Document:

<PAGE>   1
                                A G R E E M E N T

                                     between

                            COYNE MATTRESS CO., LTD.

                                       and

                 HAWAII TEAMSTERS AND ALLIED WORKERS, LOCAL 996

                       January 1, 1999 - December 31, 2001

<PAGE>   2

                                TABLE OF CONTENTS

<TABLE>
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Section Number and Title                                                  Page
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1        UNION RECOGNITION AND COVERAGE..............................      4
2        UNION SECURITY..............................................      4
3        AUTHORIZED DEDUCTIONS (CHECK-OFF)...........................      5
4        BARGAINING UNIT WORK........................................      5
5        HIRING AND NOTIFICATION.....................................      5
6        NO DISCRIMINATION...........................................      6
7        RIGHT OF ACCESS TO EMPLOYER PREMISES........................      6
8        UNION BULLETIN BOARD........................................      6
9        ASSISTANT BUSINESS AGENT....................................      6
10       LEAVE OF ABSENCE FOR UNION BUSINESS.........................      6
11       SAFETY......................................................      6
12       SENIORITY...................................................      7
            Layoffs and Recalls......................................      7
            Posting/Promotions and Transfers.........................      7
            Trial Period.............................................      7
            Work Opportunity.........................................      7
13       CONTINUOUS AND UNINTERRUPTED SERVICE........................      7
14       GRIEVANCE PROCEDURE AND ARBITRATION.........................      8
            Step 1 - Immediate Supervisor............................      8
            Step 2 - Manager.........................................      8
            Step 3 - Arbitration.....................................      8
15       HOURS AND OVERTIME..........................................      9
16       MINIMUM TIME................................................     10
17       TEMPORARY TRANSFER..........................................     10
18       DISCIPLINE AND DISCHARGE....................................     10
19       WAGES.......................................................     11
            New Classifications......................................     11
            Job Descriptions.........................................     11
            Paydays..................................................     11
20       VACATIONS...................................................     11
21       HOLIDAYS....................................................     12
22       SICK LEAVE..................................................     12
            Medical Release..........................................     13
23       HEALTH AND WELFARE FUND.....................................     13
24       JURY DUTY...................................................     13
25       DEATH IN FAMILY.............................................     14
26       LEAVE OF ABSENCE WITHOUT PAY................................     14
27       MATERNITY LEAVE.............................................     14
28       LOCKER SPACE................................................     15
29       PHYSICAL EXAMINATIONS.......................................     15
</TABLE>

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<TABLE>
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<S>                                                                       <C>
30       SUCCESSORS AND ASSIGNS......................................     15
31       INCENTIVE PLAN..............................................     15
</TABLE>

<TABLE>
<CAPTION>

Section Number and Title                                                  Page
<S>                                                                       <C>
32       SAVING CLAUSE...............................................     15
33       DOCUMENT CONTAINS ENTIRE AGREEMENT..........................     16
34       MASCULINE INCLUDES FEMININE.................................     16
35       MODIFICATION OF AGREEMENT...................................     16
36       DURATION....................................................     16
</TABLE>

EXHIBIT "A"     - Job Classification and Hourly Wage Schedule

EXHIBIT "B"     - Assignment of Wages to Cover Dues, Initiation Fee, and
                  Assessments

EXHIBIT "B-1"   - Assignment of Wages for Union's Negotiation and Administration
                  of Contract

LETTER OF UNDERSTANDING

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                                A G R E E M E N T

         THIS AGREEMENT, by and between COYNE MATTRESS CO., LTD., hereinafter
referred to as the "Employer," and HAWAII TEAMSTERS AND ALLIED WORKERS, LOCAL
996, hereinafter referred to as the "Union;"

                                   WITNESSETH:

                    Section 1. UNION RECOGNITION AND COVERAGE

         1.01 The Employer recognizes the Union as the sole and exclusive
collective bargaining agent for all employees as certified under Case No.
37-RC-2251.

         1.02 Included are all full-time and part-time production employees,
truck drivers and helpers of the Employer employed at Waipahu, Oahu.

         1.03 Excluded are casual employees, office clerical employees,
confidential, professional employees, guards and/or watchmen, and supervisors as
defined under the Act.

         1.04 A casual employee may be hired for the purpose of supplementing
the regular work force when additional employees are needed for a period of up
to three (3) months. There shall be no more than four (4) casual employees
employed at any one time.

                            Section 2. UNION SECURITY

         2.01 Present employees covered by this agreement who are not members of
the Union on the date of execution of this agreement shall, immediately
following the expiration of thirty (30) calendar days after the date of
execution of this agreement, choose as a condition of continued employment one
of the following options:

                  (a) Become and remain a member of the Union for the duration
         of this agreement; or

                  (b) Pay to the Union for the duration (either directly or by
         means of Exhibit "B-1," Assignment of Wages for Union's Negotiation and
         Administration of Contract) for the Union's negotiation and
         administration of the collective bargaining agreement on his behalf a
         monthly amount equal to the membership dues uniformly required as a
         condition of retaining membership in the Union.

