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                                                                    Exhibit 10.5

                          1998 STOCKHOLDERS' AGREEMENT

         AGREEMENT, dated as of October 29, 1998 (this "Agreement"), by and
among Simmons Holdings, Inc., a Delaware corporation ("Holdings"), Simmons
Holdings, LLC, a Delaware limited liability company ("Simmons LLC") and the
parties listed on Exhibit A hereto (each, a "Management Stockholder," and
collectively, the "Management Stockholders"). This Agreement shall automatically
become effective on the date (the "Effective Date") of, and simultaneously with,
the closing of the transactions under the Merger Agreement and the Exchange
Agreement (as such terms are hereinafter defined).

         WHEREAS, the Company, Holdings and REM Acquisition, Inc., a Delaware
corporation ("MergerCo") have entered into an Agreement and Plan of Merger,
dated as of July 16, 1998, as amended from time to time (the "Merger
Agreement"), pursuant to which, among other things, subject to the terms and
conditions thereof, MergerCo has agreed to merge with and into Holdings in a
transaction intended to be accounted for as a recapitalization with Holdings as
the surviving corporation (the "Merger").

         WHEREAS, in connection with the Merger, MergerCo, Holdings, Simmons
Company, a Delaware corporation (the "Company") and the State Street Bank &
Trust Company, solely as trustee of the Simmons Company Employee Stock Ownership
Trust (the "Trust"), established pursuant to the Agreement of Trust for the
Simmons Company Employee Stock Ownership Plan, dated as of January 17, 1989, as
amended, adopted as part of the Simmons Company Employee Stock Ownership Plan
(the "Plan"), or any successor trustee thereunder (the "Trustee") have entered
into an ESOP Stock Sale and Exchange Agreement, dated as of July 22, 1998, as
amended on September 25, 1998 (the "Exchange Agreement"), pursuant to which
MergerCo has agreed to purchase certain shares of Series A Preferred Stock of
the Company owned by the Trust that constitute Allocated Shares (as defined in
the Exchange Agreement) and the Trustee has agreed to exchange certain shares of
Series A Preferred Stock of the Company owned by the Trust that constitute
Unallocated Shares (as defined in the Exchange Agreement) for shares of Class C
Stock of Holdings which shall be converted into shares of Common Stock of
Holdings.

         WHEREAS, Holdings, the Company, Simmons LLC, the Trustee and the
parties listed on Schedule A thereto have entered into that certain Stockholders
Agreement of even date herewith (the "ESOP/Investcorp Stockholders' Agreement").

         WHEREAS, the parties hereto desire to restrict the sale, assignment,
transfer, encumbrance or other disposition of certain shares of capital stock of
Holdings.

         Accordingly, in consideration of the premises and of the terms and
conditions herein contained, the parties hereto mutually agree as follows:


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                                    ARTICLE I

                                   DEFINITIONS

         As used in this Agreement, the following terms shall have the meanings
ascribed to them below:

         "Affiliate" of any Person shall mean any other Person directly or
indirectly controlled by, controlling or under common control with such Person.
For the purposes of this definition, "control", when used with respect to any
Person, means the power to directly or indirectly direct the management and
policies of such person, whether through the ownership of voting securities, by
contract or otherwise; the terms "controlling" and "controlled" have meanings
correlative to the foregoing.

         "Agreement" shall have the meaning ascribed thereto in the Preamble
hereof.

         "Approved Retirement" shall mean the retirement of a Management
Stockholder on or after his or her sixty-fifth (65th) birthday or, if earlier,
either for Good Reason or if approved by the Board of Directors of Holdings.

         "Approved Sale" shall mean a transaction or a series of related
transactions which results in a bona fide, unaffiliated change of beneficial
ownership of the Company or its business of greater than 50% (disregarding for
this purpose any disparate voting rights attributable to the outstanding stock
of Holdings), whether pursuant to the sale of the stock of Holdings or the
Company, the sale of the assets of the Company, or a merger or consolidation
involving Holdings or the Company; PROVIDED, HOWEVER, that for purposes of this
Agreement, an Approved Sale shall not mean the Merger.

         "Business Day" means any day other than a Saturday, Sunday, federal
holiday or other day on which commercial banks in New York City are authorized
or required to close under the laws of the State of New York.

         "Certificate of Incorporation" means the Certificate of Incorporation
of Holdings.

         "Common Stock" shall mean the shares of common stock, par value $.0l
per share, of Holdings and the shares of Class B common stock, par value $.01
per share, of Holdings, owned by Persons as a result of the Merger or
hereinafter acquired.

         "Company" shall mean Simmons Company, a Delaware corporation.

         "Covered Sale" shall have the meaning ascribed thereto in Section
2.1(a) hereof.

         "Disability" shall mean a Management Stockholder becomes physically or
mentally incapacitated or disabled so that he or she is unable to perform for
the Company or a Subsidiary substantially the same services as he or she
performed prior to incurring such

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incapacity or disability or to devote his or her full working time or use his or
her best efforts to advance the business and welfare of the Company or a
Subsidiary for an aggregate period of six months during any 12-month period.


         "Drag-Along Right" shall have the meaning ascribed thereto in Section
2.1(a) hereof.

         "Duly Endorsed" shall mean that a stock certificate is duly endorsed in
blank by the Person or Persons in whose name such certificate is registered or
that such certificate is accompanied by a duly executed stock or security
assignment, separate from the certificate itself, with the signature(s) thereon
guaranteed by a commercial bank or trust company or a member of a national
securities exchange or of the National Association of Securities Dealers, Inc.

         "Effective Date" shall have the meaning ascribed thereto in the
Preamble hereof.

         "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time.

