<PAGE>   1

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                          UNITED STATES SECURITIES AND
                              EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                            ------------------------

                                  FORM 10-K/A

[X]   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934.

                  FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934.

       FOR THE TRANSITION PERIOD FROM                TO                .

                        COMMISSION FILE NUMBER 333-81987

                               SLEEPMASTER L.L.C.
            (EXACT NAME OF REGISTRANT AS IT APPEARS IN ITS CHARTER)

<TABLE>
<S>                                            <C>
                  NEW JERSEY                                     22-3341313
(STATE OR OTHER JURISDICTION OF INCORPORATION
               OR ORGANIZATION)                           (IRS EMPLOYER ID NUMBER)

     2001 LOWER ROAD, LINDEN, NEW JERSEY                         07036-6520
   (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)                      (ZIP CODE)
</TABLE>

                                 (732) 381-5000
              (REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

        SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

        SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

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

     All of the registrant's voting and nonvoting membership interests are held
by its affiliates, Sleepmaster Holdings L.L.C. and Sleep Investor L.L.C.

     Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practical date.

   Class A common units, no par value -- 8,000 units as of December 31, 1999
     Class B common units, no par value -- 0 units as of December 31, 1999
--------------------------------------------------------------------------------
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<PAGE>   2

                                     PART I

ITEM 1.  BUSINESS

GENERAL

     Sleepmaster L.L.C. (the "Company" or "Sleepmaster") is a leading
manufacturer and distributor of a full line of conventional bedding, including
mattresses and box springs, marketed under the well-known brand names of Serta,
Serta Perfect Sleeper, Sertapedic and Masterpiece. Sleepmaster is the second
largest Serta licensee in North America with approximately a 23% market share in
its domestic licensed territories as of December 31, 1999. Serta, Inc.
("Serta"), through its licensees, is the second largest manufacturer of
conventional bedding products in the United States.

     Serta, Inc. is a national organization that is owned by and operated for
the benefit of its licensees. The organization consists of 10 domestic licensed
mattress manufacturers, covering 34 licensing territories and operating out of
27 domestic manufacturing facilities. Serta also has 27 international licensees
in Canada, Europe, Asia, the Middle East, South America and the Caribbean.

     Sleepmaster is one of Serta's 10 domestic licensed mattress manufacturers,
covering licensing territories in all or a portion of New York, Connecticut, New
Jersey, Pennsylvania, Delaware, Maryland, Ohio, Indiana, West Virginia,
Commonwealth of Kentucky, Florida and Ontario, Canada.

     The Company distributes its products through a variety of channels,
including bedding chains, furniture retailers, department stores, wholesale
buying clubs and contract customers. The Company operates manufacturing
facilities located in Linden, New Jersey, Lancaster, Pennsylvania, Riviera
Beach, Florida, Cincinnati, Ohio and Concord, Ontario, Canada.

HISTORY OF THE COMPANY

     The Company was formed as a limited liability company in January 1995, for
the purpose of acquiring substantially all of the assets of Sleepmaster Products
Company, L.P., a Delaware limited partnership. At its formation, 98% of the
Company was owned by Sleepmaster Holdings L.L.C. ("Holdings") and 2% was owned
by Brown/Schweitzer Holdings Inc. ("B/S Holdings"), an investor group. Holdings,
in turn, was owned by management of Sleepmaster and outside investors. On
November 14, 1996, Sleepmaster entered into a recapitalization agreement with a
new group of investors led by Citicorp Venture Capital and PMI Mezzanine Fund
L.L.P., pursuant to which the new investor group and Sleep Investor L.L.C., a
Delaware limited liability company ("Sleep Investor"), paid cash and issued
promissory notes to effect a leveraged recapitalization of Sleepmaster (the
"Recapitalization"). As a result of the Recapitalization, Sleep Investor
acquired a 72.0% interest and management of Sleepmaster acquired a 28.0%
interest in Holdings. Holdings ownership of Sleepmaster increased to over 99.9%.

     Since the Recapitalization, Sleepmaster acquired the stock of Palm Beach
Bedding Company ("Palm Beach") on March 3, 1998, the stock of Herr Manufacturing
Company ("Herr") on February 26, 1999, substantially all of the assets of Star
Bedding Products (1986) Limited ("Star") on May 18, 1999 and substantially all
of the assets of Adam Wuest, Inc. ("Adam Wuest") on November 5, 1999.

THE SERTA NATIONAL ORGANIZATION

     Serta owns the rights to the Serta trademark and licenses companies to
manufacture and sell mattresses under the Serta brand name. The licensing
agreements prohibit each licensee from manufacturing outside of its licensing
territories. The Serta organization generated total domestic licensing revenues
of $720 million in the year ended December 31, 1999.

     The Serta organization is headed by Serta's president, who reports to a
board of directors which consists of representatives of six licensees, two
outside directors and the president of Serta. Charles Schweitzer, Chief
Executive Officer of Sleepmaster, has been a member of the board of directors of
Serta since 1995 and is currently Vice Chairman of the board of directors. Serta
cannot own its licenses and does not have a "right-of-first-refusal" if any are
to be sold. Strategic decisions for Serta are made by the board of directors and
passed

                                        1
<PAGE>   3

through to the Serta licensees. Although all Serta national advertising budgets
are voted on and approved by the Serta board of directors, Serta licensees
control their own marketing, merchandising, manufacturing and administrative
functions and thus have the ability to tailor their businesses to the needs of
local customers. Serta focuses on the following programs and services for the
licensing group: conducting national advertising campaigns; issuing guidelines
for Serta products; supervising quality control programs; handling sales
programs for national accounts; protecting Serta trademarks; and conducting
product research and development. The Company paid approximately 3.0% of its
1999 gross sales as a royalty to the Serta organization.

PRODUCTS

     The Company's product line consists of conventional bedding sold primarily
under the Serta brand which varies in price, design, material and size. Retail
prices for Serta brand products range from under $200 for a twin size
promotional bedding set to approximately $2,400 for a king size luxury set.
Introduced in 1999, the Masterpiece line represents an upscale collection of
mattresses and boxsprings. Retail prices of the Masterpiece line range from
approximately $700 for twin size to $5,000 for king size. Serta Perfect Sleeper
brand mattress is the second largest selling mattress brand in North America.
The Company offers retailers a full line of products, allowing retailers to
develop their own product assortment to facilitate step-up sales and to meet
various consumer comfort and support preferences.

CUSTOMERS

     The Company manufactures and supplies products to over 2,780 retail
outlets, representing more than 1,150 customers, which include furniture stores,
department stores, specialty sleep shops, contract customers and other stores.
The Company's ten largest customers accounted for approximately 48% of net sales
in 1999. One account represented 11% of net sales in 1999.

     In 1999, the Company experienced a substantial decline in sales to one of
its customers. Management anticipates that its relationship with this customer
will improve in 2000.

SALES, MARKETING AND ADVERTISING

     The Company's marketing and advertising focus on local markets as well as
the national market. The Company employs a sales organization of approximately
60 people to target local retailers and to sell its products to authorized
retailers in local markets. The sales force is provided with ongoing, extensive
training in advertising, merchandising and salesmanship so that they can
successfully target retailers and work closely with retailers to assist them in
implementing and improving their sales techniques. In addition, Serta has formed
an organization to sell Serta products on a national level and to administer
programs for national accounts such as Sears and Sam's Club. The combination of
the Company's local sales efforts and Serta's national marketing efforts allows
the Company to better analyze the needs of its retailers and to customize its
sales and marketing efforts to specific competitive environments.

     The Company's marketing strategy focuses on two areas: (1) total retailer
support programs -- including cooperative advertising programs designed to meet
individual retailer needs and to complement individual retailers' marketing
programs and (2) a continuation of the substantial investment in national
advertising that has established and will continue to build brand awareness. The
retailer support program assists retailers in increasing sales by providing them
with advertising and retail incentive packages tailored to their needs, point of
sale materials that enable retail sales people to demonstrate the unique
features of the Company's products and explain step-up features to increase
average unit selling prices, retail sales education programs conducted at retail
sites and at the Company's factory showrooms, and merchandised product
assortments to meet the needs of retailers and help achieve step-up sales.
Management believes this program differentiates the Company from most of its
competitors.

                                        2
<PAGE>   4

     Serta invests in building the Serta brand name through national
advertising, and has been recognized as one of the leading brands in the home
furnishing industry. Serta advertises throughout the year on prime network and
cable programs, as well as on selected daytime and syndicated programs. Serta
also advertises in various magazine publications and sponsors highly successful
radio programs.

INDUSTRY AND COMPETITION

     Overall, the U.S. conventional bedding industry is mature and stable. Over
the past 20 years, the industry experienced increases in revenues at a
compounded annual growth rate of 6.7%. Sales in the bedding industry declined
only once during this period, 1.9 % in 1982. According to International Sleep
Products Association, the domestic bedding industry consists of over 800
manufacturers, generating wholesale revenues of $4.1 billion during 1999.
Conventional bedding is primarily sold to furniture stores and specialty sleep
shops. Management estimates that U.S. consumers replace mattresses, on average,
every 7 to 8 years resulting in approximately seventy percent of new mattresses
being purchased as replacements.

     Serta is the second largest conventional bedding manufacturer in the United
States, with well-known brand names such as Serta, Serta Perfect Sleeper,
Sertapedic and Masterpiece, and primarily competes with two national companies,
Sealy and Simmons. In 1998, these top three bedding manufacturers accounted for
approximately 54% of domestic wholesale mattress and box spring shipments. Of
the top three bedding manufacturers, Serta is the only one comprised solely of
licensees. The license structure gives Serta and its licensees the advantage of
having a strong national organization combined with localized marketing and
sales efforts to maximize opportunities in local markets.

MANUFACTURING FACILITIES AND DISTRIBUTION

     The Company operates four bedding manufacturing facilities in the United
States and one manufacturing facility in Concord, Ontario, Canada. Of the five
facilities, one operates a single shift and the others operate two shifts daily.

     The Company's facilities are strategically located to service one or more
major metropolitan areas. The Company has instituted just-in-time inventory
techniques to enable it to supply products in an efficient manner and minimize
its inventory carrying costs. The Company adjusts production levels to meet
demand and as a result has no material backlog of orders.

     The Company has entered into various distribution arrangements at each
facility based upon its needs and the circumstances at each location. In some
locations, the Company has contracted with independent third parties to
distribute all or a portion of its products and in other locations the Company
owns or leases trailers and either distributes the products themselves or
outsources the distribution function. Management believes that the flexibility
of this distribution program allows the Company to distribute products using the
most cost effective method.

     In August 1999, the Company terminated its agreement with an exclusive
distributor for its Linden facility due to the distributor's poor performance.
In October 1999, the Company executed a five-year logistics contract with a new
distributor with a national presence to replace its existing distributor. As a
result of the new arrangement, distribution costs at the Linden facility
increased by approximately 8%. Subsequent to December 1999, the Company
terminated the logistics agreement with its new distributor and entered into a
five-year leasing arrangement with the same distributor to lease tractors and
trailers. The Company plans to manage its own distribution with these leased
tractors and trailers. No additional costs were incurred as a result of
terminating the logistics agreement and entering into the new leasing
arrangement.

SUPPLIERS

     The Company purchases raw materials, including innersprings, box spring
modules, lumber, foam and ticking from a variety of suppliers. The Company takes
advantage of all trade discounts and does not enter into written supply
contracts with any of its suppliers. The Company purchased approximately 70% of
its raw materials from 10 suppliers, including approximately 37% of the
Company's total raw materials from

                                        3
<PAGE>   5

Leggett & Platt in 1999. The Company maintains several alternative-source
suppliers for most of its raw materials. However, the Perfect Sleeper
innerspring units can only be purchased from Leggett & Platt. The Company has
never suffered a significant production loss from insufficient raw material
supplies.

WARRANTIES

     The Company's conventional bedding products generally offer limited
warranties of ten years against manufacturing defects, with promotional products
carrying warranties of one year. Historically, the Company's costs of honoring
warranty claims have been immaterial.

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

     The Company's principal wastes are nonhazardous materials such as wood,
cardboard, scrap foam and packaging materials, which are primarily sold to
recyclers. The Company also disposes of small amounts of used oil, primarily by
recycling. As is the case with manufacturers in general, if a release of
hazardous substances occurs on or from the Company's properties or any
associated off-site disposal location, or if contamination from prior activities
is discovered at any of its properties, the Company may be held liable and the
amount of the liability could be material.

     The Company is subject to federal, state, and local laws and regulations
relating to pollution, environmental protection and occupational health and
safety. In addition, its conventional bedding and other product lines are
subject to various federal and state laws and regulations relating to
flammability, sanitation and consumer protection standards. The Company believes
that it is in material compliance with such laws and regulations.

     The Company is not aware of any pending federal environmental legislation
which would have a material impact on the Company's operations. The Company does
not expect to make any material capital expenditures for environmental controls
during the next two fiscal years.

EMPLOYEES

     As of December 31, 1999, the Company employed approximately 1,024 full-time
employees, of whom approximately 500 were represented by various labor unions
with separate collective bargaining agreements. The Company is periodically in
negotiations with certain of the unions representing its employees. The Company
is not a party to any master labor agreement covering production employees at
more than a single manufacturing facility. The Company has not experienced any
work stoppages or slowdowns as a result of labor difficulties during the last
ten years and believes that its relationships with its employees are good.

SEASONALITY

     Sleepmaster's net sales and net income are generally consistent throughout
the fiscal year, except for slight increases in the third quarter. However,
seasonal variations in net sales and net income affect each of Sleepmaster's
five facilities. Palm Beach's net sales and net income are typically higher
during the first and fourth quarters of the fiscal year. In contrast, net sales
and net income are typically higher during the third quarter of the fiscal year
at the Linden, New Jersey, Lancaster, Pennsylvania, Cincinnati, Ohio, and
Concord, Ontario, Canada facilities. Since Palm Beach's sales cycle does not
coincide with the sales cycles at the other facilities, seasonal variations of
Sleepmaster are reduced.

ITEM 2.  PROPERTIES

     The Company's principal executive offices are located at 2001 Lower Road,
Linden, New Jersey, 07036-6520.

                                        4
<PAGE>   6

     The following table sets forth certain information regarding the
manufacturing facilities operated by the Company at December 31, 1999:

<TABLE>
<CAPTION>
                                                              APPROXIMATE
                                                                SQUARE       OWNED/
LOCATION                                                        FOOTAGE      LEASED
--------                                                      -----------    ------
<S>                                                           <C>            <C>
Linden, New Jersey..........................................    240,000      Leased
Riviera Beach, Florida......................................    235,000       Owned
Lancaster, Pennsylvania.....................................    100,000       Owned
Concord, Ontario............................................     54,000      Leased
Cincinnati, Ohio............................................    128,000       Owned
</TABLE>

     The Linden, New Jersey, facility is held pursuant to a lease which
terminates on February 1, 2004 but contains two five-year options to extend the
lease. The Star facility in Concord, Ontario, Canada is held pursuant to a lease
which terminates on December 31, 2000 but contains a five year option to renew.
It is management's intention to exercise its right to extend the leases beyond
the initial expiration dates for both the Linden and Star facilities.

     The Company considers its present facilities to be generally well
maintained, in sound operating condition and adequate for its present needs.

ITEM 3.  LEGAL PROCEEDINGS

     From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. Management does not expect that
these matters, individually or in the aggregate, will have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company. The Company is not currently involved in any material
legal proceedings.

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

     None.

                                    PART II

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

     There is no established public trading market for the common membership
interests of the Company. As of March 15, 2000, Sleepmaster Holdings L.L.C.
owned 7,999 units of the Company's Class A common membership interests and Sleep
Investor L.L.C. owned one unit of the Company's Class A common membership
interests.

     The Company has not paid any cash distributions on its common membership
interests during the fiscal years ended December 31, 1999, 1998 or 1997. The
Company has not sold any securities during the past three years in transactions
not registered under the Securities Act.

ITEM 6.  SELECTED FINANCIAL DATA

     The following table sets forth selected consolidated financial and other
data of the Company. The selected consolidated financial and other data for the
fiscal years ended December 31, 1999, 1998, 1997 and 1996 have been derived
from, and should be read in conjunction with, the Company's audited consolidated
financial statements. The financial and other data as of and for the fiscal year
ended December 31, 1995 has been derived from the Company's internal financial
records and is unaudited but, in the opinion of management, includes all
adjustments considered necessary for the fair presentation of the financial
condition and results of operations for the period and as of that date.

                                        5
<PAGE>   7

     The selected consolidated financial and other data provided below should be
read in conjunction with the accompanying consolidated financial statements and
notes thereto as well as Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
                                                   FISCAL YEAR ENDED DECEMBER 31,
                                       -------------------------------------------------------
                                        1995        1996        1997        1998        1999
                                       -------    --------    --------    --------    --------
                                                       (DOLLARS IN THOUSANDS)
<S>                                    <C>        <C>         <C>         <C>         <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................  $55,044    $ 59,763    $ 67,472    $110,251    $171,319
Gross profit.........................   20,347      22,265      25,024      41,263      66,395
Selling, general and administrative
  expenses...........................   13,965      14,130      15,044      25,794      43,322
Amortization of intangibles..........      676         644         644       1,223       2,216
Operating income.....................    5,707       7,491       9,336      14,246      20,857
Interest expense, net(a).............    2,304       2,578       4,663       7,096      12,536
Income before income taxes and
  extraordinary items................    3,214       4,697       4,770       7,168       8,238
Net income...........................    3,214       4,606       2,757       4,148       1,823
BALANCE SHEET DATA:
Net working capital(b)...............  $  (553)   $    736    $    309    $  2,749    $  6,204
Total assets.........................   29,813      48,634      47,339      89,540     208,987
Total debt...........................   17,989      44,031      39,102      70,696     166,613
Redeemable cumulative preferred
  interests..........................       --      14,221      15,927      18,267      20,423
Members' equity (deficit)............    2,717     (21,116)    (20,092)    (17,517)    (8,080)
OTHER DATA:
Gross margin.........................     37.0%       37.3%       37.1%       37.4%       38.8%
Adjusted EBITDA(c)...................  $ 6,793    $  8,534    $ 10,429    $ 16,335    $ 24,612
Adjusted EBITDA margin...............     12.3%       14.3%       15.5%       14.8%       14.4%
Depreciation and amortization........  $ 1,086    $  1,043    $  1,093    $  2,089    $  3,755
Capital expenditures.................  $   292    $    167    $    572    $  1,095    $  4,165
Ratio of earnings to fixed
  charges(d).........................     2.25x       2.64x       1.97x       1.96x       1.63x
</TABLE>

---------------
(a) Interest expense, net includes the amortization of deferred debt issuance
    costs of $60, $391, $170, $281 and $633 for the years ended December 31,
    1995, 1996, 1997, 1998 and 1999, respectively.

(b) Represents total current assets, excluding cash and cash equivalents, less
    total current liabilities, excluding current portion of long-term debt.

(c) Adjusted EBITDA represents, for any period, net income before interest
    expense, income taxes, depreciation and amortization and other non-operating
    income/expense. Adjusted EBITDA is presented because it is a widely accepted
    financial indicator of a company's ability to service and/or incur
    indebtedness. The Company believes that presentation of Adjusted EBITDA may
    be helpful to investors. However, Adjusted EBITDA should not be considered
    an alternative to net income as a measure of Sleepmaster's operating results
    or to cash flows as a measure of liquidity. In addition, although the
    Adjusted EBITDA measure of performance is not recognized under generally
    accepted accounting principles, it is widely used by industrial companies as
    a general measure of a company's operating performance because it assists in
    comparing performance on a relatively consistent basis across companies
    without regard to depreciation and amortization, which can vary
    significantly depending on accounting methods, particularly where
    acquisitions are involved, or non-operating factors such as historical cost
    bases. Because Adjusted EBITDA is not calculated identically by all
    companies, the presentation in this prospectus may not be comparable to
    other similarly titled measures of other companies.

