Document:

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                                                                    EXHIBIT 10.7

                          NEGOTIATED CONTRACT AGREEMENT

                                     BETWEEN

                         CRESCENT SLEEP PRODUCTS COMPANY

                                       AND

                        UNION OF NEEDLETRADES, INDUSTRIAL
                              AND TEXTILE EMPLOYEES

                                  AFL-CIO, CLC

                               As of March 1, 1999
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                                TABLE OF CONTENTS

<TABLE>
<S>                                                                   <C>
ARTICLE 1 - AGREEMENT...............................................   1

ARTICLE 2 - RECOGNITION.............................................   2

ARTICLE 3 - CHECKOFF................................................   3

ARTICLE 4 - UNION BULLETIN BOARD....................................   4

ARTICLE 5 - SENIORITY...............................................   5

ARTICLE 6 - LAY-OFF, RECALL, AND JOB BIDDING........................   6

ARTICLE 7 - TEMPORARY TRANSFER......................................   8

ARTICLE 8 - HOURS OF WORK AND OVERTIME..............................   9

ARTICLE 9 - REPORT IN PAY...........................................  11

ARTICLE 10 - GRIEVANCE PROCEDURE....................................  12

ARTICLE 11 - ARBITRATION............................................  14

ARTICLE 12 - DISCIPLINE AND DISCHARGE...............................  15

ARTICLE 13 - PLANT RULES AND DISCIPLINE.............................  16

ARTICLE 14 - ATTENDANCE POLICY......................................  17

ARTICLE 15 - NO STRIKE/NO LOCKOUT...................................  18

ARTICLE 16-- HOLIDAYS...............................................  20

ARTICLE 17 - VACATION...............................................  21

ARTICLE 18 - LEAVES OF ABSENCE......................................  22

ARTICLE 19 - BEREAVEMENT PAY........................................  24

ARTICLE 20 - JURY DUTY..............................................  25

ARTICLE 21 - MANAGEMENT RIGHTS CLAUSE...............................  26
</TABLE>

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<TABLE>
<S>                                                                   <C>
ARTICLE 22 - PRODUCTION STANDARDS...................................  27

ARTICLE 23 - DOWNTIME...............................................  28

ARTICLE 24 - HEALTH AND SAFETY......................................  29

ARTICLE 25 - SUBSTANCE ABUSE POLICY.................................  30

ARTICLE 26 - NEW EMPLOYEE ORIENTATION...............................  32

ARTICLE 27 - HEALTH CARE INSURANCE..................................  33

ARTICLE 28 - DENTAL AND OPTICAL PLAN................................  35

ARTICLE 29 - RETIREMENT.............................................  36

ARTICLE 30 - CHRISTMAS BONUS........................................  37

ARTICLE 31 - SAFE DRIVING BONUS.....................................  38

ARTICLE 32 - WAGES AND CLASSIFICATIONS..............................  39

ARTICLE 33 - ZIPPER CLAUSE..........................................  40

ARTICLE 34 - BARGAINING UNIT WORK...................................  41

ARTICLE 35 - SEPARABILITY...........................................  42

ARTICLE 36 - TERM OF AGREEMENT......................................  43

Wage Scale..........................................................  Appendix A
</TABLE>

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                              ARTICLE 1 - AGREEMENT

This Agreement made and entered into on the I st day of March, 1999 by and
between Crescent Sleep Products Company located at Greensboro, North Carolina
(hereinafter called the "Company"), and the Union of Needletrades, Industrial
and Textile Employees (hereinafter called the "Union").

NOW, THEREFORE, in consideration of the mutual promises and obligations herein
assumed and contained, the parties agree as follows:
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                             ARTICLE 2 - RECOGNITION

Section A  The Company recognizes the Union as the exclusive collective
bargaining agency in all matters pertaining to wages, hours of employment, and
other working conditions for all full time and regular part-time production and
maintenance employees, including truck drivers and leadpersons employed by the
Employer at its Greensboro, North Carolina facility; excluding all office
clerical employees and guards, professional employees and supervisors as defined
by the Act.

Section B  The term "employee" or "employees," wherever used herein, means those
covered by this Agreement as defined in this Article.

Section C  The Company and the Union agree that the terms of this Agreement
shall be applied uniformly to all employees and that there shall be no
discrimination nor perpetuation of the effects of past discrimination, if any,
against any employee or prospective employee because of race, color, religion,
creed, sex, age, national origin, or handicap.

Section D  The Company and the Union agree they will not show favoritism toward
or prejudice against any employee or group of employees.

Section E  The Company agrees to provide the Union with any Company information
or record(s) whatsoever that are legally necessary to the Union's performance of
its duties as the collective bargaining agent of employees.

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                              ARTICLE 3 - CHECKOFF

Section A  Upon the Union filing with the Personnel Office of a written request
for such deduction, signed by the individual employee, the Company will,
pursuant to its terms, during the full term of this Agreement and any extension
or renewal thereof, deduct weekly from the wages and/or pay of each such
employee an amount equal to the Union membership dues as certified by the Union
in writing to the Company. No deduction shall be made for any week for which the
employee receives no pay. The total amount so deducted during each week shall be
remitted to the Southern Regional Joint Board of the Union (or such other
designee of the Union as may be designated in writing by the Union) on or about
the first day of each month. Said authorization shall remain in effect unless
revoked according to its terms.

Section B  The Union will indemnify and save harmless the Company from any and
all claims and disputes by reason of its acting under this Article.

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                        ARTICLE 4 - UNION BULLETIN BOARD

The Company agrees to provide the Union with a bulletin board(s) on a place to
be mutually agreed upon where employee notices are normally posted.

The Union may post notices of material interest to Union members. No notices of
a derogatory nature concerning any employee or the employer may be posted.
Except for routine notices of meeting dates, the Union will provide the Company
copies of all notices prior to posting.

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                              ARTICLE 5 - SENIORITY

Section 1.        Definition

         Seniority shall be the employees' continuous length of service in the
bargaining unit dated from latest date of hire. Seniority for purposes other
than benefit eligibility (i.e., vacation), shall not accrue if an employee
serves outside the bargaining unit. Employees hired on the same date shall have
their relative seniority determined by adding the digits of their Social
Security numbers with the highest total having the greatest seniority. Seniority
shall confer such preferences to employees as are specified in this agreement.

Section 2.        Probation

         All new employees will be regarded as probationary for the first
(ninety) 90 days of hire. The Company shall have the power to discharge or
transfer probationary employees with the matter not being subject to the
Grievance or Arbitration procedures of this agreement. Upon successful
completion of probation the employee will be credited with seniority back to the
date of the employee's current hiring.

Section 3.        Seniority Roster

         The Company shall post and provide to the Union a complete seniority
roster every three months beginning with the effective date of this agreement.

Section 4.        Loss of Seniority

         Seniority shall be lost for the following reasons:

                  (a)      Voluntary quit

                  (b)      Discharge for just cause

                  (c)      Layoff of one year

                  (d)      Failure to return to work upon the expiration of an
                           approved leave of absence

                  (e)      Employee gives a false reason for leave of absence or
                           engages in other employment during said leave.

                  (f)      Failure to return to work within three days of having
                           received notice of recall

                  (g)      Retirement

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                  ARTICLE 6 - LAY-OFF, RECALL, AND JOB BIDDING

         Section 1. Notice of all new positions or vacancies shall be posted on
the bulletin board for at least 72 hours before such new position or vacancy is
to be filled. Said notice will include job title, job description, shift, hours
and rate of pay. The most senior qualified employees bidding on the job will be
awarded the job. No job is to be awarded without having completed the bid
process. Rates of pay for new positions shall be negotiated with the Union.

         Section 2. Employees with the required skills and qualifications as
stated in the job posting notice must be able to perform the essential functions
of the job. To be eligible for bid an employee must not be on final warning, or
have five (5) points under the attendance disciplinary procedure. Likewise, an
employee who declines a position offered for which they bid will be ineligible
to bid for six (6) months, and an employees who accepts a position must stay in
that position for a minimum of six (6) months before bidding on another job. Any
employee who is selected pursuant to this Section, shall be considered in a
trial period for up to thirty (30) calendar days. At any point during this
period the employee may be returned to his former job if the Company determines
that the employee is not satisfactorily performing in the new job.

         Then an employee, unless involuntarily transferred at the Company's
discretion, including a new hire, must remain in his or her position for a
minimum of six months.

         Section 3. In the event of a reduction of work force in a
classification, the least senior person in that classification will be
displaced. The person will be given a choice of a Voluntary Lay-Off or being
placed in a vacant position for which he or she is qualified. If no position is
vacant for which he or she is qualified, a list shall be prepared of all jobs
for which the displaced person is qualified, and the displaced employee shall
replace a less senior person on that list or be placed on Voluntary Lay-Off. An
employee who displaces a least senior employee in a classification pursuant to
this Section shall be given a trial period of up to a maximum of five (5) days
of work during which time he may be disqualified if the Company determines that
work is not being performed satisfactorily. Any employee so disqualified shall
be placed on layoff\status and be allowed to bid for an open position for which
he or she is qualified for a period of not more than twelve (12) months.

         In no event will new employees be hired to fill a vacancy until efforts
are made to qualify current employees. Outside trained personnel may be hired if
no current employees are qualified for such jobs, provided however that current
employees shall be afforded the opportunity to demonstrate to management that
they can qualify for the job the same as outside personnel. Outside experienced
personnel may be hired to fill job openings not filled by job bid process at
current contract rate.

         Section 4. In the case of lay-off, the employees with the least
plant-wide seniority will be laid off first. Exceptions to this will be granted
in cases where there is mutual understanding between the Union and the Company.
In the case of voluntary layoff, an

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employee shall be maintained on layoff until such time as work for which he or
she is qualified becomes available, for a period not to exceed two years or
length of service, whichever is less.

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                         ARTICLE 7 - TEMPORARY TRANSFER

The Company retains the right to assign available work to employees and
temporarily transfer workers to and among jobs in the plant where the need for
such work arises. Temporary transfers shall not remain in effect for a period in
excess of thirty (30) days unless the employee agrees to an extension for an
additional thirty (30) days. An employee's temporary transfer to a job
classification which is lower rated than his own, he shall continue to receive
his normal base rate of pay. When an employee is temporarily transferred to a
job classification which is higher rated than his own, he shall receive the
higher base rate of pay while doing the work of the higher rate of
classification if the transfer lasts 8 full hours or more. If an employee is
transferred for the Company's convenience, the employee will be paid average
pay.

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                     ARTICLE 8 - HOURS OF WORK AND OVERTIME

Section 1. Normal Work Week and Day

The normal workweek shall be 40 hours, 8 hours per day, Monday through Friday.
The pay week shall run from 12:01 A.M. Sunday through midnight Saturday.

The parties recognize that customer requirements and the production process may
require varied starting times by different job classifications. The parties also
recognize that individual employees may be accommodated, with permission of
supervision, by varying the daily start time to meet an employee's request.

The Company agrees that it will give at least 2 weeks notice to the union
regarding permanent changes in the starting times for particular job
classifications or departments and that it will meet with the Union by request
to discuss these changes during this period.

Section 2. Overtime

The Company shall pay time and one-half for all hours over 40 in a pay week. The
Company shall pay time and one-half for all hours beyond 8 in any day or shift
and on weekends, provided that the employee has worked all of his or her
scheduled hours during that workweek. For work performed on a holiday recognized
by this agreement, the Company will pay holiday pay in addition to pay for all
hours worked.

Available weekday overtime will be offered by seniority to qualified employees
within the job classification. If there are not enough volunteers, the overtime
will be assigned by inverse seniority to qualified employees within the
classification. Available weekend overtime and any opportunities to fill
overtime assignments with employees outside of the affected job classification
will be offered through use of an overtime list which will be posted in a
central location. Employees may place their name on the list each calendar
quarter. Overtime will be awarded to the senior qualified employee on the list.
If an employee is asked and declines on more than three occasions during a
calendar quarter, their name shall be removed from the list for the duration of
that calendar quarter.

The Company will post weekday overtime by the end of shift on the previous day
and weekend overtime by the end of shift on Thursday. Exceptions to this notice
requirement will be acts of God, machine breakdown, or a high rate of absence
which prevents the Company from meeting customer delivery requirements without
overtime This notice requirement will not be waived more than 4 times in a
calendar year for an individual employee on the basis of there being a high rate
of absence.

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Section 3. Rest Periods

Employees will receive two paid ten minute breaks, one scheduled before and one
after the thirty minute, unpaid lunch. Employees who work over their normal 8
hour day will receive an additional paid ten minute break after 2 hours.

Section 4. Pyramiding

There shall be no pyramiding of overtime. Hours paid at premium shall be paid at
the highest rate, if eligible for multiple rates, and will not be used as a
basis for calculating overtime on any other basis.

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                            ARTICLE 9 - REPORT IN PAY

On Occasion the plant will be forced to shut down because of some unforeseen or
unexpected event, such as power failure, natural disaster, lack of work, etc.
Employees who have come to work and are unable to perform their duties (or any
other duties assigned) because or such an occurrence as described above will be
paid four hours Report In Pay.

Whenever possible, the Company intends to advise employees of a plant shutdown
before they leave home for work. It is the responsibility of the employee to
keep the supervisor informed of his or her current address and telephone number
where he or she can be reached. If an employee cannot be contacted because of
his or her failure to keep the Company informed, he or she will forfeit the
night to receive Report In Pay.

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                        ARTICLE 10 - GRIEVANCE PROCEDURE

Section A. Grievances arising from the operation or interpretation of this
Agreement shall be handled in the following manner:

Step 1

The aggrieved employee or employees involved and their Shop Steward shall
discuss the issue with the immediate supervisor within three working days of the
date the employee(s) should have reasonably discovered the grievance existed. It
is recognized that the supervisor may not always be able to immediately hold the
discussion and in such cases may schedule the discussion within 48 working hours
after having been notified that a grievance exists. The discussion will take
place during working hours in a timely and efficient manner. The supervisor will
make a good faith effort to listen and respond. Every effort will be made by
both parties to mutually resolve the grievance at this step. The supervisor will
issue a written response within 48 working hours of the Step 1 meeting.

Step 2

If the grievance is not resolved at Step 1 it shall be reduced to writing and
presented to the Plant Manager within 7 days of the Step 1 answer. A meeting
will be scheduled by the parties once per month at 3 PM to discuss Step 2
grievances. The Plant Manager will meet with the Union Grievance Committee, shop
steward and the grievant(s). The Grievance Committee shall consist of the three
top officers of the local union. The Plant Manager shall provide a written
answer within 7 days of the meeting.

