SLEEPMASTER LLC, 10-K/A, 2000-04-19

SLEEPMASTER LLC
10-K/A, 2000-04-19
HOUSEHOLD FURNITURE

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UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

------------------------

FORM 10-K/A

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.

FOR THE TRANSITION PERIOD FROM TO .

COMMISSION FILE NUMBER 333-81987

SLEEPMASTER L.L.C.
(EXACT NAME OF REGISTRANT AS IT APPEARS IN ITS CHARTER)

<TABLE>
<S> <C>
NEW JERSEY 22-3341313
(STATE OR OTHER JURISDICTION OF INCORPORATION
OR ORGANIZATION) (IRS EMPLOYER ID NUMBER)

2001 LOWER ROAD, LINDEN, NEW JERSEY 07036-6520
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>

(732) 381-5000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]

All of the registrant's voting and nonvoting membership interests are held
by its affiliates, Sleepmaster Holdings L.L.C. and Sleep Investor L.L.C.

Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practical date.

Class A common units, no par value -- 8,000 units as of December 31, 1999
Class B common units, no par value -- 0 units as of December 31, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2

PART I

ITEM 1. BUSINESS

GENERAL

Sleepmaster L.L.C. (the "Company" or "Sleepmaster") is a leading
manufacturer and distributor of a full line of conventional bedding, including
mattresses and box springs, marketed under the well-known brand names of Serta,
Serta Perfect Sleeper, Sertapedic and Masterpiece. Sleepmaster is the second
largest Serta licensee in North America with approximately a 23% market share in
its domestic licensed territories as of December 31, 1999. Serta, Inc.
("Serta"), through its licensees, is the second largest manufacturer of
conventional bedding products in the United States.

Serta, Inc. is a national organization that is owned by and operated for
the benefit of its licensees. The organization consists of 10 domestic licensed
mattress manufacturers, covering 34 licensing territories and operating out of
27 domestic manufacturing facilities. Serta also has 27 international licensees
in Canada, Europe, Asia, the Middle East, South America and the Caribbean.

Sleepmaster is one of Serta's 10 domestic licensed mattress manufacturers,
covering licensing territories in all or a portion of New York, Connecticut, New
Jersey, Pennsylvania, Delaware, Maryland, Ohio, Indiana, West Virginia,
Commonwealth of Kentucky, Florida and Ontario, Canada.

The Company distributes its products through a variety of channels,
including bedding chains, furniture retailers, department stores, wholesale
buying clubs and contract customers. The Company operates manufacturing
facilities located in Linden, New Jersey, Lancaster, Pennsylvania, Riviera
Beach, Florida, Cincinnati, Ohio and Concord, Ontario, Canada.

HISTORY OF THE COMPANY

The Company was formed as a limited liability company in January 1995, for
the purpose of acquiring substantially all of the assets of Sleepmaster Products
Company, L.P., a Delaware limited partnership. At its formation, 98% of the
Company was owned by Sleepmaster Holdings L.L.C. ("Holdings") and 2% was owned
by Brown/Schweitzer Holdings Inc. ("B/S Holdings"), an investor group. Holdings,
in turn, was owned by management of Sleepmaster and outside investors. On
November 14, 1996, Sleepmaster entered into a recapitalization agreement with a
new group of investors led by Citicorp Venture Capital and PMI Mezzanine Fund
L.L.P., pursuant to which the new investor group and Sleep Investor L.L.C., a
Delaware limited liability company ("Sleep Investor"), paid cash and issued
promissory notes to effect a leveraged recapitalization of Sleepmaster (the
"Recapitalization"). As a result of the Recapitalization, Sleep Investor
acquired a 72.0% interest and management of Sleepmaster acquired a 28.0%
interest in Holdings. Holdings ownership of Sleepmaster increased to over 99.9%.

Since the Recapitalization, Sleepmaster acquired the stock of Palm Beach
Bedding Company ("Palm Beach") on March 3, 1998, the stock of Herr Manufacturing
Company ("Herr") on February 26, 1999, substantially all of the assets of Star
Bedding Products (1986) Limited ("Star") on May 18, 1999 and substantially all
of the assets of Adam Wuest, Inc. ("Adam Wuest") on November 5, 1999.

THE SERTA NATIONAL ORGANIZATION

Serta owns the rights to the Serta trademark and licenses companies to
manufacture and sell mattresses under the Serta brand name. The licensing
agreements prohibit each licensee from manufacturing outside of its licensing
territories. The Serta organization generated total domestic licensing revenues
of $720 million in the year ended December 31, 1999.

The Serta organization is headed by Serta's president, who reports to a
board of directors which consists of representatives of six licensees, two
outside directors and the president of Serta. Charles Schweitzer, Chief
Executive Officer of Sleepmaster, has been a member of the board of directors of
Serta since 1995 and is currently Vice Chairman of the board of directors. Serta
cannot own its licenses and does not have a "right-of-first-refusal" if any are
to be sold. Strategic decisions for Serta are made by the board of directors and
passed

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through to the Serta licensees. Although all Serta national advertising budgets
are voted on and approved by the Serta board of directors, Serta licensees
control their own marketing, merchandising, manufacturing and administrative
functions and thus have the ability to tailor their businesses to the needs of
local customers. Serta focuses on the following programs and services for the
licensing group: conducting national advertising campaigns; issuing guidelines
for Serta products; supervising quality control programs; handling sales
programs for national accounts; protecting Serta trademarks; and conducting
product research and development. The Company paid approximately 3.0% of its
1999 gross sales as a royalty to the Serta organization.

PRODUCTS

The Company's product line consists of conventional bedding sold primarily
under the Serta brand which varies in price, design, material and size. Retail
prices for Serta brand products range from under $200 for a twin size
promotional bedding set to approximately $2,400 for a king size luxury set.
Introduced in 1999, the Masterpiece line represents an upscale collection of
mattresses and boxsprings. Retail prices of the Masterpiece line range from
approximately $700 for twin size to $5,000 for king size. Serta Perfect Sleeper
brand mattress is the second largest selling mattress brand in North America.
The Company offers retailers a full line of products, allowing retailers to
develop their own product assortment to facilitate step-up sales and to meet
various consumer comfort and support preferences.

CUSTOMERS

The Company manufactures and supplies products to over 2,780 retail
outlets, representing more than 1,150 customers, which include furniture stores,
department stores, specialty sleep shops, contract customers and other stores.
The Company's ten largest customers accounted for approximately 48% of net sales
in 1999. One account represented 11% of net sales in 1999.

In 1999, the Company experienced a substantial decline in sales to one of
its customers. Management anticipates that its relationship with this customer
will improve in 2000.

SALES, MARKETING AND ADVERTISING

The Company's marketing and advertising focus on local markets as well as
the national market. The Company employs a sales organization of approximately
60 people to target local retailers and to sell its products to authorized
retailers in local markets. The sales force is provided with ongoing, extensive
training in advertising, merchandising and salesmanship so that they can
successfully target retailers and work closely with retailers to assist them in
implementing and improving their sales techniques. In addition, Serta has formed
an organization to sell Serta products on a national level and to administer
programs for national accounts such as Sears and Sam's Club. The combination of
the Company's local sales efforts and Serta's national marketing efforts allows
the Company to better analyze the needs of its retailers and to customize its
sales and marketing efforts to specific competitive environments.

The Company's marketing strategy focuses on two areas: (1) total retailer
support programs -- including cooperative advertising programs designed to meet
individual retailer needs and to complement individual retailers' marketing
programs and (2) a continuation of the substantial investment in national
advertising that has established and will continue to build brand awareness. The
retailer support program assists retailers in increasing sales by providing them
with advertising and retail incentive packages tailored to their needs, point of
sale materials that enable retail sales people to demonstrate the unique
features of the Company's products and explain step-up features to increase
average unit selling prices, retail sales education programs conducted at retail
sites and at the Company's factory showrooms, and merchandised product
assortments to meet the needs of retailers and help achieve step-up sales.
Management believes this program differentiates the Company from most of its
competitors.

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Serta invests in building the Serta brand name through national
advertising, and has been recognized as one of the leading brands in the home
furnishing industry. Serta advertises throughout the year on prime network and
cable programs, as well as on selected daytime and syndicated programs. Serta
also advertises in various magazine publications and sponsors highly successful
radio programs.

INDUSTRY AND COMPETITION

Overall, the U.S. conventional bedding industry is mature and stable. Over
the past 20 years, the industry experienced increases in revenues at a
compounded annual growth rate of 6.7%. Sales in the bedding industry declined
only once during this period, 1.9 % in 1982. According to International Sleep
Products Association, the domestic bedding industry consists of over 800
manufacturers, generating wholesale revenues of $4.1 billion during 1999.
Conventional bedding is primarily sold to furniture stores and specialty sleep
shops. Management estimates that U.S. consumers replace mattresses, on average,
every 7 to 8 years resulting in approximately seventy percent of new mattresses
being purchased as replacements.

Serta is the second largest conventional bedding manufacturer in the United
States, with well-known brand names such as Serta, Serta Perfect Sleeper,
Sertapedic and Masterpiece, and primarily competes with two national companies,
Sealy and Simmons. In 1998, these top three bedding manufacturers accounted for
approximately 54% of domestic wholesale mattress and box spring shipments. Of
the top three bedding manufacturers, Serta is the only one comprised solely of
licensees. The license structure gives Serta and its licensees the advantage of
having a strong national organization combined with localized marketing and
sales efforts to maximize opportunities in local markets.

MANUFACTURING FACILITIES AND DISTRIBUTION

The Company operates four bedding manufacturing facilities in the United
States and one manufacturing facility in Concord, Ontario, Canada. Of the five
facilities, one operates a single shift and the others operate two shifts daily.

The Company's facilities are strategically located to service one or more
major metropolitan areas. The Company has instituted just-in-time inventory
techniques to enable it to supply products in an efficient manner and minimize
its inventory carrying costs. The Company adjusts production levels to meet
demand and as a result has no material backlog of orders.

The Company has entered into various distribution arrangements at each
facility based upon its needs and the circumstances at each location. In some
locations, the Company has contracted with independent third parties to
distribute all or a portion of its products and in other locations the Company
owns or leases trailers and either distributes the products themselves or
outsources the distribution function. Management believes that the flexibility
of this distribution program allows the Company to distribute products using the
most cost effective method.

In August 1999, the Company terminated its agreement with an exclusive
distributor for its Linden facility due to the distributor's poor performance.
In October 1999, the Company executed a five-year logistics contract with a new
distributor with a national presence to replace its existing distributor. As a
result of the new arrangement, distribution costs at the Linden facility
increased by approximately 8%. Subsequent to December 1999, the Company
terminated the logistics agreement with its new distributor and entered into a
five-year leasing arrangement with the same distributor to lease tractors and
trailers. The Company plans to manage its own distribution with these leased
tractors and trailers. No additional costs were incurred as a result of
terminating the logistics agreement and entering into the new leasing
arrangement.

SUPPLIERS

The Company purchases raw materials, including innersprings, box spring
modules, lumber, foam and ticking from a variety of suppliers. The Company takes
advantage of all trade discounts and does not enter into written supply
contracts with any of its suppliers. The Company purchased approximately 70% of
its raw materials from 10 suppliers, including approximately 37% of the
Company's total raw materials from

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Leggett & Platt in 1999. The Company maintains several alternative-source
suppliers for most of its raw materials. However, the Perfect Sleeper
innerspring units can only be purchased from Leggett & Platt. The Company has
never suffered a significant production loss from insufficient raw material
supplies.

WARRANTIES

The Company's conventional bedding products generally offer limited
warranties of ten years against manufacturing defects, with promotional products
carrying warranties of one year. Historically, the Company's costs of honoring
warranty claims have been immaterial.

ENVIRONMENTAL, HEALTH AND SAFETY MATTERS

The Company's principal wastes are nonhazardous materials such as wood,
cardboard, scrap foam and packaging materials, which are primarily sold to
recyclers. The Company also disposes of small amounts of used oil, primarily by
recycling. As is the case with manufacturers in general, if a release of
hazardous substances occurs on or from the Company's properties or any
associated off-site disposal location, or if contamination from prior activities
is discovered at any of its properties, the Company may be held liable and the
amount of the liability could be material.

The Company is subject to federal, state, and local laws and regulations
relating to pollution, environmental protection and occupational health and
safety. In addition, its conventional bedding and other product lines are
subject to various federal and state laws and regulations relating to
flammability, sanitation and consumer protection standards. The Company believes
that it is in material compliance with such laws and regulations.

The Company is not aware of any pending federal environmental legislation
which would have a material impact on the Company's operations. The Company does
not expect to make any material capital expenditures for environmental controls
during the next two fiscal years.

EMPLOYEES

As of December 31, 1999, the Company employed approximately 1,024 full-time
employees, of whom approximately 500 were represented by various labor unions
with separate collective bargaining agreements. The Company is periodically in
negotiations with certain of the unions representing its employees. The Company
is not a party to any master labor agreement covering production employees at
more than a single manufacturing facility. The Company has not experienced any
work stoppages or slowdowns as a result of labor difficulties during the last
ten years and believes that its relationships with its employees are good.

SEASONALITY

Sleepmaster's net sales and net income are generally consistent throughout
the fiscal year, except for slight increases in the third quarter. However,
seasonal variations in net sales and net income affect each of Sleepmaster's
five facilities. Palm Beach's net sales and net income are typically higher
during the first and fourth quarters of the fiscal year. In contrast, net sales
and net income are typically higher during the third quarter of the fiscal year
at the Linden, New Jersey, Lancaster, Pennsylvania, Cincinnati, Ohio, and
Concord, Ontario, Canada facilities. Since Palm Beach's sales cycle does not
coincide with the sales cycles at the other facilities, seasonal variations of
Sleepmaster are reduced.

ITEM 2. PROPERTIES

The Company's principal executive offices are located at 2001 Lower Road,
Linden, New Jersey, 07036-6520.

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The following table sets forth certain information regarding the
manufacturing facilities operated by the Company at December 31, 1999:

<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED/
LOCATION FOOTAGE LEASED
- -------- ----------- ------
<S> <C> <C>
Linden, New Jersey.......................................... 240,000 Leased
Riviera Beach, Florida...................................... 235,000 Owned
Lancaster, Pennsylvania..................................... 100,000 Owned
Concord, Ontario............................................ 54,000 Leased
Cincinnati, Ohio............................................ 128,000 Owned
</TABLE>

The Linden, New Jersey, facility is held pursuant to a lease which
terminates on February 1, 2004 but contains two five-year options to extend the
lease. The Star facility in Concord, Ontario, Canada is held pursuant to a lease
which terminates on December 31, 2000 but contains a five year option to renew.
It is management's intention to exercise its right to extend the leases beyond
the initial expiration dates for both the Linden and Star facilities.

The Company considers its present facilities to be generally well
maintained, in sound operating condition and adequate for its present needs.

ITEM 3. LEGAL PROCEEDINGS

From time to time, the Company is involved in various legal proceedings
arising in the ordinary course of business. Management does not expect that
these matters, individually or in the aggregate, will have a material adverse
effect on the consolidated financial position, results of operations or cash
flows of the Company. The Company is not currently involved in any material
legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is no established public trading market for the common membership
interests of the Company. As of March 15, 2000, Sleepmaster Holdings L.L.C.
owned 7,999 units of the Company's Class A common membership interests and Sleep
Investor L.L.C. owned one unit of the Company's Class A common membership
interests.

The Company has not paid any cash distributions on its common membership
interests during the fiscal years ended December 31, 1999, 1998 or 1997. The
Company has not sold any securities during the past three years in transactions
not registered under the Securities Act.

ITEM 6. SELECTED FINANCIAL DATA

The following table sets forth selected consolidated financial and other
data of the Company. The selected consolidated financial and other data for the
fiscal years ended December 31, 1999, 1998, 1997 and 1996 have been derived
from, and should be read in conjunction with, the Company's audited consolidated
financial statements. The financial and other data as of and for the fiscal year
ended December 31, 1995 has been derived from the Company's internal financial
records and is unaudited but, in the opinion of management, includes all
adjustments considered necessary for the fair presentation of the financial
condition and results of operations for the period and as of that date.

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The selected consolidated financial and other data provided below should be
read in conjunction with the accompanying consolidated financial statements and
notes thereto as well as Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED DECEMBER 31,
-------------------------------------------------------
1995 1996 1997 1998 1999
------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................ $55,044 $ 59,763 $ 67,472 $110,251 $171,319
Gross profit......................... 20,347 22,265 25,024 41,263 66,395
Selling, general and administrative
expenses........................... 13,965 14,130 15,044 25,794 43,322
Amortization of intangibles.......... 676 644 644 1,223 2,216
Operating income..................... 5,707 7,491 9,336 14,246 20,857
Interest expense, net(a)............. 2,304 2,578 4,663 7,096 12,536
Income before income taxes and
extraordinary items................ 3,214 4,697 4,770 7,168 8,238
Net income........................... 3,214 4,606 2,757 4,148 1,823
BALANCE SHEET DATA:
Net working capital(b)............... $ (553) $ 736 $ 309 $ 2,749 $ 6,204
Total assets......................... 29,813 48,634 47,339 89,540 208,987
Total debt........................... 17,989 44,031 39,102 70,696 166,613
Redeemable cumulative preferred
interests.......................... -- 14,221 15,927 18,267 20,423
Members' equity (deficit)............ 2,717 (21,116) (20,092) (17,517) (8,080)
OTHER DATA:
Gross margin......................... 37.0% 37.3% 37.1% 37.4% 38.8%
Adjusted EBITDA(c)................... $ 6,793 $ 8,534 $ 10,429 $ 16,335 $ 24,612
Adjusted EBITDA margin............... 12.3% 14.3% 15.5% 14.8% 14.4%
Depreciation and amortization........ $ 1,086 $ 1,043 $ 1,093 $ 2,089 $ 3,755
Capital expenditures................. $ 292 $ 167 $ 572 $ 1,095 $ 4,165
Ratio of earnings to fixed
charges(d)......................... 2.25x 2.64x 1.97x 1.96x 1.63x
</TABLE>

- ---------------
(a) Interest expense, net includes the amortization of deferred debt issuance
costs of $60, $391, $170, $281 and $633 for the years ended December 31,
1995, 1996, 1997, 1998 and 1999, respectively.

(b) Represents total current assets, excluding cash and cash equivalents, less
total current liabilities, excluding current portion of long-term debt.

(c) Adjusted EBITDA represents, for any period, net income before interest
expense, income taxes, depreciation and amortization and other non-operating
income/expense. Adjusted EBITDA is presented because it is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness. The Company believes that presentation of Adjusted EBITDA may
be helpful to investors. However, Adjusted EBITDA should not be considered
an alternative to net income as a measure of Sleepmaster's operating results
or to cash flows as a measure of liquidity. In addition, although the
Adjusted EBITDA measure of performance is not recognized under generally
accepted accounting principles, it is widely used by industrial companies as
a general measure of a company's operating performance because it assists in
comparing performance on a relatively consistent basis across companies
without regard to depreciation and amortization, which can vary
significantly depending on accounting methods, particularly where
acquisitions are involved, or non-operating factors such as historical cost
bases. Because Adjusted EBITDA is not calculated identically by all
companies, the presentation in this prospectus may not be comparable to
other similarly titled measures of other companies.

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(d) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes and extraordinary items plus fixed charges. Fixed
charges consist of interest expense, net, including amortization of issuance
costs, whether capitalized or expensed, plus one-third of rental expense
under operating leases, the portion that has been deemed by management to be
representative of an interest factor.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following discussion should be read in conjunction with the "Selected
Financial Data", set forth in Item 6 hereof, and the Financial Statements of the
Company and the notes thereto included elsewhere herein.

GENERAL

Sleepmaster acquired the stock of Palm Beach on March 3, 1998, the stock of
Herr on February 26, 1999, substantially all of the assets of Star on May 18,
1999 and substantially all of the assets of Adam Wuest on November 5, 1999. Each
of these acquisitions has been accounted for using the purchase method of
accounting. The Company's historical results of operations reflect the results
of the acquired businesses. Therefore, the historical operating results of the
Company for the periods presented are not necessarily comparable.

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RESULTS OF OPERATIONS

The following table sets forth operating data of Sleepmaster as a
percentage of net sales for the fiscal years ended December 31, 1997, 1998 and
1999.

<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
--------------------------
FOR THE FISCAL YEARS ENDED
DECEMBER 31,
--------------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 62.9 62.6 61.2
----- ----- -----
Gross profit................................................ 37.1 37.4 38.8
----- ----- -----
Operating expenses:
Selling, general and administrative expenses................ 22.3 23.4 25.3
Amortization of intangibles................................. 1.0 1.1 1.3
----- ----- -----
Total operating expenses.................................... 23.3 24.5 26.6
----- ----- -----
Operating income............................................ 13.8 12.9 12.2
Interest expense, net....................................... 6.9 6.4 7.4
Other (income) expense, net................................. (0.1) -- --
----- ----- -----
Income before income taxes and extraordinary items.......... 7.1 6.5 4.8
Provision for income taxes.................................. 3.0 2.7 1.9
----- ----- -----
Income before extraordinary items........................... 4.1 3.8 2.9
Extraordinary items......................................... -- -- (1.8)
----- ----- -----
Net income.................................................. 4.1% 3.8% 1.1%
----- ----- -----
Depreciation expense........................................ 0.7% 0.8% 0.9%
Adjusted EBITDA............................................. 15.5% 14.8% 14.4%
</TABLE>

FISCAL 1999 COMPARED WITH FISCAL 1998

Net Sales. Net sales increased 55.3%, or $61.0 million, to $171.3 million
in 1999 from $110.3 million in 1998. A significant portion of the increase was
due to the contribution of net sales from Herr, acquired on February 26, 1999,
Star, acquired on May 18, 1999 and, to a less significant extent, Adam Wuest,
acquired on November 5, 1999. Net sales contributed by Herr, Star and Adam Wuest
were $20.5 million, $11.5 million and $6.4 million in 1999, respectively.
Excluding the acquisitions of Herr, Star, and Adam Wuest and considering the
annualized 1998 results of Palm Beach, net sales increased by 13.4%, or $15.7
million, in 1999. Better sales penetration with existing customers, the addition
of new customers and the introduction of the new Masterpiece line of bedding
products during the year were significant factors contributing to the strong
sales growth. In addition, generally higher unit sales volumes and higher
average unit selling prices resulting from shifts in product sales mix toward
higher priced products contributed to this increase.

Cost of Sales. Cost of sales increased 52.0%, or $35.9 million, to $104.9
million in 1999 from $69.0 million in 1998. Cost of sales as a percentage of net
sales decreased to 61.2% in 1999 from 62.6% in 1998. The reduction of cost of
sales as a percentage of net sales in 1999 was primarily due to the impact of
higher margin business generated by Palm Beach, Herr and Star, as well as higher
margins realized on sales of the Masterpiece line of bedding products introduced
in 1999. Margins were also favorably impacted by Sleepmaster successfully
obtaining volume-related cost savings on raw material purchases as a result of
the acquisitions of Palm Beach, Herr, Star and Adam Wuest, which serve to reduce
purchase costs and hence reduce the ratio of cost of sales to net sales.
Partially offsetting these higher margins were higher manufacturing costs for
Sleepmaster resulting from (1) the development and launch of the Masterpiece
line of bedding products during 1999 and (2) a realignment of direct and
indirect labor resources to extend production capabilities, together with
associated costs.

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<PAGE> 10

Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased 67.8%, or $17.5 million, to $43.3
million in 1999 from $25.8 million in 1998. SG&A as a percentage of net sales
increased to 25.3% in 1999 from 23.4% in 1998. Several factors contributed to
the increase in SG&A as a percentage of net sales: (1) Palm Beach and Herr have
higher fixed cost bases than Sleepmaster and the second, third and fourth
quarters of 1999 include the full impact of Herr's fixed cost base on the
consolidated results; (2) Palm Beach and Herr have higher delivery expenses as a
percentage of net sales due to the large geographical territories they service
compared with that of Sleepmaster; (3) Palm Beach has certain contractual
employment arrangements which expire in March 2000 that contributed to the
increase in SG&A as a percentage of net sales; and (4) promotional costs
increased in 1999 as a result of the market introduction of the Masterpiece
range of bedding products.

Amortization of Intangibles. Amortization of intangibles increased $1.0
million to $2.2 million in 1999 from $1.2 million in 1998. This increase was due
to the acquisitions of Palm Beach in March 1998, Herr in February 1999, Star in
May 1999 and Adam Wuest in November 1999.

Operating Income. Operating income increased 47.2%, or $6.7 million, to
$20.9 million in 1999 from $14.2 million in 1998. As a result of the above
factors, operating income as a percentage of net sales decreased to 12.2% in
1999 from 12.9% in 1998.

Interest Expense, Net. Interest expense increased 76.1%, or $5.4 million,
to $12.5 million in 1999 from $7.1 million in 1998. This increase was due to the
cost of additional debt financing incurred for the acquisitions of Palm Beach,
Herr and Adam Wuest and the issuance of senior subordinated notes on May 18,
1999. See "Liquidity and Capital Resources".

Provision for Income Taxes. The provision for income taxes increased by
$0.2 million, to $3.2 million, in 1999 from $3.0 million in 1998. The provision
for income taxes resulted in an effective tax rate of 39.4% in 1999 compared
with 42.1% in 1998. The effective tax rate decreased due to the expansion of the
business toward lower tax jurisdictions as a result of the aforementioned
acquisitions, as well as the effect of additional debt financing being incurred
by Sleepmaster for such acquisitions.

Extraordinary Items. The extraordinary items recorded in 1999 consisted of
the payment of $3.6 million in premiums on the redemption of $20 million in
aggregate principal amount of Series A and Series B 12% Subordinated Notes and
repayment of $69.2 million of borrowings under the Company's former credit
facility, together with the write-off of $1.8 million of unamortized debt
issuance costs relating to such redemption and repayment on May 18, 1999. See
"Liquidity and Capital Resources". There were no extraordinary items incurred
during 1998.

Net Income. As a result of the above factors, net income decreased by $2.3
million, to $1.8 million in 1999 from $4.1 million in 1998.

