plans are unfunded and benefits are paid as the claims are
submitted.  The Company retains the right,  subject to existing  agreements,  to
modify or eliminate these benefits.






                                      F-15

<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     RETIREE BENEFIT PLANS (continued)

       The components of retiree medical and life insurance benefits expense are
listed below.

                                         1999          1998            1997
                                         ----          ----            ----
                                                    (thousands)
       Service cost                       $20           $10           $   9
       Interest cost                       62            46              71
       Amortization
         Prior service costs               (6)          (35)            (35)
         (Gains) losses and other         (21)          (29)            (21)
       Special termination benefits         -             -              74
                                         ----          ----            ----
       Total                             $ 55          $ (8)           $ 98
                                         ====          ====            ====

       The  following  table  outlines  the changes in  obligations  and benefit
payments,  and  outlines  the  development  of the  funded  status  and  amounts
recognized in the accompanying consolidated balance sheets.
<TABLE>
<CAPTION>
                                                                 December 31,       December 31,
                                                                     1999              1998
                                                                          (thousands)
Change in Benefit Obligation
<S>                                                                <C>               <C>
  Benefit obligations at beginning of year                         $   651           $   927
  Service cost                                                          20                10
  Interest cost                                                         62                46
  Employee contributions                                                28                27
  Benefits paid                                                       (164)             (312)
  Amendments                                                           363                --
  Actuarial losses (gains)                                             (92)              (47)
                                                                   -------           -------
    Projected benefit obligation at end of year                    $   868           $   651
                                                                   =======           =======

Change in Plan Assets
  Fair value of plan assets at beginning of year                   $    --           $    --
  Company contributions                                                136               285
  Employee contributions                                                28                27
  Benefits paid                                                       (164)             (312)
                                                                   -------           -------
    Fair value of plan assets at end of year                       $    --           $    --
                                                                   =======           =======

Funded Status of the Plan
  Plan assets in excess of (less than) benefit obligation          $  (868)          $  (651)
  Unamortized prior service cost                                       (73)             (442)
  Unamortized net (gains) losses                                      (644)             (573)
                                                                   -------           -------
    Net prepaid assets (accrued liabilities)                       $(1,585)          $(1,666)
                                                                   =======           =======
</TABLE>

       Significant  assumptions  used in the  calculation  of  retiree  and life
insurance benefit expense and obligations are listed below.
<TABLE>
<CAPTION>
                                                                              1999         1998         1997
                                                                           ----------   ----------   -------
<S>                                                                          <C>           <C>          <C>
       Discount rates on projected benefit obligations                       7.5%          6.5%         7.0%
       Health care cost increase                                             7.5%          6.0%         8.0%
</TABLE>


                                      F-16
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

5.     RETIREE BENEFIT PLANS (continued)

       The health care cost increase  assumption  was revised  during 1999.  The
rate will  gradually be reduced to 5.0% by 2005.  Increasing or  decreasing  the
weighted  average  assumed health care cost trend rates by one percentage  point
would not have a significant  impact on the accumulated  postretirement  benefit
obligation or on service and interest costs.

6.     COMPENSATION PLANS

Stock Options

       The 1993 stock option plan provides for the issuance of nonqualified  and
incentive stock options for up to 3.0 million shares of common stock to officers
and executive  employees of the Company,  its subsidiaries  and affiliates.  The
price and terms of each such option is at the discretion of the Company,  except
that the term cannot exceed ten years. During 1999, 750,450 options were granted
with a three-year vesting period. All other options outstanding at year-end 1999
were granted with a five-year vesting period and a ten-year term.

       A summary of stock option activity is presented below.
<TABLE>
<CAPTION>
                                           1999                         1998                        1997
                                                Weighted                      Weighted                    Weighted
                                                Average                       Average                     Average
                                                Exercise                      Exercise                    Exercise
                                    Shares       Price           Shares       Price        Shares         Price
<S>                                <C>          <C>             <C>           <C>          <C>            <C>
Outstanding at beginning of year   1,388,916    $ 7.02          1,439,049     $ 7.08       967,476        $ 6.97
Granted                            1,067,950      6.11            132,750      13.22       625,833         11.52
Exercised                            (39,728)     6.88            (82,440)      7.03      (145,195)         6.88
Forfeited                           (117,489)     9.08           (100,443)      9.84        (9,065)         6.88
                                  ----------    ------         ----------    -------   -----------       -------
Outstanding at end of year         2,299,649    $ 7.94          1,388,916     $ 9.41     1,439,049        $ 7.08
                                   =========    ======          =========     ======     =========        ======

Exercisable at end of year           803,303    $ 8.36            549,124     $ 7.02       467,460        $ 7.04
                                  ==========    ======         ==========     ======     =========        ======
</TABLE>

       Listed  below  is  a  summary  of  the  stock  options   outstanding  and
exercisable at year-end 1999.
<TABLE>
<CAPTION>

       Outstanding
                                                           Weighted                  Weighted
              Exercise                                     Average                   Average
              Price                                        Exercise                  Remaining
              Range               Options                  Price                     Life
<S>      <C>                     <C>                        <C>                         <C>
         $ 5.44 -  6.88          1,621,816                  $ 6.37                      8.31
           9.00 - 11.75            486,833                   10.95                      8.00
          13.25 - 14.00            191,000                   13.64                      7.73

       Exercisable
                                                           Weighted                  Weighted
              Exercise                                     Average                   Average
              Price                                        Exercise                  Remaining
              Range               Options                  Price                     Life

         $ 6.88                    552,170                  $ 6.88                      6.50
           9.50 - 11.75            192,933                   10.99                      7.95
          13.25 - 14.00             58,200                   13.77                      7.63
</TABLE>


                                      F-17

<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

6.     COMPENSATION PLANS (continued)

       Options  granted  were issued  with an  exercise  price equal to the fair
market value at the date of the grant.  During 1996, the Company granted 202,240
options with a weighted  average market price on the date of grant of $6.52. The
1996 aggregate  difference of $1.1 million  between the fair market value of the
options  at the date of grant and the option  price is being  charged to expense
over the  five-year  vesting  period.  Total  compensation  expense  relating to
options amounted to approximately $0.2 million in 1999 and 1998 and $0.3 million
in 1997.

       The Company applies the provisions of Accounting Principles Board Opinion
No. 25 ("Accounting for Stock Issued to Employees") and related  interpretations
("APB 25") in accounting for its stock-based  compensation  plans.  Accordingly,
compensation   expense  has  been  recognized  in  the  consolidated   financial
statements  with  respect  to the above  plans in  accordance  with APB 25.  Had
compensation  costs for the above plans been determined  based on the fair value
of the options at the grant dates under those plans  consistent with the methods
under Statement of Financial Accounting Standards No. 123 ("Accounting for Stock
Based  Compensation"),  the  Company's  income from  continuing  operations  and
earnings (loss) per share would have the pro forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                1999                1998             1997
                                                                  (thousands, except per share data)
       Income (loss) from continuing operations
<S>                                                           <C>              <C>                 <C>
         As reported                                          $19,716          $(69,853)           $4,131
                                                              =======          ========            ======
         Pro forma                                            $18,719          $(70,270)           $3,935
                                                              =======          ========            ======

       Basic earnings (loss) per share-continuing operations
         As reported                                       $    0.79          $   (2.79)         $  0.16
                                                           =========          =========          =======
         Pro forma                                         $    0.75          $   (2.81)         $  0.16
                                                           =========          =========          =======

       Diluted earnings (loss) per share-continuing operations
         As reported                                       $    0.78          $   (2.79)         $  0.16
                                                           =========          =========          =======
         Pro forma                                         $    0.74          $   (2.81)         $  0.15
                                                           =========          =========          =======
</TABLE>

       The fair value of each option was  estimated  on the grant date using the
Black-Scholes  option pricing model.  Based on the assumptions listed below, the
weighted  average  fair value of options  granted  was $2.30 per option in 1999,
$4.74 per option in 1998, and $3.90 per option in 1997.
<TABLE>
<CAPTION>
                                                               1999                1998             1997
                                                            ----------          ----------       -------
<S>                                                           <C>                 <C>               <C>
       Expected life in years                                 3                   3                 3
       Risk-free interest rate                                5.21%               5.40%             5.69%
       Volatility                                            48.00%              45.00%            40.00%
       Dividend yield                                         0.00%               0.00%             0.00%
</TABLE>

Incentive Compensation

       Most  of  the  Company's  salaried  employees  participate  in  incentive
compensation  programs.  These programs are based on the consolidated results of
the  Company and on the results of  business  segments.  Incentive  compensation
expense was  approximately  $3.0 million in 1999,  $0.3 million in 1998 and $3.9
million in 1997.

Defined Contribution Plan

       The Company  maintains  a defined  contribution  plan which is  qualified
under Section  401(k) of the Code ("401(k)  Plan") and is available for eligible
employees  who elect to  participate.  Under the terms of the 401(k)  Plan,  the
Company  partially  matches certain  employee  contributions.  Expense for these
contributions  for 1999,  1998 and 1997 was  approximately  $1.0  million,  $0.9
million and $0.9 million, respectively.


                                      F-18
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7.     OTHER INCOME (EXPENSE), NET

       As discussed  in Note 3, during the first  quarter of 1999 a $4.2 million
gain was  recognized  on the sale of the  corporate  aircraft.  Interest  income
totaled $0.5 million in 1999.  Losses on the disposal of fixed assets and letter
of credit fees related to the GFI  Transaction  (see Note 13)  partially  offset
these income items.

       Other income (expense),  net in 1998 primarily consisted of: $6.5 million
of costs  associated  with the proposed buyout  transaction  (see Note 19); $3.1
million  of fees and costs  related  to the GFI  Transaction;  $3.0  million  of
foreign currency losses in Mexico;  and a $1.1 million reduction in the value of
the Company's  investment in the Trace Global Opportunities Fund. These expenses
in 1998 were partially offset by approximately $1.9 million of interest income.

8.     INCOME TAXES

       The sources of income (loss) from continuing  operations before provision
for income taxes are listed below.
<TABLE>
<CAPTION>
                                                                         1999             1998            1997
                                                                                      (thousands)
<S>                                                                   <C>             <C>              <C>
       United States                                                  $19,243         $  (1,318)       $   7,572
       Foreign                                                          2,935           (10,293)            (916)
                                                                      -------          --------        ---------

       Income (loss) from continuing operations
         before provision (benefit) for income taxes                  $22,178          $(11,611)       $   6,656
                                                                      =======          ========        =========
</TABLE>

       Listed below are the  components  of the  provision  (benefit) for income
taxes included in the statements of operations.
<TABLE>
<CAPTION>
                                                                         1999             1998             1997
                                                                                      (thousands)
<S>                                                                  <C>               <C>             <C>
       Continuing operations                                         $  2,462          $ 58,242        $   2,525

       Discontinued operations                                              -                 -           (1,330)

       Extraordinary loss on early extinguishment
         of debt                                                            -            (1,278)         (27,400)
                                                                     --------          --------         --------

       Total consolidated provision (benefit) for
         income taxes                                                $  2,462          $ 56,964         $(26,205)
                                                                     ========          ========         ========
</TABLE>

       A reconciliation of the statutory federal income tax to the income tax on
continuing operations is listed below.
<TABLE>
<CAPTION>
                                                                         1999             1998             1997
                                                                                      (thousands)
<S>                                                                   <C>               <C>            <C>
       Statutory income taxes                                         $ 7,762           $(4,064)       $   2,330
       State income taxes, net of federal benefit                       1,060                 -              260
       Limitation on the utilization of foreign tax benefits                -             3,800                -
       Increase (decrease) in valuation allowance                      (7,300)           52,573                -
       Amortization of cost in excess of assets acquired                1,385             1,505              553
       Write-off excess cost                                                -               770            4,305
       Utilization of capital loss carryforwards                            -                 -           (5,028)
       Costs associated with buyout proposal                                -             1,750                -
       Other, net                                                        (445)            1,908              105
                                                                      -------           -------       ----------
       Total                                                          $ 2,462           $58,242       $    2,525
                                                                      =======           =======       ==========
</TABLE>


