Document:

<PAGE>   1
                                                                  CONFORMED COPY

                                                                       EX. 10.86

                                WAIVER AGREEMENT
                 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT

            THIS WAIVER AGREEMENT TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT
(the "Waiver") dated as of June 29, 2001 is to that Third Amended and Restated
Credit Agreement dated as of June 30, 2000, (as may be subsequently amended and
modified from time to time, the "Credit Agreement"; terms used but not otherwise
defined herein shall have the meanings provided in the Credit Agreement), by and
among SLEEPMASTER L.L.C., a New Jersey limited liability company (the
"Borrower"), SLEEPMASTER HOLDINGS L.L.C., a New Jersey limited liability company
(the "Parent") and those Domestic Subsidiaries of the Borrower as may from time
to time become party thereto (together with the Parent, collectively, the
"Guarantors"), the several banks and other financial institutions identified
therein (the "Lenders") and FIRST UNION NATIONAL BANK, as administrative agent
for the Lenders thereunder (in such capacity, the "Agent").

                              W I T N E S S E T H:

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

         WHEREAS, the Borrower and the Agent have determined that it will be in
the best interest of all parties to extend the time to comply with certain of
the covenants set forth in that certain Waiver and Second Amendment To Third
Amended and Restated Credit Agreement dated as of May 15, 2001 (the "Second
Amendment") and the Borrower requests that the Required Lenders waive any
Default or Event of Default that will result from such noncompliance; and

         WHEREAS, the Required Lenders have agreed to waive certain of the
covenants of the Second Amendment on the terms and conditions hereinafter set
forth;

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

         A. Waiver. The Borrower and the Agent have determined that it will be
in the best interest of all parties to extend the time to comply with the
requirement to negotiate and determine the liquidity levels on or before June
30, 2001 (i) as set forth in footnote 1 and relating to the amended Section 4.2
of the Credit Agreement in Section 10 of the Second Amendment and (ii) as set
forth in footnote 2 and relating to the amended Section 5.9 of the Credit
Agreement in Section 17 of the Second Amendment, which failures constitute a
Default or an Event of Default under the Credit Agreement. The Required Lenders
hereby grant a waiver of compliance with the above-referenced covenants and of
any Defaults or Events of Default resulting from such noncompliance; provided
that the negotiation and determination of liquidity levels are completed on or
prior to July 16, 2001.

         B. This Waiver shall become effective when it is executed by a duly
authorized officer of the Borrower, the Guarantors, the Required Lenders and the
Agent.
<PAGE>   2
                                                                  CONFORMED COPY

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

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

         E. This Waiver and the Credit Agreement shall be deemed to be contracts
made under, and for all purposes shall be construed in accordance with the laws
of the State of North Carolina.

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

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

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------

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

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------

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

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------
<PAGE>   3
                                                                  CONFORMED COPY

                               PALM BEACH BEDDING COMPANY,
                               a Florida corporation

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------

                               HERR MANUFACTURING COMPANY,
                               a Pennsylvania corporation

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------

                               SLEEPMASTER FINANCE CORPORATION,
                               a Delaware corporation

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------

                               STAR BEDDING PRODUCTS,
                               a New Brunswick corporation

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------

                               ADAM WUEST CORPORATION,
                               a Delaware corporation

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------

                               SIMON MATTRESS MANUFACTURING CO.
                               a California corporation

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------
<PAGE>   4
                                                                  CONFORMED COPY

                               CRESCENT SLEEP PRODUCTS COMPANY
                               a Delaware corporation

                               By:         /s/ Les Breiland
                                           -------------------------------
                               Name:       Les Breiland
                                           -------------------------------
                               Title:      CFO
                                           -------------------------------
<PAGE>   5
                                                                  CONFORMED COPY

AGENTS AND LENDERS:            FIRST UNION NATIONAL BANK,
                               as Administrative Agent and as a Lender

                               By:         /s/ G.C. Ullrich
                                           -------------------------------
                               Name:       G.C. Ullrich
                                           -------------------------------
                               Title:      Senior Vice President
                                           -------------------------------

                               WACHOVIA BANK, N.A.

