<PAGE>   1
                                 LABOR AGREEMENT


                                     BETWEEN


                             SERTA MATTRESS COMPANY
             (FOR ITS FACILITY LOCATED IN PIERCE COUNTY, WASHINGTON)

                                       AND

                        LUMBER AND SAWMILL WORKERS UNION
                                   LOCAL 2633

              AFFILIATED WITH WESTERN COUNCIL OF INDUSTRIAL WORKERS

                     CHARTERED BY THE UNITED BROTHERHOOD OF
                    CARPENTERS & JOINERS OF AMERICA, AFL-CIO









                            MAY 1, 1997 - MAY 1, 2000
<PAGE>   2
                             Serta Mattress Company
                                       And
                          Lumber & Sawmill Workers 2633


                                TABLE OF CONTENTS


<TABLE>
<CAPTION>
                                                                    PAGE NO.
<S>               <C>                                               <C>
ARTICLE I         BARGAINING UNIT ................................    1
ARTICLE II        COMMITTEES AND ARBITRATION .....................    3
ARTICLE III       WORKDAY - WORKWEEK - OVERTIME ..................    4
ARTICLE IV        HEALTH, SAFETY, RETIREMENT & TIME LOSS .........    6
ARTICLE V         PENSION ........................................    8
ARTICLE VI        SENIORITY ......................................    9
ARTICLE VII       LEAVE OF ABSENCE ...............................    10
ARTICLE VIII      HOLIDAYS .......................................    10
ARTICLE IX        DISCHARGE RIGHTS ...............................    11
ARTICLE X         VACATIONS ......................................    13
ARTICLE XI        INCENTIVE PROGRAM ..............................    14
ARTICLE XII       EXCEPTIONS .....................................    15
ARTICLE XIII      FAIR EMPLOYMENT PRACTICES ......................    15
ARTICLE XIV       FUNERAL LEAVE ..................................    15
ARTICLE XV        SAVINGS CLAUSE .................................    16
ARTICLE XVI       NO STRIKES - NO LOCKOUTS .......................    16
ARTICLE XVII      TERMINATION ....................................    17
</TABLE>


                                       2
<PAGE>   3
June 23, 1994

Mr. Michael Smith
Millmen's Local No. 1689
1322 South Fawcett
Tacoma, Washington  98402

                   Re: Labor Agreement/Serta Mattress Company

Dear Mike:

Enclosed for you review is the revised Labor Agreement with Serta Mattress
Company. Enclosed are four originals of the Agreement. If all is in order,
please sign, then forward to Chuck Peterson. After the agreements are fully
executed, please have Mr. Peterson forward two originals to the undersigned.

If there are any corrections or if you have any questions, please contact us.

Very truly yours,

WASHINGTON EMPLOYERS, INC.



John P. Tullius, Manager

Tacoma Office

Enclosures


                                       3
<PAGE>   4
                                    1997-2000

                          WORKING CONDITIONS AGREEMENT

This agreement is entered into by and between Serta Mattress Company for its
facility located in Pierce County, Washington (hereinafter referred to as the
"Employer") and Lumber & Sawmill Workers' Union, Local 2633 affiliated with the
Western Council of Industrial Workers, chartered by the United Brotherhood of
Carpenters & Joiners of America, AFL-CIO, (hereinafter referred to as the
"Union"), this 1st day of May, l997.

Witnesseth:

That the intent and purpose of the parties hereto is this Agreement will promote
and improve industrial and economic relationship between the Employer and the
Union, and to set forth herein the basic agreement covering rates of pay, hours
of work, and other conditions of employment to be observed between the parties
hereto.

Now, therefore, in consideration of the promises and the mutual agreement
hereinafter stated, it is agreed as follows:


ARTICLE I                  BARGAINING UNIT

SECTION 1

(a)      The Employer recognizes the Union as the sole and exclusive collective
         bargaining agency for all production and maintenance employees,
         including temporary and part-time employees, employed at the Employer's
         facility located in Pierce County, Washington who perform the work
         within the classifications listed in the wage addendum, and all
         employees not hereinafter excluded, with respect to wages, hours of
         work and other conditions of employment, excepting employees performing
         duties under the jurisdiction of another bona fide labor union, office
         force, supervisors and non-working foremen. The Union agrees that the
         inclusion of working foremen as subject to Union membership is not
         intended to change present and past practices as to requirement of
         Union membership.

(b)      Temporary workers, not to exceed six (6), who are contracted from an
         outside agency are excluded from the provisions of Article I for the
         first ninety (90) days or partial days actually worked provided,
         however, they shall receive not less than the minimum wage rate for the
         classification of work performed. If retained over ninety (90) days or
         partial days by the Employer, they shall be considered as employees of
         the Employer and be required to become and remain a member in good
         standing with the Union as a condition of continued employment.
         Application of this provision shall not cause the layoff of regular
         employees.

(c)      The Employer may employ up to four (4) temporary student hires during
         periods school is not in session provided no regular employee is laid
         off. For such employees, the Employer is not required to remit monthly
         contributions to either the pension or health and welfare trusts nor
         are the employees requires to become members in good standing in the
         Union. In lieu of membership requirements, they shall pay a monthly fee
         to the Union equal to the usual and customary monthly fee required by
         the Union for membership.


