FOAMEX INTERNATIONAL INC, 10-K405, 1998-04-13

FOAMEX INTERNATIONAL INC
10-K405, 1998-04-13
PLASTICS FOAM PRODUCTS

Previous: UNIVERSAL FOREST PRODUCTS INC, 8-K, 1998-04-13

Next: CELLSTAR CORP, 10-Q, 1998-04-13

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

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

For the fiscal year ended December 28, 1997

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

Commission file number: 0-22624

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

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

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

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

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

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

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

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

The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of April 6, 1998 was $228,650,566.

The number of shares outstanding of the registrant's common stock as of
April 6, 1998 was 25,003,475.

DOCUMENTS INCORPORATED BY REFERENCE

The information required by Part III of this Form 10-K shall be contained
in an amendment to this Form 10-K to be filed by April 27, 1998.
<PAGE>
FOAMEX INTERNATIONAL INC.

INDEX

Page
Part I
Item 1. Business 3
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote 14
of Security Holders

Part II
Item 5. Market for Registrant's Common Equity and 14
Related Stockholder Matters
Item 6. Selected Consolidated Financial Data 15
Item 7. Management's Discussion and Analysis 17
of Financial Condition and Results
of Operations
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants 25
on Accounting and Financial Disclosure

Part III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners 25
and Management
Item 13. Certain Relationships and Related Transactions 25

Part IV
Item 14. Exhibits, Financial Statement Schedules 26
and Reports on Form 8-K

Signatures 32

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

2
<PAGE>
PART I
ITEM l. BUSINESS

General

Foamex International Inc. (the "Company") is a holding company which is
engaged primarily in the business of manufacturing and distributing quality
flexible polyurethane foam and advanced polymer foam products. As of April 6,
1998, the Company's operations are conducted through its wholly-owned
subsidiaries, Foamex L.P. and Foamex Carpet Cushion, Inc. ("Foamex Carpet"). The
Company was incorporated in 1993 and is the successor of Foamex L.P.

On March 16, 1998, the Company announced that its Board of Directors
received an unsolicited buyout proposal from Trace International Holdings, Inc.
("Trace Holdings"), the Company's principal stockholder. Trace Holdings proposed
to acquire all of the outstanding common stock of the Company not currently
owned by Trace Holdings and its subsidiaries for a cash price of $17.00 per
share. Also, Trace Holdings informed the Board of Directors that financing for
the buyout transaction would be arranged through Donaldson, Lufkin & Jenrette
Securities Corporation and The Bank of Nova Scotia/Scotia Capital Markets. As of
March 16, 1998, Trace Holdings and its subsidiaries beneficially owned
approximately 11,475,000 shares or approximately 46% of the outstanding common
stock of the Company. In response to Trace Holding's offer, the Company's Board
of Directors has appointed a special committee to determine the advisability and
fairness of the proposed buyout to the Company's stockholders other than Trace
Holdings and its subsidiaries. Trace Holding's proposed buyout is subject to a
number of conditions, including the negotiations of definitive documents (which
are expected to contain customary closing conditions); the filing of a
disclosure statement and other documents with the Securities and Exchange
Commission; regulatory filings; and approval of the transaction by a majority of
the Company's stockholders.

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

3
<PAGE>

On October 6, 1997, the Company sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997. The Company used the net proceeds of the sale to
reduce borrowings under the Foamex L.P. credit facility by approximately $38.8
million.

On June 12, 1997, the Company substantially completed a refinancing plan
(the "Refinancing Plan") designed to reduce the Company's interest expense and
increase its financing flexibility. The Refinancing Plan included a tender offer
to purchase $489.7 million of the Company's public debt, the payment of $5.2
million of Foamex L.P.'s term loan borrowings under an existing credit facility
and the payment of related fees and expenses. In addition, the tender offer
included amending the existing indentures to remove substantially all of the
restrictive covenants. The Company purchased $459.0 million of public debt under
the tender offer and incurred an extraordinary loss on the early extinguishment
of debt of approximately $42.0 million (net of income tax benefit of $25.7
million). The Refinancing Plan was funded by $347.0 million of borrowings under
a new credit facility (the "Credit Facility") and the net proceeds from the
issuance of $150.0 million principal amount of senior subordinated notes. As a
result of the Refinancing Plan, the Company's total long-term debt increased by
$63.9 million. The Company expects the Refinancing Plan to result in decreased
interest expense as compared to the debt structure prior to the Refinancing
Plan, assuming no material changes in interest rates. The Company's future
interest expense will vary based on a variety of factors, including fluctuations
in interest rates in general. As a result of the Refinancing Plan, variable rate
debt comprised a larger percentage of the Company's overall indebtedness than in
the past, and as a result, future fluctuations in interest rates will have a
greater impact on the Company's interest expense than in the past.

On October 1, 1997, the Company redeemed approximately $26.2 million of the
approximately $30.7 million of the Company's outstanding public debt that was
not tendered as part of the Refinancing Plan. These redemptions were funded with
borrowings under the Credit Facility. In connection with these redemptions, the
Company incurred an extraordinary loss on the early extinguishment of debt of
approximately $1.3 million (net of income taxes). The remaining outstanding
public debt of approximately $4.5 million that was not tendered as part of the
Refinancing Plan was defeased in February 1998.

The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements so long as those statements are
identified as forward-looking and are accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those projected in such statements. In connection with
certain forward-looking statements contained in this Annual Report on Form 10-K
and those that may be made in the future by or on behalf of the Company which
are identified as forward-looking, the Company notes that there are various
factors that could cause actual results to differ materially from those set
forth in any such forward-looking statements, such as raw material price
increases, general economic conditions, the level of automotive production,
carpet cushion production and housing starts, the implementation of the
restructuring/consolidation plan and changes in environmental legislation and
environmental conditions. The forward-looking statements contained in this
Annual Report on Form 10-K were

4
<PAGE>

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

The principal executive offices of the Company are located at 1000 Columbia
Avenue, Linwood, Pennsylvania 19061 and its telephone number is (610) 859-3000.

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

<PAGE>

Flexible Polyurethane Foam Products

The Company is a manufacturer and distributor of quality flexible
polyurethane foam and advanced polymer foam products designed to satisfy the
specific needs of customers. The Company's manufacturing and distribution
facilities enable it to source production efficiently and meet the needs of its
customers throughout North America. Such facilities are also important for
satisfying all of the foam requirements of large national customers in a timely
and cost effective manner.

The Company operates in the foam products business segment with net sales
being derived from six major product categories: carpet cushion, cushioning
foams, furniture foams, automotive foams, consumer products and specialty and
technical foams. The Company added the consumer products category in connection
with the December 23, 1997 Crain Acquisition, therefore, historical operations
will not include the consumer products category. Management's Discussion and
Analysis of Financial Condition and Results of Operations provides net sales by
product category for the past three fiscal years.

The introduction of new products and new applications for existing products
is an integral component of the Company's growth strategy. During the last
several years, the Company introduced ReflexJ for the bedding, furniture and
other cushioning industries using patented variable pressure foaming technology
("VPF(TM)"). The Company also introduced Plushlife(TM) for the carpet cushion
markets and Powerthane(TM) for automotive applications. In addition, the Company
developed new automotive foam applications, including thermoformable foam
headliners and energy absorbing foams. The Company's relationships with its
customers allow the Company to work with customers during the design phase for
new products and new applications for existing products, thereby increasing the
likelihood that the Company will be a principal supplier for these products.

Carpet Cushion

The Company is one of the largest manufacturers and distributors of prime,
bonded, sponge rubber and felt carpet cushion in North America. Prime carpet
cushion is made from polyurethane foam buns, whereas bonded carpet cushion is
made from various types of scrap foam which are shredded into small pieces,
processed and then bonded using a chemical adhesive. In February 1997, the
Company introduced Plushlife(TM), a proprietary bonded carpet cushion product,
which combines two cushions into a single structure to absorb the energy of foot
traffic and enhance comfort.

The Company's carpet cushion products are marketed through floor covering
retailers such as Sears, Shaw Industries and Home Depot.

Cushioning Foams

The Company is one of the largest manufacturers of cushioning foams in
North America. The Company manufactures and sells flexible polyurethane foam and
polyester fiber to bedding and other cushioning manufacturers both directly and
indirectly through independent fabrication operations. These foams are used by
the bedding industry in quilts, toppers, cores and border rolls for mattresses.
Cushioning foams are generally sold in large volumes on a regional basis because
of high shipping costs. Due to its size and the strategic location of its
production facilities, the Company believes it will continue to have an
advantage over regional producers in supplying large national accounts with all
of their foam requirements.

The development and introduction of value added products continues to be a
priority of the Company and has included (i) Relex(TM) discussed below, (ii)
viscoelastic or "memory" foams for the bedding industry, which maintain their
resiliency better than other foams and materials and (iii) Latex Plus(TM), a
urethane-based replacement for latex, a material used in bedding products. One
of the Company's most recent product introductions is Reflex(TM) for the
cushioning and furniture industries which was created using the VPF(TM)
manufacturing process. Reflex(TM) materials, which include cushion wraps and
cushion cores, are advanced polymer cushioning products designed to improve
comfort, quality and durability.

6
<PAGE>

The Company's cushioning foams for bedding products are sold to mattress
customers, such as Sealy, Simmons, Serta, and Spring Air Company, both directly
and indirectly through independent fabrication operations located across the
United States. The Company also sells cushioning foam for use in a number of
other markets.

Furniture Foams

The Company manufactures and sells flexible polyurethane foam and polyester
fiber to furniture manufacturers both directly and indirectly through
independent fabrication operations. These foams are used by the furniture
industry for seating products. These foams are generally sold in large volumes
on a regional basis because of high shipping costs. Due to its size and the
strategic location of its production facilities, the Company believes it will
continue to have an advantage over regional producers in supplying large
national accounts with all of their foam requirements.

The development and introduction of value added products continues to be a
priority of the Company and has included Reflex(TM) materials, which include
cushion wraps and cushion cores, are advanced polymer cushioning products
designed to improve comfort, quality and durability in upholstered furniture.

The Company supplies cut-to-size seat cushions, back and other pieces to
the furniture industry, including to Berkline, Action, and Schnadig. The use of
these foams also include packaging materials for products such as computer and
electronic components and applications in certain sporting good products and in
recreational vehicles.

Automotive Foams

The Company is one of the largest suppliers of foam requirements for the
North American operations of automotive manufacturers. Depending on the
automotive manufacturer and/or the application, foam is supplied by the Company
either directly to the manufacturer or indirectly through sub-suppliers.
Automotive foams are used for trim pads, door panel parts, headliners,
acoustical purposes, flame and adhesive laminates and rolls for tri-lamination.
Tri-laminated foam is applied to automotive fabrics to form a foam/fabric
composite that results in cost savings and aesthetic value for the automotive
manufacturer.

The domestic automotive manufacturers have narrowed their supply base
during recent years, increasing the percentage and dollar amount of components
that they purchase from outside suppliers. As a result, a smaller number of
companies are supplying an increasing percentage of these manufacturers' needs.
The Company believes it has benefited from this trend, which favors suppliers
with quality facilities and products, cost efficient plants, long-standing
relationships, strong design, technical and product development support and
broad product lines. Also, automotive suppliers are increasingly offering
integrated systems which lower the overall cost and improve quality relative to
previous sourcing methods in which individually sourced components were
assembled and installed.

The Company has a strategic alliance with Recticel, s.a. ("Recticel") to
design, manufacture and market polyurethane products for the automotive industry
in order to meet the worldwide requirements of automotive manufacturers and
major tier one suppliers such as Lear Corporation, Johnson Controls, Inc., and
Delphi Interiors and Lighting. Under this alliance, both companies will jointly
supply the automotive suppliers, with products manufactured in North America by
the Company and in Europe by Recticel.

The Company's new product development and flexible manufacturing
capabilities allow it to produce quality products to satisfy changing
specifications. Examples of the Company's ability to react to changing industry
requirements include thermoformable headliners, tri-laminates, advanced cutting
technology and energy absorbing foams. For example, the Company is one of the
first suppliers to introduce a thermoformable headliner, Customfit(TM), made
from rigid polyurethane foam. Also, the Company intends to continue
manufacturing and supplying foam and fabric components, such as tri-laminated
material for automotive seating. The use of tri-laminates has become
increasingly prevalent due to significant cost savings for manufacturers and
improved aesthetics for consumers.

7
<PAGE>

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

Specialty and Technical Foams

Specialty and technical foams consist of reticulated foams and other custom
polyester and polyether foams, which are sometimes combined with other materials
to yield specific properties. Reticulation is the thermal or chemical process
used to remove the membranes from the interconnecting cells within foam. This
leaves a porous, skeletal structure allowing for the free flow of gases and/or
liquids.

Reticulated foams are well suited for filtration, reservoiring, sound
absorption and sound transmission. Industrial applications include carburetors,
computer cabinets, ink pad reservoirs, high speed inkjet printers and speaker
grills. Medical applications include oxygenators for cardiopulmonary surgery,
instrument holders for sterilization, pre-op scrubbers impregnated with
anti-microbial agents and EKG pads containing conductive gels. Other specialty
and technical foams have unique characteristics such as flame retardancy and
fluid absorption. In addition, felting and lamination with other foams or
materials give these composites specific properties. Additional products sold
within this group include foams for refrigerated supermarket produce counters,
mop heads, paint brushes, diapers and cosmetic applications.

Consumer Products

The Company sells flexible polyurethane foam and polyester fiber for use in
therapeutic sleep products such as mattress pads and bed pillows, which are
manufactured for the health care and consumer markets. The Company also
manufacturers and markets a broad line of home furnishing products to retailers
throughout the United States. The Company's home furnishing products include a
broad range of products such as leisure furniture, futon sofas, bean bag chairs,
floor pillows and pet beds.

Marketing and Sales

As of December 28, 1997, the Company has a marketing and sales force of
approximately 208 employees. The marketing and sales force are directed by an
executive vice president for each product category. The Company's relationships
with its customers allow the Company to work with customers during the design
phase for new products and new applications for existing products, thereby
increasing the likelihood that the Company will be a principal supplier for
these products.

The Company's carpet cushion marketing program includes the broad
distribution of products to both the retail and wholesale levels. Furthermore,
promotions, marketing and advertising expenditures are important in positioning
the Company's carpet cushion as a premium, trade branded product.

Cushioning foams and furniture foams are primarily sold directly to
customers and also through third party independent fabricators. Plant locations
are critical in this regionalized line of business where the transportation cost
typically comprises a significant portion of product cost.

Automotive foam products are predominantly sold directly through a bidding
process in which each customer's requirements for a particular time period are
awarded to a foam supplier. The Company has consistently been awarded contracts
with manufacturers and major tier one suppliers such as Lear Corporation,
Johnson Controls, Inc., and Delphi Interiors and Lighting.

8
<PAGE>

The Company markets most of its specialty and technical foams through a
network of independent fabrication and distribution companies in North America,
the United Kingdom, and South Korea. Such fabricators or distributors often
further process or finish these products to meet the specific needs of the
end-user. The Company utilizes advertising in trade journals and related media
in order to attract customers and, more generally, to create an awareness of its
capabilities for specialty and technical foams. In addition, due to the highly
specialized nature of most specialty and technical foams, the Company's research
staff works with customers to design, develop and manufacture each product to
specification.

The Company's consumer products sales efforts are primarily regionally
based with each salesperson selling to local accounts. The Company sells its
consumers products to major retailers throughout the United States including
Wal-Mart.

Customers

During the past three fiscal years, no one customer accounted for more than
10.0% of the Company's net sales.

Raw Materials

The Company's primary raw material manufacturing cost consists of two
principal chemicals (i) toluene diisocyanate ("TDI") and (ii) polyol. The
Company's largest suppliers of these raw materials are The Dow Chemical Company,
Arco Chemical, and BASF. The Company generally has alternative chemical
suppliers for each major raw material and the Company believes that it could
find alternative sources of supply should it cease doing business with any one
of its major suppliers. The price of TDI and polyol is influenced by demand,
manufacturing capacity and oil and natural gas prices.

The Company's principal suppliers of raw materials used in the
manufacturing of foam increased the price of raw materials several times over
the past several years. In response, the Company increases selling prices, where
possible. (See "Management Discussion and Analysis of Financial Condition and
Results of Operations"). The Company is unaware of any significant price
increases in the near future; however, there can be no assurance that chemical
suppliers will not increase raw material costs in the future or that the Company
will be able to implement selling price increases to offset any such raw
material cost increases.

Manufacturing

The Company is committed to the highest quality standards for its products,
a standard maintained in part by continuous improvements to its production
processes and upgrades and investments to its manufacturing equipment. The
Company maintains quality assurance and testing equipment to ensure the
manufactured products will consistently meet customer quality requirements.

As of December 28, 1997, the Company manufactured and/or fabricated foam
products at 61 locations in North America with a total of approximately 8.4
million square feet of floor space (excluding 16 locations with 2.6 million
square feet of floor space that are planned to close in connection with the
restructuring/consolidation plan). Management believes that the Company's
manufacturing facilities are well suited for their intended purposes and are in
good condition (see "Properties"). The manufacturing facilities are
strategically located to service their major customers since high freight cost
in relation to the cost of the foam product generally results in distribution
being most cost effective within 200 to 300 miles from each facility.

Automotive manufacturers are increasingly requiring the production
facilities of their suppliers to meet certain high quality standards. For
example, all tier one and tier two automotive supplier facilities worldwide will
eventually be required to meet the QS-9000 quality manufacturing standards set
by United States automotive manufacturers. In 1996, the Company completed
QS-9000 and ISO-9001 certification for its eight facilities which supply the
automotive industry. The Company was one of the first polyurethane manufacturers
to be QS-9000

9
<PAGE>

certified which demonstrates its commitment to producing the highest quality
products and meeting the needs of its customers.

The Company is subject to extensive and changing environmental laws and
regulations. See "Legal Proceedings -- Environmental Matters" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Environmental Matters."

Employees

As of December 28, 1997, the Company employed 6,414 persons, with 5,704 of
such employees involved in manufacturing, 502 in administration and 208 involved
in sales and marketing (including 640 position that are being eliminated as part
of the restructuring/consolidation plan). Approximately 1,095 of these employees
are located outside the United States. Also, approximately 1,450 of these
employees are covered by collective bargaining agreements with labor unions,
which agreements expire on various dates from 1998 through 2001. The Company
considers relations with its employees to be good.

Competition

The flexible polyurethane foam industry is highly competitive. With respect
to flexible polyurethane foam, competition is based primarily on price, quality
of products and service. The Company's larger competitors in the polyurethane
foam industry include E. R. Carpenter Company, Hickory Springs Manufacturing
Company, Vitafoam, Inc., General Foam Corporation, Flexible Foam Products, Inc.,
and Crest Foam Industries, Inc. None of such competitors compete in all of the
product categories in which the Company does business.

International and Domestic Operations and Export Sales

The Company has manufacturing operations in the United States, Canada, and
Mexico. Net sales to customers in foreign markets in 1997, 1996 and 1995 were
$85.0 million (9.1% of net sales), $76.0 million (8.2% of net sales) and $73.3
million (8.5% of net sales), respectively.

Patents and Trademarks

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

Research and Development

The Company believes it has a leading research and development capability
in the flexible polyurethane foam industry. This capability gives the Company a
significant advantage in the on-going development of new products and new
applications for existing products. The Company's primary research and
development facility is located in Eddystone, Pennsylvania. The Company employs
approximately 35 full-time research and development employees. Expenditures for
research and development amounted to $2.4 million, $2.5 million and $3.2 million
for 1997, 1996 and 1995, respectively, excluding expenditures by Crain for
research and development prior to the Crain Acquisition.

The Company and Recticel, have exchanged know-how, trade secrets,
engineering and other data, designs, specifications, chemical formulations,
technical information, market information and drawings which are necessary or
useful for the manufacture, use or sale of foam products and it is anticipated
that they will continue to do so in the future. The Company, Recticel, and
Beamech Group Limited, an unaffiliated third party

<PAGE>

("Beamech"), have an interest in a Swiss corporation that develops new
manufacturing technology for the production of polyurethane foam including the
VPFJ manufacturing process. The Company, Recticel, and their affiliates have a
royalty-free license to use technology developed by the Swiss corporation.

ITEM 2. PROPERTIES

As of December 28, 1997, the Company conducted its operations at 67
manufacturing and distribution facilities which includes 22 facilities that were
acquired on December 23, 1997 in connection with the Crain Acquisition,
excluding 22 facilities that will be closed in connection with the various
restructuring/consolidation plan. As of December 28, 1997, 19 of these
facilities were owned and 48 were leased. Total floor space in use at the owned
manufacturing and distribution facilities is approximately 3.4 million square
feet and total floor space in use at the leased manufacturing and distribution
facilities is approximately 5.1 million square feet. Fifty-nine of these
facilities are located in thirty-nine cities in the United States, five
facilities are located in two cities in Canada and three facilities are located
in three cities in Mexico. The 1998 annual base rental with respect to such
leased facilities is approximately $8.7 million under leases expiring from 1998
to 2007. The Company does not anticipate any problem in renewing or replacing
any of such leases expiring in 1998. In addition, the Company has approximately
1.0 million square feet of idle space of which approximately 0.2 million is
leased.

The Company maintains administrative and sales offices in Linwood,
Pennsylvania; St. Louis, Missouri; Chicago, Illinois; Southfield, Michigan;
Atlanta, Georgia; and New York, New York.

ITEM 3. LEGAL PROCEEDINGS

Environmental Matters

The Company is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1997, expenditures in connection with the
Company's compliance with federal, state, local and foreign environmental laws
and regulations did not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position. As
of December 28, 1997, the Company has environmental accruals of approximately
$9.3 million for environmental matters. In addition, as of December 28, 1997,
the Company has receivables of approximately $1.1 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. The Company believes that realization of the net
receivables established for indemnification is probable.

The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air pollutants
including methylene chloride, propylene oxide and TDI, materials used in the
manufacturing of foam. On December 27, 1996, the United States Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that will require manufacturers of slab stock polyurethane foam and foam
fabrication plants to reduce emissions of methylene chloride. Because these
regulations are subject to change prior to finalization, the Company cannot
accurately predict the actual cost of their implementation. The Company does not
believe implementation of the regulations will require it to make material
expenditures at facilities owned prior to December 23, 1997, due to the
Company's use of alternative technologies which does not utilize methylene
chloride and its ability to shift current production to the facilities which use
these alternative technologies; however, material expenditures may be required
at the facilities formerly operated by Crain. The 1990 CAA Amendments also may
result in the imposition of additional standards regulating air emissions from
polyurethane foam manufacturers, but these standards have not yet been proposed
or promulgated.

In addition to general regulatory requirements, state laws have resulted or
will result in more stringent regulations regarding the use and emission of
methylene chloride. Several former Crain facilities have been

<PAGE>

required to meet greater state restrictions regarding emission limits and/or
quantities used of this chemical. For example, in California, methylene chloride
usage was phased out at the end of 1995, while in Kent, Washington, and Easton,
Pennsylvania, the former Crain facilities, pursuant to consent decrees as well
as applicable laws, must over a period of time phase out methylene chloride
usage. Through the development of the Enviro-Cure(R) process, which uses ambient
or refrigerated air to remove the heat of reaction during the foam curing
process, the Company anticipates that methylene chloride usage can be reduced by
up to 90 percent and, when used in conjunction with the Vertifoam(R) process,
completely. Crain has installed the Enviro-Cure(R) process at its manufacturing
facilities in Ft. Smith, Arkansas; Compton, California; San Leandro, California;
Elkhart, Indiana; Tupelo, Mississippi; and Conover, North Carolina. Where
regulations require the elimination of methyl-chloroform and methylene chloride,
Crain has installed a CARDIO(R) system, which eliminates the use of
methyl-chloroform. During 1996, Crain installed the CARDIO(R) system at its
Compton, California; Easton, Pennsylvania; and Kent, Washington plants. However,
see "Legal Proceedings" below.

The Company has reported to appropriate state authorities that it has found
soil contamination in excess of state standards at facilities in Orlando,
Florida; La Porte, Indiana; Conover, North Carolina; Cornelius, North Carolina;
Fort Wayne, Indiana; Philadelphia, Pennsylvania; and at a former facility in
Dallas, Texas and groundwater contamination in excess of state standards at the
Orlando, Conover, Philadelphia, and Cornelius facilities. The Company has begun
remediation and is conducting further investigations into the extent of the
contamination at these facilities and, accordingly, the extent of the
remediation that may ultimately be required. The actual cost and the timetable
of any such remediation cannot be predicted with any degree of certainty at this
time. The Company, based on engineering estimates of the remaining potential
remediation costs for these facilities, has accruals of $8.7 million for the
estimated cost of completing remediation and established a net receivable of
$1.1 million on the basis of indemnifications by Trace Holdings and Recticel
Foam Corporation ("RFC") associated with the partnership formation of Foamex
L.P. The Company has completed remediation of soil contamination at a former
Trenton, New Jersey manufacturing facility closed in October 1993 and is
awaiting final closure approvals from the New Jersey Department of Environmental
Protection regarding the remediation of soil contamination and monitoring of
groundwater at the former Trenton facility. Also, the Company has completed
remediation at its Mesquite, Texas facility and is awaiting a certificate of
completion under the Texas Voluntary Clean-Up Program.

Federal regulations require that by the end of 1998 all underground storage
tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. The Company has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. The
Company has accrued $0.1 million for the estimated removal and remediation
costs, if any, associated with these USTs. However, the full extent of
contamination, and accordingly, the actual cost of such remediation, including
at the former Crain facilities, cannot be predicted with any degree of certainty
at this time. The Company believes that its USTs do not pose a significant risk
of environmental liability because of its monitoring practices for USTs and
conditional approval for the permanent in-place closure for certain USTs.
However, there can be no assurances that such USTs will not result in
significant environmental liability in the future.

On April 10, 1997, the Occupational Health and Safety Administration
promulgated new standards governing employee exposure to methylene chloride,
which is used as a blowing agent in some of the Company's manufacturing
processes. The Company does not believe that it will be required to make any
material expenditures at facilities owned prior to December 23, 1997 to comply
with these new standards due to its use of alternative technologies which does
not use methylene chloride and its ability to shift production to facilities
which use these technologies; however, material expenditures may be required at
the facilities formerly operated by Crain.

The Company has been designated as a Potentially Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites with an estimated total liability to the Company for the thirteen
sites of less than approximately $0.5 million. Estimates of total clean-up costs
and fractional allocations of liability are generally provided by the EPA or the
committee of PRP's with respect to the specified site. In each case, the
participation of the Company is considered to be immaterial.

12
<PAGE>

On May 5, 1997, there was an accidental spill at one of the Company's
manufacturing facilities. The spill was contained on site and cleaned-up for an
approximate cost of $0.6 million. Although it is possible that new information
or future developments could require the Company to reassess its potential
exposure relating to all pending environmental matters, including those
described herein, management believes that, based upon all currently available
information, the resolution of such environmental matters will not have a
material adverse effect on the Company's operations, financial position, capital
expenditures or competitive position. The possibility exists, however, that new
environmental legislation and/or environmental regulations may be adopted, or
other environmental conditions may be found to exist, that may require
expenditures not currently anticipated and that may be material.

