Document:

<PAGE>
                                                                   Exhibit 10.38

                                    AGREEMENT

                                     BETWEEN

                     THE SIMMONS MANUFACTURING COMPANY, LLC

                                       AND

                       UNITED FURNITURE WORKERS OF AMERICA

                               LOCAL 262, AFL-CIO

                                  APRIL 1, 2002

                                       TO

                                  APRIL 1, 2004

<PAGE>

                                    AGREEMENT
       UNITED FURNITURE WORKERS OF AMERICA -- LOCAL #262 A.F.L. -- C.I.O.
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                                TABLE OF CONTENTS
                                -----------------

                                                                        PAGE
                                                                        ----

ARTICLE I    RECOGNITION AND UNION SECURITY................................1
---------

    1.01     Purpose.......................................................1
    1.02     Exclusive Bargaining Representative...........................1
    1.03     UNION Security................................................2
    1.04     UNION Representative Seniority................................4
    1.05     Check Off.....................................................4

ARTICLE II   GRIEVANCE AND ARBITRATION PROCEDURE...........................5
----------

    2.01     ..............................................................5
    2.02     ..............................................................8
    2.03     ..............................................................8
    2.04     ..............................................................8
    2.05     ..............................................................8

ARTICLE III  BARGAINING COMMITTEE..........................................8
-----------

    3.01     ..............................................................8

ARTICLE IV   HOURS OF WORK AND PREMIUM PAY................................10
----------

    4.01     Working Hours................................................10
    4.02     Lunch Periods................................................10
    4.03     Rest Periods.................................................11
    4.04     Overtime.....................................................11

ARTICLE V    WAGES........................................................14
---------

    5.01     Hiring Rate and Progression..................................14
    5.02     Wage Rates...................................................14
    5.03     Mechanics....................................................16
    5.04     Inventory....................................................19
    5.05     Shift Premium................................................19
    5.06     Report-In-Pay................................................19
    5.07     Pay for Additional Skills....................................19
    5.08     Computation of Quarterly Average Hourly Earnings Rates.......20
    5.09     .............................................................21
    5.10     .............................................................21
    5.11     Payment During Treatment of Work Related Accident............21

                                       i
<PAGE>
                                    AGREEMENT
       UNITED FURNITURE WORKERS OF AMERICA -- LOCAL #262 A.F.L. -- C.I.O.
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                                TABLE OF CONTENTS
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                                                                        PAGE
                                                                        ----

ARTICLE VI       STANDARD ALLOWED HOURS
                 (S.A.H.) SETTING FORMULA.................................22

    6.01     .............................................................22
    6.02     Productivity.................................................23
    6.03     .............................................................25

ARTICLE VII      SENIORITY................................................26
-----------

    7.01     Purpose......................................................26
    7.02     Seniority....................................................26
    7.03     Establishment of New Classification..........................27
    7.04     Company and Union Committee..................................27
    7.05     Employee Training............................................28
    7.06     Lay Offs.....................................................29
    7.07     Furlough.....................................................30
    7.08     Reduction of Hours...........................................31
    7.09     Open Positions...............................................33
    7.10     Personnel Action.............................................34
    7.11     Classification Phase Out.....................................35

ARTICLE VIII .............................................................35
------------

    8.01     Leave of Absence.............................................35
    8.02     Jury Duty....................................................36

ARTICLE IX       PAID VACATIONS...........................................36
----------

    9.01     .............................................................36
    9.02     .............................................................37
    9.03     .............................................................37
    9.04     .............................................................37
    9.05     .............................................................38
    9.06     .............................................................38
    9.07     .............................................................39
    9.08     .............................................................39
    9.09     .............................................................39
    9.10     .............................................................39

                                       ii
<PAGE>
                                    AGREEMENT
       UNITED FURNITURE WORKERS OF AMERICA -- LOCAL #262 A.F.L. -- C.I.O.
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                                TABLE OF CONTENTS
                                -----------------

                                                                        PAGE
                                                                        ----

ARTICLE X         PAID HOLIDAYS...........................................39
---------

    10.01    .............................................................39

ARTICLE XI        MILITARY CLAUSE.........................................41
----------

    11.01    .............................................................41

ARTICLE XII       INSURANCE PROGRAM.......................................41
-----------

ARTICLE XIII      PENSION ................................................43
------------

    13.01    .............................................................43

ARTICLE XIV       MANAGEMENT RIGHTS CLAUSE................................43
-----------

    14.01    .............................................................43

ARTICLE XV        NO STRIKE  --  NO LOCKOUT...............................45
----------

    15.01    .............................................................45

ARTICLE XVI       BULLETIN BOARDS.........................................47
-----------

    16.01    .............................................................47

ARTICLE XVII      SAFETY AND SANITATION...................................47
-----------

    17.01    .............................................................47

ARTICLE XVIII     LEGAL CONFORMITY........................................48
-------------

    18.01    .............................................................48
    18.02    .............................................................48

ARTICLE XIX       MISCELLANEOUS...........................................48
-----------

    19.01    Sick Days....................................................48

ARTICLE XX        TERMINATION, MODIFICATION AND RENEWAL...................49
----------

    20.01    .............................................................49
    20.02    .............................................................50

                                      iii
<PAGE>
                                    AGREEMENT
       UNITED FURNITURE WORKERS OF AMERICA -- LOCAL #262 A.F.L. -- C.I.O.
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                                TABLE OF CONTENTS
                                -----------------

                                                                        PAGE
                                                                        ----

APPENDIX A ..............................................................A-1

APPENDIX B ..............................................................B-1

APPENDIX C ..............................................................C-1

APPENDIX D ..............................................................D-1

                                       iv
<PAGE>

         This agreement, entered into this 1st day of April, 2002, by and
between THE SIMMONS MANUFACTURING COMPANY, LLC, a Delaware corporation, for and
on behalf of its plant in San Leandro, California, hereinafter referred to as
the COMPANY,

                                       and

         The UNITED FURNITURE WORKERS OF AMERICA, LOCAL #262, A.F.L.-C.I.O, on
behalf of the COMPANY's employees in the San Leandro Works, hereinafter referred
to as the UNION

                                   WITNESSETH

         NOW, THEREFORE, in consideration of the promises of mutual covenants
and agreements of the parties hereinafter set forth, the parties do hereby agree
as follows:

ARTICLE I                  RECOGNITION AND UNION SECURITY

1.01     PURPOSE The intent and purpose of the parties is to promote efficiency,
increase production and improve and achieve harmonious industrial and economic
relationships between the employees and the COMPANY; and to that end the parties
express their intention to cooperate in fulfilling their mutual obligation in
this basic agreement covering wages, hours of work and other terms and
conditions of employment applicable to the employees covered by this collective
bargaining agreement.

1.02     EXCLUSIVE BARGAINING REPRESENTATIVE

The COMPANY recognizes the UNION as the exclusive bargaining representative for
all production and maintenance employees working at its San Leandro, California
plant, including the Flotation Division, covered by this agreement for the
purpose of collective bargaining, excluding executives, sales employees, office
workers, supervisors, foremen, timekeepers, watchmen and Teamsters (this term
does not include inside plant truckers). The COMPANY does not want nor will it
permit supervisors, including foremen, to do any production or

<PAGE>

maintenance work. However, this provision shall not be construed in such fashion
as to deny such personnel the right to instruct, experiment, check or test
equipment to determine fitness or do critically necessary work when required to
meet customer demands limiting to no more than forty-five (45) minutes in a day.
This clause will not be abused or misused.

1.03     UNION SECURITY

         A.       It is further understood and agreed that all such employees
                  shall, after 30 days, become members of the UNION and, as a
                  condition of continued employment, maintain such membership in
                  good standing for the life of this agreement.

         B.       The COMPANY shall have the sole and exclusive right to hire
                  employees. To assure maximum harmonious relations and in order
                  to obtain the best qualified employees, the COMPANY shall
                  employ only such personnel as meet the minimum requirement as
                  to training, experience, and ability as recognized by
                  prevailing standards.

         C.       New employees shall be considered probationary employees until
                  they have completed the probationary period of sixty (60)
                  days. The parties agree that the sixty (60) days may be
                  extended to ninety (90) by mutual agreement. Such mutual
                  agreement will not be unreasonably withheld when the COMPANY
                  has cause for extension. During the probationary period, an
                  employee may be discharged at the discretion of the COMPANY
                  with or without cause.

         D.       The UNION agrees to give the COMPANY every reasonable
                  assistance in recruiting employees meeting the above
                  standards.

         E.       PART-TIME AND TEMPORARY EMPLOYEES

                  1.       a.       Part-time and temporary employees will
                                    receive no benefits, holidays or vacation.
                                    At the time the COMPANY determines that a
                                    temporary position is full-time or at the
                                    end of ninety (90) days (whichever comes
                                    first) the temporary job will be filled in
                                    accordance with the contract.

                                       2
<PAGE>

                           b.       The COMPANY will not have part-time or
                                    temporary employees working if regular
                                    employees are not working all scheduled
                                    hours per week unless the regular employees
                                    have refused to work on the job being
                                    performed by the part-time or temporary
                                    employees.

                           c.       The COMPANY will have the right to hire
                                    part-time employees on a permanent basis
                                    without paying benefits, holidays or
                                    vacation. Part-time employees will pay union
                                    dues as designated by the UNION. Part-time
                                    employees will have no seniority rights in
                                    the contract. Probationary period will apply
                                    to permanent part-time positions.

                           d.       A part-time employee is one who is hired to
                                    regularly work less than the number of hours
                                    established as the regular work week in this
                                    agreement.

                           e.       The COMPANY will have no more than nine (9)
                                    temporaries at one time and no more than two
                                    (2) part-time employees at one time.

                  2.       a.       In the event of a layoff, any positions
                                    being held by a part-time employee will be
                                    offered to a displaced employee with the
                                    understanding that the employee will receive
                                    the rate of the part-time job, but will
                                    incur no loss of benefits. When the
                                    employee's original full-time position
                                    becomes open the employee must return to
                                    their former position or lose benefits. If
                                    the employee or employees refuse the
                                    position, they will be subject to layoff and
                                    the COMPANY may retain the original
                                    part-time employee.

                                       3
<PAGE>

                           b.       This provision is only applicable in a
                                    layoff. It does not apply when a full-time
                                    employee bids to a part-time position on a
                                    permanent basis. In that event, the employee
                                    would not continue benefits.

1.04     UNION REPRESENTATIVE SENIORITY

The COMPANY agrees that any employee leaving his/her employment to accept
elective or appointive positions with the UNION shall, at the expiration of
his/her official duties, be returned to his/her previous job at the plant.
During absence employee will continue to accrue seniority for three years after
which no seniority will be accrued. Employees serving in such positions prior to
this contract date will continue to accrue seniority as defined in previous
contract. If this job no longer exists, regular rules governing seniority will
apply.

1.05     CHECK OFF

         A.       The COMPANY agrees to deduct (upon receipt of written
                  authorization for such deductions) the initiation fees of new
                  members, the regular monthly dues of all such members, and any
                  assessment authorized by the UNION in accordance with its
                  by-laws. Such deductions shall be made the first payday of
                  each month and shall be remitted to the Financial Secretary of
                  the UNION not later than the fifteenth (15th) day of the
                  current month. In the event that an individual is off and dues
                  are not deducted for the month, the COMPANY agrees upon
                  written authorization from the member to deduct the monthly
                  dues the second month.

         B.       The COMPANY agrees to deduct (upon receipt of written
                  authorization for such deduction) from the employee's salary
                  an annual deduction for C.O.P.E. The COMPANY shall remit to
                  the Financial Secretary of the UNION within fifteen (15) days
                  all monies collected.

