<PAGE>   1
                                                                   EXHIBIT 10.85


                           WAIVER AND SECOND AMENDMENT
                 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT


         THIS WAIVER AND SECOND AMENDMENT TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT (the "Amendment") dated as of May 15, 2001 is to that Third Amended
and Restated Credit Agreement dated as of June 30, 2000, as amended and modified
by that Waiver and First Amendment to Third Amended and Restated Credit
Agreement dated as of September 19, 2000, (as may be subsequently amended and
modified from time to time, the "Credit Agreement"; terms used but not otherwise
defined herein shall have the meanings provided in the Credit Agreement), by and
among SLEEPMASTER L.L.C., a New Jersey limited liability company (the
"Borrower"), SLEEPMASTER HOLDINGS L.L.C., a New Jersey limited liability company
(the "Parent") and those Domestic Subsidiaries of the Borrower as may from time
to time become party thereto (together with the Parent, collectively, the
"Guarantors"), the several banks and other financial institutions identified
therein (the "Lenders") and FIRST UNION NATIONAL BANK, as administrative agent
for the Lenders thereunder (in such capacity, the "Agent").


                              W I T N E S S E T H:

         WHEREAS, the Lenders have established a credit facility for the benefit
of the Borrower pursuant to the terms of the Credit Agreement;

         WHEREAS, the Borrower has advised the Agent that it was unable to
comply with certain of the financial covenants set forth in the Credit Agreement
for the quarter ended March 31, 2001 and (i) requests that the Required Lenders
waive any Default or Event of Default that has resulted from such noncompliance
and (ii) wishes to amend the Credit Agreement to modify certain provisions
contained therein; and

         WHEREAS, the Required Lenders have agreed to (i) waive the Borrower's
noncompliance with certain of the financial covenants of the Credit Agreement
and (ii) amend the Credit Agreement on the terms and conditions hereinafter set
forth;

         NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

         A. Waiver. The Borrower has informed the Agent and the Lenders that it
was unable to comply with (i) the Leverage Ratio requirement set forth in
Section 5.9(a) of the Credit Agreement, (ii) the Interest Coverage Ratio
requirement set forth in Section 5.9(b) of the Credit Agreement, (iii) Fixed
Charge Coverage Ratio requirement in Section 5.9(c) of the Credit Agreement,
(iv) the Senior Leverage Ratio requirement in Section 5.9(e) of the Credit
Agreement, and (v) the Minimum Consolidated EBITDA requirement set forth in
Section 5.9(g) of the Credit Agreement, in each case, as of the last day of the
fiscal quarter ended March 31, 2001 (the "Waiver Period"). The Borrower's
failure to comply with each of Sections 5.9(a), (b), (c), (e) and (g) of the
Credit Agreement during the Waiver Period constitutes an Event of Default. The
Required Lenders hereby grant a waiver of the above-referenced Events of
Default.


                                       1
<PAGE>   2

         B.       Amendment. The Credit Agreement is amended in the following
                  respects:

                  1.       Section 1.1 is hereby amended by adding the following
                           definitions in the appropriate alphabetical order:

                                    "Borrower Senior Unsecured PIK Notes" shall
                           mean those certain 14% pay in kind senior unsecured
                           notes of the Borrower issued to Citicorp Venture
                           Capital, Ltd. and PMI Mezzanine Fund, L.P. in an
                           aggregate principal amount of $15,000,000, the
                           proceeds of which shall be applied to reduce the
                           Loans as set forth in Section 2.8(b)(vi)(C).

                                    "Second Amendment" shall mean the Waiver and
                           Second Amendment to Third Amended and Restated Credit
                           Agreement dated as of May 15, 2001 by and among the
                           Borrower, the Guarantors, the Required Lenders and
                           the Administrative Agent.

                                    "Second Amendment Effective Date" shall mean
                           the date on which all of the conditions precedent to
                           the effectiveness of the Second Amendment have been
                           satisfied.

                  2.       The definition of "Applicable Percentage" in Section
                           1.1 of the Credit Agreement is hereby deleted in its
                           entirety and the following substituted therefor:

                                    "Applicable Percentage" shall mean, for any
                           day, the rate per annum set forth below opposite the
                           applicable Level then in effect, it being understood
                           that the Applicable Percentage for (i) Revolving
                           Loans or the Tranche A Term Loans which are Alternate
                           Base Rate Loans shall be the percentage set forth
                           under the column "Alternate Base Rate Margin for
                           Revolving Loans and Tranche A Term Loans", (ii)
                           Revolving Loans or the Tranche A Term Loans which are
                           LIBOR Rate Loans shall be the percentage set forth
                           under the column "LIBOR Rate Margin for Revolving
                           Loans and Tranche A Term Loans and Letter of Credit
                           Fee", (iii) the Tranche B Term Loans which are
                           Alternate Base Rate Loans shall be the percentage set
                           forth under the column "Alternate Base Rate Margin
                           for Tranche B Term Loans", (iv) the Tranche B Term
                           Loans which are LIBOR Rate Loans shall be the
                           percentage set forth under the column "LIBOR Rate
                           Margin for Tranche B Term Loans" (v) the Letter of
                           Credit Fee shall be the percentage set forth under
                           the column "LIBOR Rate Margin for Revolving Loans and
                           Tranche Term Loan and Letter of Credit Fee"; and (vi)
                           the Commitment Fee shall be the percentage set forth
                           under the column "Commitment Fee":


