<PAGE>
 
    As filed with the Securities and Exchange Commission on April 21, 1999
                                                     Registration No. 333-
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                               ----------------
                                   FORM S-4
                            REGISTRATION STATEMENT
                                     UNDER
                          THE SECURITIES ACT OF 1933
 
                               ----------------
 
                                SIMMONS COMPANY
            (Exact name of registrant as specified in its charter)
 
<TABLE>
<S>  <C>
         Delaware                    2512                    06-1007444
     (State or other     (Primary Standard Industrial     (I.R.S. Employer
       jurisdiction       Classification Code Number)  Identification Number)
   of incorporation or
      organization)
</TABLE>
 
                               ----------------
 
                             One Concourse Parkway
                            Atlanta, Georgia 30328
                                (770) 512-7700
  (Address, including zip code, and telephone number, including area code, of
                   registrant's principal executive offices)
 
                               ----------------
 
                              Jonathan C. Daiker
                                Simmons Company
                             One Concourse Parkway
                            Atlanta, Georgia 30328
                                (770) 512-7700
  (Address, including zip code, and telephone number, including area code, of
                              agent for service)
 
                               ----------------
 
                                   copy to:
<TABLE>
<S>                                            <C>
           Lauren I. Norton, Esq.                           Lizanne Thomas, Esq.
            Patrick O'Brien, Esq.                        Jones, Day Reavis & Pogue
                Ropes & Gray                                3500 SunTrust Plaza
           One International Place                       303 Peachtree Street, N.E.
         Boston, Massachusetts 02110                    Atlanta, Georgia 30308-3242
               (617) 951-7000                                  (404) 521-3939
</TABLE>
 
                               ----------------
 
   Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
 
   If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
 
   If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act Registration Statement number of the earlier effective
Registration Statement for the same offering. [_]
 
   If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. [_]
 
<TABLE>
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
<CAPTION>
                                                       Proposed       Proposed
                                         Amount        Maximum        Maximum       Amount of
 Title of each Class of Securities       to be      Offering Price   Aggregate     Registration
         to be Registered              Registered    Per Unit(1)   Offering Price      Fee
-----------------------------------------------------------------------------------------------
 <S>                                 <C>            <C>            <C>            <C>
 10 1/4% Series B Senior
  Subordinated Notes due 2009....     $150,000,000       100%       $150,000,000     $41,700
 
-----------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the Registration Fee in
    accordance with Rule 457(f)(2) under the Securities Act of 1933 based upon
    the book value of the Notes as of April 21, 1999.
 
                               ----------------
 
   The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, or until the Registration
Statement shall become effective on such date as the Commission, acting
pursuant to said Section 8(a), may determine.
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A         +
+registration statement relating to these securities has been filed with the   +
+Securities and Exchange Commission. These securities may not be sold nor may  +
+offers to buy be accepted prior to the time the registration statement        +
+becomes effective. This prospectus shall not constitute an offer to sell or   +
+the solicitation of an offer to buy nor shall there be any sale of these      +
+securities in any State in which such offer, solicitation or sale would be    +
+unlawful prior to registration or qualification under the securities laws of  +
+any such State.                                                               +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
 
                  Subject to completion, dated April   , 1999
 
PROSPECTUS
 
[LOGO OF SIMMONS COMPANY APPEARS HERE]
                                Simmons Company
 
                       Offer to Exchange All Outstanding
                   10 1/4% Senior Subordinated Notes Due 2009
             ($150,000,000 Aggregate Principal Amount Outstanding)
                                      for
              10 1/4% Series B Senior Subordinated Notes Due 2009
 
We are offering to exchange our 10 1/4% Series B Senior Subordinated Notes due
2009, the exchange notes, for all of our outstanding 10 1/4% Senior
Subordinated Notes due 2009, the notes. We are making this exchange offer on
the terms and conditions set forth in this prospectus and the accompanying
letter of transmittal. We have registered the exchange notes under the
Securities Act of 1933 but we have not registered the notes. The form and terms
of the exchange notes and the notes are identical in all material respects,
except for transfer restrictions and registration rights relating to the notes.
 
We will accept for exchange all outstanding notes validly tendered and not
withdrawn prior to 5:00 p.m., New York City time, on       , 1999, unless we
extend this exchange offer. Although our offer is subject to certain customary
conditions, it is not conditioned upon any minimum principal amount of notes
being tendered for exchange.
 
Information about the exchange notes:
 
  . The exchange notes will mature on March 15, 2009.
 
  . We will pay interest on the exchange notes every six months on March 15
  and September 15.
 
  . We may redeem the exchange notes at any time after March 15, 2004.
 
  . Before March 15, 2002, we may redeem up to 35% of the aggregate principal
  amount of the exchange notes with the net proceeds of certain public
  offerings of common equity by us or our parent corporation.
 
  . If we sell certain assets or experience specific kinds of changes in
  control, we must offer to repurchase all or a portion of the exchange notes.
 
  . The exchange notes are subordinated to all of our current and future
  indebtedness (other than trade payables), except indebtedness that expressly
  provides otherwise.
 
We will not receive any proceeds from the issuance of the exchange notes. We
will pay all the expenses incurred by us in connection with this exchange offer
and issuance of the exchange notes.
 
You should carefully review the "Risk Factors" beginning on page 18 in
connection with this exchange offer and an investment in the exchange notes.
 
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of our offer of the exchange notes or
determined that this prospectus is truthful or complete. Any representation to
the contrary is a criminal offense.
 
                  The date of this prospectus is       , 1999
<PAGE>
 
                DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
 
   This prospectus includes forward-looking statements regarding, among other
things, our plans, strategies and prospects, both business and financial.
Although we believe that our plans, intentions and expectations reflected in or
suggested by these forward-looking statements are reasonable, we can give no
assurance that we will achieve or realize these plans, intentions or
expectations. Forward-looking statements are inherently subject to risks,
uncertainties and assumptions. Important factors that could cause actual
results to differ materially from the forward-looking statements we make in
this prospectus are set forth below under the caption "Risk Factors" and
elsewhere in this prospectus. We expressly qualify all forward-looking
statements attributable to us or persons acting on our behalf in their entirety
by these cautionary statements. We will not update these forward-looking
statements even though our situation will change in the future.
 
                               ----------------
 
   This exchange offer is not being made to, and we will not accept surrenders
for exchange from, holders of the outstanding notes in any jurisdiction in
which the exchange offer or its acceptance would not comply with the securities
or blue sky laws of that jurisdiction.
 
   All resales must be made in compliance with state securities or blue sky
laws. This compliance may require that the exchange notes be registered or
qualified in a state or that the resales be made by or through a licensed
broker-dealer, unless exemptions from these requirements are available. We
assume no responsibility with regard to compliance with these requirements.
 
                               ----------------
 
                           TRADEMARKS AND TRADENAMES
 
   SIMMONS(R), BEAUTYREST(R), BACKCARE(R), CONNOISSEUR COLLECTION(R) and
MAXIPEDIC(R) are federally registered United States trademarks and are the
property of Simmons Company or its subsidiaries. POCKETED COIL(TM) and FIVE
ZONES FOR YOUR BONES(TM) are also trademarks owned by Simmons Company.
 
                                       i
<PAGE>
 
                                    SUMMARY
 
   This summary contains basic information about Simmons and it likely does not
contain all the information regarding Simmons that is important to you. You
should read the more detailed information and financial statements, including
the accompanying notes, appearing elsewhere in this prospectus before making an
investment decision. References in this prospectus to "Simmons", the "Company",
"our Company", "we" and "us" refer collectively to Simmons Company and its
wholly-owned subsidiaries, unless otherwise indicated. All references in this
prospectus to a fiscal year or a year refer to the 52 or 53 weeks ended on the
last Saturday in December of the year referenced. Unless otherwise indicated,
we have based all references to industry or market data upon information
compiled and published by the International Sleep Products Association ("ISPA")
and we have based all references to market share data upon information
published in issues of Furniture/Today(R).
 
                                Simmons Company
 
   Founded in 1871, Simmons is a leading manufacturer and distributor of
premium branded bedding products in the United States and the world leader in
Pocketed Coil(TM) innerspring technology. We manufacture and license a broad
range of mattresses and related sleep products under well-recognized brand
names including:
 
  . Simmons(R)
 
  . Beautyrest(R)
 
  . BackCare(R)
 
  . Connoisseur Collection(R)
 
  . Maxipedic(R)
 
   Our Beautyrest(R) line has been our flagship product since its introduction
in 1925. While we provide a full range of conventional bedding products, we
focus on higher-end market segments, emphasizing retail price points from $699
to $2,999 per queen set. In 1998, we derived approximately 54% of our net sales
from products sold at these price points which we believe offer more attractive
growth prospects and higher gross margins than lower-end products. For the year
ended December 26, 1998, we generated:
 
  . net sales of $600.8 million, an increase of 9.2% over 1997; and
 
  . Adjusted EBITDA of $62.3 million, an increase of 6.6% over 1997.
 
   We believe that our net sales combined with the sales of third party
licensees make Simmons(R) the largest selling bedding products brand in the
world.
 
   We sell to a diversified nationwide base of over 2,700 customers,
representing more than 5,500 retail outlets. We support our sales to furniture
stores, specialty sleep shops, department stores and warehouse showrooms with
significant local and national brand advertising and promotional spending as
well as extensive customer support services. We operate 18 strategically
located manufacturing facilities across the United States and in Puerto Rico.
Unlike most of our competitors, which operate as associations of independent
licensees, we are one of two national industry participants that operates each
of its manufacturing facilities, allowing us greater quality control and
standardization of best manufacturing practices.
 
   Since 1995, we have invested approximately $28 million in re-engineering our
manufacturing operations and updating our information systems to improve our
cost structure, manufacturing productivity and operational controls. We believe
our substantial annual research and development investments enable us to be an
industry
 
                                       1
<PAGE>
 
leader in the development of innovative and new products. In summary, we
believe that our national distribution, extensive brand advertising, customer
support services and captive manufacturing create significant advantages over
smaller regional manufacturers as well as those national competitors that
operate as associations of independent licensees. Our business plan will be
executed by an experienced and proven senior management team averaging over 19
years of experience in the bedding industry and led by Chairman, Chief
Executive Officer and President Zenon Nie.
 
                               Industry Overview
 
   The domestic wholesale bedding industry generated sales of over $3.8 billion
in 1998. Although fragmented with approximately 800 manufacturers, the industry
is mature and stable, and has enjoyed a long track record of consistent growth
and profitability.
 
   Consistent Growth. From 1978 to 1998, the domestic wholesale bedding
industry experienced a compound annual growth rate of 6.6%, with sales volumes
increasing in all but one of those 20 years. Similarly, average unit selling
prices increased every year over the same period and grew at an annual compound
rate of 3.6%. In addition, we believe the bedding industry offers attractive
growth prospects to larger, well-positioned competitors like us that have the
ability to offer differentiated, branded products, effective national and
regional promotion, just-in-time product delivery and significant levels of
customer support services.
 
   Stability and Profitability. In each year since 1986, the bedding industry
has demonstrated highly consistent gross margins ranging between 29% and 32%.
We attribute this consistent profitability to the high variable cost structure
of the manufacturing process and the high retail margins associated with
bedding products relative to other products. Bedding manufacturing is largely
an assembly operation with raw materials and labor accounting for approximately
80% of total cost of goods sold. In addition, bedding products are generally
manufactured to order. Bedding also offers an estimated 45% gross margin to
retailers as well as some of the highest sales per square foot and return on
inventory of all retail furniture products. Consequently, even in circumstances
of fluctuating demand, bedding manufacturers are able to control inventory
levels and variable costs while retailers continue to promote strongly sales of
bedding products. Finally, the stability of the bedding market is further
supported by the fact that over 70% of bedding sales result from replacement
purchases.
 
   Favorable Demographics. In recent years, favorable demographic trends have
supported industry growth across all bedding price points. In particular, we
believe that Simmons will benefit from the increased demand for larger sized
(queen and king) and higher priced, premium bedding. In 1997, king and queen
sized bedding accounted for 39% of wholesale bedding sales, compared to 30% in
1990. We believe the key demographic trends driving this growth for larger
sized, premium bedding products include:
 
  . the rapidly growing 45-64 year old population category, a group with
    higher levels of disposable income and which historically has been more
    likely to purchase premium bedding;
 
  . the increasing consumer awareness of the health-related benefits of
    proper rest; and
 
  . the increasing number and size of bedrooms in homes.
 
                             Competitive Strengths
 
   Consumers generally have limited knowledge of specific bedding products and,
on average, shop for bedding only once every seven to eight years. As a result,
consumers rely heavily on brand awareness and the retail salesperson in making
their purchase decision. We believe that the most successful bedding
 
                                       2
<PAGE>
 
manufacturers are those that are best able to meet retailers' needs by offering
broad, differentiated product lines with recognizable brand names and
substantial sales force product education programs, as well as strong marketing
and customer support services. We believe that the following competitive
strengths are the principal success factors underlying our position as a leader
in the bedding products industry:
 
   Superior Brand Recognition. We enjoy strong brand recognition through our
well-established brand names, including: Simmons(R), Beautyrest(R),
BackCare(R), Connoisseur Collection(R) and Maxipedic(R). We believe the
strength of our brands is an important factor in maintaining existing and
establishing new retail and end-user customers. We also continue to seek to
strengthen our brand recognition through national advertising, such as our
award-winning "Do Not Disturb" campaign. We believe that the consolidation of
the bedding industry will continue to favor strong branded companies such as
ours, as many retailers are focusing on promoting leading brands while reducing
their number of suppliers.
 
   Strong Competitive Positioning. We believe we are well-positioned for
continued profitability and growth due to our premium product focus,
recognizable brand names and reputation for innovation and quality, all of
which have contributed to our strong market share. Our emphasis on premium,
name brand products, such as Beautyrest(R), BackCare(R) and Connoisseur
Collection(R), enables us to take advantage of the current demographic trends
driving demand for larger sized, higher priced premium bedding products which
typically carry a higher margin. Our product positioning emphasizes retail
price points from $699 to $2,999 per queen set. While approximately one-half of
our net sales is derived from beds priced in this range, industry-wide sales in
this same price range amount to approximately one-third of total sales. As a
result of our focus on premium bedding, our gross margin in 1998 was
approximately 42% compared to an industry average of 32% in recent years.
 
   High Quality and Diverse Customer Base. Our reputation for high quality
products, innovation and customer service, together with the highly attractive
retail margins associated with bedding products, has enabled us to establish a
strong nationwide customer base. Our current customer base represents over
5,500 retail outlets, and we have had on average a 27 year relationship with
our top 10 customers. Our 2,700 customers reflect our significant presence in
all major bedding distribution channels, including furniture stores, specialty
sleep shops, department stores and warehouse showrooms. We believe our
extensive customer support programs, which include cooperative local
advertising, merchandising and marketing assistance and customer sales staff
training and incentive programs, are the key to maintaining our strong customer
relationships.
 
   Focused Research and Development. In order to maintain and improve our
strong industry position, we invest substantially in developing new products,
enhancing existing products and improving our operating processes. For example,
we developed our BackCare(R) product line to address consumer demand for
products in the health conscious segment of the bedding market. BackCare(R) is
quickly gaining market acceptance. We believe that our strong research and
development capabilities will enable us to continually introduce new and
innovative products and product improvements and further enhance our retail
customer relationships. We also seek to reduce costs and improve productivity
by continually developing more efficient manufacturing and distribution
processes.
 
   Experienced Management Team with Exceptional Track Record. Since 1993,
industry veteran and Simmons Chairman, Chief Executive Officer and President,
Zenon Nie, has led a highly experienced management team with exceptional sales,
marketing and manufacturing expertise. Our top 11 executive officers have over
210 years of combined experience in the bedding industry and over 150 years of
combined experience with Simmons and are highly focused on increasing sales as
well as profitability. From 1994 to 1998, our management team:
 
  . achieved sales growth of 8.1% versus an industry average growth rate of
    6.1%;
 
  . improved our gross margin from 38.7% to 41.9%; and
 
  . increased our Adjusted EBITDA margin from 8.3% to 10.4%.
 
                                       3
<PAGE>
 
 
                               Business Strategy
 
   Continue to Build Brand Equity. We plan to continue to support and leverage
our significant brand equity. Brand recognition is critical in the bedding
industry, in which strong brand names influence both customer preferences and
retailer floor space allocation. Our regional promotional and national
advertising programs are targeted to increase sales of our core Beautyrest(R)
and BackCare(R) product lines. In particular, we have recently followed our
award-winning "Do Not Disturb" advertising campaign with a sequel commercial
entitled "Leap of Faith" to support the Beautyrest(R) line and we recently
launched our "Five Zones For Your Bones" campaign to provide first time
national marketing support for our BackCare(R) line. We believe that such
consistent investments in our brands will result in continued growth.
 
   Enhance Customer Base. We have a targeted sales and marketing campaign
directed at increasing the profitability and size of our customer base. We
continuously analyze and rationalize our account base to ensure that both
existing and new customer opportunities meet our profitability guidelines. For
example, in the spring of 1997, we decided to end our supply relationship with
Mattress Discounters, Inc. because it no longer met our minimum profit
requirements. We believe that our ability to attract new customers is primarily
attributable to our highly effective advertising campaigns, superior levels of
customer service and extensive customer support programs. Through our
approximately 200 direct sales representatives, we have targeted a significant
number of potential new accounts with the objective of profitably increasing
our revenues and market share. In particular, we intend to target certain
national specialty sleep shops, the fastest growing retail bedding distribution
channel.
 
   Strengthen Current Customer Relationships. We are focused on increasing
sales to existing accounts by introducing new and innovative products,
emphasizing more profitable product lines and continually enhancing customer
support services. We believe that our product lines are among our retail
customers' most profitable products and that our customers typically allocate a
significant share of floor space to Simmons(R) products. To continue to
strengthen our customer relationships, we will continue to invest in and
improve our extensive customer support programs, which include cooperative
local advertising, merchandising assistance and customer sales staff training
and incentive programs.
 
   Improve Operating Productivity and Efficiency. We intend to continue to
invest in focused programs to reduce costs and improve productivity and
operating efficiencies. We have largely completed initiatives that we began in
1995 to re-engineer our manufacturing processes and to upgrade our information
systems. These initiatives have contributed to the increase in our Adjusted
EBITDA margin from 8.6% in 1995 to 10.4% in 1998. Our productivity enhancement
initiatives were implemented in eleven of our 18 manufacturing facilities as of
the end of 1998. Our average manufacturing productivity, measured by pieces per
person-hour, increased approximately 8.0% between 1995 and 1998. We expect to
realize additional operating efficiencies and cost savings in the near term as
these programs are completed.
 
   Pursue Selected Complementary Acquisitions. We regularly evaluate potential
acquisition opportunities to support and strengthen our business. In general,
we intend to explore acquisitions in order to broaden our product lines and
geographic distribution and achieve additional operating efficiencies. We have
no agreements with respect to any particular acquisition or joint venture at
this time.
 
                                       4
<PAGE>
 
 
                                Fenway Partners
 
   Founded in 1994, Fenway Partners, Inc. is a New York-based private
investment firm dedicated to building long-term value through direct investment
in leading middle market companies. The firm manages over $1.3 billion of
capital raised over two funds. Fenway focuses on acquiring companies, in
partnership with management, with established franchises, meaningful market
share and strong brands with significant opportunities for growth. Fenway
provides management with strategic guidance and the necessary resources to
exploit these opportunities and to improve the operating and financial
performance of their businesses. In addition to supporting sales and earnings
growth through improvements in core operations, Fenway's portfolio companies
also realize growth through selective strategic add-on acquisitions. Fenway's
current investments include Aurora Foods, Inc., Central Tractor Farm & Country,
Inc., Delimex Holdings, Inc., Decorative Concepts, Inc., New Creative
Enterprises, Inc., Iron Age Corporation, FNX Limited, MW Windows Inc. and Blue
Capital Management. Fenway's investment in Simmons is its largest single
investment to date.
 
                                The Transactions
 
   On October 29, 1998, we and our parent company Simmons Holdings, Inc.
("Simmons Holdings"):
 
     (1) consummated the Merger and the ESOP Repurchase (each as defined
  below) in which, among other things, Simmons Holdings, LLC ("Fenway
  Investment LLC"), an entity controlled by funds managed by Fenway and other
  investors associated with Fenway (the "Fenway Funds"), acquired
  approximately 75.1% of the outstanding shares of Simmons Holdings, and
  members of our management, our Employee Stock Ownership Trust (the "Simmons
  ESOP") and affiliates of or investors arranged by INVESTCORP S.A. retained
  5.9%, 13.7% and 5.3%, respectively, of the outstanding shares of Simmons
  Holdings;
 
     (2) placed funds in escrow for the redemption for cash (the
  "Redemption") of all of the Previously Existing Notes (as defined below),
  which Redemption was subsequently completed;
 
     (3) effected a refinancing (the "Refinancing") by entering into and
  borrowing under the New Senior Credit Agreement (as defined below) and
  repaying indebtedness outstanding under our Previous Credit Agreement (as
  defined below);
 
     (4) entered into a bridge loan agreement in which West Street Fund I,
  L.L.C., an affiliate of Goldman Sachs ("West Street"), and UBS A.G.,
  Stamford Branch ("UBS"), an affiliate of Warburg Dillon Read, provided
  bridge loans in an aggregate principal amount of $75.0 million (the "Senior
  Bridge Financing"); and
 
     (5) entered into a securities purchase agreement with Fenway Investment
  LLC under which we issued junior subordinated notes (the "Junior Simmons
  Notes") in an aggregate principal amount of $30.0 million and Simmons
  Holdings issued junior subordinated notes (the "Junior Holdings PIK Notes")
  in an aggregate principal amount of $10.0 million (collectively, the
  "Junior Bridge Financing"). We have accounted for the Merger as a
  recapitalization. We collectively refer to the Merger, the ESOP Repurchase,
  the Redemption, the Refinancing, the Senior Bridge Financing, the Junior
  Bridge Financing and issuance of certain warrants described below as the
  "Transactions".
 
                                       5
<PAGE>
 
 
                             The Original Offering
 
   On March 16, 1999, we sold the notes in a transaction exempt from the
registration requirements of the Securities Act, the original offering. As set
forth in the table below, we used the proceeds from the original offering to:
 
     (1) repay the indebtedness represented by the Senior Bridge Financing,
  the Junior Simmons Notes and accrued interest;
 
     (2) repay the amounts outstanding under our revolving credit facility
  under the New Senior Credit Agreement;
 
     (3) prepay a portion of the amounts outstanding under our term loan
  facility under the New Senior Credit Agreement and accrued interest; and
 
     (4) pay expenses incurred in connection with the original offering.
 
<TABLE>
<CAPTION>
                                                                      Amount
                                                                   -------------
                                                                   (in millions)
       <S>                                                         <C>
       Sources:
         Proceeds of the original offering........................    $150.0
       Uses:
         Repayment of Senior Bridge Financing.....................      75.4
         Repayment of Junior Simmons Notes........................      31.1
         Repayment of revolving credit facility...................      15.0
         Prepayment of portion of term loan facility..............      23.7
         Fees and expenses of the original offering...............       4.8
                                                                      ------
           Total..................................................    $150.0
                                                                      ======
</TABLE>
 
   See "The Transactions and the Original Offering", "Capitalization" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources".
 
                                       6
<PAGE>
 
                               The Exchange Offer
 
   The exchange offer relates to the exchange of up to $150,000,000 aggregate
principal amount of our outstanding 10 1/4% Senior Subordinated Notes due 2009
for an equal aggregate principal amount of our new 10 1/4% Series B Senior
Subordinated Notes due 2009. The exchange notes will be obligations of Simmons
entitled to the benefits of the indenture governing the outstanding notes.
 
Registration Rights          You are entitled to exchange your notes for
 Agreement.................. exchange notes with terms that are identical in
                             all material respects. The exchange offer is
                             intended to satisfy these rights. After the
                             exchange offer is complete, you will no longer be
                             entitled to the benefits of the exchange or
                             registration rights granted under the
                             registration rights agreement which we entered
                             into as part of the original offering.
 
The Exchange Offer.......... We are offering to exchange $1,000 principal
                             amount of exchange notes which have been
                             registered under the Securities Act for each
                             $1,000 principal amount of notes which were
                             issued on March 16, 1999 in a transaction exempt
                             from registration under the Securities Act in
                             accordance with Rule 144A. Each of your notes
                             must be properly tendered and accepted in order
                             to be exchanged. We will exchange all notes that
                             are properly tendered and not validly withdrawn.
 
                             As of this date, there are $150,000,000 in
                             aggregate principal amount of notes outstanding.
 
                             We will issue the exchange notes on or promptly
                             after the expiration of the exchange offer.
 
Expiration Date............. The exchange offer will expire at 5:00 p.m., New
                             York City time, on       , 1999, unless we decide
                             to extend the exchange offer.
 
Conditions to the Exchange   The exchange offer is subject to the condition
 Offer...................... that it does not violate applicable law or staff
                             interpretations of the Commission. If we
                             determine that applicable federal law does not
                             permit the exchange offer, we may terminate the
                             offer. The exchange offer is not conditioned upon
                             any minimum principal amount of notes being
                             tendered. The holders of notes have rights under
                             the registration rights agreement should we fail
                             to consummate the exchange offer.
 
Resale of the Exchange       Based on an interpretation by the staff of the
 Notes...................... Commission set forth in no-action letters issued
                             to third parties, we believe that you may offer
                             for resale, resell or otherwise transfer without
                             compliance with the registration and prospectus
                             delivery provisions of the Securities Act the
                             exchange notes in exchange for your notes,
                             provided that:
 
                             . you are acquiring the exchange notes in the
                               ordinary course of business;
 
                             . you are not participating, do not intend to
                               participate, and have no arrangement or
                               understanding with any person to participate,
 
                                       7
<PAGE>
 
                              in the distribution of the exchange notes issued
                              to you pursuant to the exchange offer;
 
                             . you are not a broker-dealer who purchased your
                               outstanding notes directly from us for resale
                               pursuant to Rule 144A or any other available
                               exemption under the Securities Act; and
 
                             . you are not an "affiliate" of ours within the
                               meaning of Rule 405 under the Securities Act.
 
                             If our belief is inaccurate and you transfer any
                             exchange note issued to you pursuant to the
                             exchange offer in violation of the prospectus
                             delivery provisions of the Securities Act or
                             without an exemption from registration, you may
                             incur liability under the Securities Act. We do
                             not assume, or indemnify you against, any such
                             liability.
 
                             Each broker-dealer to which we issue exchange
                             notes pursuant to the exchange offer for its own
                             account in exchange for notes which such broker-
                             dealer acquired as a result of market-making or
                             other trading activities must acknowledge that it
                             will deliver a prospectus meeting the
                             requirements of the Securities Act in connection
                             with any resale of such exchange notes. The
                             letter of transmittal states that a broker-dealer
                             who makes this acknowledgment and delivers such a
                             prospectus will not be deemed to admit that it is
                             an "underwriter" within the meaning of the
                             Securities Act. A broker-dealer may use this
                             prospectus for an offer to resell, resale or
                             other retransfer of the exchange notes issued to
                             it pursuant to the exchange offer. We have agreed
                             that, for a period of one year after the date
                             that we complete the exchange offer, we will make
                             this prospectus and any amendment or supplement
                             to this prospectus available to any such broker-
                             dealer for use in connection with any such
                             resales. We believe that no registered holder of
                             the outstanding notes is an affiliate of Simmons
                             within the meaning of Rule 405 under the
                             Securities Act.
 
                             We are not offering to, nor will we accept
                             surrenders for exchange from, holders of
                             outstanding notes in any jurisdiction in which
                             the exchange offer or its acceptance would not
                             comply with the securities or blue sky laws of
                             such jurisdiction. Furthermore, persons who
                             acquire the exchange notes are responsible for
                             compliance with these securities or blue sky laws
                             regarding resales. We assume no responsibility
                             for compliance with these requirements.
 
Accrued Interest on the
 Exchange Notes and the
 Outstanding Notes..........
                             Each exchange note will bear interest from its
                             issuance date. The holders of notes that we
                             accept for exchange will receive, in cash,
                             accrued interest on such notes to, but not
                             including, the issuance date of the exchange
                             notes. We will pay such interest with the first
                             interest payment on the exchange notes. Interest
                             on the notes accepted for exchange will cease to
                             accrue upon issuance of the
 
                                       8
<PAGE>
 
                             exchange notes. Consequently, those holders who
                             exchange their outstanding notes for exchange
                             notes will receive the same interest payment on
                             September 15, 1999 (the first interest payment
                             date with respect to the notes and the exchange
                             notes to be issued pursuant to the exchange
                             offer) that they would have received had they not
                             accepted the exchange offer.
 
Procedures for Tendering     If you wish to tender your notes for exchange
 Notes...................... pursuant to the exchange offer, you must transmit
                             to SunTrust Bank, Atlanta, as exchange agent, on
                             or prior to the expiration date, either:
 
                             . a properly completed and duly executed copy of
                               the letter of transmittal accompanying this
                               prospectus, or a facsimile of such letter of
                               transmittal, together with your outstanding
                               notes and any other documentation required by
                               such letter of transmittal, at the address set
                               forth on the cover page of the letter of
                               transmittal; or
 
                             . if you are effecting delivery by book-entry
                               transfer, a computer-generated message
                               transmitted by means of the Automated Tender
                               Offer Program System of The Depository Trust
                               Company in which you acknowledge and agree to
                               be bound by the terms of the letter of
                               transmittal and which, when received by the
                               exchange agent, forms a part of a confirmation
                               of book-entry transfer.
 
                             In addition, you must deliver to the exchange
                             agent on or prior to the expiration date:
 
                             . if you are effecting delivery by book-entry
                               transfer, a timely confirmation of book-entry
                               transfer of your outstanding notes into the
                               account of the exchange agent at The Depository
                               Trust Company pursuant to the procedures for
                               book-entry transfers described in this
                               prospectus under the heading "The Exchange
                               Offer--Procedures for Tendering" or
 
                             . if necessary, the documents required for
                               compliance with the guaranteed delivery
                               procedures described in this prospectus under
                               the heading "The Exchange Offer--Guaranteed
                               Delivery Procedures".
 
                             By executing and delivering the accompanying
                             letter of transmittal or effecting delivery by
                             book-entry transfer, you are representing to us
                             that, among other things:
 
                             . the person receiving the exchange notes
                               pursuant to the exchange offer, whether or not
                               such person is the holder, is receiving them in
                               the ordinary course of business;
 
                             . neither the holder nor any other person has an
                               arrangement or understanding with any person to
                               participate in the distribution of such
                               exchange notes and that such holder is not
                               engaged in, and does not intend to engage in, a
                               distribution of the exchange notes; and
 
                                       9
<PAGE>
 
 
                             . neither the holder nor any other person is an
                               "affiliate" of ours within the meaning of Rule
                               405 under the Securities Act.
 
Special Procedures for
 Beneficial Owners..........
                             If you are a beneficial owner of notes and your
                             name does not appear on a security listing of The
                             Depository Trust Company as the holder of such
                             notes or if you are a beneficial owner of notes
                             that are registered in the name of a broker,
                             dealer, commercial bank, trust company or other
                             nominee and you wish to tender such notes in the
                             exchange offer, you should promptly contact the
                             person in whose name your notes are registered
                             and instruct such person to tender on your
                             behalf. If you, as a beneficial holder, wish to
                             tender on your own behalf you must, prior to
                             completing and executing the letter of
                             transmittal and delivering your outstanding
                             notes, either make appropriate arrangements to
                             register ownership of the outstanding notes in
                             your name or obtain a properly completed bond
                             power from the registered holder. The transfer of
                             record ownership may take considerable time.
 
Guaranteed Delivery          If you wish to tender your notes and time will
 Procedures................. not permit the letter of transmittal or any of
                             the documents required by the letter of
                             transmittal to reach the exchange agent by the
                             expiration date, or the procedure for book-entry
                             transfer cannot be completed on time or
                             certificates for your notes cannot be delivered
                             on time, you may tender your notes pursuant to
                             the guaranteed delivery procedures described in
                             this prospectus under the heading "The Exchange
                             Offer--Guaranteed Delivery Procedures".
 
Shelf Registration           If any changes in law or of the applicable
 Statement.................. interpretation of the staff of the Commission do
                             not permit us to effect the exchange offer or
                             upon the appropriate request of any holder of the
                             notes, we have agreed to register the notes on a
                             shelf registration statement and use our best
                             efforts to cause such shelf registration
                             statement to be declared effective by the
                             Commission. We have agreed to maintain the
                             effectiveness of the shelf registration statement
                             for, under certain circumstances, at least two
                             years from the date of the original issuance of
                             the notes to cover resales of such notes held by
                             such holders.
 
Withdrawal Rights........... You may withdraw the tender of your outstanding
                             notes, at any time prior to 5:00 p.m., New York
                             City time, on the expiration date.
 
Acceptance of Notes and
 Delivery of Exchange
 Notes...................... Subject to certain conditions, we will accept for
                             exchange any and all outstanding notes which are
                             properly tendered and not validly withdrawn. The
                             exchange notes issued pursuant to the exchange
                             offer will be delivered promptly following the
                             expiration date.
 
Certain U.S. Federal Income
 Tax Consequences...........
                             The exchange of notes for the exchange notes
                             should not be a taxable exchange for United
                             States federal income tax purposes. See "Certain
                             United States Federal Tax Considerations".
 
                                       10
<PAGE>
 
 
Use of Proceeds............. We will not receive any proceeds from the
                             issuance of the exchange notes. We will pay all
                             of our expenses relating to the exchange offer.
 
Exchange Agent.............. SunTrust Bank, Atlanta is serving as exchange
                             agent in connection with the exchange offer. The
                             exchange agent can be reached at 25 Park Place,
                             24th Floor, Atlanta, Georgia 30303-2900. For more
                             information with respect to the exchange offer,
                             please contact the exchange agent at (404) 588-
                             7067 or send your questions by facsimile to the
                             exchange agent at (404) 588-7335.
 
                                       11
<PAGE>
 
                               The Exchange Notes
 
General..................... The form and terms of the exchange notes are
                             identical in all material respects to the form
                             and terms of the outstanding notes except that:
 
                             . the exchange notes will bear a Series B
                               designation;
 
                             . we will have registered the exchange notes
                               under the Securities Act and, therefore, they
                               will generally not bear legends restricting
                               their transfer; and
 
                             . the holders of exchange notes will not be
                               entitled to rights under the registration
                               rights agreement.
 
                             The exchange notes will evidence the same debt as
                             the outstanding notes and will be entitled to the
                             benefits of the indenture under which the notes
                             were issued.
 
Issuer...................... Simmons Company
 
Total Amount of Exchange
 Notes Offered..............
                             $150.0 million in principal amount of 10 1/4%
                             Series B Senior Subordinated Notes due 2009.
 
Maturity.................... March 15, 2009.
 
Interest.................... Annual fixed rate--10 1/4%.
                             Payment frequency--every six months on March 15
                             and September 15. First interest payment--
                             September 15, 1999.
 
Ranking..................... The exchange notes are senior subordinated debts.
                             They rank behind all of our current and future
                             indebtedness (other than trade payables), except
                             indebtedness that expressly provides that it is
                             not senior to the exchange notes.
 
                             As of March 27, 1999, we estimate that the
                             exchange notes:
 
                             . will be subordinated to $184.4 million of
                               senior debt; and
 
                             . will rank equally with $16.3 million of other
                               debt and trade payables.
 
Optional Redemption......... On or after March 15, 2004, we may redeem some or
                             all of the exchange notes at any time at the
                             redemption prices listed in the "Description of
                             Exchange Notes" section under the heading
                             "Optional Redemption".
 
                             Before March 15, 2002, we may redeem up to 35% of
                             the aggregate principal amount of the exchange
                             notes with the proceeds of certain public
                             offerings of our common equity or of our direct
                             parent corporation at the price listed in the
                             "Description of Exchange Notes" section under the
                             heading "Optional Redemption".
 
                                       12
<PAGE>
 
 
Mandatory Offer to           If we sell certain assets under certain
 Repurchase................. circumstances, or experience specific kinds of
                             changes of control, we must offer to repurchase
                             the exchange notes at the prices listed in the
                             "Description of Exchange Notes" section under the
                             heading "Repurchase at the Option of Holders".
 
Basic Covenants of           We will issue the exchange notes under an
 Indenture.................. indenture with SunTrust Bank, Atlanta. The
                             indenture will, among other things, restrict our
                             ability and the ability of our subsidiaries to:
 
                             . borrow money;
 
                             . pay dividends on stock or repurchase stock;
 
                             . make investments;
 
                             . use assets as security in other transactions;
                               and
 
                             . sell certain assets or merge with or into other
                               companies.
 
                             For more details, see the section "Description of
                             the Exchange Notes" under the heading "Certain
                             Covenants".
 
 
                                       13
<PAGE>
 
                 Summary Condensed Consolidated Financial Data
                             (dollars in thousands)
 
   Set forth below are (a) our summary condensed consolidated financial data
for 1996 combined, 1997 and 1998, (b) our summary condensed consolidated
statement of operations data for 1998, as adjusted assuming that we had
consummated the Transactions and the original offering as of the beginning of
the period presented and eliminating certain non-recurring charges incurred in
connection with the Transactions, and (c) our summary condensed consolidated
balance sheet data for 1998, as adjusted assuming that we had consummated the
original offering at the end of the period presented. We derived the summary
condensed consolidated financial data for 1996 combined, 1997 and 1998 and as
of December 26, 1998 from our consolidated financial statements. You should
read the information contained in this table along with "Selected Historical
Consolidated Financial and Other Data", "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and our consolidated
financial statements and accompanying notes and other financial information
appearing elsewhere in this prospectus.
 
<TABLE>
<CAPTION>
                                                  Year Ended
                                    -----------------------------------------
                                    Combined             Actual   As Adjusted
                                    Dec. 28,  Dec. 27,  Dec. 26,   Dec. 26,
                                    1996(1)     1997      1998       1998
                                    --------  --------  --------  -----------
<S>                                 <C>       <C>       <C>       <C>
Statement of Operations Data:
Net sales.........................  $530,301  $550,085  $600,773   $600,773
Cost of products sold.............   320,757   319,074   348,842    348,842
                                    --------  --------  --------   --------
Gross profit......................   209,544   231,011   251,931    251,931
Selling, general and
 administrative expenses..........   171,608   183,556   202,213    202,213
ESOP expense(2)...................     5,000     6,230     6,453      6,453
Amortization of intangibles.......     6,974     7,679     7,629      7,629
Interest expense, net(3)..........    16,766    19,088    22,454     30,953 (4)
Other expense, net(5).............     1,653     1,571    17,544      2,684 (6)
                                    --------  --------  --------   --------
Income (loss) before taxes and
 extraordinary item...............  $  7,543  $ 12,887  $ (4,362)  $  1,999
                                    ========  ========  ========   ========
Net income (loss).................  $    873  $  6,362  $(19,019)  $   (200)(7)
                                    ========  ========  ========   ========
Other Data:
Adjusted EBITDA(8)................  $ 48,476  $ 58,420  $ 62,264   $ 62,264
Adjusted EBITDA margin............       9.1%     10.6%     10.4%      10.4%
Gross margin......................      39.5%     42.0%     41.9%      41.9%
Adjusted capital expenditures(9)..  $  4,726  $  7,616  $  8,989   $  8,989
Depreciation and amortization.....    11,316    13,549    16,593     16,593
Cash interest expense(10).........    15,994    18,731    21,566     29,563
Total interest expense............    16,921    19,344    22,638     31,137
Ratio of Adjusted EBITDA to cash
 interest expense.................                                      2.1x
Ratio of Adjusted EBITDA to total
 interest expense.................                                      2.0x
Ratio of total debt, net, to
 Adjusted EBITDA(11)..............                                      5.0x
Ratio of earnings to fixed
 charges(12)......................       1.4x      1.6x      --         1.1x
</TABLE>
 
<TABLE>
<CAPTION>
                                                     As of December 26, 1998
                                                     ---------------------------
                                                       Actual      As Adjusted
                                                     -----------  --------------
<S>                                                  <C>          <C>
Balance Sheet Data:
Working Capital(13)................................  $    46,567   $    46,567
Total assets.......................................      400,061       400,061
Total debt, including current maturities...........      313,469       319,445
Total debt, net, including current maturities(11)..      307,465       313,441
Total common stockholders' deficit.................      (12,301)      (12,301)
</TABLE>
 
                                       14
<PAGE>
 
             Notes to Summary Condensed Consolidated Financial Data
             (except as otherwise indicated, dollars in thousands)
 
(1) As a result of the Investcorp Acquisition, our assets and liabilities were
    adjusted to reflect their estimated fair values as of March 22, 1996. In
    addition, we entered into new financing arrangements and changed its
    capital structure. Accordingly, the results for periods subsequent to the
    Investcorp Acquisition are not comparable to the prior historical periods
    presented. The combined period for 1996 represents the mathematical
    addition of the historical amounts for the Predecessor Period (December 31,
    1995 to March 21, 1996) and the Successor Period (March 22, 1996 to
    December 28, 1996) and is not indicative of results that would have been
    obtained had the Investcorp Acquisition occurred on December 31, 1995. For
    information regarding these periods separately, see our consolidated
    financial statements and accompanying notes appearing elsewhere in this
    prospectus.
 
(2) Represents the non-cash charge resulting from the allocation of shares held
    by the Simmons ESOP to participant accounts as they are earned. See "The
    Simmons ESOP" and "Management's Discussion and Analysis of Financial
    Condition and Results of Operations".
 
(3) Interest expense, net includes the amortization of deferred debt issuance
    costs of $605, $613 and $777 for 1996 combined, 1997 and 1998,
    respectively, and is net of interest income of $155, $256 and $184 for the
    same periods, respectively.
 
(4) Reflects the following net increase in interest expense resulting from the
    Transactions and the original offering:
 
<TABLE>
    <S>                                                               <C>
    Elimination of historical interest expense for refinanced debt..  $(21,258)
    Interest resulting from the Term Loan Facility:
        Tranche A--$30,976 at 7.75%.................................     2,401
        Tranche B--$70,000 at 8.25%.................................     5,775
        Tranche C--$50,000 at 8.50%.................................     4,250
    Interest resulting from the issuance of the notes at 10.25%.....    15,375
    Commitment fee resulting from the portion of the Revolving
     Credit Facility assumed to be unused...........................       382
    Amortization of the $12,018 deferred financing costs related to
     the above......................................................     1,574
                                                                      --------
      Net Increase..................................................  $  8,499
                                                                      ========
</TABLE>
 
   As of December 26, 1998, we had no amounts outstanding under the Revolving
   Credit Facility. Immediately prior to the original offering, we had
   borrowings outstanding under the Revolving Credit Facility and the Term
   Loan Facility of approximately $15.0 million and $189.7 million,
   respectively. We used a portion of the proceeds of the original offering
   to repay all amounts outstanding under the Revolving Credit Facility and
   to prepay approximately $23.6 million of principal amounts under the Term
   Loan Facility as well as approximately $0.1 million of accrued interest.
   We applied $21.4 million, $1.1 million and $1.1 million of prepayments to
   the Tranche A, Tranche B and Tranche C Term Loans, respectively, which
   resulted in a total outstanding amount under the Term Loan Facility of
   approximately $166.1 million.
 
   Interest rates assumed for the New Senior Credit Agreement loans are based
   upon a LIBOR borrowing rate of 5.0% plus the applicable margin. If the
   interest rates assumed above increased by 0.25%, our total interest
   expense would increase by $377 for 1998.
 
(5) For the components of other expense, net for 1996 combined through 1998,
    see Note 9 to our consolidated financial statements.
 
(6) Reflects the following net decrease:
 
<TABLE>
<S>                                                                   <C>
  Elimination of certain non-recurring expenses associated with the
   Transactions.....................................................  $(15,235)
  Increase in the annual management fee.............................       375
                                                                      --------
                                                                      $(14,860)
                                                                      ========
</TABLE>
 
                                       15
<PAGE>
 
 
(7) Reflects a decrease in provision for income taxes as a result of
    adjustments to interest expense and other expense, at an assumed tax rate
    of 40%. See Notes (4) and (6) above. Also excludes the extraordinary loss
    of $15,002, net of income tax benefit of $7,079, representing the remaining
    unamortized debt issuance costs related to the repayment of certain long-
    term obligations in connection with the Transactions of $4,184 (net of
    income tax benefit of $1,974) and the payment of the premium of $10,818
    (net of income tax benefit of $5,105) related to the Redemption.
 
(8)Items added back to EBITDA to arrive at Adjusted EBITDA are as follows:
 
<TABLE>
<CAPTION>
                                                       Year Ended
                                         --------------------------------------
                                         Combined           Actual  As Adjusted
                                         Dec. 28, Dec. 27, Dec. 26,  Dec. 26,
                                           1996     1997     1998      1998
                                         -------- -------- -------- -----------
<S>                                      <C>      <C>      <C>      <C>
  EBITDA(a)............................  $ 42,433 $ 53,581 $ 58,866  $ 58,866
  SWIFT/UNITE expense(b)...............     4,107    2,347    2,208     2,208
  Strategic management initiatives(c)..       --     1,693      418       418
  Inventory written up to fair market
   value(d)............................     1,000      --       --        --
  Discontinued product line(e).........       936      799      772       772
                                         -------- -------- --------  --------
  Adjusted EBITDA(a)...................  $ 48,476 $ 58,420 $ 62,264  $ 62,264
                                         ======== ======== ========  ========
</TABLE>
 
   (a) EBITDA represents earnings before interest expense, income tax
       expense, extraordinary item, depreciation and amortization, ESOP
       expense, management fees and other non-operating charges. We believe
       that EBITDA is a widely accepted financial indicator of a company's
       ability to service or incur debt and a similar measure is utilized for
       purposes of the covenants contained in the indenture. EBITDA and
       Adjusted EBITDA are not measurements of operating performance
       calculated in accordance with generally accepted accounting principles
       and should not be considered substitutes for operating income, net
       income, cash flows from operating activities or other statement of
       operations or cash flow data prepared in accordance with generally
       accepted accounting principles, or as measures of profitability or
       liquidity. EBITDA and Adjusted EBITDA may not be indicative of our
       historical operating results, nor are they meant to be predictive of
       potential future results. In addition, EBITDA and Adjusted EBITDA as
       defined in this note are not presentations accepted by the Commission.
       Accordingly, any presentation of EBITDA or Adjusted EBITDA or any
       information concerning EBITDA or Adjusted EBITDA which may be included
       in a future registration statement filed with the Commission may be
       substantially different than the presentation included herein. Our
       measures of EBITDA and Adjusted EBITDA may not be comparable to those
       recorded by other companies.
 
   (b) Reflects reduction in expenses related to our substantially completed
       SWIFT/UNITE (each as defined herein) productivity enhancement
       programs.
 
   (c) Reflects non-recurring consulting and other expenses related to
       strategic initiatives.
 
   (d) Reflects non-recurring write up to fair market value in connection
       with the Investcorp Acquisition.
 
   (e) Reflects non-recurring losses attributable to a discontinued product
       line.
 
(9) Adjusted capital expenditures are exclusive of expenditures related to
 
   (a) our substantially completed SWIFT and UNITE programs of $7,575,
       $3,786, $2,808 and $2,808 for 1996 combined, 1997, 1998 and the year
       1998 as adjusted, respectively; and
 
   (b) new plant facilities of $2,612, $4,299, $3,756 and $3,756 for the same
       periods, respectively.
 
(10) Cash interest expense is defined as interest expense less amortization of
     debt issuance costs and other non-cash interest expense. We believe that
     the ratio of Adjusted EBITDA to cash interest expense and the ratio of
     Adjusted EBITDA to total interest expense are widely accepted as useful
     information regarding a company's ability to service and/or incur debt.
 
 
                                       16
<PAGE>
 
(11) Total debt, net is calculated as total debt less cash.
 
(12) For the purpose of determining the ratio of earnings to fixed charges,
     earnings consist of income before taxes and fixed charges. Fixed charges
     consist of interest expense, which includes the amortization of deferred
     debt issuance costs and the interest portion of our rent. Earnings were
     insufficient to cover fixed charges for 1998 by $4,362.
 
(13) Represents total current assets (excluding cash and equivalents) less
     total current liabilities (excluding current maturities of long-term debt
     and capital lease obligations).
 
                                       17
<PAGE>
 
                                 RISK FACTORS
 
   You should carefully consider the following factors in addition to the
other information set forth in this prospectus before investing in the
exchange notes.
 
 Substantial Leverage--Our substantial indebtedness could adversely affect our
 financial health and prevent us from fulfilling our obligations under the
 exchange notes.
 
   As a result of the Transactions and the original offering, we have a
significant amount of indebtedness. As of March 27, 1999, our total
indebtedness was approximately $334.5 million and our ratio of earnings to
fixed charges was 1.1 to 1.
 
   Our substantial indebtedness could have important consequences to you. For
example, it could:
 
  .  make it more difficult for us to satisfy our obligations under the exchange
     notes;
 
  .  increase our vulnerability to general adverse economic and industry
     conditions;
 
  .  require us to dedicate a substantial portion of our cash flow from
     operations to payments on our indebtedness, which would reduce the amount
     of cash flow available to fund working capital, capital expenditures,
     research and development efforts and other general corporate
     requirements;
 
  .  limit our flexibility in planning for, or reacting to, changes in our
     business and the industry in which we operate;
 
   . place us at a competitive disadvantage compared to our competitors that
     have less debt; and
 
  .  limit our ability to borrow additional funds. In addition, it will subject
     us to financial and other restrictive covenants, and failure to comply
     with those covenants could result in an event of default which, if not
     cured or waived, could have a material adverse effect on us.
 
   See "Other Indebtedness--New Senior Credit Agreement".
 
 Additional Borrowings Available--Despite current indebtedness levels, we and
 our subsidiaries may still be able to incur substantially more debt.
 
   We and our subsidiaries may be able to incur substantial additional
indebtedness in the future. The terms of the indenture do not fully prohibit
us or our subsidiaries from doing so. The New Senior Credit Agreement permits
additional borrowings under the Revolving Credit Facility of up to
approximately $79.3 million as of March 27, 1999 and all of those borrowings
would be senior to the exchange notes. If new debt is added to our current
debt levels, the related risks that we face could intensify. See
"Capitalization", "Selected Historical Consolidated Financial and Other Data"
and "Other Indebtedness--New Senior Credit Agreement".
 
 Ability to Service Debt--To service our indebtedness, we will require a
 significant amount of cash. Our ability to generate cash depends on many
 factors beyond our control.
 
   Our ability to make payments on and to refinance our indebtedness,
including the exchange notes, and to fund planned capital expenditures and
research and development efforts will depend on our ability to generate cash
in the future. Our ability to generate cash is subject to general economic,
financial, competitive, legislative, regulatory and other factors that are
beyond our control.
 
   Based on our current level of operations and anticipated cost savings and
operating improvements, we believe our cash flow from operations, available
cash and available borrowings under our New Senior Credit Agreement will be
adequate to meet our future liquidity needs for at least the next few years.
 
   We cannot assure you, however, that our business will generate sufficient
cash flow from operations, that we will realize currently anticipated cost
savings and operating improvements on schedule or at all or that future
borrowings will be available to us under our New Senior Credit Agreement in
amounts sufficient to
 
                                      18
<PAGE>
 
enable us to pay our indebtedness, including the exchange notes, or to fund
our other liquidity needs. We may need to refinance all or a portion of our
indebtedness, including the exchange notes, on or before maturity. We cannot
assure you that we will be able to refinance any of our indebtedness,
including our New Senior Credit Agreement and the exchange notes, on
commercially reasonable terms or at all.
 
 Subordination--Your right to receive payments on the exchange notes is junior
 to certain of our existing indebtedness and possibly to all of our future
 borrowings.
 
   The exchange notes rank behind all of our existing indebtedness (other than
trade payables) and all of our future borrowings (other than trade payables),
except any future indebtedness that expressly provides that it ranks equal
with, or is subordinated in right of payment to, the exchange notes. As a
result, upon any distribution to our creditors in a bankruptcy, liquidation or
reorganization or similar proceeding relating to us or our property, the
holders of our senior debt will be entitled to be paid in full in cash before
any payment may be made with respect to the exchange notes.
 
   In addition, all payments on the exchange notes will be blocked in the
event of a payment default on our senior debt and may be blocked for up to 179
of 360 consecutive days in the event of certain non-payment defaults on senior
debt.
 
   In the event of a bankruptcy, liquidation or reorganization or similar
proceeding relating to our company, holders of the exchange notes will
participate with trade creditors and all other holders of our subordinated
indebtedness in the assets remaining after we have paid all of the senior
debt. However, because the indenture requires that amounts otherwise payable
to holders of the exchange notes in a bankruptcy or similar proceeding be paid
to holders of senior debt instead, holders of the exchange notes may receive
less, ratably, than holders of trade payables in any such proceeding. In any
of these cases, we may not have sufficient funds to pay all of our creditors,
and holders of exchange notes may receive less, ratably, than the holders of
senior debt.
 
   As of March 27, 1999, after giving effect to the exchange offer, we
estimate that the exchange notes will be subordinated to approximately $184.4
million of senior debt and we will have approximately $79.3 million available
for borrowing as additional senior debt under our Revolving Credit Facility.
The indenture will permit us to incur substantial additional indebtedness,
including senior debt, in the future.
 
 Control by Fenway--Fenway has effective control of Simmons. They may have
 different interests from yours.
 
   Fenway and its affiliates own approximately 75% of the outstanding voting
stock of our parent company and hold the Junior Holdings PIK Notes. See
"Principal Stockholders" and "The Transactions and the Original Offering--
Securities Purchase Agreement".
 