                                       4
<PAGE>

ARTICLE II                 GRIEVANCE AND ARBITRATION PROCEDURE

2.01

         A.       Grievances regarding the interpretation or application of this
                  agreement must be filed within five (5) days of their
                  occurrence, provided, however, that no grievance will be
                  recognized to exist unless submitted in writing by either the
                  Bargaining Committee or a Department Shop Steward to the
                  immediate Foreman of the department involved. Prior to filing
                  a written grievance a complaint may be discussed by the
                  employee with his/her supervisor. The complaining employee
                  shall have the option to have a Shop Steward or committee
                  member present. The COMPANY reserves the right to have a Shop
                  Steward present in addition to a committee person. If the
                  complaint is not then resolved, it may be submitted as a
                  grievance in writing by the Grievance Committee or a Shop
                  Steward to the Supervisor. Should differences arise between
                  the COMPANY and the UNION or any of its members employed by
                  the COMPANY as to the meaning and application of the
                  provisions of this Agreement, or should any local trouble
                  arise in the plant, there shall be no suspension of work on
                  account of these differences. Decisions by any one of the
                  following methods shall be retroactive to the date they took
                  place:

FIRST:              Between the Shop Steward of the department concerned and the
                    Superintendent or Foreman of the department.

SECOND:             Between the COMPANY and Bargaining Committee designated by
                    the UNION.

THIRD:              Between the Operations Manager or his representative and the
                    UNION Bargaining Committee and representative of the UNION.

                                       5
<PAGE>

FOURTH:             Failing satisfactory adjustment by any of the above means a
                    grievance involving the interpretation or application of
                    this contract may be presented by either party to the
                    Federal Mediation and Conciliation Service and, finally,
                    such unsettled grievances may be submitted to an Arbitrator.

                  In the event that a time study dispute is not resolved at the
                  Operations Manager's level of the present grievance procedure,
                  the UNION shall have the right to retain, at UNION expense, an
                  outside time study engineer who shall be permitted by the
                  COMPANY to view or study the operation in dispute for the
                  purpose of advising the UNION on the disputed standards. It is
                  understood by the parties that following the receipt of the
                  report by the UNION from its Engineer; the UNION may then
                  confer with COMPANY representatives, other than the local
                  management through the offices of the COMPANY Senior Vice
                  President of Human Resources, for the purpose of attempting
                  resolution at the pre-arbitration level. If the time study
                  dispute is not resolved, then the matter may be appealed to an
                  Arbitrator who must be a qualified Time Study Engineer to be
                  selected by mutual Agreement. In order to facilitate
                  appropriate arrangements, the UNION shall notify the COMPANY
                  of the date on which its Time Study Engineer will appear at
                  least two (2) weeks in advance. Disputes and grievances
                  involving questions outside the terms of this Agreement shall,
                  if mutually agreed, be settled by arbitration and the
                  Arbitrator shall be selected as provided below.

         B.       Unsettled grievances will be submitted to an Arbitrator from a
                  panel of ten (10) mutually acceptable Arbitrators which list
                  the parties shall draw up after the signing of this Agreement.
                  It is mandatory such list will be agreed to within ninety (90)
                  days of the signing of this Agreement. This panel will be
                  considered a permanent panel during the life of the Agreement
                  and will provide Arbitrators for all cases occurring during
                  that period. Selection of the Arbitrator for each case will be
                  made by the random drawing of one of the ten (10) named
                  Arbitrators. If the Arbitrator drawn is not available within
                  thirty (30) days, another drawing will be made. If no
                  Arbitrator on the list of ten (10) is available

                                       6
<PAGE>

                  within thirty (30) days, the Arbitrator with the earliest
                  available date will be selected.

         C.       All steps of the Grievance and Arbitration Procedure must be
                  initiated (including selection of Arbitrator) within sixty
                  (60) days of the date of grievance if filed, or the grievance
                  will be considered resolved with the COMPANY's last answer.

                  In the event it is difficult to obtain a hearing date because
                  of crowded Arbitrator schedules, the parties may extend, by
                  mutual Agreement, the sixty (60) day limitation to accommodate
                  to the schedule of the earliest available Arbitrator. Mutual
                  Agreement will not be unreasonably withheld.

                  The decision of the Arbitrator shall be final and binding.

                  The parties will pay the cost of their own presentation in an
                  arbitration case but will share equally the Arbitrator's fee.

         D.       Arbitration of disputes involving standards require that the
                  Arbitrator not only be skilled in incentive work measurement,
                  but also that as a part of his/her experience/background,
                  he/she has actually set incentive rates in a manufacturing
                  operation. As proof that standards are adequate, the COMPANY
                  is permitted to demonstrate their attainability by using an
                  operator outside the U.F.W.A. membership.

                  Prior to the time the demonstration takes place, the UNION
                  shall be afforded an opportunity to secure the services of a
                  qualified Time Study Engineer with the necessary background to
                  check the incentive effort of the operator to ensure the
                  fairness of his/her performance measurement. The COMPANY shall
                  not abuse this clause. Arbitrators are denied the possibility
                  of compromising standards and are limited to accepting either
                  the COMPANY or the UNION proposed standard on the basis of
                  which most nearly conforms to the formula described in Article
                  VI.

                                       7
<PAGE>

2.02   A specified period shall be agreed upon between the Bargaining Committee
and the COMPANY for the presentation of written grievances, provided, however,
that matters pertaining to discharge or other matters that cannot be delayed
until the time of the next meeting shall be presented immediately. Article XV,
Section A provides for Expedited Arbitration designed to ensure speedy
resolution of certain grievances, including discharge and suspension of
employees.

2.03   It is understood and agreed that when the Shop Steward or Bargaining
Committee presents a written grievance to the COMPANY, according to the
procedures outlined herein, for any reason or for higher rate or new wage rates
for a job or operation, such increases shall be retroactive to the date the
grievance took place. No demand for retroactive pay shall be made where it is
physically impossible to calculate such pay. Unless otherwise agreed on by the
COMPANY and the Bargaining Committee, all grievances presented to the COMPANY in
writing by the Bargaining Committee shall be mutually agreed on within one (1)
week, after which time Article II, Section 2.01 (A), third (3rd) step shall be
invoked and completed within fifteen (15) days.

2.04   The employees shall perform the work as ordered by the COMPANY in
accordance with the provisions of this Agreement.

2.05   No action shall be taken affecting working conditions of the employees
outside the term of the Agreement without consultation with the UNION.

ARTICLE III                BARGAINING COMMITTEE

3.01

         A.       The Grievance Committee for the plant shall consist of no more
                  than three employees appointed by the UNION.

                  1.       Wednesday afternoons starting at 2:45 p.m. or any
                           other mutually agreeable time shall be designated as
                           the time for the regular weekly grievance meetings
                           with COMPANY representatives. The COMPANY will not
                           pay employees for time spent in this meeting. If
                           overtime is

                                       8
<PAGE>

                           scheduled and the meeting is concluded prior to the
                           scheduled overtime, the employees will return to
                           their jobs and finish the remainder of scheduled
                           overtime if required by the COMPANY.

                  2.       If the above meeting is scheduled by the COMPANY
                           prior to 2:45 p.m., the employees will be paid at
                           average rate for the time spent in the meeting prior
                           to 2:45 p.m.

         B.       Any Union Steward shall have the right to visit departments
                  other than his/her own for a maximum of twenty (20) minutes a
                  day after notifying his/her department supervisor. The visits
                  shall only be for the purpose of investigating or discussing
                  legitimate grievances.

                  Any UNION official shall have the right to visit the plant at
                  all reasonable times and shall be accompanied by a
                  representative of the COMPANY if the COMPANY so desires.

         C.       It is understood that when the COMPANY calls a meeting of the
                  Bargaining Committee the expense of such meeting shall be
                  borne by the COMPANY.

         D.       It is understood that any member of the Bargaining Committee
                  may, without loss of working time, call to the attention of
                  the management any violation of an agreement previously
                  concluded. If the management cannot settle this grievance
                  according to the terms of the original Agreement, then the
                  COMPANY shall meet with the Bargaining Committee and bear the
                  expenses thereof if the meeting is prior to 2:45 p.m. If the
                  meeting is at 2:45 p.m., the COMPANY will not pay.

ARTICLE IV                 HOURS OF WORK AND PREMIUM PAY

4.01     WORKING HOURS

         A.       The eight (8) hour day and the forty (40) hour week, Monday to
                  Friday inclusive, shall be established at the plant.

                                       9
<PAGE>

         B.       Normal first shift schedule will be from 6:15 a.m. to 2:45
                  p.m.

                  Normal second shift schedule will be from 2:45 p.m. to 11:15
                  p.m.

                  Normal third shift schedule will be from 10:15 p.m. to 6:15
                  a.m.

                  Flex (A)    Start 5:15 a.m. to 1:45 p.m.

                  Flex (B)    Start 8:15 a.m. to 4:45 p.m.

                  Flex (C)    Start 11:15 a.m. to 7:45 p.m.

                  Employees may be required to start their normal shift two (2)
                  hours early.

         C.       These hours may be changed by mutual Agreement.

4.02     LUNCH PERIODS

         A.       Lunch periods will be scheduled as follows:

                  1st Shift                 11:00 a.m. to 11:30 a.m.

                  2nd Shift                 7:45 p.m. to 8:15 p.m.

                  3rd Shift                 2:15 a.m. to 2:45 a.m.

                  Flex (C)Shift             3:15 p.m. to 3:45 p.m.

         B.       These hours may be changed by mutual agreement between the
                  parties.

         C.       Employees working in a period of not more than five hours (5)
                  will complete the days work. The meal period may be waived by
                  mutual consent of the COMPANY and the UNION.

4.03     REST PERIODS

         A.       There shall be a rest period of ten (10) minutes between the
                  second (2nd) and third (3rd) hours and the sixth (6th) and
                  seventh (7th) hours in each shift.

                                       10
<PAGE>

         B.       Employees working in excess of eight (8) hours on any given
                  shift shall be allowed an additional ten (10) minute rest
                  period.

         C.       The above rest periods may be changed by mutual agreement.

4.04     OVERTIME

         A.       1.       All work done on Saturday, up to eight (8) hours or
                           in excess of eight (8) hours in any one (1) day, and
                           in excess of forty (40) hours in any one week, shall
                           be paid at the rate of time- and-one-half (1-1/2).

                  2.       Working hours will be based on an eight (8) hour time
                           period which is subject to being flexed for starting
                           times for the first shift will be 6:15 a.m. (normal),
                           5:15 a.m. (flex), and 8:15 a.m. (flex). The starting
                           times for the second shift will be 2:45 p.m. (normal)
                           and 11:15 a.m. (flex). Employee starting at 5:15
                           a.m., 8:15 a.m. and 11:15 a.m. will receive an hourly
                           wage premium for the hours worked before normal shift
                           starting times and ending times.

                           Employees placed on flexed hours will be determined
                           by seniority, and will be notified five calendar days
                           in advance of the Company's intent of their placement
                           on flex hours. Employees placed on flex hours are not
                           subject to change of that status without five
                           calendar days advance notice.

                           Flex Hours -- employees starting at 5:15 a.m., and
                           11:15 a.m. will receive an hourly wage premium of
                           $.10 per hour for the hours worked before normal
                           shift starting and ending times.

                           Employees shall be informed, at the time of
                           scheduling of the length of time they are expected to
                           start their shift early. Employees required to work
                           before the normal starting time without advanced
                           notice shall receive time-and-one-half (1-1/2) for
                           all hours worked before the normal starting time.

                                       11
<PAGE>

                  3.       Double time shall be paid for all hours over eight
                           (8) hours on Saturday, and for all work performed on
                           Sunday and Holidays.

         B.       Employees working in excess of ten (10) hours on one shift
                  shall be allowed twenty (20) minutes mealtime without
                  deduction in pay.