Legal Proceedings

Although breast implants do not contain foam, certain silicone gel implants
were produced using a polyurethane foam covering fabricated by independent
distributors or fabricators from bulk foam purchased from the Company or Trace
Holdings. Neither the Company nor Trace Holdings recommended, authorized, or
approved the use of its foam for these purposes. The Company is also indemnified
by Trace Holdings for any such liabilities relating to foam manufactured prior
to October 1990. Although Trace Holdings has paid the Company's litigation
expenses to date pursuant to such indemnification and management believes Trace
Holdings likely will be in a position to continue to pay such expenses, there
can be no absolute assurance that Trace Holdings will be able to provide such
indemnification. While it is not feasible to predict or determine the outcome of
these actions, based on management's present assessment of the merits of pending
claims, after consultation with the general counsel of Trace Holdings, and
without taking into account indemnification provided by Trace Holdings, the
coverage provided by Trace Holdings and the Company's liability insurance and
potential indemnity from the manufacturers of polyurethane covered breast
implants, management believes that the disposition of matters that are pending
or that may reasonably be anticipated to be asserted should not have a material
adverse effect on either the Company's or Trace Holdings' consolidated financial
position or results of operations. If management's assessment of the Company's
liability with respect to these actions is incorrect, such actions could have a
material adverse effect on the Company.

In November 1997, a complaint was filed in the United States District Court
for the Southern District of Texas alleging that various defendants, including
Crain through the use of the CARDIO(R) process licensed from a third party,
infringed on a patent held by plaintiff. The Company is negotiating with the
licensor of the process for the assumption of the defense of the action by the
licensor; however, the action is in the preliminary stages, and there can be no
assurance as to the ultimate outcome of the action.

On or about March 17, 1998, five purported class action lawsuits were filed
in the Delaware Chancery Court, New Castle County, against the Company,
directors of the Company, Trace Holdings, and individual officers and directors
of Trace Holdings:

Brickell Partners v. Marshall S. Cogan, et al., No. 16260NC;
Mimona Capital v. Salvatore J. Bonanno, et al., No. 16259NC;
Daniel Cohen v. Foamex International Inc., No. 16263;
Eileen Karisinki v. Foamex International Inc., et al., No. 16261NC and

<PAGE>

John E. Funky Trust v. Salvatore J. Bonanno, et al., No. 16267.

A sixth purported class action lawsuit, Barnett Stepak v. Foamex
International Inc., et al., No. 16277, was filed on or about March 23, 1998
against the same defendants. The complaints in the six actions allege, among
other things, that the defendants have violated fiduciary and other common law
duties purportedly owned to the Company's shareholders in connection with the
Trace Holdings proposal to acquire all of the shares of the Company's common
stock. The complaints seek, among other things, class certification, a
declaration that the defendants have breached their fiduciary duties to the
class, preliminary and permanent injunctions baring implementation of the
proposed transaction, rescission of the transaction if consummated, unspecified
compensatory damages, and costs and attorneys' fees.

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

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

None

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

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

On March 16, 1998, the Company announced that its Board of Directors
received an unsolicited buyout proposal from Trace Holdings, the Company's
principal stockholder. Trace Holdings proposed to acquire all of the outstanding
common stock of the Company not currently owned by Trace Holdings and its
subsidiaries for a cash price of $17.00 per share. Also, Trace Holdings informed
the Board of Directors that financing for the buyout transaction would be
arranged through Donaldson, Lufkin & Jenrette Securities Corporation and The
Bank of Nova Scotia/Scotia Capital Markets. As of March 16, 1998, Trace Holdings
and its subsidiaries beneficially owned approximately 11,475,000 shares or
approximately 46% of the outstanding common stock of the Company. In response to
Trace Holding's offer, the Company's Board of Directors has appointed a special
committee to determine the advisability and fairness of the proposed buyout to
the Company's stockholders other than Trace Holdings and its subsidiaries. Trace
Holding's proposed buyout is subject to a number of conditions, including the
negotiations of definitive documents (which are expected to contain customary
closing conditions); the filing of a disclosure statement and other documents
with the Securities and Exchange Commission; regulatory filings; and approval of
the transaction by a majority of the Company's stockholders.

The following table sets forth the high and low bid prices for the common
stock on the NMS based on information supplied by NASDAQ.

High Low
1998
Quarter Ended March 29, 1998 18 3/8 10 7/8

1997
Quarter Ended December 28, 1997 14 3/4 9 3/8
Quarter Ended September 28, 1997 15 1/4 9 1/2
Quarter Ended June 29, 1997 15 7/8 12
Quarter Ended March 30, 1997 22 1/8 15

<PAGE>

High Low

1996
Quarter Ended December 29, 1996 17 5/8 12 5/8
Quarter Ended September 29, 1996 16 7/8 11 1/4
Quarter Ended June 30, 1996 12 7/8 9
Quarter Ended March 31, 1996 9 7/8 6 3/8

As of April 6, 1998, there were approximately 200 holders of record of the
common stock.

In December 1997, the Board of Directors approved a dividend of $0.05 per
share for holders of record as of January 9, 1998; and was paid on January 19,
1998. This was the only cash dividend paid by the Company on its common stock
during the past two fiscal years. The payment of any future dividends will be
determined by the Board of Directors in light of conditions then existing,
including the Company's earnings, financial condition and requirements,
restrictions in financing agreements, business conditions and other factors. The
Company is a holding company whose assets consist primarily of its wholly-owned
subsidiaries Foamex L.P. and Foamex Carpet. Consequently, the Company's ability
to pay dividends is dependent upon the earnings of Foamex L.P. and Foamex Carpet
and any future subsidiaries of the Company and the distribution of those
earnings to the Company and loans or advances by Foamex L.P., Foamex Carpet and
any such future subsidiaries of the Company. The ability of Foamex L.P. and
Foamex Carpet to make distributions is restricted by the terms of their
respective financing agreements. Due to such restrictions, the Company is not
expected to have access to the cash flow generated by Foamex L.P. and Foamex
Carpet for the foreseeable future.

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

The following table presents selected historical consolidated financial
data of the Company. The results of operations of acquired businesses (as noted
below) are included from the dates of their respective acquisitions. The
financial data should be read in conjunction with the financial statements and
related notes thereto of the Company included elsewhere in this Annual Report on
Form 10-K.

<TABLE>
<CAPTION>
Fiscal Year (1) (2)
1997 (3) 1996 (4) 1995 (5) 1994 1993 (6)
(thousands except for earnings per share)
<S> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net sales $931,095 $926,351 $862,834 $833,660 $684,310
Income (loss) from continuing
operations 4,131 32,492 (50,750) 22,211 (5,440)
Basic earnings per share from
continuing operations (7) (8) 0.16 1.28 1.92 0.83 -
Diluted earnings per share from
continuing operations (7) (8) 0.16 1.26 1.92 0.83 -

Balance Sheet Data (at period end):
Total assets $898,623 $619,846 $748,242 $786,895 $612,124
Long-term debt 735,724 483,344 514,954 502,980 414,445
Stockholders' equity (deficit) (113,419) (58,103) 29,383 92,145 64,306
<FN>
(1) The Company has a 52 or 53 week fiscal year ending on the Sunday closest to
the end of the calendar year. Each fiscal year presented was comprised of
52 weeks.

(2) Fiscal years 1993 through 1995 were restated for discontinued operations.

15
<PAGE>

(3) The Statements of Operations Data includes restructuring and other charges
of $21.1 million (see Note 4 to the consolidated financial statements), but
does not include the results of operations of Crain which was acquired
December 23, 1997 since the effect is insignificant. The Balance Sheet Data
includes the estimated fair value of the net assets acquired in the Crain
Acquisition.

(4) Includes restructuring credits of $6.5 million (see Note 4 to the
consolidated financial statements).

(5) Includes restructuring and other charges of $41.4 million (see Note 4 to
the consolidated financial statements).

(6) Includes the results of operations of General Felt and Great Western Foam
Products Corporation from March 23, 1993 and May 1, 1993, respectively, and
thus may not be comparable to other periods.

(7) In December 1993, the Company completed an initial public offering of
common stock, therefore, earnings (loss) per share for 1993 is not
applicable.

(8) As of December 28, 1997, the Company adopted SFAS 128 "Earnings Per Share"
and has restated all prior periods presented.
</FN>
</TABLE>

16
<PAGE>

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

The Company operates in the flexible polyurethane foam and foam products
industry. The following discussion should be read in conjunction with the
consolidated financial statements and related notes thereto of the Company
included in this Annual Report to Form 10-K.

The Company is the largest manufacturer and distributor of flexible
polyurethane and advanced polymer foam products in North America. During 1997,
1996 and 1995, the Company's products were utilized primarily in five
end-markets; (i) carpet cushion and other carpet products, (ii) cushioning
foams, including bedding products, (iii) furniture products for furniture
manufacturers and distributors, (iv) automotive applications, including trim and
accessories, and (v) specialty and technical applications, including those for
filtration, gasketing and sealing. As a result of the Crain Acquisition, the
Company has added a sixth end market: consumer products. The Company has
recently refocused its business on the flexible polyurethane and advanced
polymer foam business by the Crain Acquisition in December 1997 and the
divesting of non-foam business segments. Management believes that a focus in the
foam business will allow the Company to concentrate management, financial and
operational resources and will position the Company to pursue its growth
strategy of developing new products, improving profitability and expanding
internationally.

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

<PAGE>

control. Foamex Carpet will conduct the carpet cushion business previously
conducted by General Felt. Also, Trace Foam LLC has retained ownership of one of
General Felt's operating facilities which is being leased to Foamex Carpet and
the $34.0 million Foamex/GFI Note.

On December 23, 1997, the Company acquired Crain Industries, Inc. ("Crain")
pursuant to a merger agreement with Crain Holdings Corp. for a purchase price of
approximately $213.7 million, including the assumption of debt with a face value
of approximately $98.6 million (and an estimated fair value of approximately
$112.3 million) (the "Crain Acquisition"). In addition, fees and expenses
associated with the Crain Acquisition are approximately $13.2 million. The Crain
Acquisition provided a fully integrated manufacturer, fabricator and distributor
of a broad range of flexible polyurethane foam and foam products which are sold
to a diverse customer base, principally in the furniture, bedding and carpet
cushion markets. Management believes that the Crain Acquisition (i) strengthens
the Company's market position as the leading North American producer of foam
products, (ii) offers increased penetration in the Company's existing product
lines and adds complementary product lines such as consumer products, (iii)
strengthens the Company's operations geographically, (iv) provides several
proprietary foam-producing processes which serve to lower overall production
costs and are environmentally friendly, and (v) offers opportunities for
significant overhead cost reductions and purchasing and freight cost
efficiencies. In connection with the Crain Acquisition, the Company approved a
restructuring/consolidation plan for the two entities. The Company recorded
restructuring charges of $21.1 million relating to the restructuring of the
Company's operations in connection with the Crain Acquisition and related
transactions. In addition, the Company recorded approximately $1.5 million of
severance and related costs and $8.5 million for costs associated with the shut
down and consolidation of certain acquired facilities.

On October 6, 1997, the Company sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997. The Company used the net proceeds of the sale to
reduce borrowings under the Credit Facility by approximately $38.8 million. The
Company incurred an extraordinary loss on early extinguishment of debt of
approximately $0.6 million (net of income taxes).

On June 12, 1997, the Company substantially completed a refinancing plan
(the "Refinancing Plan") designed to reduce the Company's interest expense and
increase its financing flexibility. The Refinancing Plan included a tender offer
to purchase $489.7 million of the Company's public debt, the payment of $5.2
million of Foamex L.P.'s term loan borrowings under an existing credit facility
and the payment of related fees and expenses. In addition, the tender offer
included amending the existing indentures to remove substantially all of the
restrictive covenants. The Company purchased $459.0 million of public debt under
the tender offer and incurred an extraordinary loss on the early extinguishment
of debt of approximately $42.0 million (net of income tax benefits of $25.7
million). The Refinancing Plan was funded by $347.0 million of borrowings under
a new credit facility (the "Credit Facility") and the net proceeds from the
issuance of $150.0 million principal amount of senior subordinated notes. As a
result of the Refinancing Plan, the Company's total long-term debt increased by
$63.9 million. The Company expects the Refinancing Plan to result in decreased
interest expense as compared to the debt structure prior to the Refinancing
Plan, assuming no material change in interest rates. The Company's future
interest expense will vary based on a variety of factors, including fluctuations
in interest rates in general. As a result of the Refinancing Plan, variable rate
debt comprised a larger percentage of the Company's overall indebtedness than in
the past, and as a result, future fluctuations in interest rates will have a
greater impact on the Company's interest expense than in the past.

<PAGE>

During 1996, the Company sold Perfect Fit Industries, Inc. ("Perfect Fit")
and JPS Automotive L.P. ("JPS Automotive") which comprised the home comfort
products and automotive textile business segments, respectively, of the Company.
The consolidated financial statements of the Company were restated for
discontinued operations and includes a net loss of $113.9 million (net of $34.9
million income tax benefit) on the disposal of these business segments, which
includes provisions for operating losses during the phase-out period. (See Note
9 to the consolidated financial statements for further discussion).

The Company's automotive foam customers are predominantly automotive
original equipment manufacturers or other automotive suppliers. As such, the
sales of these product lines are directly related to the overall level of
passenger car and light truck production in North America. Also, the Company's
sales are sensitive to sales of new and existing homes, changes in personal
disposable income and seasonality. The Company typically experiences two
seasonally slow periods during each year, in early July and in late December,
due to scheduled plant shutdowns and holidays.

Operating results for 1998 are expected to be influenced by various
internal and external factors. These factors include, among other things, (i)
consolidation of the Crain Acquisition, (ii) continued implementation of the
continuous improvement program to improve the Company's profitability, (iii)
additional raw material cost increases, if any, by the Company's chemical
suppliers, (iv) the Company's success in passing on to its customers selling
price increases to recover such raw material cost increases and (v) fluctuations
in interest rates.

RESULTS OF OPERATIONS

1997 Compared to 1996

Net sales for 1997 were $931.1 million as compared to $926.4 million in
1996, an increase of $4.7 million or 0.5%. Carpet cushion net sales for 1997
decreased 6.0% to $273.9 million from $291.3 million in 1996 primarily due to
(i) the sale in early October 1997 of a facility which manufactured needlepunch,
tufted carpeting, and artificial grass products which had net sales of
approximately $8.3 million in the fourth quarter of 1996, (ii) reduction in
rebond carpet cushion selling prices due to lower trim material costs, and (iii)
a shift in product mix from higher price carpet cushion to lower price carpet
cushion. Cushioning foam net sales for 1997 increased 6.2% to $225.0 million
from $211.9 million in 1996 primarily due to increased net sales volume from
both new and existing customers of bedding related products. Automotive foam net
sales for 1997 increased 1.0% to $234.2 million from $231.9 million in 1996
primarily due to increased selling prices for certain products initiated at the
beginning of 1997. Furniture net sales for 1997 were constant $121.7 million as
compared to $121.0 million for 1996. Specialty and technical foam net sales for
1997 increased 8.5% to $76.3 million from $70.3 million in 1996 primarily due to
increased net sales volume.

Gross profit as a percentage of net sales decreased to 15.4% for 1997 from
16.5% in 1996 primarily due to unfavorable impact of unrecovered raw material
cost increases, product mix change to lower margin products and the sale in
early October 1997 of a facility which manufactured needlepunch, tufted
carpeting and artificial grass products.

Income from operations was $55.1 million for 1997 as compared to $101.4
million in 1996. The decrease was primarily due to a decrease in gross profit
margins as discussed above, 1997 restructuring and other charges (credits) of
$21.1 million as compared to a restructuring credit of $6.5 million in 1996, and
an increase in selling, general and administrative expenses of $8.8 million for
1997 as compared to 1996. The 1997 restructuring and other charges related to
the restructuring of the Company's operations in connection with the Crain
Acquisition. The increase in selling, general and administrative expenses is the
result of increases in the provision for uncollectible accounts, employee
compensation and incentives, research and development costs, and travel and
promotion costs associated with the launching of new products and international
expansion.

Income from continuing operations was $4.1 million or $0.16 diluted
earnings per share for 1997 as compared to $32.5 million or $1.26 diluted
earnings per share in 1996. The decrease is primarily due to the reasons cited
above offset by an decrease in interest and debt issuance expense of $3.3
million. The decrease in

<PAGE>

interest and debt issuance expense is primarily due to the favorable impact of
the 1997 Refinancing Plan.

The 1997 effective income tax rate for continuing operations was
approximately 38.0% as compared to 33.9% for 1996. The 1996 income taxes
included a net benefit of approximately $3.0 million associated with the
reversal of valuation allowances offset by the impact of permanent differences
and other matters. The reversal of the valuation allowances resulted from a
determination in 1996 that a subsidiary that files separate federal income tax
returns would more likely than not have sufficient taxable income to utilize its
net operating loss carryforwards and other deferred income tax assets as a
result of improved continuing operations which are expected to continue and its
divestiture of a subsidiary that historically incurred taxable losses.

The loss from discontinued operations of $2.0 million (net of $1.3 million
income tax benefit) in 1997 relates to the final post-closing settlement with
Collins & Aikman regarding the December 1996 sale of JPS Automotive. The loss
from discontinued operations of $114.5 million in 1996 relates to the net loss
on the 1996 sale of the home comfort products and automotive textile business
segments which consisted primarily of the net assets of Perfect Fit and JPS
Automotive, respectively, and the operating income (loss) of both entities
through their respective closing dates. See Note 9 to the consolidated financial
statements for further discussion.

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

1996 Compared to 1995

Net sales for 1996 were $926.4 million as compared to $862.8 million in
1995, an increase of $63.6 million or 7.4%. Carpet cushion net sales for 1996
increased 7.5% to $291.3 million from $271.0 million in 1995 primarily due to
increased selling prices initiated during the second quarter of 1996 as well as
increased volume of shipments due to improved carpet sales. Combined cushioning
foam and furniture foam net sales for 1996 increased 7.4% to $332.9 million from
$310.0 million in 1995 primarily due to increased net sales volume from both new
and existing customers of bedding related products, increased selling prices
initiated at the beginning of 1996 and a full year of results for a company
acquired in April 1995 which manufactures cushioning products. Automotive foam
net sales for 1996 increased 5.5% to $231.9 million from $219.8 million in 1995
primarily due to a continued increase in net sales of tri-laminates and
composite headliners and increased selling prices initiated at the beginning of
1996. Specialty and technical foam net sales for 1996 increased 13.4% to $70.3
million from $62.0 million in 1995 primarily due to increased selling prices and
increased net sales volume.

Gross profit as a percentage of net sales increased to 16.5% for 1996 from
11.7% in 1995 primarily due to selling price increases and improved material and
production efficiencies, which includes (i) selling price increases during 1996
to offset the adverse affect of the 1995 and 1994 raw material cost increases,
(ii) reductions in customer deductions for pricing disputes, promotional
programs and other matters and (iii) reductions in salaries and other overhead
costs associated with the implementation of the 1995 restructuring plan.

Income (loss) from operations was $101.4 million for 1996 as compared to a
loss from operations of $10.6 million in 1995. The increase was primarily due to
an increase in gross profit margins as discussed above, a decrease in
restructuring and other charges (credits) of $47.9 million and a decrease in
selling, general and administrative expenses of $11.6 million for 1996 as
compared to 1995. The decrease in restructuring and other charges (credits) is
comprised of the $41.4 million charge for restructuring and other charges in
1995 plus the net restructuring credit of $6.5 million in 1996. The 1996 net
restructuring credit is comprised of a $11.3 million credit due to the Company's
decision not to close a facility which was part of the 1995 restructuring plan
and $1.8 million of credits relating primarily to the favorable termination of
lease agreements and other matters relating to the 1995 restructuring plan,
offset by $6.6 million of restructuring charges relating to the 1996
restructuring plan which primarily consists of the closure of two facilities
during 1997. The decrease in selling, general and administrative expenses is the
result of reductions in the provision for uncollectible accounts of
approximately $3.9 million, salaries and employee costs of approximately $5.9
million and a reduction of approximately $2.0

20
<PAGE>

million in environmental accruals offset by increases in selling expenses
associated with the increased net sales volume.

Income from continuing operations was $32.5 million or $1.26 diluted per
share for 1996 as compared to a loss from continuing operations of $50.8 million
or $1.92 diluted loss per share in 1995. The increase is primarily due to the
reasons cited above and a decrease in the average weighted shares outstanding
resulting from the purchase of treasury stock offset by an increase in interest
and debt issuance expense of $1.0 million. The increase in interest and debt
issuance expense is primarily due to (i) the amount of interest allocated to
discontinued operations in 1996 as compared to 1995 (see Note 9 to the
consolidated financial statements) and (ii) an increase in the accretion of the
Foamex-JPS Automotive L.P. senior secured discount debentures offset by a $2.3
million increased benefit from interest rate swap agreements.

The 1996 effective income tax rate for continuing operations was
approximately 33.9% which included a net benefit of approximately $3.0 million
associated with the reversal of valuation allowances offset by the impact of
permanent differences and other matters. The reversal of the valuation
allowances resulted from a determination in 1996 that a subsidiary that files
separate federal income tax returns would more likely than not have sufficient
taxable income to utilize its net operating loss carryforwards and other
deferred income tax assets as a result of improved continuing operations which
are expected to continue and its divesture of a subsidiary that historically
incurred taxable losses.

The loss from discontinued operations of $114.5 million (net of $35.1
million income tax benefit) in 1996 relates to the net loss on the sale of the
home comfort products and automotive textile business segments which consisted
primarily of the net assets of Perfect Fit and JPS Automotive, respectively, and
the operating income (loss) of both entities through their respective closing
dates. See Note 9 to the consolidated financial statements for further
discussion.

The extraordinary loss on early extinguishment of debt of $1.1 million (net
of $0.8 million income tax benefit) primarily relates to the write-off of debt
issuance costs and redemption premiums associated with the early extinguishment
of $30.6 million of long-term debt. See Note 7 to the consolidated financial
statements for further discussion.

Liquidity and Capital Resources

Liquidity

The Company is a holding company whose operations, as a result of the
February 27, 1998 transactions, are conducted through two wholly-owed
subsidiaries, Foamex L.P. and Foamex Carpet. The liquidity requirements of the
Company consist primarily of the operating cash requirements of its two
principal subsidiaries. Prior to February 27, 1998, substantially all of the
Company's operations were conducted through Foamex L.P., which at the time was a
99% owned subsidiary, hence the discussion of historical trends of liquidity and
capital resources related primarily to Foamex L.P.

Foamex L.P.'s operating cash requirements consist principally of working
capital requirements, scheduled payments of principal and interest on
outstanding indebtedness and capital expenditures. The Company believes that
cash flow from Foamex L.P.'s operating activities, cash on hand and periodic
borrowings under the Credit Facility, if necessary, will be adequate to meet
Foamex L.P.'s liquidity requirements. The ability to meet such liquidity
requirements could be impaired if Foamex L.P. were to fail to comply with any
covenants contained in the Credit Facility and such noncompliance was not cured
by Foamex L.P. or waived by the lenders. Foamex L.P. was in compliance with the
covenants in the Credit Facility as of December 28, 1997 and the Company expects
Foamex L.P. to be in compliance with such covenants for the foreseeable future.
The ability of Foamex L.P. to make distributions to the Company is restricted by
the terms of its financing agreements; therefore, neither the Company nor Foamex
Carpet is expected to have access to the cash flow generated by Foamex L.P. for
the foreseeable future.

<PAGE>

Foamex Carpet's operating cash requirements consist principally of working
capital requirements, schedule payments of principal and interest on outstanding
indebtedness and capital expenditures. The Company believes that cash flow from
Foamex Carpet's operating activities, cash on hand and periodic borrowings under
Foamex Carpet's credit facility (the "Foamex Carpet Credit Facility"), if
necessary, will be adequate to meet Foamex Carpet's liquidity requirements. The
ability to meet such liquidity requirements could be impaired if Foamex Carpet
were to fail to comply with any covenants contained in the Foamex Carpet Credit
Facility and such noncompliance was not cured by Foamex Carpet or waived by the
lenders. The Company expects Foamex Carpet to be in compliance with such
covenants for the foreseeable future. The ability of Foamex Carpet to make
distributions to the Company is restricted by the terms of its financing
agreements; therefore, neither the Company nor Foamex L.P. is expected to have
access to the cash flow generated by Foamex Carpet for the foreseeable future.

Cash and cash equivalents decreased $10.2 million during 1997 to $12.0
million at December 28, 1997 from $22.2 million at December 29, 1996 primarily
due to the decrease in net cash provided by operating activities. Cash and cash
equivalents increased $18.9 million during 1996 to $22.2 million at December 29,
1996 from $3.3 million at December 31, 1995 primarily due to net sale proceeds
received from the sale of JPS Automotive and improved operating results, offset
by the increased use of cash and cash equivalents by the operating assets and
liabilities of the Company, capital expenditures, scheduled debt repayments and
the purchase of treasury stock. Working capital increased $1.9 million during
1997 to $138.5 million at December 28, 1997 from $136.6 million at December 29,
1996 primarily due to the increase in operating assets. Net operating assets and
liabilities (comprised of accounts receivable, inventories and accounts payable)
increased $21.4 million during 1997 to $164.3 million at December 28, 1997 from
$142.9 million at December 29, 1996 primarily due to increases in accounts
receivable and inventories offset by an increase in accounts payable. These
increases are primarily associated with the Crain Acquisition. Working capital
increased $45.0 million during 1996 to $136.6 million at December 29, 1996 from
$91.6 million at December 31, 1995 primarily due to improved operating results
and the net sale proceeds received from the sale of JPS Automotive offset by
working capital used for capital expenditures and purchases of treasury stock.
Net operating assets and liabilities (comprised of accounts receivable,
inventories and accounts payable) increased $19.9 million to $142.9 million at
December 29, 1996 as compared to $123.0 million at December 31, 1995. The
increase was primarily due to increases in accounts receivable and inventories
offset by an increase in accounts payable. The increases in accounts receivable
and inventories are primarily associated with the improved operating results of
the Company. In addition, raw material inventories increased due to increased
year end purchases associated with a potential cost increase that did not occur.
The increase in accounts payable is primarily associated with year end purchase
of raw material inventories. The Company's restructuring/consolidation plan
includes accruals of approximately $26.9 million of cash charges of which $15.6
million is expected to be paid during 1998.

As of December 28, 1997, there were $54.9 million of revolving credit
borrowings under the Credit Facility with unused availability of approximately
$73.9 million which includes approximately $16.0 million associated with letters
of credit outstanding which are supported by the Credit Facility. Borrowings by
Foamex Canada, Inc. as of December 28, 1997 were $3.6 million under Foamex
Canada Inc.'s revolving credit agreement with unused availability of
approximately $2.0 million at an interest rate of 6.50%.

Cash Flow from Operating Activities

Cash flow from continuing operations was $0.4 million, $41.3 million and
$25.5 million in 1997, 1996 and 1995, respectively. Cash flow from continuing
operations decreased in 1997 as compared to 1996 primarily as a result of the
use of approximately $44.0 million of cash for premiums and costs associated
with the debt extinguishment during 1997 offset by decreased cash used for
operating assets and liabilities. Cash flow from continuing operations increased
in 1996 as compared to 1995 primarily as a result of improved operating results
from continuing operations offset by an increased use of cash by the operating
assets and liabilities.