                                        6
<PAGE>   8

(d) In calculating the ratio of earnings to fixed charges, earnings consist of
    income before income taxes and extraordinary items plus fixed charges. Fixed
    charges consist of interest expense, net, including amortization of issuance
    costs, whether capitalized or expensed, plus one-third of rental expense
    under operating leases, the portion that has been deemed by management to be
    representative of an interest factor.

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

     The following discussion should be read in conjunction with the "Selected
Financial Data", set forth in Item 6 hereof, and the Financial Statements of the
Company and the notes thereto included elsewhere herein.

GENERAL

     Sleepmaster acquired the stock of Palm Beach on March 3, 1998, the stock of
Herr on February 26, 1999, substantially all of the assets of Star on May 18,
1999 and substantially all of the assets of Adam Wuest on November 5, 1999. Each
of these acquisitions has been accounted for using the purchase method of
accounting. The Company's historical results of operations reflect the results
of the acquired businesses. Therefore, the historical operating results of the
Company for the periods presented are not necessarily comparable.

                                        7
<PAGE>   9

RESULTS OF OPERATIONS

     The following table sets forth operating data of Sleepmaster as a
percentage of net sales for the fiscal years ended December 31, 1997, 1998 and
1999.

<TABLE>
<CAPTION>
                                                               PERCENTAGE OF NET SALES
                                                              --------------------------
                                                              FOR THE FISCAL YEARS ENDED
                                                                     DECEMBER 31,
                                                              --------------------------
                                                               1997      1998      1999
                                                              ------    ------    ------
<S>                                                           <C>       <C>       <C>
Net sales...................................................  100.0%    100.0%    100.0%
Cost of sales...............................................   62.9      62.6      61.2
                                                              -----     -----     -----
Gross profit................................................   37.1      37.4      38.8
                                                              -----     -----     -----
Operating expenses:
Selling, general and administrative expenses................   22.3      23.4      25.3
Amortization of intangibles.................................    1.0       1.1       1.3
                                                              -----     -----     -----
Total operating expenses....................................   23.3      24.5      26.6
                                                              -----     -----     -----
Operating income............................................   13.8      12.9      12.2
Interest expense, net.......................................    6.9       6.4       7.4
Other (income) expense, net.................................   (0.1)       --        --
                                                              -----     -----     -----
Income before income taxes and extraordinary items..........    7.1       6.5       4.8
Provision for income taxes..................................    3.0       2.7       1.9
                                                              -----     -----     -----
Income before extraordinary items...........................    4.1       3.8       2.9
Extraordinary items.........................................     --        --      (1.8)
                                                              -----     -----     -----
Net income..................................................    4.1%      3.8%      1.1%
                                                              -----     -----     -----
Depreciation expense........................................    0.7%      0.8%      0.9%
Adjusted EBITDA.............................................   15.5%     14.8%     14.4%
</TABLE>

FISCAL 1999 COMPARED WITH FISCAL 1998

     Net Sales.  Net sales increased 55.3%, or $61.0 million, to $171.3 million
in 1999 from $110.3 million in 1998. A significant portion of the increase was
due to the contribution of net sales from Herr, acquired on February 26, 1999,
Star, acquired on May 18, 1999 and, to a less significant extent, Adam Wuest,
acquired on November 5, 1999. Net sales contributed by Herr, Star and Adam Wuest
were $20.5 million, $11.5 million and $6.4 million in 1999, respectively.
Excluding the acquisitions of Herr, Star, and Adam Wuest and considering the
annualized 1998 results of Palm Beach, net sales increased by 13.4%, or $15.7
million, in 1999. Better sales penetration with existing customers, the addition
of new customers and the introduction of the new Masterpiece line of bedding
products during the year were significant factors contributing to the strong
sales growth. In addition, generally higher unit sales volumes and higher
average unit selling prices resulting from shifts in product sales mix toward
higher priced products contributed to this increase.

     Cost of Sales.  Cost of sales increased 52.0%, or $35.9 million, to $104.9
million in 1999 from $69.0 million in 1998. Cost of sales as a percentage of net
sales decreased to 61.2% in 1999 from 62.6% in 1998. The reduction of cost of
sales as a percentage of net sales in 1999 was primarily due to the impact of
higher margin business generated by Palm Beach, Herr and Star, as well as higher
margins realized on sales of the Masterpiece line of bedding products introduced
in 1999. Margins were also favorably impacted by Sleepmaster successfully
obtaining volume-related cost savings on raw material purchases as a result of
the acquisitions of Palm Beach, Herr, Star and Adam Wuest, which serve to reduce
purchase costs and hence reduce the ratio of cost of sales to net sales.
Partially offsetting these higher margins were higher manufacturing costs for
Sleepmaster resulting from (1) the development and launch of the Masterpiece
line of bedding products during 1999 and (2) a realignment of direct and
indirect labor resources to extend production capabilities, together with
associated costs.

                                        8
<PAGE>   10

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses ("SG&A") increased 67.8%, or $17.5 million, to $43.3
million in 1999 from $25.8 million in 1998. SG&A as a percentage of net sales
increased to 25.3% in 1999 from 23.4% in 1998. Several factors contributed to
the increase in SG&A as a percentage of net sales: (1) Palm Beach and Herr have
higher fixed cost bases than Sleepmaster and the second, third and fourth
quarters of 1999 include the full impact of Herr's fixed cost base on the
consolidated results; (2) Palm Beach and Herr have higher delivery expenses as a
percentage of net sales due to the large geographical territories they service
compared with that of Sleepmaster; (3) Palm Beach has certain contractual
employment arrangements which expire in March 2000 that contributed to the
increase in SG&A as a percentage of net sales; and (4) promotional costs
increased in 1999 as a result of the market introduction of the Masterpiece
range of bedding products.

     Amortization of Intangibles.  Amortization of intangibles increased $1.0
million to $2.2 million in 1999 from $1.2 million in 1998. This increase was due
to the acquisitions of Palm Beach in March 1998, Herr in February 1999, Star in
May 1999 and Adam Wuest in November 1999.

     Operating Income.  Operating income increased 47.2%, or $6.7 million, to
$20.9 million in 1999 from $14.2 million in 1998. As a result of the above
factors, operating income as a percentage of net sales decreased to 12.2% in
1999 from 12.9% in 1998.

     Interest Expense, Net.  Interest expense increased 76.1%, or $5.4 million,
to $12.5 million in 1999 from $7.1 million in 1998. This increase was due to the
cost of additional debt financing incurred for the acquisitions of Palm Beach,
Herr and Adam Wuest and the issuance of senior subordinated notes on May 18,
1999. See "Liquidity and Capital Resources".

     Provision for Income Taxes.  The provision for income taxes increased by
$0.2 million, to $3.2 million, in 1999 from $3.0 million in 1998. The provision
for income taxes resulted in an effective tax rate of 39.4% in 1999 compared
with 42.1% in 1998. The effective tax rate decreased due to the expansion of the
business toward lower tax jurisdictions as a result of the aforementioned
acquisitions, as well as the effect of additional debt financing being incurred
by Sleepmaster for such acquisitions.

     Extraordinary Items.  The extraordinary items recorded in 1999 consisted of
the payment of $3.6 million in premiums on the redemption of $20 million in
aggregate principal amount of Series A and Series B 12% Subordinated Notes and
repayment of $69.2 million of borrowings under the Company's former credit
facility, together with the write-off of $1.8 million of unamortized debt
issuance costs relating to such redemption and repayment on May 18, 1999. See
"Liquidity and Capital Resources". There were no extraordinary items incurred
during 1998.

     Net Income.  As a result of the above factors, net income decreased by $2.3
million, to $1.8 million in 1999 from $4.1 million in 1998.

FISCAL 1998 COMPARED WITH FISCAL 1997

     Net Sales.  Net sales increased by 63.4%, or $42.8 million, to $110.3
million in 1998 from $67.5 million in 1997. This increase was primarily due to
the acquisition of Palm Beach which contributed ten months of sales totaling
$37.1 million. Excluding the acquisition of Palm Beach, net sales increased by
8.4%, or $5.7 million, to $73.2 million in 1998 from $67.5 million in 1997. This
increase was primarily attributable to higher unit volumes in 1998. There was
also an increase in average unit selling prices due to a change in product sales
mix to higher priced products.

     Cost of Sales.  Cost of sales increased by 62.7%, or $26.6 million, to
$69.0 million in 1998 from $42.4 million in 1997. Cost of sales as a percentage
of net sales decreased to 62.6% in 1998 from 62.9% in 1997. This improvement was
primarily due to higher margin business generated by Palm Beach. These higher
margins, which serve to reduce cost of sales as a percentage of net sales, were
partially offset by an increase in Sleepmaster's manufacturing costs in 1998. As
a result of the Palm Beach acquisition, Sleepmaster was also able to realize
cost savings on raw material purchases as a result of obtaining additional
volume-related purchase discounts from vendors.

                                        9
<PAGE>   11

     Selling, General and Administrative Expenses.  Selling, general and
administrative expenses ("SG&A") increased by 72.0%, or $10.8 million, to $25.8
million in 1998 from $15.0 million in 1997. SG&A as a percentage of net sales
increased to 23.4% in 1998 from 22.3% in 1997. Several factors contributed to
this increase. First, Palm Beach has a higher fixed cost base as a percentage of
net sales than Sleepmaster's base business and has a greater number of smaller
customers than Sleepmaster. Second, Palm Beach has higher delivery expenses as a
percentage of net sales due to its large geographical licensed territory. Such
expenses were offset by increases in average unit selling prices and generally
fixed delivery costs per unit at our Linden, New Jersey, facility. Finally, Palm
Beach has certain contractual employment arrangements, which expire in March
2000, which contributed to the increase in SG&A as a percentage of net sales.

     Amortization of Intangibles.  Amortization of intangibles increased by $0.6
million, to $1.2 million in 1998 from $0.6 million in 1997. This increase was
due to the acquisition of Palm Beach in March 1998.

     Operating Income.  Operating income increased by 52.6%, or $4.9 million, to
$14.2 million in 1998 from $9.3 million in 1997. As a result of the above
factors, operating income as a percentage of net sales decreased to 12.9% in
1998 from 13.8% in 1997.

     Interest Expense, Net.  Interest expense increased by 52.2%, or $2.4
million, to $7.1 million in 1998 from $4.7 million in 1997. This increase was
due to the cost of additional debt financing on debt incurred and assumed
resulting from the acquisition of Palm Beach. See "Liquidity and Capital
Resources."

     Provision for Income Taxes.  The provision for income taxes increased by
50%, or $1.0 million, to $3.0 million in 1998 from $2.0 million in 1997. The
provision for income taxes resulted in an effective rate of 42.1% in 1998 and
42.2% in 1997.

     Net Income.  As a result of the above factors, net income for 1998 was $4.1
million compared to $2.8 million in 1997.

RECENT ACCOUNTING PRONOUNCEMENTS

     In February 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use", which requires certain costs incurred in connection with
developing or obtaining internal use software to be capitalized and other costs
to be expensed. The Company adopted SOP 98-1 effective January 1, 1999. The
impact of adopting this standard was to increase pre-tax income for 1999 by $1.9
million.

LIQUIDITY AND CAPITAL RESOURCES

     The Company's principal source of cash to fund its liquidity needs is net
cash provided by operating activities and availability under its amended and
restated credit facility. Net cash provided by operating activities was $13.9
million in 1999 compared to $8.9 million in 1998 and $6.0 million in 1997. The
increase in cash flows in 1999 was primarily due to increased net income from
operations, before extraordinary items, and the acquisitions of Herr, Star and
Adam Wuest. The Company's principal uses of funds provided by operating
activities consist of payments of principal and interest on the Company's
indebtedness and capital expenditures.

     Capital expenditures totaled $4.2 million, $1.1 million and $0.6 million in
1999, 1998 and 1997, respectively. The increase in expenditures in 1999 was
primarily attributable to the Company upgrading and expanding its information
systems' capabilities. The balance of the increase in capital expenditures was
for machinery and equipment at all facilities. Management expects that capital
expenditures at all its facilities will be approximately $4.5 million in 2000.
Additionally, management believes that annual capital expenditure limitations
under the amended and restated credit facility will not significantly inhibit
Sleepmaster from meeting its capital needs.

     Sleepmaster generated $92.1 million of cash inflows from financing
activities in 1999, principally arising from net proceeds from the issuance on
May 18, 1999 of $115.0 million of 11% senior subordinated

                                       10
<PAGE>   12

notes due 2009 and borrowings under an increased credit facility to acquire Herr
and Adam Wuest, compared with cash inflows of $24.5 million in 1998 and cash
outflows of $5.0 million in 1997. Financing cash inflows in 1998 arose primarily
from borrowings under an increased credit facility to acquire Palm Beach and
financing cash outflows in 1997 arose principally from repayments of borrowings
under the revolving credit facility.

     On February 26, 1999, Sleepmaster purchased all of the capital stock of
Herr. In connection with the acquisition, Sleepmaster amended and restated its
credit facility to provide for an aggregate amount of borrowings of up to $86.0
million, a portion of which was used to finance the acquisition of Herr.

     On May 18, 1999, Sleepmaster purchased substantially all the assets of
Star, the Serta licensee located in Concord, Ontario, Canada. The acquisition
was primarily funded with the net proceeds of the issuance of $115.0 million of
11% senior subordinated notes due 2009.

     On November 5, 1999, Sleepmaster purchased substantially all the assets of
Adam Wuest. This acquisition was funded primarily through the expansion of its
existing credit facility and additional equity contributed by Holdings.

  Debt

     On November 5, 1999, Sleepmaster amended and restated its credit facility
to provide for borrowings of up to $70.0 million, consisting of a $33.0 million
six-year revolving credit facility and a $37.0 million amortizing term loan
facility. Borrowings under the amended and restated credit facility are
collateralized by substantially all of Sleepmaster's domestic assets and are
guaranteed by all of its domestic restricted subsidiaries and Sleepmaster
Holdings L.L.C. Similar to the prior credit facility, the revolving credit
facility includes a sublimit for letters of credit. At December 31, 1999, the
Company had approximately $17.0 million available under its revolving credit
facility. As of December 31, 1999, letters of credit issued under this sublimit,
which was increased to $15.0 million, consist of:

     (a) $6.6 million to collateralize the Palm Beach industrial revenue bonds
         currently outstanding,

     (b) $2.3 million to collateralize the Adam Wuest economic development bonds
         currently outstanding,

     (c) $0.72 million for a security deposit on the Linden, New Jersey,
         facility, and

     (d) $0.06 million for a parcel of land purchased by Herr.

     Borrowings under the amended and restated credit facility bear interest at
floating rates that are based on LIBOR or on the applicable alternate base rate
and, accordingly, Sleepmaster's financial condition and performance will be
affected by changes in interest rates. The amended and restated credit facility
also imposes certain restrictions on Sleepmaster and requires Sleepmaster to
comply with certain financial ratios and tests.

     On November 5, 1999 Sleepmaster Holdings L.L.C. entered into a subordinated
credit agreement with Citicorp Mezzanine Partners, L.P. with availability of
$10.0 million. In connection with the acquisition of Adam Wuest, Sleepmaster
Holdings L.L.C. borrowed $10.0 million under the subordinated credit agreement
and made an equity contribution of $10.0 million to Sleepmaster. Sleepmaster
used the $10.0 million equity contribution to assist in financing its
acquisition of Adam Wuest.

     On May 18, 1999, Sleepmaster and Sleepmaster Finance Corporation issued
$115.0 million of 11% senior subordinated notes due 2009. Sleepmaster used a
portion of the proceeds of the senior subordinated note offering to prepay the
old credit facility, redeem the series A and series B senior subordinated notes
due 2007 and acquire substantially all of the assets of Star. Also on May 18,
1999, Sleepmaster entered into a credit facility with First Union National Bank.
The credit facility provided revolving credit facilities with aggregate
availability of $25.0 million. The revolving credit facility was scheduled to
mature six years after closing and included a sublimit of $8.0 million for
letters of credit.

     In conjunction with the purchase of substantially all the assets of Star on
May 18, 1999, Sleepmaster Holdings L.L.C. issued a junior subordinated note to
the seller in the initial aggregate principal amount of approximately $0.7
million as a portion of the purchase price. The junior subordinated note bears
interest at a

                                       11
<PAGE>   13

fixed rate of 6.0% per annum, which interest shall be paid in kind, and will
mature on the third anniversary of the closing.

     Sleepmaster, through its subsidiary Palm Beach, is obligated to the County
of Palm Beach, Florida, pursuant to revenue bonds issued on behalf of Palm
Beach. On April 1, 1996, the County of Palm Beach Florida issued Variable Rate
Demand Industrial Development Revenue Bonds, Palm Beach Bedding Company Project,
Series 1996 in the aggregate principal amount of $7.7 million to finance the
construction of a 235,000 square foot manufacturing facility for Palm Beach. As
of December 31, 1999, $6.3 million of the bonds were outstanding. The bonds
mature in April 2016 and bear interest at a variable rate that was 5.15% at
December 31, 1999.

     Sleepmaster, through its subsidiary Adam Wuest, is obligated to the County
of Hamilton, Ohio, pursuant to economic revenue bonds issued on behalf of Adam
Wuest. On February 1, 1994, the County of Hamilton, Ohio, issued Fixed Rate
Economic Development Revenue Funding Bonds, Series 1994 in the aggregate
principal amount of $3.0 million to finance the Adam Wuest, Inc. Project. As of
December 31, 1999, $2.0 million of the bonds were outstanding. The bonds mature
in September 2010 and bear interest at fixed rates ranging from 4.5% to 5.6%
depending on the maturity date of the bond series.

     In connection with the recapitalization of Sleepmaster Holdings L.L.C. on
November 14, 1996, Sleepmaster issued $15.0 million of series A 12% senior
subordinated notes due 2006 to PMI. In connection with the acquisition of Palm
Beach on March 3, 1998, Sleepmaster issued $5.0 million of series B 12% senior
subordinated notes due 2007 to PMI and amended the terms of the series A senior
subordinated notes to extend the maturity date to 2007. On May 18, 1999,
Sleepmaster used a portion of the net proceeds from the $115.0 million senior
subordinated note offering to prepay the Series A and Series B senior
subordinated notes due 2007.

     Also in connection with the recapitalization of Sleepmaster Holdings L.L.C.
on November 14, 1996, Sleep Investor issued $7.0 million of 7.02% junior
subordinated promissory notes, due November 14, 2007, and paid cash to the then
existing members of Sleepmaster Holdings L.L.C., including current members of
the Company's management. In exchange for the notes, the then-existing members
of Sleepmaster Holdings L.L.C. delivered common and preferred interests of
Sleepmaster Holdings L.L.C., as well as notes issued by Sleepmaster Holdings
L.L.C., to Sleep Investor. Interest payments received by Sleep Investor on the
notes issued by Sleepmaster Holdings L.L.C. correspond to Sleep Investor's
obligation to make interest payments on the promissory notes. The interest on
the promissory notes is pay-in-kind except that an amount equal to the current
tax liability for interest payments received on the promissory notes is paid in
cash. The maturity date of the promissory notes was extended in connection with
the acquisition of Palm Beach from November 14, 2007 to November 14, 2008. In
connection with the completion of the $115.0 million senior subordinated note
offering, and the prepayment of the Series A and Series B senior subordinated
notes due 2007, the promissory notes were further amended to retroactively bear
interest at a fixed rate of 12.0% per annum and to mature on November 14, 2007.

     Sleepmaster has no obligations or commitments to Sleepmaster Holdings
L.L.C. or Sleep Investor either under the promissory notes or the junior
subordinated note. The amended and restated credit facility will allow
Sleepmaster to fund interest payments on the promissory notes and the junior
subordinated note. Distributions, dividends and loans from Sleepmaster to
Sleepmaster Holdings L.L.C. are restricted by the terms of the indenture
governing the notes.