                                      F-19
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     INCOME TAXES (continued)

       The provision (benefit) for income taxes is summarized as follows:
<TABLE>
<CAPTION>
                                                                         1999            1998            1997
    Current                                                                           (thousands)
<S>                                                                 <C>               <C>             <C>
         Federal                                                    $     300         $   3,391       $    1,958
         State                                                            238                 -            1,248
         Foreign                                                        1,117               673              498
                                                                     --------           -------         --------
           Total current                                                1,655             4,064            3,704
                                                                     --------           -------         --------


                                                                         1999            1998            1997
       Deferred                                                                       (thousands)
         Federal                                                        8,247               378          (27,013)
         State                                                            837                 -           (2,662)
         Foreign                                                         (977)              (51)            (234)
                                                                     --------           -------         --------
           Total deferred                                               8,107               327          (29,909)
                                                                     --------           -------         --------

       Change in valuation allowance                                   (7,300)           52,573                -
                                                                     --------           -------         --------

       Total provision (benefit)
         for income taxes                                            $  2,462           $56,964         $(26,205)
                                                                     ========           =======         ========
</TABLE>

       The tax effect of the  temporary  differences  that give rise to deferred
income tax assets and liabilities are listed below.
<TABLE>
<CAPTION>
                                                                                December 31,       December 31,
                                                                                   1999                  1998
       Deferred income tax assets                                                        (thousands)
<S>                                                                            <C>                   <C>
         Inventory basis differences                                           $      781            $   1,366
         Employee benefit accruals                                                  7,126               12,592
         Allowances and contingent liabilities                                      8,987                9,270
         Restructuring and plant closing accruals                                   4,894                4,541
         Other                                                                     10,977                7,729
         Net operating loss carryforwards                                          67,264               73,970
         Capital loss carryforwards                                                 2,105                2,105
         Valuation allowance for deferred income tax assets                       (73,826)             (85,250)
                                                                                  -------              -------
         Deferred income tax assets                                                28,308               26,323
                                                                                 --------             --------

       Deferred income tax liabilities
         Basis difference in property, plant and equipment                        (23,587)             (26,509)
         Other                                                                     (8,593)              (2,879)
                                                                                ---------            ---------
         Deferred income tax liabilities                                          (32,180)             (29,388)
                                                                                 --------             --------

       Net deferred income tax assets (liabilities)                              $ (3,872)            $ (3,065)
                                                                                 ========             ========
</TABLE>

       The 1999  effective  tax rate was reduced by the partial  reversal of the
deferred income tax asset valuation allowance  recognized in 1998. The valuation
allowance was reduced to reflect the  realization of Federal loss  carryforwards
that  offset  the  current  tax   component   of  the  Federal  tax   provision.
Additionally,  the  valuation  allowance  was reduced to offset the net deferred
Federal tax liability  generated in 1999 and to recognize changes in the minimum
pension liability.


                                      F-20
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8.     INCOME TAXES (continued)

       The 1998 provision for income taxes consisted primarily of an increase in
valuation allowance for deferred income tax assets.

       The Company has  determined  that it will be more likely than not to have
insufficient  future income to utilize its net operating loss  carryforwards and
realize  other  deferred  income tax assets.  In  addition,  the Company did not
recognize the tax benefits  associated with net operating loss  carryforwards in
Mexico since it appears  likely that the net operating loss  carryforwards  will
not be able to be realized in the near future.

       During 1998, the valuation  allowance for deferred  income tax assets and
net deferred  income tax assets  decreased by $9.1 million  primarily due to the
reduction of capital loss carryforwards  associated with the transfer of General
Felt's common stock in connection with the GFI Transaction.  In addition, during
1998,  deferred income tax assets were increased by $8.7 million associated with
a change in the income tax basis of Foamex Carpet.

       The  Company  will  continually  review  the  adequacy  of the  valuation
allowance and recognize benefits only as reassessment  indicates that it is more
likely than not that the benefits  will be realized.  At December 31, 1999,  the
Company had approximately $171.0 million of net operating loss carryforwards for
federal income tax purposes  expiring from 2010 to 2018.  Also at year-end 1999,
there were $0.3 million of alternative minimum tax credits carryforwards.

9.     EXTRAORDINARY LOSSES

       In 1998, extraordinary losses of $1.9 million (net of income tax benefits
of $1.3 million), or $.08 per common share - basic, were recorded.  The loss was
in connection with the GFI Transaction,  and related to the early extinguishment
of  approximately  $125.1  million  of term  loans  under a Foamex  L.P.  credit
facility.  The extraordinary  loss was generated  entirely from the write-off of
debt issuance costs.

       In  1997,  extraordinary  losses  of $44.5  million  (net of  income  tax
benefits of $27.4  million),  or $1.76 per common share - basic,  were  recorded
related to the early  extinguishment of debt. Listed below are the components of
the loss.

          o    In connection with a refinancing  plan, an extraordinary  loss of
               approximately  $42.0 million (net of income tax benefits of $25.7
               million) was incurred.  The  extraordinary  loss was comprised of
               approximately $39.0 million for premium and consent fee payments,
               approximately  $16.2  million for the  write-off of debt issuance
               costs and debt discount,  approximately $8.2 million for the loss
               associated  with  the  effective  termination  and  amendment  of
               interest rate swap agreements and  approximately  $4.3 million of
               professional fees and other costs.

          o    Foamex L.P. redeemed  substantially all of the outstanding public
               debt  that  was not  tendered  as part  of the  refinancing  plan
               referenced   above.  In  connection  with  these  redemptions  an
               extraordinary  loss  on  the  early  extinguishment  of  debt  of
               approximately  $1.3  million  (net of income tax benefits of $0.9
               million) was recognized.

          o    In  connection  with  the  sale of  assets  discussed  in Note 3,
               proceeds from the sale were used to repay  outstanding  term loan
               borrowings under the Foamex L.P. Credit Facility. As a result, an
               extraordinary  loss  on  the  early  extinguishment  of  debt  of
               approximately  $0.6  million  (net of income tax benefits of $0.4
               million) was recognized.

          o    Net proceeds  remaining from a 1996 divestiture were used for the
               early  extinguishment of debt. As a result, an extraordinary loss
               of approximately $0.6 million (net of income tax benefits of $0.4
               million) was recorded.  The  extraordinary  loss was comprised of
               approximately  $0.4 million of premium payments and approximately
               $0.6 million for the write-off of debt issuance costs.

                                      F-21
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10.    EARNINGS (LOSS) PER SHARE

       The  calculation  of earnings  (loss) per share from  income  (loss) from
continuing operations is presented in the table below.

<TABLE>
<CAPTION>
                                                                     1999               1998                1997
                                                                      (thousands, except per share amounts)
Basic earnings (loss) per share
<S>                                                                <C>              <C>                   <C>
  Income (loss) from continuing operations                         $19,716          $   (69,853)          $ 4,131
                                                                   =======          ===========           =======

  Average common stock outstanding                                  25,053               24,996            25,189
                                                                   =======          ===========           =======

Basic earnings (loss) per share - continuing operations            $  0.79          $     (2.79)          $  0.16
                                                                   =======          ===========           =======

Diluted earnings (loss) per share
  Income (loss) from continuing operations available
    for common stock and dilutive securities                       $19,716          $   (69,853)          $ 4,131
                                                                   =======          ===========           =======

  Average common stock outstanding                                  25,053               24,996            25,189
  Common stock equivalents resulting
    from stock options and warrants (a) (b)                            203                   --               511
                                                                   -------          -----------           -------
  Average common stock and dilutive
    equivalents                                                     25,256               24,996            25,700
                                                                   =======          ===========           =======

Diluted earnings (loss) per share - continuing operations          $  0.78          $     (2.79)          $  0.16
                                                                   =======          ===========           =======
</TABLE>

(a)  In periods with a loss from continuing  operations,  dilutive stock options
     and warrants were not included because they were anti-dilutive.

(b)  In 1999,  the average number of stock options that were not included in the
     diluted  earnings  per share  calculation  because the  exercise  price was
     greater than the average market price, totaled 849,000.

       Earnings  (loss)  per  share   attributable  to  continuing   operations,
discontinued operations and to extraordinary losses are listed below.
<TABLE>
<CAPTION>
                                                    1999            1998           1997
Basic earnings (loss) per common share
<S>                                               <C>            <C>             <C>
  Continuing operations                           $   0.79       $  (2.79)       $   0.16
  Discontinued operations                            --             --              (0.08)
  Extraordinary loss                                 --             (0.08)          (1.76)
                                                  --------       --------        --------
    Net income (loss)                             $   0.79       $  (2.87)       $  (1.68)
                                                  ========       ========        ========

Diluted earnings (loss) per common share
  Continuing operations                           $   0.78       $  (2.79)       $   0.16
  Discontinued operations                            --             --              (0.08)
  Extraordinary loss                                 --             (0.08)          (1.73)
                                                  --------       --------        --------
    Net income (loss)                             $   0.78       $  (2.87)       $  (1.65)
                                                  ========       ========        ========
</TABLE>




                                      F-22
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11.    INVENTORIES

       The components of inventory are listed below.

                                           December 31,          December 31,
                                               1999                  1998
                                                      (thousands)
       Raw materials and supplies             $ 67,520             $  99,997
       Work-in-process                          11,574                12,188
       Finished goods                           18,788                24,473
                                             ---------            ----------
       Total                                  $ 97,882              $136,658
                                              ========              ========

12.    SHORT-TERM BORROWINGS

       Foamex  Canada  Inc.,  a wholly owned  subsidiary  of Foamex L.P.,  has a
short-term  credit  facility that  provides for $8.0 million of Canadian  dollar
loans (U.S.  dollar  equivalent of $5.5 million) of which up to $2.0 million are
available in U.S. dollar loans. The amount of borrowings available is based on a
combination  of  accounts  receivable  and  inventory,  as defined in the credit
facility.  Interest on Canadian  dollar  borrowings is based on the bank's prime
lending rate plus 3/4%. On U.S.  dollar  loans,  interest is based on the bank's
U.S. dollar base rate in Canada plus 3/4%. The weighted  average  interest rates
on short-term borrowings  outstanding at year-end 1999, 1998 and 1997 were 7.3%,
7.3% and 5.4%,  respectively.  The unused  amount  under this line of credit was
$3.9 million as of December 31, 1999.

13.    LONG-TERM DEBT
<TABLE>
<CAPTION>
       The components of long-term debt are listed below.
                                                                         December 31,          December 31,
                                                                             1999                  1998
                                                                          --------              ---------
       Foamex L.P. Credit Facility                                                  (thousands)
<S>                  <C>                                                 <C>                    <C>
         Term Loan B (1)                                                 $  81,874              $  82,714
         Term Loan C (1)                                                    74,431                 75,194
         Term Loan D (1)                                                   107,800                108,900
         Revolving credit facility (1)                                     113,685                139,438
       Foamex Carpet Credit Facility (2)                                         -                      -
       9 7/8% Senior subordinated notes due 2007 (3)                       150,000                150,000
       13 1/2% Senior subordinated notes due 2005 (includes
         $10,100 and $11,893 of unamortized debt premium) (3)              108,100                109,893
       Industrial revenue bonds (4)                                          7,000                  7,000
       Subordinated note payable (net of unamortized
         debt discount of $232 and $523) (4)                                 4,444                  6,491
       Other                                                                 7,076                 18,858
                                                                          --------              ---------
                                                                           654,410                698,488

       Less current portion                                                  7,866                690,248
                                                                          --------              ---------

       Long-term debt-unrelated parties                                   $646,544              $   8,240
                                                                          ========              =========
</TABLE>



                                      F-23
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    LONG-TERM DEBT (continued)

       The components of related party long-term debt are listed below.
<TABLE>
<CAPTION>
                                                 December 31,          December 31,
                                                     1999                  1998
                                                  ---------              ---------
                                                           (thousands)
<S>                                              <C>                    <C>
       Foamex/GFI Note (4)                        $  34,000              $  34,000
       Note payable to Foam Funding LLC (5)          55,283                 64,935
                                                  ---------              ---------
                                                     89,283                 98,935

       Less current portion                          10,530                 98,935
                                                  ---------              ---------

       Long-term debt - related party             $  78,753              $       -
                                                  =========              =========
</TABLE>
(1)  Subsidiary  debt of Foamex  L.P.,  guaranteed  by the  Company  and  Foamex
     Capital Corporation ("FCC").
(2)  Subsidiary debt of Foamex Carpet, guaranteed by the Company
(3)  Subsidiary debt of Foamex L.P. and FCC.
(4)  Subsidiary debt of Foamex L.P.
(5)  Subsidiary debt of Foamex Carpet.