22
<PAGE>

Cash Flow from Investing Activities

From the beginning of 1995 through 1997, the Company spent approximately
$79.2 million on capital improvements. The expenditures included: (i)
installation of new variable pressure foaming technology ("VPFJ") in the Orange,
California facility; (ii) the construction of a facility in Mexico City, Mexico
to improve manufacturing efficiencies and to meet the growing local demand for
foam products; (iii) the expansion and modernization of a facility in Orlando,
Florida to improve manufacturing efficiencies, and (iv) installation of more
efficient foam production line systems and fabricating equipment in a number of
manufacturing facilities. The Company expects to increase capital expenditures
for the foreseeable future as a result of the Crain Acquisition and the
installation of VPFJ manufacturing process.

On December 23, 1997, the Company acquired Crain pursuant to a merger
agreement with Crain Holdings for a purchase price of approximately $213.7
million, including the assumption of debt with a face value of approximately
$98.6 million (and an estimated fair value of approximately $112.3 million). In
addition, fees and expenses associated with the Crain Acquisition are
approximately $13.2 million. The Crain Acquisition was primarily funded with
$118.0 million of bank borrowings under the Credit Facility.

On October 6, 1997, Foamex L.P. sold its needlepunch carpeting, tufted
carpeting and artificial grass products business, located in Dalton, Georgia to
Bretlin, Inc., a subsidiary of The Dixie Group, Inc. The sales price was
approximately $41.0 million, net of post-closing adjustments which were
finalized in December 1997.

During 1996, the Company received net sale proceeds of approximately $59.5
million in connection with the sale of Perfect Fit ($42.7 million) and the sale
of JPS Automotive ($16.8 million). The Perfect Fit sale was finalized in 1996
and the net sale proceeds were used to repurchase long-term debt and for the
payment of certain retained liabilities. The JPS Automotive sale price was
finalized in December 1997.

During 1995, the Company acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for an aggregate consideration of approximately $8.0 million,
including related fees and expenses of approximately $0.3 million, with an
initial cash payment of $7.2 million.

During 1994, the Company acquired Transformacion De Espumas Y Fieltros,
S.A. de C.V. ("TEFSA") which required the purchase price to be paid over a three
year period. During 1997, 1996 and 1995, the Company made scheduled cash
payments of approximately $0.8 million in each year in accordance with the
purchase agreement. The final payment was made in April 1997.

Cash Flow from Financing Activities

On June 12, 1997, the Company substantially completed the Refinancing Plan
designed to reduce the Company's interest expense and increase its financing
flexibility. The Refinancing Plan included a tender offer to purchase $489.7
million of the Company's public debt, the payment of $5.2 million of Foamex
L.P.'s term loan borrowings under an existing credit facility and the payment of
related fees and expenses. In addition, the tender offer included amending the
existing indentures to remove substantially all of the restrictive covenants.
The Company purchased $459.0 million of public debt under the tender offer and
incurred an extraordinary loss on the early extinguishment of debt of
approximately $42.0 million (net of income tax benefit of $25.7 million). The
Refinancing Plan was funded by $347.0 million of borrowings under the Credit
Facility and the net proceeds from the issuance of $150.0 million principal
amount of senior subordinated notes. As a result of the Refinancing Plan, the
Company's total long-term debt increased by $63.9 million. The Company expects
the Refinancing Plan to result in decreased interest expense as compared to the
debt structure prior to the Refinancing Plan, assuming no material changes in
interest rates. The Company's future interest expense will vary based on a
variety of factors, including fluctuations in interest rates in general. As a
result of the Refinancing Plan, variable rate debt comprised a larger percentage
of the Company's overall indebtedness than in the past, and as a result, future
fluctuations in interest rates will have a greater impact on the Company's
interest expense than in the past.

<PAGE>

On October 1, 1997, the Company redeemed approximately $26.2 million of the
approximately $30.7 million of the Company's outstanding public debt that was
not tendered as part of the Refinancing Plan. The redemption was funded with
borrowings under the Credit Facility. In connection with these redemptions, the
Company incurred an extraordinary loss on the early extinguishment of debt of
approximately $1.3 million (net of income tax). The remaining outstanding public
debt of $4.5 million that was not tendered as part of the Refinancing Plan was
defeased in February 1998.

During 1997 and 1996, the Company repurchased long-term debt of
approximately $42.4 million with the net proceeds from the sale of Perfect Fit.

During 1997, 1996 and 1995, the Company purchased shares of its common
stock, respectively, for an aggregate cost of $5.7 million, $6.3 million and
$7.2 million, respectively, under programs authorized by the Board of Directors
to purchase up to 3.0 million shares of the Company's common stock.

Interest Rate Swap Agreements

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

In connection with the Refinancing Plan, the Company's existing interest
rate swap agreements with a notional amount of $300.0 million were considered to
be effectively terminated since the underlying debt was extinguished. These
interest rate swap agreements had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreements, the Company entered into an amendment of the existing interest rate
swap agreements resulting in one interest rate swap agreement with a notional
amount of $150.0 million through June 2007. Accordingly, the $8.2 million fair
value liability has been recorded as a deferred credit which will be amortized
as a reduction in interest and debt issuance expense on a straight-line basis
through June 2007. On January 8, 1998, the Company entered into a new amendment
to its interest rate swap agreement. The new amendment provides for an interest
rate swap agreement with a notional amount of $150.0 million through June 2002.
Under the new amendment, the Company is obligated to make fixed payments of
5.78% per annum through December 1998 and variable payments based on LIBOR at
the beginning of each six month period for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 6.44% per annum for the life
of the agreement, payable semiannually in arrears. The newly amended interest
rate swap agreement can be terminated by the swap partner at the end of each six
month period commencing December 1999.

The Company is exposed to credit loss in the event of a nonperformance by
the swap partner; however, the occurrence of this event is not anticipated. The
effect of interest rate swaps was a favorable adjustment to interest and debt
issuance expense of $2.2 million, $3.7 million and $1.4 million for 1997, 1996
and 1995, respectively.

Environmental Matters

The Company is subject to extensive and changing environmental laws and
regulations. Expenditures to date in connection with the Company's compliance
with such laws and regulations did not have a material adverse effect on
operations, financial position, capital expenditures or competitive position.
The amount of liabilities recorded by the Company in connection with
environmental matters as of December 28, 1997 was $9.3 million. In addition, as
of December 28, 1997, the Company has net receivables of approximately $1.1
million for indemnification of environmental liabilities from former owners, net
of approximately $1.0 million allowance

<PAGE>

relating to potential disagreements regarding the scope of the indemnification.
Although it is possible that new information or future developments could
require the Company to reassess its potential exposure to all pending
environmental matters, including those described in the footnotes to the
Company's consolidated financial statements, management believes that, based
upon all currently available information, the resolution of all such pending
environmental matters will not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position.

Inflation and Other Matters

There was no significant impact on the Company's operations as a result of
inflation during the prior three year period. See "Results of Operations" for a
discussion of the impact of raw material price increases. In some circumstances,
market conditions or customer expectations may prevent the Company from
increasing the price of its products to offset the inflationary pressures that
may increase its costs in the future.

The Company has and will continue to make certain investments in its
software systems and applications to ensure the Company is Year 2000 compliant.
The Company plans to continue to make modifications to the identified software
during 1998 and test the changes during 1998. The financial impact to the
Company has not been and is not anticipated to be material to its financial
position or results of operation in any given year.

New Standards

Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings Per Share," was issued by the Financial Accounting Standards Board in
February 1997. The Company adopted SFAS No. 128 effective with the 1997
financial statements.

Statement of Financial Accounting Standards No. 130 ("SFAS No. 130"),
"Reporting Comprehensive Income," was issued by the Financial Accounting
Standards Board in June 1997. This statements requires all items that must be
recognized under accounting standards as components of comprehensive income to
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company will adopt SFAS No. 130 for 1998.

Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"),
"Disclosures about Segments of an Enterprise and Restated Information," was
issued by the Financial Accounting Standards Board in June 1997. This statement
establishes standards for reporting information about operating segments in
annual financial statements and requires reporting of selected financial
information about operating segments in interim financial reports issued to
stockholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company will
adopt SFAS No. 131 for year ended 1998 reporting. Management is evaluating the
impact, if any, the standard will have on the Company's present segment
reporting.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

An index to the financial statements and the required financial statement
schedules is set forth in Item 14.

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

Not applicable.

PART III

The information required by this Part III (Items 10, 11, 12 and 13) shall
be contained in an amendment to this Form 10-K to be filed by April 27, 1998.

25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Financial statements

Foamex International Inc. and Subsidiaries:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 28, 1997
and December 29, 1996 F-3
Consolidated Statements of Operations for the years
ended 1997, 1996, and 1995 F-5
Consolidated Statements of Cash Flows for the years
ended 1997, 1996, and 1995 F-6
Consolidated Statements of Stockholders' Equity (Deficit)
for the years ended 1997, 1996, and 1995 F-7
Notes to Consolidated Financial Statements F-8

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

(b) Reports on Form 8-K.

Form 8-K, dated October 6, 1997, reporting the sale of the Company's
needlepunch carpeting, tufted carpeting and artificial grass products
business.

Form 8-K, dated December 23, 1997, reporting the acquisition of Crain
Industries, Inc.

Form 8-K/A, dated March 9, 1998, providing pro forma financial
information relating to the acquisition of Crain Industries, Inc.

Form 8-K, dated February 28, 1998, reporting a change in corporate
structure.

2.1(x) - Transfer Agreement, dated as of February 27, 1998, by and between
Trace Foam LLC and Foamex L.P.
2.2(x) - Asset Purchase Agreement, dated as of February 27, 1998, by and
among Foamex Carpet Cushion, Inc. ("Foamex Carpet"), Foamex
International, Trace Foam LLC and General Felt Industries, Inc.
("General Felt").
3.1(a) - Certificate of Limited Partnership of Foamex L.P.
3.2.1(a) - Fourth Amended and Restated Agreement of Limited Partnership of
Foamex L.P., dated as of December 14, 1993, by and among FMXI, Inc.
("FMXI") and Trace Foam Company, Inc. ("Trace Foam"), as general
partners, and Foamex International Inc. ("Foamex International"), as
a limited partner (the "Partnership Agreement").
3.2.2(b) - First Amendment to the Partnership Agreement, dated June 28, 1994.
3.2.3(c) - Second Amendment to the Partnership Agreement, dated June 12, 1997.
3.2.4(v) - Third Amendment to the Partnership Agreement, dated
December 23, 1997.
3.2.5(x) - Fourth Amendment to the Partnership Agreement, dated
February 27, 1998.
3.3 - Certificate of Incorporation of FMXI.
3.4 - By-laws of FMXI.
3.5(k) - Certificate of Incorporation of Foamex Capital Corporation ("FCC").
3.6(k) - By-laws of FCC.
3.7(a) - Certificate of Incorporation of Foamex International.
3.8(a) - By-laws of Foamex International.

26
<PAGE>
4.1.1(d) - Indenture, dated as of June 12, 1997, by and among Foamex L.P., FCC,
the Subsidiary Guarantors and The Bank of New York, as trustee,
relating to $150,000,000 principal amount of 9 7/8% Senior
Subordinated Notes due 2007 (the "9 7/8% Notes"), including the form
of Senior Subordinated Note and Subsidiary Guarantee.
4.1.2(v) - First Supplemental Indenture, dated as of December 23, 1997,
between Foamex LLC ("FLLC") and The Bank of New York, as trustee,
relating to the 9 7/8% Notes.
4.1.3(x) - Second Supplemental Indenture, dated as of February 27, 1998, among
Foamex L.P. and FCC, as joint and several obligors, General Felt,
Foamex Fibers, and FLLC, as withdrawing guarantors, and The Bank of
New York, as trustee, relating to the 9 7/8% Notes.
4.1.4(d) - Registration Rights Agreement, dated as of June 12, 1997, by and
among Foamex L.P., FCC, General Felt, Foamex Fibers, and all future
direct or indirect domestic subsidiaries of Foamex L.P. or FCC, and
Donaldson, Lufkin & Jenrette Securities Corporation, Salomon
Brothers Inc. and Scotia Capital Markets, as Initial Purchasers.
4.2.1(v) - Indenture, dated as of December 23, 1997, by and among Foamex L.P.,
FCC, the Subsidiary Guarantors, Crain Holdings Corp., as
Intermediate obligator, and The Bank of New York, as trustee,
relating to $98,000,000 principal amount of 13 1/2% Senior
Subordinated Notes due 2005 (the "13 1/2% Notes"), including the
form of Senior Subordinated Note and Subsidiary Guarantee.
4.2.2(x) - First Supplemental Indenture, dated as of February 27, 1998, among
Foamex L.P. and FCC, as joint and several obligors, General Felt,
Foamex Fibers and FLLC, as withdrawing guarantors, Crain Industries,
Inc., as withdrawing intermediate obligor, and The Bank of New York,
as trustee, relating to the 13 1/2% Notes.
4.3(x) - Discharge of Indenture, dated as of February 27, 1998, by and among
Foamex L.P., General Felt, Foamex International and State Street
Bank and Trust Company, as trustee, relating to the 9 1/2% Senior
Secured Notes due 2000.
4.4.1(x) - Credit Agreement, dated as of June 12, 1997, as amended and restated
as of February 27, 1998, by and among Foamex L.P., and FMXI, the
institutions from time to time party thereto as lenders, the
institutions from time to time party thereto as issuing banks, and
Citicorp USA, Inc. and The Bank of Nova Scotia, as Administrative
Agents.
4.4.2(x) - Second Amended and Restated Foamex International Guaranty, dated as
of February 27, 1998, made by Foamex International in favor of
Citicorp USA, Inc., as Collateral Agent.
4.4.3(x) - Amended and Restated Partnership Guaranty, dated as of February 27,
1998, made by FMXI in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.4(p) - Foamex Guaranty, dated as of June 12, 1997, made by Foamex
L.P. in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.5(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by
Foamex Latin America, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.6(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by
Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.7(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by FCC
in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.8(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by
Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.9(p) - Subsidiary Guaranty, dated as of June 12, 1997, made by
Foamex Asia, Inc. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.10(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by FCC in favor of Citicorp USA, Inc., as Collateral Agent.
4.4.11(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by Foamex Latin America, Inc. in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.12(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by Foamex Asia, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.13(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.14(p) - Subsidiary Pledge Agreement, dated as of June 12, 1997, made
by Foamex Mexico II, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.

27
<PAGE>
4.4.15(p) - Foamex Security Agreement, dated as of June 12, 1997, made by
Foamex L.P. in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.16(p) - Subsidiary Security Agreement, dated as of June 12, 1997,
made by Foamex Latin America, Inc. in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.17(p) - Subsidiary Security Agreement, dated as of June 12, 1997,
made by Foamex Mexico, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.18(p) - Subsidiary Security Agreement, dated as of June 12, 1997,
made by Foamex Mexico II, Inc. in favor of Citicorp USA, Inc.,
as Collateral Agent.
4.4.19(p) - Subsidiary Security Agreement, dated as of June 12, 1997,
made by Foamex Asia, Inc. in favor of Citicorp USA, Inc., as
Collateral Agent.
4.4.20(p) - Subsidiary Security Agreement, dated as of June 12, 1997,
made by FCC in favor of Citicorp USA, Inc., as Collateral
Agent.
4.4.21 - Intentionally omitted.
4.4.22(w) - First Amendment to Foamex Pledge Agreement, dated as of
December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.23(w) - First Amendment to Foamex Security Agreement, dated as of
December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.24(w) - First Amendment to Foamex Patent Agreement, dated as of
December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.25(w) - First Amendment to Trademark Security Agreement, dated as of
December 23, 1997, by Foamex L.P. in favor of Citicorp USA,
Inc., as Collateral Agent.
4.4.26(w) - Acknowledgment of Guaranty by each of the guarantors to a Guaranty
dated June 12, 1997 in favor of Citicorp USA, Inc.
4.4.27(w) - First Amendment to Pledge Agreement, dated as of December 23,
1997, by pledgors in favor of Citicorp USA, Inc.
4.4.28(w) - Crain Industries Guaranty, dated as of December 23, 1997,
made by Crain in favor of Citicorp USA, Inc.
4.4.29(x) - Partnership Pledge Agreement, dated as of February 27, 1998,
made by Foamex International and FMXI in favor of Citicorp USA,
Inc., as Collateral Agent.
4.5(u) - Commitment letter, dated July 17, 1997, from The Bank of Nova Scotia
to Foamex Canada Inc.
4.6(a) - Subordinated Promissory Note, dated as of May 6, 1993, in the
original principal amount of $7,014,864 executed by Foamex L.P. to
John Rallis ("Rallis").
4.7(a) - Marely Loan Commitment Agreement, dated as of December 14, 1993, by
and between Foamex L.P. and Marely s.a. ("Marely").
4.8(a) - DLJ Loan Commitment Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and DLJ Funding, Inc. ("DLJ Funding").
4.9.1(p) - Promissory Note, dated June 12, 1997, in the aggregate
principal amount of $5,000,000, executed by Trace Holdings to
Foamex L.P.
4.9.2(p) - Promissory Note, dated June 12, 1997, in the aggregate
principal amount of $4,794,828, executed by Trace Holdings to
Foamex L.P.
4.10.1(x) - Credit Agreement, dated as of February 27, 1998, by and among
Foamex Carpet, the institutions from time to time party thereto
as lenders, the institutions from time to time party thereto as
issuing banks and Citicorp USA, Inc. and The Bank of Nova
Scotia, as administrative agents.
4.10.2(x) - Foamex International Guaranty, dated as of February 27, 1998,
made by Foamex International in favor of Citicorp USA, Inc., as
Collateral Agent.
4.10.3(x) - Foamex International Pledge Agreement, dated as of February
27, 1998, made by Foamex International in favor of Citicorp
USA, Inc., as Collateral Agent.
4.10.4(x) - New GFI Security Agreement, dated as of February 27, 1998,
made by Foamex Carpet in favor of Citicorp USA, Inc., as
Collateral Agent.
4.10.5(x) - New GFI Intercreditor Agreement, dated as of February 27,
1998, by and among Foamex Carpet, The Bank of Nova Scotia, as
Administrative Agent, and Citicorp USA, Inc., as Administrative
Agent and Collateral Agent.
4.10.6(x) - FII Intercreditor Agreement, dated as of February 27, 1998,
by and between Foamex International and Citicorp USA, Inc., as
Collateral Agent.

28
<PAGE>
4.11.1(x) - Promissory Note of Foamex L.P. in favor of Trace Foam LLC in the
principal amount of $34 million, dated February 27, 1998.
4.12.1(x) - Promissory Note of Foamex Carpet in favor of Trace Foam LLC in the
principal amount of $70.2 million, dated February 27, 1998.
10.1.1(p) - Amendment to Master Agreement, dated as of June 5, 1997, between
Citibank, N.A. and Foamex L.P.
10.1.2(p) - Amended Confirmation, dated as of June 13, 1997, between Citibank,
N.A. and Foamex L.P.
10.2(h) - Reimbursement Agreement, dated as of March 23, 1993, between Trace
Holdings and General Felt.
10.3(h) - Shareholder Agreement, dated December 31, 1992, among Recticel, s.a.
("Recticel"), Recticel Holding Noord B.V., Foamex L.P., Beamech
Group Limited, LME-Beamech, Inc., James Brian Blackwell, and Prefoam
AG relating to foam technology sharing arrangement.
10.4.1(k) - Asset Transfer Agreement, dated as of October 2, 1990, between Trace
Holdings and Foamex L.P. (the "Trace Holdings Asset Transfer
Agreement").
10.4.2(k) - First Amendment, dated as of December 19, 1991, to the Trace
Holdings Asset Transfer Agreement.
10.4.3(k) - Amended and Restated Guaranty, dated as of December 19, 1991, made
by Trace Foam in favor of Foamex L.P.
10.5.1(k) - Asset Transfer Agreement, dated as of October 2, 1990, between
Recticel Foam Corporation ("RFC") and Foamex L.P. (the "RFC Asset
Transfer Agreement").
10.5.2(k) - First Amendment, dated as of December 19, 1991, to the RFC Asset
Transfer Agreement.
10.5.3(k) - Schedule 5.03 to the RFC Asset Transfer Agreement (the "5.03
Protocol").
10.5.4(h) - The 5.03 Protocol Assumption Agreement, dated as of October 13,
1992, between RFC and Foamex L.P.
10.5.5(h) - Letter Agreement between Trace Holdings and Recticel regarding the
Recticel Guaranty, dated as of July 22, 1992.
10.6(l) - Supply Agreement, dated June 28, 1994, between Foamex L.P. and
Foamex International.
10.7.1(l) - First Amended and Restated Tax Sharing Agreement, dated as of
December 14, 1993, among Foamex L.P., Trace Foam, FMXI and Foamex
International.
10.7.2(d) - First Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of June 12, 1997, by and among Foamex L.P.,
Foamex International, FMXI and Trace Foam.
10.7.3(w) - Second Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of December 23, 1997, by and among Foamex
L.P., Foamex International, FMXI, and Trace Foam.
10.7.4 - Third Amendment to Amended and Restated Tax Sharing Agreement of
Foamex L.P., dated as of February 27, 1998, by and between Foamex
L.P., Foamex International and FMXI.
10.8.1(m) - Tax Distribution Advance Agreement, dated as of December 11, 1996,
by and between Foamex L.P. and Foamex-JPS Automotive.
10.8.2(d) - Amendment No. 1 to Tax Distribution Advance Agreement, dated as of
June 12, 1997, by and between Foamex L.P. and Foamex International.
10.9.1(h) - Trace Foam Management Agreement between Foamex L.P. and Trace Foam,
dated as of October 13, 1992.
10.9.2(l) - Affirmation Agreement re: Management Agreement, dated as of December
14, 1993, between Foamex L.P. and Trace Foam.
10.9.3(d) - First Amendment to Management Agreement, dated as of June 12, 1997,
by and between Foamex L.P. and Trace Foam.
10.10.1(k)- Salaried Incentive Plan of Foamex L.P. and Subsidiaries.
10.10.2(k)- Trace Holdings 1987 Nonqualified Stock Option Plan.
10.10.3(k)- Equity Growth Participation Program.
10.10.4(o)- The Foamex L.P. Salaried Pension Plan (formerly the General
Felt Industries, Inc. Retirement Plan for Salaried Employees),
effective as of January 1, 1995.
10.10.5(u)- The Foamex L.P. Hourly Pension Plan (formerly "The Foamex
Products Inc. Hourly Employee Retirement Plan), as amended
December 31, 1995.
10.10.6(u)- Foamex L.P. 401(k) Savings Plan effective October 1, 1997.

29
<PAGE>

10.10.7(a)- Foamex L.P.'s 1993 Stock Option Plan.
10.10.8(a)- Foamex L.P.'s Non-Employee Director Compensation Plan.
10.11.1(o)- Employment Agreement, dated as of February 1, 1994, by and between
Foamex L.P. and William H. Bundy.
10.12.1(a)- Warrant Exchange Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and Marely.
10.12.2(a)- Warrant Exchange Agreement, dated as of December 14, 1993, by and
between Foamex L.P. and DLJ Funding.
10.13(t) - Warrant Agreement, dated as of June 28, 1994, by and between Foamex
International and Shawmut Bank.
10.14(o) - Stock Purchase Agreement, dated as of December 23, 1993, by and
between Transformacion de Espumas u Fieltros, S.A., the stockholders
which are parties thereto, and Foamex L.P.
10.15.1(r)- Asset Purchase Agreement, dated as of August 29, 1997, by and among
General Felt, Foamex L.P., Bretlin, Inc. and The Dixie Group.

10.15.2(s)- Addendum to Asset Purchase Agreement, dated as of October 1, 1997,
by and among General Felt, Foamex L.P., Bretlin, Inc. and The Dixie
Group.

10.16.1(x)- Supply Agreement, dated as of February 27, 1998, by and between
Foamex L.P. and General Felt (as assigned to Foamex Carpet).

10.16.2(x)- Administrative Services Agreement, dated as of February 27, 1998, by
and between Foamex L.P. and General Felt (as assigned to Foamex
Carpet).

10.17 - Tax Sharing Agreement, dated as of February 27, 1998, between Foamex
International and Foamex Carpet.

27 - Financial Data Schedule for the year ended December 28, 1997.
- ----------------------------

(a) Incorporated herein by reference to the Exhibit to Foamex L.P.'s
Registration Statement on Form S-1, Registration No. 33-69606.

(b) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
for the fiscal year ended January 1, 1995.

(c) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex reporting an event that occurred May 28, 1997.

(d) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex reporting an event that occurred June 12, 1997.

(e) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex and FCC on Form S-4, Registration No. 33-65158.

(f) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended June 30, 1996.

(g) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex, FCC and General Felt on Form S-1, Registration Nos.
33-60888, 33-60888-01, and 33-60888-02.

30
<PAGE>

(h) Incorporated herein by reference to the Exhibit to the Form 10-K Statement
of Foamex and FCC for fiscal 1992.

(i) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for fiscal 1994.

(j) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended September 30, 1996.

(k) Incorporated herein by reference to the Exhibit to the Registration
Statement of Foamex and FCC on Form S-1, Registration Nos. 33-49976 and
33-49976-01.

(l) Incorporated herein by reference to the Exhibit to the Registration
Statement of FJPS, FJCC and Foamex L.P. on Form S-4, Registration No.
33-82028.

(m) Incorporated herein by reference to the Exhibit to the Annual Report on
Form 10-K of Foamex for the fiscal year ended December 29, 1996.

(n) Incorporated herein by reference to the Exhibit to the Form 10-Q of Foamex
for the quarterly period ended July 2, 1995.

(o) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for fiscal 1993.

(p) Incorporated herein by reference to the Exhibit in the Registration
Statement of Foamex on Form S-4, Registration No. 333-30291.

(q) Incorporated herein by reference to the Exhibit to the Form 10-K of Foamex
L.P. for the fiscal year ended December 31, 1995.

(r) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex L.P. reporting an event that occurred on August 29, 1997.

(s) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex L.P. reporting an event that occurred on October 6, 1997.

(t) Incorporated by reference to the Exhibit to the Form 10-Q of Foamex
International for the quarterly period ended July 3, 1994.

(u) Incorporated by reference to the Exhibit to the Form 10-Q of Foamex L.P.
for the quarterly period ended September 28, 1997.

(v) Incorporated herein by reference to the Exhibit to the Current Report on
Form 8-K of Foamex L.P., Foamex Capital Corporation and Foamex
International reporting an event that occurred December 23, 1997.

(w) Incorporated herein by reference to the Exhibit in the Registration
Statement of Foamex on Form S-4, Registration No. 333-45733.

(x) Incorporated herein by reference to the Current Report on Form 8-K of
Foamex International reporting an event that occurred on February 27, 1998.

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

31
<PAGE>

<PAGE>

SIGNATURES

Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 13th day of April, 1998.

FOAMEX INTERNATIONAL INC.

By: /s/ Andrea Farace
Andrea Farace
Chairman of the Board and
Chief Executive Officer

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

Signature Title Date

/s/ Andrea Farace Chairman of the Board, April 13, 1998
Andrea Farace Chief Executive Officer
and Director

/s/ Robert J. Hay Chairman Emeritus April 13, 1998
Robert J. Hay and Director

/s/ Marshall S. Cogan Vice Chairman April 13, 1998
Marshall S. Cogan of the Board

/s/ Kenneth R. Fuette Executive Vice President April 13, 1998
Kenneth R. Fuette (Chief Financial Officer and
Chief Administrative Officer)

/s/ Etienne Davignon Director April 13, 1998
Etienne Davignon

32
<PAGE>

/s/ John H. Gutfreund Director April 13, 1998
John H. Gutfreund

/s/ Stuart J. Hershon Director April 13, 1998
Stuart J. Hershon

/s/ John V. Tunney Director April 13, 1998
John V. Tunney

33
<PAGE>

FOAMEX INTERNATIONAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Foamex International Inc.