         "ESOP/Investcorp Stockholders' Agreement" shall have the meaning
ascribed thereto in the Preamble hereof.

         "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute then in effect, and a reference to a
particular section thereof shall be deemed to include a reference to the
comparable section, if any, of any such similar federal statute.

         "Exchange Agreement" shall have the meaning ascribed thereto in the
Preamble hereof.

         "Fair Market Value" shall mean the value determined in good faith by
Holdings' Board of Directors. If the Board determination is challenged by a
Management Stockholder, a mutually acceptable investment banker or appraiser
shall establish the Fair Market Value. If the Management Stockholder and
Holdings cannot agree upon an investment banker or appraiser each shall choose
an investment banker or appraiser and the two investment bankers or appraisers
shall choose a third investment banker or appraiser who alone shall establish
the Fair Market Value. The Fair Market Value shall be based on an assumed sale
of 100% of the outstanding capital stock of Holdings (without reduction for
minority discount or lack of liquidity of the Common Stock) and shall be
determined using customary criteria generally employed within the investment
banking community at the time such determination is made for valuing an entity
similar to Holdings. The investment banker's or appraiser's determination shall
be conclusive and binding on the Principal Stockholder, Holdings and the
Management Stockholder. Holdings shall bear all costs incurred in connection
with the services of such investment banker or appraiser unless the Fair Market
Value established by the investment banker or appraiser is (i) less than or
equal to 110% of the Board of Directors' determination, in which case the
Management Stockholder shall promptly pay or reimburse Holdings for such costs
or (ii) greater than 110% but less than 125% of the Board of Directors'
determination, in

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which case the Management Stockholder shall promptly pay or reimburse Holdings
for 50% of such costs.

         "Fair Value Price" shall mean, with respect to each share of Common
Stock, an amount equal to the fair market value (valued on a going concern
basis) of a share of such stock, as determined in good faith by the Board of
Directors of Holdings, without applying any discounts for minority interests,
marketability or for legal or contractual restrictions on transferability.

         "Good Reason" shall mean (i) the assignment to a Management Stockholder
of any duties inconsistent with such Management Stockholder's position
(including status, offices, titles and reporting requirements), (ii) a demotion
in the job title of a Management Stockholder, (iii) a reduction in the
compensation paid to a Management Stockholder, unless such reduction is
comparable to an across-the-board reduction applicable to all senior management
employees of the Company due to adverse business circumstances, (iv) a request
of a Management Stockholder to relocate his office to a distance of greater than
seventy-five (75) miles from the present site of his office, or (v) any other
action by the Company which results in a material diminution in the position,
authority, duties or responsibilities of a Management Stockholder.

         "Holdings" shall have the meaning ascribed thereto in the Preamble
hereof.

         "Holdings Note" shall have the meaning ascribed thereto in Section
4.2(a).

         "Initial Public Offering" shall mean the effectiveness of a
registration statement under the Securities Act covering any of the capital
stock of Holdings or the Company (other than preferred stock that is not
convertible into common stock) and the completion of a sale of such stock
thereunder, if as a result of such sale (i) Holdings or the Company becomes a
reporting company under Section 12(b) or 12(g) of the Securities Exchange Act of
1934, as amended, and (ii) such stock is traded on the New York Stock Exchange
or the American Stock Exchange, or is quoted on the Nasdaq Stock Market or is
traded or quoted on any other national stock exchange or securities system.

         "Lock-Up Period" shall mean in the case of an Initial Public Offering,
the 180-day period commencing on the effective date of the registration
statement covering capital stock of Holdings or the Company sold in such Initial
Public Offering, and, in the case of any subsequent registered offering, the
90-day period commencing on the effective date of the registration statement
relating to such offering, or, in either case, such lesser period as may be
agreed upon with the underwriters of such offering.

         "Management Representative" shall have the meaning ascribed thereto in
Section 5.4.

         "Management Stockholder" or "Management Stockholders" shall have the
meanings ascribed thereto in the Preamble.

         "Merger Agreement" shall have the meaning ascribed thereto in the
Preamble.

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         "Permitted Transferee" shall have the meaning ascribed thereto in
Section 3.1.

         "Person" shall mean an individual, partnership, joint venture,
corporation, trust, unincorporated organization, government, or any department
or agency thereof, or any other similar entity.

         "Plan" shall have the meaning ascribed thereto in the Preamble hereof.

         "Principal Stockholder" shall mean Simmons Holdings, LLC, a Delaware
limited liability company controlled by affiliates of Fenway Partners, Inc.,
which now or hereafter holds shares of Holdings.

         "Principal Stockholder Consideration" shall have the meaning ascribed
thereto in Section 2.1(a) hereof.

         "Principal Stockholder Shares" shall mean the shares of Common Stock
beneficially owned by the Principal Stockholder or any of its Affiliates or any
of its transferees.

         "Prior Stockholder Agreements" shall have the meaning ascribed thereto
in Section 5.1.

         "Put Date" shall have the meaning ascribed thereto in Section 4.2(a).

         "Repurchase Disability" shall have the meaning ascribed thereto in
Section 4.2(a).

         "Repurchase Period"shall have the meaning ascribed thereto in Section
4.1(a).

         "Repurchase Price" shall have the meaning ascribed thereto in Section
4.1(a).

         "Second Repurchase Period" shall have the meaning ascribed thereto in
Section 4.1(a).

         "SEC" shall mean the Securities and Exchange Commission, or any other
federal agency at the time administering the Securities Act or the Securities
and Exchange Act of 1934, as amended.

         "Section 2.1 Event" shall have the meaning ascribed thereto by Section
2.1(a) hereof.