       As of December 31, 1998,  certain of the Company's  subsidiaries were not
in compliance with various debt covenants included in agreements totaling $480.4
million. Had the lenders under these debt agreements accelerated the maturity of
their  indebtedness  as  a  result  of  the  subsidiaries'  noncompliance,   the
acceleration  would have  constituted  an event of default and given the holders
the right to  require  the  repurchase  of  substantially  all of the  Company's
subsidiaries' long-term debt. As a result of these factors, approximately $771.1
million of  long-term  debt at  December  31, 1998 was  classified  as a current
liability in the  consolidated  balance sheet,  which produced a working capital
deficit.

Foamex L.P. Credit Facility

       At December 31, 1999, Foamex L.P. had a credit facility (the "Foamex L.P.
Credit  Facility")  with a group of banks which provided for a revolving  credit
facility  commitment  of $185.0  million  and three term loans  totaling  $264.1
million outstanding at December 31, 1999. Amendments in 1998 provided for a $2.5
million  quarterly  reduction of the  availability  under the  revolving  credit
facility, which extends through June 2003.

       Borrowings  under the Foamex L.P. Credit Facility are  collateralized  by
substantially  all of the assets of Foamex  L.P.  on a pari passu basis with the
IRBs  (described  below);  however,  the rights of the holders of the applicable
issue of the IRBs to receive  payment  upon the  disposition  of the  collateral
securing such issue of the IRBs has been preserved.

       In response to financial conditions at year-end 1998,  amendments to debt
agreements  were executed  during the first half of 1999. As a result the Foamex
L.P.  Credit  Facility,  which was amended and  restated in February  1998,  was
further amended and restated in June 1999 to modify financial  covenants for net
worth,  interest  coverage,  fixed charge  coverage and leverage  ratios through
December 2006. The agreement was also amended to no longer permit Foamex L.P. to
make certain cash payments, including the payment of an annual management fee of
$3.0 million to a subsidiary of Trace and  distributions to the Company,  and to
limit future investments in foreign subsidiaries and joint ventures. The "change
of control"  definition  under the agreement was also modified to conform to the
definition  discussed  in "change of control" in Note 1. Changes in the interest
rate  structure,  effective  in 2000,  were also made and are  discussed  below.
Foamex L.P. was in compliance with this agreement at year-end 1999.


                                      F-24


<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    LONG-TERM DEBT (continued)

       At year-end  1999,  interest was based on the  combination  of a variable
rate consisting of the higher of (i) the base rate of The Bank of Nova Scotia or
(ii) the Federal Funds rate plus 0.5% plus a margin.  The margins for revolving,
Term  B,  Term  C and  Term  D  loans  were  2.25%,  2.50%,  2.75%  and  2.875%,
respectively.  At the option of Foamex L.P.,  portions of the outstanding  loans
are convertible into LIBOR based loans plus 1.0% added to the margins identified
above.  The effective  interest rates for the credit facility at the end of 1999
ranged between 9.69% and 10.06%.

       Available  borrowings  under the revolving  credit facility totaled $24.2
million at year-end  1999.  Letters of credit  outstanding  at December 31, 1999
totaled $47.1 million.

       As part of the Foamex L.P.  Credit  Facility,  excess cash flow generated
annually,  as defined,  is required to prepay portions of Term B, C and D loans.
The prepayment amount determined for 1999 was $13.3 million and will be financed
through revolving loans under the facility.  The required payment is expected to
be made during the second quarter of 2000. The repayment  schedules for the Term
B, C and D loans  have been  adjusted,  as of  year-end  1999,  to  reflect  the
prepayment required.

       Effective  January 1, 2000, the interest rate on  outstanding  borrowings
under the Foamex L.P.  Credit  Facility  will  increase by 25 basis  points each
quarter that Foamex L.P.'s  leverage  ratio,  as defined,  exceeds 5.00 to 1.00.
Once the leverage ratio is reduced below this level,  the  cumulative  amount of
any 25 basis point  adjustments  to the  interest  rate on  borrowings  would be
eliminated.  At December 31, 1999,  the  calculated  leverage  ratio was 5.48 to
1.00.  Consequently,  the basis  point  adjustment  will be  applicable  for the
calculation of interest in the first quarter of 2000.

Foamex Carpet Credit Facility

       During 1999,  Foamex Carpet  amended its revolving  credit  facility (the
"Foamex  Carpet  Credit  Facility"),  which  provides  up to  $15.0  million  of
available  borrowings  through February 2004, to modify the financial  covenants
for net worth,  interest  coverage,  fixed charge coverage and leverage  ratios.
Also, effective June 30, 1999, the interest rate on outstanding borrowings under
the Foamex Carpet Credit Facility increased by 25 basis points.

       At year-end  1999,  the interest rate was based on the  combination  of a
variable rate plus a margin. The variable rate is the same as the one defined in
the Foamex L.P. Credit  Facility,  discussed  above, and the margin is 2.25%. At
the option of Foamex Carpet,  portions of the outstanding  loans are convertible
into LIBOR based loans plus 3.25%.

       Borrowings under the Foamex Carpet Credit Facility are  collateralized by
substantially  all of the assets of Foamex Carpet on a pari passu basis with the
Note Payable to Foam Funding LLC (described below).

       There  were no  borrowings  outstanding  under  the  credit  facility  at
year-end 1999.  Available  borrowings totaled $14.7 million at December 31, 1999
after a reduction of $0.3 million for a letter of credit.

9 7/8% Senior Subordinated Notes

       The 9 7/8% Senior  Subordinated  Notes were issued by Foamex L.P. and FCC
and are due on June 15,  2007.  The  notes  represent  uncollateralized  general
obligations of Foamex L.P. and are  subordinated  to all Senior Debt, as defined
in the Indenture.  Interest is payable June 15 and December 15. The notes may be
redeemed at the option of Foamex  L.P.,  in whole or in part,  at any time on or
after June 15, 2002.  The initial  redemption is at 104.938% of their  principal
amount,  plus accrued and unpaid  interest,  as defined,  if any, thereon to the
date of  redemption  and  declining  to 100.0%  on or after  June 15,  2005.  In
addition, at any time prior to June 15, 2000, Foamex L.P.


                                      F-25
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.  LONG-TERM DEBT (continued)

may on one or more  occasions  redeem up to 35.0% of the  initially  outstanding
principal amount of the 9 7/8% Senior  Subordinated  Notes at a redemption price
equal to 109.875% of the principal amount,  plus accrued interest and liquidated
damages, if any, thereon to the date of redemption with the cash proceeds of one
or more Public Equity Offerings, as defined.

       Upon the occurrence of a change of control, as defined,  each holder will
have the right to  require  Foamex  L.P.  to tender for such notes at a price in
cash equal to 101% of the aggregate  principal amount thereof,  plus accrued and
unpaid interest thereon,  if there is such a "change of control".  The notes are
subordinated in right of payment to all senior  indebtedness  and are pari passu
in  right  of  payment  to  the  13  1/2%  Senior  Subordinated  Notes  and  the
Subordinated Note Payable (described below).

13 1/2% Senior Subordinated Notes

       The 13 1/2% Senior  Subordinated Notes were issued by Foamex L.P. and FCC
and are due on August 15, 2005.  The notes  represent  uncollateralized  general
obligations of Foamex L.P. and are  subordinated  to all Senior Debt, as defined
in the Indenture. Interest is payable semiannually on February 15 and August 15.
The notes may be redeemed at the option of Foamex L.P.,  in whole or in part, at
any time on or after August 15, 2000.  The initial  redemption  is at 106.75% of
their principal amount, plus accrued and unpaid interest, if any, thereon to the
date of redemption and declining to 100.0% on or after August 15, 2004.

       Upon the occurrence of a change of control, as defined,  each holder will
have the right to  require  Foamex  L.P.  to tender for such notes at a price in
cash equal to 101% of the aggregate  principal amount thereof,  plus accrued and
unpaid interest,  if any, thereon,  if there is such a "change of control".  The
notes are  subordinated in right of the payment of all senior  indebtedness  and
are pari passu in right of payment to the 9 7/8% Senior  Subordinated  Notes and
to the Subordinated Note Payable (described below).

Industrial Revenue Bonds ("IRBs")

       IRB debt  includes a $1.0  million  bond that  matures in 2005 and a $6.0
million  bond that  matures in 2013.  Interest is based on a variable  rate,  as
defined,  with options  available to Foamex L.P. to convert to a fixed rate.  At
the end of 1999,  the interest  rate was 5.5% on the $6.0 million bond and 4.05%
on the $1.0 million  bond.  The maximum  interest rate for either of the IRBs is
15.0% per annum.

       If  Foamex  L.P  exercises  its  option to  convert  the bonds to a fixed
interest  rate   structure  the  IRBs  are  redeemable  at  the  option  of  the
bondholders.  The obligations are  collateralized by certain  properties,  which
have an approximate net carrying value of $10.8 million at December 31, 1999 and
letters of credit approximating $7.3 million.

Subordinated Note Payable

       This  note  payable  was  issued  during  1993 to John  Rallis,  a former
President  and Chief  Operating  Officer of the Company.  The note was issued by
Foamex L.P. in connection  with the  acquisition  of Great Western Foam Products
Corporation and certain related entities and assets.  The note carries a maximum
interest  rate of 6.0%  and the  principal  is  payable  in three  equal  annual
installments that began in May 1999.

Other

       At year-end  1999,  other debt  primarily  included a term loan held by a
majority owned Mexican  subsidiary.  Quarterly principal payments are due on the
term loan through its maturity in May 2002.  The interest  rate at year-end 1999
was  11.11%.  Included  in  year-end  1998 debt was  financing  for a  corporate
aircraft.  During 1999,  the aircraft was sold and the financing was repaid with
the proceeds, as discussed in Note 3.

                                      F-26
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    LONG-TERM DEBT (continued)

Related Party - Foamex/GFI Note

       As a result of the GFI Transaction,  discussed below,  Foamex L.P. owes a
$34.0  million  promissory  note payable to Foam Funding LLC, due in March 2000.
Interest is based on a variable rate equal to the higher of (i) the base rate of
The Bank of Nova Scotia or (ii) the Federal  Funds rate plus 0.5%. At the option
of Foamex L.P.,  the note is  convertible  to a  LIBOR-based  interest rate plus
0.75%. As of December 31, 1999, the interest rate for borrowings was 7.25%.

       The principal and current  interest payable under the Foamex/GFI Note are
collateralized  by a $34.5 million letter of credit issued under the Foamex L.P.
Credit  Facility.  At year-end 1999, the note was recognized as long-term in the
consolidated  balance sheet because of the ability and intent,  evidenced by the
letter of credit, to refinance the debt on a long-term basis.

Related Party - Note Payable to Foam Funding LLC

       As part of the GFI Transaction,  discussed  below,  Foamex Carpet entered
into a $70.2 million  promissory note payable to Foam Funding LLC.  Principal is
payable  in  quarterly  installments  that  began  in  June  1998  with a  final
installment in February 2004.  Interest is based on a variable rate equal to the
sum of 2.25% plus the higher of: (i) the base rate of The Bank of Nova Scotia or
(ii) the Federal Funds rate plus 0.5%. At the option of Foamex Carpet,  interest
payable under the note is convertible  into LIBOR based loans plus 3.25%.  As of
December 31, 1999, the interest rate for borrowings was 9.75%.

       Amounts  outstanding  under  the Note  Payable  to Foam  Funding  LLC are
collateralized  by all of the assets of Foamex Carpet on a pari passu basis with
the Foamex Carpet Credit Facility.