Index to Consolidated Financial Statements F-1

Report of Independent Accountants F-2

Consolidated Balance Sheets as of December 28, 1997 and
December 29, 1996 F-3

Consolidated Statements of Operations for the years ended
1997, 1996, and 1995 F-5

Consolidated Statements of Cash Flows for the years ended 1997,
1996, and 1995 F-6

Consolidated Statements of Stockholders' Equity
(Deficit) for the years ended 1997, 1996, and 1995 F-7

Notes to Consolidated Financial Statements F-8

F-1
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

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

We have audited the accompanying consolidated balance sheets of Foamex
International Inc. and subsidiaries (the "Company") as of December 28, 1997 and
December 29, 1996, and the related consolidated statements of operations, cash
flows and stockholders' equity (deficit) for each of the three years in the
period ended December 28, 1997. Our audits also included the financial statement
schedules as of and for each of the three years in the period ended December 28,
1997. These financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company as of
December 28, 1997 and December 29, 1996, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 28, 1997 in conformity with generally accepted accounting principles.
In addition, in our opinion, the financial statement schedules referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information required to be included therein.

COOPERS & LYBRAND L.L.P.

2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 4, 1998, except as to
the information presented in
Note 1 and Note 17, for which
the date is March 23, 1998.

F-2
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
December 28, December 29,
ASSETS 1997 1996
(thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 12,044 $ 22,203
Restricted cash -- 12,143
Accounts receivable, net of allowance for
doubtful accounts of $8,082 and $6,328 175,684 126,573
Inventories 120,299 101,220
Deferred income taxes 22,853 21,765
Due from related parties 1,755 1,866
Other current assets 38,293 21,334
--------- ---------

Total current assets 370,928 307,104
--------- ---------

PROPERTY, PLANT AND EQUIPMENT:
Land and land improvements 9,054 9,674
Buildings and leasehold improvements 79,876 78,082
Machinery, equipment and furnishings 234,229 199,993
Construction in progress 23,331 20,784
--------- ---------

Total 346,490 308,533

Less accumulated depreciation and
amortization (113,055) (113,160)
--------- ---------

Property, plant and equipment, net 233,435 195,373

COST IN EXCESS OF ASSETS ACQUIRED, NET 223,219 82,471

DEBT ISSUANCE COSTS, NET 18,889 18,628

DEFERRED INCOME TAXES 27,911 --

OTHER ASSETS 24,241 16,270
--------- ---------

TOTAL ASSETS $ 898,623 $ 619,846
========= =========
</TABLE>

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

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

<TABLE>
<CAPTION>
December 28, December 29,
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) 1997 1996
(thousands except share data)
<S> <C> <C>
CURRENT LIABILITIES:
Short-term borrowings $ 6,598 $ 3,692
Current portion of long-term debt 12,931 14,505
Accounts payable 131,689 84,930
Accrued employee compensation 10,827 7,302
Accrued interest 10,716 9,012
Accrued restructuring and plant consolidation 15,644 6,300
Other accrued liabilities 44,042 44,782
----------- -----------

Total current liabilities 232,447 170,523

LONG-TERM DEBT 735,724 483,344

DEFERRED INCOME TAXES 2,529 6,290

ACCRUED RESTRUCTURING AND
PLANT CONSOLIDATION 11,252 4,043

OTHER LIABILITIES 30,090 13,749
----------- -----------

Total liabilities 1,012,042 677,949
----------- -----------

COMMITMENTS AND CONTINGENCIES -- --
----------- -----------

STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued -- --
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares
Issued 26,908,680 and 26,753,262 shares, respectively;
Outstanding 24,919 680 and 25,198,862 shares, respectively 269 267
Additional paid-in capital 86,025 84,579
Retained earnings (accumulated deficit) (164,118) (120,174)
Other (16,393) (9,312)
----------- -----------
(94,217) (44,640)
Common Stock held in treasury, at cost:
1,989,000 shares and 1,554,400, respectively (19,202) (13,463)
----------- -----------

Total stockholders' equity (deficit) (113,419) (58,103)
----------- -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 898,623 $ 619,846
=========== ===========
</TABLE>

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

F-4
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
(thousands except per share amounts)
<S> <C> <C> <C>
NET SALES $ 931,095 $ 926,351 $ 862,834

COST OF GOODS SOLD 787,756 773,119 762,085
--------- --------- ---------

GROSS PROFIT 143,339 153,232 100,749

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 67,139 58,329 69,913

RESTRUCTURING AND OTHER CHARGES (CREDITS) 21,100 (6,541) 41,417
--------- --------- ---------

INCOME (LOSS) FROM OPERATIONS 55,100 101,444 (10,581)

INTEREST AND DEBT ISSUANCE EXPENSE 50,570 53,900 52,878

OTHER INCOME, NET 2,126 1,617 461
--------- --------- ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS
BEFORE PROVISION (BENEFIT) FOR
INCOME TAXES 6,656 49,161 (62,998)

PROVISION (BENEFIT) FOR INCOME TAXES 2,525 16,669 (12,248)
--------- --------- ---------

INCOME (LOSS) FROM CONTINUING OPERATIONS 4,131 32,492 (50,750)
--------- --------- ---------

LOSS FROM DISCONTINUED OPERATIONS,
NET OF INCOME TAXES (1,994) (114,480) (2,370)

EXTRAORDINARY LOSS ON EARLY
EXTINGUISHMENT OF DEBT,
NET OF INCOME TAXES (44,482) (1,147) --
--------- --------- ---------

NET INCOME (LOSS) $ (42,345) $ (83,135) $ (53,120)
========= ========= =========

BASIC EARNINGS (LOSS) PER SHARE:

CONTINUING OPERATIONS $ 0.16 $ 1.28 $ (1.92)
========= ========= =========

NET EARNINGS (LOSS) PER SHARE $ (1.68) $ (3.28) $ (2.01)
========= ========= =========

DILUTED EARNINGS (LOSS) PER SHARE:

CONTINUING OPERATIONS $ 0.16 $ 1.26 $ (1.92)
========= ========= =========

NET EARNINGS (LOSS) PER SHARE $ (1.65) $ (3.23) $ (2.01)
========= ========= =========
</TABLE>

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

F-5
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
OPERATING ACTIVITIES: (thousands)
<S> <C> <C> <C>
Net income (loss) $ (42,345) $ (83,135) $ (53,120)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 22,047 22,353 23,302
Amortization of debt issuance costs and debt discount 7,783 13,903 12,192
Net loss on disposal of discontinued operations 1,994 110,137 --
Net loss (income) from discontinued operations -- 4,343 2,370
Asset writedowns and other charges (credits) 16,041 (7,364) 16,677
Provision for uncollectible accounts 2,291 704 4,627
Deferred income taxes (1,496) 14,903 (10,667)
Other, net (4,874) (3,642) (72)
Changes in operating assets and liabilities,
net of acquisitions and discontinued operations:
Accounts receivable (4,037) (13,723) (1,604)
Inventories 12,882 (11,688) 14,146
Accounts payable 12,733 4,306 (2,726)
Accrued restructuring and plant consolidation charges 1,701 (7,405) 17,284
Other assets and liabilities (24,342) (2,438) 3,048
--------- --------- ---------

Net cash provided by continuing operations 378 41,254 25,457
Net cash provided by discontinued operations -- 16,491 4,133
--------- --------- ---------
Net cash provided by operating activities 378 57,745 29,590
--------- --------- ---------

INVESTING ACTIVITIES:
Capital expenditures (33,537) (23,344) (22,348)
Acquisitions, net of cash acquired (119,065) (841) (8,113)
Proceeds from sale (settlement) of discontinued operations (13,556) 59,452 --
Proceeds from sale of assets 40,169 -- --
Purchase of note from related party (5,000) -- --
Decrease (increase) in restricted cash 12,143 (12,143) --
Discontinued operations investing activities -- (5,490) (19,411)
Other investing activities (1,888) (1,276) 2,495
--------- --------- ---------

Net cash provided by (used for) investing activities (120,734) 16,358 (47,377)
--------- --------- ---------

FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term borrowings 2,894 1,493 (1,685)
Net proceeds from (repayments of) revolving loans 54,928 -- (3,000)
Proceeds from long-term debt 594,499 1,500 --
Repayments of long-term debt (517,549) (38,887) (9,356)
Debt issuance costs (18,410) -- (184)
Purchase of treasury stock (5,739) (6,296) (7,167)
Discontinued operations financing activities -- (12,406) 1,674
Other financing activities (426) (626) --
--------- --------- ---------

Net cash provided by (used for) financing activities 110,197 (55,222) (19,718)
--------- --------- ---------

Net increase (decrease) in cash and cash equivalents (10,159) 18,881 (37,505)

Cash and cash equivalents at beginning of period 22,203 3,322 40,827
--------- --------- ---------

Cash and cash equivalents at end of period $ 12,044 $ 22,203 $ 3,322
========= ========= =========
</TABLE>

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

F-6
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
For the Years 1997, 1996, and 1995
<TABLE>
<CAPTION>
Retained
Additional Earnings
Common Stock Paid-in (Accumulated Treasury
Shares Amount Capital Deficit) Other Stock
(thousands)
<S> <C> <C> <C> <C> <C> <C>

Balances at January 1, 1995 26,684 $ 267 $ 83,624 $ 16,081 $ (7,827)

Issuance of common stock 32 -- 316
Stock option compensation 75
Increase in note receivable from
principal stockholder (1,373)
Additional pension liability (1,974)
Foreign currency translation adjustment 481
Purchase of treasury stock $ (7,167)
Net loss (53,120)
--------- --------- --------- --------- --------- ---------

Balances at December 31, 1995 26,716 267 84,015 (37,039) (10,693) (7,167)

Issuance of common stock 22 -- 165
Stock option compensation 297
Stock options exercised 15 -- 102
Additional pension liability 1,427
Foreign currency translation adjustment (46)
Purchase of treasury stock (6,296)
Net loss (83,135)
--------- --------- --------- --------- --------- ---------
Balances at December 29, 1996 26,753 267 84,579 (120,174) (9,312) (13,463)

Issuance of common stock 10 -- 161
Stock option compensation 282
Stock options exercised 145 2 1,003
Additional pension liability (786)
Foreign currency translation adjustment (873)
Purchase of treasury stock (5,739)
Net loss (42,345)
Increase in note receivable from
principal stockholder (5,422)
Distribution to principal stockholder (1,599)
--------- --------- --------- --------- --------- ---------

Balances at December 28, 1997 26,908 $ 269 $ 86,025 $(164,118) $ (16,393) $ (19,202)
========= ========= ========= ========= ========= =========
</TABLE>

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

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

1. ORGANIZATION AND BASIS OF PRESENTATION

Foamex International Inc. (the "Company") is a manufacturer and distributor
of flexible polyurethane foam and advanced polymer foam products in North
America. During 1997, 1996 and 1995, the Company's products were utilized
primarily in five end markets (i) carpet cushion and other carpet products, (ii)
cushioning foams, including bedding products, (iii) automotive applications,
including trim and accessories, (iv) furniture products for furniture
manufacturers and distributors, and (v) specialty and technical applications
including, those for filtration, gasketing and sealing.

On December 23, 1997, the Company acquired Crain Industries, Inc. ("Crain")
pursuant to a merger agreement with Crain Holdings Corp. for a purchase price of
approximately $213.7 million, including the assumption of debt ("Crain
Acquisition"). In addition, fees and expenses associated with the Crain
Acquisition are approximately $13.2 million. The Crain Acquisition provides a
fully integrated manufacturer, fabricator and distributor of a broad range of
flexible polyurethane foam and foam products which are sold to a diverse
customer base, principally in the furniture, bedding and carpet cushion markets.
In connection with the Crain Acquisition, the Company approved a
restructuring/consolidation plan for the two entities. The Company recorded
restructuring charges of $21.1 million relating to the restructuring of the
Company's operations in connection with the Crain Acquisition and the related
transactions. In addition, the Company recorded approximately $1.5 million of
severance and related costs and $8.5 million for costs associated with the shut
down and consolidation of certain acquired facilities.

On March 16, 1998, the Company announced that its Board of Directors
received an unsolicited buyout proposal from Trace International Holdings, Inc.
("Trace Holdings"), the Company's principal stockholder. Trace Holdings proposed
to acquire all of the outstanding common stock of the Company not currently
owned by Trace Holdings and its subsidiaries for a cash price of $17.00 per
share. Also, Trace Holdings informed the Board of Directors that financing for
the buyout transaction would be arranged through Donaldson, Lufkin & Jenrette
Securities Corporation and The Bank of Nova Scotia/Scotia Capital Markets. As of
March 16, 1998, Trace Holdings and its subsidiaries beneficially owned
approximately 11,475,000 shares or approximately 46% of the outstanding common
stock of the Company. In response to Trace Holding's offer, the Company's Board
of Directors has appointed a special committee to determine the advisability and
fairness of the proposed buyout to the Company's stockholders other than Trace
Holdings and its subsidiaries. Trace's proposed buyout is subject to a number of
conditions, including the negotiations of definitive documents (which are
expected to contain customary closing conditions); the filing of a disclosure
statement and other documents with the Securities and Exchange Commission;
regulatory filings; and approval of the transaction by a majority of the
Company's stockholders.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Consolidation

The consolidated financial statements include the accounts of the Company
and all subsidiaries that the Company directly or indirectly controls, either
through majority ownership or otherwise. Intercompany accounts and transactions
for continuing operations have been eliminated in consolidation.

Fiscal Year

The Company's fiscal year ends on the Sunday closest to the thirty-first
day of December. Fiscal years 1997, 1996 and 1995 were composed of fifty-two
weeks and ended on December 28, 1997, December 29, 1996 and December 31, 1995,
respectively.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Accounting Estimates

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reported period. Actual results could differ from those
estimates. (See Notes 3, 4, 8, 11, 16, 17 and 18 and Cost in Excess of Net
Assets Acquired below.)

Revenue Recognition

Revenue from sales is recognized when products are shipped.

Discounts and Billing Adjustments

A reduction in sales revenue is recognized for sales discounts when product
is invoiced or for other billing adjustments.

Cash Equivalents

The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. On
December 28, 1997 and December 29, 1996, cash and cash equivalents included $2.7
million and $19.6 million, respectively, of repurchase agreements collateralized
by U.S. Government securities.

Restricted Cash

As of December 29, 1996, the Company had restricted cash of approximately
$12.1 million. This cash was derived from the net sales proceeds relating to the
sale of Perfect Fit Industries, Inc. (See Note 9) and was restricted by Foamex
L.P.'s debt agreements. During 1997 and 1996, the Company used the restricted
cash to repurchase approximately $11.8 million of outstanding indebtedness.

Inventories

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

Property, Plant and Equipment

Property, plant and equipment are stated at cost and are depreciated using
the straight-line method over the estimated useful lives of the assets. The
range of useful lives estimated for buildings is generally twenty to thirty-five
years, and the range for machinery, equipment and furnishings is five to twelve
years. Leasehold improvements are amortized over the shorter of the terms of the
respective leases or the estimated useful lives of the leasehold improvements.
Depreciation expense for the years ended 1997, 1996 and 1995 was $18.8 million,
$19.1 million and $19.1 million, respectively. For income tax purposes, the
Company uses accelerated depreciation methods.

Cost of maintenance and repairs is charged to expense as incurred. Renewals
and improvements are capitalized. Upon retirement or other disposition of items
of plant and equipment, the cost and related accumulated depreciation are
removed from the accounts and any gain or loss is included in operations.

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Debt Issuance Costs

Debt issuance costs consist of amounts incurred in obtaining long-term
financing. These costs are being amortized over the term of the related debt
using the effective interest method. Accumulated amortization as of December 28,
1997 and December 29, 1996 was approximately $1.4 million and $8.8 million,
respectively.

Cost in Excess of Net Assets Acquired

The excess of the acquisition cost over the fair value of net assets
acquired in business combinations accounted for as purchases is amortized using
the straight-line method over a forty year period. At each balance sheet date
the Company evaluates the recoverability of cost in excess of net assets
acquired using certain financial indicators such as historical and future
ability to generate income from operations based on a going concern basis.
Accumulated amortization as of December 28, 1997 and December 29, 1996 was
approximately $12.0 million and $11.6 million, respectively.

Environmental Matters

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

Postretirement and Postemployment Benefits

The Company accrues postretirement benefits throughout the employees'
active service periods until they attain full eligibility for those benefits.
Also, the Company accrues postemployment benefits when it becomes probable that
such benefits will be paid and when sufficient information exists to make
reasonable estimates of the amounts to be paid.

Foreign Currency Accounting

The financial statements of foreign subsidiaries, except in countries
treated as highly inflationary, have been translated into U.S. dollars by using
the year end exchange rates for the assets and liabilities and average exchange
rates for the statements of operations. Currency translation adjustments are
included in other stockholders' equity (deficit) until the entity is
substantially sold or liquidated. For operations in countries treated as highly
inflationary, certain financial statement amounts are translated at historical
exchange rates, with all other assets and liabilities translated at year end
exchange rates. These translation adjustments are reflected in the results of
operations and are insignificant for all periods presented. Also, foreign
currency transaction gains and losses are insignificant for all periods
presented. The effect of foreign currency exchange rates on cash flows is not
material.

Interest Rate Swap Agreement

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

Income Taxes

Income taxes are accounted for under the liability method, in which
deferred income taxes are provided for temporary differences between the
financial reporting and income tax basis of assets and liabilities using the
income tax rates, under existing legislation, expected to be in effect at the
date such temporary differences are expected to reverse.

F-10

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Earnings (Loss) Per Share

Earnings (loss) per share amounts for 1996 and 1995 have been restated to
give effect to the application of Statement of Financing Accounting Standards
("SFAS") No. 128, "Earnings Per Share"). SFAS No. 128 requires a dual
presentation of basic and diluted earnings per share for all periods presented.
(See Note 19.)

Reclassifications

Certain amounts in the 1996 and 1995 consolidated financial statements have
been reclassified to conform with the current year's presentation.

New Accounting Standards

3. ACQUISITIONS

On December 23, 1997, the Company acquired Crain pursuant to a merger
agreement with Crain Holdings Corp. for a purchase price of approximately $213.7
million, including the assumption of debt. In addition, fees and expenses
associated with the Crain Acquisition are approximately $13.2 million. The Crain
Acquisition provides a fully integrated manufacturer, fabricator and distributor
of a broad range of flexible polyurethane foam and foam products which are sold
to a diverse customer base, principally in the furniture, bedding and carpet
cushion markets. The acquisition was funded by $118.0 million in bank borrowings
by Foamex L.P. under the Credit Facility and the assumption of approximately
$98.6 million of indebtedness with an estimated fair value of $112.3 million.
The excess of the purchase price over the estimated fair value of the net assets
acquired was approximately $157.5 million. In connection with the Crain
Acquisition, the Company approved a plan to close certain facilities. As of the
acquisition date, the Company established accruals of approximately $1.5 million
of severance and related costs and $8.5 million for costs associated with the
shut down and consolidation of certain acquired facilities.

In April 1995, the Company acquired certain assets and assumed certain
liabilities of manufacturers of synthetic fabrics for the carpet and furniture
industries for aggregate consideration of approximately $8.0 million, including
related fees and expenses of approximately $0.3 million, with an initial cash
payment of $7.2 million. The excess of the purchase price over the estimated
fair value of the net assets acquired was approximately $3.9 million.

During 1994, the Company acquired Transformaci\n De Espumas Y FiJltros S.A. de
C.V. ("TEFSA") for an aggregate purchase price of approximately $4.5 million to
be paid over a three-year period with an initial cash payment of $1.7 million.
During 1997, 1996 and 1995, the Company made scheduled cash payments of

F-11
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

3. ACQUISITIONS (continued)

approximately $0.9 million, $0.8 million and $0.8 million, respectively, in
accordance with the purchase agreement.

The acquisitions were accounted for as purchases and the operations of the
acquired companies are included in the consolidated statements of operations and
cash flows from their respective dates of acquisition. However, Crain's
operations for the period from December 24, 1997 to December 28, 1997 have not
been included in the consolidated statements of operations or cash flows since
the affect would be insignificant. The cost of each acquisition has been
allocated on the basis of the fair value of the assets acquired and the
liabilities assumed. The excess of the purchase price over the estimated fair
value of the net assets acquired is being amortized using the straight-line
method over forty years. The allocation of the purchase price for the Crain
Acquisition is based upon preliminary estimates and assumptions and is subject
to revision once appraisals, valuations and other studies of the fair value of
the acquired assets and liabilities have been completed. The pro forma results
listed below are unaudited and assume that the Crain Acquisition occurred at the
beginning of each year presented.

1997 1996
(thousands, except
per share data)
Net sales 1,256.7 1,271.3
Income (loss) from continuing operations (2.4) 27.8
Pro forma basic earnings (loss) per share (0.10) 1.09
Pro forma diluted earnings (loss) per share (0.10) 1.08

The pro forma results are not necessarily indicative of what would have
occurred if the Crain Acquisition had been in effect for the entire periods
presented nor are they necessarily indicative of future consolidated results.

4. RESTRUCTURING AND OTHER CHARGES (CREDITS)

In 1995, the Company approved a restructuring plan (the "1995 restructuring
plan") to consolidate thirteen foam production, fabrication or branch locations
to concentrate resources as a result of industry conditions and better position
itself to achieve its strategic growth objectives. The Company recorded
restructuring and other charges of $41.4 million which was comprised of $35.6
million associated with the consolidation of the foam production, fabrication or
branch locations, $2.2 million associated with the completion of a 1993
restructuring plan and $3.6 million associated with merger and acquisition
activities of the Company. The components of the $35.6 million restructuring
charge include: $16.7 million for fixed asset writedowns (net of estimated sale
proceeds), $15.1 million for plant closure and operating lease obligations and
$3.8 million for personnel reductions. The $3.8 million cost for personnel
reductions primarily represents severance and employee benefit costs associated
with the elimination of manufacturing and administrative personnel.

In 1996, the Company determined to continue to operate one of the
facilities originally identified for closure in the 1995 restructuring plan
because of improved economics and the lack of synergy to be achieved from
relocating the manufacturing process. In addition, the Company approved a plan
to close two facilities that were not originally identified in the 1995
restructuring plan. As a result of these changes to the 1995 restructuring plan
and the favorable termination of certain lease agreements and other matters, the
Company recorded a $6.5 million net restructuring credit which included a
restructuring credit of $11.3 million associated with the Company's decision not
to close the facility identified as part of the 1995 restructuring plan and $1.8
million of restructuring credits relating primarily to the favorable termination
of certain lease agreements and other matters relating to the 1995 restructuring
plan, offset by $6.6 million of restructuring charges relating to the closure of
the two facilities during 1997 (the "1996 restructuring plan").

F-12
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

During December 1997, the Company approved a restructuring plan (the "1997
restructuring plan") to consolidate nine foam production, fabrication or branch
locations in connection with the Crain Acquisition. (See Note 3.) The Company
recorded restructuring and other charges of $21.1 million which was comprised of
$23.0 million associated with the consolidation of the foam production,
fabrication or branch locations offset by $1.9 million of restructuring credits
due primarily to the favorable termination of certain lease agreements and other
matters relating to the 1996 and 1995 restructuring plans. The components of the
$23.0 million restructuring charge include: $12.1 million for fixed assets
writedowns (net of estimated sale proceeds), $9.8 million for plant closure and
operating lease obligations and $1.1 million for personnel reductions.

As discussed above, the 1996 and 1995 restructuring plans have been
implemented as originally contemplated. The following table sets forth the
components of the Company's restructuring and other charges:

<TABLE>
<CAPTION>
Asset Plant Closure Personnel
Total Writedowns and Leases Reductions Other
(millions)
<S> <C> <C> <C> <C> <C>
1995 restructuring charge $41.4 $16.7 $15.1 $ 3.8 $ 5.8
Asset write-off/writedowns (25.1) (20.9) - - (4.2)
Cash spending (0.4) - (0.3) (0.1) -
----- ------- ------ ----- ------

Balances at December 31, 1995 15.9 (4.2) 14.8 3.7 1.6
Cash spending (9.9) - (6.6) (2.0) (1.3)
Cash proceeds 1.0 1.0 - - -
1996 restructuring charge 6.6 2.4 4.1 0.1 -
Restructuring credits (13.1) (9.7) (2.8) (0.4) (0.2)
Asset adjustment for
restructuring credits 8.0 8.7 (0.6) - (0.1)
----- ----- ----- ----- -----

Balances at December 29, 1996 8.5 (1.8) 8.9 1.4 -
Cash spending (2.3) - (1.4) (0.9) -
1997 restructuring charge 23.0 12.1 9.8 1.1 -
Restructuring credits (1.9) 0.1 (2.3) 0.3 -
Asset write-off/writedowns (16.1) (16.1) - - -
Plant consolidation costs 10.0 - 8.5 1.5 -
------ ------- ------ ----- -------

Balance at December 28, 1997 $21.2 $(5.7) $23.5 $ 3.4 $ -
===== ===== ===== ===== =======
</TABLE>

As indicated in the table above, the accrued restructuring and plant
consolidation balance at December 28, 1997, will be used for payments relating
to plant closure and leases including rundown costs at the facilities. The $5.7
million of asset writedowns relates to estimated proceeds and is included in
noncurrent assets. The Company expects to incur approximately $15.6 million of
charges during 1998 with the remaining $11.3 million to be incurred through
2001. As of December 28, 1997, the Company has terminated all 270 employees
associated with the 1996 and 1995 restructuring plans and notified approximately
640 employees in the manufacturing and administrative areas of their impending
termination in connection with the 1997 restructuring and plant consolidation
plans.

F-13

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

5. INVENTORIES

Inventories consists of:

December 28, December 29,
1997 1996
(thousands)
Raw materials and supplies $ 75,487 $ 60,169
Work-in process 15,620 13,453
Finished goods 29,192 27,598
-------- --------
Total $120,299 $101,220
======== ========

6. SHORT-TERM BORROWINGS

Short-term borrowings include borrowings outstanding under a line of credit
facility for Foamex Canada Inc. ("Foamex Canada") bearing interest at the bank's
prime rate (6.0% at December 28, 1997) plus 1/2%. The weighted average interest
rates on Foamex Canada's short-term borrowings outstanding for 1997, 1996 and
1995 were 5.4%, 5.9% and 8.0%, respectively. Borrowings under Foamex Canada's
credit facility are due on demand and are collateralized by accounts receivable,
property and inventories of Foamex Canada having an approximate net carrying
value of $20.0 million as of December 28, 1997. The unused amount under this
line of credit totaled $2.0 million as of December 28, 1997.