         C.       Employees required to work overtime will be so notified on the
                  working day before the day of overtime except:

                  1.       In cases of production emergency.

                  2.       Quilt Machine Operators. Quilt Machine Operators
                           shall be notified before lunch of the day overtime is
                           to occur. When mutually agreed, the COMPANY and the
                           UNION can meet to make further revisions to
                           accommodate the needs. The COMPANY shall first seek
                           volunteers to work the overtime. If there are not
                           enough volunteers to provide the necessary amount of
                           work, employees shall be required to work the
                           overtime by rotating the mandatory overtime,
                           beginning with the least senior qualified employees.

                  3.       The Company will notify employees by 11:00 a.m. on
                           Friday if they are required to work on Saturday. If
                           asked after 11:00 a.m., it will be on a volunteer
                           basis.

         D.       Except for the plant security, continuous shift operations,
                  emergency, maintenance or impaired customer service, the
                  COMPANY will not require production employees to work in
                  excess of ten (10) hours per day on Monday, Tuesday, Wednesday
                  and Thursday and Friday.

                  1.       If needed, employees will work eight (8) hours the
                           Friday before Labor Day holiday and eight hours at
                           double time on the Saturday before Labor Day holiday.

                                       12
<PAGE>

                  2.       On all other Saturdays, except other contract holiday
                           weekends, only eight (8) hours will be mandatory even
                           if ten (10) hours are scheduled on the previous
                           Friday. Sunday and holiday work will not be
                           mandatory.

                  3.       No overtime will be required the day before a
                           holiday.

                  4.       An employee with a reasonable excuse for not working
                           on a particular Saturday, may have the Saturday off
                           with two (2) weeks advance written request to the
                           COMPANY provided that another employee is available
                           to perform the necessary work. It is agreed that no
                           more than two (2) employees per job classification
                           may exercise such option.

                  5.       Rotation of overtime among qualified employees will
                           be discussed between the Shop Steward and the
                           appropriate Supervisor prior to giving notice to the
                           affected employee.

                  6.       Employees shall not be required to work more than
                           three (3) consecutive Saturdays. Employees may be
                           required to work all Saturdays during the month of
                           October.

                  7.       Assignment of hours before the normal starting time
                           shall be by group. A group is determined by the
                           manufacturing requirements in accordance with the
                           production schedule.

                  If it is necessary to require an individual to start early
                  he/she will be selected on a voluntary basis. If there are no
                  volunteers, employees will be assigned by a rotation of
                  seniority beginning with the least senior employees.

                                       13
<PAGE>

ARTICLE V        WAGES

5.01     HIRING RATE AND PROGRESSION

Regardless of the job classification:

         A.       The hiring rate for new employees will be:

                                          4/1/02
                                          ------
                                           $8.25

         B.       Upon qualification on job for two (2) consecutive weeks, new
                  hires will be eligible for Pay Plus Bonus. Under no
                  circumstances is this section meant to shorten the established
                  probationary period for new hires.

5.02     WAGE RATES

         A.       Job levels and pay ranges are as follows:

<TABLE>
<CAPTION>
                                JOB LEVEL LISTING
                               PAY PLUS BONUS PLAN

        LEVEL 1                                     LEVEL 3
        -------                                     -------
<S>                                  <C>            <C>                           <C>
        Panel Quilter                #120           Bechik Operator               #105
        Cover Cage                   #120           Packer/Inspector              #130
        Closer                       #130           Frame Builder                 #165
        Coiler                       #225           HMB Handler/Hogring           #225
        Coordinator                  Various        Janitor                       #490
                                                    Handler                       Various

        LEVEL 2                                     LEVEL 4
        -------                                     -------
        Border Overlock              #105           New Hires (see 5.01A)
        Border Quilt                 #105           Light Duty (see 5.11)
        Box Spring Sew               #115
        Flat Cut                     #115
        Panel Overlock               #120

</TABLE>

                                       14
<PAGE>

<TABLE>
<S>                                <C>            <C>     <C>
                                                          BASE RATE PAY RANGES
        Hog Ring                   #130                   --------------------
        Box Spring Upholstery      #150           Level 1     $10.00  -- $13.50
        Top-Off                    #160           Level 2     $9.00  --  $12.50
        HMB Assembly               #225           Level 3     $8.50  --  $10.00
        Receiving                  #410*          Level 4     See above
        Warehouse/Loader           #500
</TABLE>

         B.       Inventory Rate will be:

                               4/1/02
                               ------
                               $11.60

         C.       All employees with an established rate shall receive the
                  following increases:

                               4/1/02                4/1/03
                               ------                ------
                                $0.40                 $0.40

         D.       The COMPANY will use Performance Evaluations for the purpose
                  of reviewing new employees' progress or an existing employee
                  who is transferred to a new position, or at any time the
                  COMPANY or an employee requests a re-evaluation of their
                  established base rate. Employees receiving a pay rate
                  adjustment as stated in 5.09 will be evaluated no later than
                  60 days, or sooner if requested, for any rate increase. The
                  results of the evaluation may result in a pay increase, but
                  will in no way replace or reduce the negotiated annual pay
                  increase. The UNION representative must be present during the
                  evaluating process.

         E.       All employees will be assigned a primary job function,
                  individual position and their corresponding base rate.

                                       15
<PAGE>

5.03     MECHANICS

         A.       The COMPANY and the UNION agree to the establishment of four
                  mechanic job classifications:

                  1.       Master Journeyman -- new mechanic classifications
                           with a $.50 per hour increase over journeyman's
                           hourly rate.

                  2.       Journeyman

                  3.       Technical

                  4.       Entry Level

                           Each job classification will have its own wage rate.

                  By joint committee the COMPANY and UNION will determine the
                  mechanic job classification an individual will be placed in.
                  All employees presently holding a maintenance mechanic job
                  will receive their current rate of pay or their new job
                  classification rate which ever is higher.

                  The COMPANY agrees to provide maintenance mechanics a tuition
                  reimbursement plan of one hundred percent (100%) for
                  furthering their skills. The COMPANY will pay the tuition cost
                  upon successful completion of the studies. The cost of books,
                  equipment and tools will be the responsibility of the
                  individual. The COMPANY also agrees to implement the
                  apprenticeship program of the International Union of
                  Electronics, Electrical, Salaried Machine and Furniture
                  Workers, AFL-CIO.

                                       16
<PAGE>

         B.       The wage rates for the mechanics job classifications are:

<TABLE>
<CAPTION>
========================================== ===========================================
          JOB CLASSIFICATIONS                            ANNIVERSARY DATES

                                           ----------------------- -------------------
                                                 4/1/02                     4/1/03
========================================== ======================= ===================

<S>                                               <C>                       <C>
Entry Level                                       16.25                     16.65
------------------------------------------ ----------------------- -------------------
After completion of 6 months                      16.46                     16.86
------------------------------------------ ----------------------- -------------------
After completion of 12 months                     16.66                     17.06
------------------------------------------ ----------------------- -------------------
After completion of 18 months                     16.87                     17.27
------------------------------------------ ----------------------- -------------------
After completion of 24 months                     17.07                     17.47
------------------------------------------ ----------------------- -------------------
After completion of 30 months                     17.28                     17.68
------------------------------------------ ----------------------- -------------------
After completion of 36 months                     17.48                     17.88
------------------------------------------ ----------------------- -------------------
After completion of 42 months                     17.69                     18.09
------------------------------------------ ----------------------- -------------------
After completion of 48 months                     17.89                     18.29
------------------------------------------ ----------------------- -------------------
Technical                                         17.91                     18.31
------------------------------------------ ----------------------- -------------------
Fifth Year                                        18.33                     18.73
------------------------------------------ ----------------------- -------------------
Journeyman                                        18.75                     19.15
------------------------------------------ ----------------------- -------------------
</TABLE>

         To be classified under the technical job classification an individual
         must possess (one of the following):

         *        twenty hours of college courses in machine shop technology,
                  electrician, electronics, welding; or any other trade
                  applicable to SIMMONS work environment.

         *        or a certified job skill applicable to SIMMONS work
                  environment.

         *        or 4 years of approved work experience.

         *        or be employed by SIMMONS and classified a MAINTENANCE
                  MECHANIC as of July 1, 1989.

                                       17
<PAGE>

         Quarterly, the joint COMPANY and UNION committee will meet to review
         progress of apprentices and the movement of individuals between job
         classification.

         Additional explanation of mechanic job classifications establish a
         fourth classification for mechanics:

                  1.       Master Journeyman -- possess all the skills and
                           knowledge of a journeyman, plus additional expertise
                           in electrical, mechanical, ability to train, lead
                           others, and communicate with management and outside
                           sources.

                           Individual(s):         D. Joe Colbert

                  2.       Journeyman

                           Individual(s):         H. Danny Chan, A. Zaragoza,
                                                  S. Fong

                  3.       Technical

                           Individual(s):         A. Hernandez, E. Munoz

                  4.       Entry Level

                           Individual(s):         W. Shirley and R. Fernandez

         C.       Awarding of Maintenance Mechanic jobs through the Job Bidding
                  Procedure will be limited to employees with the necessary
                  aptitudes and skills as determined by the COMPANY.

5.04     INVENTORY

During the annual physical inventory, senior employees have preference, but may
elect not to work provided a less senior employee has the qualifications needed
to perform inventory duties as approved by the COMPANY. See 5.02 for inventory
pay rates.

                                       18
<PAGE>

5.05     SHIFT PREMIUM

Fifteen cents (15(cents)) per hour shall be paid for second shift work. Fifteen
cents (15(cents)) per hour shall be paid for third shift. The third shift shall
receive a paid one-half (1/2) hour lunch.

5.06     REPORT-IN-PAY

         A.       Employees who report for work, and who have not been otherwise
                  instructed, or a reasonable attempt made to contact, on the
                  previous day, shall be paid for a minimum of four (4) hours
                  for such day.

         B.       The COMPANY will not be responsible for wage payments for the
                  time not worked when production is interrupted because of
                  unforeseen emergencies arising from conditions outside of the
                  plant. In the event of such emergency, the COMPANY and the
                  UNION representatives shall meet immediately to determine any
                  necessary change of work schedule.

5.07     PAY FOR ADDITIONAL SKILLS

All existing employees receiving pay for additional skills will be paid as
follows: One (1) additional skill, $0.15 cents; two (2) additional skills, $0.20
cents; and three (3) plus skills, $0.25 cents per hour. The COMPANY continues to
retain the right to utilize employees in their skill areas provided they
maintain the minimum established productivity level for the job. If someone
should become disqualified from a skill or sign a self-disqualification waiver,
their salary will be adjusted down according to the same scale.

Going forward, we will post for the jobs listed below. Candidates must agree to
be trained in all skills of the job. They will receive $0.40 cents per hour
additional pay above their base rate. If they currently receive additional pay
for skills, they will receive the difference up to the $0.40 cents.

                                       19
<PAGE>

                  Three (3) jobs:           Hogring, Closer & Quilter

                  Three (3) jobs:           Hogring, Closer & Coil Operator

                  Six (6) jobs:             Box Spring Upholstery, Top-Off and
                                            HMB Assembly

5.08     COMPUTATION OF QUARTERLY AVERAGE HOURLY EARNINGS RATES

         A.       Average quarterly hourly earnings rates shall be established
                  on a calendar quarter basis and shall change and become
                  effective one month after the close of each calendar quarter.
                  Such average will apply in all cases where quarterly work
                  average hourly earnings rates are referred to in this
                  Agreement. The four calendar quarters of the year shall be as
                  follows:

                  1st Quarter               January, February, March

                  2nd Quarter               April, May, June

                  3rd Quarter               July, August, September

                  4th Quarter               October, November, December

         B.       Quarterly work average hourly earnings rates will not be
                  established for employees who have worked less than eighty
                  (80) hours in the preceding quarter except that employees
                  transferred during the last eighty (80) hours of any quarter
                  shall receive a quarterly average rating. If an employee has
                  been legitimately away from work because of illness, accident,
                  or on a leave of absence, and has not been able to establish
                  an quarterly average hourly earnings rate, it is agreed that
                  his/her average hourly earnings rate for the quarter preceding
                  his/her absence will be carried forward until such time as
                  he/she is able to return to work.