All grievances involving discharge shall be presented at Step 2 within five
working days after written notice of reason for discharge has been presented by
the Company to the designated Local Union official.

Step 3

If the grievance is not resolved at Step 2 it shall be referred to the Vice
President of Manufacturing within 7 days of the Step 2 answer. A meeting will be
scheduled by the parties once per month at 3 PM to discuss Step 3 grievances.
The Vice President of Manufacturing shall meet with the Union Business Agent (or
their designee), the Grievance Committee, shop steward and the grievant(s). The
Vice President of Manufacturing shall provide a written answer within 10 days of
the meeting.

If the grievance is not resolved at Step 3, the grievance may be submitted to
arbitration according to the terms or the Arbitration procedure contained within
this Agreement within 20 days of the Step 3 answer.

Section B.  In all cases the failure of the Union to present a grievance within
the specified time limits shall mean that the grievance is forfeited. The
failure of the Company to provide an answer in time shall be deemed to be an
answer in the negative. Said time limits may only be extended my mutual
agreement.

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Section C  In order to administer the Agreement or investigate grievances,
representatives of the Union other than Company employees may enter working
areas of the plant upon permission from a duly authorized representative of the
Company. Such permission shall not be unreasonably withheld. The Union agrees
not to interfere with production and the Company reserves the right to have a
member of management accompany the Union representative.

In the case of grievances involving rates or industrial engineering issues the
Union may, by prior appointment, bring an industrial engineer into the plant to
study the issue in question.

Section D  The Company will recognize one shop steward for each of the following
areas of the plant: Shipping and Trucking, Quilting and Sewing, Mattress, and
Boxspring (total of 4 on first shift). In the event the Company adds additional
shifts, a proportionate number of shop stewards will be recognized on the new
shifts.

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                            ARTICLE 11 - ARBITRATION

Section 1. Any dispute arising under the terms of this Agreement which cannot be
settled between the Union and the Company may be submitted to arbitration by
either party on written notice to the other party identifying and describing the
grievance and listing the provisions of the Agreement which have allegedly been
violated; provided, however, that the Grievance Procedure provided in Article 10
must be exhausted prior to requesting Arbitration.

Section 2. Selection of the Arbitrator. Either the Union or the Company may
request that the Federal Mediation and Conciliation Service (FMCS) submit a list
of seven (7) persons suitable to act as an impartial arbitrator. If the parties
cannot agree on one person on the list, the Arbitrator will be selected by
alternate striking of the Arbitrator list, with the Grieving Party striking
first. Both the Union and the Company will each have the right to reject up to
two (2) panels as unacceptable and insist on a new panel for consideration.
Nothing in this provision is intended to deny the Union or the Company the right
to voluntarily agree to an arbitrator without reference to an FMCS panel of
arbitrators.

Section 3. Binding Decision. The written decision of the Arbitrator shall be
completed within thirty (30) days of the close of the hearing or the filing of
briefs, whichever is later, and such written decision will be final and binding
upon the Company, the Union and the employees.

Section 4. Power of the Arbitrator. The Arbitrator's powers shall be limited to
the application and interpretation of this Agreement, and the Arbitrator shall
have no authority to add to, subtract from, modify or amend in any way terms or
conditions of this Agreement, or in any way substitute his judgment for the
Company's in matters which are solely management's functions and rights under
this Agreement. It is further agreed that matters pertaining to the general wage
scale, or differential in basic wage rates are not subject to arbitration.

Section 5. Cost of Arbitration. The expenses, wages, and other compensation of
any witnesses called before the Arbitrator shall be borne by the party calling
such witnesses. Other expenses incurred, such as wages of the participants,
preparation of briefs, and data to be presented to the Arbitrator, shall be
borne separately by the respective parties. The Arbitrator's fees, expenses, and
the cost of any hearing room shall be borne equally by both parties.

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                      ARTICLE 12 - DISCIPLINE AND DISCHARGE

Section A  Just Cause
The Company agrees that employees shall be disciplined or discharged only for
just cause.

Section B  Discharge Cases
In cases of discharge the Company shall promptly present a written statement of
reason for discharge to the designated Local Union official. If the Union
desires to grieve the discharge it shall, within 5 working days after such
presentation, file a written grievance according to the expedited process
described in the Grievance Procedure, or the right to grieve the discharge shall
be deemed to have been waived.

Section C  Attendance
Discipline for violations of the attendance policy shall be considered separate
and apart from other discipline.

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                     ARTICLE 13 - PLANT RULES AND DISCIPLINE

Section 1. The Company retains the right to make and revise reasonable rules and
procedures governing the conduct of its employees in order to ensure the safe
and efficient operation of the plant. The Company will notify the Union of new
rules and procedures affecting employee conduct two (2) weeks prior to the
effective date of the new rule or procedure; and at the Union's request, will
discuss such rules and procedures with the designated Union representative(s).

Section 2. Nothing contained in this Agreement is intended to limit the right of
the Company to issue and enforce such rules and procedures. After the execution
of this Agreement, any new rules or procedures regarding conduct, or any change
to an existing rule or procedure regarding conduct, may be grieved within thirty
(30) working days of notification to the Union as to the reasonableness of the
new rules or procedures. Thereafter, only the application of such changes, new
rules or procedures will be subject to the grievance procedure. The parties
agree that only the application, and not the reasonableness of the rules in
place as of the date of ramification of this Agreement will be subject to the
Grievance and Arbitration Procedures set out in Articles 10 and 11 of this
Agreement.

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                         ARTICLE 14 - ATTENDANCE POLICY

         REPORTING - If an employee is sick or late, he or she must notify their
supervisor within 30 minutes of your scheduled work time. Failure to notify the
supervisor for 3 consecutive work days or on 3 separate occasions in a 12 month
period will result in termination of employment.

         EXCESSIVE - The Company operates under a point system. Under this
system, an employee with 5 points is considered to have an excessive record.
Accumulation of 7 points will result in discharge within a rolling 12 month
period.

         Each tardiness and/or early leave counts as 1/4 of a point. Therefore,
4 tardies and/or early leaves will be counted as a point. An absence or
tardiness lasting for more than 4 hours will also be counted as a point. After
30 days of perfect attendance an employee will have his point total reduced by
1/2 a point.

         If an employee is absent for two or more consecutive days because of
illness and, if medical documentation is provided only one point will
accumulate. No points will accumulate from approved leave under the Family and
Medical Leave Act.

No points will be awarded for pre-arranged and pre-approved documented doctor's
visits or personal matters with advance proper notice (i.e., 48 hours) and
approval will not unreasonably be denied.

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                        ARTICLE 15 - NO STRIKE/NO LOCKOUT

Section 1. The Company agrees that so long as this Agreement is in effect there
shall be no lockouts. The Company's decision to close down or relocate the
Greensboro, North Carolina, facility, or any part thereof, or the curtailing of
any of its operations in Greensboro, North Carolina, for business reasons shall
not be construed to be a lockout.

Section 2. The Union, its officers, agents, employees, members and bargaining
unit employees covered by this Agreement, agree that so long as this Agreement
is in effect, there shall be no strikes, sitdowns, slow-downs, stoppages of
work, boycotts, labor holidays other than those provided by this Agreement,
continuous meetings, concerted mass sickness or any other acts or denial of
services which would interfere with the Company's operations or the distribution
or sale of merchandise; and it is further agreed that the Union, its officers,
agents, employees, members and bargaining unit employees covered by this
Agreement shall neither engage in any sympathy strike nor honor any picket line,
strike, sit-down, slow-down, work stoppage, boycotts, labor holiday, continuous
meeting, concerted mass sickness or any other acts or conduct that interfere
with the Company's operations or the distribution or sale of merchandise,
including, but not limited to, picket lines established by bargaining unit
employees from other Company facilities.

Section 3. The Union, its officers, agents, employees, members and bargaining
unit employees agree that if any acts, conduct or withholding of services
prohibited by this Article occur or are threatened, they shall take all
reasonable and necessary steps to prevent and stop any and all such
interferences by persons subject to this Agreement. Such reasonable and
necessary steps shall include, but not be limited to, immediately dispatching an
international representative to the Greensboro facility; removing or restraining
all local Union officers, stewards and/or other local union agents participating
in activities violating this Article; cause to be broadcast on local radio, and
on local television, and published in the Greensboro News & Record newspaper
within the first twenty-four (24) hours of the work stoppage, a statement, as
set forth below, directing its members to immediately cease any activities
violating this Article, and to return to work, and to honor the terms and
conditions of this Agreement; and in addition, provide to the Company a copy of
said statement signed by an authorized officer of the International Union, for
use as the Company desires. Said statement shall be as follows:

         "To all UNITE members who are in violation of the Collective Bargaining
         Agreement with the Serta Mattress facility, Greensboro:

         You are advised that a (stoppage of work), (strike), (intentional
         slowdown of production), (boycott), (labor holiday) is occurring at the
         Serta Mattress Greensboro facility. This action is unauthorized by the
         Union of Needletrades, Industrial and Textile Employees. You are
         directed to promptly return to your respective jobs and to cease any
         action which may adversely affect production. You are directed to
         discontinue any picket line which may exist at the plant.

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         The grievance(s) in dispute will be processed through the regular
         grievance procedures provided for in your contract."

Section 4. Any bargaining unit employees subject to the terms of this Agreement
who violates Section 2 of this Article may be disciplined up to and including
termination of their employment. Management's determination of the severity of
discipline, including discharge, may not be raised as a grievance under this
Agreement. The only issue which may be arbitrated is whether the bargaining unit
employee participated in the work stoppage.

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                             ARTICLE 16 - HOLIDAYS

Section 1. The Company agrees to recognize and provide the following days as
paid holidays:

1. New Year's Day
2. Martin Luther King, Jr.'s birthday
3. Good Friday
4. Memorial Day
5. Floater
6. Independence Day (July 4th)
7. Labor Day
8. Thanksgiving (2 days)
9. Christmas Day

Regular full-time and regular part-time employees are eligible for paid holidays
after completing ninety (90) days of continuous service.

1.       Holiday pay for hourly workers is 8 hours of straight time base rate
         for all employees.

2.       To become eligible for holiday pay, an employee must work the last
         scheduled workday before and the first scheduled workday after the
         holiday, unless excused by the supervisor.

3.       If a paid holiday occurs during an approved vacation period the
         employee will receive an extra vacation day or pay in lieu of time off.

4.       The floater day requires proper advance notice (i.e., 48 hours) and
         reasonable supervisor approval consistent with staffing requirements.

5.       Employees who work on a paid holiday will receive holiday pay plus
         their regular pay for all hours worked.

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                              ARTICLE 17 - VACATION

Employees become eligible for a paid vacation after meeting service
requirements.

Continuous Service
As of January 1                                           Paid Vacation
---------------                                           -------------

Less than one year                                        Pro-rated of 1 week
1 year                                                    1 week
2 years                                                   2 weeks
9 years                                                   3 weeks
19 years                                                  4 weeks

Employees can accrue vacation during their first year of employment. However,
employees cannot use this vacation time until after January 1 following their
employment date.

VACATION SCHEDULING

The Company may operate with a reduced workforce during the week of July 4th.
Those employees not scheduled to work during the week of July 4th will receive a
pro-rated vacation pay for that week. Employees with more than one week of
vacation may schedule the balance according to the following guidelines:

         1.       Vacation must be taken by December 31 of each year and cannot
                  be carried over to the next year.

         2.       Vacation pay is 8 hours of straight time base rate pay.

         3.       No more than two weeks of vacation may be taken by any
                  employee during the months of June, July, and August.

         4.       Employees entitled to 3 or more weeks of vacation will have
                  seniority in scheduling the first two weeks only.

         5.       Vacation may be taken a day at a time with advance proper
                  notice (i.e., 48 hours).

         6.       Vacations will be awarded on a first come, first served basis
                  based upon production scheduling, department needs and
                  staffing with seniority breaking any ties.

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                         ARTICLE 18 - LEAVES OF ABSENCE

Section 1. A non-medical unpaid leave of absence may be granted by the employer
for good reason without affecting seniority. Such unpaid leaves shall generally
not exceed thirty days except in the event of special circumstances. Employees
whose unpaid leave is for thirty days or less shall return to their former
position if vacant, otherwise the employee may exercise their seniority for any
open position for which they are qualified.

Section 2. Employees will be granted unpaid leave for medical necessity
supported by documentation from a licensed professional. Such unpaid leaves
shall not affect seniority. The employee will be required to present medical
clearance to return to work. The employer may request additional medical
evaluation prior to, during and at the end of an unpaid medical leave provided
that any second opinions shall be at the employees expense.

         Such unpaid medical leaves shall not exceed 12 months or length of
seniority, whichever is less. Employees on unpaid medical leave for 12 weeks or
less during a calendar year shall be returned to their former position.
Employees whose unpaid leave extends beyond 12 weeks shall be returned to their
former position if vacant or if the position has been filled they may exercise
their seniority for any open job for which they are qualified.

Section 3. The employer agrees to comply with the requirements of the Family and
Medical Leave Act. Where specific provisions of this agreement grant employees
rights greater than FMLA, the contract shall prevail. The employer will not
require the use of paid time off prior to taking FMLA leave.

Section 4. The employer will comply with all state and federal regulations
concerning military leaves. Reservists and National Guard members will be
granted unpaid leave for required weekly or weekend drills, summer training or
short term active duty training.

Section 5. The employer agrees to grant long term union unpaid leave to one
employee with thirty (30) days notice. Such leave may not exceed one year. The
employer may grant long term unpaid union leaves to other employees at its
discretion.

         The employer shall grant short term union unpaid leaves to two
employees to attend regular Union conventions, conferences and educational
events with two (2) weeks notice. Additional employees may be granted time off
at the discretion of the employer.

         Union unpaid leave for less than one day will be granted so long as the
leave does not interfere with production and adequate notice is provided the
Company. Such requests will be made by the Union business agent to the Plant
Manager with as much notice as possible.

Section 6. Employees on unpaid leave of absence may not perform other employment
without notifying the employer except where such employment was ongoing prior to
the leave, except said work cannot be inconsistent with the purpose of the
leave. No employee may perform work, which would serve to extend the unpaid
leave. The employer may request

                                       22
<PAGE>   26
medical clearance to perform such work. Military and Union leave are exempt from
this provision.

Section 7. The Union shall be informed of all leaves of absences.