                                       4
<PAGE>   5
(d)      The primary responsibility of supervisors is to provide effective
         direction to employees within their work groups; however, the parties
         recognize that supervisors in the performance of their functions may,
         from time to time, perform a limited amount of work that is normally
         assigned to bargaining unit employees. The performance of such work by
         a supervisor shall not cause a bargaining unit employee to be sent home
         early, laid off, or denied the opportunity to work overtime.

(e)      It is agreed that Supervisors and Foremen will not work as a
         replacement on any bench, machine or job that is assigned to a regular
         employee.

(f)      It is agreed that flammability testing required by any governmental
         agency is exempt from the Union's jurisdiction.

SECTION 2

(a)      It shall be a condition of employment that all employees of the
         Employer covered by this agreement who are members of the Union in good
         standing on the effective date of this agreement shall remain members
         in good standing, and those who are not members on the effective date
         of this agreement shall, on or after the 30th day following the
         effective date of this agreement, become and remain members in good
         standing in the Union. It shall also be a condition of employment that
         all employees covered by this agreement and hired on or after its
         effective date shall, on or after the 30th day following the beginning
         of such employment, become and remain members in good standing in the
         Union.

(b)      The Employer agrees not to keep in his employ, in the classifications
         herein, anyone whose membership in the Union is not in good standing
         because of failure to tender periodic dues or initiation fees uniformly
         required as a condition of acquiring or retaining membership in the
         Union.

(c)      The Employer agrees to furnish the Local Union Representative the names
         of new employees within seven (7) calendar days after employment by
         mailing form furnished by the Union.

(d)      The Union agrees to indemnify the Company against any judgments
         rendered against the Company because the Company carried out a written
         request given to it by the Union in connection with this Article.

SECTION 3

Employees and Union Representatives shall not solicit Union Membership or
collect dues of any employee on company property on company time, although such
activities may be conducted on company property on the free time of employees.

SECTION 4

The Union recognizes the responsibilities imposed upon it as the exclusive
bargaining agent for the employees and realizes that in order to provide maximum
opportunities for continuing employment, good working conditions, and good
wages, the Employer must be in a strong market position which means it must
produce at the lowest possible costs consistent with fair labor standards. The
Union,


                                       5
<PAGE>   6
through its bargaining position, assumes a joint responsibility in the
attainment of these goals. The Union, therefore, agrees that it will cooperate
with the Employer and support its efforts to assure a full day's work on the
part of its members, that it will actively combat absenteeism and any other
practices which restrict production. It further agrees that it will support the
Employer in its efforts to eliminate waste in production; conserve materials and
supplies; improve the quality of workmanship; prevent accidents and strengthen
good will between the Employer, the employee, the customer and the public. Both
parties hereto recognize that under this agreement each of them has
responsibilities for the welfare and security of the employees.


ARTICLE II        COMMITTEES AND ARBITRATION

SECTION 1

There may be selected by the employees of the Employer, who are members of said
Union, a committee not to exceed three employees to be known as the "Shop
Committee." The employees selected shall have been with the company six months,
shall be a journeyman at the trade, and have sanction of the Union. The
severance of the connection of any member of the committee as an employee shall
automatically terminate his position on such committee. All decisions rendered
by the Shop Committee shall be subject to approval by the Local Union or Union
Business Representative.

SECTION 2

The Business Representative of the Union is to be recognized as a member of the
Shop Committee and may sit in on any and all meetings and shall have access to
the plant to carry out his duty as Business Representative. The Business
Representative will first make his presence known at the Employer's office. It
is agreed the Business Representative will not disrupt plant production in
carrying out his duties.

SECTION 3

In the adjustment and disposition of a grievance, which is defined as an alleged
breach of this Agreement raised during its term, the following procedures shall
be followed:

Step 1:

Oral discussion of the problem by the employee, or his Shop Committee, or his
Union Business Agent, with the supervisor within two (2) working days from the
date of occurrence.

Step 2:

If Step 1 does not dispose of the grievance within seven (7) calendar days from
the date of occurrence of the problem, either the employee or his Shop Committee
member, or his Union Business Agent shall submit the grievance through oral
discussion or in writing to the Operations Manager.

Step 3:

If the Operations Manager cannot dispose of the grievance within an additional
seven (7) calendar days from the date of occurrence, the matter shall, upon the
motion of either party, be referred to a Union-Management committee composed of
one representative of top management and one representative of the Union for the
purpose of effecting a settlement.

Step 4:


                                       6
<PAGE>   7
(a)      If the Union-Management Committee has failed to settle the matter
         within one week, it shall be referred to a Board of Adjustment
         consisting of not more than four (4) members, an equal number appointed
         by the Company and by the Union.

(b)      Both parties to the grievance shall present their position on the
         matter to the Board of Adjustment. The Board of Adjustment shall have
         the authority to arrive at a majority decision which shall be final and
         binding upon the parties.

(c)      If the members of the Board of Adjustment fail to meet within ten (10)
         working days from receipt of written notification of the grievance, the
         grievance may be referred to arbitration pursuant to Step 5 of this
         Article.