FISCAL 1998 COMPARED WITH FISCAL 1997

Net Sales. Net sales increased by 63.4%, or $42.8 million, to $110.3
million in 1998 from $67.5 million in 1997. This increase was primarily due to
the acquisition of Palm Beach which contributed ten months of sales totaling
$37.1 million. Excluding the acquisition of Palm Beach, net sales increased by
8.4%, or $5.7 million, to $73.2 million in 1998 from $67.5 million in 1997. This
increase was primarily attributable to higher unit volumes in 1998. There was
also an increase in average unit selling prices due to a change in product sales
mix to higher priced products.

Cost of Sales. Cost of sales increased by 62.7%, or $26.6 million, to
$69.0 million in 1998 from $42.4 million in 1997. Cost of sales as a percentage
of net sales decreased to 62.6% in 1998 from 62.9% in 1997. This improvement was
primarily due to higher margin business generated by Palm Beach. These higher
margins, which serve to reduce cost of sales as a percentage of net sales, were
partially offset by an increase in Sleepmaster's manufacturing costs in 1998. As
a result of the Palm Beach acquisition, Sleepmaster was also able to realize
cost savings on raw material purchases as a result of obtaining additional
volume-related purchase discounts from vendors.

9
<PAGE> 11

Selling, General and Administrative Expenses. Selling, general and
administrative expenses ("SG&A") increased by 72.0%, or $10.8 million, to $25.8
million in 1998 from $15.0 million in 1997. SG&A as a percentage of net sales
increased to 23.4% in 1998 from 22.3% in 1997. Several factors contributed to
this increase. First, Palm Beach has a higher fixed cost base as a percentage of
net sales than Sleepmaster's base business and has a greater number of smaller
customers than Sleepmaster. Second, Palm Beach has higher delivery expenses as a
percentage of net sales due to its large geographical licensed territory. Such
expenses were offset by increases in average unit selling prices and generally
fixed delivery costs per unit at our Linden, New Jersey, facility. Finally, Palm
Beach has certain contractual employment arrangements, which expire in March
2000, which contributed to the increase in SG&A as a percentage of net sales.

Amortization of Intangibles. Amortization of intangibles increased by $0.6
million, to $1.2 million in 1998 from $0.6 million in 1997. This increase was
due to the acquisition of Palm Beach in March 1998.

Operating Income. Operating income increased by 52.6%, or $4.9 million, to
$14.2 million in 1998 from $9.3 million in 1997. As a result of the above
factors, operating income as a percentage of net sales decreased to 12.9% in
1998 from 13.8% in 1997.

Interest Expense, Net. Interest expense increased by 52.2%, or $2.4
million, to $7.1 million in 1998 from $4.7 million in 1997. This increase was
due to the cost of additional debt financing on debt incurred and assumed
resulting from the acquisition of Palm Beach. See "Liquidity and Capital
Resources."

Provision for Income Taxes. The provision for income taxes increased by
50%, or $1.0 million, to $3.0 million in 1998 from $2.0 million in 1997. The
provision for income taxes resulted in an effective rate of 42.1% in 1998 and
42.2% in 1997.

Net Income. As a result of the above factors, net income for 1998 was $4.1
million compared to $2.8 million in 1997.

RECENT ACCOUNTING PRONOUNCEMENTS

In February 1998, the American Institute of Certified Public Accountants'
Accounting Standards Executive Committee issued Statement of Position ("SOP")
No. 98-1, "Accounting for the Costs of Computer Software Developed or Obtained
for Internal Use", which requires certain costs incurred in connection with
developing or obtaining internal use software to be capitalized and other costs
to be expensed. The Company adopted SOP 98-1 effective January 1, 1999. The
impact of adopting this standard was to increase pre-tax income for 1999 by $1.9
million.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal source of cash to fund its liquidity needs is net
cash provided by operating activities and availability under its amended and
restated credit facility. Net cash provided by operating activities was $13.9
million in 1999 compared to $8.9 million in 1998 and $6.0 million in 1997. The
increase in cash flows in 1999 was primarily due to increased net income from
operations, before extraordinary items, and the acquisitions of Herr, Star and
Adam Wuest. The Company's principal uses of funds provided by operating
activities consist of payments of principal and interest on the Company's
indebtedness and capital expenditures.

Capital expenditures totaled $4.2 million, $1.1 million and $0.6 million in
1999, 1998 and 1997, respectively. The increase in expenditures in 1999 was
primarily attributable to the Company upgrading and expanding its information
systems' capabilities. The balance of the increase in capital expenditures was
for machinery and equipment at all facilities. Management expects that capital
expenditures at all its facilities will be approximately $4.5 million in 2000.
Additionally, management believes that annual capital expenditure limitations
under the amended and restated credit facility will not significantly inhibit
Sleepmaster from meeting its capital needs.

Sleepmaster generated $92.1 million of cash inflows from financing
activities in 1999, principally arising from net proceeds from the issuance on
May 18, 1999 of $115.0 million of 11% senior subordinated

10
<PAGE> 12

notes due 2009 and borrowings under an increased credit facility to acquire Herr
and Adam Wuest, compared with cash inflows of $24.5 million in 1998 and cash
outflows of $5.0 million in 1997. Financing cash inflows in 1998 arose primarily
from borrowings under an increased credit facility to acquire Palm Beach and
financing cash outflows in 1997 arose principally from repayments of borrowings
under the revolving credit facility.

On February 26, 1999, Sleepmaster purchased all of the capital stock of
Herr. In connection with the acquisition, Sleepmaster amended and restated its
credit facility to provide for an aggregate amount of borrowings of up to $86.0
million, a portion of which was used to finance the acquisition of Herr.

On May 18, 1999, Sleepmaster purchased substantially all the assets of
Star, the Serta licensee located in Concord, Ontario, Canada. The acquisition
was primarily funded with the net proceeds of the issuance of $115.0 million of
11% senior subordinated notes due 2009.

On November 5, 1999, Sleepmaster purchased substantially all the assets of
Adam Wuest. This acquisition was funded primarily through the expansion of its
existing credit facility and additional equity contributed by Holdings.

Debt

On November 5, 1999, Sleepmaster amended and restated its credit facility
to provide for borrowings of up to $70.0 million, consisting of a $33.0 million
six-year revolving credit facility and a $37.0 million amortizing term loan
facility. Borrowings under the amended and restated credit facility are
collateralized by substantially all of Sleepmaster's domestic assets and are
guaranteed by all of its domestic restricted subsidiaries and Sleepmaster
Holdings L.L.C. Similar to the prior credit facility, the revolving credit
facility includes a sublimit for letters of credit. At December 31, 1999, the
Company had approximately $17.0 million available under its revolving credit
facility. As of December 31, 1999, letters of credit issued under this sublimit,
which was increased to $15.0 million, consist of:

(a) $6.6 million to collateralize the Palm Beach industrial revenue bonds
currently outstanding,

(b) $2.3 million to collateralize the Adam Wuest economic development bonds
currently outstanding,

(d) $0.06 million for a parcel of land purchased by Herr.

Borrowings under the amended and restated credit facility bear interest at
floating rates that are based on LIBOR or on the applicable alternate base rate
and, accordingly, Sleepmaster's financial condition and performance will be
affected by changes in interest rates. The amended and restated credit facility
also imposes certain restrictions on Sleepmaster and requires Sleepmaster to
comply with certain financial ratios and tests.

On November 5, 1999 Sleepmaster Holdings L.L.C. entered into a subordinated
credit agreement with Citicorp Mezzanine Partners, L.P. with availability of
$10.0 million. In connection with the acquisition of Adam Wuest, Sleepmaster
Holdings L.L.C. borrowed $10.0 million under the subordinated credit agreement
and made an equity contribution of $10.0 million to Sleepmaster. Sleepmaster
used the $10.0 million equity contribution to assist in financing its
acquisition of Adam Wuest.

On May 18, 1999, Sleepmaster and Sleepmaster Finance Corporation issued
$115.0 million of 11% senior subordinated notes due 2009. Sleepmaster used a
portion of the proceeds of the senior subordinated note offering to prepay the
old credit facility, redeem the series A and series B senior subordinated notes
due 2007 and acquire substantially all of the assets of Star. Also on May 18,
1999, Sleepmaster entered into a credit facility with First Union National Bank.
The credit facility provided revolving credit facilities with aggregate
availability of $25.0 million. The revolving credit facility was scheduled to
mature six years after closing and included a sublimit of $8.0 million for
letters of credit.

In conjunction with the purchase of substantially all the assets of Star on
May 18, 1999, Sleepmaster Holdings L.L.C. issued a junior subordinated note to
the seller in the initial aggregate principal amount of approximately $0.7
million as a portion of the purchase price. The junior subordinated note bears
interest at a

11
<PAGE> 13

fixed rate of 6.0% per annum, which interest shall be paid in kind, and will
mature on the third anniversary of the closing.

Sleepmaster, through its subsidiary Palm Beach, is obligated to the County
of Palm Beach, Florida, pursuant to revenue bonds issued on behalf of Palm
Beach. On April 1, 1996, the County of Palm Beach Florida issued Variable Rate
Demand Industrial Development Revenue Bonds, Palm Beach Bedding Company Project,
Series 1996 in the aggregate principal amount of $7.7 million to finance the
construction of a 235,000 square foot manufacturing facility for Palm Beach. As
of December 31, 1999, $6.3 million of the bonds were outstanding. The bonds
mature in April 2016 and bear interest at a variable rate that was 5.15% at
December 31, 1999.

Sleepmaster, through its subsidiary Adam Wuest, is obligated to the County
of Hamilton, Ohio, pursuant to economic revenue bonds issued on behalf of Adam
Wuest. On February 1, 1994, the County of Hamilton, Ohio, issued Fixed Rate
Economic Development Revenue Funding Bonds, Series 1994 in the aggregate
principal amount of $3.0 million to finance the Adam Wuest, Inc. Project. As of
December 31, 1999, $2.0 million of the bonds were outstanding. The bonds mature
in September 2010 and bear interest at fixed rates ranging from 4.5% to 5.6%
depending on the maturity date of the bond series.

In connection with the recapitalization of Sleepmaster Holdings L.L.C. on
November 14, 1996, Sleepmaster issued $15.0 million of series A 12% senior
subordinated notes due 2006 to PMI. In connection with the acquisition of Palm
Beach on March 3, 1998, Sleepmaster issued $5.0 million of series B 12% senior
subordinated notes due 2007 to PMI and amended the terms of the series A senior
subordinated notes to extend the maturity date to 2007. On May 18, 1999,
Sleepmaster used a portion of the net proceeds from the $115.0 million senior
subordinated note offering to prepay the Series A and Series B senior
subordinated notes due 2007.

Also in connection with the recapitalization of Sleepmaster Holdings L.L.C.
on November 14, 1996, Sleep Investor issued $7.0 million of 7.02% junior
subordinated promissory notes, due November 14, 2007, and paid cash to the then
existing members of Sleepmaster Holdings L.L.C., including current members of
the Company's management. In exchange for the notes, the then-existing members
of Sleepmaster Holdings L.L.C. delivered common and preferred interests of
Sleepmaster Holdings L.L.C., as well as notes issued by Sleepmaster Holdings
L.L.C., to Sleep Investor. Interest payments received by Sleep Investor on the
notes issued by Sleepmaster Holdings L.L.C. correspond to Sleep Investor's
obligation to make interest payments on the promissory notes. The interest on
the promissory notes is pay-in-kind except that an amount equal to the current
tax liability for interest payments received on the promissory notes is paid in
cash. The maturity date of the promissory notes was extended in connection with
the acquisition of Palm Beach from November 14, 2007 to November 14, 2008. In
connection with the completion of the $115.0 million senior subordinated note
offering, and the prepayment of the Series A and Series B senior subordinated
notes due 2007, the promissory notes were further amended to retroactively bear
interest at a fixed rate of 12.0% per annum and to mature on November 14, 2007.

Sleepmaster has no obligations or commitments to Sleepmaster Holdings
L.L.C. or Sleep Investor either under the promissory notes or the junior
subordinated note. The amended and restated credit facility will allow
Sleepmaster to fund interest payments on the promissory notes and the junior
subordinated note. Distributions, dividends and loans from Sleepmaster to
Sleepmaster Holdings L.L.C. are restricted by the terms of the indenture
governing the notes.

Management believes that cash flows from operations, together with
borrowings under the senior credit facility, will be adequate to fund
Sleepmaster's currently anticipated working capital, capital spending and debt
service requirements for the forseeable future.

SEASONALITY OF BUSINESS

12
<PAGE> 14

Ontario, Canada facilities. Since Palm Beach's sales cycle does not coincide
with the sales cycles at the other facilities, seasonal variations of
Sleepmaster are reduced.

YEAR 2000

In order to minimize or eliminate the effect of the Year 2000 risk on the
Company's business systems and applications, the Company identified, evaluated,
implemented and tested changes to its computer systems, applications and
software necessary to achieve Year 2000 compliance. The computer systems and
equipment successfully transitioned to the Year 2000 with no significant issues.
The Company continues to keep its Year 2000 project management in place to
monitor latent problems that could surface at key dates or events in the future.
Management does not anticipate any significant problems related to these events.
The total cost of the Year 2000 compliance plan was approximately $650,000 and
was incurred principally during the first two quarters of 1999. The Company
expensed and capitalized the costs to complete its compliance plan in accordance
with appropriate accounting policies.

FORWARD LOOKING STATEMENTS AND RISK FACTORS

This document contains forward-looking statements within the meaning of the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
Although the Company believes its plans are based upon reasonable assumptions as
of the current date, it can give no assurance that such expectations can be
attained. Factors that could cause actual results to differ materially from the
Company's expectations include: general business and economic conditions;
competitive factors; raw materials availability and pricing; fluctuations in
demand; and retention and availability of qualified employees.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to market risk from fluctuations in interest rates,
which could impact its consolidated financial position, results of operations
and cash flows. The Company manages its exposure to market risk through its
regular operating and financing activities. The Company does not use derivative
financial instruments for speculative or trading purposes and does not maintain
such instruments that may expose the Company to significant market risk.

The Company's earnings are sensitive to changes in short-term interest
rates as a result of its borrowings under the senior credit facility. If
interest rates increase by 10 percent during the year ended December 31, 2000,
the Company's interest expense would increase, and income before income taxes
would decrease, by approximately $0.5 million. This analysis does not consider
the effects of the reduced level of overall economic activity, or other factors,
that could exist in such an environment. Further, in the event of a change of
such magnitude, management could take actions to further mitigate its exposure
to the change. However, due to the uncertainty of the specific actions that
would be taken and their possible effects, the sensitivity analysis assumes no
changes in the Company's financial structure.

The Company also manages its portfolio of fixed-rate debt to reduce its
exposure to interest rate changes. The fair value of the Company's fixed-rate
long-term debt is sensitive to interest rate changes. Interest rate changes
would result in gains or losses in the fair value of this debt due to
differences between market interest rates and rates at the inception of the
obligation. Based on a hypothetical 10 percent increase in interest rates at
December 31, 1999, the fair value of the Company's fixed-rate long-term debt
would decrease by approximately $3.7 million.

See Note 11 to the consolidated financial statements for a discussion of
the Company's debt.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Financial Statements and accompanying notes as listed in the Index to
Financial Statements commencing on page F-1 herein.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

13
<PAGE> 15

PART III

ITEM 10. ADVISORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following sets forth certain information as of December 31, 1999, with
respect to the persons who are members of the Board of Advisors and key
executive officers of the Company.

<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Charles Schweitzer................... 55 President and Chief Executive Officer, Advisor and
Managing Member
James Koscica........................ 40 Executive Vice President and Chief Financial Officer and
Advisor
Michael Reilly....................... 50 Senior Vice President of Sales and Marketing
Timothy DuPont....................... 51 Vice President of Manufacturing
Michael Bubis........................ 45 President of Palm Beach and Advisor
David Thomas......................... 50 Advisor
John Weber........................... 36 Advisor
Michael Bradley...................... 33 Advisor
Robert Bartholomew................... 53 Advisor
</TABLE>

Charles Schweitzer has served as President and Chief Executive Officer of
Sleepmaster since April 1993, after joining Sleepmaster as Senior Vice President
in April 1986. Prior to joining Sleepmaster, he served as Senior Vice President,
Sales and Marketing for Classic Corporation, one of the world's largest waterbed
manufacturers. Before his tenure at Classic Corporation, Mr. Schweitzer served
as Vice President, Marketing for Sealy Mattress Company of Connecticut/New York.
Mr. Schweitzer has a B.A. in Economics and an MBA in Marketing from City College
of New York.

James Koscica has served as Executive Vice President and Chief Financial
Officer of Sleepmaster since January 1995 and served as Vice President of
Finance and Administration since April 1993, after joining Sleepmaster as
controller in November 1989. Before he joined Sleepmaster, he served as
controller for a Budget Rent-A-Car Corporation franchise. Prior to his work at
Budget, Mr. Koscica served in management in systems development at AT&T. Mr.
Koscica has a B.A. in Accounting from Rutgers University and is a licensed CPA
in New Jersey.

Michael Reilly has served as Senior Vice President of Sales and Marketing
since January 1995 and Vice President of Sales from April 1993, after joining
Sleepmaster as Key Account Executive in February 1978. Before joining
Sleepmaster, Mr. Reilly served as Marketing Representative for Simmons Company.
Mr. Reilly has a B.A. in Business Administration from Catholic University.

Timothy DuPont has served as Vice President of Manufacturing since April
1993, after joining Sleepmaster as Manufacturing Manager in January 1985. Before
joining Sleepmaster, he served as General Manager for Guilden Development
Company. Mr. DuPont has a B.A. in Business Administration from Chapman College.

Michael Bubis is an advisor of Sleepmaster. Mr. Bubis has worked at Palm
Beach since 1969 and has been President of Palm Beach since 1991. Mr. Bubis
served as a member of the board of directors of Serta from 1995 through 1998.

David Thomas is an advisor of Sleepmaster. Mr. Thomas has been a Managing
Director of Citicorp Venture Capital, Ltd. for over five years. Mr. Thomas is a
director of Lifestyle Furnishings International Ltd., Anvil Knitwear, Inc.,
Plainwell, Inc., Neenan Foundry Company and American Commercial Lines LLC.

John Weber is an advisor of Sleepmaster. Mr. Weber has been a Vice
President at Citicorp Venture Capital, Ltd. since 1994. Previously, Mr. Weber
worked at Putnam Investments from 1992 through 1994.

14
<PAGE> 16

Mr. Weber is a director of Anvil Knitwear, Inc., Electrocal Designs, Inc., FFC
Holding, Inc., Graphic Design Technologies, Marine Optical, Inc., Gerber
Childrenswear, Inc., Plainwell, Inc. and Smith Alarm.

Michael Bradley is an advisor of Sleepmaster. Mr. Bradley joined Citicorp
Venture Capital, Ltd. in 1996. Prior to joining Citicorp Venture Capital, Ltd.,
Mr. Bradley worked at Merrill Lynch and Selected Equity Research. Mr. Bradley
received his B.A. from the University of Virginia, his J.D. from the University
of Virginia and his MBA from Columbia Business School. Mr. Bradley serves on the
board of directors of Hayden Corporation, MinCorp, Galey & Lord, Inc. and HL
Holdings.

Robert Bartholomew is an advisor of Sleepmaster. Mr. Bartholomew co-founded
Pacific Mezzanine Investors in 1990. Previously, Mr. Bartholomew worked at
Pacific Mutual from 1986 through 1989. Mr. Bartholomew received his B.A. in
Economics and an MBA in Finance from Rutgers University.

CHANGES IN MANAGEMENT

On March 3, 2000, Timothy Dupont resigned as the Vice President of
Manufacturing. Effective immediately, Timothy Gann, Director of Manufacturing,
assumed substantially all of the responsibilities of Mr. Dupont. Mr. Gann has
served as the Director of Manufacturing from July 1999 through the present time.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company for the
fiscal year ended December 31, 1999, of those persons who served as (i) the
chief executive officer during fiscal year 1999, and (ii) the other four most
highly compensated executive officers of the Company for fiscal year 1999
(collectively, the "Named Executive Officers"):

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ------------------- OTHER ANNUAL
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(A) COMPENSATION(B)
--------------------------- ------ -------- -------- ---------------
<S> <C> <C> <C> <C>
Charles Schweitzer................................ 1999 $353,386 $77,341 $55,883
President and Chief Executive Officer 1998 320,250 73,658 56,006
James Koscica..................................... 1999 252,424 53,020 48,377
Executive Vice President and Chief Financial
Officer 1998 233,221 48,510 47,924
Michael Bubis..................................... 1999 304,500 91,350 23,566
President of Palm Beach 1998 241,660 59,257 23,010
Michael Reilly.................................... 1999 209,158 43,000 45,044
Senior Vice President of Sales and Marketing 1998 179,550 39,501 40,942
Timothy DuPont.................................... 1999 140,084 56,700 37,424
Vice President of Manufacturing 1998 116,550 47,786 34,273
</TABLE>

- ---------------

(a) Includes amounts paid as discretionary awards for fiscal 1999.

(b) Represents amounts paid on behalf of each of the Named Executive Officers
for (i) premiums for health, life and accidental death and dismemberment
insurance and for long-term disability benefits; (ii) contributions to
Sleepmaster's defined contribution plans; and (iii) automobile allowances.

15
<PAGE> 17

No stock options were exercised by any of the Named Executive Officers
during fiscal 1999. The following table sets forth the number of securities
underlying unexercised options held by each of the Named Executive Officers and
the value of the options as of December 31, 1999:

FISCAL YEAR END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END AT FISCAL YEAR-END(A)
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------------ ----------------------------
<S> <C> <C>
Charles Schweitzer......................... 0/212 $0/$1,177,641
James Koscica.............................. 0/106 $ 0/ $588,821
Michael Reilly............................. 0/106 $ 0/ $588,821
Timothy DuPont............................. 0/106 $ 0/ $588,821
</TABLE>

- ---------------
(a) Value of unexercised options at fiscal year-end represents the difference
between the exercise price of any outstanding-in-the-money options and the
fair market value of Sleepmaster Holdings L.L.C.'s class A common membership
interests on December 31, 1999.

EXECUTIVE EMPLOYMENT AGREEMENTS

In 1996, Sleepmaster Holdings L.L.C., Sleepmaster and Sleep Investor
entered into employment and option agreements with Charles Schweitzer, James
Koscica, Michael Reilly and Timothy DuPont dated as of November 14, 1996. These
agreements provide for, among other things, terms of employment until November
1, 2001 and base salaries of $305,000 (Mr. Schweitzer), $210,000 (Mr. Koscica),
$171,000 (Mr. Reilly) and $111,000 (Mr. DuPont) subject to annual increases by
the Board of Advisors. Annual bonuses are to be calculated based upon EBITDA
performance of Sleepmaster. The agreements also provide an option vesting
schedule for employees to acquire membership interests in Sleepmaster Holdings
L.L.C., which Sleepmaster Holdings L.L.C. or Sleepmaster, if Sleepmaster
Holdings L.L.C. does not elect to purchase all such interests, may repurchase if
the employee is terminated for any reason. Timothy DuPont resigned on March 3,
2000 and Sleepmaster Holdings L.L.C. is in the process of repurchasing the Class
A common interests held by Mr. DuPont which are subject to the repurchase
option.

On March 3, 1998, Palm Beach (joined by Sleepmaster Holdings L.L.C. and
Sleepmaster) entered into an employment agreement with Michael Bubis. The
agreement has terms which are substantially similar to the terms of the
agreements described above and provide for, among other things, terms of
employment until March 3, 2001 and a base salary of $267,904, subject to annual
increases by the Board of Advisors. Additionally, Michael Bubis was elected to
the Board of Advisors of Sleepmaster and Sleepmaster Holdings L.L.C. during his
term of employment.

STOCK OPTION PLANS

On November 14, 1996, the Company entered into stock option agreements with
Charles Schweitzer, James Koscica, Michael Reilly and Timothy DuPont. These
nonqualified options entitle the executives to purchase an aggregate amount of
530 units of class A common interests of Sleepmaster Holdings L.L.C. at an
exercise price of $100 per unit. Options granted under these agreements vest 50%
on December 31, 1999 and 50% on December 31, 2001, subject to Sleepmaster's
achievement of EBITDA targets as long as the executive remains employed by
Sleepmaster. As of December 31, 1999, Sleepmaster did not achieve the EBITDA
targets specified in the agreements. Additionally, applicable portions of the
options shall vest upon a sale of Sleepmaster if (i) the sale occurs prior to
December 31, 1999 and (ii) the aggregate cash consideration received by the
holders of Sleepmaster's common interests equals or exceeds either the target
for December 31, 1999 or for December 31, 2001. Fifty percent of the options
shall vest upon a sale of Sleepmaster if (i) the sale occurs after December 31,
1999 but before December 31, 2001 and (ii) the aggregate cash consideration
received by holders of Sleepmaster's common interests equals or exceeds the
target for December 31, 2001. If as of December 31, 2001 any portion of the
options have not vested, Sleepmaster may
16
<PAGE> 18

automatically transfer any portion of the unvested options and re-grant the
unvested options without payment of any consideration to the executives. The
option agreements may be amended by Sleepmaster Holdings L.L.C.'s board of
advisors. Timothy DuPont's stock option agreement terminated upon his
resignation on March 3, 2000, and none of the options granted to Mr. DuPont had
vested as of such date.

COMPENSATION OF ADVISORS

The advisors to the Company are not compensated for the services they
render on the board of advisors, and they are not reimbursed for expenses
incurred as a result of board membership.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Board of Advisors authorized and formed a Compensation Committee on
September 30, 1999. The Board of Advisors designated John Weber, a member of the
Company's Board of Advisors, Charles Schweitzer, President and Chief Executive
Officer and a member of the Company's Board of Advisors and Guy Boyle, a member
of Sleep Investor L.L.C.'s Board of Advisors to serve as members of the
Compensation Committee.

The Named Executive Officers are compensated according to their individual
employment agreements described under the Section entitled "Executive Employment
Agreements" above.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth ownership information with respect to the
common equity interests of Sleepmaster Holdings L.L.C. Sleepmaster Holdings
L.L.C. owns over 99.9% of the common equity interests of Sleepmaster.