         2.02 Each new employee covered by this agreement and hired after the
date of execution of this agreement shall, immediately following the expiration
of thirty (30) calendar days from the beginning of employment as a covered
employee, become and remain a member of the Union for the duration of this
agreement as a condition of continued employment.

         2.03 An employee who during the term of this agreement executes an
Exhibit "B," Assignment of Wages to Cover Dues, Initiation Fee and Assessments,
shall continue to pay regular monthly dues to

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the Union for the balance of the duration of this agreement as a condition of
continued employment with the Employer.

         2.04 Five (5) days after receipt of written notice from the Union that
an employee has failed to tender his Union dues and initiation fees in
accordance with the provisions of the Labor-Management Relations Act of 1947, as
amended, the Employer shall discharge such employee.

         2.05 The Union shall indemnify and hold the Employer harmless from any
and all claims, demands, suits or any other actions arising from this Section or
from complying with any request for termination of employment under this
Section.

                  Section 3. AUTHORIZED DEDUCTIONS (CHECK-OFF)

         3.01 Upon receipt from an employee of a written authorization on a form
provided by the Union and shown as Exhibit "B," attached hereto, and consistent
with provisions of the Labor Management Relations Act of 1947, as amended, the
Employer agrees to deduct monthly from his wages and transmit to the Union, all
dues (including all arrears from incumbent employer), assessments and initiation
fees uniformly required as a condition of acquiring and maintaining membership
in the Union under the Act, after other deductions required by law.

         3.02 The Union agrees to supply the Employer with the statement of
deductions to be made each month.

         3.03 The Union understands to indemnify and hold blameless the Employer
from any claim that may be made upon it for, or on account of, any such
deduction from the wages of any employee.

         3.04 Upon receipt from an employee of a written authorization on a
proper form, the Employer agrees to deduct the amount due and transmit said
amount to the Teamsters Federal Credit Union.

                         Section 4. BARGAINING UNIT WORK

         Bargaining unit work shall be performed only by employees covered under
this agreement except that the production manager and plant superintendent may
continue to do bargaining unit work as they are presently performing. Other
non-bargaining unit employees may perform bargaining unit work only in cases of
emergencies, for the purpose of training, for major overhaul and/or major
repairs.

                       Section 5. HIRING AND NOTIFICATION

         5.01 When new employees are to be hired, the Union shall be promptly
notified. The Employer shall have the right to hire or reject any applicant,
subject to the No Discrimination provision.

         5.02 The Employer shall immediately notify the Union in writing of all
hirings, layoffs, promotions, and terminations from the payroll together with
the reason for any terminations.

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<PAGE>   6
                          Section 6. NO DISCRIMINATION

         In accordance with the policies of the Employer and the Union and to
the extent required by Federal and State law, it is agreed that there will be no
discrimination against any employee or applicant for employment because of his
race, sex, age, religion, color, handicap, or because he is a disabled veteran
or Vietnam Era veteran, in the administration or application of the terms of
this agreement or in hiring.

                 Section 7. RIGHT OF ACCESS TO EMPLOYER PREMISES

         Duly certified representatives of the Union shall be permitted on the
Employer's premises for the purpose of investigating grievances that have arisen
and ascertaining whether or not this agreement is being observed. Before doing
so, however, they shall notify the Production Manager or in his absence, his
representative. The Union agrees that requests for access to the Employer's
premises will be exercised reasonably and such entry will not interfere with the
normal conduct of the Employer's operations. It is agreed that the Manager may
send a representative of the Employer to accompany the Union representative
provided the Union representative is afforded the opportunity to interview
employees privately.

                         Section 8. UNION BULLETIN BOARD

         The Employer agrees to provide a suitable bulletin board for posting of
official Union notices which shall be signed by a responsible agent of the
Union.

                       Section 9. ASSISTANT BUSINESS AGENT

         The Union shall have the right to designate an Assistant Business Agent
and shall advise the Employer of his name. He shall report to the Union and to
the Employer, violations of the agreement, and to the Union, complaints by
members thereof, and shall assist in handling grievances.

                 Section 10. LEAVE OF ABSENCE FOR UNION BUSINESS

         Any employee elected or appointed to office in the Union which requires
full time in the discharge of its duties shall be given a leave of absence not
to exceed one (1) year, unless otherwise mutually agreed upon, without pay and
without loss of seniority. No more than one (1) employee shall be on such leave
of absence at one (1) time and such leave of absence shall not extend beyond the
term of this agreement unless extended by mutual consent.

                               Section 11. SAFETY

         The Employer and the Union jointly recognize the importance of
maintaining safe working conditions. They will cooperate in insuring that
employees work under safe and healthful conditions and employees shall observe
safety rules and regulations. They will jointly establish a standing safety
committee.

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<PAGE>   7
                              Section 12. SENIORITY

         12.01 Seniority shall mean the employee's length of continuous service
with the Employer.

         12.02 Seniority shall not apply to an employee until he shall have
completed three (3) months of continuous service with the Employer. Upon
satisfactory completion of said probationary period, the employee will be
credited with seniority from his date of hire.