   Based on its stock ownership, Fenway has the power to:
 
   . elect a majority of the directors of our parent company;
 
   . control all matters submitted to stockholders of our parent company; and
 
   . exercise control over the business, policies and affairs of our parent
company.
 
   Fenway, as our parent company's majority equity holder and as holder of the
Junior Holdings PIK Notes, may have different interests than those of holders
of the exchange notes.
 
 Financing Change of Control Offer--We may not have the ability to raise the
 funds necessary to finance the change of control offer required by the
 indenture.
 
   Upon the occurrences of specific kinds of change of control events, we will
be required to offer to repurchase all outstanding notes. However, we may not
have sufficient funds at the time of the change of
 
                                      19
<PAGE>
 
control to make the required repurchase of exchange notes or restrictions in
our New Senior Credit Agreement or other senior debt may not allow such
repurchases. In addition, certain important corporate events, such as
leveraged recapitalizations that would increase the level of our indebtedness,
would not constitute a "Change of Control" under the indenture. See
"Description of Exchange Notes--Repurchase at the Option of Holders--Change of
Control".
 
 Dependence on Key Customers--We rely upon a small number of customers for a
 significant portion of our business. If we lose their business, our financial
 health may suffer.
 
   We currently derive a significant portion of our sales from a small number
of customers and expect similar customer concentration to continue in the
future. In 1998, our ten largest customers accounted for approximately 38% of
our net sales. Heilig-Meyers Company and its subsidiaries, including Rhodes,
Inc., accounted for approximately 11.8% of our 1998 net sales. If we lose all
or a significant portion of our business with Heilig-Meyers Company and its
subsidiaries or any of our other significant customers, our financial
condition or results of operations may suffer materially.
 
   We try to actively monitor the creditworthiness of our customers, and when
necessary, try to minimize our dependence upon any single customer. We cannot,
however, eliminate the risk that important customers may experience financial
difficulties or become bankrupt. In 1997, two of our ten largest customers,
Montgomery Ward & Co. and Levitz Furniture, Inc., filed for protection under
Chapter 11 of the United States Bankruptcy Code. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Significant
Customer Developments".
 
 Risk of Fluctuations in the Cost of Raw Materials--If raw material costs
 increase, our financial health may suffer.
 
   The major raw materials that we purchase are wire, spring components,
lumber, cotton, insulator pads, innersprings, fabrics and roll goods
consisting of foam, fiber, ticking and non-wovens. The price and availability
of these raw materials may change depending upon market conditions. If prices
increase and we are unable to pass on the increase in our costs to our
customers, then our financial condition or results of operations may be
materially and adversely affected. See "Business--Suppliers".
 
 Dependence on Key Suppliers--If we experience difficulty with a major
 supplier, we may have difficulty finding alternative sources. This could
 adversely affect our business.
 
   We purchase substantially all of our conventional bedding raw materials
centrally to obtain volume discounts and achieve economies of scale. We obtain
a large percentage of our raw materials from a small number of suppliers. In
1998, we bought approximately 86% of our raw materials from ten suppliers.
Supplier concentration is common in the bedding industry.
 
   We have long-term supply agreements with Leggett & Platt, Incorporated,
Foamex International Inc. and Amoco Fabrics and Fiber Company. With the
exception of Leggett & Platt, we believe that we can readily replace our other
suppliers, if necessary, because we have already identified and begun to use
alternate sources.
 
   Leggett & Platt supplies the majority of certain bedding components to the
bedding industry, including spring components, insulator pads, wire, fiber,
quilt backing and flange material. In 1998, we bought approximately one-third
of our raw materials from Leggett & Platt. We expect that in 1999 we will buy
a comparable portion of our raw materials from Leggett & Platt. Under our
agreements with Leggett & Platt, we are required to buy a majority of our
requirements of certain components from them, such as grid tops, innersprings
and wire. Those agreements generally expire in 2010. Because we may not be
able to find alternative sources on terms as favorable to us for some of these
components, our business, financial condition and results of operations could
be materially and adversely affected if we lose Leggett & Platt as a supplier.
See "Business--Suppliers".
 
 
                                      20
<PAGE>
 
 Dependence on Key Personnel--The loss of Mr. Nie's services may adversely
 affect our business.
 
   Our success will continue to depend upon our management team, and in
particular upon Zenon Nie, the Chairman of our Board of Directors, our Chief
Executive Officer and President. The loss of Mr. Nie's services could
materially and adversely affect our business and future operations. In October
1998, we entered into a three-year employment agreement with Mr. Nie (which
renews automatically on a daily basis, subject to three years' notice of
termination). We also maintain a $10.0 million key man life insurance policy
covering Mr. Nie, of which we are the beneficiary. See "Management--Employment
Arrangements".
 
 Competition--Our competitors may have important advantages over us that could
 result in our losing market share or profitability.
 
   The bedding industry is intensely competitive. There are approximately 800
bedding manufacturers in the United States. We, along with Sealy Corporation
and Serta, Inc., currently have a significant portion of the industry's
wholesale revenues. Although we believe we are well-positioned to compete
because of our brand name recognition and strong customer base, we could
experience increased future competition resulting in price reductions, reduced
margins or loss of market share. Any of these could have an adverse effect on
our operating results or financial condition. In addition, some of our
principal competitors may be less highly-leveraged, have greater access to
financial or other resources, have lower cost operations, have greater
vertical integration, and be better able to withstand market conditions. See
"Business--Competition".
 
 Environmental, Health and Safety Regulation--We are subject to regulations
 that may be materially burdensome or expensive to comply with.
 
   We are subject to various federal, state and local laws and regulations
relating to occupational health and safety, pollution and environmental
protection. It is possible that, despite our efforts, we may fail to be in
complete compliance with all of the applicable regulations.
 
   We are currently evaluating our potential liability for the clean-up of
environmental contamination in and around our leased manufacturing facilities
in San Leandro, California.
 
   Our efforts to comply with environmental regulations do not remove the risk
that we may be held liable, and that the amount of liability may be material,
for releases of hazardous substances occurring on or coming from our
properties or any associated offsite disposal location, or for contamination
discovered at any of our properties from activities conducted by previous
occupants. This risk is common for manufacturers in general.
 
   We have recorded a reserve to reflect our potential liability for
environmental matters. The costs of environmental remediation are uncertain,
and we may incur costs in excess of our recorded reserves. See "Business--
Regulatory Matters".
 
 Acquisition Integration--Difficulties in integrating potential acquisitions
 could adversely affect our business.
 
   We regularly evaluate potential acquisition opportunities to support and
strengthen our business. We cannot assure you that we will be able to locate
suitable acquisition candidates, acquire candidates on acceptable terms or
integrate acquired businesses successfully.
 
   Future acquisitions may require us to incur additional debt and contingent
liabilities, which may materially and adversely affect our business, operating
results and financial condition. In addition, the process of effectively
integrating acquired businesses involves the following risks:
 
   . assimilating operations and products may be unexpectedly difficult;
 
   . management's attention may be diverted from other business concerns;
 
   . we may enter markets in which we have limited or no direct experience;
and
 
   . we may lose key employees of the acquired business.
 
                                      21
<PAGE>
 
   We do not currently have any agreements relating to acquisitions or joint
ventures.
 
 Labor Relations--While our labor relations have historically been good, we
 cannot assure you that this will continue.
 
   At nine of our 18 manufacturing facilities, at least one of the following
unions represents our employees:
 
   . the Upholstery Division of the United Steelworkers;
 
   . the Teamsters;
 
   . the United Furniture Workers;
 
   . the Longshoremen; and
 
   . the International Association of Machinists and Aerospace Workers.
 
   Most of our labor contracts expire in 2001. Union contracts are typically
for four-year terms.
 
   Our labor relations have historically been good. We have not experienced
any labor-related work stoppage in over 20 years. Since 1980, we have opened
nine new plants, none of which are unionized. It is possible, however, that
labor union efforts to organize employees at those facilities may be
successful. It is also possible that we may experience labor-related work
stoppages in the future. Either of these possible developments could have a
material adverse effect on our financial condition or results of operations.
See "Business--Employees".
 
 Year 2000 Issue--We cannot assure you that we have eliminated our exposure to
 the Year 2000 issue or related adverse consequences to our business.
 
   We continue to evaluate the possibility of disruption to our computer and
other systems upon the turn of the century as a result of the widely-known
dating flaw inherent in many systems known as the year 2000 issue. We are in
the process of upgrading and modifying our existing systems to address the
year 2000 issue. While we believe that we will upgrade or modify our systems
in time to remedy the year 2000 issue, a failure to complete the upgrades or
modifications in a timely manner may disrupt our operations.
 
   We have relationships with suppliers, customers, banks, insurers and other
significant entities, such as public utilities, that may not have adequately
addressed the year 2000 issue with respect to their equipment or information
systems. Although we are attempting to assess the extent of their compliance
efforts, we have not received any written assurances and, accordingly, cannot
determine the risk to our business.
 
   In the event that we are unable to complete planned upgrades or implement
replacement systems prior to December 31, 1999, or that the parties with whom
we have relationships have not adequately addressed the year 2000 issue, we
may experience significant disruptions or delays in our operations. This could
result in our business, financial condition or results of operations suffering
a material adverse effect. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Impact of the Year 2000 Issue".
 
 Reliance on Intellectual Property--We cannot assure you that our protection
 of our intellectual property is adequate to prevent harm to our business.
 
   We hold over 200 trademarks registered in the United States. We believe
these trademarks have significant value and are important in marketing our
products to retailers and end-consumers. Our principal trademarks are
registered or pending registration in over 90 foreign countries. We own
numerous United States and foreign patents and have patent applications
pending domestically and abroad. We also own United States and foreign
registered trade names and service marks and have pending applications for the
registration of trade names and service marks domestically and abroad. In
addition, we own a variety of unpatented proprietary technology and know-how
which is important to the design and manufacture of our products.
 
                                      22
<PAGE>
 
   To compete effectively with other companies, we must maintain the
proprietary nature of our owned and licensed intellectual property. Despite our
efforts, we cannot eliminate the following risks:
 
   . others may circumvent our trademarks;
 
   . our trademarks may, now or in the future, violate the proprietary rights
     of others;
 
   . we may be prevented from using our own trademarks if challenged;
 
   . we may be unable to afford to enforce or defend our trademarks;
 
   . our patents may not sufficiently protect us;
 
   . our pending patent applications may not result in patents being issued;
     and
 
   . we may be unable to protect our technological advantages when our patents
     expire.
 
   Although we do not believe that our overall success is dependent upon any
particular intellectual property rights, an inability to maintain the
proprietary nature of our intellectual property may materially and adversely
affect our financial condition or results of operations. For example, any
challenge to the use of our trademarks could have a material adverse effect on
our financial condition or results of operations, either through a negative
ruling with respect to our use, the validity or enforceability of our
trademarks or through the time consumed and legal costs involved in defending
against a challenge. See "Business--Patents, Trademarks and Licenses".
 
 Fraudulent Conveyance Matters--Federal and state statutes allow courts, under
 specific circumstances, to invalidate the exchange notes and require
 noteholders to return payments received from us.
 
   Federal bankruptcy law and comparable provisions of state fraudulent
transfer laws allow courts to invalidate the exchange notes, or to subordinate
claims in respect of the exchange notes to all of our other debts if, among
other things, at the time we incurred the indebtedness evidenced by the
exchange notes, we:
 
   . received less than reasonably equivalent value or fair consideration for
     the incurrence of that indebtedness and were insolvent or rendered
     insolvent by reasons of that incurrence; or
 
   . were engaged in a business or transaction for which our remaining assets
     constituted unreasonably small capital; or
 
   . intended to incur, or believed that we would incur, debts that we could
     not pay as they matured.
 
   In addition, courts could invalidate any payments we make pursuant to the
exchange notes and require such payments to be returned to us, or to a fund for
the benefit of our creditors.
 
   The measures of insolvency for purposes of these fraudulent transfer laws
will vary depending upon the law applied in any proceeding to determine whether
a fraudulent transfer has occurred. Generally, however, courts would consider
us insolvent if:
 
   . the sum of our debts, including contingent liabilities, was greater than
     the fair saleable value of all of our assets; or
 
   . the present fair saleable value of our assets was less than the amount that
     would be required to pay our probable liability on existing debts,
     including contingent liabilities, as they became absolute and mature; or
 
   . we could not pay our debts as they became due.
 
                                       23
<PAGE>
 
   On the basis of historical financial information, recent operating history
and other factors, we believe that, after giving effect to the indebtedness
incurred in connection with the original offering and the Transactions, we:
 
   . will not be insolvent;
 
   . will not have unreasonably small capital for our business; and
 
   . will not have incurred debts that we cannot pay as they mature.
 
   We cannot assure you, however, as to what standard a court would apply in
making such determinations or that a court would agree with our conclusions in
this regard.
 
 No Prior Market for Exchange Notes--We cannot assure you that an active
 trading market will develop for the exchange notes. Further, resales of the
 exchange notes must comply with applicable state securities laws.
 
   The exchange notes are new securities for which there currently is no
market. Although Goldman, Sachs & Co., Warburg Dillon Read LLC, Fleet
Securities, Inc. and U.S. Bancorp Libra, the initial purchasers of the
outstanding notes, have informed us that they intend to make a market in the
exchange notes, they are not obligated to do so and they may discontinue any
such market making at any time without notice. Accordingly, we cannot assure
you as to the development or liquidity of any market for the exchange notes.
We expect the exchange notes to be eligible for trading by qualified buyers in
the PORTAL market. We do not intend to apply for listing of the exchange notes
on any securities exchange or for quotation through The Nasdaq National
Market.
 
   In addition, changes in the overall market for high yield securities and
changes in our financial performance or prospects or in the prospects for
companies in our industry generally may adversely affect the liquidity of the
trading market in the exchange notes, and the market price quoted for the
exchange notes. See "Description of Exchange Notes" and "The Exchange Offer".
 
   All resales must be made in compliance with state securities or blue sky
laws. Such compliance may require that the exchange notes be registered or
qualified in a state or that the resales be made by or through a licensed
broker-dealer, unless exemptions from these requirements are available. We
assume no responsibility with regard to compliance with these requirements.
 
 Your failure to exchange your notes in the exchange offer will restrict your
 ability to resell them.
 
   Untendered outstanding notes that you do not exchange for the registered
exchange notes pursuant to the exchange offer will remain restricted
securities, subject to the following restrictions on transfer:
 
  .you may resell only if registered pursuant to the Securities Act or if an
     exemption from registration is available;
 
   .the notes will bear a legend restricting transfer in the absence of
registration or an exemption; and
 
  .a holder of the notes who wants to sell or otherwise dispose of all or any
     part of its notes under an exemption from registration under the
     Securities Act, if requested by us, must deliver to us an opinion of
     independent counsel experienced in Securities Act matters, reasonably
     satisfactory in form and substance to us, that such exemption is
     available.
 
   Except under limited circumstances, we have no obligation to register any
notes not tendered in the exchange offer.
 
                                      24
<PAGE>
 
                   THE TRANSACTIONS AND THE ORIGINAL OFFERING
 
The Transactions
 
   On or about July 16, 1998, we entered into a recapitalization agreement (as
amended to date, the "Merger Agreement") with Simmons Holdings and REM
Acquisition, Inc., a transitory Delaware merger corporation ("REM") sponsored
by Fenway. The Merger Agreement provided for REM to merge with and into Simmons
Holdings (the "Merger"), with Simmons Holdings being the surviving corporation.
 
   On October 29, 1998, the Merger was consummated. In connection with the
Merger, the following transactions occurred:
 
     (1) REM purchased the outstanding shares of our Series A preferred stock
  owned by the Simmons ESOP that had been allocated as of that time to its
  participants (the "Allocated Shares") for an aggregate purchase price of
  $15.4 million (the "ESOP Repurchase"), and the Simmons ESOP exchanged its
  remaining outstanding shares of our Series A preferred stock for shares of
  capital stock of Simmons Holdings;
 
     (2) certain stockholders and option holders of Simmons Holdings who are
  affiliates of or investors arranged by INVESTCORP S.A. ("Investcorp" and,
  collectively with affiliates of or investors arranged by Investcorp, the
  "Investcorp Group") received an aggregate amount of cash equal to
  approximately $193.4 million, and certain stockholders and option holders
  of Simmons Holdings who are members of our management (the "Management
  Investors") received an aggregate amount of cash equal to approximately
  $14.0 million;
 
     (3) the Simmons ESOP retained shares of stock of Simmons Holdings with
  an estimated fair value of $23.4 million (the "ESOP Equity Rollover");
 
     (4) the Investcorp Group retained shares of stock of Simmons Holdings
  with an estimated fair value of $9.0 million (the "Investcorp Equity
  Rollover");
 
     (5) the Management Investors retained shares of stock and options to
  purchase stock of Simmons Holdings with an estimated fair value of $16.5
  million (the "Management Equity Rollover");
 
     (6) we placed funds in escrow for the Redemption of our Previously
  Existing Notes (as described below); and
 
     (7) we effected the Refinancing by entering into the New Senior Credit
  Agreement (as described below) and repaying indebtedness outstanding under
  our Previous Credit Agreement (as described below).
 
   As a result of the Merger and related transactions, Fenway Investment LLC
acquired 75.1% of the outstanding shares of Simmons Holdings, and the
Management Investors, the Simmons ESOP and the Investcorp Group retained
approximately 5.9%, 13.7% and 5.3%, respectively, of the outstanding shares of
Simmons Holdings.
 
   Financing for the Merger, the related transactions, and the fees and
expenses incurred therewith, consisted of the following:
 
     (1) $128.1 million of equity capital provided by Fenway Investment LLC;
 
     (2) the $16.5 million Management Equity Rollover, the $9.0 million
  Investcorp Equity Rollover and the $23.4 million ESOP Equity Rollover
  (collectively, the "Rollover Equity");
 
     (3) $190.0 million of term loan borrowings by us under the Term Loan
  Facility of the New Senior Credit Agreement (as described below);
 
     (4) $10.0 million of revolving borrowings by us under the Revolving
  Credit Facility of the New Senior Credit Agreement (as described below);
 
                                       25
<PAGE>
 
     (5) West Street and UBS provided Senior Bridge Financing in the
  aggregate principal amount of $75.0 million; and
 
     (6) we issued the Junior Simmons Notes to Fenway Investment LLC in the
  aggregate principal amount of $30.0 million, and Simmons Holdings issued
  the Junior Holdings PIK Notes to Fenway Investment LLC in the aggregate
  principal amount of $10.0 million.
 
   The following table sets forth the sources and uses of funds in connection
with the Transactions as of October 29, 1998:
 
<TABLE>
<CAPTION>
                                                                     Amount
                                                                  -------------
                                                                  (in millions)
       <S>                                                        <C>
       Sources:
       New Senior Credit Agreement
         Term Loan Facilities...................................     $190.0
         Revolving Credit Facility..............................       10.0
       Senior Bridge Financing..................................       75.0
       Junior Simmons Notes.....................................       30.0
       Junior Holdings PIK Notes................................       10.0
       Rollover Equity..........................................       48.9
       Cash Equity Proceeds.....................................      128.1
                                                                     ------
           Total Sources........................................     $492.0
                                                                     ======
 
       Uses:
       Payments in respect of outstanding common stock from
        existing shareholders...................................     $207.4
       ESOP Repurchase..........................................       15.4
       Redemption of Previously Existing Notes..................      115.9
       Repayment of borrowings under Existing Credit Agreement..       69.9
       Accrued Interest.........................................        1.5
       Rollover Equity..........................................       48.9
       Transaction Fees and Expenses............................       31.4
       Working Capital Increase.................................        1.6
                                                                     ------
           Total Uses...........................................     $492.0
                                                                     ======
</TABLE>
 
The Original Offering
 
   On March 16, 1999, we sold the notes in the original offering. As set forth
in the table below, we used the $150.0 million of proceeds from the original
offering to:
 
     (1) repay the indebtedness represented by the Senior Bridge Financing,
  the Junior Simmons Notes and accrued interest;
 
     (2) repay the amounts outstanding under our revolving credit facility
  under the New Senior Credit Agreement;
 
     (3) prepay a portion of the amounts outstanding under our term loan
  facility under the New Senior Credit Agreement and accrued interest; and
 
     (4) pay expenses incurred in connection with the original offering.
 
                                       26
<PAGE>
 
<TABLE>
<CAPTION>
                                                                      Amount
                                                                   -------------
                                                                   (in millions)
     <S>                                                           <C>
     Sources:
       Proceeds of the original offering..........................    $150.0
 
     Uses:
       Repayment of Senior Bridge Financing.......................      75.4
       Repayment of Junior Simmons Notes..........................      31.1
       Repayment of Revolving Credit Facility.....................      15.0
       Prepayment of portion of Term Loan Facility................      23.7
       Fees and expenses of the original offering.................       4.8
                                                                      ------
         Total....................................................    $150.0
                                                                      ======
</TABLE>
 
   See "Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources".
 
Redemption of Previously Existing Notes
 
   The Merger constituted a "change of control" under the terms of the
previously existing indenture (the "Previously Existing Note Indenture") for
our $100.0 million of 10.75% Senior Subordinated Notes due 2006 (the
"Previously Existing Notes"). Under the Previously Existing Note Indenture, we
had the right to redeem the Previously Existing Notes at a redemption price
equal to 100% of the principal amount plus accrued and unpaid interest, if any,
to the date of redemption plus an applicable premium. Concurrently with the
consummation of the Transactions, we called the Previously Existing Notes for
Redemption and placed a portion of the proceeds from the Transactions in trust
with the trustee under the Previously Existing Note Indenture to satisfy and
discharge our obligations under that indenture. In November 1998, we completed
the Redemption.
 
Refinancing of Previous Credit Agreement
 
   Our previously existing credit facility (the "Previous Credit Agreement")
was terminated in connection with the Transactions. The Previous Credit
Agreement provided for a $40.0 million revolving credit facility and a term
loan facility of $75.0 million. Borrowings under the Previous Credit Agreement
were repaid with proceeds from borrowings under the New Senior Credit
Agreement. See "Other Indebtedness--New Senior Credit Agreement".
 
New Senior Credit Agreement
 
   In connection with the Transactions, we entered into a new senior secured
credit agreement, as amended (the "New Senior Credit Agreement") with
institutional lenders and affiliates of the initial purchasers of the notes,
including Goldman Sachs Credit Partners L.P., an affiliate of Goldman Sachs, as
joint lead arranger, syndication agent and lender, Warburg Dillon Read, as
joint lead arranger, UBS A.G., an affiliate of Warburg Dillon Read, as
administrative agent and lender, Fleet National Bank, an affiliate of Fleet
Securities as co-agent and lender, and U.S. Bank N.A., an affiliate of U.S.
Bancorp Libra, as co-agent and lender. The New Senior Credit Agreement provides
for loans of up to $270.0 million, consisting of three term loan facilities of
$190.0 million in the aggregate (the "Term Loan Facility") and an $80.0 million
revolving credit facility (the "Revolving Credit Facility"). We distributed a
portion of the proceeds of the Term Loan Facility and our initial borrowings
under the Revolving Credit Facility to Holdings to provide a portion of the
funds necessary to consummate the Transactions.
 
   On March 16, 1999, with proceeds from the original offering, we repaid the
$15.0 million then outstanding under the Revolving Credit Facility. In
addition, we prepaid approximately $23.6 million of principal amounts
outstanding under the Term Loan Facility as well as approximately $0.1 million
of accrued interest.
 
                                       27
<PAGE>
 
   Our indebtedness under the New Senior Credit Agreement bears interest at a
floating rate, is guaranteed by Simmons Holdings and one of our current
domestic subsidiaries and is secured by substantially all of our assets as well
as the assets of Simmons Holdings and such domestic subsidiary. The New Senior
Credit Agreement will also be guaranteed, subject to certain exceptions, by all
of our future material subsidiaries. The New Senior Credit Agreement requires
us to maintain financial ratios, including fixed-charge, cash interest coverage
and leverage ratios. The New Senior Credit Agreement also contains covenants
which, among other things, limit capital expenditures, the incurrence of
additional indebtedness, investments, dividends, transactions with affiliates,
asset sales, mergers and consolidations, prepayments of other indebtedness,
including the exchange notes, liens and encumbrances and other matters
customarily restricted in such agreements. See "Other Indebtedness--New Senior
Credit Agreement".
 
Senior Bridge Loan Agreement
 
   In connection with the Transactions, we entered into a bridge loan agreement
(the "Senior Bridge Loan Agreement") with West Street and UBS. The Senior
Bridge Loan Agreement provided for $75.0 million in aggregate principal amount
of Senior Subordinated Increasing Rate Bridge Loans (the "Senior Bridge
Financing"). On March 16, 1999, with proceeds from the original offering, we
repaid the $75.0 million of Senior Bridge Financing as well as approximately
$0.4 million of accrued interest.
 
Securities Purchase Agreement
 
   In connection with the Transactions, we and Simmons Holdings entered into a
securities purchase agreement (the "Securities Purchase Agreement") with Fenway
Investment LLC. Pursuant to the Securities Purchase Agreement, we issued the
Junior Simmons Notes in the aggregate principal amount of $30.0 million and
Simmons Holdings issued the Junior Holdings PIK Notes in the aggregate
principal amount of $10.0 million.
 
   On March 16, 1999, with proceeds from the original offering, we repaid the
$30.0 million of indebtedness under the Junior Simmons Notes as well as
approximately $1.1 million of accrued interest.
 
   The maturity date of the Junior Holdings PIK Notes is October 29, 2011. The
Junior Holdings PIK Notes initially bore interest at 15.0% through December 30,
1998, which rate increased to 15.5% on December 31, 1998 and which will
increase by 0.5% for every three-month period thereafter up to a maximum rate
of 17.5%. Interest on the Junior Holdings PIK Notes is payable in kind by
Simmons Holdings by capitalizing such interest through September 2010.
 
   Under the Securities Purchase Agreement, Simmons Holdings also issued:
 
     (1) a warrant to purchase 601,346.63 shares of common stock of Simmons
  Holdings at an initial exercise price of $6.7315 per share to Fenway
  Investment LLC (the "Fenway Warrant"); and
 
     (2) warrants to purchase an aggregate of 2,104,713.22 shares of common
  stock of Simmons Holdings to be held in escrow which may be exercisable at
  either $0.01 per share or $6.7315 per share, depending upon the
  circumstances (the "Escrow Warrants" and, together with the Fenway
  Warrants, the "Warrants").
 
   Under certain circumstances, the Escrow Warrants may be released to Fenway
Investment LLC.
 
                                       28
<PAGE>
 
                                THE SIMMONS ESOP
 
   In January 1989, the Simmons ESOP was established to purchase all of our
then outstanding common stock. We loaned the Simmons ESOP $241.5 million for
the purchase of all of our common stock then outstanding (the "ESOP Loan"). As
of December 26, 1998, the ESOP Loan had been reduced to approximately $39.4
million, in part due to forgiveness in 1992 of a substantial portion of the
internal obligation.
 
   We will make annual cash contributions to the Simmons ESOP in an amount up
to 25% of eligible participant compensation, subject to certain limitations and
conditions. The Simmons ESOP will then use all such cash to repay to us the
internal ESOP Loan. As a result, there is no cash cost to us associated with
the contributions to the Simmons ESOP. As the internal ESOP Loan is repaid, a
portion of the ESOP Equity Rollover will be allocated to participant accounts
and non-cash compensation expense equal to the fair value of the allocated
shares will be charged to non-cash ESOP expense. At such time as the internal
ESOP Loan is repaid in full, in approximately three years, all shares of ESOP
Equity Rollover held by the Simmons ESOP will have been allocated to plan
participants. See "Management--Retirement Plans--Simmons ESOP".
 
   Approximately 1,700 of our current and former employees are participants in
the Simmons ESOP. The Simmons ESOP agreed to sell to REM, immediately prior to
the Merger, the Allocated Shares (representing all the shares held by the
Simmons ESOP that had been allocated to plan participants as of such date) for
approximately $15.4 million in the aggregate, which amount was reinvested in
diversified investments at the direction of the individual plan participants in
the Simmons ESOP. The Simmons ESOP received a fairness opinion from its
financial advisor to the effect that the consideration received for the
Allocated Shares under the ESOP Agreement was fair to the ESOP from a financial
point of view. See "Management--Retirement Plans--Simmons ESOP".
 
                                       29
<PAGE>
 
                                USE OF PROCEEDS
 
   There will be no proceeds from the issuance of the exchange notes.
 
                                 CAPITALIZATION
 
   The following table sets forth our cash and cash equivalents and our actual
capitalization as of December 26, 1998 and as adjusted to give effect to the
original offering and the application of proceeds from the original offering as
described in "The Transactions and the Original Offering". You should read this
table along with the "Selected Historical Consolidated Financial and Other
Data", "Management's Discussion and Analysis of Financial Condition and Results
of Operations" and our consolidated financial statements and accompanying notes
included elsewhere in this prospectus.
 
<TABLE>
<CAPTION>
                                                      As of December 26, 1998
                                                     --------------------------
                                                                 As Adjusted
                                                               for the Original
                                                      Actual       Offering
                                                     --------  ----------------
                                                          (in thousands)
<S>                                                  <C>       <C>
Cash and cash equivalents..........................  $  6,004      $  6,004
                                                     ========      ========
Long-term debt obligations, including current
 portion:
  New Senior Credit Agreement
    Revolving Credit Facility(1)...................  $    --       $    --
    Term Loan Facility(1)..........................   190,000       150,976
  Industrial revenue bonds(2)......................    14,700        14,700
  Other, including capital leases..................     3,769         3,769
  Senior Bridge Financing..........................    75,000           --
  Notes............................................       --        150,000
  Junior Simmons Notes.............................    30,000           --
      Total long-term debt.........................   313,469       319,445
Redemption obligation--Simmons ESOP, net of related
 unearned compensation of $11,400..................    12,084        12,084
Common stockholders' deficit.......................   (12,301)      (12,301)
                                                     --------      --------
      Total capitalization.........................  $313,252      $319,228
                                                     ========      ========
</TABLE>
--------
(1) See "The Transactions and the Original Offering--New Senior Credit
    Agreement" for a description of the Revolving Credit Facility and Term Loan
    Facility under the New Senior Credit Agreement. As of December 26, 1998, we
    had no borrowings outstanding under the Revolving Credit Facility and
    $190.0 million was outstanding under the Term Loan Facility. Immediately
    prior to the original offering, we had borrowings outstanding under the
    Revolving Credit Facility and the Term Loan Facility of approximately $15.0
    million and $189.7 million, respectively. We used a portion of the proceeds
    of the original offering to repay all amounts outstanding under the
    Revolving Credit Facility and to prepay approximately $23.6 million under
    the Term Loan Facility as well as approximately $0.1 million of accrued
    interest. The prepayment of the Term Loan Facility resulted in an
    outstanding amount under the Term Loan Facility of approximately $166.1
    million. As of March 27, 1999, we had no borrowings outstanding under the
    Revolving Credit Facility. See "The Transactions and the Original
    Offering".
 
(2) Includes $9.7 million of 7.00% industrial revenue bonds due in 2017 and
    $5.0 million of variable rate industrial revenue bonds due in 2016.
 
                                       30
<PAGE>
 
           SELECTED HISTORICAL CONSOLIDATED FINANCIAL AND OTHER DATA
                             (dollars in thousands)
 
   Set forth below are our selected historical consolidated financial data. We
derived our historical Statements of Operations and Balance Sheet Data for
1994, 1995, 1996 combined, 1997 and 1998 from our consolidated financial
statements. The data for the combined year ended December 28, 1996 represents
the mathematical addition of the short Predecessor and Successor Periods in
that year. You should read the information presented below along with
"Capitalization", "Management's Discussion and Analysis of Financial Condition
and Results of Operations", our consolidated financial statements and
accompanying notes and other financial information appearing elsewhere in this
prospectus.
 
<TABLE>
<CAPTION>
                                   Predecessor                                Successor
                          -------------------------------           ------------------------------
                                              Period from           Period from
                                               Dec. 31,   Combined   March 22,
                             Year Ended          1995       Year       1996       Year      Year
                          ------------------    through    Ended      through    Ended     Ended
                          Dec. 31,  Dec. 30,   March 21,  Dec. 28,   Dec. 28,   Dec. 27,  Dec. 26,
                            1994      1995       1996     1996(1)      1996       1997      1998
                          --------  --------  ----------- --------  ----------- --------  --------
<S>                       <C>       <C>       <C>         <C>       <C>         <C>       <C>
Statement of Operations
 Data:
Net sales...............  $439,689  $489,815   $106,431   $530,301   $423,870   $550,085  $600,773
Cost of products sold...   269,741   292,825     66,630    320,757    254,127    319,074   348,842
                          --------  --------   --------   --------   --------   --------  --------
Gross profit............   169,948   196,990     39,801    209,544    169,743    231,011   251,931
Selling, general and
 administrative
 expenses...............   137,791   161,202     35,846    171,608    135,762    183,556   202,213
ESOP expense(2).........     4,463     4,533      1,203      5,000      3,797      6,230     6,453
Amortization of
 intangibles............     5,753     5,753      1,324      6,974      5,650      7,679     7,629
Interest expense,
 net(3).................     8,197     8,185      1,489     16,766     15,277     19,088    22,454
Other expense, net(4)...     2,517       400         96      1,653      1,557      1,571    17,544
                          --------  --------   --------   --------   --------   --------  --------
Income (loss) before
 taxes and extraordinary
 item...................  $ 11,227  $ 16,917   $   (157)  $  7,543   $  7,700   $ 12,887  $ (4,362)
                          ========  ========   ========   ========   ========   ========  ========
Net income (loss).......  $  7,994  $  9,411   $   (439)  $    873   $  1,312   $  6,362  $(19,019)
                          ========  ========   ========   ========   ========   ========  ========
Other Data:
Adjusted EBITDA(5)......  $ 36,498  $ 42,153   $  5,739   $ 48,476   $ 42,737   $ 58,420  $ 62,264
Adjusted EBITDA margin..       8.3%      8.6%       5.4%       9.1%      10.1%      10.6%     10.4%
Gross margin............      38.7%     40.2%      37.4%      39.5%      40.0%      42.0%     41.9%
Adjusted capital
 expenditures(6)........  $  4,496  $  3,021   $    523   $  4,726   $  4,203   $  7,616  $  8,989
Depreciation and
 amortization...........     9,249     9,780      2,198     11,316      9,118     13,549    16,593
Cash interest
 expense(7).............     7,095     6,488      1,119     15,994     14,875     18,731    21,566
Total interest expense..     9,042     8,347      1,525     16,921     15,396     19,344    22,638
Ratio of earnings to
 fixed charges(8).......      1.9x      2.4x        --        1.4x       1.4x       1.6x       --
Balance Sheet Data (end
 of period):
Working capital(9)......  $ 23,077  $ 20,171   $    --    $    --    $ 42,414   $ 37,133  $ 46,567
Total assets............   249,891   254,492        --         --     367,849    375,125   400,061
Total debt, including
 current maturities.....   109,435    93,768        --         --     196,815    184,443   313,469
Total common
 stockholders' equity
 (deficit)..............    41,936    44,372        --         --      86,291     92,614   (12,301)
</TABLE>
--------
(1) As a result of the Investcorp Acquisition, our assets and liabilities were
    adjusted to reflect their estimated fair values as of March 22, 1996. In
    addition, we entered into new financing arrangements and changed our
    capital structure. Accordingly, the results for periods subsequent to the
    Investcorp Acquisition are not comparable to the prior historical periods
    presented. The combined period for 1996 represents the mathematical
    addition of the historical amounts for the Predecessor Period (December 31,
    1995 to March 21, 1996) and the Successor Period (March 22, 1996 to
    December 28, 1996) and is not indicative of results that would have been
    obtained had the Investcorp Acquisition occurred on December 31, 1995. For
    information regarding these periods separately, see our consolidated
    financial statements and accompanying notes appearing elsewhere in this
    prospectus.
 
                                       31
<PAGE>
 
(2) Represents the non-cash charge resulting from the allocation of shares held
    by Simmons ESOP to participant accounts as they are earned. See "The
    Simmons ESOP" and "Management's Discussion and Analysis of Financial
    Condition and Results of Operations".
 
(3) Interest expense, net includes the amortization of deferred debt issuance
    costs of $835, $679, $84, $605, $521, $613 and $777 for 1994, 1995, the
    period from December 31, 1995 through March 21, 1996, 1996 combined, the
    period from March 22, 1996 through December 28, 1996, 1997 and 1998,
    respectively, and is net of interest income of $845, $162, $36, $155, $119,
    $256 and $184 for the same periods, respectively.
 
(4) For the components of other expense, net for 1996 combined through 1998,
    see Note 9 of our consolidated financial statements. Other expense, net
    consisted of
 
  (a) other non-operating expense of $642 and $400 for 1994 and 1995,
      respectively; and
 
  (b) gain on sale of land of $948 and loss on sale of an idle facility of
      $2,823 in 1994.
 
(5) Items added back to EBITDA to arrive at Adjusted EBITDA are as follows:
 
<TABLE>
<CAPTION>
                                      Predecessor                             Successor
                             -----------------------------          -----------------------------
                                               Period from          Period from
                                                Dec. 31,   Combined  March 22,
                                Year Ended        1995       Year      1996       Year     Year
                             -----------------   through    Ended     through    Ended    Ended
                             Dec. 31, Dec. 30,  March 21,  Dec. 28,  Dec. 28,   Dec. 27, Dec. 26,
                               1994     1995      1996       1996      1996       1997     1998
                             -------- -------- ----------- -------- ----------- -------- --------
   <S>                       <C>      <C>      <C>         <C>      <C>         <C>      <C>
   EBITDA(a)...............  $36,498  $39,977       $4,865  $42,433     $37,568  $53,581 $58,866
   SWIFT/UNITE expense(b)..      --     1,815          640    4,107       3,467    2,347   2,208
   Strategic management
    initiatives(c).........      --       --           --       --          --     1,693     418
   Inventory written-up to
    fair market value(d)...      --       --           --     1,000       1,000      --        7
   Discontinued product
    line(e)................               361          234      936         702      799     772
                             -------  -------       ------  -------     -------  ------- -------
    Adjusted EBITDA(a).....  $36,498  $42,153       $5,739  $48,476     $42,737  $58,420 $62,264
                             =======  =======       ======  =======     =======  ======= =======
</TABLE>
 
  (a) EBITDA represents earnings before interest expense, income tax expense,
      extraordinary item depreciation and amortization, ESOP expense,
      management fees and other non-operating charges. We believe that EBITDA
      is a widely accepted financial indicator of a company's ability to
      service or incur debt and a similar measure is utilized for purposes of
      the covenants contained in the indenture. EBITDA and Adjusted EBITDA
      are not measurements of operating performance calculated in accordance
      with generally accepted accounting principles and should not be
      considered substitutes for operating income, net income, cash flows
      from operating activities or other statement of operations or cash flow
      data prepared in accordance with generally accepted accounting
      principles, or as measures of profitability or liquidity. EBITDA and
      Adjusted EBITDA may not be indicative of our historical operating
      results, nor are they meant to be predictive or potential future
      results. In addition, EBITDA and Adjusted EBITDA as defined in this
      note are not presentations accepted by the Commission. Accordingly, any
      presentation of EBITDA or Adjusted EBITDA or any information concerning
      EBITDA or Adjusted EBITDA which may be included in a future
      registration statement filed with the Commission may be substantially
      different than the presentation included herein. Our measures of EBITDA
      and Adjusted EBITDA may not be comparable to those recorded by other
      companies.
 
  (b) Reflects reduction in expenses related to our substantially completed
      SWIFT/ UNITE (each as defined herein) productivity enhancement
      programs.
 
  (c) Reflects non-recurring consulting and other expenses related to
      strategic initiatives.
 
  (d) Reflects non-recurring write up to fair market value in connection with
      the Investcorp Acquisition.
 
  (e) Reflects non-recurring losses attributable to a discontinued product
      line.
 
                                       32
<PAGE>
 
(6) Adjusted capital expenditures are exclusive of expenditures related to
 
  (a) our SWIFT and UNITE programs of $2,813, $1,044, $7,575, $6,531, $3,786
      and $2,808 for 1995, the period from December 31, 1995 through March
      21, 1996, 1996 combined, the period from March 22, 1996 through
      December 28, 1996, 1997 and 1998, respectively; and
 
  (b) new plant facilities of $0, $0, $2,612, $2,612, $4,299 and $3,756 for
      the same periods, respectively.
 
(7) Cash interest expense is defined as interest expense less amortization of
    debt issuance costs and other non-cash interest expense. Management
    believes that the ratio of Adjusted EBITDA to cash interest expense and the
    ratio of Adjusted EBITDA to total interest expense are widely accepted as
    useful information regarding a company's ability to service and/or incur
    debt.
 
(8) For the purpose of determining the ratio of earnings to fixed charges,
    earnings consist of income before income taxes, extraordinary item and
    fixed charges. Fixed charges consist of interest expense, which includes
    the amortization of deferred debt issuance costs and the interest portion
    of our rent expense. Earnings were insufficient to cover fixed charges for
    the period from December 31, 1995 through March 21, 1996 and the year ended
    December 26, 1998 by $157 and $4,362, respectively.
 
(9) Represents total current assets (excluding cash and equivalents) less total
    current liabilities, (excluding current maturities of long-term debt and
    capital lease obligations).
 
                                       33
<PAGE>
 
                    MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                 FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
   You should read the following discussion along with the "Selected
Historical Consolidated Financial and Other Data" and our consolidated
financial statements and the accompanying notes included elsewhere in this
prospectus.
 
General
 
   Simmons is a leading manufacturer and distributor of premium branded
bedding products in the United States and is the world leader in Pocketed
Coil(TM) innerspring technology. We design, manufacture, distribute and
license a broad range of mattresses, box springs, bedding frames and sleep
accessories under well recognized brand names including Simmons(R),
Beautyrest(R), BackCare(R), Connoisseur Collection(R), and Maxipedic(R). While
we provide a full range of conventional bedding products, our focus is on the
higher-end market segments, emphasizing retail price points from $699 to
$2,999 per queen set. We believe that these products offer more attractive
growth prospects and higher gross margins than lower-end products.
 
   On October 29, 1998, we and Simmons Holdings
 
     (1) consummated the Merger and the ESOP Repurchase whereby, among other
  things, Fenway Investment LLC acquired 75.1% of the outstanding shares of
  Simmons Holdings and the Management Investors, the Simmons ESOP and the
  Investcorp Group retained 5.9%, 13.7% and 5.3%, respectively, of the
  outstanding stock of Holdings;
 
     (2) placed funds in escrow for the Redemption for cash all of the
  Previously Existing Notes;
 
     (3) effected the Refinancing through which we entered into and borrowed
  under the New Senior Credit Agreement and repaid indebtedness outstanding
  under the Previous Credit Agreement;
 
     (4) entered into the Senior Bridge Loan Agreement under which West
  Street and UBS provided the Senior Bridge Financing; and
 
     (5) entered into the Securities Purchase Agreement under which we issued
  the Junior Simmons Notes and Simmons Holdings issued the Junior Holdings
  PIK Notes to Fenway Investment LLC.
 
   We accounted for the Merger as a recapitalization.
 
   On March 16, 1999, we sold the notes in the original offering. We used the
net proceeds from the original offering of approximately $145.2 million to:
 
     (1) repay the indebtedness under the Senior Bridge Financing and the
  Junior Simmons Notes and accrued interest;
     (2) repay the amounts outstanding under the Revolving Credit Facility;
  and
 
     (3) prepay a portion of the amounts outstanding under the Term Loan
  Facility and accrued interest.
 
   On March 22, 1996, Simmons Holdings, a company organized on behalf of the
Investcorp Group and the Simmons ESOP, management and other investors,
acquired 100% of our outstanding common stock (the "Investcorp Acquisition").
We employed the purchase method of accounting for the Investcorp Acquisition
effective March 22, 1996. As a result of the required purchase accounting
adjustments, the post-Investcorp Acquisition financial statements (the
"Successor Financials") are not comparable to the financial statements for the
periods prior to the Investcorp Acquisition (the "Predecessor Financials").
 
Results of Operations
 
   For purposes of the discussion below, the results of operations for the
year ended December 28, 1996 represent the mathematical addition of the
historical amounts for the predecessor period (December 31, 1995
 
                                      34
<PAGE>
 
through March 21, 1996) and the successor period (March 22, 1996 through
December 28, 1996) and are not indicative of the results that would actually
have been obtained if the Investcorp Acquisition had occurred on December 30,
1995.
 
   The following table sets forth some components of our consolidated statement
of operations data expressed as a percentage of net sales.
 
<TABLE>
<CAPTION>
                                                             Fiscal Year
                                                          -------------------
                                                          1996   1997   1998
                                                          -----  -----  -----
<S>                                                       <C>    <C>    <C>
Net sales................................................ 100.0% 100.0% 100.0%
Cost of products sold....................................  60.5   58.0   58.1
                                                          -----  -----  -----
Gross margin.............................................  39.5   42.0   41.9
Selling, general and administrative expenses.............  32.4   33.4   33.7
                                                          -----  -----  -----
Operating income before ESOP expense and amortization of
 intangibles.............................................   7.1%   8.6%   8.2%
                                                          =====  =====  =====
Adjusted EBITDA margin...................................   9.1%  10.6%  10.4%
                                                          =====  =====  =====
</TABLE>
 
 Fiscal 1998 as Compared to Fiscal 1997
 
   Net Sales. Net sales increased 9.2%, or $50.7 million, from $550.1 million
in 1997 to $600.8 million in 1998. We attribute $29.2 million of this increase
to a 5.3% increase in our bedding unit sales volume and $21.5 million of it to
a 3.9% increase in our bedding average unit selling price. The growth in
bedding unit sales volume resulted primarily from increased BackCare(R) product
shipments and an increase in open coil contract bedding sales in the last three
quarters of 1998. Bedding average unit selling price increased due to a shift
in our product mix to higher priced products, particularly in the Beautyrest(R)
and BackCare(R) lines.
 
   Cost of Products Sold. As a percentage of net sales, cost of products sold
for 1998 remained stable at approximately 58.1% as compared to the same time
period a year ago. Our gross margins for 1998 reflect an increase in unit sales
of certain premium products with gross margins lower than our average, offset
by raw material cost efficiencies together with higher levels of procurement.
Gross margins during 1998 also benefited from the increase in bedding average
unit selling price described above.
 
   Selling, General and Administrative Expenses. As a percentage of net sales,
selling, general and administrative expenses increased from 33.4% in 1997 to
33.7% in 1998. We attribute this increase to an increase in marketing
expenditures and to higher depreciation expense, offset, in part, by increased
royalty income, a lower bad debt provision and reduced discretionary
expenditures. Marketing expenditures increased due to higher cooperative
advertising and promotion costs. Depreciation increased due to the amortization
of the systems upgrade project.
 
   ESOP Expense. ESOP expense increased slightly from $6.2 million in 1997 to
$6.5 million in 1998. We attribute this slight increase to an increase in the
appraised value of the shares subject to the Simmons ESOP in 1998.
 
   Amortization of Intangibles. Amortization of intangibles for 1998 remained
relatively stable at approximately $7.6 million.
 
   Interest Expense, Net. Interest expense, net increased $3.4 million from
$19.1 million in 1997 to $22.5 million in 1998 due primarily to increased
indebtedness and higher interest rates primarily in the fourth quarter of 1998.
 
   Other Expense, Net. Other expense, net increased $15.9 million from $1.6
million in 1997 to $17.5 million in 1998. We attribute the increase to various
non-recurring expenses incurred in connection with the Transactions.
 
                                       35
<PAGE>
 
   Provision for Income Taxes. Our effective tax rates for 1997 and 1998
differ from the federal statutory rate primarily because of non tax-deductible
amortization of goodwill.
 
   Extraordinary Item. In 1998, we recorded a $15.0 million extraordinary
charge representing the remaining unamortized debt issuance costs related to
the repayment of certain long-term obligations repaid and the Redemption of
the Previously Existing Notes in connection with the Transactions.
 
   Net Income. For the reasons set forth above, we incurred a net loss of
$19.0 million as compared to net income of $6.4 million for 1997.
 
 Fiscal 1997 As Compared to Fiscal 1996
 
   Net Sales. Net sales increased 3.7%, or $19.8 million, from $530.3 million
in 1996 to $550.1 million in 1997. $22.8 million of this increase was due
primarily to a 4.4% increase in our bedding average unit selling price and the
balance of the increase was due to a relatively slight increase in our unit
sales volume. We attribute the strong improvement in bedding average unit
selling price to an increase in Beautyrest(R) sales as a percentage of total
sales and to sales of higher-priced BackCare(R) products. Unit sales volume
increased only slightly in 1997 due to the following:
 
     (1) a substantial sales decline resulting from our spring, 1997 decision
  to discontinue our supply relationship with Mattress Discounters, Inc., our
  largest customer in 1996, when the terms of the relationship did not meet
  our account profitability expectations;
 
     (2) the repositioning of the BackCare(R) product line to be consistent
  with our overall marketing strategy; and
 
     (3) lost sales volume during the bankruptcy proceedings of Montgomery
  Ward & Co. and Levitz Furniture, Inc. However, due to the breadth of
  penetration and continued consumer acceptance of our Beautyrest(R) and
  BackCare(R) product lines, we were able to replace revenues lost as a
  result of our decision to discontinue our relationship with Mattress
  Discounters, Inc.
 
   The bankruptcy filings and the Mattress Discounters, Inc. decision have not
had, and we do not expect them to have, any material adverse effect on our
financial condition.
 
   Cost of Products Sold. As a percentage of net sales, cost of products sold
decreased 2.5 percentage points from 60.5% in 1996 to 58.0% in 1997. We
attribute this improvement to the following:
 
     (1) an increase in sales of Beautyrest(R) products as a percentage of
  total sales;
 
     (2) relatively stable raw material costs; and
 
     (3) improved operating efficiencies due to the effect of the completed
  implementation of our UNITE reengineering program; and
 
     (4) writing up, as required by the principles of purchase accounting,
  the cost of products sold in 1996 reflecting the sale of finished goods
  inventory to net realizable value as of the date of the Investcorp
  Acquisition.
 
   Selling, General and Administrative Expenses. As a percentage of net sales,
selling, general and administrative expenses increased 1.0% from 32.4% in 1996
to 33.4% in 1997. We attribute this to the following:
 
     (1) higher consulting fees and other expenditures associated with
  strategic initiatives we undertook;
 
     (2) additional expenses, as well as a partial year of amortization
  expense related to the rollout of SWIFT, our systems upgrade project;
 
     (3) an increase in selling expenses related to competitive sales
  promotion programs and additional sales personnel;
 
     (4) an increase in distribution costs due to contractual increases and
  expansion into outlying territories; and
 
     (5) a higher provision for uncollectible accounts.
 
                                      36
<PAGE>
 
   ESOP Expense. ESOP expense increased by $1.2 million from approximately $5.0
million in 1996 to $6.2 million in 1997 due primarily to an increase in the
number of eligible participants.
 
   Amortization of Intangibles. Amortization of intangible assets increased
$0.7 million from $7.0 million in 1996 to $7.7 million in 1997 due primarily to
a full year of amortization relating to the increase in goodwill resulting from
purchase accounting adjustments made in connection with the Investcorp
Acquisition.
 
   Interest Expense, Net. Interest expense, net increased $2.3 million from
$16.8 million in 1996 to $19.1 million in 1997 due primarily to a full year of
interest expense which resulted from financing in connection with the
Investcorp Acquisition. See Note 8 to our consolidated financial statements.
 
   Other Expense, Net. Other expense, net remained relatively stable,
decreasing $.08 million from $1.65 million in 1996 to $1.57 million in 1997.
 
   Provision for Income Taxes. Our effective tax rates for 1996 and 1997 differ
from the federal statutory rate primarily because of non tax-deductible
amortization of goodwill.
 
   Net Income. For the reasons set forth above, we earned net income of $6.4
million in 1997 as compared to net income of $0.9 million in 1996.
 
Liquidity and Capital Resources
 
   Our principal source of cash to fund liquidity needs is net cash provided by
operating activities and availability under the New Senior Credit Agreement.
Our primary use of funds consists of payments of principal and interest, and
capital expenditures.
 
   Our operating activities used cash of $14.0 million in 1998 compared to cash
generated of $32.3 million in 1997. The difference is due primarily to the cash
expenses incurred in 1998 in connection with the Transactions, as well as the
timing of accounts receivable collections and the timing of payments of
accounts payable and accrued liabilities.
 
   Our capital expenditures totaled $15.5 million for 1998. These capital
expenditures consisted primarily of normal recurring capital expenditures in
the amount of $9.0 million, capital expenditures relating to the construction
of new manufacturing facilities in the amount of $3.8 million and capitalized
expenditures related to our systems upgrade project in the amount of $2.8
million. See "--Impact of the Year 2000 Issue". We have budgeted $9.0 million
for 1999 capital expenditures. We believe that annual capital expenditure
limitations in the New Senior Credit Agreement and the indenture will not
significantly inhibit us from meeting our ongoing capital needs.
 
   In connection with the Investcorp Acquisition, we entered into the Previous
Credit Agreement, which provided for a $40.0 million revolving credit facility
and a $75.0 million term loan facility. On April 18, 1996, we completed a
refinancing, which consisted of the sale of $100.0 million of the Previously
Existing Notes.
 
   As of December 26, 1998, we had no borrowings and $76.5 million available
under our Revolving Credit Facility in the New Senior Credit Agreement and as
of March 27, 1999, we had no borrowings and $79.3 million available under our
Revolving Credit Facility. As of December 26, 1998, we were in compliance with
the financial covenants contained in the New Senior Credit Agreement and the
Senior Bridge Loan Agreement.
 
   In connection with the Transactions, we incurred substantial additional
indebtedness. We used borrowings under the New Senior Credit Agreement and the
Senior Bridge Financing to repay borrowings under the Previous Credit Agreement
and the Previously Existing Notes, to finance the ESOP Repurchase, and to pay
the necessary distributions to Simmons Holdings to effect the Recapitalization.
 