     Management believes that cash flows from operations, together with
borrowings under the senior credit facility, will be adequate to fund
Sleepmaster's currently anticipated working capital, capital spending and debt
service requirements for the forseeable future.

SEASONALITY OF BUSINESS

     Sleepmaster's net sales and net income are generally consistent throughout
the fiscal year, except for slight increases in the third quarter. However,
seasonal variations in net sales and net income affect each of Sleepmaster's
five facilities. Palm Beach's net sales and net income are typically higher
during the first and fourth quarters of the fiscal year. In contrast, net sales
and net income are typically higher during the third quarter of the fiscal year
at the Linden, New Jersey, Lancaster, Pennsylvania, Cincinnati, Ohio, and
Concord,

                                       12
<PAGE>   14

Ontario, Canada facilities. Since Palm Beach's sales cycle does not coincide
with the sales cycles at the other facilities, seasonal variations of
Sleepmaster are reduced.

YEAR 2000

     In order to minimize or eliminate the effect of the Year 2000 risk on the
Company's business systems and applications, the Company identified, evaluated,
implemented and tested changes to its computer systems, applications and
software necessary to achieve Year 2000 compliance. The computer systems and
equipment successfully transitioned to the Year 2000 with no significant issues.
The Company continues to keep its Year 2000 project management in place to
monitor latent problems that could surface at key dates or events in the future.
Management does not anticipate any significant problems related to these events.
The total cost of the Year 2000 compliance plan was approximately $650,000 and
was incurred principally during the first two quarters of 1999. The Company
expensed and capitalized the costs to complete its compliance plan in accordance
with appropriate accounting policies.

FORWARD LOOKING STATEMENTS AND RISK FACTORS

     This document contains forward-looking statements within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Although the Company believes its plans are based upon reasonable assumptions as
of the current date, it can give no assurance that such expectations can be
attained. Factors that could cause actual results to differ materially from the
Company's expectations include: general business and economic conditions;
competitive factors; raw materials availability and pricing; fluctuations in
demand; and retention and availability of qualified employees.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk from fluctuations in interest rates,
which could impact its consolidated financial position, results of operations
and cash flows. The Company manages its exposure to market risk through its
regular operating and financing activities. The Company does not use derivative
financial instruments for speculative or trading purposes and does not maintain
such instruments that may expose the Company to significant market risk.

     The Company's earnings are sensitive to changes in short-term interest
rates as a result of its borrowings under the senior credit facility. If
interest rates increase by 10 percent during the year ended December 31, 2000,
the Company's interest expense would increase, and income before income taxes
would decrease, by approximately $0.5 million. This analysis does not consider
the effects of the reduced level of overall economic activity, or other factors,
that could exist in such an environment. Further, in the event of a change of
such magnitude, management could take actions to further mitigate its exposure
to the change. However, due to the uncertainty of the specific actions that
would be taken and their possible effects, the sensitivity analysis assumes no
changes in the Company's financial structure.

     The Company also manages its portfolio of fixed-rate debt to reduce its
exposure to interest rate changes. The fair value of the Company's fixed-rate
long-term debt is sensitive to interest rate changes. Interest rate changes
would result in gains or losses in the fair value of this debt due to
differences between market interest rates and rates at the inception of the
obligation. Based on a hypothetical 10 percent increase in interest rates at
December 31, 1999, the fair value of the Company's fixed-rate long-term debt
would decrease by approximately $3.7 million.

     See Note 11 to the consolidated financial statements for a discussion of
the Company's debt.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

     See Financial Statements and accompanying notes as listed in the Index to
Financial Statements commencing on page F-1 herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
        FINANCIAL DISCLOSURE

     Not applicable.

                                       13
<PAGE>   15

                                    PART III

ITEM 10.  ADVISORS AND EXECUTIVE OFFICERS OF THE COMPANY

     The following sets forth certain information as of December 31, 1999, with
respect to the persons who are members of the Board of Advisors and key
executive officers of the Company.


<TABLE>
<CAPTION>
                NAME                   AGE                           POSITION
                ----                   ---                           --------
<S>                                    <C>   <C>
Charles Schweitzer...................  55    President and Chief Executive Officer, Advisor and
                                             Managing Member
James Koscica........................  40    Executive Vice President and Chief Financial Officer and
                                             Advisor
Michael Reilly.......................  50    Senior Vice President of Sales and Marketing
Timothy DuPont.......................  51    Vice President of Manufacturing
Michael Bubis........................  45    President of Palm Beach and Advisor
David Thomas.........................  50    Advisor
John Weber...........................  36    Advisor
Michael Bradley......................  33    Advisor
Robert Bartholomew...................  53    Advisor
</TABLE>


     Charles Schweitzer has served as President and Chief Executive Officer of
Sleepmaster since April 1993, after joining Sleepmaster as Senior Vice President
in April 1986. Prior to joining Sleepmaster, he served as Senior Vice President,
Sales and Marketing for Classic Corporation, one of the world's largest waterbed
manufacturers. Before his tenure at Classic Corporation, Mr. Schweitzer served
as Vice President, Marketing for Sealy Mattress Company of Connecticut/New York.
Mr. Schweitzer has a B.A. in Economics and an MBA in Marketing from City College
of New York.

     James Koscica has served as Executive Vice President and Chief Financial
Officer of Sleepmaster since January 1995 and served as Vice President of
Finance and Administration since April 1993, after joining Sleepmaster as
controller in November 1989. Before he joined Sleepmaster, he served as
controller for a Budget Rent-A-Car Corporation franchise. Prior to his work at
Budget, Mr. Koscica served in management in systems development at AT&T. Mr.
Koscica has a B.A. in Accounting from Rutgers University and is a licensed CPA
in New Jersey.

     Michael Reilly has served as Senior Vice President of Sales and Marketing
since January 1995 and Vice President of Sales from April 1993, after joining
Sleepmaster as Key Account Executive in February 1978. Before joining
Sleepmaster, Mr. Reilly served as Marketing Representative for Simmons Company.
Mr. Reilly has a B.A. in Business Administration from Catholic University.

     Timothy DuPont has served as Vice President of Manufacturing since April
1993, after joining Sleepmaster as Manufacturing Manager in January 1985. Before
joining Sleepmaster, he served as General Manager for Guilden Development
Company. Mr. DuPont has a B.A. in Business Administration from Chapman College.

     Michael Bubis is an advisor of Sleepmaster. Mr. Bubis has worked at Palm
Beach since 1969 and has been President of Palm Beach since 1991. Mr. Bubis
served as a member of the board of directors of Serta from 1995 through 1998.


     David Thomas is an advisor of Sleepmaster. Mr. Thomas has been a Managing
Director of Citicorp Venture Capital, Ltd. for over five years. Mr. Thomas is a
director of Lifestyle Furnishings International Ltd., Anvil Knitwear, Inc.,
Plainwell, Inc., Neenan Foundry Company and American Commercial Lines LLC.


     John Weber is an advisor of Sleepmaster. Mr. Weber has been a Vice
President at Citicorp Venture Capital, Ltd. since 1994. Previously, Mr. Weber
worked at Putnam Investments from 1992 through 1994.

                                       14
<PAGE>   16

Mr. Weber is a director of Anvil Knitwear, Inc., Electrocal Designs, Inc., FFC
Holding, Inc., Graphic Design Technologies, Marine Optical, Inc., Gerber
Childrenswear, Inc., Plainwell, Inc. and Smith Alarm.

     Michael Bradley is an advisor of Sleepmaster. Mr. Bradley joined Citicorp
Venture Capital, Ltd. in 1996. Prior to joining Citicorp Venture Capital, Ltd.,
Mr. Bradley worked at Merrill Lynch and Selected Equity Research. Mr. Bradley
received his B.A. from the University of Virginia, his J.D. from the University
of Virginia and his MBA from Columbia Business School. Mr. Bradley serves on the
board of directors of Hayden Corporation, MinCorp, Galey & Lord, Inc. and HL
Holdings.

     Robert Bartholomew is an advisor of Sleepmaster. Mr. Bartholomew co-founded
Pacific Mezzanine Investors in 1990. Previously, Mr. Bartholomew worked at
Pacific Mutual from 1986 through 1989. Mr. Bartholomew received his B.A. in
Economics and an MBA in Finance from Rutgers University.

CHANGES IN MANAGEMENT


     On March 3, 2000, Timothy Dupont resigned as the Vice President of
Manufacturing. Effective immediately, Timothy Gann, Director of Manufacturing,
assumed substantially all of the responsibilities of Mr. Dupont. Mr. Gann has
served as the Director of Manufacturing from July 1999 through the present time.


ITEM 11.  EXECUTIVE COMPENSATION

     The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal year ended December 31, 1999, of those persons who served as (i) the
chief executive officer during fiscal year 1999, and (ii) the other four most
highly compensated executive officers of the Company for fiscal year 1999
(collectively, the "Named Executive Officers"):

                           SUMMARY COMPENSATION TABLE


<TABLE>
<CAPTION>
                                                             ANNUAL COMPENSATION
                                                    FISCAL   -------------------    OTHER ANNUAL
           NAME AND PRINCIPAL POSITION               YEAR     SALARY    BONUS(A)   COMPENSATION(B)
           ---------------------------              ------   --------   --------   ---------------
<S>                                                 <C>      <C>        <C>        <C>
Charles Schweitzer................................   1999    $353,386   $77,341        $55,883
  President and Chief Executive Officer              1998     320,250    73,658         56,006
James Koscica.....................................   1999     252,424    53,020         48,377
  Executive Vice President and Chief Financial
  Officer                                            1998     233,221    48,510         47,924
Michael Bubis.....................................   1999     304,500    91,350         23,566
  President of Palm Beach                            1998     241,660    59,257         23,010
Michael Reilly....................................   1999     209,158    43,000         45,044
  Senior Vice President of Sales and Marketing       1998     179,550    39,501         40,942
Timothy DuPont....................................   1999     140,084    56,700         37,424
  Vice President of Manufacturing                    1998     116,550    47,786         34,273
</TABLE>


---------------

(a) Includes amounts paid as discretionary awards for fiscal 1999.

(b) Represents amounts paid on behalf of each of the Named Executive Officers
    for (i) premiums for health, life and accidental death and dismemberment
    insurance and for long-term disability benefits; (ii) contributions to
    Sleepmaster's defined contribution plans; and (iii) automobile allowances.

                                       15
<PAGE>   17

     No stock options were exercised by any of the Named Executive Officers
during fiscal 1999. The following table sets forth the number of securities
underlying unexercised options held by each of the Named Executive Officers and
the value of the options as of December 31, 1999:

                         FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
                                                  NUMBER OF SECURITIES             VALUE OF UNEXERCISED
                                             UNDERLYING UNEXERCISED OPTIONS        IN-THE-MONEY OPTIONS
                                                   AT FISCAL YEAR-END             AT FISCAL YEAR-END(A)
                                               EXERCISABLE/UNEXERCISABLE        EXERCISABLE/UNEXERCISABLE
                                             ------------------------------    ----------------------------
<S>                                          <C>                               <C>
Charles Schweitzer.........................              0/212                        $0/$1,177,641
James Koscica..............................              0/106                        $ 0/ $588,821
Michael Reilly.............................              0/106                        $ 0/ $588,821
Timothy DuPont.............................              0/106                        $ 0/ $588,821
</TABLE>

---------------
(a) Value of unexercised options at fiscal year-end represents the difference
    between the exercise price of any outstanding-in-the-money options and the
    fair market value of Sleepmaster Holdings L.L.C.'s class A common membership
    interests on December 31, 1999.

EXECUTIVE EMPLOYMENT AGREEMENTS

     In 1996, Sleepmaster Holdings L.L.C., Sleepmaster and Sleep Investor
entered into employment and option agreements with Charles Schweitzer, James
Koscica, Michael Reilly and Timothy DuPont dated as of November 14, 1996. These
agreements provide for, among other things, terms of employment until November
1, 2001 and base salaries of $305,000 (Mr. Schweitzer), $210,000 (Mr. Koscica),
$171,000 (Mr. Reilly) and $111,000 (Mr. DuPont) subject to annual increases by
the Board of Advisors. Annual bonuses are to be calculated based upon EBITDA
performance of Sleepmaster. The agreements also provide an option vesting
schedule for employees to acquire membership interests in Sleepmaster Holdings
L.L.C., which Sleepmaster Holdings L.L.C. or Sleepmaster, if Sleepmaster
Holdings L.L.C. does not elect to purchase all such interests, may repurchase if
the employee is terminated for any reason. Timothy DuPont resigned on March 3,
2000 and Sleepmaster Holdings L.L.C. is in the process of repurchasing the Class
A common interests held by Mr. DuPont which are subject to the repurchase
option.

     On March 3, 1998, Palm Beach (joined by Sleepmaster Holdings L.L.C. and
Sleepmaster) entered into an employment agreement with Michael Bubis. The
agreement has terms which are substantially similar to the terms of the
agreements described above and provide for, among other things, terms of
employment until March 3, 2001 and a base salary of $267,904, subject to annual
increases by the Board of Advisors. Additionally, Michael Bubis was elected to
the Board of Advisors of Sleepmaster and Sleepmaster Holdings L.L.C. during his
term of employment.

STOCK OPTION PLANS

     On November 14, 1996, the Company entered into stock option agreements with
Charles Schweitzer, James Koscica, Michael Reilly and Timothy DuPont. These
nonqualified options entitle the executives to purchase an aggregate amount of
530 units of class A common interests of Sleepmaster Holdings L.L.C. at an
exercise price of $100 per unit. Options granted under these agreements vest 50%
on December 31, 1999 and 50% on December 31, 2001, subject to Sleepmaster's
achievement of EBITDA targets as long as the executive remains employed by
Sleepmaster. As of December 31, 1999, Sleepmaster did not achieve the EBITDA
targets specified in the agreements. Additionally, applicable portions of the
options shall vest upon a sale of Sleepmaster if (i) the sale occurs prior to
December 31, 1999 and (ii) the aggregate cash consideration received by the
holders of Sleepmaster's common interests equals or exceeds either the target
for December 31, 1999 or for December 31, 2001. Fifty percent of the options
shall vest upon a sale of Sleepmaster if (i) the sale occurs after December 31,
1999 but before December 31, 2001 and (ii) the aggregate cash consideration
received by holders of Sleepmaster's common interests equals or exceeds the
target for December 31, 2001. If as of December 31, 2001 any portion of the
options have not vested, Sleepmaster may
                                       16
<PAGE>   18

automatically transfer any portion of the unvested options and re-grant the
unvested options without payment of any consideration to the executives. The
option agreements may be amended by Sleepmaster Holdings L.L.C.'s board of
advisors. Timothy DuPont's stock option agreement terminated upon his
resignation on March 3, 2000, and none of the options granted to Mr. DuPont had
vested as of such date.

COMPENSATION OF ADVISORS

     The advisors to the Company are not compensated for the services they
render on the board of advisors, and they are not reimbursed for expenses
incurred as a result of board membership.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

     The Board of Advisors authorized and formed a Compensation Committee on
September 30, 1999. The Board of Advisors designated John Weber, a member of the
Company's Board of Advisors, Charles Schweitzer, President and Chief Executive
Officer and a member of the Company's Board of Advisors and Guy Boyle, a member
of Sleep Investor L.L.C.'s Board of Advisors to serve as members of the
Compensation Committee.

     The Named Executive Officers are compensated according to their individual
employment agreements described under the Section entitled "Executive Employment
Agreements" above.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     The following table sets forth ownership information with respect to the
common equity interests of Sleepmaster Holdings L.L.C. Sleepmaster Holdings
L.L.C. owns over 99.9% of the common equity interests of Sleepmaster.

<TABLE>
<CAPTION>
                                                           NUMBER OF COMMON      PERCENTAGE OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER                     MEMBERSHIP INTERESTS    MEMBERSHIP INTERESTS
------------------------------------                     --------------------    --------------------
<S>                                                      <C>                     <C>
Sleep Investor L.L.C...................................           6,099                  74.4%
  2001 Lower Road
  Linden, NJ 07036-6520
Citicorp Venture Capital, Ltd.(a)......................         3,852.3                  46.9%
  399 Park Avenue
  New York, NY 10043
CCT Partners IV, L.P.(a)...............................           677.5                   8.3%
  399 Park Avenue
  New York, NY 10043
PMI Mezzanine Fund L.P.(a)(b)..........................         3,403.0                  32.1%
  610 Newport Center Drive
  Suite 1100
  Newport Beach, CA 92660
Charles Schweitzer.....................................           517.7                   6.3%
  2001 Lower Road
  Linden, NJ 07036-6520
James Koscica..........................................           280.0                   3.4%
  2001 Lower Road
  Linden, NJ 07036-6520
Michael Reilly.........................................           280.0                   3.4%
  2001 Lower Road
  Linden, NJ 07036-6520
Timothy DuPont.........................................           280.0                   3.4%
  2001 Lower Road
  Linden, NJ 07036-6520
Michael Bubis..........................................           466.0                   5.7%
  3774 Interstate Park Road North
  Riviera Beach, FL 33404
</TABLE>

                                       17
<PAGE>   19

<TABLE>
<CAPTION>
                                                           NUMBER OF COMMON      PERCENTAGE OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER                     MEMBERSHIP INTERESTS    MEMBERSHIP INTERESTS
------------------------------------                     --------------------    --------------------
<S>                                                      <C>                     <C>
David Thomas(c)........................................         4,716.3                  57.5%
  399 Park Avenue
  New York, NY 10043
John Weber(c)..........................................         4,578.3                  55.8%
  399 Park Avenue
  New York, NY 10043
Michael Bradley(d).....................................         4,529.9                  55.2%
  399 Park Avenue
  New York, NY 10043
Robert Bartholomew(e)..................................         3,403.0                  32.1%
  610 Newport Center Drive
  Suite 1100
  Newport Beach, CA 92660
All directors and executive officers as a group (9
  persons).............................................        9,954.59                  93.9%
</TABLE>

---------------
(a) Interests are held indirectly through Sleep Investor L.L.C.

(b) Consists of 1,000 class A common membership interests and warrants currently
    exercisable for 2,403 common membership interests.

(c) Includes 4,529.76 common membership interests held by Citicorp Venture
    Capital and CCT Partners IV. Messrs. Thomas and Weber each disclaim
    beneficial ownership of these common membership interests.

(d) Includes 3,852.3 common membership interests held by Citicorp Venture
    Capital. Mr. Bradley disclaims beneficial ownership of these common
    membership interests.

(e) Includes 1,000 common membership interests held by PMI and warrants held by
    PMI currently exercisable for 2,403 common membership interests. Mr.
    Bartholomew disclaims beneficial ownership of these common membership
    interests and warrants.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Each of the following descriptions is a summary of the documents listed
below and thus, each summary does not restate the document described in its
entirety.

SLEEPMASTER HOLDINGS L.L.C. LIMITED LIABILITY COMPANY OPERATING AGREEMENT

     In 1996, Sleep Investor, Charles Schweitzer, James Koscica, Timothy DuPont
and Michael Reilly entered into the Sleepmaster Holdings L.L.C. second amended
and restated limited liability company operating agreement. Sleepmaster Holdings
L.L.C. was formed under the New Jersey Limited Liability Company Act. The
business and affairs of Sleepmaster Holdings L.L.C. are managed by the managing
member, Charles Schweitzer, subject to the direction of a board of advisors
having duties comparable to a corporate board of directors. Currently, the board
of advisors is composed of seven advisors. The number of advisors can be
increased by a vote of at least 80% of the advisors. The Sleepmaster Holdings
L.L.C. limited liability company agreement calls for the existence of four
senior officers as follows:

     (1) Chief Executive Officer and President,

     (2) Executive Vice President and Chief Financial Officer,

     (3) Vice President of Sales and

     (4) Vice President of Production.