         12.03 Seniority shall be considered broken by (a) discharge, (b)
resignation, or (c) twelve (12) consecutive months of layoff, disability, or
working outside the bargaining unit.

Layoffs and Recalls

         12.04 In making layoffs, the employee with the least seniority shall be
laid off first; provided, however, the remaining employees are competent and can
satisfactorily perform the work required. In making recalls after layoff, the
laid off employee with the most seniority shall be recalled first; provided,
however, the employee is competent in his job and can satisfactorily perform the
work required.

Posting/Promotions and Transfers

         12.05 In order to afford employees an opportunity to apply for
promotions and transfers to permanent full-time job vacancies in higher rated
jobs covered by this agreement, notice of such vacancies shall be posted on the
Employer's bulletin board for a period of four (4) working days before the
vacancy is filled on a permanent basis. This shall not be construed to preclude
temporary transfers and/or hires to fill such vacancies when deemed necessary by
the Employer. All employees of the Employer will be considered in filling such
vacancies, but any employee who fails to apply for the vacancy may not claim to
be aggrieved when the vacancy is filled.

         12.06 Promotions and permanent transfers shall be made on the basis of
seniority and qualifications. In the event two (2) or more employees have the
same relative qualifications, the employee with the greatest seniority shall be
selected.

         12.07 Trial Period. All employees who are promoted or transferred to a
different job classification shall serve a trial period from date of promotion
or transfer for a period of up to three (3) months. If during such trial period
the employee's work is not satisfactory, he shall be returned to his former
position with no loss of seniority.

         12.08 Work Opportunity. Overtime work shall be granted to the employee
who is working in the position where overtime may occur. However, if the
employee declines overtime work, the next most senior qualified employee shall
be the first to be asked, then others below him will be asked next. Each
qualified employee asked will have the option to accept or refuse the overtime
work. When all qualified employees have been given the opportunity to work and
no qualified employee has accepted to work, the Employer may then require a
qualified employee to work overtime. The selection shall then be made by reverse
order of seniority.

                Section 13. CONTINUOUS AND UNINTERRUPTED SERVICE

         13.01 It is expressly understood and agreed that during the term of
this agreement, any past, existing or future custom or practice of the Employer
or of the Union, to the contrary notwithstanding,

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there shall be no lockout by the Employer, nor any strike, sitdown, refusal to
work, stoppage of work, slowdown, retarding of production or picketing of the
Employer on the part of the Union or its representatives or on the part of any
employees covered by the terms of this agreement.

         13.02 It shall not be a violation of this agreement, and shall not be
cause for discharge or disciplinary action in the event an employee refuses to
enter upon any property involved in a lawful primary labor dispute, or refuses
to go through or work behind any lawful primary picket line, including the
lawful primary picket line of this Union, and including lawful primary picket
lines at the Employer's place of business.

                 Section 14. GRIEVANCE PROCEDURE AND ARBITRATION

         14.01 When any employee covered by this agreement or the Union believes
that the Employer has violated the express terms and conditions thereof and that
by reason of such violation his or its rights arising out of this agreement have
been adversely affected, he or it, as the case may be, shall be required to
follow the procedure hereinafter set forth in presenting the grievance and
having the grievance investigated and the merits thereof determined. Due
diligence shall be exercised by both parties in adjusting the grievance to the
mutual satisfaction of the complainant and the Employer. All settlements of
grievances presented in writing shall be recorded in writing.

         14.02 No retroactive adjustment of a grievance, at any step, shall
exceed sixty (60) days from the date of the submission of the grievance in
writing.

         14.03 Time limits in the following steps may be extended by mutual
consent of the parties hereto.

         14.04 Step 1 - Immediate Supervisor. The grievance in the first
instance shall be presented to the immediate supervisor either orally or in
writing, within ten (10) working days of the alleged breach of the express terms
and conditions of this agreement. Failure to so present the grievance shall be
deemed a waiver of remedy under this provision.

         14.05 Step 2 - Manager. If the immediate supervisor does not adjust the
grievance to the complainant's satisfaction within three (3) days from the time
the grievance is submitted to him, then the grievance may be presented to the
Manager. Presentation to the Manager shall be made in writing and must be made
within the next five (5) days.

         14.06 Step 3 - Arbitration. If the Manager does not adjust the
grievance to the complainant's satisfaction within fourteen (14) days from the
time the grievance is presented to him, then the grievance, as previously set
forth in writing, may be submitted to an arbitrator as hereinafter provided for.
Unless the Manager is unavailable for a meeting, the parties shall meet to
choose an arbitrator within five (5) days of service by either party of its
desire to arbitrate. The grievance shall be arbitrated as expeditiously as
possible.

         14.07 Ted T. Tsukiyama, C. Frank Damon, Jr., and Stuart M. Cowan are
hereby appointed as a panel of arbitrators. Each party may strike one (l) name
from the panel, and the remaining arbitrator shall serve in the case.