                               By:         /s/ Catherine A. Cowan
                                           -------------------------------
                               Name:       Catherine A. Cowan
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------

                               FIRSTAR BANK, N.A.

                               By:         /s/ Douglas P. Best
                                           -------------------------------
                               Name:       Douglas P. Best
                                           -------------------------------
                               Title:      Banking Officer
                                           -------------------------------

                               GMAC BUSINESS CREDIT, LLC

                               By:         /s/ Thomas Brent
                                           -------------------------------
                               Name:       Thomas Brent
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------

                               FIFTH THIRD BANK

                               By:         /s/ John R. Love, Sr.
                                           -------------------------------
                               Name:       John R. Love, Sr.
                                           -------------------------------
                               Title:      Assistant Vice President
                                           -------------------------------

                               VAN KAMPEN CLO II, LIMITED
                               BY: VAN KAMPEN MANAGEMENT INC.,
                               as Collateral Manager

                               By:         /s/ Darvin D. Pierce
                                           -------------------------------
                               Name:       Darvin D. Pierce
                                           -------------------------------
                               Title:      Principal
                                           -------------------------------
<PAGE>   6
                                                                  CONFORMED COPY

                               VAN KAMPEN
                               SENIOR FLOATING RATE FUND
                               By:  Van Kampen Investment Advisory Corp.

                               By:         /s/ Darvin D. Pierce
                                           -------------------------------
                               Name:       Darvin D. Pierce
                                           -------------------------------
                               Title:      Principal
                                           -------------------------------

                               VAN KAMPEN CLO I, LIMITED
                               BY: VAN KAMPEN MANAGEMENT INC.,
                               as Collateral Manager

                               By:         /s/ Darvin D. Pierce
                                           -------------------------------
                               Name:       Darvin D. Pierce
                                           -------------------------------
                               Title:      Principal
                                           -------------------------------

                               VAN KAMPEN
                               SENIOR INCOME TRUST
                               By:  Van Kampen Investment Advisory Corp.

                               By:         /s/ Darvin D. Pierce
                                           -------------------------------
                               Name:       Darvin D. Pierce
                                           -------------------------------
                               Title:      Principal
                                           -------------------------------

                               ANTARES CAPITAL CORPORATION

                               By:         /s/ David Mahon
                                           -------------------------------
                               Name:       David Mahon
                                           -------------------------------
                               Title:      Director
                                           -------------------------------

                               CHASE MANHATTAN BANK,

                               As Trustee of the Antares Funding Trust
                               created under the Trust Agreement dated as
                               of November 30, 1999, as Lender

                               By:         /s/ Judith Drummond
                                           -------------------------------
                               Name:       Judith Drummond
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------
<PAGE>   7
                                                                  CONFORMED COPY

                               FIRSTRUST BANK

                               By:         /s/ Kent Nelson
                                           -------------------------------
                               Name:       Kent Nelson
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------

                               BLACK DIAMOND INTERNATIONAL
                               FUNDING, LTD.

                               By:         /s/ David Egglishaw
                                           -------------------------------
                               Name:       David Egglishaw
                                           -------------------------------
                               Title:      Director
                                           -------------------------------

                               BLACK DIAMOND CLO 2000-1 LTD.

                               By:         /s/ David Egglishaw
                                           -------------------------------
                               Name:       David Egglishaw
                                           -------------------------------
                               Title:      Director
                                           -------------------------------

                               BLACK DIAMOND CLO 1998-1 LTD.

                               By:         /s/ David Egglishaw
                                           -------------------------------
                               Name:       David Egglishaw
                                           -------------------------------
                               Title:      Director
                                           -------------------------------

                               HELLER FINANCIAL, INC.