  Membership Interests

     The board of advisors is authorized to issue or sell any of the following:
(1) additional membership interests or other interests in Sleepmaster Holdings
L.L.C., (2) obligations, evidences of indebtedness or other securities or
interests convertible into or exchangeable for membership interests or other
interests in
                                       18
<PAGE>   20

Sleepmaster Holdings L.L.C. and (3) warrants, options, or other rights to
purchase or otherwise acquire membership interests or other interests in
Sleepmaster Holdings L.L.C.

     The class A members are entitled to one vote per class A common unit.
Except as specifically required by law, the class B members and the preferred
members have no right to vote on any matters to be voted on by the members of
Sleepmaster Holdings L.L.C., except in the case of mergers, consolidations,
recapitalizations, or reorganizations. Each class B member is entitled at any
time to convert any or all of the class B common units held by the class B
member into the same number of class A common units and members holding a
majority of the class B common units can cause a conversion of 100% of the class
B common units into the same number of class A common units.

  Distributions

     The board of advisors has sole discretion regarding the amounts and timing
of distributions to members of Sleepmaster Holdings L.L.C., subject to the
retention and establishment of reserves of, or payments to third parties of, the
funds as it deems necessary with respect to the reasonable business needs of
Sleepmaster Holdings L.L.C. Distributions are to be made in the following order
and priority:

     (1) first, to the members in proportion to and to the extent of their
         unpaid preferred return (as defined in the Sleepmaster Holdings L.L.C.
         limited liability company agreement),

     (2) second, to the members in proportion to and to the extent of their
         unreturned preferred capital (as defined in the Sleepmaster Holdings
         L.L.C. limited liability company agreement), and

     (3) third, to the members in proportion to their common units.

  Redemption

     Except as extensions are provided for, Sleepmaster Holdings L.L.C. shall
make a distribution to each preferred member on November 14, 2008 in an amount
equal to the full amount of the preferred member's unpaid preferred return and
unreturned preferred capital as of the scheduled redemption date. In connection
with the closing of the old note offering on May 18, 1999, the parties to the
Sleepmaster Holdings L.L.C. limited liability company agreement amended the
agreement to extend the redemption date of the preferred membership interests to
November 14, 2009.

SLEEPMASTER LIMITED LIABILITY COMPANY OPERATING AGREEMENT

     Sleep Investor and Sleepmaster Holdings L.L.C. entered into the Sleepmaster
amended and restated limited liability company operating agreement. Sleepmaster
was formed under the New Jersey Limited Liability Company Act. The business and
affairs of Sleepmaster are managed by the managing member, Charles Schweitzer,
subject to the direction of a board of advisors having duties comparable to a
corporate board of directors. Currently, the Sleepmaster board of advisors is
composed of seven advisors. The number of advisors can be increased by a vote of
at least 80% of the advisors. The Sleepmaster limited liability company
agreement calls for the existence of four senior officers as follows:

     (1) Chief Executive Officer and President,

     (2) Executive Vice President and Chief Financial Officer,

     (3) Vice President of Sales and

     (4) Vice President of Production.

  Membership Interests

     Sleepmaster's board of advisors is authorized to issue or sell any of the
following: (1) additional membership interests or other interests in
Sleepmaster, (2) obligations, evidences of indebtedness or other securities or
interests convertible into or exchangeable for membership interests or other
interests in

                                       19
<PAGE>   21

Sleepmaster, and (3) warrants, options, or other rights to purchase or otherwise
acquire membership interests or other interests in Sleepmaster.

     The class A members are entitled to one vote per class A common unit.
Except as specifically provided or required by law, the class B members and the
preferred members have no right to vote on any matters to be voted on by the
members of Sleepmaster, except in the case of mergers, consolidations,
recapitalizations, or reorganizations. Each class B member is entitled at any
time to convert any or all of the class B common units held by the class B
member into the same number of class A common units and members holding a
majority of the class B common units can cause a conversion of 100% of the class
B common units into the same number of class A common units. Currently, 7,999
class A membership interests are held by Sleepmaster Holdings L.L.C. and one is
held by Sleep Investor. Sleepmaster Holdings L.L.C. also holds 9,999.96
preferred membership interests.

  Distributions

     Sleepmaster's board of advisors has sole discretion regarding the amounts
and timing of distributions to members of Sleepmaster, subject to the retention
and establishment of reserves of, or payments to third parties of, the funds as
it deems necessary with respect to the reasonable business needs of Sleepmaster.
Distributions are to be made in the following order and priority:

     (1) first, to the members in proportion to and to the extent of their
         Unpaid Preferred Return, as defined in the Sleepmaster limited
         liability company agreement,

     (2) second, to the members in proportion to and to the extent of their
         Unreturned Preferred Capital, as defined in the Sleepmaster limited
         liability company agreement, and

     (3) third, to the members in proportion to their common units.

  Redemption

     Except as extensions are provided for, Sleepmaster shall make a
distribution to each preferred member on November 14, 2008 in an amount equal to
the full amount of such preferred member's unpaid preferred return and
unreturned preferred capital as of the scheduled redemption date. In connection
with the closing of the old note offering, the parties to the Sleepmaster LLC
agreement amended the agreement to extend the redemption date of the preferred
membership interests to November 14, 2009.

SLEEPMASTER HOLDINGS L.L.C. SECURITYHOLDERS AGREEMENT

     In 1998, Sleepmaster Holdings L.L.C., Sleep Investor, PMI, Charles
Schweitzer, James Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
Richard Tauber and Douglas Phillips entered into an amended and restated
securityholders agreement dated as of March 3, 1998. On February 26, 1999, John
Herr and Stuart Herr executed a joinder to the amended and restated
securityholders agreement. On November 5, 1999, David Deye, Stephen Lund and
Citicorp Mezzanine Partners executed a joinder to the amended and restated
securityholders agreement. The amended and restated securityholders agreement
requires that Sleepmaster Holdings L.L.C., Sleep Investor, PMI and those
executives of Sleepmaster Holdings L.L.C. vote their membership interests and
take all other actions within their control so that the board of advisors of
Sleepmaster Holdings L.L.C. will be comprised of four advisors designated by
Sleep Investor and three advisors representative of management, Schweitzer,
Koscica and Bubis. The board of advisors, or similar governing bodies of
Sleepmaster Holdings L.L.C.'s subsidiaries must have the same composition.

     In addition, the securityholders agreement:

     (1) restricts the transfer of membership interests of Sleepmaster Holdings
         L.L.C.;

     (2) grants tag-along rights on transfers of membership interests of
         Sleepmaster Holdings L.L.C.;

     (3) grants first offer rights on transfers of membership interests of
         Sleepmaster Holdings L.L.C.;

                                       20
<PAGE>   22

     (4) requires each securityholder to consent to a sale of Sleepmaster
         Holdings L.L.C. if the sale is approved by the board of advisors of
         Sleepmaster Holdings L.L.C. and the holders of a majority of the
         membership interests issued to Sleep Investor and its affiliates; and

     (5) grants limited preemptive rights on issuances of membership interests
         of Holdings.

     The tag-along and first offer rights with respect to each securityholder's
interests will terminate upon the consummation of a sale of the interests to the
public pursuant to an offering registered under the Securities Act of 1933 or to
the public effected through a broker-dealer or market-maker pursuant to Rule
144.

SLEEPMASTER HOLDINGS L.L.C. REGISTRATION RIGHTS AGREEMENT

     In 1998, Sleepmaster Holdings L.L.C., Sleep Investor, PMI, Charles
Schweitzer, James Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
Richard Tauber and Douglas Phillips entered into an amended and restated
registration rights agreement dated as of March 3, 1998. On February 26, 1999,
John Herr and Stuart Herr executed a joinder to the amended and restated
registration rights agreement. On November 5, 1999, David Deye, Stephen Lund and
Citicorp Mezzanine Partners executed a joinder to the amended and restated
registration rights agreement. Under the amended and restated registration
rights agreement, the holders of a majority of the membership interests issued
to Sleep Investor or its affiliates have the right, subject to certain
conditions, to require Sleepmaster Holdings L.L.C. to consummate a registered
offering of equity securities of Sleepmaster Holdings L.L.C. or a successor
corporate entity.

     In addition, all holders of registrable securities are entitled to request
the inclusion, subject to the terms and conditions of the registration rights
agreement, of any of their common interests in any registration statement, other
than registration statements on forms S-8 or S-4 or any similar form in
connection with a registration to primarily register debt securities, at
Sleepmaster Holdings L.L.C.'s expense whenever Sleepmaster Holdings L.L.C.
proposes to register any of its common interests under the Securities Act of
1933. In connection with all the registrations, Sleepmaster Holdings L.L.C. has
agreed to indemnify all holders of registrable securities against liabilities,
including liabilities under the Securities Act of 1933.

THE RECAPITALIZATION AND OTHER TRANSACTIONS

  Recapitalization Agreement

     In November 1996, Sleepmaster Holdings L.L.C., Sleepmaster, Sleep Investor,
Brown/Schweitzer Holdings Inc. and each of the then existing members of
Sleepmaster Holdings L.L.C. entered into a recapitalization agreement. Pursuant
to the recapitalization agreement, Sleepmaster Holdings L.L.C. redeemed all of
the membership interests of its members, except for four members who are current
members of management, and then sold the membership interests to Sleep Investor.
In addition, Sleep Investor purchased 8,714 units of redeemable preferred
interests and 6,099 units of common interests of Sleepmaster Holdings L.L.C. for
approximately $12.9 million plus issuance of notes to the then existing members
of Sleepmaster Holdings L.L.C. totaling $7.0 million. The remaining preferred
and common interests of Sleepmaster Holdings L.L.C. were allocated to the four
members of Sleepmaster Holdings L.L.C. who are currently members of our
management. As a result of the recapitalization, Sleep Investor acquired 72% of
the outstanding interests of Sleepmaster Holdings L.L.C. and Sleepmaster
Holdings L.L.C. management retained 28%.

  Sleep Investor Promissory Notes

     In conjunction with the recapitalization of Sleepmaster Holdings L.L.C. in
1996, Sleep Investor issued $7.0 million of junior subordinated notes and paid
cash to the then-existing members of Sleepmaster Holdings L.L.C., including
current members of our management. In exchange for the notes, the then-existing
members of Sleepmaster Holdings L.L.C. delivered common and preferred interests
of Sleepmaster Holdings L.L.C., as well as notes issued by Sleepmaster Holdings
L.L.C., to Sleep Investor. As of December 31, 1999, the amount outstanding of
the promissory notes, including interest, totaled $8.7 million. In connection
with the old note

                                       21
<PAGE>   23

offering and the redemption of the senior subordinated notes, the promissory
notes were amended to provide for a 12.0% interest rate and a maturity date of
November 14, 2007.

  Senior Subordinated Notes

     In November 1996 Sleepmaster, Sleepmaster Holdings L.L.C. and PMI entered
into a securities purchase agreement. Pursuant to this agreement, Sleepmaster
sold $15.0 million series A senior subordinated notes due 2007 to PMI. These
senior subordinated notes held by PMI were redeemed with a portion of the net
proceeds of the old note offering. In addition, in March 1998, Sleepmaster,
Sleepmaster Holdings L.L.C. and PMI entered into a securities purchase
agreement. Pursuant to this agreement, Sleepmaster sold $5.0 million series B
senior subordinated notes due 2007 to PMI. These senior subordinated notes held
by PMI were redeemed with a portion of the proceeds of the old note offering.

  Warrants

     In connection with the sale of senior subordinated notes by Sleepmaster to
PMI in 1996 and 1998, Sleepmaster Holdings L.L.C. issued to PMI 2000 warrants
and 403 warrants, respectively, to purchase class A common units of Sleepmaster
Holdings L.L.C. The warrants are currently exercisable at any time until March
3, 2010 at an exercise price of $0.01 per unit, subject to adjustment. The
holders of a majority of the outstanding warrants, during a specified window
period each year from November 14, 2003 to November 14, 2009, have the right to
require Sleepmaster Holdings L.L.C. to purchase all of the warrants or common
units into which the warrants are exercisable. If this right is exercised, the
purchase price on a per unit basis would be an amount equal to the value of
Sleepmaster Holdings L.L.C. divided by the number of outstanding units of common
interests. The value of Sleepmaster Holdings L.L.C. would be the greater of a
multiple of EBITDA and the aggregate current market price of the units of common
interests on a fully diluted basis. The put option is subject to the
availability of financing. The put option shall terminate upon 1) an approved
sale, or (2) the consummation of an underwritten public offering of units of
common interests.

     In connection with the issuance of a subordinated note to assist in the
purchase of substantially all of the assets of Adam Wuest by Sleepmaster on
November 5, 1999, Sleepmaster Holdings L.L.C. issued to Citicorp Mezzanine
Partners, L.P. warrants to purchase Class B common membership interests of
Sleepmaster Holdings L.L.C. The warrants are exercisable at any time after June
30, 2007 and before June 30, 2009 at an exercise price of $0.01 per unit,
subject to certain anti-dilution adjustments. If Sleepmaster Holdings L.L.C.
prepays in full the subordinated note on or prior to June 30, 2007, the warrants
will not be exercisable and will be terminated.

                                    PART IV

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

(a)(1) Consolidated Financial Statements

       See Financial Statements and accompanying notes as listed in the Index to
       Financial Statements commencing on page F-1 herein.

   (2) Financial Statement Schedules

       All schedules called for by Regulation S-X are not submitted because
       either they are not applicable or not required or because the required
       information is included in the consolidated financial statements or notes
       thereto.

   (3) Exhibits

       The Exhibits listed in (c) below are filed herewith.

(b) Reports on Form 8-K

       The Company filed no reports on Form 8-K during the year ended December
       31, 1999.
                                       22
<PAGE>   24

(c) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                 DESCRIPTION
-------                                -----------
<C>       <S>  <C>
 2.1           Recapitalization, Redemption and Purchase Agreement dated
                 October, 1996 by and among Sleepmaster Holdings L.L.C.,
                 Sleepmaster L.L.C., Brown/Schweitzer Holdings, Inc., the
                 members of Sleepmaster Holdings, L.L.C., the investors
                 names therein and Sleep Investor L.L.C. (Incorporated by
                 reference to Exhibit 2.1 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
 3.1           Certificate of Formation of Sleepmaster L.L.C. dated
                 December 14, 1994 (Incorporated by reference to Exhibit
                 3.1 of the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
 3.2           Sleepmaster L.L.C. Amended and Restated Limited Liability
                 Company Operating Agreement dated November 14, 1996
                 (Incorporated by reference to Exhibit 3.2 of the Form S-4
                 dated November 24, 1999 (File No. 333-81987)).
 3.3           Certificate of Incorporation of Sleepmaster Finance
                 Corporation dated April 30, 1999 (Incorporated by
                 reference to Exhibit 3.3 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
 3.4           By-laws of Sleepmaster Finance Corporation (Incorporated by
                 reference to Exhibit 3.4 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
 3.5           Articles of Incorporation of Palm Beach Bedding Company
                 dated July 16, 1959 (Incorporated by reference to Exhibit
                 3.5 of the Form S-4 dated November 24, 1999 (File No. 333-
                 81987)).
 3.6           By-laws of Palm Beach Bedding Company (Incorporated by
                 reference to Exhibit 3.6 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
 3.7           Articles of Incorporation of Herr Manufacturing Company
                 dated May 5, 1933 (Incorporated by reference to Exhibit
                 3.7 of the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
 3.8           By-laws of Herr Manufacturing Company (Incorporated by
                 reference to Exhibit 3.8 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
 3.9           Certificate of Formation of Lower Road Associates, LLC dated
                 April 6, 1998 (Incorporated by reference to Exhibit 3.9 of
                 the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
 3.10          Operating Agreement of Lower Road Associates, LLC
                 (Incorporated by reference to Exhibit 3.10 of the Form S-4
                 dated November 24, 1999 (File No. 333-81987)).
 3.11          Certificate of Incorporation of Adam Wuest Corporation dated
                 October 14, 1999 (Incorporated by reference to Exhibit
                 3.11 of the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
 3.12          Amendment No. 1 to the Certificate of Incorporation of Adam
                 Wuest Corporation dated October 21, 1999 (Incorporated by
                 reference to Exhibit 3.12 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
 3.13          Amendment No. 2 to the Certificate of Incorporation for AWI
                 Corporation (previously Adam Wuest Corporation) dated
                 November 5, 1999 (Incorporated by reference to Exhibit
                 3.13 of the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
 3.14          By-laws of Adam Wuest Corporation (Incorporated by reference
                 to Exhibit 3.14 of the Form S-4 dated November 24, 1999
                 (File No. 333-81987)).
 4.1           Indenture dated as of May 18, 1999 by and among Sleepmaster
                 L.L.C., Sleepmaster Finance Corporation, the Guarantors
                 listed on the signature pages thereto and the United
                 States Trust Company of New York (Incorporated by
                 reference to Exhibit 4.1 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
 4.2           Executed Regulation S Note (Incorporated by reference to
                 Exhibit 4.2 of the Form S-4 dated November 24, 1999 (File
                 No. 333-81987)).
</TABLE>

                                       23
<PAGE>   25

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                 DESCRIPTION
-------                                -----------
<C>       <S>  <C>
 4.3           Executed 144A Note (Incorporated by reference to Exhibit 4.3
                 of the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
 4.4           Supplemental Indenture, dated as of February 8, 2000, by and
                 among Sleepmaster L.L.C., Sleepmaster Finance Corporation,
                 and certain other parties listed on the signature page
                 thereto and the United States Trust Company of New York.**
 9.1           Amended and Restated Securityholders Agreement by and among
                 Sleepmaster Holdings L.L.C., Sleep Investor L.L.C., PMI
                 Mezzanine Fund, L.P., Charles Schweitzer, James P.
                 Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
                 Richard Tauber, Douglas Phillips and any employees of
                 Sleepmaster Holdings L.L.C. or its subsidiaries which may
                 thereafter execute a joinder agreement thereto dated March
                 3, 1998 (Incorporated by reference to Exhibit 9.1 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
 9.2           Joinder to Amended and Restated Securityholders Agreement by
                 and among Sleepmaster Holdings L.L.C., certain
                 securityholders of Sleepmaster Holdings L.L.C. party
                 thereto and Stuart W. Herr dated March 3, 1998
                 (Incorporated by reference to Exhibit 9.2 of the Form S-4
                 dated November 24, 1999 (File No. 333-81987)).
 9.3           Joinder to Amended and Restated Securityholders Agreement by
                 and among Sleepmaster Holdings L.L.C., certain
                 securityholders of Sleepmaster Holdings L.L.C. party
                 thereto and John K. Herr, III dated March 3, 1998
                 (Incorporated by reference to Exhibit 9.3 of the Form S-4
                 dated November 24, 1999 (File No. 333-81987)).
10.1           Registration Rights Agreement dated as of May 18, 1999 by
                 and among Sleepmaster L.L.C., Sleepmaster Finance
                 Corporation, the guarantors listed on the signature pages
                 thereto and Merrill Lynch, Pierce, Fenner & Smith
                 Incorporated and First Union Capital Markets Corp
                 (Incorporated by reference to Exhibit 10.1 of the Form S-4
                 dated November 24, 1999 (File No. 333-81987)).
10.2           Purchase Agreement dated as of May 12, 1999 by and among
                 Sleepmaster L.L.C., Sleepmaster Finance Corporation and
                 the guarantors listed on the signature pages thereto and
                 Merrill Lynch, Pierce, Fenner & Smith Incorporated and
                 First Union Capital Markets Corp (Incorporated by
                 reference to Exhibit 10.2 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.3           Second Amended and Restated Limited Liability Company
                 Operating Agreement of Sleepmaster Holdings L.L.C., dated
                 November 14, 1996 (including the joinder agreement of
                 Stuart Herr and John Herr, dated February 26, 1999), as
                 amended effective May 12, 1999 (Incorporated by reference
                 to Exhibit 10.3 of the Form S-4 dated November 24, 1999
                 (File No. 333-81987)).
10.4           License Agreement and Memorandum of Agreement, each dated
                 January 12, 1995, between Sleepmaster L.L.C. and Serta,
                 Inc., covering certain territories in New Jersey, New York
                 and Connecticut, as amended (Incorporated by reference to
                 Exhibit 10.4 of the Form S-4 dated November 24, 1999 (File
                 No. 333-81987)).
10.5           License Agreement and Memorandum of Agreement, each dated
                 January 12, 1995, between Sleepmaster L.L.C. and Serta,
                 Inc., covering certain territories in Pennsylvania, New
                 Jersey, Maryland and Delaware, as amended (Incorporated by
                 reference to Exhibit 10.5 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.6           License Agreement, dated November 4, 1989, and Memorandum of
                 Agreement, dated December 1, 1969, between Palm Beach
                 Bedding Company and Serta, Inc., covering certain
                 territories in Florida, as amended (Incorporated by
                 reference to Exhibit 10.6 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
</TABLE>