(d)      All decisions of the Board of Adjustment shall be in writing and a copy
         sent to the Company involved, the employee involved, and the Union. If
         the Board of Adjustment fails to reach a majority decision within ten
         (10) working days on any grievance submitted to it, such grievance may,
         within ten (10) working days thereafter, be referred to arbitration in
         accordance with the procedure set forth in Step 5.

Step 5:

Only grievances which arise because of the application of the language of the
contract, or as a matter of interpretation of the contract may be referred to
arbitration. If Management and the Union Business Representative cannot agree to
the selection of an arbitrator, then they shall request a list of seven
arbitrators from the Federal Mediation and Conciliation Service. Management and
the Union Business Representative shall alternately cancel out names from such
list until only one remains and he/she shall serve as the arbitrator.
Arbitration shall be confined to the application and interpretation of the terms
of this agreement and the arbitrator shall not have power to alter, amend or
modify this Agreement. The decision of the Arbitrator must be rendered within
thirty(30) calendar days after the matter is submitted to him/her. The decision
of the Union-Management Committee or the arbitrator shall be final and binding
on both parties. The cost of arbitration shall be borne equally by both parties.

SECTION 4

Committee meetings called by the Employer during regular working hours shall
result in no loss of time or pay to the committee. Meetings called by the Union
shall not be paid for by the Employer.

SECTION 5

If an employee or the Union fails to process a grievance within the time limits
set forth above and the procedure is not waived by mutual written agreement,
that grievance shall be deemed waived and such failure shall constitute a bar to
any future actions thereon. If the Company fails to respond within the time
limits prescribed, unless the procedure is waived by mutual written agreement,
the grievance shall be considered having automatically advanced to the next step
in the Grievance Procedure.


ARTICLE III       WORKDAY - WORKWEEK - OVERTIME

SECTION 1


                                       7
<PAGE>   8
Eight (8) continuous hours starting not earlier than 5:00 A.M. nor later than
12:00 NOON shall constitute a regular day's work, exclusive of a lunch break not
to exceed one-half (1/2) hour. Forty (40) hours to consist of five (5)
consecutive eight (8) hour days shall constitute the regular workweek. The
workweek begins with the first (1st) regular shift on Monday morning. The
Employer may schedule a four (4) day, forty (40) hour workweek for the plant or
portions thereof at the regular straight time hourly rate by mutual agreement
with the Union and a majority of affected employees.

SECTION 2

Time and one-half (l-1/2) the employee's regular straight time rate of pay shall
be paid on all hours worked in excess of forty (40) in one work week.

SECTION 3

All hours worked on Saturday and all hours worked in excess of eight (8) on a
daily basis shall be paid at one and one-half (l-l/2) times the regular straight
time hourly rate, provided the employee works all scheduled hours available to
him during the regular work week (Monday through Friday).

SECTION 4

Two (2) times the employee's regular rate of pay shall be paid for all hours
worked on Sunday and all hours worked in excess of ten (10) on a daily basis.

SECTION 5

There shall be no pyramiding of overtime.

SECTION 6

A shift shall conclude at the same hourly rate as paid for the first hour of the
shift.

SECTION 7

Pay days shall be on Friday, every other week. Employees laid off work for any
reason on pay day shall receive their pay checks at the end of the last shift
they work, if such shift is within twenty-four (24) hours of the regular pay
day. Each employee at the time of payment of wages shall be furnished an
itemized statement of gross wages and all deductions for that pay period.

SECTION 8

There shall be a rest period for all employees of ten minutes in every
continuous half shift of employment, and shall be as near as practical in the
middle of each shift. Employees shall not leave the premises. There will be a
warning signal, and all employees will start production at termination of rest
period.

SECTION 9

All night shift workers shall receive twenty cents ($.20) per hour above the
regular hourly rate for any operation.


                                       8
<PAGE>   9
SECTION 10

Employees reporting for work shall be granted four (4) hours' pay for any
fraction thereof, unless notified prior to the end of the previous day's work
that their services are not required, unless the plant, or the portion of the
plant in which the employee works, is shut down by a breakdown or unavoidable
accident or by reason of some occurrence beyond the control of the Employer.


SECTION 11

Employees called back to work after they have completed their shift and left the
plant shall be granted a minimum of two hours' pay at one and one-half times
their regular rate. Time worked in excess of two hours shall be paid at double
their regular rate.

SECTION 12

The Employer shall endeavor to provide employees with notice of daily overtime
prior to last break, and notice of weekend overtime requirements by 12 Noon on
Friday, emergencies excepted.


ARTICLE IV        HEALTH, SAFETY, RETIREMENT & TIME LOSS

SECTION 1

The Union, its members and the Employer shall strictly adhere to all safety and
sanitary requirements as provided for by law, order and regulations.

SECTION 2

The Employer shall furnish adequate relief as required on production line.

SECTION 3
(a)   Life Insurance
      On behalf of eligible employees, the Employer agrees to pay the monthly
      premium for life insurance in an amount of $5,000 and Accidental Death and
      Dismemberment insurance, excluding losses resulting from occupational
      accidents, in the amount up to $5,000.