<TABLE>
<CAPTION>
NUMBER OF COMMON PERCENTAGE OF COMMON
NAME AND ADDRESS OF BENEFICIAL OWNER MEMBERSHIP INTERESTS MEMBERSHIP INTERESTS
- ------------------------------------ -------------------- --------------------
<S> <C> <C>
Sleep Investor L.L.C................................... 6,099 74.4%
2001 Lower Road
Linden, NJ 07036-6520
Citicorp Venture Capital, Ltd.(a)...................... 3,852.3 46.9%
399 Park Avenue
New York, NY 10043
CCT Partners IV, L.P.(a)............................... 677.5 8.3%
399 Park Avenue
New York, NY 10043
PMI Mezzanine Fund L.P.(a)(b).......................... 3,403.0 32.1%
610 Newport Center Drive
Suite 1100
Newport Beach, CA 92660
Charles Schweitzer..................................... 517.7 6.3%
2001 Lower Road
Linden, NJ 07036-6520
James Koscica.......................................... 280.0 3.4%
2001 Lower Road
Linden, NJ 07036-6520
Michael Reilly......................................... 280.0 3.4%
2001 Lower Road
Linden, NJ 07036-6520
Timothy DuPont......................................... 280.0 3.4%
2001 Lower Road
Linden, NJ 07036-6520
Michael Bubis.......................................... 466.0 5.7%
3774 Interstate Park Road North
Riviera Beach, FL 33404
</TABLE>

17
<PAGE> 19

- ---------------
(a) Interests are held indirectly through Sleep Investor L.L.C.

(b) Consists of 1,000 class A common membership interests and warrants currently
exercisable for 2,403 common membership interests.

(c) Includes 4,529.76 common membership interests held by Citicorp Venture
Capital and CCT Partners IV. Messrs. Thomas and Weber each disclaim
beneficial ownership of these common membership interests.

(d) Includes 3,852.3 common membership interests held by Citicorp Venture
Capital. Mr. Bradley disclaims beneficial ownership of these common
membership interests.

(e) Includes 1,000 common membership interests held by PMI and warrants held by
PMI currently exercisable for 2,403 common membership interests. Mr.
Bartholomew disclaims beneficial ownership of these common membership
interests and warrants.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Each of the following descriptions is a summary of the documents listed
below and thus, each summary does not restate the document described in its
entirety.

SLEEPMASTER HOLDINGS L.L.C. LIMITED LIABILITY COMPANY OPERATING AGREEMENT

In 1996, Sleep Investor, Charles Schweitzer, James Koscica, Timothy DuPont
and Michael Reilly entered into the Sleepmaster Holdings L.L.C. second amended
and restated limited liability company operating agreement. Sleepmaster Holdings
L.L.C. was formed under the New Jersey Limited Liability Company Act. The
business and affairs of Sleepmaster Holdings L.L.C. are managed by the managing
member, Charles Schweitzer, subject to the direction of a board of advisors
having duties comparable to a corporate board of directors. Currently, the board
of advisors is composed of seven advisors. The number of advisors can be
increased by a vote of at least 80% of the advisors. The Sleepmaster Holdings
L.L.C. limited liability company agreement calls for the existence of four
senior officers as follows:

(1) Chief Executive Officer and President,

(2) Executive Vice President and Chief Financial Officer,

(3) Vice President of Sales and

(4) Vice President of Production.

Membership Interests

The board of advisors is authorized to issue or sell any of the following:
(1) additional membership interests or other interests in Sleepmaster Holdings
L.L.C., (2) obligations, evidences of indebtedness or other securities or
interests convertible into or exchangeable for membership interests or other
interests in
18
<PAGE> 20

Sleepmaster Holdings L.L.C. and (3) warrants, options, or other rights to
purchase or otherwise acquire membership interests or other interests in
Sleepmaster Holdings L.L.C.

The class A members are entitled to one vote per class A common unit.
Except as specifically required by law, the class B members and the preferred
members have no right to vote on any matters to be voted on by the members of
Sleepmaster Holdings L.L.C., except in the case of mergers, consolidations,
recapitalizations, or reorganizations. Each class B member is entitled at any
time to convert any or all of the class B common units held by the class B
member into the same number of class A common units and members holding a
majority of the class B common units can cause a conversion of 100% of the class
B common units into the same number of class A common units.

Distributions

The board of advisors has sole discretion regarding the amounts and timing
of distributions to members of Sleepmaster Holdings L.L.C., subject to the
retention and establishment of reserves of, or payments to third parties of, the
funds as it deems necessary with respect to the reasonable business needs of
Sleepmaster Holdings L.L.C. Distributions are to be made in the following order
and priority:

(1) first, to the members in proportion to and to the extent of their
unpaid preferred return (as defined in the Sleepmaster Holdings L.L.C.
limited liability company agreement),

(2) second, to the members in proportion to and to the extent of their
unreturned preferred capital (as defined in the Sleepmaster Holdings
L.L.C. limited liability company agreement), and

(3) third, to the members in proportion to their common units.

Redemption

Except as extensions are provided for, Sleepmaster Holdings L.L.C. shall
make a distribution to each preferred member on November 14, 2008 in an amount
equal to the full amount of the preferred member's unpaid preferred return and
unreturned preferred capital as of the scheduled redemption date. In connection
with the closing of the old note offering on May 18, 1999, the parties to the
Sleepmaster Holdings L.L.C. limited liability company agreement amended the
agreement to extend the redemption date of the preferred membership interests to
November 14, 2009.

SLEEPMASTER LIMITED LIABILITY COMPANY OPERATING AGREEMENT

Sleep Investor and Sleepmaster Holdings L.L.C. entered into the Sleepmaster
amended and restated limited liability company operating agreement. Sleepmaster
was formed under the New Jersey Limited Liability Company Act. The business and
affairs of Sleepmaster are managed by the managing member, Charles Schweitzer,
subject to the direction of a board of advisors having duties comparable to a
corporate board of directors. Currently, the Sleepmaster board of advisors is
composed of seven advisors. The number of advisors can be increased by a vote of
at least 80% of the advisors. The Sleepmaster limited liability company
agreement calls for the existence of four senior officers as follows:

(1) Chief Executive Officer and President,

(2) Executive Vice President and Chief Financial Officer,

(3) Vice President of Sales and

(4) Vice President of Production.

Membership Interests

Sleepmaster's board of advisors is authorized to issue or sell any of the
following: (1) additional membership interests or other interests in
Sleepmaster, (2) obligations, evidences of indebtedness or other securities or
interests convertible into or exchangeable for membership interests or other
interests in

19
<PAGE> 21

Sleepmaster, and (3) warrants, options, or other rights to purchase or otherwise
acquire membership interests or other interests in Sleepmaster.

The class A members are entitled to one vote per class A common unit.
Except as specifically provided or required by law, the class B members and the
preferred members have no right to vote on any matters to be voted on by the
members of Sleepmaster, except in the case of mergers, consolidations,
recapitalizations, or reorganizations. Each class B member is entitled at any
time to convert any or all of the class B common units held by the class B
member into the same number of class A common units and members holding a
majority of the class B common units can cause a conversion of 100% of the class
B common units into the same number of class A common units. Currently, 7,999
class A membership interests are held by Sleepmaster Holdings L.L.C. and one is
held by Sleep Investor. Sleepmaster Holdings L.L.C. also holds 9,999.96
preferred membership interests.

Distributions

Sleepmaster's board of advisors has sole discretion regarding the amounts
and timing of distributions to members of Sleepmaster, subject to the retention
and establishment of reserves of, or payments to third parties of, the funds as
it deems necessary with respect to the reasonable business needs of Sleepmaster.
Distributions are to be made in the following order and priority:

(1) first, to the members in proportion to and to the extent of their
Unpaid Preferred Return, as defined in the Sleepmaster limited
liability company agreement,

(2) second, to the members in proportion to and to the extent of their
Unreturned Preferred Capital, as defined in the Sleepmaster limited
liability company agreement, and

(3) third, to the members in proportion to their common units.

Redemption

Except as extensions are provided for, Sleepmaster shall make a
distribution to each preferred member on November 14, 2008 in an amount equal to
the full amount of such preferred member's unpaid preferred return and
unreturned preferred capital as of the scheduled redemption date. In connection
with the closing of the old note offering, the parties to the Sleepmaster LLC
agreement amended the agreement to extend the redemption date of the preferred
membership interests to November 14, 2009.

SLEEPMASTER HOLDINGS L.L.C. SECURITYHOLDERS AGREEMENT

In 1998, Sleepmaster Holdings L.L.C., Sleep Investor, PMI, Charles
Schweitzer, James Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
Richard Tauber and Douglas Phillips entered into an amended and restated
securityholders agreement dated as of March 3, 1998. On February 26, 1999, John
Herr and Stuart Herr executed a joinder to the amended and restated
securityholders agreement. On November 5, 1999, David Deye, Stephen Lund and
Citicorp Mezzanine Partners executed a joinder to the amended and restated
securityholders agreement. The amended and restated securityholders agreement
requires that Sleepmaster Holdings L.L.C., Sleep Investor, PMI and those
executives of Sleepmaster Holdings L.L.C. vote their membership interests and
take all other actions within their control so that the board of advisors of
Sleepmaster Holdings L.L.C. will be comprised of four advisors designated by
Sleep Investor and three advisors representative of management, Schweitzer,
Koscica and Bubis. The board of advisors, or similar governing bodies of
Sleepmaster Holdings L.L.C.'s subsidiaries must have the same composition.

In addition, the securityholders agreement:

(1) restricts the transfer of membership interests of Sleepmaster Holdings
L.L.C.;

(2) grants tag-along rights on transfers of membership interests of
Sleepmaster Holdings L.L.C.;

(3) grants first offer rights on transfers of membership interests of
Sleepmaster Holdings L.L.C.;

20
<PAGE> 22

(4) requires each securityholder to consent to a sale of Sleepmaster
Holdings L.L.C. if the sale is approved by the board of advisors of
Sleepmaster Holdings L.L.C. and the holders of a majority of the
membership interests issued to Sleep Investor and its affiliates; and

(5) grants limited preemptive rights on issuances of membership interests
of Holdings.

The tag-along and first offer rights with respect to each securityholder's
interests will terminate upon the consummation of a sale of the interests to the
public pursuant to an offering registered under the Securities Act of 1933 or to
the public effected through a broker-dealer or market-maker pursuant to Rule
144.

SLEEPMASTER HOLDINGS L.L.C. REGISTRATION RIGHTS AGREEMENT

In 1998, Sleepmaster Holdings L.L.C., Sleep Investor, PMI, Charles
Schweitzer, James Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
Richard Tauber and Douglas Phillips entered into an amended and restated
registration rights agreement dated as of March 3, 1998. On February 26, 1999,
John Herr and Stuart Herr executed a joinder to the amended and restated
registration rights agreement. On November 5, 1999, David Deye, Stephen Lund and
Citicorp Mezzanine Partners executed a joinder to the amended and restated
registration rights agreement. Under the amended and restated registration
rights agreement, the holders of a majority of the membership interests issued
to Sleep Investor or its affiliates have the right, subject to certain
conditions, to require Sleepmaster Holdings L.L.C. to consummate a registered
offering of equity securities of Sleepmaster Holdings L.L.C. or a successor
corporate entity.

In addition, all holders of registrable securities are entitled to request
the inclusion, subject to the terms and conditions of the registration rights
agreement, of any of their common interests in any registration statement, other
than registration statements on forms S-8 or S-4 or any similar form in
connection with a registration to primarily register debt securities, at
Sleepmaster Holdings L.L.C.'s expense whenever Sleepmaster Holdings L.L.C.
proposes to register any of its common interests under the Securities Act of
1933. In connection with all the registrations, Sleepmaster Holdings L.L.C. has
agreed to indemnify all holders of registrable securities against liabilities,
including liabilities under the Securities Act of 1933.

THE RECAPITALIZATION AND OTHER TRANSACTIONS

Recapitalization Agreement

In November 1996, Sleepmaster Holdings L.L.C., Sleepmaster, Sleep Investor,
Brown/Schweitzer Holdings Inc. and each of the then existing members of
Sleepmaster Holdings L.L.C. entered into a recapitalization agreement. Pursuant
to the recapitalization agreement, Sleepmaster Holdings L.L.C. redeemed all of
the membership interests of its members, except for four members who are current
members of management, and then sold the membership interests to Sleep Investor.
In addition, Sleep Investor purchased 8,714 units of redeemable preferred
interests and 6,099 units of common interests of Sleepmaster Holdings L.L.C. for
approximately $12.9 million plus issuance of notes to the then existing members
of Sleepmaster Holdings L.L.C. totaling $7.0 million. The remaining preferred
and common interests of Sleepmaster Holdings L.L.C. were allocated to the four
members of Sleepmaster Holdings L.L.C. who are currently members of our
management. As a result of the recapitalization, Sleep Investor acquired 72% of
the outstanding interests of Sleepmaster Holdings L.L.C. and Sleepmaster
Holdings L.L.C. management retained 28%.

Sleep Investor Promissory Notes

In conjunction with the recapitalization of Sleepmaster Holdings L.L.C. in
1996, Sleep Investor issued $7.0 million of junior subordinated notes and paid
cash to the then-existing members of Sleepmaster Holdings L.L.C., including
current members of our management. In exchange for the notes, the then-existing
members of Sleepmaster Holdings L.L.C. delivered common and preferred interests
of Sleepmaster Holdings L.L.C., as well as notes issued by Sleepmaster Holdings
L.L.C., to Sleep Investor. As of December 31, 1999, the amount outstanding of
the promissory notes, including interest, totaled $8.7 million. In connection
with the old note

21
<PAGE> 23

offering and the redemption of the senior subordinated notes, the promissory
notes were amended to provide for a 12.0% interest rate and a maturity date of
November 14, 2007.

Senior Subordinated Notes

In November 1996 Sleepmaster, Sleepmaster Holdings L.L.C. and PMI entered
into a securities purchase agreement. Pursuant to this agreement, Sleepmaster
sold $15.0 million series A senior subordinated notes due 2007 to PMI. These
senior subordinated notes held by PMI were redeemed with a portion of the net
proceeds of the old note offering. In addition, in March 1998, Sleepmaster,
Sleepmaster Holdings L.L.C. and PMI entered into a securities purchase
agreement. Pursuant to this agreement, Sleepmaster sold $5.0 million series B
senior subordinated notes due 2007 to PMI. These senior subordinated notes held
by PMI were redeemed with a portion of the proceeds of the old note offering.

Warrants

In connection with the sale of senior subordinated notes by Sleepmaster to
PMI in 1996 and 1998, Sleepmaster Holdings L.L.C. issued to PMI 2000 warrants
and 403 warrants, respectively, to purchase class A common units of Sleepmaster
Holdings L.L.C. The warrants are currently exercisable at any time until March
3, 2010 at an exercise price of $0.01 per unit, subject to adjustment. The
holders of a majority of the outstanding warrants, during a specified window
period each year from November 14, 2003 to November 14, 2009, have the right to
require Sleepmaster Holdings L.L.C. to purchase all of the warrants or common
units into which the warrants are exercisable. If this right is exercised, the
purchase price on a per unit basis would be an amount equal to the value of
Sleepmaster Holdings L.L.C. divided by the number of outstanding units of common
interests. The value of Sleepmaster Holdings L.L.C. would be the greater of a
multiple of EBITDA and the aggregate current market price of the units of common
interests on a fully diluted basis. The put option is subject to the
availability of financing. The put option shall terminate upon 1) an approved
sale, or (2) the consummation of an underwritten public offering of units of
common interests.

In connection with the issuance of a subordinated note to assist in the
purchase of substantially all of the assets of Adam Wuest by Sleepmaster on
November 5, 1999, Sleepmaster Holdings L.L.C. issued to Citicorp Mezzanine
Partners, L.P. warrants to purchase Class B common membership interests of
Sleepmaster Holdings L.L.C. The warrants are exercisable at any time after June
30, 2007 and before June 30, 2009 at an exercise price of $0.01 per unit,
subject to certain anti-dilution adjustments. If Sleepmaster Holdings L.L.C.
prepays in full the subordinated note on or prior to June 30, 2007, the warrants
will not be exercisable and will be terminated.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Consolidated Financial Statements

See Financial Statements and accompanying notes as listed in the Index to
Financial Statements commencing on page F-1 herein.

(2) Financial Statement Schedules

All schedules called for by Regulation S-X are not submitted because
either they are not applicable or not required or because the required
information is included in the consolidated financial statements or notes
thereto.

(3) Exhibits

The Exhibits listed in (c) below are filed herewith.

(b) Reports on Form 8-K

The Company filed no reports on Form 8-K during the year ended December
31, 1999.
22
<PAGE> 24

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
2.1 Recapitalization, Redemption and Purchase Agreement dated
October, 1996 by and among Sleepmaster Holdings L.L.C.,
Sleepmaster L.L.C., Brown/Schweitzer Holdings, Inc., the
members of Sleepmaster Holdings, L.L.C., the investors
names therein and Sleep Investor L.L.C. (Incorporated by
reference to Exhibit 2.1 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
3.1 Certificate of Formation of Sleepmaster L.L.C. dated
December 14, 1994 (Incorporated by reference to Exhibit
3.1 of the Form S-4 dated November 24, 1999 (File No.
333-81987)).
3.2 Sleepmaster L.L.C. Amended and Restated Limited Liability
Company Operating Agreement dated November 14, 1996
(Incorporated by reference to Exhibit 3.2 of the Form S-4
dated November 24, 1999 (File No. 333-81987)).
3.3 Certificate of Incorporation of Sleepmaster Finance
Corporation dated April 30, 1999 (Incorporated by
reference to Exhibit 3.3 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
3.4 By-laws of Sleepmaster Finance Corporation (Incorporated by
reference to Exhibit 3.4 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
3.5 Articles of Incorporation of Palm Beach Bedding Company
dated July 16, 1959 (Incorporated by reference to Exhibit
3.5 of the Form S-4 dated November 24, 1999 (File No. 333-
81987)).
3.6 By-laws of Palm Beach Bedding Company (Incorporated by
reference to Exhibit 3.6 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
3.7 Articles of Incorporation of Herr Manufacturing Company
dated May 5, 1933 (Incorporated by reference to Exhibit
3.7 of the Form S-4 dated November 24, 1999 (File No.
333-81987)).
3.8 By-laws of Herr Manufacturing Company (Incorporated by
reference to Exhibit 3.8 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
3.9 Certificate of Formation of Lower Road Associates, LLC dated
April 6, 1998 (Incorporated by reference to Exhibit 3.9 of
the Form S-4 dated November 24, 1999 (File No.
333-81987)).
3.10 Operating Agreement of Lower Road Associates, LLC
(Incorporated by reference to Exhibit 3.10 of the Form S-4
dated November 24, 1999 (File No. 333-81987)).
3.11 Certificate of Incorporation of Adam Wuest Corporation dated
October 14, 1999 (Incorporated by reference to Exhibit
3.11 of the Form S-4 dated November 24, 1999 (File No.
333-81987)).
3.12 Amendment No. 1 to the Certificate of Incorporation of Adam
Wuest Corporation dated October 21, 1999 (Incorporated by
reference to Exhibit 3.12 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
3.13 Amendment No. 2 to the Certificate of Incorporation for AWI
Corporation (previously Adam Wuest Corporation) dated
November 5, 1999 (Incorporated by reference to Exhibit
3.13 of the Form S-4 dated November 24, 1999 (File No.
333-81987)).
3.14 By-laws of Adam Wuest Corporation (Incorporated by reference
to Exhibit 3.14 of the Form S-4 dated November 24, 1999
(File No. 333-81987)).
4.1 Indenture dated as of May 18, 1999 by and among Sleepmaster
L.L.C., Sleepmaster Finance Corporation, the Guarantors
listed on the signature pages thereto and the United
States Trust Company of New York (Incorporated by
reference to Exhibit 4.1 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
4.2 Executed Regulation S Note (Incorporated by reference to
Exhibit 4.2 of the Form S-4 dated November 24, 1999 (File
No. 333-81987)).
</TABLE>

23
<PAGE> 25

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
4.3 Executed 144A Note (Incorporated by reference to Exhibit 4.3
of the Form S-4 dated November 24, 1999 (File No.
333-81987)).
4.4 Supplemental Indenture, dated as of February 8, 2000, by and
among Sleepmaster L.L.C., Sleepmaster Finance Corporation,
and certain other parties listed on the signature page
thereto and the United States Trust Company of New York.**
9.1 Amended and Restated Securityholders Agreement by and among
Sleepmaster Holdings L.L.C., Sleep Investor L.L.C., PMI
Mezzanine Fund, L.P., Charles Schweitzer, James P.
Koscica, Michael Reilly, Timothy DuPont, Michael Bubis,
Richard Tauber, Douglas Phillips and any employees of
Sleepmaster Holdings L.L.C. or its subsidiaries which may
thereafter execute a joinder agreement thereto dated March
3, 1998 (Incorporated by reference to Exhibit 9.1 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
9.2 Joinder to Amended and Restated Securityholders Agreement by
and among Sleepmaster Holdings L.L.C., certain
securityholders of Sleepmaster Holdings L.L.C. party
thereto and Stuart W. Herr dated March 3, 1998
(Incorporated by reference to Exhibit 9.2 of the Form S-4
dated November 24, 1999 (File No. 333-81987)).
9.3 Joinder to Amended and Restated Securityholders Agreement by
and among Sleepmaster Holdings L.L.C., certain
securityholders of Sleepmaster Holdings L.L.C. party
thereto and John K. Herr, III dated March 3, 1998
(Incorporated by reference to Exhibit 9.3 of the Form S-4
dated November 24, 1999 (File No. 333-81987)).
10.1 Registration Rights Agreement dated as of May 18, 1999 by
and among Sleepmaster L.L.C., Sleepmaster Finance
Corporation, the guarantors listed on the signature pages
thereto and Merrill Lynch, Pierce, Fenner & Smith
Incorporated and First Union Capital Markets Corp
(Incorporated by reference to Exhibit 10.1 of the Form S-4
dated November 24, 1999 (File No. 333-81987)).
10.2 Purchase Agreement dated as of May 12, 1999 by and among
Sleepmaster L.L.C., Sleepmaster Finance Corporation and
the guarantors listed on the signature pages thereto and
Merrill Lynch, Pierce, Fenner & Smith Incorporated and
First Union Capital Markets Corp (Incorporated by
reference to Exhibit 10.2 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.3 Second Amended and Restated Limited Liability Company
Operating Agreement of Sleepmaster Holdings L.L.C., dated
November 14, 1996 (including the joinder agreement of
Stuart Herr and John Herr, dated February 26, 1999), as
amended effective May 12, 1999 (Incorporated by reference
to Exhibit 10.3 of the Form S-4 dated November 24, 1999
(File No. 333-81987)).
10.4 License Agreement and Memorandum of Agreement, each dated
January 12, 1995, between Sleepmaster L.L.C. and Serta,
Inc., covering certain territories in New Jersey, New York
and Connecticut, as amended (Incorporated by reference to
Exhibit 10.4 of the Form S-4 dated November 24, 1999 (File
No. 333-81987)).
10.5 License Agreement and Memorandum of Agreement, each dated
January 12, 1995, between Sleepmaster L.L.C. and Serta,
Inc., covering certain territories in Pennsylvania, New
Jersey, Maryland and Delaware, as amended (Incorporated by
reference to Exhibit 10.5 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.6 License Agreement, dated November 4, 1989, and Memorandum of
Agreement, dated December 1, 1969, between Palm Beach
Bedding Company and Serta, Inc., covering certain
territories in Florida, as amended (Incorporated by
reference to Exhibit 10.6 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
</TABLE>

24
<PAGE> 26

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.7 License Agreement, dated November 4, 1989, and Memorandum of
Agreement, dated December 1, 1969, between Herr
Manufacturing Company and Serta, Inc., covering certain
territories in Pennsylvania and New York, as amended
(Incorporated by reference to Exhibit 10.7 of the Form S-4
dated November 24, 1999 (File No. 333-81987)).
10.8 Standard Canadian License Agreement and Memorandum of
Agreement -- Form B, dated as of and effective May 18,
1999, between Serta, Inc. and Star Bedding Products (1986)
Ltd., covering certain territories in Ontario, Canada
(Incorporated by reference to Exhibit 10.8 of the Form S-4
dated November 24, 1999 (File No. 333-81987)).
10.9 Masterpiece Sleep Products, Inc. Manufacturing and Servicing
Agreement, dated October 1, 1998, by and between
Masterpiece Sleep Products, Inc. and Sleepmaster L.L.C.
and affiliates (Incorporated by reference to Exhibit 10.9
of the Form S-4 dated November 24, 1999 (File No.
333-81987)).
10.10 Employment Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Charles Schweitzer (Incorporated by
reference to Exhibit 10.10 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.11 Employment Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and James Koscica (Incorporated by
reference to Exhibit 10.11 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.12 Employment Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Timothy Dupont (Incorporated by
reference to Exhibit 10.12 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.13 Employment Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Michael Reilly (Incorporated by
reference to Exhibit 10.13 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.14 Option Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Charles Schweitzer (Incorporated by
reference to Exhibit 10.14 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.15 Option Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and James Koscica (Incorporated by
reference to Exhibit 10.15 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.16 Option Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Timothy Dupont (Incorporated by
reference to Exhibit 10.16 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.17 Option Agreement, dated as of November 15, 1996, between
Sleepmaster Holdings L.L.C., Sleepmaster L.L.C., Sleep
Investor L.L.C. and Michael Reilly (Incorporated by
reference to Exhibit 10.17 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.18 Employment Agreement, dated March 3, 1998, between Palm
Beach Bedding Company joined by Sleepmaster Holdings
L.L.C. and Sleepmaster L.L.C. and Michael W. Bubis
(Incorporated by reference to Exhibit 10.18 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.19 Employment and Stock Purchase Agreement, dated as of
February 26, 1999, by and among Herr Manufacturing
Company, Sleepmaster Holdings L.L.C., Sleepmaster L.L.C.,
Charles Schweitzer, Sleep Investor L.L.C. and Stuart W.
Herr (Incorporated by reference to Exhibit 10.19 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.20 Employment and Stock Purchase Agreement, dated as of
February 26, 1999, by and among Herr Manufacturing
Company, Sleepmaster Holdings L.L.C., Sleepmaster L.L.C.,
Charles Schweitzer, Sleep Investor L.L.C. and John K.
Herr, III (Incorporated by reference to Exhibit 10.20 of
the Form S-4 dated November 24, 1999 (File No.
333-81987)).
</TABLE>