         "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute then in effect, and a reference to a particular
section thereof shall be deemed to include a reference to the comparable
section, if any, of any such similar federal statute.

         "Simmons LLC" shall have the meaning ascribed thereto in the Preamble
hereof.

         "Stock Option Agreement" shall have the meaning ascribed thereto in
Section 4.1(a).


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         "Subsidiary" shall mean any joint venture, corporation, partnership or
other entity as to which Holdings or the Company, whether directly or
indirectly, has more than 50% of the (i) voting rights or (ii) rights to capital
or profits.

         "Tag-Along Right" shall have the meaning ascribed thereto in Section
2.1(a) hereof.

         "Termination Date" shall mean the date on which a Management
Stockholder ceases to be employed by the Company or any Affiliate of the Company
for any reason; PROVIDED, HOWEVER, that the Management Stockholder shall not be
considered to have ceased to be employed by the Company or any Affiliate of the
Company if he or she continues to be employed by the Company or any Subsidiary.

         "Third Party" shall mean a Person not Affiliated with Holdings.

         "Trust" shall have the meaning ascribed thereto in the Preamble hereof.

         "Trustee" shall have the meaning ascribed thereto in the Preamble
hereof.



                                   ARTICLE II

                         TAG-ALONG AND DRAG-ALONG RIGHTS

         Section 2.1       SALE OF COMMON STOCK TO A THIRD PARTY.

         (a) If at any time, or from time to time, the Principal Stockholder
proposes to sell for its own account (other than in a sale pursuant to a
registration statement under the Securities Act) shares of Common Stock (a
"Section 2.1 Event") to a Third Party that is not an Affiliate of the Principal
Stockholder and, following such sale, the Principal Stockholder ceases to own,
in the aggregate, at least seventy-five percent (75%) of the shares of Common
Stock acquired by the Principal Stockholder on the Effective Date (each such
sale, a "Covered Sale"), each of the Management Stockholders shall have the
right to participate with respect to the shares of Common Stock that each holds,
respectively (a "Tag-Along Right"), and the Principal Stockholder or such Third
Party shall have the right to require the Management Stockholders to participate
with respect to such shares (a "Drag-Along Right"), in each such sale on a pro
rata basis (based on (i) the aggregate number of shares of Common Stock to be
sold by the Principal Stockholder in such Covered Sale and any related
transactions (but not in any other sales) compared to (ii) the aggregate number
of Principal Stockholder Shares then owned by the Principal Stockholder, as
appropriately adjusted for any stock dividends, stock splits, reverse stock
splits, combinations, recapitalizations and similar events occurring after the
Effective Date) for the same consideration per share, and otherwise on the same
terms (the "Principal Stockholder Consideration"), as the Principal Stockholder
sells its shares of Common Stock; PROVIDED, HOWEVER, that the Principal
Stockholder or Third Party shall only be entitled to exercise its Drag-Along
Right hereunder pursuant to a Covered Sale by the Principal Stockholder or its

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Affiliates of at least 80% of the shares of Common Stock acquired by the
Principal Stockholder on the Effective Date.

         (b) Prior to or within two calendar days following the occurrence of a
Section 2.1 Event, the Principal Stockholder, in its sole discretion, may notify
the Management Stockholders in writing of its intention to consummate or of the
occurrence of such Section 2.1 Event (which notice shall set forth the terms
upon which such Section 2.1 Event is intended to be or shall have been
consummated) in the manner and upon the terms and conditions provided in this
Section 2.1(b). If the Principal Stockholder, in its sole discretion, shall have
given prior written notice to the Management Stockholders of its intention to
engage in a Section 2.1 Event, then the Management Stockholders shall have 15
calendar days from the receipt of such notice within which to exercise their
Tag-Along Rights pursuant to this Section 2.1, and the failure of each of the
Management Stockholders to notify the Principal Stockholder of its intention to
exercise its Tag-Along Right within such 15 calendar days shall operate as a
waiver of such Tag-Along Right; PROVIDED, HOWEVER, that the Principal
Stockholder having delivered written notice of its intention to engage in a
Section 2.1 Event shall not be construed as providing any assurance that a
Section 2. 1 Event shall be consummated, and the delivery of such notice shall
not give rise to any rights on the part of the Management Stockholders, other
than those expressly set forth in this Agreement. If the Principal Stockholder,
in its sole discretion, shall not have given prior written notice of its
intention to engage in a Section 2. 1 Event, then the Principal Stockholder
shall notify the Management Stockholders in writing of the occurrence of a
Section 2.1 Event not later than two calendar days following the consummation of
such Section 2.1 Event, and the Management Stockholders shall have 15 calendar
days from the receipt of such notice within which to exercise their Tag-Along
Rights pursuant to this Section 2.1. The failure of each of the Management
Stockholders to notify the Principal Stockholder of its intention to exercise
its Tag-Along Right within such 15 calendar days shall operate as a waiver of
such Tag-Along Right. The delivery of any notice regarding a Section 2.1 Event
pursuant to the provisions of this Section 2.1 shall not operate as a waiver of
the Principal Stockholder's or a Third Party's Drag-Along Rights in respect of
the Section 2.1 Event specified in such notice. In the case of a Third Party's
exercise of its Drag-Along Rights pursuant to the provisions of this Section
2.1, the Third Party shall deliver written notice to the Management
Stockholders, not later than two calendar days following the occurrence of a
Section 2.1 Event, with respect to which such Drag-Along Rights have been
exercised, of its intention to exercise such Drag-Along Rights in respect of
such Section 2. 1 Event. The consummation of any transaction pursuant to the
Third Party's exercise of its Drag-Along Rights shall occur within 15 calendar
days following the delivery of the notice specified in this Section 2.1(c).