                                       2
<PAGE>   3

<TABLE>
<CAPTION>
                                                           LIBOR Rate
                                        Alternate Base     Margin for
                                         Rate Margin     Revolving Loans     Alternate       LIBOR Rate
                                        for Revolving     and Tranche A      Base Rate         Margin
                                          Loans and      Term Loans and      Margin for         for
                                          Tranche A        Letter of         Tranche B       Tranche B       Commitment
 Level     Leverage Ratio                 Term Loans       Credit Fee        Term Loans      Term Loans            Fee
 -----     --------------                 ----------       ----------        ----------         -----            ---
<S>        <C>                          <C>              <C>                 <C>             <C>              <C>
   I       > or equal to 6.5 to 1.0          3.25%            4.50%             3.75%           5.00%            0.50%

  II       < 6.5 to 1.0 but                  3.00%            4.25%             3.50%           4.75%            0.50%
           > or equal to 6.0 to 1.0

  III      < 6.0 to 1.0 but                  2.75%            4.00%             3.25%           4.50%            0.50%
           > or equal to 5.5 to 1.0

  IV       < 5.50 to 1.0 but                 2.50%            3.75%             3.00%           4.25%            0.50%
           > or equal to 5.00 to 1.0

   V       < 5.00 to 1.0 but                 2.25%            3.50%             3.00%           4.25%            0.50%
           > or equal to 4.50 to 1.0

  VI       < 4.50 to 1.0 but                 2.00%            3.25%             2.75%           4.00%            0.50%
           > or equal to 4.00 to 1.0

  VII      < 4.00 to 1.0 but                 1.25%            2.50%             2.25%           3.50%            0.50%
           > or equal to 3.00 to 1.0

 VIII      < 3.00 to 1.0                     1.00%            2.25%             2.25%           3.50%            0.50%
</TABLE>

                           The Applicable Percentage shall, in each case, be
                  determined and adjusted quarterly on the date five (5)
                  Business Days after the date on which the Administrative Agent
                  has received from the Borrower the quarterly financial
                  information and certifications required to be delivered to the
                  Administrative Agent and the Lenders in accordance with the
                  provisions of Sections 5.1(b) and 5.2(b) (each an "Interest
                  Determination Date"). Such Applicable Percentage shall be
                  effective from such Interest Determination Date until the next
                  such Interest Determination Date. The initial Applicable
                  Percentages shall be based on a minimum of Level I from the
                  Second Amendment Effective Date until the first Interest
                  Determination Date occurring after March 31, 2002. After the
                  Second Amendment Effective Date, if the Borrower shall fail to
                  provide the quarterly financial information and certifications
                  in accordance with the provisions of Sections 5.1(b) and
                  5.2(b), the Applicable Percentage from such Interest
                  Determination Date shall, on the date five (5) Business Days
                  after the date by which the Borrower was so required to
                  provide such financial information and certifications to the
                  Administrative Agent and the Lenders, be based on Level I
                  until such time as such information and certifications are
                  provided, whereupon the Level shall be determined by the then
                  current Leverage Ratio.

         3.       The definition of "Consolidated Interest Expense" in Section
                  1.1 of the Credit Agreement is hereby deleted in its entirety
                  and the following substituted therefor:

                  "Consolidated Interest Expense" means, for any period, all
                  interest expense (excluding pay-in-kind interest) of the
                  Borrower and its Subsidiaries on a consolidated basis
                  including the interest component of Capital Lease Obligations,
                  less the sum of (i) interest income of the Borrower and its
                  Subsidiaries on a consolidated basis less (ii) interest
                  expense not payable in cash of the Borrower and its
                  Subsidiaries on a consolidated basis, including, without
                  limitation, the amortization or write-off of deferred
                  financing fees, debt discount and debt


                                       3
<PAGE>   4

                  issuance costs and commissions, premiums paid on Hedging
                  Agreements, and other fees and charges associated with
                  Indebtedness, all as determined in accordance with GAAP. For
                  purpose of calculating the Interest Coverage Ratio only,
                  "Consolidated Interest Expense" shall include cash interest
                  paid by the Parent in connection with the Existing Seller Debt
                  and the Permitted Seller Debt.