                                       24
<PAGE>   26

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                 DESCRIPTION
-------                                -----------
<C>       <S>  <C>
10.7           License Agreement, dated November 4, 1989, and Memorandum of
                 Agreement, dated December 1, 1969, between Herr
                 Manufacturing Company and Serta, Inc., covering certain
                 territories in Pennsylvania and New York, as amended
                 (Incorporated by reference to Exhibit 10.7 of the Form S-4
                 dated November 24, 1999 (File No. 333-81987)).
10.8           Standard Canadian License Agreement and Memorandum of
                 Agreement -- Form B, dated as of and effective May 18,
                 1999, between Serta, Inc. and Star Bedding Products (1986)
                 Ltd., covering certain territories in Ontario, Canada
                 (Incorporated by reference to Exhibit 10.8 of the Form S-4
                 dated November 24, 1999 (File No. 333-81987)).
10.9           Masterpiece Sleep Products, Inc. Manufacturing and Servicing
                 Agreement, dated October 1, 1998, by and between
                 Masterpiece Sleep Products, Inc. and Sleepmaster L.L.C.
                 and affiliates (Incorporated by reference to Exhibit 10.9
                 of the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
10.10          Employment Agreement, dated as of November 15, 1996, between
                 Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
                 Investor L.L.C. and Charles Schweitzer (Incorporated by
                 reference to Exhibit 10.10 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.11          Employment Agreement, dated as of November 15, 1996, between
                 Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
                 Investor L.L.C. and James Koscica (Incorporated by
                 reference to Exhibit 10.11 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.12          Employment Agreement, dated as of November 15, 1996, between
                 Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
                 Investor L.L.C. and Timothy Dupont (Incorporated by
                 reference to Exhibit 10.12 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.13          Employment Agreement, dated as of November 15, 1996, between
                 Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
                 Investor L.L.C. and Michael Reilly (Incorporated by
                 reference to Exhibit 10.13 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.14          Option Agreement, dated as of November 15, 1996, between
                 Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
                 Investor L.L.C. and Charles Schweitzer (Incorporated by
                 reference to Exhibit 10.14 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.15          Option Agreement, dated as of November 15, 1996, between
                 Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
                 Investor L.L.C. and James Koscica (Incorporated by
                 reference to Exhibit 10.15 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.16          Option Agreement, dated as of November 15, 1996, between
                 Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
                 Investor L.L.C. and Timothy Dupont (Incorporated by
                 reference to Exhibit 10.16 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.17          Option Agreement, dated as of November 15, 1996, between
                 Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
                 Investor L.L.C. and Michael Reilly (Incorporated by
                 reference to Exhibit 10.17 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.18          Employment Agreement, dated March 3, 1998, between Palm
                 Beach Bedding Company joined by Sleepmaster Holdings
                 L.L.C. and Sleepmaster L.L.C. and Michael W. Bubis
                 (Incorporated by reference to Exhibit 10.18 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.19          Employment and Stock Purchase Agreement, dated as of
                 February 26, 1999, by and among Herr Manufacturing
                 Company, Sleepmaster Holdings L.L.C., Sleepmaster L.L.C.,
                 Charles Schweitzer, Sleep Investor L.L.C. and Stuart W.
                 Herr (Incorporated by reference to Exhibit 10.19 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.20          Employment and Stock Purchase Agreement, dated as of
                 February 26, 1999, by and among Herr Manufacturing
                 Company, Sleepmaster Holdings L.L.C., Sleepmaster L.L.C.,
                 Charles Schweitzer, Sleep Investor L.L.C. and John K.
                 Herr, III (Incorporated by reference to Exhibit 10.20 of
                 the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
</TABLE>

                                       25
<PAGE>   27


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                 DESCRIPTION
-------                                -----------
<C>       <S>  <C>
10.21          Sleepmaster Holdings L.L.C. Amended and Restated Common
                 Interest Purchase Warrants, dated as of March 3, 1998 and
                 Sleepmaster Holdings L.L.C. Common Interest Purchase
                 Warrants, dated as of March 3, 1998, each as amended on
                 February 26, 1999 (Incorporated by reference to Exhibit
                 10.21 of the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
10.22          Loan Agreement, dated as of April 1, 1996, between Palm
                 Beach Bedding Company and Palm Beach County, Florida,
                 relating to the Palm Beach County, Florida Variable Rate
                 Demand Industrial Development Revenue Bonds (Palm Beach
                 Bedding Company Project, Series 1996) originally
                 outstanding in the original principal amount of $7,650,000
                 (Incorporated by reference to Exhibit 10.22 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.23          Trust Indenture, dated as of April 1, 1996, by and among
                 Palm Beach County, the Trustee and the Credit Facility
                 Trustee (Incorporated by reference to Exhibit 10.23 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.24          Lease by and between Hartz Mountain Industries, Inc. and
                 Sleepmaster Products Company, L.P., dated October 13, 1993
                 (Incorporated by reference to Exhibit 10.24 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.25          Letter of Credit and Reimbursement Agreement, dated as of
                 April 1, 1996, between Palm Beach Bedding Company and
                 First Union National Bank of Florida (Incorporated by
                 reference to Exhibit 10.25 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.26          Amendment to Reimbursement Agreement, dated March 3, 1998,
                 between Palm Beach Bedding Company and First Union
                 National Bank of Florida (Incorporated by reference to
                 Exhibit 10.26 of the Form S-4 dated November 24, 1999
                 (File No. 333-81987)).
10.27          Lease Agreement by and between N.H.D. Developments Limited
                 and Star Bedding Products (1986) Ltd. dated August 15,
                 1995 (Incorporated by reference to Exhibit 10.27 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.28          Assignment of lease agreement by and between Star Bedding
                 Products (1986) Ltd., Star Bedding Products Limited and
                 N.H.D. Developments Limited dated as of May 18, 1999
                 (Incorporated by reference to Exhibit 10.28 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.29          Agreement dated as of December 20, 1998, between Adam West
                 Corporation, as assignee, and the United Steel Workers of
                 America, AFL-CIO-CLC, party of the second part, acting
                 through its agent, Local Union No. 15.-U.**
10.30          Form of Junior Subordinated Note, dated November 14, 1996,
                 of Sleep Investor L.L.C. issued to each of Charles
                 Schweitzer, James Koscica, Timothy DuPont, Michael Reilly,
                 Douglas A. Brown, Douglas A. Brown VIP Plus Profit Sharing
                 Plan, Donald S. Brown, John S. Coates, Harold M. Wit,
                 Allen Investments II, L.L.C., Karl Dillon, Jessand Corp.
                 Profit Sharing Plan and Trust, Alan Gelband, Panorama
                 Holdings, L.L.C., Arnold Gussoff Holding Capital
                 Management Corp., Steven Leischner, William Colaianni, Jo
                 Levinson 1989 Trust, John M. McMahon, Kaplan, Coate
                 Special Situations L.P., Robert W. Plaster, Bennett
                 Rosenthal, Dhiren Shah, and WKM Partners (Incorporated by
                 reference to Exhibit 10.30 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.31          Amended and Restated Registration Rights Agreement, dated as
                 of March 3, 1998, by and among Sleepmaster Holdings
                 L.L.C., Sleep Investor L.L.C., PMI Mezzanine Fund, L.P.,
                 Charles Schweitzer, James P. Koscica, Michael Reilly,
                 Timothy Dupont, Michael Bubis, Richard Tauber, Douglas
                 Phillips (including the joinder agreements of each of
                 Stuart W. Herr and John K. Herr, III, dated March 3, 1998)
                 (Incorporated by reference to Exhibit 10.31 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
</TABLE>


                                       26
<PAGE>   28

<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                 DESCRIPTION
-------                                -----------
<C>       <S>  <C>
10.32          Limited Liability Company Operating Agreement of Sleep
                 Investor L.L.C. dated November 14, 1996 (Incorporated by
                 reference to Exhibit 10.32 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.33          Stock Purchase Agreement, dated as of February 26, 1999, by
                 and among Sleepmaster L.L.C., Herr Manufacturing Company,
                 and the stockholders listed on the Seller signature page
                 attached thereto (including the related Indemnity Escrow
                 Agreement and Adjustment Escrow Agreement) (Incorporated
                 by reference to Exhibit 10.33 of the Form S-4 dated Novem-
                 ber 24, 1999 (File No. 333-81987)).
10.34          Asset Purchase Agreement by and among Star Bedding Products
                 Limited and Sleepmaster L.L.C., as Purchaser and Star
                 Bedding Products (1986) Limited and Cecil Brauer, as
                 Seller (Incorporated by reference to Exhibit 10.34 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.35          Amended and Restated Credit Agreement, dated as of November
                 5, 1999, by and among Sleepmaster L.L.C., as borrower,
                 Sleepmaster Holdings L.L.C. and our domestic restricted
                 subsidiaries, as guarantors, and First Union National
                 Bank, as agent (Incorporated by reference to Exhibit 10.35
                 of the Form S-4 dated November 24, 1999 (File No.
                 333-81987)).
10.36          1997-1999 Collective Agreement between Star Bedding Products
                 (1986) Limited and United Steelworkers of America Local
                 400 (Incorporated by reference to Exhibit 10.36 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.37          Collective Bargaining Agreement by and between Sleepmaster
                 L.L.C., its plant located in Linden, New Jersey, and the
                 United Steelworkers of America (ABG Division), AFL-CIO,
                 CLC, and its Local Union #396 dated May, 1997
                 (Incorporated by reference to Exhibit 10.37 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.38          Agreement and Plan of Merger by and among Sleepmaster
                 L.L.C., Sleepmaster Acquisition Corp. and Palm Beach
                 Bedding Company dated February, 1998 (Incorporated by
                 reference to Exhibit 10.38 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.39          License Agreement and Memorandum of Agreement, each dated
                 December 1, 1969, between Serta Associates, Inc. covering
                 portions of Ohio, Kentucky and West Virginia, as amended
                 (Incorporated by reference to Exhibit 10.39 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.40          License Agreement and Memorandum of Agreement, each dated
                 November 4, 1989, between Serta, Inc. and Adam Wuest, Inc.
                 covering Ohio, as amended (Incorporated by reference to
                 Exhibit 10.40 of the Form S-4 dated November 24, 1999
                 (File No. 333-81987)).
10.41          License Agreement and Memorandum of Agreement, each dated
                 December 1, 1990, between Serta, Inc. and Adam Wuest, Inc.
                 covering Indiana, as amended (Incorporated by reference to
                 Exhibit 10.41 of the Form S-4 dated November 24, 1999
                 (File No. 333-81987)).
10.42          Subordinated Credit Agreement, dated as of November 5, 1999
                 by and between Sleepmaster Holdings, L.L.C., as borrower
                 and Citicorp Mezzanine Partners, L.P., as lender
                 (Incorporated by reference to Exhibit 10.42 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.43          Asset Purchase Agreement among Adam Wuest, Inc., Adam Wuest
                 Realty, Inc., Sleepmaster L.L.C. and AWI Corporation dated
                 as of November 5, 1999 (Incorporated by reference to
                 Exhibit 10.43 of the Form S-4 dated November 24, 1999
                 (File No. 333-81987)).
10.44          Subordinated Note issued by Sleepmaster Holdings L.L.C. to
                 Citicorp Mezzanine Partners, L.P. on November 5, 1999, in
                 aggregate principal amount of $10.0 million (Incorporated
                 by reference to Exhibit 10.44 of the Form S-4 dated
                 November 24, 1999 (File No. 333-81987)).
</TABLE>

                                       27
<PAGE>   29


<TABLE>
<CAPTION>
EXHIBIT
NUMBER                                 DESCRIPTION
-------                                -----------
<C>       <S>  <C>
10.45          Warrant Agreement dated as of November 5, 1999 between
                 Sleepmaster L.L.C. and Citicorp Mezzanine Partners, L.P.
                 (Incorporated by reference to Exhibit 10.45 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.46          Form of Unit Purchase Warrant issued by Sleepmaster Holdings
                 L.L.C. to Citicorp Mezzanine Partners L.P. on November 5,
                 1999 (Incorporated by reference to Exhibit 10.46 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.47          Trust Indenture dated as of February 1, 1994 by and among
                 Hamilton County, Ohio, the Fifth Third Bank, as trustee
                 (Incorporated by reference to Exhibit 10.47 of the Form
                 S-4 dated November 24, 1999 (File No. 333-81987)).
10.48          Loan Agreement, dated as of February 1, 1994, between
                 Hamilton County, Ohio, Adam Wuest, Inc. and Adam Wuest
                 Realty, Inc. relating to the Hamilton County, Ohio Fixed
                 Rate Economic Development Revenue Bonds (Adam Wuest, Inc.
                 Project, Series 1994) originally outstanding in the
                 aggregate principal amount of $2,980,000 (Incorporated by
                 reference to Exhibit 10.48 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.49          Letter of Credit issued on November 5, 1999 by First Union
                 National Bank to Fifth Third Bank on behalf of Adam Wuest
                 Corporation in the amount of $2,284,425 (Incorporated by
                 reference to Exhibit 10.49 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.50          Mortgage and Security Agreement, dated as of May 18, 1999 by
                 and between Palm Beach Bedding Company, as Grantor, and
                 First Union National Bank, as Agent (Incorporated by
                 reference to Exhibit 10.50 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.51          First Amendment to the Mortgage and Security Agreement,
                 dated November 5, 1999 by and between Palm Beach Bedding
                 Company, as Grantor, and First Union National Bank, as
                 Agent (Incorporated by reference to Exhibit 10.51 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.52          Mortgage and Security Agreement, dated as of May 18, 1999 by
                 and between Herr Manufacturing Company, as Grantor, and
                 First Union National Bank, as Agent (Incorporated by
                 reference to Exhibit 10.52 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
10.53          First Amendment to Mortgage and Security Agreement, dated as
                 of November 5, 1999 by and between Herr Manufacturing
                 Company, as Grantor, and First Union National Bank, as
                 Agent (Incorporated by reference to Exhibit 10.53 of the
                 Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.54          Mortgage and Security Agreement, dated as of November 5,
                 1999 by and between Adam Wuest Corporation, as Grantor,
                 and First Union National Bank, as Lender (Incorporated by
                 reference to Exhibit 10.54 of the Form S-4 dated November
                 24, 1999 (File No. 333-81987)).
12.1           Statement of Ratio of Earnings to Fixed Charges
                 (Incorporated by reference to Exhibit 12.1 on Form 10-K
                 dated March 30, 2000 (File No. 333-81987)).
21.1           Subsidiaries of the Registrant (Incorporated by reference to
                 Exhibit 21.1 of the Form S-4 dated November 24, 1999 (File
                 No. 333-81987)).
23.1           Consent of PricewaterhouseCoopers LLP (Incorporated by
                 reference to Exhibit 23.1 of the Form 10-K dated March 30,
                 2000 (File No. 333-81987)).
27.1           Financial Data Schedule.**
</TABLE>


---------------
** Filed herewith.

                                       28
<PAGE>   30

                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Sleepmaster L.L.C. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Linden, State of New Jersey.

                                          SLEEPMASTER L.L.C.

                                          By: /s/ CHARLES SCHWEITZER
                                            ------------------------------------
                                            President and Chief Executive
                                          Officer


Dated: April 17, 2000


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


<TABLE>
<CAPTION>
                     SIGNATURE                                    CAPACITY                     DATE
                     ---------                                    --------                     ----
<S>                                                  <C>                                 <C>

              /s/ CHARLES SCHWEITZER                 President and Chief Executive       April 17, 2000
---------------------------------------------------  Officer, Advisor
                Charles Schweitzer

               /s/ JAMES P. KOSCICA                  Executive Vice President and Chief  April 17, 2000
---------------------------------------------------  Financial Officer, Advisor
                 James P. Koscica

                 /s/ MICHAEL BUBIS                   Advisor                             April 17, 2000
---------------------------------------------------
                   Michael Bubis

                 /s/ DAVID THOMAS                    Advisor                             April 17, 2000
---------------------------------------------------
                   David Thomas

                  /s/ JOHN WEBER                     Advisor                             April 17, 2000
---------------------------------------------------
                    John Weber

                /s/ MICHAEL BRADLEY                  Advisor                             April 17, 2000
---------------------------------------------------
                  Michael Bradley

              /s/ ROBERT BARTHOLOMEW                 Advisor                             April 17, 2000
---------------------------------------------------
                Robert Bartholomew
</TABLE>


                                       29
<PAGE>   31

                         INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                              PAGE
                                                              ----
<S>                                                           <C>
Report of Independent Accountants...........................  F-2
Consolidated Balance Sheets as of December 31, 1999 and
  1998......................................................  F-3
Consolidated Statements of Income for the Years Ended
  December 31, 1999, 1998 and 1997..........................  F-4
Consolidated Statements of Changes in Members' Equity
  (Deficit) for the Years Ended December 31, 1999, 1998 and
  1997......................................................  F-5
Consolidated Statements of Cash Flows for the Years Ended
  December 31, 1999, 1998 and 1997..........................  F-6
Notes to Consolidated Financial Statements..................  F-7
</TABLE>

                                       F-1
<PAGE>   32

                       REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Advisors and
Members of Sleepmaster L.L.C.:

     In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, members' deficit and of cash flows
present fairly, in all material respects, the consolidated financial position of
Sleepmaster L.L.C. (the "Company") and its subsidiaries at December 31, 1999,
1998 and 1997 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, which require that
we plan and perform the audits 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.

                                          PRICEWATERHOUSECOOPERS LLP

New York, New York
March 24, 2000

                                       F-2
<PAGE>   33

                               SLEEPMASTER L.L.C.

                          CONSOLIDATED BALANCE SHEETS
                           DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
                                                                1999        1998
                                                              --------    --------
                                                                 (IN THOUSANDS)
<S>                                                           <C>         <C>
ASSETS
Current assets:
  Cash and cash equivalents.................................  $  2,842    $    162
  Accounts receivable, less allowance for doubtful accounts
     of $2,360 and $1,657 in 1999 and 1998, respectively....    24,217      12,570
  Accounts receivable -- other..............................     1,691       1,199
  Inventories...............................................     7,531       4,746
  Other current assets......................................       613         347
  Deferred income taxes.....................................       720       1,606
                                                              --------    --------
     Total current assets...................................    37,614      20,630
Property, plant and equipment, net..........................    20,967      10,430
Intangible assets, net......................................   130,824      45,302
Other assets................................................     7,290       1,780
Deferred income taxes.......................................    12,292      11,398
                                                              --------    --------
     Total assets...........................................  $208,987    $ 89,540
                                                              ========    ========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
  Accounts payable..........................................  $ 14,264    $  9,931
  Accrued advertising expenses..............................     2,559       1,517
  Accrued sales allowances..................................     3,196       3,189
  Accrued interest..........................................     2,077         201
  Other current liabilities.................................     6,472       2,881
  Current portion of long-term debt.........................     5,010       7,130
                                                              --------    --------
     Total current liabilities..............................    33,578      24,849
                                                              --------    --------
Long-term debt..............................................   161,603      63,566
Other liabilities...........................................     1,463         375
                                                              --------    --------
     Total long-term liabilities............................   163,066      63,941
                                                              --------    --------
Commitments and contingencies (Note 17)
Redeemable cumulative preferred interests...................    20,423      18,267
Members' Deficit:
  Class A common interests..................................    12,229       1,640
  Class B common interests..................................        --          --
  Accumulated deficit.......................................   (20,472)    (19,157)
  Foreign currency translation adjustment...................       163          --
                                                              --------    --------
     Total members' deficit.................................    (8,080)    (17,517)
                                                              --------    --------
     Total liabilities and members' deficit.................  $208,987    $ 89,540
                                                              ========    ========
</TABLE>

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

                                       F-3
<PAGE>   34

                               SLEEPMASTER L.L.C.