SECTION 4
(a)    Time Loss
       On behalf of eligible employees, the Employer agrees to pay the monthly
       premium for time-loss benefits that provide $150.00 per week compensation
       for up to 26 weeks. Benefits to commence on the first day when
       hospitalized and on the eighth day when disabled due to accident or
       sickness and not hospitalized. Benefits shall be reduced to the extent of
       comparable coverage provided by State or Federal programs.


                                       9
<PAGE>   10
(b)    Eligibility
       Employees shall be eligible to participate on the first day of the fourth
       (4th) month of employment and for each month thereafter provided the
       employee remains employed on a full-time basis (21 hours or more per
       week) and is on the payroll the first day of the month.

SECTION 5         Hospital-Medical-Surgical Benefits
(a)    Employee Benefits
       Effective September 1, 1997 and thereafter for the term of the Agreement,
       the Employer agrees to pay monthly contributions in order to provide
       medical and vision benefits equivalent to the medical plan known as
       Medical Value Plan M8 and the vision plan known as Vision Plan 2 for
       eligible employees and their eligible employees.

       Effective September 1, 1997 on behalf of eligible employees and eligible
       dependents, the Employer agrees to increase its monthly contribution to
       $200.00 per month.

       The contribution rate by employees for subscriber-only coverage remains
       at 0 for the employee.

       For the employee plus spouse, the total monthly contribution is $232.80
       per month, and the employee contribution is reduced from $167.11 per
       month to $32.80 per month.

       For the employee plus spouse and one dependent child, the total monthly
       contribution is $339.96 per month, and the employee contribution is
       reduced from $258.30 to $139.96 per month.

       For the employee plus one dependent child, the total monthly contribution
       is $232.80 per month, and the employee contribution is reduced from
       $64.50 to $32.80 per month.

       For the employee plus two or more dependent children, the total monthly
       contribution is $339.96 per month, and the employee contribution is
       reduced from $155.75 to $139.96 per month.

(b)    Maintenance of Benefits
       For the term of the agreement, the employer agrees to pay the full cost
       of increases required by the Trustees to maintain current benefits for
       the coverage of the employee. Increases in cost for an eligible spouse
       and dependent child(s) shall be funded fifty percent (50%) by the Company
       and fifty percent (50%) by the employee through payroll deduction.

(c)    Eligibility
       Employees shall be eligible to participate on the first day of the fourth
       (4th) month of employment and for each month thereafter provided the
       employee remains employed on a full-time basis (21 hours or more per
       week) and is on the payroll the first day of the month.

SECTION 6         Dental

The Employer agrees to continue to provide a dental plan comparable to Plan 124P
from the Washington Employers Trust for eligible employees who are on the
payroll the first working day of the month and who were compensated for an
average of 21 or more hours each week in the immediately preceding month. New
hires shall be eligible to participate in the Plan following six months of
employment with the Employer. Eligible employees, subject to Trust regulations,
may enroll their eligible dependents by paying the monthly premium through
payroll deduction.

SECTION 7         Compensable Hours


                                       10
<PAGE>   11
For the purpose of Article IV, compensable hours are defined as:
(a)    All straight-time hours worked.
(b)    All overtime hours worked.
(c)    All vacation hours for which an employee receives pay.
(d)    All holiday hours for which an employee receives pay.

ARTICLE V         PENSION

SECTION 1

(a)    Effective on May 1, 1997 compensable hours, the Employer agrees to pay
       into the Tacoma Millmen's Pension Trust Fund thirty five cents ($.35) per
       compensable hour on behalf of each eligible employee performing covered
       work. Said amount shall be computed monthly and shall be paid on or
       before the 10th day of the following month.

(b)    Effective on May 1, 1998 compensable hours, increase the pension
       contribution by five cents (5 cents) to forty cents (40 cents) per
       compensable hour.

(c)    Effective on May 1, 1999 compensable hours, increase the pension
       contribution by five cents (5 cents) to forty-five cents (45 cents) per
       compensable hour.

SECTION 2

Eligibility shall be as specified in the Trust Booklets. However, expressly
excluded are temporary and summer student employees.

SECTION 3         Compensable Hours

For the purpose of Article V, compensable hours are defined as:

(a)    All straight-time hours worked.
(b)    All overtime hours worked.
(c)    All vacation hours for which an employee receives pay.
(d)    All holiday hours for which an employee receives pay.

SECTION 4

(a)    In case of failure of an individual employer to make the required
       contributions to the Trust Fund, the Trustees may take necessary legal
       action to collect such withheld contributions and surcharges, as well as
       the costs of such action, together with a reasonable sum for an
       attorney's fee and other damages to the Fund caused by the failure to
       make said contributions.

(b)    The Employer and the Union consent to accept the terms, conditions, and
       provisions of the written Trust Agreements as amended.

(c)    The Employer and the Union agree that the Trustees named in said Trust
       Agreement and their successors are and shall be its representatives and
       the Employer and the Union consent to be bound by the acts of said
       Trustees made pursuant to and in carrying out the provisions of the said
       Trust.