25
<PAGE> 27

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.21 Sleepmaster Holdings L.L.C. Amended and Restated Common
Interest Purchase Warrants, dated as of March 3, 1998 and
Sleepmaster Holdings L.L.C. Common Interest Purchase
Warrants, dated as of March 3, 1998, each as amended on
February 26, 1999 (Incorporated by reference to Exhibit
10.21 of the Form S-4 dated November 24, 1999 (File No.
333-81987)).
10.22 Loan Agreement, dated as of April 1, 1996, between Palm
Beach Bedding Company and Palm Beach County, Florida,
relating to the Palm Beach County, Florida Variable Rate
Demand Industrial Development Revenue Bonds (Palm Beach
Bedding Company Project, Series 1996) originally
outstanding in the original principal amount of $7,650,000
(Incorporated by reference to Exhibit 10.22 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.23 Trust Indenture, dated as of April 1, 1996, by and among
Palm Beach County, the Trustee and the Credit Facility
Trustee (Incorporated by reference to Exhibit 10.23 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.24 Lease by and between Hartz Mountain Industries, Inc. and
Sleepmaster Products Company, L.P., dated October 13, 1993
(Incorporated by reference to Exhibit 10.24 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.25 Letter of Credit and Reimbursement Agreement, dated as of
April 1, 1996, between Palm Beach Bedding Company and
First Union National Bank of Florida (Incorporated by
reference to Exhibit 10.25 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.26 Amendment to Reimbursement Agreement, dated March 3, 1998,
between Palm Beach Bedding Company and First Union
National Bank of Florida (Incorporated by reference to
Exhibit 10.26 of the Form S-4 dated November 24, 1999
(File No. 333-81987)).
10.27 Lease Agreement by and between N.H.D. Developments Limited
and Star Bedding Products (1986) Ltd. dated August 15,
1995 (Incorporated by reference to Exhibit 10.27 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.28 Assignment of lease agreement by and between Star Bedding
Products (1986) Ltd., Star Bedding Products Limited and
N.H.D. Developments Limited dated as of May 18, 1999
(Incorporated by reference to Exhibit 10.28 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.29 Agreement dated as of December 20, 1998, between Adam West
Corporation, as assignee, and the United Steel Workers of
America, AFL-CIO-CLC, party of the second part, acting
through its agent, Local Union No. 15.-U.**
10.30 Form of Junior Subordinated Note, dated November 14, 1996,
of Sleep Investor L.L.C. issued to each of Charles
Schweitzer, James Koscica, Timothy DuPont, Michael Reilly,
Douglas A. Brown, Douglas A. Brown VIP Plus Profit Sharing
Plan, Donald S. Brown, John S. Coates, Harold M. Wit,
Allen Investments II, L.L.C., Karl Dillon, Jessand Corp.
Profit Sharing Plan and Trust, Alan Gelband, Panorama
Holdings, L.L.C., Arnold Gussoff Holding Capital
Management Corp., Steven Leischner, William Colaianni, Jo
Levinson 1989 Trust, John M. McMahon, Kaplan, Coate
Special Situations L.P., Robert W. Plaster, Bennett
Rosenthal, Dhiren Shah, and WKM Partners (Incorporated by
reference to Exhibit 10.30 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.31 Amended and Restated Registration Rights Agreement, dated as
of March 3, 1998, by and among Sleepmaster Holdings
L.L.C., Sleep Investor L.L.C., PMI Mezzanine Fund, L.P.,
Charles Schweitzer, James P. Koscica, Michael Reilly,
Timothy Dupont, Michael Bubis, Richard Tauber, Douglas
Phillips (including the joinder agreements of each of
Stuart W. Herr and John K. Herr, III, dated March 3, 1998)
(Incorporated by reference to Exhibit 10.31 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
</TABLE>

26
<PAGE> 28

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.32 Limited Liability Company Operating Agreement of Sleep
Investor L.L.C. dated November 14, 1996 (Incorporated by
reference to Exhibit 10.32 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.33 Stock Purchase Agreement, dated as of February 26, 1999, by
and among Sleepmaster L.L.C., Herr Manufacturing Company,
and the stockholders listed on the Seller signature page
attached thereto (including the related Indemnity Escrow
Agreement and Adjustment Escrow Agreement) (Incorporated
by reference to Exhibit 10.33 of the Form S-4 dated Novem-
ber 24, 1999 (File No. 333-81987)).
10.34 Asset Purchase Agreement by and among Star Bedding Products
Limited and Sleepmaster L.L.C., as Purchaser and Star
Bedding Products (1986) Limited and Cecil Brauer, as
Seller (Incorporated by reference to Exhibit 10.34 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.35 Amended and Restated Credit Agreement, dated as of November
5, 1999, by and among Sleepmaster L.L.C., as borrower,
Sleepmaster Holdings L.L.C. and our domestic restricted
subsidiaries, as guarantors, and First Union National
Bank, as agent (Incorporated by reference to Exhibit 10.35
of the Form S-4 dated November 24, 1999 (File No.
333-81987)).
10.36 1997-1999 Collective Agreement between Star Bedding Products
(1986) Limited and United Steelworkers of America Local
400 (Incorporated by reference to Exhibit 10.36 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.37 Collective Bargaining Agreement by and between Sleepmaster
L.L.C., its plant located in Linden, New Jersey, and the
United Steelworkers of America (ABG Division), AFL-CIO,
CLC, and its Local Union #396 dated May, 1997
(Incorporated by reference to Exhibit 10.37 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.38 Agreement and Plan of Merger by and among Sleepmaster
L.L.C., Sleepmaster Acquisition Corp. and Palm Beach
Bedding Company dated February, 1998 (Incorporated by
reference to Exhibit 10.38 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.39 License Agreement and Memorandum of Agreement, each dated
December 1, 1969, between Serta Associates, Inc. covering
portions of Ohio, Kentucky and West Virginia, as amended
(Incorporated by reference to Exhibit 10.39 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.40 License Agreement and Memorandum of Agreement, each dated
November 4, 1989, between Serta, Inc. and Adam Wuest, Inc.
covering Ohio, as amended (Incorporated by reference to
Exhibit 10.40 of the Form S-4 dated November 24, 1999
(File No. 333-81987)).
10.41 License Agreement and Memorandum of Agreement, each dated
December 1, 1990, between Serta, Inc. and Adam Wuest, Inc.
covering Indiana, as amended (Incorporated by reference to
Exhibit 10.41 of the Form S-4 dated November 24, 1999
(File No. 333-81987)).
10.42 Subordinated Credit Agreement, dated as of November 5, 1999
by and between Sleepmaster Holdings, L.L.C., as borrower
and Citicorp Mezzanine Partners, L.P., as lender
(Incorporated by reference to Exhibit 10.42 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.43 Asset Purchase Agreement among Adam Wuest, Inc., Adam Wuest
Realty, Inc., Sleepmaster L.L.C. and AWI Corporation dated
as of November 5, 1999 (Incorporated by reference to
Exhibit 10.43 of the Form S-4 dated November 24, 1999
(File No. 333-81987)).
10.44 Subordinated Note issued by Sleepmaster Holdings L.L.C. to
Citicorp Mezzanine Partners, L.P. on November 5, 1999, in
aggregate principal amount of $10.0 million (Incorporated
by reference to Exhibit 10.44 of the Form S-4 dated
November 24, 1999 (File No. 333-81987)).
</TABLE>

27
<PAGE> 29

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
10.45 Warrant Agreement dated as of November 5, 1999 between
Sleepmaster L.L.C. and Citicorp Mezzanine Partners, L.P.
(Incorporated by reference to Exhibit 10.45 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.46 Form of Unit Purchase Warrant issued by Sleepmaster Holdings
L.L.C. to Citicorp Mezzanine Partners L.P. on November 5,
1999 (Incorporated by reference to Exhibit 10.46 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.47 Trust Indenture dated as of February 1, 1994 by and among
Hamilton County, Ohio, the Fifth Third Bank, as trustee
(Incorporated by reference to Exhibit 10.47 of the Form
S-4 dated November 24, 1999 (File No. 333-81987)).
10.48 Loan Agreement, dated as of February 1, 1994, between
Hamilton County, Ohio, Adam Wuest, Inc. and Adam Wuest
Realty, Inc. relating to the Hamilton County, Ohio Fixed
Rate Economic Development Revenue Bonds (Adam Wuest, Inc.
Project, Series 1994) originally outstanding in the
aggregate principal amount of $2,980,000 (Incorporated by
reference to Exhibit 10.48 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.49 Letter of Credit issued on November 5, 1999 by First Union
National Bank to Fifth Third Bank on behalf of Adam Wuest
Corporation in the amount of $2,284,425 (Incorporated by
reference to Exhibit 10.49 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.50 Mortgage and Security Agreement, dated as of May 18, 1999 by
and between Palm Beach Bedding Company, as Grantor, and
First Union National Bank, as Agent (Incorporated by
reference to Exhibit 10.50 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.51 First Amendment to the Mortgage and Security Agreement,
dated November 5, 1999 by and between Palm Beach Bedding
Company, as Grantor, and First Union National Bank, as
Agent (Incorporated by reference to Exhibit 10.51 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.52 Mortgage and Security Agreement, dated as of May 18, 1999 by
and between Herr Manufacturing Company, as Grantor, and
First Union National Bank, as Agent (Incorporated by
reference to Exhibit 10.52 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
10.53 First Amendment to Mortgage and Security Agreement, dated as
of November 5, 1999 by and between Herr Manufacturing
Company, as Grantor, and First Union National Bank, as
Agent (Incorporated by reference to Exhibit 10.53 of the
Form S-4 dated November 24, 1999 (File No. 333-81987)).
10.54 Mortgage and Security Agreement, dated as of November 5,
1999 by and between Adam Wuest Corporation, as Grantor,
and First Union National Bank, as Lender (Incorporated by
reference to Exhibit 10.54 of the Form S-4 dated November
24, 1999 (File No. 333-81987)).
12.1 Statement of Ratio of Earnings to Fixed Charges
(Incorporated by reference to Exhibit 12.1 on Form 10-K
dated March 30, 2000 (File No. 333-81987)).
21.1 Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21.1 of the Form S-4 dated November 24, 1999 (File
No. 333-81987)).
23.1 Consent of PricewaterhouseCoopers LLP (Incorporated by
reference to Exhibit 23.1 of the Form 10-K dated March 30,
2000 (File No. 333-81987)).
27.1 Financial Data Schedule.**
</TABLE>

- ---------------
** Filed herewith.

28
<PAGE> 30

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Sleepmaster L.L.C. has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized in the City
of Linden, State of New Jersey.

SLEEPMASTER L.L.C.

By: /s/ CHARLES SCHWEITZER
------------------------------------
President and Chief Executive
Officer

Dated: April 17, 2000

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.

<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
--------- -------- ----
<S> <C> <C>

/s/ CHARLES SCHWEITZER President and Chief Executive April 17, 2000
- --------------------------------------------------- Officer, Advisor
Charles Schweitzer

/s/ JAMES P. KOSCICA Executive Vice President and Chief April 17, 2000
- --------------------------------------------------- Financial Officer, Advisor
James P. Koscica

/s/ MICHAEL BUBIS Advisor April 17, 2000
- ---------------------------------------------------
Michael Bubis

/s/ DAVID THOMAS Advisor April 17, 2000
- ---------------------------------------------------
David Thomas

/s/ JOHN WEBER Advisor April 17, 2000
- ---------------------------------------------------
John Weber

/s/ MICHAEL BRADLEY Advisor April 17, 2000
- ---------------------------------------------------
Michael Bradley

/s/ ROBERT BARTHOLOMEW Advisor April 17, 2000
- ---------------------------------------------------
Robert Bartholomew
</TABLE>

29
<PAGE> 31

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1999 and
1998...................................................... F-3
Consolidated Statements of Income for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-4
Consolidated Statements of Changes in Members' Equity
(Deficit) for the Years Ended December 31, 1999, 1998 and
1997...................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>

F-1
<PAGE> 32

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Advisors and
Members of Sleepmaster L.L.C.:

In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, members' deficit and of cash flows
present fairly, in all material respects, the consolidated financial position of
Sleepmaster L.L.C. (the "Company") and its subsidiaries at December 31, 1999,
1998 and 1997 and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States, which require that
we plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.

PRICEWATERHOUSECOOPERS LLP

New York, New York
March 24, 2000

F-2
<PAGE> 33

SLEEPMASTER L.L.C.

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998

<TABLE>
<CAPTION>
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 2,842 $ 162
Accounts receivable, less allowance for doubtful accounts
of $2,360 and $1,657 in 1999 and 1998, respectively.... 24,217 12,570
Accounts receivable -- other.............................. 1,691 1,199
Inventories............................................... 7,531 4,746
Other current assets...................................... 613 347
Deferred income taxes..................................... 720 1,606
-------- --------
Total current assets................................... 37,614 20,630
Property, plant and equipment, net.......................... 20,967 10,430
Intangible assets, net...................................... 130,824 45,302
Other assets................................................ 7,290 1,780
Deferred income taxes....................................... 12,292 11,398
-------- --------
Total assets........................................... $208,987 $ 89,540
======== ========
LIABILITIES AND MEMBERS' DEFICIT
Current liabilities:
Accounts payable.......................................... $ 14,264 $ 9,931
Accrued advertising expenses.............................. 2,559 1,517
Accrued sales allowances.................................. 3,196 3,189
Accrued interest.......................................... 2,077 201
Other current liabilities................................. 6,472 2,881
Current portion of long-term debt......................... 5,010 7,130
-------- --------
Total current liabilities.............................. 33,578 24,849
-------- --------
Long-term debt.............................................. 161,603 63,566
Other liabilities........................................... 1,463 375
-------- --------
Total long-term liabilities............................ 163,066 63,941
-------- --------
Commitments and contingencies (Note 17)
Redeemable cumulative preferred interests................... 20,423 18,267
Members' Deficit:
Class A common interests.................................. 12,229 1,640
Class B common interests.................................. -- --
Accumulated deficit....................................... (20,472) (19,157)
Foreign currency translation adjustment................... 163 --
-------- --------
Total members' deficit................................. (8,080) (17,517)
-------- --------
Total liabilities and members' deficit................. $208,987 $ 89,540
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-3
<PAGE> 34

SLEEPMASTER L.L.C.

CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales................................................... $171,319 $110,251 $67,472
Cost of sales............................................... 104,924 68,988 42,448
-------- -------- -------
Gross profit........................................... 66,395 41,263 25,024
-------- -------- -------
Operating expenses
Selling, general and administrative expenses.............. 43,322 25,794 15,044
Amortization of intangibles............................... 2,216 1,223 644
-------- -------- -------
Total operating expenses............................... 45,538 27,017 15,688
-------- -------- -------
Operating income............................................ 20,857 14,246 9,336
Interest expense, net....................................... 12,536 7,096 4,663
Other expense (income)...................................... 83 (18) (97)
-------- -------- -------
Income before income taxes and extraordinary items..... 8,238 7,168 4,770
Provision for income taxes.................................. 3,248 3,020 2,013
-------- -------- -------
Income before extraordinary items...................... 4,990 4,148 2,757
Extraordinary items, net of income taxes.................... 3,167 -- --
-------- -------- -------
Net income............................................. $ 1,823 $ 4,148 $ 2,757
======== ======== =======
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-4
<PAGE> 35

SLEEPMASTER L.L.C.

CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
COMMON INTERESTS
-----------------------------------
CLASS A CLASS B RETAINED
---------------- --------------- FOREIGN CURRENCY EARNINGS
UNITS AMOUNT UNITS AMOUNT TRANSLATION (DEFICIT) TOTAL
----- ------- ----- ------ ---------------- --------- --------
(IN THOUSANDS, EXCEPT UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
DECEMBER 31, 1996......... 8,000 $ 1,000 -- $ -- $ -- $(22,116) $(21,116)
Net income................ 2,757 2,757
Distributions............. (26) (26)
Accretion of redeemable
cumulative preferred
interests............... (1,707) (1,707)
----- ------- -- ---- ---- -------- --------
DECEMBER 31, 1997......... 8,000 1,000 -- -- -- (21,092) (20,092)
Capital contributions..... 640 640
Net income................ 4,148 4,148
Distributions............. (234) (234)
Accretion of redeemable
cumulative preferred
interests............... (1,979) (1,979)
----- ------- -- ---- ---- -------- --------
DECEMBER 31, 1998......... 8,000 1,640 -- -- -- (19,157) (17,517)
Capital contributions..... 10,589 10,589
Net income................ 1,823 1,823
Distributions............. (982) (982)
Accretion of redeemable
cumulative preferred
interests............... (2,156) (2,156)
Foreign currency
translation
adjustments............. 163 163
----- ------- -- ---- ---- -------- --------
DECEMBER 31, 1999......... 8,000 $12,229 -- $ -- $163 $(20,472) $ (8,080)
===== ======= == ==== ==== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-5
<PAGE> 36

SLEEPMASTER L.L.C.

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

<TABLE>
<CAPTION>
1999 1998 1997
--------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.............................................. $ 1,823 $ 4,148 $ 2,757
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 3,755 2,089 1,093
Loss (gain) on sale of asset......................... 5 9 (64)
Allowance for doubtful accounts...................... 440 287 249
Extraordinary items.................................. 3,167 -- --
Deferred income taxes................................ 2,085 1,776 1,752
Other non-cash charges............................... 652 320 202
Changes in operating assets and liabilities, net of
acquisitions:
(Increase) decrease in accounts receivable......... (4,795) (2,411) 209
Increase in accounts receivable -- other........... (492) (208) (543)
Decrease(increase) in inventories.................. 71 113 (564)
Decrease (increase) in other current assets........ 28 (196) 41
Decrease (increase) in other assets................ 32 (41) --
Increase (decrease) in accounts payable............ 2,354 2,834 (104)
Increase in accrued liabilities.................... 4,340 14 948
Increase in other liabilities...................... 392 140 60
--------- -------- --------
Net cash provided by operating activities............ 13,857 8,874 6,036
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.................................... (4,165) (1,095) (572)
Proceeds from sale of assets............................ -- -- 67
Acquisitions, net of cash acquired...................... (99,128) (32,756) --
--------- -------- --------
Net cash used in investing activities................ (103,293) (33,851) (505)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of senior subordinated notes..... 115,000 -- --
Proceeds from long term debt............................ 46,830 48,308 1,025
Payments on long term debt.............................. (73,858) (23,699) (1,232)
Borrowings under revolving line of credit............... 11,300 7,396 18,100
Payments on revolving line of credit.................... (5,380) (7,397) (22,821)
Loan origination fees/bond issuance costs............... (7,739) (827) --
Penalties on early extinguishment of debt............... (3,644) -- --
Distributions........................................... (982) (234) (26)
Capital contributions................................... 10,589 1,000 --
--------- -------- --------
Net cash provided by (used in) financing
activities......................................... 92,116 24,547 (4,954)
--------- -------- --------
Net increase (decrease) in cash and cash equivalents...... 2,680 (430) 577
Cash and cash equivalents at beginning of year............ 162 592 15
--------- -------- --------
Cash and cash equivalents at end of year.................. $ 2,842 $ 162 $ 592
========= ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

F-6
<PAGE> 37

SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BUSINESS

Sleepmaster L.L.C. ("Sleepmaster" or the "Company"), is a leading
manufacturer and distributor of Serta brand mattresses and box springs and owns
the exclusive Serta manufacturing rights in all or a portion of ten states (New
York, Connecticut, Pennsylvania, New Jersey, Delaware, Maryland, Florida, Ohio,
Indiana, West Virginia), the Commonwealth of Kentucky and Ontario, Canada. The
Company was formed on January 2, 1995 by acquiring substantially all of the
assets and liabilities of Sleepmaster Products Company, L.P., a Delaware limited
partnership. The business and affairs of the Company are governed by the Limited
Liability Company Operating Agreement of Sleepmaster L.L.C. (the "Sleepmaster
L.L.C. Agreement"), which established a board of advisors having duties
comparable to a corporate board of directors.

Prior to November 1996, 98% of the Company was owned by Sleepmaster
Holdings L.L.C. ("Holdings") and 2% was owned by Brown/Schweitzer Holdings Inc.
("B/S Holdings"). Holdings was owned by management of Sleepmaster and outside
investors. On November 14, 1996, the Company entered into a recapitalization
agreement (the "Recapitalization"). Under the Recapitalization, the members of
Holdings sold their respective interests in part to Holdings, followed by the
sale of a portion of the membership interest to new investors. As a result of
the Recapitalization, Holdings' ownership of Sleepmaster was increased to almost
100% and B/S Holdings was replaced by Sleep Investor L.L.C. ("Sleep Investor"),
a group of investors led by Citicorp Venture Capital and PMI Mezzanine Fund
L.L.P. Because of the ownership change of Holdings as a result of the
Recapitalization, management of Sleepmaster owns 28% of Holdings. The
Sleepmaster L.L.C. Agreement was amended following the completion of this
transaction (the "Amended Sleepmaster L.L.C. Agreement"). See Note 4 for further
details of the transaction and impact on members of the Company.

On March 3, 1998, the Company acquired the capital stock of Palm Beach
Bedding Company ("Palm Beach") for cash and the assumption of Palm Beach County,
Florida, variable rate industrial development revenue bonds.

On February 26, 1999, the Company acquired substantially all of the capital
stock of Herr Manufacturing Company ("Herr") for cash.

On May 18, 1999, the Company acquired substantially all of the assets of
Star Bedding Products (1986) Limited, including its subsidiary, Burrell Bedding
Limited (collectively, "Star") for cash and a promissory note issued by
Holdings.

On November 5, 1999, the Company acquired substantially all of the assets
of Adam Wuest Inc. and Adam Wuest Realty (collectively "Adam Wuest") for cash
and the assumption of Hamilton County, Ohio, fixed rate economic development
revenue funding bonds.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries, Palm Beach, Herr, Star and Adam
Wuest for the year ended December 31, 1999. All significant intercompany
balances and transactions have been eliminated. Sleepmaster Finance Corporation
is a wholly-owned subsidiary of the Company, formed solely for the purpose of
acting as co-issuer of the 11% senior subordinated notes, issued on May 18,
1999, and has no assets or operations. See Note 11 for further discussion
regarding the issuance of these senior subordinated notes.

For the year ended December 31, 1998, the consolidated financial statements
include the accounts of the Company and its wholly owned subsidiary, Palm Beach.
For the year ended December 31, 1997, the consolidated financial statements
include the accounts of the Company only.

F-7
<PAGE> 38
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Use of Estimates in Preparation of the Financial Statements

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. The most significant estimates and assumptions relate to
the determination of the allowance for doubtful accounts, accruals for sales
allowances and advertising expenses and the recoverability of long-lived assets.
Actual results could differ from those estimates.

Revenue Recognition

The Company recognizes revenue at the time of shipment. Appropriate
accruals for returns, discounts, rebates and other allowances are recorded as
reductions in sales. The Company's bedding products offer limited warranties of
up to 10 years against manufacturing defects. The Company's cost of honoring
warranty claims is immaterial.

Cash and Cash Equivalents

Cash and cash equivalents include all highly liquid investments with
original maturities of three months or less. Cash equivalents are stated at
cost, plus accrued interest, which approximates fair value.

Inventories

Inventories are stated at the lower of cost or market and include the cost
of materials, labor and manufacturing overhead. Cost is determined using the
first-in, first-out (FIFO) method. Inventories are primarily produced on a
made-to-order basis.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated
depreciation. Depreciation is computed using the straight-line method over the
following estimated useful lives of the assets:

<TABLE>
<S> <C>
Land improvements........................................... 40 years
Building and improvements................................... 40 years
Machinery and equipment..................................... 5-10 years
Office furniture and equipment.............................. 3-5 years
Vehicles.................................................... 7 years
</TABLE>

Leasehold improvements are amortized over the shorter of the terms of the
leases or lives of the assets. Expenditures for maintenance and routine repairs
are expensed as incurred. Upon the disposition of property, plant and equipment,
the accumulated depreciation is deducted from the original cost and any gain or
loss is reflected in current income.

Intangible Assets

Intangible assets include goodwill, which represents the excess of the
purchase price over the fair value of net assets acquired, and licenses, which
are amortized using the straight-line basis over forty years. In 1998,
intangible assets also included a non-compete agreement, which was fully
amortized by December 31, 1999.

F-8
<PAGE> 39
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Long-Lived Assets

The Company reviews its long-lived assets and certain intangibles for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be fully recoverable. The measurement of
impairment losses to be recognized is based on the difference between the fair
values and the carrying amounts of the assets. Impairment would be recognized in
operating results if a diminution in value occurred. At December 31, 1999, the
Company does not believe that any such changes have occurred.

Deferred Financing Costs

The costs incurred for obtaining financing, including all related legal
fees, which were approximately $6,873,000 at December 31, 1999, net of
accumulated amortization of $454,000, are included in other assets in the
accompanying consolidated balance sheets and are amortized to interest expense
over the lives of the related financing.

Advertising Costs

The Company expenses advertising costs, consisting primarily of cooperative
advertising with dealers and retailers, when the revenue from sales to customers
is recorded. Advertising costs for the years ended December 31, 1999, 1998 and
1997 amounted to approximately $13,638,000, $8,154,000 and $5,779,000
respectively.

Recent Accounting Pronouncements

Income Taxes

Income taxes are accounted for by the asset and liability method, which
recognizes deferred tax assets and liabilities by applying statutory tax rates
in effect at the balance sheet date to differences between the book and tax
basis of existing assets and liabilities. The Company files various state income
tax returns and a consolidated Federal income tax return with its Parent,
Holdings. The current and deferred income tax provisions and related current and
deferred income tax assets and liabilities for the Company were determined on a
separate company basis. Currently, the Company does not maintain a tax sharing
agreement with its Parent.