                                       37
<PAGE>
 
   We used the net proceeds from the original offering to:
 
     (1) repay the indebtedness under the Senior Bridge Financing and the
  Junior Simmons Notes and accrued interest;
 
     (2) repay the amounts outstanding under the Revolving Credit Facility
  and accrued interest; and
 
     (3) prepay a portion of the amounts outstanding under the Term Loan
  Facility and accrued interest.
 
   After the consummation of the exchange offer, one of our primary uses of
cash will be to make interest payments on the exchange notes and interest and
principal payments under the New Senior Credit Agreement.
 
   The New Senior Credit Agreement provides for loans of up to $270.0 million,
consisting of the Term Loan Facility of $190.0 million and the Revolving Loan
Facility of $80.0 million. We distributed a portion of the proceeds of the
Term Loan Facility and our initial borrowings under the Revolving Credit
Facility to Simmons Holdings to provide a portion of the funds necessary to
consummate the Merger. Following the prepayments made from the proceeds of the
original offering, the Term Loan Facility was reduced to approximately
$166.1 million and such facility will require no principal amortization
payments in 1999 and will require aggregate annual principal amortization
payments of $0.5 million in 2000 and $3.5 million in 2001. Interest rates are
variable and, based on current interest rates, we estimate annual interest
expense under the New Senior Credit Agreement to be $13.6 million. Our
indebtedness under the New Senior Credit Agreement bears interest at a
floating rate, is guaranteed by Simmons Holdings and one of our current
domestic subsidiaries and is collateralized by substantially all of our assets
as well as the assets of Holdings and such domestic subsidiary. The New Senior
Credit Agreement will also be guaranteed by all of our future material
subsidiaries. See "The Transactions and the Original Offering--New Senior
Credit Agreement" and "Other Indebtedness--New Senior Credit Agreement".
 
   The New Senior Credit Agreement and the indenture contain covenants and
restrictions on actions by us and our subsidiaries that will, among other
things, limit our ability and the ability of our subsidiaries to incur
additional indebtedness and issue stock, pay dividends or distributions, make
investments, make other payments, enter into transactions with affiliates,
dispose of certain assets, incur liens and engage in mergers and
consolidations. In addition, the New Senior Credit Agreement requires that we
comply with specified financial ratios and tests described therein, including
a maximum ratio of indebtedness to cash flow and a minimum fixed-charge
coverage ratio.
 
   We regularly evaluate potential acquisition opportunities to support and
strengthen our business, although there are no binding agreements with respect
to any particular acquisition or joint venture at this time. We cannot assure
you that in the future we will be able to acquire suitable acquisition
candidates on acceptable terms or that future acquisitions, if completed, will
be successful. Moreover, we cannot assure you that we will be able to find
adequate sources of capital to finance these acquisitions. We may need to
incur additional debt and contingent liabilities, which could have a material
adverse effect on our business, operating results and financial condition in
order to effect future acquisitions. The success of any completed acquisition
will depend on our ability to integrate effectively the acquired business. The
process of integrating acquired businesses involves numerous risks, including
difficulties in the assimilation of operations and products, the diversion of
management's attention from other business concerns, risks of entering markets
in which we have limited or no direct prior experience and the potential loss
of key employees of the acquired businesses. See "Risk Factors--Acquisition
Integration".
 
   Our ability to make scheduled payments of principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance our indebtedness
(including the exchange notes), or to fund planned capital expenditures and
research and development, will depend on our future performance. Our future
performance is subject to general economic, financial, competitive,
legislative, regulatory and other factors that are beyond our control. Based
upon our current level of operations, we believe that cash flow from
operations and available cash, together with available borrowings under the
New Senior Credit Agreement, will be adequate to meet our
 
                                      38
<PAGE>
 
future liquidity needs for at least the next several years. However, we cannot
assure you that our business will generate sufficient cash flow from
operations, that anticipated revenue growth and operating improvements will be
realized or that future borrowings will be available under the New Senior
Credit Agreement in an amount sufficient to enable us to service our
indebtedness, including the exchange notes, or to fund our other liquidity
needs. If our business does not generate sufficient cash flow, we may not be
able to effect any refinancing of our existing indebtedness on commercially
reasonable terms or at all. See "Risk Factors".
 
Seasonality
 
   Our volume of sales is somewhat seasonal, with sales generally lower during
the first quarter of each year than in the remaining three quarters of the
year. Historically, our working capital borrowings have increased during the
first half of each year and have decreased in the second half of each year. We
also experience a seasonal fluctuation in profitability, with our gross profit
percentage during the first quarter of each year slightly lower than the margin
percentages obtained in the remaining part of the year. We believe that
seasonality of profitability is a factor that affects the conventional bedding
industry generally and that it is primarily due to retailers' emphasis in the
first quarter on price reductions and promotional bedding and manufacturers'
emphasis on close-outs of the prior year's product lines. These two factors
together result in lower profit margins.
 
Accounting Pronouncements
 
   In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments, including certain derivative instruments embedded
in other contracts, by requiring that an entity recognize those items as assets
or liabilities in the statement of financial position and measure them at fair
value. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. Financial statements for prior periods need not
be restated. We are currently reviewing the provisions of SFAS No. 133 and do
not believe that our financial statements will be materially impacted by the
adoption of this provision.
 
Significant Customer Developments
 
   During the year ended December 27, 1997, Montgomery Ward & Co. and Levitz
Furniture Inc., two of our ten largest customers, filed for protection under
Chapter 11 of the U.S. Bankruptcy Code. As of December 27, 1997 and the date of
each of the bankruptcy filings, we had the reserves necessary to cover our
estimated exposure. For a period prior to the filings under the bankruptcy
code, we halted shipments to Montgomery Ward & Co. and Levitz Furniture Inc. to
minimize our exposure. Subsequent to the filing, after taking further steps to
minimize exposure we recommenced shipments to the retailers. These situations
have not had a material adverse effect on our financial position or results of
operation.
 
Impact of the Year 2000 Issue
 
   Issues relating to the year 2000 are the result of computer programs and
certain embedded-chip systems being written or developed using two digits
rather than four to define the applicable year. Any of our computer programs or
embedded-chip systems that have date-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in a
system failure or miscalculations causing disruptions of operations, including,
among other things, a temporary inability to process transactions, obtain raw
materials, manufacture or ship products, generate invoices, or engage in
similar normal business activities.
 
   We have formed a committee consisting of personnel from all of our major
disciplines to address risks associated with the year 2000 issue. The committee
has developed a list of all of our information systems and is investigating
each system to determine its year 2000 readiness.
 
                                       39
<PAGE>
 
   With the upgrade of our enterprise wide information system we undertook in
1995, which is nearly complete today, our information systems are largely year
2000 compliant. However, certain of our computer systems are not year 2000
compliant. We will complete a year 2000 upgrade of these remaining systems that
are not year 2000 compliant by the third quarter of 1999. We currently expect
costs to complete the year 2000 upgrade will include internal data processing
resources, as well as some external consultant fees to assist in the effort.
The cost of this initiative through December 26, 1998 was approximately $0.5
million. We anticipate that additional costs to bring all of our systems into
year 2000 compliance will be approximately $2.4 million. Our internal resources
to address the Year 2000 issue consist of approximately five full-time
employees.
 
   We believe that our main system hardware and operating systems, networking
operating systems and office productivity software are all year 2000 compliant.
We also use manufacturing processes that include computer controlled equipment.
We are currently in the process of reviewing this equipment to determine if it
is year 2000 compliant. We expect to complete this review by the end of the
second quarter of 1999.
 
   Our facilities staff is also currently investigating the status of our non-
information systems with respect to year 2000 compliance. These non-information
systems include phones, voicemail, heating/air conditioning, electricity and
security systems. We expect to complete an assessment of the readiness of our
non-information systems by the end of the second quarter of 1999.
 
   In addition to reviewing our internal systems, we have polled our
significant suppliers, customers and freight carriers to determine whether they
are year 2000 compliant and, if not, the extent to which our operations may be
adversely affected as a result of their failure to be year 2000 compliant. We
have completed our assessment of suppliers' and customers' year 2000 readiness.
Although we have received assurances from some of our suppliers, customers and
freight carriers we cannot determine the extent to which our operations may be
adversely affected by the failure of our suppliers to be year 2000 compliant.
 
   The costs of our year 2000 initiatives and their completion dates are based
upon best estimates and derived using various assumptions of future events
including the continued availability of resources, third party statements of
compliance and other factors. However, we cannot guarantee that these estimates
will be achieved and actual results could differ materially from these plans.
See "Risk Factors--Year 2000 Issue".
 
                                       40
<PAGE>
 
                                    BUSINESS
 
Simmons
 
   We are a leading manufacturer and distributor of premium branded bedding
products in the United States and the world leader in Pocketed Coil(TM)
innerspring technology. Our well-recognized mattress and related sleep products
brand names include:
 
  . Simmons(R)
 
  . Beautyrest(R)
 
  . BackCare(R)
 
  . Connoisseur Collection(R)
 
  . Maxipedic(R)
 
   Although we provide a full range of conventional bedding products, we focus
on higher-end market segments, emphasizing retail price points from $699 to
$2,999 per queen set. In 1998, we derived approximately 54% of our net sales
from products sold at these price points, which we believe offers more
attractive growth prospects and higher gross margin than lower-end products. We
sell to a diversified nationwide base of over 2,700 customers, representing
more than 5,500 retail outlets.
 
   Since 1995, we have invested approximately $28 million to re-engineering and
update our information systems. We believe our substantial annual research and
development investments enable us to be an industry leader in the development
of innovative products.
 
   In summary, we believe that the following create significant advantages over
smaller regional manufacturers as well as those national competitors that
operate as associations of independent licensees:
 
  . our national distribution;
 
  . our extensive brand advertising;
 
  . our customer support services; and
 
  . our captive manufacturing
 
 
Industry Overview
 
   The domestic wholesale bedding industry generated sales of over $3.8 billion
in 1998. Although fragmented with approximately 800 manufacturers, the industry
is mature and stable, and has enjoyed the attributes described below.
 
                                       41
<PAGE>
 
   Consistent Growth. From 1978 to 1998, the domestic wholesale bedding
industry experienced a compound annual growth rate of 6.6%, with sales volumes
increasing in all but one of those 20 years. Similarly, average unit selling
prices increased every year over the same period and grew at an annual rate
of 3.6%.
 
                              [GRAPH APPEARS HERE]

                       Domestic Wholesale Bedding Sales
                             (dollars in billions)

<TABLE> 
<CAPTION> 
             77   78   79   80   81   82   83   84   85   86   87   88   89   90   91   92   93   94   95   96   97
<S>              <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C>  <C> 
            $1.0 $1.1 $1.2 $1.3 $1.4 $1.4 $1.6 $1.7 $1.8 $1.9 $2.1 $2.3 $2.3 $2.3 $2.4 $2.6 $2.8 $3.0 $3.2 $3.3 $3.6
</TABLE> 
 
   Stability and Profitability. In each year since 1986, the bedding industry
has demonstrated highly consistent gross margins ranging between 29% and 32%.
Bedding also offers an estimated 45% gross margin to retailers as well as some
of the highest sales per square foot and return on inventory of all retail
furniture products. Consequently, even in circumstances of fluctuating demand
retailers continue to strongly promote sales of bedding products. Finally, the
stability of the bedding market is further supported by the fact that over 70%
of bedding sales result from replacement purchases.
 
                              [GRAPH APPEARS HERE]
 
                         Industry Gross Profit Margin
<TABLE> 
<CAPTION> 
              1986    1987    1988    1989    1990    1991    1992    1993    1994    1995   1996
<S>           <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>     <C>    <C> 
Percent        32%     31%     30%     30%     29%     30%     30%     30%     31%     32%    32%
</TABLE> 

                                       42
<PAGE>
 
   Favorable Demographics. We believe that key demographic trends are driving
growth in the demand for larger sized, premium bedding products including:
 
  . the rapidly growing 45-64 year old population category, a group with
    higher levels of disposable income and which historically has been more
    likely to purchase premium bedding;
 
  . the increasing consumer awareness of the health related benefits of
    proper rest; and
 
  . the increasing number and size of bedrooms in homes.
 
 
                              [GRAPH APPEARS HERE]
 
Competitive Strengths
 
   Consumers generally have limited knowledge of specific bedding products and,
as a result, rely heavily on brand awareness and the retail salesperson in
making their purchase decision.
 
   Superior Brand Recognition. We enjoy strong brand recognition through our
well-established brand names, including Simmons(R), Beautyrest(R), BackCare(R),
Connoisseur Collection(R) and Maxipedic(R).
 
   Strong Competitive Positioning. Our emphasis on premium, name brand
products, such as Beautyrest(R), BackCare(R) and Connoisseur Collection(R),
enables us to take advantage of the current demographic trends driving demand
for larger sized, higher priced premium bedding products which typically carry
a higher margin.
 
   High Quality and Diverse Customer Base. Our reputation for high quality
products, innovation and customer service, together with the highly attractive
retail margins associated with bedding products, has enabled us to establish a
strong nationwide customer base.
 
   Focused Research and Development. We invest substantially in developing new
products, enhancing existing products and improving our operating processes.
 
   Experienced Management Team with Exceptional Track Record. Since 1993,
industry veteran and Simmons Chairman, Chief Executive Officer and President,
Zenon Nie, has led a highly experienced management team with over 210 years of
combined experience in the bedding industry and over 150 years of combined
experience with us. From 1994 to 1998, this management team:
 
  . achieved sales growth of 8.1% versus an industry average growth rate of
    6.1%;
 
  . improved our gross margin from 38.7% to 41.9%; and
 
  . increased our Adjusted EBITDA margin from 8.3% to 10.4%.
 
                                       43
<PAGE>
 
Business Strategy
 
   In order to execute our business strategy, we must:
 
  . continue to build our brand equity;
 
  . enhance our customer base;
 
  . strengthen our current customer relationships;
 
  . improve our operating productivity and efficiency; and
 
  . pursue selected complementary acquisitions.
 
Products
 
   We provide our customers with a full range of mattress products that cover
the breadth of the market price points. Our strategic focus is on premium
bedding products sold at retail price points between $699 and $2,999. We derive
approximately 54% of our net sales from products sold at these price points.
 
   We believe that the higher end market segment is attractive to bedding
retailers who are increasingly focused on branded products to enhance and
differentiate their business as well as to increase profitability. We further
believe that the rapidly growing 45-64 year old population category (a group
with increased levels of disposable income), an increasing consumer awareness
of the health-related benefits of proper rest and an increasing number and size
of bedrooms in homes should support an increasing consumer shift towards
larger, higher priced and technologically advanced mattresses.
 
   We employ two different base manufacturing technologies in our mattresses,
the pocketed coil and the open coil, and market our products under a variety of
well known brands. Most of our products are based on our patented Pocketed
Coil(TM) technology, which we believe offers a substantially better sleep
experience than our competitors' products. Pocketed Coil(TM) products such as
the Beautyrest(R) line account for the majority of our sales, as well as our
retail floor presence and brand image.
 
   Our Beautyrest(R) and Connoisseur Collection(R) lines employ Pocketed
Coil(TM) manufacturing technology. Pocketed Coil(TM) mattresses are designed to
be the most comfortable and durable mattresses in the market. Unlike open coil
mattresses in which each innerspring coil is joined to adjacent coils at the
top and the bottom, Pocketed Coil(TM) innersprings are constructed so that each
row of innerspring coils is joined to adjacent rows of coils in the center
third of the fabric pocket enclosing each coil. This permits the top and bottom
of each coil to respond independently to pressure applied to the surface of the
mattress. Pocketed Coil(TM) design is unique to us. It enables the mattress to
contour to the user's body, reduces lateral transmission of movement in the
mattress and provides exceptional comfort.
 
   Beautyrest(R). Beautyrest(R), our flagship premium product, has been our
primary focus for 74 years and we expect it to continue to generate the
majority of sales. Beautyrest(R) has employed Pocketed Coil(TM) technology
since its introduction in 1925. The Beautyrest(R) line is available to end-
users through a broad range of distribution channels including furniture
stores, major department stores, specialty sleep shops and warehouse showrooms.
 
   Connoisseur Collection(R). We introduced the Connoisseur Collection(R) line
to capitalize on the accelerating growth in the premium bedding segment. The
Connoisseur Collection(R) line combines the benefits of Pocketed Coil(TM)
technology with variable pressure foam for maximum comfort and support. The
Connoisseur Collection(R) product line is primarily available through selected
major department stores and specialty sleep shops.
 
   BackCare(R). We introduced BackCare(R), a second flagship brand, in 1995.
The BackCare(R) line was created to meet the needs of health conscious
consumers, as well as chronic back pain sufferers. We are
 
                                       44
<PAGE>
 
positioning BackCare(R) as another of our premium bedding products. BackCare(R)
has received an endorsement from the National Foundation for Spinal Health.
BackCare(R) employs five zone construction designed through each element of the
sleep set. Anatomic foam provides support under the lower back and thighs while
offering comfort under the calves, upper shoulders and buttocks. Anatomic foam
also allows the back to better assume a natural position ensuring proper spinal
alignment and comfort.
 
   We expect increasing consumer concerns for comfort and health to help
support increased retail penetration of the BackCare(R) product line. To ensure
continued retail penetration, we have developed a BackCare(R) national
television advertising campaign entitled "Five Zones for Your Bones". We have
also hired BackCare(R) sales managers who will focus exclusively on the
BackCare(R) product line.
 
   Maxipedic(R). Maxipedic(R) provides our customers with a superior open coil
product. The Maxipedic(R) mattress features non-skid quilting and a variety of
high quality foam components. The matching foundation features a steel grid
that anchors the coils, reducing lateral motion and providing uniform firmness.
This product is intended to provide customers with a high quality, moderately
priced, open coil product.
 
Customers
 
   Our strong brand name and reputation for high quality products, innovation
and service to our customers, together with the highly attractive retail
margins associated with bedding products, have enabled us to establish a strong
customer base throughout the United States and across all major distribution
channels, including furniture stores, specialty sleep shops, department stores
and warehouse showrooms. We manufacture and supply conventional bedding to over
5,500 retail outlets, representing more than 2,700 customers. Furthermore, our
sales to specialty sleep shops, the fastest growing channel of retail bedding
distribution, has been increasing.
 
   We also distribute branded products on a contract sale basis directly to
commercial users of bedding products such as hotels, motels, and commercial
centers. Major commercial accounts include Westin Hotel Limited Partnership,
Hyatt Corporation, Marriott International, Inc. and The Walt Disney Company.
 
   We have enjoyed on average, a 27 year relationship with our top ten
customers. Our 10 largest customers accounted for approximately 38% of 1998 net
sales, while sales to Heilig-Meyers Company and its subsidiaries, including
Rhodes, Inc., represented approximately 11.8% of 1998 net sales.
 
   As a result of our strong brand names, national manufacturing, distribution
capabilities and broad product line, we have been able to successfully
capitalize on the trend of retailers moving toward sole-source vendors. For
example, the Heilig-Meyers Company, after a test market program, decided to
carry only Simmons bedding products at its Heilig-Meyers furniture stores.
 
Sales, Marketing and Advertising
 
   Our products are sold by approximately 200 local field sales
representatives, backed by sales management centralized at each of our 18
manufacturing facilities, as well as national account representatives. This
selling infrastructure provides retailers with coordinated national marketing
campaigns as well as local support that is tailored to the competitive
environment of the local market.
 
   Our marketing strategy focuses on two areas: (1) cooperative promotional
advertising and other retailer support programs designed to complement
individual retailers' marketing programs and (2) national advertising designed
to establish and build brand awareness with consumers. We spend approximately
88% of our promotional budget on regional and local retailer programs. We
develop advertising and retail sales incentive packages specifically for each
individual retailer. Point-of-sale materials including mattresses and box
springs that we design and supply highlight the differentiating features of our
products. In addition, we offer training for retail sales people through our
Mattress Business Academy programs. We believe that our sales training and
 
                                       45
<PAGE>
 
consumer education programs are the most extensive in the bedding industry. We
have designed these programs, delivered on-site at our retailers' facilities or
at our research and education center, to teach retail floor salespeople how to
match customers with their mattress comfort preference by improving the retail
floor salespersons' product knowledge and sales skills. We seek to improve our
retailers' unit sales as well as increase sales of bedding in the higher price
segment. We also establish individual incentive programs for our customers and
their sales personnel. Our sales force is trained extensively in advertising,
merchandising and salesmanship which increases the value of the marketing
support they provide to retailers. We believe that our focus on the training of
sales representatives and our customers' retail floor salespeople
differentiates us from most of our largest competitors.
 
   Regionally, we conduct advertising on a cooperative basis and reimburse up
to 50% of some advertising costs of our retailers subject to minimum sales
volume requirements. We believe cooperative advertising fosters strong
relationships with retailers, who exert significant influence on the consumer's
purchasing decision.
 
   We spend approximately 12% of our promotional budget on activities to build
national brand awareness, primarily in the form of national advertising. We
seek to build long-term brand awareness through regular national advertising
and to achieve short-term sales objectives through local and regional
television and radio programming and print advertising. We have developed a
strong reputation for innovative advertising campaigns. We launched the "Do Not
Disturb" campaign, one of our most successful, in the spring of 1995. The "Do
Not Disturb" campaign was created to build awareness of how our Beautyrest(R)
mattress facilitates independent motion. As testimony to the effectiveness of
the "Do Not Disturb" campaign, retailers indicated that their customers ask for
the Beautyrest(R) "bowling ball mattress". We have created a sequel commercial
in the "Do Not Disturb" campaign entitled "Leap of Faith", which has recently
been introduced to the market. In addition, we recently developed a national
campaign for our BackCare(R) product line entitled "Five Zones for Your Bones".
Launched in April 1998, the campaign identifies how the BackCare(R) product
provides proper spinal support. Additionally, we regularly retain market
research firms and sponsor market research in order to measure the
effectiveness of our advertising. Research indicates that since 1995, the year
the "Do Not Disturb" campaign first aired, the percentage of consumers aware of
our Beautyrest(R) products and the percentage of consumers indicating that they
intended to purchase a Simmons(R) product have doubled.
 
   We also utilize a proprietary system for analyzing marketing data in order
to assist both ourselves and our customers more effectively market products.
The Simmons Market Analysis of Retail Trends ("SMART") system combines
geographically-organized sales and demographic data with bedding consumer
demographic and lifestyle data to provide valuable bedding sales at the retail
level. This computerized system improves retail sales by analyzing sales,
demographic and lifestyle data to identify target customers' geographic areas
with strong sales potential. We use this data to help determine plant location
and analyze sales territories and retailers use the data to help optimize store
location and advertising planning.
 
Manufacturing Facilities
 
   We operate 18 manufacturing facilities in 16 states and Puerto Rico. These
manufacturing facilities have a combined capacity of over 25,000 units per day,
assuming two eight-hour shifts daily. In 1998, we produced a daily average of
17,150 bedding units per day. We believe that, on average, our facilities are
presently operating at approximately 70% of capacity. Currently, 14 of our 18
facilities operate two shifts a day and four facilities operate a single shift.
We have recently completed a 77,500 square-foot facility in Salt Lake City,
Utah, to manufacture and distribute products for customers in Utah and
surrounding states.
 
   The manufacturing facilities are strategically located to service major
metropolitan areas and consist of an average of approximately 120,000 square
feet of manufacturing space, most of which is devoted to production. We receive
most raw materials inventory through "just-in-time" delivery from our major
suppliers. We minimize finished goods inventory through made-to-order
production, with most orders being scheduled, produced and shipped within 24 to
72 hours of receipt.
 
                                       46
<PAGE>
 
   In 1995, with the assistance of a nationally recognized management
consulting firm, we undertook a project to improve manufacturing productivity
by 20%. The project is internally referred to as UNITE ("Utilizing New Ideas to
Excel"). We are re-engineering both the lay-out of the factory floor and the
basis on which manufacturing employees are paid. Our manufacturing processes
are being reorganized into cell configurations to take advantage of new
conveyor systems and a just-in-time raw materials replenishment system. In
addition, we are implementing a compensation system under which manufacturing
employees are paid on a team incentive basis rather than on individual
piecework. The programs are expected to be implemented in each of our
manufacturing facilities. Through 1998, we have reconfigured 11 plants. We have
also implemented the new compensation system in 11 of our plants. We expect to
complete implementation of the UNITE programs in 1999. We expect to realize
increased operating efficiencies and cost savings in the near term as we
complete the UNITE implementation and optimize our re-engineered processes.
 
Research, Engineering and Development
 
   We invest substantially in new product development, enhancement of existing
products and improved operating processes. We believe new product development
and product enhancements are crucial to maintaining our strong industry
position. We maintain close contact with bedding industry developments through
sleep research conducted by industry groups and by our engineering department,
as well as through participation in the Better Sleep Council, an industry
association that promotes awareness of sleep issues, and ISPA. Our marketing
and manufacturing departments work closely with the engineering staff to
develop and test new products for marketability and durability.
 
   We also seek to reduce costs and improve productivity by continually
developing more efficient manufacturing and distribution processes. In 1995, we
completed the construction of the Simmons Institute of Technology and Education
("SITE"), a state-of-the-art 38,000 square foot research and education center
in Atlanta, Georgia. Approximately 36 engineers and technicians are employed
full-time at SITE. These employees ensure that we maintain high quality
products by conducting product and materials testing, designing manufacturing
facilities and equipment and improving process engineering and development. We
believe that our engineering staff gives us a competitive advantage over some
of our competitors who do not have significant in-house engineering
departments.
 
Suppliers
 
   We purchase substantially all of our conventional bedding raw materials
centrally in order to maximize economies of scale and volume discounts. The
major raw materials that we purchase are wire, spring components, lumber,
cotton, insulator pads, innersprings, fabrics and roll goods consisting of
foam, fiber, ticking and non-wovens. We obtain a large percentage of our
required raw materials from a small number of suppliers. In 1998, we bought
approximately 86% of our raw material needs from 10 suppliers. Supplier
concentration is common in the bedding industry.
 
   We have long-term supply agreements with Leggett & Platt, Incorporated
("L&P"), Foamex International Inc. and Amoco Fabrics and Fiber Company. With
the exception of L&P, we believe that we can readily replace our other
suppliers because we have already identified and begun to use alternative
sources. L&P supplies the majority of certain components, including spring
components, insulator pads, wire, fiber, quilt backing and flange material, to
the bedding industry. In 1998, we bought approximately one-third of our raw
materials from L&P. We expect that in 1999 we will buy a comparable portion of
our raw materials from L&P. To ensure a long-term adequate supply of certain
components, we have entered into agreements with L&P, generally expiring in the
year 2010, for the supply of grid tops, innersprings and wire. Among other
things, these agreements generally require us to purchase a majority of our
requirements of certain components from L&P. See "Risk Factors--Dependence on
Key Suppliers".
 
                                       47
<PAGE>
 
Upgrade of Information Management System
 
   In 1995, we undertook the implementation of a new enterprise wide
information management system, known internally as SWIFT ("Simmons Working
Intelligently for Tomorrow"). Implemented in all of our facilities other than
in Puerto Rico, the SWIFT system improved the information management systems of
nearly all of our operational areas. The SWIFT system provides a uniform
hardware and software system throughout Simmons and has largely improved data
reliability. The system provides new and more detailed operating and financial
information and greatly improves our ability to analyze product line and
customer profitability, administer customer support and advertising programs
and allocate manufacturing resources.
 
Competition
 
   There are approximately 800 bedding manufacturers in the United States, with
three companies, Simmons, Sealy Corporation, and Serta, Inc. accounting for a
significant portion of the industry's wholesale revenues. We believe we
principally compete against these two primary competitors on the basis of brand
recognition, product quality and the quality of customer support programs,
which include cooperative advertising, sales force training and marketing
assistance. We believe we compare favorably to our primary competitors in each
of these areas. In addition, only Simmons and Sealy Corporation have national,
company operated manufacturing and distribution capabilities.
 
   The rest of the United States conventional bedding market consists of
approximately seven smaller national manufacturers and nearly 800 independent
local and regional manufacturers. These local and regional manufacturers
generally focus on the sale of lower price point products. While we primarily
manufacture high margin, differentiated bedding products, we also offer a full
line of bedding products to our retailer base in order for these retailers to
maintain their competitive positioning. See "Risk Factors--Competition".
 
Warranties; Product Returns
 
   Our conventional bedding products generally offer 10 year limited warranties
against manufacturing defects, while certain promotional products carry one
year warranties. We believe that our warranty terms are generally consistent
with those of our primary national competitors. The historical costs to us of
honoring warranty claims have been immaterial. We have also experienced non-
warranty returns for reasons generally related to order entry errors and
shipping damage. We resell our non-warranty returned products primarily through
as-is furniture vendors or outlets.
 
Patents, Trademarks and Licenses
 
   We own many trademarks, including Simmons(R), Beautyrest(R), BackCare(R),
Connoisseur Collection(R), Maxipedic(R) and Pocketed Coil(TM), most of which
are registered in the United States and in many foreign countries. We protect
our manufacturing equipment and processes as trade secrets and through patents.
We possess several patents on the equipment used to manufacture our Pocketed
Coil(TM) innersprings. While we do not consider our overall success to be
dependent upon any particular intellectual property rights, we cannot assure
you that the degree of protection offered by the various patents will be
sufficient, that patents will be issued in respect of pending patent
applications, or that we will be able to protect our technological advantage
upon the expiration of our patents. If we were unable to maintain the
proprietary nature of our intellectual property, our financial condition or
results of operations could be materially adversely affected.
 
   Through the early 1990s, we disposed of certain of our foreign operations
and secondary domestic lines of business. As a result, we now license the
Simmons(R) name and many of our trademarks, processes and patents on an
exclusive basis to third-party manufacturers abroad to produce and distribute
conventional bedding products within their designated territories and to third-
party manufacturers in the U.S. to manufacture and distribute juvenile bedding
and non-bedding upholstered furniture, primarily on perpetual or automatically
renewable terms. In addition, we have licensed the Simmons(R) name and other
trademarks, generally for limited terms, for domestic use to third-party
manufacturers of adjustable beds, down comforters, pillows, bed pads, blankets,
futons, airbeds and waterbeds.
 
                                       48
<PAGE>
 
Employees
 
   As of March 27, 1999, we had approximately 2,800 employees. Approximately
1,200 of these were represented by labor unions. Employees at nine of our 18
manufacturing facilities are represented by at least one of the following
unions: the Upholstery Division of the United Steelworkers, the Teamsters, the
United Furniture Workers, the Longshoremen and the International Association of
Machinists and Aerospace Workers. Union contracts typically are negotiated for
four-year terms. A majority of our current contracts expire in 2001. Labor
relations historically have been good. We have had no labor-related work
stoppages in over 20 years. Since 1980, we have opened nine new plants, none of
which are unionized. Approximately 1,700 of our current and former employees
are participants in the Simmons ESOP.
 
Regulatory Matters
 
   As a manufacturer of bedding and related products, we use and dispose of a
number of substances, such as glue, lubricating oil, solvents, and other
petroleum products that may subject us to regulation under numerous federal and
state statutes governing the environment. Among other statutes, we are subject
to the Federal Water Pollution Control Act, the Comprehensive Environmental
Response, Compensation and Liability Act, the Resource Conservation and
Recovery Act, the Clean Air Act and related state statutes and regulations. We
have made and will continue to make capital and other expenditures to comply
with environmental requirements. As is the case with manufacturers in general,
if a release of hazardous substances occurs on or from our properties or any
associated offsite disposal location, or if contamination from prior activities
is discovered at any of our properties, we may be held liable and the amount of
such liability could be material. We are currently evaluating our potential
liability with respect to the cleanup of environmental contamination at and in
the vicinity of our leased manufacturing facilities in San Leandro, California.
 
   We have recorded a reserve to reflect our potential liability for
environmental matters. Because of the uncertainties associated with
environmental remediation, we cannot assure you that the costs incurred with
respect to the potential liabilities will not exceed the recorded reserves.
 
   Our conventional bedding and other product lines are subject to various
federal and state laws and regulations relating to flammability, sanitation and
other standards. We believe that we are in material compliance with all such
laws and regulations.
 
                                       49
<PAGE>
 
Properties
 
   Our corporate offices are located at One Concourse Parkway, Suite 600,
Atlanta, Georgia 30328. The following table sets forth selected information
regarding manufacturing and other facilities we operated as of March 27, 1999:
 
<TABLE>
<CAPTION>
                                    Year of
                            Date     Lease     Square                    Union
        Location          Occupied Expiration  Footage                Affiliation
        --------          -------- ---------- ---------               -----------
<S>                       <C>      <C>        <C>       <C>
Manufacturing
 Facilities:
  Atlanta, Georgia......    1992      2007      148,300 United Steelworkers of America
  Charlotte, North
   Carolina.............    1993      2003      144,180 None
  Columbus, Ohio........    1988      1999      190,000 United Steelworkers of America,
                                                        International Association of
                                                        Machinists and Aerospace Workers
  Dallas, Texas.........    1998      2008      140,981 United Steelworkers of America
  Denver, Colorado......    1998      2008      129,000 None
  Fredericksburg,
   Virginia.............    1995      2010      128,500 None
  Honolulu, Hawaii......    1993      2003       58,530 International Longshoremen's
                                                        and Warehousemen's Union
  Jacksonville,
   Florida..............    1973      2003      205,729 United Steelworkers of America
  Janesville,
   Wisconsin............    1982     Owned      288,700 None
  Shawnee, Kansas.......    1997     Owned      130,000 United Steelworkers of America
  Los Angeles,
   California...........    1982      1999      223,382 International Brotherhood of Teamsters,
                                                        United Steelworkers of America
  Phoenix, Arizona......    1997      2007      103,408 None
  Piscataway, New
   Jersey...............    1988      2003      264,908 International Association of Machinists
                                                        and Aerospace Workers,
                                                        United Steelworkers of America
  Salt Lake City, Utah..    1998      2008       77,500 None
  San Leandro,
   California...........    1964      2007      260,500 United Furniture Workers of America
  Seattle, Washington...    1992      2002      133,610 None
  Springfield,
   Massachusetts........    1988      2006      129,000 None
  Trujillo Alto, Puerto
   Rico.................    1998     Owned       50,000 None
                                              ---------
    Subtotal............                      2,806,228
Other Facilities (Atlan-
 ta, Georgia):
  Corporate
   Headquarters.........    1992      2003       37,500 None
  SITE Research and
   Development Center...    1994      2005       38,000 None
  Consumer Service
   Center...............    1977      2003       30,960 None
                                              ---------
    Total Square
     Footage............                      2,912,688
</TABLE>
 
 
Legal Proceedings
 
   From time to time, we have been involved in various legal proceedings. We
believe that all of this litigation is routine in nature and incidental to the
conduct of our business, and that none of this litigation, if determined
adversely to us, would have a material adverse effect on our financial
condition or results of our operations.
 
                                       50
<PAGE>
 
                                   MANAGEMENT
 
   The following table sets forth the name, age as of March 27, 1999 and
position of each of our directors, executive officers and other key employees.
Each of our directors will hold office until the next annual meeting of our
shareholders or until his successor has been elected and qualified. Our
officers are elected by our Board of Directors and serve at the discretion of
the Board of Directors.
 
<TABLE>
<CAPTION>
                Name                Age                Positions
                ----                ---                ---------
 <C>                                <C> <S>
 Zenon S. Nie.....................   48 Chairman of the Board of Directors,
                                         Chief Executive Officer and President
 
 Jonathan C. Daiker...............   51 Executive Vice President--Finance and
                                         Administration, Chief Financial
                                         Officer and Director
 
 Martin R. Passaglia..............   50 Senior Executive Vice President,
                                         Secretary and Director
 
 Peter Lamm.......................   47 Director
 
 Richard C. Dresdale..............   43 Director
 
 Andrea Geisser...................   56 Director
 
 Gregory P. Meredith..............   41 Director
 
 William L. Ayers, IV.............   53 Executive Vice President--Marketing and
                                         Sales
 
 Joseph Ulicny....................   55 Executive Vice President--Market
                                         Development
 
 Robert K. Barton.................   58 Senior Vice President--Human Resources
 
 Leo T. Brennan...................   63 Vice President--Materials Management
 
 Roger W. Franklin................   43 Vice President--Finance and Treasurer
 
 James P. Maher...................   63 Divisional President
 
 Cleve B. Murphy..................   48 Divisional President
 
 Gary G. Pleasant.................   56 Divisional President
</TABLE>
 
   Zenon S. Nie joined Simmons in 1993 as Chief Executive Officer, has served
as a Director since 1993 and was appointed Chairman of the Board of Directors
in 1994. Prior to joining Simmons, Mr. Nie served as President of the Consumer
Home Fashions Division of The Bibb Company from 1991 to 1993. From 1981 through
1991, Mr. Nie held several senior management positions at Serta, Inc. including
President, Executive Vice President, Chief Operating Officer, Senior Vice
President--Manufacturing, Finance and Administration and Vice President--
Strategic Planning. Mr. Nie's previous experience includes several marketing
positions at Sealy Corporation. Mr. Nie is a director of LADD Furniture, Inc.
 
   Jonathan C. Daiker joined Simmons in 1995 as Executive Vice President--
Finance and Administration, Chief Financial Officer and a Director. Prior to
joining Simmons, Mr. Daiker held a number of directorships in the corporate
offices of Philips Electronics North America Corporation, as well as operating
positions within its divisional structure from 1981 to 1995, including Senior
Vice President and Chief Financial Officer for Philips Lighting Company. Prior
to 1981, he was a senior manager with Price Waterhouse, a predecessor to
PricewaterhouseCoopers LLP. Mr. Daiker is a Certified Public Accountant.
 
   Martin R. Passaglia joined Simmons in 1973 and has served as Senior
Executive Vice President and a Director since 1994. Prior to 1994, Mr.
Passaglia held various positions including Regional Sales Manager, Vice
President and General Manager--Hawaii, Executive Vice President--Account
Development, and Executive Vice President--Marketing and Sales.
 
   Peter Lamm became a director of Simmons in 1998 in connection with the
Merger. Mr. Lamm is Chairman and Chief Executive Officer and a founding partner
of Fenway, a New York-based direct investment
 
                                       51
<PAGE>
 
firm for institutional investors with a primary objective of acquiring leading
middle-market companies. From February 1982 to April 1994, Mr. Lamm was a
member of Butler Capital Corporation, a private investment firm, most recently
as Senior Direct Investment Officer and Managing Director. Mr. Lamm currently
serves as a director of Aurora Foods, Inc., Central Tractor Farm & Country,
Inc., Iron Age Corporation, Delimex Holdings, Inc., New Creative Enterprises,
Inc. and Blue Capital Management.
 
   Richard C. Dresdale became a director of Simmons in 1998 in connection with
the Merger. Mr. Dresdale is President and a founding partner of Fenway. From
June 1985 until March 1994, Mr. Dresdale was a member of Clayton, Dubilier &
Rice, Inc. a private investment firm, most recently as a Principal. Mr.
Dresdale currently serves as a director of Aurora Foods, Inc., Central Tractor
Farm & Country, Inc., Delimex Holdings, Inc., MW Windows Inc., and Blue Capital
Management.
 
   Andrea Geisser became a director of Simmons in 1998 in connection with the
Merger. Mr. Geisser is a Managing Director and a founding partner of Fenway.
From February 1989 to June 1994, Mr. Geisser was a Managing Director of Butler
Capital Corporation. From 1986 to 1989, Mr. Geisser served as a Managing
Director of Onex Investment Corporation, the largest Canadian leveraged buyout
company. Mr. Geisser currently serves as a director of Aurora Foods, Inc., Iron
Age Corporation, New Creative Enterprises, Inc. and Decorative Concepts, Inc.
 
   Gregory P. Meredith became a director of Simmons in 1998 in connection with
the Merger. Mr. Meredith has been a Managing Director of Fenway since 1997.
From 1993 to 1996, Mr. Meredith was employed by NationsBanc Capital Markets,
Inc., most recently as Managing Director and Head of Leveraged Finance. Prior
to 1993, Mr. Meredith was employed by Salomon Brothers Inc, most recently as a
Senior Trader in the High Yield Group in charge of trading distressed
securities and special situations. Mr. Meredith currently serves as a director
of MW Windows Inc., Decorative Concepts, Inc. and FNX Limited.
 
   William L. Ayers, IV joined Simmons in 1973 and has served as Executive Vice
President--Sales and Marketing since 1994. Prior to 1994, Mr. Ayers held
several sales management positions including Vice President and General
Manager--Los Angeles and Divisional Executive Vice President.
 
   Joseph Ulicny joined Simmons in 1992 and assumed his current position as
Executive Vice President--Market Development in 1995. From 1992 until 1995, Mr.
Ulicny served as Executive Vice President--Finance and Chief Financial Officer.
Prior to joining Simmons, Mr. Ulicny worked at The Dannon Company, Inc., a
yogurt wholesaler, from 1985 to 1992.
 
   Robert K. Barton joined Simmons in 1982 and has served as Senior Vice
President--Human Resources since 1990. Prior to assuming his current position,
Mr. Barton served as Vice President--Human Resources, Vice President--
Administration, Vice President--Dealer Financial Services and Director of
Dealer Financial Services.
 
   Leo T. Brennan joined Simmons in 1978 and has served as Vice President--
Materials Management since 1985. Prior to assuming his current position, Mr.
Brennan served as Director of Purchasing.
 
   Roger W. Franklin joined Simmons in 1986 and has served as Vice President--
Finance and Treasurer since 1990. Mr. Franklin served as Vice President--
Controller and Director of Taxes prior to assuming his current position. Prior
to joining Simmons, Mr. Franklin was a manager with Price Waterhouse, a
predecessor to PricewaterhouseCoopers LLP, in both the audit and tax areas from
1978 to 1986. Mr. Franklin is a Certified Public Accountant.
 
   James P. Maher joined Simmons in 1989 and has served as Divisional President
since January 1997. Prior to assuming his current position, Mr. Maher served as
Divisional Executive Vice President, Vice President and General Manager--
Jacksonville, and Vice President and General Manager--San Leandro. Before
joining Simmons, Mr. Maher held senior management positions with Nachman
Corporation, a wire and bedding components manufacturer, Leggett & Platt,
Incorporated, a manufacturer of bedding components, and May & Company, a
bedding manufacturer.
 
                                       52
<PAGE>
 
   Cleve B. Murphy joined Simmons in 1995 and has served as Divisional
President since January 1997. Prior to assuming his current position, Mr.
Murphy served as Divisional Executive Vice President. Mr. Murphy's background
includes twelve years at Sealy Corporation where he started as Sales Manager
and became one of four Regional Vice Presidents, from 1983 to 1995. Prior to
his employment with Sealy Corporation, Mr. Murphy served eight years as General
Manager for Englander, a bedding manufacturer, from 1975 to 1983 and held
various positions with Serta, Inc. from 1973 to 1975.
 
   Gary G. Pleasant rejoined Simmons in 1991 and has served as Divisional
President since January 1997. Prior to assuming his current position, Mr.
Pleasant served as Divisional Executive Vice President and Vice President and
General Manager--Seattle. Mr. Pleasant was previously employed by Simmons from
1966 to 1985 in various sales management positions. From 1985 to 1991, Mr.
Pleasant worked for Sealy Corporation, first as Vice President--Sales--Ohio--
Sealy and then as National Vice President--Marketing and Sales.
 
Director Compensation
 
   We pay no additional remuneration to our employees or to executives of
Fenway for serving as directors. See "--Executive Compensation". There are no
family relationships among any of the directors or executive officers.
 
Executive Compensation
 
   The following table sets forth all cash compensation earned in the previous
three years by our Chief Executive Officer and each of our other four most
highly compensated executive officers. The compensation arrangements for each
of these officers that are currently in effect are described under the caption
"-- Employment Arrangements" below.
 
                           Summary Compensation Table
 
<TABLE>
<CAPTION>
                           Annual Compensation
                         ------------------------    Number of Securities      All Other
   Name and Principal          Salary    Bonus       Underlying Long-Term     Compensation
        Position         Year   ($)      ($)(1)   Compensation Options (#)(2)    ($)(3)
   ------------------    ---- -------- ---------- --------------------------- ------------
<S>                      <C>  <C>      <C>        <C>                         <C>
Zenon S. Nie............ 1998 $579,792 $5,116,125                --             $15,276
 Chairman, Chief
  Executive              1997  517,500    586,366                --              32,853
 Officer and President   1996  501,458    876,823          1,800,000             31,551
 
Martin R. Passaglia..... 1998  267,500    295,573                --              11,074
 Senior Executive Vice
  President              1997  267,500    211,325                --              29,133
                         1996  267,500    234,063             64,237            161,721
 
Jonathan C. Daiker...... 1998  226,917    496,053                --              10,175
 Executive Vice
  President--            1997  213,000    169,060                --              27,008
 Finance &
  Administration, Chief  1996  205,750    230,031            156,338             30,741
 Financial Officer
 
Robert K. Barton........ 1998  202,417    276,102                --              11,722
 Senior Vice President--
  Human                  1997  180,000    143,517                --              29,329
 Resources               1996  171,750    150,281             63,667            147,447
 
Joseph Ulicny........... 1998  190,417    161,389                --              11,988
 Executive Vice
  President--Market      1997  180,000    142,793                --              28,600
 Development             1996  172,483    150,923             30,000             27,028
</TABLE>
--------
(1) Includes amounts paid in connection with the Transactions and the
    Investcorp Acquisition in 1998 and 1996, respectively. Also includes
    amounts earned in the year shown but paid in the subsequent year.
 
(2) These amounts show the number of shares underlying options granted in 1996.
    In 1996, in connection with the Investcorp Acquisition, all options then
    outstanding were purchased. Messrs. Nie, Passaglia, Daiker, Barton and
    Ulicny received $1,812,800, $364,496, $117,435, $363,867 and $308,856,
    respectively, for their options.
 
                                       53
<PAGE>
 
(3) These amounts consist of (i) our contributions to our ESOP in 1997 and
    1996, respectively, in the amounts of $18,571 and $17,192 for Mr. Nie,
    $18,614 and $17,192 for Mr. Passaglia, $18,571 and $17,192 for Mr. Daiker,
    $18,614 and $17,192 for Mr. Barton, and $18,571 and $17,192 for Mr. Ulicny,
    respectively; the amount of our contribution to our ESOP for 1998 has not
    been determined; (ii) premiums for term life insurance and long-term
    disability insurance in 1998, 1997 and 1996, respectively, in the amounts
    of $13,276, $14,282 and $14,359 for Mr. Nie, $9,074, $10,519 and $11,185
    for Mr. Passaglia, $8,175, $8,437 and $8,321 for Mr. Daiker, $9,722,
    $10,715 and $11,908 for Mr. Barton, $9,988, $10,029 and $9,836 for Mr.
    Ulicny, respectively; (iii) payments of benefits under non-qualified ESOP
    in 1996, in the amount of $133,344 and $118,347 for Mr. Passaglia and Mr.
    Barton, respectively; (iv) relocation assistance in 1996 in the amount of
    $5,228 for Mr. Daiker; and (v) $2,000 per named executive officer in 1998
    for financial planning services.
 
Aggregated Option Exercises
 
     The table below sets forth information concerning the exercise of stock
options during 1998 and the value of unexercised stock options at the end of
1998 for our Chief Executive Officer and each of our other four most highly
compensated executive officers.
 
                         Aggregated Option Exercises in
                 Fiscal 1998 and Fiscal Year End Option Values
 
<TABLE>
<CAPTION>
                                                             Number of Shares        Value of Unexercised
                                                          Underlying Unexercised           In-the-
                                                                Options at              Money Options
                                                          Fiscal Year End (#) (3) at Fiscal Year End ($) (2)
                                                          ----------------------- --------------------------
                            Number of
                             Shares
                            Exercised
                           Underlying         Value
Name                     Options (#) (1) Realized ($) (2)       Exercisable              Exercisable
----                     --------------- ---------------- ----------------------- --------------------------
<S>                      <C>             <C>              <C>                     <C>
Zenon S. Nie............       1,128,911       $4,552,716                 752,608                 $3,035,146
Martin R. Passaglia.....          34,429          132,251                  51,642                    198,371
Jonathan C. Daiker......          40,479          163,572                 121,439                    490,724
Robert K. Barton........          29,086          112,251                  54,017                    208,467
Joseph Ulicny...........          17,649           66,727                  26,473                    100,088
</TABLE>
--------
(1) Reflects options to purchase common stock of Simmons Holdings that were
    redeemed for cash by us in connection with the Transactions. See
    "Management--Management Stock Incentive Plan."
(2) There was no public trading market for our common stock as of October 29,
    1998 and December 27, 1998. These values have been calculated on the basis
    of the per share consideration paid in connection with the Transactions
    less the applicable exercise price.
(3) Reflects options to purchase common stock of Simmons Holdings retained as a
    portion of the Management Equity Rollover. See "Management--Management
    Stock Incentive Plan."
 
Retirement Plans
 
   We maintain several single employer retirement plans including a single
employer defined benefit plan and two single employer defined contribution
plans, the Simmons ESOP and a 401(k) Plan (the "Simmons Retirement Savings
Plan"), which are intended to be qualified under Section 401(a) of the Internal
Revenue Code of 1986 (the "Code"). We also participate in a number of multi-
employer pension plans, from which we have no present intention to withdraw. In
the aggregate, these plans cover substantially all permanent employees.
 
                                       54
<PAGE>
 
   Simmons Retirement Savings Plan. The Simmons Retirement Savings Plan, formed
in 1987, contains a cash or deferred arrangement under Section 401(k) of the
Code. Employees with 12 weeks of employment who have reached age 21 are
permitted to participate in the plan. Generally employees covered by collective
bargaining agreements are not permitted to participate in the plan, unless the
collective bargaining agreement expressly provides for participation.
 
   Presently, approximately 500 employees participate in this plan.
Participants direct the investment of their account balances. Eligible
employees may defer the receipt of a portion of their covered compensation (up
to 6% of compensation on a pre-tax basis), subject to various limitations.
Participants are fully vested in their contributions at all times. We did not
make any contributions to the plan during plan year 1998 (other than the pre-
tax deferrals mentioned above).
 
   Simmons ESOP. The Simmons ESOP, formed in 1989, is a defined contribution
pension benefit plan that is designed to qualify as a leveraged employee stock
ownership plan within the meaning of Section 4975(e)(7) of the Code. Assets of
the Simmons ESOP are held in a trust for which State Street Bank & Trust
Company (the "ESOP Trustee") serves as trustee. The Simmons ESOP covers
otherwise eligible employees of Simmons who are 21 or older and who have
completed at least one year of service for Simmons. Generally, employees
covered by collective bargaining agreements are not permitted to participate,
unless the collective bargaining agreement expressly provides for
participation. As of March 27, 1999, approximately 1,700 of our current and
former employees were participants in the Simmons ESOP.
 
   The Simmons ESOP provides benefits to each participating employee based on
the value of the stock allocated to such participant's account over the period
of such participant's participation in the plan. In general, benefits become
payable to participants only following retirement or other separation from
employment.
 
   The Simmons ESOP is a leveraged ESOP. Leveraged ESOPs differ from other
defined contribution employee pension benefit plans in that they can borrow
funds from the employer sponsoring the plan or from other parties in order to
acquire company stock for allocation to participants' accounts as such
indebtedness is repaid. Pending such allocation, as described below, Simmons'
stock acquired by the Simmons ESOP is held by the ESOP Trustee in a suspense
account. In connection with the establishment of the Simmons ESOP in 1989, the
Simmons ESOP borrowed funds from us for the purpose of acquiring Simmons'
stock. As of December 26, 1998, the borrowed amount outstanding was
approximately $39.4 million. As of December 27, 1997, the Simmons ESOP was
indebted to us in the approximate principal amount of $51.2 million. Prior to
March 22, 1996, the date of the Investcorp Acquisition, the Simmons ESOP held
11,671,663 shares of our common stock. On the closing of the Investcorp
Acquisition, the Simmons ESOP sold 6,001,257 shares, representing all shares
previously allocated to participants' ESOP accounts, to Simmons Holdings for
approximately $31.2 million in the aggregate, the net proceeds of which were
reinvested in diversified investments in the respective accounts of such
participants in the Simmons ESOP. Pursuant to the Investcorp Acquisition, the
remaining 5,670,406 shares, representing all unallocated shares held in the
suspense account, were converted into our Series A preferred stock. Prior to
the Transactions, if converted into common stock of Simmons or capital stock of
Simmons Holdings, this Series A preferred stock would have represented direct
or indirect ownership of 15.1% of our common stock, after giving effect to such
conversion (exclusive of outstanding stock options).
 
   On July 22, 1998, we entered into the ESOP Stock Sale and Exchange Agreement
with Simmons Holdings, the ESOP Trustee and REM (the "ESOP Agreement").
Pursuant to the ESOP Agreement, immediately prior to the Merger, REM purchased
the Allocated Shares for an aggregate purchase price of approximately
$15.4 million. In addition, immediately prior to the Merger, the Simmons ESOP
exchanged its remaining outstanding shares of our Series A preferred stock for
3,482,036 shares of common stock of Simmons Holdings, constituting the ESOP
Equity Rollover. The Simmons ESOP received a fairness opinion from its
financial advisor to the effect that the consideration received for the
Allocated Shares under the ESOP Agreement was fair to the Simmons ESOP from a
financial point of view.
 
                                       55
<PAGE>
 
   We will make annual cash contributions to the Simmons ESOP in an amount up
to 25% of eligible participant compensation, subject to certain limitations and
conditions. The Simmons ESOP will then use this cash to repay the internal ESOP
Loan to us. As a result, there is no cash cost to us associated with the
contributions to the Simmons ESOP. As the internal ESOP Loan is repaid, a
portion of the ESOP Rollover Equity will be allocated to participant accounts
and non-cash compensation expense equal to the fair value of the allocated
shares will be charged to non-cash ESOP expense. When the internal ESOP Loan is
repaid in full (in approximately three years), all shares of ESOP Equity
Rollover held by the Simmons ESOP will have been allocated to plan
participants.
 