                       CONSOLIDATED STATEMENTS OF INCOME
                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
                                                                1999        1998       1997
                                                              --------    --------    -------
                                                                      (IN THOUSANDS)
<S>                                                           <C>         <C>         <C>
Net sales...................................................  $171,319    $110,251    $67,472
Cost of sales...............................................   104,924      68,988     42,448
                                                              --------    --------    -------
     Gross profit...........................................    66,395      41,263     25,024
                                                              --------    --------    -------
Operating expenses
  Selling, general and administrative expenses..............    43,322      25,794     15,044
  Amortization of intangibles...............................     2,216       1,223        644
                                                              --------    --------    -------
     Total operating expenses...............................    45,538      27,017     15,688
                                                              --------    --------    -------
Operating income............................................    20,857      14,246      9,336
Interest expense, net.......................................    12,536       7,096      4,663
Other expense (income)......................................        83         (18)       (97)
                                                              --------    --------    -------
     Income before income taxes and extraordinary items.....     8,238       7,168      4,770
Provision for income taxes..................................     3,248       3,020      2,013
                                                              --------    --------    -------
     Income before extraordinary items......................     4,990       4,148      2,757
Extraordinary items, net of income taxes....................     3,167          --         --
                                                              --------    --------    -------
     Net income.............................................  $  1,823    $  4,148    $ 2,757
                                                              ========    ========    =======
</TABLE>

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

                                       F-4
<PAGE>   35

                               SLEEPMASTER L.L.C.

        CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                     COMMON INTERESTS
                            -----------------------------------
                                CLASS A             CLASS B                            RETAINED
                            ----------------    ---------------    FOREIGN CURRENCY    EARNINGS
                            UNITS    AMOUNT     UNITS    AMOUNT      TRANSLATION       (DEFICIT)     TOTAL
                            -----    -------    -----    ------    ----------------    ---------    --------
                                                    (IN THOUSANDS, EXCEPT UNIT DATA)
<S>                         <C>      <C>        <C>      <C>       <C>                 <C>          <C>
DECEMBER 31, 1996.........  8,000    $ 1,000     --       $ --           $ --          $(22,116)    $(21,116)
Net income................                                                                2,757        2,757
Distributions.............                                                                  (26)         (26)
Accretion of redeemable
  cumulative preferred
  interests...............                                                               (1,707)      (1,707)
                            -----    -------      --      ----           ----          --------     --------
DECEMBER 31, 1997.........  8,000      1,000     --         --             --           (21,092)     (20,092)
Capital contributions.....               640                                                             640
Net income................                                                                4,148        4,148
Distributions.............                                                                 (234)        (234)
Accretion of redeemable
  cumulative preferred
  interests...............                                                               (1,979)      (1,979)
                            -----    -------      --      ----           ----          --------     --------
DECEMBER 31, 1998.........  8,000      1,640     --         --             --           (19,157)     (17,517)
Capital contributions.....            10,589                                                          10,589
Net income................                                                                1,823        1,823
Distributions.............                                                                 (982)        (982)
Accretion of redeemable
  cumulative preferred
  interests...............                                                               (2,156)      (2,156)
Foreign currency
  translation
  adjustments.............                                                163                            163
                            -----    -------      --      ----           ----          --------     --------
DECEMBER 31, 1999.........  8,000    $12,229     --       $ --           $163          $(20,472)    $ (8,080)
                            =====    =======      ==      ====           ====          ========     ========
</TABLE>

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

                                       F-5
<PAGE>   36

                               SLEEPMASTER L.L.C.

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997


<TABLE>
<CAPTION>
                                                              1999         1998        1997
                                                            ---------    --------    --------
                                                                     (IN THOUSANDS)
<S>                                                         <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income..............................................  $   1,823    $  4,148    $  2,757
  Adjustments to reconcile net income to net cash provided
     by operating activities:
     Depreciation and amortization........................      3,755       2,089       1,093
     Loss (gain) on sale of asset.........................          5           9         (64)
     Allowance for doubtful accounts......................        440         287         249
     Extraordinary items..................................      3,167          --          --
     Deferred income taxes................................      2,085       1,776       1,752
     Other non-cash charges...............................        652         320         202
     Changes in operating assets and liabilities, net of
       acquisitions:
       (Increase) decrease in accounts receivable.........     (4,795)     (2,411)        209
       Increase in accounts receivable -- other...........       (492)       (208)       (543)
       Decrease(increase) in inventories..................         71         113        (564)
       Decrease (increase) in other current assets........         28        (196)         41
       Decrease (increase) in other assets................         32         (41)         --
       Increase (decrease) in accounts payable............      2,354       2,834        (104)
       Increase in accrued liabilities....................      4,340          14         948
       Increase in other liabilities......................        392         140          60
                                                            ---------    --------    --------
     Net cash provided by operating activities............     13,857       8,874       6,036
                                                            ---------    --------    --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures....................................     (4,165)     (1,095)       (572)
  Proceeds from sale of assets............................         --          --          67
  Acquisitions, net of cash acquired......................    (99,128)    (32,756)         --
                                                            ---------    --------    --------
     Net cash used in investing activities................   (103,293)    (33,851)       (505)
                                                            ---------    --------    --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from issuance of senior subordinated notes.....    115,000          --          --
  Proceeds from long term debt............................     46,830      48,308       1,025
  Payments on long term debt..............................    (73,858)    (23,699)     (1,232)
  Borrowings under revolving line of credit...............     11,300       7,396      18,100
  Payments on revolving line of credit....................     (5,380)     (7,397)    (22,821)
  Loan origination fees/bond issuance costs...............     (7,739)       (827)         --
  Penalties on early extinguishment of debt...............     (3,644)         --          --
  Distributions...........................................       (982)       (234)        (26)
  Capital contributions...................................     10,589       1,000          --
                                                            ---------    --------    --------
     Net cash provided by (used in) financing
       activities.........................................     92,116      24,547      (4,954)
                                                            ---------    --------    --------
Net increase (decrease) in cash and cash equivalents......      2,680        (430)        577
Cash and cash equivalents at beginning of year............        162         592          15
                                                            ---------    --------    --------
Cash and cash equivalents at end of year..................  $   2,842    $    162    $    592
                                                            =========    ========    ========
</TABLE>


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

                                       F-6
<PAGE>   37

                               SLEEPMASTER L.L.C.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS

     Sleepmaster L.L.C. ("Sleepmaster" or the "Company"), is a leading
manufacturer and distributor of Serta brand mattresses and box springs and owns
the exclusive Serta manufacturing rights in all or a portion of ten states (New
York, Connecticut, Pennsylvania, New Jersey, Delaware, Maryland, Florida, Ohio,
Indiana, West Virginia), the Commonwealth of Kentucky and Ontario, Canada. The
Company was formed on January 2, 1995 by acquiring substantially all of the
assets and liabilities of Sleepmaster Products Company, L.P., a Delaware limited
partnership. The business and affairs of the Company are governed by the Limited
Liability Company Operating Agreement of Sleepmaster L.L.C. (the "Sleepmaster
L.L.C. Agreement"), which established a board of advisors having duties
comparable to a corporate board of directors.

     Prior to November 1996, 98% of the Company was owned by Sleepmaster
Holdings L.L.C. ("Holdings") and 2% was owned by Brown/Schweitzer Holdings Inc.
("B/S Holdings"). Holdings was owned by management of Sleepmaster and outside
investors. On November 14, 1996, the Company entered into a recapitalization
agreement (the "Recapitalization"). Under the Recapitalization, the members of
Holdings sold their respective interests in part to Holdings, followed by the
sale of a portion of the membership interest to new investors. As a result of
the Recapitalization, Holdings' ownership of Sleepmaster was increased to almost
100% and B/S Holdings was replaced by Sleep Investor L.L.C. ("Sleep Investor"),
a group of investors led by Citicorp Venture Capital and PMI Mezzanine Fund
L.L.P. Because of the ownership change of Holdings as a result of the
Recapitalization, management of Sleepmaster owns 28% of Holdings. The
Sleepmaster L.L.C. Agreement was amended following the completion of this
transaction (the "Amended Sleepmaster L.L.C. Agreement"). See Note 4 for further
details of the transaction and impact on members of the Company.

     On March 3, 1998, the Company acquired the capital stock of Palm Beach
Bedding Company ("Palm Beach") for cash and the assumption of Palm Beach County,
Florida, variable rate industrial development revenue bonds.

     On February 26, 1999, the Company acquired substantially all of the capital
stock of Herr Manufacturing Company ("Herr") for cash.

     On May 18, 1999, the Company acquired substantially all of the assets of
Star Bedding Products (1986) Limited, including its subsidiary, Burrell Bedding
Limited (collectively, "Star") for cash and a promissory note issued by
Holdings.

     On November 5, 1999, the Company acquired substantially all of the assets
of Adam Wuest Inc. and Adam Wuest Realty (collectively "Adam Wuest") for cash
and the assumption of Hamilton County, Ohio, fixed rate economic development
revenue funding bonds.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

  Principles of Consolidation

     The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Palm Beach, Herr, Star and Adam
Wuest for the year ended December 31, 1999. All significant intercompany
balances and transactions have been eliminated. Sleepmaster Finance Corporation
is a wholly-owned subsidiary of the Company, formed solely for the purpose of
acting as co-issuer of the 11% senior subordinated notes, issued on May 18,
1999, and has no assets or operations. See Note 11 for further discussion
regarding the issuance of these senior subordinated notes.

     For the year ended December 31, 1998, the consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary, Palm Beach.
For the year ended December 31, 1997, the consolidated financial statements
include the accounts of the Company only.

                                       F-7
<PAGE>   38
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Use of Estimates in Preparation of the Financial Statements

     The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. The most significant estimates and assumptions relate to
the determination of the allowance for doubtful accounts, accruals for sales
allowances and advertising expenses and the recoverability of long-lived assets.
Actual results could differ from those estimates.

  Revenue Recognition

     The Company recognizes revenue at the time of shipment. Appropriate
accruals for returns, discounts, rebates and other allowances are recorded as
reductions in sales. The Company's bedding products offer limited warranties of
up to 10 years against manufacturing defects. The Company's cost of honoring
warranty claims is immaterial.

  Cash and Cash Equivalents

     Cash and cash equivalents include all highly liquid investments with
original maturities of three months or less. Cash equivalents are stated at
cost, plus accrued interest, which approximates fair value.

  Inventories

     Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. Cost is determined using the
first-in, first-out (FIFO) method. Inventories are primarily produced on a
made-to-order basis.

  Property, Plant and Equipment

     Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
following estimated useful lives of the assets:

<TABLE>
<S>                                                           <C>
Land improvements...........................................    40 years
Building and improvements...................................    40 years
Machinery and equipment.....................................  5-10 years
Office furniture and equipment..............................   3-5 years
Vehicles....................................................     7 years
</TABLE>

     Leasehold improvements are amortized over the shorter of the terms of the
leases or lives of the assets. Expenditures for maintenance and routine repairs
are expensed as incurred. Upon the disposition of property, plant and equipment,
the accumulated depreciation is deducted from the original cost and any gain or
loss is reflected in current income.

  Intangible Assets

     Intangible assets include goodwill, which represents the excess of the
purchase price over the fair value of net assets acquired, and licenses, which
are amortized using the straight-line basis over forty years. In 1998,
intangible assets also included a non-compete agreement, which was fully
amortized by December 31, 1999.

                                       F-8
<PAGE>   39
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

  Long-Lived Assets

     The Company reviews its long-lived assets and certain intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The measurement of
impairment losses to be recognized is based on the difference between the fair
values and the carrying amounts of the assets. Impairment would be recognized in
operating results if a diminution in value occurred. At December 31, 1999, the
Company does not believe that any such changes have occurred.

  Deferred Financing Costs

     The costs incurred for obtaining financing, including all related legal
fees, which were approximately $6,873,000 at December 31, 1999, net of
accumulated amortization of $454,000, are included in other assets in the
accompanying consolidated balance sheets and are amortized to interest expense
over the lives of the related financing.

  Advertising Costs

     The Company expenses advertising costs, consisting primarily of cooperative
advertising with dealers and retailers, when the revenue from sales to customers
is recorded. Advertising costs for the years ended December 31, 1999, 1998 and
1997 amounted to approximately $13,638,000, $8,154,000 and $5,779,000
respectively.

  Recent Accounting Pronouncements


     In February 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use", which requires certain costs incurred in connection with
developing or obtaining internal use software to be capitalized and other costs
to be expensed. The Company adopted SOP 98-1 effective January 1, 1999. The
impact of adopting this standard was to increase pre-tax income for 1999 by $1.9
million.


  Income Taxes

     Income taxes are accounted for by the asset and liability method, which
recognizes deferred tax assets and liabilities by applying statutory tax rates
in effect at the balance sheet date to differences between the book and tax
basis of existing assets and liabilities. The Company files various state income
tax returns and a consolidated Federal income tax return with its Parent,
Holdings. The current and deferred income tax provisions and related current and
deferred income tax assets and liabilities for the Company were determined on a
separate company basis. Currently, the Company does not maintain a tax sharing
agreement with its Parent.

  Reclassifications

     Certain reclassifications were made to prior years' consolidated financial
statements to conform with the current year's presentation.

3. ACQUISITIONS


     On February 26, 1999, the Company acquired all the capital stock of Herr
Manufacturing Company ("Herr") for approximately $24,600,000 in cash. In order
to finance the acquisition of Herr, the Company increased its existing Senior
Credit Facility by $25,300,000.


                                       F-9
<PAGE>   40
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)


     On May 18, 1999, the Company acquired substantially all the assets of Star
Bedding Products (1986) Limited, including its subsidiary, Burrell Bedding
Limited (collectively, "Star"), for approximately $17,020,000 in cash and a
promissory note issued by Holdings (the Company's Parent) in the amount of
approximately $685,000. The acquisition was primarily funded with the net
proceeds of the note offering as discussed in Note 11.


     On November 5, 1999, the Company acquired substantially all the assets of
Adam Wuest for approximately $57,038,000 in cash. This acquisition was funded
primarily through the expansion of its existing credit facility and additional
equity provided by Holdings which, in turn, was raised by a subordinated credit
facility.

     These acquisitions were accounted for under the purchase method and,
accordingly, their results are included in the consolidated financial statements
since their respective dates of acquisition. The assets acquired and liabilities
assumed have been recorded at their estimated fair values at the dates of
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired has been recorded as goodwill and is being amortized
over 40 years.

     A summary of the purchase price allocations (in thousands) is as follows:

<TABLE>
<CAPTION>
                                                       HERR       STAR      ADAM WUEST
                                                      -------    -------    ----------
<S>                                                   <C>        <C>        <C>
Current assets......................................  $ 3,066    $ 2,474     $ 5,782
Property, plant and equipment.......................    3,225        823       3,886
Other assets........................................        2          3         262
Goodwill............................................    4,218        502       6,443
Licenses............................................   15,235     15,764      45,603
Current liabilities.................................     (847)    (1,456)     (2,465)
Long-term debt......................................       --         --      (2,017)
                                                      -------    -------     -------
Total...............................................  $24,899    $18,110     $57,494
                                                      =======    =======     =======
</TABLE>

     The following summarized unaudited pro forma financial information (in
thousands) assumes that the acquisitions of Palm Beach, Herr, Star, and Adam
Wuest were consummated on January 1, 1999 and 1998. The following also gives
effect to the issuance of the senior subordinated notes and the application of
the proceeds therefrom as of such dates. This information is not necessarily
indicative of the results that the Company would have achieved had these events
actually occurred on such dates or of the Company's actual or future results.


<TABLE>
<CAPTION>
                                                           1999        1998
                                                         --------    --------
<S>                                                      <C>         <C>
Net sales..............................................  $222,362    $195,047
Income before extraordinary items......................  $  5,820    $  4,351
Net income.............................................  $  2,653    $  4,351
</TABLE>


4. RECAPITALIZATION

     On November 16, 1996, the Company's Parent, Holdings, entered into a
recapitalization agreement (the "Recapitalization Agreement") with the Company,
B/S Holdings and Sleep Investor. As part of the Recapitalization, all
outstanding membership interests were converted to redeemable cumulative
preferred interests and common interests pursuant to the terms of the Amended
Sleepmaster L.L.C. Agreement (See Note 1).

     Pursuant to the Recapitalization Agreement, Holdings redeemed all of the
membership interests of its members, except for four members who are members of
management of the Company ("Retained

                                      F-10
<PAGE>   41
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Members"), for an aggregate amount of cash equal to approximately $34,700,000
and then sold such membership interests to Sleep Investor. In addition, Sleep
Investor purchased 8,714 units of redeemable cumulative preferred interests and
6,099 units of common interests of Holdings for approximately $12,900,000 plus
issuance of a $7,000,000 pay-in-kind note payable to all former members of
Holdings, including the Retained Members. The remaining redeemable cumulative
preferred and common interests of Holdings were allocated to the Retained
Members. As a result of the Recapitalization, Sleep Investor owns 72% of the
outstanding units of Holdings and the Retained Members own the remaining 28%.

     Financing for the Recapitalization, including the refinancing of existing
indebtedness and fees and expenses incurred, was provided by (1) the Company's
borrowings under a new $29,700,000 Senior Secured Credit Facility, (2) the
Company's borrowing under $15,000,000 Senior Subordinated Notes and (3) the
$12,900,000 of capital provided by Sleep Investor.

     The Company has accounted for the Recapitalization as a leveraged
recapitalization, whereby the historical bases of the assets and liabilities of
the Company have been maintained for financial reporting purposes.

5. INVENTORIES

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                              1999      1998
                                                             ------    ------
<S>                                                          <C>       <C>
Raw materials..............................................  $5,402    $3,540
Work-in-process............................................     476       287
Finished goods.............................................   1,653       919
                                                             ------    ------
     Total inventories.....................................  $7,531    $4,746
                                                             ======    ======
</TABLE>

6. PROPERTY, PLANT AND EQUIPMENT

     Property, plant and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Land and improvements....................................  $ 2,775    $ 1,706
Building and improvements................................    9,247      5,046
Machinery and equipment..................................    8,877      3,727
Office furniture and fixtures............................    1,624        867
Vehicles.................................................      688        208
Leasehold improvements...................................      785        681
Construction-in-progress.................................    1,472        184
                                                           -------    -------
                                                            25,468     12,419
Less: accumulated depreciation and amortization..........    4,501      1,989
                                                           -------    -------
                                                           $20,967    $10,430
                                                           =======    =======
</TABLE>

     Depreciation and amortization expense was approximately $1,539,000,
$866,000 and $449,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.

                                      F-11
<PAGE>   42
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INTANGIBLE ASSETS

     Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                            1999       1998
                                                          --------    -------
<S>                                                       <C>         <C>
Goodwill................................................  $ 35,176    $24,020
Licenses................................................   100,249     23,647
Non-compete agreement...................................        --        930
                                                          --------    -------
                                                           135,425     48,597
Less: accumulated amortization..........................     4,601      3,295
                                                          --------    -------
                                                          $130,824    $45,302
                                                          ========    =======
</TABLE>

8. CONCENTRATION OF CREDIT RISK

     A substantial portion of the consolidated net sales of the Company is made
to a limited number of customers. In 1999, one customer accounted for
approximately 11% of consolidated net sales. In 1998, two customers accounted
for approximately 13% and 11%, respectively, of consolidated net sales. In 1997,
three customers accounted for approximately 17%, 14% and 12%, respectively, of
net sales.