Reclassifications

Certain reclassifications were made to prior years' consolidated financial
statements to conform with the current year's presentation.

3. ACQUISITIONS

On February 26, 1999, the Company acquired all the capital stock of Herr
Manufacturing Company ("Herr") for approximately $24,600,000 in cash. In order
to finance the acquisition of Herr, the Company increased its existing Senior
Credit Facility by $25,300,000.

F-9
<PAGE> 40
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

On May 18, 1999, the Company acquired substantially all the assets of Star
Bedding Products (1986) Limited, including its subsidiary, Burrell Bedding
Limited (collectively, "Star"), for approximately $17,020,000 in cash and a
promissory note issued by Holdings (the Company's Parent) in the amount of
approximately $685,000. The acquisition was primarily funded with the net
proceeds of the note offering as discussed in Note 11.

On November 5, 1999, the Company acquired substantially all the assets of
Adam Wuest for approximately $57,038,000 in cash. This acquisition was funded
primarily through the expansion of its existing credit facility and additional
equity provided by Holdings which, in turn, was raised by a subordinated credit
facility.

These acquisitions were accounted for under the purchase method and,
accordingly, their results are included in the consolidated financial statements
since their respective dates of acquisition. The assets acquired and liabilities
assumed have been recorded at their estimated fair values at the dates of
acquisition. The excess of the purchase price over the estimated fair values of
the net assets acquired has been recorded as goodwill and is being amortized
over 40 years.

A summary of the purchase price allocations (in thousands) is as follows:

<TABLE>
<CAPTION>
HERR STAR ADAM WUEST
------- ------- ----------
<S> <C> <C> <C>
Current assets...................................... $ 3,066 $ 2,474 $ 5,782
Property, plant and equipment....................... 3,225 823 3,886
Other assets........................................ 2 3 262
Goodwill............................................ 4,218 502 6,443
Licenses............................................ 15,235 15,764 45,603
Current liabilities................................. (847) (1,456) (2,465)
Long-term debt...................................... -- -- (2,017)
------- ------- -------
Total............................................... $24,899 $18,110 $57,494
======= ======= =======
</TABLE>

The following summarized unaudited pro forma financial information (in
thousands) assumes that the acquisitions of Palm Beach, Herr, Star, and Adam
Wuest were consummated on January 1, 1999 and 1998. The following also gives
effect to the issuance of the senior subordinated notes and the application of
the proceeds therefrom as of such dates. This information is not necessarily
indicative of the results that the Company would have achieved had these events
actually occurred on such dates or of the Company's actual or future results.

<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Net sales.............................................. $222,362 $195,047
Income before extraordinary items...................... $ 5,820 $ 4,351
Net income............................................. $ 2,653 $ 4,351
</TABLE>

4. RECAPITALIZATION

On November 16, 1996, the Company's Parent, Holdings, entered into a
recapitalization agreement (the "Recapitalization Agreement") with the Company,
B/S Holdings and Sleep Investor. As part of the Recapitalization, all
outstanding membership interests were converted to redeemable cumulative
preferred interests and common interests pursuant to the terms of the Amended
Sleepmaster L.L.C. Agreement (See Note 1).

Pursuant to the Recapitalization Agreement, Holdings redeemed all of the
membership interests of its members, except for four members who are members of
management of the Company ("Retained

F-10
<PAGE> 41
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Members"), for an aggregate amount of cash equal to approximately $34,700,000
and then sold such membership interests to Sleep Investor. In addition, Sleep
Investor purchased 8,714 units of redeemable cumulative preferred interests and
6,099 units of common interests of Holdings for approximately $12,900,000 plus
issuance of a $7,000,000 pay-in-kind note payable to all former members of
Holdings, including the Retained Members. The remaining redeemable cumulative
preferred and common interests of Holdings were allocated to the Retained
Members. As a result of the Recapitalization, Sleep Investor owns 72% of the
outstanding units of Holdings and the Retained Members own the remaining 28%.

Financing for the Recapitalization, including the refinancing of existing
indebtedness and fees and expenses incurred, was provided by (1) the Company's
borrowings under a new $29,700,000 Senior Secured Credit Facility, (2) the
Company's borrowing under $15,000,000 Senior Subordinated Notes and (3) the
$12,900,000 of capital provided by Sleep Investor.

The Company has accounted for the Recapitalization as a leveraged
recapitalization, whereby the historical bases of the assets and liabilities of
the Company have been maintained for financial reporting purposes.

5. INVENTORIES

Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Raw materials.............................................. $5,402 $3,540
Work-in-process............................................ 476 287
Finished goods............................................. 1,653 919
------ ------
Total inventories..................................... $7,531 $4,746
====== ======
</TABLE>

6. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following (in thousands):

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Land and improvements.................................... $ 2,775 $ 1,706
Building and improvements................................ 9,247 5,046
Machinery and equipment.................................. 8,877 3,727
Office furniture and fixtures............................ 1,624 867
Vehicles................................................. 688 208
Leasehold improvements................................... 785 681
Construction-in-progress................................. 1,472 184
------- -------
25,468 12,419
Less: accumulated depreciation and amortization.......... 4,501 1,989
------- -------
$20,967 $10,430
======= =======
</TABLE>

Depreciation and amortization expense was approximately $1,539,000,
$866,000 and $449,000 for the years ended December 31, 1999, 1998 and 1997,
respectively.

F-11
<PAGE> 42
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

7. INTANGIBLE ASSETS

Intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Goodwill................................................ $ 35,176 $24,020
Licenses................................................ 100,249 23,647
Non-compete agreement................................... -- 930
-------- -------
135,425 48,597
Less: accumulated amortization.......................... 4,601 3,295
-------- -------
$130,824 $45,302
======== =======
</TABLE>

8. CONCENTRATION OF CREDIT RISK

A substantial portion of the consolidated net sales of the Company is made
to a limited number of customers. In 1999, one customer accounted for
approximately 11% of consolidated net sales. In 1998, two customers accounted
for approximately 13% and 11%, respectively, of consolidated net sales. In 1997,
three customers accounted for approximately 17%, 14% and 12%, respectively, of
net sales.

Amounts receivable from these customers represented approximately 14% and
30% of the trade accounts receivable balance at December 31, 1999 and 1998,
respectively.

Purchases of raw materials from one vendor represented approximately 37%,
43% and 34% of total raw material purchases for 1999, 1998 and 1997,
respectively.

9. LICENSE AGREEMENT

Serta, Inc. ("Serta") is a national non-profit organization consisting of
10 domestic licensed operating mattress manufacturing companies. The
organization aids the manufacturers in marketing, merchandising, manufacturing
specifications, trademarks and related activities through license fees paid by
the licensees. Serta owns the rights to the Serta trademark and licenses
companies to manufacture and sell mattresses under the Serta brand name. The
Company's license with Serta is effective until terminated by mutual written
agreement by both parties or if the Company does not comply with the provisions
of the license agreement. In 1999, 1998 and 1997, the Company paid approximately
$5,590,000, $3,400,000 and $2,400,000, respectively, in license fees to Serta.

The Company is obligated to contribute to a Serta deferred compensation
arrangement based upon the achievement of certain earnings targets by the Serta
licensee group. The Company recorded an expense of approximately $320,000 for
1999 and $75,000 for 1998 under this arrangement. No expense was recorded in
1997 since the earnings targets were not achieved.

10. EMPLOYEE BENEFIT PLANS

In 1999, the Company maintained a contributory profit sharing plan
("401(k)/Profit Sharing Plan") covering substantially all non-union employees of
the Company and of Herr, one of its wholly owned subsidiaries, who met certain
eligibility requirements. Prior to the acquisition of Herr, this plan covered
substantially all of the non-union employees of the Company only. Employees may
elect to make contributions of up to 15% of their salary. The plan also provides
for an employer match contribution. The Company currently contributes an amount
equal to 100% of the first 3% of salary contributed plus 50% of the next 2% of
salary contributed. Prior to 1999, the Company contributed an amount equal to
50% up to the first 4% of employee contributions. In addition, the Company may
elect to contribute a discretionary amount, which is

F-12
<PAGE> 43
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

determined annually by management, to all eligible employees. The Company
reserves the right to terminate or amend the 401(k)/Profit Sharing Plan at any
time. The Company contributed approximately $553,000 for 1999, $286,000 for 1998
and $259,000 for 1997.

Union employees, pursuant to a collective bargaining agreement, are covered
under a salary reduction plan ("Retirement 401(k) Plan") established by the
Company. Employees, who have met certain eligibility requirements, may elect to
make contributions of up to 15% of their salary. In addition, the Company may
elect to contribute a discretionary amount to all eligible employees. All
eligible employees receive an equal contribution amount per year. Contribution
expense for this plan was approximately $59,000 for 1999, $35,000 for 1998 and
$24,000 for 1997.

In 1999 and 1998, Palm Beach maintained its own contributory profit sharing
plan ("401(k)/Profit Sharing Plan and Trust"), covering substantially all
employees. Palm Beach contributed an amount equal to 50% of the first 6% of
salary contributed. An additional discretionary amount was determined by
management and contributed to each eligible employee. Palm Beach elected to
contribute approximately $200,000 for each of the fiscal years ended 1999 and
1998. Effective January 1, 2000, substantially all of the employees of Palm
Beach will be covered under the Company's 401(k)/Profit Sharing Plan.

In 1999, Adam Wuest maintained its own contributory profit sharing plan,
covering salaried employees who met certain eligibility requirements. In
addition, union employees of Adam Wuest were covered by a union sponsored
multi-employer pension plan. The contribution expense for these plans for the
period since acquisition is immaterial to the consolidated financial statements.

11. DEBT

The following is a summary of the Company's long-term debt (in thousands):

<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
11% Senior Subordinated Notes due 2009...................... $115,000 $ --
Term Loan due in variable quarterly installments through
September 2005, interest at one-month LIBOR plus 3.25%
(9.72% at December 31, 1999).............................. 37,000 --
Borrowings under Revolving Credit Facility at variable
interest rates (from 9.72% to 10.50% at December 31,
1999)..................................................... 6,300 --
Industrial Development Revenue Bonds due through 2016 at
variable interest rates (5.15% and 3.70% at December 31,
1999 and 1998, respectively) collateralized by an
irrevocable letter of credit issued to the Bond agent in
the amount of $6,968...................................... 6,320 6,700
Economic Development Revenue Funding Bonds due through
September 2010 at fixed rates between 4.50% and 5.60%
collateralized by an irrevocable letter of credit issued
to the Bond agent in the amount of $2,284................. 1,993 --
Term Loan A due in variable quarterly installments through
March 2003 at variable interest rates (8.63% at December
31, 1998)................................................. -- 22,746
Term Loan B due in variable quarterly installments through
February 2004 at variable interest rates (9.06% at
December 31, 1998)........................................ -- 21,250
</TABLE>

F-13
<PAGE> 44
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

<TABLE>
<CAPTION>
1999 1998
-------- -------
<S> <C> <C>
Series A Senior Subordinated Notes, 12.00%, due in quarterly
installments from March 2005 through December 2007........ -- 15,000
Series B Senior Subordinated Notes, 12.00%, due in quarterly
installments from March 2005 through December 2007........ -- 5,000
-------- -------
166,613 70,696
Less, current portion....................................... 5,010 7,130
-------- -------
$161,603 $63,566
======== =======
</TABLE>

During the first quarter of 1999, the Company amended and restated its
credit facility to provide for an aggregate amount of borrowings of up to
$86,000,000 and used a portion of this increased facility to finance its
acquisition of Herr on February 26, 1999. The terms of the amended facility were
substantially equivalent to those of the prior credit facility.

On May 18, 1999, the Company issued $115,000,000 of 11% senior subordinated
notes due 2009 (the "Notes"). A portion of the proceeds of the note offering was
used to prepay the existing credit facility, redeem the Company's Series A and
Series B Senior Subordinated Notes due 2007 and complete the acquisition of
Star. In connection with the repayment of the existing credit facility and
Series A and Series B Senior Subordinated Notes, the Company wrote-off
unamortized debt issuance costs and incurred prepayment penalties. These
transactions resulted in an extraordinary loss of $3,167,000 net of the
associated income tax benefit of $2,293,000. Also on May 18, 1999, the Company
entered into a six-year $25,000,000 revolving credit facility which replaced the
prior credit facility. The new credit facility included a letter of credit
sublimit of $8,000,000. Borrowings under this credit facility bore interest at
floating rates based on LIBOR or applicable alternative base rates. The credit
facility imposed certain restrictions on the Company and required compliance
with certain financial ratios and other requirements customary to credit
facilities of this nature.

On November 5, 1999, the Company expanded and restated the credit facility
entered into on May 18, 1999 to $70,000,000, comprising a $33,000,000 six-year
revolving credit facility ("Revolving Credit Facility") and a $37,000,000
amortizing term loan facility ("Term Loan Facility" and, together with the
Revolving Credit Facility, the "Credit Facility"), under substantially the same
terms as the prior credit facility except that the letter of credit sublimit was
increased to $15,000,000. At December 31, 1999, the Company had approximately
$17,000,000 available under its Revolving Credit Facility with letters of credit
issued totaling approximately $9,700,000. Borrowings under the Term Loan
Facility were used to finance the acquisition of Adam Wuest. Indebtedness under
the Credit Facility is guaranteed jointly and severally by the Company, its
Parent and each of its domestic subsidiaries.

The Company, through its subsidiary Palm Beach, is obligated to the County
of Palm Beach, Florida, pursuant to revenue bonds issued on behalf of Palm
Beach. On April 1, 1996, the County of Palm Beach issued Variable Rate Demand
Industrial Development Revenue Bonds, Palm Beach Bedding Company Project, Series
1996 in the aggregate principal amount of $7,700,000 to finance the construction
of a 235,000 square foot manufacturing facility for Palm Beach. The bonds are
collateralized by a letter of credit issued by Fifth Third Bank and further
collateralized by First Union National Bank for the benefit of the trustee under
the indenture relating to the bonds on the Palm Beach manufacturing facilities
and a pledge of Palm Beach's interest in the bonds.

The Company, through its subsidiary Adam Wuest, is obligated to the County
of Hamilton, Ohio, pursuant to economic revenue bonds issued on behalf of Adam
Wuest. On February 1, 1994, the County of Hamilton, Ohio issued Fixed Rate
Economic Development Revenue Funding Bonds, Series 1994 in the aggregate
principal amount of $3,000,000 to finance the Adam Wuest, Inc. Project. The
bonds are

F-14
<PAGE> 45
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

collateralized by a letter of credit issued by Fifth Third Bank and further
collateralized by First Union National Bank for the benefit of the trustee under
the indenture relating to the bonds on the Adam Wuest manufacturing faculties
and a pledge of Adam Wuest's interest in the bonds.

Additionally, the Company has a letter of credit with a bank in the amount
of $720,462 as a rental security deposit on its Linden, New Jersey, facility.
The Company pays a commitment fee of 3% per year of the face amount.

The Company pays commitment fees of 1/2% per annum on the unused amount of
the credit facilities.

Under the terms of the agreements of the Credit Facility and Senior
Subordinated Notes, the Company is required to maintain certain financial ratios
and other financial conditions. The agreements of the Credit Facility and Senior
Subordinated Notes also prohibit the Company from incurring certain additional
indebtedness and limit certain investments, capital expenditures and cash
dividends. At December 31, 1999, the Company was in compliance with these
financial ratios and conditions.

Long term debt at December 31, 1999 is scheduled to mature as follows (in
thousands):

<TABLE>
<S> <C>
2000.............................................. $ 5,010
2001.............................................. 5,015
2002.............................................. 7,992
2003.............................................. 8,002
2004.............................................. 8,011
Thereafter........................................ 132,583
--------
$166,613
========
</TABLE>

In conjunction with the purchase, by Sleepmaster, of substantially all the
assets of Star on May 18, 1999, Holdings issued a junior subordinated note to
the seller in the initial aggregate principal amount of approximately $685,000,
included in other liabilities at December 31, 1999. The junior subordinated note
bears interest at a fixed rate of 6.0% per annum, which interest shall be paid
in kind, and will mature on the third anniversary of the closing of the purchase
of Star. Sleepmaster has no obligations or commitments to Holdings for the
junior subordinated note; however, the Credit Facility will allow Sleepmaster to
fund interest payments on the junior subordinated note. Distributions, dividends
and loans from Sleepmaster to Holdings are restricted by the terms of the
indenture governing the notes.

12. MEMBERS' EQUITY

In accordance with the Amended Sleepmaster L.L.C. Agreement, the Company's
board of advisors may issue three classes of membership interests: Class A
common interests, Class B common interests and preferred interests. Class A
common interests entitle the holder to one vote per Class A common unit. The
holders of Class B common interests and preferred interests have no voting or
participating rights except in the case of mergers, consolidations,
recapitalizations or reorganizations. The Company had outstanding Class A common
units of 8,000 as of December 31, 1999 and 1998. No Class B common units have
been issued by the Company as of December 31, 1999. See Note 13 for further
details of the preferred interests issued as of December 31, 1999.

In connection with the purchase of Adam Wuest on November 5, 1999 as
discussed in Note 3, the Company received $9,800,000 in common interest
contributions, net of issuance costs of $200,000, from Holdings and
approximately $800,000 in common interest contributions from certain owners of
Adam Wuest. Holdings financed its contribution by issuing a 14% subordinated
note in an aggregate principal amount of $10,000,000, due June 30, 2007,
("Subordinated Note") to Citicorp Mezzanine Partners, L.P. Since the
Subordinated Note will not be assumed by the Company, none of the Company's
assets or membership

F-15
<PAGE> 46
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interests are pledged as collateral for the Subordinated Note and the Company is
not required to but may utilize its cash flows to assist Holdings in meeting its
debt service obligations under the Subordinated Note, management does not
believe there is or will be any impact on the Company's results of operations,
financial position or cash flows as a result of Holdings issuing the
Subordinated Note.

13. REDEEMABLE CUMULATIVE PREFERRED INTERESTS

The Company had outstanding 9,999.96 units of cumulative redeemable
preferred units as of December 31, 1999 and 1998. The preferred units are not
convertible into any other security of the Company and the holders have no
voting rights except in the case of mergers, consolidations, recapitalizations
or reorganizations. The preferred units accrue dividends at a compounded rate of
12% per annum. The preferred units are redeemable on November 14, 2009, together
with the accrued and unpaid dividends unless the maturity date of the Senior
Subordinated Notes is extended, at which point the redemption date will be the
earlier of (i) the twelve month anniversary of the extended maturity date of the
Senior Subordinated Notes and (ii) November 14, 2011; provided further that the
redemption date shall only be extended one time.

14. WARRANTS

In connection with the sale of senior subordinated notes by Sleepmaster to
PMI in 1996 and 1998, Holdings issued to PMI 2,000 warrants and 403 warrants,
respectively, to purchase class A common interests of Holdings (the "Class A
Warrants"). The Class A Warrants are exercisable at any time until March 3, 2010
at an exercise price of $0.01 per unit, subject to adjustment, and represent
2,403 Class A common units of Holdings (approximately 22% of the total common
interests).

In connection with the issuance of the Subordinated Note by Holdings, as
discussed in Note 12, Holdings issued to Citicorp Mezzanine Partners, L.P.
("CMP") warrants to purchase Class B common interests of Holdings (the "Class B
Warrants") at an exercise price of $0.01 per unit, subject to certain
conditions. The Class B Warrants are exercisable at any time after June 30, 2007
and before June 30, 2009 and represent 1,298.14 Class B common units of Holdings
(approximately 12% of the total common interests).

Since both the Class A Warrants and Class B Warrants were issued by
Holdings and the only operation of Holdings is its investment in Sleepmaster,
the Company would record an adjustment to reduce the carrying amount of debt
issued, with an offsetting charge to accumulated deficit to the extent of the
fair value of the warrants issued, if material. No adjustments were recorded
when the warrants were issued, since management considered the fair value of the
warrants to be immaterial.

15. STOCK OPTIONS

In 1998 and 1996, pursuant to the employment agreements of certain
employees, Holdings issued options to purchase 100 shares and 530 shares,
respectively, of Class A common units of Holdings at an exercise price of $100
(the "Options"). The Options vest 50% on December 31, 1999 and 50% on December
31, 2001 subject to the achievement of certain earnings targets by Sleepmaster.
Any unexercised options terminate on the tenth anniversary of the date of grant
or earlier, in connection with the termination of employment.

Since this is a variable stock compensation plan of Holdings and the only
operation of Holdings is its investment in Sleepmaster, the Company will record
compensation expense based on the difference between the exercise price and the
fair value of the Options at the balance sheet date, when it believes it
probable that the Company will meet the earning targets. No compensation cost
related to the Options has been recorded in 1999, 1998 or 1997 since, based on
the Company's current trend of earnings, management considers it unlikely that
they will achieve the earnings targets set forth in the option agreements.

F-16
<PAGE> 47
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

16. INCOME TAXES

The provision for income taxes consists of the following (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
CURRENT
Federal................................................ $1,750 $ 968 $ 209
State.................................................. 886 276 53
Foreign................................................ 406 -- --
------ ------ ------
Total current....................................... 3,042 1,244 262
------ ------ ------
DEFERRED
Federal................................................ 616 1,401 1,438
State.................................................. (610) 375 313
Foreign................................................ 200 -- --
------ ------ ------
Total deferred...................................... 206 1,776 1,751
------ ------ ------
Provision for income taxes........................ $3,248 $3,020 $2,013
====== ====== ======
</TABLE>

The Company's effective tax rate differs from the Federal statutory rate as
indicated in the following reconciliation for the years ended December 31:

<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Income tax expense at Federal statutory rate................ 34.0% 34.0% 34.0%
State income tax expense, net of Federal benefit............ 2.2% 6.9% 6.0%
Non-deductible goodwill..................................... 1.9% -- --
Other, net.................................................. 1.3% 1.2% 2.2%
---- ---- ----
39.4% 42.1% 42.2%
==== ==== ====
</TABLE>

Deferred income taxes reflect the net tax differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax reporting purposes. The significant component of the
Company's net deferred tax assets represents the tax effect of goodwill
attributable to the step-up in the tax bases of the Company's assets and
liabilities as a result of the leveraged recapitalization on November 14, 1996
(see Note 4). The Company recognized a net deferred tax asset of approximately
$16,500,000 in connection with this recapitalization. At December 31, 1999 and
1998, no valuation allowance has been recorded against this deferred tax asset
since management considers it more likely than not that such deferred tax asset
will be realized. At December 31, 1999, the Company had a Federal net operating
loss carryforward of approximately $3,407,000, which expires in 2019, and a
state net operating loss carryforward of approximately $12,508,000, which
expires between 2007 and 2015. These net operating loss carryforwards represent
a deferred tax benefit of approximately $1,305,000.

F-17
<PAGE> 48
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of net deferred tax assets as of December 31, 1999 and 1998
are as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998
------- -------
<S> <C> <C>
Goodwill................................................. $10,957 $12,225
Net operating loss carryforward.......................... 1,305 --
Sales allowance reserves................................. 467 307
Bad debt reserves........................................ 138 175
Other.................................................... 145 297
------- -------
Net deferred tax assets................................ $13,012 $13,004
======= =======
</TABLE>

17. COMMITMENTS AND CONTINGENCIES

Operating Leases

On January 12, 1995, the Company assumed the balance of a 10-year,
noncancelable operating lease agreement entered into by the former owner of the
Company for facilities in Linden, New Jersey. The lease expires on January 31,
2004, with renewal options. The Company also leases its facilities in Canada.
Additionally, the Company leases office furniture and equipment, manufacturing
equipment and distribution trucks under noncancelable operating leases with
various expiration dates through August 31, 2004. Rent expense under operating
leases was approximately $1,658,000, $1,221,000 and $780,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.

Future minimum lease payments under noncancelable operating leases as of
December 31, 1999 are as follows:

Litigation

The Company and its subsidiaries are, from time to time, parties to
litigation arising in the normal course of business, most of which involves
claims for personal injury and property damage incurred in connection with its
operations. Management believes that none of these actions will have a material
adverse effect on the financial position, results of operations or cash flows of
the Company and its subsidiaries.

Employment Contracts

The Company has employment agreements with its executive officers, the
terms of which expire at various dates through November 1, 2001. Such agreements
provide for minimum salaries as well as incentive bonuses that are payable if
specified management goals are attained. The employment agreements also provide
for benefits, including medical, life insurance and disability benefits. In
addition, executive securities will automatically vest in connection with a sale
of the Company. The Company's potential minimum obligation to its executive
officers, excluding bonuses, was approximately $2,400,000 at December 31, 1999.

F-18
<PAGE> 49
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

18. FAIR VALUE OF FINANCIAL INSTRUMENTS

Due to the short maturities of cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses, the carrying value of these
financial instruments approximates fair value. The carrying amount of borrowings
under the Revolving Credit Facility and Term Loan Facility approximates fair
value because the interest rates adjust to market interest rates. At December
31, 1999, the carrying value of the 11.0% Senior Subordinated Notes approximated
fair value, based on their quoted market prices.

19. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest and income taxes for the years ended December 31,
1999, 1998 and 1997 was as follows (in thousands):

<TABLE>
<CAPTION>
1999 1998 1997
------- ------ ------
<S> <C> <C> <C>
Interest........................................ $10,042 $7,125 $4,302
Income taxes.................................... 578 562 --
</TABLE>

In connection with the issuance of redeemable cumulative preferred
interests upon the leveraged recapitalization of the Company in 1996 (see Note
4), the Company recorded a charge to retained earnings (deficit) of $2,156,000,
$1,979,000 and $1,707,000 for the years ended December 31, 1999, 1998 and 1997,
respectively, representing the accretion of redeemable cumulative preferred
interests at a compounded annual rate of 12.0%.