   With certain limited exceptions (such as an exception required by law
permitting certain retirement age individuals with at least 10 years of plan
participation to liquidate, over a six-year period, shares allocated to their
accounts), shares allocated to a participant's account under the Simmons ESOP
cannot be sold or otherwise transferred by the participant. The Simmons ESOP
provides for distributions to be made to participants following termination of
employment. With respect to participants whose termination of employment occurs
after becoming eligible for retirement (age 65), early retirement (age 55 with
at least 10 years of service), or on account of permanent disability or death,
distribution generally is made during the plan year following the plan year in
which such termination occurs. In all other cases, distribution generally is
made or commences to be made after the expiration of a five plan year period
following the plan year in which termination occurs. Distributions are made in
cash, based on the fair market value (as determined pursuant to an annual
appraisal) of the shares allocated to the participant's account. A participant
entitled to a distribution is entitled under law to have our shares allocated
to his or her account distributed in kind. A participant electing to have a
distribution of shares has a limited right to require us to purchase such
shares at fair market value over an approximately two year period.
 
   Defined Benefit Plan. We also sponsor a single employer defined benefit
pension plan for eligible employees called the Retirement Plan for Simmons
U.S.A. Employees. This plan currently benefits only employees covered by
certain collective bargaining agreements, and has approximately 120
participants. The monthly benefit for these participants upon normal retirement
is generally determined as the sum of:
 
      (1) 0.75% of monthly earnings as of January 1, 1963 multiplied by
   specified credited service as of May 1, 1963;
 
      (2) 1.0% of the first $400 of monthly earnings plus 1.75% of monthly
   earnings in excess of $400 for the time period from May 1, 1963 through
   April 30, 1967; and
 
      (3) 1.25% of the first $550 of monthly earnings plus 1.75% of monthly
   earnings in excess of $550 for each year and completed month of credited
   service, beginning May 1, 1967.
 
   There is a reduction for benefits accrued under the Retirement Plan for
Simmons Employees, a predecessor plan that was terminated in 1987. A somewhat
different formula applies to certain employees who are represented by IAM Local
315 in New Jersey and UFWA Local 262 in California. This plan is fully funded
and will incur no additional liability. None of the named executive officers
benefits under the plan.
 
   Nonqualified Employee Stock Ownership Plan. In 1989, we instituted a
nonqualified plan to provide benefits to eligible employees similar to those
benefits provided under the Simmons ESOP, described above. This plan covers
certain employees who are not eligible to participate in the Simmons ESOP
because of restrictions imposed by the Simmons ESOP on employees who elected
favorable income tax treatment under Code Section 1042 with respect to the sale
of employer securities to the Simmons ESOP. Benefits are to be paid in cash and
are computed based on the value of shares the participants would have received
had they participated in the Simmons ESOP. Participants are entitled to receive
accrued benefits upon termination of employment with us, retirement, death or
permanent disability. The nonqualified plan provides for bookkeeping entries to
be provided on account of each designated employee, to be credited with the
shares of stock which would have been allocated to the designated employee's
accounts under the Simmons ESOP but for the fact that the Simmons ESOP terms
restricted such an allocation. The same vesting schedule and distribution
 
                                       56
<PAGE>
 
provisions apply as are described in the Simmons ESOP. We charged
approximately $184,000 and $64,000 to expense for 1998 and 1997, respectively.
The accrued benefits under the nonqualified plan were $373,000 and $189,000 at
December 26, 1998 and December 27, 1997, respectively, and are included in
other long term liabilities in the accompanying balance sheets. We have
continued the nonqualified plan after the consummation of the Transactions.
 
   Retiree Health Coverage. We provide health care and life insurance benefits
to eligible retired employees. Eligibility is defined as retirement from
active employment, having reached age 55 with 15 years of service, and
previous coverage as a salaried or non-union employee. Additionally,
dependents are eligible to receive benefits, provided the dependent was
covered prior to retirement. The medical plan pays a stated percentage of most
medical expenses reduced for any deductible and payments made by government
programs and other group coverage. Additionally, there is a $20,000 lifetime
maximum benefit for participants age 65 and over. We also provide life
insurance to all retirees who retired before 1979. These plans are unfunded.
 
Employment Arrangements
 
   Zenon Nie, Chairman of the Board of Directors and Chief Executive Officer,
has entered into a three-year employment agreement with us that renews
automatically on a daily basis (subject to termination upon three years'
notice). Pursuant to his employment agreement, Mr. Nie is entitled to receive:
 
     (1) a base salary, currently $600,000 per year, subject to further
  increases approved by our Board of Directors;
 
     (2) an annual cash bonus based upon our achievement of our annual
  financial plan approved by the Board of Directors and to participate in all
  of our other compensation and employee benefit programs; and
 
     (3) specified fringe benefits, including reimbursement of country club
  dues and provision of an automobile.
 
   If we terminate Mr. Nie's employment other than for death, disability or
cause, Mr. Nie will be entitled to:
 
     (1) payment of his base salary then in effect for three years following
  the date of termination;
 
     (2) payment of an annualized bonus equal to a percentage of his base
  salary then in effect based upon our performance for a period of one year
  following the date of termination; and
 
     (3) participate in health and welfare benefit programs for three years
  following the date of termination.
 
   Mr. Nie is entitled to receive an additional bonus from us based upon our
future performance. If any payments by us to Mr. Nie constitute "excess
parachute payments" within the meaning of Section 280G of the Code, we must
reimburse Mr. Nie for any resulting excise tax liability plus any income tax
liability related to such reimbursement.
 
   The named executive officers Jonathan Daiker, Executive Vice President--
Finance and Administration and Chief Financial Officer, Martin Passaglia,
Senior Executive Vice President, Joseph Ulicny, Executive Vice President--
Market Development and Robert Barton, Senior Vice President--Human Resources
have also entered into employment agreements with us, which commenced on June
29, 1998. The employment agreements for Messrs. Daiker, Passaglia and Barton
initially run for two years and automatically extend one year on a daily basis
beginning on the first anniversary of the commencement of the employment term,
subject to termination upon one year's notice. Mr. Ulicny's agreement
initially runs for one year, automatically extending for one year on a daily
basis (subject to termination upon one year's notice). Pursuant to these
agreements, Messrs. Daiker, Passaglia, Ulicny and Barton are entitled to
receive a base annual salary, currently $236,000, $267,500, $197,000 and
$209,000, respectively, subject to further increases approved by our Board of
Directors. Each of these executives is eligible to receive an annual cash
bonus based upon achievement of our annual financial plan approved by the
Board of Directors and to participate in all of our other compensation
 
                                      57
<PAGE>
 
and fringe benefit programs. If we terminate any of these executives without
cause, such executive shall be entitled to payment of his base salary, an
annualized bonus equal to 42.5% of his base salary then in effect and
participation in health and welfare benefit programs for (1) in the case of
Messrs. Daiker, Passaglia and Barton, the longer of (a) the remainder of the
initial two year employment term or (b) one year, and (2) in the case of Mr.
Ulicny, one year.
 
   Portions of bonuses paid in connection with the Transactions are subject to
repayment if the executive officer terminates his employment in the two year
period ending October 28, 2000.
 
Management Stock Incentive Plan
 
   Simmons Holdings has also adopted a Management Stock Incentive Plan (the
"Incentive Plan") to provide incentives to our employees and directors and to
the employees and directors of Simmons Holdings by granting them awards tied to
the common stock of Simmons Holdings. The Incentive Plan is administered by a
committee of the Board of Directors of Simmons Holdings (the "Compensation
Committee"), which has broad authority in administering and interpreting the
Incentive Plan. Awards to employees are not restricted to any specified form or
structure and may include, without limitation, restricted stock, stock options,
deferred stock or stock appreciation rights (collectively, "Awards"). Options
granted under the Incentive Plan may be options intended to qualify as
incentive stock options under Section 422 of the Code or options not intended
to so qualify. An Award granted under the Incentive Plan to an employee may
include a provision terminating the Award upon termination of employment under
certain circumstances or accelerating the receipt of benefits upon the
occurrence of specified events, including, at the discretion of the
Compensation Committee, any change of control of Simmons.
 
   Upon the closing of the Transactions, there were outstanding under the
Incentive Plan options to purchase an aggregate of 1,639,077 shares of Simmons
Holdings common stock issued to 47 individuals with a weighted average exercise
price of $2.825 per share. All such options are exercisable in full
immediately.
 
   In connection with the Transactions, management received cash for certain
shares of stock owned by them and also received with respect to certain
outstanding options, an amount equal to the difference between the per share
merger consideration and the exercise price per share. See "Certain
Relationships and Related Transactions".
 
                                       58
<PAGE>
 
                             PRINCIPAL STOCKHOLDERS
 
   After the consummation of the Transactions on October 29, 1998, we had one
class of issued and outstanding common stock and Simmons Holdings owned all of
it.
 
   After the consummation of the Transactions, Simmons Holdings had
25,343,075.80 shares of issued and outstanding common stock. The following
table describes the beneficial ownership of each class of issued and
outstanding equity securities of Simmons Holdings by each of our directors and
executive officers, our directors and executive officers as a group and each
person who beneficially owns more than 5% of the outstanding shares of any
class of equity securities of Simmons Holdings as of March 27, 1999.
 
<TABLE>
<CAPTION>
                                                         Number of   Percent of
                          Name                           Shares(a)    Class(a)
                          ----                         ------------- ----------
   <S>                                                 <C>           <C>
   Fenway Investment LLC(b)..........................  19,631,477.81   75.67%
    c/o Fenway Partners, Inc.
    152 West 57th Street
    New York, NY 10019
   Simmons ESOP(c)...................................   3,482,036.00   13.74%
    c/o State Street Bank & Trust Company
    225 Franklin Street
    Boston, MA 02110
   SH Investment Limited, a Cayman Islands
    corporation(d)...................................   1,336,997.62    5.28%
    West Wind Building
    P.O. Box 1111
    Harbour Drive
    Grand Cayman, Cayman Islands BWI
   Zenon S. Nie(e)...................................   1,032,608.00    3.96%
   Martin R. Passaglia(f)............................     223,100.00      *
   Jonathan C. Daiker(g).............................     162,061.00      *
   Robert K. Barton(h)...............................     194,198.00      *
   Joseph Ulicny(i)..................................     102,161.00      *
   Peter Lamm(j).....................................  19,631,477.81   75.67%
   Richard C. Dresdale(j)............................  19,631,477.81   75.67%
   Andrea Geisser(j).................................  19,631,477.81   75.67%
   Gregory P. Meredith(j)............................  19,631,477.81   75.67%
   All Directors and executive officers as a group (9
    persons)(k)......................................  21,345,605.81   79.20%
</TABLE>
--------
 * Less than 1%.
 
(a) As used in this table, beneficial ownership has the meaning set forth in
    Rule 13d-3(d)(1) of the Exchange Act.
 
(b) Includes 601,346.63 shares of common stock that may be acquired upon
    exercise of an outstanding warrant dated October 29, 1998 held by Fenway
    Investment LLC. Fenway Partners Capital Fund, L.P. ("FPCF") and Fenway
    Partners Capital Fund II, L.P. ("FPCFII") together hold a majority of the
    voting interests of Fenway Investment LLC, and may therefore be deemed to
    have the power to vote or dispose of the shares of common stock held
    directly by Fenway Investment LLC. The FPCF and FPCFII disclaim beneficial
    ownership of any such shares in which they do not have pecuniary interests.
    Does not include 2,104,713.22 shares of common stock that may be acquired
    upon the exercise of the Escrow Warrants.
 
(c) Represents shares not allocated to any participant account.
 
(d) The entity that holds the Investcorp Equity Rollover.
 
(e) Includes 752,608.00 shares of common stock that may be acquired upon
    exercise of outstanding options that are currently fully vested and
    exercisable and were retained as a portion of the Management Equity
    Rollover. See "Management--Management Stock Incentive Plan".
 
                                       59
<PAGE>
 
(f) Includes 51,642.00 shares of common stock that may be acquired upon
    exercise of outstanding options that are currently fully vested and
    exercisable and were retained as a portion of the Management Equity
    Rollover. See "Management--Management Stock Incentive Plan".
 
(g) Includes 121,439.00 shares of common stock that may be acquired upon
    exercise of outstanding options that are currently fully vested and
    exercisable and were retained as a portion of the Management Equity
    Rollover. See "Management--Management Stock Incentive Plan".
 
(h) Includes 54,017.00 shares of common stock that may be acquired upon
    exercise of outstanding options that are currently fully vested and
    exercisable and were retained as a portion of the Management Equity
    Rollover. See "Management--Management Stock Incentive Plan".
 
(i) Includes 26,473.00 shares of common stock that may be acquired upon
    exercise of outstanding options that are currently fully vested and
    exercisable and were retained as a portion of the Management Equity
    Rollover. See "Management--Management Stock Incentive Plan".
 
(j) Includes the 19,030,131.18 shares of common stock and warrant to acquire
    601,346.63 shares of common stock (see note (b) above) held by Fenway
    Investment LLC. FPCF and FPCFII together hold a majority of the voting
    interests of Fenway Investment LLC, and may therefore be deemed to have the
    power to vote or dispose of the shares of common stock held directly by
    Fenway Investment LLC. Messrs. Lamm, Dresdale, Geisser and Meredith are
    managing directors of Fenway Partners, Inc., limited partners and members
    of the general partners of FPCF and FPCFII, Fenway Partners, L.P. and
    Fenway Partners II, LLC, respectively, and accordingly may be deemed to
    beneficially own shares of common stock held by Fenway Investments LLC.
    Does not include 379,119.07 shares of Class B common stock, representing
    all of the issued and outstanding shares of Class B common stock, held by
    Fenway Partners, Inc., of which Messrs. Lamm, Dresdale, Geisser and
    Meredith may be deemed to have beneficial ownership. Messrs. Lamm,
    Dresdale, Geisser and Meredith disclaim beneficial ownership of any such
    shares of common stock or Class B common stock in which they do not have
    pecuniary interests. Does not include 2,104,713.22 shares of common stock
    that may be acquired upon the exercise of the Escrow Warrants.
 
(k) Includes a total of 1,006,179.00 shares of common stock that may be
    acquired upon exercise of outstanding options that are currently fully
    vested and exercisable and were retained as a portion of the Management
    Equity Rollover. Also includes 19,631,477.81 shares of common stock
    attributed to Messrs. Lamm, Dresdale, Geisser and Meredith (see note (j)
    above).
 
Stockholders Agreements
 
   In connection with the Transactions, we entered into an agreement with
Simmons Holdings, Fenway Investment LLC, the Simmons ESOP, and the Investcorp
Group (the "Stockholders Agreement"). In addition, we entered into an agreement
with Fenway Investment LLC, Simmons Holdings and certain members of management
(the "Management Stockholders Agreement" and, collectively with the
Stockholders Agreement, the "Stockholders Agreements"). The Stockholders
Agreements provide, among other things, for tag-along rights, drag-along
rights, registration rights, certain put rights in favor of management and
restrictions on the transfer of shares held by parties to the Stockholders
Agreements.
 
                                       60
<PAGE>
 
                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Merger and Related Agreements
 
   Pursuant to the Merger Agreement, an aggregate consideration of
approximately $222.9 million in cash was paid to certain stockholders and
option holders of Simmons Holdings. Certain members of management retained the
Management Equity Rollover and the Investcorp Group retained the Investcorp
Equity Rollover. In connection with the Merger, and pursuant to the
subscription agreements entered into in connection therewith, Fenway Investment
LLC purchased 19,030,131.18 shares of common stock of Simmons Holdings for
$128.1 million. Management received aggregate consideration of approximately
$14.0 million in cash in the Merger, including approximately $7.8 million in
respect of an aggregate of 1,151,508 shares of stock of Simmons Holdings owned
by management and approximately $6.2 million in respect of the cancellation of
an aggregate of 1,571,463 options to purchase stock of Simmons Holdings. Under
the subscription agreement with Fenway Investment LLC, Holdings agreed to
indemnify and pay certain expenses of the Fenway Funds and its affiliates and
their advisors and consultants under certain circumstances. Pursuant to the
ESOP Agreement, immediately prior to the Merger, REM purchased the Allocated
Shares from the Simmons ESOP for the aggregate purchase price of $15.4 million.
In addition, in connection with the Merger, and subject to certain conditions,
the Simmons ESOP retained the ESOP Rollover Equity. See "The Transactions and
the Original Offering".
 
   Certain members of senior management received $12,601,019 pursuant to the
Merger Agreement in exchange for the cancellation of certain options and the
exchange of shares of stock in connection with the Merger. Of this amount, Mr.
Nie received $7,379,946, Mr. Passaglia received $901,694, Mr. Daiker received
$254,717, Mr. Barton received $620,358 and Mr. Ulicny received $406,385.
 
   In connection with the Transactions, Fenway Investments LLC entered into the
Securities Purchase Agreement and purchased the Junior Simmons Notes and the
Junior Holdings PIK Notes. Under the Securities Purchase Agreement, we issued
the Warrants. See "Transactions" and "Other Indebtedness--Securities Purchase
Agreement". On March 16, 1999, with proceeds from the original offering, we
repaid the $30.0 million of indebtedness under the Junior Simmons Notes as well
as approximately $1.1 million of accrued interest.
 
Fenway Advisory Agreement
 
   We, Simmons Holdings and Fenway entered into a management agreement (the
"Fenway Advisory Agreement") effective upon consummation of the Transactions
pursuant to which Fenway agreed to provide strategic advisory services to
Simmons Holdings and us. In exchange for such services, Simmons Holdings and we
agreed to pay Fenway (i) annual management fees of 0.25% of net sales for the
prior fiscal year (estimated to be $1.5 million), (ii) fees in connection with
the consummation of any acquisition transactions for Fenway's assistance in
negotiating such transactions and (iii) certain fees and expenses, including
legal and accounting fees and any out-of-pocket expenses incurred by Fenway in
connection with providing services to Simmons Holdings and us. The annual
management fees are subject to increase in the event of certain acquisitions.
Simmons Holdings and we also agreed to indemnify Fenway under certain
circumstances. In addition, pursuant to the Fenway Advisory Agreement, upon the
consummation of the Merger, Fenway received $5.1 million and approximately
379,000 shares of Simmons Holdings' Class B common stock in connection with the
Transactions.
 
                                       61
<PAGE>
 
                               OTHER INDEBTEDNESS
 
New Senior Credit Agreement
 
   On October 29, 1998, in conjunction with the Transactions, we entered into
the New Senior Credit Agreement with institutional lenders and affiliates of
the initial purchasers of the notes, including Goldman Sachs Credit Partners
L.P., an affiliate of Goldman Sachs, as joint lead arranger, syndication agent
and lender, Warburg Dillon Read as joint lead arranger, UBS A.G., an affiliate
of Warburg Dillon Read, as administrative agent and lender, Fleet National
Bank, an affiliate of Fleet Securities, as co-agent and lender, and U.S. Bank
N.A., an affiliate of U.S. Bancorp Libra, as co-agent and lender. We
distributed a portion of the proceeds of the Term Loan Facility and our initial
borrowings under the Revolving Credit Facility to Simmons Holdings to provide a
portion of the funds necessary to consummate the Transactions.
 
   The New Senior Credit Agreement provides for loans of up to $270.0 million,
consisting of:
 
     (1) the Tranche A Term Loan of up to $70.0 million in term loans;
 
     (2) the Tranche B Term Loan of up to $70.0 million in term loans;
 
     (3) the Tranche C Term Loan of up to $50.0 million in term loans; and
 
     (4) the Revolving Loan of up to $80.0 million in revolving credit loans,
  letters of credit and swing line loans.
 
   The New Senior Credit Agreement is:
 
     (1) guaranteed by Simmons Holdings, one of our present domestic
  subsidiaries ("Subsidiary Guarantor"), subject to certain exceptions, all
  of our future material domestic subsidiaries and all of our future foreign
  subsidiaries, to the extent that no material adverse tax consequence would
  result therefrom; and
 
     (2) secured by substantially all of our assets as well as the assets of
  Simmons Holdings and Subsidiary Guarantor.
 
   The Tranche A Term Loan matures in quarterly installments from December 1999
until final payment in October 2004. The Tranche B Term Loan matures in
quarterly installments from December 1998 until final payment in October 2005.
The Tranche C Term Loan matures in quarterly installments from December 1998
until final payment in October 2006. The Revolving Loan is available until the
earliest to occur of:
 
     (1) October 29, 2004;
 
     (2) the date the commitments of the lenders under the New Senior Credit
  Agreement to provide Revolving Loans to us (the "Revolving Loan
  Commitments") are permanently reduced to zero under certain circumstances;
  and
 
     (3) the date the Revolving Loan Commitments are terminated due to an
  event of default under the New Senior Credit Agreement.
 
   Our borrowings under the New Senior Credit Agreement bear interest at a
floating rate and may be maintained as Base Rate Loans or as Eurodollar Rate
Loans, provided that Swing Line Loans under the Revolving Credit Facility are
required to be maintained as Base Rate Loans. Base Rate Loans will bear
interest at the Base Rate (defined as the higher of (x) the applicable prime
lending rate of UBS and (y) the Federal Reserve reported average overnight
Federal funds rate plus 0.5%) plus the Applicable Margin. Eurodollar Rate Loans
will bear interest at the Adjusted Eurodollar Rate plus the Applicable Margin.
 
   The Applicable Margin for Base Rate Loans and Eurodollar Rate Loans for the
Tranche A Loan and loans under the Revolving Credit Facility is initially 1.75%
and 2.75%, respectively, subject to reduction to 1.00%
 
                                       62
<PAGE>
 
and 2.00%, respectively, according to a pricing grid based upon the Leverage
Ratio maintained by us. The Applicable Margin for Base Rate Loans for the
Tranche B and Tranche C Loans is 2.25% and 2.50%, respectively. The Applicable
Margin for Eurodollar Rate Loans for the Tranche B and Tranche C Loans is 3.25%
and 3.50%, respectively.
 
   The New Senior Credit Agreement requires us to maintain financial ratios,
including fixed-charge coverage, cash interest coverage and leverage ratios.
The New Senior Credit Agreement also contains covenants which, among other
things, limit capital expenditures, the incurrence of additional indebtedness,
investments, dividends, transactions with affiliates, asset sales, mergers and
consolidations, acquisitions, prepayments of other indebtedness (including the
notes and the exchange notes), liens and encumbrances and other matters
customarily restricted in such agreements. The New Senior Credit Agreement
contains customary events of default, including payment defaults, breaches of
representations and warranties and covenants, default under other agreements
and indebtedness, ERISA matters, a change of control of Holdings and Holdings
ceasing to own 100% of our outstanding capital stock.
 
   The New Senior Credit Agreement requires that certain amounts must be used
to prepay, and/or to reduce commitments under, the New Senior Credit Agreement,
including:
 
     (1) subject to certain exceptions, 100% (or, subject to satisfying
  certain debt to equity ratios, 75%) of the net proceeds of any sale or
  issuance of equity;
 
     (2) 100% of the net proceeds from any incurrence of indebtedness after
  the closing of the Transactions by us or any of our subsidiaries, except
  for proceeds of up to $125.0 million from the original offering and subject
  to certain exceptions;
 
     (3) 100% of the net after tax proceeds of any sale or other disposition
  by us or any of our subsidiaries of any assets (including casualties or
  condemnations), except for the sale of inventory in the ordinary course of
  business and subject to certain other exceptions;
 
     (4) 75% (or, subject to satisfying certain debt to equity ratios, 50%)
  of Consolidated Excess Cash Flow (as defined in the New Senior Credit
  Agreement) for each year commencing with the year ending in December 1999;
  and
 
     (5) 100% of any surplus assets, net of certain transaction costs and
  taxes, returned to us or any of our subsidiaries from a pension plan of
  ours or any of our subsidiaries.
 
   In general, the mandatory prepayments described above will be applied first,
to prepay the Term Loan Facility, and then, to prepay and/or permanently reduce
commitments under the Revolving Credit Facility.
 
   We are required to pay to the lenders under the New Senior Credit Agreement
a commitment fee equal to 0.50% per annum, payable in arrears on a quarterly
basis and upon the maturity or termination of the Revolving Credit Facility,
times the daily average unused portion of the Revolving Credit Facility. We are
also required to pay to the lenders a quarterly letter of credit fee with
respect to each such letter of credit outstanding equal to the applicable
margin for Eurodollar Rate Loans under the Revolving Credit Facility times the
daily amount available for drawing on such letter of credit, as well as a
fronting fee payable to the issuing bank for its own account of the greater of
$500 and 0.25% of the average daily amount available to be drawn under all
letters of credit issued. See "The Transactions and the Original Offering--New
Senior Credit Agreement".
 
   In connection with the original offering, our New Senior Credit Agreement
was amended to:
 
     (1) allow for the issuance of the notes;
 
     (2) require prepayment of amounts outstanding under the New Senior
  Credit Agreement to the extent the net proceeds of the original offering
  exceeded $125.0 million; and
 
                                       63
<PAGE>
 
     (3) provide that voluntary and mandatory prepayments from the net
  proceeds of the original offering were applied in forward order of
  maturity.
 
   As of December 26, 1998, we had no amounts outstanding under the Revolving
Credit Facility. Immediately prior to the original offering, we had borrowings
outstanding under the Revolving Credit Facility and the Term Loan Facility of
approximately $15.0 million and $189.7 million, respectively. We used a portion
of the proceeds of the original offering to repay all amounts outstanding under
the Revolving Credit Facility and to prepay approximately $23.6 million of
principal amounts under the Term Loan Facility as well as approximately $0.1
million of accrued interest. We applied $21.4 million, $1.1 million and
$1.1 million of prepayments to the Tranche A, Tranche B and Tranche C Term
Loans, respectively, which resulted in a total outstanding amount under the
Term Loan Facility of approximately $166.1 million.
 
Securities Purchase Agreement
 
   In connection with the Transactions, we and Simmons Holdings entered into
the Securities Purchase Agreement with Fenway Investment LLC. Pursuant to the
Securities Purchase Agreement, we issued the Junior Simmons Notes in the
aggregate principal amount of $30.0 million and Simmons Holdings issued the
Junior Holdings PIK Notes in the aggregate principal amount of $10.0 million.
On March 16, 1999, with proceeds from the original offering, we repaid the
$30.0 million of indebtedness under the Junior Simmons Notes as well as
approximately $1.1 million of accrued interest.
 
   The maturity date of the Junior Holdings PIK Notes is October 29, 2011. The
Junior Holdings PIK Notes initially bore interest at 15.0% through December 30,
1998, which rate increases by 0.5% for every three-month period thereafter up
to a maximum rate of 17.5%. Interest on the Junior Holdings PIK Notes is
payable in kind by Simmons Holdings by capitalizing such interest through
September, 2010.
 
   Under the Securities Purchase Agreement, Simmons Holdings also issued:
 
     (1) the Fenway Warrant to Fenway Investment LLC, and
 
     (2) the Escrow Warrant which may be released to Fenway Investment LLC
  under certain circumstances.
 
Manufacturing Facility Loans
 
   We financed the construction costs of our Janesville, Wisconsin and Shawnee,
Kansas facilities with industrial revenue bonds issued by the cities of
Janesville, Wisconsin and Shawnee, Kansas. Each city loaned us the proceeds
from its respective bond issuance. In return, we agreed to pay to each city
amounts sufficient to pay debt service on the bonds. The Janesville bonds, with
a principal amount of $9.7 million, bear interest at a fixed rate of 7.0% and
mature in 2017. The Shawnee bonds, with a principal amount of $5.0 million,
bear interest at a variable rate and mature in 2016.
 
   In December 1997, Simmons Caribbean Bedding Inc., our wholly owned
subsidiary, entered into a loan facility in the amount of $3.2 million. As of
December 26, 1998, approximately $3.2 million was drawn against the loan
facility and is accruing interest at a fluctuating rate equal to 200 basis
points over the London Interbank Offered Rate (or LIBOR), adjusted every 90
days.
 
                                       64
<PAGE>
 
                         DESCRIPTION OF EXCHANGE NOTES
 
   You can find the definitions of certain terms used in this description under
the subheading "Certain Definitions". In this description, the word "Company"
refers only to Simmons Company and not to any of its Subsidiaries or Holdings.
 
   The Company will issue the exchange notes under the indenture between itself
and SunTrust Bank, Atlanta, as trustee. The terms of the Exchange Notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
 
   The form and terms of the exchange notes are identical in all material
respects to the form and terms of the notes except that:
 
     (1) the exchange notes will bear a Series B designation;
 
     (2) the exchange notes have been registered under the Securities Act
  and, therefore, will generally not bear legends restricting their transfer;
  and
 
     (3) the holders of the exchange notes will not be entitled to certain
  rights under the registration rights agreement dated as of March 16, 1999
  by and among, us, Goldman Sachs, Fleet Securities, U.S. Bancorp and Warburg
  Dillon Reed, including the provision providing for liquidated damages in
  certain circumstances relating to the timing of the exchange notes
 
   The exchange notes will evidence the same debt as the notes and will be
entitled to the benefits of the indenture. The exchange notes will be pari
passu with the Notes if all of such Notes are not exchanged pursuant to the
exchange offer.
 
   The following description is a summary of the material provisions of the
indenture, which is filed as an exhibit to the registration statement of which
this prospectus forms a part. It does not restate the agreement in its
entirety. We urge you to read the indenture because it, and not this
description, defines your rights as holders of the exchange notes. Copies of
the indenture are available as set forth below under the subheading "Additional
Information". Except as the context otherwise requires, references to the notes
shall include the exchange notes.
 
Brief Description of the Exchange Notes and the Guarantees
 
 The Exchange Notes
 
   The exchange notes:
 
   . are general unsecured obligations of the Company;
 
   . are subordinated in right of payment to all current and future Senior Debt
of the Company; and
 
   . are senior in right of payment to any future subordinated Indebtedness of
the Company.
 
 The Guarantees
 
   The exchange notes initially will not be guaranteed by any of our
subsidiaries.
 
   As a result, the exchange notes will be effectively subordinated to all
indebtedness and other liabilities (including trade payables) of our
subsidiaries. As of the date of the indenture, we will have a single operating
subsidiary, located in Puerto Rico. This subsidiary accounted for less than
1.4% of our consolidated net sales for the year ended December 26, 1998 and
approximately 2.0% of our consolidated assets as of December 26, 1998. In the
event of a bankruptcy, liquidation or reorganization of any non-guarantor
subsidiary, the non-guarantor subsidiaries will pay the holders of their debt
and their trade creditors before they will be able to distribute any of their
assets to us.
 
   Upon completion of the original offering and application of the proceeds as
intended, we had indebtedness senior to the notes aggregating $184.5 million
comprised of total Senior Debt of approximately
 
                                       65
<PAGE>
 
$181.3 million (excluding unused commitments under the New Senior Credit
Agreement of $76.5 million) and $3.2 million of indebtedness of our sole
operating Subsidiary. As indicated above and as discussed in detail below under
the subheading "Subordination", payments on the Exchange Notes will be
subordinated to the payment of Senior Debt. The indenture will permit us to
incur additional Senior Debt in the future. Although the indenture contains
restrictions on the amount of additional Senior Debt that we may incur, under
certain circumstances, the amount of Senior Debt could be substantial.
 
   As of the date of the indenture, all of our subsidiaries will be Restricted
Subsidiaries. However, under the circumstances described below under the
subheading "Certain Covenants--Designation of Restricted and Unrestricted
Subsidiaries", we will be permitted to designate certain of our subsidiaries as
"Unrestricted Subsidiaries". Unrestricted Subsidiaries will not be subject to
many of the restrictive covenants in the indenture.
 
Principal, Maturity and Interest
 
   The Company will issue exchange notes with a maximum aggregate principal of
$150.0 million in the exchange offer. The Company may issue up to $50.0 million
of additional notes (the "Additional Notes") from time to time after the
exchange offer. Any offering of Additional Notes is subject to the covenant
described below under the caption "Certain Covenants--Incurrence of
Indebtedness and Issuance of Preferred Stock". The exchange notes and any
Additional Notes subsequently issued under the indenture would be treated as a
single class for all purposes under the indenture, including, without
limitation, waivers, amendments, redemptions and offers to purchase. The
Company will issue exchange notes in denominations of $1,000 and integral
multiples of $1,000. The exchange notes will mature on March 15, 2009.
 
   Interest on the exchange notes will accrue at the rate of 10 1/4% per annum
and will be payable semi-annually in cash in arrears on March 15 and September
15, commencing on September 15, 1999. The Company will make each interest
payment to the holders of record of the exchange notes on the immediately
preceding March 1 and September 1.
 
   Additional Notes may be issued from time to time after the date of the
exchange offer, subject to the provisions of the indenture, including those
described under the subheading "Certain Covenants--Incurrence of Indebtedness
and Issuance of Preferred Stock". The exchange notes and any Additional Notes
subsequently issued under the indenture would be treated as a single class for
all purposes under the indenture, including, without limitation, waivers,
amendments, redemptions and offers to purchase.
 
   Interest on the exchange notes will accrue from the date of original
issuance or, if interest has already been paid, from the date it was most
recently paid. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months.
 
Methods of Receiving Payment on the Exchange Notes
 
   If a holder has given wire transfer instructions to the Company, the Company
will make all principal, premium and interest payments on those exchange notes
in accordance with those instructions. All other payments on the exchange notes
will be made at the office or agency of the Paying Agent and Registrar within
the City and State of New York unless the Company elects to make interest
payments by check mailed to the holders at their addresses set forth in the
register of holders.
 
Paying Agent and Registrar for the Exchange Notes
 
   The Trustee will initially act as Paying Agent and Registrar. The Company
may change the Paying Agent or Registrar without prior notice to the holders of
the exchange notes, and the Company or any of its Subsidiaries may act as
Paying Agent or Registrar.
 
Transfer and Exchange
 
   A holder may transfer or exchange exchange notes in accordance with the
indenture. The Registrar and the Trustee may require a holder, among other
things, to furnish appropriate endorsements and transfer
 
                                       66
<PAGE>
 
documents and the Company may require a holder to pay any taxes and fees
required by law or permitted by the indenture. The Company is not required to
transfer or exchange any exchange note selected for redemption. Also, the
Company is not required to transfer or exchange any exchange note for a period
of 15 days before a selection of exchange notes to be redeemed.
 
   The registered holder of an exchange note will be treated as the owner of
it for all purposes.
 
Subordination
 
   The payment of principal, premium, if any, and interest on the exchange
notes will be subordinated to the prior payment in full in cash of all Senior
Debt of the Company.
 
   The holders of Senior Debt will be entitled to receive payment in full of
all Obligations due in respect of such Senior Debt (including interest after
the commencement of the proceedings described below at the rate specified in
the applicable Senior Debt) before the holders of exchange notes will be
entitled to receive any payment with respect to the exchange notes (except
that holders of exchange notes may receive and retain Permitted Junior
Securities and payments made from the trust described under the subheading "--
Legal Defeasance and Covenant Defeasance"), in the event of any distribution
to creditors of the Company:
 
     (1) in a liquidation or dissolution of the Company;
 
     (2) in a bankruptcy, reorganization, insolvency, receivership or similar
  proceeding relating to the Company or its property;
 
     (3) in an assignment for the benefit of creditors; or
 
     (4) in any marshaling of the Company's assets and liabilities.
 
   The Company also may not make any payment in respect of the exchange notes
(except in Permitted Junior Securities or from the trust described under the
subheading "--Legal Defeasance and Covenant Defeasance") if:
 
     (1) a payment default on Designated Senior Debt occurs and is continuing
  beyond any applicable grace period; or
 
     (2) any other default occurs and is continuing on Designated Senior Debt
  that permits holders of the Designated Senior Debt to accelerate its
  maturity and the Trustee receives a notice of such default (a "Payment
  Blockage Notice") from the Company or the holders of any Designated Senior
  Debt.
 
   Payments on the exchange notes may and shall be resumed:
 
     (1) in the case of a payment default, upon the date on which such
  default is cured or waived; and
 
     (2) in case of a nonpayment default, the earlier of the date on which
  such nonpayment default is cured or waived or 179 days after the date on
  which the applicable Payment Blockage Notice is received, unless the
  maturity of any Designated Senior Debt has been accelerated.
 
   No new Payment Blockage Notice may be delivered unless and until:
 
     (1) 360 days have elapsed since the effectiveness of the immediately
  prior Payment Blockage Notice; and
 
     (2) all scheduled payments of principal, premium and interest, if any,
  on the exchange notes that have come due have been paid in full in cash.
 
   No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made,
the basis for a subsequent Payment Blockage Notice unless such default shall
have been cured or waived for a period of not less than 180 days.
 
   The Company must promptly notify holders of Senior Debt if payment of the
exchange notes is accelerated because of an Event of Default.
 
                                      67
<PAGE>
 
   As a result of the subordination provisions described above, in the event of
a bankruptcy, liquidation or insolvency of the Company, holders of the exchange
notes may recover less ratably than creditors of the Company who are holders of
Senior Debt. See "Risk Factors--Subordination".
 
Optional Redemption
 
   At any time prior to March 15, 2002, the Company may on any one or more
occasions redeem up to 35% of the aggregate principal amount of the exchange
notes ever issued under the indenture at a redemption price of 110.25% of the
principal amount thereof, plus accrued and unpaid interest thereon, if any, to
the redemption date, with the net cash proceeds of any Public Equity Offering;
provided that
 
     (1) at least 65% of the exchange notes ever issued remain outstanding
  immediately after the occurrence of such redemption (excluding any exchange
  notes held by the Company and its Subsidiaries); and
 
     (2) the notice of redemption with respect to such redemption shall be
  mailed at least 30 days but not more than 60 days after the date of the
  closing of any such Public Equity Offering.
 
   Except pursuant to the preceding paragraph, the exchange notes will not be
redeemable at the Company's option prior to March 15, 2004.
 
   After March 15, 2004, the Company may redeem all or a part of the exchange
notes upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount) set forth below plus
accrued and unpaid interest thereon, if any, to the applicable redemption date,
if redeemed during the twelve-month period beginning on March 15 of the years
indicated below:
 
<TABLE>
<CAPTION>
                                                                 Percentage of
                                 Year                           Principal Amount
                                 ----                           ----------------
       <S>                                                      <C>
       2004....................................................     105.125%
       2005....................................................     103.417%
       2006....................................................     101.708%
       2007 and thereafter.....................................     100.000%
</TABLE>
 
Mandatory Redemption
 
   The Company is not required to make mandatory redemption or sinking fund
payments with respect to the exchange notes.
 
Repurchase at the Option of Holders
 
 Change of Control
 
   If a Change of Control occurs, each holder of exchange notes will have the
right to require the Company to repurchase all or any part (equal to $1,000 or
an integral multiple thereof) of that holder's exchange notes pursuant to the
Change of Control Offer described below. In the Change of Control Offer, the
Company will offer a Change of Control Payment in cash equal to 101% of the
aggregate principal amount of exchange notes repurchased plus accrued and
unpaid interest thereon, if any, to the date of purchase. Within ten days
following any Change of Control, the Company will mail a notice to each holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase exchange notes on the Change of Control
Payment Date specified in such notice, pursuant to the procedures required by
the indenture and described in such notice. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the exchange notes as a result
of a Change of Control.
 
   On the Change of Control Payment Date, the Company will, to the extent
lawful:
 
     (1) accept for payment all exchange notes or portions thereof properly
  tendered pursuant to the Change of Control Offer;
 
                                       68
<PAGE>
 
     (2) deposit with the Paying Agent an amount equal to the Change of
  Control Payment in respect of all exchange notes or portions thereof so
  tendered; and
 
     (3) deliver or cause to be delivered to the Trustee the exchange notes
  so accepted together with an Officers' Certificate stating the aggregate
  principal amount of exchange notes or portions thereof being purchased by
  the Company.
 
   The Paying Agent will promptly mail to each holder of exchange notes so
tendered the Change of Control Payment for such exchange notes, and the Trustee
will promptly authenticate and mail (or cause to be transferred by book entry)
to each holder a new exchange note equal in principal amount to any unpurchased
portion of the exchange notes surrendered, if any; provided that each such new
exchange note will be in a principal amount of $1,000 or an integral multiple
thereof.
 
   Prior to complying with the provisions of this "Change of Control" covenant,
but in any event within 90 days following a Change of Control, the Company will
either repay all outstanding Senior Debt or obtain the requisite consents, if
any, under all agreements governing outstanding Senior Debt to permit the
repurchase of exchange notes required by this covenant. The Company will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
 
   The provisions described above that require the Company to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether or not any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the exchange notes to require
that the Company repurchase or redeem the exchange notes in the event of a
takeover, recapitalization or similar transaction.
 
   The Company's outstanding Senior Debt currently prohibits the Company from
purchasing any exchange notes, and also provides that certain change of control
events with respect to the Company would constitute a default under the
agreements governing the Senior Debt. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event a Change of Control
occurs at a time when the Company is prohibited from purchasing exchange notes,
the Company could seek the consent of its senior lenders to the purchase of
exchange notes or could attempt to refinance the borrowings that contain such
prohibition. If the Company does not obtain such a consent or repay such
borrowings, the Company will remain prohibited from purchasing exchange notes.
In such case, the Company's failure to purchase tendered exchange notes would
constitute an Event of Default under the indenture which would, in turn,
constitute a default under such Senior Debt. In such circumstances, the
subordination provisions in the indenture would likely restrict payments to the
holders of exchange notes.
 
   The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by the
Company and purchases all exchange notes validly tendered and not withdrawn
under such Change of Control Offer.
 
   The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a limited body of case law interpreting the phrase "substantially
all", there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of exchange notes to require the
Company to repurchase such exchange notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another Person or group may be
uncertain.
 
 Asset Sales
 
   The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless:
 
     (1) the Company (or the Restricted Subsidiary, as the case may be)
  receives consideration at the time of such Asset Sale at least equal to the
  fair market value of the assets or Equity Interests issued or sold or
  otherwise disposed of; and
 
                                       69
<PAGE>
 
     (2) such fair market value is determined by the Company's Board of
  Directors and evidenced by a resolution of the Board of Directors set forth
  in an Officers' Certificate delivered to the Trustee; and
 
     (3) at least 75% of the consideration therefor received by the Company
  or such Restricted Subsidiary is in the form of cash or Cash Equivalents.
  For purposes of this provision, each of the following shall be deemed to be
  cash or Cash Equivalents:
 
       (a) any liabilities (as shown on the Company's or such Restricted
    Subsidiary's most recent balance sheet), of the Company or any
    Restricted Subsidiary (other than contingent liabilities and
    liabilities that are by their terms subordinated to the exchange notes
    or any guarantee thereof) that are assumed by the transferee of any
    such assets pursuant to a customary novation agreement that releases
    the Company or such Restricted Subsidiary from further liability; and
 
       (b) any securities, notes or other obligations received by the
    Company or any such Restricted Subsidiary from such transferee that are
    contemporaneously (subject to ordinary settlement periods) converted by
    the Company or such Restricted Subsidiary into cash or Cash Equivalents
    (to the extent of the cash or Cash Equivalents received).
 
   Within 365 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option:
 
     (1) to repay Senior Debt and effect a corresponding reduction if such
  Senior Debt is a revolving credit borrowing;
 
     (2) to acquire all or more than half of the assets of another Permitted
  Business;
 
     (3) to acquire Capital Stock of a Permitted Business; provided that
  after any such acquisition of Capital Stock such Permitted Business is or
  becomes a Restricted Subsidiary;
 
     (4) to make a capital expenditure; or
 
     (5) to acquire other long-term assets that are used or useful in a
  Permitted Business (such long-term assets being referred to herein as
  "Additional Assets").
 
   Pending the final application of any such Net Proceeds, the Company or such
Restricted Subsidiary may temporarily reduce revolving credit borrowings or
otherwise invest such Net Proceeds in any manner that is not prohibited by the
indenture.
 
   Any Net Proceeds from Asset Sales that are not applied or invested as
provided in the preceding paragraph will constitute "Excess Proceeds". When the
aggregate amount of Excess Proceeds exceeds $10.0 million, the Company will
make an offer to all holders of exchange notes and all holders of other
Indebtedness that is pari passu with the exchange notes containing provisions
similar to those set forth in the indenture with respect to offers to purchase
or redeem with the proceeds of sales of assets (an "Asset Sale Offer") to
purchase the maximum principal amount of exchange notes and such other pari
passu Indebtedness that may be purchased out of the Excess Proceeds. The offer
price in any Asset Sale Offer will be equal to 100% of the principal amount
thereof plus accrued and unpaid interest thereon, if any, to the date of
purchase, and will be payable in cash. If any Excess Proceeds remain after
consummation of an Asset Sale Offer, the Company may use such Excess Proceeds
for any purpose not otherwise prohibited by the indenture. If the aggregate
principal amount of exchange notes and such other pari passu Indebtedness
tendered into such Asset Sale Offer exceeds the amount of Excess Proceeds, the
Trustee shall select the exchange notes and such other pari passu Indebtedness
to be purchased on a pro rata basis. Upon completion of each Asset Sale Offer,
the amount of Excess Proceeds shall be reset at zero.
 
   Notwithstanding the three immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent:
 
     (1) at least 75% of the consideration for such Asset Sale constitutes
  Additional Assets, cash and/or Cash Equivalents; and
 
     (2) such Asset Sale is for fair market value, as determined in good
  faith by the Company's Board of Directors; and
 
                                       70
<PAGE>
 
     (3) any consideration not constituting Additional Assets received by the
  Company or any of its Restricted Subsidiaries in connection with any Asset
  Sale permitted to be consummated under this paragraph are treated as Net
  Proceeds from an Asset Sale and applied in accordance with the provisions
  of the immediately preceding paragraph.
 
Selection and Notice
 
   If less than all of the exchange notes are to be redeemed at any time, the
Trustee will select exchange notes for redemption as follows:
 
     (1) if the exchange notes are listed, in compliance with the
  requirements of the principal national securities exchange on which the
  exchange notes are listed; or
 
     (2) if the exchange notes are not so listed, on a pro rata basis, by lot
  or by such method as the Trustee shall deem fair and appropriate.
 
   No exchange notes of $1,000 in principal amount or less shall be redeemed in
part. Notices of redemption shall be mailed by first class mail at least 30 but
not more than 60 days before the redemption date to each holder of exchange
notes to be redeemed at its registered address. Notices of redemption may not
be conditional.
 
   If any exchange note is to be redeemed in part only, the notice of
redemption that relates to that exchange note shall state the portion of the
principal amount thereof to be redeemed. A new exchange note in principal
amount equal to the unredeemed portion of the original exchange note will be
issued in the name of the holder thereof upon cancellation of the original
exchange note. Exchange notes called for redemption become due on the date
fixed for redemption. On and after the redemption date, interest ceases to
accrue on exchange notes or portions of them called for redemption.
 
Certain Covenants
 
 Restricted Payments
 
   The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly:
 
     (1) declare or pay any dividend or make any other payment or
  distribution on account of the Company's or any of its Restricted
  Subsidiaries' Equity Interests (including, without limitation, any payment
  in connection with any merger or consolidation involving the Company or any
  of its Restricted Subsidiaries) or to the direct or indirect holders of the
  Company's or any of its Restricted Subsidiaries' Equity Interests in their
  capacity as such (other than dividends or distributions payable in Equity
  Interests (other than Disqualified Stock) of the Company or to the Company
  or a Restricted Subsidiary of the Company);
 
     (2) purchase, redeem or otherwise acquire or retire for value
  (including, without limitation, in connection with any merger or
  consolidation involving the Company) any Equity Interests of the Company or
  any direct or indirect parent of the Company;
 
     (3) make any payment on or with respect to, or purchase, redeem, defease
  or otherwise acquire or retire for value any Indebtedness that is
  subordinated to the exchange notes, except a payment of interest or
  principal at Stated Maturity; or
 
     (4) make any Restricted Investment (all such payments and other actions
  set forth in clauses (1) through (4) above being collectively referred to
  as "Restricted Payments"),
 
unless, at the time of and after giving effect to such Restricted Payment:
 
     (1) no Default or Event of Default shall have occurred and be continuing
  or would occur as a consequence thereof; and
 
     (2) the Company would, at the time of such Restricted Payment and after
  giving pro forma effect thereto as if such Restricted Payment had been made
  at the beginning of the applicable four-quarter
 
                                       71
<PAGE>
 
  period, have been permitted to incur at least $1.00 of additional
  Indebtedness pursuant to the Fixed Charge Coverage Ratio test set forth in
  the first paragraph of the covenant described below under the subheading
  "--Incurrence of Indebtedness and Issuance of Preferred Stock"; and
 
     (3) such Restricted Payment, together with the aggregate amount of all
  other Restricted Payments made by the Company and its Restricted
  Subsidiaries after the date of the indenture (excluding Restricted Payments
  permitted by clauses (2), (3), (4), (6), (7), (8), (9) and (10) of the next
  succeeding paragraph), is less than the sum, without duplication, of:
 
       (a) 50% of the Consolidated Net Income of the Company for the period
    (taken as one accounting period) from the beginning of the first fiscal
    quarter commencing after the date of the indenture to the end of the
    Company's most recently ended fiscal month for which internal financial
    statements are available at the time of such Restricted Payment (or, if
    such Consolidated Net Income for such period is a deficit, less 100% of
    such deficit), plus
 
       (b) 100% of the aggregate net cash proceeds received by the Company
    since the date of the indenture as a contribution to its common equity
    capital or from the issue or sale of Equity Interests of the Company
    (other than Disqualified Stock) or from the issue or sale of
    Disqualified Stock or debt securities of the Company that have been
    converted into or exchanged for such Equity Interests (other than
    Equity Interests (or Disqualified Stock or convertible debt securities)
    sold to a Subsidiary of the Company), plus
 
       (c) to the extent that any Restricted Investment that was made after
    the date of the indenture is sold for cash or otherwise liquidated or
    repaid for cash, 50% of the net cash proceeds to the Company and its
    Restricted Subsidiaries from the sale or liquidation of such Restricted
    Investment (less the cost of disposition, if any), plus
 
       (d) an amount equal to the fair market value of all Restricted
    Investments made since the date of the indenture in any Unrestricted
    Subsidiary that is thereafter redesignated as a Restricted Subsidiary,
    such amount not to exceed the amount of Restricted Investments
    previously made by the Company or any Restricted Subsidiary in such
    Unrestricted Subsidiary that were treated as Restricted Payments since
    the date of the indenture.
 
   So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
 
     (1) the payment of any dividend within 60 days after the date of
  declaration thereof, if at said date of declaration such payment would have
  complied with the provisions of the indenture;
 
     (2) the redemption, repurchase, retirement, defeasance or other
  acquisition of any subordinated Indebtedness or Equity Interests of the
  Company in exchange for, or out of the net cash proceeds to the Company
  from the substantially concurrent sale (other than to a Subsidiary of the
  Company) of, other Equity Interests of the Company (other than any
  Disqualified Stock) or a contribution to the common equity capital of the
  Company (other than from a Subsidiary of the Company); provided that the
  amount of any such net cash proceeds that are utilized for any such
  redemption, repurchase, retirement, defeasance or other acquisition shall
  be excluded from clause (3) (b) of the preceding paragraph;
 
     (3) the defeasance, redemption, repurchase or other acquisition of
  subordinated Indebtedness with the net cash proceeds from an incurrence of
  Permitted Refinancing Indebtedness;
 
     (4) the payments and applications of the proceeds to be received by the
  Company from the issuance of the Notes in connection with the original
  offering;
 
     (5) the payment of any dividend by a Restricted Subsidiary of the
  Company to the holders of its Equity Interests on a pro rata basis;
 
                                       72
<PAGE>
 
     (6) payments to Holdings for the purpose of permitting, and in an amount
  equal to the amount required to permit, Holdings to redeem or repurchase
  Holdings' common equity or options in respect thereof, in each case in
  connection with the repurchase provisions of employee stock option or stock
  purchase agreements, the Stockholders Agreements or other agreements
  relating to the compensation of management employees; provided that all
  such repurchases or redemptions pursuant to this clause (6) shall not
  exceed $2.5 million per annum plus the amount of any proceeds to the
  Company from:
 
       (a) sales of Capital Stock of Holdings to management employees
    subsequent to the date of the indenture to the extent contributed to
    the Company as common equity capital; provided that the amount of any
    such net cash proceeds that are utilized for any such redemption or
    repurchase shall be excluded from clause (3) (b) of the preceding
    paragraph; and
 
       (b) any "key-man" life insurance policies that are used to make any
    such redemptions or repurchases; provided, further, that the
    cancellation of Indebtedness owing to Holdings from members of
    management of the Company or any of its Restricted Subsidiaries in
    connection with a repurchase of Capital Stock of Holdings will not be
    deemed to constitute a Restricted Payment under the indenture;
 
  provided that any amounts that are not used for repurchases and redemptions
  in any year may be carried forward to subsequent years;
 
     (7) the making of distributions, loans or advances to Holdings in an
  amount not to exceed $850,000 per annum in order to permit Holdings to pay
  the ordinary operating expenses of Holdings (including without limitation,
  directors' fees, indemnification obligations, professional fees and
  expenses);
 
     (8) payments to Holdings in respect of:
 
       (a) federal income taxes for the tax periods for which a federal
    consolidated return is filed by Holdings for a consolidated group of
    which Holdings is the parent and the Company and its Subsidiaries are
    members, in an amount not to exceed the hypothetical federal income
    taxes that the Company would have paid if the Company and its
    Restricted Subsidiaries filed a separate consolidated return with the
    Company as the parent, taking into account carryovers and carrybacks of
    tax attributes (including net operating losses) that would have been
    allowed if such separate consolidated return had been filed; and
 
       (b) state income tax for the tax periods for which a state combined
    return is filed by Holdings for a combined group of which Holdings is
    the parent and the Company and its Subsidiaries are members, in an
    amount not to exceed the hypothetical state income taxes that the
    Company would have paid if the Company and its Restricted Subsidiaries
    had filed a separate combined return taking into account carryovers and
    carrybacks of tax attributes (including net operating losses) that
    would have been allowed if such separate combined return had been
    filed; provided, however, that in no event shall any such tax payment
    pursuant to this clause (7) exceed the amount of federal (or state, as
    the case may be) income tax that is, at the time the Company makes such
    tax payments, actually due and payable by Holdings to the relevant
    taxing authorities or to become due and payable within 30 days of such
    payment by the Company;
 
     (9) distributions to Holdings to fund the Transactions;
 
     (10) payments to Holdings to fund the payment of or payment by the
  Company of dividends, loans, distributions or annual contributions
  calculated in accordance with the requirements of Section 415 of the
  Internal Revenue Code to the Simmons ESOP in amounts equal to amounts
  expended by Holdings to repurchase shares of its Capital Stock from
  deceased or retired employees in accordance with the terms of the Simmons
  ESOP as in effect on the date of the indenture and from employees whose
  employment with Holdings or any of its Subsidiaries has terminated for any
  reason, in each case contemplated by this clause (10) only to the extent
  mandatorily required by the Simmons ESOP as in effect on the date of the
  indenture, the Internal Revenue Code or ERISA; and, provided, further, that
  in each such case Holdings or
 
                                       73
<PAGE>
 
  the Company has deferred making any cash payments in respect of such
  repurchase obligations to the maximum extent possible under the Simmons
  ESOP as in effect on the date of the indenture or as modified from time to
  time to comply with law;
 
     (11) repurchases of Capital Stock deemed to occur upon the exercise of
  stock options if such Capital Stock represents a portion of the exercise
  price thereof;
 
     (12) the payments pursuant to the Fenway Agreement as in effect on the
  date of the indenture; and
 
     (13) if the Company would be permitted to incur at least $1.00 of
  additional Indebtedness (other than Permitted Debt) in compliance with the
  covenant described below under the subheading "--Incurrence of Indebtedness
  and Issuance of Preferred Stock", other Restricted Payments in an aggregate
  amount not to exceed $5.0 million since the date of the indenture.
 