         14.08 The arbitrator shall receive for his services such remuneration
as, from time to time, shall be acceptable to him and agreed upon by the
parties. All fees and expenses of the arbitrator shall be

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<PAGE>   9
borne equally by the complainant and the Company. Each party shall bear the
expenses of the presentation of its own case.

         14.09 All decisions of the arbitrator shall be limited expressly to the
terms and provisions of this agreement and in no event may the terms and
provisions of this agreement be altered, amended, or modified by the arbitrator.
All decisions of the arbitrator shall be in writing, and copy thereof shall be
submitted to each of the parties hereto.

         14.10 The complainant in every hearing before the arbitrator shall
present a prima facie case. In general, judicial rules of procedure shall be
followed at every hearing, but the arbitrator need not follow the technical
rules of evidence prevailing in a court of law or equity. The arbitrator shall
make his decision on the light of the whole record and shall decide the case
upon the weight of all substantial evidence presented.

         14.11 The parties may, by mutual consent, request the arbitrator to
conduct an informal hearing. An informal hearing shall mean a hearing without a
reporter being present to transcribe the testimony of witnesses and argument by
representatives of the parties; but in all other respects, the foregoing
provisions of this section shall be applicable. In the case of an informal
hearing, the decision of the arbitrator may be limited to a written statement of
his conclusions, without comment on the evidence or statements of the reasons
therefor.

         14.12 All decisions of the arbitrator under this section, including
decisions following informal hearing, shall be final and binding upon the
parties.

                         Section 15. HOURS AND OVERTIME

         15.01 To the extent practicable, full-time employees shall work five
(5) consecutive workdays of eight (8) hours each, Monday through Friday,
excluding lunch period.

         15.02 Overtime will be paid for on the basis of one and one-half
(1-1/2) times the employee's straight time rate of pay for all time worked in
excess of eight (8) hours in any one day or forty (40) hours in any one (1)
week, or for any work performed on the sixth (6th) consecutive day of work in a
workweek. Work performed on Sunday will be paid at two (2) times the employee's
straight time rate of pay. Work performed by an employee in excess of twelve
(12) hours in any one day will be paid at two (2) times the employee's straight
time rate of pay.

         15.03 No employee shall be allowed to work overtime unless such
overtime work has been authorized previously by his supervisor. Such overtime
shall be verified in writing by his supervisor on the employee's time record.
The Employer will notify an employee by noon on Wednesday or soon thereafter as
soon as the Employer knows there will be overtime work on the following Saturday
or Sunday.

         15.04 There shall be no duplicate payment of overtime for both work in
excess of forty (40) hours per calendar week and work performed on an employee's
scheduled day off, and any other pyramiding of overtime.

         15.05 No employee shall be scheduled to work more than five (5)
consecutive hours without a meal period, which shall be no less than thirty (30)
minutes in length and no more than sixty (60) minutes in length. An employee who
is required to work past his regularly scheduled lunch period in excess of

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one-half (1/2) hour shall be paid at the overtime rate from the start of his
scheduled lunch period until he is given an opportunity to eat. An employee who
is required to work more than twelve (12) hours in a day shall be offered an
extra meal period.

         15.06 The Employer will continue its present practice regarding the
posting of work schedules.

                            Section 16. MINIMUM TIME

         An employee who is scheduled to work and who reports for work at the
specified time shall receive a minimum of four (4) hours at the prevailing rate
unless he quits or voluntarily lays off or is terminated prior to the completion
of four (4) hours, in which case he shall be paid for the actual time worked.

                         Section 17. TEMPORARY TRANSFER

         17.01 Any employee subject to this agreement may be temporarily
transferred to another classification or may be used for relief of employees
under other classifications.

         17.02 Any employee temporarily transferred to a lower-rated job shall
continue to receive his regular rate of pay unless the transfer is made
permanent. However, a transfer to a lower paid classification made at the
request of or for the convenience of an employee shall not be deemed a temporary
transfer, and the employee shall be paid at the rate applicable to the work
being performed.

         17.03 Any employee temporarily transferred to a higher-rated job shall
receive the rate applicable to the higher-rated job for the hours actually
worked in it.

                      Section 18. DISCIPLINE AND DISCHARGE

         18.01 Employees shall be subject to discipline or discharge by the
Employer for insubordination, pilferage, drunkenness, incompetence, dishonesty,
failure to perform work as required, violation of the terms of this agreement,
or failure to observe safety rules and regulations or the Employer's house
rules, which shall be conspicuously posted. The Employer will immediately notify
the Union in writing of any discharge or suspension involving a bargaining unit
employee who has completed his probationary period.

         18.02 A probationary period of three (3) months of continuous service
with the Employer shall be established for all employees, and such employees may
be summarily discharged.

         18.03 The Employer agrees to notify the Union of proposed changes in
house rules prior to posting such new rules and to discuss such changes with the
Union representatives prior to their application. In all cases, the final
decision will be left to the Employer. In the event of conflict between the
house rules and the agreement, the agreement shall prevail.

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                                Section 19. WAGES

         19.01 Attached hereto, marked Exhibit "A," and made a part hereof, are
the job classifications and wage schedule which sets forth the hourly wage rate
which shall apply for the term of this agreement.