                               By:         /s/ Robert M. Reeg
                                           -------------------------------
                               Name:       Robert M. Reeg
                                           -------------------------------
                               Title:      Assistant Vice President
                                           -------------------------------

                               U.S. BANK NATIONAL ASSOCIATION

                               By:         /s/ Matthew A. Ross
                                           -------------------------------
                               Name:       Matthew A. Ross
                                           -------------------------------
                               Title:      Senior Vice President
                                           -------------------------------
<PAGE>   8
                                                                  CONFORMED COPY

                               EATON VANCE SENIOR INCOME TRUST
                               BY:  EATON VANCE MANAGEMENT
                               AS INVESTMENT ADVISOR

                               By:         /s/ Payson F. Swaffield
                                           -------------------------------
                               Name:       Payson F. Swaffield
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------

                               EATON VANCE INSTITUTIONAL SENIOR
                               LOAN FUND
                               BY:  EATON VANCE MANAGEMENT
                               AS INVESTMENT ADVISOR

                               By:         /s/ Payson F. Swaffield
                                           -------------------------------
                               Name:       Payson F. Swaffield
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------

                               OXFORD STRATEGIC INCOME FUND
                               BY:  EATON VANCE MANAGEMENT
                               AS INVESTMENT ADVISOR

                               By:         /s/ Payson F. Swaffield
                                           -------------------------------
                               Name:       Payson F. Swaffield
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------

                               EATON VANCE CDO II, LTD.
                               BY:  EATON VANCE MANAGEMENT
                               AS INVESTMENT ADVISOR

                               By:         /s/ Payson F. Swaffield
                                           -------------------------------
                               Name:       Payson F. Swaffield
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------

                               EATON VANCE CDO III, LTD.
                               BY:  EATON VANCE MANAGEMENT
                               AS INVESTMENT ADVISOR

                               By:         /s/ Payson F. Swaffield
                                           -------------------------------
                               Name:       Payson F. Swaffield
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------
<PAGE>   9
                                                                  CONFORMED COPY

                               SENIOR DEBT PORTFOLIO
                               By:  Boston Management and Research
                               as Investment Advisor

                               By:         /s/ Payson F. Swaffield
                                           -------------------------------
                               Name:       Payson F. Swaffield
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------

                               SUNTRUST BANK

                               By:         /s/ Lauren P. Carrigan
                                           -------------------------------
                               Name:       Lauren P. Carrigan
                                           -------------------------------
                               Title:      Vice President
                                           -------------------------------<PAGE>   1

                                                                  CONFORMED COPY

                                                                   EXHIBIT 10.87

                             SECOND WAIVER AGREEMENT
                 TO THIRD AMENDED AND RESTATED CREDIT AGREEMENT

         THIS SECOND WAIVER AGREEMENT TO THIRD AMENDED AND RESTATED CREDIT
AGREEMENT (the "Waiver") dated as of July 24, 2001 is to that Third Amended and
Restated Credit Agreement dated as of June 30, 2000, (as may be subsequently
amended and modified from time to time, the "Credit Agreement"; terms used but
not otherwise defined herein shall have the meanings provided in the Credit
Agreement), by and among SLEEPMASTER L.L.C., a New Jersey limited liability
company (the "Borrower"), SLEEPMASTER HOLDINGS L.L.C., a New Jersey limited
liability company (the "Parent") and those Domestic Subsidiaries of the Borrower
as may from time to time become party thereto (together with the Parent,
collectively, the "Guarantors"), the several banks and other financial
institutions identified therein (the "Lenders") and FIRST UNION NATIONAL BANK,
as administrative agent for the Lenders thereunder (in such capacity, the
"Agent").