         (c) The Principal Stockholder shall not enter into a transaction which
would constitute a Section 2.1 Event unless the Third Party shall have agreed in
writing, prior to the consummation of such transaction, to be bound by the
Tag-Along Right provided in this Section 2.1 applicable to that transfer;
PROVIDED, HOWEVER, that such agreement shall not be construed as providing any
assurance that a Section 2.1 Event shall be consummated and shall not give rise
to any liability on the part of Holdings to the Management Stockholders. The
Principal Stockholder (and any subsequent transferee bound by the provisions of
this sentence) shall not transfer any shares of Common Stock (other than in a
sale pursuant to a registration statement under the

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Securities Act) in a transaction that constitutes a Covered Sale or in a
transaction with an Affiliate, unless prior to such transfer, the transferee or
Affiliates, as the case may be, agrees in writing, in form and substance
satisfactory to the Management Stockholders and Holdings, to be bound by the
provisions of this Section 2.1 as if such transferee were a "Principal
Stockholder" solely for purposes of this Article II. Upon consummation of a
Covered Sale by the Principal Stockholder at which Tag-Along Rights have been
exercised or waived hereunder, the shares of Common Stock sold thereunder shall
be deemed free and clear of any further Tag-Along Rights hereunder.

         Section 2.2 LEGEND ON CERTIFICATES. Each certificate representing
shares of Common Stock from time to time issued and outstanding shall bear the
following legend:

         THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
         PROVISIONS OF THE 1998 STOCKHOLDERS' AGREEMENT DATED AS OF OCTOBER 29,
         1998 AMONG SIMMONS HOLDINGS, INC., THE HOLDER OF THIS CERTIFICATE AND
         THE OTHER PARTIES THERETO, AS AMENDED AND IN EFFECT FROM TIME TO TIME
         (A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF SIMMONS HOLDINGS,
         INC. AND WILL BE MAILED TO A STOCKHOLDER WITHOUT CHARGE WITHIN FIVE
         DAYS AFTER RECEIPT BY SIMMONS HOLDINGS INC. OF A WRITTEN REQUEST
         THEREFOR FROM SUCH STOCKHOLDER).

         NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
         MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
         THE SECURITIES ACT OF 1933 (THE "ACT") AND ANY APPLICABLE STATE
         SECURITIES AND "BLUE SKY" LAWS OR (B) IF SIMMONS HOLDINGS, INC. HAS
         BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION
         AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO SIMMONS HOLDINGS, INC.,
         TO THE EFFECT THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF
         SECTION 5 OF THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER
         AND SUCH STATE SECURITIES AND BLUE SKY LAWS.

         Section 2.3 REMOVAL OF LEGEND. Upon termination of this Agreement or an
Initial Public Offering, Holdings shall, upon request by the Management
Stockholders immediately prior to the above events, issue a new certificate
representing the shares of Common Stock held by the Management Stockholders with
the following legend:

         NO TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY BE
         MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
         THE SECURITIES ACT OF 1933 (THE "ACT") AND ANY APPLICABLE STATE
         SECURITIES AND "BLUE SKY" LAWS OR (B) IF SIMMONS HOLDINGS, INC. HAS
         BEEN FURNISHED WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH OPINION
         AND COUNSEL SHALL BE REASONABLY SATISFACTORY TO SIMMONS HOLDINGS, INC.,
         TO THE

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         EFFECT THAT SUCH TRANSFER IS EXEMPT FROM THE PROVISIONS OF SECTION 5 OF
         THE ACT AND THE RULES AND REGULATIONS IN EFFECT THEREUNDER AND SUCH
         STATE SECURITIES AND BLUE SKY LAWS.


                                   ARTICLE III

                                 TRANSFER RIGHTS

         Section 3.1. RESTRICTIONS ON TRANSFERS OF SHARES. Subject to Article IV
hereof, prior to the earlier of (i) the termination of the Lock-Up Period
following an Initial Public Offering or (ii) an Approved Sale, the shares of
Common Stock shall not be transferable or transferred, assigned, pledged or
hypothecated in any way (whether by operation of law or otherwise) except that
each of the Management Stockholders may transfer his or her shares of Common
Stock to his or her spouse, child, estate, personal representative, heir or
successor or to a trust for the benefit of such Management Stockholder or his or
her spouse, child or heir (a "Permitted Transferee"). This Agreement shall be
binding on and enforceable against any person who is a Permitted Transferee of
the shares of Common Stock of Holdings. The stock certificates issued to
evidence shares of Common Stock hereunder shall bear a legend referring to this
Agreement and the restrictions contained herein.


ARTICLE IV

REPURCHASE OF SHARES

         Section 4.1.      PURCHASE OF SHARES UPON TERMINATION OF MANAGEMENT
                           STOCKHOLDER.

         (a) In the event that the Termination Date occurs for any reason prior
to an Initial Public Offering or an Approved Sale, subject to Section 4.2 below,
the shares of Common Stock of Holdings issued and outstanding to such Management
Stockholder shall be subject to repurchase as follows:

                  i.       Holdings, during the sixty (60) days following the
                           Termination Date (the "Repurchase Period"), shall
                           have a one-time right to purchase all, but not less
                           than all, of the shares of Common Stock.

                  ii.      If Holdings does not elect to purchase the shares of
                           Common Stock during the Repurchase Period, then the
                           Principal Stockholder, during the thirty (30) days
                           following the expiration of the Repurchase Period
                           (the "Second Repurchase Period"), shall have a
                           one-time right to purchase all, but not less than
                           all, of the shares of Common Stock.

                  iii.     The purchase price (the "Repurchase Price") for each
                           shares of Common Stock shall be the Fair Market
                           Value.