7. LONG-TERM DEBT AND EXTRAORDINARY LOSS

Long-term debt consists of:

<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
Credit Facility: (thousands)
<S> <C> <C>
Term Loan A (1) $ 76,700 $ -
Term Loan B (1) 109,725 -
Term Loan C (1) 99,750 -
Term Loan D (1) 110,000 -
Revolving credit facility (2) 54,928 -
9.875% Senior subordinated notes due 2007 (3) 150,000 -
13.5% Senior subordinated notes due 2005 (includes
$13,720 million of unamortized debt premium) (3) 111,720 -
9 1/2% Senior secured notes due 2000 (4) 4,523 106,793
11 1/4% Senior notes due 2002 (4) - 141,400
11 7/8% Senior subordinated debentures due 2004 (net of
unamortized debt discount of $769) (4) - 125,056
Senior secured discount debentures due 2004, Series B
(net of unamortized debt discount of $35,864) - 80,881
11 7/8% Senior subordinated debentures due 2004, Series B (5) - 7,000
Industrial revenue bonds (6) 7,000 7,000
Foamex L.P. term loan (8.54% interest rate as of
December 28, 1997) (6) - 11,000
Subordinated note payable (net of unamortized
debt discount of $1,198 and $1,475 (5) 6,129 5,817
Other 18,180 12,902
-------- --------
748,655 497,849

Less current portion 12,931 14,505
-------- --------

Long-term debt-unrelated parties $735,724 $483,344
======== ========
</TABLE>

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

7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

(1) Subsidiary debt of Foamex L.P., guaranteed by the Company, General Felt and
Foamex Fibers.
(2) Subsidiary debt of Foamex L.P. and General Felt, guaranteed by the Company
and Foamex Fibers.
(3) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation, guaranteed
by General Felt and Foamex Fibers.
(4) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation ("FCC"),
guaranteed by the Company and General Felt.
(5) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation and
guaranteed by General Felt.
(6) Subsidiary debt of Foamex L.P.
(7) Subsidiary debt of Foamex L.P. and Foamex Capital Corporation and
guaranteed by the Company.

Refinancing Plan

On June 12, 1997, the Company substantially completed a refinancing plan
(the "Refinancing Plan") that included the refinancing of certain long-term
indebtedness to reduce the Company's interest expense and improve financing
flexibility. In connection with the Refinancing Plan, Foamex L.P. purchased
approximately $342.3 million of aggregate principal amount of its public debt
and approximately $116.7 million of aggregate principal amount of Foamex-JPS
Automotive L.P.'s ("FJPS") senior secured discount debentures due 2004
("Discount Debentures") and repaid $5.2 million of term loan borrowings under an
existing credit facility. The Company incurred an extraordinary loss on the
early extinguishment of debt associated with the Refinancing Plan of
approximately $42.0 million (net of income taxes). The Refinancing Plan was
funded by $347.0 million of borrowings under a new $480.0 million credit
facility (the "Credit Facility") and the net proceeds from the issuance of
$150.0 million of 9 7/8% senior subordinated notes due 2007.

In addition, on October 1, 1997, the Company redeemed all of the
outstanding: (i) 11 1/4% senior notes due 2002, (ii) 11 7/8% senior subordinated
debentures due 2004 and (iii) the 11 7/8% senior subordinated debentures due
2004, Series B, constituting approximately $26.0 million of the approximately
$30.0 million of outstanding public debt that was not tendered as part of the
Refinancing Plan. The redemption was funded with borrowings under the Credit
Facility. In connection with this redemption, the Company incurred an
extraordinary loss on the early extinguishment of debt of approximately $1.6
million (net of income taxes).

Credit Facility

On June 12, 1997, Foamex L.P. entered into the Credit Facility with a group
of banks that provides for term loans which expire from June 2003 to June 2006
and borrowings of up to $150.0 million under a revolving line of credit which
expires in June 2003. The term loans are comprised of a (i) term A loan ("Term
A"), (ii) term B loan ("Term B"), (iii) term C loan ("Term C") and (iv) term D
loan ("Term D").

Borrowings under the Credit Facility are collateralized by substantially
all of the assets of Foamex L.P., General Felt and Foamex Fibers on a pari passu
basis with the 9 1/2% senior secured notes due 2000 and the industrial revenue
bonds (collectively, the "Notes"); however, the rights of the holders of the
applicable issue of the Notes to receive payment upon the disposition of the
collateral securing such issue of Notes has been preserved.

Pursuant to the terms of the Credit Facility, borrowed funds will bear interest
at a floating rate equal to an applicable margin, as defined, plus the higher of
(i) the base rate of The Bank of Nova Scotia, in effect from time to time, or
(ii) a rate that is equal to 0.5% per annum plus the federal funds rate in
effect from time to time. The applicable margin is determined based on the total
net debt to EBDAIT ratio, as defined, and can range from no margin up to 1.125%
per annum for Term A and revolving loans, from 0.875% per annum to 1.375% per
annum for Term B, from 1.125% per annum to 1.625% per annum for Term C and from
1.250% per annum to 1.750% per annum for Term D. At the option of Foamex L.P.,
portions of the outstanding loans under the Credit Facility are convertible into
LIBOR based loans which bear interest at a floating rate equal to an applicable
margin for LIBOR based loans, as defined, plus the average LIBOR, as defined.
The applicable margin for LIBOR based

F-15
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

loans is a rate that will generally equal the applicable margin (discussed
above) plus 1.0% per annum.

Foamex L.P. had a credit agreement (the "Foamex L.P. Credit Facility") with
a group of banks that provided for loans of up to $85.0 million of which up to
$40.0 million was available as a term loan payable in twenty equal quarterly
installments commencing October 1994 and up to $45.0 million was available under
a revolving line of credit which expired in June 1999. In 1994, Foamex L.P. and
General Felt entered into a $40.0 million term loan under the Foamex L.P. Credit
Facility. During 1997 and 1996, Foamex L.P. and General Felt used $3.8 million
and $12.0 million, respectively, of the net proceeds from the Perfect Fit sale
to repay term loan borrowings. The Foamex L.P. Credit Facility was repaid and
terminated in connection with the Refinancing Plan.

9 7/8% Senior Subordinated Notes due 2007 ("Senior Subordinated Notes")

The Senior Subordinated Notes were issued by Foamex L.P. and FCC in
connection with the Refinancing Plan. The Senior Subordinated Notes bear
interest at the rate of 9 7/8% per annum payable semiannually on each June 15
and December 15, commencing December 15, 1997. The Senior Subordinated Notes
mature on June 15, 2007. The Senior Subordinated Notes may be redeemed at the
option of Foamex L.P., in whole or in part, at any time on or after June 15,
2002, initially at 104.938% of their principal amount, plus accrued interest and
liquidated damages, as defined, if any, thereon to the date of redemption and
declining to 100.0% on or after June 15, 2005. In addition, at any time prior to
June 15, 2000, Foamex L.P. may on one or more occasions redeem up to 35.0% of
the initially outstanding principal amount of the Senior Subordinated Notes at a
redemption price equal to 109.875% of the principal amount, plus accrued
interest and liquidated damages, if any, thereon to the date of redemption with
the cash proceeds of one or more Public Equity Offerings, as defined. Upon the
occurrence of a change of control, as defined, each holder of Senior
Subordinated Notes will have the right to require Foamex L.P. to repurchase the
Senior Subordinated Notes at a price equal to 101.0% of the principal amount,
plus accrued interest and liquidated damages, if any, to the date of repurchase.
The Senior Subordinated Notes are subordinated in right of payment to all senior
indebtedness and are pari passu in right of payment to the subordinated note.

13 1/2% Senior Subordinated Notes due 2005 ("13 1/2% Senior Subordinated
Notes")

The 13 1/2% Senior Subordinated Notes were issued in a private placement
under the Securities Act of 1933, as amended, on December 23, 1997 in connection
with the Crain Acquisition. The 13 1/2% Senior Subordinated Notes represent
unsecured general obligations of Foamex L.P. and are subordinated to all Senior
Debt (as defined in the Indenture).

The 13 1/2% Senior Subordinated Notes mature on August 15, 2005. Interest
on the 13 1/2% Senior Subordinated Notes is payable semiannually on each
February 15 and August 15. The 13 1/2% Senior Subordinated Notes bear interest
at the rate of 13 1/2% per annum. The 13 1/2% Senior Subordinated Notes may not
be redeemed prior to August 15, 2000, except in the event of a Change of Control
(as defined) or Foamex L.P. may, subject to certain requirements (as defined),
on or prior to August 15, 1998 redeem up to 33 1/3% of the aggregate original
principal amount with proceeds from an Equity Offering (as defined).

Foamex L.P. has filed a registration statement relating to an exchange
offer in which Foamex L.P. will offer to exchange the 13 1/2% Senior
Subordinated Notes issued in the private placement for new notes. The terms of
the new notes will be substantially identical in all respects (including
principal amount, interest rate, maturity and ranking) to the terms of the 13
1/2% Senior Subordinated Notes, except that the new notes will be transferable
by holders thereof without further registration under the Securities Act of
1933, as amended (except in the case of 13 1/2% Senior Subordinated Notes held
by affiliates of Foamex L.P. and FCC and for certain other holders), and are not
subject to any covenant regarding registration under the Securities Act of 1933,
as amended.

F-16

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

7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

9 1/2% Senior Secured Notes due 2000 ("Senior Secured Notes")

The Senior Secured Notes were issued on June 3, 1993 with interest at the
rate of 9 1/2% payable semiannually on each June 1 and December 1. The Senior
Secured Notes had a maturity date of mature on June 1, 2000. The Senior Secured
Notes were collateralized by a first-priority lien on substantially all of the
assets of Foamex L.P. except for receivables, real estate and fixtures. The
Senior Secured Notes were defeased in February 1998.

11 1/4% Senior Notes due 2002 ("Senior Notes")

The Senior Notes had an interest rate of 11 1/4% payable semiannually on
each April 1 and October 1. The Senior Notes had a maturity date of October 1,
2002.

11 7/8% Senior Subordinated Debentures due 2004 ("Subordinated Debentures")

The Subordinated Debentures had an interest rate of 11 7/8% payable
semiannually on each April 1 and October 1. The Subordinated Debentures had a
maturity date of October 1, 2004.

Senior Secured Discount Debentures due 2004 ("Discount Debentures")

The Discount Debentures, in the aggregate principal amount of $116.7
million ($57.0 million initial cash proceeds) were issued during 1994 by
Foamex-JPS Automotive L.P. ("FJPS") and Foamex-JPS Capital Corporation ("FJCC").
In connection with this issuance, the Company issued warrants to acquire 0.6
million shares of the Company's common stock to the purchasers of the Discount
Debentures (see Note 15). The original issue discount of $59.7 million was being
amortized using the weighted average to maturity method over the life of the
issue. The Discount Debentures were repaid in full in connection with the
Refinancing Plan.

11 7/8% Senior Subordinated Debentures, Series B ("Series B Debentures")

The Series B Debentures were issued July 30, 1993, by Foamex L.P. in an
exchange offer to holders of senior subordinated debentures issued in connection
with the acquisition of General Felt on March 23, 1993. The Series B Debentures
had terms substantially similar to the Subordinated Debentures.

Industrial Revenue Bonds ("IRBs")

Two bond issues in the principal amount of $1.0 million and $6.0 million,
maturing in 2005 and 2013, respectively, are collateralized by certain
properties which have an approximate net carrying value of $11.4 million at
December 28, 1997 and letters of credit approximating $7.3 million. The IRBs
bear interest at a variable rate with options available to Foamex L.P. to
convert to a fixed rate. The interest rates on the IRBs were 4.15% and 3.85% at
December 28, 1997 for the $6.0 million and $1.0 million bond issues,
respectively. The interest rate on the $6.0 million bond issue varies weekly
based on an interest rate that is indicative of current bidside yields on high
quality short-term, tax-exempt obligations, or if such interest rate is not
available, 70.0% of the interest rate for thirteen week United States Treasury
Bills. The maximum interest rate for either of the IRBs is 15.0% per annum. At
the time of a conversion to a fixed interest rate and upon appropriate notice,
the IRBs are redeemable at the option of the bondholders.

Subordinated Note Payable

This note payable was issued to John Rallis ("Rallis"), the former Chief
Operating Officer of the Company, on May 6, 1993 by Foamex L.P. in connection
with the acquisition of Great Western Foam Products Corporation and certain
related entities and assets (collectively, "Great Western"). The note bears
interest at a maximum rate of 6% per annum and the principal amount is payable
in three equal annual installments beginning May 6, 1999.

F-17

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

7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

Other

As of December 28, 1997, other debt is comprised primarily of capital lease
obligations, equipment financing associated with an aircraft and borrowings by
Foamex Mexico.

Early Extinguishment of Debt - Refinancing Plan

In connection with the Refinancing Plan, the Company incurred an
extraordinary loss on the early extinguishment of debt of approximately $42.0
million (net of income tax benefits of $25.7 million). The extraordinary loss is
comprised of approximately $39.0 million for premium and consent fee payments,
approximately $16.2 million for the write-off of debt issuance costs and debt
discount, approximately $8.2 million for the loss associated with the effective
termination and amendment of the interest rate swap agreements and approximately
$4.3 million of professional fees and other costs. In connection with the
Refinancing Plan, the Company repaid $5.2 million in term loan borrowings under
the Foamex L.P. Credit Facility and purchased approximately $459.0 million of
aggregate principal amount of public debt comprised of:

o $99.8 million of aggregate principal amount of its 9 1/2% senior secured
notes due 2000 for an aggregate consideration of 104.193% of principal plus
accrued interest, comprised of a tender price of 102.193% and a consent fee
of 2.0%;

o $130.1 million of aggregate principal amount of its 11 1/4% senior notes
due 2002 for an aggregate consideration of 105.709% of principal plus
accrued interest, comprised of a tender price of 103.709% and a consent fee
of 2.0%;

o $105.5 million of aggregate principal amount of its 11 7/8% senior
subordinated debentures due 2004 for an aggregate consideration of 107.586%
of principal plus accrued interest, comprised of a tender price of 105.586%
and a consent fee of 2.0%;

o $6.9 million of aggregate principal amount of its 11 7/8% senior
subordinated debentures, series B, due 2004 for an aggregate consideration
of 107.586% of principal plus accrued interest, comprised of a tender price
of 105.586% and a consent fee of 2.0%; and

o $116.7 million of aggregate principal amount of the Discount Debentures for
an aggregate consideration of 90.0% of principal amount, which represents
approximately 116.2% of the accreted book value as of June 12, 1997,
comprised of a tender price of 88.0% and a consent fee of 2.0%.

Early Extinguishment of Debt - Other

In addition, during 1997 the Company incurred extraordinary losses of
approximately $0.6 million (net of income tax benefits of $0.4 million)
associated with the early extinguishment of approximately $11.8 million of
long-term debt funded with approximately $12.1 million of the remaining net
proceeds from the sale of Perfect Fit. The extraordinary loss is comprised of
approximately $0.4 million of premium payments and approximately $0.6 million
for the write-off of debt issuance costs. The long-term debt was comprised of:

o $2.5 million of aggregate principal amount of its 9 1/2% senior secured
notes due 2000.

o $5.5 million of aggregate principal amount of its 11 1/4% senior notes due
2002.

o Bank term loan borrowings of $3.8 million under Foamex L.P.'s old credit
facility.

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

7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

During 1996, the Company used $31.3 million of the net proceeds from the
sale of Perfect Fit to extinguish debt of $30.6 million and redemption premiums
of $0.6 million. The Company wrote-off $1.2 million of debt issuance costs
associated with the early extinguishment of debt and incurred transaction costs
of $0.1 million. The early extinguishment of debt resulted in an extraordinary
loss of $1.1 million (net of $0.8 million income tax benefit).

Interest Rate Swap Agreements

In connection with the Refinancing Plan, the Company's existing interest
rate swap agreement with a notional amount of $300.0 million were considered to
be effectively terminated since the underlying debt was extinguished. These
interest rate swap agreement had an estimated fair value liability of $8.2
million at the date of the Refinancing Plan which is included in the
extraordinary loss on the early extinguishment of debt. In lieu of a cash
payment for the estimated fair value of the existing interest rate swap
agreement, the Company entered into an amendment of the existing interest rate
swap agreements resulting in one interest rate swap agreement with a notional
amount of $150.0 million through June 2007. Accordingly, the $8.2 million fair
value liability has been recorded as a deferred credit which will be amortized
as a reduction in interest and debt issuance expense on a straight-line basis
through June 2007. On January 8, 1998, Foamex L.P. entered into a new amendment
to its interest rate swap agreement. The new amendment provides for an interest
rate swap agreement with a notional amount of $150.0 million through June 2002.
Under the new amendment, Foamex L.P. is obligated to make fixed payments of
5.78% per annum through December 1998 and variable payments based on LIBOR at
the beginning of each six month period for the remainder of the agreement, in
exchange for fixed payments by the swap partner at 6.44% per annum for the life
of the agreement, payable semiannually in arrears. The newly amended interest
rate swap agreement can be terminated by the swap partner at the end of each six
month period commencing December 1999.

The Company is exposed to credit loss in the event of a nonperformance by
the swap partner; however, the occurrence of this event is not anticipated. The
effect interest rate swaps was a favorable adjustment to interest and debt
issuance expense of $2.2 million, $3.7 million and $1.4 million for 1997, 1996
and 1995, respectively.

Debt Restrictions and Covenants

The indentures, credit facility and other indebtedness agreements contain
certain covenants that will limit, among other things, the ability of Foamex
L.P. (i) to pay distributions or redeem partnership interests, (ii) to make
certain restrictive payments or investments, (iii) to incur additional
indebtedness or issue Preferred Equity Interest, as defined, (iv) to merge,
consolidate or sell all or substantially all of its assets or (v) to enter into
certain transactions with affiliates or related persons. In addition, certain
agreements contain a provision that, in the event of a defined change of
control, the indebtedness must be repaid, in certain cases, at the option of the
holder. Also, the Company's subsidiaries are required under certain of these
agreements to maintain specified financial ratios of which the most restrictive
is the maintenance of net worth and interest coverage ratios, as defined. Under
the most restrictive of the distribution restrictions, the Company was available
to be paid to by its subsidiaries as of December 28, 1997, funds necessary to
meet operating expenses.

As of December 28, 1997, the Company was in compliance with the covenants
of the indentures, credit facility and other indebtedness agreements and expects
to be in compliance with these covenants for the foreseeable future.

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

7. LONG-TERM DEBT AND EXTRAORDINARY LOSS (continued)

Future Obligations on Long-Term Debt

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

Year End Long-Term Debt
1998 $ 12,931
1999 18,672
2000 26,938
2001 19,941
2002 24,018
Thereafter 633,321
--------
Total 735,821
Unamortized debt premium, net 12,834
--------

Total $748,655
========

8. EMPLOYEE BENEFIT PLANS

Defined Benefit Pension Plans

The Company maintains noncontributory defined benefit pension plans for
salaried and certain hourly employees. The salaried plan provides benefits that
are based principally on years of credited service and level of compensation.
The hourly plans provide benefits that are based principally on stated amounts
for each year of credited service.

Net periodic pension cost included the following components:

1997 1996 1995
(thousands)
Service cost $2,229 $2,471 $2,087
Interest cost 4,273 3,997 3,742
Actual return on plan assets (6,308) (8,841) (5,682)
Net amortization and deferral 703 4,643 1,807
------- ------ ------
Total $ 897 $2,270 $1,954
======= ====== ======

The Company's funding policy is to contribute annually an amount that both
satisfies the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 and does not exceed the full funding limitations of the
Internal Revenue Code of 1986, as amended (the "Code"). Plan investments consist
primarily of corporate equity and debt securities, mutual life insurance funds
and cash equivalents. During 1998, the discount rate was adjusted to 7.0%. The
following table sets forth the funded status of the Company's underfunded plans
and the amounts recognized in the accompanying consolidated balance sheets as of
December 28, 1997 and December 29, 1996:

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

8. EMPLOYEE BENEFIT PLANS (continued)

December 28, December 29,
1997 1996
(thousands)
Actuarial present value of accumulated
benefit obligations:
Vested benefits $ 61,188 $ 55,336
Nonvested benefits 3,112 2,137
-------- --------

Accumulated benefit obligations $ 64,300 $ 57,473
======== ========

Total projected benefit obligations $ 65,948 $ 58,775
Fair value of plan assets 58,952 53,734
-------- --------
Projected benefit obligations in excess
of plan assets (6,996) (5,041)

Unrecognized net loss from past experience
difference from that assumed and effect
of changes in assumptions 4,704 1,099
Additional minimum liability (3,982) (2,694)
-------- --------

Accrued pension cost $ (6,274) $ (6,636)
======== ========

Significant assumptions used in determining the plans' funded status are as
follows:

<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
<S> <C> <C>
Expected long-term rates of return on plan assets 10.00% 9.50%
Discount rates on projected benefit obligations 7.00% 7.50%
Rates of increase in compensation levels (where applicable) 4.00% 4.00%
</TABLE>

Defined Contribution Plan

The Company maintains a defined contribution plan which is qualified under
Section 401(k) of the Code and is available for eligible employees who elect to
participate in the plan. Employee contributions are voluntary and subject to
certain limitations as imposed by the Code. The Company provides contributions
amounting to a 25% match of employees' contributions up to 4% of eligible
compensation. The Company also provides an additional 25% match of employees'
contributions up to 4% of eligible compensation made to a fund which invests in
the Company's common stock. In addition, the Company may make discretionary
contributions amounting to a 25% match of employees' contributions up to 4% of
eligible compensation. The expense for these contributions for 1997, 1996 and
1995 was approximately $0.9 million, $0.8 million and $0.7 million,
respectively.

Postretirement Benefits

In addition to providing pension benefits, the Company provides
postretirement health care and life insurance for eligible employees. During
1996, certain employees accepted an early retirement program resulting in a
special termination loss of $0.6 million. During 1995, changes were made to
postretirement benefits offered to certain employees which resulted in a
curtailment loss of $0.6 million. These plans are unfunded and the Company
retains the right, subject to existing agreements, to modify or eliminate these
benefits.

F-21

<PAGE>

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

8. EMPLOYEE BENEFIT PLANS (continued)

The components of 1997, 1996 and 1995 expense for postretirement benefits
are as follows:

1997 1996 1995
(thousands)
Service costs for benefits earned $ 9 $ 12 $ 24
Interest cost on liability 71 67 83
Net amortization and deferral (56) (53) (13)
Special termination/curtailment loss 74 576 619
----- ----- -----

Net periodic postretirement benefit cost $ 98 $ 602 $ 713
===== ===== =====

The accumulated postretirement benefit obligation at December 28, 1997 and
December 29, 1996 resulted in an unfunded obligation of $2.0 million and $2.1
million, respectively.

An 8% and 9% annual rate of increase in the per capita costs of covered
health care benefits was assumed for each of 1997 and 1996, respectively. This
rate was assumed to gradually decrease to 5% by the year 2000. Increasing the
weighted average assumed health care cost trend rates by one percentage point
would have an insignificant impact on the accumulated postretirement benefit
obligation and service and interest cost. The discount rate used was 7.00% and
7.50% as of December 28, 1997 and December 29, 1996, respectively.

Postemployment Benefits

The Company provides certain postemployment benefits to former or inactive
employees and their dependents during the time period following employment but
before retirement. At December 28, 1997 and December 29, 1996, the Company's
liability for postemployment benefits was insignificant for each period.

9. DISCONTINUED OPERATIONS

On December 11, 1996, the Company sold its partnership interests in JPS
Automotive for a sale price of approximately $220.1 million including the
assumption of $200.1 million of JPS Automotive's indebtedness. The sale included
substantially all of the net assets of the automotive textiles business segment.
Actual and estimated transaction expenses related to the sale amounted to
approximately $8.9 million.

During 1996, the Company recorded a net loss on the sale of JPS Automotive
of approximately $70.9 million (net of $34.2 million income tax benefit), which
includes the loss on disposal and a net loss of $1.3 million (net of $0.7
million income tax benefit) relating to operating losses during the phase-out
period. In December 1997, the Company recorded a loss from discontinued
operations of approximately $2.0 million (net of income taxes) which relates to
the final post-closing settlement regarding the December 1996 sale of JPS
Automotive.

During 1996, the Company finalized the sale of the outstanding common stock
of Perfect Fit, a wholly-owned subsidiary, for an adjusted sale price of
approximately $44.2 million. The sale included substantially all of the net
assets of the home comfort products segment. Actual and estimated transaction
expenses related to the sale amounted to approximately $1.5 million. The Company
has recorded a loss on the sale of Perfect Fit of approximately $43.0 million,
which includes the loss on disposal and a loss of $2.4 million relating to
operating losses during the phase-out period. A valuation allowance has been
provided for the capital loss relating to the sale of Perfect Fit since the
Company has determined that capital gain taxable income is not likely to be
sufficient to recognize the deferred tax asset relating to the capital loss
carryforward.

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

9. DISCONTINUED OPERATIONS (continued)

The Company's financial statements were restated to reflect the
discontinuation of the home comfort products and automotive textile business
segments. In addition to the interest and debt issuance expense of JPS
Automotive, interest and debt issuance expense was allocated to discontinued
operations based on the estimated debt to be retired from the net proceeds from
the sale of Perfect Fit and JPS Automotive.

10. SALE OF ASSETS

On October 6, 1997, the Company sold substantially all of the net assets of
its needlepunch carpeting, tufted carpeting and artificial grass products
business located at its facilities in Dalton, Georgia to Bretlin, Inc. for an
aggregate sale price of approximately $41.0 million. The Company realized an
insignificant gain on the sale in 1997. The Company used $38.8 million of the
net sale proceeds to repay outstanding term loan borrowings under the Credit
Facility. In connection with this repayment, the Company incurred an
extraordinary loss on the early extinguishment of debt of approximately $0.6
million (net of income tax benefits) during 1997.

11. INCOME TAXES

Income (loss) from continuing operations before provision for income taxes
consists of the following:

<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
<S> <C> <C> <C>
United States $ 7,572 $ 46,075 $(62,015)
Foreign (916) 3,086 (983)
-------- -------- --------

Income (loss) from continuing operations
before provision (benefit) for income taxes $ 6,656 $ 49,161 $(62,998)
======== ======== ========
</TABLE>

The components of the total consolidated provision (benefit) for income
taxes are summarized as follows:

<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Continuing operations $ 2,525 $ 16,669 $(12,248)

Discontinued operations (1,330) (35,129) 1,691

Extraordinary loss on early extinguishment
of debt (27,400) (765) --
-------- -------- --------

Total consolidated provision (benefit) for
income taxes $(26,205) $(19,225) $(10,557)
======== ======== ========
</TABLE>

The total consolidated provision (benefit) for income taxes is summarized
as follows:

1997 1996 1995
(thousands)
Current:
Federal $ 1,958 $ 220 $(2,038)
State 1,248 760 --
Foreign 498 786 457
------- ------- -------
Total current 3,704 1,766 (1,581)
------- ------- -------

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

11. INCOME TAXES (continued)

<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
Deferred:
<S> <C> <C> <C>
Federal (27,013) (24,211) (9,543)
State (2,662) 2,729 856
Foreign (234) 491 (289)
-------- -------- --------
Total deferred (29,909) (20,991) (8,976)
-------- -------- --------

Total consolidated provision (benefit)
for income taxes $(26,205) $(19,225) $(10,557)
======== ======== ========
</TABLE>

The tax effect of the temporary differences that give rise to significant
deferred tax assets and liabilities are:
<TABLE>
<CAPTION>
December 31, December 31,
1997 1996
(thousands)
Deferred tax assets:
<S> <C> <C>
Inventory basis differences $ 1,252 $ 1,209
Employee benefit accruals 5,405 6,247
Allowances and contingent liabilities 3,600 3,616
Restructuring and plant closing accruals 14,436 8,323
Other 5,778 6,301
Net operating loss carryforwards 49,795 37,483
Capital loss carryforwards 11,202 16,561
Valuation allowance for deferred tax assets (13,407) (23,064)
-------- --------
Deferred tax assets 78,061 56,676
-------- --------

Deferred tax liabilities:
Basis difference in property, plant and equipment 27,544 36,257
Other 2,282 4,944
-------- --------
Deferred tax liabilities 29,826 41,201
-------- --------

Net deferred tax assets (liabilities) $ 48,235 $ 15,475
======== ========
</TABLE>

The Company has determined that taxable capital gains in the foreseeable
future for subsidiaries that file a separate federal income tax return will
likely not be sufficient to recognize the deferred tax asset associated with the
capital loss carryforward. Accordingly, a valuation allowance has been provided
for the deferred tax asset associated with the capital loss carryforward. During
1997, the valuation allowance for deferred tax assets decreased by $9.7 million
which included a $5.0 million decrease for the utilization of capital loss
carryforwards associated with the sale of a facility (see Note 10), $1.9 million
decrease due to reversal of preacquisition temporary differences, $2.8 million
was applied to deferred tax assets that will not be utilized. The $1.9 million
reversal of preacquisition temporary differences was used to reduce cost in
excess of assets acquired. At December 28, 1997, the Company has $130.9 million
of regular tax net operating loss carryforwards for federal income tax purposes
expiring from 2003 to 2011. In addition, the Company has $28.9 million of
capital loss carryforwards that expire in 2001.