Details of the acquisition of Palm Beach in 1998:

<TABLE>
<S> <C>
Fair value of assets acquired

Current assets............................................ $ 5,563,000
Property, plant and equipment............................. 8,612,000
Other assets.............................................. 201,000
Goodwill.................................................. 4,472,000
Serta license agreement................................... 23,647,000
-----------
Total assets acquired............................. 42,495,000
===========
Less: liabilities assumed
Current liabilities....................................... 2,704,000
Debt...................................................... 6,985,000
-----------
Total liabilities assumed......................... 9,689,000
===========
Net cash paid for acquisition............................... $32,806,000
===========
</TABLE>

20. SUBSEQUENT EVENTS

On January 25, 2000, the Company signed a letter of intent to acquire all
the capital stock of a Serta licensee for approximately $40,000,000 in cash. The
Company anticipates financing the acquisition through an expansion of its
existing credit facility.

21. GUARANTOR/NON-GUARANTOR FINANCIAL INFORMATION

As of May 18, 1999, Sleepmaster and each of the domestic wholly owned
subsidiaries ("Guarantor Subsidiaries") fully and unconditionally guaranteed, on
a joint and several basis, the obligation to pay principal and interest with
respect to the Notes. The Company generates funds necessary to satisfy its debt
service obligations from either its own operations or by distributions or
advances from its subsidiaries. There are no contractual or legal restrictions
that could limit the Company's ability to obtain cash from its subsidiaries for
the purpose of meeting its debt service obligations, including the payment of
principal and

F-19
<PAGE> 50
SLEEPMASTER L.L.C.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

interest on the Notes. Although holders of the Notes will be direct creditors of
Sleepmaster's principal direct subsidiaries by virtue of the guarantees,
Sleepmaster has a foreign subsidiary ("Non-Guarantor Subsidiary") that is not
included among the Guarantor Subsidiaries and such subsidiary will not be
obligated with respect to the Notes. As a consequence, the claims of creditors
of the Non-Guarantor Subsidiary will effectively have priority with respect to
the assets and earnings of such companies over the claims of creditors of
Sleepmaster, including the holders of the Notes. No supplemental consolidating
condensed financial statements have been presented for the year ended December
31, 1997, since the financial statements included the accounts of Sleepmaster
only.

The following supplemental consolidating condensed financial statements
present:

1. Consolidating condensed balance sheets as of December 31, 1999 and
1998; consolidating condensed statements of operations and cash flows for
the years ended December 31, 1999 and 1998.

2. Sleepmaster, combined Guarantor Subsidiaries and Non-Guarantor
Subsidiary with their investments in subsidiaries accounted for using the
equity method.

3. Elimination entries necessary to consolidate Sleepmaster and all of
its subsidiaries.

F-20
<PAGE> 51

SLEEPMASTER L.L.C. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMBINED NON-
GUARANTOR GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
----------- ------------ ---------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 1,294 $ 934 $ 612 $ 2 $ 2,842
Accounts receivable...................... 10,282 11,800 2,310 (175) 24,217
Accounts receivable -- other............. 1,061 630 -- -- 1,691
Intercompany receivable (payable)........ (17) 18,144 1,503 (19,630) --
Inventories.............................. 2,378 4,637 516 -- 7,531
Other current assets..................... 341 248 24 -- 613
Deferred income taxes.................... 735 378 -- (393) 720
-------- -------- ------- --------- --------
Total current assets.................. 16,074 36,771 4,965 (20,196) 37,614
Property, plant and equipment, net......... 4,477 15,773 717 -- 20,967
Intangible assets, net..................... 17,119 97,707 15,998 -- 130,824
Intercompany receivable (payable).......... 67,378 -- -- (67,378) --
Investment in subsidiaries................. 67,628 -- -- (67,628) --
Other assets............................... 6,878 409 3 -- 7,290
Deferred income taxes...................... 12,254 160 -- (122) 12,292
-------- -------- ------- --------- --------
Total assets.......................... $191,808 $150,820 $21,683 $(155,324) $208,987
======== ======== ======= ========= ========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable......................... $ 4,984 $ 8,808 $ 645 $ (173) $ 14,264
Accrued sales allowances and advertising
expenses.............................. 3,541 1,758 456 -- 5,755
Other current liabilities................ 4,208 3,180 1,161 -- 8,549
Intercompany payable (receivable)........ 19,599 -- -- (19,599) --
Deferred income taxes.................... 43 147 203 (393) --
Current portion of long-term debt........ 4,500 510 -- -- 5,010
-------- -------- ------- --------- --------
Total current liabilities............. 36,875 14,403 2,465 (20,165) 33,578
-------- -------- ------- --------- --------
Intercompany payable (receivable).......... -- 67,378 -- (67,378) --
Long-term debt............................. 153,800 7,803 -- -- 161,603
Deferred income taxes...................... (896) 1,018 -- (122) --
Other liabilities.......................... 459 319 685 -- 1,463
-------- -------- ------- --------- --------
Total long-term liabilities........... 153,363 76,518 685 (67,500) 163,066
-------- -------- ------- --------- --------
Redeemable cumulative preferred
interests................................ 20,423 -- -- -- 20,423
Members' equity (deficit).................. (18,853) 59,899 18,533 (67,659) (8,080)
-------- -------- ------- --------- --------
Total liabilities and members' equity
(deficit)........................... $191,808 $150,820 $21,683 $(155,324) $208,987
======== ======== ======= ========= ========
</TABLE>

F-21
<PAGE> 52

SLEEPMASTER L.L.C. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATING CONDENSED BALANCE SHEET
DECEMBER 31, 1998

<TABLE>
<CAPTION>
COMBINED
GUARANTOR
SLEEPMASTER SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................... $ 41 $ 153 $ (32) $ 162
Accounts receivable......................... 8,200 4,371 (1) 12,570
Accounts receivable -- other................ 737 462 -- 1,199
Intercompany (payable) receivable........... (5,296) 5,264 32 --
Inventories................................. 2,508 2,238 -- 4,746
Other current assets........................ 228 119 -- 347
Deferred income taxes....................... 1,606 -- -- 1,606
------- ------- -------- -------
Total current assets..................... 8,024 12,607 (1) 20,630
Property, plant and equipment, net............ 2,047 8,383 -- 10,430
Intangible assets............................. 17,762 27,540 -- 45,302
Investment in subsidiaries.................... 32,810 -- (32,810) --
Other assets.................................. 1,602 178 -- 1,780
Deferred income taxes......................... 11,398 -- -- 11,398
------- ------- -------- -------
Total assets............................. $73,643 $48,708 $(32,811) $89,540
======= ======= ======== =======
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable............................ $ 6,264 $ 3,668 $ (1) $ 9,931
Accrued sales allowances and advertising
expenses................................. 4,306 400 -- 4,706
Other current liabilities................... 2,102 980 -- 3,082
Current portion of long-term debt........... 6,750 380 -- 7,130
------- ------- -------- -------
Total current liabilities................ 19,422 5,428 (1) 24,849
------- ------- -------- -------
Long-term debt................................ 57,246 6,320 -- 63,566
Other liabilities............................. 346 29 -- 375
------- ------- -------- -------
Total long-term liabilities.............. 57,592 6,349 -- 63,941
------- ------- -------- -------
Redeemable cumulative preferred interests..... 18,267 -- -- 18,267
Members' equity (deficit)..................... (21,638) 36,931 (32,810) (17,517)
------- ------- -------- -------
Total liabilities and members' equity
(deficit).............................. $73,643 $48,708 $(32,811) $89,540
======= ======= ======== =======
</TABLE>

F-22
<PAGE> 53

SLEEPMASTER L.L.C. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
----------- ------------ ------------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................. $76,186 $84,470 $11,604 $ (941) $171,319
Cost of sales......................... 49,741 48,929 7,195 (941) 104,924
------- ------- ------- ------- --------
Gross profit.......................... 26,445 35,541 4,409 -- 66,395
------- ------- ------- ------- --------
Operating expenses
Selling, general and administrative
expenses............................ 18,485 22,170 2,667 -- 43,322
Amortization of intangibles........... 644 1,324 248 -- 2,216
------- ------- ------- ------- --------
Total operating expenses.............. 19,129 23,494 2,915 -- 45,538
------- ------- ------- ------- --------
Operating income...................... 7,316 12,047 1,494 -- 20,857
Interest expense, net................. 9,888 2,657 (9) -- 12,536
Other expense (income), net........... 69 30 (16) -- 83
------- ------- ------- ------- --------
(Loss) income before income taxes and
extraordinary items................. (2,641) 9,360 1,519 -- 8,238
Provision for income taxes............ (1,143) 3,786 605 -- 3,248
(Income) loss from equity investees,
net of tax.......................... (6,488) -- -- 6,488 --
------- ------- ------- ------- --------
Income (loss) before extraordinary
items............................... 4,990 5,574 914 (6,488) 4,990
Extraordinary items, net of income
taxes............................... (3,167) -- -- -- (3,167)
------- ------- ------- ------- --------
Net income (loss)..................... $ 1,823 $ 5,574 $ 914 $(6,488) $ 1,823
======= ======= ======= ======= ========
</TABLE>

F-23
<PAGE> 54

SLEEPMASTER L.L.C. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
COMBINED
GUARANTOR
SLEEPMASTER SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales.................................... $73,476 $37,089 $ (314) $110,251
Cost of sales................................ 47,005 22,289 (306) 68,988
------- ------- ------- --------
Gross profit................................. 26,471 14,800 (8) 41,263
------- ------- ------- --------
Operating expenses
Selling, general and administrative
expenses................................... 15,889 9,913 (8) 25,794
Amortization of intangibles.................. 644 579 -- 1,223
------- ------- ------- --------
Total operating expenses..................... 16,533 10,492 (8) 27,017
------- ------- ------- --------
Operating income............................. 9,938 4,308 -- 14,246
Interest expense, net........................ 6,903 193 -- 7,096
Other (income) expense, net.................. (27) 9 -- (18)
------- ------- ------- --------
Income before income taxes................... 3,062 4,106 -- 7,168
Provision for income taxes................... 3,020 -- -- 3,020
(Income) loss from equity investees, net of
tax........................................ (4,106) -- 4,106 --
------- ------- ------- --------
Net income (loss)............................ $ 4,148 $ 4,106 $(4,106) $ 4,148
======= ======= ======= ========
</TABLE>

F-24
<PAGE> 55

SLEEPMASTER L.L.C. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999

<TABLE>
<CAPTION>
COMBINED
GUARANTOR NON-GUARANTOR
SLEEPMASTER SUBSIDIARIES SUBSIDIARY ELIMINATIONS TOTAL
------------ ------------ ------------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................ $ 1,823 $ 5,574 914 $ (6,488) $ 1,823
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization........... 1,374 2,025 356 -- 3,755
Provision for doubtful accounts......... 72 348 20 440
Accrued interest (earned) incurred on
loans to subsidiaries................. (2,378) 2,378
Loss on sale of equipment............... -- 5 -- -- 5
Extraordinary Items..................... 3,167 -- 3,167
Deferred income taxes................... 1,455 630 -- -- 2,085
Other non-cash charges.................. 646 6 -- -- 652
Changes in operating assets and
liabilities, net of acquisition:
Accounts receivable................... (2,154) (2,282) (359) -- (4,795)
Accounts receivable -- other.......... (324) (168) -- -- (492)
Inventories........................... 130 (21) (38) -- 71
Other current assets.................. (113) 119 22 -- 28
Other assets.......................... -- 32 -- -- 32
Accounts payable...................... (1,280) 3,733 (99) -- 2,354
Intercompany payable (receivable)..... 14,319 (12,879) (1,476) 36 --
Accrued advertising................... 216 23 34 -- 273
Accrued sales allowances.............. (981) 536 98 -- (347)
Other current liabilities............. 2,106 1,158 1,150 -- 4,414
Other liabilities..................... 113 279 -- -- 392
------------ ----------- ----------- ----------- --------
Net cash provided by operating
activities............................ 18,191 1,496 622 (6,452) 13,857
------------ ----------- ----------- ----------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................... (3,160) (993) (12) -- (4,165)
Acquisitions, net of cash acquired........ (99,818) -- -- 690 (99,128)
Net activity in investment in
subsidiaries............................ (6,488) -- -- 6,488 --
------------ ----------- ----------- ----------- --------
Net cash used in investing activities... (109,466) (993) (12) 7,178 (103,293)
------------ ----------- ----------- ----------- --------
CASH FLOW FROM FINANCING ACTIVITIES
Proceeds from issuance of senior
subordinated notes...................... 115,000 -- -- -- 115,000
Proceeds from long-term debt.............. 46,830 -- -- -- 46,830
Payments on long-term debt................ (73,826) (32) -- -- (73,858)
Borrowings under revolving line of
credit.................................. 11,300 -- -- -- 11,300
Payments on revolving line of credit...... (5,000) (380) -- -- (5,380)
Loan origination fees/bond issuance
costs................................... (7,739) -- -- -- (7,739)
Penalties on early extinguishment of
debt.................................... (3,644) -- -- -- (3,644)
Distributions............................. (982) -- -- -- (982)
Capital contributions..................... 10,589 -- -- -- 10,589
------------ ----------- ----------- ----------- --------
Net cash provided by (used in) financing
activities............................ 92,528 (412) -- -- 92,116
------------ ----------- ----------- ----------- --------
Net change in cash and cash equivalents..... 1,253 91 610 726 2,680
Cash and cash equivalents at beginning of
period.................................... 41 847 -- (726) 162
------------ ----------- ----------- ----------- --------
Cash and cash equivalents at end of
period.................................... $ 1,294 $ 938 $ 610 $ -- $ 2,842
============ =========== =========== =========== ========
</TABLE>

F-25
<PAGE> 56

SLEEPMASTER L.L.C. AND SUBSIDIARIES

SUPPLEMENTAL CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998

<TABLE>
<CAPTION>
COMBINED
GUARANTOR
SLEEPMASTER SUBSIDIARIES ELIMINATIONS TOTAL
----------- ------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................................ $ 4,148 $ 4,106 $(4,106) $ 4.148
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 1,214 875 -- 2,089
Provision for doubtful accounts......................... 287 -- -- 287
Loss on sale of equipment............................... 9 -- -- 9
Deferred income taxes................................... 1,776 -- -- 1,776
Other non-cash charges.................................. 313 7 -- 320
Changes in operating assets and liabilities, net of
acquisitions:
Accounts receivable................................... (1,129) (1,282) -- (2,411)
Accounts receivable -- other.......................... 69 (277) -- (208)
Inventories........................................... 171 (58) -- 113
Other current assets.................................. (142) (54) -- (196)
Other assets.......................................... (49) 52 (44) (41)
Accounts payable...................................... 992 1,842 -- 2,834
Accrued liabilities................................... (488) 502 -- 14
Intercompany payable (receivable)..................... 5,296 (5,264) (32) --
Other liabilities..................................... 96 44 -- 140
-------- ------- ------- --------
Net cash provided by operating activities............... 12,563 493 (4,182) 8,874
-------- ------- ------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................................... (1,028) (67) -- (1,095)
Acquisitions, net of cash acquired........................ (32,806) -- 50 (32,756)
-------- ------- ------- --------
Net activity in investment in subsidiaries................ (4,106) -- 4,106 --
-------- ------- ------- --------
Net cash (used in) provided by investing activities....... (37,940) (67) 4,156 (33,851)
-------- ------- ------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.............................. 48,308 -- -- 48,308
Payments on long-term debt................................ (23,414) (285) -- (23,699)
Borrowings under revolving line of credit................. 7,396 -- -- 7,396
Payments on revolving line of credit...................... (7,397) -- -- (7,397)
Loan origination fees..................................... (827) -- -- (827)
Distributions............................................. (234) -- -- (234)
Capital contribution...................................... 994 6 -- 1,000
-------- ------- ------- --------
Net cash provided by (used in) financing activities..... 24,826 (279) -- 24,547
-------- ------- ------- --------
Net change in cash and cash equivalents..................... (551) 147 (26) (430)
Cash and cash equivalents at beginning of period............ 592 6 (6) 592
-------- ------- ------- --------
Cash and cash equivalents at end
of period................................................. $ 41 $ 153 $ (32) $ 162
======== ======= ======= ========
</TABLE>

F-26

<PAGE> 1
Exhibit 4.4

SLEEPMASTER L.L.C.
and
SLEEPMASTER FINANCE CORPORATION

as Issuer,

11% SERIES B SENIOR SUBORDINATED NOTES DUE 2009

SUPPLEMENTAL INDENTURE

Dated as of February 8, 2000

UNITED STATES TRUST COMPANY OF NEW YORK

Trustee

<PAGE> 2

SUPPLEMENTAL INDENTURE (this "Supplemental
Indenture"), dated as of February 8, 2000, among ADAM
WUEST CORPORATION, a Delaware corporation (the "New
Guarantor Subsidiary"), a subsidiary of SLEEPMASTER
L.L.C., a New Jersey limited liability company (the
"Company"); THE COMPANY and SLEEPMASTER FINANCE
CORPORATION, a Delaware corporation ("Finance Corp."
and, together with the Company, the "Issuers"); PALM
BEACH BEDDING COMPANY, a Florida corporation, HERR
MANUFACTURING COMPANY, a Pennsylvania corporation,
and LOWER ROAD ASSOCIATES, LLC, a New Jersey limited
liability company (the three preceding entities
together, the "Existing Guarantor Subsidiaries"); and
UNITED STATES TRUST COMPANY OF NEW YORK, a New York
banking association, as trustee under the Indenture
referred to below (the "Trustee").

W I T N E S S E T H :

WHEREAS, the Issuers have heretofore executed and delivered to
the Trustee an Indenture (the "Indenture"), dated as of May 18, 1999, providing
for the issuance of an aggregate principal amount of $115,000,000 of 11% Series
B Senior Subordinated Notes due 2009 (the "Securities");

WHEREAS, Section 1013 of the Indenture provides that under
certain circumstances the Company is required to cause the New Guarantor
Subsidiary to execute and deliver to the Trustee a supplemental indenture
pursuant to which the New Guarantor Subsidiary shall unconditionally guarantee
all of the Company's obligations under the Securities pursuant to a Subsidiary
Guaranty on the terms and conditions set forth herein; and

WHEREAS, pursuant to Section 901 of the Indenture, the
Trustee, the Company and Existing Guarantor Subsidiaries are authorized to
execute and deliver this Supplemental Indenture;

NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the New Guarantor Subsidiary, the Company, the Existing Guarantor Subsidiaries
and the Trustee mutually covenant and agree for the equal and ratable benefit of
the Holders of the Securities as follows:

1. Definitions. (a) Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.

(b) For all purposes of this Supplemental Indenture,
except as otherwise herein expressly provided or unless the context otherwise
requires: (i) the terms and expressions used herein shall have the same meanings
as corresponding terms and expressions used in the

<PAGE> 3

Indenture; and (ii) the words "herein," "hereof" and "hereby" and other words of
similar import used in this Supplement refer to this Supplement as a whole and
not to any particular section hereof.

2. Agreement to Guarantee. The New Guarantor Subsidiary hereby
agrees, jointly and severally with all other Guarantor Subsidiaries, to
Guarantee the Company's obligations under the Securities on the terms and
subject to the conditions set forth in Article XIV of the Indenture and to be
bound by all other applicable provisions of the Indenture.

3. Ratification of Indenture; Supplemental Indentures Part of
Indenture. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed by the parties hereto and all the terms, conditions and
provisions thereof shall remain in full force and effect. This Supplemental
Indenture shall form a part of the Indenture for all purposes, and every holder
of Securities heretofore or hereafter authenticated and delivered shall be bound
hereby.

4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE
EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.

5. Trustee Makes No Representation. The Trustee makes no
representation as to the validity or sufficiency of this Supplemental Indenture.

6. Counterparts. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.

7. Effect of Headings. The Section headings herein are for
convenience only and shall not effect the construction thereof.

* * * * *

<PAGE> 4

IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the date first above written.

ADAM WUEST CORPORATION

by
/s/ James P. Koscica
------------------------------------
Name: James P. Koscica
Title: Executive Vice President and
Chief Financial Officer

SLEEPMASTER L.L.C.

by
/s/ James P. Koscica
------------------------------------
Name: James P. Koscica
Title: Executive Vice President and
Chief Financial Officer

SLEEPMASTER FINANCE CORPORATION

by
/s/ James P. Koscica
------------------------------------
Name: James P. Koscica
Title: Executive Vice President and
Chief Financial Officer

PALM BEACH BEDDING COMPANY

by
/s/ James P. Koscica
------------------------------------
Name: James P. Koscica
Title: Executive Vice President and
Chief Financial Officer

<PAGE> 5

HERR MANUFACTURING COMPANY

by
/s/ James P. Koscica
------------------------------------
Name: James P. Koscica
Title: Executive Vice President and
Chief Financial Officer

LOWER ROAD ASSOCIATES, LLC

by
/s/ James P. Koscica
------------------------------------
Name: James P. Koscica
Title: Executive Vice President and
Chief Financial Officer

UNITED STATES TRUST COMPANY
OF NEW YORK as Trustee

by
/s/ Margaret M. Ciesmelewski
------------------------------------
Name: Margaret M. Ciesmelewski
Title: Assistant Vice President

<PAGE> 1
EXHIBIT 10.29

AGREEMENT

THIS AGREEMENT, entered into this 20th day of December, 1998, by and
between ADAM WUEST, INC., its successors or assigns, party of the first part
(hereinafter designated as the "Employer"), and the UNITED STEELWORKERS OF
AMERICA, AFL-CIO-CLC, party of the second part (hereinafter designated as the
"Union"), acting through its agent, LOCAL UNION NO. 156-U, for itself and in
behalf of the Employees now employed and hereinafter employed by the Employer
and collectively designated herein as the "Associates".

PREAMBLE

WHEREAS, the parties hereto desire to cooperate in maintaining a
proper and suitable management-labor relationship; and

WHEREAS, the parties hereto desire to establish fair and equitable
terms and conditions of employment; and

WHEREAS, the parties have now agreed upon various provisions in
fulfillment of the aforementioned purposes and now desire to enter into a labor
agreement incorporating said provisions covering terms and conditions of
employment.

WITNESSETH:

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

ARTICLE I

DESIGNATION OF BARGAINING UNIT

A. Recognition: The Employer recognizes the Union as the sole
and exclusive bargaining agent for all production, maintenance, shipping
and receiving Associates of the Employer with regard to wages, hours, and other
conditions of employment, excepting that the provisions of this Agreement shall
not apply to office and clerical Associates, and guards, watchmen, and
professional and supervisory Associates, and any such other Associates excluded
from the appropriate bargaining unit under the Labor Management Relations Act of
1947 as amended.

1
<PAGE> 2

B. Mutual Cooperation: The Union shall cooperate with the
Employer to promote the welfare of the Employer and efficiency of its factory
operations.

C. Union Membership:

1. It shall be a condition of employment that all Associates
of the Employer covered by this Agreement who are members of the Union in good
standing on the execution date of this Agreement shall remain members in good
standing, and those who are not members on the execution date of this Agreement
shall, after the thirtieth (30th) day following the execution date of this
Agreement, become and remain members in good standing in the Union.

2. It shall also be a condition of employment that all
Associates covered by this Agreement and hired after its execution date shall,
after the thirtieth (30th) day following the beginning of such employment,
become and remain members in good standing in the Union. The Employer shall
notify the Union when an Associate has completed thirty days of employment.

D. Check-Off: The Employer agrees that all Union financial
obligations consisting of dues, initiation fees and assessments as designated by
the International Secretary-Treasurer due from the Employees to the Union shall
be immediately forwarded to the USWA International Secretary-Treasurer of the
Union, together with a list of names and the amounts transmitted on behalf of
said Associates respectively. Such deduction and remittance shall be made on the
third (3rd) pay period of the month.

E. Indemnification: The Union shall indemnify and save the
Employer harmless against any and all claims, demands, suits or other
forms of liability that shall arise out of or by reason of action taken or not
taken by the Employer for the purpose of complying with any of the provisions of
this Article.

F. Right of Visitation: The duly elected or properly designated
representative of Local No. 156-U shall have access to the plant during regular
business hours upon reasonable notice to the Plant Manager or his representative
for the purposes of adjustment of disputes and/or grievances and for the
investigation of matters herein described and covered by this Agreement,
provided this right or privilege shall be reasonably used. The authorized
representative shall be subject to all plant rules and regulations while engaged
in such a visit. Such visits shall not interfere with the proper conduct of the
business nor the work of any Associate except the Union Shop Steward and/or the
aggrieved Associate.

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<PAGE> 3

G. Union Shop Committee:

1. Stewards: The number of Shop Stewards shall be fixed at
four (4), to consist of one (1) Chief Shop Steward and three (3) Departmental
Stewards. The number of Stewards may be increased or decreased by mutual
agreement between the Employer and the Union.

2. Time Off: An elected officer or committee member will be
afforded time off as required to conduct official Union business or attend
official Union functions. No more than two (2) Associates in a department may be
on authorized Union business leave at one time not to exceed two (2) days. The
Union shall give the Employer two (2) weeks' advance notice of such leave of
absence request.

3. Department Visit:

a. The Chief Shop Steward shall on application to his
supervisor be permitted necessary time to visit other departments of the plant
for the purpose of handling or investigating grievances under the provisions of
Section XIII of this Collective Bargaining Agreement.

b. No Union Steward shall leave his job for the purpose
of handling grievances or transacting other Union business without first
requesting and receiving permission from his supervisor.

c. No Union Steward shall go into another department
for the purpose of handling grievances or transacting other Union business
without first requesting and receiving permission from the supervisor of the
department into which he is seeking entry. Such permission shall not be
arbitrarily withheld by the supervisor.

4. Grievance Investigation: Except in cases of emergency,
grievances shall be investigated and discussed outside of normal working hours.

5. Pay For Lost time: Stewards will be paid their regular
rate of pay for necessary time lost during working hours within the workweek for
the handling of grievances as outlined in Article XIII of this Collective
Bargaining Agreement entitled "Adjustment of Grievances".

6. Separability: No agreement or understanding entered into
between a Union Steward and the Employer shall be binding or enforceable if
contrary to any of the terms or provisions of this Agreement.

7. Super Seniority: Union Stewards shall head their
departmental seniority list while serving as such. In case of a layoff, a Union
Steward shall be the last to be laid off within his department provided he can
do the work available.

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<PAGE> 4

H. Bulletin Boards: The Employer shall provide the Union with
Bulletin Boards in the plant, which the Union shall have the privilege of using,
provided, however, that the Bulletin Boards are to be used for Union business
only and all matters to be posted on the Bulletin Boards shall first be
submitted to the Plant Manager. One Bulletin Board shall be kept under glass
with lock and key.

