<PAGE>

                                                                    Exhibit 10.9

     Confidential treatment has been requested for certain portions of this
     document which have been omitted and filed separately with the Secretary of
     the Securities and Exchange Commission.  Omitted portions are indicated by
     [REDACTED].


                           MATTRESS SUPPLY AGREEMENT


     This MATTRESS SUPPLY AGREEMENT (the "Agreement") dated as of August 6,
1999, is made between Heilig-Meyers Company, a Virginia corporation ("Heilig-
Meyers Company"), Mattress Discounters Corporation, a Delaware corporation
("Mattress Discounters") and MD Acquisition Corporation, a Virginia corporation
("Buyer").

                                    RECITALS

     A.   Heilig-Meyers Company and Buyer have entered into a Transaction
Agreement dated as of May 28, 1999, as amended by Amendment No. 1 thereto dated
as of July 15, 1999 (the "Agreement of Sale"), providing for the acquisition by
Buyer of all the issued and outstanding shares of common stock of Mattress
Discounters, T.J.B., Inc., a Maryland corporation, and The Bedding Experts,
Inc., an Illinois corporation (collectively, the "Companies").

     B.   As a condition to the respective obligations of the parties to the
Agreement of Sale to consummate the Closing, the Agreement of Sale requires the
execution and delivery of this Agreement.

     NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties and agreements contained herein, the parties hereto agree as follows:

     1.   Definitions.  (a) The following terms, as used herein, shall have the
          -----------
following meanings:

     "Agreement" has the meaning set forth in the introductory paragraph hereof.
<PAGE>

"Allowance and Rebate Mattresses" shall mean the Mattresses sold under the names
"Ultimate", "Regal Lady", "Regalia" and "Densified Torso Support Collection" and
any other name so designated by Heilig and Mattress Discounters.

     "Alternate Mattress" has the meaning set forth in Section 12 hereof.

     "Buyer" has the meaning set forth in the introductory paragraph hereof.

     "Effective Date" shall mean the date hereof.

     "Heilig" shall mean Heilig-Meyers Company or its wholly-owned subsidiaries.

     "Mattress(es)" means mattresses produced at Mattress Discounters' plants
meeting specifications and qualification requirements for mattresses by Heilig
in its business within the United States.

     "Mattress Discounters" has the meaning set forth in the Recitals.

     "Mattress Requirement" shall mean Mattresses with an aggregate purchase
price of [REDACTED] for each year of the term hereof; provided, however, that
for the one-year period beginning on the six month anniversary of any
Termination Notice, the Mattress Requirement shall be Mattresses with an
aggregate purchase price of [REDACTED], and for the six month period beginning
on the 18 month anniversary of any Termination Notice, the Mattress Requirement
shall be Mattresses with an aggregate purchase price of [REDACTED].  All dollar
amounts set forth above shall be adjusted annually in proportion with any
fluctuations in the average price per mattress supplied by Mattress Discounters
both during 1999 and the year for which such adjustment is made.

     "Person" means an individual, partnership (general or limited),
corporation, association or other form of business organization (whether or not
regarded as a legal entity under applicable law), trust, estate or any other
entity.

     "Price" means the selling price of Products, as determined in accordance
with Section 5.
<PAGE>

     "Pricing Proposal" has the meaning set forth in Section 5.

     "Products" means Mattresses sold to Heilig by Buyer pursuant to a Heilig
purchase order.

     "RoomStores Division" shall mean Heilig-Meyers Company's RoomStores
division including stores operated under the "Heilig-Meyers" and "Homemaker's"
name in the Chicago, Illinois market.

     "RoomStores Mattress" shall mean Mattresses sold to the RoomStores Division
under the names "Preference," "Spine Dimensions," "Luxury Wool Dimension,"
"Pillow Silk Dimensions," and any other name so designated by Heilig and
Mattress Discounters for sale to Heilig's RoomStores division.