                              W I T N E S S E T H:

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

         WHEREAS, the Borrower has advised the Agent that it failed to comply
with certain covenants and requirements set forth in the Credit Agreement and
requests that the Required Lenders waive the Defaults or Events of Default
resulting from such noncompliance; and

         WHEREAS, the Required Lenders have agreed to waive such covenants and
requirements, and such Defaults and Events of Default resulting from such
noncompliance, on the terms and conditions hereinafter set forth;

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

         A. Waiver. The Borrower has informed the Agent and the Lenders that it
has, or may have, failed to comply with certain covenants and requirements of
the Credit Agreement as the Borrower has set forth on the Schedule A attached
hereto (the "Specified Covenants"), which failures have, or would, constitute
Defaults or Events of Default under the Credit Agreement. Subject to the terms
and conditions of this Waiver, the Required Lenders hereby grant a waiver of
compliance with the Specified Covenants and of any Defaults or Events of Default
resulting from such noncompliance; provided, however, this Waiver shall be
effective only to and including September 30, 2001 (the
<PAGE>   2
"Second Waiver Period"), after which time the Waiver shall be of no further
force and effect and shall, without further notice, be terminated.

         B. Revolving Loans. Subject to the terms and conditions hereof and
provided the Borrower is otherwise in compliance with the terms and conditions
of the Credit Agreement, other than with respect to the Specified Covenants,
during the Second Waiver Period the Borrower may, and the Required Lenders
hereby agree to permit the Borrower to, incur Revolving Loans up to an aggregate
outstanding amount not exceeding $33,742,270 (which is the total amount of
Revolving Loans and LOC Obligations outstanding as of the date of this Waiver)
plus $1,500,000 (the sum of which shall be referred to as the "Permitted
Outstandings"); provided, that the amount of Permitted Outstandings shall be
reduced on a dollar-for-dollar basis by an amount equal to the Net Cash Proceeds
of any Asset Disposition applied to reduce the Revolving Loans.

         C. Application of Proceeds; Default Interest. As a result of the
existence of certain Defaults and Events of Default prior to the effectiveness
of this Waiver, each of the Borrower and the Required Lenders acknowledge and
agree that: (i) the Net Cash Proceeds from the disposition of the Ohio facility
owned by Adam Wuest Corporation shall be applied according to the terms and
conditions set forth in Section 2.13(b) of the Credit Agreement, provided that
notwithstanding anything to the contrary in the Credit Agreement, that portion
of the Net Cash Proceeds allocated to the Revolving Loans and LOC Obligations
shall be paid to those Lenders who have made Revolving Loans in reduction of the
outstanding Revolving Loans, and no portion of same shall be held as cash
collateral; (ii) notwithstanding anything in the Credit Agreement to the
contrary, interest on the Loans shall be payable in arrears on the last day of
each month; and (iii) the default rate of interest of two percent (2%) ("Default
Interest") greater than the rate which would otherwise be applicable, as
provided in Section 2.10 of the Credit Agreement, shall apply and be payable
with respect to the Loans for the period from and including July 1, 2001 through
and including September 30, 2001; provided, however, that the amount equal to
the Default Interest shall accrue and be payable in cash on September 30, 2001.

         D. Letters of Credit. (i) To replace U.S. Bank National Association
(the "Existing Iowa LOC Bank") as the issuer of the letter of credit dated as of
November 15, 1999 (the "U.S. Bank Letter of Credit") issued for the benefit of
U.S. Bank National Association, as Trustee (the "Iowa IRB Trustee") in
connection with Tax-Exempt Adjustable Mode Industrial Development Revenue Bonds
(Dixie Bedding Company Project) Series 1995, the Issuing Lender, at the
Borrower's request, may, and the Required Lenders hereby agree to permit the
Issuing Lender to, issue a Letter of Credit (the "Replacement Letter of Credit")
for the benefit of the Iowa IRB Trustee, up to an amount equal to $3,262,500;
provided, however, promptly following issuance of such Letter of Credit, the
Borrower and the Issuing Lender shall (a) cause the termination of the U.S. Bank
Letter of Credit, and (b) cause the termination of the Letter of Credit dated as
of July 6, 2000, issued by the Issuing Lender for the benefit of the Existing
Iowa LOC Bank.