                                       23
<PAGE>   27
                          ARTICLE 19 - BEREAVEMENT PAY

In the case of the death of a parent, child (including those standing in loco
parentis), spouse, brother or sister of a regular full-time employee requiring
the absence of said employee from his regularly scheduled assignment for the
purpose of preparing for and/or attending the funeral, then such employee shall
be granted a leave of absence of up to three (3) days. The Company will pay
eight (8) hours pay at straight time for up to three (3) regularly scheduled
work days from the day of death of an immediate family member through the second
day following the funeral.

                                       24
<PAGE>   28
                             ARTICLE 20 - JURY DUTY

Section 1. Regular full-time employees who are called in to jury duty shall
receive the difference between jury duty pay and the employee's straight time
base rate pay based on a regularly scheduled work day (no overtime) and the pay
received for jury duty, to a maximum of two weeks in any one year. To receive
this pay, the employee must furnish proof of jury duty and the amount of pay
received.

Section 2. The employee's supervisor must be notified as soon as you receive the
court summons so that we may schedule around your absence.

Section 3. The employee should report back to the job if dismissed from jury
duty when work time remains on the employee's shift.

                                       25
<PAGE>   29
                      ARTICLE 21 - MANAGEMENT RIGHTS CLAUSE

         All the functions, rights, powers and authority which the Company has
not specifically abridged, delegated or modified by this Agreement are
recognized by the Union as being retained by the Company and exercisable without
prior notification to or consultation with the Union. The rights listed in this
Article are illustrative of the rights retained by the Company and are not
intended as an all-inclusive list of these rights, whether or not such rights
have been exercised by the Company in the past. Such rights include: the right
to establish or continue policies, practices and procedures for the conduct of
business and, from time to time, to change or abolish such policies, practices
and procedures; to determine, and from time to time redetermine, the number,
location and types of its operations, and the methods, processes, and materials
to be employed; to discontinue processes or operations in whole or in part, or
to discontinue the performance by employees covered by this Agreement, and to
contract out any and all such operations, to transfer, sell and otherwise
dispose of its business in whole or in part; to determine, and from time to time
redetermine, the number and types of employees required; to determiner the
amount of overtime to be worked; to assign work to such employees in accordance
with the requirements determined by management; to establish and change work
schedules and assignments; to transfer, promote or demote employees or to lay
off, terminate, or otherwise relieve employees from duty; to make and enforce
reasonable rules for the maintenance of discipline and protection of life and
property; to suspend, discharge, or otherwise discipline employees for just
cause; and otherwise to take such measures as management may determine to be
necessary for the orderly or economical operation of the Company's business. The
listing of specific rights in this Agreement is not intended to be, nor shall
be, restrictive of, or a waiver of, any of the rights of management not listed
and specifically surrendered herein, whether or not such rights have been
exercised by the Company in the past. This Article, and the enumeration of
management rights and prerogatives contained herein, is not intended to affect
the specific provisions of this Agreement. Where specific provisions exist, they
will control. However, in the absence of specific terms in the Agreement, this
Article shall control. And unless otherwise specified in this Agreement, the
exercise of management rights and prerogatives shall not be subject to the
grievance procedure.

                                       26
<PAGE>   30
                        ARTICLE 22 - PRODUCTION STANDARDS

The Company has established production standards for certain job classifications
which it represents have been established using recognized industrial
engineering techniques which are verifiable using standard time measurements,
such as MTM.

Base rates set for incentive classifications are listed in the wage schedule.

Incentive standards will include allowances for fatigue, delay and personal time
(PF&D) of no less than 20%. Said allowances are exclusive of paid break time.
Machine delay time beyond that allowed and time spent waiting for work will be
paid at base rate.

The Union shall have the right to review current rates and any future rates set.
The Union shall have 30 days after the execution of this contract to grieve any
existing rates. The Company will provide the Union with elemental breakdowns and
rates where questioned. A union engineer may conduct time studies to verify
rates, which are subject to the grievance and arbitration procedures of this
agreement.

The remedy for rates found to be set to yield less than the standard time
allowance will be to issue back pay to all affected employees from the date the
grievance is filed.

After a new rate is established, employees shall make a reasonable effort to
attain incentive earnings for a trial period of 30 days. No formal grievance
will be filed during this period, although employees may inform the Company they
feel the rate is incorrect and request a recheck. After the 30 day period a
formal grievance may be filed for a 30 day period and any change made in the
standard shall be retroactive to the date the rate was installed.

Once a standard has been verified it shall not be subject to change unless there
are changes in method, materials, equipment or layout.

No job classifications will be taken off incentive except through negotiation
and mutual agreement with the Union.

                                       27
<PAGE>   31
                              ARTICLE 23 - DOWNTIME

Downtime exists where the operator is not responsible for an assigned portion of
his/her job due to delays or conditions beyond his/her control paid at base
rate. The Company agrees to furnish to the Union those items of downtime not
allowed for in the job standards and which will be paid for as downtime.
Examples of such delays or conditions may be as follows: power failure, wait for
stock beyond standard allowance, machine breakdown, machinery changes, etc.

Offstandard Conditions:

Exist where the operator's assigned job is affected by some condition beyond
his/her control. However, the portion of the job affected continues to run and
remains the responsibility of the operator but the change in condition affects
the basis of the incentive so as to adversely affect the earnings. Examples of
such interferences may be as follows: machine changes, bad running quality,
method changes, samples, etc., beyond that in the standard allowances.

Employees are required to turn in production tickets.

                                       28
<PAGE>   32
                         ARTICLE 24 - HEALTH AND SAFETY

Section 1. The Company shall make reasonable provisions to insure the safety and
health of employees during their hours of work.

Section 2. The parties will form an in plant Health and Safety Committee
composed of an equal number of bargaining unit employees selected by the Union
and management representatives selected by the Company.

         The Committee will review safety and health records, investigate all
accidents and near misses, inspect the work site for safety and health hazards,
assist in developing and implementing educational and training programs and make
suggestions to improve workplace health and safety practices.

         The Committee shall be composed of no fewer than four members and shall
meet as needed but no less than monthly. All time lost from work will be paid at
base rate by the employer. The Company will schedule the activities and duties
of the Safety Committee during normal working hours and ensure those activities
and duties do not interfere with production.

         Appropriate training for Committee members will be provided.

Section 3. The role of the Committee shall be advisory only and shall not
include matters properly the subject of the grievance procedure.

                                       29
<PAGE>   33
                       ARTICLE 25 - SUBSTANCE ABUSE POLICY

The Company will not tolerate the use of alcohol or drugs during the working
hours and immediate termination will be the penalty for any such use.
Furthermore, if the use of alcohol or drugs outside normal working hours results
in the user being a hazard to himself or herself or to co-workers while at work,
the company reserves the right to terminate the offending employee at once.

The following provision implements this policy:

         1.       The Company has the practice of screen-testing applicants for
                  employment to detect drug usage. An applicant for employment
                  who refuses to submit to such testing procedure will not be
                  considered for employment. An applicant for employment whose
                  screen test is positive for drug usage will not be employed
                  and the Company will not accept another application from that
                  person for six (6) months. Any applicant who is refused
                  employment because of a positive drug test and who
                  subsequently makes a new application for employment must pay
                  for the cost of the drug test upon making a second or
                  subsequent application for employment.

         2.       All employees of the Company are subject to screen-testing for
                  the purpose of detecting alcohol and drug usage under the
                  terms of this policy. Any employee who refuses to cooperate in
                  the screening will be terminated.

         3.       Consent forms are to be signed by each employee giving his or
                  her consent to the screening procedure. Additionally, a
                  consent form will be signed by each employee selected for
                  screening at the time of the screening. Any employee who
                  refuses to sign these consent forms will be terminated.

         4.       The screening procedures will be accomplished in the most
                  confidential manner possible. No one will be told that a
                  particular employee tested positive unless the person needs to
                  know.

         5.       The analyses of specimens collected during the testing will be
                  accomplished in a modem laboratory using the latest and most
                  reliable techniques and equipment. All questionable cases will
                  be resolved as nonpositive and all doubts will be resolved in
                  favor of a nonpositive conclusion. Employees with 5 years or
                  greater seniority will be allowed one time only second chance,
                  but this in no way excuses the employee from misconduct under
                  our disciplinary rules and procedures.

         6.       When a specimen tests positive, the specimen will be retested
                  using a different procedure and technique in order to
                  eliminate any question concerning the conclusion.
                  Additionally, a portion of every specimen which tests positive
                  will be retained and made available upon request to the
                  employee who provided the specimen.

                                       30
<PAGE>   34
         7.       Any employee who recognizes that he or she has a problem with
                  alcohol or drug abuse may notify management of that fact and
                  the Company will use its best efforts to assist the employee
                  in overcoming his or her problem by directing the employee to
                  sources of medical, psychological, and social assistance.
                  Further, the Company may provide an unpaid leave of absence to
                  the employee during the period of his or her treatment for
                  such drug or alcohol abuse. Any individual who enlists the aid
                  of the Company in such employee assistance program who fails
                  to meet his or her obligations and responsibilities under that
                  program will be terminated.

         8.       A positive conclusion from the drug screen, after having been
                  confirmed by a different analysis technique, will result in
                  termination. An employee who has been terminated under this
                  policy may be considered for reemployment after furnishing
                  proof of successful completion of a rehabilitation program. Re
                  employment must be approved by the president of the Company.

         9.       Employees will be screened under the following circumstances:

                  a)       Any employee when there is a reasonable suspicion
                           that the employee's job performance is being affected
                           by the influence of drug or alcohol usage;

                  b)       Every employee who is injured so severely in a work
                           related accident that treatment by physician is
                           required;

                  c)       Every employee who causes or contributes to a work
                           related accident which results in the injured party
                           being treated by a physician; and

                  d)       Drivers to meet all requirements in effect under DOT
                           regulations.

         10.      Every incumbent employee is being given a copy of this policy
                  and will sign a receipt acknowledging that he or she has
                  received such copy. New persons hired by the Company will be
                  given a copy of this policy at the time of initial employment
                  and prior to beginning to work.

                                       31
<PAGE>   35
                      ARTICLE 26 - NEW EMPLOYEE ORIENTATION

The Union Business Agent (or their designee) may schedule a meeting once per
month with newly hired employees to provide union orientation. These orientation
meetings will occur on Company premises during normal working hours and may last
up to 30 minutes. The time for these meetings will be scheduled with an
appropriate member of management. The Union agrees that it will utilize this
provision in a reasonable manner.

                                       32
<PAGE>   36

                       ARTICLE 27 - HEALTH CARE INSURANCE

Section 1. The Company's self-insured health care plan is administered by First
Allmerica Financial Life Insurance Company.

A brief description of the terms and conditions of this plan is as follows:

Section 2. Cost to Employees

Individual Coverage                 Paid by Serta Mattress Company

Parent/Child Coverage               $94.34/month --- $21.77/week

Family Coverage                     $151.74/month --- $35.02/week

Section 3. Brief Summary of Benefits

Lifetime Maximum - Unlimited

Individual Cash Deductible - $300

Family Cash Deductible - $900

Hospital Expenses         Preferred Hospitals       10% after deductible
                          Nonpreferred Hospitals    20% after deductible

Doctor Medical Visits     Preferred Doctors         $10 per visit
                          Nonpreferred Doctors      $20 per visit

Other Covered Expenses                              20% after Cash Deductible
Includes ambulance service, private duty nursing,
miscellaneous services, and supplies.

Prescription Drugs        Generic                   $5  copay each 34 day supply
                          Brand name                $15 copay each 34 day supply
                          Mail Order Maintenance    $5  copay each 90 day supply

First Allmerica Financial pays 100% of covered expenses within certain limits
for the following:
*Home Health Care *Extended Care Facilities *Birthing Centers *Hospice
*Pre-admission Testing

Section 4. Eligibility. New employees will become eligible for coverage on the
first day of the month following 90 days of employment.

                                       33
<PAGE>   37
Section 5. Percentages The current percentage paid by the Company for
parent-child coverage (approximately 63.5%) and for family coverage
(approximately 70%) as indicated above will continue for the duration of the
contract. The Plan Document, however, controls the actual benefits provided to
employees.

                                       34
<PAGE>   38
                      ARTICLE 28 - DENTAL AND OPTICAL PLAN

The Company agrees that it will make the appropriate deduction for those
employees whose names are submitted by the Union to be in the Union's dental and
optical plan. This shall be the Company's sole obligation and the union shall
hold the Company harmless for all matters related to the Unions dental and
optical plan.

                                       35
<PAGE>   39
                             ARTICLE 29 - RETIREMENT

This memorandum of agreement provides that the Company will dispose of the
monies contained in the Dixie Bedding Company Profit Sharing Plan consistent
with IRS regulations. Accordingly, employees will be able to receive a lump sum
payment less taxes, of those monies or roll the monies over into a qualified
plan, including the new Crescent Plan, at their option. However, the Dixie
Bedding Company Profit Sharing Plan monies may not be distributed until the IRS
has approved said distribution.

All eligible employees will be enrolled in the existing Crescent Sleep Products
401(k) Safe Harbour Plan on April 1, 1999. The Plan provides for Company
contributions to an employee's account in amount equal to at least 3% of an
employee's taxable W-2 earnings and such payments are guaranteed for the life of
the contract. Plan documents control the administration of the Plan.

                                       36
<PAGE>   40
                          ARTICLE 30 - CHRISTMAS BONUS

Employees shall receive a Christmas bonus. These amounts will be based on the
length of services as follows:

Less than 6 months:                                       $75
6 months - less than 1 year                               $100
1 year - less than 3 years                                $150
3 years - less than 5 years                               $175
5 years - less than 10 years                              $200
10 years and over                                         $250

The bonus will also be pro-rated for any approved medical leave of absence.
Employees on a military or general leave are not eligible for a bonus. Employees
must actually be employed on the date the bonus is paid to receive it.

                                       37
<PAGE>   41
                         ARTICLE 31 - SAFE DRIVING BONUS

The Company will provide a quarterly safe driving bonus of $100 for Company
drivers who remain accident free during that quarter. If a Company driver
remains accident free for the entire year, then they will receive an additional
$100 bonus at the end of the fourth quarter.

                                       38
<PAGE>   42
                     ARTICLE 32 - WAGES AND CLASSIFICATIONS

The wage schedule covering the employees in the bargaining unit has been agreed
to and by this reference made pan of this Agreement in Appendix A. This reflects
an increase of SAO to the hourly classification payrates on March 1, 2000 and
March 1, 2001 and a $.30 addition to the hourly classification rate of the
incentive workers for those same dates.