"Agreement of Sale" has the meaning set forth in the Recitals.

"Termination Notice" has the meaning set forth in Section 4.

     2.   Sale of Mattresses.  Subject to the provisions hereof, Mattress
          ------------------
Discounters agrees to manufacture and sell, with levels of quality and service
that equal or exceed those provided by suppliers of comparable mattress products
available to Heilig at comparable prices, and Heilig agrees to buy from Mattress
Discounters, the Mattress Requirement at the prices and terms set forth herein.

     3.   Exclusivity.  Mattress Discounters shall not sell mattresses to any
          -----------
customers with a tick or name substantially similar to the tick or name on any
Mattresses sold to Heilig under this Agreement.

     4.   Term of Agreement.  This Agreement shall become effective on the
          -----------------
Effective Date and shall continue for an initial term of three years and
continue thereafter indefinitely until terminated by either party upon not less
than six months' prior written notice (a "Termination Notice"), which
Termination Notice may not be given by either party before the 30 month
anniversary date of this Agreement, or until earlier terminated by mutual
agreement or otherwise in accordance with the terms of this Agreement.  Any
Termination Notice shall be given in accordance
<PAGE>

with the notice provisions of this Agreement. The term of this Agreement shall
expire on the date that is the second anniversary of the date of the Termination
Notice.

     5.   Prices and Terms.  (a) The Prices for the Mattresses for a period of
          ----------------
two years after the Effective Date shall be the current transaction prices
between Heilig and Mattress Discounters, F.O.B. the applicable Heilig facility
(freight prepaid), immediately before the Effective Date.  After the initial two
year period, the Prices for the Mattresses shall be no greater than the then
current market prices and otherwise on then current market terms for mattresses
of comparable specifications and quality with comparable service available to
Heilig from time to time.  Heilig and Mattress Discounters agree to make
available to each other such information as may reasonably be required from time
to time to verify then current market prices and terms for mattress products of
comparable specification and quality. The prices offered by only one viable
supplier to Heilig for mattresses of comparable specifications and quality with
comparable service shall not constitute a market price.  After receipt of such
an offer, Heilig may seek comparable offers from other viable suppliers.  In the
event Heilig receives a comparable offer from at least one other viable supplier
(so that there are at least two viable suppliers) and the prices offered are on
a weighted average basis [REDACTED] lower than the then current prices of
Products on a net selling basis, then Heilig may notify Mattress Discounters and
deliver a copy of such offer ("the Pricing Proposal").  Mattress Discounters
shall have 60 days to review the Pricing Proposal.  In the event Mattress
Discounters does not agree to sell Products to Heilig at the same prices as in
the Pricing Proposal within such 60-day period, Heilig may terminate this
Agreement pursuant to Section 10.  Mattress Discounters agrees that for the term
of this Agreement the Prices for Mattresses sold to Heilig shall not be higher
than the prices charged to
<PAGE>

any other wholesale Mattress Discounters customer for Mattresses in any quantity
in like specification and quality.

     (b) Any sales, use or similar tax imposed by any governmental authority on
goods shipped by Mattress Discounters shall be added to the Price to be paid by
Heilig.  Buyer and Mattress Discounters, jointly and severally, shall indemnify
Heilig for any liabilities arising from Mattress Discounters' failure to remit
such taxes to the taxing authority in accordance with law.

     (c) Heilig shall receive from Mattress Discounters a return allowance equal
to [REDACTED] of the aggregate price of Allowance and Rebate Mattresses
purchased by Heilig, which allowance shall be paid quarterly by netting such
amount against invoices due in the first month following the end of each quarter
(with the first quarter ending on the last day of the third full month following
the date of this Agreement and including the period between the date hereof and
the last day of the month in which this Agreement becomes effective). Heilig
shall receive from Mattress Discounters a rebate of [REDACTED] of the aggregate
price of Allowance and Rebate Mattresses purchased by Heilig, which rebate shall
be paid quarterly by netting such amount against invoices due in the first month
following the end of each quarter (with the first quarter determined in the same
manner as in the preceding sentence). Heilig shall receive from Mattress
Discounters an annual amount of [REDACTED] in "spiff" money accrued at 1/12th of
such amount per month, which amount shall be paid monthly by netting such amount
against invoices due in the month following accrual.
<PAGE>