         19.02 New Classifications. The Employer will promptly notify the Union
of the job title and proposed wage rate for new classifications established
during the term of this agreement or for classifications whose job contents are
materially changed, and will furnish the Union with job descriptions of such
classifications. In the event the Union disagrees with the wage rate of any such
classification, it may, within thirty (30) days from the date of notification,
take the matter through the grievance procedure, commencing at Step 3.

         19.03 Job Descriptions. The Employer will furnish the Union with job
descriptions of all classifications in the bargaining unit.

         19.04 Paydays. The Employer agrees to pay all employees once a week.

                              Section 20. VACATIONS

         20.01 After each anniversary year of service, employees shall have one
(1) week vacation per year after one (1) but less than two (2) years of
continuous service; two (2) weeks' vacation per year, after two (2) but less
than ten (10) years of continuous service; three (3) weeks' vacation per year,
after ten (10) years of continuous service.

         20.02 Vacation pay shall be based upon the formula of forty (40) hours'
pay at the employee's current straight time rate of pay for each week of
vacation to which he is entitled.

         20.03 In the event employment is terminated involuntarily, except in
cases of discharge for cause, an employee with at least twelve (12) months'
continuous service shall be entitled to a prorated vacation earned on the basis
of full months worked since his last anniversary date of employment.

         20.04 If an employee is directed to report for work on a day which is a
portion of his properly scheduled vacation, he shall receive overtime pay for
all work performed on such day and shall receive another day's vacation with
straight time pay, or pay in lieu thereof. Except during emergencies, no
employee shall be called to work during his vacation. "Emergencies" shall
include unforeseen situations beyond the Employer's control.

         20.05 When an employee who is on vacation becomes ill or injured, each
day of confinement which will qualify as a day of sick leave, as provided for in
Section 22, will not be a vacation day but rather a day of sick leave. An
employee who becomes ill or injured while on vacation shall notify the Employer
at the beginning and end of his disability and will provide the Employer with a
doctor's certificate for such illness or injury.

         20.06 Vacations shall be granted within one hundred and twenty (120)
days of the employee's anniversary date or at such other time as may be mutually
agreed upon by the parties concerned. In the scheduling of vacations, employees
shall be given preference of choice of vacation time in order of their company
seniority. If the employee's choice of vacation period would cause a hardship
upon the Employer due to the workload or to number of employees who would be on
vacation, the Employer

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reserves the right to assign some other vacation period than that requested. A
tentative schedule of vacations, however, shall be posted at least one month in
advance. Vacation time of less than one (1) full week, but not less than
one-half (1/2) day may be granted.

                              Section 21. HOLIDAYS

         21.01 The following days shall be considered holidays under this
agreement:

               New Year's Day                          Labor Day
               Presidents' Day                         Thanksgiving Day
               Memorial Day                            Christmas Eve
               Kamehameha Day                          Christmas Day
               Independence Day                        New Year's Eve

         21.02 Holidays shall be observed on days observed by State employees or
the next best day.

         21.03 All hours worked on an above-listed holiday shall be compensated
for at time and one-half (1-1/2) the employee's straight time rate of pay in
addition to holiday pay.

         21.04 In the event a holiday falls on an employee's regularly scheduled
day of rest, his next regularly scheduled workday shall be considered his
holiday.

         21.05 An employee shall be paid at the straight time rate when not
required to work, in the event a holiday falls on the employee's regularly
scheduled workday.

         21.06 If a holiday falls within an employee's vacation, he shall
receive an additional day of vacation or a day's straight time pay in lieu
thereof.

         21.07 In order to be eligible for holiday pay when the holiday is not
worked, an employee must have worked his last scheduled workday before and his
first scheduled workday after the holiday except when the employee has been
excused by the Employer.

                             Section 22. SICK LEAVE

         22.01 An employee covered by this agreement who has had twelve (12)
months of continuous employment with the Employer and who, because of illness or
injury not compensable under the State Workers' Compensation Law, is prevented
from working, shall be entitled to sick leave pay computed on the employee's
then current straight time rate of pay. Such pay shall start on the second day
of each absence.

         22.02 Upon each occasion of absence from work on account of illness or
injury for which he is entitled to sick leave benefits, the employee shall
present a certificate from a physician who certifies that his absence from work
was caused by such illness or injury. The employee shall be entitled to six (6)
days per year of service; provided, however, that not more than twelve (12) days
per year are used, and the unused sick leave may be accumulated so as to provide
the employee with a maximum of thirty-five (35) days in any one (1) year of
service. In the event the employee does not present such a medical certificate,
but does present other evidence acceptable to the Employer that his absence from
work was caused by such illness or injury, the Employer shall grant such
employee sick leave benefits.

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         22.03 No employee whose illness or injury is caused by his own
misconduct shall be entitled to the benefits of this section.

         22.04 Any employee found guilty of abusing the above sick leave
benefits shall lose all further benefits under this section for a period of one
(1) calendar year, or may have his employment terminated by the Employer.