         4.       The definition of "Fixed Charge Coverage Ratio" in Section 1.1
                  of the Credit Agreement is hereby deleted in its entirety and
                  the following substituted therefor:

                           "Fixed Charge Coverage Ratio" shall mean, as of the
                  end of each fiscal quarter of the Borrower, for the Borrower
                  and its Subsidiaries on a consolidated basis for the four
                  consecutive quarters ending on such date, without duplication,
                  the ratio of (i) Consolidated EBITDA for the applicable period
                  minus Consolidated Capital Expenditures for the applicable
                  period to (ii) the sum of Consolidated Interest Expense for
                  the applicable period plus taxes paid in cash during the
                  applicable period plus cash dividend payments or other
                  distributions made during the applicable period (including but
                  not limited to cash distributions made in connection with the
                  Existing Seller Debt and the Permitted Seller Debt) plus
                  Scheduled Funded Debt Payments for the applicable period.
                  Notwithstanding the foregoing, for purposes of calculating the
                  Fixed Charge Coverage Ratio of the Borrower and its
                  Subsidiaries for the first three complete fiscal quarters to
                  occur after the Second Amendment Effective Date, the Fixed
                  Charge Coverage Ratio shall be determined by annualizing the
                  Consolidated Interest Expense and the Scheduled Funded Debt
                  Payments components thereof such that for the first fiscal
                  quarter ending after the Second Amendment Effective Date such
                  components would be multiplied by four (4), the first two
                  complete fiscal quarters would be multiplied by two (2) and
                  the first three complete fiscal quarters would be multiplied
                  by one and one-third (1 1/3).

         5.       The definition of "Interest Coverage Ratio" in Section 1.1 of
                  the Credit Agreement is hereby deleted in its entirety and the
                  following substituted therefor:

                           "Interest Coverage Ratio" means, with respect to the
                  Borrower and its Subsidiaries on a consolidated basis for the
                  twelve month period ending on the last day of any fiscal
                  quarter of the Borrower and its Subsidiaries, the ratio of (a)
                  Consolidated EBITDA for such period to (b) Consolidated
                  Interest Expense for such period. Notwithstanding the
                  foregoing, for purposes of calculating the Interest Coverage
                  Ratio of the Borrower and its Subsidiaries for the first three
                  complete fiscal quarters to occur after the Second Amendment
                  Effective Date, the Interest Coverage Ratio shall be
                  determined by annualizing the Consolidated Interest Expense
                  component thereof such that for the first fiscal quarter
                  ending after the Second Amendment Effective Date such
                  components would be multiplied by four (4), the first two
                  complete fiscal quarters would be multiplied by (2) and the
                  first three complete fiscal quarters would be multiplied by
                  one and one-third (1 1/3).

         6.       The definition of "Permitted Acquisition" in Section 1.1 of
                  the Credit Agreement is hereby deleted in its entirety and the
                  following substituted therefor:

                           "Permitted Acquisition" shall mean so long as (x) no
                  Default or Event of Default shall have occurred and be
                  continuing or would result therefrom on an


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<PAGE>   5

                  actual or pro forma basis and (y) the Credit Parties can
                  demonstrate that the Senior Leverage Ratio is less than or
                  equal to 2.00 to 1.00 on a pro forma basis after giving effect
                  to such acquisition, the acquisition by the Borrower or any of
                  its Subsidiaries of all or a majority of the Capital Stock or
                  other ownership interest in (or all or a substantial portion
                  of the assets, property and/or operations of) any Person (i)
                  in a similar or related line of business, (ii) which shall not
                  have been rejected initially or thereafter by such Person's
                  board of directors, (iii) which shall have had earnings before
                  the deduction of interest, taxes, depreciation and
                  amortization expense for the two immediately preceding fiscal
                  quarters in an amount greater than $0 and (iv) which, in an
                  aggregate amount for all such acquisitions, shall not exceed
                  $5,000,000 in any fiscal year.

         7.       The definition of "Senior Funded Debt" in Section 1.1 of the
                  Credit Agreement is hereby deleted in its entirety and the
                  following substituted therefor:

                  "Senior Funded Debt" shall mean as of any date of
                  determination, with respect to any Person, all Funded Debt
                  (including without limitation Extensions of Credit hereunder)
                  which is not subordinate in right of payment to the Credit
                  Party Obligations. The term "Senior Funded Debt" shall not
                  include the Borrower Senior Unsecured PIK Notes.

         8.       Subsection 2.7(b) is hereby deleted in its entirety and the
                  following substituted therefor:

                           (b) Mandatory Reductions. On any date the Revolving
                  Loans are required to be prepaid pursuant to the terms of
                  Section 2.8(b)(ii), (iii), (iv) and (v) other than in
                  connection with the Borrower Senior Unsecured PIK Notes, the
                  Revolving Committed Amount shall be automatically permanently
                  reduced by the amount of such required prepayment and/or
                  reduction.