     (d) Heilig shall receive from Mattress Discounters a rebate for each
twelve-month period during the term of this Agreement equal to the percentage
set forth below of the aggregate price of RoomStores Mattresses purchased by
Heilig during such twelve-month period.


                               Percentage    RoomStore Mattresses
                               ----------    --------------------
                                             Purchased by Heilig
                                             -------------------
                               [REDACTED]



The rebate shall be paid by netting such amount against invoices due after the
end of the applicable twelve month period.

     (e) In the event Heilig does not purchase Mattresses subject to the License
Agreement, dated as of September 22, 1998 (the "Eastman License Agreement"),
between Chittenden & Eastman Company, an Iowa corporation, and Mattress
Discounters in a quantity sufficient for Mattress Discounters to meet the
minimum annual royalty payments set forth in Section 4 of the License Agreement,
Heilig shall pay to Mattress Discounters the difference between such minimum
annual royalty payment and the royalty payable by Mattress Discounters as a
result of purchases by Heilig.

     (f) The return policy in effect before the date hereof for Mattresses sold
to the RoomStores Division shall continue during the term of this Agreement.

     6.   Payment.  Each delivery shall be invoiced separately, referencing the
          --------
applicable Heilig purchase order.  Payment shall be made on 2%-30 days, net 60
day terms.  Payment of invoices shall not be construed as waiver of any of
Heilig's rights relating to non-conformity, breach
<PAGE>

of warranty or any other purpose. Heilig may withhold payment only with respect
to the particular quantity of Products in dispute.

     7.   Delivery.  Delivery shall be FOB at the applicable Heilig facility,
          --------
freight prepaid.

     8.   Equivalency of Service and Quality.  Mattress Discounters agrees to
          ----------------------------------
provide to Heilig equivalency in service and services and quality of products as
they currently exist and as may be necessary from time to time to be equivalent
to those available to Heilig from other suppliers of equivalent mattress
products at equivalent prices.

     9.   Title and Risk of Loss.  Title and risk of loss or damage to
          ----------------------
Mattresses supplied hereunder shall pass to Heilig upon delivery at Heilig's
facility.

     10.  Termination Prior to End of Term.  This Agreement may be terminated
          --------------------------------
before the end of its term:

(a)  By Heilig immediately upon written notice to Buyer if Buyer or Mattress
Discounters shall, or by Buyer or Mattress Discounters immediately upon written
notice to Heilig if Heilig shall,: (i) file any petition under the bankruptcy
laws of the United States; (ii) have such a petition filed against it which is
not dismissed or otherwise resolved in its favor within sixty (60) days, or
(iii) cease to function as a going concern or to conduct operations in the
normal course of business;

(b)  By Heilig immediately if Buyer or Mattress Discounters breaches, or by
Buyer or Mattress Discounters immediately if Heilig breaches, a material
provision of this Agreement and the breach continues for more than 90 days after
delivery of written notice of such breach. Heilig, Buyer and Mattress
Discounters agree to negotiate in good faith to resolve any disputes under this
Agreement; or
<PAGE>

(c)  By Heilig upon 120 days notice to Mattress Discounters if Mattress
Discounters does not agree to sell Products to Heilig at the same prices as in
the Pricing Proposal within 60 days as provided in Section 5(a).

In the event of termination of this Agreement pursuant to this Section,
allowance or rebate payments under Sections 5(c) or (d) shall be paid for the
period through termination, at Heilig's option, either by (i) netting such
amounts against outstanding invoices or (ii) cash payment from Mattress
Discounters due within five business days of notice from Heilig.