     Amounts receivable from these customers represented approximately 14% and
30% of the trade accounts receivable balance at December 31, 1999 and 1998,
respectively.

     Purchases of raw materials from one vendor represented approximately 37%,
43% and 34% of total raw material purchases for 1999, 1998 and 1997,
respectively.

9. LICENSE AGREEMENT

     Serta, Inc. ("Serta") is a national non-profit organization consisting of
10 domestic licensed operating mattress manufacturing companies. The
organization aids the manufacturers in marketing, merchandising, manufacturing
specifications, trademarks and related activities through license fees paid by
the licensees. Serta owns the rights to the Serta trademark and licenses
companies to manufacture and sell mattresses under the Serta brand name. The
Company's license with Serta is effective until terminated by mutual written
agreement by both parties or if the Company does not comply with the provisions
of the license agreement. In 1999, 1998 and 1997, the Company paid approximately
$5,590,000, $3,400,000 and $2,400,000, respectively, in license fees to Serta.

     The Company is obligated to contribute to a Serta deferred compensation
arrangement based upon the achievement of certain earnings targets by the Serta
licensee group. The Company recorded an expense of approximately $320,000 for
1999 and $75,000 for 1998 under this arrangement. No expense was recorded in
1997 since the earnings targets were not achieved.

10. EMPLOYEE BENEFIT PLANS

     In 1999, the Company maintained a contributory profit sharing plan
("401(k)/Profit Sharing Plan") covering substantially all non-union employees of
the Company and of Herr, one of its wholly owned subsidiaries, who met certain
eligibility requirements. Prior to the acquisition of Herr, this plan covered
substantially all of the non-union employees of the Company only. Employees may
elect to make contributions of up to 15% of their salary. The plan also provides
for an employer match contribution. The Company currently contributes an amount
equal to 100% of the first 3% of salary contributed plus 50% of the next 2% of
salary contributed. Prior to 1999, the Company contributed an amount equal to
50% up to the first 4% of employee contributions. In addition, the Company may
elect to contribute a discretionary amount, which is

                                      F-12
<PAGE>   43
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determined annually by management, to all eligible employees. The Company
reserves the right to terminate or amend the 401(k)/Profit Sharing Plan at any
time. The Company contributed approximately $553,000 for 1999, $286,000 for 1998
and $259,000 for 1997.

     Union employees, pursuant to a collective bargaining agreement, are covered
under a salary reduction plan ("Retirement 401(k) Plan") established by the
Company. Employees, who have met certain eligibility requirements, may elect to
make contributions of up to 15% of their salary. In addition, the Company may
elect to contribute a discretionary amount to all eligible employees. All
eligible employees receive an equal contribution amount per year. Contribution
expense for this plan was approximately $59,000 for 1999, $35,000 for 1998 and
$24,000 for 1997.

     In 1999 and 1998, Palm Beach maintained its own contributory profit sharing
plan ("401(k)/Profit Sharing Plan and Trust"), covering substantially all
employees. Palm Beach contributed an amount equal to 50% of the first 6% of
salary contributed. An additional discretionary amount was determined by
management and contributed to each eligible employee. Palm Beach elected to
contribute approximately $200,000 for each of the fiscal years ended 1999 and
1998. Effective January 1, 2000, substantially all of the employees of Palm
Beach will be covered under the Company's 401(k)/Profit Sharing Plan.

     In 1999, Adam Wuest maintained its own contributory profit sharing plan,
covering salaried employees who met certain eligibility requirements. In
addition, union employees of Adam Wuest were covered by a union sponsored
multi-employer pension plan. The contribution expense for these plans for the
period since acquisition is immaterial to the consolidated financial statements.

11. DEBT

     The following is a summary of the Company's long-term debt (in thousands):

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------    -------
<S>                                                           <C>         <C>
11% Senior Subordinated Notes due 2009......................  $115,000    $    --
Term Loan due in variable quarterly installments through
  September 2005, interest at one-month LIBOR plus 3.25%
  (9.72% at December 31, 1999)..............................    37,000         --
Borrowings under Revolving Credit Facility at variable
  interest rates (from 9.72% to 10.50% at December 31,
  1999).....................................................     6,300         --
Industrial Development Revenue Bonds due through 2016 at
  variable interest rates (5.15% and 3.70% at December 31,
  1999 and 1998, respectively) collateralized by an
  irrevocable letter of credit issued to the Bond agent in
  the amount of $6,968......................................     6,320      6,700
Economic Development Revenue Funding Bonds due through
  September 2010 at fixed rates between 4.50% and 5.60%
  collateralized by an irrevocable letter of credit issued
  to the Bond agent in the amount of $2,284.................     1,993         --
Term Loan A due in variable quarterly installments through
  March 2003 at variable interest rates (8.63% at December
  31, 1998).................................................        --     22,746
Term Loan B due in variable quarterly installments through
  February 2004 at variable interest rates (9.06% at
  December 31, 1998)........................................        --     21,250
</TABLE>

                                      F-13
<PAGE>   44
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
                                                                1999       1998
                                                              --------    -------
<S>                                                           <C>         <C>
Series A Senior Subordinated Notes, 12.00%, due in quarterly
  installments from March 2005 through December 2007........        --     15,000
Series B Senior Subordinated Notes, 12.00%, due in quarterly
  installments from March 2005 through December 2007........        --      5,000
                                                              --------    -------
                                                               166,613     70,696
Less, current portion.......................................     5,010      7,130
                                                              --------    -------
                                                              $161,603    $63,566
                                                              ========    =======
</TABLE>

     During the first quarter of 1999, the Company amended and restated its
credit facility to provide for an aggregate amount of borrowings of up to
$86,000,000 and used a portion of this increased facility to finance its
acquisition of Herr on February 26, 1999. The terms of the amended facility were
substantially equivalent to those of the prior credit facility.

     On May 18, 1999, the Company issued $115,000,000 of 11% senior subordinated
notes due 2009 (the "Notes"). A portion of the proceeds of the note offering was
used to prepay the existing credit facility, redeem the Company's Series A and
Series B Senior Subordinated Notes due 2007 and complete the acquisition of
Star. In connection with the repayment of the existing credit facility and
Series A and Series B Senior Subordinated Notes, the Company wrote-off
unamortized debt issuance costs and incurred prepayment penalties. These
transactions resulted in an extraordinary loss of $3,167,000 net of the
associated income tax benefit of $2,293,000. Also on May 18, 1999, the Company
entered into a six-year $25,000,000 revolving credit facility which replaced the
prior credit facility. The new credit facility included a letter of credit
sublimit of $8,000,000. Borrowings under this credit facility bore interest at
floating rates based on LIBOR or applicable alternative base rates. The credit
facility imposed certain restrictions on the Company and required compliance
with certain financial ratios and other requirements customary to credit
facilities of this nature.


     On November 5, 1999, the Company expanded and restated the credit facility
entered into on May 18, 1999 to $70,000,000, comprising a $33,000,000 six-year
revolving credit facility ("Revolving Credit Facility") and a $37,000,000
amortizing term loan facility ("Term Loan Facility" and, together with the
Revolving Credit Facility, the "Credit Facility"), under substantially the same
terms as the prior credit facility except that the letter of credit sublimit was
increased to $15,000,000. At December 31, 1999, the Company had approximately
$17,000,000 available under its Revolving Credit Facility with letters of credit
issued totaling approximately $9,700,000. Borrowings under the Term Loan
Facility were used to finance the acquisition of Adam Wuest. Indebtedness under
the Credit Facility is guaranteed jointly and severally by the Company, its
Parent and each of its domestic subsidiaries.


     The Company, through its subsidiary Palm Beach, is obligated to the County
of Palm Beach, Florida, pursuant to revenue bonds issued on behalf of Palm
Beach. On April 1, 1996, the County of Palm Beach issued Variable Rate Demand
Industrial Development Revenue Bonds, Palm Beach Bedding Company Project, Series
1996 in the aggregate principal amount of $7,700,000 to finance the construction
of a 235,000 square foot manufacturing facility for Palm Beach. The bonds are
collateralized by a letter of credit issued by Fifth Third Bank and further
collateralized by First Union National Bank for the benefit of the trustee under
the indenture relating to the bonds on the Palm Beach manufacturing facilities
and a pledge of Palm Beach's interest in the bonds.

     The Company, through its subsidiary Adam Wuest, is obligated to the County
of Hamilton, Ohio, pursuant to economic revenue bonds issued on behalf of Adam
Wuest. On February 1, 1994, the County of Hamilton, Ohio issued Fixed Rate
Economic Development Revenue Funding Bonds, Series 1994 in the aggregate
principal amount of $3,000,000 to finance the Adam Wuest, Inc. Project. The
bonds are

                                      F-14
<PAGE>   45
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

collateralized by a letter of credit issued by Fifth Third Bank and further
collateralized by First Union National Bank for the benefit of the trustee under
the indenture relating to the bonds on the Adam Wuest manufacturing faculties
and a pledge of Adam Wuest's interest in the bonds.

     Additionally, the Company has a letter of credit with a bank in the amount
of $720,462 as a rental security deposit on its Linden, New Jersey, facility.
The Company pays a commitment fee of 3% per year of the face amount.

     The Company pays commitment fees of  1/2% per annum on the unused amount of
the credit facilities.

     Under the terms of the agreements of the Credit Facility and Senior
Subordinated Notes, the Company is required to maintain certain financial ratios
and other financial conditions. The agreements of the Credit Facility and Senior
Subordinated Notes also prohibit the Company from incurring certain additional
indebtedness and limit certain investments, capital expenditures and cash
dividends. At December 31, 1999, the Company was in compliance with these
financial ratios and conditions.

     Long term debt at December 31, 1999 is scheduled to mature as follows (in
thousands):

<TABLE>
<S>                                                 <C>
2000..............................................  $  5,010
2001..............................................     5,015
2002..............................................     7,992
2003..............................................     8,002
2004..............................................     8,011
Thereafter........................................   132,583
                                                    --------
                                                    $166,613
                                                    ========
</TABLE>

     In conjunction with the purchase, by Sleepmaster, of substantially all the
assets of Star on May 18, 1999, Holdings issued a junior subordinated note to
the seller in the initial aggregate principal amount of approximately $685,000,
included in other liabilities at December 31, 1999. The junior subordinated note
bears interest at a fixed rate of 6.0% per annum, which interest shall be paid
in kind, and will mature on the third anniversary of the closing of the purchase
of Star. Sleepmaster has no obligations or commitments to Holdings for the
junior subordinated note; however, the Credit Facility will allow Sleepmaster to
fund interest payments on the junior subordinated note. Distributions, dividends
and loans from Sleepmaster to Holdings are restricted by the terms of the
indenture governing the notes.

12. MEMBERS' EQUITY

     In accordance with the Amended Sleepmaster L.L.C. Agreement, the Company's
board of advisors may issue three classes of membership interests: Class A
common interests, Class B common interests and preferred interests. Class A
common interests entitle the holder to one vote per Class A common unit. The
holders of Class B common interests and preferred interests have no voting or
participating rights except in the case of mergers, consolidations,
recapitalizations or reorganizations. The Company had outstanding Class A common
units of 8,000 as of December 31, 1999 and 1998. No Class B common units have
been issued by the Company as of December 31, 1999. See Note 13 for further
details of the preferred interests issued as of December 31, 1999.

     In connection with the purchase of Adam Wuest on November 5, 1999 as
discussed in Note 3, the Company received $9,800,000 in common interest
contributions, net of issuance costs of $200,000, from Holdings and
approximately $800,000 in common interest contributions from certain owners of
Adam Wuest. Holdings financed its contribution by issuing a 14% subordinated
note in an aggregate principal amount of $10,000,000, due June 30, 2007,
("Subordinated Note") to Citicorp Mezzanine Partners, L.P. Since the
Subordinated Note will not be assumed by the Company, none of the Company's
assets or membership

                                      F-15
<PAGE>   46
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interests are pledged as collateral for the Subordinated Note and the Company is
not required to but may utilize its cash flows to assist Holdings in meeting its
debt service obligations under the Subordinated Note, management does not
believe there is or will be any impact on the Company's results of operations,
financial position or cash flows as a result of Holdings issuing the
Subordinated Note.

13. REDEEMABLE CUMULATIVE PREFERRED INTERESTS

     The Company had outstanding 9,999.96 units of cumulative redeemable
preferred units as of December 31, 1999 and 1998. The preferred units are not
convertible into any other security of the Company and the holders have no
voting rights except in the case of mergers, consolidations, recapitalizations
or reorganizations. The preferred units accrue dividends at a compounded rate of
12% per annum. The preferred units are redeemable on November 14, 2009, together
with the accrued and unpaid dividends unless the maturity date of the Senior
Subordinated Notes is extended, at which point the redemption date will be the
earlier of (i) the twelve month anniversary of the extended maturity date of the
Senior Subordinated Notes and (ii) November 14, 2011; provided further that the
redemption date shall only be extended one time.

14. WARRANTS

     In connection with the sale of senior subordinated notes by Sleepmaster to
PMI in 1996 and 1998, Holdings issued to PMI 2,000 warrants and 403 warrants,
respectively, to purchase class A common interests of Holdings (the "Class A
Warrants"). The Class A Warrants are exercisable at any time until March 3, 2010
at an exercise price of $0.01 per unit, subject to adjustment, and represent
2,403 Class A common units of Holdings (approximately 22% of the total common
interests).

     In connection with the issuance of the Subordinated Note by Holdings, as
discussed in Note 12, Holdings issued to Citicorp Mezzanine Partners, L.P.
("CMP") warrants to purchase Class B common interests of Holdings (the "Class B
Warrants") at an exercise price of $0.01 per unit, subject to certain
conditions. The Class B Warrants are exercisable at any time after June 30, 2007
and before June 30, 2009 and represent 1,298.14 Class B common units of Holdings
(approximately 12% of the total common interests).

     Since both the Class A Warrants and Class B Warrants were issued by
Holdings and the only operation of Holdings is its investment in Sleepmaster,
the Company would record an adjustment to reduce the carrying amount of debt
issued, with an offsetting charge to accumulated deficit to the extent of the
fair value of the warrants issued, if material. No adjustments were recorded
when the warrants were issued, since management considered the fair value of the
warrants to be immaterial.

15. STOCK OPTIONS

     In 1998 and 1996, pursuant to the employment agreements of certain
employees, Holdings issued options to purchase 100 shares and 530 shares,
respectively, of Class A common units of Holdings at an exercise price of $100
(the "Options"). The Options vest 50% on December 31, 1999 and 50% on December
31, 2001 subject to the achievement of certain earnings targets by Sleepmaster.
Any unexercised options terminate on the tenth anniversary of the date of grant
or earlier, in connection with the termination of employment.

     Since this is a variable stock compensation plan of Holdings and the only
operation of Holdings is its investment in Sleepmaster, the Company will record
compensation expense based on the difference between the exercise price and the
fair value of the Options at the balance sheet date, when it believes it
probable that the Company will meet the earning targets. No compensation cost
related to the Options has been recorded in 1999, 1998 or 1997 since, based on
the Company's current trend of earnings, management considers it unlikely that
they will achieve the earnings targets set forth in the option agreements.

                                      F-16
<PAGE>   47
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. INCOME TAXES

     The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
                                                            1999      1998      1997
                                                           ------    ------    ------
<S>                                                        <C>       <C>       <C>
CURRENT
  Federal................................................  $1,750    $  968    $  209
  State..................................................     886       276        53
  Foreign................................................     406        --        --
                                                           ------    ------    ------
     Total current.......................................   3,042     1,244       262
                                                           ------    ------    ------
  DEFERRED
  Federal................................................     616     1,401     1,438
  State..................................................    (610)      375       313
  Foreign................................................     200        --        --
                                                           ------    ------    ------
     Total deferred......................................     206     1,776     1,751
                                                           ------    ------    ------
       Provision for income taxes........................  $3,248    $3,020    $2,013
                                                           ======    ======    ======
</TABLE>

     The Company's effective tax rate differs from the Federal statutory rate as
indicated in the following reconciliation for the years ended December 31:

<TABLE>
<CAPTION>
                                                              1999    1998    1997
                                                              ----    ----    ----
<S>                                                           <C>     <C>     <C>
Income tax expense at Federal statutory rate................  34.0%   34.0%   34.0%
State income tax expense, net of Federal benefit............   2.2%    6.9%    6.0%
Non-deductible goodwill.....................................   1.9%     --      --
Other, net..................................................   1.3%    1.2%    2.2%
                                                              ----    ----    ----
                                                              39.4%   42.1%   42.2%
                                                              ====    ====    ====
</TABLE>

     Deferred income taxes reflect the net tax differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax reporting purposes. The significant component of the
Company's net deferred tax assets represents the tax effect of goodwill
attributable to the step-up in the tax bases of the Company's assets and
liabilities as a result of the leveraged recapitalization on November 14, 1996
(see Note 4). The Company recognized a net deferred tax asset of approximately
$16,500,000 in connection with this recapitalization. At December 31, 1999 and
1998, no valuation allowance has been recorded against this deferred tax asset
since management considers it more likely than not that such deferred tax asset
will be realized. At December 31, 1999, the Company had a Federal net operating
loss carryforward of approximately $3,407,000, which expires in 2019, and a
state net operating loss carryforward of approximately $12,508,000, which
expires between 2007 and 2015. These net operating loss carryforwards represent
a deferred tax benefit of approximately $1,305,000.

                                      F-17
<PAGE>   48
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

     The components of net deferred tax assets as of December 31, 1999 and 1998
are as follows (in thousands):

<TABLE>
<CAPTION>
                                                            1999       1998
                                                           -------    -------
<S>                                                        <C>        <C>
Goodwill.................................................  $10,957    $12,225
Net operating loss carryforward..........................    1,305         --
Sales allowance reserves.................................      467        307
Bad debt reserves........................................      138        175
Other....................................................      145        297
                                                           -------    -------
  Net deferred tax assets................................  $13,012    $13,004
                                                           =======    =======
</TABLE>

17. COMMITMENTS AND CONTINGENCIES

  Operating Leases

     On January 12, 1995, the Company assumed the balance of a 10-year,
noncancelable operating lease agreement entered into by the former owner of the
Company for facilities in Linden, New Jersey. The lease expires on January 31,
2004, with renewal options. The Company also leases its facilities in Canada.
Additionally, the Company leases office furniture and equipment, manufacturing
equipment and distribution trucks under noncancelable operating leases with
various expiration dates through August 31, 2004. Rent expense under operating
leases was approximately $1,658,000, $1,221,000 and $780,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

     Future minimum lease payments under noncancelable operating leases as of
December 31, 1999 are as follows:

<TABLE>
<S>                                                <C>
2000.............................................  $1,326,000
2001.............................................   1,151,000
2002.............................................   1,036,000
2003.............................................     967,000
2004.............................................     103,000
                                                   ----------
                                                   $4,583,000
                                                   ==========
</TABLE>

  Litigation

     The Company and its subsidiaries are, from time to time, parties to
litigation arising in the normal course of business, most of which involves
claims for personal injury and property damage incurred in connection with its
operations. Management believes that none of these actions will have a material
adverse effect on the financial position, results of operations or cash flows of
the Company and its subsidiaries.

  Employment Contracts


     The Company has employment agreements with its executive officers, the
terms of which expire at various dates through November 1, 2001. Such agreements
provide for minimum salaries as well as incentive bonuses that are payable if
specified management goals are attained. The employment agreements also provide
for benefits, including medical, life insurance and disability benefits. In
addition, executive securities will automatically vest in connection with a sale
of the Company. The Company's potential minimum obligation to its executive
officers, excluding bonuses, was approximately $2,400,000 at December 31, 1999.


                                      F-18
<PAGE>   49
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

     Due to the short maturities of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, the carrying value of these
financial instruments approximates fair value. The carrying amount of borrowings
under the Revolving Credit Facility and Term Loan Facility approximates fair
value because the interest rates adjust to market interest rates. At December
31, 1999, the carrying value of the 11.0% Senior Subordinated Notes approximated
fair value, based on their quoted market prices.