                                      -2-
<PAGE>   3
         (ii) The Borrower may, and the Required Lenders hereby agree to permit
the Borrower and the Issuing Lender to extend for a period of not more than
twelve (12) months from its scheduled date of expiration, the Letter of Credit
previously issued for the benefit of Fifth Third Bank, as Trustee in connection
with the County of Hamilton Ohio Economic Development Revenue Refunding Bonds;
and

         (iii) The Borrower hereby agrees that it shall not request the issuance
of any Letters of Credit under the Credit Agreement during the Second Waiver
Period except for the Replacement Letter of Credit and the extension of the
Letter of Credit described in Section D(ii) of this Waiver.

         E. Deposits. The Borrower hereby covenants and agrees that it shall
promptly provide E & Y Capital Advisors LLC and Morgan, Lewis & Bockius LLP,
advisors to the Agent, with deposits, each in the amount of $100,000, as
advances for professional services to be rendered by such advisors.

         F. Reports. The Borrower hereby covenants and agrees that: (i) it shall
provide the Agent and each of the Lenders, as soon as possible, but in any event
within fifteen (15) days after the end of each month, a statement of its
consolidated EBITDA as of the last day of each month;

         (ii) by the Tuesday of each week, it shall provide the Agent and each
of the Lenders with a report of actual sales of the Borrower and its
Subsidiaries concluded during the immediately preceding week; and

         (iii) as soon as possible, but in any event by September 7, 2001, it
shall deliver to the Agent, (x) a detailed copy of the Borrower's business plan
for fiscal years 2001 and 2002, and (y) a review prepared by Zolfo Cooper of the
Borrower's business plans for fiscal years 2001 and 2002, in each case the form,
scope and substance of such review to be satisfactory to the Agent.

         G. Further Assurances. (i) Each Credit Party hereby covenants and
agrees that it shall take such action at its own expense as requested by the
Agent to ensure that the Agent has a first priority perfected Lien in the
Collateral, subject to Permitted Liens, to secure the Credit Party Obligations;

         (ii) The Borrower hereby covenants and agrees that it shall deliver to
the Agent and the Lenders a certificate of a Responsible Officer of the Borrower
certifying that any Extensions of Credit requested shall be used only for
ordinary and necessary business purposes, which certificate shall be accompanied
by such supporting documentation as may be reasonably requested by the Agent or
any Lender; and

         (iii) Notwithstanding the waiver by the Required Lenders of the
covenant set forth in Section 5.14(f) of the Credit Agreement (Schedule A(G)),
the Borrower hereby covenants and agrees that it shall use its best efforts
during the Waiver Period to comply

                                      -3-
<PAGE>   4
with Section 5.14(f) of the Credit Agreement in establishing a sweep account as
provided in such section of the Credit Agreement.

         H. This Waiver shall become effective when it is executed by a duly
authorized officer of the Borrower, the Guarantors, the Required Lenders and the
Agent.

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

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

         K. This Waiver and the Credit Agreement shall be deemed to be contracts
made under, and for all purposes shall be construed in accordance with the laws
of the State of North Carolina.

                                      -4-
<PAGE>   5
            IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Waiver to be duly executed and delivered as of the date and
year first above written.

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

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

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

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

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

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

                                      PALM BEACH BEDDING COMPANY,
                                      a Florida corporation

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

                                      -5-
<PAGE>   6
                                      HERR MANUFACTURING COMPANY,
                                      a Pennsylvania corporation

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

                                      SLEEPMASTER FINANCE CORPORATION,
                                      a Delaware corporation

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

                                      ADAM WUEST CORPORATION,
                                      a Delaware corporation

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

                                      SIMON MATTRESS MANUFACTURING CO.
                                      a California corporation

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

                                      CRESCENT SLEEP PRODUCTS COMPANY
                                      a Delaware corporation

                                      By: /s/ Les Breiland
                                          ----------------------------------
                                      Name: Les Breiland
                                      Title: Chief Financial Officer

                                      -6-
<PAGE>   7
AGENTS AND LENDERS:                   FIRST UNION NATIONAL BANK,
                                      as Administrative Agent and as a Lender

                                      By:/s/ G.C. Ullrich
                                          ----------------------------------
                                      Name:       G.C. Ullrich
                                      Title:      Senior Vice President