                                       11
<PAGE>   12
(d)    A copy of the Trust document will be made available for inspection upon
       request.




ARTICLE VI        SENIORITY

SECTION 1

Giving full consideration to the efficient operation of the facility, seniority
shall prevail in layoffs, recall from layoff, and assignment of overtime
provided the senior employee's ability is relatively equal to that of the junior
employee. The Employer shall be the judge of the competency of the employees,
subject to the grievance procedure. Upon completion of the probationary period
seniority shall be credited from the last date of hire. Overtime assignments
claimed by senior employees shall be compensated at the wage rate for the
classification of work to be performed.

SECTION 2

This clause shall not apply to any employee with less than sixty-six (66) days
actually worked. Upon written request of the Employer, an additional twenty two
(22) days probationary period may be granted by written agreement between the
Employer and Union. The period of time prior to the attainment of seniority is
considered to be a probationary period. The layoff or termination of a
probationary employee shall not be subject to the grievance procedure.

SECTION 3

Seniority shall be broken for the following reasons:

1.     Discharge for reasonable cause.
2.     Voluntary quit.
3.     Layoff of six (6) months or more.
4.     Absence from work because of non-occupational illness or injury of nine
       (9) months or more.
5.     Absence from work because of occupational illness or injury of twelve
       (12) months or more.
6.     Absence for three (3) consecutive work days without authorization
       and/or without notifying the Employer except in the event of compelling
       mitigating circumstances.
7.     Failure to return to work within three (3) consecutive working days after
       being recalled by the Employer (five (5) consecutive days when employed
       elsewhere) by a letter sent by registered mail with return receipt
       requested, addressed to the employee at the last address given the
       Employer. Exception will be given where the Employee shows compelling
       mitigating circumstances.
8.     When off work employees are required to reaffirm their continued interest
       in employment with the Company by signing an employment register at the
       Company's office by the tenth (10th) of each month. Failure to comply
       with the sign-in procedure will result in the forfeiture of the
       employee's seniority rights.

SECTION 4

All job openings, other than temporary openings, shall be posted within the
plant for not less than forty eight (48) hours. Employees who wish to be
considered for an open job should notify the Operations Manager of their
interest. Senior employees shall be given first preference for promotions when
the


                                       12
<PAGE>   13
senior employee's ability to perform the work is relatively equal to that of the
junior employee. Once awarded a job, an employee shall be disqualified from
bidding on another job for a period of forty five (45) days worked from the date
the job is awarded.


ARTICLE VII       LEAVE OF ABSENCE

SECTION 1

Employees desiring leaves-of-absence shall submit their request in writing
stating the reason and the duration of the leave. When leaves-of-absence are
granted, the dates of and reason for the leave shall be written in triplicate
with copies to the employee, the Union and one copy retained in the Employer's
files. It is understood that such leave is canceled if the employee accepts
other employment. Failure to return to work at the end of an approved leave of
absence shall cause loss of seniority and termination of employment.

SECTION 2

The Union and Employer recognize their respective responsibilities under the
Family and Medical Leave Act and Uniformed Services Employment and Reemployment
Rights Act.


ARTICLE VIII      HOLIDAYS

SECTION 1

The following are recognized holidays: New Year's Day, President's Day, Memorial
Day (Day of National observance), July 4th, Labor Day, Thanksgiving Day, the
Friday following Thanksgiving Day, December 24, and Christmas Day.

The Employer and the Local Union may substitute another day as a paid holiday in
lieu of President's Day or Memorial Day. An understanding of any change from the
paid holidays listed must be agreed on by an exchange of letters and upon
reasonable notice by either party.

When any of the recognized holidays fall on a Sunday, the following Monday may
be observed as the holiday or when the holiday falls on a Saturday, the
preceding Friday may be observed as the holiday. The Company agrees to notify
employees ten (10) calendar days in advance, emergencies excepted, of the day on
which the holiday shall be observed.

SECTION 2

Each employee, unless discharged for cause, shall be paid for the above holidays
if he has worked his last scheduled work day within the fourteen (14) calendar
day period preceding the holiday and works his first scheduled work day within
the fourteen (14) calendar day period following the holiday. New employees shall
not be eligible for holiday pay until after they have completed their
probationary period. Employees otherwise qualified, who are off work due to an
occupational accident or illness,


                                       13
<PAGE>   14
shall receive holiday pay for the first holiday occurring during their
disability if certified to in writing by a licensed physician.




SECTION 3

When work is performed on any of the above-mentioned holidays, the employee
shall receive pay at the rate of time and one-half for the hours worked in
addition to the pay due for the holiday as provided in Section 2 above.


ARTICLE IX        DISCHARGE RIGHTS

SECTION 1

(a)    All employees who have completed the probationary period shall not be
       discharged by the Employer without reasonable cause. Prior to discharge
       of any non-probationary employee, the Employer shall give notice to the
       proper Union official.