         9.       Subsection 2.8(b)(vi) is hereby deleted in its entirety and
                  the following substituted therefor:

                           (vi) Application of Mandatory Prepayments. All
                  amounts required to be paid pursuant to this Section 2.8(b)
                  shall be applied as follows: (A) with respect to all amounts
                  prepaid pursuant to Section 2.8(b)(i), to Revolving Loans and
                  (after all Revolving Loans have been repaid) to a cash
                  collateral account in respect of LOC Obligations, (B) with
                  respect to all amounts prepaid pursuant to Section 2.8(b)(ii)
                  through (v) other than in connection with the Borrower Senior
                  Unsecured PIK Notes, (1) first pro rata to the Tranche A Term
                  Loan and the Tranche B Term Loan (ratably to the remaining
                  principal installments thereof); and (2) second to the
                  Revolving Loans and (after all Revolving Loans have been
                  repaid) to a cash collateral account in respect of LOC
                  Obligations and (C) with respect to all amounts prepaid
                  pursuant to Section 2.8(b)(iii) in connection with the
                  Borrower Senior Unsecured PIK Notes, (1) first, $10,000,000 to
                  Revolving Loans (with no reduction in the Revolving Committed
                  Amount) and (2) second, $5,000,000 pro rata to the Tranche A
                  Term Loan and the Tranche B Term Loan (ratably to the
                  remaining principal installments thereof). Within the
                  parameters of the applications set forth above, prepayments
                  shall be applied first to Alternate Base Rate Loans and then
                  to LIBOR Rate Loans in direct order of Interest Period
                  maturities. All prepayments under this Section 2.8(b) shall be
                  subject to Section


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<PAGE>   6

                  2.18 and be accompanied by interest on the principal amount
                  prepaid through the date of prepayment.

         10.      Section 4.2 of the Credit Agreement is hereby amended by
                  adding a new subclause (i) immediately following subclause (h)
                  thereof to read as follows:

                           (i) Minimum Liquidity. For so long as the Senior
                  Leverage Ratio is greater than 2.00 to 1.00, in connection
                  with any request for an Extension of Credit, the Borrower
                  shall deliver to the Administrative Agent and the Lenders
                  evidence that:

                           (a) as of the last Business Day of the month
                  immediately preceding the date of the requested Extension of
                  Credit, the sum of (i) cash on the Borrower's balance sheet
                  and (ii) the availability of the Borrower to incur additional
                  Revolving Loans under Section 2.1 after giving effect on a pro
                  forma basis to the requested Extension of Credit shall be
                  greater than or equal to the following for the periods set
                  forth below:

<TABLE>
<CAPTION>
                                         Period                                 Liquidity
                                         ------                                 ---------
<S>                                                                            <C>
                  Second Amendment Effective Date through and including
                  December 31, 2001                                            $ 5,000,000
                  January 1, 2002 through and including June 30, 2002          $ 7,500,000
                  July 1, 2002 and thereafter                                  $10,000,000
</TABLE>

                  and

                           (b) the average of the sums of (i) cash on the
                  Borrower's balance sheet and (ii) the availability of the
                  Borrower to incur additional Revolving Loans under Section 2.1
                  after giving effect on a pro forma basis to the requested
                  Extension of Credit on each Business Day in the immediately
                  preceding month shall be greater than or equal to the
                  following for the periods set forth below:

<TABLE>
<CAPTION>
                                        Period                                 Liquidity(1)
                                        ------                                 ------------
<S>                                                                            <C>
                  Second Amendment Effective Date through and including
                  December 31, 2001                                            [$_________]
                  January 1, 2002 through and including June 30, 2002          [$_________]
                  July 1, 2002 and thereafter                                  [$_________]
</TABLE>


----------
(1) The parties hereto agree to negotiate the liquidity levels required herein
on or before June 30, 2001 in good faith upon receipt of the cash flow analysis
to be prepared by Zolfo Cooper and such levels shall be mutually satisfactory to
the Administrative Agent, the Required Lenders and the Borrower.


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<PAGE>   7

                  ; provided, however, that to the extent the Borrower fails to
                  deliver evidence demonstrating compliance with one or both of
                  the liquidity requirements set forth hereinabove, the Borrower
                  shall, in connection with the requested Extension of Credit
                  and each and every Extension of Credit requested thereafter
                  until such time as the Borrower has demonstrated compliance
                  with the liquidity requirements set forth hereinabove for a
                  full calendar month period following such failure, deliver to
                  the Administrative Agent and the Lenders a certificate of a
                  Responsible Officer of the Borrower certifying that the
                  Extensions of Credit requested shall be used only for ordinary
                  and necessary business purposes which shall not include the
                  payment of principal or interest on the Subordinated Notes,
                  which certificate shall be accompanied by such supporting
                  documentation as may be reasonably requested by the
                  Administrative Agent or any Lender.