The Company has recorded net deferred tax assets of $48.2 million.
Realization is dependent on generating sufficient taxable income to utilize the
deferred tax assets primarily representing loss carryforwards. Although
realization is not assured, management believes it is more likely than not that
all of the deferred tax assets will be realized. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term, if
estimates of future taxable income during the carryforward period are reduced.

A reconciliation of the statutory federal income tax rate to the effective
income tax rate on continuing operations is as follows:

F-24
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. INCOME TAXES (continued)

<TABLE>
<CAPTION>
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Statutory income taxes $ 2,330 $ 17,206 $(22,049)
State income taxes, net of federal 260 1,864 (2,095)
Limitation on the utilization of tax benefits -- -- 7,695
Valuation allowance -- (3,621) --
Cost in excess of assets acquired 553 644 1,010
Write-off excess cost 4,305 -- --
Utilization of capital loss carryforwards (5,028) -- --
Other 105 576 3,191
-------- -------- --------
Total $ 2,525 $ 16,669 $(12,248)
======== ======== ========
</TABLE>

12. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company is obligated under various noncancelable lease agreements for
rental of facilities, vehicles and other equipment. Many of the leases contain
renewal options with varying terms and escalation clauses that provide for
increased rentals based upon increases in the Consumer Price Index, real estate
taxes and lessors' operating expenses. Total minimum rental commitments
(excluding commitments accrued as part of the Company's
restructuring/consolidation plan) required under operating leases at December
28, 1997 are:

Operating
Leases
(thousands)
1998 $11,375
1999 10,255
2000 8,430
2001 6,485
2002 6,524
Thereafter 17,322
-------
Total $60,391
=======

Rental expense charged to operations under operating leases approximated
$10.1 million, $9.6 million and $10.5 million for 1997, 1996 and 1995,
respectively. Substantially all such rental expense represented the minimum
rental payments under operating leases. In addition, the Company incurred rental
expense of approximately $1.7 million and $3.5 million for 1996 and 1995,
respectively, under leases with related parties.

13. RELATED PARTY TRANSACTIONS AND BALANCES

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

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

F-25

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

13. RELATED PARTY TRANSACTIONS AND BALANCES (continued)

In connection with the Refinancing Plan, Foamex L.P. made a cash
distribution of approximately $1.5 million to Trace Foam as a result of Foamex
L.P.'s distribution to FJPS and FMXI, Inc. of the Discount Debentures, a note
with a principal amount of approximately $56.2 million (net of approximately
$20.6 million of original issue discount) due from FJPS and a promissory note in
the aggregate principal amount of $2.0 million due from the Company. The
distribution to Trace Foam reduced retained earnings (accumulated deficit) of
the Company.

Foamex L.P. was party to a lease agreement for an airplane with Trace
Aviation Corp. ("Trace Aviation"), a subsidiary of Trace Holdings. During 1995,
Foamex L.P. paid Trace Aviation $1.6 million pursuant to the lease agreement.
The lease agreement also provided for the use of the airplane by Trace Holdings
with remuneration to Foamex L.P. based on actual usage of the plane. During
1995, Trace Holdings paid to Foamex L.P. $0.6 million pursuant to the agreement.
During August 1995, Foamex Aviation Inc. ("Aviation"), a wholly-owned subsidiary
of the Company, acquired the aircraft from Trace Holdings for $3.0 million in
cash and the assumption of $11.7 million of related debt. In connection with the
acquisition of the aircraft, the Foamex L.P. lease and other agreements were
terminated.

Foamex L.P. has a management service agreement with Trace Foam Company,
Inc. ("Trace Foam"), a wholly-owned subsidiary of Trace Holdings, pursuant to
which Trace Foam provides general managerial services of a financial, technical,
legal, commercial, administrative and/or advisory nature to Foamex L.P. During
June 1997, the management services agreement was amended to increase the annual
fee from $1.75 million to $3.0 million, plus reimbursement of expenses incurred.
Trace Holdings rents approximately 5,900 square feet of general, executive and
administrative office space in New York, New York from Foamex L.P. on
substantially the same terms as Foamex L.P. leases such space from a third party
lessor.

During 1997 and 1995, the Company purchased approximately $1.9 million and
$2.5 million, respectively, of scrap material from Recticel Foam Corporation
("RFC"), a former partner of Foamex L.P. and whose chairman is a director of the
Company, under various agreements, the latest which expired in March 1998.

14. STOCK OPTION PLAN

The Company's 1993 Stock Option Plan provides for the granting of
nonqualified ("NQSOs") and incentive stock options for up to 3.0 million shares
of common stock to officers and executive employees of the Company and its
subsidiaries and affiliates, the price and terms of each such option is at the
discretion of the Company, except that the term cannot exceed ten years. As of
December 28, 1997, the stock options issued under the 1993 Stock Option Plan
vest equally over a five year period with a term of ten years.

In accordance with Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation") ("FAS No. 123"), which was effective
as of January 1, 1996, the fair value of option grants is estimated on the date
of grant using the Black-Scholes option pricing model for pro forma footnote
purposes with the following assumptions used for grants in all years; no
dividend yield, risk-free interest rates of 5.69% to 6.39% and expected option
life of three years. Expected volatility was assumed to be 40% in 1997 and 1996.

F-26
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

14. STOCK OPTION PLAN (continued)

A summary of stock option activity is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Weighted Weighed Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 967,476 $ 6.97 951,343 $ 7.64 2,033,800 $17.28
Granted 625,833 11.52 202,240 7.06 150,000 9.95
Exercised (145,195) 6.88 (14,914) 6.88 - -
Forfeited (9,065) 6.88 (171,193) 10.80 (145,956) 14.59
Canceled - - - - - (1,924,700) 17.15
Granted in exchange offer - - - - 838,199 6.88
--------- ------ -------- ------ ---------- -------

Outstanding at end of year 1,439,049 7.08 967,476 $ 6.97 951,343 $ 7.64
========= ====== ======== ====== ========== =======

Exercisable at end of year 467,460 7.04 431,863 $ 6.94 20,140 $14.62
========= ====== ======== ====== ========== ======
</TABLE>

The options outstanding at December 28, 1997 have an exercise price range
of $6.875 to $14.00. During 1997, the Company granted 625,833 options with a
weighted average market price on the date of grant of $3.91. During 1996, the
Company granted 202,240 options with a weighted average market price on the date
of grant of $6.52. The 1996 aggregate difference of $1.1 million between the
fair market value ("FMV") of the options at the date of grant and the option
price is being charged to expense over the vesting period (five years) of the
options. During 1995, the Company granted a total of 150,000 options which
include (i) 15,000 options with a weighted average market price on the date of
grant of $9.50, (ii) 85,000 options with a weighted average market price on the
date of grant of $8.29 and (iii) 50,000 options with a weighted average market
price on the date of grant of $9.50. Upon completion of the initial public
offering (the "IPO") in December 1993, options were granted to purchase 248,600
shares of common stock at $13.50 per share and 1,750,000 shares of common stock
at prices ranging from $15.00 to $22.50 per share. The aggregate difference of
$0.4 between the FMV ($15 per share) of the options at the date of grant and the
$13.50 option price is being charged to expense over the vesting period (five
years) of the options. Total compensation expense relating to options amounted
to approximately $0.3 million, $0.3 million and $0.1 million, respectively, in
each of 1997, 1996 and 1995, respectively.

In December 1995, the Stock Option Plan Committee approved a stock option
exchange program which permitted optionees of record as of that date to exchange
all options previously granted for options priced at the FMV share price,
$6.875, as of the close of business on that date. The number of new options (the
"New Options") to be exchanged for previously granted options (the "Old
Options") was determined on the basis of the ratio of the FMV on December 6,
1995 to the FMV or the discount share value of the Old Options when originally
granted. New Options could not be exercised until December 6, 1996 and expire
upon the same terms as the Old Options.

The weighted average remaining contractual lives of outstanding options at
December 28, 1997 was approximately 7.0 years.

The Company applies the provisions of Accounting Principles Board Opinion
No. 25 ("Accounting for Stock Issued to Employees") and related interpretations
("APB 25") in accounting for its stock-based compensation plans. Accordingly,
compensation expense has been recognized in the consolidated financial
statements with respect to the above plans in accordance with APB 25. Had
compensation costs for the above plans been determined based on the fair value
of the options at the grant dates under those plans consistent with the methods
under Statement of Financial Accounting Standards No. 123 ("Accounting for Stock
Based Compensation"), the Company's income from continuing operations and
earnings (loss) per share would not have been significantly affected.

F-27

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

15. STOCKHOLDERS' EQUITY (DEFICIT)

Preferred Stock

The Company is authorized to issue 5.0 million shares of preferred stock
with a par value of $1.00 per share, none of which has been issued. The Board of
Directors has the power to establish the powers, preferences, and rights of each
series which may afford the holders of any preferred stock preferences, powers
and rights (including voting rights) senior to the rights of the holders of
common stock.

Common Stock

At December 28, 1997, the Company had an aggregate of 4.8 million of common
stock shares reserved for issuance in connection with its stock option plan (3.0
million) and outstanding warrants (1.8 million).

Warrants

In June 1994, in connection with the issuance of the Discount Debentures, the
Company issued 116,745 warrants to purchase 0.6 million shares of common stock.
Each warrant is exercisable on or before July 1, 1999 for 5.1394 shares at a
cash price of $11.52 per share upon exercise. The warrants were valued by
projecting the Company's financial results for five years. These financial
results were discounted at a rate of 18% to 20% and, with a projected price
earnings ratio of 10-11x after five years, yielded a value of approximately
$25.70 per warrant or $3.0 million in total. Accordingly, additional paid in
capital was increased for the cash received attributable to the warrants and the
associated debt reduced, with such reduction to be amortized over the life of
the debt.

In addition, the Company has outstanding warrants to purchase approximately
1.2 million shares of common stock at an exercise price of approximately $12.30
per share at any time prior to October 1999.

Treasury Stock

During 1997, 1996 and 1995, the Company purchased 434,600, 624,700 and
929,700 shares of its common stock, respectively, for an aggregate cost of $5.7
million, $6.3 million and $7.2 million, respectively, under programs authorized
by the Board of Directors to purchase up to 3.0 million shares of the Company's
common stock.

Other

The other component of stockholders' equity (deficit) consists of the
following:
<TABLE>
<CAPTION>
December 28, December 29, December 31,
1997 1996 1995
(thousands)
<S> <C> <C> <C>
Foreign currency translation adjustment $ 4,367 $ 3,494 $ 3,448
Additional pension liability, net of income taxes 2,231 1,445 2,872
Note receivable from Trace Holdings 9,795 4,373 4,373
------- ------- -------
$16,393 $ 9,312 $10,693
======= ======= =======
</TABLE>

F-28
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. ENVIRONMENTAL MATTERS

The Company is subject to extensive and changing federal, state, local and
foreign environmental laws and regulations, including those relating to the use,
handling, storage, discharge and disposal of hazardous substances and the
remediation of environmental contamination, and as a result, is from time to
time involved in administrative and judicial proceedings and inquiries relating
to environmental matters. During 1997, expenditures in connection with the
Company's compliance with federal, state, local and foreign environmental laws
and regulations did not have a material adverse effect on the Company's
operations, financial position, capital expenditures or competitive position. As
of December 28, 1997, the Company has environmental accruals of approximately
$9.3 million for environmental matters. In addition, as of December 28, 1997,
the Company has net receivables of approximately $1.1 million relating to
indemnification for environmental liabilities, net of an allowance of
approximately $1.0 million relating to potential disagreements regarding the
scope of the indemnification. The Company believes that realization of the net
receivables established for indemnification is probable.

The Clean Air Act Amendments of 1990 (the "1990 CAA Amendments") provide
for the establishment of federal emission standards for hazardous air pollutants
including methylene chloride, propylene oxide and TDI, materials used in the
manufacturing of foam. On December 27, 1996, the United States Environmental
Protection Agency (the "EPA") proposed regulations under the 1990 CAA Amendments
that will require manufacturers of slab stock polyurethane foam and foam
fabrication plants to reduce emissions of methylene chloride. Because these
regulations are subject to change prior to finalization, the Company cannot
accurately predict the actual cost of their implementation. The Company does not
believe implementation of the regulations will require it to make material
expenditures at facilities owned prior to December 23, 1997, due to the
Company's use of alternative technologies which do not utilize methylene
chloride and its ability to shift current production to the facilities which use
these alternative technologies; however, material expenditures may be required
at the facilities formerly operated by Crain. The 1990 CAA Amendments also may
result in the imposition of additional standards regulating air emissions from
polyurethane foam manufacturers, but these standards have not yet been proposed
or promulgated.

The Company has reported to appropriate state authorities that it has found
soil and groundwater contamination in excess of state standards at four
facilities and soil contamination in excess of state standards at three other
facilities. The Company has begun remediation and is conducting further
investigations into the extent of the contamination at these facilities and,
accordingly, the extent of the remediation that may ultimately be required. The
actual cost and the timetable of any such remediation cannot be predicted with
any degree of certainty at this time. As of December 28, 1997, the Company has
environmental accruals of approximately $8.7 million for the remaining potential
remediation costs for these facilities based on engineering estimates.

Federal regulations require that by the end of 1998 all underground storage
tanks ("USTs") be removed or upgraded in all states to meet applicable
standards. The Company has six USTs that will require removal or permanent
in-place closure by the end of 1998. Due to the age of these tanks, leakage may
have occurred resulting in soil and possibly groundwater contamination. The
Company has accrued $0.1 million for the estimated removal and remediation, if
any, associated with these USTs. However, the full extent of contamination and,
accordingly, the actual cost of such remediation cannot be predicted with any
degree of certainty at this time. The Company believes that its USTs do not pose
a significant risk of environmental liability because of the Company's
monitoring practices for USTs and conditional approval for the permanent
in-place closure for certain USTs. However, there can be no assurance that such
USTs will not result in significant environmental liability in the future.

The Company has been designated as a Potentially Responsible Party ("PRP")
by the United States Environmental Protection Agency (the "EPA") with respect to
thirteen sites with an estimated total liability to the Company for the thirteen
sites of less than approximately $0.5 million. Estimates of total cleanup costs
and fractional allocations of liability are generally provided by the EPA or the
committee of PRP's with respect to the specified site. In each case, the
participation of the Company is considered to be immaterial.

F-29
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

16. ENVIRONMENTAL MATTERS (continued)

17. LITIGATION

As of March 4, 1998, the Company and Trace Holdings were two of multiple
defendants in actions filed on behalf of approximately 5,000 recipients of
breast implants in various United States federal and state courts and one
Canadian provincial court, some of which allege substantial damages, but most of
which allege unspecified damages for personal injuries of various types. Three
of these cases seek to allege claims on behalf of all breast implant recipients
or other allegedly affected parties, but no class has been approved or certified
by the court. In addition, three cases have been filed alleging claims on behalf
of approximately 700 residents of Australia, New Zealand, England, and Ireland.
During 1995, the Company and Trace Holdings were granted summary judgments and
dismissed as defendants from all cases in the federal courts of the United
States and the state courts of California. Appeals for these decisions were
withdrawn and the decisions are final. In addition, two of the cases filed on
behalf of 903 foreign plaintiffs were dismissed on the grounds that the cases
could not be brought in the United States courts. This decision is subject to
appeal. The Company believes that the number of suits and claimants may
increase. The Company believes that the number of suits and claimants may
increase. Although breast implants do not contain foam, certain silicone gel
implants were produced using a polyurethane foam covering fabricated by
independent distributors or fabricators from bulk foam purchased from the
Company or Trace Holdings. Neither the Company nor Trace Holdings recommended,
authorized or approved the use of its foam for these purposes. While it is not
feasible to predict or determine the outcome of these actions, based on
management's present assessment of the merits of pending claims, after
consultation with the general counsel of Trace Holdings, and without taking into
account potential indemnity from the manufacturers of polyurethane covered
breast implants, management believes that the disposition of matters that are
pending or that may reasonably be anticipated to be asserted should not have a
material adverse effect on either the Company's or Trace Holdings' consolidated
financial position or results of operations. In addition, the Company is also
indemnified by Trace Holdings for any such liabilities relating to foam
manufactured prior to October 1990. Although Trace Holdings has paid the
Company's litigation expenses to date pursuant to such indemnification and
management believes Trace Holdings likely will be in a position to continue to
pay such expenses, there can be no absolute assurance that Trace Holdings will
be able to provide such indemnification. Based on information available at this
time with respect to the potential liability, and without taking into account
the indemnification provided by Trace Holdings and the coverage provided by
Trace Holdings' and the Company's liability insurance, the Company believes that
the proceedings should not ultimately result in any liability that would have a
material adverse effect on the financial position or results of operations of
the Company. If management's assessment of the Company's liability with respect
to these actions is incorrect, such actions could have a material adverse effect
on the Company.

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

17. LITIGATION (continued)

On or about March 17, 1998, five purported class action lawsuits were filed
in the Delaware Chancerty Court, New Castle County, against the Company,
directors of the Company, Trace Holdings, and individual officers and directors
of Trace Holdings:

A sixth purported class action lawsuit, Barnett Stepak v. Foamex
International Inc., et al., No. 16277, was filed on or about March 23, 1998
against the same defendants. The complaints in the six actions allege, among
other things, that the defendants have violated fiduciary and other common law
duties purportedly owed to the Company's shareholders in connection with Trace
Holdings proposal to acquire all of the shares of the Company's common stock.
The complaints seek, among other things, class certification, a declaration that
the defendants have breached their fiduciary duties to the class, preliminary
and permanent injunctions baring implementation of the proposed transaction,
rescission of the transaction if consummated, unspecified compensatory damages,
and costs and attorneys' fees.

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

18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

Interest Rate Swap Agreements

The Company has an interest rate swap agreement involving the exchange of
fixed and floating interest payment obligations without the exchange of the
underlying principal amounts. At December 28, 1997, the total notional principal
amount of the interest rate swap agreement was $150.0 million. The counterparty
to the agreement is a large international financial institution. The interest
rate swap agreement subjects the Company to financial risk that will vary during
the life of the agreement in relation to market interest rates.

Concentration of Credit Risk

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

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

Disclosure about Fair Value of Financial Instruments

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

F-31

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

18. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK (continued)

The estimated fair values of the Company's financial instruments as of
December 28, 1997 are as follows:

Carrying Amount Fair Value
(thousands)
Liabilities:
Long-term debt $ 748,655 $751,143
============= ========

Interest rate swaps $ -- $ 1,015
============= ========

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

The fair value of long-term debt is estimated using quoted market prices,
where available, or discounted cash flows.

The fair value of interest rate swap is based on the amount at which the
Company would pay if the swap was settled, as determined by an estimate obtained
from dealers.

Fair value estimates are made at a specific point in time, based on
relevant market information about the financial instruments. These estimates are
subjective in nature and involve uncertainties and matters of significant
judgment and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.

19. EARNINGS (LOSS) PER SHARE

The following table shows the amounts used in computing earnings per share
and the effect on income and the weighted average number of shares of dilutive
potential common stock.
<TABLE>
<CAPTION>
1997 1996 1995
(thousands, except per share amounts)
Basic earnings (loss) per share:
<S> <C> <C> <C>
Net income (loss) $(42,345) $(83,135) $(53,120)
======== ======== ========

Average common stock outstanding 25,189 25,389 26,472
======== ======== ========

Basic earnings (loss) per share $ (1.68) $ (3.28) $ (2.01)
======== ======== ========

Diluted earnings per share:
Net income (loss) available for common stock
and dilutive securities $(42,345) $(83,135) $(53,120)
======== ======== ========

Average common stock outstanding 25,189 25,389 26,472

Additional common shares resulting
from stock options 511 351 --
-------- -------- --------

Average common stock and dilutive
stock outstanding 25,700 25,740 26,472
======== ======== ========

Diluted earnings (loss) per share $ (1.65) $ (3.23) $ (2.01)
======== ======== ========
</TABLE>

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

19. EARNINGS (LOSS) PER SHARE (continued)

Earnings (loss) per share attributable to continuing operations and
discontinued operations and extraordinary loss on early extinguishment of debt
are:
<TABLE>
<CAPTION>
1997 1996 1995
Earnings (loss) per common share - basic:
<S> <C> <C> <C>
Continuing operations $ 0.16 $ 1.28 $ (1.92)

Discontinued operations (0.08) (4.51) (0.09)

Extraordinary loss (1.76) (0.05) --
-------- -------- --------

Net loss $ (1.68) $ (3.28) $ (2.01)
======== ======== ========

Earnings (loss) per common share - assuming dilution:

Continuing operations $ 0.16 $ 1.26 $ (1.92)

Discontinued operations (0.08) (4.45) (0.09)

Extraordinary loss (1.73) (0.04) --
-------- -------- --------

Net loss $ (1.65) $ (3.23) $ (2.01)
======== ======== ========
</TABLE>
F-33

<PAGE>

20. SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1997 1996 1995
(thousands)

<S> <C> <C> <C>
Cash paid for interest $46,323 $44,472 $47,333
======= ======= =======

Cash paid (received) for income taxes, net $ 3,579 $(2,855) $ 3,024
======= ======= ========

Noncash capital expenditures $ 167 $ 165 $ 378
======== ======== =========
</TABLE>

21. QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(thousands except per share amounts)
1997
<S> <C> <C> <C> <C>
Net sales $229,120 $239,887 $233,434 $228,654
Gross profit 42,797 44,780 38,039 17,723
Net income (loss) 7,726 (32,719) 6,515 (23,867)
Basic earnings (loss) per share 0.31 (1.29) 0.26 (0.96)
Diluted earnings (loss) per share 0.29 (1.26) 0.26 (0.96)
</TABLE>

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

21. QUARTERLY FINANCIAL DATA (UNAUDITED) (continued)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(thousands except per share amounts)
1996
<S> <C> <C> <C> <C>
Net sales $219,131 $240,447 $236,766 $230,007
Gross profit 36,031 38,167 39,960 39,074
Net income (loss) 6,137 (31,707) (66,623) 9,058
Basic earning (loss) per share 0.24 (1.25) (2.64) 0.36
Diluted earnings (loss) per share 0.24 (1.24) (2.64) 0.35
</TABLE>

During 1997, the Company recorded an extraordinary loss on the early
extinguishment of debt of approximately $42.2 million relating to the
Refinancing Plan (see Note 7) which is reflected in the second quarter of 1997.
During the fourth quarter of 1997, the Company recorded a $21.1 million
restructuring charge which is described in Note 4 and recorded approximately
$20.0 million of special charges and changes in estimates relating to inventory
writedowns, customer deductions, start-up of operations and other items. These
charges decreased gross profit by $15.6 million and increased selling, general
and administrative expenses by $4.4 million.

During 1996, the Company recorded a net loss on the disposal of Perfect Fit
including operating losses during the phase-out period of approximately $43.0
million of which $39.3 million is reflected in the second quarter of 1996 (see
Note 9). Also, during 1996 the Company recorded an estimated net loss on the
disposal of JPS Automotive including operating losses during the phase-out
period of approximately $70.9 million of which $69.7 million is reflected in the
third quarter of 1996 (see Note 9). During the fourth quarter of 1996, the
Company recorded a $6.5 million net restructuring credit, which is described in
Note 4.

22. SUBSEQUENT EVENT

On February 27, 1998, the Company and certain of its affiliates completed a
series of transactions designed to simplify the Company's structure and to
provide future operational flexibility. Prior to the consummation of these
transactions, the Company defeased the $4.5 million outstanding principal amount
of its 9 1/2% Senior Secured Notes due 2000. Foamex L.P. settled its
intercompany payables to General Felt with $4.8 million in cash and a $34.0
million principal amount promissory note supported by the $34.5 million
Foamex/GFI Note. The initial transaction resulted in the transfer from Foamex
L.P. to Trace Foam LLC of all of the outstanding common stock of General Felt,
in exchange for (i) the assumption by Trace Foam LLC of $129.0 million of Foamex
L.P.'s indebtedness and (ii) the transfer by Trace Foam LLC to Foamex L.P. of a
1% non-managing general partnership interest in Foamex L.P. As a result, General
Felt ceased being a subsidiary of Foamex L.P. and was relieved from all
obligations under Foamex L.P.'s 9 7/8% Senior Subordinated Notes due 2007 and 13
1/2% Senior Subordinated Notes due 2005. Upon consummation of the initial
transaction, Foamex Carpet, a newly formed wholly-owned subsidiary of the
Company, the Company, Trace Foam LLC, and General Felt entered into an Asset
Purchase Agreement dated February 27, 1998, in which General Felt sold
substantially all of its assets (other than the Foamex/GFI Note and its
operating facility in Pico Rivera, California) to Foamex Carpet in exchange for
(i) $20.0 million in cash and (ii) a promissory note issued by Foamex Carpet to
Trace Foam LLC in the amount of $70.2 million. The $20.0 million cash payment
was funded with a distribution by Foamex L.P. Upon consummation of these
transactions contemplated by the Asset Purchase Agreement, Foamex Carpet entered
into a Credit Agreement with the institutions from time to time party thereto,
as issuing banks, and Citicorp USA, Inc. and The Bank of Nova Scotia, as
administrative agents, which provides for up to $20.0 million in revolving
credit borrowings. These transactions were accounted for in a manner similar to
a pooling of interests since the entities were under common control. Foamex
Carpet will conduct the carpet cushion business previously conducted by General
Felt. Also, Trace Foam LLC has retained ownership of one of General Felt's
operating facilities which is being leased to Foamex Carpet and the $34.0
million Foamex/GFI Note.