Employees will receive in the month of March, 1999, a signing bonus of $250 if
they have been with the Company for ten years and $200 for less than ten years.
Employees must have completed their 90 day probation by March 1, 1999 to receive
the signing bonus, and if an employee has not completed his or her 90 day
probationary period by that date, the employee will not receive the signing
bonus until the 90 day probation has been completed successfully.

                                       39
<PAGE>   43
                           ARTICLE 33 - ZIPPER CLAUSE

         This Agreement contains the entire understanding, undertaking and
agreement of the Company and the Union. During the negotiations resulting in
this Agreement, the Company and the Union each had the unlimited right to make
proposals with respect to any subject matter as to which the National Labor
Relations Act imposes an obligation to bargain. Except as specifically set forth
elsewhere in this Agreement, the Company and the Union each expressly waive
their right to require the other to bargain collectively over all matters as to
which the National Labor Relations Act imposes an obligation to bargain, whether
or not such matters were discussed between the Company and the Union during the
negotiations which resulted in this Agreement; provided, however, that nothing
in this provision shall be interpreted to permit the unilateral change of this
document.

         As used in this Zipper Clause, the waiver of the right to "bargain
collectively" includes the waiver of the right to require the other party to
negotiate but does not include the waiver of either party's fight to obtain
information as provided by the National Labor Relations Act or by this
Agreement, from the other party.

                                       40
<PAGE>   44
                        ARTICLE 34 - BARGAINING UNIT WORK

Section 1. Management
Persons not in the bargaining unit will not ordinarily nor routinely perform
bargaining unit work. Bargaining unit work may be performed in instruction of
employees, installation of new equipment or to fill in for temporary absence of
employees. Performance of bargaining unit work by employees outside the unit
will not result in loss of bargaining unit positions or layoff of unit
employees.

Section 2.  Temporary Employees
The Company may hire temporary employees through outside agencies to meet
seasonal work fluctuations, replace employees on leave; or deal With a shortage
of the workforce or address the legitimate business need for additional labor on
a temporary basis. Use of temporary employees shall not serve to diminish the
bargaining unit but may, at times, reduce the need for overtime work.

                                       41
<PAGE>   45
                            ARTICLE 35 - SEPARABILITY

Should any provisions of this Agreement be determined to be in violation of any
federal, state, or local law or regulation, such determination shall not in any
way affect the remaining provisions of the Agreement and they shall remain in
full force and effect. The parties shall negotiate such modifications as are
necessary for compliance with law.

                                       42
<PAGE>   46
                         ARTICLE 36 - TERM OF AGREEMENT

This Agreement shall become effective on March 1, 1999 and shall continue in
effect for three years until March 1, 2002. This Agreement shall be
automatically renewed from year to year thereafter unless either party provides
written notice to the other or its intent to terminate or modify the Agreement
sixty (60) days prior to its termination.

IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives.

CRESCENT SLEEP PRODUCTS:                   UNION OF NEEDLETRADES, INDUSTRIAL
Greensboro, NC                             AND TEXTILE EMPLOYEES:

_________________________________          _____________________________________
Mr. Tom Sanfilippo                         Mr. Phil Cohen
Vice President Manufacturing               Special Projects Coordinator

_________________________________          _____________________________________

_________________________________          _____________________________________

_________________________________          _____________________________________

_________________________________          _____________________________________

_________________________________          _____________________________________

                                       43<PAGE>   1

                                                                    EXHIBIT 10.8

                                 LOAN AGREEMENT

       THIS LOAN AGREEMENT made and entered into as of March 1, 1995, by and
between the Iowa Finance Authority (the "Issuer"), a public instrumentality and
agency duly organized and existing under the laws of the State of Iowa (the
"State") , and Dixie Bedding Company (the "Company"), a North Carolina
corporation;

                              W I T N E S S E T H:

       WHEREAS, the Issuer is authorized and empowered by the provisions of
Chapter 16 of the Code of Iowa (1995), as amended (the "Act"), to issue and sell
its revenue bonds for the purpose of financing in whole or in part the cost of a
"project" (as defined in Section 16.102 of the Act) for the purpose of assisting
economic development and expansion of business, industry and farming in the
State; and

       WHEREAS, pursuant to and in accordance with the provisions of the Act and
pursuant to the terms of an Indenture of Trust (the "'Indenture") dated as of
March 1, 1995 between the Issuer and First-Citizens Bank & Trust Company, as
trustee, the Issuer has authorized and undertaken to issue its Tax-Exempt
Adjustable Mode Industrial Development Revenue Bonds (Dixie Bedding Company
Project) Series 1995 (the "Bonds"); and

       WHEREAS, the Issuer has undertaken to sell the Bonds and to loan the
proceeds from the sale of the Bonds to the Company so as to enable the Company
to acquire, construct, improve and equip a mattress manufacturing facility
located in Clear Lake, Iowa and the Company has agreed to make payments
sufficient to pay the principal of and premium, if any, and interest on the
Bonds and related expenses all of more fully described in this Agreement.

       NOW, THEREFORE, in consideration of the premises and the mutual covenants
hereinafter contained, the parties hereto covenant, agree and bind themselves as
follows;

                                    ARTICLE I

                      DEFINITIONS AND RULES OF CONSTRUCTION

       Section 1.1. Definitions. In addition to the words and terms elsewhere
defined in this Agreement, the following words and terms as used herein shall
have the following meanings unless the context or use clearly indicates another
or different meaning or intent, and any other words and terms defined in the
Indenture shall have the same meanings when used herein as assigned in the
Indenture unless the context or use clearly indicates another or different
meaning or intent:

       "Acquisition", when used with reference to the Project, means
acquisition, construction, installation and equipping.

<PAGE>   2

       "Agreement" shall mean this Loan Agreement between the Issuer and the
Company and any modifications, alterations and supplements hereto made in
accordance with the provisions hereof and of the Indenture.

       "Bond Documents" means, collectively, the Bonds, this Agreement, the
Indenture, the Credit Facility, the Credit Agreement, the Placement Agreement,
the Remarketing Agreement and the Private Placement Memorandum.

       "Bond Proceeds" means the principal of the Bonds and any investment
earnings thereon while on deposit in the Initial Fund.

       "Company Representative" means any one of the persons at the time
designated to act on behalf of the Company by written certificate furnished to
the Issuer and the Trustee containing the specimen signatures of such persons
and signed on behalf of the Company by the President or any Vice President of
the Company.

       "Completion Date" means, with respect to the Project, the date on which
the Company Representative delivers a completion certificate to the Trustee
pursuant to Section 3.3.

       "Cost(s) of the Project", "Cost" or "Costs" means all costs and
allowances which the Issuer or the Company may properly pay or accrue for the
Project and which, under generally accepted accounting principles, are
chargeable to the capital account of the Project or could be so charged either
with a proper election to capitalize such costs or, but for a proper election,
to expense such costs, including (without limitation) the following costs:

       (a) fees and expenses incurred in preparing the plans and specifications
for the Project (including any preliminary study or planning or any aspect
thereof); any labor, services, materials and supplies used or furnished in site
improvement and construction; any equipment for the Project; and any acquisition
necessary to provide utility services or other services, including trackage to
provide the Project with public transportation facilities, roadways, parking
lots, water supply, sewage and waste disposal facilities; and all real and
tangible personal property deemed necessary by the Company and acquired in
connection with the Project;

       (b) fees for architectural, engineering, supervisory and consulting
services;

       (c) any fees and expenses incurred in connection with perfecting and
protecting title to the Project and any fees and expenses incurred in connection
with preparing, recording or filing such documents, instruments or financing
statements as either the Company or the Issuer may deem desirable to perfect or
protect the rights of the Issuer or the Trustee under the Bond Documents;

       (d) any legal, accounting or financing advisory fees and expenses,
including, without limitation, fees and expenses of Bond Counsel and counsel to
the Issuer, the Company, the Credit Issuer, the Placement Agent, the Remarketing
Agent or the Trustee, any fees and expenses of the Issuer, Trustee, Remarketing
Agent, Placement Agent, Credit Issuer, Tender Agent, Paying Agent or any rating
agency, filing fees, and printing and engraving costs, incurred in connection
with the

                                      -2-
<PAGE>   3

authorization, issuance, sale and purchase of the Bonds, and the preparation of
the Bond Documents and all other documents in connection with the authorization,
issuance and sale of the Bonds;

       (e) interest to accrue on the Bonds during construction of the Project;

       (f) any administrative or other fees charged by the Issuer or
reimbursement thereto of expenses in connection with the Project until the
Completion Date; and

       (g) any other costs and expenses relating to the Project which could
constitute costs or expenses for which the Issuer may expend Bond proceeds under
the Act.

       "Eminent Domain" means the taking of title to, or the temporary use of,
the Project or any part thereof pursuant to eminent domain or condemnation
proceedings, or by any settlement or compromise of such proceedings, or any
voluntary conveyance of the Project or any part thereof during the pendency of,
or as a result of a threat of, such proceedings.

       "Event of Default" shall have the meaning set forth in Section 10.1.

       "Governing Body" means the board, commission, council or other body in
which the general legislative powers of the Issuer are vested.

       "Issuer Representative" means any one of the persons at the time
designated to act on behalf of the Issuer by written certificate furnished to
the Company and the Trustee containing the specimen signatures of such persons
and signed on behalf of the Issuer by its Chairman or Vice Chairman and its
Secretary.

       "Net Proceeds", when used with respect to any proceeds of insurance or
proceeds resulting from Eminent Domain, means the gross proceeds therefrom less
all expenses (including attorneys, fees) incurred in realization thereof.

       "Plans and Specifications" shall mean the plans and specifications used
in the Acquisition of the Project, as the same may be revised from time to time
by the Company in accordance with Section 3.8.

       "Private Placement Memorandum" means the Preliminary Private Placement
Memorandum and the final Private Placement Memorandum prepared and used in
connection with the initial placement of the Bonds on the Issue Date.

       "Project" means, collectively, the property described in Exhibit A
hereto, as the same may at any time exist.

       "Remarketing Agreement" means the Remarketing and Interest Services
Agreement, dated as of March 1, 1995, between the Company and the Remarketing
Agent.

                                      -3-
<PAGE>   4

       "Tax Regulations" means the applicable treasury regulations promulgated
under the Code or under Section 103 of the Internal Revenue Code of 1954, as
amended, whether at the time proposed, temporary, final or otherwise.

       Section 1.2. Rules of Construction. Unless the context clearly indicates
to the contrary, the following rules shall apply to the construction of this
Agreement:

       (a) Capitalized terms used but not defined in this Agreement shall have
the meaning ascribed to them in the Indenture.

       (b) Words importing the singular number shall include the plural number
and vice versa.

       (c) The table of contents, captions and headings herein are solely for
convenience of reference only and shall not constitute a part of this Agreement
nor shall they affect its meaning, construction or effect.

       (d) of the masculine gender shall be deemed and construed to include
correlative words of the feminine and neuter genders, and words of the neuter
gender shall be deemed and construed to include correlative words of the
masculine and feminine genders.

       (e) references in this Agreement to particular Articles or Sections are
references to Articles and Sections of this Agreement, unless otherwise
indicated.

                                   ARTICLE II

                                 REPRESENTATIONS

       Section 2.1. Representations by the Issuer. The Issuer represents and
warrants as follows:

       (a) The Issuer is a public instrumentality and agency of the State and is
authorized by the Act to execute and to enter into this Agreement and to
undertake the transactions contemplated herein and to carry out its obligations
hereunder.

       (b) The Issuer has all requisite power, authority and legal right to
execute and deliver the Bond Documents to which it is a party and all other
instruments and documents to be executed and delivered by the Issuer pursuant
thereto, to perform and observe the provisions thereof and to carry out the
transactions contemplated by the Bond Documents. All corporate action on the
part of the Issuer which is required for the execution, delivery, performance
and observance by the Issuer of the Bond Documents has been duly authorized and
effectively taken, and such execution, delivery, performance and observation by
the Issuer do not contravene applicable law or any contractual restriction
binding on or affecting the Issuer.

       (c) The Issuer has duly approved the issuance of the Bonds and the loan
of the proceeds thereof to the Company for the Acquisition of the Project; no
other authorization or approval or other

                                      -4-
<PAGE>   5

action by, and no notice to or filing with, any governmental authority or
regulatory body is required as a condition to the performance by the Issuer of
its obligations under any Bond Documents.

       (d) This Agreement is, and each other Bond Document to which the Issuer
is a party when delivered will be, legal valid and binding special obligations
of the Issuer enforceable against the Issuer in accordance with its terms.

       (e) There is no default of the Issuer in the payment of the principal of
or interest on any of its indebtedness for borrowed money or under any
instrument or instruments or agreements under and subject to which any
indebtedness for borrowed money has been incurred which does or could affect the
validity and enforceability of the Bond Documents or the ability of the Issuer
to perform its obligations thereunder, and no event has occurred and is
continuing under the provisions of any such instrument or agreement which
constitutes or, with the lapse of time or the giving of notice, or both, would
constitute such a default.

       (f) With respect to the Bonds, there are no other obligations of the
Issuer that have been, are being or will be sold (i) at substantially the same
time, (ii) under a common plan of marketing, and (iii) at substantially the same
rate of interest.

       (g) There is pending or, to the knowledge of the undersigned officers of
the Issuer, threatened no action or proceeding before any court, governmental
agency or arbitrator to restrain or enjoin the issuance or delivery of the Bonds
or the collection of any revenues pledged under the Indenture, (ii) in any way
contesting or affecting the authority for the issuance of the Bonds or the
validity of any of the Bond Documents, or (iii) in any way contesting the
existence or powers of the Issuer.

       (h) In connection with the authorization, issuance and sale of the Bonds,
the Issuer has complied with all provisions of the Constitution and laws of the
State, including the Act.

       (i) The Issuer has not assigned or pledged and will not assign or pledge
its interest in this Agreement for any purpose other than to secure the Bonds
under the Indenture. The Bonds constitute the only bonds or other obligations of
the Issuer in any manner payable from the revenues to be derived from this
Agreement, and except for the Bonds, no bonds or other obligations have been or
will be issued on the basis of this Agreement.

       (j) The Issuer is not in default under any of the provisions of the laws
of the State, where any such default would affect the issuance, validity or
enforceability of the Bonds or the transactions contemplated by this Agreement
or the Indenture.

       Section 2.2. Representations by the Company. The Company represents and
warrants as follows:

       (a) The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the state of North Carolina, is in good
standing under the laws of the State, and has corporate and other legal power
and authority to enter into and to perform the

                                      -5-
<PAGE>   6

agreements and covenants on its part contained in the Bond Documents to which it
is a party, and has duly authorized the execution, delivery and performance of
the Bond Documents to which it is a party and has duly approved the Bond
Documents.