         11.      Subsection 5.1(c) of the Credit Agreement is hereby deleted in
                  its entirety and the following substituted therefor:

                           (c) Monthly Financial Statements. As soon as
                  available and in any event within thirty (30) days after the
                  end of each month (other than (x) at the end of a fiscal
                  quarter, in which case 45 days after the end thereof and (y)
                  at the end of a fiscal year, in which case 90 days after the
                  end thereof), (i) a company-prepared consolidated balance
                  sheet of the Borrower and its consolidated Subsidiaries as at
                  the end of such period and related company-prepared statements
                  of income and retained earnings and of cash flows for the
                  Borrower and its consolidated Subsidiaries for such monthly
                  period and for the portion of the fiscal year ending with such
                  period in each case setting forth in comparative form
                  consolidated and consolidating figures for (x) the
                  corresponding period or periods of the preceding fiscal year
                  (subject to normal recurring year-end audit adjustments and
                  the absence of footnotes) and (y) the corresponding period or
                  periods of the Borrower's business plan and (ii) beginning
                  with the period ended September 30, 2000, company-prepared pro
                  forma statements of income and calculations of Consolidated
                  EBITDA of the Borrower and its consolidated Subsidiaries for
                  such period and for the portion of the fiscal year ending with
                  such period (as if each Subsidiary of the Borrower as of such
                  date were a Subsidiary of the Borrower as of the first day of
                  such period), in each case setting forth in comparative form
                  consolidated and consolidating figures for the corresponding
                  period or periods of the preceding fiscal year (subject to
                  normal recurring year-end audit adjustments and the absence of
                  footnotes); and


                                       7
<PAGE>   8


         12.      Subsection 5.9(a) is hereby deleted in its entirety and the
                  following substituted therefor:

                           (a) Leverage Ratio. The Leverage Ratio, as of the
                  last day of each fiscal quarter occurring during the periods
                  indicated below, shall be less than or equal to the following:

<TABLE>
<CAPTION>
                                        Period                                             Ratio
                                        ------                                             -----
<S>                                                                                     <C>
                  October 1, 2002 through and including March 31, 2003                  6.25 to 1.00
                  April 1, 2003 through and including September 30, 2003                6.00 to 1.00
                  October 1, 2003 through and including March 31, 2004                  5.50 to 1.00
                  April 1, 2004 through and including September 30, 2004                5.25 to 1.00
                  October 1, 2004 through and including March 31, 2005                  5.00 to 1.00
                  April 1, 2005 through and including September 30, 2005                4.75 to 1.00
                  October 1, 2005 and thereafter                                        4.50 to 1.00
</TABLE>

         13.      Subsection 5.9(b) is hereby deleted in its entirety and the
                  following substituted therefor:

                           (b) Interest Coverage Ratio. The Interest Coverage
                  Ratio, as of the last day of each fiscal quarter occurring
                  during the periods indicated below, shall be greater than or
                  equal to the following:

<TABLE>
<CAPTION>
                                        Period                                                 Ratio
                                        ------                                                 -----
<S>                                                                                         <C>
                  April 1, 2001 through and including September 30, 2001                    1.40 to 1.00
                  October 1, 2001 through and including March 31, 2002                      1.30 to 1.00
                  April 1, 2002 through and including June 30, 2002                         1.45 to 1.00
                  July 1, 2002 through and including September 30, 2002                     1.50 to 1.00
                  October 1, 2002 through and including March 31, 2003                      1.55 to 1.00
                  April 1, 2003 through and including September 30, 2003                    1.65 to 1.00
                  October 1, 2003 through and including March 31, 2004                      1.75 to 1.00
                  April 1, 2004 through and including September 30, 2004                    1.85 to 1.00
                  October 1, 2004 through and including March 31, 2005                      2.00 to 1.00
                  April 1, 2005 through and including September 30, 2005                    2.10 to 1.00
                  October 1, 2005 and thereafter                                            2.25 to 1.00
</TABLE>

         14.      Subsection 5.9(c) is hereby deleted in its entirety and the
                  following substituted therefor:

                           (c) Fixed Charge Coverage Ratio. The Fixed Charge
                  Coverage Ratio, as of the last day of each fiscal quarter
                  occurring during the periods set forth below, shall be greater
                  than or equal to the following:

<TABLE>
<CAPTION>
                                                Period                                       Ratio
                                                ------                                       -----
<S>                                                                                       <C>
                  April 1, 2001 through and including December 31, 2001                   0.80 to 1.00
                  January 1, 2002 through and including March 31, 2002                    0.85 to 1.00
                  April 1, 2002 through and including June 30, 2002                       0.90 to 1.00
                  July 1, 2002 through and including September 30, 2002                   1.00 to 1.00
                  October 1, 2002 through and including March 31, 2003                    1.05 to 1.00
                  April 1, 2003 through and including September 30, 2003                  1.10 to 1.00
                  October 1, 2003 through and including December 31, 2003                 1.15 to 1.00
                  January 1, 2004 and thereafter                                          1.20 to 1.00
</TABLE>


                                       8
<PAGE>   9

         15.      Subsection 5.9(e) is hereby deleted in its entirety and the
                  following substituted therefor:

                           (e) Senior Leverage Ratio. The Senior Leverage Ratio,
                  as of the last day of each fiscal quarter occurring during the
                  periods indicated below, shall be less than or equal to the
                  following:

<TABLE>
<CAPTION>
                                          Period                                             Ratio
                                          ------                                             -----
<S>                                                                                       <C>
                  April 1, 2001 through and including December 31, 2001                   3.25 to 1.00
                  January 1, 2002 through and including March 31, 2002                    3.15 to 1.00
                  April 1, 2002 through and including June 30, 2002                       3.00 to 1.00
                  July 1, 2002 through and including March 31, 2003                       2.75 to 1.00
                  April 1, 2003 through and including September 30, 2003                  2.65 to 1.00
                  October 1, 2003 and thereafter                                          2.25 to 1.00
</TABLE>


         16.      Subsection 5.9(g) is hereby deleted in its entirety and the
                  following substituted therefor:

                           (g) Minimum Consolidated EBITDA. Consolidated EBITDA,
                  as of the last day of each fiscal quarter occurring during the
                  periods indicated below for the twelve month period then
                  ended, shall not be less than the following:

<TABLE>
<CAPTION>
                                        Period                                               Amount
                                        ------                                               ------
<S>                                                                                        <C>
                  April 1, 2001 through and including June 30, 2001                        $42,000,000
                  July 1, 2001 through and including September 30, 2001                    $41,000,000
                  October 1, 2001 through and including December 31, 2001                  $40,000,000
                  January 1, 2002 through and including March 31, 2002                     $40,500,000
                  April 1, 2002 through and including June 30, 2002                        $42,000,000
                  July 1,  2002 through and including September 30, 2002                   $44,000,000
                  October 1, 2002 through and including March 31, 2003                     $45,000,000
                  April 1, 2003 through and including September 30, 2003                   $47,000,000
                  October 1, 2003 through and including March 31, 2004                     $49,000,000
                  April 1, 2004 through and including September 30, 2004                   $51,000,000
                  October 1, 2004 through and including March 31, 2005                     $53,000,000
                  April 1, 2005 through and including September 30, 2005                   $55,000,000
                  October 1, 2005 through and including March 31, 2006                     $57,000,000
                  April 1, 2006 through and including September 30, 2006                   $59,500,000
                  October 1, 2006 and thereafter                                           $62,000,000
</TABLE>

         17.      Section 5.9 of the Credit Agreement is hereby amended by
                  adding a new subsection 5.9(h) immediately to the end thereof
                  to read as follows:

                           (h) Minimum Liquidity Preceding Interest Payments on
                  the Subordinated Notes.

                           For so long as the Senior Leverage Ratio is greater
                  than 2.00 to 1.00:

                           (a) On the last Business Day of the four consecutive
                  week period immediately preceding the week prior to the date
                  of an interest payment on the Subordinated Notes (other than
                  the payment to be made by the Borrower on May


                                       9
<PAGE>   10

                  15, 2001), the sum of cash on the Borrower's balance sheet and
                  the availability of the Borrower to incur additional Revolving
                  Loans under Section 2.1 shall be greater than or equal to the
                  following for the periods set forth below:

<TABLE>
<CAPTION>
                                         Period                                     Liquidity
                                         ------                                     ---------
<S>                                                                                <C>
                  Second Amendment Effective Date through and including
                  December 31, 2001                                                $13,250,000
                  January 1, 2002 through and including June 30, 2002              $15,750,000
                  July 1, 2002 and thereafter                                      $18,250,000
</TABLE>

                           (b) The average of the sums of cash on the Borrower's
                  balance sheet and the availability of the Borrower to incur
                  additional Revolving Loans under Section 2.1 on each Business
                  Day in the four consecutive week period immediately preceding
                  the week prior to the date of an interest payment on the
                  Subordinated Notes (other than the payment to be made by the
                  Borrower on May 15, 2001) shall be greater than or equal to
                  the following for the periods set forth below:

<TABLE>
<CAPTION>
                                        Period                                     Liquidity(2)
                                        ------                                     ------------
<S>                                                                                <C>
                  Second Amendment Effective Date through and including
                  December 31, 2001                                                [$_________]
                  January 1, 2002 through and including June 30, 2002              [$_________]
                  July 1, 2002 and thereafter                                      [$_________]
</TABLE>

                  and the Borrower shall deliver prior to making any interest
                  payment on the Subordinated Notes, evidence to the
                  Administrative Agent and the Lenders reasonably sufficient to
                  demonstrate the Borrower's compliance with the terms of this
                  subsection 5.9(h).