GFI Transaction

       On February 27, 1998, the Company and certain of its affiliates completed
a series of transactions  which changed the Company's  structure  (collectively,
the "GFI Transaction").  Prior to the consummation of these transactions, Foamex
L.P. defeased the $4.5 million outstanding principal amount of its 9 1/2% senior
secured notes due 2000. Foamex L.P. settled its intercompany payables to General
Felt  Industries,  Inc.  ("General  Felt")  with  $4.8  million  in  cash  and a
promissory note in the aggregate  principal amount of $34.0 million supported by
a $34.5  million  letter of credit under the Foamex L.P.  Credit  Facility  (the
"Foamex/GFI Note"). The initial transaction resulted in the transfer from Foamex
L.P. to Foam Funding LLC, an indirect  wholly owned  subsidiary of Trace, of all
of the  outstanding  common  stock of  General  Felt,  in  exchange  for (i) the
assumption by Foam Funding LLC of $129.0  million of Foamex L.P.'s  indebtedness
and (ii) the  transfer by Foam  Funding LLC to Foamex L.P. of a 1%  non-managing
general  partnership  interest in Foamex L.P. As a result,  General  Felt ceased
being a subsidiary  of Foamex L.P. and was relieved from all  obligations  under
Foamex  L.P.'s 9 7/8%  senior  subordinated  notes  due 2007 and 13 1/2%  senior
subordinated  notes due 2005.  Upon  consummation  of the  initial  transaction,
Foamex  Carpet,  a newly formed  wholly  owned  subsidiary  of the Company,  the
Company,  Foam Funding  LLC,  and General  Felt  entered into an Asset  Purchase
Agreement dated February 27, 1998, in which General Felt sold  substantially all
of its assets (other than cash, the Foamex/GFI  Note and its operating  facility
in Pico Rivera,  California)  to Foamex Carpet in exchange for (i) $20.0 million
in cash and (ii) a promissory  note issued by Foamex  Carpet to Foam Funding LLC
in the  aggregate  principal  amount of $70.2  million.  The $20.0  million cash
payment was funded with a distribution  by Foamex L.P. Upon  consummation of the
transactions contemplated by the Asset Purchase Agreement, Foamex Carpet entered
into a credit agreement with the institutions from time to time party thereto as
issuing  banks,  and  Citicorp  USA,  Inc.  and  The  Bank of  Nova  Scotia,  as
administrative  agents,  which  provided  for up to $20.0  million in  revolving
credit borrowings. Foamex Carpet conducts the carpet cushion business previously
conducted by General Felt.  Also, Foam Funding LLC retained  ownership of one of
General Felt's operating facilities, which is being leased to Foamex Carpet, and
the $34.0 million Foamex/GFI Note.


                                      F-27
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    LONG-TERM DEBT (continued)

       No gain was recognized on the GFI Transaction.  The Company will continue
to account for these net assets  using the  carryover  basis of Foamex L.P.  The
$129.0  million of debt assumed by Foam Funding LLC in the GFI  Transaction  was
accounted for as an  extinguishment  of debt, which resulted in an extraordinary
loss of  approximately  $1.9 million,  net of income taxes.  The 1% non-managing
general partnership interest acquired in connection with the GFI Transaction was
accounted  for as a redemption  of equity.  By virtue of the transfer of General
Felt stock and the subsequent  merger of General Felt into Foam Funding LLC, the
Pico Rivera,  California  facility was  transferred to Foam Funding LLC; no gain
was recognized on the transfer since the Company  leased-back the facility.  The
net  effect  resulted  in  a  charge  to   stockholders'   equity  (deficit)  of
approximately $0.5 million.

Interest Rate Swap Agreements

       The Company  entered  into  interest  rate swaps to lower  funding  costs
and/or to manage  interest costs and exposure to changing  interest  rates.  The
Company did not hold or issue financial instruments for trading purposes.

       In  connection  with a  refinancing  plan in  1997,  the  Company's  then
existing  interest rate swap agreements with a notional amount of $300.0 million
were  considered to be  effectively  terminated  since the  underlying  debt was
extinguished.  These  interest rate swap  agreements had an estimated fair value
liability of $8.2 million at the date of the refinancing  plan which is included
in the extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the  estimated  fair value of the then  existing  interest rate swap
agreements,  the Company entered into an amendment of the then existing interest
rate swap  agreements  resulting  in one  interest  rate swap  agreement  with a
notional  amount of $150.0  million  through  June 2007.  Accordingly,  the $8.2
million fair value  liability has been recorded as a deferred  credit which will
be  amortized  as a  reduction  in  interest  and  debt  issuance  expense  on a
straight-line  basis through June 2007. On January 8, 1998, the Company  entered
into a new  amendment to its interest  rate swap  agreement.  The new  amendment
provided for an interest rate swap  agreement  with a notional  amount of $150.0
million  through  June 2002.  In September  1998,  the Company sold its existing
interest  rate swap  agreement  for a net gain of  approximately  $1.0  million.
Accordingly,  the $1.0 million gain has been recorded as a deferred credit which
will  be  amortized  through  June  2007,  which  is the  maturity  date  of the
underlying debt.

       The effect of the  interest  rate  swaps was a  favorable  adjustment  to
interest and debt issuance expense of $0.7 million and $2.2 million for 1998 and
1997, respectively.

Debt Covenants

       The  indentures,  credit  facilities  and other  indebtedness  agreements
contain  certain  covenants  that will  limit,  among  other  things to  varying
degrees,  the ability of the Company's  subsidiaries (i) to pay distributions or
redeem  equity  interests,   (ii)  to  make  certain  restrictive   payments  or
investments,  (iii) to incur  additional  indebtedness or issue Preferred Equity
Interest,  as defined,  (iv) to merge,  consolidate or sell all or substantially
all of its assets or (v) to enter into certain  transactions  with affiliates or
related persons. In addition, certain agreements contain provisions that, in the
event of a defined change of control or the occurrence of an undefined  material
adverse  change in the ability of the obligor to perform  its  obligations,  the
indebtedness  must be repaid,  in certain  cases,  at the option of the  holder.
Also, the Company's  subsidiaries are required under certain of these agreements
to maintain  specified  financial  ratios of which the most  restrictive are the
maintenance of net worth, interest coverage,  fixed charge coverage and leverage
ratios, as defined. Under the most restrictive of the distribution restrictions,
the Company was  available  to be paid by its  subsidiaries  as of December  31,
1999,  funds only to the extent to enable  the  Company to meet its tax  payment
liabilities.

       Foamex  L.P.  and  Foamex  Carpet  were in  compliance  with the  various
financial covenants of their loan agreements as of December 31, 1999.


                                      F-28
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

13.    LONG-TERM DEBT (continued)

Future Obligations on Debt

       Scheduled maturities of long-term debt and long-term debt - related party
are shown below (thousands):

         2000                                           $  18,396
         2001                                              20,828
         2002                                              17,975
         2003                                             193,172
         2004                                              54,354
         Balance                                          429,100
                                                        ---------
         Total                                            733,825
         Unamortized debt premium, net                      9,868
                                                        ---------
         Total                                           $743,693
                                                        =========

14.    FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

Concentration of Credit Risk

       Financial   instruments   which   potentially   subject  the  Company  to
significant  concentrations  of credit risk  consist  primarily of cash and cash
equivalents and trade accounts  receivable.  The Company maintains cash and cash
equivalents and certain other financial instruments with various large financial
institutions.  The Company's periodic evaluation of these financial institutions
are considered in the Company's investment strategy.

       The Company sells foam products to the automotive, carpet, cushioning and
other  industries.  The  Company  performs  ongoing  credit  evaluations  of its
customers  and  generally  does not require  collateral.  The Company  maintains
allowance  accounts for potential credit losses and such losses have been within
management's expectations.

Fair Value of Financial Instruments

       The following  disclosures  of the estimated fair value amounts have been
determined based on the Company's assessment of available market information and
appropriate valuation methodologies.

       The estimated  fair values of the  Company's  financial  instruments  are
listed below.

                                                Carrying Amount     Fair Value
       Liabilities:                                                 (thousands)
           Total debt - December 31, 1999            $745,320         $705,340
                                                     ========         ========

           Total debt - December 31, 1998            $800,380         $801,900
                                                     ========         ========

       Carrying amounts reported in the consolidated  balance sheet for cash and
cash equivalents, accounts receivable, accounts payable, accrued liabilities and
short-term  borrowings  approximates  fair value due to the short-term nature of
these instruments.

       The fair value of long-term debt is estimated using quoted market prices,
where  available,  or discounted cash flows.  Fair value estimates are made at a
specific point in time, based on relevant market information about the financial
instruments.  These estimates are subjective in nature and involve uncertainties
and matters of  significant  judgment and therefore,  cannot be determined  with
precision. Changes in assumptions could significantly affect the estimates.


                                      F-29
<PAGE>

                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15.    SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

<TABLE>
<CAPTION>
                                          1999             1998              1997
                                                        (thousands)
<S>                                      <C>              <C>              <C>
Cash paid for interest                   $71,182          $75,260          $46,323
                                         =======          =======          =======

Cash paid for income taxes, net          $ 1,032          $ 2,134          $ 3,579
                                         =======          =======          =======

Non cash - capital leases                $   456          $    24          $   167
                                         =======          =======          =======
</TABLE>

16.    BUSINESS SEGMENTS

       In the  fourth  quarter  of 1998,  the  Company  adopted  SFAS  No.  131,
"Disclosure about Segments of an Enterprise and Restatement  Information".  SFAS
No. 131 requires  companies to report  information about their business segments
on the  basis of how they are  managed  and  evaluated  by the  chief  operating
decision-makers.  The Company's  reportable business segments are Foam Products,
Carpet Cushion Products, Automotive Products and Technical Products. Each of the
business  segments is headed by an executive  vice  president who is responsible
for developing plans and directing the operations of the segment.

       Foam Products manufactures and markets foam used by the bedding industry,
the  furniture  industry  and  the  retail  industry.  Carpet  Cushion  Products
manufactures  and  distributes  prime,  rebond,  sponge  rubber and felt  carpet
cushion.  Automotive  Products  supplies foam primarily for automotive  interior
applications.  Technical  Products  manufactures and markets  reticulated  foams
(foams that are well suited for filtration,  reservoiring,  sound absorption and
sound  transmissions)  and  other  custom  polyester  and  polyether  foams  for
industrial, specialty and consumer and safety applications.

       The "other" column in the table below  represents  foreign  manufacturing
operations  in Mexico  and  Asia,  corporate  expenses  not  allocated  to other
business  segments and  restructuring  and other  charges  (credits).  Asset and
capital expenditure information by business segment is not reported because many
of the Company's facilities produce products for multiple business segments.

       The  accounting  policies  of the  business  segments  are  the  same  as
described in Note 2. Revenues and costs have been included in business  segments
where  specifically  identified.  Costs  shared by business  segments  have been
allocated on the basis of the amount  utilized.  Geographic sales are determined
based on the location in which the sale originated.