         C.       Quarterly averages will be computed by using the average bonus
                  for the previous quarter and applying it to the base rate.

                                       20
<PAGE>

         D.       When an employee works without published quarterly average
                  hourly rate is assigned to a job without a work rate he/she
                  will be paid at the average of his/her hourly earnings rate
                  for the preceding four (4) weeks.

5.09     Employees shall not suffer any reduction in such wages or of benefits
         specifically identified in this contract during the term of this
         contract. The COMPANY will not honor any side agreement on wages or
         benefits unless they are signed by the Sr. VP Human Resources and
         attached to this contract.

5.10     In no case shall any employee be paid less than their established base
         rate except when one or more of the following occur:

                  1.       Employees bidding on or reclassified to another job
                           within the same level;

                  2.       Employees bidding on or reclassified to a lower level
                           job;

                  3.       An employee is disqualified or waives their right to
                           receive additional skill pay.

         When making wage rate adjustments the COMPANY will look at previous
         experience in the new job, their current base rate, and new job salary
         range. All adjustments to salary will be documented and reviewed with
         the UNION and the employee before changes are enacted.

5.11     PAYMENT DURING TREATMENT OF WORK RELATED ACCIDENT

         A.       In the event an employee suffers an industrial injury and is
                  referred to the medical office, outside clinic, outside
                  hospital, or outside doctor for treatment during working
                  hours, the COMPANY shall pay for the time spent in treatment
                  of such injury at his/her base rate only. If the treating
                  agency certifies that such injured employee is unable to
                  continue work because of such injury the COMPANY will pay for
                  the balance of the eight (8) hours. Wage loss will be reported
                  to the COMPANY's Workers' Compensation carrier for possible
                  additional payment. This is done in accordance with laws
                  covering Workers' Compensation. Light duty will be paid at
                  base rate only.

                                       21
<PAGE>

         B.       If the treating agency requests a subsequent visit for
                  treatment of this injury during working hours, and provided
                  the employee has returned to work, the COMPANY will pay for
                  the time spent in this treatment at his or her base rate only.

                  1.       On the above date of this scheduled visit the
                           employee must notify the Supervisor at the beginning
                           of his/her shift as to the time the appointment is
                           scheduled.

                  2.       The employee will be clocked out in sufficient time
                           to make the scheduled appointment.

                  3.       When the employee leaves the treating agency's
                           office, he/she will receive a release form that will
                           show the completion time of the appointment.

                  4.       Upon returning to his/her department the employee
                           will present this form to his/her Supervisor and will
                           be clocked back in for work.

         C.       None of the sections of this paragraph are to be so construed
                  that benefits will incur in addition to or pyramid on
                  disability payments under Workers' Compensation Law.

ARTICLE VI               STANDARD ALLOWED HOURS (S.A.H.) SETTING FORMULA

6.01     When it becomes necessary to establish a standard on a new job or
variation of an old operation, the following procedure shall be
followed:

         A.       If possible, normal production will be determined from
                  standard task times, if available, or a time study analysis
                  shall be made of the operation for the purpose of determining
                  the normal hourly or daily production.

                  1.       A UNION representative may be present when the time
                           study of an operation is being made.

                                       22
<PAGE>

                  2.       Prior notice of the time study of an operation shall
                           be given to the interested parties.

                  3.       A time study shall not be made until such job is
                           properly set up and functioning.

         B.       A normal hour or daily production shall be defined as that
                  amount of production attained by a normal proficient operator
                  working at a normal pace which may be consistently followed
                  throughout the working period.

         C.       A written description of the operation, together with the time
                  study results and S.A.H., will then be submitted by the
                  COMPANY to the departmental Shop Steward, the Operator or
                  Operators, and Bargaining Committee.

         D.       Such Standard Allowed Hours shall become effective immediately
                  upon submission as provided above in Paragraph (A) and (C) of
                  this Section.

         E.       Complaints arising as to the accuracy of any time studies
                  shall be handled as grievances in accordance with Article II
                  of this Agreement.

                  1.       Any adjustments made as a result of such grievance
                           shall be retroactive to the date the Standard Allowed
                           Hour value was first submitted.

                  2.       Complaints arising from the procedure must be
                           submitted within sixty (60) days on continuous
                           operations, or within thirty (30) production days on
                           broken or short run operations.

                  3.       No grievance on a time study will be recognized until
                           the operation has been performed for forty (40) hours
                           on continuous operations or eight (8) hours on short
                           or intermittent runs.

6.02     PRODUCTIVITY

         A.       All employees who have completed the training program are
                  expected to REACH and MAINTAIN efficient productivity levels.

                                       23
<PAGE>

         B.       The withholding of productivity shall subject an employee to
                  the following corrective disciplinary procedures:

                  1.       Verbal Reprimand

                  2.       Written Reprimand

                  3.       Suspension without Pay

                  4.       Discharge

         C.       Base rate is intended as pay for one hundred percent (100%)
                  effort. History indicates that incentive employees' plant
                  average pace is approximately twenty-five percent (25%) over
                  base; consequently, the parties agree that levels of
                  production below the plant average will be investigated by the
                  COMPANY.

                  1.       If after investigation the COMPANY can show, either
                           through earnings of others or through a demonstration
                           by supervisors, Simmons Institute for Technology and
                           Education (S.I.T.E.) employees, or operators from a
                           sister plant that adequate incentive opportunity
                           exits, the COMPANY will have proved its case against
                           the employee charged with withholding productivity.

                  2.       Prior to the time the demonstration takes place, the
                           UNION shall be afforded an opportunity to secure the
                           services of a qualified time study engineer with the
                           necessary background to check the incentive effort of
                           the operator to ensure the fairness of his/her
                           performance evaluation.

                  3.       The COMPANY shall not abuse this clause.

         D.       Employees who are marginal, i.e., who earn between base rate
                  and one hundred fifteen percent (115%) may be removed from the
                  operation at the discretion of the COMPANY.

                                       24
<PAGE>

                  1.       Such employees may be placed in a job at which they
                           can perform at an efficient level consistent with
                           Section 6.03 below.

                  2.       The COMPANY shall not abuse this clause.

6.03

         A.       Individuals who consistently fail to produce on an incentive
                  basis, i.e., at one hundred fifteen percent (115%) of base or
                  more, within the period of time provided by the COMPANY's
                  Learner's Curves or thereafter, shall be removed from the job
                  on which they are failing to remain qualified. Such employees
                  may then be assigned to a job requiring less dexterity or
                  skill so that they may have an opportunity of being more
                  successful in the future assignments.

                  1.       In making such assignments, the Bargaining Committee
                           will select the job to which the employee will be
                           transferred, but selection shall be limited to those
                           jobs which are currently open.

                           a.       If no such job is available, the employee
                                    shall be placed on layoff until an opening
                                    exists.

                  2.       Employees with more than one (1) year but less than
                           five (5) years of service shall be limited to one (1)
                           such transfer.

                  3.       Employees with more than five (5) but less than ten
                           (10) years of service shall be limited to two (2)
                           such transfers.

                  4.       Employees with more than ten (10) years of service
                           shall be limited to three (3) such transfers.

                  5.       Subsequent disqualifications will subject the
                           employee involved to termination of employment.

         B.       Any actions taken under this Section are subject to the
                  Grievance and Arbitration procedures in Article II of this
                  Agreement.

                                       25
<PAGE>

ARTICLE VII           SENIORITY

7.01     PURPOSE

This seniority provision has been developed to provide an equitable means of
enhancing the "Make To Order System," providing the COMPANY with trained
employees that are responsive to production schedule variations and to provide
job security for senior employees.

7.02     SENIORITY

         A.       Definition: An employee's unbroken service with the COMPANY in
                  years, months, and days, since the employee's most recent date
                  of hire. Seniority shall be established on a plant basis, and
                  separately, within Core and Skill Group areas.

         B.       If two employees have the same amount of unbroken service, the
                  employee with the earliest hire date, will have the greatest
                  seniority.

         C.       Seniority List: The COMPANY will furnish the UNION with a
                  seniority list on a quarterly basis, and/or on the request of
                  the Chairperson of the Bargaining Committee.

         D.       Seniority shall govern in the following areas:

                  1.       Training

                  2.       Vacations

                  3.       Overtime, where the COMPANY has made a reasonable
                           attempt to contact qualified employees

                  4.       Lay-offs

                  5.       Job Bidding

                  6.       Recall

                  7.       Job Shift

                                       26
<PAGE>

                  8.       Temporary Transfer

                  9.       Reduction of Hours

                  10.      Furlough

         E.       As described in various sections of the contract, none of the
                  language in this section will change the governing of
                  seniority in other sections of this contract.

                  If there is a conflict in any of these areas, the COMPANY and
                  UNION must meet to seek a solution of the conflict.

7.03     ESTABLISHMENT OF NEW CLASSIFICATION

         A.       In the event it becomes necessary to establish a new
                  classification, the COMPANY and the UNION shall meet for the
                  purpose of discussing the rate for such classification.

                  The COMPANY and the UNION, in an attempt to reach an
                  understanding shall take into consideration similar
                  classifications in the plant previously or presently in
                  existence.

                  The COMPANY will temporarily assign an employee at their base
                  rate, plus bonus until such time as a rate is developed. When
                  the rate of the classification is agreed upon or resolved as
                  provided above, the job will be filled in accordance with the
                  contract.

                  If the parties cannot agree using the above procedure, the
                  grievance and arbitration procedure in the contract will be
                  followed.

7.04     COMPANY AND UNION COMMITTEE

         A.       A four member training committee shall be established
                  immediately. The Committee shall be made up of two COMPANY
                  representatives and two UNION representatives.

                                       27
<PAGE>

         B.       The Committee shall meet at least once each quarter to
                  determine which employees need further training to avoid a lay
                  off.

         C.       The first COMPANY and UNION Committee Meeting shall be held no
                  later than three (3) working days after the acceptance of the
                  Agreement.

7.05     EMPLOYEE TRAINING

         A.       The parties agree to favor training of senior employees so
                  that when reduction in manpower is required, the most senior
                  will be retained because they have the skills needed to
                  satisfy customer requirements. It is also, in the interest of
                  the parties to provide opportunity to the most senior
                  employees who desire to improve their income when and if
                  customer requirements mandate an increase in the production
                  schedule.

                  In the event the most senior candidate or candidates refuse
                  selection they must sign a formal waiver form, indicating
                  such, whereby the COMPANY has no further obligation to again
                  offer the same job opportunity to the refusing candidates.

                  It is the intent of both the COMPANY and the UNION to train
                  employees so as not only to provide a bank of substitutes when
                  needed but also a bank of critical skills when the production
                  schedule increases. This section is not intended to allow
                  other sections of this Agreement to be abused.

         B.       The COMPANY and the UNION Committee shall continuously review
                  the seniority list to determine training requirements
                  necessary due to the ever changing work force. Employees
                  trained shall be by agreement of the COMPANY and the UNION
                  Committee. Training shall be completed within six (6) moths
                  after selection. Training on individual jobs will be
                  consistent with established learning curves.

                                       28
<PAGE>

         C.       An employee has the right to refuse training as offered by the
                  COMPANY and UNION Committee. When an employee refuses
                  training, he/she shall be subject to layoff in accordance with
                  his/her seniority as provided by Section 7.06.

         D.       Once an employee has started training he/she shall not be laid
                  off due to the incomplete training, if the completion of that
                  training would allow him/her to displace a less senior
                  employee.

         E.       Cross training will be done as needed as time permits during
                  slow periods.

7.06     LAY OFFS

         A.       In the event of a reduction in the work force, employees shall
                  be laid off by classification. Employees with the least
                  seniority within a classification shall be laid off first
                  provided that the remaining employees possess the job
                  knowledge and skills to perform the work required within the
                  classification. Senior employees not possessing the required
                  knowledge of the job function shall be subject to lay off.