         18.      Article V of the Credit Agreement is hereby amended by adding
                  a new Section 5.14 immediately to the end thereof to read as
                  follows:

                  Section 5.14 Further Assurances Related to the Second
                  Amendment.

                           (a) As soon as possible, but in any event within 30
                  days following the Second Amendment Effective Date, the
                  Borrower shall have engaged Zolfo Cooper to consult with the
                  Borrower, at its expense, the duration and scope of such
                  consultation to be satisfactory to the Administrative Agent.

                           (b) As soon as possible, but in any event within 60
                  days following the Second Amendment Effective Date, the
                  Borrower shall deliver to the Administrative Agent, a detailed
                  copy of the Borrower's business plan for fiscal years 2001 and
                  2002, the form, scope and substance of which shall be
                  satisfactory to the Administrative Agent.

                           (c) As soon as possible, but in any event within 60
                  days following the Second Amendment Effective Date, the
                  Borrower shall deliver to the


----------

(2) The parties hereto agree to negotiate the liquidity levels required herein
on or before June 30, 2001 in good faith upon receipt of the cash flow analysis
to be prepared by Zolfo Cooper and such levels shall be mutually satisfactory to
the Administrative Agent, the Required Lenders and the Borrower.


                                       10
<PAGE>   11

                  Administrative Agent, a review prepared by Zolfo Cooper of the
                  Borrower's business plans for fiscal years 2001 and 2002, the
                  form, scope and substance of such review to be satisfactory to
                  the Administrative Agent.

                           (d) As soon as practicable but in any event by June
                  30, 2001, the Borrower shall, on a weekly basis, furnish to
                  the Administrative Agent and the Lenders, forecasts of cash
                  receipts and disbursements of the Borrower and its
                  Subsidiaries measured on a weekly basis for the 13-week
                  rolling period then beginning, which forecasts shall include a
                  comparison of the actual cash receipts and disbursements of
                  the Borrower and its Subsidiaries for the immediately
                  preceding week to the forecast provided to the Administrative
                  Agent for the previous week, including an explanation by the
                  Borrower of the variance, if any, the form and substance of
                  which shall be satisfactory to the Administrative Agent.

                           (e) In the event the Administrative Agent shall
                  engage a financial advisor or consultant to assist with its
                  analysis and administration of the Loans, the Borrower shall
                  cooperate fully with such advisor or consultant and promptly
                  reimburse the Administrative Agent for a reasonable retainer
                  and for the reasonable fees and expenses of such advisor or
                  consultant.

                           (f) From and after the Second Amendment Effective
                  Date, for so long as there are Revolving Loans outstanding
                  hereunder or until otherwise directed by the Administrative
                  Agent, the Borrower shall establish a sweep account (with the
                  necessary funds transfer mechanics related thereto) into which
                  all of the cash proceeds and deposits received by the Borrower
                  and its Subsidiaries in excess of $1,000,000 shall be swept on
                  a daily basis and applied to reduce the Revolving Loans
                  outstanding as of such date, the structure and mechanics of
                  such cash sweep arrangement to be satisfactory to the
                  Administrative Agent.

         19.      Section 6.1 of the Credit Agreement is hereby amended in the
                  following respects: (i) the "and" at the end of subclause (m)
                  thereof is hereby deleted, (ii) the period at the end of
                  subclause (n) thereof is hereby deleted and replaced with ";
                  and" and (iii) a new subclause (o) is hereby added to the end
                  of Section 6.1 to read as follows:

                           (o) Indebtedness of the Credit Parties in respect of
                  the Borrower Senior Unsecured PIK Notes.

     C.  To induce the Agent and the Lenders to enter into this Amendment, the
Credit Parties hereby represent and warrant that (a) the representations and
warranties contained in Article III of the Credit Agreement, as amended hereby
are correct in all material respects on and as of the date hereof as though made
on and as of such date and after giving effect to the amendments contained
herein and (b) no Default or Event of Default exists on and as of the date
hereof and after giving effect to the amendments contained herein.

     D.  Except as expressly set forth herein, the waivers and amendments
contained herein shall not constitute a waiver of any right, power or remedy of
any Lender or the Agent under any of the Credit Documents, nor constitute a
waiver or amendment of any other term or provision of the Credit Agreement or of
any other Credit Document and all such terms and provisions of the Credit
Agreement and the other


                                       11
<PAGE>   12

Credit Documents shall remain in full force and effect and are hereby ratified
and confirmed in all respects. Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Credit Agreement to "this
Agreement," "hereunder," "hereof" or words of like import referring to the
Credit Agreement, and each reference in the other Credit Documents to "the
Credit Agreement," "thereunder," "thereof" or words of like import referring to
the Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended hereby.