       During  1999,  sales  to a  customer  which  is  included  in  Automotive
Products,  accounted for  approximately  11.6% of the  Company's  net sales.  No
customer  accounted  for more than 10.0% of the  Company's net sales in 1998 and
1997.
<TABLE>
<CAPTION>
                                               Carpet
                                   Foam       Cushion        Automotive     Technical
                                 Products     Products        Products      Products        Other        Total
1999                                                         (thousands)
<S>                              <C>          <C>             <C>            <C>           <C>        <C>
Net sales                        $527,159     $271,200        $361,806       $92,180       $27,648    $1,279,993
Income (loss) from operations      57,028        8,512          22,547        22,588       (17,105)       93,570
Depreciation and amortization      17,432        8,096           4,823         2,724         2,675        35,750

1998
Net sales                        $559,690     $300,791        $285,190       $79,140       $21,585    $1,246,396
Income (loss) from operations      35,313       12,005          16,788        14,571        (3,645)       75,032
Depreciation and amortization      18,300        5,529           6,424         2,929         2,203        35,385
</TABLE>



                                      F-30
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16.    BUSINESS SEGMENTS
<TABLE>
<CAPTION>
                                               Carpet
                                   Foam       Cushion        Automotive     Technical
                                 Products     Products        Products      Products        Other        Total
1997                                                        (thousands)
<S>                              <C>          <C>             <C>            <C>           <C>          <C>
Net sales                        $334,900     $273,920        $225,892       $76,254       $20,129      $931,095
Income (loss) from operations      30,665        8,548          24,638        17,886       (26,637)       55,100
Depreciation and amortization      10,539        4,407           3,550         2,470         1,081        22,047
</TABLE>

<TABLE>
<CAPTION>
                                                              United
                                                              States         Canada        Mexico    Consolidated
1999                                                                              (thousands)
<S>                                                         <C>              <C>          <C>         <C>
Net sales                                                   $1,067,363       $61,486      $151,144    $1,279,993
Property, plant and equipment, net                             193,051         5,406        23,376       221,833

1998
Net sales                                                   $1,049,166       $62,529      $134,701    $1,246,396
Property, plant and equipment, net                             212,658         4,998        24,517       242,173

1997
Net sales                                                     $841,618       $58,005       $31,472      $931,095
Property, plant and equipment, net                             208,713         5,662        19,060       233,435
</TABLE>

17.    STOCKHOLDERS' EQUITY (DEFICIT)

Preferred Stock

       There are 5.0 million shares of preferred  stock,  par value of $1.00 per
share, authorized for issuance. No preferred shares have been issued.

Common Stock

       At year-end 1999,  there were 3.0 million shares of common stock reserved
for issuance in connection with the stock option plan discussed in Note 6.

Warrants

       On July 1, 1999,  116,745  warrants  for an  aggregate  of 0.6 million of
common stock expired  without  having been  exercised.  All  remaining  warrants
outstanding  to purchase 1.2 million  shares of common stock  expired on October
12, 1999, without being exercised.

Treasury Stock

       During  1997,  the Company  purchased  434,600 of its common stock for an
aggregate cost of $5.7 million.  The purchase was part of programs authorized by
the Board of  Directors  to purchase up to 3.0 million  shares of the  Company's
common stock. At the end of 1999, 1,989,000 shares have been purchased.


                                      F-31


<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17.    STOCKHOLDERS' EQUITY (DEFICIT) (continued)

Accumulated Other Comprehensive Income (Loss)

       The  accumulated  other  comprehensive  income  (loss)  consists  of  the
following:

<TABLE>
<CAPTION>
                                                              December 31,        December 31,      December 28,
                                                                 1999                 1998                1997
(thousands)
<S>                                                            <C>                  <C>                <C>
       Foreign currency translation adjustment                 $ (6,011)            $(10,965)          $ (4,367)
       Minimum pension liability (a)                             (1,747)             (13,756)            (2,231)
                                                              ---------            ---------          ---------
                                                               $ (7,758)            $(24,721)          $ (6,598)
                                                               ========             ========           ========
</TABLE>

       (a) The minimum  pension  liability  adjustment was recognized net of the
related tax benefit in 1997.  As discussed in Note 8, a valuation  allowance was
established in 1998 for essentially all deferred income tax assets. Accordingly,
the minimum pension  liability  amounts do not include their related tax benefit
at year-end 1999 and 1998.

18.    RELATED PARTY TRANSACTIONS AND BALANCES

       The Company regularly enters into transactions with its affiliates in the
ordinary course of business.

Trace Promissory Notes

       On July 1, 1997,  Trace  borrowed  $5.0 million  pursuant to a promissory
note with an aggregate principal amount of $5.0 million issued to Foamex L.P. on
June 12, 1997. The promissory note is due and payable on demand or, if no demand
is made, on July 7, 2001, and bears interest at 2 3/8% plus  three-month  LIBOR,
as defined,  per annum payable quarterly in arrears  commencing October 1, 1997.
On June 12, 1997, another promissory note issued to Foamex L.P. by Trace in July
1996 was amended.  The amended  promissory  note is an extension of a promissory
note of Trace that was due in July 1997. The aggregate  principal  amount of the
amended  promissory  note was  increased to  approximately  $4.8 million and the
maturity of the promissory  note was extended.  The  promissory  note is due and
payable on demand or, if no demand is made, on July 7, 2001,  and bears interest
at 2 3/8% plus  three-month  LIBOR, as defined,  per annum payable  quarterly in
arrears.

       Note 3 includes  disclosures  regarding  1999 activity  concerning  Trace
promissory  notes  payable to Foamex L.P.  The Trace  notes are  included in the
other  component  of  stockholders'   deficit,  which  is  consistent  with  the
recognition in prior years.  Based on Trace's  financial  position  discussed in
Note 1, Trace may not be able to pay the aggregate amount of $9.2 million.

Trace Accounts Receivables

       At year-end 1999 and 1998, operating accounts receivables from Trace were
approximately  $3.4 million and $3.1  million,  respectively.  During  1998,  an
allowance  of $3.1  million was recorded as a  restructuring  and other  charges
(credits) due to the financial difficulties of Trace. The Company established an
allowance  of  $0.3  million  during  1999  for  additional  operating  accounts
receivable from Trace.  The allowance was recorded as a restructuring  and other
charges (credits).

Trace Buyout Negotiations and Related Financing

       During  1998,  $6.5  million  was  recorded  in other  income and expense
associated  with  negotiations  related to a proposed  Trace  buyout and related
refinancing that was subsequently terminated.


                                      F-32
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18.    RELATED PARTY TRANSACTIONS AND BALANCES (continued)

Trace Global Opportunities Fund

       During 1997,  the Company  purchased a $2.0 million  investment  in Trace
Global  Opportunities  Fund, which primarily  invests in companies  organized or
operating outside the G-7 markets and was a related party to Trace. The value of
the Company's  investment in Trace Global Opportunities Fund was $0.9 million at
December  31,  1998.  The change in value of this  investment  was recorded as a
charge to other income and expense.  In 1999,  the  investment was sold for $0.9
million.

Trace Foam Distribution

       In connection with the refinancing plan in 1997,  Foamex L.P. made a cash
distribution of approximately  $1.5 million to Trace Foam Company,  Inc. ("Trace
Foam"),  a wholly  owned  subsidiary  of Trace,  as a result  of  Foamex  L.P.'s
distribution to Foamex-JPS  Automotive  L.P.  ("FJPS") and FMXI, Inc. of certain
debentures  of FJPS,  a note  with a  principal  amount of  approximately  $56.2
million (net of approximately $20.6 million of original issue discount) due from
FJPS and a promissory note in the aggregate principal amount of $2.0 million due
from the  Company.  The  distribution  to Trace Foam reduced  retained  earnings
(accumulated deficit) of the Company.

Trace Management Agreement

       Foamex L.P. had a management  service  agreement with Trace Foam pursuant
to which  Trace  Foam  provided  general  managerial  services  of a  financial,
technical,  legal,  commercial,  administrative and/or advisory nature to Foamex
L.P. During June 1997, the management services agreement was amended to increase
the  annual  fee from  $1.75  million to $3.0  million,  plus  reimbursement  of
expenses  incurred.  An amendment to the Foamex L.P. Credit Facility on June 30,
1999 no longer permits Foamex L.P. to pay the management  fee. On July 29, 1999,
Foamex  L.P.  submitted  formal  notice  of the  termination  of the  management
agreement.

Trace New York Sublease

       Prior to September 30, 1999, Foamex L.P. subleased to Trace approximately
5,900 square feet of general,  executive and administrative  office space in New
York,  New York.  The terms of the lease  were  substantially  the same terms as
Foamex L.P. leased such space from a third party lessor.  The Company has closed
the New York office and Foamex L.P.  subleased  the premises to a third party at
an amount in excess of Foamex L.P.'s lease commitment.

Foam Funding LLC Debt

       During  1999,  the  subsidiaries  of the  Company  paid $7.4  million  of
interest and $9.7 million of principal on notes payable to Foam Funding LLC.

       In 1998,  subsidiaries  of the Company  paid $6.4 million of interest and
$5.3 million of principal on notes payable to Foam Funding LLC.

Other

       The  general  director  of Foamex  de Mexico  S.A.  de C.V.  ("Foamex  de
Mexico")  which is the Company's  operating  subsidiary in Mexico has a 5% stock
interest in Foamex de Mexico. A member of the board provides consulting services
to the  Company  for which fees paid to him in 1999 were $0.2  million  and were
$0.1 million in 1998.


                                      F-33
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

18.    RELATED PARTY TRANSACTIONS AND BALANCES (continued)

       During  1999,  certain  employees  of the Company  were also  employed by
Trace.  The Company paid a portion of the total  compensation  of such employees
based on the amount of time devoted to the Company's  matters by such  employees
in the aggregate.  All such dual employment  relationships have been terminated.
Such payments totaled $1.8 million,  $2.2 million and $2.5 million in 1999, 1998
and 1997, respectively.

       The Company,  Recticel,  s.a. ("Recticel"),  a European polyurethane foam
manufacturer,  whose  subsidiary  was a former  partner of Foamex L.P.  and is a
current  shareholder of the Company,  and Beamech Group Limited, an unaffiliated
third  party,  have  an  interest  in a  Swiss  corporation  that  develops  new
manufacturing  technology for the production of polyurethane  foam including the
VPFSM manufacturing  process.  During 1997, the Company purchased  approximately
$1.9 million of scrap  material from  Recticel  under  various  agreements,  the
latest of which expired in March 1998.

19.    BUYOUT PROPOSALS

       On August 5, 1999,  the  Company  announced  that its Board of  Directors
signed a letter of intent with  Sorgenti  Chemical  Industries,  LLC and Liberty
Partners  Holdings  20,  LLC  (collectively,  the  "Purchasers")  for a business
combination  providing for $11.50 per share for all of the Company's outstanding
common  stock  (the  "Sorgenti  Transaction").  Under the terms of the letter of
intent,  if the Company entered into a business  combination with another party,
the  Purchasers  would  be  entitled  to a  break-up  fee of $6.0  million  plus
reimbursement of certain expenses, subject to certain conditions,  including the
willingness of the Purchasers to enter into a definitive agreement providing for
a price of at least  $11.50 per share prior to the  expiration  of the letter of
intent.  The  proposed  transaction  was  subject  to a  number  of  conditions,
including the negotiation of definitive  documents  regarding certain conditions
relating to the bank  credit  facilities  and the public  debt of the  Company's
subsidiaries.   Additional  issues  considered   included  minimum   shareholder
acceptance,  change of board  membership,  and other provisions  providing for a
higher  break-up  fee and expense  reimbursement  if the Company  entered into a
business  combination  providing a more favorable  transaction.  On December 15,
1999, the Company announced that the letter of intent with the Purchasers, which
had been extended,  expired by its terms. The Purchasers had submitted a revised
bid at a price and on terms that were less favorable than those contained in the
letter  of  intent  and the  Negotiating  Committee  of the  Company's  Board of
Directors rejected the revised bid.

       On February 9, 2000, the Company announced that it is in discussions with
respect  to a  proposal  involving  the  acquisition  of all  of  the  Company's
outstanding  common  stock for cash.  The Company  stated  that the  proposal is
subject to a number of conditions,  including the buyer's  ongoing due diligence
and the execution of definitive  agreements.  If the proposal from the new group
leads to a  transaction,  it is  anticipated  that  John G.  Johnson,  Jr.,  the
Company's  President and Chief  Executive  Officer,  as well as other members of
current management, would participate in the management of the Company following
such a transaction. The Company agreed to an exclusive negotiating period ending
five business days after delivery of its audited financial  statements  included
in the  Company's  Annual  Report on Form  10-K to the  prospective  buyer.  The
Company  expects  such  delivery  to be the same day as the filing of its Annual
Report on Form 10-K with the Securities and Exchange Commission.

       In 1998, the Company received an unsolicited  buyout proposal from Trace,
the  Company's  principal  stockholder.  The  Company  entered  into two  merger
agreements, which were subsequently terminated by Trace.