                                      SUNTRUST BANK

                                      By:/s/ T. Michael Logan
                                          ----------------------------------
                                      Name:       T. Michael Logan
                                      Title:      Managing Director

                                      SENIOR DEBT PORTFOLIO
                                      By:         Boston Management and Research
                                                  as Investment Advisor

                                      By:/s/ Payson Swaffield
                                          ----------------------------------
                                      Name:       Payson Swaffield
                                      Title:      Vice President

                                      EATON VANCE SENIOR INCOME TRUST
                                      By:         Eaton Vance Management
                                                  as Investment Advisor

                                      By:/s/ Payson Swaffield
                                          ----------------------------------
                                      Name:       Payson Swaffield
                                      Title:      Vice President

                                      EATON VANCE INSTITUTIONAL SENIOR LOAN FUND
                                      By:         Eaton Vance Management
                                                  as Investment Advisor

                                      By:/s/ Payson Swaffield
                                          ----------------------------------
                                      Name:       Payson Swaffield
                                      Title:      Vice President

                                      OXFORD STRATEGIC INCOME FUND
                                      By:         Eaton Vance Management
                                                  as Investment Advisor

                                      By:/s/ Payson Swaffield
                                          ----------------------------------
                                      Name:       Payson Swaffield
                                      Title:      Vice President

                                      -7-
<PAGE>   8
                                      EATON VANCE CDO II, LTD.
                                      By:         Eaton Vance Management
                                                  as Investment Advisor

                                      By:/s/ Payson Swaffield
                                          ----------------------------------
                                      Name:       Payson Swaffield
                                      Title:      Vice President

                                      EATON VANCE CDO III, LTD.
                                      By:         Eaton Vance Management
                                                  as Investment Advisor

                                      By:/s/ Payson Swaffield
                                          ----------------------------------
                                      Name:       Payson Swaffield
                                      Title:      Vice President

                                      ANTARES CAPITAL CORPORATION

                                      By:/s/ Tyler W. Lindblad
                                          ----------------------------------
                                      Name:       Tyler W. Lindblad
                                      Title:      Director

                                      CHASE MANHATTAN BANK,
                                      As Trustee of the Antares Funding Trust
                                      created under the Trust Agreement dated
                                      as of November 30, 1999

                                      By:/s/ Judith Drummond
                                          ----------------------------------
                                      Name:       Judith Drummond
                                      Title:      Vice President

                                      BLACK DIAMOND INTERNATIONAL FUNDING, LTD.

                                      By:/s/ John H. Cullinane
                                          ----------------------------------
                                      Name:       John H. Cullinane
                                      Title:      Director

                                      BLACK DIAMOND CLO 2000-1 LTD.

                                      By:/s/ David Dyer
                                          ----------------------------------
                                      Name:       David Dyer
                                      Title:      Director

                                      -8-
<PAGE>   9
                                      BLACK DIAMOND CLO 1998-1 LTD.

                                      By:/s/ John H. Cullinane
                                          ----------------------------------
                                      Name:       John H. Cullinane
                                      Title:      Director

                                      GMAC BUSINESS CREDIT, LLC.

                                      By:/s/ Joel Richards
                                          ----------------------------------
                                      Name:       Joel Richards
                                      Title:      Director

                                      AIMCO CDO SERIES 2000-A

                                      By:/s/ Robert Bodett
                                          ----------------------------------
                                      Name:       Robert Bodett
                                      Title:      Authorized Signatory

                                      By: /s/ Patricia Wilson
                                          ----------------------------------
                                      Name:       Patricia W. Wilson
                                      Title:      Authorized Signatory

                                      ALLSTATE LIFE INSURANCE COMPANY

                                      By:/s/ Robert Bodett
                                          ----------------------------------
                                      Name:       Robert Bodett
                                      Title:      Authorized Signatory

                                      By: /s/ Patricia Wilson
                                          ----------------------------------
                                      Name:       Patricia W. Wilson
                                      Title:      Authorized Signatory

                                      WACHOVIA BANK, N.A.