         22.05 The Employer will continue to provide TDI at no cost to
employees.

         22.06 Medical Release. An employee absent five (5) or more days due to
illness or injury shall, upon request present a release from his physician
stating that he is physically able to perform the duties of his former position.

                       Section 23. HEALTH AND WELFARE FUND

         23.01 The Employer shall contribute to the Hawaii Teamsters Health and
Welfare Trust Fund Medical Plan on or before the fifteenth (15th) day of each
month the sum of $365.00 per month for each employee covered by this agreement
who has been compensated for at least eighty-seven (87) hours during the
previous calendar month. The plan will include prescription drug and vision care
benefits.

         23.02 For each new employee, payment shall start immediately following
the first full month of employment.

         23.03 The Employer shall pay the cost of any increases in premiums, up
to the following caps, with the employee making up the difference, to maintain
the existing level of benefits during the term of this Agreement.
<TABLE>
<CAPTION>

<S>                                              <C>
              1st year                           $390.00
              2nd year                           $415.00
              3rd year                           $440.00
</TABLE>

         23.04 The Employer shall contribute to the Hawaii Teamsters Health and
Welfare Fund Dental Plan $33.50 per month for each employee covered by this
agreement who has been compensated for at least eighty-seven (87) hours during
the previous calendar month.

         23.05 For each new employee, payment shall start immediately following
the first full month of employment.

         23.06 The Employer shall pay for an increase in premiums to maintain
the existing level of benefits during the term of this agreement.

                              Section 24. JURY DUTY

         Any employee, who serves on a federal or state jury, or who is called
to take an examination as a juror, shall receive full pay during the period of
such service, up to a maximum of thirty (30) days of jury service in any
calendar year. The Employer will make up the difference, if any, between the
amount paid by the government (excluding mileage) and the straight time amount
he would have earned had he worked. It is understood that the employee will
submit to the Employer a certificate from a court official

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indicating the time so spent and the amount of jury pay. It is also understood
that if the day's jury service is completed prior to the end of the workday, the
employee will call the Employer to determine whether he should return to work.

                           Section 25. DEATH IN FAMILY

         25.01 In the event of the death of a member of an employee's family
(his spouse, child, parent, brother, sister, grandparent, or grandchild), he
shall be entitled to three (3) days off with pay during the period when he
otherwise would have worked. Pay under this section shall be computed on an
employee's regular straight time rate, not to exceed eight (8) hours in any one
(1) day.

         25.02 Time off shall be given when the death occurs on the Island of
Oahu. When the death occurs outside Oahu, time off will be given only if the
employee leaves Oahu.

         25.03 If the death of a member of an employee's family enumerated in
the first paragraph occurs outside the State of Hawaii, five (5) days off with
pay will be given if the employee leaves the state.

         25.04 When the death occurs while the employee is on paid vacation,
funeral leave shall be granted the employee, and his vacation shall be extended
for the number of days of paid funeral leave.

         25.05 In case of death of an employee's father-in-law or mother-in-law,
the employee shall be granted one (1) day off with pay.

                    Section 26. LEAVE OF ABSENCE WITHOUT PAY

         26.01 An employee with one (1) or more years of continuous service with
the Employer will be granted a leave of absence without pay not to exceed six
(6) weeks including vacation time, if any. Seniority shall continue to
accumulate during the leave. Granting of leaves under this section shall be at
the discretion of the Employer. The leave may be extended with the permission of
the Employer.

         26.02 An employee shall be reinstated in his former job provided he
returns to work as scheduled and his position is in existence at the time of his
return, and he can perform the job satisfactorily. If the position is no longer
in existence, the Employer will provide him with a job consistent with the
seniority provisions of this agreement.

                           Section 27. MATERNITY LEAVE

         27.01 An employee with more than one (1) year of continuous service
will be granted maternity leave of absence, without pay, not to exceed a period
of six (6) months. Seniority shall accrue during maternity leave. A statement
signed by a qualified physician certifying to the employee's condition will be
required for the leave.

         27.02 Sick leave and TDI benefits will be applied during the period of
disability. Any extended absence beyond the maternity leave period resulting
from maternity complications shall be treated as any other disability, and such
leave shall be in accordance with the section on seniority.

                                      -14-
<PAGE>   15
         27.03 An employee returning from maternity leave shall be reinstated in
her former position if (a) that position still exists; (b) the employee is
physically capable of performing those duties; (c) she has the seniority for
that position; provided she has made application for reinstatement and reports
for work assignment. In the event of failure to make application or report for
work, the employee's employment could be terminated.

                            Section 28. LOCKER SPACE

         The Employer shall provide locker space for employees. Lockers may be
subject to reasonable inspection by the Employer in the presence of a Union
representative.

                        Section 29. PHYSICAL EXAMINATIONS

         The Employer will pay for the cost of physical examinations it requires
of employees and will compensate the employee for work time lost if the employee
is required to take his examination during his normal working hours. The
Employer has the option of designating the physician to do the examination.