     11.  Effect of Termination or Expiration.  (a) If this Agreement is
          -----------------------------------
terminated pursuant to Section 10(a), (b) or (c) above, then this Agreement
shall terminate in its entirety and no further obligation shall exist on either
party to purchase or sell, except that Heilig shall be obligated to pay on all
outstanding invoices for Mattresses previously accepted and the warranties set
forth in Section 15 shall survive. Notwithstanding the foregoing, if this
Agreement is terminated by Mattress Discounters or Buyer, then, at Mattress
Discounters' or Buyer's option, Mattress Discounters shall be entitled to
deliver, and Heilig shall be obligated to purchase from Mattress Discounters,
Products which Heilig has ordered and which Mattress Discounters has delivered
or with respect to which Mattress Discounters has commenced performance
(including any raw materials specifically related to such Products), provided
however, that any such Products Heilig is obligated to purchase shall meet all
requirements of this Agreement.

     (b) Notwithstanding anything else contained in this Agreement, termination
or expiration shall not act as a waiver of any breach of this Agreement by
either party through the date of such termination or expiration nor extinguish
the obligation of the parties to comply with the requirements of Paragraphs 15,
16 and 18.
<PAGE>

     12.  Alternate Mattresses.  If Mattress Discounters is unable for any
          --------------------
reason (other than due to the fault of Heilig) to meet Heilig's volume
requirements for Mattresses, then Heilig may purchase such Mattress Products
from a third party supplier other than Mattress Discounters ("Alternate
Mattress") for such period as is reasonable due to such inability of Mattress
Discounters and credit such purchases of Alternate Mattresses against the
Mattress Requirement; provided that, in such case, Heilig, if possible, will
purchase such Mattress Products from Sealy Mattress Company if they are offered
with comparable specifications, quality and service and at the same or more
favorable prices and on other terms substantially the same or more favorable
than other third party suppliers.

     13.  Covenants.  The parties hereto covenant as follows:
          ---------
          (a) Insurance.  During the term of this Agreement, Mattress
              ---------
Discounters shall each maintain in full force and effect products liability
insurance coverage with respect to the Products with a policy limit of at least
$5,000,000 in primary or excess coverage.

          (b) Notice of Labor Dispute.  Whenever an actual or potential labor
              -----------------------
dispute delays or threatens to delay a party's timely performance hereunder,
such party shall immediately give notice thereof to the other party hereto.

     14.  Posture Quilt Imperial Program.  Heilig and Mattress Discounters will
          ------------------------------
use their reasonable efforts to work together to set the specifications of the
Posture Quilt Imperial Program each year during the term of this Agreement.

     15.  Force Majeure.  The performance of either party under this Agreement
          -------------
shall be excused to the extent and during any event which reasonably prevents
and is beyond the control of the affected party from fulfilling its obligations
hereunder.  Such events shall include, but shall not be limited to, fire,
explosion, storm damage, flood, labor troubles including strikes, lockouts or
<PAGE>

slowdowns, government intervention (not including fines for violations of
permits), labor or transportation, war, sabotage, riot or civil disturbances, or
governmental regulation or statute.  In the event of a force majeure, the
affected party shall promptly notify the other in writing, describing the nature
of the cause and expected duration.  The affected party shall take reasonable
steps to cure the cause and mitigate damages to the other party.  During the
force majeure, the other party may take reasonable action to obtain other
sources of supply or outlet for Mattresses and such actions shall not be deemed
a breach of this Agreement, even if the commitment required during the force
majeure shall extend beyond its duration.  Any Alternate Mattresses purchased by
Heilig during (or, if required, after) the force majeure shall be applied
against the applicable Mattress Requirement. The term of this Agreement shall
not be extended by the occurrence of a force majeure.  Voluntary curtailment of
production through slowdowns or scheduled shutdowns shall not be considered
force majeure.