       (b) The execution and delivery of the Bond Documents to which it is a
party, consummation of the transactions contemplated hereby and thereby and by
the Bond Documents to which it is not a party, and the fulfillment of or
compliance with the terms and conditions hereof and thereof will not conflict
with or constitute a breach of or a default under the Company's articles of
incorporation or bylaws or any agreement or instrument to which the Company is a
party or any existing law, administrative regulation, court order or consent
decree to which the Company is subject, or by which it or any of its property is
bound.

       (c) There is no action, suit, proceeding, inquiry or investigation, at
law or in equity, before or by any court, public board or body, pending or
threatened against or affecting the Company or any of its officers, nor to the
best knowledge of the Company is there any basis therefor, wherein an
unfavorable decision, ruling or finding would materially adversely affect the
transactions contemplated by this Agreement or that would adversely affect in
any way, the validity or enforceability of any of the Bond Documents or any
other agreement or instrument to which the Company is a party and that is to be
used or contemplated for use in the consummation of the transactions
contemplated hereby.

       (d) No further authorizations, consents or approvals of governmental
bodies or agencies are required in connection with the execution and delivery by
the Company of this Agreement or the other Bond Documents to which the Company
is a party or in connection with the carrying out by the Company of its
obligations under this Agreement or the other Bond Documents to which the
Company is a party.

       (e) The financing of the Project as provided under this Agreement, and
commitments therefor made by the Issuer have induced the Company to expand or
locate its operations in the jurisdiction of the Issuer.

       (f) The Company anticipates that upon completion of the Acquisition of
the Project, the Company will operate the Project as a "project" within the
meaning of the Act until the Bonds have been paid in full.

       (g) The Project is of the type authorized and permitted by the Act, and
the Project is substantially the same in all material respects to that described
in the notice of public hearing published in The Globe Gazette (Mason City,
Iowa) on November 28, 1994 and The Des Moines Register on December 1, 1994.

       (h) The Project will be acquired, constructed and installed and will be
operated by the Company in such manner as to conform with all applicable zoning,
planning, building, environmental and other regulations of the governmental
authorities having jurisdiction over the Project.

                                      -6-
<PAGE>   7

       (i) The Company will cause all of the proceeds of the Bonds to be applied
solely to the payment of Costs of the Project.

       (j) The Company has taken no action, and has not omitted to take any
action, which action or omission to take action would in any way affect or
impair the excludability of interest on the Bonds from gross income of the
Holders thereof for federal income tax purposes.

       (k) The Company presently in good faith estimates the Cost of the Project
to equal or exceed the original principal amount of the Bonds.

       (l) The Project will be located wholly within Cerro Gordo County, Iowa.

       (m) The representations and warranties contained in Exhibit C and made a
part hereof are true and complete.

                                   ARTICLE III

                           ACQUISITION OF THE PROJECT

       Section 3.1. Agreement to Undertake and Complete the Project. The Company
covenants and agrees to undertake and complete the Acquisition of the Project.
Upon written request of the Issuer or the Trustee, the Company agrees to make
available to the Issuer and the Trustee (for review and copying) all the then
current Plans and Specifications for the Project.

       The Company agrees to cause the Project to be completed as soon as may be
practicable and to cause all proceeds of the Bonds, including investment
earnings, to be expended no later than three years from the Issue Date. For
Costs of the Project incurred prior to receipt by the Issuer of the proceeds of
the Bonds, the Company agrees to advance all funds necessary for such purpose.
Such advances may be reimbursed from the Initial Fund to the extent permitted by
Section 3.2.

       The Company shall obtain or cause to be obtained all necessary permits
and approvals for the Acquisition, operation and maintenance of the Project.

       Section 3.2. Disbursements from the Initial Fund. In the Indenture, the
Issuer has authorized and directed the Trustee to use the moneys in the Initial
Fund for payment or reimbursement to the Company of the Costs of the Project.

       Each payment for a Cost of the Project shall be made only upon the
receipt by the Trustee and, upon written request therefor, the Issuer of a
requisition and certificate, substantially in the form attached hereto as
Exhibit B and signed by the Company Representative, certifying:

       (a) the requisition and certificate number;

       (b) the payee, which may be the Issuer or the Trustee for the payment of
the fees and expenses of the Issuer or the Trustee, as the case may be, and
which may be the Company in the case

                                      -7-
<PAGE>   8

of (i) work performed by the Company's personnel, or (ii) payments advanced
by the Company for the Project;

       (c) the amount to be paid;

       (d) that the payment is due, is a proper charge against the Initial Fund,
and has not been the basis for any previous withdrawal from the Initial Fund;

       (e) that all funds being requisitioned shall be used in compliance with
the Code and the Tax Regulations promulgated thereunder, and that substantially
all such funds shall be used for the acquisition, construction or installation
of property of a character subject to the allowance for depreciation as
prescribed by Section 144(a)(1)(A) of the Code and the Tax Regulations
promulgated thereunder. The Company agrees, however, that it will not request
any such disbursement which, if paid, would result in (i) less than
substantially all (at least ninety-five percent (95%)) of the proceeds of the
Bonds being used to provide land or property subject to the allowance for
depreciation under Section 167 of the Code, constituting the Project, (ii) less
than all of the proceeds of the Bonds being used to provide the Project under
the Act, or (iii) the inclusion of the interest on any of the Bonds in the gross
income of any Holder for purposes of federal income taxation (as long as such
Holder is not a "related person" or a "substantial user" of the Project as such
terms are used in Section 144 of the Code); and

       (f) that no Event of Default, as defined in Section 10.1 of this
Agreement, has occurred which has not been waived and that the Company is not
aware of any then existing event or condition which, with the passage of time,
would constitute an Event of Default under Section 10.1.

       Interest on the Bonds and all legal, consulting and issuance expenses
shall be set forth separately in any requisition and certificate requesting
payment therefor. Such requisitions and certificates shall be consecutively
numbered. Upon request, the Company shall furnish the Issuer or the Trustee with
copies of invoices or other appropriate documentation supporting payments or
reimbursements requested pursuant to this Section. The Issuer and the Trustee
may rely conclusively upon any statement made in any such requisition and
certificate.

       Section 3.3. Establishment of Completion Date and Certificate of
Completion. The Completion Date shall be the date on which the Company
Representative signs and delivers to the Trustee a certificate stating that,
except for amounts retained by the Trustee for Costs of the Project not then due
and payable, or the liability for which the Company is, in good faith,
contesting or disputing, (a) the Project has been completed to the satisfaction
of the Company, and all labor, services, materials and supplies used in such
Acquisition have been paid for, and (b) the Project is suitable and sufficient
for the efficient operation as a "project" (as defined in the Act).

       Notwithstanding the foregoing, such certificate may state that it is
given without prejudice to any rights against third parties which exist at the
date of such certificate or which may subsequently come into being.

                                      -8-
<PAGE>   9

       Section 3.4. Closeout of Initial Fund; Disposition of Balance in Initial
Fund. All moneys and any unliquidated investments remaining in the Initial Fund
on the Completion Date and after payment in full of the Costs of the Project
(except for costs not then due and payable for the payment of which the Trustee
shall have retained amounts as hereinafter provided) shall, as soon as
practicable after the Completion Date, and no later than ninety days thereafter,
at the direction of the Company, be delivered to the Trustee for deposit in the
Surplus Fund. The Trustee shall, at the direction of the Company Representative,
retain moneys in the initial Fund for payment of Costs of the Project not then
due and payable. Any balance of such retained funds remaining after full payment
of such Costs of the Project shall at the direction of the Company be delivered
to the Trustee for deposit in the Surplus Fund to be applied to the redemption
of Bonds in accordance with the terms of the Indenture.

       Section 3.5. Company Required to Pay Costs in Event Initial Fund
Insufficient. If the moneys in the Initial Fund available for payment of the
Costs of the Project should not be sufficient to make such payments in full, the
Company agrees to pay directly (or to deposit moneys in the Initial Fund for the
payment of) such costs of completing the Project as may be in excess of the
moneys available therefor in the Initial Fund. THE ISSUER DOES NOT MAKE ANY
WARRANTY OR REPRESENTATION (EITHER EXPRESS OR IMPLIED) THAT THE MONEYS DEPOSITED
INTO THE INITIAL FUND AND AVAILABLE FOR PAYMENT OF THE COSTS OF THE PROJECT,
UNDER THE PROVISIONS OF THIS AGREEMENT, WILL BE SUFFICIENT TO PAY ALL OF THE
COSTS OF THE PROJECT. If, after exhausting the moneys in the Initial Fund for
any reason (including, without limitation, losses on investments made by the
Trustee under the Indenture), the Company pays, or deposits moneys in the
Initial Fund for the payment of, any portion of the Costs of the Project
pursuant to the provisions of this Section, the Company shall not be entitled to
any reimbursement therefor from the Issuer or from the Trustee, nor shall it be
entitled to any diminution of the amounts payable under Section 5.2.

       Section 3.6. Company and Issuer Representatives and Successors. At or
prior to the initial sale of the Bonds, the Company and the Issuer shall appoint
a Company Representative and an Issuer Representative, respectively, for the
purpose of taking all actions and delivering all certificates required to be
taken and delivered by the Company Representative and the Issuer Representative
under the provisions of this Agreement. The Company and the Issuer,
respectively, may appoint alternate Company Representatives and alternate Issuer
Representatives to take any such action or make any such certificate if the same
is not taken or made by the Company Representative or the Issuer Representative.
In the event any of such persons, or any successor appointed pursuant to the
provisions of this Section, should resign or become unavailable or unable to
take any action or deliver any certificate provided for in this Agreement,
another Company Representative or alternate Company Representative, or another
Issuer Representative or alternate Issuer Representative, shall thereupon be
appointed by the Company or the Issuer, respectively. If the Company or the
Issuer fails to make such designation within ten (10) days following the date
when the then incumbent Company Representative or Issuer Representative resigns
or becomes unavailable or unable to take any such actions, the President or any
Vice President of the Company, or the Chairman, Vice Chairman or Executive
Director of the Issuer, shall serve as the Company Representative or the Issuer
Representative, respectively.

                                      -9-
<PAGE>   10

       Whenever the provisions of this Agreement require the Company's approval
or require the Issuer or the Trustee to take some action at the request or
direction of the Company, the Company Representative shall make, in writing,
such approval or such request or direction unless otherwise specified in this
Agreement. The Company shall have no complaint against the Issuer or the Trustee
as a result of any action so taken with the written approval of or at the
written direction of the Company Representative.

       Section 3.7. Investment of Moneys in Funds. The Trustee may invest or
reinvest any moneys held pursuant to the Indenture to the extent permitted by
Section 4.7 of the Indenture and by law (but subject to the provisions of
Section 8.9(a) hereof), in Permitted Investments, as defined in the Indenture,
as directed by a Company Representative.

       Any such securities may be purchased at the offering or market price
thereof at the time of such purchase.

       The Trustee may make any and all such investments through its own bond
department or trust investments department. Any interest accruing on or profit
realized from the investment of any moneys held as part of the Initial Fund
shall be credited to the Initial Fund, and any loss resulting from such
investment shall be charged to the Initial Fund. Any interest accruing on or
profit realized from the investment of any moneys held as a part of the Bond
Fund shall be credited to the Bond Fund, and any loss resulting from such
investment shall be charged to the Bond Fund. Neither the Issuer nor the Trustee
shall be liable for any loss resulting from any such investments, provided the
Trustee has performed its respective obligations under Section 4.7 of the
Indenture in accordance with Section 7.1(b) of the Indenture. For the purposes
of this Section, any interest-bearing deposits, including certificates of
deposit, issued by or on deposit with the Trustee shall be deemed to be
investments and not deposits.

       Section 3.8. Plans and Specifications. The Company shall maintain a set
of Plans and Specifications at the Project which shall be available to the
Issuer and the Trustee for inspection and examination during the Company's
regular business hours, and the Issuer, the Trustee and the Company agree that
the Company may supplement, amend and add to the Plans and Specifications, and
that the Company shall be authorized to omit or make substitutions for
components of the Project, without the approval of the Issuer and the Trustee,
provided that no such change shall be made which shall be contrary to any of the
covenants set forth in Section 2.2 hereof, including the representations and
warranties contained in Exhibit C hereto. If any such change would render
materially incorrect or inaccurate the description of the initial components of
the Project as set forth in Exhibit A to this Agreement, the Company shall
deliver to the Issuer and the Trustee an opinion of Bond Counsel to the effect
that such change will not cause the interest on the Bonds to be includable in
the gross income of the owners thereof for federal income tax purposes, and
thereafter, the Company and the Issuer shall amend such Exhibit A to reflect
such change. No approvals of the Issuer and the Trustee shall be required for
the Acquisition of the Project or for the solicitation, negotiation, award or
execution of contracts relating thereto.

                                      -10-
<PAGE>   11

                                   ARTICLE IV

                              ISSUANCE OF THE BONDS

       Section 4.1. Agreement to Issue the Bonds. To provide funds for the
Acquisition of the Project, the Issuer agrees that it will sell, issue and
deliver the Bonds in the aggregate principal amount of $3,000,000 to the initial
purchasers thereof.

       Section 4.2. No Third-Party Beneficiary. It is specifically agreed
between the parties executing this Agreement that it is not intended by any of
the provisions of any part of this Agreement to establish in favor of the public
or any member thereof, other than as expressly provided herein or as
contemplated in the Indenture, the rights of a third-party beneficiary
hereunder, or to authorize anyone not a party to this Agreement to maintain a
suit for personal injuries or property damage pursuant to the terms or
provisions of this Agreement. The duties, obligations and responsibilities of
the parties to this Agreement with respect to third parties shall remain as
imposed by law.

                                    ARTICLE V

                            LOAN; PAYMENT PROVISIONS

       Section 5.1. Loan of Proceeds. The Issuer agrees, upon the terms and
conditions contained in this Agreement and the Indenture, to lend to the Company
the proceeds received by the Issuer from the sale of the Bonds. The loan shall
be made by depositing the accrued interest, if any, from the initial sale of the
Bonds into the Bond Fund and the remainder of said proceeds in the Initial Fund
in accordance with Section 4.5 of the Indenture. Such proceeds shall be
disbursed to or on behalf of the Company as provided in Section 3.2.