20.    COMMITMENTS AND CONTINGENCIES

Operating Leases

       The Company is obligated under various noncancelable lease agreements for
rental of facilities,  vehicles and other equipment.  Many of the leases contain
renewal  options  with  varying  terms and  escalation  clauses that provide for
increased  rentals based upon increases in the Consumer Price Index, real estate
taxes  and  lessors'  operating  expenses.   Total  minimum  rental  commitments
(excluding    commitments   accrued   as   part   of   the   Company's   various
restructuring/consolidation  plans) required under operating  leases at December
31, 1999 are:

                                      F-34

<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.    COMMITMENTS AND CONTINGENCIES (continued)

                                                      Operating
                                                          Leases
                                                      ----------
                                                      (thousands)
       2000                                             $14,804
       2001                                              12,777
       2002                                              11,223
       2003                                               9,034
       2004                                               5,801
       Balance                                           13,311
                                                       --------
       Total                                            $66,950
                                                        =======

       Rental expense charged to operations under operating leases  approximated
$16.9  million,  $18.9  million  and  $10.1  million  for  1999,  1998 and 1997,
respectively.  Substantially  all such rental  expense  represented  the minimum
rental payments under operating leases.

Litigation - Shareholders

       During 1999, the Company received several communications addressed to its
Board of Directors from certain of the Company's  stockholders regarding aspects
of the relationship between Trace and the Company. Such stockholders  questioned
the propriety of certain  relationships and related  transactions  between Trace
and the Company,  which previously had been disclosed in the Company's  periodic
filings.  On June 14, 1999, the Company  received a draft complaint from counsel
of certain  stockholders  naming the  Company  and  certain  current  and former
directors,  which  included  allegations  similar to those in the Second Amended
Complaint,  as defined below.  The Company was advised by such counsel that such
stockholders intended to file an action soon thereafter. On August 13, 1999, two
stockholders  filed an action on behalf  of an  alleged  class of the  Company's
shareholders,   entitled  Watchung  Road  Associates,   L.P.  et  al  v.  Foamex
International  Inc., et al., Civil Action No. 17370 (the "Watchung  Complaint"),
in the Court of Chancery of the State of Delaware,  New Castle County.  The suit
names the  Company,  Mr.  Marshall  S. Cogan,  Mr.  Etienne  Davignon,  Mr. John
Gutfreund,  Mr. Robert Hay, Dr. Stuart Hershon, Mr. John G. Johnson, Jr. and Mr.
John Tunney as defendants.  The Watchung  Complaint  alleges that the individual
defendants  breached their fiduciary  duties by agreeing to the potential buyout
of the  Company  by  Sorgenti  Chemical  Industries,  LLC and  Liberty  Partners
Holdings 20, LLC.

       The Watchung  Complaint alleges that the Sorgenti  Transaction's  buy-out
price of  $11.50  per  outstanding  share is  inadequate  and fails to take into
consideration  claims  the  Company  allegedly  has as a result of the  supposed
wrongful  diversions of Company assets in the Company's  dealings with Trace and
its affiliates.  The Watchung Complaint also alleges that the directors breached
their fiduciary duties by agreeing to the proposed Sorgenti  Transaction without
conducting an auction or active  market  check.  The suit alleges that the board
placed Mr. Cogan's  interest ahead of those of the Company's  stockholders,  and
alleges that a critical  condition of the Sorgenti  Transaction  is a consulting
agreement  for Mr.  Cogan.  The  Watchung  suit  seeks to  enjoin  the  Sorgenti
Transaction,  seeks  rescission  or  damages  if  the  Sorgenti  Transaction  is
consummated,  and seeks an accounting from the directors for plaintiffs  alleged
losses. The Sorgenti  Transaction was not consummated.  Defendants have moved to
consolidate  this  action  with In re  Foamex  International  Inc.  Shareholders
Litigation,  discussed  below,  and to dismiss the  complaint.  Plaintiffs  have
agreed to consolidate.

       On April 26, 1999, a putative securities class action entitled Molitor v.
Foamex  International Inc., et al., 99 Civ. 3004, was filed in the United States
District  court for the Southern  District of New York naming as defendants  the
Company,  Trace and certain  officers and  directors of the Company on behalf of
stockholders  who bought shares of the Company's  common stock during the period
from May 7, 1998 through and including  April 16, 1999. The lawsuit alleges that
the defendants violated Section 10(b) of the Securities Exchange Act of 1934 and
Rule 10b-5 by  misrepresenting  and/or omitting  material  information about the
Company's  financial  situation and operations,  with the result of artificially
inflating the price of the Company's  stock. The lawsuit also alleges that Trace
and Marshall S. Cogan violated  Section 20(a) of the Securities  Exchange Act of
1934 as controlling persons of the Company. The


                                      F-35
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.  COMMITMENTS AND CONTINGENCIES (continued)

complaint seeks class certification,  a declaration that defendants violated the
federal  securities  laws, an award of money damages,  and costs and attorneys',
accountants'  and experts'  fees.  On May 18, 1999,  a similar  action  entitled
Thomas W. Riley v. Foamex  International Inc., et al., 99 Civ. 3653 was filed in
the same court.  The two actions have been  consolidated,  and the  Consolidated
Amended Class Action Complain,  setting forth the allegations of the two earlier
complaints,  was filed on  December 6, 1999.  The  defendants  filed  motions to
dismiss the  consolidated  complaint on February 4, 2000. No discovery has taken
place to date.

       Beginning  on or about  March 17,  1998,  six actions  (collectively  the
"Shareholder  Litigation")  were filed in the Court of  Chancery of the State of
Delaware,  New Castle County (the "Court"),  by stockholders of the Company. The
Shareholder  Litigation,  purportedly  brought as class actions on behalf of all
stockholders  of the  Company,  named the  Company,  certain  of its  directors,
certain of its  officers,  Trace and Trace Merger Sub,  Inc.  ("Merger  Sub") as
defendants  alleging  that  they had  breached  their  fiduciary  duties  to the
plaintiffs  and other  stockholders  of the Company  unaffiliated  with Trace in
connection  with the original  proposal of Trace to acquire the publicly  traded
outstanding  common stock of the Company for $17.00 per share under an Agreement
and Plan of Merger (the "First Merger Agreement").  The complaints sought, among
other things,  class  certification,  a declaration that the defendants breached
their  fiduciary  duties to the class,  preliminary  and  permanent  injunctions
barring   implementation  of  the  proposed   transaction,   rescission  of  the
transaction if  consummated,  unspecified  compensatory  damages,  and costs and
attorneys' fees. A stipulation and order  consolidating  these six actions under
the  caption  In  re  Foamex   International   Inc.   Shareholders   Litigation,
Consolidated Civil Action No. 16259NC, was entered by the Court on May 28, 1998.

       The parties to the  Shareholder  Litigation  entered into a Memorandum of
Understanding,  dated June 25,  1998 (the  "Memorandum  of  Understanding"),  to
settle the  Shareholder  Litigation,  subject  to,  inter alia,  execution  of a
definitive  Stipulation  of  Settlement  between the parties and approval by the
Court  following  notice  to  the  class  and  a  hearing.   The  Memorandum  of
Understanding  provided that as a result of, among other things, the Shareholder
Litigation and  negotiations  among counsel for the parties to the Memorandum of
Understanding,  a special meeting of stockholders would be held to vote upon and
approve the First Merger Agreement which provided,  among other things,  for all
of  the  Company's   outstanding  common  stock  not  owned  by  Trace  and  its
subsidiaries  (the "Public  Shares") to be  converted  into the right to receive
$18.75 in cash, without interest.

       The  Memorandum of  Understanding  also provided for  certification  of a
class,  for settlement  purposes only,  consisting of the Public Shares owned by
stockholders of the Company  unaffiliated  with Trace and its subsidiaries  (the
"Public  Shareholders"),  the  dismissal  of  the  Shareholder  Litigation  with
prejudice and the release by the  plaintiffs and all members of the class of all
claims and causes of action that were or could have been asserted against Trace,
the Company and the individual defendants in the Shareholder  Litigation or that
arise out of the matters alleged by plaintiffs.  Following the completion of the
confirmatory   discovery   which  was   provided  for  in  the   Memorandum   of
Understanding,  on  September  9, 1998,  the parties  entered  into a definitive
Stipulation  of  Settlement  and the Court set a hearing for October 27, 1998 to
consider whether the settlement  should be approved (the "Settlement  Hearing").
In connection with the proposed settlement, the plaintiffs intended to apply for
an award of attorney's  fees and litigation  expenses in an amount not to exceed
$925,000,   and  the   defendants   agreed  not  to  oppose  this   application.
Additionally,  the Company  agreed to pay the cost, if any, of sending notice of
the  settlement to the Public  Shareholders.  On September 24, 1998, a Notice of
Pendency of Class Action,  Proposed  Settlement  of Class Action and  Settlement
Hearing was mailed to the members of the settlement  class. On October 20, 1998,
the parties to the  Shareholder  Litigation  requested that the Court cancel the
Settlement  Hearing in light of the  announcement  made by Trace on October  16,
1998,  that it had  been  unable  to  obtain  the  necessary  financing  for the
contemplated  acquisition  by Trace of the Company's  common stock at a price of
$18.75 per share, which was the subject matter of the proposed settlement.  This
request was approved by the Court on October 21, 1998,  and the Company issued a
press release on October 21, 1998,  announcing  that the Court had cancelled the
Settlement Hearing.


                                      F-36
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.    COMMITMENTS AND CONTINGENCIES (continued)

       On  November  10,  1998,  counsel for  certain of the  defendants  in the
Shareholder  Litigation  gave notice  pursuant to the  Stipulation of Settlement
that such  defendants  were  withdrawing  from the  Stipulation of Settlement in
light of the notice  given by Trace to the Company and the special  committee of
the Board of Directors on November 5, 1998 whereby  Trace  terminated  the First
Merger Agreement on the grounds that the financing condition in the First Merger
Agreement was incapable of being satisfied.

       On November 12, 1998, the plaintiffs in the Shareholder  Litigation filed
an Amended  Class  Action  Complaint  (the  "Amended  Complaint").  The  Amended
Complaint  named the  Company,  Trace,  Merger Sub, Mr.  Marshall S. Cogan,  Mr.
Andrea Farace, Dr. Stuart Hershon,  Mr. John Tunney, and Mr. Etienne Davignon as
defendants, alleging that they breached their fiduciary duties to plaintiffs and
the other Public  Shareholders in connection with a second Agreement and Plan of
Merger (the "Second Merger Agreement"),  that the proposal to acquire the Public
Shares  for  $12.00  per  share  lacked  entire  fairness,  that the  individual
defendants  violated  8  Del.  Code  ss.  251 in  approving  the  Second  Merger
Agreement, and that Trace and Merger Sub breached the Stipulation of Settlement.
On December 2, 1998,  plaintiffs  served a motion for a preliminary  injunction,
seeking an Order to  preliminarily  enjoin the defendants from proceeding  with,
consummating or otherwise effecting the merger contemplated by the Second Merger
Agreement.  In January  1999,  Trace advised that it could not finance the offer
reflected  in  the  Second  Merger  Agreement.  As  a  result,  the  preliminary
injunction motion did not go forward.

       On June 9, 1999, the plaintiffs in the Shareholder  Litigation  moved for
leave to file a Second  Amended and  Supplemental  Class  Action and  Derivative
Complaint (the "Second  Amended  Complaint").  The Second Amended  Complaint was
filed on July 14, 1999, and named the Company,  Trace,  Merger Sub, Mr. Marshall
S. Cogan,  Mr. Andrea  Farace,  Dr.  Stuart  Hershon,  Mr. John Tunney,  and Mr.
Etienne  Davignon as defendants,  alleging that the named  individuals  breached
their  fiduciary   duties  by  causing  the  Company  to  waste  assets  in  its
transactions with Trace and by failing to enforce the Company's rights under the
First Merger Agreement,  seeking appointment of a receiver for the Company,  and
alleging that Trace and Merger Sub breached the Stipulation of Settlement.