     16.  Warranties.  (a) Products supplied hereunder will be free of defects
          -----------
in materials and workmanship when delivered.  This warranty does not apply to
damage to or loss occurring after delivery and caused by any act or omission of
Heilig, its agents, employees or customers.  Heilig's remedies shall include
replacement of the affected products at no cost whatsoever to Heilig, or, at
Heilig's option, full credit therefor, FOB delivery point.

     (b) Mattress Discounters warrants that all Mattresses supplied hereunder
shall be free of all liens and encumbrances and that good and valid title shall
pass thereto as provided in this Agreement.

     (c) Each shipment of goods shall constitute a separate and distinct sale,
and any default by either party in the manufacture or sale, or in the ordering,
accepting or paying for any shipment
<PAGE>

shall not affect either party's right to insist upon full performance of the
other's obligations hereunder and to suspend its own performance until such
defaults are cured.

     17.  Limitation of Liability.  Except as otherwise provided herein, under
          ------------------------
no circumstances shall any of the parties hereto be liable for consequential or
incidental damages, including lost profits.

     18.  Notices.  All notices and other communications required or permitted
          --------
hereunder shall be in writing (including telex, telefax or similar writing) and
shall be given:

     If to Mattress Discounters Corporation:
     Mattress Discounters Corporation
     9822 Fallard Court
     Upper Marlboro, Maryland 20772
     Attention:  Jon Studner
     Fascimile:  (301) 856-0380

     with copies to:
     c/o Bain Capital, Inc.
     Two Copley Place
     Boston, MA  02116
     Attention:  Michael Krupka
     Fascimile:  (617) 572-3274

     Kirkland & Ellis
     Citicorp Center
     153 East 53/rd/ Street
     New York, New York  10022
     Attention:  Lance C.  Balk
     Facsimile: (212) 446-4900

     If to Heilig:

     Heilig-Meyers Company
     12560 West Creek Parkway
     Richmond, Virginia 23238
     Attention: William C. DeRusha
     Facsimile:  (804) 784-7901
<PAGE>

     with a copy to:

     McGuire, Woods, Battle & Boothe LLP
     901 East Cary Street
     Richmond, Virginia  23219
     Attention:  Robert L. Burrus, Jr.
     Telefax:  (804) 775-1061

or to such other person or to such other address or telefax number as the party
to whom such notice is to be given may have furnished the other parties in
writing by like notice.  If mailed, any such communication shall be deemed to
have been given on the fifth business day following the day on which the
communication is posted by registered or certified mail (return receipt
requested).  If given by any other means it shall be deemed to have been given
when delivered to the address specified in this Section.

     19.  Confidentiality.  Unless compelled to disclose by judicial or
          ---------------
administrative process or, in the opinion of counsel, by other requirements of
law, each party hereto agrees to keep the terms of this Agreement confidential
and not to disclose the terms hereof to any third parties, except, in
confidence, to their auditors, attorneys, financial advisors and other
consultants and advisors, without the express written consent of the other party
except to the extent such information can be shown to have been or to have
become generally available to the public other than as a result of a disclosure
by the officers, directors, employees, representatives, consultants or advisors
of such party.  Notwithstanding any provision in this Paragraph 18, either party
may disclose the terms of this Agreement in connection with an actual or
potential merger, acquisition, or similar transaction, provided that any Person
receiving such confidential information agrees to be bound by this Paragraph 18.

     20.  Action by Buyer.  Buyer agrees to cause Mattress Discounters to
          ---------------
perform all obligations required of Mattress Discounters by this Agreement.
<PAGE>

     21.  Interpretation.  The headings contained in this Agreement are for
          --------------
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.