         B.       Employees being laid off shall be notified two (2) working
                  days prior to the lay off.

         C.       Employees subject to lay off shall have the following rights:

                  1.       a.       Displace any employee with less seniority
                                    provided he/she can do the job without
                                    further training.

                           b.       Elect to take a lay off instead of replacing
                                    a less senior employee. The COMPANY will not
                                    contest the employee filing for unemployment
                                    benefits if he/she exercises the lay off
                                    option.

                  2.       If an employee refuses recall to an open position
                           they are previously qualified for, or is on layoff
                           for 12 months or more, they will be terminated by the
                           COMPANY. If an employee is in town they will be
                           expected to return within 24 hours of notification.
                           If going out of town the

                                       29
<PAGE>

                           employee must leave a number with the COMPANY prior
                           to leaving so they can be contacted. Employees out of
                           the area will be expected to return within 72 hours
                           of notification.

         D.       In order to eliminate the shifting of more senior employees, a
                  new employee shall, for one (1) year, according to hiring
                  date, be available for transfer, to any classification needed
                  by changes in the production schedules.

         E.       The COMPANY will not break the continuity of service of any
                  employee who has been laid off, due to reasons beyond his/her
                  control, if the employee returns to work within twelve (12)
                  calendar months (one (1) year). Employees who are absent for
                  illness or accident shall notify the COMPANY that day, except
                  under extenuating circumstances.

         F.       A maximum of ten (10) recognized Shop Stewards with ten (10)
                  years of seniority, or more, shall have super seniority for
                  the purposes of this section. The UNION must periodically and
                  regularly provide the COMPANY with an up-to-date list of Shop
                  Stewards. Current stewards at the time of signing this
                  agreement with less than 10 years seniority will receive super
                  seniority. Current stewards: Eric Munoz, Alez Zaragoza, Joe
                  Colbert, Jerry Murphy, Rodney Kaeka, and Eddie Cano.

         G.       Lay offs shall be conducted in the presence of a UNION
                  Representative. It is the responsibility of the UNION
                  Representative to notify the UNION office as to the results of
                  the meeting.

7.07   FURLOUGH   In order to provide a more reasonable work schedule for senior
employees when hours are shortened due to lack of orders, the plant or
operations manager will have the responsibility of placing on furlough by
classification those junior employees who are not needed to fill the daily
production schedule. The furloughed employees will be placed on surplus labor so
as to make them eligible for unemployment benefits during such furlough period,
if otherwise eligible. It is understood that a furlough may be for any length of
time provided such does not exceed four (4) continuous weeks at any given time,
unless the furlough

                                       30
<PAGE>

occurs on the first work day of a given month, in which case the furlough cannot
exceed three (3) consecutive weeks. For record keeping purposes, the business
manager for Local 262, AFL-CIO will be notified of such furlough by letter
signed by the involved plant or operations manager.

In the event variation in customer demands requires employees to return from
furlough earlier than announced, such return shall be by seniority unless the
senior employees are unavailable. In such event, the COMPANY liability shall be
limited to notification to the UNION that such employee either could not be
reached by telephone or was unavailable because of other commitments. Because
State Unemployment rules pay reduced benefits for partial unemployment, the
plant or operations manager will project furlough time in multiples of five (5)
working days. Any furlough can be triggered at any day of the week. For example,
if a holiday falls on Tuesday, the COMPANY will declare the furlough to begin
Wednesday and continue through for a continuous minimum of five (5) working
days.

7.08     REDUCTION OF HOURS

         A.       In order to retain qualified employees, the parties agree that
                  a reduction of hours may be more equitable rather than to lay
                  off employees.

         B.       When a reduction of hours is necessary, the reduction of hours
                  shall be within a department as outlined in 5.02. Hours within
                  the department shall be shared as equally as possible. Senior
                  employees shall have the first choice of either working or
                  reducing their hours. Should senior employees not volunteer,
                  the least senior employees shall be required to reduce their
                  hours first.

         C.       When further retrenchment necessitates a general reduction in
                  hours to a level between thirty (30) and forty (40) hours per
                  week, adjustment shall be made in such a manner that each and
                  every employee in his/her respective department receive a just
                  and equal share of work as long as reduction in work per
                  employee does not fall below a minimum of thirty (30) hours
                  per week.

                  1.       The COMPANY retains the right at all times to do
                           necessary maintenance work regardless of the number
                           of hours worked.

                                       31
<PAGE>

         D.       If work falls below thirty (30) hours per week, the COMPANY
                  shall reduce the plant work force in accordance with Section
                  7.06, to maintain thirty (30) hours per week for the remaining
                  force.

         E.       In the event that there is an increase in work above the level
                  of thirty (30) hours per week, the COMPANY agrees to recall
                  additional employees by classification.

         F.       The parties agree that the above provisions shall not apply
                  under the following conditions:

                  1.       A temporary reduction in hours to less than forty
                           (40) but more than thirty (30) may be made provided
                           that during the third (3rd) week of reduced hours it
                           is determined that such reduction is to continue and
                           steps are taken to adjust the number of hours and
                           employees. This adjustment is to be effective not
                           later than Monday of the fourth (4th) week.

                  2.       When there is in effect a reduction in hours per week
                           and it becomes necessary to increase hours in certain
                           departments in order to provide prompt service to
                           customers, the hours may be temporarily increased to,
                           but no more than, forty (40) hours per week for a
                           period of not longer than three (3) consecutive
                           weeks.

                  3.       In the event that the general level of hours worked
                           shall remain less than forty (40) hours per week for
                           more than two (2) continuous months the parties
                           hereto agree to renegotiate at the request of either
                           party the terms of Section 7.07.

                  4.       It is also understood that where mutually agreed upon
                           between the COMPANY and the Bargaining Committee,
                           individuals may be laid off without regard to their
                           seniority rights or rating.

                                       32
<PAGE>

         G.       WORK SHARING PROGRAM

                  Production employees will be assigned to the following six
                  groups: Mattress, Box Springs, HMB, Mechanics, and General
                  (shipping, receiving and janitorial).

                  Administrators for this program will be the Plant Human
                  Resources Manager and the UNION Chief Steward.

         H.       In the case of a dispute pertaining to who should work on the
                  night shift or on the third shift, plant seniority shall be
                  the deciding factor.

         I.       Any employee assigned to an inspectors' job shall demonstrate
                  his/her capability to perform the work satisfactorily.

                  1.       Seniority shall govern in the selection of inspectors
                           where there is equal ability.

                  2.       Any dispute over who shall be assigned the job shall
                           be mutually resolved between the UNION Committee and
                           the COMPANY.

7.09   OPEN POSITIONS When a vacancy occurs or a new position is created, the
position shall be filled in the following order:

         A.       RECALL FROM LAY OFF

                  1.       The most senior employee who can perform the job
                           without further training shall be recalled from lay
                           off and placed in the position. The employee should
                           retain rights to his/her laid off position for one
                           year from the day of the lay off. This placement
                           shall not be considered a job bid.

         B.       JOB BIDDING

                  1.       In the event that there is not an employee on the
                           recall list who can perform the job without further
                           training, the COMPANY shall post the position on the
                           bulletin board for 48 hours.

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<PAGE>

                  2.       The COMPANY will accept a bid by a UNION officer for
                           someone on vacation or lay off.

                  3.       The COMPANY will review the applications from the
                           employees who have submitted their names for
                           consideration and fill the job opening by
                           transferring the applicants, if any, on the basis of
                           plant seniority (min. 1 yr.) and ability to perform
                           the job.

                           Because of the delays inherent in successive job
                           openings, the COMPANY may elect to fill, without
                           posting, job vacancies resulting from the assignment
                           of an applicant to the job originally posted.

                  4.       Any employee transferred pursuant to the above shall,
                           if qualified, remain on that job for a period of
                           twelve (12) months before having the right to bid on
                           another job vacancy. In the event the job is
                           discontinued before the successful applicant
                           completes twelve (12) months on the job, he/she may
                           bid on another vacancy.

                  5.       Any employee transferred pursuant to the above and
                           who fails to attain a satisfactory level of progress
                           on his/her new assignment within the normal limits of
                           the COMPANY's established experience factors, will be
                           given the opportunity to qualify for an open job
                           within the plant.

                  6.       Except for the application of the job bidding
                           procedure, other applications of seniority, such as
                           new hirings, lay offs, recalls, and job transfers in
                           one Job Skill Area will not affect or be affected by
                           those in another Job Skill Area unless otherwise
                           provided.

7.10     PERSONNEL ACTION

         A.       The UNION shall receive written notice of all transfers,
                  disciplinary actions, new hires, terminations and lay offs.

         B.       The UNION shall be provided with a seniority list upon
                  request.

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<PAGE>

7.11   CLASSIFICATION PHASE OUT It is further agreed that if any of the
classifications are phased out or closed down permanently, the employees
affected by such permanent closing will have the following options:

                  1.       In the event a classification is permanently phased
                           out, the employee so affected shall have the right to
                           replace any employee within the department with less
                           seniority provided he/she is qualified (without
                           further training) to perform the job.

                  2.       In the event the affected employee cannot or does not
                           exercise the above options, such employee shall have
                           the right to choose an open job or exercise his/her
                           plant seniority over any employees in the plant with
                           less plant seniority, provided they may perform the
                           duties without further training.

ARTICLE VIII

8.01     LEAVE OF ABSENCE

         A.       Personal leaves of absence shall be granted to employees for a
                  period of 30 days increments on mutual consent of COMPANY and
                  UNION each thirty (30) days. Leaves of absences as referred to
                  in this paragraph shall not exceed a total of 12 months.
                  Employees shall continue to accrue seniority during the
                  period, but will only be paid for the first (1st) holiday
                  following the beginning date of leave.

         B.       Employees shall be granted leave without deductions from pay
                  for the purpose of voting on election day, in accordance with
                  the laws of the State of California.

                  1.       A schedule for this leave shall be drawn up by mutual
                           Agreement.

         C.       Any employee who has been on the payroll one (1) year or more
                  will be entitled to receive three (3) days off with pay in the
                  case of death in his/her immediate family (husband, wife,
                  natural mother, father, brother, sister, children,
                  step-mother, step-father, step-children) upon presentation of
                  evidence of the above.

                                       35
<PAGE>

         D.       The COMPANY will grant emergency leave without pay for the
                  death of other relatives, or for attendance of a relative's
                  funeral. The employee must provide proof of attendance upon
                  returning to work. Otherwise, these days will be considered
                  unexcused.

8.02     JURY DUTY

         A.       The COMPANY will make up differential in pay at their
                  quarterly average for those employees called for jury duty, to
                  their quarterly average; providing the employee was scheduled
                  for work on that day.

         B.       In no event will overtime be paid because of jury duty.

         C.       In order to qualify for jury duty pay the employee must give
                  advance notice of reporting to jury duty and bring in to the
                  COMPANY a signed statement from the Court Clerk showing the
                  amount of time spent on duty and the pay received.

         D.       Those reporting for jury duty and who are excused in time to
                  report for their regular work for a minimum of three (3) hours
                  shall do so or forfeit any pay for those hours.

ARTICLE IX                 PAID VACATIONS

9.01   The following vacations shall be granted annually during plant vacation
period for the duration of the Agreement to employees who are on the active
COMPANY payroll (active employees are defined as employees who worked at least
1000 hours in the previous calendar year and who are not currently Terminated,
Retired or on Lay Off status) at the time the vacation is granted:

         A.       Employees who have between one (1) and three (3) years of
                  service shall be entitled to one (1) week of vacation.

         B.       Employees who have more than three (3) years but less than
                  eight (8) years shall receive two (2) weeks of vacation.