       On August 26, 1999, the plaintiffs in the  Shareholder  Litigation  moved
for leave to file a Third Amended and  Supplemental  Class Action and Derivative
Complaint (the "Third Amended Complaint"). The Third Amended Complaint was filed
on October 27, 1999. The Third Amended  Complaint  alleges both class claims and
derivative  claims,  and names the Company,  Mr.  Marshall S. Cogan,  Mr. Andrea
Farace,  Dr. Stuart Hershon,  Mr. John Tunney,  Mr. Etienne  Davignon,  Mr. John
Gutfreund, Mr. Robert Hay and Mr. John Johnson as defendants.

       The  Third  Amended  Complaint  alleges  that the  individual  defendants
breached their duties to the Company's  Public  Shareholders  by agreeing to the
Sorgenti   Transaction   at  an  inadequate   price  that  fails  to  take  into
consideration the Company's  allegedly  valuable claims arising out of purported
diversions  of money  from the  Company to Trace,  and by  failing  to  maximize
shareholder value in a sale of the Company and instead agreeing to a deal with a
buyer who is willing to enter into a  consulting  deal with Mr. Cogan to get his
and the  board's  approval.  The Third  Amended  Complaint  purports to assert a
derivative  claim for waste and breach of fiduciary duty against Mr. Cogan,  Mr.
Farace, Dr. Hershon, Mr. Tunney, Mr. Davignon,  Mr. Gutfreund,  and Mr. Hay. The
Third Amended  Complaint  seeks the  appointment  of a receiver for the Company,
alleging  that the  directors  have  mismanaged  the Company.  The Third Amended
Complaint also alleges that Mr. Cogan,  Mr. Farace,  Dr. Hershon,  Mr. Davignon,
Mr.  Tunney,  Mr.  Gutfreund,  and Mr. Hay breached  their  fiduciary  duties by
failing to enforce the Company's rights under the First Merger Agreement.

       The Third Amended  Complaint  seeks:  a declaration  that the  individual
defendants have breached their fiduciary  duties;  damages;  the imposition of a
constructive  trust on profits and  benefits  Mr.  Cogan,  Trace,  and the other
individual  defendants allegedly received as a result of the alleged wrongdoing;
an  injunction  against  the  Sorgenti  Transaction  under  its  present  terms;
rescission  and damages if the deal is  consummated;  and the  appointment  of a
receiver for the Company.  Defendants have moved to consolidate this action with
Watchung Road  Associates,  L.P., et ano v. Foamex  International  Inc., et al.,
discussed  above,  and to  dismiss  the  complaint.  Plaintiffs  have  agreed to
consolidation and opposed the motion to dismiss.

                                      F-37
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.    COMMITMENTS AND CONTINGENCIES (continued)

       The defendants  intend to vigorously defend these  litigations,  which if
adversely  determined,  could have a material  adverse  effect on the  financial
position, results of operations and cash flows of the Company.

Litigation - Breast Implants

       As of  February  24,  2000,  the  Company  and Trace were two of multiple
defendants  in actions  filed on behalf of  approximately  3,857  recipients  of
breast  implants  in various  United  States  federal  and state  courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege  unspecified  damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant  recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 39 residents of Australia,  New Zealand,  England, and Ireland.
The Company believes that the number of suits and claimants may increase. During
1995,  the Company and Trace were granted  summary  judgments  and  dismissed as
defendants  from all cases in the  federal  courts of the United  States and the
state courts of California.  Appeals for these  decisions were withdrawn and the
decisions are final.

       Although  breast  implants  do not contain  foam,  certain  silicone  gel
implants  were  produced  using  a  polyurethane  foam  covering  fabricated  by
independent  distributors  or  fabricators  from  bulk foam  purchased  from the
Company or Trace.  Neither  the Company nor Trace  recommended,  authorized,  or
approved the use of its foam for these purposes. The Company is also indemnified
by Trace for any such liabilities relating to foam manufactured prior to October
1990.  Trace's insurance  carrier has continued to pay the Company's  litigation
expenses  after Trace's  filing under the  Bankruptcy  Code.  Trace's  insurance
policies  continue to cover  certain  liabilities  of Trace but if the limits of
those policies are exhausted, it is unlikely that Trace will be able to continue
to provide  additional  indemnification.  While it is not feasible to predict or
determine the outcome of these actions, based on management's present assessment
of the merits of pending claims,  after consultation with the general counsel of
the Company,  and without  taking into account the  indemnification  provided by
Trace, the coverage  provided by Trace's and the Company's  liability  insurance
and potential  indemnity from the  manufacturers of polyurethane  covered breast
implants,  management  believes  that the  disposition  of the matters  that are
pending or that may reasonably be  anticipated to be asserted  should not have a
material adverse effect on either the Company's  consolidated financial position
or results of operations.  If management's assessment of the Company's liability
with respect to these actions is  incorrect,  such actions could have a material
adverse effect on the financial  position,  results of operations and cash flows
of the Company.

Litigation - Other

       The Company is party to various  other  lawsuits,  both as defendant  and
plaintiff,  arising  in the  normal  course of  business.  It is the  opinion of
management that the  disposition of these lawsuits will not,  individually or in
the  aggregate,  have a material  adverse  effect on the  financial  position or
results  of  operations  of  the  Company.  If  management's  assessment  of the
Company's  liability  with respect to these actions is  incorrect,  such actions
could have a material  adverse  effect on the Company's  consolidated  financial
position.

Environmental

       The Company is subject to extensive and changing  federal,  state,  local
and foreign environmental laws and regulations,  including those relating to the
use, handling,  storage,  discharge and disposal of hazardous substances and the
remediation of  environmental  contamination,  and as a result,  is from time to
time involved in administrative and judicial  proceedings and inquiries relating
to environmental  matters. As of September 30, 1999, the Company had accruals of
approximately $4.5 million for environmental  matters.  During 1998, the Company
established an allowance of $1.2 million  relating to receivables from Trace for
environmental indemnifications due to the financial difficulties of Trace.

                                      F-38
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.    COMMITMENTS AND CONTINGENCIES (continued)

       The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments")  provide
for the establishment of federal emission standards for hazardous air pollutants
including  methylene  chloride,  propylene oxide and TDI,  materials used in the
manufacturing  of foam. On December 27, 1996,  the United  States  Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that  will  require  manufacturers  of slab  stock  polyurethane  foam  and foam
fabrication plants to reduce emissions of methylene chloride. The final National
Emission  Standard for  Hazardous  Air  Pollutants  ("NESHAP")  was  promulgated
October 7,  1998.  NESHAP  requires  a  reduction  of  approximately  70% of the
emission  of  methylene  chloride  for the slab  stock foam  industry  effective
October 7, 2001. The Company believes that the use of alternative  technologies,
including  VPFSM,  which do not utilize  methylene  chloride  and its ability to
shift  current   production  to  the  facilities  which  use  these  alternative
technologies  will  minimize  the  impact  of  these  regulations.  The 1990 CAA
Amendments also may result in the imposition of additional  standards regulating
air emissions from polyurethane foam manufacturers, but these standards have not
yet been proposed or promulgated.

       The Company has reported to  appropriate  state  authorities  that it has
found soil and groundwater  contamination  in excess of state standards at three
facilities and soil  contamination  in excess of state  standards at three other
facilities.  The  Company  has  begun  remediation  and  is  conducting  further
investigations  into the extent of the  contamination  at these  facilities and,
accordingly,  the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such  remediation  cannot be predicted with
any degree of certainty  at this time.  The Company has accruals of $3.3 million
for the  estimated  cost of  completing  remediation  at these  facilities.  The
Company  is  in  the  process  of  addressing  potential  contamination  at  its
Morristown,  Tennessee facility,  and has submitted a sampling plan to the State
of Tennessee.  The extent of the contamination and responsible  parties, if any,
has not yet been  determined.  A former  owner may be liable for cleanup  costs;
nevertheless,   the  cost  of  remediation,  if  any,  is  not  expected  to  be
significant.

       Federal  regulations  required  that by the end of 1998  all  underground
storage tanks  ("USTs") be removed or upgraded in all states to meet  applicable
standards.  The Company has upgraded all USTs at its  facilities  in  accordance
with these  regulations and recently  completed the closure of remaining USTs at
two sites to meet applicable  standards.  Some petroleum  contamination in soils
was found at one of the sites;  the  extent of the  contamination  is  currently
being investigated.  The Company has accrued  approximately $0.5 million for the
estimated  remediation costs associated with this site. However, the full extent
of contamination,  and accordingly, the actual cost of such remediation,  cannot
be  predicted  with  any  degree  of  certainty  at this  time.  Based  upon the
investigation conducted thus far, the Company believes that its USTs do not pose
a  significant  risk  of  environmental  liability.  However,  there  can  be no
assurances that such USTs will not result in significant environmental liability
in the future.

       On April 10,  1997,  the  Occupational  Health and Safety  Administration
promulgated new standards  governing  employee  exposure to methylene  chloride,
which  is used  as a  blowing  agent  in  some  of the  Company's  manufacturing
processes.  The phase-in of the  standards was completed in 1999 and the Company
has  developed  and  implemented  a  compliance  program.  Capital  expenditures
required  and  changes  in  operating   procedures   are  not   anticipated   to
significantly impact the Company's competitive position.

       The  Company  has been  designated  as a  Potentially  Responsible  Party
("PRP") by the EPA with respect to seven sites. Estimates of total cleanup costs
and fractional allocations of liability are generally provided by the EPA or the
committee of PRP's with respect to the  specified  site. In each case and in the
aggregate, the liability of the Company is not considered to be significant.

Although  it is  possible  that new  information  or future  developments  could
require the Company to reassess its potential  exposure  relating to all pending
environmental  matters,  including those described herein,  the Company believes
that,  based upon all currently  available  information,  the resolution of such
environmental  matters will not have a material  adverse effect on the Company's
operations,  financial position,  capital expenditures or competitive  position.
The possibility  exists,  however,  that new  environmental  legislation  and/or
environmental regulations may

                                      F-39
<PAGE>
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

20.    COMMITMENTS AND CONTINGENCIES (continued)

be adopted,  or other  environmental  conditions may be found to exist, that may
require expenditures not currently anticipated and that may be significant.

21.    QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
                                                        First        Second          Third         Fourth
                                                     Quarter         Quarter        Quarter        Quarter (a)
                                                     -------         -------        -------        -----------
                                                                     (thousands, except per share amounts)
       1999
<S>                                                   <C>           <C>             <C>             <C>
         Net sales                                    $322,863      $313,029        $326,949        $317,152
         Gross profit                                   43,597        43,777          48,813          44,121
         Income from continuing operations               6,013         3,177           6,128           4,398
         Net income                                      6,013         3,177           6,128           4,398
         Basic earning per share from
             continuing operations                        0.24          0.13           0.24             0.18
         Diluted earnings per share from
             continuing operations                        0.24          0.13           0.24             0.17

       1998 (b)
         Net sales                                    $312,290      $298,479        $332,510        $303,117
         Gross profit                                   49,570        54,966          51,319          (1,350)
         Income (loss) from continuing operations        4,983         9,320           3,426         (87,582)
         Net income (loss)                               3,109         9,277           3,426         (87,582)
         Basic earning (loss) per share from
             continuing operations                        0.20          0.37           0.14            (3.50)
         Diluted earnings (loss) per share from
             continuing operations                        0.19          0.36           0.13            (3.50)
<FN>
(a)  Fourth  quarter 1999 results were  favorably  impacted by $1.8 million from
     the realization of a business interruption insurance claim partially offset
     by fourth quarter  adjustments  related  principally to previously recorded
     1999  severance  costs.  Items that  negatively  impacted  the 1998  fourth
     quarter included:  (i) additional costs of $4.5 million associated with the
     integration of Crain and Foamex L.P.,  including inventory  adjustments for
     facilities   affected  by  the   consolidation  of   manufacturing   and/or
     distribution  facilities;  (ii) operating losses and inefficiencies of $1.0
     million  resulting  from fires at  Orlando,  Florida and  Cornelius,  North
     Carolina plants; (iii) operating inefficiencies and logistics costs of $2.5
     million  associated with the sales of juvenile and other consumer  products
     sold through mass  merchandisers  and discount stores;  (iv) start up costs
     and   inefficiencies  of  $3.0  million   associated  with  new  automotive
     lamination contracts at Mexican border facilities; (v) increased provisions
     for bad debts of $3.0 million for United States and Mexican customers;  and
     (vi)  competitive  pricing  measures  due to market share  challenges  from
     competitors for its foam and automotive products. In addition,  the Company
     provided a  provision  allowance  on its  deferred  income tax  assets,  as
     discussed in Note 8.