                                      By:/s/ Monica Cole
                                          ----------------------------------
                                      Name:       Monica Cole
                                      Title:      Risk Manager

                                      HELLER FINANCIAL, INC.

                                      By:/s/ Robert M. Reeg
                                          ----------------------------------
                                      Name:       Robert M. Reeg
                                      Title:      Assistant Vice President

                                      -9-
<PAGE>   10
                                      FIRSTRUST BANK

                                      By:/s/ Kent Nelson
                                          ----------------------------------
                                      Name:       Kent Nelson
                                      Title:      Vice President

                                      -10-
<PAGE>   11
                                   SCHEDULE A
                               SPECIFIED COVENANTS
                             AS PROVIDED BY BORROWER

A.       The Borrower has been unable to comply with the following financial
         covenants:

         1.       The Interest Coverage Ratio requirement set forth in Section
                  5.9(b) of the Credit Agreement, as amended.

         2.       The Fixed Charge Coverage Ratio requirement set forth in
                  Section 5.9(c) of the Credit Agreement, as amended.

         3.       The Senior Leverage Ratio requirement set forth in Section
                  5.9(e) of the Credit Agreement, as amended.

         4.       The Minimum Consolidated EBITDA requirement set forth in
                  Section 5.9(g) of the Credit Agreement, as amended.

B.       The Borrower has entered into the following agreement which may violate
         the Transactions with Affiliates Covenant set forth in Section 6.7 of
         the Credit Agreement, as amended.

         1.       Severance Agreement and Waiver, dated as of December 13, 2000,
                  by and among the Borrower, Charles Schweitzer, and Sleep
                  Investor L.L.C.

         2.       Severance Agreement and Waiver, dated as of December 13, 2000,
                  by and among the Borrower, James P. Koscica, and Sleep
                  Investor L.L.C.

         3.       Severance Agreement and Waiver, dated as of March 22, 2001, by
                  and among the Borrower, Michael W. Bubis, and Sleep Investor
                  L.L.C.

         4.       Severance Agreement and Waiver, dated as of June 5, 2001, by
                  and among the Borrower, Les Breiland, and Sleep Investor
                  L.L.C.

                                      -11-
<PAGE>   12
C.       The Borrower is in the process of entering into the following
         agreements which agreements will be in substantially the same form as
         provided to the Agent on July 25, 2000 when finalized and requests a
         consent and waiver from the Required Lenders of the Transactions with
         Affiliates Covenant set forth in Section 6.7 of the Credit Agreement,
         as amended with respect to such agreements.

         1.       Consulting Agreement and Release, dated as of July ___, 2001,
                  by and among the Borrower, the Parent, Sleep Investor L.L.C.,
                  Citicorp Venture Capital, Ltd., and Charles Schweitzer.*

         2.       Severance Agreement, dated as of July ___, 2001, by and
                  between the Borrower and Kyle G. Boyle.

D.       The Borrower and the Agent have determined that it will be in the best
         interest of all parties to extend the time to comply with the
         requirement to negotiate and determine the liquidity levels on or
         before July 16, 2001, as set forth in the Waiver Agreement to Third
         Amended and Restated Credit Agreement, dated as of June 29, 2001, by
         and among the Borrower, the Parent, the Guarantors and the Agent. The
         Borrower requests that requirement to negotiate and determine the
         liquidity levels be extended to September 30, 2001.

E.       The Borrower has been unable to deliver the Borrower's business plan
         for fiscal years 2001 and 2002 as required in Section 5.14(b) of the
         Credit Agreement, as amended.

F.       The Borrower has been unable to deliver a review prepared by Zolfo
         Cooper of the Borrower's business plans for fiscal years 2001 and 2002
         as required in Section 5.14(c) of the Credit Agreement, as amended.

G.       The Borrower has not established sweep accounts as required in Section
         5.14(f) of the Credit Agreement, as amended.

--------
*        No severance will be paid under the Severance Agreement listed under B1
         if the Consulting Agreement and Release is executed.

                                      -12-

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