                       Section 30. SUCCESSORS AND ASSIGNS

         This agreement shall be binding upon both parties, their successors and
assigns. In the event of the sale or transfer of the business of the Employer or
any part thereof, the purchaser or transferee shall be bound by this agreement.
The Employer agrees to provide reasonable advance notice in writing to the new
owner or transferee of the existence of this labor agreement and agrees to give
reasonable advance notice in writing to the Union of any sale or transfer.

                           Section 31. INCENTIVE PLAN

         The Employer may establish an incentive plan which provides an
opportunity for employees to earn wages in excess of the amounts provided for in
Exhibit "A." After establishing such an incentive plan, the Employer may
continue, delete, or amend the plan. No employee will be caused to suffer a
reduction in his/her hourly rate as provided for in Exhibit "A" as the result of
such incentive plan.

                            Section 32. SAVING CLAUSE

         32.01 Should any part of this agreement be rendered or declared invalid
by reason of any existing legislation or by any decree of a court of competent
jurisdiction, such invalidation of such part or portion of this agreement shall
not invalidate the remaining portions thereof, and they shall remain in full
force and effect.

         32.02 If any provision in this agreement may not be put into effect on
the effective date of the agreement due to applicable legislation, executive
orders, or regulations issued thereunder, then such provision or any part
thereof shall become effective at the earliest time in such amounts and for such
periods, retroactively, and prospectively at the earliest date permitted by law
at any time during the life of this agreement and any extension thereof.

                                      -15-
<PAGE>   16
                 Section 33. DOCUMENT CONTAINS ENTIRE AGREEMENT

         This document contains the entire agreement of the parties and neither
party has made any representations to the other which are not contained herein.

                     Section 34. MASCULINE INCLUDES FEMININE

         Whenever in this agreement the masculine gender is used, it shall be
deemed to include the feminine gender.

                      Section 35. MODIFICATION OF AGREEMENT

         No provision or term of this agreement may be amended, modified,
changed, altered or waived except by written document executed by the parties
hereto.

                              Section 36. DURATION

         36.01 This agreement shall remain in full force and effect from January
1, 1999, to and including December 31, 2001. It shall be deemed renewed from
year to year thereafter unless either party shall give written notice to the
other of its desire to change its provisions. Such written notice shall be given
at least sixty (60) calendar days and not more than ninety (90) calendar days
prior to the last day of its original term or the last day of any yearly
extended term, as the case may be.

         36.02 Notices served under this section shall be in writing and be
accompanied by the proposals of the notifying party.

         IN WITNESS WHEREOF, the parties hereto through their duly authorized
representatives have executed this agreement on the __________ day of
____________________ 1999.

                                    HAWAII TEAMSTERS AND ALLIED
COYNE MATTRESS CO., LTD.            WORKERS, LOCAL 996

________________________________    ________________________________

                                      -16-
<PAGE>   17

                            COYNE MATTRESS CO., LTD.

                                   EXHIBIT "A"

                   JOB CLASSIFICATION AND HOURLY WAGE SCHEDULE

<TABLE>
<CAPTION>

                                                          Eff.
          Classifications                                1/1/98
          ---------------                                ------
<S>                                                     <C>

GRADE 1                                                 $ 8.81
------
      Janitor

GRADE 2                                                   9.65
------
      Seamstress
      Cutter
      Production and Delivery Helper

GRADE 3                                                  10.08
------
      Garnett Machine Helper

GRADE 4                                                  10.61
------
      Delivery Driver (Type 3 License)
      Box Spring Builder
      Mattress Builder
      Garnett Machine Operator
      Tufting Machine Operator
      Cushion Builder
      Mattress Unit Assembler
      Frame Builder
      Border Bender and Welder
      Box Spring Unit Assembler
      Flatten, Bend and Assemble P.S. Bands Person
      Quilting Machine Operator

GRADE 5                                                  11.67
------
      Production Leadman

GRADE 6                                                  11.83
------
      Delivery Driver (Type 5 License)

GRADE 7                                                  13.59
------
      Mechanic

GRADE 8                                                  13.79
------
      Tractor-Trailer Driver (Type 6 License)
</TABLE>

Hiring Rate - New employees will be paid at a rate below the classified hourly
wage rate for the first ninety (90) days of employment according to the
following schedule:

<TABLE>
<S>                                            <C>
            Days of Employment                 Amount Below the Hourly Job Rate
            ------------------                 --------------------------------

</TABLE>

                                      -17-
<PAGE>   18

<TABLE>

<S>                                                         <C>
               1st - 30th                                    $.75
               31st - 60th                                    .50
               61st - 90th                                    .25
</TABLE>

EXHIBIT "A"
Page 2

<TABLE>
<CAPTION>
Bonus Program
-------------
<S>                                        <C>
First (1st) year bonus                     ten cent ($.10) per  hour worked
Second (2nd) year bonus                    fifteen cents ($.15) per hour worked
Third (3rd) year bonus                     fifteen cents ($.15) per hour worked
</TABLE>

Bonus to be paid at the end of each calendar year according to the following:

The bonus for the preceding eleven (11) calendar months will be paid during the
first week in December. The bonus for the month of December will be paid during
the first week of January in the subsequent year.