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                  iv.      If Holdings or the Principal Stockholder elects to
                           purchase the shares of Common Stock, it shall notify
                           the Management Stockholder at or before the end of
                           the Repurchase Period or, in the case of the
                           Principal Stockholder, the Second Repurchase Period,
                           and the Repurchase Price shall be paid in cash at a
                           time set by Holdings or the Principal Stockholder, as
                           the case may be, which time shall be within thirty
                           (30) days after the end of the Repurchase Period or
                           Second Repurchase Period, as the case may be,
                           provided that the Management Stockholder has
                           presented to Holdings or the Principal Stockholder a
                           Duly Endorsed certificate.

                  v.       The shares of Common Stock shall be transferred to
                           Holdings or the Principal Stockholder, as applicable,
                           free and clear of all liens, encumbrances, mortgages,
                           pledges, security interests, restrictions, prior
                           assignments and claims of any kind or nature
                           whatsoever except those created by the Certificate of
                           Incorporation, the stock option agreement, if any,
                           between a Management Stockholder and Holdings dated
                           as of October __, 1998, as amended from time to time
                           (the "Stock Option Agreement")the ESOP/Investcorp
                           Stockholders' Agreement or this Agreement. If
                           Holdings or the Principal Stockholder does not
                           purchase the shares of Common Stock, the restrictions
                           on transfer thereof contained in Article 3 of this
                           Agreement shall terminate and be of no further force
                           and effect. Notwithstanding the Management
                           Stockholder's failure to deliver the Duly Endorsed
                           certificate, the shares of Common Stock represented
                           thereby shall be deemed to be owned by Holdings or
                           the Principal Stockholder, as applicable, upon (A)
                           the payment by Holdings or the Principal Stockholder,
                           as applicable, of the purchase price to the
                           Management Stockholder or his or her Permitted
                           Transferee or (B) notice to the Management
                           Stockholder or such Permitted Transferee that
                           Holdings or the Principal Stockholder, as applicable,
                           is holding the purchase price in the United States
                           for the account of the Management Stockholder or such
                           Permitted Transferee, and upon such payment or notice
                           (x) the Management Stockholder and such Permitted
                           Transferee will have no further rights in or to such
                           shares of Common Stock, (y) Holdings or the Principal
                           Stockholder, as applicable, shall be entitled to
                           specific performance of such Management Stockholder's
                           or such Permitted Transferee's obligation to deliver
                           such Duly Endorsed certificates, and (z) the
                           Management Stockholder and his or her Permitted
                           Transferee shall be jointly and severally liable for
                           all reasonable attorneys' fees and other costs and
                           expenses incurred by Holdings or the Principal
                           Stockholder, as applicable, in enforcing its right to
                           repurchase the shares of Common Stock hereunder and
                           shall pay to Holdings or the Principal Stockholder,
                           as applicable, promptly upon demand, the amount of
                           all such fees and expenses.

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                  vi.      The Management Stockholder or his or her Permitted
                           Transferee shall not be obligated to transfer any
                           shares of Common Stock to Holdings or the Principal
                           Stockholder, as applicable, unless, concurrently with
                           the repurchase of such shares of Common Stock
                           hereunder, Holdings or the Principal Stockholder, as
                           the case may be, repurchases all of the shares of
                           Common Stock owned of record by the Management
                           Stockholder or his or her Permitted Transferee.

         Section 4.2.      MANAGEMENT STOCKHOLDER PUT RIGHT.

         (a) If a Management Stockholder's Termination Date occurs prior to an
Initial Public Offering or an Approved Sale due to a Management Stockholder's
death, Disability or Approved Retirement, or in the event of an Approved Sale
(substituting 75% for 50% in such definition) in which substantially all of the
proceeds of such Approved Sale are not reinvested in a similar or like business
to the manufacturing of bedding products within one (1) year of such Approved
Sale, the Management Stockholder or his or her representative shall have a
one-time right to require Holdings to purchase all, but not less than all, of
the shares of Common Stock at Fair Market Value, PROVIDED, THAT such right must
be exercised within one-hundred-eighty (180) days after the Termination Date,
or, in the case of an Approved Sale, the first anniversary of such Approved
Sale. The Repurchase Price shall be paid on the Put Date, which date shall be
the later of (i) the thirtieth (30th) day after Holdings has received notice of
the Management Stockholder's election to exercise his or her put right, or (ii)
the day that the Management Stockholder presents to Holdings the Duly Endorsed
certificate, and shall be paid in the form of cash or, at the option of Holdings
in the event the purchase is following the Management Stockholder's death,
disability or Approved Retirement, a combination of an amount of cash equal to
the cost of the repurchased Common Stock and the issuance of a Holdings Note
("Holdings Note") the principal amount of which is equal to the difference
between the Repurchase Price for the Common Stock and the cost of the Common
Stock, bearing interest at a rate equal to the rate at which interest is
calculated at such time pursuant to the then-current senior credit facility of
the Company or Holdings, as appropriate, provided that such rate shall in no
event exceed ten percent (10%) per annum; provided further that up to fifty
percent (50%) of any interest payment shall, at the option of Holdings, be
payable in additional Holdings Notes of like tenor. All Holdings Notes shall
mature on the earliest to occur of (x) the third anniversary of the date on
which the Holdings Note is issued, (y) the sale of stock of Holdings pursuant to
an Initial Public Offering, or (z) an Approved Sale. The shares of Common Stock
shall be transferred to Holdings free and clear of all liens, encumbrances,
mortgages, pledges, security interests, restrictions, prior assignments and
claims of any kind or nature whatsoever except those created by the Certificate
of Incorporation, the Stock Option Agreement or this Agreement. Notwithstanding
anything to the contrary in the foregoing, Holdings' obligation to repurchase
any of the shares of Common Stock shall be suspended if (i) such repurchase
would render Holdings unable to meet its obligations in the ordinary course of
business; (ii) Holdings is prohibited from doing so by applicable law
restricting the purchase by a corporation of its own shares; or (iii) such
repurchase would constitute a breach of or default or event of default under, or
is otherwise prohibited by, the terms of any loan agreement or other agreement
or instrument to which Holdings or any of its Subsidiaries is a party, any of
such events constituting a "Repurchase Disability." In the event of