                                       36
<PAGE>

         C.       Employees who have more than eight (8) but less than eighteen
                  (18) years shall receive three (3) weeks of vacation.

         D.       Employees who have more than eighteen (18) shall receive the
                  seniority bonus.

         E.       Employee hired on or before December 01, 1983 shall receive
                  the seniority bonus after 15 years of service.

         F.       All active employees with twenty-five (25) years of service or
                  more, employed as of November 30 of that year, will receive in
                  December pay for a fifth week of vacation.

9.02   The COMPANY retains the right to determine whether vacations will be
staggered on the basis of preference by seniority consistent with operational
needs during the period January 1 through December 31, or on the basis of plant
shutdown. In the event of plant shutdown, the COMPANY has the right to continue
operating the Shipping Department as well as manning those functions needed to
maintain satisfactory customer service.

9.03

         A.       Plant closing for remaining vacation purposes may be
                  determined by the COMPANY at any time during the calendar
                  year.

                  1.       In determining crews during a plant closing the
                           COMPANY will ask for qualified volunteers.

                  2.       Should there be an inadequate number of volunteers
                           the COMPANY will select its manpower from the least
                           senior qualified employees.

                  3.       Those who work during a plant closing may select
                           vacations on a seniority basis.

9.04

         A.       Vacation schedules for the coming year will be determined
                  during the preceding November/December.

                                       37
<PAGE>

                  1.       Vacations will be staggered throughout the year and
                           selections for specific time will be by job
                           classification and seniority within department, as
                           approved by the COMPANY.

                  2.       Employees eligible for vacation will schedule all of
                           their earned vacation by seniority, as indicated in
                           Section 9.01 inclusive. Employees may split their
                           vacation into one (1) week segments.

                  3.       Employees shall indicate, in writing, on a form
                           provided by the COMPANY, their preference for
                           vacation during the month of November. Once
                           finalized, the COMPANY will post the approved
                           schedule by December 31.

                  4.       Up to five (5) days of vacation may be held and
                           scheduled one day at a time with two weeks notice and
                           approval.

                  5.       Due to production needs, the COMPANY shall be able to
                           set certain restrictions on the number of employees
                           allowed off at one time.

9.05   An employee eligible for a seniority bonus may take a fourth week of
vacation in lieu of the seniority bonus during the months of December and/or
January provided that production requirements so permit as determined by the
COMPANY.

9.06

         A.       Employees terminated for any reason, laid off, or out of work
                  on a personal leave of absence shall receive prorated vacation
                  based upon number of days worked divided by 260. Employees,
                  employed less than one (1) year are not eligible for
                  pro-ration.

         B.       Vacation hours of pay will be established on the basis of the
                  employees' average number of hours worked during the preceding
                  quarter.

                                       38
<PAGE>

                  1.       It is understood and agreed that his/her weekly
                           average will not be less than forty (40) hours nor
                           more than forty eight (48) hours times his/her
                           average straight time hourly earnings rate.

                  2.       Employees shall receive the shift premium in
                           computing vacation pay.

         C.       Vacation pay shall be payable on the Friday preceding the
                  vacation period of the individual.

         D.       UNION officers and delegates to UNION conventions shall not
                  suffer any reduction in their average hours worked for
                  purposes of computing vacation pay.

9.07   Employees will not be required to work the Saturday immediately preceding
their vacation unless they volunteer to do so.

9.08   If the COMPANY forces early vacation selection, the employee will receive
full eligibility even though his/her anniversary date falls later in the year.

9.09   The COMPANY agrees to pay all vacations and holidays at the employee's
previous quarter's average rate, even in the event of temporary transfer.

9.10   In the event the COMPANY closes the plant for two (2) consecutive weeks
of vacation, those employees who are not eligible for two (2) weeks vacation
will be considered for work as part of the skeleton crew. If they do not so
work, the COMPANY will not contest their right to file for unemployment.

ARTICLE X        PAID HOLIDAYS

10.01

         A.       It is mutually agreed that twelve regular holidays with pay
                  shall be observed annually. All employees working shall
                  receive pay at their respective published average hourly
                  earning rate for eight (8) hours for the following holidays
                  when not worked:

                                       39
<PAGE>

 New Year's Day                       President's Day
 Good Friday                          Day After Easter
 Memorial Day                         Independence Day
 Labor Day                            Thanksgiving Day
 Day After Thanksgiving Day           Day Before Christmas
 Christmas Day                        Day Before New Year's Day

                  *        It is agreed that Veterans can take off Veteran's Day
                           without pay. The COMPANY must be notified by
                           September 1, if an employee wants that day off. It is
                           also agreed that an employee each year who worked on
                           November 11, (Veteran's Day) has earned holiday pay
                           for the Day before New Year's Day.

                  Employees who do not have a published rate will be paid the
                  base rate. Employees required to work on the above holidays
                  shall be paid double time in addition to the compensation
                  provided in this Section. Employees will receive the shift
                  premium in computing holiday pay if otherwise eligible.

         B.       When a holiday falls on a Saturday, it shall be celebrated on
                  either the preceding Friday, or the following Monday, or some
                  other day as mutually agreed upon by the COMPANY and the
                  UNION.

         C.       Any of the above holidays that fall on Sunday shall be
                  observed on Monday, which shall then be considered a holiday
                  under the terms of this Agreement. All holidays prescribed in
                  Article X will be observed in conformance with the Federal
                  Law.

         D.       If one or part of the above holidays occurs during a vacation
                  period, the employee shall be compensated in accordance with
                  Article X Section 10.01, in addition to his/her regular
                  vacation pay.

         E.       It is agreed that if an employee is absent from his/her
                  regular scheduled work day before and/or following a regular
                  paid holiday, without the COMPANY's

                                       40
<PAGE>

                  permission, he/she shall not receive pay for that holiday. In
                  cases of illness or accident, they must provide a doctor's
                  note. Any doubtful cases are to be settled according to
                  Article II, of this Agreement. It is further agreed that if an
                  employee is laid off within the preceding five working days
                  before a regular paid holiday, he/she shall receive pay for
                  that holiday. In the event of illness or accident causing the
                  employee to be away from work thirty (30) days or more, the
                  employee shall receive pay for those paid holidays which fall
                  within the initial thirty (30) day period, or if there are no
                  paid holidays within the thirty (30) day period, the employee
                  shall receive pay for one (1) paid holiday occurring during
                  illness or accident lasting more than thirty (30) days.

         F.       To be eligible for holiday pay employees must have been
                  employed by the COMPANY thirty (30) days.

         G.       Except for plant security, continuous shift operations,
                  emergency or maintenance, the COMPANY will not require
                  production employees to work on Saturday when the following
                  Monday is a paid holiday as listed under Section 10.01,
                  Paragraph A.

ARTICLE XI             MILITARY CLAUSE

11.01

         A.       Any employee drafted for military service and/or any employee
                  who volunteers for military service shall be reemployed with
                  full seniority rights in accordance with Federal and State
                  laws at the time the employee requests reemployment.

         B.       The employee shall have to fulfill all provisions of the law
                  regarding his/her right to qualify under Federal and State
                  laws.

                                       41
<PAGE>

ARTICLE XII           INSURANCE PROGRAM

12.01

         A.       The COMPANY agrees to the continuance of the insurance program
                  for the benefit of its employees covered by this Agreement,
                  such insurance to include group life insurance, group
                  accidental death and dismemberment, medical reimbursement
                  benefit, surgical benefit, hospitalization benefits, and
                  dental care.

                  1.       Such insurance will be purchased through and
                           administered by the United Furniture Workers
                           Insurance Fund as established by an Agreement and
                           Declaration of Trust in the State of New York and
                           dated May 28, 1944.

                  2.       The COMPANY will remit to the Insurance Fund a sum
                           equal to 15% of the gross earnings excluding Zero
                           Waste Bonus effective the first and second years of
                           this contract (4/1/02 - 4/1/04), for all employees
                           covered by this Agreement for the purpose of paying
                           premiums on said insurance. The Employee contribution
                           shall be $55.85 per month for the first year (4/1/02
                           - 4/1/03), and $83.20 per month for the second year
                           (4/1/03 - 4/1/04) of the Agreement. These
                           contributions reflect ten percent (10%) of the total
                           premium for the first year and fourteen percent (14%)
                           of the total premium for the second year.

                           The COMPANY will contribute the equivalent of ninety
                           percent (90%) of the monthly premium cost the first
                           year of the Agreement and eighty-six percent (86%) of
                           the monthly premium cost the second year of the
                           Agreement. In no event will the COMPANY contribution
                           exceed fifteen percent (15%) of gross earnings
                           excluding the Zero Waste Bonus. Should premiums be
                           decreased during the life of this Agreement, the
                           parties will share in such decrease so that the cost
                           sharing formulas remain ninety percent (90%) COMPANY
                           / ten percent (10%) employee the first year of the
                           Agreement, and eighty-six percent (86%) COMPANY /
                           fourteen percent (14%) employee the second year of
                           the Agreement. Employee's

                                       42
<PAGE>

                           contribution will be pre-tax in accordance with
                           Section 125 of the United States Internal Revenue
                           Code.

         B.       It is further agreed that premium payments by the COMPANY for
                  its employees shall be made for the purpose and administration
                  of insurance for SIMMONS employees who are members of
                  U.F.W.A., Local 262, and in the event that the contributions
                  are not used for the benefit of said employees, the COMPANY
                  shall withhold any further payments into the designated
                  insurance fund and shall immediately negotiate with the
                  accredited representatives of Local 262 as to the disposition
                  of contributions of the EMPLOYER and the continuance of
                  insurance coverage. Any insurance plan effected shall conform
                  to all applicable State and Federal laws.

         C.       If an employee is off work for an industrial injury for a
                  period in excess of one (1) month and no contribution is owed
                  because of a lack of earned hours, the COMPANY will
                  nevertheless make one (1) monthly contribution in his/her
                  behalf based on his/her last working month's earnings.

         D.       If an employee is out on layoff over thirty one (31) days, the
                  COMPANY will make one (1) payment to the U.F.W.A. Insurance
                  Program on his/her behalf based on the employee's previous
                  month's earnings.

         E.       Employees may purchase life insurance at the rate of
                  sixty-five (.65) per thousand ($1,000) up to a maximum of five
                  thousand ($5,000) for this contract period (4/1/02 to 4/1/04).

ARTICLE XIII               PENSION

13.01

         A.       Effective April 1, 2002 the COMPANY shall contribute to the
                  United Furniture Workers Pension Plan A, six percent (6%) of
                  the gross earnings excluding the Zero Waste Bonus of employees
                  covered by this Agreement for this contract period (4/1/02 to
                  4/1/04) for the purpose of pension benefits. The parties
                  agree,

                                       43
<PAGE>

                  however, that the coverage of a newly employed employee should
                  not begin until the first day of the first calendar month
                  following the expiration of twelve (12) months from the
                  commencement of this employment. In calculating the
                  contribution due for the first twelve (12) months of coverage,
                  his/her total gross earnings for the entire preceding twelve
                  (12) months shall be considered. Thereafter, the employer will
                  make contributions each calendar month.

ARTICLE XIV                MANAGEMENT RIGHTS CLAUSE

14.01

         A.       The UNION agrees that the MANAGEMENT of the COMPANY and the
                  direction of the work force shall be in the sole discretion
                  and is the sole responsibility of the COMPANY. It further
                  agrees that all rights, powers, authority, privileges and
                  prerogatives not expressly abridged or modified by the
                  Agreement including, but not limited to, those exercised
                  unilaterally by the COMPANY in the past, are reserved to
                  COMPANY to exercise unilaterally in its sole discretion
                  without regard to any effect upon the working force; however,
                  such rights shall not be exercised arbitrarily or
                  capriciously.