   The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued by the Company or such
Restricted Subsidiary, as the case may be, pursuant to the Restricted Payment.
 
 Incurrence of Indebtedness and Issuance of Preferred Stock
 
   The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur") any Indebtedness (including Acquired Debt) and that
the Company will not issue any Disqualified Stock and will not permit any of
its Restricted Subsidiaries to issue any shares of preferred stock; provided,
however, that the Company or any of its Restricted Subsidiaries may incur
Indebtedness (including Acquired Debt) or issue shares of Disqualified Stock
if the Fixed Charge Coverage Ratio for the Company's most recently ended four
full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is
incurred or such Disqualified Stock is issued would have been at least 2.0 to
1, determined on a pro forma basis (including a pro forma application of the
net proceeds therefrom), as if the additional Indebtedness had been incurred,
or the Disqualified Stock had been issued, as the case may be, at the
beginning of such four-quarter period.
 
   The provisions of the first paragraph of this covenant will not prohibit
the incurrence of any of the following items of Indebtedness (collectively,
"Permitted Debt"):
 
     (1) the Notes originally issued under the indenture, the Exchange Notes
  issued in exchange therefor and any Guarantees of any Notes or Exchange
  Notes;
 
     (2) Indebtedness of the Company (and Guarantees thereof by any of the
  Company's Restricted Subsidiaries) incurred pursuant to one or more Credit
  Facilities in an aggregate principal amount at any time outstanding (with
  letters of credit being deemed to have a principal amount equal to the
  maximum potential liability of the Company and its Subsidiaries thereunder)
  not to exceed $290.0 million less (a) the aggregate amount of Indebtedness
  of Securitization Entities at the time outstanding less (b) the amount of
  all optional or mandatory principal payments actually made by the Company
  or any of its Restricted Subsidiaries since the date of the indenture in
  respect of term loans under Credit Facilities (excluding any such payments
  to the extent refinanced at the time of payment under a Credit Facility)
  and (c) further reduced by any repayments since the date of the indenture
  of revolving credit borrowings under Credit Facilities that are accompanied
  by a corresponding commitment reduction thereunder;
 
     (3) other Indebtedness of the Company and its Subsidiaries outstanding
  on the date of the indenture for so long as such Indebtedness remains
  outstanding;
 
     (4) Interest Swap Obligations of the Company covering Indebtedness of
  the Company; provided that any Indebtedness to which any such Interest Swap
  Obligations correspond is otherwise permitted to be incurred under the
  indenture; and provided, further, that such Interest Swap Obligations are
  entered into, in the judgment of the Company, to protect the Company from
  fluctuation in interest rates on its outstanding Indebtedness;
 
                                      74
<PAGE>
 
     (5) Indebtedness of the Company under Currency Agreements;
 
     (6) the incurrence by the Company or any of its Restricted Subsidiaries
  of intercompany Indebtedness between or among the Company and any of its
  Restricted Subsidiaries; provided, however, that:
 
       (i) if the Company is the obligor on such Indebtedness, such
    Indebtedness is expressly subordinated to the prior payment in full in
    cash of all Obligations with respect to the notes and the exchange
    notes; and
 
       (ii)(a) any subsequent issuance or transfer of Equity Interests that
    results in any such Indebtedness being held by a Person other than the
    Company or a Restricted Subsidiary thereof and (b) any sale or other
    transfer of any such Indebtedness to a Person that is not either the
    Company or a Restricted Subsidiary of the Company shall be deemed, in
    each case, to constitute an incurrence of such Indebtedness by the
    Company or such Restricted Subsidiary, as the case may be, that was not
    permitted by this clause (6);
 
     (7) the guarantees by the Company or any of its Restricted Subsidiaries
  of each other's Indebtedness; provided that such Indebtedness is permitted
  to be incurred under the indenture;
 
     (8) Indebtedness (including Capitalized Lease Obligations) incurred by
  the Company or any of its Restricted Subsidiaries to finance the purchase,
  lease or improvement of property (real or personal) or equipment (whether
  through the direct purchase of assets or the Capital Stock of any Person
  owning such assets) in an aggregate principal amount not to exceed $15.0
  million at any one time outstanding (including any Permitted Refinancing
  Indebtedness with respect thereto) (which amount may, but need not, be
  incurred in whole or in part under the New Senior Credit Agreement);
 
     (9) Indebtedness incurred by the Company or any of its Restricted
  Subsidiaries constituting reimbursement obligations with respect to letters
  of credit issued in the ordinary course of business, including, without
  limitation, letters of credit in respect of workers' compensation claims or
  self-insurance, or other Indebtedness with respect to reimbursement type
  obligations regarding workers' compensation claims;
 
     (10) obligations in respect of performance and surety bonds and
  completion guarantees provided by the Company or any of its Restricted
  Subsidiaries in the ordinary course of business;
 
     (11) the incurrence by the Company or any of its Restricted Subsidiaries
  of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
  of which are used to refund, refinance or replace Indebtedness (other than
  intercompany Indebtedness) that was permitted by the indenture to be
  incurred under the first paragraph hereof or clauses (1), (3), (8), (14)
  and (15) of this paragraph or this clause (11) or the first paragraph of
  this covenant;
 
     (12) the incurrence by a Securitization Entity of Indebtedness in a
  Qualified Securitization Transaction that is Non-Recourse Debt with respect
  to the Company and its other Restricted Subsidiaries (except for Standard
  Securitization Undertakings);
 
     (13) the incurrence by the Company's Unrestricted Subsidiaries of Non-
  Recourse Debt, provided, however, that if any such Indebtedness ceases to
  be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
  deemed to constitute an incurrence of Indebtedness by a Restricted
  Subsidiary of the Company that was not permitted by this clause (13);
 
     (14) the incurrence of Indebtedness by foreign Restricted Subsidiaries
  of the Company in an aggregate principal amount not to exceed $20.0 million
  at any one time outstanding;
 
     (15) the incurrence of up to $25.0 million in aggregate principal amount
  of Indebtedness by the Company or a Restricted Subsidiary of the Company on
  or prior to September 30, 2000, the net proceeds of which are applied to a
  concurrent acquisition of a Permitted Business or that is incurred as a
  result of the assumption of Indebtedness of a Permitted Business at the
  time of the acquisition thereof, provided
 
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<PAGE>
 
  that in each case, the pro forma Fixed Charge Coverage Ratio of the Company
  for the most recently ended four full fiscal quarters for which internal
  financial statements are available immediately preceding the consummation
  of such acquisition is higher than the actual historical Fixed Charge
  Coverage Ratio of the Company for such four-quarter period; and
 
     (16) the incurrence by the Company or any of its Restricted Subsidiaries
  of additional Indebtedness in an aggregate principal amount (or accreted
  value, as applicable) at any time outstanding, including all Permitted
  Refinancing Indebtedness incurred to refund, refinance or replace any
  Indebtedness incurred pursuant to this clause (16), not to exceed $20.0
  million.
 
   For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant, in the event that an item of
Indebtedness meets the criteria of more than one of the categories of Permitted
Debt described in clauses (1) through (16) above, or is entitled to be incurred
pursuant to the first paragraph of this covenant, the Company shall, in its
sole discretion, classify such item of Indebtedness in any manner that complies
with this covenant.
 
   Accrual of interest costs or fees, accretion or amortization of original
issue discount costs or fees, the payment of interest on any Indebtedness in
the form of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the same
class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each such case, that the amount thereof is included in
Fixed Charges of the Company as accrued. Indebtedness under Credit Facilities
outstanding on the date on which the Exchange Notes are first issued and
authenticated under the indenture will be deemed to have been incurred on such
date in reliance on the exception provided by clause (2) of the definition of
Permitted Debt.
 
 No Senior Subordinated Debt
 
   The Company will not incur, create, issue, assume, Guarantee or otherwise
become liable for any Indebtedness that is subordinate or junior in right of
payment to any Senior Debt and senior in any respect in right of payment to the
exchange notes. No Guarantor will incur, create, issue, assume, guarantee or
otherwise become liable for any Indebtedness that is subordinate or junior in
right of payment to any Senior Debt of any Guarantor and senior in any respect
in right of payment to the Guarantees of the exchange notes.
 
 Liens
 
   The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create, incur, assume or suffer to exist any Lien
of any kind securing Indebtedness or trade payables on any asset now owned or
hereafter acquired, except Permitted Liens.
 
 Dividend and Other Payment Restrictions Affecting Restricted Subsidiaries
 
   The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any consensual encumbrance or consensual restriction on the
ability of any Restricted Subsidiary to:
 
     (1) pay dividends or make any other distributions on its Capital Stock
  to the Company or any of its Restricted Subsidiaries or with respect to any
  other interest or participation in, or measured by, its profits, or pay any
  indebtedness owed to the Company or any of its Restricted Subsidiaries;
 
     (2) make loans or advances to the Company or any of its Restricted
  Subsidiaries; or
 
     (3) transfer any of its properties or assets to the Company or any of
  its Restricted Subsidiaries.
 
   However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
 
     (1) Existing Indebtedness as in effect on the date of the indenture;
 
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<PAGE>
 
     (2) the New Senior Credit Agreement as in effect as of the date of the
  indenture, and any amendments, modifications, restatements, renewals,
  increases, supplements, refundings, replacements or refinancings thereof,
  provided that such amendments, modifications, restatements, renewals,
  increases, supplements, refundings, replacements or refinancings are not
  materially more restrictive, taken as a whole, with respect to such
  dividend and other payment restrictions than those contained in the New
  Senior Credit Agreement as in effect on the date of the indenture;
 
     (3) the indenture and the exchange notes;
 
     (4) applicable law;
 
     (5) any instrument governing Indebtedness or Capital Stock of a Person
  or assets acquired by the Company or any of its Restricted Subsidiaries as
  in effect at the time of such acquisition (except to the extent such
  Indebtedness was incurred in connection with or in contemplation of such
  acquisition), which encumbrance or restriction is not applicable to any
  Person, or the properties or assets of any Person, other than the Person,
  or the property or assets of the Person, so acquired, provided that, in the
  case of Indebtedness, such Indebtedness was permitted by the terms of the
  indenture to be incurred;
 
     (6) customary non-assignment provisions in leases, contracts and
  licenses entered into in the ordinary course of business;
 
     (7) purchase money obligations for property acquired in the ordinary
  course of business that impose restrictions of the nature described in
  clause (3) of the preceding paragraph on the property so acquired;
 
     (8) any agreement for the sale or other disposition of a Restricted
  Subsidiary that restricts distributions by that Restricted Subsidiary
  pending its sale or other disposition;
 
     (9) Permitted Refinancing Indebtedness, provided that the restrictions
  contained in the agreements governing such Permitted Refinancing
  Indebtedness are no more restrictive, taken as a whole, than those
  contained in the agreements governing the Indebtedness being refinanced;
 
     (10) Liens securing Indebtedness otherwise permitted to be incurred
  pursuant to the provisions of the covenant described above under the
  subheading "--Liens" that limit the right of the Company or any of its
  Restricted Subsidiaries to dispose of the assets subject to such Lien;
 
     (11) provisions with respect to the disposition or distribution of
  assets or property in joint venture agreements and other similar agreements
  entered into in the ordinary course of business;
 
     (12) restrictions on cash or other deposits or net worth imposed by
  customers under contracts entered into in the ordinary course of business;
 
     (13) Indebtedness or other contractual requirements of a Securitization
  Entity in connection with a Qualified Securitization Transaction; provided
  that such restrictions apply only to such Securitization Entity;
 
     (14) any agreement or instrument governing Indebtedness (whether or not
  outstanding) of foreign Restricted Subsidiaries of the Company if it
  constitutes Permitted Debt incurred pursuant to clause (14) under the
  subheading "--Incurrence of Indebtedness and Issuance of Preferred Stock";
  and
 
     (15) any amendments to the above agreements, if such amendments are not
  materially more restrictive, taken as a whole, with respect to such
  dividend and other payment restrictions than those contained in the
  agreements being amended.
 
 Merger, Consolidation, or Sale of Assets
 
   The Company may not, directly or indirectly: (1) consolidate or merge with
or into (whether or not the Company is the surviving corporation); or (2) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of
its properties or assets, in one or more related transactions, to another
Person; unless:
 
     (1) either: (a) the Company is the surviving corporation; or (b) the
  Person formed by or surviving any such consolidation or merger (if other
  than the Company) or to which such sale, assignment, transfer,
 
                                       77
<PAGE>
 
  conveyance or other disposition shall have been made is a corporation
  organized or existing under the laws of the United States, any state
  thereof or the District of Columbia;
 
     (2) the Person formed by or surviving any such consolidation or merger
  (if other than the Company) or the Person to which such sale, assignment,
  transfer, conveyance or other disposition shall have been made assumes all
  the obligations of the Company under the registration rights agreement, the
  notes, the exchange notes and the indenture pursuant to a supplemental
  indenture in form reasonably satisfactory to the Trustee;
 
     (3) immediately after such transaction no Default or Event of Default
  exists;
 
     (4) except in the case of a merger of the Company with or into a Wholly
  Owned Restricted Subsidiary of the Company, the Company or the Person
  formed by or surviving any such consolidation or merger (if other than the
  Company), or to which such sale, assignment, transfer, conveyance or other
  disposition shall have been made will have Consolidated Net Worth
  immediately after the transaction equal to or greater than the Consolidated
  Net Worth of the Company immediately preceding the transaction; and
 
     (5) except in the case of a merger of the Company with or into a Wholly
  Owned Restricted Subsidiary of the Company, either:
 
       (a) the Company or the Person formed by or surviving any such
    consolidation or merger (if other than the Company), or to which such
    sale, assignment, transfer, conveyance or other disposition will,
    immediately after such transaction after giving pro forma effect
    thereto and any related financing transactions as if the same had
    occurred at the beginning of the applicable four-quarter period, be
    permitted to incur at least $1.00 of additional Indebtedness pursuant
    to the Fixed Charge Coverage Ratio test set forth in the first
    paragraph of the covenant described above under the subheading "--
    Incurrence of Indebtedness and Issuance of Preferred Stock" or
 
       (b) in the case of a merger in which the Company is the surviving
    corporation, the Company shall, immediately after such transaction
    after giving pro forma effect thereto and any related financing
    transactions as if the same had occurred at the beginning of the
    applicable four-quarter period, be permitted to incur at least $1.00 of
    additional Indebtedness (including Permitted Debt) pursuant to the
    covenant described under the subheading "--Incurrence of Indebtedness
    and Issuance of Preferred Stock".
 
   In addition, the Company may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person. The provisions of this covenant will not be
applicable to a sale, assignment, transfer, conveyance or other disposition of
assets between or among the Company and any of the Restricted Subsidiaries.
 
 Transactions with Affiliates
 
   The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any payment to, or sell, lease, transfer or otherwise dispose of any
of its properties or assets to, or purchase any property or assets from, or
enter into or make or amend any transaction, contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless:
 
     (1) such Affiliate Transaction is on terms that are no less favorable to
  the Company or the relevant Restricted Subsidiary than those that would
  have been obtained in a comparable transaction by the Company or such
  Restricted Subsidiary with an unrelated Person; and
 
     (2) the Company delivers to the Trustee:
 
       (a) with respect to any Affiliate Transaction or series of related
    Affiliate Transactions involving aggregate consideration in excess of
    $2.5 million, a resolution of the Board of Directors set forth in an
    Officers' Certificate certifying that such Affiliate Transaction
    complies with clause (1) above and
 
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<PAGE>
 
    that such Affiliate Transaction has been approved by a majority of the
    disinterested members of the Board of Directors; and
 
       (b) with respect to any Affiliate Transaction or series of related
    Affiliate Transactions involving aggregate consideration in excess of
    $7.5 million, an opinion that such Affiliate Transaction is not
    materially less favorable than those that might reasonably have been
    obtained in a comparable transaction at such time on an arms-length
    basis from a Person that is not an Affiliate of the Company or such
    Restricted Subsidiary issued by an accounting, appraisal or investment
    banking firm of national standing.
 
   The following items shall not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
 
     (1) any employment agreement entered into by the Company or any of its
  Restricted Subsidiaries in the ordinary course of business of the Company
  or such Restricted Subsidiary;
 
     (2) transactions between or among the Company and/or its Restricted
  Subsidiaries;
 
     (3) payment of reasonable directors fees and compensation;
 
     (4) any sale or other issuance of Equity Interests (other than
  Disqualified Stock) of the Company;
 
     (5) Restricted Payments that are permitted by the provisions of the
  indenture described above under the subheading "--Restricted Payments";
 
     (6) the performance of the Company's or any Subsidiary's obligations
  under the Simmons ESOP as in effect on the date of the indenture;
 
     (7) the performance of the Company's or any Subsidiary's obligations
  under the Fenway Agreement as the same is in effect on the date of the
  indenture;
 
     (8) reasonable and customary costs and expenses incident to a public
  offering of Equity Securities of Holdings to the extent that the proceeds
  therefrom are intended to be contributed to the Company as common equity
  capital;
 
     (9) Qualified Securitization Transaction;
 
     (10) the performance of the Company's or any Subsidiary's obligations
  under the Transaction Documents as the same are in effect on the date of
  the indenture;
 
     (11) the making of loans to employees or consultants to the extent that
  the same constitute Permitted Investments; and
 
     (12) the granting of customary registration rights and/or put or call
  options pursuant to the Stockholders Agreements or any similar agreement.
 
 Designation of Restricted and Unrestricted Subsidiaries
 
   The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, all
outstanding Investments owned by the Company and its Restricted Subsidiaries
in the Subsidiary so designated will be deemed to be an Investment made as of
the time of such designation and will reduce the amount available for
Restricted Payments under the first paragraph of the covenant described above
under the subheading "--Restricted Payments" or Permitted Investments, as
applicable. All such outstanding Investments will be valued at their fair
market value at the time of such designation. That designation will only be
permitted if such Restricted Payment would be permitted at such time and if
such Restricted Subsidiary otherwise meets the definition of an Unrestricted
Subsidiary. The Board of Directors may redesignate any Unrestricted Subsidiary
to be a Restricted Subsidiary if such redesignation would not cause a Default.
 
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<PAGE>
 
 Limitations on Issuances of Guarantees of Indebtedness
 
   If the Company acquires or creates a Restricted Subsidiary that is a
Significant Subsidiary of the Company, or if any Restricted Subsidiary of the
Company becomes a Significant Subsidiary of the Company, then such Significant
Subsidiary shall execute and deliver a supplemental indenture to the indenture
providing for the Guarantee of the payment of the notes and the exchange notes
by such Significant Subsidiary, which Guarantee shall be senior to or pari
passu with all other Indebtedness of such Significant Subsidiary, other than
Senior Debt, and shall be subordinated to all Senior Debt of such Significant
Subsidiary to the same extent as the notes and the exchange notes are
subordinated to Senior Debt.
 
   Notwithstanding the preceding paragraph, any such Guarantee by a Significant
Subsidiary of the notes and the exchange notes shall provide by its terms that
it shall be automatically and unconditionally released and discharged upon any
sale, exchange or transfer, to any Person not an Affiliate of the Company, of
all of the Company's stock in, or all or substantially all the assets of, such
Significant Subsidiary, which sale, exchange or transfer is made in compliance
with the applicable provisions of the indenture. The form of such Guarantee
will be attached as an exhibit to the indenture.
 
 Conduct of Business
 
   The Company will not, and will not permit any of its Restricted Subsidiaries
to, engage in any businesses a majority of whose revenues are not derived from
the same or reasonably similar, ancillary or related to, or a reasonable
extension, development or expansion of, the businesses in which the Company and
its Restricted Subsidiaries are engaged on the date of the indenture.
 
 Reports
 
   Whether or not required by the Commission, so long as any exchange notes are
outstanding, the Company will furnish to the holders of exchange notes, within
the time periods specified in the Commission's rules and regulations:
 
     (1) all quarterly and annual financial information that would be
  required to be contained in a filing with the Commission on Forms 10-Q and
  10-K if the Company were required to file such Forms, including a
  "Management's Discussion and Analysis of Financial Condition and Results of
  Operations" and, with respect to the consolidated financial statements
  included in the annual information only, a report thereon by our
  independent accountants; and
 
     (2) all current reports that would be required to be filed with the
  Commission on Form 8-K if the Company were required to file such reports.
 
   If the Company has designated any of its Subsidiaries as Unrestricted
Subsidiaries, then the quarterly and annual financial information required by
the preceding paragraph shall include a reasonably detailed presentation,
either on the face of the financial statements or in the footnotes thereto, and
in Management's Discussion and Analysis of Financial Condition and Results of
Operations, of the financial condition and results of operations of the Company
and its Restricted Subsidiaries separate from the financial condition and
results of operations of the Unrestricted Subsidiaries of the Company.
 
   In addition, whether or not required by the Commission, the Company will
file a copy of all such information and reports referred to in clauses (1) and
(2) above with the Commission for public availability within the time periods
specified in the Commission's rules and regulations (unless the Commission will
not accept such a filing) and make such information available to securities
analysts and prospective investors upon request.
 
   The Company and the Guarantors have also agreed that, for so long as any
exchange notes remain outstanding, they will furnish to the holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
 
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<PAGE>
 
Events of Default and Remedies
 
   Each of the following is an Event of Default:
 
     (1) default for 30 days in the payment when due of interest on the
  exchange notes, whether or not prohibited by the subordination provisions
  of the indenture;
 
     (2) default in payment when due of the principal of or premium, if any,
  on the notes or the exchange notes, whether or not prohibited by the
  subordination provisions of the indenture;
 
     (3) failure by the Company or any of its Restricted Subsidiaries to
  comply with the provisions described under the subheadings "--Change of
  Control", "--Asset Sales", "--Restricted Payments" or "--Incurrence of
  Indebtedness and Issuance of Preferred Stock" and the continuance of such
  failure after the receipt by the Company of written notice from the Trustee
  or the holders of at least 25% in aggregate principal amount of the
  exchange notes, including Additional Notes, if any, then outstanding of
  such default;
 
     (4) failure by the Company or any of its Subsidiaries for 60 days after
  written notice is given to the Company by the Trustee or the holders of at
  least 25% in aggregate principal amount of the notes and the exchange
  notes, including Additional Notes, if any, then outstanding to comply with
  any of its other agreements in the indenture or the notes and the exchange
  notes and the continuance of such failure for a period of 60 days after the
  receipt by the Company of written notice from the Trustee or the holders of
  at least 25% in aggregate principal amount of the notes and the exchange
  notes then outstanding of such default;
 
     (5) default under any mortgage, indenture or instrument under which
  there may be issued or by which there may be secured or evidenced any
  Indebtedness for money borrowed by the Company or any of its Subsidiaries
  (or the payment of which is guaranteed by the Company or any of its
  Subsidiaries) whether such Indebtedness or guarantee now exists, or is
  created after the date of the indenture, if that default:
 
       (a) is caused by a failure to pay principal of or premium, if any,
    or interest on such Indebtedness if such payment default is not cured
    or waived within 10 Business Days of the occurrence thereof (a "Payment
    Default"); or
 
       (b) results in the acceleration of such Indebtedness prior to its
    express maturity, and, in each case, the principal amount of any such
    Indebtedness, together with the principal amount of any other such
    Indebtedness under which there has been a Payment Default or the
    maturity of which has been so accelerated, aggregates $10.0 million or
    more;
 
     (6) failure by the Company or any of its Subsidiaries to pay final
  judgments aggregating in excess of $10.0 million, which judgments are not
  paid, discharged or stayed for a period of 60 days;
 
     (7) except as permitted by the indenture, any Guarantee shall be held in
  any judicial proceeding to be unenforceable or invalid or shall cease for
  any reason to be in full force and effect or any Guarantor, or any Person
  acting on behalf of any Guarantor, shall deny or disaffirm its obligations
  under its Guarantee; and
 
     (8) certain events of bankruptcy or insolvency with respect to the
  Company or any of its Subsidiaries.
 
   In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to the Company, any Significant Subsidiary or any
group of Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding notes and exchange notes will become due and
payable without further action or notice. If any Event of Default occurs and is
continuing, the Trustee or the holders of at least 25% in principal amount of
the notes and exchange notes then outstanding (including any Additional Notes,
if any) may declare all the notes and exchange notes to be due and payable
immediately.
 
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<PAGE>
 
   Holders of the exchange notes may not enforce the indenture or the exchange
notes except as provided in the indenture. Subject to certain limitations,
holders of a majority in principal amount of the then outstanding notes and
exchange notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from holders of the notes and exchange notes notice of
any continuing Default or Event of Default (except a Default or Event of
Default relating to the payment of principal or interest) if it determines that
withholding notice is in their interest.
 
   The holders of a majority in aggregate principal amount of the notes and
exchange notes then outstanding by notice to the Trustee may on behalf of the
holders of all of the notes and exchange notes waive any existing Default or
Event of Default and its consequences under the indenture except a continuing
Default or Event of Default in the payment of interest on, or the principal of,
the notes and exchange notes.
 
   In the case of any Event of Default occurring by reason of any willful
action or inaction taken or not taken by or on behalf of the Company with the
intention of avoiding payment of the premium that the Company would have had to
pay if the Company then had elected to redeem the exchange notes pursuant to
the optional redemption provisions of the indenture, an equivalent premium
shall also become and be immediately due and payable to the extent permitted by
law upon the acceleration of the exchange notes. If an Event of Default occurs
prior to March 15, 2004 by reason of any willful action or inaction taken or
not taken by or on behalf of the Company with the intention of avoiding the
prohibition on redemption of the exchange notes prior to March 15, 2004, then
the premium specified in the indenture shall also become immediately due and
payable to the extent permitted by law upon the acceleration of the exchange
notes.
 
   The Company is required to deliver to the Trustee annually a statement
regarding compliance with the indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
 
No Personal Liability of Directors, Officers, Employees and Stockholders
 
   No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
exchange notes or the indenture or for any claim based on, in respect of, or by
reason of, such obligations or their creation. Each holder of exchange notes by
accepting an exchange note waives and releases all such liability. The waiver
and release are part of the consideration for issuance of the exchange notes.
The waiver may not be effective to waive liabilities under the federal
securities laws and it is the view of the Commission that such a waiver is
against public policy.
 
Legal Defeasance and Covenant Defeasance
 
   The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect the exchange notes ("Legal Defeasance")
except for:
 
     (1) the rights of holders of outstanding exchange notes to receive
  payments in respect of the principal of, premium, if any, and interest on,
  the exchange notes when such payments are due from the trust referred to
  below;
 
     (2) the Company's obligations with respect to such exchange notes
  concerning issuing temporary exchange notes, registration of exchange
  notes, mutilated, destroyed, lost or stolen exchange notes and the
  maintenance of an office or agency for payment and money for security
  payments held in trust;
 
     (3) the rights, powers, trusts, duties and immunities of the Trustee,
  and the Company's obligations in connection therewith; and
 
     (4) the Legal Defeasance provisions of the indenture.
 
   In addition, the Company may, at its option and at any time, elect to have
the obligations of the Company released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and
 
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<PAGE>
 
thereafter any omission to comply with such obligations shall not constitute a
Default or Event of Default with respect to the exchange notes. In the event
Covenant Defeasance occurs, certain events (not including non-payment,
bankruptcy, receivership, rehabilitation and insolvency events) described under
"Events of Default" will no longer constitute an Event of Default with respect
to the exchange notes.
 
   In order to exercise either Legal Defeasance or Covenant Defeasance:
 
     (1) the Company must irrevocably deposit with the Trustee, in trust, for
  the benefit of the holders of the exchange notes, cash in U.S. dollars,
  non-callable Government Securities, or a combination thereof, in such
  amounts as will be sufficient, in the opinion of a nationally recognized
  firm of independent public accountants, to pay the principal of, premium,
  if any, and interest, if any, on all outstanding exchange notes on the
  stated maturity or on the applicable redemption date, as the case may be,
  and the Company must specify whether such exchange notes are being defeased
  to maturity or to a particular redemption date;
 
     (2) in the case of Legal Defeasance, the Company shall have delivered to
  the Trustee an Opinion of Counsel in the United States reasonably
  acceptable to the Trustee confirming that (a) the Company has received
  from, or there has been published by, the Internal Revenue Service a ruling
  or (b) since the date of the indenture, there has been a change in the
  applicable federal income tax law, in either case to the effect that, and
  based thereon such Opinion of Counsel shall confirm that, the holders of
  the outstanding exchange notes will not recognize income, gain or loss for
  federal income tax purposes as a result of such Legal Defeasance and will
  be subject to federal income tax on the same amounts, in the same manner
  and at the same times as would have been the case if such Legal Defeasance
  had not occurred;
 
     (3) in the case of Covenant Defeasance, the Company shall have delivered
  to the Trustee an Opinion of Counsel in the United States reasonably
  acceptable to such Trustee confirming that the holders of the outstanding
  exchange notes will not recognize income, gain or loss for federal income
  tax purposes as a result of such Covenant Defeasance and will be subject to
  federal income tax on the same amounts, in the same manner and at the same
  times as would have been the case if such Covenant Defeasance had not
  occurred;
 
     (4) no Default or Event of Default shall have occurred and be continuing
  either:
 
       (a) on the date of such deposit (other than a Default or Event of
    Default resulting from the borrowing of funds to be applied to such
    deposit); or
 
       (b) insofar as Events of Default from bankruptcy or insolvency
    events are concerned, at any time in the period ending on the 91st day
    after the date of deposit;
 
     (5) such Legal Defeasance or Covenant Defeasance will not result in a
  breach or violation of, or constitute a default under any material
  agreement or instrument (including the indenture and the New Senior Credit
  Agreement) (other than a default resulting from the borrowing of funds to
  be applied to such deposit) to which the Company or any of its Subsidiaries
  is a party or by which the Company or any of its Subsidiaries is bound;
 
     (6) the Company must have delivered to the Trustee an Opinion of Counsel
  to the effect that after the 91st day following the deposit, the trust
  funds will not be subject to the effect of any applicable bankruptcy,
  insolvency, reorganization or similar laws affecting creditors' rights
  generally;
 
     (7) the Company must deliver to the Trustee an Officers' Certificate
  stating that the deposit was not made by the Company with the intent of
  preferring the holders of the exchange notes over the other creditors of
  the Company with the intent of defeating, hindering, delaying or defrauding
  creditors of the Company or others; and
 
     (8) the Company must deliver to the Trustee an Officers' Certificate and
  an Opinion of Counsel, each stating that all conditions precedent provided
  for relating to the Legal Defeasance or the Covenant Defeasance have been
  complied with.
 
                                       83
<PAGE>
 
Amendment, Supplement and Waiver
 
   Without the consent of each holder affected, an amendment or waiver may not
(with respect to any exchange notes held by a non-consenting holder):
 
     (1) reduce the principal amount of exchange notes whose holders must
  consent to an amendment, supplement or waiver;
 
     (2) reduce the principal of or change the fixed maturity of any exchange
  note or alter the provisions with respect to the time and amount of
  redemption of the exchange notes (other than provisions relating to the
  covenants described above under the subheading "--Repurchase at the Option
  of Holders");
 
     (3) reduce the rate of or change the time for payment of interest on any
  exchange note;
 
     (4) waive a Default or Event of Default in the payment of principal of,
  premium, if any, or interest, if any, on the exchange notes (except a
  rescission of acceleration of the exchange notes by the holders of at least
  a majority in aggregate principal amount of the notes and a waiver of the
  payment default that resulted from such acceleration);
 
     (5) make any exchange note payable in money other than that stated in
  the exchange notes;
 
     (6) make any change in the provisions of the indenture relating to
  waivers of past Defaults or the rights of holders of exchange notes to
  receive payments of principal of or premium, if any, or interest on the
  exchange notes;
 
     (7) waive a redemption payment with respect to any exchange note (other
  than a payment required by one of the covenants described above under the
  subheading "--Repurchase at the Option of Holders"); or
 
     (8) make any change in the foregoing amendment and waiver provisions.
 
   In addition, any amendment to the provisions of the indenture relating to
subordination that adversely affects the rights of the holders of the notes and
exchange notes will require the consent of the holders of at least 75% in
aggregate principal amount of the notes and exchange notes then outstanding.
 
   Notwithstanding the preceding, without the consent of any holder of notes or
exchange notes, the Company and the Trustee may amend or supplement the
indenture or the notes or exchange notes:
 
     (1) to cure any ambiguity, defect or inconsistency;
 
     (2) to provide for uncertificated notes or exchange notes in addition to
  or in place of certificated notes or exchange notes;
 
     (3) to provide for the assumption of the Company's obligations to
  holders of notes or exchange notes in the case of a merger or consolidation
  or sale of all or substantially all of the Company's assets;
 
     (4) to make any change that would provide any additional rights or
  benefits to the holders of notes or exchange notes or that does not
  adversely affect the legal rights under the indenture of any such holder;
  or
 
     (5) to comply with requirements of the Commission in order to effect or
  maintain the qualification of the indenture under the Trust Indenture Act.
 
   Except as provided in the prior paragraphs, the indenture and the notes and
exchange notes may be amended or supplemented with the consent of the holders
of at least a majority in principal amount of the notes and exchange notes then
outstanding (including, without limitation, consents obtained in connection
with a purchase of, or tender offer for, exchange notes), and any existing
default or compliance with any provision of the indenture or the notes and
exchange notes may be waived with the consent of the holders of a majority in
principal amount of the then outstanding notes and exchange notes (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer for notes and exchange notes).
 
                                       84
<PAGE>
 
Concerning the Trustee
 
   If the Trustee become a creditor of the Company, the indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
Trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest the Trustee must eliminate such conflict
within 90 days, apply to the Commission for permission to continue or resign.
 
   The holders of a majority in principal amount of the then outstanding notes
and exchange notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The indenture provides that in case an Event of
Default shall occur and be continuing, the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the indenture
at the request of any holder of notes and exchange notes, unless such holder
shall have offered to the Trustee security and indemnity satisfactory to it
against any loss, liability or expense.
 
Additional Information
 
   Anyone who receives this prospectus may obtain copies of the indenture,
without charge, by writing to Simmons Company, One Concourse Parkway, Suite
600, Atlanta, Georgia 30328, Attention: Treasurer.
 
Book-Entry, Delivery and Form
 
   The Certificates representing the exchange notes will be issued in fully
registered form, without coupons. Except as described below, the exchange notes
will be deposited with, or on behalf of, The Depository Trust Company ("DTC"),
in New York, New York, and registered in the name of DTC or its nominee in the
form of one or more global certificates (the "Global Notes") or will remain in
the custody of the Trustee pursuant to a FAST Balance Certificate Agreement
between DTC and the Trustee.
 
   Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to DTC or another nominee of DTC or to a successor of DTC or
its nominee. Except in the limited circumstances described below, owners of
beneficial interests in the Global Notes will not be entitled to receive
physical delivery of Certificated Notes (as defined below). See "--Exchange of
Book-Entry Notes for Certificated Notes." In addition, transfers of beneficial
interests in the Global Notes will be subject to the applicable rules and
procedures of DTC and its direct or indirect participants (including, if
applicable, those of Euroclear and Cedel), which may change from time to time.
 
   Initially, the Trustee will act as Paying Agent and Registrar. The exchange
notes may be presented for registration of transfer and exchange at the offices
of the Registrar.
 
 Depository Procedures
 
   The following description of the operations and procedures of DTC is
provided solely as a matter of convenience. These operations and procedures are
solely within the control of the settlement system of DTC and are subject to
changes by them from time to time. The Company takes no responsibility for
these operations and procedures and urges investors to contact the system or
its participants directly to discuss these matters.
 
   DTC has advised the Company that DTC is a limited-purpose trust company
created to hold securities for its participating organizations (collectively,
the "Participants") and to facilitate the clearance and settlement of
transactions in those securities between Participants through electronic book-
entry changes in accounts of its Participants. The Participants include
securities brokers and dealers, banks, trust companies, clearing corporations
and certain other organizations. Access to DTC's system is also available to
other entities such as
 
                                       85
<PAGE>
 
banks, brokers, dealers and trust companies that clear through or maintain a
custodial relationship with a Participant, either directly or indirectly
(collectively, the "Indirect Participants"). Persons who are not Participants
may beneficially own securities held by or on behalf of DTC only through the
Participants or the Indirect Participants. The ownership interests in, and
transfers of ownership interests in, each security held by or on behalf of DTC
are recorded on the records of the Participants and Indirect Participants.
 
   DTC has also advised the Company that, pursuant to procedures established by
it:
 
     (i) upon deposit of the Global Notes, DTC will credit the accounts of
  Participants designated by the Trustee with portions of the principal
  amount of the Global Notes; and
 
     (ii) ownership of such interests in the Global Notes will be shown on,
  and the transfer of ownership thereof will be effected only through,
  records maintained by DTC (with respect to the Participants) or by the
  Participants and the Indirect Participants (with respect to other owners of
  beneficial interest in the Global Notes).
 
   All interests in a Global Note may be subject to the procedures and
requirements of DTC. The laws of some states require that certain persons take
physical delivery in definitive form of securities that they own. Consequently,
the ability to transfer beneficial interests in a Global Note to such persons
will be limited to that extent. Because DTC can act only on behalf of
Participants, which in turn act on behalf of Indirect Participants and certain
banks, the ability of a person having beneficial interests in a Global Note to
pledge such interests to persons or entities that do not participate in the DTC
system, or otherwise take actions in respect of such interests, may be affected
by the lack of a physical certificate evidencing such interests.
 
   Except as described below, owners of interest in the Global Notes will not
have exchange notes registered in their names, will not receive physical
delivery of exchange notes in certificated form and will not be considered the
registered owners or "Holders" thereof under the indenture for any purpose.
 
   Payments in respect of the principal of, premium and interest, if any, on a
Global Note registered in the name of DTC or its nominee will be payable to DTC
in its capacity as the registered holder under the indenture. Under the terms
of the indenture, the Company and the Trustee will treat the persons in whose
names the exchange notes, including the Global Notes, are registered as the
owners thereof for the purpose of receiving such payments and for any and all
other purposes whatsoever. Consequently, neither the Company, the Trustee nor
any agent of the Company or the Trustee has or will have any responsibility or
liability for:
 
     (1) any aspect of DTC's records or any Participant's or Indirect
  Participant's records relating to or payments made on account of beneficial
  ownership interest in the Global Notes, or for maintaining, supervising or
  reviewing any of DTC's records or any Participant's or Indirect
  Participant's records relating to the beneficial ownership interests in the
  Global Notes; or
 
     (2) any other matter relating to the actions and practices of DTC or any
  of its Participants or Indirect Participants.
 
   DTC has advised the Company that its current practice, upon receipt of any
payment in respect of securities such as the exchange notes (including
principal and interest), is to credit the accounts of the relevant Participants
with the payment on the payment date, in amounts proportionate to their
respective holdings in the principal amount of beneficial interest in the
relevant security as shown on the records of DTC unless DTC has reason to
believe it will not receive payment on such payment date. Payments by the
Participants and the Indirect Participants to the beneficial owners of exchange
notes will be governed by standing instructions and customary practices and
will be the responsibility of the Participants or the Indirect Participants and
will not be the responsibility of DTC, the Trustee or the Company. Neither the
Company nor the Trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the exchange notes, and
the Company and the Trustee may conclusively rely on and will be protected in
relying on instructions from DTC or its nominee for all purposes.
 
   Interest in the Global Notes are expected to be eligible to trade in DTC's
Same-Day Funds Settlement System and secondary market trading activity in such
interests will, therefore, settle in immediately available
 
                                       86
<PAGE>
 
funds, subject in all cases to the rules and procedures of DTC and its
Participants. See "--Same Day Settlement and Payment".
 
   Subject to the transfer restrictions set forth under "Notice to Investors",
transfers between Participants in DTC will be effected in accordance with DTC's
procedures, and will be settled in same day funds.
 
   DTC has advised the Company that it will take any action permitted to be
taken by a holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the exchange notes
as to which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the exchange notes, DTC reserves
the right to exchange the Global Notes for legended exchange notes in
certificated form, and to distribute such notes to its Participants.
 
   Although DTC has agreed to the foregoing procedures to facilitate transfers
of interests in the Global Notes among Participants in DTC it is under no
obligation to perform or to continue to perform such procedures, and such
procedures may be discontinued at any time. Neither the Company nor the Trustee
nor any of their respective agents will have any responsibility for the
performance by DTC or its respective participants or indirect participants of
their respective obligations under the rules and procedures governing its
operations.
 
 Exchange of Book-Entry Notes for Certificated Notes
 
   A Global Note is exchangeable for definitive exchange notes in registered
certificated form ("Certificated Notes") if:
 
     (1) DTC:
 
       (a) notifies the Company that it is unwilling or unable to continue
    as depositary for the Global Notes and the Company thereupon fails to
    appoint a successor depositary; or
 
       (b) has ceased to be a clearing agency registered under the Exchange
    Act;
 
     (2) the Company, at its option, notifies the Trustee in writing that it
  elects to cause the issuance of the Certificated Notes; or
 
     (3) there shall have occurred and be continuing a Default or Event of
  Default with respect to the exchange notes. In addition, beneficial
  interests in a Global Note may be exchanged for Certificated Notes upon
  request but only upon prior written notice given to the Trustee by or on
  behalf of DTC in accordance with the indenture. In all cases, Certificated
  Notes delivered in exchange for any Global Note or beneficial interests
  therein will be registered in the names, and issued in any approved
  denominations, requested by or on behalf of DTC (in accordance with its
  customary procedures) and will bear the applicable restrictive legend
  referred to in "Notice to Investors", unless the Company determines
  otherwise in compliance with applicable law.
 
 Exchange of Certificated Notes for Book-Entry Notes
 
   Certificated Notes may not be exchanged for beneficial interests in any
Global Note unless the transferor first delivers to the Trustee a written
certificate (in the form provided in the indenture) to the effect that such
transfer will comply with the appropriate transfer restrictions applicable to
such notes. See "Notice to Investors".
 
 Same Day Settlement and Payment
 
   Payments in respect of the exchange notes represented by the Global Notes
(including principal, premium, if any, and interest, if any) be made by wire
transfer of immediately available funds to the accounts specified by the Global
Note holder. With respect to Certificated Notes, the Company will make all
payments of
 
                                       87
<PAGE>
 
principal, premium, if any, and interest, if any, by wire transfer of
immediately available funds to the accounts specified by the holders thereof
or, if no such account is specified, by mailing a check to each such holder's
registered address. The exchange notes represented by the Global Notes are
expected to be eligible to trade in the PORTAL market and to trade in the DTC's
Same-Day Funds Settlement System, and any permitted secondary market trading
activity in such exchange notes will, therefore, be required by the DTC to be
settled in immediately available funds. The Company expects that secondary
trading in any Certificated Notes will also be settled in immediately available
funds.
 
Certain Definitions
 
   Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
 
   "Acquired Debt" means, with respect to any specified Person:
 
     (1) Indebtedness of any other Person existing at the time such other
  Person is merged with or into or became a Subsidiary of such specified
  Person, including, without limitation, Indebtedness incurred in connection
  with, or in contemplation of, such other Person merging with or into or
  becoming a Subsidiary of such specified Person; and
 
     (2) Indebtedness secured by a Lien encumbering any asset acquired by
  such specified Person.
 
   "Additional Assets" has the meaning assigned to such term in the second
paragraph of the covenant described above under the subheading "Repurchase at
the Option of Holders--Asset Sales".
 
   "Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the Voting Stock of a Person shall be
deemed to be control.
 
   "Asset Sale" means:
 
     (1) the sale, lease, conveyance or other disposition of any assets or
  rights (including, without limitation, by way of a sale and leaseback)
  other than sales of inventory in the ordinary course of business consistent
  with past practices; provided that the sale, conveyance or other
  disposition of all or substantially all of the assets of the Company and
  its Restricted Subsidiaries taken as a whole will be governed by the
  provisions of the indenture described above under the subheading "--Change
  of Control" and/or the provisions described above under the subheading "--
  Merger, Consolidation or Sale of Assets" and not by the provisions of the
  Asset Sale covenant; and
 
     (2) the issue or sale by the Company or any of its Restricted
  Subsidiaries of Equity Interests of any of the Company's Restricted
  Subsidiaries.
 
   Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
 
     (1) any single transaction or series of related transactions that:
 
       (a) involves assets having a fair market value of less than $1.0
    million; or
 
       (b) results in net proceeds to the Company and its Restricted
    Subsidiaries of less than $1.0 million;
 
     (2) a transfer of assets between or among the Company and its Wholly
  Owned Restricted Subsidiaries;
 
                                       88
<PAGE>
 
     (3) an issuance of Equity Interests by a Wholly Owned Restricted
  Subsidiary to the Company or to another Wholly Owned Restricted Subsidiary;
 
     (4) a Restricted Payment that is permitted by the covenant described
  above under the subheading "--Restricted Payments";
 
     (5) the sale or discount, in each case without recourse, of accounts
  receivable arising in the ordinary course of business, but only in
  connection with the compromise or collection thereof;
 
     (6) sales of accounts receivable, equipment and related assets,
  including contract rights, of the type specified in the definition of
  "Qualified Securitization Transaction" to a Securitization Entity for the
  fair market value thereof, including cash in an amount at least equal to
  75% of the fair market value thereof;
 
     (7) the licensing of intellectual property in the ordinary course of
  business; and
 
     (8) the disposal or replacement of obsolete, surplus or worn-out
  equipment in the ordinary course of business.
 
   "Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act, except that in calculating the beneficial
ownership of any particular "person" (as such term is used in Section 13(d)(3)
of the Exchange Act), such "person" shall be deemed to have beneficial
ownership of all securities that such "person" has the right to acquire,
whether such right is currently excercisable or is exercisable only upon the
occurrence of a subsequent condition.
 
   "Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
 
   "Capital Stock" means:
 
     (1) in the case of a corporation, capital stock;
 
     (2) in the case of an association or business entity, any and all
  shares, interests, participations, rights or other equivalents (however
  designated) of capital stock;
 
     (3) in the case of a partnership or limited liability company,
  partnership or membership interests (whether general or limited); and
 
     (4) any other interest or participation that confers on a Person the
  right to receive a share of the profits and losses of, or distributions of
  assets of, the issuing Person.
 
   "Cash Equivalents" means:
 
     (1) United States dollars;
 
     (2) securities issued or directly and fully guaranteed or insured by the
  United States government or any agency or instrumentality thereof (provided
  that the full faith and credit of the United States is pledged in support
  thereof) having maturities of not more than six months from the date of
  acquisition;
 
     (3) certificates of deposit and eurodollar time deposits with maturities
  of six months or less from the date of acquisition, bankers' acceptances
  with maturities not exceeding six months and overnight bank deposits, in
  each case with any lender party to the New Senior Credit Agreement or with
  any domestic commercial bank having capital and surplus in excess of $500
  million and a Thompson Bank Watch Rating of "B" or better;
 
     (4) repurchase obligations with a term of not more than seven days for
  underlying securities of the types described in clauses (2) and (3) above
  entered into with any financial institution meeting the qualifications
  specified in clause (3) above;
 
     (5) commercial paper having the highest rating obtainable from Moody's
  Investors Service, Inc. or Standard & Poor's Corporation and in each case
  maturing within six months after the date of acquisition; and
 
                                       89
<PAGE>
 
     (6) money market funds at least 95% of the assets of which constitute
  Cash Equivalents of the kinds described in clauses (1) through (5) of this
  definition.
 
   "Change of Control" means the occurrence of any of the following:
 
     (1) the sale, transfer, conveyance or other disposition (other than by
  way of merger or consolidation), in one or a series of related
  transactions, of all or substantially all of the assets of the Company and
  its Restricted Subsidiaries taken as a whole to any "person" (as such term
  is used in Section 13(d)(3) of the Exchange Act) other than the Principals
  or any of their Related Parties;
 
     (2) the adoption of a plan by the stockholders thereof for the
  liquidation or dissolution of the Company or Holdings;
 
     (3) the consummation of any transaction (including, without limitation,
  any merger or consolidation) the result of which is that any "person" (as
  defined above), other than the Principals, their Related Parties or, prior
  to the establishment of a Public Market, a Permitted Group, becomes the
  Beneficial Owner, directly or indirectly, of more than 50% of the Voting
  Stock of Holdings or the Company (measured by voting power rather than
  number of shares);
 
     (4) the first day on which a majority of the members of the Board of
  Directors of Holdings or the Company are not Continuing Directors; or
 
     (5) the first day on which Holdings ceases to own 100% of the
  outstanding Equity Interests of the Company (other than as a result of a
  merger of the Company and Holdings permitted by the indenture).
 
   "Common Equity Documents" means the Recapitalization Agreement, the
Certificate of Merger and each other document executed in connection with the
Common Equity Financing.
 
   "Common Equity Financing" means the issuance by Holdings or the retention by
existing stockholders of Holdings of not less than $177.0 million of common
equity in connection with the Merger, which equity shall consist of (i) the
contribution by Fenway of not less than $128.1 million in cash to Holdings,
(ii) the retention by the Management Investors of shares (or options to acquire
shares) of common stock of Holdings with an estimated value of approximately
$16.5 million, (iii) the conversion by the Simmons ESOP of its 3,413,672 shares
of the Company's Series A Preferred Stock which is not allocated to the
accounts of ESOP participants into approximately 3,482,036 shares of Holdings'
Class C Common Stock which will be converted in the Merger into 3,482,036
shares of unallocated common stock of Holdings and the retention of such
unallocated shares with an estimated value of $23.4 million and (iv) the
retention by certain affiliates of or entities organized by Investcorp of
approximately 1,336,998 shares of common stock of Holdings with an estimated
value of $9.0 million.
 
   "Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus:
 
     (1) an amount equal to any extraordinary loss, plus any net loss
  realized in connection with an Asset Sale (without regard to the $1.0
  million size limitation set forth in the definition of "Asset Sale"), to
  the extent such losses were deducted in computing such Consolidated Net
  Income; plus
 
     (2) provision for taxes of such Person and its Subsidiaries for such
  period, to the extent that such provision for taxes was deducted in
  computing such Consolidated Net Income; plus
 
     (3) consolidated interest expense of such Person and its Subsidiaries
  for such period, whether paid or accrued and whether or not capitalized
  (including, without limitation, amortization of debt issuance costs and
  original issue discount, non-cash interest payments, the interest component
  of any deferred payment obligations, the interest component of all payments
  associated with Capital Lease Obligations commissions, discounts and other
  fees and charges incurred in respect of revolving credit facilities and
  letter of credit or bankers' acceptance financings, and net payments, if
  any, pursuant to Hedging Obligations), to the extent that any such expense
  was deducted in computing such Consolidated Net Income; plus
 
                                       90
<PAGE>
 
     (4) any interest expense on Indebtedness of another Person that is
  Guaranteed by such Person or one of its Restricted Subsidiaries or secured
  by a Lien on assets of such Person or one of its Restricted Subsidiaries,
  whether or not such Guarantee or Lien is called upon, to the extent that
  any such expense was deducted in computing such Consolidated Net Income;
  plus
 
     (5) depreciation, amortization (including amortization of goodwill and
  other intangibles but excluding amortization of prepaid cash expenses that
  were paid in a prior period) and other non-cash expenses and charges
  (excluding any such non-cash expense and charge to the extent that it
  represents an accrual of or reserve for cash expenses in any future period
  or amortization of a prepaid cash expense that was paid in a prior period)
  of such Person and its Restricted Subsidiaries for such period to the
  extent that such depreciation, amortization and other non-cash expenses and
  charges were deducted in computing such Consolidated Net Income; plus
 
     (6) nonrecurring expenses occurring prior to the date of the indenture;
  plus
 
     (7) nonrecurring compensation payments occurring, or committed to, on or
  prior to the date of the indenture but only to the extent such payments are
  disclosed under the subheading "Management" or "Certain Relationships and
  Related Transactions" in this prospectus; plus
 
     (8) bad debts charges relating to the bankruptcies of Montgomery Ward &
  Co. and Levitz Furniture Inc.; plus
 
     (9) nonrecurring expenses occurring on or prior to December 31, 1999
  relating to the Company's SWIFT and UNITE productivity initiatives and
  other strategic management initiatives, in an aggregate amount not to
  exceed $2.0 million since the date of the indenture; plus
 
     (10) the amortization of the prepaid fees paid to Investcorp
  International Inc. prior to the date of the indenture; minus
 
     (11) non-cash items increasing such Consolidated Net Income for such
  period, other than items that were accrued in the ordinary course of
  business, in each case, on a consolidated basis and determined in
  accordance with GAAP.
 