(b)    If a dispute arises between the parties hereto as to whether the
       discharge was for reasonable cause or not, the said dispute shall be
       subject to the grievance procedure. If the grievance should go to
       arbitration then the arbitrator's decision shall be binding upon both
       parties. The arbitrator shall have the jurisdiction among other things to
       determine whether the discharge was or was not for a reasonable cause,
       and if not, to order reinstatement with back pay and no loss of
       seniority. Likewise, the arbitrator shall have the jurisdiction to order
       reinstatement without back pay.

SECTION 2

The Employer shall have the right to warn employees for acts of negligence,
inefficiency or inattention to his duties and/or other misconduct.

SECTION 3

The following work rules shall be applicable to all employees and shall be
observed without discrimination. Application of these rules is subject to the
grievance procedure.

GROUP A:    1st Offense - Written Warning;
            2nd Offense - Up To One Week's Suspension;
            3rd Offense - Discharge

1.      Poor workmanship or continued production of inferior quality or
        quantity.

2.      Neglect of duty such as loafing, wandering about the plant or in other
        departments without proper authority to do so.

3.      Leaving plant during working hours without proper authority.

4.      Failure of employees to be ready to work at his or her station at the
        starting signal and/or failure to work until the quitting signal,
        including break periods.

5.      Eating lunch at time other than times provided for.

6.      Using company telephone lines and extensions for outgoing calls without
        having the call authorized by his foreman.


                                       14
<PAGE>   15
7.      Creating or contributing to unsanitary and/or poor housekeeping
        conditions.

8.      Significant inaccuracies in reporting production.

9.      Failure to notify the company of impending absence within one-half hour
        after the start of the shift.


GROUP B:      1st Offense - Written Warning;
              2nd Offense - Discharge

1.      Reporting for work under the influence of intoxicants, hallucinogens,
        narcotics, or controlled substances.

2.      Willful holding back, limiting or hindering production.

3.      Minor cases of insubordination, carelessness and recklessness, playing
        tricks, jokes or dangerous pranks on other employees, disregard for
        safety and comfort of fellow workers, violation of established safety
        rules.

4.      Defacing or removing notices from bulletin boards without management
        approval.

5.      Excessive tardiness or excessive absence.

6.      Refusal to obey reasonable orders and neglect of duty.

7.      Employee's failing to report all cases of injury at once to his foreman
        or first aid station.

8.      Chronic wage garnishment.

9.      Verbal harassment of company employee on company premises.

10.     Any employee threatening violence on company premises.




GROUP C: Discharge Without Warning

1.      Bringing or consuming intoxicants, hallucinogens, narcotics or
        controlled substances in the plant or on premises.

2.      Smoking in prohibited areas.

3.      Disorderly or immoral conduct.

4.      Deliberate destruction or removal of property belonging to the Company
        or to another employee.

5.      Altering time cards.

6.      Punching time cards for another employee.

7.      Any gross case of insubordination, gross misconduct, habitual
        carelessness, and habitual recklessness, playing tricks, jokes or
        dangerous pranks on other employees, disregard for safety and comfort of
        fellow workers, violation of established safety rules.

8.      An employee resorting to violence on the premises.


SECTION 4


                                       15
<PAGE>   16
Enforcement of the above working rules is recognized as a prerogative of
management subject to the grievance procedure set forth in this Labor Agreement.
Copies of written warnings will be given to the Business Representative and the
employee. All warnings will be eliminated from the records of an employee if no
offense is recorded within any succeeding twelve-month period.



ARTICLE X         VACATIONS


SECTION 1

Vacations shall be granted with pay to employees in the continuous employ of the
Employer according to the following schedule:

       After 1 year of continuous service:      Up to 1 week (40 hours)
       After 2 years of continuous service:     Up to 2 weeks (80) hours
       After 10 years of continuous service:    Up to 3 weeks (120) hours


SECTION 2

Vacation shall be granted at a time mutually agreed upon.


SECTION 3

Two (2) weeks of vacation may be taken consecutively. The third (3rd) week of
vacation, when earned, may be taken consecutively if it is mutually agreeable
between the Employer and employee.


SECTION 4

Employees, otherwise qualified, accrue one-twelfth (1/12) of their vacation
entitlement for each month they are compensated for one hundred (100) or more
hours during the vacation year.


SECTION 5

After one (1) year of service, an employee who is separated from his employment,
except for termination for just cause, shall be paid pro rata vacation pay in
accordance with Section 1 and Section 4 of this article.


SECTION 6

For vacation purposes the following shall be considered as hours worked:

(1)    All paid holiday hours.


                                       16
<PAGE>   17
(2)    All paid vacation hours.
(3)    Up to 1,000 hours lost due to certified industrial accidents during the
       vacation year in which the accident occurs.
(4)    Up to 80 hours spent in military reserve training.
(5)    All paid funeral leave hours.



SECTION 7

Employees entering military service shall not have their vacation jeopardized
and shall receive their vacation at the first vacation period after returning to
work.


SECTION 8

Vacations may be scheduled by closing down the entire plant or a part thereof,
or by staggering vacations in accordance with the requirements of operations and
shipments. The Employer shall post written notice thereof by April 1st so that
employees may make vacation plans.


SECTION 9

Vacations must be taken and cannot be accumulated to be used in following
vacation years, provided however, employees eligible for three weeks of vacation
may accept pay in lieu of time off for the third week of vacation.