(b)  The 1998 quarterly  results have been restated from the amounts reported in
     the 1998 Annual Report on Form 10-K.  The restated Form 10-Q's  reflected a
     review of  year-end  adjustments  and  restated  amounts  as filed with the
     Securities and Exchange Commission.
</FN>
</TABLE>


                                      F-40
<PAGE>
                            FOAMEX INTERNATIONAL INC.
                     INDEX TO FINANCIAL STATEMENT SCHEDULES


       Index to Financial Statement Schedules

       Schedule I - Condensed Financial Information of Registrant

       Schedule II - Valuation and Qualifying Accounts

       All other  schedules  are omitted since the required  information  is not
present or is not present in amounts  sufficient  to require  submission  of the
schedule,  or because the information  required is included in the  consolidated
financial statements and notes thereto.











                                      S-1

<PAGE>
                                                                      Schedule I
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                         December 31,         December 31,
                                                                             1999                 1998
ASSETS                                                                            (thousands)
CURRENT ASSETS
<S>                                                                       <C>                 <C>
    Cash and cash equivalents                                             $      13           $     187
    Intercompany receivables                                                    382               4,623
    Other current assets                                                        161                 584
                                                                          ---------           ---------
            Total current assets                                                556               5,394

OTHER ASSETS                                                                      1               1,078
                                                                          ---------           ---------

TOTAL ASSETS                                                              $     557           $   6,472
                                                                          =========           =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
    Accounts payable                                                      $      40           $      --
    Deferred income taxes                                                     1,140                  --
    Other accrued liabilities                                                 3,061               6,486
                                                                          ---------           ---------
      Total current liabilities                                               4,241               6,486

LONG-TERM LIABILITIES
    Revolving loan with consolidated subsidiary                                 676                  --
    Notes payable to consolidated subsidiary                                  2,500               4,990
    Tax distribution advance payable                                             --              13,618
    Deficit in consolidated subsidiaries                                    158,122             183,082
    Deferred income taxes                                                        --                 976
    Other liabilities                                                         1,399               1,439
                                                                          ---------           ---------
      Total liabilities                                                     166,938             210,591
                                                                          ---------           ---------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (DEFICIT)
    Preferred Stock, par value $1.00 per share:
      Authorized 5,000,000 shares - none issued                                  --                  --
    Common Stock, par value $.01 per share:
      Authorized 50,000,000 shares
      Issued 27,045,480 and 27,005,752 shares, respectively
      Outstanding 25,056,480 and 25,016,752 shares, respectively                270                 270
    Additional paid-in capital                                               87,475              86,990
    Retained earnings (accumulated deficit)                                (217,945)           (237,661)
    Accumulated other comprehensive income (loss)                            (7,758)            (24,721)
    Other:
      Common Stock held in Treasury, at cost:
        1,989,000 shares                                                    (19,202)            (19,202)
      Shareholder note receivable                                            (9,221)             (9,795)
                                                                          ---------           ---------
      Total stockholders' equity (deficit)                                 (166,381)           (204,119)
                                                                          ---------           ---------

      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)                $     557           $   6,472
                                                                          =========           =========
</TABLE>



                 See notes to consolidated financial statements.
                                   (continued)

                                      S-2
<PAGE>
                                                                      Schedule I
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                                    1999                1998                1997
                                                 ---------           ---------           ---------
                                                  (amounts in thousands except per share amounts)
<S>                                              <C>                 <C>                 <C>
INTERCOMPANY SALES                               $      --           $  12,619           $ 123,355

COST OF GOODS SOLD                                      --              12,619             123,355
                                                 ---------           ---------           ---------

GROSS PROFIT                                            --                  --                  --

SELLING, GENERAL AND
    ADMINISTRATIVE EXPENSES                          1,417                (183)                486
                                                 ---------           ---------           ---------

INCOME (LOSS) FROM OPERATIONS                       (1,417)                183                (486)

EQUITY IN EARNINGS (LOSS) OF
    CONSOLIDATED SUBSIDIARIES                       24,091             (18,260)              4,954

INTEREST EXPENSE                                     2,042               2,237                 153

OTHER INCOME (EXPENSE)                                   2              (7,326)                204
                                                 ---------           ---------           ---------

INCOME (LOSS) BEFORE INCOME TAX
    AND EXTRAORDINARY LOSS                          20,634             (27,640)              4,519

INCOME TAX PROVISION                                   918              42,213                 388
                                                 ---------           ---------           ---------

INCOME (LOSS) FROM CONTINUING
    OPERATIONS                                      19,716             (69,853)              4,131

EQUITY IN DISCONTINUED OPERATIONS                       --                  --              (1,994)
                                                 ---------           ---------           ---------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS             19,716             (69,853)              2,137

EQUITY IN EXTRAORDINARY LOSS                            --              (1,917)            (44,482)
                                                 ---------           ---------           ---------

NET INCOME (LOSS)                                $  19,716           $ (71,770)          $ (42,345)
                                                 =========           =========           =========

BASIC EARNINGS (LOSS) PER SHARE:
    CONTINUING OPERATIONS                        $    0.79           $   (2.79)          $    0.16
                                                 =========           =========           =========
    EARNINGS (LOSS) PER SHARE                    $    0.79           $   (2.87)          $   (1.68)
                                                 =========           =========           =========

DILUTED EARNINGS (LOSS) PER SHARE:
    CONTINUING OPERATIONS                        $    0.78           $   (2.79)          $    0.16
                                                 =========           =========           =========
    EARNINGS (LOSS) PER SHARE                    $    0.78           $   (2.87)          $   (1.65)
                                                 =========           =========           =========
</TABLE>

    Equity in discontinued  operations includes allocated income tax benefits of
    Foamex International of $1.3 million for 1997.

    Equity in extraordinary  loss includes allocated income tax benefits of $1.9
    million and $27.3 million for 1998 and 1997, respectively.

                 See notes to consolidated financial statements.
                                   (continued)

                                      S-3
<PAGE>
                                                                      Schedule I
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
                                                                                   1999               1998               1997
                                                                                 --------           --------           --------
OPERATING ACTIVITIES                                                                               (thousands)
<S>                                                                              <C>                <C>                <C>
    Net income (loss)                                                            $ 19,716           $(71,770)          $(42,345)
    Adjustments to reconcile net income (loss) to
      net cash provided by operating activities:
      Deferred income taxes                                                           164             45,189               (387)
      Equity in discontinued operations                                                --                 --              1,994
      Equity in extraordinary loss                                                     --              1,917             44,482
      Equity in (earnings) losses of consolidated subsidiaries (24,091)            18,260             (4,954)
      Other                                                                           (34)             1,253                 61
    Changes in operating assets and liabilities,
       net of acquisitions:
      Intercompany receivables                                                      4,241              9,919             (4,026)
      Accounts payable                                                                 40            (10,542)             1,233
      Other assets and liabilities                                                 (3,176)             1,189                764
                                                                                 --------           --------           --------
         Net cash used for operating activities                                    (3,140)            (4,585)            (3,178)
                                                                                 --------           --------           --------

INVESTING ACTIVITIES
    Investment in consolidated subsidiaries                                            --            (20,000)                --
    Settlement of discontinued operations                                              --                 --            (13,556)
    Distribution from subsidiaries                                                 17,204             20,293              8,757
    Other                                                                             924                 --             (2,000)
                                                                                 --------           --------           --------
    Net cash provided by (used for) investing activities                           18,128                293             (6,799)
                                                                                 --------           --------           --------

FINANCING ACTIVITIES
    Proceeds from revolving loan with consolidated subsidiary                         676                 --                 --
    Proceeds from (repayments of) note payable to consolidated
      subsidiary                                                                   (2,490)             2,490              2,500
    Dividend payments                                                                  --             (1,245)                --
    Proceeds from (repayments of) tax distribution advance                        (13,618)                --             13,618
    Purchase of treasury stock                                                         --                 --             (5,739)
    Proceeds from exercise of stock options                                           270                595              1,005
                                                                                 --------           --------           --------
         Net cash provided by (used for) financing activities                     (15,162)             1,840             11,384
                                                                                 --------           --------           --------

NET INCREASE (DECREASE) IN CASH AND
    CASH EQUIVALENTS                                                                 (174)            (2,452)             1,407

CASH AND CASH EQUIVALENTS AT
    BEGINNING OF PERIOD                                                               187              2,639              1,232
                                                                                 --------           --------           --------

CASH AND CASH EQUIVALENTS AT
    END OF PERIOD                                                                $     13           $    187           $  2,639
                                                                                 ========           ========           ========
</TABLE>

Note:  During  1999,  1998 and 1997,  the  Company  received  from (paid to) its
       consolidated  subsidiaries  distributions of $(0.1) million, $0.3 million
       and  $8.8  million,   respectively,   in  accordance   with  tax  sharing
       agreements.   Also,   during  1999,   the  Company   received  a  special
       distribution  from its  subsidiaries of $17.3 million.  The proceeds were
       used to repay the tax distribution advance and accrued interest to Foamex
       L.P.


                 See notes to consolidated financial statements.
                                   (continued)

                                      S-4
<PAGE>

                                                                     Schedule II
                   FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
                        VALUATION AND QUALIFYING ACCOUNTS
                                   (thousands)
<TABLE>
<CAPTION>
                                          Balance at      Charged to      Charged to                    Balance at
                                        Beginning of       Costs and        other                         End of
                                            Period         Expenses       Accounts     Deductions         Period
YEAR ENDED DECEMBER 31, 1999
<S>                                        <C>              <C>            <C>            <C>            <C>
Allowance for Uncollectible Accounts       $  9,790         $ 2,758        $     -        $  5,074       $  7,474
                                           ========         =======        =======        ========       ========

Reserve for Discounts                      $  1,840         $     -        $16,846   (1)  $ 16,611       $  2,075
                                           ========         =======        =======        ========       ========

Deferred Income Tax Asset
      Valuation Allowance                  $ 85,250         $(7,300)       $(4,124)  (2)  $      -       $ 73,826
                                           ========         =======        =======        ========       ========


YEAR ENDED DECEMBER 31, 1998
Allowance for Uncollectible Accounts       $  6,844         $ 2,611        $ 2,500   (1)  $  2,165       $  9,790
                                           ========         =======        =======        ========       ========

Reserve for Discounts                      $  1,238         $     -        $12,516   (1)  $ 11,914       $  1,840
                                           ========         =======        =======        ========       ========

Deferred Income Tax Asset
     Valuation Allowance                   $ 13,407         $52,573        $19,270   (3)  $      -       $ 85,250
                                           ========         =======        =======        ========       ========


YEAR ENDED DECEMBER 28, 1997
Allowance for Uncollectible Accounts       $  3,060         $ 2,295        $ 2,898        $  1,409       $  6,844
                                           ========         =======        =======        ========       ========

Reserve for Discounts                      $  3,268         $     -        $10,182   (1)   $12,212       $  1,238
                                           ========         =======        =======        ========       ========

Deferred Income Tax Asset
     Valuation Allowance                   $ 23,064         $(5,028)       $(1,863)  (4)  $  2,766       $ 13,407
                                           ========         =======        =======        ========       ========
<FN>

(1)  Adjustments reflect a reduction in net sales.

(2)  Represents reversal on valuation  allowance  established on deferred income
     tax assets related to minimum pension liability recognized in stockholders'
     deficit.

(3)  Includes an adjustment to reflect the  distribution  of valuation  reserves
     for  deferred  income  tax  assets  to  Trace  in  connection  with the GFI
     Transaction (see Note 13 to the consolidated financial statements).

(4)  Represents an adjustment to cost in excess of net assets acquired  relating
     to the utilization of preacquisition  deferred income tax assets of General
     Felt.
</FN>
</TABLE>



                                      S-5