       Section 5.2. Amounts Payable. The Company hereby agrees to repay the loan
made pursuant to this Agreement by making the following payments:

       (a) The Company shall pay to the Trustee in immediately available funds
for the account of the Issuer for deposit into the Bond Fund on or before any
Interest Payment Date for the Bonds or any other date that any payment of
interest, premium, if any, or principal is required to be made in respect of the
Bonds pursuant to the Indenture, until the principal of, premium, if any, and
interest on the Bonds shall have been fully paid or provision for the payment
thereof shall have been made in accordance with the Indenture, a sum which,
together with any Eligible Funds available for such payment in the Bond Fund,
will enable the Trustee to pay the amount payable on such date as principal of
(whether at maturity or upon redemption or acceleration or otherwise), premium,
if any, and interest on the Bonds as provided in the Indenture; provided,
however, that the obligation of the Company to make any payment hereunder shall
be deemed satisfied and discharged to the extent of the corresponding payment
made by the Credit Issuer under the Credit Facility.

       It is understood and agreed that all payments payable by the Company
under this subsection (a) are assigned by the Issuer to the Trustee for the
benefit of the Holders. The Company assents to

                                      -11-
<PAGE>   12

such assignment. The Issuer hereby directs the Company and the Company hereby
agrees to pay to the Trustee at the principal corporate trust office of the
Trustee all payments payable by the Company pursuant to this subsection (a).

       (b) The Company will also pay the reasonable fees and expenses of the
Issuer, the Trustee, the Tender Agent, the Paying Agent, the Placement Agent,
the Remarketing Agent and the Registrar under the Indenture and all other
amounts which may be payable to the Trustee, Paying Agent, Registrar or the
Tender Agent under Section 7.2 of the Indenture, and the reasonable fees and
expenses of the Remarketing Agent, such fees and expenses to be paid when due
and payable by the Company directly to the Trustee, Tender Agent, Paying Agent,
Registrar and Remarketing Agent, respectively, for their own account.

       (c) The Company will also pay when due and payable the reasonable fees
and expenses of the Issuer related to the issuance of the Bonds, including
without limitation, attorneys' fees and expenses.

       (d) The Company covenants, for the benefit of the Holders, to pay or
cause to be paid, to the Paying Agent, such amounts as shall be necessary to
enable the Paying Agent to pay the Purchase Price of Bonds delivered to the
Tender Agent or the Remarketing Agent, as the case may be, for purchase, all as
more particularly described in Section 2.6 of the Indenture; provided, however,
that the obligation of the Company to make any such payment under this
subsection (d) shall be reduced by the amount of moneys available for such
payment described in clauses (1) or (2) of Section 2.6(g) of the Indenture; and
provided, further, that the obligation of the Company to make any payment under
this subsection (d) shall be deemed to be satisfied and discharged to the extent
of the corresponding payment made by the Credit Issuer under the Credit
Facility.

       (e) In the event the Company shall fail to make any of the payments
required in this Section 5.2, the item or installment so in default shall
continue as an obligation of the Company until the amount in default shall have
been fully paid.

       Section 5.3. Unconditional Obligations. The obligation of the Company to
make the payments required by Section 5.2 shall be absolute and unconditional.
The Company shall pay all such amounts without abatement, diminution or
deduction (whether for taxes or otherwise) regardless of any cause or
circumstance whatsoever including, without limitation, any defense, set-off,
recoupment or counterclaim that the Company may have or assert against the
Issuer, the Trustee or any other Person.

       Section 5.4. Prepayments. The Company may prepay all or any part of the
amounts required to be paid by it under Section 5.2, at the times and in the
amounts provided in Article XI for redemption of the Bonds, and in the case of
mandatory redemptions of the Bonds, the Company shall cause to be furnished to
the Issuer such amounts on or prior to the applicable redemption dates.
Prepayment of amounts due hereunder pursuant to this Section 5.4 shall be
deposited in the Bond Fund.

                                      -12-
<PAGE>   13

       Section 5.5. Credits Against Payments. To the extent that principal of or
premium, if any, or interest on the Bonds shall be paid, there shall be credited
against payments required by Section 5.2, an amount equal to the principal of or
premium, if any, or interest on the Bonds so paid. If the principal of and
premium, if any, and interest on the Bonds shall have been paid sufficiently
that payment of the Bonds shall have occurred in accordance with Article V of
the Indenture, then the obligations of the Company pursuant to Section 5.2, ipso
facto, shall be deemed to have been paid in full, and the Company's obligations
under Section 5.2 and this Agreement shall be discharged. Notwithstanding the
foregoing to the extent that principal of or premium, if any, or interest on the
Bonds is paid from drawings under the Credit Facility, there shall be credited
against the unpaid loan payments required by Section 5.2 hereof, an amount equal
to the principal of or premium, if any, or interest on the Bonds so paid.

       Section 5.6. Credit Facility And Alternate Credit Facility. The Company
shall provide for the payment of amounts payable pursuant to Section 5.2(a) and
(d) herein, by the delivery to the Trustee on the Issue Date of the Original
Credit Facility.

       The Company shall be entitled to terminate the Credit Facility as
provided therein and in the Indenture and shall be entitled to provide an
Alternate Credit Facility under certain circumstances as provided in the
Indenture.

       Section 5.7. Interest Rate Determination Method. The Company is hereby
granted the right to designate from time to time changes in the Interest Rate
Determination Method (as defined in the Indenture) in the manner and to the
extent set f orth in Section 2.4 of the Indenture.

       Section 5.8. Company Approval of Indenture. A copy of the Indenture has
been submitted to the Company for its examination and review. By its execution
of this Agreement, the Company acknowledges that it has approved, has agreed to
and is bound by the provisions of the Indenture. The Company agrees that the
Trustee shall be entitled to enforce and to benefit from the terms and
conditions of this Agreement that relate to it notwithstanding the fact that it
is not a signatory hereto.

                                   ARTICLE VI

                              MAINTENANCE AND TAXES

       Section 6.1. Company's Obligations to Maintain and Repair. The Company
agrees that during the term of this Agreement it will keep and maintain the
Project in good condition, repair and working order, ordinary wear and tear
excepted, at its own cost, and will make or cause to be made from time to time
all necessary repairs thereto (including external and structural repairs) and
renewals and replacements thereto.

       Section 6.2. Taxes and Other Charges. The Company will promptly pay and
discharge or cause to be promptly paid and discharged, as the same become due,
all taxes, assessments, governmental charges or levies and all utility and other
charges incurred in the operation, maintenance, use, occupancy and upkeep of the
Project imposed upon it or in respect of the Project before the same shall
become in default, as well as all lawful claims which, if unpaid, might become

                                      -13-
<PAGE>   14

a lien or charge upon such property and assets or any part thereof, except such
that are contested in good faith by the Company for which the Company has
maintained adequate reserves satisfactory to the Credit Issuer, or in the
absence of any Credit Issuer, satisfactory to the Issuer and the Trustee.

                                   ARTICLE VII

              INSURANCE, EMINENT DOMAIN AND DAMAGE AND DESTRUCTION

       Section 7.1. Insurance. The Company will during the term of this
Agreement and at all times while any Bonds are outstanding continuously insure
the Project against such risks as are customarily insured against by businesses
of like size and type, paying as the same become due all premiums in respect
thereof. In addition the Company shall comply, or cause compliance, with
applicable worker's compensation laws of the State.

       Section 7.2. Provisions Respecting Eminent Domain. In case of any damage
to or destruction of all or any part of the Project exceeding $50,000, the
Company shall give prompt written notice thereof to the Issuer and the Trustee.
In case of a taking or proposed taking of all or any part of the Project or any
right therein by Eminent Domain, the party upon which notice of such taking is
served shall give prompt written notice to the other and to the Trustee. Each
such notice shall describe generally the nature and extent of such damage,
destruction, taking, loss, proceedings or negotiations.

       Section 7.3. Damage and Destruction. If at any time while any of the
Bonds are Outstanding, the Project, or any portion thereof, shall be damaged or
destroyed by fire, flood, windstorm or other casualty, or title to, or the
temporary use of, the Project, or any portion thereof, shall have been taken by
the power of Eminent Domain, the Company (unless it shall have exercised its
option to prepay all of the Bonds) shall cause the Net Proceeds from insurance
or condemnation or an amount equal thereto to be used for the repair,
reconstruction, restoration or improvement of the Project. Notwithstanding the
above, so long as the Credit Facility is outstanding, the Company shall comply
with the terms of the Credit Agreement related to the use of insurance proceeds.

                                  ARTICLE VIII

                                SPECIAL COVENANTS

       Section 8.1. Access to the Property and Inspection. The Issuer and the
Trustee, and their respective agents and employees, shall have the right, at all
reasonable times during normal business hours of the Company upon the furnishing
of reasonable notice to the Company under the circumstances, to enter upon and
examine and inspect the Project and to examine and copy the books and records of
the Company insofar as such books and records relate to the Project or the Bond
Documents.

       Section 8.2. Financial Statements. The Company shall, upon request,
deliver to the Trustee and the Issuer as soon as practicable and in any event
within 120 days after the end of each fiscal year of the Company, the financial
reports of the Company for such fiscal year.

                                      -14-
<PAGE>   15

       Section 8.3. Further Assurances and Corrective Instruments.

       (a) Subject to the provisions of the Indenture, the Issuer and the
Company agree that they will, from time to time, execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, such supplements
and amendments hereto and such further instruments as may reasonably be required
for carrying out the intention or facilitating the performance of this
Agreement.

       (b) The Company shall cause this Agreement to be kept recorded and filed
in such manner and in such places as may be required by law to fully preserve
and protect the security of the Holders and the rights of the Trustee and to
perfect the security interest created by the Indenture.

       Section 8.4. Recording and Filing; Other Instruments.

       (a) The Company covenants that it will cause continuation statements to
be filed as required by law in order fully to preserve and to protect the rights
of the Trustee or the Issuer in the assignment of certain rights of the Issuer
under this Agreement and otherwise under the Indenture. The Company covenants
that it will cause Counsel to render an opinion to the Issuer and to the Trustee
not earlier than 60 nor later than 30 days prior to each anniversary date
occurring at five-year intervals after the issuance of the Bonds to the effect
that all Financing Statements, notices and other instruments required by
applicable law, including this Agreement, have been recorded or filed or
re-recorded or re-filed in such manner and in such places required by law in
order to fully preserve and protect the rights of the Trustee in the assignment
of certain rights of the Issuer under this Agreement and otherwise under the
Indenture.

       (b) The Company and the Issuer shall execute and deliver all instruments
and shall furnish all information and evidence deemed necessary or advisable in
order to enable the Company to fulfill its obligations as provided in subsection
(a) of this Section. The Company shall file and re-file and record and re-record
or shall cause to be filed and re-filed and recorded and re-recorded all
instruments required to be filed and re-filed and recorded or re-recorded and
shall continue or cause to be continued the liens of such instruments for so
long as any of the Bonds shall be Outstanding.

       Section 8.5. Exclusion from Gross Income for Federal Income Tax Purposes
of Interest on the Bonds. The Company covenants and agrees that it has not taken
and will not take or cause to be taken, and has not omitted and will not omit or
cause to be omitted, any action which results in interest paid on the Bonds
being included in gross income of the Holders of the Bonds for the purposes of
federal income taxation.

       The Company covenants and agrees that it will take or cause to be taken
all required actions necessary to preserve the exclusion from gross income for
federal income tax purposes of interest on the Bonds; and the Issuer covenants
and agrees that it will take or cause to be taken all required actions to
preserve the exclusion from gross income for federal income tax purposes of
interest on the Bonds.

                                      -15-
<PAGE>   16

       Section 8.6. Indemnity Against Claims. The Company will pay and discharge
and will indemnify and hold harmless the Issuer and the Trustee from any taxes,
assessments, impositions and other charges in respect of the Project. If any
such claim is asserted, or any such lien or charge upon payments, or any such
taxes, assessments, impositions or other charges, are sought to be imposed, the
Issuer will give prompt written notice to the Company and the Trustee; provided,
however, that the failure to provide such notice will not relieve the Company of
the Company's obligations and liability under this Section and will not give
rise to any claim against or liability of the Issuer. The Company shall have the
sole right and duty to assume, and shall assume, the defense thereof, with
counsel acceptable to the person on behalf of which the Company undertakes a
defense, with full power to litigate, compromise or settle the same in its sole
discretion.

       Section 8.7. Release and Indemnification. The Company shall at all times
protect, indemnify and hold the Issuer, the members of the Governing Body, and
the attorneys, agents and employees of the Issuer and the Trustee and its
officers, attorneys, agents and employees harmless against any and all
liability, losses, damages, costs, expenses, taxes, causes of action, suits,
claims, demands and judgments of any nature arising from or in connection with
the Project or the financing of the Project, including, without limitation, all
claims or liability resulting from, arising out of or in connection with the
acceptance or administration of the Bond Documents or the trusts thereunder or
the performance of duties under the Bond Documents or any loss or damage to
property or any injury to or death of any person that may be occasioned by any
cause whatsoever pertaining to the Project or the use thereof, including without
limitation any lease thereof or assignment of its interest in this Agreement,
such indemnification to include the reasonable costs and expenses of defending
itself or investigating any claim of liability and other reasonable expenses and
attorneys' fees incurred by the Issuer, its directors, members, officers,
attorneys, agents and employees and the Trustee and its officers, attorneys,
agents and employees in connection therewith, provided that the benefits of this
Section 8.7 shall not inure to any person other than the Issuer, its directors,
members, officers, attorneys, agents and employees and the Trustee and its
officers, attorneys, agents and employees, and provided further that such loss,
damage, death, injury, claims, demands or causes shall not have resulted from
the gross negligence or willful misconduct of, the Issuer or such directors,
member, officer, attorneys, agent or employee or the Trustee or its officers,
attorneys, agents or employees. The obligations of the Company under this
Section shall survive the termination of this Agreement and the Indenture.
Notwithstanding any other provision of this Agreement or the Indenture to the
contrary, the Company agrees (i) not to assert any claim or institute any action
or suit against the Trustee or its employees arising from or in connection with
any investment of funds made by the Trustee in good faith as directed by a
Company Representative, and (ii) to indemnify and hold the Trustee and its
employees harmless against any liability, losses, damages, costs, expenses,
causes of action, suits, claims, demands and judgment of any nature arising from
or in connection with any such investment.

       Section 8.8. Compliance with Laws. The Company agrees to comply with all
applicable zoning, planning, building, environmental and other regulations of
the governmental authorities having jurisdiction of the Project during the
Company's operation of the Project.

                                      -16-
<PAGE>   17

       Section 8.9. Non-Arbitrage Covenant.