SECTION 10

If the vacation period includes a holiday (including holidays falling on
Saturday and Sunday) the vacation period shall be extended by one day. Holidays
shall be paid for in addition to vacation pay, subject to the provisions of
Article VIII.


SECTION 11

Employees qualified for vacation pay shall receive their vacation pay prior to
taking vacation upon written request.


SECTION 12

An employee's vacation pay shall be based on his regular straight time hourly
rate of pay received immediately prior to his vacation.



ARTICLE XI                    INCENTIVE PROGRAM


                                       17
<PAGE>   18
SECTION 1

The Company may establish an Incentive Plan for the Plant or portion thereof.



ARTICLE XII                   EXCEPTIONS

SECTION 1

Any condition that may arise and is not provided for herein may be attached to
this Agreement, provided, however, it does not conflict with any part to Article
mentioned, and is mutually agreed upon by the Local Union and Employer.



ARTICLE XIII                  FAIR EMPLOYMENT PRACTICES


SECTION 1

The Employer and the Union recognize their respective responsibility under
Federal, State and Local laws relating to fair employment practices.


SECTION 2

The Employer and the Union recognize their moral obligation in the area of civil
rights and have reaffirmed in the agreement, their joint commitment not to
discriminate because union activity or lack thereof, race, creed, color, age,
sex, national origin, handicap, and marital or veteran status as defined in
applicable laws.


SECTION 3

Nothing in this Agreement will prevent the Union and Employer from fulfilling
their respective obligations under the Americans with Disabilities Act and the
Family and Medical Leave Act.



ARTICLE XIV                FUNERAL LEAVE


SECTION 1


                                       18
<PAGE>   19
In the event of death in the immediate family (parent, spouse, child, step
child, step parent, brother, sister, grandfather, grandmother, grandchildren,
mother-in-law, and father-in-law), a seniority employee shall be entitled to a
maximum of three (3) days off with pay to attend the funeral. Such time with pay
is intended to compensate the employee only for loss from the regularly
scheduled workweek. The employee may be required to show documentation of
relationship and attendance at the funeral.




ARTICLE XV                 SAVINGS CLAUSE

SECTION 1

Should any article, section or provision herein contained be rendered or
declared invalid by reason of any existing or subsequently enacted statute,
ordinance or other law, or by the decree of judgment of any court of competent
jurisdiction, the invalidation of such article, section or provision will not
affect the remaining portions hereof and such other parts and provisions will
remain in full force and effect. Upon the invalidation of any article, section
or provision hereof, the parties will meet and negotiate the parts and
provisions concerned within thirty (30) days from the date the fact of such
invalidation is communicated to them; provided, however, that the parties may
mutually agree to extend the time for such negotiations.


ARTICLE XVI                NO STRIKES - NO LOCKOUTS

SECTION 1

The Union agrees that there will be no strikes of any kind during the term of
this Agreement except for failure of the Company to meet payroll or fringe
benefit payments within seventy-two (72) hours of the due date.

SECTION 2

The Company agrees that there will be no lockout. If, during the term of this
Agreement, any employees engage in any strike of any kind, stoppages of work or
slowdowns, the Local Officers and other paid representatives of the Union will
cooperate with the Company in ending such occurrence and returning the employees
to work.

SECTION 3

It is understood and agreed that in the event of any strikes of any kind,
stoppages of work or slowdowns on the part of any employees during the life of
this agreement, there will be no liability on the part of the Union, or any of
their officers or representatives. Employees who engage in any of these acts may
be discharged or disciplined by the Company but shall have recourse to the
Grievance Procedure.

SECTION 4


                                       19
<PAGE>   20
The decision to cross or not to cross a lawful primary picket line established
by another union and authorized by the Pierce County Central Labor Council shall
rest exclusively with the employee and is to be made without coercion by either
the Union or the Employer. The Employer reserves its statutory right to meet its
operating requirements by all lawful means, including the use of replacement
employees, temporary or permanent.





ARTICLE XVII               TERMINATION

SECTION 1

This Agreement shall be effective May l, 1997 until May l, 2000 and shall
continue from year to year thereafter unless either party serves written notice
of desire to change or terminate at least sixty (60) days prior to the
anniversary date. In the event that either party notifies the other of its
desire to modify this Agreement, this Agreement shall continue to remain in
effect during the period of negotiations and beyond the anniversary date until
either party shall give the other party ten (10) days notice in writing of
cancellation.

Signed and dated this _______________day of ___________________________, 1997 in
Tacoma, Washington.


Serta Mattress Company for Its Facility
Located In Pierce County, Washington       Lumber & Sawmill Workers Union, #2633


/S/ Tom Sparks                             /S/ Michael P. Smith
________________________________________   _____________________________________
Tom Sparks                                 Michael P. Smith
Operations Manager                         Business Representative



Company Representative                     Western Council Of Industrial Workers


/S/ John Tullius                           /S/ Charles S. Peterson
________________________________________   _____________________________________
John Tullius                               Charles S. Peterson
Washington Employers, Inc.                 Area Representative


                                       20
<PAGE>   21
WAGE AGREEMENT                                                          PAGE ONE


This agreement is entered into by and between Serta Mattress Company for its
facility located in Pierce County, Washington (hereinafter referred to as the
"Employer") and Lumber & Sawmill Workers Union, Local 2633 affiliated with the
Western Council of Industrial Workers, chartered by the United Brotherhood of
Carpenters and Joiners of America, AFL-CIO, (hereinafter called the "Union"),
this 1st day of May, 1997.