ARTICLE II

MANAGEMENT

A. Rights: The Employer retains management rights such as: The
right to hire, transfer, promote, discharge or discipline for cause, lay
off and recall, and maintain discipline and efficiency of Associates; the
determination of type of products to be manufactured; the location of plants;
the planning and scheduling of production; the setting of standards and fair
rates; the classification of jobs; to increase, decrease, add or abolish
sections or departments; to use improved methods or equipment, and to make rules
of procedure and conduct and all other rights not specifically taken away by the
terms of this Agreement. These rights will not be used for the purpose of
discrimination against any Associate, provided, however, that in the exercise of
such rights the Employer shall not alter or violate any of the provisions of
this Agreement.

B. Supervisors Working: Supervisors will not do work normally
done by Associates covered by this Agreement. Both parties agree, however, that
supervisors shall be permitted to perform any work necessary to overcome
personnel, mechanical, production, or operational difficulties such as
absenteeism, training, test running of all machinery and/or equipment in the
course of research, experimental, developmental, or prototype work, and to
protect the safety of Associates and/or equipment.

ARTICLE III

PROCEDURE IN DISCHARGE CASES

A. Notification:

1. The Employer shall not discharge any Associate without
just cause. Prior to the discharge of any Associate, the Employer shall notify
the Chief Shop Steward or the Union for the purpose of giving them the
opportunity to discuss the prospective discharge with the Employer before it
becomes effective. However, no such notice need be given where the cause of the
discharge is sabotage, dishonesty, unauthorized possession or drinking of any
alcoholic beverage on Company property or while on job assignment, drunkenness
on Company property or while on job assignment, use, possession, distribution,
sale or offering

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<PAGE> 5

for sale of illegal drugs or any controlled substance on Company property
or on Company time, or refusal to follow instructions.

2. Where the cause of discharge is sabotage, dishonesty,
unauthorized possession or drinking of any alcoholic beverage on Company
property or while on job assignment, drunkenness on Company property or while on
job assignment, use, possession, distribution, sale or offering for sale of
illegal drugs or any controlled substance on Company property or on Company
time, or refusal to follow instructions, the Employer shall notify a
representative of the Union within four (4) hours after such discharge occurs.

B. Grievance: Any Associate who has a grievance arising out of a
discharge may file a grievance with respect to said discharge within three (3)
working days after the discharge occurs, in accordance with the procedures set
forth for the adjustment of grievances in Article XIII of this Collective
Bargaining Agreement. All discharge cases shall be given precedence for
disposition under the Grievance Procedure established by this Collective
Bargaining Agreement, and any discharge case submitted to arbitration shall be
adjudicated immediately.

C. Reinstatement: Associates found to have been improperly
suspended, laid off, or discharged shall be reinstated with full seniority
rights, and shall be compensated for all time lost except as may otherwise be
decided by mutual agreement between the Employer and the Union, or by a decision
of the impartial arbitrator, if any.

ARTICLE IV

HOURS OF WORK

A. Work Day and Work Week: This Section defines the normal
hours of work and shall not be construed as a guarantee of hours of work per day
or per week.

1. The standard workweek shall consist of forty (40) hours
and shall run Monday through Friday.

2. The standard workday shall consist of eight (8) hours and
run Monday through Friday

3. An Associate's workweek shall be a calendar week beginning
on Monday at the regular starting time of the shift to which he is assigned.

4. All Associates shall receive a thirty (30) minute lunch
period.

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<PAGE> 6

B. Daily Work Schedule: The regular daily work schedule for
first shift Associates shall be from 6:30 a.m. to 3:00 p.m., second shift
from 5:00 p.m. to 1:30 a.m. Monday - Thursday and 3:00 p.m. to 11:30 p.m.
Fridays, unless it becomes necessary to arrange to shift schedules different
from the above schedule due to such things as the need for additional shifts, to
provide for continuous operations, or to comply with Federal or State laws.

C. Reduction of Hours: In the event the Employer finds it
necessary to reduce operations, it may, at its option, also reduce the
scheduled hours of work per week instead of, or in addition to, reducing the
work force as provided for in Article IX, Seniority; provided, however, that if
the straight time hours in any one (1) week drop below thirty-two (32), or the
reduction lasts more than three (3) consecutive weeks, the Employer shall
declare a layoff until work can be resumed to the normal periods referred to in
Section A 1 of this Article.

D. Rest Period:

1. All Associates shall be granted two (2) ten minute rest
periods each day without deduction in pay; one (1) of said rest periods shall be
in the first half, and the other in the second half of the shift. An additional
ten (10) minute rest period shall be allowed after the ninth hour of work when
ten (10) hours of work are scheduled.

2. All Associates are required to remain working at their
work stations until the start of their scheduled rest period and are required to
be back at their work stations ready to resume work at the end of their rest
period. Any abuse of such rest period shall subject Associates to disciplinary
action.

ARTICLE V

REPORTING PAY

A. Pay: A minimum of four (4) hours pay at his previous average
quarterly hourly rate will be paid to an Associate reporting for work at his
scheduled starting time and who has not been notified prior thereto not to
report for work. If the Employer cannot use such Associate in his regular
capacity, it may avail itself of the Associate's services for the four (4) hour
period in any other capacity. If the Associate refuses such assignment, he shall
not receive the four (4) hours pay. However, the Employer shall not be liable
for reporting pay if failure to provide work is the result of emergencies beyond
the control of the Employer such as fire, storm, power failure, labor dispute at
the plant, or other Acts of God.

B. Associate Obligation: The provisions of this Section shall
not apply if the Associate was absent the previous day so that he did not
get the notice not to report for work, or if the Employer was

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<PAGE> 7

prevented from notifying him by reason of the fact that the Personnel
Office does not have his correct home telephone number or home address. If any
Associate is tardy or leaves his work voluntarily, he shall be paid only for the
amount of time actually worked on that particular day.

ARTICLE VI

OVERTIME

A. TIME AND ONE-HALF (1-1/2) shall be paid:

1. For all hours worked in excess of eight (8) hours in a
workday.

2. For all hours worked in excess of forty (40) hours in a
normal workweek.

3. For hours worked on Saturday as such, providing that if
the Associate is absent from work any day during the regular workweek through no
fault of the Employer the Associate shall not be entitled to overtime pay for
work performed on Saturday. However, if the absence from work during the regular
workweek (other than an absence on Friday) was occasioned solely by illness or
injury (supported by a doctor's statement stating that the Associate was
physically unable to work on the day in question), then the hours worked on
Saturday as such will be paid at time and one-half (1-1/2).

4. Those holidays specified in Article VII of this Agreement
shall be considered as days worked for the purpose of computing overtime pay,
provided the Associate qualifies for holiday pay.

5. Overtime pay for incentive rated Associates shall be
computed on the basis of one and one-half (1-1/2) times their average hourly
rate of pay while on incentive.

6. Overtime pay for hourly rated Associates shall be computed
on the basis of one and one-half (1-1/2) times their regular hourly rate of pay.

B. DOUBLE TIME shall be paid:

1. For all work performed on Sundays providing that if the
Associate is absent from work at any time during the regular workweek through no
fault of the Employer, the Associate shall be paid only at the rate of time and
one-half (1-1/2) for all work performed by him on Sundays.

2. Double time plus holiday pay shall be paid for all time
worked on those holidays specified in Article VII of this Agreement. It is
understood, however, that an Associate shall not be eligible for double time for
hours worked during a paid holiday where the beginning or

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<PAGE> 8

concluding hours of the regularly scheduled shift hours overlap the
holiday.

C. Schedule: All scheduled overtime work shall be distributed as
equally as practicable among Associates within a department and by shifts who
normally perform the work available. If additional help is required, Associates
with the greatest seniority in the department on the shift and capable of doing
the job in that department will be selected. If it becomes necessary to go
outside of that particular department, plantwide seniority on the shift will
prevail, provided the Associate is capable of doing the job. Associates shall
work until scheduled production is completed.

The Company will post a list each week on Monday for
voluntary Saturday overtime; any Associate wishing to volunteer must sign
this list to be eligible for volunteer Saturday overtime. Any Associate
scheduled for mandatory Saturday overtime may make a request to their supervisor
to be replaced by the senior qualified Associate who has signed the voluntary
overtime list. The supervisor, at his discretion, may offer the overtime to the
senior qualified Associate on the list who is not already scheduled to work on
Saturday. The selected Associate will be paid his own hourly base rate or the
rate on the job, whichever is greater.

D. Notification: Where reasonably practical, and excepting
emergencies, the Employer will give:

1. Notice of Saturday scheduled overtime by 10:30 A.M. on
Friday; and

2. Notice within the fourth (4th) hour of work of the
scheduled production for the day.

E. Assignment: The Union recognizes the necessity of a
reasonable amount of overtime work during certain periods. Senior
Associates in the job classification in the department and on the shift who
normally perform the work shall first be offered the overtime. If such senior
Associates refuse overtime, then the Employer may require qualified junior
Associates in the job classification in the department and on the shift to work
the overtime. If the number of needed junior Associates working overtime is not
sufficient to maintain production, senior qualified Associates may be required
to work the overtime. Associates who are assigned to work overtime will be those
who normally perform the work on which overtime is required. However, the
Company reserves the right to change such overtime assignment if required by
operational, personnel, or mechanical difficulties encountered on the original
overtime assignment, in which case such Associates can work on such changed
assignment up to and including four (4) hours.

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<PAGE> 9

F. Definition:

1. A reasonable amount of overtime is defined as: Two (2)
hours per day for daily overtime (Monday through and including Thursday) and
eight (8) hours for weekend overtime, but the combination of daily overtime and
weekend overtime shall not exceed sixteen (16) hours per week except on a
voluntary basis.

2. If the Employer posts notice one (1) week in advance of a
reasonable number of hours to be worked overtime regularly, in any department,
in excess of eight (8) hours per day or forty (40) hours per week, such hours,
although to be compensated in accordance with overtime and premium pay, shall
continue as the regular work schedule of said department until notice of
termination is given in the same manner.

G. Failure to Report: An Associate who accepts the opportunity
to work overtime and fails to report, unless supported by justifiable excuse,
will be subject to disciplinary action.

H. No Pyramiding: There shall be no duplication or pyramiding of
overtime or other premium pay. Work compensated for at overtime or premium rates
shall not be counted further for any purpose in determining overtime or premium
pay under same or any other provision of this Agreement.

ARTICLE VII

HOLIDAYS

A. Amount: Associates shall be paid for New Year's Day, Good
Friday, Memorial Day, Fourth of July, Labor Day, Thanksgiving Day, the
Friday after Thanksgiving Day, the working day immediately preceding Christmas
Day, Christmas Day, and New Year's Eve Day providing they meet all of the
following eligibility rules:

B. Eligibility:

1. The Associate must have seniority as of the date of the
holiday.

2. The Associate must have worked the last scheduled workday
prior to and the next scheduled workday after such holiday.

3. The Associate must have worked within thirty (30) days
before the holiday or within thirty (30) days after the holiday.

4. Section B 1 above shall not prevent payment of holiday
pay:

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<PAGE> 10

a. In the event an otherwise eligible
Associate is hospitalized or off sick the day before or the day after a holiday,
provided said Associate works some time during the week in which the holiday
falls and further provided that the absence is supported by a doctor's
certificate stating that the Associate was physically unable to work on the day
in question.

b. If excused by the Employer for a legitimate
reason beyond the control of the Associate.

5. Associates with one (1) or more years of seniority at
the time of their birthday will be granted:

a. An additional eight (8) hours of straight
time pay for working on their birthday, or

b. At the Associate's option, his birthday off
with pay.

C. Birthday: If the Associate opts to take his birthday off, he
must give the Company one (1) week's advance written notice that he
desires his birthday off and the Company may restrict the total number of such
elections in any given week to not more than one (1) Associate in a department
and/or not more than two (2) Associates plantwide. Birthdays falling on Sunday
will be observed on the following Monday, and birthdays falling on a Saturday
will be observed on the preceding Friday. If a birthday falls during an eligible
Associate's paid vacation or on a paid holiday, he will receive the eight (8)
hours straight time pay without working on his birthday.

D. Pay:

1. Hourly rated Associates eligible under these provisions
shall receive eight (8) hours pay at their regular straight time hourly rate
exclusive of night shift bonus and overtime premiums for such holidays.

2. Incentive rated Associates eligible under these provisions
shall receive eight (8) hours pay at their average hourly rate exclusive of
night shift and overtime premiums for the last calculated calendar quarter
previous to the week in which the holiday occurs.

E. Holidays During Vacation Periods: In the event a holiday
occurs during an Associate's paid vacation period, such Associate, who is
otherwise eligible, shall receive holiday pay for same, in addition to another
vacation day off without pay. Such additional vacation day off must be either
the Friday immediately preceding the Associate's vacation period or the Monday
immediately following the Associate's vacation period, or another day, at the
Employer's option.

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<PAGE> 11

F. Holidays on Weekend:

1. When any of the above-mentioned holidays fall on Sunday
and the day following is observed as the holiday by the State or Federal
government, it shall be paid as such holiday.

2. When any of the above-mentioned holidays falls on a
Saturday, eligible Associates shall, at the option of the Employer, be given the
preceding Friday off from work or an extra day's pay at such Associate's regular
straight-time hourly rate.

3. If an Associate accepts overtime work on Saturday and
fails to report as scheduled, he will forfeit his holiday pay in those instances
where the paid holiday falls on the succeeding Monday.

4. Should the celebration date(s) of any of the above
designated holidays be changed by state legislation so as to affect private
Employers, such holiday celebration date(s) will be changed to conform to such
legislation.

ARTICLE VIII

VACATIONS

A. Eligibility: Associates become eligible for vacation benefits
after completing one (1) year of full time employment. The year begins on the
hire date and ends on the anniversary of the hire date.

B. Amount and Pay: Associates shall receive vacations with pay
according to the following formula:

Years of Vacation Amount of
Continuous Service Weeks Vacation Pay
------------------ -------- ------------
<S> <C> <C>

1 2 4%
5 3 6%
15 4 8%
</TABLE>

C. Schedule: Vacation scheduling for the calendar year will
occur during January. During January, Associates shall make the period
during which they would like to take their vacations known to the Employer. The
Employer will notify Associates of vacation schedules by February 15th. The
Employer may require Associates to reschedule their vacations from requested
dates to other dates if business considerations (e.g., production, demands,
efficiency, etc.) make such rescheduling prudent. Conflicting vacations schedule
requests will be resolved on the basis of associate seniority.

D. Advance and Consecutive Weeks: Vacation pay shall be given to
an Associate on his last working day prior to going on vacation. Vacation
pay shall be given in a separate check and not included as part

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of this regular payroll check. Associates eligible for a 3rd and/or 4th
week of vacation may request payment for these weeks in advance of when the
vacation time is taken with adequate notice to the Employer. An Associate may
request consecutive weeks of vacation, not more than once in a calendar year.

E. Plant Shut Down: The Employer retains the right to schedule
any vacation periods and/or to close the plant or any part thereof for
all or part of any vacation period. However, if the Employer elects to shut down
for vacation purposes, it shall post a notice to that effect on or before April
1st of each vacation year and Associate vacations will be taken during such
vacation shutdown periods. The vacation shutdown period(s) shall be one (1) week
at Christmastime, and, if a second shutdown period is scheduled, it will be an
additional one (1) week sometime during the period from June 1st to August 31st.
Associates eligible for four (4) weeks' vacation in a given vacation year may
elect to take two (2) weeks' vacation in a row by including the week immediately
preceding or the week immediately following any vacation shutdown period during
the period from June 1st to August 31st provided:

1. That eligible Associates so desiring give the Employer
written notice to that effect by April 1st of each vacation year. The Employer,
in turn, will advise each Associate so requesting of his acceptance or rejection
by the following May 1st.

2. That the Employer may restrict the total number of such
elections in any given vacation year to one-fifth (1/5th) of the total number of
eligible Associates as of May 1st.

3. That such elections will be by seniority on a rotating
basis each vacation year with the Employer reserving the right to restrict such
elections by department, job classification, or other groups whose vacations
usually affect one another by postponing such two (2) weeks vacation in a row
until a later vacation year on a rotating basis.

4. That the Employer reserves the right to allocate the
number of eligible Associates off the week immediately preceding and/or the week
immediately following any vacation shutdown period so as to arrange such
vacation schedules most suitable to the department and/or job classification
involved, and in such a way that will cause the least interruption to
production.

5. Notwithstanding anything to the contrary contained in
Section E 2 and E 4 above, it is not the intention of the Employer to utilize
the provisions of Section E 2 and E 4 above to reduce the number of eligible
Associates granted such two (2) weeks vacation in a row below one-fifth (1/5th)
of the total number of eligible Associates as of May 1st of any given vacation
year.

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6. In the event of a vacation shutdown, any available work
including inventory and plant clean-up will be offered first to qualified
Associates by classification seniority. Vacations outside of the vacation
shutdown shall be arranged by the Employer for such times of the year so as to
not interfere with efficient scheduling of operations in the plant.

F. Third and Fourth Weeks:

1. Associates entitled to three (3) weeks vacation or four
(4) weeks vacation under the provisions of this Section shall have the third
(3rd) week or fourth (4th) week scheduled at any time during the year at the
discretion of the Employer so as to minimize any disruption in production
schedules of the plant.

2. Preference shall be given based upon an Associate's
seniority to an Associate's choice of when he may take his third (3rd) or fourth
(4th) week of vacation in accordance with the schedule to be mutually agreed to
between a representative of the Employer and a representative of the Union.

3. An Associate with four (4) weeks of vacation may request
the Employer buy back of up to two (2) weeks of vacation pay. An Associate with
three (3) weeks of vacation may request buy-back of one (1) week's vacation. If
an Associate asks for a buy-back of vacation and the Employer agrees, then that
vacation shall be viewed as taken upon payment.

G. Leave of Absence: Time spent on authorized leave of absence
shall be considered as time worked for the purpose of computing vacation
eligibility. However, an Associate must have been actively employed for at least
forty (40) hours during the previous vacation year to be eligible for any
vacation payment.

ARTICLE IX

SENIORITY

A. Probationary Period:

1. All new Associates shall be considered as being on
probation for a period of thirty (30) working days plus any extension of such
probationary period as provided herein. The probationary period of any new
Associate may be extended by the Employer, except for those Associates who were
brought in as casual labor, but not to exceed thirty (30) more working days or a
total of sixty (60) working days. The Employer will notify the Union in writing
of any new Associate hired and their start date within the first week of their
employment.

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<PAGE> 14

2. During the probationary period, a new Associate shall not
be entitled to seniority within the meaning of this Agreement and may be laid
off, disciplined, suspended, or discharged as exclusively determined by the
Employer.

3. After the successful completion of such probationary
period, a new Associate's seniority shall be computed from his latest date of
hire and his name placed upon the seniority list.

B. Loss: Seniority is to be established and based on continuous
service and shall date from the beginning date of last regular employment unless
broken by any one of the following:

1. Voluntary quit.

2. Discharge for cause.

3. Falsifying the reason for obtaining a leave of absence.

4. Absence from work for three (3) consecutive working days
without notifying the Employer.

5. Failure to report for work within three (3) days after
receiving notice of recall after a layoff given by the Employer by registered
mail or mailgram and addressed to the Associate at his last known address
appearing on the records of the Employer.

6. Retirement.

7. Failure to return to work after expiration of authorized
leave of absence.

8. After twelve (12) consecutive months of being on layoff
status.

9. Falsifying employment record.

10. Is absent from work because of personal illness or
accident and fails to keep the Employer notified monthly.

11. After being continuously absent while on a Worker's
Compensation leave of absence or extended illness leave of absence for a period
in excess of twelve (12) months or the Associate's seniority at the time when
the absence first began, whichever is shorter.

C. Layoff and Recall:

When it is necessary to lay off or recall Associates,
plantwide seniority shall prevail. If two (2) Associates are hired on the same
day in the same department, seniority will be based on

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<PAGE> 15

alphabetical order using their last names. If two (2) Associates are
transferred on the same day to the same department, they will be listed on the
departmental roster in plantwide seniority sequence. The Associate with the
least amount of plantwide seniority shall be the first laid off and the last
recalled in the department. Any Associate laid off as the result of a
departmental layoff, who is still on layoff status at the end of five (5)
working days, having more seniority plantwide than some Associates in other
departments, shall have the right to exercise his plantwide seniority to replace
the least senior Associate in the point of seniority in the plant whose work, in
the judgment of the Employer, he has the ability to perform, provided he
exercises this right at the end of the five (5) working day period. An Associate
who does not exercise his right to bump will be placed on permanent layoff and
shall only be eligible to recall to his regular job.

D. Promotions:

1. Promotions within the bargaining unit (except leadperson
and working supervisor) shall be made first from within the Department in
accordance with seniority and ability and competence to perform the job.
Accordingly, such new job or vacancy will be posted for three (3) consecutive
work days within the affected Department, and, if filled from within such
Department, there will be no need to post the job vacancy outside the
Department. If the job is not filled within the Department, then such new job or
vacancy will be posted plantwide for three (3) consecutive work days and the
applicants from Associates in other Departments shall be considered in
accordance with seniority and ability and competence to perform the job. Where
ability and competence are relatively equal, plantwide seniority shall be the
determining factor for selection within a Department and plantwide seniority
shall be the determining factor for selection for a job vacancy posted
plantwide.

2. In carrying out the provisions of this Section, an
Associate selected for promotion or selected for a vacancy shall be given a
trial period (not a training period) to prove he can perform the work, which
trial period shall be thirty (30) actual days of work unless the Associate
demonstrates in five (5) work days or less period of time that he is not
qualified to perform the job at which time he will return to his previous
classification.

3. Pending the determination of who is to be promoted or to
fill a vacancy in accordance with the procedure outlined above, such job may be
temporarily filled by an Associate of the Employer's choice.

E. Job Bidding:

1. Associates may bid on lower, equal or higher rated jobs.

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<PAGE> 16

2. A successful bidder on a posted job shall be required to
remain on the new job for at least one (1) year before becoming eligible to bid
again on any posted job.

3. Associates are expected to accept a promotion to a job
opening for which they have bid; therefore, unless the selected Associate has a
reasonable excuse for not accepting the promotion, any selected Associate
refusing to accept a promotion shall not be eligible to bid again for one (1)
year from the date of the refusal.

F. Seniority Lists: Lists showing plant-wide seniority including
classification will be posted every six (6) months. Any Associate who has a
complaint with reference to such seniority list must present the same within
thirty (30) days after such posting in accordance with the Grievance Procedure
outlined in Article XIII of this Agreement.

ARTICLE X

LEAVES OF ABSENCE

A. Application: An Associate desiring a leave of absence without
pay shall secure written permission from the Employer. In no event shall
an Associate be granted a leave of absence of more than thirty (30) days for any
reason other than pregnancy, illness, or accident. This period may be extended
by mutual agreement between the Employer and the Union. An Associate shall be
granted a leave of absence in accordance with the Family and Medical Leave Act.

B. Documentation: Requests for leaves of absence for personal
illness or pregnancy must be presented in writing to the Employer and must be
accompanied by a physician's statement that such a leave is necessary. Seniority
shall accumulate during the period of such leave.

C. Workers' Compensation: In compensable and legal occupational
disease cases, leave of absence will be granted automatically, and seniority
will accumulate for the full period of legal temporary disability but not to
exceed a twelve (12) month period as provided in Article IX Section B.11.
herein.

D. Seniority: Leaves of absence except for pregnancy, illness,
or accident extending beyond thirty (30) days shall be deducted in determining
an Associate's seniority status.

E. Union: A leave of absence will be granted upon official
request of the Union for an Associate who is elected or appointed to a full
time position with the local or international Union.

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<PAGE> 17

F. Military Service: Any Associate drafted, or who enlists, in
the Armed Forces of the United States shall be re-employed by the
Employer upon the termination of such service, and seniority shall accumulate
during such a period, provided he is physically capable of working and work is
available, and providing further that he shall have obtained an honorable
discharge from the Armed Forces and shall have applied for work within ninety
(90) days. If such Associate is physically handicapped, the Employer will make
every effort to find suitable work for him wherever possible. The above only
applies to one enlistment. Any Associate who is in the National Guard or
Military Reserves will be granted an unpaid leave of absence for the two (2)
weeks of active duty and such will not be counted against his vacation time off.

G. Limitations: Leaves of absence shall not be granted for the
purpose of taking outside employment. Any Associate on leave of absence who
accepts outside employment shall have his services with the Employer terminated
immediately.

ARTICLE XI

WAGES

A. Ratification Bonus: There shall be a lump sum ratification
payment of Five Hundred and Seventy-Five Dollars ($575.00) to all bargaining
unit Associates who were in the active employ of the Company on the date of
ratification (December 20, 1998) of this Agreement. Such an eligible Associate
shall receive this lump sum payment of Five Hundred and Seventy-Five Dollars
($575.00), payable by December 23, 1998.

B. Wage Increases: Hourly rates will be increased twenty cents
($.20) effective December 21, 1998; ten cents ($.10) effective June 21, 1999;
thirty cents ($.30) effective December 21, 1999; thirty cents ($.30) effective
December 21, 2000.

C. Shift Differential: Associates scheduled to work on the
second and third shifts shall receive fifteen cents ($.15) per hour and
twenty cents ($.20) per hour, respectively, in addition to their regular hourly
rate of pay for all hours worked on such shifts.