   "Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that:
 
     (1) the Net Income (but not loss) of any Person that is not a Restricted
  Subsidiary or that is accounted for by the equity method of accounting
  shall be included only to the extent of the amount of dividends or
  distributions paid in cash to the referent Person or a Wholly Owned
  Restricted Subsidiary thereof;
 
     (2) the Net Income of any Restricted Subsidiary shall be excluded to the
  extent that the declaration or payment of dividends or similar
  distributions by that Restricted Subsidiary of that Net Income is not at
  the date of determination permitted without any prior governmental approval
  (that has not been obtained) or, directly or indirectly, by operation of
  the terms of its charter or any agreement, instrument, judgment, decree,
  order, statute, rule or governmental regulation applicable to that
  Restricted Subsidiary or its stockholders;
 
     (3) the Net Income of any Person acquired in a pooling of interests
  transaction for any period prior to the date of such acquisition shall be
  excluded;
 
     (4) the cumulative effect of a change in accounting principles shall be
  excluded;
 
     (5) the Net Income (or loss) of any Unrestricted Subsidiary shall be
  excluded, whether or not distributed to the Company or one of its
  Subsidiaries; and
 
     (6) nonrecurring payments or charges relating to the Transactions or the
  original offering occurring, or committed to, on or prior to the date of
  the indenture.
 
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<PAGE>
 
   "Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of:
 
     (1) the consolidated equity of the common stockholders of such Person
  and its consolidated Subsidiaries as of such date; plus
 
     (2) the respective amounts reported on such Person's balance sheet as of
  such date with respect to any series of preferred stock (other than
  Disqualified Stock) that by its terms is not entitled to the payment of
  dividends unless such dividends may be declared and paid only out of net
  earnings in respect of the year of such declaration and payment, but only
  to the extent of any cash received by such Person upon issuance of such
  preferred stock; less
 
     (3) accumulated deficit; and
 
     (4) all investments as of such date in unconsolidated Subsidiaries and
  in Persons that are not Subsidiaries (except, in each case, Permitted
  Investments).
 
   All of the foregoing amounts are to be determined in accordance with GAAP.
 
   "Continuing Directors" means as of any date of determination, any member of
the Board of Directors of the Company who:
 
     (1) was a member of such Board of Directors on the date of the
  indenture; or
 
     (2) was designated or nominated for election or elected to such Board of
  Directors by any of the Principals or with the approval of a majority of
  the Continuing Directors who were members of such Board at the time of such
  nomination or election.
 
   "Credit Facilities" means, with respect to the Company, one or more debt
facilities (including, without limitation, the New Senior Credit Agreement) or
commercial paper facilities, in each case with banks or other institutional
lenders providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special
purpose entities formed to borrow from such lenders against such receivables)
or letters of credit, in each case, as amended, restated, modified, renewed,
refunded, replaced or refinanced in whole or in part from time to time.
Indebtedness under Credit Facilities outstanding on the date on which Notes are
first issued and authenticated under the indenture shall be deemed to have been
incurred on such date in reliance on the exception provided by clause (2) of
the definition of Permitted Debt.
 
   "Currency Agreements" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary of the Company against fluctuations in
currency values.
 
   "Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
 
   "Designated Senior Debt" means:
 
     (1) any Indebtedness outstanding under the New Senior Credit Agreement;
  and
 
     (2) any other Senior Debt permitted under the indenture the original
  principal amount of which is $10.0 million or more and that has been
  designated by the Company as "Designated Senior Debt".
 
   "Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date that is 91 days after the
date on which the exchange notes mature; provided, however, that any Capital
Stock that would constitute Disqualified Stock solely because the holders
thereof have the right to require the Company to repurchase such Capital Stock
upon the occurrence of a Change of Control or an Asset Sale shall not
constitute Disqualified Stock if the terms of such Capital Stock provide that
the Company may not repurchase or redeem
 
                                       92
<PAGE>
 
any such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with the covenant described above under the subheading "--
Certain Covenants--Restricted Payments".
 
   "Domestic Subsidiary" means with respect to the Company, any Subsidiary of
the Company that:
 
     (1) was formed under the laws of the United States of America; or
 
     (2) that guarantees or otherwise becomes obligated with respect to any
  Indebtedness of the Company.
 
   "ESOP Stock Sale Agreement" means that certain ESOP Stock Sale and Exchange
Agreement dated as of July 22, 1998 (as amended by Amendment No. 1 thereto,
dated as of September 25, 1998) by and among Holdings, the Company, Merger
Corp. and State Street Bank & Trust Company, solely in its capacity as trustee
of the ESOP trust, as in effect on the Closing Date.
 
   "Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
 
   "Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries (other than Indebtedness under the New Senior Credit Agreement)
in existence on the date of the indenture, until such amounts are repaid.
 
   "Existing Notes" means the 10.75% Senior Subordinated Notes due 2006 of the
Company.
 
   "Fenway" means:
 
     (1) Fenway Partners Capital Fund, L.P., a Delaware limited partnership;
 
     (2) Fenway Partners Capital Fund II, L.P., a Delaware limited
  partnership; and
 
     (3) so long as it is controlled and more than 50% owned by one or more
  of the entities described in clauses (1) and (2), Simmons Holdings LLC, a
  Delaware limited liability company.
 
   "Fenway Agreement" means that certain Advisory Agreement dated as of
October 29, 1998 by and among Fenway Partners, Inc., the Company and Holdings
as in effect on the date of the indenture.
 
   "Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of:
 
     (1) the consolidated interest expense of such Person and its Restricted
  Subsidiaries for such period, whether paid or accrued (including, without
  limitation, original issue discount, non-cash interest payments, the
  interest component of any deferred payment obligations, the interest
  component of all payments associated with Capital Lease Obligations,
  commissions, discounts and other fees and charges incurred in respect of
  revolving credit facilities and letter of credit or bankers' acceptance
  financings, and net payments, if any, pursuant to Hedging Obligations, but
  excluding the amortization of deferred financing costs); plus
 
     (2) the consolidated interest of such Person and its Restricted
  Subsidiaries that was capitalized during such period; plus
 
     (3) any interest expense on Indebtedness of another Person that is
  Guaranteed by such Person or one of its Restricted Subsidiaries or secured
  by a Lien on assets of such Person or one of its Restricted Subsidiaries,
  whether or not such Guarantee or Lien is called upon; plus
 
     (4) all dividend payments, whether or not in cash, on any series of
  preferred stock of such Person or any of its Restricted Subsidiaries, other
  than dividend payments on Equity Interests payable solely in Equity
  Interests of the Company or a Guarantor (other than Disqualified Stock) or
  to the Company or a Restricted Subsidiary of the Company.
 
   For purposes of the preceding, total interest expense shall be determined
after giving effect to any net payments made or received by the Company and
its Subsidiaries with respect to Interest Swap Obligations.
 
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<PAGE>
 
   "Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the referent
Person or any of its Restricted Subsidiaries incurs, assumes, Guarantees or
redeems, repays, repurchases, defeases or otherwise discharges any Indebtedness
(other than revolving credit borrowings) or issues or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated but prior to the date on which the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee or
redemption, repayment, repurchase, defeasance or other discharge of
Indebtedness, or such issuance or redemption of preferred stock, as if the same
had occurred at the beginning of the applicable four-quarter reference period.
 
   In addition, unless otherwise specified in a particular provision of the
indenture, for purposes of calculating the Fixed Charge Coverage Ratio:
 
     (1) acquisitions that have been made by the Company or any of its
  Restricted Subsidiaries, including through mergers or consolidations and
  including any related financing transactions, during the four-quarter
  reference period or subsequent to such reference period and on or prior to
  the Calculation Date shall be deemed to have occurred on the first day of
  the four-quarter reference period and Consolidated Cash Flow for such
  reference period shall be calculated (including any pro forma expense and
  cost reductions and related adjustments to the extent that the same are
  consistent with Regulation S-X under the Act, except in the case of clause
  (15) of Permitted Debt and except in the case of the covenant described
  above under the subheading "Merger, Consolidation, or Sale of Assets") and
  without giving effect to clause (3) of the proviso set forth in the
  definition of Consolidated Net Income; and
 
     (2) the Consolidated Cash Flow attributable to discontinued operations,
  as determined in accordance with GAAP, and operations or businesses
  disposed of prior to the Calculation Date, shall be excluded; and
 
     (3) the Fixed Charges attributable to discontinued operations, as
  determined in accordance with GAAP, and operations or businesses disposed
  of prior to the Calculation Date, shall be excluded, but only to the extent
  that the obligations giving rise to such Fixed Charges will not be
  obligations of the referent Person or any of its Restricted Subsidiaries
  following the Calculation Date.
 
   For purposes of this definition, whenever pro forma effect is to be given to
any acquisition, the amount of Consolidated Cash Flow relating thereto and the
amount of Fixed Charges associated with any Indebtedness incurred in connection
therewith shall be determined in good faith by a responsible financial or
accounting officer of the Company in a manner that is consistent with this
definition.
 
   "GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the indenture.
 
   "Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof), of all or any part of any Indebtedness.
 
   "Guarantors" means each Subsidiary of the Company that executes a Guarantee
in accordance with the provisions of the indenture, and their respective
successors and assigns except those released in accordance with the terms of
the indenture.
 
   "Hedging Obligations" means, with respect to any Person, the obligations of
such Person under:
 
     (1) interest rate swap agreements, interest rate cap agreements and
  interest rate collar agreements; and
 
                                       94
<PAGE>
 
     (2) other agreements or arrangements designed to protect such Person
  against fluctuations in interest rates.
 
   "Holdings" means Simmons Holdings, Inc., a Delaware corporation, and the
Company's direct parent.
 
   "Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of:
 
     (1) borrowed money;
 
     (2) evidenced by bonds, notes, debentures or similar instruments or
  letters of credit (or reimbursement agreements in respect thereof);
 
     (3) banker's acceptances;
 
     (4) representing Capital Lease Obligations;
 
     (5) the balance deferred and unpaid of the purchase price of any
  property or any Hedging Obligations, except any such balance that
  constitutes an accrued expense or trade payable;
 
if and to the extent any of the foregoing (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such
Indebtedness is assumed by such Person) and, to the extent not otherwise
included, the Guarantee by such Person of any indebtedness of any other
Person.
 
   The amount of any Indebtedness outstanding as of any date shall be:
 
     (1) the accreted value thereof, in the case of any Indebtedness issued
  with original issue discount; and
 
     (2) the principal amount thereof, together with any interest thereon
  that is more than 30 days past due, in the case of any other Indebtedness.
 
   "Industrial Revenue Bonds" means:
 
     (1) $9.7 million of 7.0% industrial revenue bonds maturing in 2017 that
  the Company issued to finance the construction of its Janesville, Wisconsin
  facility; and
 
     (2) $5.0 million of variable rate industrial revenue bonds maturing in
  2016 that the Company issued to finance the construction of its Shawnee,
  Kansas facility.
 
   "Interest Swap Obligations" means the obligations of any Person, pursuant
to any arrangement with any other Person, whereby, directly or indirectly,
such Person is entitled to receive from time to time periodic payments
calculated by applying either a floating or a fixed rate of interest on a
stated notional amount in exchange for periodic payments made by such other
Persons calculated by applying a fixed or a floating rate of interest on the
same notional amount.
 
   "Investcorp" means INVESTCORP S.A.
 
   "Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel, relocation
and similar advances to officers and employees made in the ordinary course of
business), purchases or other acquisitions for consideration of Indebtedness,
Equity Interests or other securities, together with all items that are or
would be classified as investments on a balance sheet prepared in accordance
with GAAP. If the Company or any Subsidiary of the Company sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of the
Company such that, after giving effect to any such sale or disposition, such
Person is no
 
                                      95
<PAGE>
 
longer a Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the subheading "--Restricted Payments".
 
   "Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law (including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any
jurisdiction).
 
   "Management Investors" means the management officers and employees of the
Company and its Subsidiaries identified as management investors in the
Recapitalization Agreement.
 
   "Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however:
 
     (1) any gain (but not loss), together with any related provision for
  taxes on such gain (but not loss), realized in connection with: (a) any
  Asset Sale (including, without limitation, dispositions pursuant to sale
  and leaseback transactions, and without regard to the $1.0 million size
  limitation set forth in the definition of "Asset Sale") or (b) the
  disposition of any securities by such Person or any of its Restricted
  Subsidiaries or the extinguishment of any Indebtedness of such Person or
  any of its Restricted Subsidiaries; and
 
     (2) any extraordinary gain (but not loss), together with any related
  provision for taxes on such extraordinary gain (but not loss); and
 
     (3) non-cash compensation charges, including, any such non-cash charges
  arising from existing stock options resulting from any merger,
  recapitalization or other acquisition or disposition.
 
   "Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale) and any cash payments
received by way of deferred payments as and when received, net of the direct
costs relating to such Asset Sale (including, without limitation, legal,
accounting and investment banking fees, and sales commissions) and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof (after taking into account any available tax credits or
deductions and any tax sharing arrangements), amounts required to be applied to
the repayment of Indebtedness (other than Senior Debt under a Credit Facility)
secured by a Lien on the asset or assets that were the subject of such Asset
Sale and any reserve for adjustment in respect of the sale price of such asset
or assets established in accordance with GAAP.
 
   "New Senior Credit Agreement" means that certain senior secured credit
agreement, dated October 29, 1998, consisting of a $270.0 senior secured bank
financing including (i) an $80.0 million six-year revolver, (ii) a $70.0
million six-year term loan A, (iii) a $70.0 million seven-year term loan B and
(iv) a $50.0 million eight-year term loan C entered into by the Company,
Goldman Sachs Credit Partners L.P., as joint lead arranger, syndication agent
and lender, and Warburg Dillon Read LLC, as joint lead arranger, UBS AG,
Stamford Branch, as administrative agent and lender, and the other institutions
party thereto from time to time, including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, and in each case, as amended, modified, supplemented, renewed,
refunded, replaced, extended, restructured or refinanced from time to time.
 
   "Non-Recourse Debt" means Indebtedness:
 
     (1) as to which neither the Company nor any of its Restricted
  Subsidiaries (a) provides credit support of any kind (including any
  undertaking, agreement or instrument that would constitute Indebtedness),
  (b) is directly or indirectly liable (as a guarantor or otherwise), or (c)
  constitutes the lender; and
 
                                       96
<PAGE>
 
     (2) no default with respect to which (including any rights that the
  holders thereof may have to take enforcement action against an Unrestricted
  Subsidiary) would permit (upon notice, lapse of time or both) any holder of
  any other Indebtedness of the Company or any of its Restricted Subsidiaries
  to declare a default on such other Indebtedness or cause the payment
  thereof to be accelerated or payable prior to its stated maturity; and
 
     (3) as to which the lenders have been notified in writing that they will
  not have any recourse to the stock or assets of the Company or any of its
  Restricted Subsidiaries.
 
   "Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
 
   "Permitted Business" means any business (including stock or assets) that
derives a majority of its revenues from the manufacture, distribution and sale
of mattresses, foundation and other bedding products and activities that are
reasonably similar, ancillary or related to, or a reasonable extension,
development or expansion of, the businesses in which the Company and its
Restricted Subsidiaries are engaged on the date of the indenture.
 
   "Permitted Debt" has the meaning assigned to such term in the second
paragraph of the covenant described above under the subheading "Certain
Covenants--Incurrence of indebtedness and Issuance of Preferred Stock".
 
   "Permitted Group" means any group of investors that is deemed to be a
"person" (as such term is used in Section 13(d)(3) of the Exchange Act) by
virtue of the Stockholders Agreements, as the same may be amended, modified or
supplemented from time to time, provided that no single Person (together with
its Affiliates), other than the Principals and their Related Parties, is the
Beneficial Owner (with such beneficial ownership determined without regard to
the Stockholders Agreements, as the same may be amended, modified or
supplemented from time to time), directly or indirectly, of (a) more than 40%
of the Voting Stock of the Company that is "beneficially owned" (as defined
above) by such group of investors and (b) more of the Voting Stock of the
Company than is at the time "beneficially owned" (as defined above) by the
Principals and their Related Parties in the aggregate (Voting Stock, in each
case, measured by voting power rather than number of shares).
 
   "Permitted Investments" means:
 
     (1) any Investment in the Company or in a Restricted Subsidiary of the
  Company that is a Guarantor;
 
     (2) any Investment in Cash Equivalents;
 
     (3) any Investment by the Company or any Restricted Subsidiary of the
  Company that is a Guarantor in a Person, if as a result of such Investment:
 
       (a) such Person becomes a Restricted Subsidiary of the Company; or
 
       (b) such Person is merged, consolidated or amalgamated with or into,
    or transfers or conveys substantially all of its assets to, or is
    liquidated into, the Company or a Restricted Subsidiary of the Company
    that is a Guarantor;
 
     (4) any Investment in a Restricted Subsidiary that is not a Guarantor;
  provided that the aggregate fair market value of such Investment, when
  taken together with the fair market value of all other Investments made
  pursuant to this clause (4) that are at that time outstanding, shall not
  exceed 10% of Total Assets at the time of such Investment (with the fair
  market value of each Investment being measured at the time made and without
  giving effect to subsequent changes in value);
 
     (5) any Investment made as a result of the receipt of non-cash
  consideration from an Asset Sale that was made pursuant to and in
  compliance with the covenant described above under the subheading "--
  Repurchase at the Option of Holders--Asset Sales";
 
                                      97
<PAGE>
 
     (6) any acquisition of assets solely in exchange for the issuance of
  Equity Interests (other than Disqualified Stock) of the Company;
 
     (7) any Investment by the Company or a Subsidiary of the Company in a
  Securitization Entity or any Investment by a Securitization Entity in any
  other Person in connection with a Qualified Securitization Transaction;
  provided that any Investment in a Securitization Entity is in the form of a
  Purchase Money Note or an equity interest;
 
     (8) any Investment existing on the date of the indenture;
 
     (9) loans and advances to employees and officers in the ordinary course
  of business not to exceed $5.0 million at any one time outstanding;
 
     (10) Currency Agreements and Interest Swap Obligations;
 
     (11) accounts receivable incurred in the ordinary course of business,
 
     (12) Investments in securities of trade creditors or customers received
  pursuant to a plan of reorganization or similar arrangement upon the
  bankruptcy or insolvency of such trade creditor or customer;
 
     (13) guarantees otherwise permitted under the indenture;
 
     (14) Investments the payment of which consists exclusively of Equity
  Interests other than Disqualified Stock; and
 
     (15) additional Investments having an aggregate fair market value, taken
  together with all other Investments made pursuant to this clause (15) that
  are at that time outstanding, not to exceed $10.0 million at the time of
  such Investment (with the fair market value of each Investment being
  measured at the time made and without giving effect to subsequent changes
  in value).
 
   "Permitted Junior Securities" means:
 
     (1) Equity Interests in the Company, Holdings or any Guarantor; or
 
     (2) debt securities that are subordinated to all Senior Debt (and any
  debt securities issued in exchange for Senior Debt) to substantially the
  same extent as, or to a greater extent than, the Notes are subordinated to
  Senior Debt pursuant to the indenture.
 
   "Permitted Liens" means:
 
     (1) Liens securing Senior Debt that was permitted by the terms of the
  indenture to be incurred;
 
     (2) Liens in favor of the Company;
 
     (3) Liens on property of a Person existing at the time such Person is
  merged with or into or consolidated with the Company or any Subsidiary of
  the Company; provided that such Liens were in existence prior to the
  contemplation of such merger or consolidation and do not extend to any
  assets other than those of the Person merged into or consolidated with the
  Company;
 
     (4) Liens on property existing at the time of acquisition thereof by the
  Company or any Subsidiary of the Company, provided that such Liens were in
  existence prior to the contemplation of such acquisition;
 
     (5) Liens to secure the performance of statutory obligations, surety or
  appeal bonds, performance bonds or other obligations of a like nature
  incurred in the ordinary course of business;
 
     (6) Liens to secure Senior Debt of the Company that was permitted to be
  incurred by the indenture;
 
     (7) Liens existing on the date of the indenture;
 
     (8) Liens for taxes, assessments or governmental charges or claims that
  are not yet delinquent or that are being contested in good faith by
  appropriate proceedings promptly instituted and diligently concluded,
  provided that any reserve or other appropriate provision as shall be
  required in conformity with GAAP shall have been made therefor;
 
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<PAGE>
 
     (9) Liens incurred in the ordinary course of business of the Company or
  any Subsidiary of the Company with respect to obligations that do not
  exceed $5.0 million at any one time outstanding and that:
 
       (a) are not incurred in connection with the borrowing of money or
    the obtaining of advances or credit (other than trade credit in the
    ordinary course of business); and
 
       (b) do not in the aggregate materially detract from the value of the
    property or materially impair the use thereof in the operation of
    business by the Company or such Subsidiary;
 
     (10) Liens on assets of Unrestricted Subsidiaries that secure Non-
  Recourse Debt of Unrestricted Subsidiaries;
 
     (11) Liens securing the Industrial Revenue Bonds;
 
     (12) Liens on goods (and the proceeds thereof) and documents of title
  and the property covered thereby securing Indebtedness in respect of
  commercial letters of credit; and
 
     (13) leases or subleases to third parties.
 
   "Permitted Refinancing Indebtedness" means any Indebtedness or Disqualified
Stock of the Company or any of its Restricted Subsidiaries issued in exchange
for, or the net proceeds of which are used to extend, refinance, renew,
replace, defease or refund other Indebtedness or Disqualified Stock of the
Company or any of its Restricted Subsidiaries (other than intercompany
Indebtedness); provided that:
 
     (1) the principal amount (or accreted value or liquidation value, if
  applicable) of such Permitted Refinancing Indebtedness does not exceed the
  principal amount of (or accreted value or liquidation value, if
  applicable), plus accrued interest on, the Indebtedness or Disqualified
  Stock so extended, refinanced, renewed, replaced, defeased or refunded
  (plus the amount of reasonable expenses, costs or premiums incurred in
  connection therewith);
 
     (2) such Permitted Refinancing Indebtedness has a final maturity date
  later than the final maturity date of, and has a Weighted Average Life to
  Maturity equal to or greater than the Weighted Average Life to Maturity of,
  the Indebtedness or Disqualified Stock being extended, refinanced, renewed,
  replaced, defeased or refunded;
 
     (3) if the Indebtedness or Disqualified Stock being extended,
  refinanced, renewed, replaced, defeased or refunded is subordinated in
  right of payment to the Notes, such Permitted Refinancing Indebtedness has
  a final maturity date later than the final maturity date of, and is
  subordinated in right of payment to, the Notes on terms at least as
  favorable to the holders of Notes as those contained in the documentation
  governing the Indebtedness or Disqualified Stock being extended,
  refinanced, renewed, replaced, defeased or refunded;
 
     (4) such Indebtedness or Disqualified Stock is incurred or issued either
  by the Company or by the Restricted Subsidiary who is the obligor on the
  Indebtedness (or issuer of the Disqualified Stock) being extended,
  refinanced, renewed, replaced, defeased or refunded; and
 
     (5) if the Indebtedness or Disqualified Stock being extended,
  refinanced, renewed, replaced, defeased or refunded provided for payment or
  accrual of interest or dividends on a non-cash basis, then such
  Indebtedness or Disqualified Stock contains provisions allowing for the
  payment or accrual of interest and dividends on comparable terms.
 
   "Principals" means (a) Fenway and (b) any other Person that owns more than
10% of the Equity Interests of Holdings as of the date of the indenture.
 
   "Public Equity Offering" means any underwritten public offering of Qualified
Capital Stock of Holdings or the Company; provided that, in the event of any
such public equity offering by Holdings, Holdings contributes to the common
equity capital of the Company (other than as Disqualified Stock) the portion of
the net cash proceeds of such public equity offering necessary to pay the
aggregate redemption price (plus accrued
 
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<PAGE>
 
interest to the redemption date) of the exchange notes to be redeemed pursuant
to the provisions of the second paragraph under the subheading "Optional
Redemption" with respect to the exchange notes.
 
   A "Public Market" shall be deemed to exist if:
 
     (1) a Public Equity Offering has been consummated; and
 
     (2) at least 35% of the total issued and outstanding Common Stock of the
  Company or Holdings (as applicable) immediately prior to the consummation
  of such Public Equity Offering has been distributed by means of an
  effective registration statement under the Securities Act.
 
   "Qualified Capital Stock" means any Capital Stock that is not Disqualified
Stock.
 
   "Qualified Securitization Transaction" means any transaction or series of
transactions pursuant to which the Company or any of its Restricted
Subsidiaries may sell, convey or otherwise transfer to (a) a Securitization
Entity (in the case of a transfer by the Company or any of its Restricted
Subsidiaries) and (b) any other Person (in case of a transfer by a
Securitization Entity), or may grant a security interest in, any accounts
receivable or equipment (whether now existing or arising or acquired in the
future) of the Company or any of its Restricted Subsidiaries, and any assets
related thereto including, without limitation, all collateral securing such
accounts receivable and equipment, all contracts and contract rights and all
Guarantees or other obligations in respect such accounts receivable and
equipment, proceeds of such accounts receivable and equipment and other assets
(including contract rights) which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving accounts receivable and equipment.
 
   "Recapitalization Agreement" means that certain Agreement and Plan of Merger
dated as of July 16, 1998, by and among Holdings, the Company and Merger Corp.,
as amended by Amendment No. 1 dated as of September 22, 1998, and as amended by
Amendment No. 2 dated as of October 26, 1998.
 
   "Related Party" means:
 
     (1) any controlling stockholder of any of the Principals, any entity
  that is more than 50% owned by any one or more Principals or their Related
  Parties; or
 
     (2) any trust, corporation, partnership or other entity, the
  beneficiaries, stockholders, partners, owners or Persons beneficially
  holding a 51% or more controlling interest of which consist of the
  Principals and/or such other Persons referred to in the immediately
  preceding clause (1); or
 
     (3) any Person who, directly or indirectly, controls through a
  management agreement or a general partner or is under common control with
  any of the Principals; or
 
     (4) any trust, partnership, corporation or other entity, the
  benefactors, stockholders, partners or owners of which consist of Persons
  referred to in clause (3).
 
   "Restricted Investment" means an Investment other than a Permitted
Investment.
 
   "Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
 
   "Securitization Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable or equipment and related assets) that engages in no
activities other than in connection with the financing of accounts receivable
or equipment and that is designated by the Board of Directors of the Company
(as provided below) as a Securitization Entity (a) no portion of the
Indebtedness or any other Obligations (contingent or otherwise) of which (i) is
guaranteed by the Company or any Restricted Subsidiary of the Company
(excluding guarantees of Obligations (other than the principal of, and interest
on, Indebtedness)) pursuant to Standard Securitization Undertakings, (ii) is
recourse to or obligates
 
                                      100
<PAGE>
 
the Company or any Restricted Subsidiary of the Company in any way other than
pursuant to Standard Securitization Undertakings or (iii) subjects any
property or asset of the Company or any Restricted Subsidiary of the Company,
directly or indirectly, contingently or otherwise, to the satisfaction
thereof, other than pursuant to Standard Securitization Undertakings, (b) with
which neither the Company nor any Restricted Subsidiary of the Company has any
material contract, agreement, arrangement or understanding other than on terms
no less favorable to the Company or such Restricted Subsidiary than those that
might be obtained at the time from Persons that are not Affiliates of the
Company, other than fees payable in the ordinary course of business in
connection with servicing receivables of such entity, and (c) to which neither
the Company nor any Restricted Subsidiary of the Company has any obligation to
maintain or preserve such entity's financial condition or cause such entity to
achieve certain levels of operating results. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing with
the Trustee a resolution of the Board of Directors of the Company giving
effect to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing conditions.
 
   "Senior Credit Documents" means the New Senior Credit Agreement, the
guaranties thereunder, any pledge and security agreement, any mortgage and
each other document executed in connection with the issuance of the bank
financing thereunder as each such document may be amended, restated,
supplemented or otherwise modified from time to time.
 
   "Senior Debt" means:
 
     (1) all Indebtedness of the Company or any Guarantor outstanding on the
  date of the indenture under Credit Facilities or thereafter incurred under
  Credit Facilities, and all Hedging Obligations with respect thereto;
 
     (2) any other Indebtedness of the Company or any Guarantor permitted to
  be incurred under the terms of the indenture, unless the instrument
  governing such Indebtedness expressly provides that it is on a parity with
  or subordinated in right of payment to the notes or any Guarantee thereof;
  and
 
     (3) all Obligations with respect to the foregoing.
 
   Notwithstanding anything to the contrary in the preceding, Senior Debt will
not include:
 
     (1) any Indebtedness represented by Capital Stock;
 
     (2) any liability for federal, state, local or other taxes owed or owing
  by the Company;
 
     (3) any Indebtedness of the Company to any of its Subsidiaries or other
  Affiliates;
 
     (4) any trade payables including any Guarantees thereof or instruments
  evidencing such liabilities;
 
     (5) any Indebtedness that is incurred in violation of the indenture;
 
     (6) the Existing Notes; or
 
     (7) the Industrial Revenue Bonds.
 
   "Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
 
   "Simmons ESOP" means the Simmons Company Employee Stock Ownership Plan, as
form time to time amended, supplemented or otherwise modified, and a trust
forming a part thereof and its successors.
 
   "Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company that are reasonably customary in an accounts receivable or equipment
transactions.
 
   "Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, the date on which such payment of
interest or principal was scheduled to be paid in the original
 
                                      101
<PAGE>
 
documentation governing such Indebtedness, and shall not include any contingent
obligations to repay, redeem or repurchase any such interest or principal prior
to the date originally scheduled for the payment thereof.
 
   "Stockholders Agreements" means those certain Stockholders Agreements (i) by
and among Holdings, Fenway and ESOP, Investcorp and the other Persons listed
therein and the Company, and (ii) by and among Holdings, the Management
Investors and the other Persons listed therein, each as in effect on the date
of the indenture.
 
   "Subsidiary" means, with respect to any Person:
 
     (1) any corporation, association or other business entity of which more
  than 50% of the total voting power of shares of Capital Stock entitled
  (without regard to the occurrence of any contingency) to vote in the
  election of directors, managers or trustees thereof is at the time owned or
  controlled, directly or indirectly, by such Person or one or more of the
  other Subsidiaries of that Person (or a combination thereof); and
 
     (2) any partnership (a) the sole general partner or the managing general
  partner of which is such Person or a Subsidiary of such Person or (b) the
  only general partners of which are such Person or of one or more
  Subsidiaries of such Person (or any combination thereof).
 
   "Transaction Documents" means the Senior Credit Documents, the Common Equity
Documents, the Stockholders Agreements, the ESOP Stock Sale Agreement, the
Recapitalization Agreement, the Fenway Agreement and all documents relating to
any of the foregoing.
 
   "Total Assets" means the consolidated assets of the Company and its
Restricted Subsidiaries calculated in accordance with GAAP.
 
   "Unrestricted Subsidiary" means any Subsidiary of the Company that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution; but only to the extent that such Subsidiary:
 
     (1) has no Indebtedness other than Non-Recourse Debt;
 
     (2) is not party to any agreement, contract, arrangement or
  understanding with the Company or any Restricted Subsidiary of the Company
  unless the terms of any such agreement, contract, arrangement or
  understanding are no less favorable to the Company or such Restricted
  Subsidiary than those that might be obtained at the time from Persons who
  are not Affiliates of the Company;
 
     (3) is a Person with respect to which neither the Company nor any of its
  Restricted Subsidiaries has any direct or indirect obligation (a) to
  subscribe for additional Equity Interests or (b) to maintain or preserve
  such Person's financial condition or to cause such Person to achieve any
  specified levels of operating results;
 
     (4) has not guaranteed or otherwise directly or indirectly provided
  credit support for any Indebtedness of the Company or any of its Restricted
  Subsidiaries; and
 
     (5) has at least one director on its board of directors that is not a
  director or executive officer of the Company or any of its Restricted
  Subsidiaries and has at least one executive officer that is not a director
  or executive officer of the Company or any of its Restricted Subsidiaries.
 
   Any designation of a Subsidiary of the Company as an Unrestricted Subsidiary
by the Board of Directors shall be evidenced to the Trustee by filing with the
Trustee a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and was permitted by the covenant
described above under the subheading "Certain Covenants--Designation of
Restricted and Unrestricted Subsidiaries". If, at any time, any Unrestricted
Subsidiary would fail to meet the foregoing requirements as an Unrestricted
Subsidiary, it shall thereafter cease to be an Unrestricted Subsidiary for
purposes of the indenture and any Indebtedness of such Subsidiary shall be
 
                                      102
<PAGE>
 
deemed to be incurred by a Restricted Subsidiary of the Company as of such date
(and, if such Indebtedness is not permitted to be incurred as of such date
under the covenant described under the subheading "Certain Covenants--
Incurrence of Indebtedness and Issuance of Preferred Stock", the Company shall
be in default of such covenant). The Board of Directors of the Company may at
any time designate any Unrestricted Subsidiary to be a Restricted Subsidiary;
provided that such designation shall be deemed to be an incurrence of
Indebtedness by a Restricted Subsidiary of the Company of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the subheading "Certain Covenants--Incurrence of Indebtedness and
Issuance of Preferred Stock", calculated on a pro forma basis as if such
designation had occurred at the beginning of the four-quarter reference period,
(2) no Default or Event of Default would be in existence following such
designation and (3) if any such Subsidiary is a Domestic Subsidiary, it shall
execute a supplemental indenture to become a Guarantor with respect to the
Notes.
 
   "Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
 
   "Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing;
 
     (1) the sum of the products obtained by multiplying (a) the amount of
  each then remaining installment, sinking fund, serial maturity or other
  required payments of principal, including payment at final maturity, in
  respect thereof, by (b) the number of years (calculated to the nearest one-
  twelfth) that will elapse between such date and the making of such payment,
  by
 
     (2) the then outstanding principal amount of such Indebtedness.
 
   "Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
 
   "Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted
Subsidiaries of such Person.
 
                                      103
<PAGE>
 
                               THE EXCHANGE OFFER
 
Purpose and Effect of the Exchange Offer
 
   We originally sold the notes to Goldman Sachs, Warburg Dillon Read, Fleet
Securities and U.S. Bancorp Libra (the "Initial Purchasers") pursuant to the
Purchase Agreement dated March 10, 1999. The Initial Purchasers subsequently
resold the notes to qualified institutional buyers in reliance on Rule 144A
under the Securities Act and to a limited number of persons outside the United
States under Regulation S. As a condition to the Purchase Agreement, we entered
into a registration rights agreement with the Initial Purchasers in which we
agreed to:
 
     (1) file a registration statement registering the exchange notes with
  the Commission within 105 days after the original issuance of the notes;
 
     (2) use our best efforts to have the registration statement relating to
  the exchange notes declared effective by the Commission within 165 days
  after the original issuance of the notes;
 
     (3) unless applicable law or Commission policy would not permit the
  exchange offer, commence the exchange offer and use our best efforts to
  issue, within 30 business days after the date on which the Commission
  declares the registration statement relating to the exchange notes
  effective, exchange notes in exchange for all notes tendered prior to the
  expiration date; and
 
     (4) if obligated to file a shelf registration statement, use our best
  efforts to file the shelf registration statement with the Commission within
  45 days after such filing obligation arises, to cause the shelf
  registration statement to be declared effective by the Commission within 90
  days after such obligation arises and to use our best efforts to keep
  effective the shelf registration statement for at least two years after the
  original issuance of the notes or such shorter period that will terminate
  when all securities covered by the shelf registration statement have been
  sold pursuant to the shelf registration statement.
 
   We have agreed to keep the exchange offer open for not less than 20 business
days (or longer if required by applicable law) after the date on which the
Commission declares the registration statement relating to the exchange notes
effective. The registration rights agreement also requires us to include in the
prospectus for the exchange offer certain information necessary to allow
broker-dealers who hold notes, other than notes purchased directly from us or
an affiliate of us, to exchange such notes pursuant to the exchange offer and
to satisfy the prospectus delivery requirements in connection with resales of
the exchange notes received by such broker-dealers in the exchange offer.
 
   This prospectus covers the offer and sale of the exchange notes pursuant to
the exchange offer and the resale of exchange notes received in the exchange
offer by any broker-dealer who held notes, other than notes purchased directly
from us or one of our affiliates.
 
   For each note surrendered to us pursuant to the exchange offer, the holder
of such note will receive an exchange note having a principal amount equal to
that of the surrendered note. Interest on each exchange note will accrue from
the date of issuance of such exchange note. The holders of notes that are
accepted for exchange will receive, in cash, accrued interest on such notes to,
but not including, the issuance date of the exchange notes. We will pay such
interest with the first interest payment on the exchange notes. Interest on the
notes accepted for exchange will cease to accrue upon issuance of the exchange
notes.
 
   Under existing interpretations of the staff of the Commission contained in
several no-action letters to third parties, we believe the exchange notes would
in general be freely tradeable after the exchange offer without further
registration under the Securities Act. If our belief is inaccurate, holders who
transfer exchange notes in violation of the prospectus delivery provisions of
the Securities Act and without an exemption from registration may incur
liability under the Securities Act. We do not assume or indemnify holders
against such liability.
 
                                      104
<PAGE>
 
   Any purchaser of the notes who is either an "affiliate" of us, a broker-
dealer who purchased notes directly from us or an affiliate of us for resale,
or who intends to participate in the exchange offer for the purpose of
distributing the exchange notes:
 
     (1) will not be able to rely on the interpretation of the staff of the
  Commission;
 
     (2) will not be able to tender its notes in the exchange offer; and
 
     (3) must comply with the registration and prospectus delivery
  requirements of the Securities Act in connection with any sale or transfer
  of the notes, unless such sale or transfer is made pursuant to all
  exemption from such requirements.
 
   We have agreed to file with the Commission a shelf registration statement to
cover resales of the notes by holders who satisfy certain conditions relating
to the provision of information in connection with the shelf registration
statement if:
 
     (1) we are not required to file the registration statement for the
  exchange offer or permitted to consummate the exchange offer because we are
  not permitted by applicable law or Commission policy; or
 
     (2) any holder of Transfer Restricted Securities notifies us prior to
  the 20th day following consummation of the exchange offer that:
 
       (a) it is prohibited by law or Commission policy from participating
    in such offer;
 
       (b) that it may not resell the exchange notes acquired by it in the
    exchange offer to the public without delivering a prospectus and the
    prospectus contained in the registration statement relating to the
    exchange offer is not appropriate or available for such resales; or
 
       (c) that it is a broker-dealer that purchased notes directly from us
    or an affiliate of us for resale.
 
   For purposes of the foregoing and below, "Transfer Restricted Securities"
means each note until the earliest to occur of:
 
     (1) the date on which a person other than a broker-dealer for an
  exchange note has exchanged such note;
 
     (2) following the exchange by a broker-dealer in the exchange offer of a
  note for an exchange note, the date on which such exchange note is sold to
  a purchaser who receives from such broker-dealer before the date of such
  sale a copy of the prospectus contained in the registration statement
  relating to the exchange offer;
 
     (3) the date on which such note has been effectively registered under
  the Securities Act and disposed of in accordance with the shelf
  registration statement; or
 
     (4) the date on which such note is distributed to the public pursuant to
  Rule 144 under the Securities Act.
 
   We will pay liquidated damages to each holder of notes if:
 
     (1) we fail to file any of the registration statements required by the
  registration rights agreement on or before the date specified for such
  filing;
 
     (2) any of such registration statements is not declared effective by the
  Commission on or before the date specified for such effectiveness (the
  "Effectiveness Deadline");
 
     (3) we fail to consummate the exchange offer within 30 business days
  after the registration statement relating to the exchange offer is first
  declared effective by the Commission; or
 
     (4) the shelf registration statement or the registration statement
  relating to the exchange offer is declared effective but thereafter ceases
  to be effective or usable in connection with resales of Transfer Restricted
  Securities during the periods specified in the registration rights
  agreement without being
 
                                      105
<PAGE>
 
  succeeded immediately by a post-effective amendment to such registration
  statement that cures such failure and is itself declared effective by the
  Commission (each such event referred to in clauses (1) through (4) above a
  "Registration Default").
 
   The amount of liquidated damages will be $.05 per week per $1,000 in
principal amount of Transfer Restricted Securities held by each holder, with
respect to the first 90-day period immediately following the occurrence of the
first Registration Default. The amount of liquidated damages will increase by
$.05 per week per $1,000 principal amount of Transfer Restricted Securities
with respect to each subsequent 90-day period until all Registration Defaults
have been cured, up to a maximum amount of liquidated damages for all
Registration Defaults of $.50 per week per $1,000 principal amount of Transfer
Restricted Securities provided that we shall in no event be required to pay
liquidated damages for more than one Registration Default on the notes at any
time. We will pay all accrued liquidated damages on each interest payment date
in the manner provided for the payment of interest in the indenture. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease.
 
   As contemplated by the aforementioned no-action letters and the registration
rights agreement, each holder tendering notes in the exchange offer is required
to represent to us in the letter of transmittal, that, among things:
 
     (1) the person receiving the exchange notes pursuant to the exchange
  offer, whether or not such person is the holder, is receiving them in the
  ordinary course of business;
 
     (2) neither the holder nor any such other person has an arrangement or
  understanding with any person to participate in the distribution of such
  exchange notes and that each such holder that is not a broker-dealer is not
  engaged in, and does not intend to engage in, a distribution of exchange
  notes;
 
     (3) neither the holder nor any such other person is an "affiliate" of us
  within the meaning of Rule 405 under the Securities Act;
 
     (4) the holder acknowledges and agrees that (A) any person participating
  in the exchange offer for the purpose of distributing the exchange notes
  must comply with the registration and prospectus delivery requirements of
  the Securities Act in connection with a secondary resale transaction with
  respect to the exchange notes acquired by such person and cannot rely on
  the position of the staff of the Commission set forth in no-action letters
  that are discussed above and under the heading "--Purpose and Effect of the
  exchange offer," and (B) any broker-dealer that receives exchange notes for
  its own account in exchange for notes pursuant to the exchange offer must
  deliver a prospectus in connection with any resale of such exchange notes,
  but by so acknowledging, the holder shall not be deemed to admit that, by
  delivering a prospectus, it is an "underwriter" within the meaning of the
  Securities Act; and
 
     (5) the holder understands that a secondary resale transaction described
  in clause (4)(A) above should be covered by an effective registration
  statement containing the selling security holder information required by
  Item 507 or 508 of Regulation S-K of the Commission.
 
   Although a broker-dealer may be an "underwriter" within the meaning of the
Securities Act, the letter of transmittal states that by so acknowledging and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act. This prospectus,
as it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of exchange notes received in exchange
for notes.
 
   The Commission has taken the position that participating broker-dealers may
fulfill their prospectus delivery requirements with respect to the exchange
notes (other than a resale of an unsold allotment from the original sale of the
notes) with a prospectus contained in the registration statement relating to
the exchange offer. Under the registration rights agreement, we are required to
allow broker-dealers to use the prospectus contained in the registration
statement relating to the exchange offer in connection with the resale of such
exchange notes.
 
                                      106
<PAGE>
 
   We will, in the event of the filing of a shelf registration statement,
provide to each holder of notes eligible to participate in such shelf
registration statement copies of the prospectus which is a part of the shelf
registration statement, notify each such holder when the shelf registration
statement for the notes has become effective and take other actions as are
required to permit resales of the notes. A holder of notes that sells such
notes pursuant to the shelf registration statement generally will be required
to be named as a selling securityholder in the related prospectus and to
deliver a prospectus to purchasers, will be subject to the civil liability
provisions under the Securities Act in connection with such sales and will be
bound by the provisions of the registration rights agreement which are
applicable to such a holder, including certain indemnification obligations. In
addition, each such holder will be required to deliver information to be used
in connection with the shelf registration statement and to provide comments on
the shelf registration statement within the time periods set forth in the
registration rights agreement in order to have their notes included in the
shelf registration statement and to benefit from the provisions regarding
liquidated damages.
 
 Terms of the Exchange Offer
 
   Upon the terms and subject to the conditions set forth in this prospectus
and the accompanying letter of transmittal, we will accept all notes validly
tendered prior to 5:00 p.m., New York City time, on the expiration date. We
will issue $1,000 principal amount of exchange notes in exchange for each
$1,000 principal amount of outstanding notes accepted in the exchange offer.
Holders may tender some or all of their notes pursuant to the exchange offer in
integral multiples of $1,000.
 
   The form and terms of the exchange notes are identical in all material
respects to the form and terms of the notes except for the following:
 
     (1) the exchange notes bear a Series B designation and different CUSIP
  number from the notes;
 
     (2) the exchange notes have been registered under the Securities Act
  and, therefore, will not bear legends restricting their transfer; and
 
     (3) the holders of the exchange notes will not be entitled to certain
  rights under the registration rights agreement, including the provisions
  providing for liquidated damages in certain circumstances relating to the
  timing of the exchange offer, all of which rights will terminate when the
  exchange offer is terminated.
 
   The exchange notes will evidence the same debt as the notes and will be
entitled to the benefits of the indenture. As of the date of this prospectus,
$150.0 million aggregate principal amount of the notes is outstanding. Solely
for reasons of administration and no other reason, we have fixed the close of
business on       , 1999 as the record date for the exchange offer for purposes
of determining the persons to whom this prospectus and the letter of
transmittal will be mailed initially. Only a registered holder of notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the indenture may participate in the exchange
offer. There will be no fixed record date, however, for determining registered
holders of the notes entitled to participate in the exchange offer.
 
   The holders of notes do not have any appraisal or dissenters' rights under
the General Corporation Law of Delaware or the indenture. We intend to conduct
the exchange offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission.
 
   We shall be deemed to have accepted validly tendered notes when, as and if
the holder of such note has given oral or written notice thereof to the
exchange agent. The exchange agent will act as agent for the tendering holders
for the purpose of receiving the exchange notes from us.
 
   If any tendered notes are not accepted for exchange because of an invalid
tender, the occurrence of certain other events set forth in this prospectus or
otherwise, the certificates for any such unaccepted notes will be returned,
without expense, to the tendering holder as promptly as practicable after the
expiration date.
 
                                      107
<PAGE>
 
   Those holders who tender notes in the exchange offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange of notes. We will
pay all charges and expenses, other than certain applicable taxes, in
connection with the exchange offer. See "--Fees and Expenses."
 
 Expiration Dates; Extensions; Amendments
 
   The "expiration date" shall be 5:00 p.m., New York City time, on       ,
1999 unless we, in our sole discretion, extend the exchange offer, in which
case the expiration date shall be the latest date to which the exchange offer
is extended. Notwithstanding the foregoing, we will not extend the expiration
date beyond       , 1999.
 
   We have no current plans to extend the exchange offer. In order to extend
the expiration date, we will notify the exchange agent of any extension by oral
or written notice and will make a public announcement of such extension, in
each case prior to 9:00 a.m., New York City time, no later than the next
business day after the previously scheduled expiration date.
 
   We reserve the right, in our sole discretion, to
 
     (1) delay accepting any notes;
 
     (2) extend the exchange offer; or
 
     (3) terminate the exchange offer
 
if any of the conditions set forth below under "--Conditions of the Exchange
Offer" shall not have been satisfied, in each case by giving oral or written
notice of such delay, extension or termination to the exchange agent, and to
amend the terms of the exchange offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly as
practicable by a public announcement of such event. If we amend the exchange
offer in a manner determined by us to constitute a material change, we will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders of the notes and the exchange offer
will be extended for a period of five to ten business days, as required by law,
depending upon the significance of the amendment and the manner of disclosure
to the registered holders, assuming the exchange offer would otherwise expire
during such five to ten business day period.
 
   Without limiting the manner in which we may choose to make public
announcement of any delay, extension, termination or amendment of the exchange
offer, we shall not have an obligation to publish, advertise, or otherwise
communicate any such public announcement other than by making a timely release
to the Dow Jones News Service.
 
 Interest on the Exchange Notes
 
   The exchange notes will bear interest from their date of issuance. Interest
is payable semiannually on March 15 and September 15 of each year commencing on
September 15, 1999, at the rate of 10 1/4% per annum. The holders of notes that
are accepted for exchange will receive, in cash, accrued interest on such notes
to, but not including, the issuance date of the exchange notes. Such interest
will be paid with the first interest payment on the exchange notes.
Consequently, holders who exchange their notes for exchange notes will receive
the same interest payment on September 15, 1999 which is the first interest
payment date with respect to the notes that they would have received had they
not accepted the exchange offer. Interest on the notes accepted for exchange
will cease to accrue upon issuance of the exchange notes.
 
 Procedures for Tendering
 
   Only a registered holder of notes may tender such notes in the exchange
offer. To effectively tender in the exchange offer, a holder must complete,
sign and date a copy or facsimile of the letter of transmittal, have the
signatures thereon guaranteed if required by the letter of transmittal, and
mail or otherwise deliver such letter of transmittal or such facsimile,
together with the notes and any other required documents, to the exchange agent
at the address set forth below under "exchange agent" for receipt prior to 5:00
p.m., New
 
                                      108
<PAGE>
 
York City time, on the expiration date. Delivery of the notes also may be made
by book-entry transfer in accordance with the procedures described below. If
you are effecting delivery by book-entry transfer,
 
     (1) confirmation of such book-entry transfer must be received by the
  exchange agent prior to the expiration date; and
 
     (2) you must transmit to the exchange agent on or prior to the
  expiration date a computer-generated message transmitted by means of the
  Automated Tender Offer Program System of the Depository Trust Company in
  which you acknowledge and agree to be bound by the terms of the letter of
  transmittal and which, when received by the exchange agent, forms a part of
  the confirmation of book-entry transfer.
 
   By executing the letter of transmittal or effecting delivery by book-entry
transfer, each holder is making to us those representations set forth under the
heading "--Resale of the Exchange Notes."
 
   The tender by a holder of notes will constitute an agreement between such
holder and us in accordance with the terms and subject to the conditions set
forth herein and in the letter of transmittal.
 
   The method of delivery of the notes and the letter of transmittal and all
other required documents to the exchange agent is at the election and sole risk
of the holder. As an alternative to delivery by mail, holders may wish to
consider overnight or hand delivery service. In all cases, sufficient time
should be allowed to assure delivery to the exchange agent before the
expiration date. No letters of transmittal or notes should be sent to us.
Holders may request that their respective brokers, dealers, commercial banks,
trust companies or nominees effect the above transactions for such holders.
 
   Only a registered holder of notes may tender such notes in connection with
the exchange offer. The term "holder" with respect to the exchange offer means
any person in whose name notes are registered on our books or any other person
who has obtained a properly completed bond power from the registered holder, or
any person whose notes are held of record by DTC who desires to deliver such
notes by book-entry transfer at DTC.
 
   If your notes are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to tender, you should
promptly contact the person in whose name the notes are registered and instruct
such registered holder to tender on your behalf. If a beneficial owner wishes
to tender on his or her own behalf, the holder must, prior to completing and
executing the letter of transmittal and delivering the notes, either make
appropriate arrangements to register ownership of the notes in his or her name
or to obtain a properly completed bond power from the registered holder. The
transfer of registered ownership may take considerable time.
 
   Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (defined below) unless
the notes tendered are tendered:
 
     (1) by a registered holder who has not completed the box entitled
  "Special Registration Instructions" or "Special Delivery Instructions" on
  the letter of transmittal; or
 
     (2) for the account of an Eligible Institution.
 
   If signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed, such guarantee must be by a participant in a
recognized signature guarantee medallion program within the meaning of Rule
17Ad-15 under the Exchange Act (an "Eligible Institution").
 
   If the letter of transmittal is signed by a person other than the registered
holder of any notes listed therein, such notes must be endorsed or accompanied
by a properly completed bond powers, signed by such registered holder as such
registered holder's name appears on such notes with the signature thereon
guaranteed by an Eligible Institution.
 
                                      109
<PAGE>
 
   If the letter of transmittal or any notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, officers of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and submit with the letter of
transmittal evidence satisfactory to so act.
 
   We understand that the exchange agent will make a request, promptly after
the date of this prospectus, to establish accounts with respect to the notes at
the book-entry transfer facility of DTC for the purpose of facilitating this
exchange offer, and subject to the establishment of these accounts, any
financial institution that is a participant in the book-entry transfer facility
system may make book-entry delivery of notes by causing the transfer of such
notes into the exchange agent's account with respect to the notes in accordance
with DTC's procedures for such transfer. Although delivery of the notes may be
effected through book-entry transfer into the exchange agent's account at the
book-entry transfer facility, unless the holder complies with the procedures
described in the following paragraph or the guaranteed delivery procedures
described below, an appropriate letter of transmittal properly completed and
duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
exchange agent at its address set forth below before the expiration date. The
delivery of documents to the book-entry transfer facility does not constitute
delivery to the exchange agent.
 