         B.       Prominent among management's rights but by no means wholly
                  inclusive are the right to decide: the number, location and
                  relocation of its plants, departments, divisions, or
                  subdivisions; the closing down of a plant, department,
                  division, or subdivision; the right to rearrange, exchange,
                  combine, transfer, assign, or cease any job or service and the
                  movement and interchange of work as a result of such decision;
                  the services to be rendered, the work to be contracted out or
                  purchased; the required machinery and equipment; the methods,
                  reasonable schedules, and quantities of service; and the
                  amount of supervision necessary.

         C.       It is further recognized that the management of the Company
                  has the sole responsibility for the selection and direction of
                  the working force, including the right to: hire; lay off;
                  assign; reassign; transfer; for proper cause discipline,
                  suspend, and discharge; combine and eliminate positions;
                  determine the

                                       44
<PAGE>

                  appropriate jobs and the number of employees within a given
                  job and pay level; set shift schedules; set reasonable
                  standards for quantity and quality of work; and make and
                  enforce, after advance notice to the UNION and employees, such
                  reasonable rules and regulations as COMPANY may from time to
                  time deem appropriate to maintain order, safety, or effective
                  operation of its facilities.

         D.       Management of COMPANY shall also have the sole right to:
                  determine its suppliers and customers and the prices and terms
                  upon which its materials, equipment, and supplies will be
                  purchased and its products and services will be sold;
                  determine selection, retention, or substitution of any vending
                  service; establish and administer disability criteria
                  consistent with the Americans with Disabilities Act of 1990;
                  and determine need for and administration of physical
                  examinations, mental tests, or other tests for the safety of
                  employees and security of the premises or property of the
                  COMPANY consistent with the Americans with Disabilities Act of
                  1990.

         E.       It is agreed that management maintains and retains all of its
                  above enumerated managerial rights and that they are vested
                  solely and exclusively in the COMPANY unless expressly and
                  specifically contracted away in this Agreement and further
                  that no enumeration of management rights shall not be deemed
                  to exclude any other managerial rights. It is understood
                  COMPANY shall not exercise any rights arbitrarily or
                  capriciously.

         F.       This clause is not intended to take away any rights guaranteed
                  in this collective bargaining Agreement.

                                       45
<PAGE>

ARTICLE XV                 NO STRIKE  - -  NO LOCKOUT
----------

15.01  Neither the UNION nor any of the employees in the bargaining unit covered
by this Agreement will collectively, concertedly or individually encourage,
engage in or participate in, directly or indirectly, any strike, deliberate
slowdown, stoppage or other interference with production of work during the term
of this Agreement; and the COMPANY during the term of this Agreement will not
lockout any of the employees covered by this Agreement.

         A.       In the event that there be such an occurrence or occurrences
                  as described in Article XV, Section 15.01, then either the
                  UNION or the COMPANY may invoke the Expedited Grievance
                  Procedure provided in this section as distinguished from the
                  ordinary Grievance -- Arbitration Procedure.

                  1.       This procedure may also be invoked by either party in
                           the event an employee is discharged, suspended,
                           disqualified from a job, disciplined for failure to
                           meet production standards, or in the event there is a
                           seniority dispute.

                           a.       Such dispute or grievance shall be asserted
                                    by notice in writing by registered mail,
                                    return receipt requested, or Federal
                                    Express, given to the other party.

                           b.       A copy of such notice shall be sent
                                    simultaneously to the person designated as
                                    the permanent Arbitrator, or such other
                                    person designated as Arbitrator, as
                                    hereinbefore set forth.

         B.       The COMPANY and the UNION shall attempt to have drawn up and
                  ready for selection a list of mutually acceptable Arbitrators
                  who may be contacted directly for the Expedited Arbitration.

                                       46
<PAGE>

                  1.       Should this not have been done, or should no
                           Arbitrator on the list be available, and should the
                           parties within twenty-four (24) hours be unable to
                           agree upon an Arbitrator, they shall immediately
                           contact the local office of the American Arbitration
                           Association to request the first available Arbitrator
                           who can hear the case within forty-eight (48) hours.

         C.       In the event of death, disability, or subsequent
                  unavailability of the selected or designated Arbitrator within
                  the time limits prescribed in this provision, the parties
                  shall select another Arbitrator within twenty-four (24) hours,
                  and failing such mutual selection, either party may request
                  that the American Arbitration Association make a designation
                  of an available Arbitrator within forty-eight (48) hours of
                  the request.

         D.       The Arbitrator shall hold an arbitration hearing as
                  expeditiously as possible but in no event later than
                  twenty-four (24) hours after receipt of said notice.

                  1.       The decision of the Arbitrator shall issue forthwith
                           and in no event later than three (3) hours after the
                           conclusion of the hearing unless the grieving party
                           agrees to waive this time limitation with respect to
                           all or part of the relief requested.

                  2.       The Arbitrator's WRITTEN opinion will follow within
                           thirty (30) days.

         E.       In those situations involving discipline of employees for
                  other than violation of the No Strike Clause, it is understood
                  that the Arbitrator will hold an arbitration hearing within
                  five (5) working days after receipt of said notice.

                  1.       The decision of the Arbitrator shall issue forthwith
                           and in no event later than forty-eight (48) hours
                           after the conclusion of the hearing.

                  2.       The Arbitrator's WRITTEN opinion will follow within
                           thirty (30) days.

         F.       The arbitration proceedings pursuant heretofore shall be held
                  in Alameda County, California, but not on the COMPANY's
                  premises.

                                       47
<PAGE>

         G.       All costs for the hearing and service of the Arbitrator
                  designated herein, or for any other person selected pursuant
                  to the aforementioned procedure shall be borne by the parties
                  jointly.

         H.       Each party will bear the expense of its representatives and
                  for the presentation of its own case.

ARTICLE XVI                BULLETIN BOARDS

16.01   The COMPANY grants the UNION the right to place bulletin boards in
agreed upon places in the plant for the purpose of posting UNION notices, copies
of this Agreement, and other official papers. The UNION must obtain COMPANY
approval prior to posting anything on the bulletin boards. The request will be
granted unless the material is derogatory or defamatory. All such matters must
be posted only upon the authority of officially designated representatives of
the UNION.

ARTICLE XVII               SAFETY AND SANITATION

17.01

         A.       The COMPANY shall continue to make reasonable provisions for
                  the safety and health of its employees at the plant during the
                  hours of their employment.

         B.       Protective devices and other equipment necessary to protect
                  its employees properly from injury shall be provided by the
                  COMPANY.

                  1.       Employees shall cooperate with MANAGEMENT in the
                           proper maintenance and use of these provisions and
                           devices.

         C.       The COMPANY will maintain safety and sanitation at acceptable
                  health and safety standards in compliance with State and Local
                  requirements.

         D.       The COMPANY will carry out disciplinary action in accordance
                  with the Collective Bargaining Agreement, all Federal and
                  State OSHA Guidelines, State of California (SB 198)
                  Guidelines, and Company Safety Rules and Policies.

                                       48
<PAGE>

                  The Employee's safety record, type and nature of violations,
                  plus endangerment of self and others will be major factors in
                  the determination of the corrective action to be taken.

ARTICLE XVIII              LEGAL CONFORMITY

18.01

         A.       It is the intention and desire of both the COMPANY and the
                  UNION to conform to all laws of the State and Federal
                  government and orders issued by the President of the United
                  States.

         B.       It is intended that such laws or regulations which now exist
                  or may later be enacted or issued shall supersede the
                  requirements of this Agreement while they are in effect, and
                  upon expiration of such laws and regulations, provisions of
                  the Agreement which have been modified shall come into full
                  force and effect.

18.02 It is agreed by the parties that in the employment practices of the
COMPANY and in the membership and practices of the UNION, there shall be no
discrimination against any person on account of race, creed, color, sex,
handicap or national origin.

ARTICLE XIX                MISCELLANEOUS

19.01    SICK DAYS:

         A.       1.       Effective January 1, 1998 employees shall be eligible
                           for one (1) day of pay at $80.00 per day, for lost
                           time, per calendar quarters. Employees cannot receive
                           payment before the quarter begins.

                  2.       Any days earned but unused shall be paid to the
                           employee on the last pay period of December of each
                           year.

         B.       The COMPANY will sponsor and finance an annual picnic for all
                  employees and families.

                                       49
<PAGE>

         C.       The COMPANY and the UNION shall establish a Labor/Management
                  committee of no more than four (4) members each to deal with
                  common issues, ranging from attitudes to productivity
                  improvements. Training will be provided by the Federal
                  Mediation & Conciliation Service and meetings will be held at
                  least monthly. Participation will be on a voluntary basis and
                  either party may withdraw from this process with 30 day
                  notification to the other side.

ARTICLE XX                 TERMINATION, MODIFICATION AND RENEWAL

20.01

         A.       This Agreement shall remain in full force and effect until
                  April 1, 2004, and thereafter annually; provided, however,
                  that either party may terminate this Agreement or give notice
                  of a desire to modify any portion thereof on the date of
                  expiration, or at the end of any subsequent yearly period, by
                  notifying the other party in writing to that effect no less
                  than sixty (60) days prior to the date of expiration, or at
                  the end of any subsequent yearly period.

         B.       Negotiations upon a new or modified Agreement shall commence
                  not later than twenty (20) days next following the receipt of
                  said written notice of termination or modification.

                  1.       Not later than five (5) days after sending such
                           notice the sending party shall present in writing to
                           the other party the proposed new Agreement of
                           modification.

                  2.       Ten (10) days after receipt of said proposals the
                           recipient party shall present in writing to the other
                           party its counter or other proposal.

                  3.       Neither party shall be prevented from presenting any
                           other proposals during negotiations.

         C.       During negotiations this Agreement shall remain in full force
                  and effect.

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<PAGE>

                  1.       The provisions of the new or modified Agreement shall
                           be retroactive to the expiration date of the then
                           current Agreement.

                  2.       Either party may terminate said negotiations and
                           Agreement by giving notice in writing to the other
                           party not later than fifteen (15) days before the
                           effective date of said desired termination.

20.02   In the event SIMMONS COMPANY closes the plant and the COMPANY cannot
recognize the U.F.W.A., Local #262 as the bargaining agent in the new location,
the COMPANY will be willing to sit with the UNION to negotiate severance
compensation.

                                       51
<PAGE>

SIGNED THIS _______ DAY OF ____________________, 19_______________.

FOR SIMMONS COMPANY,                         FOR THE UNITED FURNITURE
                                             WORKERS OF AMERICA,
                                             LOCAL 262, AFL-CIO
_____________________________                ___________________________________
Rhonda Rousch                                Ulises Vergara
Senior Vice President, Human Resources       Secretary / Treasurer
                                             IWE CWA Local #262

_____________________________                ___________________________________
                                             Eric Munoz
                                             Chief Steward

_____________________________                ___________________________________
                                             Alex Zaragoza
                                             Assistant Chief Steward

_____________________________                ___________________________________
                                             Joe Colbert
                                             Steward

_____________________________                ___________________________________
                                             Jerry Murphy
                                             Steward

                                             ___________________________________
                                             Rodney Kaeka
                                             Steward

                                             ___________________________________
                                             Eddie Cano
                                             Steward

                                       52
<PAGE>

                                   APPENDIX A
                                   ----------

This agreement is entered into between Simmons Company and the U.F.W.A. Local
262. This agreement continues the position of Production Coordinator. In regards
to the positions of Production Coordinator, the parties agree to the following:

         1.       The responsibilities of the position shall consist of, but not
                  be limited to, the following items:

                           1.       assigning work

                           2.       organizing of the specific area

                           3.       training of employees

                           4.       completing necessary paper and reporting
                                    work

                           5.       Other functions as required.

         2.       The Production Coordinator shall not:

                           1.       hire

                           2.       fire

                           3.       implement discipline

                           4.       schedule employees.

         3.       Employees assigned the position of production coordinator
                  shall be compensated at the present pay plus negotiated
                  increase.