         E. This Amendment shall become effective upon satisfaction of the
following conditions precedent:

                  (a) Execution of Amendment. The Agent shall have received
         counterparts of the Amendment, executed by a duly authorized officer of
         the Borrower, the Guarantors, the Required Lenders and the Agent.

                  (b) Amendment Fee. The Borrower shall have paid an amendment
         fee to each Lender party to this Amendment in the amount of 0.25% of
         such Lender's Commitment (as of the date hereof).

                  (c) Receipt of Proceeds. The Borrower shall have received Net
         Cash Proceeds of $15,000,000 from the issuance of the Borrower Senior
         Unsecured PIK Notes pursuant to documentation satisfactory to the
         Agent.

                  (d) Pledge of Borrower Senior Unsecured PIK Notes. The Agent
         shall have received the documentation necessary to evidence the pledge
         by Citicorp Venture Capital, Ltd. and PMI Mezzanine Fund, L.P. of the
         Borrower Senior Unsecured PIK Notes to the Agent, for the benefit of
         the Lenders, which documents shall be in form and substance
         satisfactory to the Agent and duly executed and delivered by Citicorp
         Venture Capital, Ltd., PMI Mezzanine Fund, L.P. and the Agent.

                  (e) Legal Opinion. The Agent shall have received an opinion of
         Kirkland & Ellis, counsel for the Credit Parties dated as of the date
         hereof and addressed to the Agent and the Lenders, in form and
         substance acceptable to the Agent.

         F. The Guarantors acknowledge and consent to all of the terms and
conditions of this Amendment and agree that this Amendment and all documents
executed in connection herewith do not operate to reduce or discharge the
Guarantors' obligations under the Credit Agreement or the other Credit
Documents. The Guarantors further acknowledge and agree that the Guarantors have
no claims, counterclaims, offsets, or defenses to the Credit Documents and the
performance of the Guarantors' obligations thereunder or if the Guarantors did
have any such claims, counterclaims, offsets or defenses to the Credit Documents
or any transaction related to the Credit Documents, the same are hereby waived,
relinquished and released in consideration of the Required Lenders' execution
and delivery of this Amendment.

         G. This Amendment may be executed in any number of counterparts, each
of which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.

         H. This Amendment and the Credit Agreement, as amended hereby, shall be
deemed to be contracts made under, and for all purposes shall be construed in
accordance with the laws of the State of North Carolina.


                                       12
<PAGE>   13


         IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Amendment to be duly executed and delivered as of the date and year
first above written.

<TABLE>
<S>                                         <C>
BORROWER:                                   SLEEPMASTER L.L.C.,
                                            a New Jersey limited liability company


                                            By:  /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------


GUARANTORS:                                 SLEEPMASTER HOLDINGS L.L.C.,
                                            a New Jersey limited liability company


                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------

                                            LOWER ROAD ASSOCIATES, L.L.C.,
                                            a New Jersey limited liability company


                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------

                                            PALM BEACH BEDDING COMPANY,
                                            a Florida corporation


                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------

                                            HERR MANUFACTURING COMPANY,
                                            a Pennsylvania corporation


                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------
</TABLE>

                                       13
<PAGE>   14


<TABLE>
<S>                                         <C>
                                            SLEEPMASTER FINANCE CORPORATION,
                                            a Delaware corporation


                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------

                                            STAR BEDDING PRODUCTS,
                                            a New Brunswick corporation


                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------

                                            ADAM WUEST CORPORATION,
                                            a Delaware corporation


                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------


                                            SIMON MATTRESS MANUFACTURING CO.
                                            a California corporation


                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------


                                            CRESCENT SLEEP PRODUCTS COMPANY
                                            a Delaware corporation

                                            By: /s/ James P. Koscica
                                               ---------------------------------------------
                                            Name: James P. Koscica
                                                  ------------------------------------------
                                            Title: Executive Vice President
                                                   -----------------------------------------
</TABLE>


                                       14
<PAGE>   15

<TABLE>
<S>                                         <C>
AGENTS AND LENDERS:                         FIRST UNION NATIONAL BANK,
                                            as Administrative Agent and as a Lender


                                            By:
                                               ---------------------------------------------
                                            Name:
                                            Title:
</TABLE>




                                                      [signature pages continue]


                                       15

<PAGE>   16

<TABLE>
<S>                                         <C>
                                            ---------------------------------------
                                            [name of Lender]


                                            By:
                                               ------------------------------------
                                            Name:
                                            Title:
</TABLE>



                                       16