   The exchange agent and DTC have confirmed that the exchange offer is
eligible for the Automated Tender Offer Program ("ATOP") of DTC. Accordingly,
DTC participants may electronically transmit their acceptance of the exchange
offer by causing DTC to transfer notes to the exchange agent in accordance with
the procedures for transfer established under ATOP. DTC will then send an
Agent's Message to the exchange agent. The term "Agent's Message" means a
message transmitted by DTC, which when received by the exchange agent forms
part of the confirmation of a book-entry transfer, and which states that DTC
has received an express acknowledgment from the participant in DTC tendering
notes which are the subject of such book-entry confirmation that such
participant has received and agrees to be bound by the terms of the letter of
transmittal and that we may enforce such agreement against such participant. In
the case of an Agent's Message relating to guaranteed delivery, the term means
a message transmitted by DTC and received by the exchange agent which states
that DTC has received an express acknowledgment from the participant in DTC
tendering notes that such participant has received and agrees to be bound by
the Notice of Guaranteed Delivery.
 
   All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered notes will be determined by
us in our sole discretion, which determinations will be final and binding. We
reserve the absolute right to reject any and all notes not validly tendered or
any notes the acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the absolute right to waive any defects,
irregularities or conditions of tender as to particular notes. Our
interpretation of the terms and conditions of the exchange offer, including the
instructions in the letter of transmittal, will be final and binding on all
parties. Unless waived, any defects or irregularities in connection with
tenders of notes must be cured within such time as we shall determine. Although
we intend to notify holders of defects or irregularities with respect to the
tender of notes, neither we, the exchange agent nor any other person shall
incur any liability for failure to give such notification. Tenders of notes
will not be deemed to have been made until such defects or irregularities have
been cured or waived. Any notes received by the exchange agent that are not
validly tendered and as to which the defects or irregularities have not been
cured or waived, or if notes are submitted in a principal amount greater than
the principal amount of notes being tendered by such tendering holder, such
unaccepted or non-exchanged notes will be returned by the exchange agent to the
tendering holders (or, in the case of notes tendered by book-entry transfer
into the exchange agent's account at the book-entry transfer facility pursuant
to the book-entry transfer procedures described above, such unaccepted or non-
exchanged notes will be credited to an account maintained with such book-entry
transfer facility), unless otherwise provided in the letter of transmittal
designated for such notes, as soon as practicable following the expiration
date.
 
                                      110
<PAGE>
 
 Guaranteed Delivery Procedures
 
   Those holders who wish to tender their notes and
 
     (1) whose notes are not immediately available; or
 
     (2) who cannot deliver their notes, the letter of transmittal or any
  other required documents to the exchange agent before the expiration date;
  or
 
     (3) who cannot complete the procedures for book-entry transfer before
  the expiration date;
 
  may effect a tender if:
 
     (1) the tender is made through all Eligible Institution;
 
     (2) before the expiration date, the exchange agent receives from such
  Eligible Institution a properly completed and duly executed Notice of
  Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
  setting forth the name and address of the holder, the certificate number or
  numbers of such notes and the principal amount of notes tendered, stating
  that the tender is being made thereby, and guaranteeing that, within five
  business days after the expiration date, either (a) a copy or facsimile of
  the letter of transmittal, or facsimile thereof, together with the
  certificate(s) representing the notes and any other documents required by
  the letter of transmittal, will be deposited by the Eligible Institution
  with the exchange agent or (b) that a confirmation of book-entry transfer
  of such notes into the exchange agent's account at DTC, will be delivered
  to the exchange agent; and
 
     (3) either (a) a copy or facsimile of such properly completed and
  executed letter of transmittal together with the certificate(s)
  representing all tendered notes in proper form for transfer and all other
  documents required by the letter of transmittal or (b) if applicable,
  confirmation of a book-entry transfer into the exchange agent's account at
  DTC, are actually received by the exchange agent within five business days
  after the expiration date.
 
   Upon request to the exchange agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their notes according to the guaranteed
delivery procedures set forth above.
 
 Withdrawal of Tenders
 
   Except as otherwise provided herein, tenders of notes may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the expiration date.
 
   To validly withdraw a tender of notes in the exchange offer, the exchange
agent must receive a telegram, telex, letter or facsimile transmission notice
of withdrawal at its address set forth herein prior to 5:00 p.m., New York
City time, on the expiration date. Any such notice of withdrawal must:
 
     (1) specify the name of the person having deposited the notes to be
  withdrawn (the "Depositor");
 
     (2) identify the notes to be withdrawn, including the certificate number
  or numbers and the aggregate principal amount of such notes or, in the case
  of notes transferred by book-entry transfer, the name and number of the
  account at DTC to be credited;
 
     (3) be signed by the holder in the same manner as the original signature
  on the letter of transmittal by which such notes were tendered, including
  any required signature guarantees, or be accompanied by documents of
  transfers sufficient to permit the Trustee with respect to the notes to
  register the transfer of such notes into the name of the person withdrawing
  the tender; and
 
     (4) specify the name in which any such notes are to be registered, if
  different from that of the Depositor.
 
                                      111
<PAGE>
 
   All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by us, and our determination shall
be final and binding on all parties. Any notes so withdrawn will be deemed not
to have been validly tendered for purposes of the exchange offer and no
exchange notes will be issued in exchange for withdrawn notes unless those
notes so withdrawn are validly retendered. Any notes which have been tendered
but which are not accepted for exchange because of the rejection of the tender
due to uncured defects or the prior termination of the exchange offer, or
which have been validly withdrawn, will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the exchange offer. Properly withdrawn notes may
be retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the expiration date.
 
 Conditions of the Exchange Offer
 
   The offer is subject to the condition that the exchange offer, or the
making of any exchange by a holder, does not violate applicable law or any
applicable interpretation of the staff of the Commission. If there has been a
change in policy of the Commission such that in the reasonable opinion of
counsel to us there is a substantial question whether the exchange offer is
permitted by applicable federal law, we have agreed to seek a no-action letter
or other favorable decision from the Commission allowing us to consummate the
exchange offer.
 
   If we determine that the exchange offer is not permitted by applicable
federal law, it may terminate the exchange offer. In connection with such
termination we may:
 
     (1) refuse to accept any notes and return any notes that have been
  tendered by the holders thereof;
 
     (2) extend the exchange offer and retain all notes tendered prior to the
  expiration date, subject to the rights of such holders of tendered notes to
  withdraw their tendered notes; or
 
     (3) waive such termination event with respect to the exchange offer and
  accept all properly tendered notes that have not been properly withdrawn.
 
   If such waiver constitutes a material change in the exchange offer, we will
disclose such change by means of a supplement to this prospectus that will be
distributed to each registered holder of notes, and we will extend the
exchange offer for a period of five to ten business days, depending upon the
significance of the waiver, if the exchange offer would otherwise expire
during such period.
 
 Exchange Agent
 
   SunTrust Bank, Atlanta, the Trustee under the indenture, has been appointed
as exchange agent for the exchange offer. Questions and requests for
assistance, requests for additional copies of this prospectus or the letter of
transmittal and requests for the Notice of Guaranteed Delivery should be
directed to the exchange agent addressed as follows:
 
     By Registered or Certified Mail or Hand Delivery:
 
       SunTrust Bank, Atlanta
       25 Park Place
       24th Floor
       Atlanta, GA 30303-2900
       Attention: Olga Warren
 
     Facsimile Transmission: (404) 588-7335
     Confirm by Telephone: (404) 588-7067
 
   Any requests or deliveries to all address or facsimile number other than as
set forth above will not constitute a valid delivery.
 
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<PAGE>
 
 Fees and Expenses
 
   The expenses of soliciting tenders will be borne by us. The principal
solicitation for lenders is being made by mail. Additional solicitations,
however, may be made by our officers and regular employees and our affiliates
in person, by telegraph or telephone.
 
   We have not retained any dealer-manager in connection with the exchange
offer and will not make any payments to brokers, dealers or other persons
soliciting acceptances of the exchange offer. We will pay the exchange agent,
however, reasonable and customary fees for its services and will reimburse the
exchange agent for its reasonable out-of-pocket expenses in connection with the
exchange offer.
 
   We will pay the cash expenses incurred in connection with the exchange
offer. Such expenses include fees and expenses of the exchange agent and the
Trustee, accounting and legal fees and printing costs, among others.
 
   We will pay all transfer taxes, if any, applicable to the exchange of the
notes pursuant to the exchange offer. If, however, a transfer tax is imposed
for any reason other than the exchange of the notes pursuant to the exchange
offer, then the amount of any such transfer taxes, whether imposed on the
registered holder or any other persons, will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with the letter of transmittal, the amount of such
transfer taxes will be billed directly to such tendering holder.
 
 Accounting Treatment
 
   The exchange notes will be recorded at the same carrying value as the notes,
which is face value, as reflected in our accounting records on the date of
exchange. Accordingly, we will not recognize any gain or loss for accounting
purposes. The costs of the exchange offer will be amortized over the term of
the exchange notes.
 
 Consequences of Failure to Exchange
 
   The notes that are not exchanged for exchange notes pursuant to the exchange
offer will remain transfer restricted securities. Accordingly, such notes may
be resold only as follows:
 
     (1) to us, upon redemption thereof or otherwise;
 
     (2) (a) so long as the notes are eligible for resale pursuant to Rule
  144A, to a person inside the United States whom the seller reasonably
  believes is a qualified institutional buyer within the meaning of Rule 144A
  under the Securities Act in a transaction meeting the requirements of Rule
  144A, (b) in accordance with Rule 144 under the Securities Act, or (c)
  pursuant to another exemption from the registration requirements of the
  Securities Act and based upon an opinion of counsel reasonably acceptable
  to us;
 
     (3) outside the United States to a foreign person in a transaction
  meeting the requirements of Rule 904 under the Securities Act; or
 
     (4) pursuant to an effective registration statement under the Securities
  Act.
 
   Persons who acquire the exchange notes are responsible for compliance with
the state securities or blue sky laws regarding resales. We assume no
responsibility for compliance with these requirements.
 
                                      113
<PAGE>
 
            CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
 
Scope of Discussion
 
   This general discussion of certain United States federal income and estate
tax consequences applies to you if you acquired notes at original issue for
cash and you exchange those notes for exchange notes in the exchange offer.
This discussion only applies to you if you hold the exchange notes as a
"capital asset," generally, for investment, under Section 1221 of the Code.
This summary, however, does not consider state, local or foreign tax laws. In
addition, it does not include all of the rules which may affect the United
States tax treatment of your investment in the exchange notes. For example,
special rules not discussed here may apply to you if you are:
 
  . a broker-dealer, a dealer in securities or a financial institution;
 
  . an S corporation;
 
  . an insurance company;
 
  . a tax-exempt organization;
 
  . subject to the alternative minimum tax provisions of the Code;
 
  . holding the exchange notes as part of a hedge, straddle or other risk
    reduction or constructive sale transaction; or
 
  . a nonresident alien or foreign corporation subject to net-basis United
    States federal income tax on income or gain derived from an exchange note
    because such income or gain is effectively connected with the conduct of
    a United States trade or business.
 
   This discussion only represents our best attempt to describe certain
federal income tax consequences that may apply to you based on current United
States federal tax law. This discussion may in the end inaccurately describe
the federal income tax consequences which are applicable to you because the
law may change, possibly retroactively, and because the Internal Revenue
Service ("IRS") or any court may disagree with this discussion.
 
   This summary may not cover your particular circumstances because it does
not consider foreign, state or local tax rules, disregards certain federal tax
rules, and does not describe future changes in federal tax rules. Please
consult your tax advisor rather than relying on this general description.
 
United States Holders
 
   If you are a "United States Holder," as defined below, this section applies
to you. Otherwise, the next section, "Non-United States Holders," applies to
you.
 
   Definition of United States Holder. You are a "United States Holder" if you
hold notes and you are:
 
  . a citizen or resident of the United States, including an alien individual
    who is a lawful permanent resident of the United States or meets the
    "substantial presence" test under Section 7701(b) of the Code;
 
  . a corporation or partnership created or organized in the United States or
    under the laws of the United States or of any political subdivision;
 
  . an estate the income of which is subject to United States federal income
    tax regardless of its source; or
 
  . a trust, if (i) a United States court can exercise primary supervision
    over the administration of the trust and one or more United States
    persons can control all substantial decisions of the trust, or (ii) the
    trust was in existence on August 20, 1996 and has properly elected to
    continue to be treated as a United States person.
 
                                      114
<PAGE>
 
   Taxation of Stated Interest. You generally must pay federal income tax on
the interest on the exchange notes:
 
  . when it accrues, if you use the accrual method of accounting for United
    States federal income tax purposes; or
 
  . when you receive it, if you use the cash method of accounting for United
    States federal income tax purposes.
 
   Redemption and Repurchase Rights. As described elsewhere in this prospectus,
we may under certain circumstances be required to repurchase the exchange notes
and we have the option to redeem some or all of the exchange notes at certain
times under certain circumstances.
 
   Based on our current expectations, the chance that we will repurchase or
redeem the exchange notes is remote. Accordingly, we intend to take the
position that the payments contingent on the repurchase or redemption of the
exchange notes do not, as of the issue date, cause the exchange notes to have
original issue discount ("OID") and do not affect the yield to maturity or the
maturity date of the exchange notes. You may not take a contrary position
unless you disclose your contrary position in the proper manner to the IRS.
 
   You should consult your tax adviser with respect to the contingent payments
described above. If, contrary to our expectations, we repurchase or redeem the
notes, or if the IRS takes the position that the contingent payments described
were not remote as of the issue date, you may have to redetermine the amount
and timing of interest income you must include in taxable income.
 
   Sale or Other Taxable Disposition of the Exchange Notes. You must recognize
taxable gain or loss on the sale, exchange, redemption, retirement or other
taxable disposition of an exchange note. The amount of your gain or loss equals
the difference between the amount you receive for the exchange note (in cash or
other property, valued at fair market value), minus the amount attributable to
accrued interest on the exchange note, minus your adjusted tax basis in the
exchange note. Your initial tax basis in an exchange note equals the price you
paid for the note which you exchanged for the exchange note.
 
   Your gain or loss will generally be a long-term capital gain or loss if your
holding period in the exchange note is more than one year. Otherwise, it will
be a short-term capital gain or loss. Payments attributable to accrued interest
which you have not yet included in income will be taxed as ordinary interest
income.
 
   Receipt of Exchange Notes. Because the economic terms of the exchange notes
and the notes are identical, your exchange of notes for exchange notes under
the exchange offer will not constitute a taxable exchange of the notes. Even if
you received exchange notes in exchange for notes on which additional interest
was paid because of a registration default, the exchange will not be taxable
because the exchange would occur by operation of the notes' original terms. As
a result:
 
  . you will not recognize taxable gain or loss when you receive exchange
    notes in exchange for notes;
 
  . your holding period in the exchange notes will include your holding
    period in the notes; and
 
  . your basis in the exchange notes will equal your basis in the notes.
 
   Backup Withholding. You may be subject to a 31% backup withholding tax when
you receive interest payments on the exchange note or proceeds upon the sale or
other disposition of an exchange note. Certain holders (including, among
others, corporations and certain tax-exempt organizations) are generally not
subject to backup withholding. In addition, the 31% backup withholding tax will
not apply to you if you provide your taxpayer identification number ("TIN") in
the prescribed manner unless:
 
  . the IRS notifies us or our agent that the TIN you provided is incorrect;
 
  . you fail to report interest and dividend payments that you receive on
    your tax return and the IRS notifies us or our agent that withholding is
    required; or
 
  . you fail to certify under penalties of perjury that you are not subject
    to backup withholding.
 
                                      115
<PAGE>
 
   If the 31% backup withholding tax does apply to you, you may use the amounts
withheld as a refund or credit against your United States federal income tax
liability as long as you provide certain information to the IRS.
 
Non-United States Holders
 
   Definition of Non-United States Holder. A "Non-United States Holder" is any
person other than a United States Holder. If you are subject to United States
federal income tax on a net basis on income or gain with respect to an exchange
note because such income or gain is effectively connected with the conduct of a
United States trade or business, this disclosure does not cover the United
States federal tax rules that apply to you.
 
 Interest.
 
   Portfolio Interest Exemption. You will generally not have to pay United
States federal income tax on interest (or OID on the exchange notes, if any)
paid on the exchange notes because of the "portfolio interest exemption" if
either:
 
  . you represent that you are not a United States person for United States
    federal income tax purposes and you provide your name and address to us
    or our paying agent on a properly executed IRS Form W-8 (or a suitable
    substitute form) signed under penalties of perjury; or
 
  . a securities clearing organization, bank, or other financial institution
    that holds customers' securities in the ordinary course of its business
    holds the exchange note on your behalf, certifies to us or our agent
    under penalties of perjury that it has received IRS Form W-8 (or a
    suitable substitute) from you or from another qualifying financial
    institution intermediary, and provides a copy to us or our agent.
 
   You will not, however, qualify for the portfolio interest exemption
described above if:
 
  . you own, actually or constructively, 10% or more of the total combined
    voting power of all classes of our capital stock;
 
  . you are a controlled foreign corporation with respect to which we are a
    "related person" within the meaning of Section 864(d)(4) of the Code, or
 
  . you are a bank receiving interest described in Section 881(c)(3)(A) of
    the Code.
 
   Withholding Tax if the Interest Is Not Portfolio Interest. If you do not
claim, or do not qualify for, the benefit of the portfolio interest exemption,
you may be subject to 30% withholding tax on interest payments made on the
exchange notes. However, you may be able to claim the benefit of a reduced
withholding tax rate under an applicable income tax treaty. The required
information for claiming treaty benefits is generally submitted under current
regulations on Form 1001. Successor forms will require additional information,
as discussed below. See "Non-United States Holders--New Withholding
Regulations."
 
   Reporting. We may report annually to the IRS and to you the amount of
interest paid to, and the tax withheld, if any, with respect to you.
 
   Sale or Other Disposition of the Exchange Notes. You generally will not be
subject to United States federal income tax or withholding tax on gain
recognized on a sale, exchange, redemption, retirement, or other disposition of
an exchange note. You may, however, be subject to tax on such gain if:
 
  . you are an individual who was present in the United States for 183 days
    or more in the taxable year of the disposition, in which case you may
    have to pay a United States federal income tax of 30% (or a reduced
    treaty rate) on such gain, and you may also be subject to withholding
    tax; or
 
  . you are an individual who is a former citizen or resident of the United
    States, your loss of citizenship or residency occurred within the last
    ten years (and, if you are a former resident, on or after
    February 6, 1995), and it had as one of its principal purposes the
    avoidance of United States tax, in which case
 
                                      116
<PAGE>
 
   you may be taxed on the net gain derived from the sale under the graduated
   United States federal income tax rates that are applicable to United
   States citizens and resident aliens, and you may be subject to withholding
   under certain circumstances.
 
   Even if you are an individual described in one of the two paragraphs above,
you should not recognize gain subject to United States federal income tax as a
result of exchanging notes for exchange notes under the exchange offer. See the
more complete discussion above under "United States Holders--Receipt of
Exchange Notes."
 
   United States Federal Estate Taxes. If you qualify for the portfolio
interest exemption under the rules described above when you die, the exchange
notes will not be included in your estate for United States federal estate tax
purposes.
 
 Back-up Withholding and Information Reporting.
 
   Payments from United States Office. If you receive payments of interest or
principal directly from us or through the United States office of a custodian,
nominee, agent or broker, there is a possibility that you will be subject to
both backup withholding at a rate of 31% and information reporting.
 
   With respect to interest payments made on the exchange note, however, back-
up withholding and information reporting will not apply if you certify,
generally on a Form W-8 or substitute form, that you are not a United States
person in the manner described above. See "Non-United States Holders--
Interest."
 
   Moreover, with respect to proceeds received on the sale, exchange,
redemption, or other disposition of an exchange note, back-up withholding or
information reporting generally will not apply if you properly provide,
generally on Form W-8 or a substitute form, a statement that you are an "exempt
foreign person" for purposes of the broker reporting rules, and other required
information. If you are not subject to United States federal income or
withholding tax on the sale or other disposition of an exchange note, as
described above under the heading "Non-United States Holders--Sale or Other
Disposition of Exchange Notes," you generally will qualify as an "exempt
foreign person" for purposes of the broker reporting rules.
 
   Payments from Foreign Office. If payments of principal and interest are made
to you outside the United States by or through the foreign office of your
foreign custodian, nominee or other agent, or if you receive the proceeds of
the sale of an exchange note through a foreign office of a "broker," as defined
in the pertinent United States Treasury Regulations, you generally will not be
subject to backup withholding or information reporting. You will, however, be
subject to backup withholding and information reporting if the foreign
custodian, nominee, agent or broker has actual knowledge or reason to know that
the payee is a United States person. You will also be subject to information
reporting, but not backup withholding, if the payment is made by a foreign
office of a custodian, nominee, agent or broker that is a United States person
or a controlled foreign corporation for United States federal income tax
purposes, or that derives 50% or more of its gross income from the conduct of a
United States trade or business for a specified three year period, unless the
broker has in its records documentary evidence that you are a Non-United States
Holder and certain other conditions are met.
 
   Refunds. Any amounts withheld under the backup withholding rules may be
refunded or credited against your federal income tax liability, provided that
you furnish the required information to the IRS.
 
   New Withholding Regulations. New regulations relating to withholding tax on
income paid to foreign persons (the "New Withholding Regulations") will
generally be effective for payments made after December 31, 1999, subject to
certain transition rules. The New Withholding Regulations modify and, in
general, unify the way in which you establish your status as a non-United
States "beneficial owner" eligible for withholding exemptions, including the
portfolio interest exemption, a reduced treaty rate or an exemption from backup
withholding. For example, the New Withholding Regulations will require new
forms, which you
 
                                      117
<PAGE>
 
generally will have to provide earlier than you would have had to provide
replacements for expiring existing forms.
 
   The New Withholding Regulations clarify withholding agents' reliance
standards. They also require additional certifications for claiming treaty
benefits. For example, you may be required to provide a TIN, and you may have
to certify that you "derive" the income with respect to which the treaty
benefit is claimed within the meaning of applicable regulations. The New
Withholding Regulations also provide somewhat different procedures for foreign
intermediaries and flow-through entities (such as foreign partnerships) to
claim the benefit of applicable exemptions on behalf of non-United States
beneficial owners for which or for whom they receive payments. The New
Withholding Regulations also amend the foreign broker office definition as it
applies to partnerships.
 
   The New Withholding Regulations are complex and this summary does not
completely describe them. Please consult your tax advisor to determine how the
New Withholding Regulations will affect your particular circumstances.
 
                                      118
<PAGE>
 
                              PLAN OF DISTRIBUTION
 
   Each broker-dealer that receives exchange notes for its own account pursuant
to the exchange offer in exchange for Notes which such broker-dealer acquired
as a result of market-making or other trading activities must acknowledge that
it will deliver a prospectus in connection with any resale of such exchange
notes. Any such broker-dealer may use this prospectus, as we may amend or
supplement it from time to time, in connection with resales of exchange notes
received in exchange for notes. For a period of one year after we complete the
exchange offer, we will promptly send additional copies of this prospectus and
any amendment or supplement to this prospectus to any broker-dealer that
requests such documents in the letter of transmittal. All resales must be made
in compliance with state securities or blue sky laws. We assume no
responsibility with regard to compliance with these requirements.
 
   We will not receive any proceeds from any sales of the exchange notes by
broker-dealers. Broker-dealers may sell exchange notes received for their own
account pursuant to the exchange offer from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the exchange notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to the purchaser or to or through brokers-dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such exchange notes. Any broker-
dealer that resells the exchange notes that it received for its own account
pursuant to the exchange offer and any broker or dealer that participates in a
distribution of such exchange notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of exchange
notes and any commissions or concessions received by any such persons may be
deemed to be underwriting compensation under the Securities Act. The letter of
transmittal states that by acknowledging that it will deliver and by delivering
a prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
 
   We have been advised by the Initial Purchasers that following completion of
this exchange offer they intend to make a market in the exchange notes. Such
entities, however, are under no obligation to do so and any market activities
with respect to the exchange notes may be discontinued at any time.
 
                                      119
<PAGE>
 
                                 LEGAL MATTERS
 
   Certain legal matters in connection with the exchange notes will be passed
upon for Simmons by Jones, Day, Reavis & Pogue, Atlanta, Georgia and Ropes &
Gray, Boston, Massachusetts.
 
                                    EXPERTS
 
   The consolidated balance sheets as of December 26, 1998 and December 27,
1997 and the consolidated statements of operations, common stockholders equity
(deficit), and cash flows for the years ended December 26, 1998, December 27,
1997, the period from March 22, 1996 to December 28, 1996 and from December 31,
1995 through March 21, 1996, included in this prospectus, have been included
herein in reliance on the report of PricewaterhouseCoopers LLP, independent
accountants, given on the authority of that firm as experts in accounting and
auditing.
 
                      WHERE YOU CAN FIND MORE INFORMATION
 
   We have filed a registration statement on Form S-4 under the Securities Act
with the Securities and Exchange Commission with respect to the exchange notes.
This prospectus, which forms a part of the registration statement, does not
contain all of the information included in the registration statement. We
omitted parts of this registration statement in accordance with the rules and
regulations of the Commission. For further information about us and the
exchange notes, we refer you to the registration statement. You should be aware
that none of the statements in this prospectus as to the contents of any
agreement or other document filed as an exhibit to the registration statement
are necessarily complete. We refer you to the copy of such documents filed as
exhibits to the registration statement.
 
   We are not currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934. We have
agreed that for so long as any of the exchange notes remain outstanding, we
will furnish to the holders of the exchange notes and, if permitted, will file
with the Commission, within the time periods specified in the rules and
regulations of the Commission:
 
     (i) all quarterly and annual financial information that would be
  required to be contained in a filing with the Commission on Forms 10-Q and
  10-K if we were required to file such forms, including "Management's
  Discussion and Analysis of Financial Condition and Results of Operations"
  and, with respect to the consolidated financial statements included in the
  annual information only, a report thereon by our independent accountants;
  and
 
     (ii) all reports that would be required to be filed with the Commission
  on Form 8-K if we were required to file such reports in each case.
 
   Any reports or documents we file with the Commission, including the
registration statement, may be inspected and copied at the Public Reference
Section of the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Regional Offices of the Commission at 7 World Trade
Center, 13th Floor, New York, New York 10048 and Citicorp Center, 14th Floor,
500 West Madison Street, Chicago, Illinois 60661. Copies of such reports or
other documents may be obtained at prescribed rates from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains a web site that contains reports and other
information that is filed through the Commission's Electronic Data Gathering
Analysis and Retrieval System. The web site can be accessed at
http://www.sec.gov.
 
   This prospectus incorporates important business and financial information
about us that is not included in or delivered with this prospectus. We will
provide without charge to each person to whom a copy of this prospectus is
delivered, upon written or oral request of any such person, a copy of any and
all of such information. Requests for such copies should be directed to the
Treasurer, Simmons Company, One Concourse Parkway, Atlanta, Georgia 30328
(Telephone Number (770) 512-7700). You should request any such information at
least five days in advance of the date on which you expect to make your
decision with respect to the exchange offer. In any event, you must request
such information prior to       , 1999.
 
                                      120
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 
<TABLE>
<S>                                                                         <C>
Consolidated Financial Statements:
  Report of Independent Accountants........................................ F-2
  Consolidated Balance Sheets as of December 26, 1998 and December 27,
   1997.................................................................... F-3
  Consolidated Statements of Operations for the year ended December 26,
   1998, the year ended December 27, 1997, the period from March 22, 1996
   through December 28, 1996 (Successor Periods) and the period from
   December 31, 1995 through March 21, 1996 (Predecessor Period)........... F-4
  Consolidated Statements of Common Stockholders' Equity for the year ended
   December 26, 1998, the year ended December 27, 1997, the period from
   March 22, 1996 through December 28, 1996 (Successor Periods) and the
   period from December 31, 1995 through March 21, 1996
   (Predecessor Period).................................................... F-5
  Consolidated Statements of Cash Flows for the year ended December 26,
   1998, the year ended December 27, 1997, the period from March 22, 1996
   through December 28, 1996 (Successor Periods) and the period from
   December 31, 1995 through March 21, 1996 (Predecessor Period) .......... F-6
  Notes to Consolidated Financial Statements............................... F-7
</TABLE>
 
 
                                      F-1
<PAGE>
 
                       REPORT OF INDEPENDENT ACCOUNTANTS
 
To the Board of Directors of
Simmons Company
 
   In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, common stockholders' equity
(deficit) and cash flows present fairly, in all material respects, the
financial position of Simmons Company (the "Company") at December 26, 1998 and
December 27, 1997, and the results of its operations and its cash flows for
the years ended December 28, 1998 and December 27, 1997, the period from March
22, 1996 through December 28, 1996 and the period from December 31, 1995
through March 21, 1996, in conformity with generally accepted accounting
principles. These financial statements 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 generally accepted auditing standards 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.
 
   As discussed in Note 1, the parent of Simmons Company entered into a
recapitalization on October 29, 1998.
 
PricewaterhouseCoopers LLP
February 24, 1999
 
                                      F-2
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
                          CONSOLIDATED BALANCE SHEETS
                      (in thousands, except share amounts)
 
<TABLE>
<CAPTION>
                                                    December 26,  December 27,
                                                        1998          1997
                                                    ------------  ------------
<S>                                                 <C>           <C>
                      ASSETS
Current assets:
  Cash and cash equivalents.......................      $  6,004      $  9,108
  Accounts receivable, less allowance for doubtful
   accounts of $4,177 and $3,938..................        71,354        65,488
  Inventories.....................................        20,462        19,970
  Deferred income taxes...........................         7,440         3,229
  Other current assets............................        14,792        13,808
                                                        --------      --------
    Total current assets..........................       120,052       111,603
Property, plant and equipment, net................        54,153        47,564
Patents, net of accumulated amortization of $7,666
 and $4,870.......................................         9,366        12,162
Goodwill, net of accumulated amortization of
 $13,290 and $8,457...............................       180,017       184,850
Deferred income taxes.............................        17,704         8,453
Other assets......................................        18,769        10,493
                                                        --------      --------
                                                        $400,061      $375,125
                                                        ========      ========
       LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable................................      $ 29,950      $ 27,847
  Accrued wages and benefits......................         5,323         8,830
  Accrued advertising and incentives..............        15,321        15,457
  Accrued interest................................         3,260         3,793
  Other accrued expenses..........................        13,627         9,435
  Current maturities of long-term obligations.....         1,832        10,873
                                                        --------      --------
    Total current liabilities.....................        69,313        76,235
Noncurrent liabilities:
  Long-term obligations...........................       311,637       173,570
  Postretirement benefit obligations other than
   pensions.......................................         7,702         7,612
  Other...........................................        11,626        13,864
                                                        --------      --------
    Total liabilities.............................       400,278       271,281
                                                        --------      --------
Commitments and contingencies
Redeemable Series A Preferred Stock under ESOP,
 net of related unearned compensation of $17,122..            --        11,230
Redemption Obligation--ESOP, net of related
 unearned compensation of $11,400.................        12,084            --
Common stockholders' equity (deficit):
  Common stock, $.01 par value; 50,000,000 shares
   authorized, 31,964,452 shares issued and
   outstanding....................................           320           320
  Additional paid-in capital......................            --        84,680
  Retained earnings (accumulated deficit).........       (12,535)        7,674
  Accumulated other comprehensive income (loss)...           (86)          (55)
  Treasury stock, 974 shares in 1997 at cost......            --            (5)
                                                        --------      --------
    Total common stockholders' equity (deficit)...       (12,301)       92,614
                                                        --------      --------
                                                        $400,061      $375,125
                                                        ========      ========
</TABLE>
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-3
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                        Successor                 Predecessor
                          --------------------------------------- ------------
                                                     Period from  Period from
                                                      March 22,   December 31,
                           Year ended    Year ended  1996 through 1995 through
                          December 26,  December 27, December 28,  March 21,
                              1998          1997         1996         1996
                          ------------  ------------ ------------ ------------
<S>                       <C>           <C>          <C>          <C>
Net sales................    $ 600,773      $550,085     $423,870     $106,431
Costs and expenses:
  Cost of products sold..      348,842       319,074      254,127       66,630
  Selling, general and
   administrative........      202,213       183,556      135,762       35,846
  ESOP expense...........        6,453         6,230        3,797        1,203
  Amortization of
   intangibles...........        7,629         7,679        5,650        1,324
                             ---------      --------     --------     --------
                               565,137       516,539      399,336      105,003
                             ---------      --------     --------     --------
    Income from
     operations..........       35,636        33,546       24,534        1,428
Interest expense, net....       22,454        19,088       15,277        1,489
Other expense, net.......       17,544         1,571        1,557           96
                             ---------      --------     --------     --------
Income (loss) before
 income taxes and
 extraordinary item......       (4,362)       12,887        7,700         (157)
Provision (benefit) for
 income taxes............         (345)        6,525        4,682          282
                             ---------      --------     --------     --------
    Income (loss) before
     extraordinary item..       (4,017)        6,362        3,018         (439)
Extraordinary loss from
 early extinguishment of
 debt, net of income tax
 benefit of $7,079 and
 $1,137..................       15,002            --        1,706           --
                             ---------      --------     --------     --------
Net income (loss)........    $ (19,019)     $  6,362     $  1,312     $   (439)
                             =========      ========     ========     ========
</TABLE>
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-4
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
        CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
 
                      (in thousands, except share amounts)
<TABLE>
<CAPTION>
                                                                        Retained     Accumulated             Total Common
                                            Additional    Unearned      Earnings        Other                Stockholders'
                            Common   Common  Paid-In    Compensation  (Accumulated  Comprehensive  Treasury     Equity
                            Shares   Stock   Capital     Under ESOP     Deficit)       Income       Stock      (Deficit)
                          ---------- ------ ----------  ------------  ------------  -------------  --------  -------------
<S>                       <C>        <C>    <C>         <C>           <C>           <C>            <C>       <C>
Predecessor
December 30, 1995.......  36,311,967   $363   $176,501      $(47,531)     $(78,894)         $(288)  $(5,779)      $ 44,372
 ESOP share
  allocations...........          --     --     (2,298)        3,501            --             --        --          1,203
 Income tax benefit on
  ESOP..................          --     --        896            --            --             --        --            896
 Net loss...............          --     --         --            --          (439)            --        --           (439)
 Other comprehensive
  income:
 Change in foreign
  currency translation..          --     --         --            --            --              9        --              9
 Purchase of treasury
  stock.................          --     --         --            --            --             --      (660)          (660)
                          ----------   ----   --------      --------      --------          -----   -------       --------
March 21, 1996..........  36,311,967   $363   $175,099      $(44,030)     $(79,333)         $(279)  $(6,439)      $ 45,381
                          ==========   ====   ========      ========      ========          =====   =======       ========
Successor
March 22, 1996 (reflects
 the new basis of
 31,964,452 common
 shares in connection
 with the Investcorp
 Acquisition)...........  31,964,452   $320   $ 84,680      $     --      $     --          $  (2)  $    --       $ 84,998
 Net income.............          --     --         --            --         1,312             --        --          1,312
 Other comprehensive
  income (loss):
 Change in foreign
  currency translation..          --     --         --            --            --            (19)       --            (19)
                          ----------   ----   --------      --------      --------          -----   -------       --------
December 28, 1996.......  31,964,452    320     84,680            --         1,312            (21)       --         86,291
 Net income.............          --     --         --            --         6,362             --        --          6,362
 Other comprehensive
  income (loss):
 Change in foreign
  currency translation..          --     --         --            --            --            (34)       --            (34)
 Purchase of treasury
  stock.................          --     --         --            --            --             --        (5)            (5)
                          ----------   ----   --------      --------      --------          -----   -------       --------
December 27, 1997.......  31,964,452    320     84,680            --         7,674            (55)       (5)        92,614
 Net loss...............          --     --         --            --       (19,019)            --        --        (19,019)
 Other comprehensive
  income (loss):
 Change in foreign
  currency translation..          --     --         --            --            --            (31)       --            (31)
 Purchase of treasury
  stock.................          --     --         --            --            --             --       (55)           (55)
 Excess of ESOP expense
  at fair market value
  over cost.............          --     --        731            --            --             --        --            731
 Increase in ESOP
  Redemption Obligation
  based on fair market
  value.................          --     --    (10,582)           --            --             --        --        (10,582)
 Distribution to
  Holdings..............          --     --    (74,829)           --        (1,190)            --        60        (75,959)
                          ----------   ----   --------      --------      --------          -----   -------       --------
December 26, 1998.......  31,964,452   $320   $     --      $     --      $(12,535)         $ (86)  $    --       $(12,301)
                          ==========   ====   ========      ========      ========          =====   =======       ========
</TABLE>
 
 
  The accompanying notes are an integral part of these consolidated financial
                                  statements.
 
                                      F-5
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (in thousands)
 
<TABLE>
<CAPTION>
                                        Successor                   Predecessor
                          ----------------------------------------  ------------
                                                      Period from   Period from
                                                       March 22,    December 31,
                           Year ended    Year ended   1996 through  1995 through
                          December 26,  December 27,  December 28,   March 21,
                              1998          1997          1996          1996
                          ------------  ------------  ------------  ------------
<S>                       <C>           <C>           <C>           <C>
Cash flows from
 operating activities:
Net income (loss).......     $ (19,019)     $  6,362     $   1,312        $ (439)
Adjustments to reconcile
 net income (loss) to
 net cash provided by
 operating activities:
 Depreciation and
  amortization..........        16,593        13,549         9,118         2,198
 ESOP expense...........         6,453         6,230         3,797         1,203
 Non-cash portion of
  extraordinary loss....          (921)           --         1,706            --
 Gain from sale of
  investment............            --            --        (4,011)           --
 Provision for bad
  debts.................            75         2,750         1,273           566
 Provision for deferred
  income taxes..........        (1,902)        6,226         4,420           282
 Other, net.............         1,072           613            46           472
Net changes in operating
 assets and liabilities:
 Accounts receivable....       (10,335)       (1,604)      (17,288)       (1,732)
 Inventories............          (492)       (1,137)         (769)        1,229
 Other assets...........        (5,208)       (5,235)       (3,724)         (531)
 Accounts payable.......         2,103         3,047         9,117        (7,250)
 Accrued liabilities....        (2,427)        1,500       (11,443)        6,341
                             ---------      --------     ---------        ------
Cash provided by (used
 in) operating
 activities.............       (14,008)       32,301        (6,446)        2,339
                             ---------      --------     ---------        ------
Cash flows from
 investing activities:
 Purchases of property,
  plant and equipment,
  net...................       (15,553)      (15,355)      (13,546)       (1,567)
 Proceeds from sale of
  investment............            --            --         4,700            --
 Payment to the seller
  for the acquisition...            --            --      (151,625)           --
 Payments to option
  holders...............            --            --        (6,950)           --
 Payments of acquisition
  costs.................            --            --       (16,040)           --
                             ---------      --------     ---------        ------
Net cash used in
 investing activities...       (15,553)      (15,355)     (183,461)       (1,567)
                             ---------      --------     ---------        ------
Cash flows from
 financing activities:
 Distribution to
  Holdings..............       (75,959)           --            --            --
 Distribution to
  Holdings for purchase
  of ESOP shares........       (15,450)           --            --            --
 Proceeds of New Credit
  Facility..............       200,000            --            --            --
 Payments on New Credit
  Facility..............       (10,000)           --            --            --
 Proceeds of Senior
  Bridge Loans..........        75,000            --            --            --
 Proceeds of Junior
  Simmons Notes.........        30,000            --            --            --
 Payment of 10.75%
  Senior Sub Notes......      (100,000)           --            --            --
 Proceeds of other
  Successor long-term
  borrowings............        33,871        34,329       317,700            --
 Payments on other
  Successor long-term
  borrowings............       (99,845)      (46,701)     (131,473)           --
 Proceeds from
  Predecessor revolving
  line of credit and
  long-term borrowings..            --            --            --         3,334
 Payments on Predecessor
  debt..................            --            --       (76,134)       (3,490)
 Payments of financing
  costs.................       (11,074)           --        (9,744)           --
 Proceeds from issuance
  of Successor common
  stock.................            --            --        85,000            --
 Treasury stock
  purchases.............           (55)           (5)           --          (660)
                             ---------      --------     ---------        ------
Net cash provided by
 (used in) financing
 activities.............        26,488       (12,377)      185,349          (816)
                             ---------      --------     ---------        ------
Net effect of exchange
 rate changes on cash...           (31)          (34)          (19)            9
                             ---------      --------     ---------        ------
Increase (decrease) in
 cash and cash
 equivalents............        (3,104)        4,535        (4,577)          (35)
Cash and cash
 equivalents, beginning
 of period..............         9,108         4,573         9,150         9,185
                             ---------      --------     ---------        ------
Cash and cash
 equivalents, end of
 period.................     $   6,004      $  9,108     $   4,573        $9,150
                             =========      ========     =========        ======
Supplemental cash flow
 information:
 Cash paid for
  interest..............     $  19,517      $ 17,526     $  11,798        $  803
                             =========      ========     =========        ======
 Cash paid for income
  taxes.................     $     322      $     60     $      93        $2,315
                             =========      ========     =========        ======
</TABLE>
 
 The accompanying notes are an integral part of these consolidated statements.
 
                                      F-6
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
                      (in thousands, except share amounts)
 
1. The Company
 
   Simmons Company ("Simmons" or "the Company") is one of the largest bedding
manufacturers in the United States. The Company manufactures and distributes
mattresses, box springs, bedding frames and sleep accessories. Simmons sells
bedding products to certain institutional customers, such as schools and
government entities, and to the lodging industry and licenses its patents and
trademarks to various domestic and foreign manufacturers.
 
 The Transactions
 
   On July 16, 1998, the Company's parent, Simmons Holdings, Inc. ("Holdings")
entered into a recapitalization agreement with the Company and REM Acquisition,
Inc., a transitory Delaware merger corporation ("REM"), sponsored by Fenway
Partners, Inc., ("Fenway"). Pursuant to the agreement on October 29, 1998 REM
merged with and into Holdings (the "Recapitalization"), with Holdings being the
surviving corporation. The Recapitalization resulted in certain stockholders of
Holdings who are affiliates of or investors arranged by INVESTCORP S.A.
("Investcorp") receiving an aggregate amount of cash equal to approximately
$193.4 million, and certain stockholders of Holdings who are members of
management of the Company receiving an aggregate amount of cash equal to
approximately $14.0 million. Investcorp retained shares of common stock of
Holdings with an estimated fair value of $9.0 million and management retained
shares of stock and options to purchase stock of Holdings with an estimated
fair value of $16.5 million. As part of the Recapitalization, REM purchased the
outstanding shares of Series A Preferred Stock of the Company (the "Series A
Preferred Stock") owned by the Simmons Employee Stock Ownership Plan (the
"ESOP") that had been allocated to its participants for an aggregate purchase
price of $15.4 million, and the ESOP exchanged its remaining outstanding shares
of Series A Preferred Stock for shares of common stock of Holdings. The ESOP
retained shares of stock of Holdings with an estimated fair value of $23.4
million.
 
   Financing for the Recapitalization, the related transactions, and the fees
and expenses incurred therewith, was provided by (i) the Company's borrowings
under a new $270.0 million senior credit facility (the "New Senior Credit
Facility") which refinanced the majority of the Company's existing senior and
subordinated obligations, (ii) the Company's borrowings of $75.0 million Senior
Subordinated Bridge Loans (the "Senior Bridge Loans"), (iii) the Company's
borrowings of $30.0 million under the Junior Subordinated Notes (the "Junior
Simmons Notes") issued to an affiliate of Fenway, (iv) Holdings' borrowings of
$10.0 million under the Junior PIK Notes issued to an affiliate of Fenway, and
(v) $177.0 million of capital provided by Fenway, affiliates of Investcorp,
management and certain other investors of Holdings.
 
   The Recapitalization, the refinancing under the New Senior Credit Facility,
the Senior Bridge Loans financing and the Junior Simmons Notes financing are
collectively referred to herein as the "Transactions". As a result of the
Recapitalization and related transactions, Fenway Investment LLC, an entity
controlled by funds managed by Fenway, acquired 75.1% of the outstanding voting
shares of Holdings, and management, the ESOP and Investcorp retained
approximately 5.9%, 13.7% and 5.3%, respectively, of the outstanding shares of
Holdings. The Company has accounted for the Transactions as a leveraged
recapitalization, whereby the historical bases of the assets and liabilities of
the Company have been maintained.
 
                                      F-7
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
 
 The Investcorp Acquisition
 
   On March 22, 1996, Holdings acquired 100% of the outstanding common stock of
the Company (the "Investcorp Acquisition"). Holdings was formed to consummate
the Investcorp Acquisition on behalf of affiliates of Investcorp, management
and certain other investors. For purposes of identification and description,
Simmons Company is referred to as the "Predecessor" for the period prior to the
Investcorp Acquisition, the "Successor" for the period subsequent to the
Investcorp Acquisition, and the "Company" for both periods. For purposes of
financial reporting, the period from December 31, 1995 through March 21, 1996
is referred to as "Predecessor '96" and the period from March 22, 1996 through
December 28, 1996 is referred to as "Successor '96".
 
   The purchase price for the Investcorp Acquisition was approximately $269.6
million (including approximately $94.6 million in refinancing or assumption of
existing indebtedness, purchase of certain stock options, and the payments of
fees and expenses) which was allocated to the assets and liabilities of the
Company based upon their estimated fair market value at the date of the
Investcorp Acquisition, under the purchase method of accounting. The financing
for the Investcorp Acquisition (including the refinancing of outstanding debt)
was provided by (i) borrowings under a new $115.0 million Senior Credit
Facility, which refinanced the Company's existing senior and subordinated
loans, (ii) the $100.0 million proceeds under a new Subordinated Loan Facility,
and (iii) $85.0 million of capital provided by affiliates of Investcorp,
management and certain other investors from Holdings.
 
   As part of the Investcorp Acquisition, the ESOP sold 6,001,257 shares of the
Company's common stock (representing all of the allocated shares) to Holdings.
The remaining 5,670,406 shares of common stock of the Company (unallocated
shares) were converted into 5,670,406 shares of Series A Preferred Stock.
 
   On April 18, 1996, the Company issued $100.0 million in 10.75% Senior
Subordinated Notes, pursuant to an offering (the "Offering") (See Note 8). The
proceeds of the offering were used to retire loans under the Subordinated Loan
Facility mentioned above.
 
   The following condensed pro forma disclosures for net sales and net income
are adjusted to give effect to (i) the Investcorp Acquisition and (ii) the
Offering of the Notes and the application of the net proceeds therefrom to
repay the Subordinated Loan Facility (collectively, the "Investcorp
Transactions"). This pro forma disclosure assumes that the Investcorp
Transactions were consummated as of December 31, 1995 and does not purport to
be indicative of the results that would actually have been obtained if the
Investcorp Transactions had occurred on the date indicated or of the results
that may be obtained in the future.
 
<TABLE>
<CAPTION>
                                                                 Unaudited
                                                                 Combined
                                                                   1996
                                                                 ---------
      <S>                                                        <C>       <C>
      Pro Forma (in thousands):
       Net sales................................................ $530,301
                                                                 ========
       Net income...............................................   $4,657
                                                                 ========
</TABLE>
 
                                      F-8
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
 
2. Principal Accounting Policies
 
 Principles of Consolidation
 
   The consolidated financial statements of the Company include the accounts of
the Company and all its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
 
 Use of Estimates and Reclassifications
 
   The consolidated financial statements of the Company have been prepared in
accordance with generally accepted accounting principles. Such financial
statements include estimates and assumptions that affect the reported amount of
assets and liabilities, disclosure of contingent assets and liabilities and the
amounts of revenues and expenses. Actual results could differ from those
estimates. Certain amounts in the 1997 and 1996 financial statements have been
reclassified to conform with the current presentation.
 
 Fiscal Year
 
   The Company operates on a 52/53 week fiscal year ending on the last Saturday
in December. Fiscal years 1998, 1997 and 1996 (Successor '96 and Predecessor
'96, combined) comprised 52 weeks.
 
 Cash and Cash Equivalents
 
   The Company considers all highly liquid investments with an initial maturity
of three months or less to be cash equivalents.
 
 Inventories
 
   Inventories are stated at the lower of cost (first-in, first-out method) or
net realizable value.
 
 Property, Plant and Equipment
 
   Property, plant and equipment are carried at cost. Depreciation expense is
determined principally using the straight-line method over the estimated useful
lives for financial reporting and accelerated methods for income tax purposes.
Expenditures that substantially increase asset values or extend useful lives
are capitalized. Expenditures for maintenance and repairs are expensed as
incurred. When property items are retired or otherwise disposed of, amounts
applicable to such items are removed from the related asset and accumulated
depreciation accounts and any resulting gain or loss is credited or charged to
income. Useful lives are generally as follows:
 
<TABLE>
      <S>                                                            <C>
      Buildings and improvements.................................... 10-25 years
      Machinery and equipment.......................................  5-15 years
      Computers and software........................................  3- 7 years
</TABLE>
 
   Whenever events or changes in circumstances indicate that the carrying value
may not be recoverable, management assesses whether there has been a permanent
impairment in the value of long-lived assets by comparing anticipated
undiscounted future cash flows from operating activities with the carrying
value of the long-lived asset. The factors considered by management in this
assessment include operating results, trends and prospects, as well as the
effects of obsolescence, demand, competition and other economic factors.
 
                                      F-9
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
 
 Patents and Goodwill
 
   For all periods, the cost of patents acquired are being amortized using the
straight-line method over the estimated remaining economic lives of the
respective patents, principally over seven years. Amortization expense was
approximately $2,796, $2,799, $2,072 and $438 for 1998, 1997, Successor '96 and
Predecessor '96, respectively.
 
   Goodwill is being amortized on a straight-line basis, over the estimated
periods benefited (principally 40 years). Amortization expense was $4,833,
$4,880, $3,578 and $886 for 1998, 1997, Successor '96 and Predecessor '96,
respectively.
 
   Whenever events or changes in circumstances indicate that the carrying value
may not be recoverable, management assesses whether there has been a permanent
impairment in the value of intangible assets by comparing anticipated
undiscounted future cash flows from operating activities with the carrying
value of the intangible asset. The factors considered by management in this
assessment include operating results, trends and prospects, as well as the
effects of obsolescence, demand, competition and other economic factors.
 
 Revenue Recognition
 
   The Company recognizes revenue at the time the product is shipped to the
customer.
 
 ESOP Expense
 
   The Company follows the provisions of Statement of Position No. 93-6 of the
American Institute of Certified Public Accountants, "Employers' Accounting for
Employee Stock Ownership Plans", whereby ESOP expense is recognized as an
amount equal to the fair market value of the shares allocated to participants'
accounts. The unearned compensation balance continues to be amortized using the
shares allocated method (i.e., at cost). The difference in these two amounts,
if any, is recorded as an adjustment to additional paid-in capital.
 
 Other Comprehensive Income
 
   The Company has adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards
for the reporting and display of comprehensive income and its components in the
financial statements. Prior periods have been reclassified to reflect the
adoption of this standard. The adoption of SFAS No. 130 has no material impact
on the Company's results of operations, financial position or cash flows.
Comprehensive income equals net income plus other comprehensive income. Other
comprehensive income refers to revenue, expenses, gains and losses which are
reflected in stockholders' equity but excluded from net income. The component
comprising other comprehensive income is foreign currency translation
adjustment.
 
 Product Development Costs
 
   Costs associated with the development of new products and changes to
existing products are charged to expense as incurred. These costs amounted to
approximately $1,112, $1,185, $862 and $270 for 1998, 1997, Successor '96 and
Predecessor '96, respectively, and are included in cost of products sold in the
accompanying consolidated statements of operations.
 
                                      F-10
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
 
 Advertising Costs
 
   The Company records the cost of advertising as an expense when incurred.
Advertising expense was $61,869, $54,802, $43,652 and $9,861 for 1998, 1997,
Successor '96 and Predecessor '96, respectively, and is included as a component
of selling, general and administrative expenses in the accompanying
consolidated statements of operations.
 
 Significant Concentrations of Risk
 
   The Company manufactures and markets sleep products, including mattresses
and box springs to retail establishments primarily in the United States. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Sales to three of the
Company's major customers aggregated approximately 21% of total sales for each
of 1998, 1997 and Successor '96 and Predecessor '96, combined. Accounts
receivable from one customer was approximately 7% and 9% of total accounts
receivable at December 26, 1998 and December 27, 1997, respectively. Sales to
Heilig Meyers entities represented approximately 11.8% and 10.7% of net sales
for 1998 and 1997, respectively. Sales to no one customer represented more than
10% of net sales for Successor '96 and Predecessor '96, combined.
 
   Purchases of raw materials from one vendor represented approximately 23%,
24% and 23% of cost of products sold for 1998, 1997 and Successor '96 and
Predecessor '96, combined, respectively.
 
   The Company maintains cash balances in excess of FDIC insurance limits at
certain large financial institutions. The Company monitors the financial
condition of such institutions and considers the risk of loss to be remote.
 
 Accounting Pronouncements
 
   In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 standardizes the accounting
for derivative instruments embedded in other contracts, by requiring that an
entity recognize those items as assets or liabilities in the statement of
financial position and measure them at fair value. This statement is effective
for all fiscal quarters of fiscal years beginning after June 15, 1999.
Financial statements for prior periods need not be restated. The Company is
currently reviewing the provisions of SFAS No. 133 and does not believe that
the financial statements will be materially impacted by the adoption of this
pronouncement.
 
3. Employee Stock Ownership Plan
 
   The Company is structured so that the employees of the Company have a
beneficial ownership of the stock of Holdings or, prior to the Transactions, of
the Company through their participation in the ESOP.
 