       (a) The Company and the Issuer covenant that they will (i) not take any
action or make any investment or use of the proceeds of the Bonds that would
cause the Bonds to be "arbitrage bonds" within the meaning of Section 148 of the
Code and (ii) comply with the requirements of Section 148 of the Code.

       (b) In the event that all of the proceeds of the Bonds, including the
investment proceeds thereof, are not expended by the date which is six (6)
months following the Issue Date, or if for any other reason a rebate is payable
to the United States pursuant to Section 148 of the Code, the Company shall
calculate, or cause to be calculated, the Rebate Amount (as defined in the
Indenture). The Company agrees to pay the amount so calculated, together with
supporting documentation, to the Trustee so as to permit the Trustee to pay such
rebate to the United States at the times required by the Code. The amount paid
by the Company to the Trustee shall be deposited into the Rebate Fund. The
Company shall maintain or cause to be maintained records of the determinations
of the rebate, if any, pursuant to this Section 8.9(b) until six (6) years after
the retirement of the Bonds. This Section 8.9(b) shall be construed in
accordance with Section 148(f) of the Code, including, without limitation, any
applicable tax regulations promulgated under the Code. Nothing contained in this
Agreement or in the Indenture shall be interpreted or construed to require the
Issuer to pay any applicable rebate, such obligation being the sole
responsibility of the Company.

       Section 8.10. Notice of Determination of Taxability. Promptly after the
Company first becomes aware of any Determination of Taxability or an event that
could trigger a Determination of Taxability, the Company shall give written
notice thereof to the Issuer, the Remarketing Agent and the Trustee.

       Section 8.11. No Purchase of Bonds by Company or Issuer. During the time
a Credit Facility is in effect neither the Company, the Issuer nor any
affiliates of any of them shall purchase any of the Bonds from the Remarketing
Agent except under the circumstances under which the Remarketing Agent may
remarket Bonds to the Company or the Issuer as provided in Section 2.7(d) of the
Indenture.

       Section 8.12. Maintenance of Corporate Existence.

       So long as a Credit Facility is in effect the Company agrees that it will
maintain its corporate existence, will not dissolve or otherwise dispose of all
or substantially all of its assets and will not consolidate with or merge into
another corporation or permit one or more other corporations to consolidate with
or merge into it, except either with the consent of the Credit Issuer or as
provided in the original Credit Agreement; if a Credit Facility is not in
effect, the Company agrees that it will continue to be a corporation either
organized under the laws of or duly qualified to do business as a foreign
corporation in the State, will maintain its corporate existence, will not
dissolve or otherwise dispose of all or substantially all of its assets and will
not consolidate with or merge into another corporation or permit one or more
corporations to consolidate with or merge into it; provided, that the Company
may, without violating the foregoing, consolidate with or merge into another
corporation, or permit one or more corporations to consolidate with or merge
into it, or transfer all

                                      -17-
<PAGE>   18

or substantially all of its assets to another such corporation (and thereafter
dissolve or not dissolve, as the Company may elect) if the corporation surviving
such merger or resulting from such consolidation, or the corporation to which
all or substantially all of the assets of the Company are transferred, as the
case may be:

       (i) is a corporation organized under the laws of the United States of
America, or any state, district or territory thereof, and qualified to do
business in the State;

       (ii) shall expressly in writing assume all of the obligations of the
Company contained in this Agreement;

       (iii) has a consolidated tangible net worth (after giving effect to such
consolidation, merger or transfer) of not less than the consolidated tangible
net worth of the Company and its consolidated subsidiaries immediately prior to
such consolidation, merger or transfer; and

       (iv) provided that no Event of Default has occurred and is continuing
hereunder.

The term "consolidated tangible net worth," as used in this Section, shall mean
the difference obtained by subtracting total consolidated liabilities (not
including as a liability any capital or surplus item) from total consolidated
tangible assets of the Company and all of its consolidated subsidiaries,
computed in accordance with generally accepted accounting principles. Prior to
any such consolidation, merger or transfer the Trustee shall be furnished a
certificate from the chief financial officer of the Company or his/her deputy
stating that in the opinion of such officer none of the covenants in this
Agreement will be violated as a result of said consolidation, merger or
transfer.

       Section 8.13. Duties and Obligations. The Company covenants and agrees
that it will fully and faithfully perform all the duties and obligations that
the Issuer has covenanted and agreed in the Indenture to cause the Company to
perform and any duties and obligations that the Company is required in the
Indenture to perform. The foregoing shall not apply to any duty or undertaking
of the Issuer that by its nature cannot be delegated or assigned.

                                   ARTICLE IX

                           ASSIGNMENT, LEASE AND SALE

       Section 9.1. Restrictions on Transfer of Issuer's Rights. The Issuer
agrees that, except for the assignment of its rights under this Agreement to the
Trustee pursuant to the Indenture, it will not during the term of this Agreement
sell, assign, transfer or convey its interests in this Agreement except as
provided in Section 9.2.

       Section 9.2. Assignment by the Issuer. It is understood, agreed and
acknowledged that the Issuer, as security for payment of the principal of and
premium, if any, and interest on the Bonds, will assign to the Trustee pursuant
to the Indenture, among other things, certain of its rights, title and interests
in and to this Agreement (reserving its rights, however, pursuant to sections of
this

                                      -18-
<PAGE>   19

Agreement providing that notices, reports and other statements be given to
the Issuer and that consents be obtained from the Issuer and also reserving its
rights to reimbursement and payment of costs and expenses under Sections 5.2(b)
and (c), its right of access under Section 8.1, and its rights to
indemnification and non-liability under Sections 8.6, 8.7, 12.6 and 12.7, all of
this Agreement). The Company consents to such assignment and agrees that the
Trustee shall be entitled to enforce this Agreement directly against the Company
as a third party beneficiary hereof.

       Section 9.3. Assignment, Lease or Sale of Project or Assignment of
Agreement by Company. With the prior written consent of the Trustee, the Issuer
and if a Credit Facility is then in effect, the issuer of such Credit Facility
(a) the rights of the Company under this Agreement may be assigned by the
Company and (b) the Project may be leased or sold as a whole or in part by the
Company; provided, however, that (i) no such assignment, lease or sale shall
relieve the Company from primary liability for any of its obligations hereunder,
and in the event of any assignment, lease or sale, the Company shall continue to
remain primarily liable for payments to be made hereunder and for the
performance and observance of the other agreements on its part herein provided
to be performed and observed by it to the same extent as though no assignment,
lease or sale had been made, (ii) each lessee, purchaser or assignee of the
Company's interest in this Agreement shall assume the obligations of the Company
hereunder to the extent of the interest assigned, leased or sold, and the
Company shall, not more than 60 nor less than 30 days prior to the effective
date of any such assignment, lease or sale, furnish or cause to be furnished to
the Issuer and the Trustee a true and complete copy of each such assignment,
lease or purchase contract and assumption of obligations and (iii) prior to any
lease or sale, the Company shall have caused to be delivered to the Issuer and
the Trustee an opinion of Bond Counsel to the effect that such leasing or sale
will not cause interest on the Bonds to be includable in the gross income of the
owners thereof for purposes of federal income taxation. Notwithstanding the
foregoing, the Company shall be relieved of liability under this Agreement
following any such lease or sale, if (A) the Company receives the consent of the
Credit Issuer (if a Credit Facility is then in effect) and the Holders of the
Bonds, and (B) prior to any such release, the Company shall have caused to be
delivered to the Issuer and the Trustee an opinion of Bond Counsel to the effect
that such release of liability will not cause interest on the Bonds to be
includable in the gross income of the owners thereof for purposes of federal
income taxation.

                                    ARTICLE X

                         EVENTS OF DEFAULT AND REMEDIES

       Section 10.1. Events of Default Defined. The term "Event of Default"
shall mean any one or more of the following events:

       (a) Failure by the Company to make any payments required to be paid
pursuant to Section 5.2(a) or to pay the Purchase Price of Bonds as required
pursuant to Section 5.2(d) herein;

       (b) The occurrence of an Event of Default under the Indenture;

                                      -19-
<PAGE>   20

       (c) Any representation by or on behalf of the Company contained in this
Agreement or in any instrument furnished in compliance with or in reference to
this Agreement or the Indenture proves false or misleading in any material
respect as of the date of the making or furnishing thereof;

       (d) Failure by the Company to observe or perform any of its other
covenants, conditions, payments or agreements under this Agreement for a period
of 30 days after written notice, specifying such failure and requesting that it
be remedied, is given to the Company by the Issuer or the Trustee;

       (e) The Company shall (i) apply for or consent to the appointment of, or
the taking of possession by, a receiver, custodian, assignee, sequestrator,
trustee, liquidator or similar official of the Company or of all or a
substantial part of its property, (ii) admit in writing its inability, or be
generally unable, to pay its debts as such debts become due, (iii) make a
general assignment for the benefit of its creditors, (iv) commence a voluntary
case under the Federal Bankruptcy Code (as now or hereafter in effect), (v) file
a petition seeking to take advantage of any other federal or state law relating
to bankruptcy, insolvency, reorganization, arrangement, winding-up or
composition or adjustment of debts, (vi) fail to controvert in a timely or
appropriate manner, or acquiesce in writing to, any petition filed against the
Company in an involuntary case under said Federal Bankruptcy Code, or (vii) take
any corporate action for the purpose of effecting any of the foregoing;

       (f) A proceeding or case shall be commenced, without the application or
consent of the Company, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, arrangement, dissolution, winding-up or composition
or adjustment of debts of the Company, (ii) the appointment of a trustee,
receiver, custodian, assignee, sequestrator, liquidator or similar official of
the Company or of all or any substantial part of its assets, or (iii) similar
relief in respect of the Company under any law relating to bankruptcy,
insolvency, reorganization, arrangement, winding-up or composition or adjustment
of debts and such proceeding or case shall continue undismissed, or an order,
judgment or decree approving or ordering any of the foregoing shall be entered
and continue unstayed and in effect, for a period of 90 days from the
commencement of such proceeding or case or the date of such order, judgment or
decree, or an order for relief against the Company shall be entered in an
involuntary case under said Federal Bankruptcy Code;

       (g) If a Credit Facility is in effect, the Trustee shall have received a
written notice from the Credit Issuer of the occurrence and continuance of an
"Event of Default" (as defined in the Credit Agreement); or

       (h) If a Credit Facility is in effect, the Trustee shall have received a
written notice from the Credit Issuer that amounts which may be drawn upon under
the Credit Facility with respect to interest (other than interest corresponding
to the principal amount of Bonds which have been redeemed) will not be
reinstated following any drawing for such interest.

       Section 10.2. Remedies on Default. Upon the occurrence of an Event of
Default under this Agreement, the Trustee, as assignee of the Issuer, but only
if acceleration of the principal amount of the Bonds has been declared pursuant
to Section 6.2 of the Indenture, shall take any one or more of the following
remedial steps:

                                      -20-
<PAGE>   21

       (a) By written notice declare all payments hereunder immediately due and
payable, whereupon the same shall become immediately due and payable without
presentment, demand, protest or any other notice whatsoever, all of which are
hereby expressly waived by the Company.

       (b) Take whatever other action at law or in equity may appear necessary
or desirable to collect the amounts payable pursuant hereto then due and
thereafter to become due or to enforce the performance and observance of any
obligation, agreement or covenant of the Company under this Agreement, including
the making of any drawing under the Credit Facility.

       In the enforcement of the remedies provided in this Section 10.2, the
Issuer and the Trustee may treat all reasonable expenses of enforcement,
including, without limitation, legal, accounting and advertising fees and
expenses, as additional amounts payable by the Company then due and owing.

       Section 10.3. Application of Amounts Realized in Enforcement of Remedies.
Any amounts collected pursuant to action taken under Section 10.2 shall be paid
to the Trustee and applied in accordance with Section 6.7 of the Indenture.

       Section 10.4. No Remedy Exclusive. No remedy herein conferred upon or
reserved to the Issuer is intended to be exclusive of any other available remedy
or remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Agreement or now or hereafter
existing at law or in equity or by statute. No delay or omission to exercise any
right or power accruing upon an Event of Default under this Agreement shall
impair any such right or power or shall be construed to be a waiver thereof, but
any such right and power may be exercised from time to time and as often as may
be deemed expedient.

       Section 10.5. Agreement to Pay Attorneys' Fees and Expenses. Upon the
occurrence of an Event of Default under this Agreement, if the Issuer or the
Trustee employs attorneys or incurs other expenses for the collection of amounts
payable hereunder or for the enforcement of the performance or observance of any
covenants or agreements on the part of the Company herein contained, whether or
not suit is commenced, the Company agrees that it will on demand therefor pay to
the Issuer or the Trustee or any combination thereof, as the case may be, the
reasonable fees of such attorneys and such other reasonable expenses so incurred
by the Issuer or the Trustee.

       Section 10.6. Issuer and Company to Give Notice of Default. The Issuer
and the Company severally covenant that they will, at the expense of the
Company, promptly give to the Trustee, the Tender Agent, the Remarketing Agent,
the Paying Agent and the Credit Issuer, and to each other, written notice of any
Event of Default under this Agreement of which they shall have actual knowledge
or written notice, but the Issuer shall not be liable for failing to give such
notice.

                                      -21-
<PAGE>   22

                                   ARTICLE XI

                         PREPAYMENTS; PURCHASE OF BONDS

       Section 11.1. Optional Prepayments.

       (a) The Company shall have, and is hereby granted, the option to prepay
the unpaid principal amount hereunder in whole, together with interest thereon
to the date of redemption of the Bonds, at any time by taking, or causing the
Issuer to take, the actions required by the Indenture for the redemption of all
Bonds then outstanding, upon the occurrence of any of the events set forth in
Section 2.18(b) of the Indenture.

       (b) The Company shall have, and is hereby granted, the option to prepay
all or any portion of the unpaid balance hereunder, together with interest
thereon to the date of redemption of the Bonds, at any time by taking, or
causing the Issuer to take, the actions required by the Indenture (i) to
discharge the lien thereof through the redemption, or provision for payment of
redemption of all Bonds then outstanding or (ii) to effect the redemption, or
provision for payment or redemption, of less than all Bonds then outstanding,
pursuant to Section 2.18(a) of the Indenture.