                                      -11-


<PAGE>   12



a Repurchase Disability, Holdings shall repurchase the shares of Common Stock as
soon as reasonably practicable after all Repurchase Disabilities cease to exist
(and Holdings may also elect, but shall have no obligation, to cause its nominee
to repurchase such shares while any Repurchase Disabilities continue to exist).
In the event that Holdings suspends its obligation to repurchase shares of
Common Stock pursuant to a Repurchase Disability, then, upon repurchase of the
shares, Holdings shall pay to the Management Stockholder or his or her
representative (as applicable) an additional amount equal to interest on the
original repurchase price calculated at the Applicable Federal Rate (as set
forth in Section 1274 of the Code or the Treasury Regulations promulgated
thereunder) from the date the repurchase would have occurred but for such
Repurchase Disability to (but not including) the date such repurchase actually
occurs.

         (b) For so long as a Management Stockholder or his or her Permitted
Transferee owns the shares of Common Stock, Holdings agrees that it shall, upon
the written request of a Management Stockholder, provide such Management
Stockholder with annual financial statements of Holdings promptly upon the
completion of the preparation of such statements. The annual financial
statements shall be accompanied by an audit report by Holdings' independent
accountants.



                                    ARTICLE V

                                  MISCELLANEOUS

         Section 5.1 TERMINATION OF PRIOR STOCKHOLDER AGREEMENTS. Upon the
effectiveness of this Agreement, any agreement between Holdings and any
Management Stockholder that governs the rights or obligations of such Management
Stockholder with respect to any class of capital stock of Holdings and that was
entered into prior to the Effective Date ("Prior Stockholder Agreements") shall
automatically be terminated and of no further force and effect and the parties
to such Prior Stockholder Agreements shall have no further rights or obligations
thereunder.

         Section 5.2. BINDING EFFECT; NO THIRD PARTY BENEFICIARIES. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors, assigns and transferees except as set
forth in Section 2.1(c), and except to the extent that the terms of this
Agreement limit or otherwise restrict the transferability of any rights or
obligations hereunder. The provisions of this Agreement shall be binding upon
the parties hereto and their respective heirs, successors and assigns, and shall
not be for the benefit of any other Person.

         Section 5.3 WAIVER AND AMENDMENT. Any party hereto may waive its rights
under this Agreement at any time, and Holdings may waive its rights under this
Agreement with respect to any party hereto at any time; provided that no waiver
by Holdings shall operate to waive Holdings' rights under this Agreement with
respect to any party hereto not named in such waiver. Any agreement on the part
of any such party to any such waiver by Holdings shall be valid only if set
forth in an instrument in writing signed by such party. This Agreement may be
amended or waived only by a written instrument signed by (a) Holdings, (b)
stockholders owning of record a

                                      -12-


<PAGE>   13



majority of the then outstanding Principal Stockholder's Shares and (c) the
Management Stockholders. All parties hereto shall be bound by any amendment or
waiver approved as prescribed in the foregoing sentence from and after the date
of the receipt of a written notice from Holdings setting forth such amendment or
waiver and reciting its approval or waiver, as the case may be, whether or not
shares of Common Stock held by any stockholder shall have been marked to
indicate such consent.

         Section 5.4 MANAGEMENT STOCKHOLDER REPRESENTATIVE. Each of the
Management Stockholders hereby appoints Zenon S. Nie (the "Management
Representative") or its designee (as appointed in writing), as the agent, proxy
and attorney in fact for the Management Stockholders for all purposes under this
Agreement (including, without limitation, full power and authority to act on the
Management Stockholders' behalf) (i) to give or receive any notices or other
communications required or permitted under the terms and conditions of this
Agreement (and such notice shall be deemed to have been duly given when
delivered by the Management Representative pursuant to the terms of this
Agreement) and (ii) to execute and deliver, should it elect to do so in its sole
discretion, on behalf of the Management Stockholders, any amendment to this
Agreement so long as such amendments shall apply to all parties to this
Agreement, and (iii) to take all other actions to be taken by or on behalf of
the Management Stockholders and exercise any and all rights which the Management
Stockholders are permitted or required to do or exercise under this Agreement.