   On October 29, 1998, REM purchased 2,295,110 shares of the Company's Series
A Preferred Stock from the ESOP, representing all the shares held by the ESOP
that had been allocated to plan participants as of such date for an aggregate
purchase price of approximately $15.4 million, which amount was reinvested, at
the direction of the participants, into diversified investments in the
respective accounts of such participants in the ESOP. Immediately prior to the
Recapitalization, the ESOP exchanged its remaining outstanding shares of Series
A Preferred Stock for 3,482,036 shares of common stock of Holdings.
 
                                      F-11
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
 
   In connection with the Investcorp Acquisition, the ESOP sold 6,001,257
shares of common stock of the Company to Holdings (representing all the shares
held by the ESOP that had been allocated to plan participants as of such date)
for $31.2 million in the aggregate, which amount was reinvested, at the
direction of the participants, into diversified investments in the respective
accounts of such participants in the ESOP. Each of the remaining 5,670,406
shares of common stock of the Company was converted into one share of Series A
Preferred Stock. As stated above, all outstanding shares of the Series A
Preferred Stock were exchanged for shares of common stock of Holdings in
connection with the Transactions.
 
   The ESOP pledged all of its shares of Holdings common stock or, prior to the
Transactions, the Company's common stock as collateral for the ESOP loans.
These shares are held by State Street Bank and Trust Company, the ESOP trustee,
in a suspense account and are released to the ESOP participants' accounts based
on debt service. In 1997, 1,096,000 shares were released to participant's
accounts for the 1996 ESOP allocation. In 1998, 1,160,734 shares were released
to participant's accounts for the 1997 ESOP allocation. As of December 26,
1998, 1,140,000 shares of Holdings common stock have been committed to be
released. The remaining unallocated shares of Holdings common stock held in the
ESOP had an estimated fair value of approximately $15,765 ($6.7315 per share)
at December 26, 1998.
 
   Under the ESOP, employees are eligible to participate in the ESOP following
the date when the employee has completed at least one year of service and has
reached age 21. All employees of the Company, except employees who are covered
by a negotiated collective bargaining agreement (unless the collective
bargaining agreement provides for participation in the ESOP) or who are
nonresident aliens, are covered by the ESOP. Approximately 60% of the Company's
full-time employees are participants in the ESOP. The participants and
beneficiaries of the ESOP are not subject to income tax with respect to
contributions made on their behalf until they receive distributions from the
ESOP.
 
   Under the provisions of the ESOP, the Company or Holdings is obligated to
repurchase participant shares which have been distributed under the terms of
the ESOP, as long as the shares are not publicly traded or if the shares are
subject to trading limitations. The Company repurchased approximately 18,452
shares from ESOP participants in 1996 (prior to the Investcorp Acquisition) at
a price of $4.50 per share, 974 shares from ESOP participants in 1997 at a
price of $5.00 per share and 5,711 shares from ESOP participants in 1998 (prior
to the Transactions) at a price of $5.00 per share. These shares are reflected
as treasury stock in the common stockholders' equity section of the balance
sheet for periods prior to the Transactions.
 
   Because of the Company's or Holdings' obligation to repurchase its shares
from the ESOP under certain circumstances for their then current fair value,
the Company has classified the redemption value of such shares in the
accompanying consolidated balance sheets as Redeemable Series A Preferred Stock
under ESOP as of December 27, 1997 and as Redemption Obligation under ESOP as
of December 26, 1998. Additionally, pursuant to generally accepted accounting
principles, the Company has classified a proportional amount of unearned
compensation under ESOP in the same manner.
 
                                      F-12
<PAGE>
 
                       SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                     (in thousands, except share amounts)
 
 
4. Accounts Receivable
 
   Accounts receivable consisted of the following at December 26, 1998 and
December 27, 1997:
 
<TABLE>
<CAPTION>
                                                     December 26,  December 27,
                                                         1998          1997
                                                     ------------  ------------
      <S>                                            <C>           <C>
      Accounts receivable...........................      $79,628       $73,239
      Allowance for doubtful accounts...............       (4,177)       (3,938)
      Allowance for cash discounts and other........       (4,097)       (3,813)
                                                          -------       -------
                                                          $71,354       $65,488
                                                          =======       =======
</TABLE>
 
5. Inventories
 
   Inventories consisted of the following at December 26, 1998 and December
27, 1997:
 
<TABLE>
<CAPTION>
                                                       December 26, December 27,
                                                           1998         1997
                                                       ------------ ------------
      <S>                                              <C>          <C>
      Raw materials...................................      $12,823      $12,209
      Work-in-progress................................        1,376        1,531
      Finished goods..................................        6,263        6,230
                                                            -------      -------
                                                            $20,462      $19,970
                                                            =======      =======
</TABLE>
 
6. Property, Plant and Equipment
 
   Property, plant and equipment consisted of the following at December 26,
1998 and December 27, 1997:
 
<TABLE>
<CAPTION>
                                                     December 26,  December 27,
                                                         1998          1997
                                                     ------------  ------------
      <S>                                            <C>           <C>
      Land, buildings and improvements..............      $16,343       $11,945
      Machinery and equipment.......................       46,050        39,309
      Construction in progress......................        7,336         3,713
                                                          -------       -------
                                                           69,729        54,967
      Less accumulated depreciation.................      (15,576)       (7,403)
                                                          -------       -------
                                                          $54,153       $47,564
                                                          =======       =======
</TABLE>
 
   Depreciation expense for 1998, 1997, Successor '96 and Predecessor '96 was
$8,964, $5,870, $3,468 and $874, respectively.
 
7. Other Assets
 
   Other assets consisted of the following at December 26, 1998 and December
27, 1997:
 
<TABLE>
<CAPTION>
                                                     December 26, December 27,
                                                         1998         1997
                                                     ------------ ------------
      <S>                                            <C>          <C>
      Long-term notes receivable....................      $ 6,594      $ 2,200
      Debt issuance costs, net of accumulated
       amortization of $177 and $1,165,
       respectively.................................       11,405        7,259
      Other.........................................          770        1,034
                                                          -------      -------
                                                          $18,769      $10,493
                                                          =======      =======
</TABLE>
 
                                     F-13
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
   Debt issuance costs are amortized using the effective interest method.
Amortization of $777, $613, $521 and $84 for 1998, 1997, Successor '96 and
Predecessor '96, respectively, is included as a component of interest expense
in the accompanying consolidated statements of operations.
 
8. Long-Term Obligations
 
   Long-term obligations consisted of the following at December 26, 1998 and
December 27, 1997:
 
<TABLE>
<CAPTION>
                                                    December 26,  December 27,
                                                        1998          1997
                                                    ------------  ------------
      <S>                                           <C>           <C>
      Senior loans:
        Tranche A Term Loan.......................      $ 70,000      $     --
        Tranche B Term Loan.......................        70,000            --
        Tranche C Term Loan.......................        50,000            --
        Previous Credit Agreement.................            --        67,700
      Industrial Revenue Bonds, 7.00%, due 2017...         9,700         9,700
      Industrial Revenue Bonds, 3.90%, due 2016...         5,000         5,000
      Banco Santander loan........................         3,164         1,329
      Senior Bridge Loans.........................        75,000            --
      Junior Simmons Notes........................        30,000            --
      10.75% Series A Senior Subordinated Notes
       due 2006...................................            --       100,000
      Other, including capital lease obligations..           605           714
                                                        --------      --------
                                                         313,469       184,443
      Less current portion........................        (1,832)      (10,873)
                                                        --------      --------
                                                        $311,637      $173,570
                                                        ========      ========
</TABLE>
 
   In connection with the Transactions, the Company entered into the New Senior
Credit Facility. The New Senior Credit Facility is collateralized by
substantially all of the Company's assets and provides for loans of up to
$270.0 million, consisting of (i) the Tranche A Term Loan of up to $70.0
million in term loans, (ii) the Tranche B Term Loan of up to $70.0 million in
term loans, (iii) the Tranche C Term Loan of up to $50.0 million in term loans,
and (iv) the Revolving Loan of up to $80.0 million in revolving credit loans,
letters of credit and swing line loans. The Company distributed a portion of
the proceeds of the Term Loan Facility and the Company's initial borrowings
under the Revolving Credit Facility to Holdings to provide a portion of the
funds necessary to consummate the Transactions.
 
   The Tranche A Term Loan matures in quarterly installments from December 1999
until final payment in October 2004. The Tranche B Term Loan matures in
quarterly installments from December 1998 until final payment in October 2005.
The Tranche C Term Loan matures in quarterly installments from December 1998
until final payment in October 2006. The Revolving Loan matures on October
2004.
 
   The interest rates applicable to the loans under the New Senior Credit
Facility are based upon a Base Rate or Eurodollar Rate (as defined), plus their
respective margin. The Applicable Margin for Base Rate Loans for the Tranche B
and Tranche C Loans is 2.25% and 2.50%, respectively. The Applicable Margin for
Eurodollar Loans for the Tranche B and Tranche C Loans is 3.25% and 3.50%,
respectively. For the Tranche A Loans and
 
                                      F-14
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
loans under the Revolving Credit Facility, the Applicable Margin for Base Rate
Loans and Eurodollar Loans is initially 1.75% and 2.75%, respectively, subject
to reduction according to a pricing grid based upon the Leverage Ratio (as
defined).
 
   The interest rates per annum in effect at December 26, 1998 for the Tranche
A Term Loan, Tranche B Term Loan and Tranche C Term Loan were 7.75%, 8.25% and
8.50%, respectively.
 
   At December 26, 1998, the amount under the Revolving Credit Facility that
was available to be drawn was approximately $76.5 million, after giving effect
to $3.5 million that was reserved for the Company's reimbursement obligations
with respect to outstanding letters of credit. The remaining availability under
the Revolving Credit Facility may be utilized to meet the Company's current
working capital requirements, including issuance of stand-by and trade letters
of credit. The Company also may utilize the remaining availability under the
Revolving Credit Facility to fund acquisitions and capital expenditures.
 
   The New Senior Credit Facility requires the Company to maintain certain
financial ratios including fixed-charge, cash interest coverage and leverage
ratios. The New Senior Credit Facility also contains covenants which, among
other things, limit capital expenditures, the incurrence of additional
indebtedness, investments, dividends, transactions with affiliates, asset
sales, mergers and consolidations, prepayments of other indebtedness, liens and
encumbrances and other matters customarily restricted in such agreements. As of
December 26, 1998, the Company was in compliance with respect to all covenants
under the New Senior Credit Facility.
 
   In connection with the Transactions, the Company entered into a bridge loan
agreement (the "Senior Bridge Loan Agreement"). The Senior Bridge Loan
Agreement provided for $75.0 million in aggregate principal amount of the
Senior Bridge Loans. If the Senior Bridge Loans are not repaid in full by
October 29, 1999, the outstanding principal balance of the Senior Bridge Loans
may be converted into term loans due October 29, 2008. Once converted, the
lenders may elect to exchange all or any portion of the term loans for exchange
notes which are required to be registered under the Securities Act. The Senior
Bridge Loans bear interest at 9.6%, which rate increases by 1.0% on January 27,
1999 and increases by 0.5% for every three-month period thereafter up to a
maximum rate of 15.0%.
 
   In connection with the Transactions, the Company issued the Junior Simmons
Notes to Fenway in the aggregate principal amount of $30.0 million. The
maturity date of the Simmons Junior Notes is October 29, 2010. The Junior
Simmons Notes bear interest at 13.0% through December 30, 1998, which rate
increases by 0.5% for every three-month period thereafter up to a maximum rate
of 16.0%. Such interest is to be paid upon maturity. If certain financial
conditions are met, up to 7.0% of the interest of the Junior Simmons Notes may
be payable in cash while the Senior Bridge Loans are outstanding, which cash
interest may increase to 12.0% once the Senior Bridge Loans have been repaid.
No such conditions have been met as of December 26, 1998.
 
   Concurrently with the consummation of the Transactions, the Company called
the Previously Existing Notes for redemption and paid $115.9 million of the
proceeds ($100.0 million of principal and a $15.9 million redemption premium
(See Note 10)) to satisfy and discharge the Company's obligations thereunder.
 
   In November 1998, Simmons Caribbean Bedding, Inc., a wholly owned subsidiary
of the Company, entered into a permanent loan facility with Banco Santander in
the amount of $3.2 million accruing interest at a fluctuating rate based on the
London Interbank Offered Rate (or LIBOR), which was 7.1% as of December 26,
1998.
 
 
                                      F-15
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
   Future maturities of long-term obligations as of December 26, 1998 are as
follows:
 
<TABLE>
            <S>                                  <C>
            1999................................ $  1,832
            2000................................   11,842
            2001................................   11,853
            2002................................   16,865
            2003................................   16,779
            Thereafter..........................  254,298
                                                 --------
                                                 $313,469
                                                 ========
</TABLE>
 
   The fair value of the Company's long-term debt is estimated based on the
current rates offered to the Company for debt of similar terms and maturities.
The fair value of long-term debt approximates the carrying value at December
26, 1998.
 
9. Other Expense, Net
 
   Other expense, net is comprised of the following:
 
<TABLE>
<CAPTION>
                                              Successor                Predecessor
                                -------------------------------------  -----------
                                                          Period from  Period from
                                                           March 22,    December
                                                             1996       31, 1995
                                 Year ended   Year ended    through      through
                                December 26, December 27,  December     March 21,
                                    1998         1997      28, 1996       1996
                                ------------ ------------ -----------  -----------
<S>                             <C>          <C>          <C>          <C>
Recapitalization/Acquisition
 related:
  Management compensation......      $14,223           --      $3,735           --
  Other
   recapitalization/acquisition
   related expenses............        1,012           --         648           --
Management advisory fee........        1,074       $1,000         833           --
Gain on sale of investment.....           --           --      (4,011)          --
Other non-operating expenses...        1,235          571         352          $96
                                     -------       ------      ------          ---
                                     $17,544       $1,571      $1,557          $96
                                     =======       ======      ======          ===
</TABLE>
 
   The gain on sale of investment was related to the Company's minority
interests in Simmons Asia, Ltd. (10.0%), Simmons Bedding & Furniture (HK) Ltd.
(8.1%) and Simmons Company, Ltd. (6.8%).
 
10. Extraordinary Items
 
   In October 1998, the Company recorded a $15,002 charge, net of income tax
benefit of $7,079 representing the remaining unamortized debt issuance costs
related to long-term obligations repaid as a result of the refinancing of
certain debt in connection with the recapitalization of $4,184 (net of income
tax benefit
of $1,974) and the redemption premium obligation of $10,818 (net of income tax
benefit of $5,105) related to the early redemption of the Company's then
outstanding 10.75% Senior Subordinated Notes due 2006.
 
   In April 1996, the Company recorded a $1,706 charge, net of income tax
benefit of $1,137 representing the remaining unamortized debt issuance costs
related to long-term obligations repaid as a result of the refinancing of
certain Investcorp Acquisition debt.
 
 
                                      F-16
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
11. Leases
 
   The Company leases certain facilities and equipment under operating leases.
Rent expense was $12,705, $11,258, $9,709 and $2,388 for 1998, 1997, Successor
'96 and Predecessor '96, respectively.
 
   The following is a schedule of the future minimum rental payments required
under operating leases that have initial or remaining noncancelable lease terms
in excess of one year as of December 26, 1998:
 
<TABLE>
            <S>                                    <C>
            1999.................................  $11,061
            2000.................................    9,775
            2001.................................    9,370
            2002.................................    9,119
            2003.................................    6,520
            Thereafter...........................   15,158
                                                   -------
                                                   $61,003
                                                   =======
</TABLE>
 
 
12. Stock Option Plan
 
   The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock incentive plans. Under APB
25, because the exercise price of employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recorded. The Company has adopted the disclosure-only provisions of Financial
Accounting Standards Board Statement No. 123 "Accounting for Stock-Based
Compensation" ("SFAS 123").
 
   At the time of the Investcorp Acquisition, the board of directors
established a Management Stock Incentive Plan (the "1996 Plan"), which provided
for the granting of nonqualified options for Class C common stock of Holdings
to members of management and certain key employees. The options outstanding
under the 1996 Plan were granted at prices which equate to or were above the
market value of the Class C stock on the date of grant.
 
   In connection with the Investcorp Acquisition, the Company entered into an
agreement with Holdings whereby if Holdings grants any options to purchase
shares of common or Class C Stock of Holdings to a director, employee or
consultant of the Company, the Company will grant to Holdings corresponding
options, exercisable only upon exercise of the Holdings options, to purchase
the same number of shares of common stock of the Company at the same per share
exercise price and subject to substantially the same terms and conditions as
the Holdings options. All references to stock options under the 1996 Plan
pertain to the Holdings options which have been attributed to the Company for
disclosure purposes. Information relating to stock options during 1998, 1997
and 1996 is as follows:
 
                                      F-17
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
 
<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        Average
                                                              Number    Exercise
                                                            of Shares    Price
                                                            ----------  --------
   <S>                                                      <C>         <C>
   Shares under option at December 28, 1996................  3,158,330   $2.73
   Granted.................................................     50,000   $2.95
   Forfeited...............................................    (39,728)  $2.66
                                                            ----------   -----
   Shares under option at December 27, 1997................  3,168,602   $2.73
   Granted.................................................     59,000   $5.15
   Forfeited...............................................    (17,062)  $2.66
   Canceled................................................ (1,571,463)  $2.72
                                                            ----------   -----
   Shares under option at December 26, 1998................  1,639,077   $2.83
                                                            ==========   =====
   Shares exercisable at December 26, 1998.................  1,639,077   $2.83
                                                            ==========   =====
   Shares exercisable at December 27, 1997.................    574,369   $2.66
                                                            ==========   =====
   Shares exercisable at December 28, 1996.................          0   $2.66
                                                            ==========   =====
</TABLE>
 
   All outstanding options were nonqualified options. No compensation expense
related to stock option grants was recorded in 1998, 1997 or 1996 as the option
exercise prices were equal to fair market value on the date of grant.
 
   Pro forma information regarding net income is required by SFAS 123, and has
been determined as if the Company had accounted for the employee stock options
under the fair value method under that Statement. The fair value for these
options was estimated at the date of grant using the minimum present value
method with the following weighted average assumptions for 1998, 1997 and 1996:
 
<TABLE>
<CAPTION>
                                                          1998    1997    1996
                                                         ------- ------- -------
      <S>                                                <C>     <C>     <C>
      Risk-free interest rate...........................   5.47%   6.08%   6.32%
      Expected life..................................... 7 years 7 years 7 years
</TABLE>
 
   For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' expected life. The Company's
pro forma net earnings were as follows:
 
<TABLE>
<CAPTION>
                                                         1998     1997   1996
                                                       --------  ------ ------
      <S>                                              <C>       <C>    <C>
      Net earnings (loss)--as reported................ $(19,019) $6,362 $1,312
      Net earnings (loss)--proforma...................  (20,309)  6,133  1,155
      Weighted average fair value of options granted
       during the year................................     1.60    1.00   0.93
</TABLE>
 
   The effects of applying SFAS 123 in this proforma disclosure are not
indicative of future amounts.
 
   As a result of the Transactions, the vesting of the issued and outstanding
stock options under the 1996 plan was accelerated. At the time of the
Transaction option holders under the 1996 plan elected to cancel a portion of
their options. For option shares canceled, each holder received reasonable
compensation for the
 
                                      F-18
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
options, which was equal to the spread between the Recapitalization price of
$6.7315 and the respective per share exercise price for the canceled options.
The remaining option shares are fully vested and are exercisable at their
respective issuance price (ranging from $2.66 to $5.15). No additional option
shares have been granted post-Transactions.
 
13. Income Taxes
 
   The components of the provision for income taxes are as follows:
 
<TABLE>
<CAPTION>
                                             Successor               Predecessor
                                 ----------------------------------- -----------
                                                        Period from  Period from
                                                         March 22,    December
                                                 Year       1996      31, 1995
                                  Year ended    ended     through      through
                                 December 26,  December December 28,  March 21,
                                     1998      27, 1997     1996        1996
                                 ------------  -------- ------------ -----------
<S>                              <C>           <C>      <C>          <C>
Current tax provision:
  Federal.......................      $   657        --           --          --
  State.........................          600        --           --          --
  Foreign.......................          300    $  299       $  262          --
                                      -------    ------       ------       -----
                                        1,557       299          262          --
                                      -------    ------       ------       -----
Deferred tax provision:
  Federal.......................       (1,530)    5,230        3,627       $ 231
  State.........................         (372)      996          793          51
                                      -------    ------       ------       -----
                                       (1,902)    6,226        4,420         282
                                      -------    ------       ------       -----
                                      $  (345)   $6,525       $4,682       $ 282
                                      =======    ======       ======       =====
</TABLE>
 
   The reconciliation of the statutory federal income tax rate to the effective
income tax rate for 1998, 1997, Successor '96 and Predecessor '96 provision for
income taxes is as follows:
 
<TABLE>
<CAPTION>
                                        Successor                 Predecessor
                          --------------------------------------- -----------
                                                     Period from  Period from
                                                      March 22,    December
                                                         1996      31, 1995
                           Year ended    Year ended    through      through
                          December 26,  December 27, December 28,  March 21,
                              1998          1997         1996        1996
                          ------------  ------------ ------------ -----------
<S>                       <C>           <C>          <C>          <C>
Income taxes at federal
 statutory rate..........      $(1,483)       $4,382       $2,618        $(53)
State income taxes, net
 of federal benefit......         (218)          657          556         (18)
Goodwill amortization....        1,643         1,393        1,216         301
Other, net...............         (287)           93          292          52
                               -------        ------       ------        ----
                               $  (345)       $6,525       $4,682        $282
                               =======        ======       ======        ====
</TABLE>
 
   In addition, the Company recorded a deferred tax benefit of $7,079 and
$1,137 for 1998 and Successor '96, respectively, associated with the
extraordinary item.
 
 
                                      F-19
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
   Components of the net deferred income tax asset (liability) at December 26,
1998 and December 27, 1997 are as follows:
 
<TABLE>
<CAPTION>
                                                    December 26,  December 27,
                                                        1998          1997
                                                    ------------  ------------
<S>                                                 <C>           <C>
Current deferred income taxes:
  Accounts receivable and inventory reserves.......      $ 3,757       $ 3,646
  Accrued liabilities not currently deductible.....        8,253         9,002
  Net operating loss carryforwards.................           --            82
  Prepaids and other assets, not currently
   taxable.........................................       (4,570)       (9,501)
                                                         -------       -------
                                                           7,440         3,229
Noncurrent deferred income taxes:
  Property basis differences.......................       (7,382)       (2,896)
  Patents basis differences........................       (3,222)       (4,214)
  ESOP liability basis differences.................        6,247         8,710
  Net operating loss carryforwards.................       19,610         2,638
  Valuation allowance..............................       (3,999)       (2,638)
  Other noncurrent accrued liabilities, not
   currently deductible............................        6,450         6,853
                                                         -------       -------
                                                          17,704         8,453
                                                         -------       -------
  Net deferred tax asset...........................      $25,144       $11,682
                                                         =======       =======
</TABLE>
 
   At December 26, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $50,281, all of which are limited
to utilization under the Internal Revenue Code. Due to such limitations, the
Company believes it is more likely than not that it will not realize the full
benefit of the loss carryforwards and has provided a valuation allowance of
approximately $3,999 to reserve such amounts as of December 26, 1998. These
carryforwards expire through 2018. Undistributed earnings to be permanently
reinvested by the international subsidiaries totaled approximately $2,360 at
December 26, 1998. Because these earnings are to be permanently reinvested, no
U.S. deferred income tax has been recorded for them.
 
14. Retirement Plans
 
   The Company has a defined contribution pension plan (a 401(K) plan) for
substantially all employees other than employees subject to collective
bargaining agreements. Eligible participants may make limited contributions to
the defined contribution plan; however, no employer contributions are allowed.
 
   Certain union employees participate in multi-employer pension plans
sponsored by their respective unions. Amounts charged to pension cost,
representing the Company's required contributions to these plans for 1998, 1997
and Successor '96 and Predecessor '96, combined, were $1,633, $1,439 and
$1,495, respectively.
 
   The Company had accrued $2,653 and $2,679 at December 26, 1998 and December
27, 1997, respectively, for a supplemental executive retirement plan for a
former executive. Such amounts are included in postretirement benefit
obligations other than pensions in the accompanying consolidated balance
sheets.
 
   The Company also has an unfunded nonqualified employee stock ownership plan
to provide benefits to certain employees who were not eligible to participate
in the ESOP. Benefits are to be paid in cash and are computed based on the
value of shares the participants would have received had they participated in
the ESOP.
 
                                      F-20
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
Participants are entitled to receive accrued benefits upon termination of
employment with the Company, retirement, death, or permanent disability.
Benefits vest based on the provisions of the ESOP. The Company charged
approximately $184, $64 and $128 to expense for 1998, 1997 and Successor '96
and Predecessor '96, combined, respectively. The accrued benefits under the
nonqualified plan were $373 and $189 at December 26, 1998 and December 27,
1997, respectively, and are included in other long-term liabilities in the
accompanying consolidated balance sheets. Vested interests of current
participants in the plan were distributed upon consummation of the Investcorp
Acquisition.
 
   The Company provides certain health care and life insurance benefits to
eligible retired employees. Eligibility is defined as retirement from active
employment, having reached age 55 with 15 years of service, and previous
coverage as a salaried or nonunion employee. Additionally, dependents are
eligible to receive benefits, provided the dependent was covered prior to
retirement. The medical plan pays a stated percentage of most medical expenses
reduced for any deductible and payments made by government programs and other
group coverage. Additionally, there is a $20 lifetime maximum benefit for
participants age 65 and over. The Company also provides life insurance to all
retirees who retired before 1979. These plans are unfunded.
 
   The Company accrues the cost of providing postretirement benefits, including
medical and life insurance coverage, during the active service period of the
employee.
 
                                      F-21
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
 
   The following table presents a reconciliation of the plan's status at
December 26, 1998 and December 27, 1997:
 
<TABLE>
<CAPTION>
                                                             December  December
                                                             26, 1998  27, 1997
                                                             --------  --------
   <S>                                                       <C>       <C>
   Change in Benefit Obligation:
     Benefit obligation, beginning of year.................. $ 5,138   $ 5,551
     Service cost...........................................     205       187
     Interest cost..........................................     347       338
     Benefits paid..........................................     (93)     (386)
     Actuarial (gain)/loss..................................    (131)     (552)
                                                             -------   -------
     Benefit obligation, end of year........................ $ 5,466   $ 5,138
                                                             =======   =======
   Change in Plan Assets:
     Fair value of assets, beginning of year................ $   --    $   --
     Employer contributions.................................      93       386
     Benefits paid..........................................     (93)     (386)
                                                             -------   -------
     Fair value of assets, end of year...................... $   --    $   --
                                                             =======   =======
   Reconciliation of Accrued Benefit Cost:
     Funded status.......................................... $(5,466)  $(5,138)
     Unrecognized prior service cost........................    (213)     (243)
     Unrecognized net gain..................................    (867)     (748)
                                                             -------   -------
     Accrued benefit cost, end of year...................... $(6,546)  $(6,129)
                                                             =======   =======
   Weighted-Average Assumptions:
     Discount rate, December 31.............................    6.75%     7.00%
   Components of Net Periodic Benefit Cost:
     Service cost...........................................    $205      $187
     Interest cost..........................................     347       338
     Amortization of:
       Prior service cost...................................     (30)      (30)
       Gain.................................................     (12)      (22)
                                                             -------   -------
     Net periodic benefit cost..............................    $510      $473
                                                             =======   =======
</TABLE>
 
   A 10.0% annual rate of increase in the cost of health care benefits was
assumed for 1998; the rate was assumed to decrease 0.5% per year until 5.0% is
reached. A 1.0% change in assumed health care cost trend rates would have the
following effects:
 
<TABLE>
<CAPTION>
                               1%       1%
                            Increase Decrease
                            -------- --------
   <S>                      <C>      <C>
   Effect on Total of
    Service and Interest
    Cost Components........   $ 83    $ (70)
   Effect on Benefit
    Obligation.............   $552    $(496)
</TABLE>
 
 
                                      F-22
<PAGE>
 
                        SIMMONS COMPANY AND SUBSIDIARIES
 
            NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
 
                      (in thousands, except share amounts)
 
15. Contingencies
 
   From time to time, the Company has been involved in various legal
proceedings. Management believes that all such litigation is routine in nature
and incidental to the conduct of its business, and that none of such
litigation, if determined adversely to the Company, would have a material
adverse effect on the financial condition or results of operations of the
Company.
 
16. Related Party Transactions
 
   The Company, Holdings and Fenway entered into a management agreement (the
"Fenway Advisory Agreement") effective upon consummation of the Transactions
pursuant to which Fenway agreed to provide strategic advisory services to the
Company. In exchange for such services, the Company agreed to pay Fenway (i)
annual management fees of 0.25% of net sales for the prior fiscal year, (ii)
fees in connection with the consummation of any acquisition transactions for
Fenway's assistance in negotiating such transactions and (iii) certain fees and
expenses, including legal and accounting fees and any out-of-pocket expenses
incurred by Fenway in connection with providing services to the Company.
 
   In connection with the Investcorp Acquisition, the Company entered into an
agreement for management advisory and consulting services (the "Investcorp
Management Agreement") with Investcorp International Inc. ("International")
pursuant to which the Company agreed to pay International $1.0 million per
annum for a five-year term. At the closing of the Investcorp Acquisition, the
Company paid International $3.0 million for the first three years of the term
of the Investcorp Management Agreement in accordance with its terms. In
connection with the Transactions, this agreement was terminated.
 
   The Company entered into an agreement with Holdings pursuant to which the
Company agreed to reimburse Holdings for certain expenses incident to Holdings'
ownership of the Company's capital stock for as long as Holdings and the
Company file consolidated federal income tax returns. Such expenses include
franchise taxes and other fees required to maintain Holdings' corporate
existence; operating costs incurred by Holdings attributable to its ownership
of the Company's capital stock not to exceed $850 per fiscal year; federal,
state and local taxes paid by Holdings and attributable to income of the
Company and its subsidiaries other than taxes arising from the sale or exchange
by Holdings of the Company's common stock; the purchase price of capital stock
or options to purchase capital stock of Holdings owned by former employees of
the Company or its subsidiaries not to exceed $2.0 million per year permitted
under the New Senior Credit Facility; and registration expenses incurred by
Holdings incident to a registration of any capital stock of Holdings under the
Securities Act.
 
                                      F-23
<PAGE>
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
You should rely only upon the information contained in this prospectus. We
have not authorized any other person to provide you with different
information. If anyone provides you with different or inconsistent
information, you should not rely on it. We are not making an offer to sell
these securities in any jurisdiction where the offer or sale is not permitted.
You should assume that the information appearing in this prospectus is
accurate as of the date on the front cover of this prospectus only. Our
business, financial condition, results of operations and prospects may have
changed since that date.
 
                               ----------------
 
                               TABLE OF CONTENTS
 
<TABLE>
<CAPTION>
                                                                          Page
                                                                          ----
<S>                                                                       <C>
Summary..................................................................   1
Risk Factors.............................................................  18
The Transactions and the Original Offering...............................  25
The Simmons ESOP.........................................................  29
Use of Proceeds..........................................................  30
Capitalization...........................................................  30
Selected Historical Consolidated Financial and Other Data................  31
Management's Discussion and Analysis of Financial Condition and Results
 of Operations...........................................................  34
Business.................................................................  41
Management...............................................................  51
Principal Stockholders...................................................  59
Certain Relationships and Related Transactions...........................  61
Other Indebtedness.......................................................  62
Description of Exchange Notes............................................  65
The Exchange Offer....................................................... 104
Certain United States Federal Income Tax Considerations.................. 114
Plan of Distribution..................................................... 118
Legal Matters............................................................ 119
Experts.................................................................. 119
Where You Can Find More Information...................................... 119
Index to Consolidated Financial Statements............................... F-1
</TABLE>
 
Until       , 1999, all dealers effecting transactions in the Notes or the
Exchange Notes, whether or not participating in the Exchange Offer, may be
required to deliver a prospectus. This is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
 
                                Simmons Company
 
                                Exchange Offer
 
                                 $150,000,000
 
                         Series B Senior Subordinated
                                Notes due 2009
 
                                    10 1/4%
 
                               ----------------
 
                        [LOGO OF SIMMONS(TM) FPO COLOR]
 
                               ----------------
 
 
                                 April  , 1999
 
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>
 
                                    PART II
 
                   INFORMATION NOT REQUIRED IN THE PROSPECTUS
 
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
 
   Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a corporation to indemnify and advance reasonable expenses to any person who
was a party, is a party, or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
corporation) by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful.
 
   Our Certificate of Incorporation and Bylaws each include indemnification
provisions that mirror the language of the statute. In addition, our Bylaws
provide that, subject to any limitation in the Certificate of Incorporation, we
may indemnify a director or officer to the fullest extent permitted by law,
including, without limitation, DGCL (S)145. Consequently, any of our directors
or officers or any person serving at our request in those capacities will be
fully indemnified against such judgments, penalties, fines, settlements and
reasonable expenses actually incurred, except if : (1) he did not conduct
himself in good faith and did not reasonably believe his conduct was in the
corporation's best interests; or (2) in the case of any criminal action or
proceeding, he had reasonable cause to believe his conduct was unlawful. No
indemnification may be made in respect of any claim, issue or matter as to
which such person is adjudged to be liable to us unless and only to the extent
that the Court of Chancery or the court in which the action was brought
determines that, despite the adjudication of liability but in view of all of
the circumstances of the case, he was fairly and reasonably entitled to
indemnity for the expenses which the court deems proper.
 
   Our Certificate of Incorporation also contain a provision eliminating
liability to us or our shareholders for monetary damages from breach of
fiduciary duty as a director. The inclusion of these indemnification provisions
in our Certificate of Incorporation and Bylaws is intended to enable us to
attract qualified persons to serve as directors and officers who might
otherwise be reluctant to serve.
 
 
                                      II-1
<PAGE>
 
ITEM 21. EXHIBITS
 
    (a) Exhibits
 
<TABLE>
<CAPTION>
 Exhibit
 Number                           Exhibit Description
 -------                          -------------------
 <C>     <S>
   2.1    Agreement and Plan of Merger (the "Merger Agreement") dated July 16,
          1998 by and among the Company, Simmons Holdings and REM.
   2.2    Amendment No. 1 to Merger Agreement dated as of September 22, 1998.
   2.3    Amendment No. 2 to Merger Agreement dated as of October 26, 1998.
   3.1    Certificate of Incorporation of the Company.
   3.2    By-laws of the Company.
   4.1    Indenture between the Company and SunTrust Bank, Atlanta, as
          Trustee, dated as of March 16, 1999.
   4.2    Registration Rights Agreement between the Company and Goldman, Sachs
          & Co. dated March 16, 1999.
   4.3    Form of Letter of Transmittal.
   4.4    Form of Notice of Guaranteed Delivery.
   4.5    Exchange Agent Agreement.
   5      Opinion of counsel to the Company.**
  10.1    ESOP Stock Sale and Exchange Agreement (the "ESOP Purchase
          Agreement") dated as of July 22, 1998 by and among Simmons Holdings,
          the Company, State Street Bank & Trust Company ("State Street"),
          solely in its capacity as trustee of the Simmons ESOP and REM.
  10.2    Amendment No. 1 to ESOP Purchase Agreement dated as of September 25,
          1998.
  10.3    1998 Stockholders' Agreement (the "1998 Stockholders' Agreement")
          dated as of October 29, 1998 among Simmons Holdings, the Company,
          Fenway Investment LLC, Investcorp, and State Street, solely as
          trustee of the Simmons ESOP.
  10.4    Joinder to 1998 Stockholders' Agreement dated as of October 29, 1998
          by SH Investment Limited.
  10.5    1998 Stockholders' Agreement dated as of October 29, 1998 by and
          among Simmons Holdings, Fenway Investment, LLC and the Management
          Investors listed therein.
  10.6    Credit and Guaranty Agreement (the "Credit and Guaranty Agreement")
          dated as of October 29, 1998, among the Company, Simmons Holdings
          and Certain Subsidiaries of the Company, as Guarantors, the
          financial institutions listed therein, as Lenders, Goldman Sachs
          Credit Partners L.P., as a Joint Lead Arranger and as Syndication
          Agent, Warburg Dillon Read LLC as a Joint Lead Arranger, and UBS
          A.G., Stamford Branch, as Administrative Agent.
  10.7    First Amendment to Credit and Guaranty Agreement dated as of March
          1, 1999.
  10.8    Advisory Agreement dated as of October 29, 1998 by and between
          Simmons Holdings, the Company and Fenway Partners, Inc.
  10.9    Simmons 1996 Management Stock Incentive Plan.
 10.10    Form of Stock Option Agreement.
 10.11    Form of Management Bonus Agreement.
 10.12    Labor Agreement between the Company and The United Steel Workers,
          Local No. 425 for all employees at the Jacksonville, Florida plant
          of the Company excluding executives, sales employees, office
          workers, supervisors, inspectors, departmental coordinators or
          persons in any way identified with management for the period from
          October 16, 1997 to October 15, 2001.
</TABLE>
 
 
                                      II-2
<PAGE>
 
<TABLE>
<CAPTION>
 Exhibit
 Number                           Exhibit Description
 -------                          -------------------
 <C>     <S>
 10.13    Labor Agreement between the Company and The United Steel Workers,
          Local No. 422 for all production and maintenance employees at the
          Dallas, Texas plant of the Company excluding supervisors, foremen,
          factory clerks, office employees, time keepers, watchmen or persons
          in any way identified with management for the period from October
          16, 1997 to October 15, 2001.
 10.14    Labor Agreement between the Company and The United Steel Workers,
          Local No. 2401 for all production at the Atlanta, Georgia plant of
          the Company excluding office workers, supervisors, foremen,
          inspectors, watchmen, plant guards, departmental coordinators,
          carload checkers or persons in any way identified with management
          for the period from October 16, 1997 to October 15, 2001.
 10.15    Labor Agreement between the Company and The United Steel Workers,
          Local No. 173 for all employees at the Shawnee, Kansas plant of the
          Company excluding executives, sales employees, office workers,
          supervisors, foremen, time keepers, mechanics or machinist for the
          period from April 23, 1997 to April 22, 1999.
 10.16    Labor Agreement between the Company and The United Steel Workers,
          Local No. 515U for all employees at the Los Angeles, California
          plant of the Company excluding executives, sales employees, office
          workers, and supervisors for the period from October 16, 1997 to
          October 15, 2001.
 10.17    Labor Agreement between the Company and The United Steel Workers,
          Local No. 420 for employees at the Piscataway, New Jersey plant of
          the Company excluding watchmen, office janitors, maintenance
          department employees, truck drivers, tool makers, machinists,
          supervisors, porters, matrons, main office, clerical, and
          maintenance helpers for the period of October 16, 1997 to October
          15, 2001.
 10.18    Labor Agreement between the Company and The United Steel Workers,
          Local No. 424 for all production employees at the Columbus, Ohio
          plant of the Company excluding executives, sales employees, office
          workers, timekeepers, watchmen, office janitors, maintenance
          department employees, truck drivers, foremen, supervisors, private
          chauffeurs, main office, clerical, and engine room and power plant
          employees for the period from October 16, 1997 to October 15, 2001.
 10.19    Lease Agreement Concourse at Landmark Center between Concourse I,
          Ltd., as Landlord, and the Company, as Tenant, dated February 7,
          1992.
 10.20    Lease between Beaver Ruin Business Center-Phase V between St. Paul
          Properties, Inc., as Landlord, and the Company, as Tenant, dated
          October 19, 1994, as amended by Addendum to Lease, dated September
          1, 1995.
 10.21    Loan Agreement, dated as of November 1, 1982, between the City of
          Janesville, Wisconsin and the Company, as successor by merger to
          Simmons Manufacturing Company, Inc., relating to $9,700,000 City of
          Janesville, Wisconsin Industrial Development Revenue Bond, Series
          A.
 10.22    Loan Agreement between the City of Shawnee and the Company relating
          to the Indenture of Trust between City of Shawnee, Kansas and State
          Street Bank and Trust Company of Missouri, N.A., as Trustee, dated
          December 1, 1996 relating to $5,000,000 Private Activity Revenue
          Bonds, Series 1996.
 10.23    Loan Agreement dated December 12, 1997 between Simmons Caribbean
          Bedding, Inc. and Banco Santander Puerto Rico.**
 10.24    Securities Purchase Agreement, dated as of October 29, 1998 among
          the Company, Simmons Holdings and the Purchasers listed on Schedule
          I attached thereto.
</TABLE>
 
 
                                      II-3
<PAGE>
 
<TABLE>
<CAPTION>
 Exhibit
 Number                           Exhibit Description
 -------                          -------------------
 <C>     <S>
 10.25    Warrant to purchase 601,346.63 shares of common stock of Simmons
          Holdings.
 10.26    Warrant to purchase 2,104,713.22 shares of common stock of Simmons
          Holdings dated October 29, 1998.
 10.27    Escrow Agreement dated as of October 29, 1998 by and among Simmons
          Holdings, the Company, Fenway Investment LLC and Ropes & Gray, as
          Escrow agent.
 10.28    Employment Agreement between the Company and Zenon S. Nie, dated as
          of June 29, 1998, as amended.**
 10.29    Employment Agreement between the Company and Martin R. Passaglia,
          dated as of June 29, 1998, as amended.**
 10.30    Employment Agreement between the Company and Jonathan C. Daiker,
          dated as of June 29, 1998, as amended.**
 10.31    Employment Agreement between the Company and Robert K. Barton, dated
          as of June 29, 1998, as amended.**
 10.32    Employment Agreement between the Company and Joseph Ulicny, dated as
          of June 29, 1998, as amended.**
 21       Subsidiaries of the Company.
 23.1     Consent of PricewaterhouseCoopers LLP.
 23.2     Consent of counsel to the Company.**
 24       Power of Attorney.
 25       Statement of Eligibility of Trustee.
 27       Financial Data Schedule.
</TABLE>
 
--------
**To be filed by amendment.
 
 
ITEM 22. UNDERTAKINGS
 
    (1) The Company undertakes:
 
      (a) to file, during any period in which offers or sales are being made,
  a post-effective amendment to this registration statement:
 
       (x) to include any prospectus required by Section 10(a)(3) of the
    Securities Act of 1933;
 
       (y) to reflect in the prospectus any facts or events arising after
    the effective date of this registration statement (or the most recent
    post-effective amendment thereof) which, individually or in the
    aggregate, represent a fundamental change in the information set forth
    in this registration statement. Notwithstanding the foregoing, any
    increase or decrease in volume of securities offered, if the total
    dollar value of securities offered would not exceed that which was
    registered, and any deviation from the low or high end of the estimated
    maximum offering range may be reflected in the form of prospectus filed
    with the Securities and Exchange Commission pursuant to Rule 424(b) if,
    in the aggregate, the changes in volume and price represent no more
    than a 20% change in the maximum aggregate offering price set forth in
    the "Calculation of Registration Fee" table in the effective
    registration statement; and
 
       (z) to include any material information with respect to the plan of
    distribution not previously disclosed in this registration statement or
    any material change to such information in this registration statement.
 
      (b) that, for the purpose of determining any liability under the
  Securities Act of 1933, each such post-effective amendment shall be deemed
  to be a new registration statement relating to the securities offered
  therein, and the offering of such securities at that time will be deemed to
  be the initial bona fide offering thereof.
 
                                      II-4
<PAGE>
 
      (c) to remove from registration by means of a post-effective amendment
  any of the securities being registered which remain unsold at the
  termination of the offering.
 
    (2) The undersigned registrant undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934, and where applicable, each filing of employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act
of 1934, that is incorporated by reference in this registration statement shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of the securities at that time shall be deemed to be
the initial bona fide offering thereof.
 
    (3) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities, other than the payment by
the registrant of expenses incurred or paid by a director, officer, or
controlling person of the registrant in the successful defense of any action,
suit or proceeding, is asserted by that director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
 
    (4) The undersigned registrant undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this registration statement, within one business day
of receipt of such request, and to send the incorporated documents by first
class mail or other equally prompt means. This includes information contained
in documents filed subsequent to the effective date of this registration
statement through the date of responding to the request.
 
    (5) The undersigned registrant undertakes to supply by means of a post-
effective amendment all information concerning a transaction, and the company
being acquired involved therein, that was not the subject of and included in
this registration statement when it became effective.
 
                                      II-5
<PAGE>
 
                                   SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, Simmons Company has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia, on the 21st day of April, 1999.
 
                                             Simmons Company
 
                                             By: /s/ Jonathan C. Daiker
                                                -------------------------------
                                                Name: Jonathan C. Daiker
                                                Title: Executive Vice
                                                       President--Finance
                                                     and Administration
                                                     Chief Financial Officer
                                                     and Director
 
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities
indicated on the 21st day of April, 1999.
 
<TABLE>
<S>  <C>
              Signature                                   Title
 
          /s/ Zenon S. Nie*               Chairman of the Board of Directors
-------------------------------------      and Chief Executive Officer and
            Zenon S. Nie                   President (principal executive
                                           officer)
 
       /s/ Jonathan C. Daiker             Executive Vice President--Finance
-------------------------------------      and Administration Officer and
         Jonathan C. Daiker                Director (principal financial and
                                           accounting officer)
 
      /s/ Martin R. Passaglia*            Senior Executive Vice President,
-------------------------------------      Secretary and Director
         Martin R. Passaglia
 
           /s/ Peter Lamm*                Director
-------------------------------------
             Peter Lamm
 
      /s/ Richard C. Dresdale*            Director
-------------------------------------
         Richard C. Dresdale
 
         /s/ Andrea Geisser*              Director
-------------------------------------
           Andrea Geisser
 
      /s/ Gregory P. Meredith*            Director
-------------------------------------
         Gregory P. Meredith
 
       /s/ Jonathan C. Daiker
-------------------------------------
         Jonathan C. Daiker
          Attorney-in-fact*
</TABLE>
 
                                      II-6
<PAGE>
 
                                 EXHIBIT INDEX
 
<TABLE>
<CAPTION>
 Exhibit
 Number                           Exhibit Description
 -------                          -------------------
 <C>     <S>
   2.1    Agreement and Plan of Merger (the "Merger Agreement") dated July 16,
          1998 by and among the Company, Simmons Holdings and REM.
   2.2    Amendment No. 1 to Merger Agreement dated as of September 22, 1998.
   2.3    Amendment No. 2 to Merger Agreement dated as of October 26, 1998.
   3.1    Certificate of Incorporation of the Company.
   3.2    By-laws of the Company.
   4.1    Indenture between the Company and SunTrust Bank, Atlanta, as
          Trustee, dated as of March 16, 1999.
   4.2    Registration Rights Agreement between the Company and Goldman, Sachs
          & Co. dated March 16, 1999.
   4.3    Form of Letter of Transmittal.
   4.4    Form of Notice of Guaranteed Delivery.
   4.5    Exchange Agent Agreement.
   5      Opinion of counsel to the Company.**
  10.1    ESOP Stock Sale and Exchange Agreement (the "ESOP Purchase
          Agreement") dated as of July 22, 1998 by and among Simmons Holdings,
          the Company, State Street Bank & Trust Company ("State Street"),
          solely in its capacity as trustee of the Simmons ESOP and REM.
  10.2    Amendment No. 1 to ESOP Purchase Agreement dated as of September 25,
          1998.
  10.3    1998 Stockholders' Agreement (the "1998 Stockholders' Agreement")
          dated as of October 29, 1998 among Simmons Holdings, the Company,
          Fenway Investment LLC, Investcorp, and State Street, solely as
          trustee of the Simmons ESOP.
  10.4    Joinder to 1998 Stockholders' Agreement dated as of October 29, 1998
          by SH Investment Limited.
  10.5    1998 Stockholders' Agreement dated as of October 29, 1998 by and
          among Simmons Holdings, Fenway Investment, LLC and the Management
          Investors listed therein.
  10.6    Credit and Guaranty Agreement (the "Credit and Guaranty Agreement")
          dated as of October 29, 1998, among the Company, Simmons Holdings
          and Certain Subsidiaries of the Company, as Guarantors, the
          financial institutions listed therein, as Lenders, Goldman Sachs
          Credit Partners L.P., as a Joint Lead Arranger and as Syndication
          Agent, Warburg Dillon Read LLC as a Joint Lead Arranger, and UBS
          A.G., Stamford Branch, as Administrative Agent.
  10.7    First Amendment to Credit and Guaranty Agreement dated as of March
          1, 1999.
  10.8    Advisory Agreement dated as of October 29, 1998 by and between
          Simmons Holdings, the Company and Fenway Partners, Inc.
  10.9    Simmons 1996 Management Stock Incentive Plan.
 10.10    Form of Stock Option Agreement.
 10.11    Form of Management Bonus Agreement.
 10.12    Labor Agreement between the Company and The United Steel Workers,
          Local No. 425 for all employees at the Jacksonville, Florida plant
          of the Company excluding executives, sales employees, office
          workers, supervisors, inspectors, departmental coordinators or
          persons in any way identified with management for the period from
          October 16, 1997 to October 15, 2001.
</TABLE>
 
<PAGE>
 
<TABLE>
<CAPTION>
 Exhibit
 Number                           Exhibit Description
 -------                          -------------------
 <C>     <S>
 10.13    Labor Agreement between the Company and The United Steel Workers,
          Local No. 422 for all production and maintenance employees at the
          Dallas, Texas plant of the Company excluding supervisors, foremen,
          factory clerks, office employees, time keepers, watchmen or persons
          in any way identified with management for the period from October
          16, 1997 to October 15, 2001.
 10.14    Labor Agreement between the Company and The United Steel Workers,
          Local No. 2401 for all production at the Atlanta, Georgia plant of
          the Company excluding office workers, supervisors, foremen,
          inspectors, watchmen, plant guards, departmental coordinators,
          carload checkers or persons in any way identified with management
          for the period from October 16, 1997 to October 15, 2001.
 10.15    Labor Agreement between the Company and The United Steel Workers,
          Local No. 173 for all employees at the Shawnee, Kansas plant of the
          Company excluding executives, sales employees, office workers,
          supervisors, foremen, time keepers, mechanics or machinist for the
          period from April 23, 1997 to April 22, 1999.
 10.16    Labor Agreement between the Company and The United Steel Workers,
          Local No. 515U for all employees at the Los Angeles, California
          plant of the Company excluding executives, sales employees, office
          workers, and supervisors for the period from October 16, 1997 to
          October 15, 2001.
 10.17    Labor Agreement between the Company and The United Steel Workers,
          Local No. 420 for employees at the Piscataway, New Jersey plant of
          the Company excluding watchmen, office janitors, maintenance
          department employees, truck drivers, tool makers, machinists,
          supervisors, porters, matrons, main office, clerical, and
          maintenance helpers for the period of October 16, 1997 to October
          15, 2001.
 10.18    Labor Agreement between the Company and The United Steel Workers,
          Local No. 424 for all production employees at the Columbus, Ohio
          plant of the Company excluding executives, sales employees, office
          workers, timekeepers, watchmen, office janitors, maintenance
          department employees, truck drivers, foremen, supervisors, private
          chauffeurs, main office, clerical, and engine room and power plant
          employees for the period from October 16, 1997 to October 15, 2001.
 10.19    Lease Agreement Concourse at Landmark Center between Concourse I,
          Ltd., as Landlord, and the Company, as Tenant, dated February 7,
          1992.
 10.20    Lease between Beaver Ruin Business Center-Phase V between St. Paul
          Properties, Inc., as Landlord, and the Company, as Tenant, dated
          October 19, 1994, as amended by Addendum to Lease, dated September
          1, 1995.
 10.21    Loan Agreement, dated as of November 1, 1982, between the City of
          Janesville, Wisconsin and the Company, as successor by merger to
          Simmons Manufacturing Company, Inc., relating to $9,700,000 City of
          Janesville, Wisconsin Industrial Development Revenue Bond, Series
          A.
 10.22    Loan Agreement between the City of Shawnee and the Company relating
          to the Indenture of Trust between City of Shawnee, Kansas and State
          Street Bank and Trust Company of Missouri, N.A., as Trustee, dated
          December 1, 1996 relating to $5,000,000 Private Activity Revenue
          Bonds, Series 1996.
 10.23    Loan Agreement dated December 12, 1997 between Simmons Caribbean
          Bedding, Inc. and Banco Santander Puerto Rico.**
 10.24    Securities Purchase Agreement, dated as of October 29, 1998 among
          the Company, Simmons Holdings and the Purchasers listed on Schedule
          I attached thereto.
</TABLE>
 
<PAGE>
 
<TABLE>
<CAPTION>
 Exhibit
 Number                           Exhibit Description
 -------                          -------------------
 <C>     <S>
 10.25    Warrant to purchase 601,346.63 shares of common stock of Simmons
          Holdings.
 10.26    Warrant to purchase 2,104,713.22 shares of common stock of Simmons
          Holdings dated October 29, 1998.
 10.27    Escrow Agreement dated as of October 29, 1998 by and among Simmons
          Holdings, the Company, Fenway Investment LLC and Ropes & Gray, as
          Escrow agent.
 10.28    Employment Agreement between the Company and Zenon S. Nie, dated as
          of June 29, 1998, as amended.**
 10.29    Employment Agreement between the Company and Martin R. Passaglia,
          dated as of June 29, 1998, as amended.**
 10.30    Employment Agreement between the Company and Jonathan C. Daiker,
          dated as of June 29, 1998, as amended.**
 10.31    Employment Agreement between the Company and Robert K. Barton, dated
          as of June 29, 1998, as amended.**
 10.32    Employment Agreement between the Company and Joseph Ulicny, dated as
          of June 29, 1998, as amended.**
 21       Subsidiaries of the Company.
 23.1     Consent of PricewaterhouseCoopers LLP.
 23.2     Consent of counsel to the Company.**
 24       Power of Attorney.
 25       Statement of Eligibility of Trustee.
 27       Financial Data Schedule.
</TABLE>
 
--------
**To be filed by Amendment.