     22.  Assignment.  No party may assign this Agreement by operation of law or
          -----------
otherwise without the written consent of the other parties; provided, however,
that Mattress Discounters or Buyer (and after the Merger, as defined in the
Agreement of Sale, the Surviving Corporation, as defined in the Agreement of
Sale) may, upon notice and without releasing Mattress Discounters or Buyer (and
after the Merger, the Surviving Corporation) from its obligations hereunder,
assign, directly or indirectly, any or all of its rights and obligations
hereunder to any affiliate of Buyer (and after the Merger, the Surviving
Corporation), including one which acquires all or substantially all of the
assets of the Companies from the Surviving Corporation.

     23.  Limit of Authority.  Each of Heilig and Mattress Discounters are
          ------------------
independent contractors and this Agreement does not constitute either Heilig or
Mattress Discounters as the legal representative of the other for any purpose
whatsoever.  Neither Heilig or Mattress Discounters has authority to assume or
create any obligation whatsoever, expressed or implied, on behalf or in the name
of the other, nor to bind the other in any manner whatsoever.

     24.  Modifications.  No modification, amendment, extension, renewal,
          -------------
rescission, termination or waiver of any of the provisions contained herein, or
any representation, promise or condition in connection with the subject matter
hereof, shall be binding upon either party unless in writing and signed by an
officer on its behalf.

     25.  Miscellaneous.  This Agreement (i) together with the Agreement of
          -------------
Sale, constitutes the entire agreement and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof, including that (A) the terms and conditions on
Heilig's purchase order or other document shall not apply to the extent they
conflict
<PAGE>

with the terms hereof and (B) to the extent of a conflict between this Agreement
and the Agreement of Sale, this Agreement shall control; (ii) is an independent
agreement, the rights and conditions of the parties to which shall not be
affected by any provision of, or remedy arising under or with respect to any
other agreement between the parties except to the extent expressly provided in
this or such other agreement; (iii) is not intended to and shall not confer upon
any other person or business entity, other than the parties hereto or any
permitted assignee, any rights or remedies with respect to the subject matter
hereof; and (iv) shall be governed by and construed in accordance with the laws
of the Commonwealth of Virginia without regard to its conflict of law or choice
of law rules. The invalidity, illegality or unenforceability of any one or more
provisions of this Agreement shall in no way affect or impair the validity,
legality or enforceability of the remaining provisions hereof, which shall
remain in full force and effect.

     26.  Counterparts.  This Agreement may be executed in two or more
          ------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

     27.  Compliance with Laws.  All goods supplied hereunder shall be in
          --------------------
compliance with all requirements of the Fair Labor Standards Act of 1938, as
amended, and Mattress Discounters shall so state on each invoice.  If applicable
to Mattress Discounters, Mattress Discounters shall comply with the following
orders, rules and regulations, all of which are incorporated herein by
reference:  Section 202 of Executive Order 11246; the affirmative action clause
for the handicapped (41 C.F.R. 60-741.4); the clause requiring utilization of
minority businesses (41 C.F.R. 1-1.1310.2); small businesses (32 C.F.R. 7-104.14
and 41 C.F.R. 1-1710-3); and female owned businesses, Executive Order 12138.
<PAGE>

                 [Remainder of page intentionally left blank.]
<PAGE>

          IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized officers.

                                            HEILIG-MEYERS COMPANY, a Virginia
                                            corporation

                                            By:    /s/ R.B. GOODMAN
                                               _____________________________
                                            Name:  Roy B. Goodman
                                                 ___________________________
                                            Title: Executive Vice President
                                                  _________________________
                                                   Chief Financial Officer


                                            MD ACQUISITION CORPORATION, a
                                            Virginia Corporation

                                            By:    /s/ MICHAEL KRUPKA
                                               _____________________________
                                            Name:  Michael Krupka
                                                 ___________________________
                                            Title: President
                                                  _________________________


                                            MATTRESS DISCOUNTERS
                                            CORPORATION, a Delaware corporation

                                            By:    /s/ R.B. GOODMAN
                                               _____________________________
                                            Name:  Roy B. Goodman
                                                 ___________________________
                                            Title: Senior Vice President
                                                  _________________________