       (c) To make a prepayment pursuant to this Section 11.1, the Company shall
give written notice to the Issuer, the Trustee and the Registrar which shall
specify therein (i) the date of the intended prepayment, which shall not be less
than 45 days from the date any Bonds are to be redeemed from such prepayment,
and (ii) the principal amount to be prepaid and the date or dates on which the
prepayment is to occur. All such prepayments shall be in the amount of the
unpaid amount hereunder if made pursuant to Section 11.1(a) or in the amount of
an Authorized Denomination if made pursuant to Section 11.1(b) and the Company
shall furnish additional funds, if necessary, to make such prepayments in such
amounts. In addition, the Company shall make such additional payments as shall
be necessary to pay any redemption premium on the Bonds in connection with such
redemption.

       Section 11.2. Mandatory Prepayment Upon a Determination of Taxability. In
the event of a Determination of Taxability, the Company shall forthwith, and in
any event within 45 days of any such Determination of Taxability, pay the entire
unpaid principal balance hereunder plus accrued interest thereon to the date of
payment, provided, that, if the Company delivers to the Trustee the opinion of
Bond Counsel described in Section 2.18(c) of the Indenture, which opinion states
that interest on the Bonds will not be includable in the gross income of the
owners thereof if less than all of the Bonds are redeemed, then the Company
shall prepay the Loan in the amount necessary to redeem the amount of Bonds
stated in such opinion.

       The Company hereby agrees to give prompt written notice to the Issuer and
the Trustee of (a) the occurrence of an event that gives or may give rise to a
Determination of Taxability or (b) its receipt of any oral or written advice
from the Internal Revenue Service that an event giving rise to a Determination
of Taxability shall have occurred.

                                      -22-
<PAGE>   23

       Section 11.3. Other Mandatory Prepayment. The Company shall prepay the
entire amount due hereunder, plus accrued interest to the date of redemption of
the Bonds to be made from such prepayment, within forty-five (45) days after the
failure of the Company to deliver to the Trustee the opinion of Bond Counsel
described in Section 2.3(1) of the Indenture.

       Section 11.4. Optional Purchase of Bonds. Subject to the terms of the
Indenture regarding the use of Eligible Funds, the Company may at any time, and
from time to time, furnish moneys to the Tender Agent accompanied by a notice
directing such moneys to be applied to the purchase of Bonds delivered for
purchase pursuant to the terms thereof, which Bonds shall be delivered to the
Trustee for cancellation in accordance with Section 2.8 of the Indenture. The
Company shall deliver to the Remarketing Agent and the Credit Issuer a copy of
any such notice.

       Section 11.5. Relative Priorities. The obligations of the Company in
Sections 11.2 and 11.3 of this Article shall be and remain superior to the
rights, obligations and options of the Company in Section 11.1 of this Article.

       Section 11.6. Prepayment to Include Fees and Expenses. Any prepayment
under this Article shall also include any expenses of prepayment, as well as all
expenses and costs provided for herein.

       Section 11.7. Purchase of Bonds.

       (a) In consideration of the issuance of the Bonds by the Issuer, but for
the benefit of the Holders, the Company has agreed, and does hereby covenant, to
cause the necessary arrangements to be made and to be thereafter continued
whereby the Holders from time to time may deliver, or may be required to deliver
Bonds for purchase and whereby such Bonds shall be so purchased. In furtherance
of the foregoing covenant of the Company, the Issuer, at the request of the
Company, has set forth in the Bonds the terms and conditions relating to the
delivery of Bonds by the Holders thereof for purchase, has set forth in the
Indenture the duties and responsibilities of the Tender Agent with respect to
the purchase of Bonds, and of the Remarketing Agent with respect to the
remarketing of Bonds and has therein provided for the appointment of the Tender
Agent and Remarketing Agent. The Company hereby authorizes and directs the
Tender Agent and the Remarketing Agent to purchase, offer, sell and deliver
Bonds in accordance with the provisions of the Indenture.

       Without limiting the generality of the foregoing covenant of the Company,
and in consideration of the Issuer's having set forth in the Bonds and the
Indenture the aforesaid provisions, the Company covenants, for the benefit of
the Holders, to provide for arrangements to pay, or cause to be paid, such
amounts as shall be necessary to effect the payment of the Purchase Price of
Bonds delivered for purchase, all as more particularly described in the
Indenture.

       (b) Notwithstanding the provisions of subsection (a) of this Section, the
obligations of the Company under subsection (a) of this Section with respect to
the purchase of Bonds shall be terminated on the date the Bonds begin to bear
interest at the Fixed Rate in accordance with the Indenture.

                                      -23-
<PAGE>   24

       (c) In furtherance of the obligations of the Company under subsection (a)
of this Section, the Company shall provide for the payment of its obligations
under said subsection (a) by the delivery of the Original Credit Facility
simultaneously with the original delivery of the Bonds. In order to implement
such undertaking of the Company, the Issuer, at the direction of the Company,
has set forth in the Indenture the terms and conditions relating to drawings
under the Credit Facility to provide moneys for the purchase of Bonds. The
Company hereby authorizes and directs the Trustee to draw moneys under the
Credit Facility in accordance with the provisions of the Indenture to the extent
necessary to provide moneys payable under Section 2.7 of the Indenture if and
when due.

       (d) The Issuer shall have no obligation or responsibility, financial or
otherwise, with respect to the purchase of Bonds or the making or continuation
of arrangements therefor other than as expressly set forth in subsection (a) of
this Section 11.7, except that the Issuer shall generally cooperate with the
Company, the Tender Agent and the Remarketing Agent as contemplated in Section
2.7 of the Indenture.

                                   ARTICLE XII

                                  MISCELLANEOUS

       Section 12.1. Amounts Remaining in Funds. Subject to the provisions of
Article V of the Indenture and as provided in Article IV of the Indenture, it is
agreed by the parties hereto that certain amounts remaining in the Bond Fund or
Bond Purchase Fund upon expiration or earlier termination of this Agreement, as
provided in this Agreement, after payment in full of the Bonds (or provision for
payment thereof having been made in accordance with the provisions of the
Indenture) and all other amounts owing under the Indenture, shall be paid to the
Credit Issuer (if a Credit Facility is in effect and there is any amount then
owing by the Company to the Credit Issuer) and otherwise shall belong to and be
paid to the Company by the Trustee.

       Section 12.2. No Implied Waiver. In the event any provision of this
Agreement should be breached by either party and thereafter waived by the other
party, such waiver shall be limited to the particular breach so waived and shall
not be deemed to waive any other breach thereunder or hereunder.

       Section 12.3. Issuer Representative. Whenever under the provisions of
this Agreement the approval of the Issuer is required or the Issuer is required
to take some action at the request of the Company, such approval shall be made
or such action shall be taken by the Issuer Representative; and the Company and
the Trustee shall be authorized to rely on any such approval or action.

       Section 12.4. Company Representative. Whenever under the provisions of
this Agreement the approval of the Company is required or the Company is
required to take some action at the request of the Issuer, such approval shall
be made or such action shall be taken by the Company Representative; and the
Issuer, the Tender Agent, the Remarketing Agent, the Paying Agent and the
Trustee shall be authorized to rely on any such approval or action.

                                      -24-
<PAGE>   25

       Section 12.5. Notices. Except as otherwise provided herein, it shall be
sufficient service or giving of any notice, request, complaint, demand or other
paper if the same shall be duly mailed by registered or certified mail, postage
prepaid, addressed as set forth below to the Issuer, the Trustee, the Company,
the Remarketing Agent, the Paying Agent, the Tender Agent, the Credit Issuer, if
any, or to any other Person set forth therein. The Issuer, the Company, any
Credit Issuer, the Trustee, the Tender Agent, the Remarketing Agent and the
Paying Agent by notice given hereunder may designate any different addresses to
which subsequent notices, certificates or other communications shall be sent. A
duplicate copy of each notice, certificate or other communication given
hereunder by one party to another shall also be given to each of the other
parties listed herein.

<TABLE>
<S>                               <C>
       To the Issuer:             Iowa Finance Authority
                                  100 East Grand, Suite 250
                                  Des Moines, Iowa 50309
                                  Attention: Chief Financial Officer

       With a copy to:            Dorsey & Whitney P.L.L.P.
                                  801 Grand, Suite 3900
                                  Des Moines, Iowa 50309
                                  Attention: Jeffrey M. Hurlburt

       To the Company:            Dixie Bedding Company
                                  1931 Freeman Mill Road
                                  P.O. Box 5386
                                  Greensboro, North Carolina 27435
                                  Attention: Treasurer

       And a copy to:             Davis, Hockenberg, Wine, Brown,
                                  Koehn & Shors, P.C.
                                  The Financial Center, Suite 2500
                                  666 Walnut Street
                                  Des Moines, Iowa 50309-3993
                                  Attention: Nicholas H. Roby

       To the Credit Issuer:      Wachovia Bank of North Carolina,
                                  National Association
                                  301 North Main Street
                                  Winston-Salem, North Carolina 27150
                                  Attention: International Department
</TABLE>

                                      -25-
<PAGE>   26

<TABLE>
<S>                                                 <C>
       With a copy to:                               Wachovia Bank of North Carolina,
                                                     National Association
                                                     Post Office Box 21048 (27420)
                                                     230 N. Elm Street (27401
                                                     Greensboro, North Carolina
                                                     Attention:           Mr. Howell D. Nelson
                                                                          Vice President

       To the Trustee:                               First-Citizens Bank & Trust Company
                                                     Corporate Trust Department
                                                     2917 Highwoods Boulevard
                                                     Raleigh, North Carolina 27604
                                                     Attention: Corporate Trust Department

       To the Remarketing                            Wachovia Bank of Georgia,
       Agent:                                        National Association

                                                     P.O. Box 4148 (30302)
                                                     191 Peachtree Street, N.E. (30303)
                                                     Atlanta, Georgia
                                                     Attention: Bond & Money Market Group
                                                     Money Market Desk

       To the Paying Agent:                          Wachovia Bank of North Carolina,
                                                     National Association
                                                     301 North Main Street
                                                     Winston-Salem, North Carolina 27150
                                                     Attention: Bond and Money Market
                                                     Group/Bond Operations

       To the Tender Agent:                          Wachovia Bank of North Carolina,
                                                     National Association
                                                     301 North Main Street
                                                     Winston-Salem, North Carolina 27150
                                                     Attention: Bond and Money Market
                                                     Group/Money Market Desk
</TABLE>

       Section 12.6. Issuer, Directors, Attorneys, Officers, Employees and
Agents of Issuer Not Liable. To the extent permitted by law, no recourse shall
be had for the enforcement of any obligation, promise or agreement of the Issuer
contained herein or in the other Bond Documents to which the Issuer is a party
or for any claim based hereon or thereon or otherwise in respect hereof or
thereof against any director, officer, agent, attorney or employee, as such, in
his/her individual capacity, past, present or future, of the Issuer or of any
successor entity, either directly or through the Issuer or any successor entity
whether by virtue of any constitutional provision, statute or rule of law, or by
the enforcement of any assessment or penalty or otherwise. No personal liability
whatsoever shall attach to, or be incurred by, any director, officer, agent,
attorney or employee as such, past,

                                      -26-
<PAGE>   27
present or future, of the Issuer or any successor entity, either directly or
through the Issuer or any successor entity, under or by reason of any of the
obligations, promises or agreements entered into between the Issuer and the
Company, whether herein contained or to be implied herefrom as being
supplemental hereto; and all personal liability of that character against every
such director, officer, agent, attorney and employee is, by the execution of
this Agreement and as a condition of, and as part of the consideration for, the
execution of this Agreement, expressly waived and released.

       Notwithstanding any other provision of this Agreement, the Issuer shall
not be liable to the Company or the Trustee or any other person for any failure
of the Issuer to take action under this Agreement unless the Issuer (a) is
requested in writing by an appropriate person to take such action, (b) is
assured of payment of, or reimbursement for, any reasonable expenses in such
action, and (c) is afforded, under the existing circumstances, a reasonable
period to take such action. In acting under this Agreement, or in refraining
from acting under this Agreement, the Issuer may conclusively rely on the advice
of its counsel.

       Section 12.7. No Liability of Issuer; No Charge Against Issuer's Credit.
Any obligation of the Issuer created by, arising out of, or entered into in
contemplation of this Agreement, including the Bonds, shall not impose a debt or
pecuniary liability upon the Issuer, the State or any political subdivision
thereof or constitute a charge upon the general credit or taxing powers of any
of the foregoing. Any such obligation shall be payable solely out of the
revenues and any other moneys derived hereunder and under the Indenture and the
Credit Facility, except (as provided in the Indenture and in this Agreement) to
the extent it shall be paid out of moneys attributable to the proceeds of the
Bonds or the income from the temporary investment thereof.

       The principal of, premium, if any, and interest on the Bonds shall be
payable solely from the funds pledged for their payment in accordance with the
Indenture and from payments made pursuant to the Credit Facility.

       Section 12.8. If Performance Date Not a Business Day. If the last date
for performance of any act or the exercising of any right, as provided in this
Agreement, shall not be a Business Day, such payment may be made or act
performed or right exercised on the next succeeding Business Day.

       Section 12.9. Binding Effect. This Agreement shall inure to the benefit
of and shall be binding upon the Issuer, the Company, and their respective
successors and assigns. No assignment of this Agreement by the Company shall
relieve the Company of its obligations hereunder except to the extent otherwise
provided in Section 9.3 hereof.

       Section 12.10. Severability. In the event any provision of this Agreement
shall be held invalid or unenforceable by any court of competent jurisdiction,
such holding shall not invalidate or render unenforceable any other provision
hereof.

       Section 12.11. Amendments, Changes and Modifications. Subsequent to the
issuance of the Bonds and prior to payment of the Bonds, this Agreement may not
be effectively amended, changed, modified, altered or terminated except in
accordance with the Indenture.

                                      -27-
<PAGE>   28

       Section 12.12. Execution in Counterparts. This Agreement may be executed
in several counterparts, each of which, taken together, shall be an original and
all of which shall constitute but one and the same instrument.

       Section 12.13. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State.

       IN WITNESS WHEREOF, the Issuer and the Company have caused this Agreement
to be executed in their respective legal names and their respective corporate
seals to be hereunto affixed, and the signatures of duly authorized persons to
be attested, all as of the date first above written.

                                                    IOWA FINANCE AUTHORITY

                                                    By:    /S/ James W. Balmer
                                                           -------------------
                                                    Title: Chairman

[SEAL]

ATTEST:

/S/ Ted R. Chaplin
------------------
Title: Secretary

                                                     DIXIE BEDDING COMPANY

                                                     By:    /S/
                                                            --------------------
                                                     Title: President

[SEAL]

ATTEST:

/S/ Charles W. Johnson
----------------------
Title: Secretary

                                      -28-

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