19. SUPPLEMENTAL CASH FLOW INFORMATION

     Cash paid for interest and income taxes for the years ended December 31,
1999, 1998 and 1997 was as follows (in thousands):


<TABLE>
<CAPTION>
                                                   1999       1998      1997
                                                  -------    ------    ------
<S>                                               <C>        <C>       <C>
Interest........................................  $10,042    $7,125    $4,302
Income taxes....................................      578       562        --
</TABLE>


     In connection with the issuance of redeemable cumulative preferred
interests upon the leveraged recapitalization of the Company in 1996 (see Note
4), the Company recorded a charge to retained earnings (deficit) of $2,156,000,
$1,979,000 and $1,707,000 for the years ended December 31, 1999, 1998 and 1997,
respectively, representing the accretion of redeemable cumulative preferred
interests at a compounded annual rate of 12.0%.

     Details of the acquisition of Palm Beach in 1998:


<TABLE>
<S>                                                           <C>
Fair value of assets acquired

  Current assets............................................  $ 5,563,000
  Property, plant and equipment.............................    8,612,000
  Other assets..............................................      201,000
  Goodwill..................................................    4,472,000
  Serta license agreement...................................   23,647,000
                                                              -----------
          Total assets acquired.............................   42,495,000
                                                              ===========
Less: liabilities assumed
  Current liabilities.......................................    2,704,000
  Debt......................................................    6,985,000
                                                              -----------
          Total liabilities assumed.........................    9,689,000
                                                              ===========
Net cash paid for acquisition...............................  $32,806,000
                                                              ===========
</TABLE>


20. SUBSEQUENT EVENTS

     On January 25, 2000, the Company signed a letter of intent to acquire all
the capital stock of a Serta licensee for approximately $40,000,000 in cash. The
Company anticipates financing the acquisition through an expansion of its
existing credit facility.

21. GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION

     As of May 18, 1999, Sleepmaster and each of the domestic wholly owned
subsidiaries ("Guarantor Subsidiaries") fully and unconditionally guaranteed, on
a joint and several basis, the obligation to pay principal and interest with
respect to the Notes. The Company generates funds necessary to satisfy its debt
service obligations from either its own operations or by distributions or
advances from its subsidiaries. There are no contractual or legal restrictions
that could limit the Company's ability to obtain cash from its subsidiaries for
the purpose of meeting its debt service obligations, including the payment of
principal and

                                      F-19
<PAGE>   50
                               SLEEPMASTER L.L.C.

           NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest on the Notes. Although holders of the Notes will be direct creditors of
Sleepmaster's principal direct subsidiaries by virtue of the guarantees,
Sleepmaster has a foreign subsidiary ("Non-Guarantor Subsidiary") that is not
included among the Guarantor Subsidiaries and such subsidiary will not be
obligated with respect to the Notes. As a consequence, the claims of creditors
of the Non-Guarantor Subsidiary will effectively have priority with respect to
the assets and earnings of such companies over the claims of creditors of
Sleepmaster, including the holders of the Notes. No supplemental consolidating
condensed financial statements have been presented for the year ended December
31, 1997, since the financial statements included the accounts of Sleepmaster
only.

     The following supplemental consolidating condensed financial statements
present:

          1. Consolidating condensed balance sheets as of December 31, 1999 and
     1998; consolidating condensed statements of operations and cash flows for
     the years ended December 31, 1999 and 1998.

          2. Sleepmaster, combined Guarantor Subsidiaries and Non-Guarantor
     Subsidiary with their investments in subsidiaries accounted for using the
     equity method.

          3. Elimination entries necessary to consolidate Sleepmaster and all of
     its subsidiaries.

                                      F-20
<PAGE>   51

                      SLEEPMASTER L.L.C. AND SUBSIDIARIES

               SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
                               DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                             COMBINED        NON-
                                                            GUARANTOR     GUARANTOR
                                             SLEEPMASTER   SUBSIDIARIES   SUBSIDIARY   ELIMINATIONS    TOTAL
                                             -----------   ------------   ----------   ------------   --------
                                                                      (IN THOUSANDS)
<S>                                          <C>           <C>            <C>          <C>            <C>
ASSETS
  Current assets:
  Cash and cash equivalents................   $  1,294       $    934      $   612      $       2     $  2,842
  Accounts receivable......................     10,282         11,800        2,310           (175)      24,217
  Accounts receivable -- other.............      1,061            630           --             --        1,691
  Intercompany receivable (payable)........        (17)        18,144        1,503        (19,630)          --
  Inventories..............................      2,378          4,637          516             --        7,531
  Other current assets.....................        341            248           24             --          613
  Deferred income taxes....................        735            378           --           (393)         720
                                              --------       --------      -------      ---------     --------
     Total current assets..................     16,074         36,771        4,965        (20,196)      37,614
Property, plant and equipment, net.........      4,477         15,773          717             --       20,967
Intangible assets, net.....................     17,119         97,707       15,998             --      130,824
Intercompany receivable (payable)..........     67,378             --           --        (67,378)          --
Investment in subsidiaries.................     67,628             --           --        (67,628)          --
Other assets...............................      6,878            409            3             --        7,290
Deferred income taxes......................     12,254            160           --           (122)      12,292
                                              --------       --------      -------      ---------     --------
     Total assets..........................   $191,808       $150,820      $21,683      $(155,324)    $208,987
                                              ========       ========      =======      =========     ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable.........................   $  4,984       $  8,808      $   645      $    (173)    $ 14,264
  Accrued sales allowances and advertising
     expenses..............................      3,541          1,758          456             --        5,755
  Other current liabilities................      4,208          3,180        1,161             --        8,549
  Intercompany payable (receivable)........     19,599             --           --        (19,599)          --
  Deferred income taxes....................         43            147          203           (393)          --
  Current portion of long-term debt........      4,500            510           --             --        5,010
                                              --------       --------      -------      ---------     --------
     Total current liabilities.............     36,875         14,403        2,465        (20,165)      33,578
                                              --------       --------      -------      ---------     --------
Intercompany payable (receivable)..........         --         67,378           --        (67,378)          --
Long-term debt.............................    153,800          7,803           --             --      161,603
Deferred income taxes......................       (896)         1,018           --           (122)          --
Other liabilities..........................        459            319          685             --        1,463
                                              --------       --------      -------      ---------     --------
     Total long-term liabilities...........    153,363         76,518          685        (67,500)     163,066
                                              --------       --------      -------      ---------     --------
Redeemable cumulative preferred
  interests................................     20,423             --           --             --       20,423
Members' equity (deficit)..................    (18,853)        59,899       18,533        (67,659)      (8,080)
                                              --------       --------      -------      ---------     --------
     Total liabilities and members' equity
       (deficit)...........................   $191,808       $150,820      $21,683      $(155,324)    $208,987
                                              ========       ========      =======      =========     ========
</TABLE>

                                      F-21
<PAGE>   52

                      SLEEPMASTER L.L.C. AND SUBSIDIARIES

               SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
                               DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                 COMBINED
                                                                GUARANTOR
                                                SLEEPMASTER    SUBSIDIARIES    ELIMINATIONS     TOTAL
                                                -----------    ------------    ------------    -------
                                                                    (IN THOUSANDS)
<S>                                             <C>            <C>             <C>             <C>
ASSETS
Current assets:
  Cash and cash equivalents...................    $    41        $   153         $    (32)     $   162
  Accounts receivable.........................      8,200          4,371               (1)      12,570
  Accounts receivable -- other................        737            462               --        1,199
  Intercompany (payable) receivable...........     (5,296)         5,264               32           --
  Inventories.................................      2,508          2,238               --        4,746
  Other current assets........................        228            119               --          347
  Deferred income taxes.......................      1,606             --               --        1,606
                                                  -------        -------         --------      -------
     Total current assets.....................      8,024         12,607               (1)      20,630
Property, plant and equipment, net............      2,047          8,383               --       10,430
Intangible assets.............................     17,762         27,540               --       45,302
Investment in subsidiaries....................     32,810             --          (32,810)          --
Other assets..................................      1,602            178               --        1,780
Deferred income taxes.........................     11,398             --               --       11,398
                                                  -------        -------         --------      -------
     Total assets.............................    $73,643        $48,708         $(32,811)     $89,540
                                                  =======        =======         ========      =======
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
  Accounts payable............................    $ 6,264        $ 3,668         $     (1)     $ 9,931
  Accrued sales allowances and advertising
     expenses.................................      4,306            400               --        4,706
  Other current liabilities...................      2,102            980               --        3,082
  Current portion of long-term debt...........      6,750            380               --        7,130
                                                  -------        -------         --------      -------
     Total current liabilities................     19,422          5,428               (1)      24,849
                                                  -------        -------         --------      -------
Long-term debt................................     57,246          6,320               --       63,566
Other liabilities.............................        346             29               --          375
                                                  -------        -------         --------      -------
     Total long-term liabilities..............     57,592          6,349               --       63,941
                                                  -------        -------         --------      -------
Redeemable cumulative preferred interests.....     18,267             --               --       18,267
Members' equity (deficit).....................    (21,638)        36,931          (32,810)     (17,517)
                                                  -------        -------         --------      -------
     Total liabilities and members' equity
       (deficit)..............................    $73,643        $48,708         $(32,811)     $89,540
                                                  =======        =======         ========      =======
</TABLE>

                                      F-22
<PAGE>   53

                      SLEEPMASTER L.L.C. AND SUBSIDIARIES

          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
                                                        COMBINED
                                                       GUARANTOR     NON-GUARANTOR
                                        SLEEPMASTER   SUBSIDIARIES    SUBSIDIARY     ELIMINATIONS    TOTAL
                                        -----------   ------------   -------------   ------------   --------
                                                                   (IN THOUSANDS)
<S>                                     <C>           <C>            <C>             <C>            <C>
Net sales.............................    $76,186       $84,470         $11,604        $  (941)     $171,319
Cost of sales.........................     49,741        48,929           7,195           (941)      104,924
                                          -------       -------         -------        -------      --------
Gross profit..........................     26,445        35,541           4,409             --        66,395
                                          -------       -------         -------        -------      --------
Operating expenses
Selling, general and administrative
  expenses............................     18,485        22,170           2,667             --        43,322
Amortization of intangibles...........        644         1,324             248             --         2,216
                                          -------       -------         -------        -------      --------
Total operating expenses..............     19,129        23,494           2,915             --        45,538
                                          -------       -------         -------        -------      --------
Operating income......................      7,316        12,047           1,494             --        20,857
Interest expense, net.................      9,888         2,657              (9)            --        12,536
Other expense (income), net...........         69            30             (16)            --            83
                                          -------       -------         -------        -------      --------
(Loss) income before income taxes and
  extraordinary items.................     (2,641)        9,360           1,519             --         8,238
Provision for income taxes............     (1,143)        3,786             605             --         3,248
(Income) loss from equity investees,
  net of tax..........................     (6,488)           --              --          6,488            --
                                          -------       -------         -------        -------      --------
Income (loss) before extraordinary
  items...............................      4,990         5,574             914         (6,488)        4,990
Extraordinary items, net of income
  taxes...............................     (3,167)           --              --             --        (3,167)
                                          -------       -------         -------        -------      --------
Net income (loss).....................    $ 1,823       $ 5,574         $   914        $(6,488)     $  1,823
                                          =======       =======         =======        =======      ========
</TABLE>

                                      F-23
<PAGE>   54

                      SLEEPMASTER L.L.C. AND SUBSIDIARIES

          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
                          YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                COMBINED
                                                               GUARANTOR
                                               SLEEPMASTER    SUBSIDIARIES    ELIMINATIONS     TOTAL
                                               -----------    ------------    ------------    --------
                                                                   (IN THOUSANDS)
<S>                                            <C>            <C>             <C>             <C>
Net sales....................................    $73,476        $37,089         $  (314)      $110,251
Cost of sales................................     47,005         22,289            (306)        68,988
                                                 -------        -------         -------       --------
Gross profit.................................     26,471         14,800              (8)        41,263
                                                 -------        -------         -------       --------
Operating expenses
Selling, general and administrative
  expenses...................................     15,889          9,913              (8)        25,794
Amortization of intangibles..................        644            579              --          1,223
                                                 -------        -------         -------       --------
Total operating expenses.....................     16,533         10,492              (8)        27,017
                                                 -------        -------         -------       --------
Operating income.............................      9,938          4,308              --         14,246
Interest expense, net........................      6,903            193              --          7,096
Other (income) expense, net..................        (27)             9              --            (18)
                                                 -------        -------         -------       --------
Income before income taxes...................      3,062          4,106              --          7,168
Provision for income taxes...................      3,020             --              --          3,020
(Income) loss from equity investees, net of
  tax........................................     (4,106)            --           4,106             --
                                                 -------        -------         -------       --------
Net income (loss)............................    $ 4,148        $ 4,106         $(4,106)      $  4,148
                                                 =======        =======         =======       ========
</TABLE>

                                      F-24
<PAGE>   55

                      SLEEPMASTER L.L.C. AND SUBSIDIARIES

          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1999


<TABLE>
<CAPTION>
                                                                COMBINED
                                                               GUARANTOR      NON-GUARANTOR
                                              SLEEPMASTER     SUBSIDIARIES     SUBSIDIARY      ELIMINATIONS     TOTAL
                                              ------------    ------------    -------------    ------------    --------
                                                                     (IN THOUSANDS)
<S>                                           <C>             <C>             <C>              <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income................................  $      1,823    $     5,574              914     $    (6,488)    $  1,823
  Adjustments to reconcile net income to net
    cash provided by operating activities:
    Depreciation and amortization...........         1,374          2,025              356              --        3,755
    Provision for doubtful accounts.........            72            348               20                          440
    Accrued interest (earned) incurred on
      loans to subsidiaries.................        (2,378)         2,378
    Loss on sale of equipment...............            --              5               --              --            5
    Extraordinary Items.....................         3,167             --                                         3,167
    Deferred income taxes...................         1,455            630               --              --        2,085
    Other non-cash charges..................           646              6               --              --          652
    Changes in operating assets and
      liabilities, net of acquisition:
      Accounts receivable...................        (2,154)        (2,282)            (359)             --       (4,795)
      Accounts receivable -- other..........          (324)          (168)              --              --         (492)
      Inventories...........................           130            (21)             (38)             --           71
      Other current assets..................          (113)           119               22              --           28
      Other assets..........................            --             32               --              --           32
      Accounts payable......................        (1,280)         3,733              (99)             --        2,354
      Intercompany payable (receivable).....        14,319        (12,879)          (1,476)             36           --
      Accrued advertising...................           216             23               34              --          273
      Accrued sales allowances..............          (981)           536               98              --         (347)
      Other current liabilities.............         2,106          1,158            1,150              --        4,414
      Other liabilities.....................           113            279               --              --          392
                                              ------------    -----------      -----------     -----------     --------
    Net cash provided by operating
      activities............................        18,191          1,496              622          (6,452)      13,857
                                              ------------    -----------      -----------     -----------     --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures......................        (3,160)          (993)             (12)             --       (4,165)
  Acquisitions, net of cash acquired........       (99,818)            --               --             690      (99,128)
  Net activity in investment in
    subsidiaries............................        (6,488)            --               --           6,488           --
                                              ------------    -----------      -----------     -----------     --------
    Net cash used in investing activities...      (109,466)          (993)             (12)          7,178     (103,293)
                                              ------------    -----------      -----------     -----------     --------
CASH FLOW FROM FINANCING ACTIVITIES
  Proceeds from issuance of senior
    subordinated notes......................       115,000             --               --              --      115,000
  Proceeds from long-term debt..............        46,830             --               --              --       46,830
  Payments on long-term debt................       (73,826)           (32)              --              --      (73,858)
  Borrowings under revolving line of
    credit..................................        11,300             --               --              --       11,300
  Payments on revolving line of credit......        (5,000)          (380)              --              --       (5,380)
  Loan origination fees/bond issuance
    costs...................................        (7,739)            --               --              --       (7,739)
  Penalties on early extinguishment of
    debt....................................        (3,644)            --               --              --       (3,644)
  Distributions.............................          (982)            --               --              --         (982)
  Capital contributions.....................        10,589             --               --              --       10,589
                                              ------------    -----------      -----------     -----------     --------
    Net cash provided by (used in) financing
      activities............................        92,528           (412)              --              --       92,116
                                              ------------    -----------      -----------     -----------     --------
Net change in cash and cash equivalents.....         1,253             91              610             726        2,680
Cash and cash equivalents at beginning of
  period....................................            41            847               --            (726)         162
                                              ------------    -----------      -----------     -----------     --------
Cash and cash equivalents at end of
  period....................................  $      1,294    $       938      $       610     $        --     $  2,842
                                              ============    ===========      ===========     ===========     ========
</TABLE>


                                      F-25
<PAGE>   56

                      SLEEPMASTER L.L.C. AND SUBSIDIARIES

          SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
                          YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
                                                                              COMBINED
                                                                             GUARANTOR
                                                              SLEEPMASTER   SUBSIDIARIES   ELIMINATIONS    TOTAL
                                                              -----------   ------------   ------------   --------
                                                                                 (IN THOUSANDS)
<S>                                                           <C>           <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income................................................   $  4,148       $ 4,106        $(4,106)     $  4.148
  Adjustments to reconcile net income to net cash provided
    by operating activities:
    Depreciation and amortization...........................      1,214           875             --         2,089
    Provision for doubtful accounts.........................        287            --             --           287
    Loss on sale of equipment...............................          9            --             --             9
    Deferred income taxes...................................      1,776            --             --         1,776
    Other non-cash charges..................................        313             7             --           320
    Changes in operating assets and liabilities, net of
      acquisitions:
      Accounts receivable...................................     (1,129)       (1,282)            --        (2,411)
      Accounts receivable -- other..........................         69          (277)            --          (208)
      Inventories...........................................        171           (58)            --           113
      Other current assets..................................       (142)          (54)            --          (196)
      Other assets..........................................        (49)           52            (44)          (41)
      Accounts payable......................................        992         1,842             --         2,834
      Accrued liabilities...................................       (488)          502             --            14
      Intercompany payable (receivable).....................      5,296        (5,264)           (32)           --
      Other liabilities.....................................         96            44             --           140
                                                               --------       -------        -------      --------
    Net cash provided by operating activities...............     12,563           493         (4,182)        8,874
                                                               --------       -------        -------      --------
CASH FLOWS FROM INVESTING ACTIVITIES
  Capital expenditures......................................     (1,028)          (67)            --        (1,095)
  Acquisitions, net of cash acquired........................    (32,806)           --             50       (32,756)
                                                               --------       -------        -------      --------
  Net activity in investment in subsidiaries................     (4,106)           --          4,106            --
                                                               --------       -------        -------      --------
  Net cash (used in) provided by investing activities.......    (37,940)          (67)         4,156       (33,851)
                                                               --------       -------        -------      --------
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from long-term debt..............................     48,308            --             --        48,308
  Payments on long-term debt................................    (23,414)         (285)            --       (23,699)
  Borrowings under revolving line of credit.................      7,396            --             --         7,396
  Payments on revolving line of credit......................     (7,397)           --             --        (7,397)
  Loan origination fees.....................................       (827)           --             --          (827)
  Distributions.............................................       (234)           --             --          (234)
  Capital contribution......................................        994             6             --         1,000
                                                               --------       -------        -------      --------
    Net cash provided by (used in) financing activities.....     24,826          (279)            --        24,547
                                                               --------       -------        -------      --------
Net change in cash and cash equivalents.....................       (551)          147            (26)         (430)
Cash and cash equivalents at beginning of period............        592             6             (6)          592
                                                               --------       -------        -------      --------
Cash and cash equivalents at end
  of period.................................................   $     41       $   153        $   (32)     $    162
                                                               ========       =======        =======      ========
</TABLE>

                                      F-26