         Section 5.5 NOTICES. All notices and other communications provided for
herein shall be dated and in writing and shall be deemed to have been duly given
when delivered, if delivered personally, or when deposited in the mail, if sent
by registered or certified mail, return receipt requested, postage prepaid, and
when received, if delivered otherwise, to the party to whom it is directed at
the following addresses:

         (a)      If to Holdings, to:

                  Simmons Holdings, Inc.
                  c/o Fenway Partners, Inc.
                  152 West 57th Street
                  New York, New York  10019
                  Attn:  Richard C. Dresdale
                  Telecopy:  212-757-0609

                  with copies to:

                  Ropes & Gray
                  One International Place
                  Boston, MA  02110
                  Attn:  Lauren I. Norton, Esq.
                  Telecopy:  617-951-7050


                                      -13-


<PAGE>   14



         (b)      If to the Management Stockholders, to them at:

                  Simmons Company
                  One Concourse Parkway
                  Suite 600
                  Atlanta, GA  30328
                  Attn:  Zenon S. Nie
                  Telecopy:  770-392-2565

                  with copies to:

                  Jones Day, Reavis & Pogue
                  3500 One Peachtree Center
                  303 Peachtree Street NE
                  Atlanta, GA  30308
                  Attn:  Lizanne Thomas, Esq.
                  Telecopy:  404-581-8330

         (c)      If to the Principal Stockholder, to:

                  Simmons Holdings, LLC
                  c/o Fenway Partners, Inc.
                  152 West 57th Street
                  New York, New York  10019
                  Attn:  Richard C. Dresdale
                  Telecopy:  212-757-0609

                  with copies to:

                  Ropes & Gray
                  One International Place
                  Boston, MA  02110
                  Attn.:  Lauren I. Norton, Esq.
                  Telecopy:  617-951-7050

or at such other address as the parties hereto shall have specified by notice in
writing to the other parties.

         Section 5.6 APPLICABLE LAW. The laws of the State of Delaware shall
govern the interpretation, validity and performance of the terms of this
Agreement, regardless of the law that might be applied under principles of
conflicts of law.

         Section 5.7 INTEGRATION. This Agreement, the ESOP/Investment
Stockholders' Agreement and the documents referred to herein or delivered
pursuant hereto, which form a part hereof, contain the entire understanding of
the parties with respect to its subject matter. There

                                      -14-


<PAGE>   15



are no restrictions, agreements, promises, representations, warranties,
covenants or undertakings with respect to the subject matter hereof other than
those expressly set forth herein. This Agreement supersedes all prior agreements
and understandings between the parties with respect to its subject matter.

         Section 5.8 DESCRIPTIVE HEADINGS. ETC. The headings in this Agreement
are for convenience of reference only and shall not limit or otherwise affect
the meaning of terms contained herein. Unless the context of this Agreement
otherwise requires, (a) words of any gender shall be deemed to include each
other gender; (b) words using the singular or plural number shall also include
the plural or singular number, respectively; and (c) references to "hereof,"
"herein," "hereby" and similar terms shall refer to this entire Agreement.

         Section 5.9 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument, and it shall not be necessary in making
proof of this Agreement to produce or account for more than one such
counterpart.

         Section 5.10 SEVERABILITY. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect and for any reason, the validity, legality and
enforceability of such provision, paragraph, word, clause, phrase or sentence in
every other respect, and of the other remaining provisions, paragraphs, words,
clauses, phrases or sentences hereof, shall not be in any way impaired, it being
intended that all rights, powers and privileges of the parties hereto shall be
enforceable to the fullest extent permitted by law.

         Section 5.11 TERM. This Agreement shall terminate, with respect to each
Management Stockholder, on the date on which such Management Stockholder no
longer holds shares of Common Stock.

         Section 5.12 INJUNCTIVE RELIEF. It is hereby agreed and acknowledged
that it will be impossible to measure in money the damages that would be
suffered if the parties fail to comply with any of the obligations herein
imposed on them and that, in the event of any such failure, an aggrieved person
will be irreparably damaged and will not have an adequate remedy at law. Any
such person shall therefore be entitled to injunctive relief, including specific
performance, to enforce such obligations, without the posting of any bond, and,
if any action should be brought in equity to enforce any of the provisions of
this Agreement, none of the parties hereto shall raise the defense that there is
an adequate remedy at law.


                                      -15-


<PAGE>   16


                                                  [1998 Stockholders' Agreement]


         IN WITNESS WHEREOF, each of the undersigned has executed this Agreement
or caused this Agreement to be executed on its behalf as of the date first above
written.


                                          SIMMONS HOLDINGS, INC.


                                          By: /s/ Zenon S. Nie
                                             ----------------------------------
                                              Name: Zenon S. Nie
                                               Title:  Chief Executive Officer


                                          SIMMONS HOLDINGS, LLC

                                          By:/s/ Richard C. Dresdale
                                             ----------------------------------
                                                Name: Richard C. Dresdale
                                                Title:  An Authorized Person


                                      -16-


<PAGE>   17


                                                  [1998 Stockholders' Agreement]


 MANAGEMENT STOCKHOLDERS AND OPTIONHOLDERS:

                                         /s/        William L. Ayers IV
                                         ------------------------------------
                                             Name: William L. Ayers IV

                                         /s/        R. Kenneth Barton
                                         ------------------------------------
                                         Name:   R. Kenneth Barton

                                         /s/        Leo T. Brennan
                                         ------------------------------------
                                         Name:   Leo T. Brennan

                                         /s/        Jonathan C. Daiker
                                         ------------------------------------
                                         Name:   Jonathan C. Daiker

                                         /s/        Roger W. Franklin
                                         ------------------------------------
                                         Name:   Roger W. Franklin

                                         /s/        James P. Maher
                                         ------------------------------------
                                         Name: James P. Maher

                                         /s/        Cleve B. Murphy
                                         ------------------------------------
                                         Name: Cleve B. Murphy

                                         /s/        Zenon S. Nie
                                         ------------------------------------
                                         Name:   Zenon S. Nie

                                         /s/        Martin R. Passaglia
                                         ------------------------------------
                                         Name: Martin R. Passaglia

                                         /s/        Gary G. Pleasant
                                         ------------------------------------
                                         Name: Gary G. Pleasant

                                         /s/        Joseph Ulicny
                                         ------------------------------------
                                         Name: Josephy Ulicny

                                         /s/        Douglas G. Applegate
                                         ------------------------------------
                                         Name:   Douglas G. Applegate