                                      -18-
<PAGE>   19
                                   EXHIBIT "B"

       ASSIGNMENT OF WAGES TO COVER DUES, INITIATION FEE, AND ASSESSMENTS

TO:

         I assign to HAWAII TEAMSTERS AND ALLIED WORKERS, LOCAL 996, out of my
wages the Union initiation fee, monthly dues, and assessments, as certified to
you in writing by the Union; and I authorize the payment to the Union each month
of the amount so deducted.

         This assignment shall be irrevocable until one (1) year from the date
below, or until the termination date of the applicable collective bargaining
agreement (within the meaning of the Labor Management Relations Act of 1947),
whichever occurs sooner, and shall be automatically renewed, and shall be
irrevocable for successive periods of one (1) year each or for the period of
each succeeding applicable collective bargaining agreement, whichever shall be
shorter; unless at least ten (10) days and not more than twenty (20) days before
the expiration of each period of one (1) year, or of each applicable collective
bargaining agreement, whichever occurs sooner, I give written notice to the
Employer of my desire to revoke this assignment, or unless the same shall be
automatically canceled as provided below. This assignment is automatically
canceled when my employment ends, or when I cease to be employed in a capacity
represented by the bargaining unit.

         There shall be no obligation on the part of the Employer to make any
deduction beyond the original term of the collective bargaining agreement
existing at the date of this assignment, unless the agreement is extended or a
new agreement has been negotiated containing an authorization for Union
deductions as provided in the agreement existing at the date of this assignment.

Date______________________________          ___________________________________
                                            Employee

Receipt of the foregoing assignment is acknowledged:

                                            COYNE MATTRESS CO., LTD.

Date_______________________________         By_________________________________

                                      -19-
<PAGE>   20

                                  EXHIBIT "B-1"

                   ASSIGNMENT OF WAGES FOR UNION'S NEGOTIATION
                         AND ADMINISTRATION OF CONTRACT

         I hereby voluntarily assign to HAWAII TEAMSTERS AND ALLIED WORKERS,
LOCAL 996, out of my wages for the Union's negotiation and administration of the
collective bargaining agreement on my behalf, a monthly fee in the same amount
as Union dues, as certified to you in writing by the Union; and I authorize the
payment to the Union each month the amount so deducted.

         This authorization shall become effective upon the date set forth below
and cannot be canceled for a period of one year from this date or until the
termination of the existing collective bargaining agreement between the Employer
and the Union, whichever occurs sooner.

         I agree and direct that this authorization shall be irrevocable for
successive periods of one year each, or for the period of each succeeding
applicable collective bargaining agreement between the Employer and the Union,
whichever shall be shorter, unless

                  (1) I cancel this authorization by written notice to the
         Employer within ten (10) days after the expiration of any such one (1)
         year period;

                  (2) In the case of the expiration of any collective bargaining
         agreement between the Employer and the Union during any such one (1)
         year period, I cancel this authorization by written notice to the
         Employer at any time during the period following the expiration of the
         applicable collective bargaining agreement and ten (10) days after the
         effective date of any new agreement.

         This authorization shall be suspended during any period in which there
is no collective bargaining agreement in effect between the Employer and the
Union.

         This authorization shall end if my employment with the Employer ends.

         This authorization is made pursuant to the provisions of Section 302(c)
of the Labor-Management Relations Act of 1947.

Date_____________________________        _____________________________________
                                         Employee

Receipt of the foregoing is
acknowledged:

                                         COYNE MATTRESS CO., LTD.

Date______________________________       By___________________________________

                                      -20-
<PAGE>   21

                                                 _________________________, 1999

HAWAII TEAMSTERS AND ALLIED WORKERS, LOCAL 996
904 Kohou Street, Suite 102
Honolulu, Hawaii 96817

Gentlemen:

         In conjunction with the collective bargaining agreement being executed
simultaneously with this letter, it is understood and agreed as follows:

           1.  The Employer will continue to offer merchandise at a
               reduced price to its employees for their personal use.

           2.  The Employer will continue its past practice regarding
               rest periods.

           3.  The Employer will continue its present Life Insurance
               Plan.

           4.  With respect to Section 1, UNION RECOGNITION AND COVERAGE,
               it is agreed that no casual employee will be used during
               periods when any regular employee does not have full-time
               work, for which he is qualified, offered to him.

           5.  With respect to Section 12, SENIORITY, it is agreed that
               if less than normal work opportunity is available, the
               Employer may spread the available work opportunity as
               equally as practical among its employees for a maximum
               period of four (4) consecutive weeks no oftener than once
               every six (6) months. At least six (6) months must elapse
               from the ending of such a period to the beginning of the
               next period.

                                                        Very truly yours,

                                                        COYNE MATTRESS CO., LTD.

                                                        By_____________________
Understood and Agreed:

HAWAII TEAMSTERS AND ALLIED WORKERS,
LOCAL 996

By___________________________________

                                      -21-<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

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