F-34
<PAGE>
FOAMEX INTERNATIONAL INC.
INDEX TO FINANCIAL STATEMENT SCHEDULES

Index to Financial Statement Schedules

Schedule I - Condensed Financial Information of Registrant

Schedule II - Valuation and Qualifying Accounts

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

S-1
<PAGE>
Schedule I

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
<TABLE>
<CAPTION>
December 28, December 29,
1997 1996
ASSETS (thousands)
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 2,639 $ 1,232
Intercompany receivables 14,542 10,516
Deferred income taxes 42,935 15,045
Other current assets 181 1,053
--------- ---------
Total current assets 60,297 27,846

OTHER ASSETS 772 353
--------- ---------

TOTAL ASSETS $ 61,069 $ 28,199
========= =========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable $ 10,542 $ 9,309
Other accrued liabilities 5,056 4,937
--------- ---------
Total current liabilities 15,598 14,246

LONG-TERM LIABILITIES:
Notes payable to consolidated subsidiaries I 2,500 8,000
Tax distribution advance payable 13,618 --
Deficit in consolidated subsidiaries 142,772 62,429
Deferred income taxes -- 1,627
--------- ---------
Total liabilities 174,488 86,302
--------- ---------

COMMITMENTS AND CONTINGENCIES -- --
--------- ---------

STOCKHOLDERS' EQUITY (DEFICIT):
Preferred Stock, par value $1.00 per share:
Authorized 5,000,000 shares - none issued -- --
Common Stock, par value $.01 per share:
Authorized 50,000,000 shares
Issued 26,908,680 and 26,753,262
shares, respectively
Outstanding 24,919,680 and 25,198,862
shares, respectively 269 267
Additional paid-in capital 86,025 84,579
Retained earnings (accumulated deficit) (164,118) (120,174)
Other (16,393) (9,312)
--------- ---------
(94,217) (44,640)
Common Stock held in Treasury, at cost:
1,989,000 shares and 1,554,400, respectively (19,202) (13,463)
--------- ---------
Total stockholders' equity (deficit) (113,419) (58,103)
--------- ---------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 61,069 $ 28,199
========= =========
<FN>
(1) During 1997, FJGP, Inc.'s, a wholly-owned subsidiary of Foamex
International, distributed its assets and liabilities to Foamex
International. FJGP Inc.'s assets primarily consisted of its 1% partnership
interest in FJPS and a $6.0 million demand note due from Foamex
International.
</FN>
</TABLE>

See notes to consolidated financial statements.
(continued)

S-2
<PAGE>
Schedule I

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
1997 1996 1995
(amounts in thousands except per share amounts)
<S> <C> <C> <C>
INTERCOMPANY SALES $ 123,355 $ 179,791 $ 197,066

COST OF GOODS SOLD 123,355 179,791 197,066
--------- --------- ---------

GROSS PROFIT -- -- --

SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 486 709 5,004

RESTRUCTURING AND OTHER CHARGES -- (126) 2,168
--------- --------- ---------

INCOME (LOSS) FROM OPERATIONS (486) (583) (7,172)

EQUITY IN EARNINGS (LOSS) OF
CONSOLIDATED SUBSIDIARIES 4,954 42,097 (57,904)

INTEREST EXPENSE 153 196 13

INTEREST INCOME 204 78 679
--------- --------- ---------

INCOME (LOSS) BEFORE INCOME TAX
AND EXTRAORDINARY LOSS 4,519 41,396 (64,410)

INCOME TAX PROVISION (BENEFIT) 388 8,904 (13,660)
--------- --------- ---------

INCOME (LOSS) FROM CONTINUING
OPERATIONS 4,131 32,492 (50,750)

EQUITY IN DISCONTINUED OPERATIONSI (1,994) (114,480) (2,370)
--------- --------- ---------

INCOME (LOSS) BEFORE EXTRAORDINARY LOSS 2,137 (81,988) (53,120)

EQUITY IN EXTRAORDINARY LOSSI (44,482) (1,147) --
--------- --------- ---------

NET INCOME (LOSS) $ (42,345) $ (83,135) $ (53,120)
========= ========= =========

BASIC EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.16 $ 1.28 $ (1.92)
========= ========= =========
EARNINGS (LOSS) PER SHARE $ (1.68) $ (3.28) $ (2.01)
========= ========= =========

DILUTED EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS $ 0.16 $ 1.26 $ (1.92)
========= ========= =========

EARNINGS (LOSS) PER SHARE $ (1.65) $ (3.23) $ (2.01)
========= ========= =========
<FN>
(1) Equity in discontinued operation includes allocated income tax provisions
(benefits) of Foamex International of $(1.3) million, $(32.5) million and
$4.3 million for 1997, 1996 and 1995, respectively.

(2) Equity in extraordinary loss includes allocated income tax benefits of
$27.3 million and $0.8 million for 1997 and 1996, respectively.
</FN>
</TABLE>

See notes to consolidated financial statements.
(continued)

S-3
<PAGE>
Schedule I

FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1997 1996 1995
OPERATING ACTIVITIES: (thousands)
<S> <C> <C> <C>
Net income (loss) $ (42,345) $ (83,135) $ (53,120)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Deferred income taxes (387) 8,904 (11,622)
Equity in earnings of discontinued operations 1,994 114,480 2,370
Equity in earnings of extraordinary loss 44,482 1,147 --
Equity in earnings of consolidated subsidiaries (4,954) (42,097) 57,904
Other 61 357 35
Changes in operating assets and liabilities,
net of acquisitions:
Intercompany receivables (4,026) 2,702 4,049
Accounts payable 1,233 (3,844) (7,393)
Other assets and liabilities 764 4,346 (3,541)
--------- --------- ---------
Net cash provided by (used for) operating activities (3,178) 2,860 (11,318)
--------- --------- ---------

INVESTING ACTIVITIES:
Investment in consolidated subsidiaries -- -- (4,025)
Proceeds from (settlement of) sale of discontinued operations (13,556) 179 --
Other 6,757 1,707 2,379
--------- --------- ---------
Net cash provided by (used for) investing activities (6,799) 1,886 (1,646)
--------- --------- ---------

FINANCING ACTIVITIES:
Note payable to consolidated subsidiary 2,500 -- 2,000
Tax advance distribution 13,618 -- --
Purchase of treasury stock (5,739) (6,296) (7,167)
Proceeds from exercise of stock options 1,005 102 --
--------- --------- ---------
Net cash provided by (used for) financing activities 11,384 (6,194) (5,167)
--------- --------- ---------

NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 1,407 (1,448) (18,131)

CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 1,232 2,680 20,811
--------- --------- ---------

CASH AND CASH EQUIVALENTS AT
END OF PERIOD $ 2,639 $ 1,232 $ 2,680
========= ========= =========
</TABLE>

Note: During 1997, 1996 and 1995, the Company received distributions from its
consolidated subsidiaries of $8.8 million, $1.7 million and $2.4 million,
respectively, in accordance with tax sharing agreements.

See notes to consolidated financial statements.
(continued)

S-4
<PAGE>
FOAMEX INTERNATIONAL INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(thousands)
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning of Costs and other End of
Period Expenses Accounts(1) Deductions Period

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

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

Valuation Allowance $ 23,064 $ (5,028) $ (1,829) $ 2,800 $ 13,408
======== =========== ======== ========= ========

YEAR ENDED DECEMBER 29, 1996
Allowance for Uncollectible Accounts $ 4,839 $ 704 $ 292 $ 2,775 $ 3,060
======== =========== ======== ========= ========

Reserve for Discounts $ 4,299 $ -- $ 12,190 $ 13,221 $ 3,268
======== =========== ======== ========= ========

Valuation Allowance $ 16,979 $ 12,940 $ (6,855)(3) $ -- $ 23,064
======== =========== ======== ========= ========

YEAR ENDED DECEMBER 31, 1995(2)
Allowance for Uncollectible Accounts $ 2,324 $ 4,627 $ 324 $ 2,436 $ 4,839
======== =========== ======== ========= ========

Reserve for Discounts $ 1,382 $ -- $ 15,056 $ 12,139 $ 4,299
======== =========== ======== ========= ========

Valuation Allowance $ 13,172 $ 7,695 $ (3,888)(3) $- $ 16,979
======== =========== ======== ========= ========
<FN>
(1) Discounts and billing adjustments reflect a reduction in net sales.

(2) Fiscal years 1995 and 1994 were restated for discontinued operations.

(3) Represents an adjustment to cost in excess of net assets relating to the
utilization of preacquisition deferred tax assets of General Felt.
</FN>
</TABLE>
S-5

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

CRAIN HOLDINGS CORP.

* * * * * * * *

The name of the corporation (the "Corporation") is Crain Industries, Inc.
The Corporation was incorporated on July 26, 1995.

ARTICLE I.

NAME

The name of the corporation (the "Corporation") is:

Crain Industries, Inc.

ARTICLE II.

REGISTERED AGENT AND ADDRESS

The address of its registered office in the State of Delaware is 32
Lockerman Square, Suite L-100, in the City of Dover, County of Kent. The name of
its registered agent at such address is The Prentice-Hall Corporation System,
Inc.

ARTICLE III.

BUSINESS

The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware.
<PAGE>

ARTICLE IV.

AUTHORIZED CAPITAL

The total number of shares of stock which the Corporation shall have
authority to issue is 100 shares of Common Stock, $.01 par value per share.

ARTICLE V.

BY-LAWS

In furtherance and not in limitation of the powers conferred by statute,
the by-laws of the Corporation may be made, altered, amended or repealed by the
stockholders or by a majority of the entire board of directors.

ARTICLE VI.

ELECTION OF DIRECTORS

Elections of directors need not be by written ballot.

ARTICLE VII.

INDEMNIFICATION AND EXCULPATION

The Corporation shall indemnify any person who was, is, or is threatened to
be made a party to a proceeding (as hereinafter defined) by reason of the fact
that he or she (i) is or was a director or officer of the Corporation or (ii)
while a director or officer of the Corporation, is or was serving at the request
of the Corporation as a director, officer, partner, venturer, proprietor,
trustee, employee, agent, or similar functionary of another foreign or domestic
corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, to the fullest extent

-2-

<PAGE>

permitted under the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended. Such right shall be a contract right
and as such shall run to the benefit of any director or officer who is elected
and accepts the position of director or officer of the Corporation or elects to
continue to serve as a director or officer of the Corporation while this Article
VII is in effect. Any repeal or amendment of this Article VII shall be
prospective only and shall not limit the rights of any such director or officer
or the obligations of the Corporation with respect to any claim arising from or
related to the services of such director or officer in any of the foregoing
capacities prior to any such repeal or amendment to this Article VII. Such right
shall include the right to be paid by the Corporation expenses incurred in
investigating or defending any such proceeding in advance of its final
disposition to the maximum extent permitted under the General Corporation Law of
the State of Delaware, as the same exists or may hereafter be amended. If a
claim for indemnification or advancement of expenses hereunder is not paid in
full by the Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim, and if
successful in whole or in part, the claimant shall also be entitled to be paid
the expenses of prosecuting such claim. It shall be a defense to any such action
that such indemnification or advancement of costs of defense are not permitted
under the General Corporation Law of the State of

-3-

<PAGE>

Delaware, but the burden of proving such defense shall be on the Corporation.
Neither the failure of the Corporation (including its board of directors or any
committee thereof, independent legal counsel, or stockholders) to have made its
determination prior to the commencement of such action that indemnification of,
or advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors or any committee thereof, independent legal counsel, or
stockholders) that such indemnification or advancement is not permissible shall
be a defense to the action or create a presumption that such indemnification or
advancement is not permissible. In the event of the death of any person having a
right of indemnification under the foregoing provisions, such right shall inure
to the benefit of his or her heirs, executors, administrators, and personal
representatives. The rights conferred above shall not be exclusive of any other
right which any person may have or hereafter acquire under any statute, by-law,
resolution of stockholders or directors, agreement, or otherwise.

The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.

As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding,

-4-

<PAGE>

and any inquiry or investigation that could lead to such an action, suit, or
proceeding.

ARTICLE VIII.

LIMITATION ON LIABILITY

A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which the director derived
an improper personal benefit. Any repeal or amendment of this Article VIII by
the stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of the
Corporation is not personally liable as set forth in the foregoing provisions of
this Article VIII, a director shall not be liable to the Corporation or its
stockholders to such further extent as permitted by any law hereafter enacted,
including without limitation any subsequent amendment to the General Corporation
Law of the State of Delaware.

-5-

<PAGE>

IN WITNESS WHEREOF, the undersigned has executed this Amended and Restated
Certificate of Incorporation on this ___ day of December, 1997.

CRAIN HOLDINGS, INC.

By: ______________________
Name: George Karpinski
Title: Vice President

BYLAWS

CRAIN HOLDINGS CORP.

A Delaware Corporation

<PAGE>

TABLE OF CONTENTS

Page

ARTICLE I. OFFICES

1.1. Registered Office and Agent...........................................1
1.2. Other Offices.........................................................1

ARTICLE II. MEETINGS OF STOCKHOLDERS

2.1. Annual Meeting........................................................1
2.2. Special Meeting.......................................................1
2.3. Place of Meetings.....................................................2
2.4. Notice................................................................2
2.5. Voting List...........................................................2
2.6. Quorum................................................................3
2.7. Required Vote; Withdrawal of Quorum...................................3
2.8. Method of Voting; Proxies.............................................3
2.9. Record Date...........................................................4
2.10. Conduct of Meeting....................................................5
2.11. Inspectors............................................................5

ARTICLE III. DIRECTORS

3.1. Management............................................................6
3.2. Number; Qualification; Election; Term.................................6
3.3. Change in Number......................................................6
3.4. Removal...............................................................6
3.5. Vacancies.............................................................7
3.6. Meetings of Directors.................................................7
3.7. First Meeting.........................................................7
3.8. Election of Officers..................................................7
3.9. Regular Meetings......................................................8
3.10. Special Meetings......................................................8
3.11. Notice................................................................8
3.12. Quorum; Majority Vote.................................................8
3.13. Procedure.............................................................8
3.14. Presumption of Assent.................................................9
3.15. Compensation..........................................................9

ARTICLE IV. COMMITTEES

4.1. Designation...........................................................9
4.2. Number; Qualification; Term...........................................9
4.3. Authority.............................................................9
4.4. Committee Changes....................................................10
4.5. Alternate Members of Committees......................................10
4.6. Regular Meetings.....................................................10
4.7. Special Meetings.....................................................10
4.8. Quorum; Majority Vote................................................10
4.9. Minutes..............................................................10
4.10. Compensation.........................................................11
4.11. Responsibility.......................................................11

-i-
<PAGE>

ARTICLE V. NOTICE

5.1. Method...............................................................11
5.2. Waiver...............................................................11

ARTICLE VI. OFFICERS

6.1. Number; Titles; Term of Office.......................................11
6.2. Removal..............................................................12
6.3. Vacancies............................................................12
6.4. Authority............................................................12
6.5. Compensation.........................................................12
6.6. Chairman of the Board................................................12
6.7. President............................................................12
6.8. Vice Presidents......................................................13
6.9. Treasurer............................................................13
6.10. Assistant Treasurers.................................................13
6.11. Secretary............................................................13
6.12. Assistant Secretaries................................................14

ARTICLE VII. CERTIFICATES AND STOCKHOLDERS

7.1. Certificates for Shares..............................................14
7.2. Replacement of Lost or Destroyed Certificates........................14
7.3. Transfer of Shares...................................................15
7.4. Registered Stockholders..............................................15
7.5. Regulations..........................................................15
7.6. Legends..............................................................15

ARTICLE VIII. MISCELLANEOUS PROVISIONS

8.1. Dividends............................................................15
8.2. Reserves.............................................................15
8.3. Books and Records....................................................16
8.4. Fiscal Year..........................................................16
8.5. Seal.................................................................16
8.6. Resignations.........................................................16
8.7. Securities of Other Corporations.....................................16
8.8. Telephone Meetings...................................................16
8.9. Action Without a Meeting.............................................17
8.10. Invalid Provisions...................................................18
8.11. Mortgages, etc.......................................................18
8.12. Headings.............................................................18
8.13. References...........................................................18
8.14. Amendments...........................................................18

-ii-

<PAGE>

BYLAWS

CRAIN HOLDINGS CORP.

A Delaware Corporation

PREAMBLE

These bylaws are subject to, and governed by, the General Corporation Law
of the State of Delaware (the "Delaware General Corporation Law") and the
certificate of incorporation of Crain Holdings Corp., a Delaware corporation
(the "Corporation"). In the event of a direct conflict between the provisions of
these bylaws and the mandatory provisions of the Delaware General Corporation
Law or the provisions of the certificate of incorporation of the Corporation,
such provisions of the Delaware General Corporation Law or the certificate of
incorporation of the Corporation, as the case may be, will be controlling.

ARTICLE I.
OFFICES

1.1. Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.

1.2. Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.

ARTICLE II.
MEETINGS OF STOCKHOLDERS

2.1. Annual Meeting. An annual meeting of stockholders of the Corporation
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting or in a duly executed waiver of notice of such meeting. At such
meeting, the stockholders shall elect directors and transact such other business
as may properly be brought before the meeting.

2.2. Special Meeting. A special meeting of the stockholders may be called
at any time by the Chairman of the Board, the President, the board of directors,
and shall be called by the President or the Secretary at the request in writing
of the stockholders of record of not less than ten percent of all shares
entitled to vote at such meeting or as otherwise provided

<PAGE>

by the certificate of incorporation of the Corporation. A special meeting shall
be held on such date and at such time as shall be designated by the person(s)
calling the meeting and stated in the notice of the meeting or in a duly
executed waiver of notice of such meeting. Only such business shall be
transacted at a special meeting as may be stated or indicated in the notice of
such meeting or in a duly executed waiver of notice of such meeting.

2.3. Place of Meetings. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.

2.4. Notice. Written or printed notice stating the place, day, and time of
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer or
person(s) calling the meeting, to each stockholder of record entitled to vote at
such meeting. If such notice is to be sent by mail, it shall be directed to such
stockholder at his address as it appears on the records of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, in which case it
shall be directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.

2.5. Voting List. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare a complete list of stockholders entitled to vote thereat, arranged in
alphabetical order and showing the address of each stockholder and number of
shares registered in the name of each stockholder. For a period of ten days
prior to such meeting, such list shall be kept on file at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of meeting or a duly executed waiver of notice of such meeting or, if not
so specified, at the place where the meeting is to be held and shall be open to
examination

-2-

<PAGE>

by any stockholder during ordinary business hours. Such list shall be produced
at such meeting and kept at the meeting at all times during such meeting and may
be inspected by any stockholder who is present.

2.6. Quorum. The holders of a majority of the outstanding shares entitled
to vote on a matter, present in person or by proxy, shall constitute a quorum at
any meeting of stockholders, except as otherwise provided by law, the
certificate of incorporation of the Corporation, or these bylaws. If a quorum
shall not be present, in person or by proxy, at any meeting of stockholders, the
stockholders entitled to vote thereat who are present, in person or by proxy,
or, if no stockholder entitled to vote is present, any officer of the
Corporation may adjourn the meeting from time to time, without notice other than
announcement at the meeting (unless the board of directors, after such
adjournment, fixes a new record date for the adjourned meeting), until a quorum
shall be present, in person or by proxy. At any adjourned meeting at which a
quorum shall be present, in person or by proxy, any business may be transacted
which may have been transacted at the original meeting had a quorum been
present; provided that, if the adjournment is for more than 30 days or if after
the adjournment a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the adjourned meeting.

2.7. Required Vote; Withdrawal of Quorum. When a quorum is present at any
meeting, the vote of the holders of at least a majority of the outstanding
shares entitled to vote who are present, in person or by proxy, shall decide any
question brought before such meeting, unless the question is one on which, by
express provision of statute, the certificate of incorporation of the
Corporation, or these bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question. The
stockholders present at a duly constituted meeting may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum.

2.8. Method of Voting; Proxies. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share, regardless of class, shall be entitled to one vote on each matter
submitted to a vote at a meeting of stockholders. Elections of directors need
not be by written ballot. At any meeting of stockholders, every stockholder
having the right to vote may vote either in person or by a proxy executed in
writing by the stockholder or by his duly authorized attorney-in-fact. Each such
proxy shall be filed with the Secretary of the Corporation before or at the time
of the meeting. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy. If no date is stated in a
proxy, such proxy shall be presumed to have been executed on the date of the
meeting at which it is to be

-3-

<PAGE>

voted. Each proxy shall be revocable unless expressly provided therein to be
irrevocable and coupled with an interest sufficient in law to support an
irrevocable power or unless otherwise made irrevocable by law.

2.9. Record Date. (a) For the purpose of determining stockholders entitled
to notice of or to vote at any meeting of stockholders, or any adjournment
thereof, or entitled to receive payment of any dividend or other distribution or
allotment of any rights, or entitled to exercise any rights in respect of any
change, conversion, or exchange of stock or for the purpose of any other lawful
action, the board of directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the board of directors, for any such determination of stockholders, such date
in any case to be not more than 60 days and not less than ten days prior to such
meeting nor more than 60 days prior to any other action. If no record date is
fixed:

(i) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business
on the day next preceding the day on which notice is given or, if notice is
waived, at the close of business on the day next preceding the day on which
the meeting is held.

(ii) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which the board of
directors adopts the resolution relating thereto.

(iii) A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of
the meeting; provided, however, that the board of directors may fix a new
record date for the adjourned meeting.

(b) In order that the Corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which date shall not be more than ten days after the date upon
which the resolution fixing the record date is adopted by the board of
directors. If no record date has been fixed by the board of directors, the
record date for determining stockholders entitled to consent to corporate action
in writing without a meeting, when no prior action by the board of directors is
required by law or these bylaws, shall be the first date on which a signed
written consent setting forth the action taken or proposed to be taken is
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of

-4-

<PAGE>

stockholders are recorded. Delivery made to the Corporation's registered office
in the State of Delaware, principal place of business, or such officer or agent
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by law or these bylaws, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting shall be at the close of business on the day on which the
board of directors adopts the resolution taking such prior action.

2.10. Conduct of Meeting. The Chairman of the Board, if such office has
been filled, and, if not or if the Chairman of the Board is absent or otherwise
unable to act, the President shall preside at all meetings of stockholders. The
Secretary shall keep the records of each meeting of stockholders. In the absence
or inability to act of any such officer, such officer's duties shall be
performed by the officer given the authority to act for such absent or
non-acting officer under these bylaws or by some person appointed by the
meeting.

2.11. Inspectors. The board of directors may, in advance of any meeting of
stockholders, appoint one or more inspectors to act at such meeting or any
adjournment thereof. If any of the inspectors so appointed shall fail to appear
or act, the chairman of the meeting shall, or if inspectors shall not have been
appointed, the chairman of the meeting may, appoint one or more inspectors. Each
inspector, before entering upon the discharge of his duties, shall take and sign
an oath faithfully to execute the duties of inspector at such meeting with
strict impartiality and according to the best of his ability. The inspectors
shall determine the number of shares of capital stock of the Corporation
outstanding and the voting power of each, the number of shares represented at
the meeting, the existence of a quorum, and the validity and effect of proxies
and shall receive votes, ballots, or consents, hear and determine all challenges
and questions arising in connection with the right to vote, count and tabulate
all votes, ballots, or consents, determine the results, and do such acts as are
proper to conduct the election or vote with fairness to all stockholders. On
request of the chairman of the meeting, the inspectors shall make a report in
writing of any challenge, request, or matter determined by them and shall
execute a certificate of any fact found by them. No director or candidate for
the office of director shall act as an inspector of an election of directors.
Inspectors need not be stockholders.

ARTICLE III.
DIRECTORS

3.1. Management. The business and property of the Corporation shall be
managed by the board of directors. Subject to the restrictions imposed by law,
the certificate of incorporation of the Corporation, or these bylaws, the board
of directors may exercise all the powers of the Corporation.

-5-
<PAGE>

3.2. Number; Qualification; Election; Term. The number of directors which
shall constitute the entire board of directors shall be not less than one. The
first board of directors shall consist of the number of directors named in the
certificate of incorporation of the Corporation or, if no directors are so
named, shall consist of the number of directors elected by the incorporator(s)
at an organizational meeting or by unanimous written consent in lieu thereof.
Thereafter, within the limits above specified, the number of directors which
shall constitute the entire board of directors shall be determined by resolution
of the board of directors or by resolution of the stockholders at the annual
meeting thereof or at a special meeting thereof called for that purpose. Except
as otherwise required by law, the certificate of incorporation of the
Corporation, or these bylaws, the directors shall be elected at an annual
meeting of stockholders at which a quorum is present. Directors shall be elected
by a plurality of the votes of the shares present in person or represented by
proxy and entitled to vote on the election of directors. Each director so chosen
shall hold office until the first annual meeting of stockholders held after his
election and until his successor is elected and qualified or, if earlier, until
his death, resignation, or removal from office. None of the directors need be a
stockholder of the Corporation or a resident of the State of Delaware. Each
director must have attained the age of majority.

3.3. Change in Number. No decrease in the number of directors constituting
the entire board of directors shall have the effect of shortening the term of
any incumbent director.

3.4. Removal. Except as otherwise provided in the certificate of
incorporation of the Corporation or these bylaws, at any meeting of stockholders
called expressly for that purpose, any director or the entire board of directors
may be removed, with or without cause, by a vote of the holders of a majority of
the shares then entitled to vote on the election of directors; provided,
however, that so long as stockholders have the right to cumulate votes in the
election of directors pursuant to the certificate of incorporation of the
Corporation, if less than the entire board of directors is to be removed, no one
of the directors may be removed if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
board of directors.

3.5. Vacancies. Vacancies and newly-created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the directors then in office, though less than a quorum, or by the sole
remaining director, and each director so chosen shall hold office until the
first annual meeting of stockholders held after his election and until his
successor is elected and qualified or, if earlier, until his death, resignation,
or removal from office. If there are no directors in office, an election of
directors may be held in the manner provided by statute. If, at the time of
filling any

-6-

<PAGE>

vacancy or any newly-created directorship, the directors then in office shall
constitute less than a majority of the whole board of directors (as constituted
immediately prior to any such increase), the Court of Chancery may, upon
application of any stockholder or stockholders holding at least 10% of the total
number of the shares at the time outstanding having the right to vote for such
directors, summarily order an election to be held to fill any such vacancies or
newly-created directorships or to replace the directors chosen by the directors
then in office. Except as otherwise provided in these bylaws, when one or more
directors shall resign from the board of directors, effective at a future date,
a majority of the directors then in office, including those who have so
resigned, shall have the power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
bylaws with respect to the filling of other vacancies.

3.6. Meetings of Directors. The directors may hold their meetings and may
have an office and keep the books of the Corporation, except as otherwise
provided by statute, in such place or places within or without the State of
Delaware as the board of directors may from time to time determine or as shall
be specified in the notice of such meeting or duly executed waiver of notice of
such meeting.

3.7. First Meeting. Each newly elected board of directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of stockholders, and no notice of such meeting shall be necessary.

3.8. Election of Officers. At the first meeting of the board of directors
after each annual meeting of stockholders at which a quorum shall be present,
the board of directors shall elect the officers of the Corporation.

3.9. Regular Meetings. Regular meetings of the board of directors shall be
held at such times and places as shall be designated from time to time by
resolution of the board of directors. Notice of such regular meetings shall not
be required.

3.10. Special Meetings. Special meetings of the board of directors shall be
held whenever called by the Chairman of the Board, the President, or any
director.

3.11. Notice. The Secretary shall give notice of each special meeting to
each director at least 24 hours before the meeting. Notice of any such meeting
need not be given to any director who shall, either before or after the meeting,
submit a signed waiver of notice or who shall attend such meeting without
protesting, prior to or at its commencement, the lack of notice to him. Neither
the business to be transacted at, nor the

-7-

<PAGE>

purpose of, any regular or special meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.