                                         /s/        Wesley H. Brinkman
                                         ------------------------------------
                                         Name: Wesley H. Brinkman

                                         /s/        James H. Brooks
                                         ------------------------------------
                                         Name:   James H. Brooks



                                                      -17-


<PAGE>   18


                                                  [1998 Stockholders' Agreement]

                                         /s/        Danny E. Cantrell
                                         ------------------------------------
                                         Name:   Danny E. Cantrell

                                         /s/        Patrick Castricone
                                         ------------------------------------
                                         Name: Patrick Castricone

                                         /s/        Mark Chambless
                                         ------------------------------------
                                         Name: Mark Chambless

                                         /s/        Stephen C. Clayton
                                         ------------------------------------
                                         Name: Stephen C. Clayton

                                         /s/        Paul F. Cowie, Jr.
                                         ------------------------------------
                                         Name:   Paul F. Cowie, Jr.

                                         /s/        Andrew R. Cuppia
                                         ------------------------------------
                                         Name:   Andrew R. Cuppia

                                          /s/        Robert S. Dohm
                                         ------------------------------------
                                         Name:   Robert S. Dohm

                                         /s/        William E. Elliott
                                         ------------------------------------
                                         Name: William E. Elliott

                                         /s/        John R. Giambalvo
                                         ------------------------------------
                                         Name: John R. Giambalvo

                                         /s/        Joyce H. Glover
                                         ------------------------------------
                                         Name: Joyce H. Glover

                                         /s/        Gerald P. Grippando
                                         ------------------------------------
                                         Name: Gerald P. Grippando

                                         /s/        Robert W. Hellyer
                                         ------------------------------------
                                         Name: Robert W. Hellyer

                                         /s/        Donald J. Hofmann
                                         ------------------------------------
                                         Name: Donald J. Hofmann

                                         /s/        Ronald G. Hutchinson
                                         ------------------------------------
                                         Name:  Ronald G. Hutchinson

                                         /s/        Robert M. Katz
                                         ------------------------------------
                                         Name: Robert M. Katz



                                      -18-


<PAGE>   19


                                                  [1998 Stockholders' Agreement]

                                         /s/        Ken Kessler
                                         ------------------------------------
                                         Name: Ken Kessler

                                         /s/        Robert W. Lachenmeier
                                         ------------------------------------
                                         Name:  Robert W. Lachenmeier

                                         /s/        Paul R. Leber Jr.
                                         ------------------------------------
                                         Name:  Paul R. Leber Jr.

                                         /s/        Paul E. Messerschmitt
                                         ------------------------------------
                                         Name:  Paul E. Messerschmitt

                                         /s/        Richard M. Messner
                                         ------------------------------------
                                        Name: Richard M. Messner

                                         /s/        John Miller
                                         ------------------------------------
                                         Name: John Miller

                                         /s/        Roger E. Murray
                                         ------------------------------------
                                         Name: Roger E. Murray

                                         /s/        Gerald F. Newman
                                         ------------------------------------
                                        Name: Gerald F. Newman

                                         /s/        Hector M. O'sorio
                                         ------------------------------------
                                         Name: Hector M. O'sorio

                                         /s/        Harold M. Parsons
                                         ------------------------------------
                                         Name: Harold M. Parsons

                                         /s/        John P. Peterken
                                         ------------------------------------
                                         Name: John P. Peterken

                                         /s/        Rocco J. Poliseo
                                         ------------------------------------
                                         Name: Rocco J. Poliseo


                                         /s/        Roderick J. Saunders
                                         ------------------------------------
                                         Name:  Roderick J. Saunders

                                         /s/        Gary L. Senese
                                         ------------------------------------
                                         Name: Gary L. Senese

                                         /s/        Howard Silverstone
                                         ------------------------------------
                                         Name: Howard Silverstone



                                      -19-

<PAGE>   20


                                                  [1998 Stockholders' Agreement]


                                         /s/        Shawn J. Slattery
                                         ------------------------------------
                                         Name: Shawn J. Slattery

                                         /s/        James J. Tobin
                                         ------------------------------------
                                         Name: James J. Tobin

                                         /s/        David Woodhead
                                         ------------------------------------
                                         Name: David Woodhead








                                      -20-

<PAGE>   21




                                                     Exhibit A
                                               Stockholder Agreement


NAME OF
STOCKHOLDER
--------------------

William L. Ayers, IV

R. Kenneth Barton

Leo T. Brennan

Jonathan C. Daiker

Roger W. Franklin

James P. Maher

Cleve B. Murphy

Zenon S. Nie

Martin R. Passaglia

Gary G. Pleasant

Joseph Ulicny

Douglas G. Applegate

Wesley H. Brinkman

James H. Brooks

Danny E. Cantrell

Patrick Castricone

Mark Chambless

Stephen C. Clayton

Paul F. Cowie, Jr.

Andrew R. Cuppia

Robert S. Dohm

William E. Elliott

John R. Giambalvo

Joyce H. Glover


                                      -21-
<PAGE>   22


Gerald P. Grippando

Robert W. Hellyer

Donald J. Hofmann

Ronald G. Hutchinson

Robert M. Katz

Ken Kessler

Robert W.

Lachenmeier

Paul R. Leber Jr.

Paul E. Messerschmitt

Richard M. Messner

John Miller

Roger E. Murray

Gerald F. Newman

Hector M. O'Sorio

Harold M. Parsons

John P. Peterken

Rocco J. Poliseo

Roderick J. Saunders

Gary L. Senese

Howard  Silverstone

Shawn J. Slattery

James J. Tobin

David Woodhead





                                      -22-