         4.       This position of production coordinator and method payment may
                  be implemented when an employee provides vacation relief for a
                  supervisor.

         5.       Selection of production coordinator shall be at the discretion
                  of management, subject to review by the cross-training
                  committee.

         6.       This agreement will become a part of the contract.

                                       A-1

<PAGE>
                                   APPENDIX A
                                   ----------

         7.       This agreement in no way negates our right to change, delete
                  or add classifications as outlined in Section 5.02.

_____________________________________    _______________________________________
Simmons Company            Date          U.F.W.A.                   Date

_____________________________________    _______________________________________
Simmons Company            Date          U.F.W.A.                   Date

                                      A-2
<PAGE>

                                   APPENDIX B
                                   ----------

                               LETTER OF AGREEMENT
                               -------------------

This letter of agreement is entered into between the U.F.W.A. Local 262 and the
Simmons Company. This agreement effects the implementation of Article VI,
Standard Allowed Hours (S.A.H.) setting formula, Section 6.03.

The parties agree to the following procedure for disqualifying employees from
their position:

         1.       All employees productivity shall be reviewed on a weekly
                  basis.

         2.       Employees who fail to make 115% of the established base rate
                  shall be given the following corrective measures:

                           A.       First Offense --  Verbal Warning

                           B.       Second Offense -- Written Warning

                           C.       Third Offense --  Final Warning

                           D.       Fourth Offense -- Disqualification from
                                    their current position.

         3.       The progression steps for disqualification will be limited to
                  two warnings at Steps A through C. It is understood that
                  employee cannot go back to the earlier warning level after
                  receiving the second warning at the present level.

         4.       Employees who are disqualified from their position shall be
                  granted their rights as contained in Article 6.03.

This agreement is entered into and becomes effective on the 1998 contract date.

_____________________________________     ______________________________________
Simmons Company            Date           U.F.W.A.                   Date

_____________________________________     ______________________________________
Simmons Company            Date           U.F.W.A.                   Date

                                      B-1
<PAGE>

                                   APPENDIX C
                                   ----------

                                [to be inserted]

                                       C-1

<PAGE>

                                   APPENDIX D
                                   ----------

                                    03/27/02

In the event the COMPANY determines that there is going to be a change or
alteration in the Pay Plus system of pay for employees, the contract shall be
reopened solely for the purpose of bargaining with respect to said pay plan.

During such reopener, all other provisions of the contract remain in full force
and effect until the expiration date set forth in the contract. The COMPANY will
notify the UNION thirty (30) days prior to the reopener.

_____________________________________     ______________________________________
Simmons Company            Date           U.F.W.A.                   Date

_____________________________________     ______________________________________
Simmons Company            Date           U.F.W.A.                   Date

                                       D-1[LOGO]

                         GALAXY NUTRITIONAL FOODS, INC.

                      NON-QUALIFIED STOCK OPTION AGREEMENT
                      ------------------------------------

     Galaxy  Nutritional  Foods,  Inc., a Delaware  corporation  (the"Company"),
hereby  grants  as of the  24th  day of May,  2002 to  ANGELO  S.  MORINI,  (the
"Optionee"),  an option to purchase a maximum of 1,163,898  shares of its Common
Stock,  $.01 par value, at the price of $5.72 per share (the  "Option"),  on the
following terms and conditions:

     1.   GRANT AS NON-QUALIFIED STOCK OPTION;  OTHER OPTIONS.  The Option shall
be treated for federal income tax purposes as a  non-qualified  stock option and
NOT as an incentive stock option under Section 422A of the Internal Revenue Code
of 1986, as amended (the "Code"). The option is in addition to any other options
heretofore or hereafter granted to the Optionee by the Company,  but a duplicate
original of this instrument shall not affect the grant of another option.

     2.   EXTENT  OF  OPTION  IF  EMPLOYMENT  CONTINUES.  If  the  Optionee  has
continued to be employed by the Company on the following dates, the Optionee may
exercise the Option for the number of shares set opposite the applicable date:

     1,163,898 options vested immediately

     In the event of a change in ownership  of the Company,  that portion of the
Option  which has not yet vested as of the date of such  event will  immediately
vest and become exercisable  simultaneously  with the consummation of the change
in ownership.

     The foregoing rights are cumulative and, while the Optionee continues to be
employed by the Company, all vested options may be exercised up to and including
the date which is ten years from the date hereof.  All of the  foregoing  rights
are subject to Articles 3 and 4, as  appropriate,  if the Optionee  ceases to be
employed by the Company or dies or becomes  disabled  while in the employ of the
Company.

     3.   TERMINATION  OF EMPLOYMENT.  If the Optionee  ceases to be employed by
the Company,  other than by reason of death or  disability as defined in Article
4, no further installments of the Option shall become exercisable and the vested
portion of the Option shall terminate at the earlier of sixty (60) days from the
date  employment  ceases or the scheduled  expiration  date.  In such case,  the
Optionee's only rights

<PAGE>

hereunder shall be those which are properly  exercised before the termination of
the Option.

     4.   DEATH;  DISABILITY.  If the  Optionee  dies while in the employ of the
Company,  the  Option  may be  exercised,  to the extent of the number of shares
vested as of the date of his death, by his estate,  personal  representative  or
beneficiary  to whom the Option has been assigned  pursuant to Article 8, at any
time within 180 days after the date of death,  but not later than the  scheduled
expiration  date. If the Optionee ceases to be employed by the Company by reason
of his disability,  the Option may be exercised to the extent exercisable on the
date of the  termination  of his  employment,  at any time within 180 days after
such  termination,  but not later than the  scheduled  expiration  date.  At the
expiration of such 180 day period or the scheduled expiration date, whichever is
the earlier, the Option shall terminate and be of no further force and effect.

     5.   PARTIAL EXERCISE. Exercise of the Option up to the extent above stated
may be made in part at any time and from time to time  within the above  limits,
except that the Option may not be exercised for a fraction of a share.

     6.   PAYMENT OF PRICE.  The option  price is  payable,  upon  exercise,  in
United States dollars and may be paid in cash or by check, or any combination of
the foregoing, equal in amount to the option price.

     7.   METHOD OF EXERCISING  OPTION.  Subject to the terms and  conditions of
this Agreement, the Option may be exercised by written notice to the Company, at
the principal  executive office of the Company, or to such transfer agent as the
Company  shall  designate.  Such notice shall state the election to exercise the
Option and the number of shares in  respect of which it is being  exercised  and
shall be signed by the person or persons so exercising  the Option.  Such notice
shall be accompanied  by payment of the full purchase price of such shares,  and
the Company shall deliver a certificate or certificates representing such shares
as soon as practicable  after the notice shall be received.  The  certificate or
certificates  for the shares as to which the Option shall have been so exercised
shall be  registered in the name of the person or person  exercising  the Option
(or,  if the Option  shall be  exercised  by the  Optionee  and  another  person
jointly,  with right and  survivorship) and shall be delivered as provided above
to or upon the written order of the person or persons exercising the Option. All
shares  that shall be  purchased  upon the  exercise  of the Option as  provided
herein shall be fully paid and non-assessable.

     8.   OPTION NOT TRANSFERABLE.  The Option is not transferable or assignable
except by will or by the laws of descent and distribution. During the Optionee's
lifetime only the Optionee can exercise the Option.

     9.   NO  OBLIGATION  TO EXERCISE  OPTION.  The grant and  acceptance of the
Option imposes no obligation on the Optionee to exercise it.

<PAGE>

     10.  NO  OBLIGATION  TO  CONTINUE  EMPLOYMENT.  The Company and any Related
Corporations are not obligated to continue the Optionee in employment.

     11.  NO RIGHTS AS STOCKHOLDER  UNTIL  EXERCISE.  The Optionee shall have no
rights as a stockholder with respect to shares subject to this Agreement until a
stock  certificate  therefor  has been issued to the  Optionee and is fully paid
for.  Except  with  respect to  certain  changes  in the  capitalization  of the
Company,  no adjustment  shall be made for dividends or similar rights for which
the record date is prior to the date such stock certificate is issued.

     12.  CAPITAL  CHANGES AND  BUSINESS  SUCCESSIONS.  It is the purpose of the
Option to encourage  the Optionee to work for the best  interests of the Company
and its stockholders.  Since, for example,  that might require the issuance of a
stock dividend or a merger with another  corporation,  the purpose of the Option
would not be served if such stock dividend,  merger or similar  occurrence would
cause the  Optionee's  rights  hereunder to be diluted or terminated and thus be
contrary to the Optionee's interest. The 1996 Stock Plan of the Company contains
extensive  provisions  designed to preserve options at full value in a number of
contingencies  and although  this option is not governed by the 1996 Stock Plan,
provisions in the Plan for  adjustment  with respect to stock subject to options
and the related  provisions  with respect to  successors  to the business of the
Company are hereby made  applicable  hereunder  and are  incorporated  herein by
reference. In particular,  without affecting the generality of the foregoing, it
is  understood  that for the  purposes  of  Articles  2 through  4 hereof,  both
inclusive,   employment  by  the  Company  includes   employment  by  a  Related
Corporation as defined in the Plan.

     13.  PROVISION OF DOCUMENTATION OF OPTIONEE. By signing this Agreement, the
Optionee  acknowledges  receipt  of a copy of this  Agreement  and a copy of the
Company's 1996 Stock Plan.

     14.  EARLY  DISPOSITION.  The  Employee  agrees to notify  the  Company  in
writing immediately after the Employee makes a Disqualifying  Disposition of any
Common Stock received  pursuant to the exercise of this option.  A Disqualifying
Disposition is any disposition  (including any sale) of such Common Stock before
the later of (a) two years after the date the  Employee  was granted this option
or (b) one year after the date the Employee  acquired Common Stock be exercising
this option.  If the Employee has died before such stock is sold,  these holding
period  requirements  do not apply and no  Disqualifying  Disposition  can occur
thereafter. The Employee also agrees to provide the Company with any information
which it shall request concerning any such disposition.

     15.  WITHHOLDING TAXES. If the Company in its discretion determines that it
is obligated to withhold tax with  respect to a  Disqualifying  Disposition  (as
defined in Article 15) of Common  Stock  received by the Employee on exercise of
this option,  the Employee  hereby agrees that the Company may withhold from the
Employee's wages the appropriate amount of Federal,  state and local withholding
taxes attributable to such

<PAGE>

Disqualifying  Disposition.  The  Employee  hereby  agrees  that the Company may
withhold from the Employee's wages the appropriate amount of Federal,  state and
local  withholding  taxes  attributable  to  the  Employee's  exercise  of  such
Non-Qualified  Option.  At the Company's  discretion,  the amount required to be
withheld  may be  withheld  in  cash  from  such  wages,  of  (with  respect  to
compensation  income  attributable  to the exercise of this option) in kind from
the Common  Stock  otherwise  deliverable  to the  Optionee  on exercise of this
Option.  The Employee  further  agrees that, if the Company does not withhold an
amount from the Employee's wages sufficient to satisfy the Company's withholding
obligation,  the Employee will reimburse the Company on demand, in cash, for the
amount underwithheld.

     16.  GOVERNING LAW. This Agreement  shall be governed by and interpreted in
accordance with the internal laws of the State of Delaware.

     17.  EXPIRATION.  This Option shall expire at 5:00 p.m. Orlando time on May
24, 2012.  Whether or not surrendered to the Company by the holder,  this Option
shall be deemed cancelled upon expiration hereof.

     IN WITNESS WHEREOF the Company and the Optionee have caused this instrument
to be executed,  and the Optionee  whose  signature  appears below  acknowledges
receipt  of a copy  of the  Plan  and  acceptance  of an  original  copy of this
Agreement.

OPTIONEE                                     GALAXY NUTRTIONAL FOODS

By:  __/s/ Angelo S. Morini_____             By:___/s/ LeAnn Hitchcock____
Angelo S. Morini                             LeAnn Hitchcock, CFO

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