3.12. Quorum; Majority Vote. At all meetings of the board of directors, a
majority of the directors fixed in the manner provided in these bylaws shall
constitute a quorum for the transaction of business. If at any meeting of the
board of directors there be less than a quorum present, a majority of those
present or any director solely present may adjourn the meeting from time to time
without further notice. Unless the act of a greater number is required by law,
the certificate of incorporation of the Corporation, or these bylaws, the act of
a majority of the directors present at a meeting at which a quorum is in
attendance shall be the act of the board of directors. At any time that the
certificate of incorporation of the Corporation provides that directors elected
by the holders of a class or series of stock shall have more or less than one
vote per director on any matter, every reference in these bylaws to a majority
or other proportion of directors shall refer to a majority or other proportion
of the votes of such directors.

3.13. Procedure. At meetings of the board of directors, business shall be
transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The Secretary of the
Corporation shall act as the secretary of each meeting of the board of directors
unless the board of directors appoints another person to act as secretary of the
meeting. The board of directors shall keep regular minutes of its proceedings
which shall be placed in the minute book of the Corporation.

3.14. Presumption of Assent. A director of the Corporation who is present
at the meeting of the board of directors at which action on any corporate matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a director
who voted in favor of such action.

3.15. Compensation. The board of directors shall have the authority to fix
the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof; provided, that nothing contained herein
shall

-8-

<PAGE>

be construed to preclude any director from serving the Corporation in any other
capacity or receiving compensation therefor.

ARTICLE IV.
COMMITTEES

4.1. Designation. The board of directors may, by resolution adopted by a
majority of the entire board of directors, designate one or more committees.

4.2. Number; Qualification; Term. Each committee shall consist of one or
more directors appointed by resolution adopted by a majority of the entire board
of directors. The number of committee members may be increased or decreased from
time to time by resolution adopted by a majority of the entire board of
directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as director, (ii) his resignation as a committee
member or as a director, or (iii) his removal as a committee member or as a
director.

4.3. Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by law,
the certificate of incorporation of the Corporation, or these bylaws.

4.4. Committee Changes. The board of directors shall have the power at any
time to fill vacancies in, to change the membership of, and to discharge any
committee.

4.5. Alternate Members of Committees. The board of directors may designate
one or more directors as alternate members of any committee. Any such alternate
member may replace any absent or disqualified member at any meeting of the
committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.

4.6. Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.

4.7. Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of

-9-

<PAGE>

such special meeting, to be given to each committee member at least two days
before such special meeting. Neither the business to be transacted at, nor the
purpose of, any special meeting of any committee need be specified in the notice
or waiver of notice of any special meeting.

4.8. Quorum; Majority Vote. At meetings of any committee, a majority of the
number of members designated by the board of directors shall constitute a quorum
for the transaction of business. If a quorum is not present at a meeting of any
committee, a majority of the members present may adjourn the meeting from time
to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the certificate of incorporation of
the Corporation, or these bylaws.

4.9. Minutes. Each committee shall cause minutes of its proceedings to be
prepared and shall report the same to the board of directors upon the request of
the board of directors. The minutes of the proceedings of each committee shall
be delivered to the Secretary of the Corporation for placement in the minute
books of the Corporation.

4.10. Compensation. Committee members may, by resolution of the board of
directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.

4.11. Responsibility. The designation of any committee and the delegation
of authority to it shall not operate to relieve the board of directors or any
director of any responsibility imposed upon it or such director by law.

ARTICLE V.
NOTICE

5.1. Method. Whenever by statute, the certificate of incorporation of the
Corporation, or these bylaws, notice is required to be given to any committee
member, director, or stockholder and no provision is made as to how such notice
shall be given, personal notice shall not be required and any such notice may be
given (a) in writing, by mail, postage prepaid, addressed to such committee
member, director, or stockholder at his address as it appears on the books or
(in the case of a stockholder) the stock transfer records of the Corporation, or
(b) by any other method permitted by law (including but not limited to overnight
courier service, telegram, telex, or telefax). Any notice required or permitted
to be given by mail shall be deemed to be delivered and given at the time when
the same is deposited in the United States mail as aforesaid. Any notice
required or permitted to be given by overnight courier service shall be deemed
to be delivered and given at the time

-10-

<PAGE>

delivered to such service with all charges prepaid and addressed as aforesaid.
Any notice required or permitted to be given by telegram, telex, or telefax
shall be deemed to be delivered and given at the time transmitted with all
charges prepaid and addressed as aforesaid.

5.2. Waiver. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

ARTICLE VI.
OFFICERS

6.1. Number; Titles; Term of Office. The officers of the Corporation shall
be a President, a Secretary, and such other officers as the board of directors
may from time to time elect or appoint, including a Chairman of the Board, one
or more Vice Presidents (with each Vice President to have such descriptive
title, if any, as the board of directors shall determine), and a Treasurer. Each
officer shall hold office until his successor shall have been duly elected and
shall have qualified, until his death, or until he shall resign or shall have
been removed in the manner hereinafter provided. Any two or more offices may be
held by the same person. None of the officers need be a stockholder or a
director of the Corporation or a resident of the State of Delaware.

6.2. Removal. Any officer or agent elected or appointed by the board of
directors may be removed by the board of directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.

6.3. Vacancies. Any vacancy occurring in any office of the Corporation (by
death, resignation, removal, or otherwise) may be filled by the board of
directors.

6.4. Authority. Officers shall have such authority and perform such duties
in the management of the Corporation as are provided in these bylaws or as may
be determined by resolution of the board of directors not inconsistent with
these bylaws.

6.5. Compensation. The compensation, if any, of officers and agents shall
be fixed from time to time by the board of

-11-

<PAGE>

directors; provided, however, that the board of directors may delegate the power
to determine the compensation of any officer and agent (other than the officer
to whom such power is delegated) to the Chairman of the Board or the President.

6.6. Chairman of the Board. The Chairman of the Board, if elected by the
board of directors, shall have such powers and duties as may be prescribed by
the board of directors. Such officer shall preside at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.

6.7. President. The President shall be the chief executive officer of the
Corporation and, subject to the board of directors, he shall have general
executive charge, management, and control of the properties and operations of
the Corporation in the ordinary course of its business, with all such powers
with respect to such properties and operations as may be reasonably incident to
such responsibilities. If the board of directors has not elected a Chairman of
the Board or in the absence or inability to act of the Chairman of the Board,
the President shall exercise all of the powers and discharge all of the duties
of the Chairman of the Board. As between the Corporation and third parties, any
action taken by the President in the performance of the duties of the Chairman
of the Board shall be conclusive evidence that there is no Chairman of the Board
or that the Chairman of the Board is absent or unable to act.

6.8. Vice Presidents. Each Vice President shall have such powers and duties
as may be assigned to him by the board of directors, the Chairman of the Board,
or the President, and (in order of their seniority as determined by the board of
directors or, in the absence of such determination, as determined by the length
of time they have held the office of Vice President) shall exercise the powers
of the President during that officer's absence or inability to act. As between
the Corporation and third parties, any action taken by a Vice President in the
performance of the duties of the President shall be conclusive evidence of the
absence or inability to act of the President at the time such action was taken.

6.9. Treasurer. The Treasurer shall have custody of the Corporation's funds
and securities, shall keep full and accurate account of receipts and
disbursements, shall deposit all monies and valuable effects in the name and to
the credit of the Corporation in such depository or depositories as may be
designated by the board of directors, and shall perform such other duties as may
be prescribed by the board of directors, the Chairman of the Board, or the
President.

6.10. Assistant Treasurers. Each Assistant Treasurer shall have such powers
and duties as may be assigned to him by the board of directors, the Chairman of
the Board, or the President. The Assistant Treasurers (in the order of their

-12-

<PAGE>

seniority as determined by the board of directors or, in the absence of such a
determination, as determined by the length of time they have held the office of
Assistant Treasurer) shall exercise the powers of the Treasurer during that
officer's absence or inability to act.

6.11. Secretary. Except as otherwise provided in these bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with the
Chairman of the Board or the President all certificates for shares of stock of
the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the board of directors may direct, all of which shall
at all reasonable times be open to inspection by any director upon application
at the office of the Corporation during business hours. He shall in general
perform all duties incident to the office of the Secretary, subject to the
control of the board of directors, the Chairman of the Board, and the President.

6.12. Assistant Secretaries. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Secretaries (in the order
of their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Secretary) shall exercise the powers of the Secretary during
that officer's absence or inability to act.

ARTICLE VII.
CERTIFICATES AND STOCKHOLDERS

7.1. Certificates for Shares. Certificates for shares of stock of the
Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or the
President or a Vice President and also by the Secretary or an Assistant
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or registrar
who has signed, or whose facsimile signature has been placed upon, a certificate
has ceased to be such officer, transfer agent, or registrar before such
certificate is issued, such certificate may be issued by the Corporation with
the same effect as if he were such officer, transfer agent, or registrar at the
date of issue. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued and shall exhibit the
holder's name and the number of shares.

-13-
<PAGE>

7.2. Replacement of Lost or Destroyed Certificates. The board of directors
may direct a new certificate or certificates to be issued in place of a
certificate or certificates theretofore issued by the Corporation and alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate or certificates representing shares to be lost
or destroyed. When authorizing such issue of a new certificate or certificates
the board of directors may, in its discretion and as a condition precedent to
the issuance thereof, require the owner of such lost or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond with a surety or
sureties satisfactory to the Corporation in such sum as it may direct as
indemnity against any claim, or expense resulting from a claim, that may be made
against the Corporation with respect to the certificate or certificates alleged
to have been lost or destroyed.

7.3. Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duty authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.

7.4. Registered Stockholders. The Corporation shall be entitled to treat
the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.

7.5. Regulations. The board of directors shall have the power and authority
to make all such rules and regulations as they may deem expedient concerning the
issue, transfer, and registration or the replacement of certificates for shares
of stock of the Corporation.

7.6. Legends. The board of directors shall have the power and authority to
provide that certificates representing shares of stock bear such legends as the
board of directors deems appropriate to assure that the Corporation does not
become liable for violations of federal or state securities laws or other
applicable law.

-14-

<PAGE>

ARTICLE VIII.
MISCELLANEOUS PROVISIONS

8.1. Dividends. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and payment
shall be at the discretion of the board of directors.

8.2. Reserves. There may be created by the board of directors out of funds
of the Corporation legally available therefor such reserve or reserves as the
directors from time to time, in their discretion, consider proper to provide for
contingencies, to equalize dividends, or to repair or maintain any property of
the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.

8.3. Books and Records. The Corporation shall keep correct and complete
books and records of account, shall keep minutes of the proceedings of its
stockholders and board of directors and shall keep at its registered office or
principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.

8.4. Fiscal Year. The fiscal year of the Corporation shall be fixed by the
board of directors; provided, that if such fiscal year is not fixed by the board
of directors and the selection of the fiscal year is not expressly deferred by
the board of directors, the fiscal year shall be the calendar year.

8.5. Seal. The seal of the Corporation shall be such as from time to time
may be approved by the board of directors.

8.6. Resignations. Any director, committee member, or officer may resign by
so stating at any meeting of the board of directors or by giving written notice
to the board of directors, the Chairman of the Board, the President, or the
Secretary. Such resignation shall take effect at the time specified therein or,
if no time is specified therein, immediately upon its receipt. Unless otherwise
specified therein, the acceptance of such resignation shall not be necessary to
make it effective.

8.7. Securities of Other Corporations. The Chairman of the Board, the
President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be held or
owned by the Corporation and to make, execute, and

-15-

<PAGE>

deliver any waiver, proxy, or consent with respect to any such securities.

8.8. Telephone Meetings. Stockholders (acting for themselves or through a
proxy), members of the board of directors, and members of a committee of the
board of directors may participate in and hold a meeting of such stockholders,
board of directors, or committee by means of a conference telephone or similar
communications equipment by means of which persons participating in the meeting
can hear each other, and participation in a meeting pursuant to this section
shall constitute presence in person at such meeting, except where a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

8.9. Action Without a Meeting. (a) Unless otherwise provided in the
certificate of incorporation of the Corporation, any action required by the
Delaware General Corporation Law to be taken at any annual or special meeting of
the stockholders, or any action which may be taken at any annual or special
meeting of the stockholders, may be taken without a meeting, without prior
notice, and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders (acting for themselves or
through a proxy) of outstanding stock having not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which the holders of all shares entitled to vote thereon were present and voted
and shall be delivered to the Corporation by delivery to its registered office
in the State of Delaware, its principal place of business, or an officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Every written consent of stockholders
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within sixty days of the earliest dated consent delivered in the
manner required by this Section 8.9(a) to the Corporation, written consents
signed by a sufficient number of holders to take action are delivered to the
Corporation by delivery to its registered office in the State of Delaware, its
principal place of business, or an officer or agent of the Corporation having
custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office, principal place
of business, or such officer or agent shall be by hand or by certified or
registered mail, return receipt requested.

(b) Unless otherwise restricted by the certificate of incorporation of the
Corporation or by these bylaws, any action required or permitted to be taken at
a meeting of the board of directors, or of any committee of the board of
directors, may be taken without a meeting if a consent or consents in writing,
setting forth the action so taken, shall be signed by all the directors or all
the committee members, as the case may be,

-16-

<PAGE>

entitled to vote with respect to the subject matter thereof, and such consent
shall have the same force and effect as a vote of such directors or committee
members, as the case may be, and may be stated as such in any certificate or
document filed with the Secretary of State of the State of Delaware or in any
certificate delivered to any person. Such consent or consents shall be filed
with the minutes of proceedings of the board or committee, as the case may be.

8.10. Invalid Provisions. If any part of these bylaws shall be held invalid
or inoperative for any reason, the remaining parts, so far as it is possible and
reasonable, shall remain valid and operative.

8.11. Mortgages, etc. With respect to any deed, deed of trust, mortgage, or
other instrument executed by the Corporation through its duly authorized officer
or officers, the attestation to such execution by the Secretary of the
Corporation shall not be necessary to constitute such deed, deed of trust,
mortgage, or other instrument a valid and binding obligation against the
Corporation unless the resolutions, if any, of the board of directors
authorizing such execution expressly state that such attestation is necessary.

8.12. Headings. The headings used in these bylaws have been inserted for
administrative convenience only and do not constitute matter to be construed in
interpretation.

8.13. References. Whenever herein the singular number is used, the same
shall include the plural where appropriate, and words of any gender should
include each other gender where appropriate.

8.14. Amendments. These bylaws may be altered, amended, or repealed or new
bylaws may be adopted by the stockholders or by the board of directors at any
regular meeting of the stockholders or the board of directors or at any special
meeting of the stockholders or the board of directors if notice of such
alteration, amendment, repeal, or adoption of new bylaws be contained in the
notice of such special meeting.

The undersigned, being the Secretary of the Corporation, hereby certifies
that the foregoing bylaws were adopted by the consent of the sole director of
the Corporation as of July 27, 1995.

/s/ Daniel S. Dross
Daniel S. Dross, Secretary

-17-

THIRD AMENDMENT TO

AMENDED AND RESTATED TAX SHARING AGREEMENT OF FOAMEX L.P.

THIS THIRD AMENDMENT TO AMENDED AND RESTATED TAX SHARING AGREEMENT OF
FOAMEX L.P. (the "Amendment") is made as of February 27, 1998, by and between
Foamex L.P., a Delaware limited partnership ("Foamex"), Foamex International
Inc., a Delaware corporation ("FII") and FMXI, Inc., a Delaware corporation (the
"GP").

W I T N E S S E T H:

WHEREAS, Foamex, FII, Crain Industries, Inc. ("Crain"), Trace Foam Company,
Inc., a Delaware corporation ("Trace Foam"), FMXI, Inc., a Delaware corporation
("FMXI"), and certain other parties entered into that certain First Amended and
Restated Tax Sharing Agreement, dated as of December 14, 1993, as amended on
June 12, 1997, and December 23, 1997 (the "Original Agreement");

WHEREAS, FMXI has merged (the "Merger") with and into Crain, pursuant to an
Agreement and Plan of Merger, dated as of February 27, 1998, with Crain as the
surviving entity, changing its name to FMXI, Inc.;

WHEREAS, Trace has contributed to Trace SPV LLC, whom in turn has
contributed to Trace Foam LLC the 1% non-managing partnership interest in Foamex
(the "Interest");

WHEREAS, Trace Foam LLC has transferred the Interest to Foamex pursuant to
the Transfer Agreement by and between Trace Foam LLC, a Delaware limited
liability company, and Foamex, dated February 27, 1998 (the "Contribution"); and

WHEREAS, Foamex, GP, and FII entered into that certain Fourth Amendment
(the "Fourth Amendment") to the Fourth Amended and Restated Agreement of Limited
Partnership of Foamex L.P., dated as of February 27, 1998, to reflect the change
in the partners of Foamex (the "Partnership Agreement");

NOW, THEREFORE, in consideration of the premises and the mutual covenants
set forth herein and for other good and valid consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, agree as follows:

1. Amendment. The parties hereto agree that the Participation Percentages
for purposes of the Original Agreement shall have meaning set forth in the
Partnership Agreement.
<PAGE>

2. Governing Law. This Amendment shall be governed by and construed and
enforced in accordance with the laws of the State of New York.

3. Limitation. Except as expressly set forth herein, this Amendment shall
not be deemed to waive, amend or modify any term or condition of the Original
Agreement, each of which shall remain in full force and effect and are hereby
ratified and confirmed.

4. Counterparts. This Amendment may be executed in any number of
counterparts, each of which when executed and delivered will be deemed to be an
original, and all of which taken together will be deemed to be but one and the
same instrument.

-2-
<PAGE>

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the date
first above written.

FOAMEX L.P.

By: FMXI, INC.
Its: Managing General Partner

By:
Name: George L. Karpinski
Title: Vice President

FOAMEX INTERNATIONAL INC.

By:____________________________
Name: George L. Karpinski
Title: Vice President

FMXI, INC.

By:____________________________
Name: George L. Karpinski
Title: Vice President

-3-

TAX SHARING AGREEMENT

THIS TAX SHARING AGREEMENT (the "Agreement") made and entered into as of
February 27, 1998 by and between Foamex International Inc., a Delaware
corporation ("FII"), and Foamex Carpet Cushion, Inc., a Delaware corporation
("Foamex Carpet").

WITNESSETH:

WHEREAS, each of the corporations qualify as an includable corporation in
the same affiliated group for consolidated tax return purposes within the
meaning of section 1504 of the Internal Revenue Code of 1986, as amended from
time to time (the "Code"), and the treasury regulations promulgated thereunder;
and

WHEREAS, FII is the common parent of the affiliated group ("FII Group")
within the meaning of section 1504 of the Code and the treasury regulations
promulgated thereunder; and

WHEREAS, all of the members of FII Group desire to take advantage of the
tax savings that result from the filing of income tax returns on a consolidated
basis, in accordance with sections 1501-1504 of the Code and the treasury
regulations promulgated thereunder;

NOW, THEREFORE, in consideration of the mutual covenants herein and on the
terms and conditions contained herein, and for other good, valid and binding
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:

STATEMENT OF AGREEMENT

SECTION 1. Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:

"Affiliated Group" shall have the meaning set forth in Section 1504 of
the Code and the treasury regulations promulgated thereunder.

"Adjusted Taxable Income of Foamex Carpet Consolidated Group" means
for any Fiscal Year the taxable income of Foamex Carpet Consolidated Group
for federal income tax purposes determined as if Foamex Carpet Consolidated
Group were a separate Affiliated Group and as if neither Foamex Carpet
Consolidated Group nor any corporation included in Foamex Carpet
Consolidated Group were included in any other Affiliated Group.

"Authority" shall have the meaning set forth in section 4(a) below.

<PAGE>

"Code" shall have the meaning set forth in the recitals above.

"FII Group" shall have the meaning set forth in the recitals above.

"Fiscal Year" means the annual accounting period of Foamex Carpet and
any other member of Foamex Carpet Consolidated Group.

"Foamex Carpet Consolidated Group" means Foamex Carpet, and all other
corporations that would comprise an Affiliated Group of which Foamex Carpet
would be the common parent, within the meaning of section 1504 of the Code,
if Foamex Carpet were not includable in FII Group and were the common
parent of its own Affiliated Group.

"Tax Payment Amount" means for any Fiscal Year the combined federal,
state and local taxes (of whatever kind) that would be paid by Foamex
Carpet Consolidated Group if (i) it were a separate Affiliated Group and
neither Foamex Carpet Consolidated Group nor any corporation included in
Foamex Carpet Consolidated Group were included in any other Affiliated
Group and (ii) its federal taxable income were the Adjusted Taxable Income
of Foamex Carpet Consolidated Group (subject to adjustments in determining
state or local taxable income), but such term shall not include state and
local taxes for which Foamex Carpet Consolidated Group, or any corporation
includable in Foamex Carpet Consolidated Group, (x) is separately liable or
(y) does not participate in a combined or consolidated return with FII or
FII Group.

SECTION 2. Consent.

(a) The parties hereto agree to join in a consolidated federal income tax
return filed for FII Group in all Fiscal Years commencing on or after December
28, 1997.

(b) Foamex Carpet shall cause each corporation includable in the Foamex
Carpet Consolidated Group to become a party to this Agreement bound by all of
the provisions hereof.

SECTION 3. Tax Payments.

(a) Foamex Carpet shall make payments to FII with respect to each Fiscal
Year equal to the Tax Payment Amount for such Fiscal Year, which payments shall
be made in the manner set forth below in paragraphs (b), (c) and (d).

(b) Foamex Carpet shall make payments ("Interim Payments") towards the full
payment of the Tax Payment Amount from time to

<PAGE>

time during the Fiscal Year (i) pursuant to the schedule set forth in Section
6655(c) of the Code; (ii) calculated under the principles of the "annualized
income installment" described in Section 6655(e)(2) of the Code; and (iii)
applying percentages set forth in Section 6655(e)(2)(B)(ii) of the Code.

(c) Within five days of the date FII files the federal, state and local
income tax returns that include a Fiscal Year, if the Tax Payment Amount is less
than the Interim Payments with respect to such Fiscal Year, then FII shall pay
to Foamex Carpet the excess of the Interim Payments over the Tax Payment Amount.

(d) At least five days before FII files the federal, state and local income
tax returns that include a Fiscal Year, if the Tax Payment Amount is greater
than the Interim Payments with respect to such Fiscal Year, then Foamex Carpet
shall pay the amount of the excess of the Tax Payment Amount over the Interim
Payments to FII.

(e) Each corporation includable in the Foamex Carpet Consolidated Group
shall be jointly and severally liable for all amounts that Foamex Carpet is
required to pay under this Agreement.

(f) Nothing in this Agreement shall be construed as requiring any party
hereto to make any payments in violation of section 9.06 of the Credit
Agreement, dated as of February 27, 1998, among Foamex Carpet, the financial
institutions party thereto as lenders, the financial institutions party thereto
as issuing banks, and Citicorp USA, Inc. and The Bank of Nova Scotia, as
administrative agents.

SECTION 4. Adjustments to the Tax Payment Amount.

(a) If for any Fiscal Year the Internal Revenue Service or a state or local
taxing authority (an "Authority") makes an upward adjustment or FII files an
amended return resulting in an upward adjustment of the Tax Payment Amount for a
Fiscal Year, Foamex Carpet shall pay to FII an amount equal to the difference
between the Tax Payment Amount for such Fiscal Year paid to date and the Tax
Payment Amount for such Fiscal Year as so adjusted. In the event of a downward
adjustment, the difference between the Tax Payment Amount for such fiscal period
paid to date and the Tax Payment Amount as adjusted shall be allowed as a credit
for Foamex Carpet reducing payments under Section 3 of this Agreement for
subsequent periods.

(b) The payments required under this Section 4 shall be made promptly after
a final, binding, and unappealable determination of the adjustment is reached or
as otherwise earlier agreed in good faith by FII; provided however, payments in
the case of the filing of an amended return shall be made promptly upon such
filing.

<PAGE>

SECTION 5. Interest Payments.

Interest will be paid by Foamex Carpet pursuant to this Agreement only with
respect to payments required to be made as a result of any adjustment or
redetermination of the net taxable income by any Authority or in the case of
filing an amended return. Such interest will be calculated at the lower of the
overpayment and underpayment rates and otherwise determined in the same manner
as would be determined by the Authority.

SECTION 6. Miscellaneous.

(a) This Agreement and any provision hereof may be amended, waived,
discharged, or terminated only by an instrument in writing signed by the party
against whom enforcement of the amendment, waiver, discharge, or termination is
sought.

(b) This Agreement shall constitute the entire agreement between the
parties concerning the subject matter hereof and shall supersede any prior
agreements and understandings between or among the parties with respect to the
subject matter hereof.

(c) The validity, interpretation, and enforceability of this Agreement
shall be governed in all respects by the laws of the State of New York.

(d) Failure of any party at any time to require the other party's
performance of any obligation under this Agreement shall not affect the right to
require performance of that obligation. Any waiver by any party of any breach of
any provision of this Agreement shall not be construed as a waiver of any
continuing or succeeding breach of such provision, a waiver or modification of
the provision itself, or a waiver of any right under this Agreement.

(e) Section and other headings contained in this Agreement are for
reference purposes only and are in no way intended to describe, interpret,
define, or limit the scope, extent, or intent of this Agreement or of any
provision hereof.

(f) Every provision of this Agreement is intended to be severable. If any
term or provision hereof is illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the validity of the remainder of this
Agreement.

(g) This Agreement may be executed in multiple counterparts each of which
shall be deemed an original and all of which shall constitute one agreement, and
the signatures of any party to any counterpart shall be deemed to be a signature
to, and may be appended to, any other counterpart.

(h) This Agreement and all of the provisions hereof shall be binding upon
and inure to the benefit of, and be enforceable by, the parties hereto and their
respective successors and

<PAGE>

permitted assigns, but neither this Agreement nor any of the rights, interests
or obligations herein shall be assigned by any party hereto without the prior
written consent of the other parties hereto.

(i) Matters of interpretation of and calculations under this Agreement
shall be made in good faith by the parties hereto.

5
<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.

FOAMEX INTERNATIONAL INC.

By:
Title:

FOAMEX CARPET CUSHION, INC.

By:
Title:

<ARTICLE> 5
<CIK> 0000912908
<NAME> FOAMEX INTERNATIONAL INC
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS

<S> <C>
<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-28-1997
<PERIOD-START> Dec-30-1996
<PERIOD-END> Dec-28-1997
<EXCHANGE-RATE> 1
<CASH> 12,044
<SECURITIES> 0
<RECEIVABLES> 175,684
<ALLOWANCES> 0
<INVENTORY> 120,299
<CURRENT-ASSETS> 370,928
<PP&E> 233,435
<DEPRECIATION> 0
<TOTAL-ASSETS> 898,623
<CURRENT-LIABILITIES> 232,447
<BONDS> 735,724
0
0
<COMMON> 269
<OTHER-SE> (94,486)
<TOTAL-LIABILITY-AND-EQUITY> 898,623
<SALES> 931,095
<TOTAL-REVENUES> 931,095
<CGS> 787,756
<TOTAL-COSTS> 787,756
<OTHER-EXPENSES> 67,139
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 50,570
<INCOME-PRETAX> 6,656
<INCOME-TAX> 2,525
<INCOME-CONTINUING> 4,131
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (42,345)
<EPS-PRIMARY> (1.68)
<EPS-DILUTED> (1.65)

</TABLE>