ARTICLE I                     WAGES

SECTION 1

In the event that an employee is performing work that cannot properly be
classified under the following list, or that has been omitted from the list
below, and in case of a new operation being created and not listed, it is
understood and agreed that a rate to cover such work will be agreed upon by the
Employer and the Union.


SECTION 2

New help experienced at the job to which assigned upon qualification by the
Employer shall receive the rate of the job. New help without prior experience
with the Employer shall receive not less than the Federal or State minimum wage
and shall be increased twenty-five cents ($.25) per hour each twenty two (22)
days worked up to the regular classification rate of pay. Thereafter, increases
shall be in accordance with the provisions of Section 3.


SECTION 3

(a)    Any employee moving to a higher paid job shall receive ten cents ($.10)
       per hour after twenty two (22) days worked, and shall receive the rate of
       the job performed after forty-four (44) days worked. If an employee
       cannot perform the job in a competent manner within this period, he shall
       be transferred back to his former job, at his former rate of pay.

(b)    Employees of the Company competent from prior experience shall receive
       the rate of the job immediately upon being transferred to a higher
       classification.


SECTION 4

If work of a higher classification is temporarily required of an employee for
four or more hours he shall receive the wage of the position to which he has
been assigned for the balance of the day. Excluding overtime claimed on the
basis of seniority, when an employee is shifted for any reason to a job paying a
lesser wage than he has been receiving, there shall be no reduction of his
hourly rate for the first five (5) consecutive working days. Beginning with the
sixth (6th) consecutive working day his hourly rate may be reduced to the rate
of job which he is performing.


                                       21
<PAGE>   22
WAGE AGREEMENT                                                          PAGE TWO


SECTION 5

Wage rates herein provided shall be regarded as minimum rates for work performed
in the job classification. Payment of rates in excess of the minimum as well as
gifts, gratuities, or bonuses are at the sole discretion of the Employer.

<TABLE>
<CAPTION>
                                                                          WAGES
                                                                        EFFECTIVE
                                           MAY 1, 1997                 MAY 1, 1998                MAY 1, 1999
                                           -----------                 -----------                -----------
<S>                                        <C>                         <C>                        <C>
CLASS 1                                       $6.75                       $7.00                      $7.25
-------                                       -----                       -----                      -----
Laborer
Assistant Bagger
Material Handler
Asst. Mattress Line Feed
Asst. Mechanic
Asst. Quilter
Asst. Truck Loader

CLASS 2                                       $8.45                       $8.70                      $8.95
-------                                       -----                       -----                      -----
Box Spring Frame Assembly
Springs to Grid Assembly
Spring to Frame Assembly

CLASS 3                                       $8.95                       $9.20                      $9.45
-------                                       -----                       -----                      -----
Bagger
Box Line Feed

CLASS 4                                       $9.70                       $9.95                      $10.20
-------                                       -----                       -----                      ------
General Sewing
  (include. Labeler)
Hand Cutting
Mattress Line Feed
Panel Farm
Receiving
Truck Loader

CLASS 5                                       $9.85                      $10.10                      $10.35
-------                                       -----                      ------                      ------
Build Up
Quilt Machine Oper.
Upholsterer Foundation

CLASS 6                                       $10.40                     $10.65                      $10.90
-------                                       ------                     ------                      ------
Tap Edge

CLASS 7                                       $11.25                     $11.50                      $11.75
-------                                       ------                     ------                      ------
Mechanic
</TABLE>


                                       22
<PAGE>   23
WAGE AGREEMENT                                                        PAGE THREE



LEAD PERSON
$.25 per hour over their regular classification of pay when assigned as a lead
person.


SECTION 1

This Agreement shall be effective May l, 1997 until May l, 2000 and shall
continue from year to year thereafter unless either party serves written notice
of desire to change or terminate at least sixty (60) days prior to the
anniversary date. In the event that either party notifies the other of its
desire to modify this Agreement, this Agreement shall continue to remain in
effect during the period of negotiations and beyond the anniversary date until
either party shall give the other party ten (10) days notice in writing of
cancellation.


Signed and dated this ______________ day of ____________________________, 1997
in Tacoma, Washington.

Serta Mattress Company for Its Facility
Located In Pierce County, Washington       Lumber & Sawmill Workers Union, #2633


/S/ Tom Sparks                             /S/ Michael P. Smith
________________________________________   _____________________________________
Tom Sparks                                 Michael P. Smith
Operations Manager                         Business Representative



Company Representative                     Western Council Of Industrial Workers


/S/ John Tullius                           /S/ Charles S. Peterson
________________________________________   _____________________________________
John Tullius                               Charles S. Peterson
Washington Employers, Inc.                 Area Representative


                                       23