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<PAGE> 18

D. Job Classifications: The following department and job
classifications shall prevail during the term of this Collective Bargaining
Agreement with their hourly base rates as follows:

DEPARTMENT 12/21/98 6/21/99 12/21/99 12/21/2000
- ---------- -------- ------- -------- ----------
<S> <C> <C> <C> <C>
Sewing Room Department
- ----------------------

Sewing Machine Operator $8.65 $8.75 $9.05 $9.35
(Flanger, Box Spring
Capper, Half-Capper,
Labeler, Gusset Sew,
Line Stitch, Tape,
Pillow Top)
Border $8.55 $8.65 $8.95 $9.25
(Matt & Box Spring Border
Measurement, King Handles)
Cutter $10.13 $10.23 $10.53 $10.83
Set-Up/Service $8.58 $8.68 $8.98 $9.28

Mattress Department
- -------------------
Tape Edge $10.70 $10.80 $11.10 $11.40
Building $9.70 $9.80 $10.10 $10.40
Pillow-Top Assembly $9.70 $9.80 $10.10 $10.40
Set-Up $8.58 $8.68 $8.98 $9.28
Lead Set-Up $9.33 $9.43 $9.73 $10.03

Quilting Department
- -------------------
Multi Needle $9.44 $9.54 $9.84 $10.14
Baler $8.58 $8.68 $8.98 $9.28
Border Serger $8.55 $8.65 $8.95 $9.25

Box Spring Upholstery Dept.
- ---------------------------
Upholster $9.20 $9.30 $9.60 $9.90
Set-Up $8.40 $8.50 $8.80 $9.10

Box Spring and Frame Assembly
- -----------------------------
Frame Assembly $8.40 $8.50 $8.80 $9.10
Box Spring Assembly $9.40 $9.50 $9.80 $10.10
Box Spring Stapler $9.65 $9.75 $10.05 $10.35

Inspection/Repair Department
- ----------------------------
Inspecting/Repair $10.38 $10.48 $10.78 $11.08

</TABLE>

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<PAGE> 19

DEPARTMENT 12/21/98 6/21/99 12/21/99 12/21/2000
- ---------- -------- ------- -------- ----------
<S> <C> <C> <C> <C>

Shipping Department
- -------------------
Receiving Clerk $10.95 $11.05 $11.35 $11.65
Shipping Clerk $10.95 $11.05 $11.35 $11.65
Staging $10.38 $10.48 $10.75 $11.08

General Material Handling $8.58 $8.68 $8.98 $9.28
- -------------------------

Maintenance "B" $11.30 $11.40 $11.70 $12.00
- ---------------

Maintenance "A" $14.40 $14.50 $14.80 $15.10
- ---------------

Inventory $11.05 $11.15 $11.45 $11.75
- ---------

</TABLE>

Leadperson: A Leadperson will be paid a minimum of twenty-five cents ($.25)
above the highest classification.

E. Hire-in Rate: The minimum hiring-in rate for all Associates
in the above classification shall be fifty cents ($.50) below the scale
as shown above. All such new Associates shall be brought up to scale in
increments of twenty-five cents ($.25) thirty (30) days after hire, twenty-five
cents ($.25) sixty (60) days after hire. An Associate promoted to a higher rated
job under the provisions of Article IX Section D of this Agreement will maintain
his relative position timewise and ratewise as to the scale for the new job as
he was to scale on the old job (e.g., if the Associate is twenty cents ($.20)
below scale on the old job, he will be transferred or placed by job bid at
twenty cents ($.20) below scale for the new job) and will progress to scale for
the new job according to the time elements listed herein.

F. New Classification: The straight-time hourly base rates of
pay for all job classifications, as set forth in this Section, shall
remain in effect during the terms of this Agreement. If a new job classification
is established, then the straight-time hourly base rate of pay on the new job
classification shall be established by slotting the new job classification into
the present wage structure, according to the relative value of the job
classification as compared to existing job classifications. As far as
practicable, such new classification hourly base rates of pay will be discussed
with the Union before being put into effect; if not agreed to by the Union, then
subject to the grievance and arbitration procedure.

G. Christmas Bonus: The Employer hopes that circumstances will
permit it to continue giving a Christmas bonus to its Associates each year at
Christmastime. However, it is recognized and agreed that the amount of this
bonus and the decision as to whether or not it will be given is the sole
prerogative of the Employer.

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<PAGE> 20

ARTICLE XII

PRODUCTION STANDARDS

A. Production incentive standards shall be established by the
Employer. They will be established by means of accepted Industrial Engineering
technique, including standard data. The Union will have the right to examine
sources of standard data. Wherever any change affects only part of a job, the
Employer may restudy only the affected elements unless such change would affect
the preceding elements and succeeding elements. In this case, it may review such
elements and consider the results of such review of the changed elements as part
of the standard.

B. Once a rate has been established, it shall not be subject to
change unless there are changes in the method, material, product, equipment or
layout and such changes would result in an accumulated change of five percent
(5%) or more to the original operational time. In that event, only the element
or elements which have changed will be re-studied and the overall rate adjusted
accordingly.

C. The production incentive standard itself, as well as the
manner by which it was established, shall be fair and equitable to both
the Associates and the Employer.

D. An Associate, when being observed, shall perform his work in
accordance with the Employer's instructions and shall otherwise cooperate to
give a performance which is representative of the actual conditions under which
the job will run. He shall also understand that each job will stand on its own
merit.

E. It is agreed that any standard will be considered correct if
the average operator working at a job he can do well can earn at least
twenty-five percent (25%) above standard while working at incentive pace. The
Employer recognizes that incentive Associates producing at effort in excess of
normal (over one hundred and twenty-five percent (125%) as defined above) will
generate additional earnings over time rates. An Associate producing at an
effort less than normal for his classification of work shall be given notice to
bring his production standard up to at least normal within thirty (30) days.
Failure to do so may subject such Associate to transfer to another job
classification or assignment to any job vacancy in the plant.

F. All production incentive standards shall be so computed as to
actually give the worker allowance for personal time, fatigue depending upon the
mental and physical fatigue caused by the job, and for tools, trouble, and
contingencies. Such allowance shall be in accordance with the actual
requirements of the job.

G. If production is halted during the day through no fault of
the Associate involved and the Employer requires such Associate to stand
by during such non-production time, such Associate will be paid

20
<PAGE> 21

his base rate for such non-production time. If, on the other hand, the
Employer elects to have such Associate punch out and leave, no non-production
time will be paid.

H. If a job retimed by the Employer results in a rate being
lowered, the Union Industrial Engineer may be asked to review such time
study provided a timely grievance has been filed concerning such lowered rate.

ARTICLE XIII

GRIEVANCE AND ARBITRATION

A. Grievance Procedure: Should differences arise between the
Employer and the Union or the Associates in the bargaining unit as to the
meaning or application of this Collective Bargaining Agreement, there shall be
no suspension of any work on account of such differences, but an earnest effort
shall be made to settle such differences immediately in the following manner:

1st: Between the aggrieved party and the department Steward
and the supervisor of the department involved within four (4) working days after
the grievance occurs. A decision shall be rendered by the supervisor at this
step within three (3) working days after the grievance is brought to his
attention.

2nd: If the preceding step fails to settle the grievance,
it shall be put in writing and within five (5) working days taken up with
the Union Steward and the Plant Manager within five (5) working days after the
supervisor's decision in Step 1. A decision shall be rendered by the Plant
Manager at this step within five (5) working days after the meeting at this
step.

3rd: If the preceding step fails to settle the grievance,
then a meeting shall be arranged within ten (10) working days after the
Plant Manager's decision in Step 2 between representatives of the national
organization of the Union, the Chief Shop Steward, Departmental Steward,
representatives of the Employer and the aggrieved party if requested by the
Union or Employer. A decision shall be rendered by the Employer representatives
at this step within ten (10) working days after the meeting at this step.

4th: In the event the previous steps fail to settle the
grievance, the Union may take the matter to arbitration in accordance with the
provisions of Section XXI following, provided written notice to that effect is
given within thirty (30) working days after the decision of the Employer in Step
3. Nothing herein shall prevent an individual Associate from discussing with
Management matters affecting his employment.

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<PAGE> 22

B. Arbitration Procedure:

1. Following a written request for arbitration as provided
for above, the Employer and the Union will, within fifteen (15) working days
after receipt of said written notice, name a representative for the purpose of
selecting an arbitrator. If these two representatives fail to select an
arbitrator within fifteen (15) working days after so being appointed, they will
jointly submit a request to the Federal Mediation and Conciliation Service for a
list or lists of not more than nine (9) names of competent arbitrators. If the
parties are unable to mutually agree on one of the arbitrators on the list, then
the Union and the Employer representative shall each alternately strike off two
(2) names, and the remaining name on the list shall be the person to be the
impartial arbitrator.

2. The impartial arbitrator will name the time of the
arbitration. His decision on the grievance will be final and binding upon the
Employer, the Union, and the Associate or Associates involved. Each party shall
bear the expense of its representatives, participants, witnesses, and for the
preparation and presentation of its own case. The fees and expenses of the
arbitrator, the hearing room, and any other expenses incidental to the
arbitration hearing shall be borne equally by the parties. (A stenographic
transcript, if any, will not be considered as incidental expense and will be
paid solely by the party ordering same.) Notwithstanding anything to the
contrary contained herein, in the event a discrimination case is appealed to
arbitration, the arbitrator is authorized by the parties to apply Title VII of
the 1964 Civil Rights Act and related court decisions in arriving at his
decision. In the event a discharge or suspension case is referred to an
Arbitrator, he shall have the authority to deny the grievance or to modify the
penalty and to order reinstatement with full, partial, or no back pay. Interim
earnings and unemployment compensation benefits which the Associate would not
have received except for the discharge or suspension shall be deducted from any
back pay otherwise due an Associate. Unrelated grievances shall be arbitrated in
separate proceedings unless otherwise agreed to by the Company and the Union.

3. A grievance, not processed within the designated time
limits specified in this and the preceding Section, shall be considered dropped
and will not be eligible for further consideration.

4. If the Employer does not answer a grievance within the
specified time limits for Steps 1, 2 and 3, the Union may elect to treat the
grievance as denied at that Step and immediately appeal the grievance to the
next Step, unless it is mutually agreed in writing by the Employer and the Union
to extend the time limits at any of the Steps.

5. The arbitrator shall have no jurisdiction or authority to
add to, detract from, or alter in any way the provisions of this Agreement, but
shall limit his consideration and decision to the interpretation and application
of this Agreement.

22
<PAGE> 23

6. The proposals made by each party with respect to changes
in the labor agreement and the discussions had with respect thereto shall not be
used, or referred to, in any way during or in connection with the arbitration of
any grievance arising under the provisions of this labor agreement.

ARTICLE XIV

NO STRIKE AND NO LOCKOUT

A. Provisions: It is agreed that during the term of this
Agreement there will be no strike, sympathetic strike, lockout, slowdown,
or stoppage of work of any kind whatsoever on the part of the Union or the
Employer. Should any Associate in the unit represented by the Union engage in
any such strike, sympathetic strike, slowdown or stoppage of work, it shall be
cause for discipline up to and including discharge with the loss of all rights
which may have accrued to him by virtue of his employment by the Employer.

B. Picket Line: No Associate covered by this Agreement shall
be subject to any form of discipline, discharge, or replacement if he
refuses to enter upon the premises of his Employer if the said premises are
being subjected to a lawful picket line or if he refuses to enter upon the
premises of any other Employer, if the employees of such Employer are engaged in
a strike ratified or approved by the representative of such employees who their
Employer is required to recognize under the Labor Management Relations Act, as
amended.

C. Limitation of Liability: Neither the Union nor its
representatives shall be held at fault or be responsible for damages for any
unauthorized strikes, cessation, or restriction of work of any kind, nor shall
the Employer be responsible for any unauthorized lockouts of any kind.

D. Guilt Determination: The guilt of participation of any
Associate in an authorized strike, work stoppage, or slowdown shall, at
the request of the Union, be subject to the Grievance and Arbitration provisions
of the within Agreement. The Employer further agrees that in imposing any
penalty upon any violators of the within clause, it will not discriminate in the
levying of such penalties among the participants of the unauthorized strike,
stoppage, or slowdown.

ARTICLE XV

INSURANCE PROGRAM

A. Provisions: The Employer agrees for the term of this
Agreement to provide the program of Health, Dental, Life and Disability

23
<PAGE> 24

Insurance agreed upon during the negotiation of this Agreement. This
program may be provided through contracts with the insurance carrier(s) selected
by the Employer or by the Employer directly (so-called self-insurance) or a
combination of these. The program of insurance will be subject to the terms and
conditions of the group insurance policy in effect at the time. The Employer
shall administer the program of insurance. If the Employer changes insurance
carriers, plans or administrators during the Agreement, comparable benefits will
be provided. The Union has the right during the term of this Agreement to shop
for comparable coverage and to require the Company to negotiate regarding any
changes it wishes to make regarding insurance carriers or coverage.

B. Eligibility: Associates are eligible for participation
in the Insurance Program on the first day of the month after the Associate has
completed thirty (30) working days with the Employer.

C. Contributions: The Employer will assume the entire cost of
the Health and Dental Insurance Plan until August 1, 1999. Effective
August 1, 1999, any future increases in monthly premiums will be paid 25% by
Associates, 75% by the Company. Associates will only be responsible for future
increases at the time of the increase, and cannot be required to pay more than
25% of the same increase during the life of this Agreement. Any decrease in
premium cost will be reflected on an Associate's contribution rate. Associates
will be eligible to participate in the Company's Section 125 Plan.

Associates hired after December 21, 1998 will be required to
pay 15% of the monthly premium cost of insurance for one year; thereafter they
will contribute the same as other employees.

The Employer will assume the entire cost of the Life and
Disability Plan during the term of the Agreement.

D. Opt-Out Payment: An Associate who declines coverage in the
Health and/or Dental Plan is eligible for an opt-out payment. An Associate who
opts-out of the Health and/or Dental Plan is still eligible to receive Life and
Disability coverage.

ARTICLE XVI

UIU PENSION TRUST

A. Contribution: During the term of this Collective Bargaining
Agreement, including any renewal or extension thereof, beginning with the month
of January 1996, the Employer agrees to contribute to the UIU Pension Trust each
calendar month a sum of money equal to six percent (6%) of the total gross
monthly wages earned by and payable to the Associates, including part-time
Associates, subject to

24
<PAGE> 25

this Agreement. Such six percent (6%) contribution shall be based upon the
wages of such Associates accrued during the immediately preceding calendar
month, by all Associates who were covered by this Agreement during said
immediately preceding calendar month, including the total gross earnings of any
such Associates whose employment was terminated during the said immediately
preceding month.

1. The term "Covered Associates" as used herein
means all Associates included within the Union's Bargaining Unit.

2. Newly hired Associates are not considered
Covered Associates until the first day of the first calendar month immediately
following the expiration of three hundred sixty-five (365) days from the
commencement of employment. If, however, the newly hired Associate had at any
time been previously covered under the Trust by any Employer, the Associate
shall be considered a Covered Associate beginning with the first day of the
first calendar month immediately following the commencement of employment.

3. The contribution due for a particular calendar
month shall be due by the tenth (10th) day of said month. The Employer shall
transmit to said Trust with each contribution a "Contribution Report" on the
form furnished by the Trust, on which the Employer shall report the names, hire
and termination dates as applicable and total gross earnings of all such covered
Associates during such calendar month.

B. Liquidated Damages and Interest: It is recognized by the
parties that prompt and accurate payment of contributions is essential to
the maintenance of the Trust provided for in this Agreement and that it is
extremely difficult, if not impracticable, to fix the actual expense and damages
to the Trust that would result from the failure of the Employer to pay the
required contributions when due. Therefore, if the Employer shall be delinquent
in the payment of contributions to the Trust, the Employer in addition to the
contributions, shall be liable for Liquidated Damages in the amount of ten
percent (10%) of the amount of the contributions which are owed to the Trust
Fund. In addition, the delinquent contributions shall bear interest at the rate
of the prime interest rate in effect on January 1st of the calendar year in
which the delinquency occurs plus two percent (2%) per annum from the due date
until the contributions are paid. The Trust shall have the authority to waive
all or part of the Liquidated Damages or Interest for good cause shown.

C. Benefits: In consideration of the Employer's aforesaid
contributions to the Trust as herein above provided and for so long as the
Employer's participation in the Trust is accepted by the Trustees, the Trustees
will, beginning with the date of receipt by the Trust of the Employer's first
said contribution and continuing for such part of the duration of this Agreement
as the Employer fully complies with the terms of this clause in all respects,
extend and make available to Associates covered by this Agreement the pension
benefits for which such Associates

25
<PAGE> 26

are eligible under the Declaration of Trust as amended from time to time,
which is by this reference incorporated herein and made a part hereof. If during
the life of this Agreement the Employer's participation in the Trust is rejected
or terminated by the Trustees, this clause shall be null and void and this
Agreement shall be reopened and negotiations between the parties entered into,
but only as to the subject of the establishment of other benefits in place of
the UIU Pension Trust, but at a cost to the Employer not to exceed the cost of
the contribution hereunder.

ARTICLE XVII

FUNERAL PAY

A. Provisions: An Associate who promptly reports to the
Employer the necessity of his absence for the purpose of attending the
funeral of a member of his current immediate family will be protected against
loss of his average straight-time earnings incentive workers shall receive pay
at their average hourly rate exclusive of night shift and overtime premium for
the last calculated calendar quarter prior to the death); not to exceed eight
(8) hours of pay per day up to three (3) regularly scheduled work days beginning
with day of death and ending with day of funeral.

B. Family Members: Immediate family, for the purposes of up to
three (3) consecutive working days off with pay, shall include only
spouse, child, mother, father, blood brother, blood sister, grandparent,
grandchild, father-in-law, mother-in-law, brother-in-law and sister-in-law of an
Associate.

C. Travel: No payment will be made for any day of absence
which is beyond the three working day period following such death, except
where the Associate attends the funeral services at a location which is more
than 500 miles from Cincinnati, Ohio, in which case the three working day period
will be extended to a four working day period with time off with pay not to
exceed three (3) regularly scheduled working days.

D. Qualifications: It is understood that for an Associate to
be eligible for any compensation under this Section the Associate, when
requested, must furnish proof satisfactory to the Employer of the death, his
relationship to the deceased, the date of the death and the funeral, and the
Associate's actual attendance at such funeral.

E. Multiple Deaths: In case of multiple deaths arising out of
a common accident, no time is to be allowed beyond three (3) consecutive
working days following the date of the deaths except as otherwise provided
herein, or in event the deaths do not occur on the same date not beyond three
(3) consecutive working days from the date of the last death except as otherwise
provided therein.

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<PAGE> 27

ARTICLE XVIII

LIMITATION OF AUTHORIZED AGENTS

A. It is hereby agreed and understood that no person is
authorized to act as or be deemed to be an authorized agent of any party
to this Agreement unless the party appointing such authorized agent has first
notified the other in writing of such appointment and the scope of the authority
of such an agent.

B. It is hereby agreed and understood that the following persons
only shall be deemed the authorized agents of the respective parties for the
purpose of performing the terms of this Agreement.

1. Duly authorized agents of the Union shall be:

a. Representative (or President of the Local Union
where the Local Union has no full time paid Representative) of the Local Union.

b. Any other person specially authorized by the
International Union whose identify and scope of authority is made known to the
Employer by written communication from the International Union.

c. No agent of the Union is authorized by the
International Union to breach or cause a breach of this Agreement or to call or
institute a strike, work stoppage, slow down of production, etc., unless same
has been authorized in writing by the International President of the Union.

2. Duly authorized agents of the Employer shall be:

a. The Vice President of Manufacturing and/or
Plant Manager of the plant.

b. Vice President of Human Resources.

c. Any other person authorized by the
Employer to act as his agent whose identify and scope of authority has been made
known to the International Union or to the Local Union by written communication
from the said Employer.

SECTION XIX

WORKING CONDITIONS

A. Provisions: All reasonable shop, safety, and housekeeping
rules and all State regulations governing health, safety, and sanitary
conditions shall be complied with by the Employer and the Union and the
Associates.

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<PAGE> 28

B. Substance Abuse:

1. Alcoholism and drug abuse are recognized by the parties to
be treatable conditions. Without detracting from the existing rights and
obligations of the parties recognized in the other provisions of this Agreement,
the Employer and the Union agree to cooperate in encouraging Associates
affiliated with alcoholism or drug abuse to undergo a coordinated program
directed with the objective of the rehabilitation.

2. In order to assist Associates and to provide a safe
working environment, the Employer, in addition to the testing being done for
cause, may, with advance notice to the Associate, include a drug screen as part
of the physical examination of Associates recalled from layoff after absences
from work in excess of thirty (30) days. Such screen shall be done utilizing the
most reliable procedures available and under the supervision of qualified
medical personnel. Should an Associate test positive as to any illegal drug and
a retest confirms the positive result, he shall be offered rehabilitation. All
programs will be carried out with due regard to Associates' right to privacy.
The Employer will not require Associates to submit to random or blanket drug
screening. However, it is understood that the testing done for cause includes
testing where there is some reasonable basis on which to suspect that a
particular individual's conduct or actions may be impaired by drugs.

ARTICLE XX

TEMPORARY TRANSFERS

A. Provisions: Temporary transfers are those not exceeding
thirty (30) working days. This period may be extended by mutual agreement
between the Employer and the Union. At the end of thirty (30) working days, the
transferred Associate shall be entitled to return to his own job classification,
if seniority permits, or to continue in the new job classification at the rate
in the new job classification as defined herein.

B. Company Convenience: When an Associate is temporarily
transferred at the convenience of the Employer from his own job
classification to another job classification, he shall be paid as follows:

1. An hourly rated Associate on temporary transfer to another
hourly rated job classification shall carry his own hourly rate or shall take
the hourly rate in the new job classification, whichever is the higher.

28
<PAGE> 29

2. An hourly rated Associate on temporary transfer to an
incentive job classification shall carry his own hourly rate or shall take his
incentive earnings or the base rate in the new job classification, whichever is
the higher.

3. An incentive rated Associate on temporary transfer to an
hourly rated job classification shall carry his own average hourly earning rate
of the latest calculated pay period or shall take the hourly rate in the new
hourly rated job classification, whichever is the higher.

4. An incentive rated Associate on temporary transfer to
another incentive job classification in another department shall carry his own
average hourly earnings rate of the latest calculated pay period or shall take
his incentive earnings or the base rate in the new job classification, whichever
is the higher, provided the transferred Associate expends a normal work effort
on the temporary job to which he is transferred.

C. Associate Convenience: When an Associate is temporarily
transferred at his convenience, he shall be paid at his base rate or the rate
earned on the job to which he is transferred, whichever is higher. A transfer
is for his convenience when it:

1. is in lieu of layoff;

2. is to accommodate an Associate's physical
requirements; or

3. is of the least senior person in the department.

D. Shifts: Whenever the operation of the Employer requires a
second or third shift or additions to the second or third shift, and
qualified Associates are needed for these shifts, Associates for these shifts
shall be obtained as follows:

1. Qualified first shift Associates working in the job
classification affected will be given the opportunity based on their
classification seniority to fill the second or third shift job opening.

2. In the event there are no volunteers for the job as
provided for in (a) above, then the second or third shift vacancy will be filled
by transferring the least senior qualified Associate holding seniority in the
job classification affected. An Associate so transferred will have the right to
return to the job classification and department affected on the first shift at
the end of eight (8) weeks or after the Associate who displaced him on first
shift is qualified, whichever occurs first.

3. A qualified operator in a job classification may, with (2)
weeks advanced written notice to their supervisor, exercise

29
<PAGE> 30

shift preference in their same classification, displacing a less senior
associate in that same classification, provided the bumping associate has the
skill and ability to immediately perform the work required on the shift
requested. The bumped Associate shall have the same rights as an Associate laid
off under Article IX, paragraph C, except that the bumped Associate may also
exercise his plant wide seniority to replace the least senior Associate on the
shift from which he is bumped.

4. Shift preference will be granted at any time excluding the
months of June, July, August, and September. During the months of June through
September shift preference cannot be exercised.

5. Once the Associate has been granted shift preference in
their same job classification, they must remain on the new shift for a period of
six (6) months.

ARTICLE XXI

CASUAL LABOR

The Employer agrees that it will not employ casual labor for a
period exceeding sixty (60) working days. If work for casual labor is available
on Saturdays, the Employer further agrees that it will make such work available
to Associates in the bargaining unit who normally perform such work, and that
such Associates will be compensated at the regular straight-time hourly rate for
all work so performed.

ARTICLE XXII

JURY DUTY

A. Notification and Pay: In the event any Associate who has
completed his probationary period is required to serve on a jury, he shall
notify the Employer to this effect immediately upon receipt of such notice.
While actually serving on jury duty, the Associate shall receive the difference
between his jury duty pay and his regular hourly base rate of pay for the period
of his jury service.

B. Limitations: No payment will be made under this Article for
jury service performed in excess of eight (8) hours per day, forty (40)
hours per week. It is understood and agreed that an Associate is expected to
report for work whenever that Associate is excused by the court from performing
jury service. There shall be no duplication of payment to which an Associate
might otherwise be entitled under this Agreement.

30
<PAGE> 31

ARTICLE XXIII

NON-DISCRIMINATION

A. The Employer and the Union agree that they will not
discriminate in the hiring of Associates or in their training, upgrading,
promotion, transfer, layoff, discipline, or discharge or otherwise because of
race, creed, color, age (as defined by law), national origin, political
affiliations, sex, marital status, veteran's status, or disability if qualified
to perform the work required.

B. Notwithstanding any other provision in this Agreement, it
shall not be a violation for the Employer to take any action it believes
is required as a "reasonable accommodation" under the Americans with
Disabilities Act.

C. It is understood that all matters of hours, wages, and
working conditions and benefits have been completely negotiated and that
no new terms, conditions, or benefits may be brought up for negotiation by
either of the parties during the term of this Agreement, except as herein
provided.

D. No Associate covered by this Agreement shall suffer any loss
of wages or other benefits accorded to other Associates in the unit
through the signing of this Collective Bargaining Agreement.

ARTICLE XXIV

MISCELLANEOUS PROVISIONS

A. Gender: All references to Associates in this Agreement
designate both sexes, and whenever the male gender is used it shall be
construed to mean male and female Associates.

B. Equal Pay: Males or females c1overed by this Agreement
shall receive equal payment where work performed is substantially
identical.

C. Union Label: The Employer may affix the Union label to all
articles produced in the Employer's plant in accordance with the terms of the
license issued to it by the United Steelworkers Union.

ARTICLE XXV

SEPARABILITY

If any provision of this Agreement should be held invalid by
operation of law or by any tribunal of competent jurisdiction or if compliance
with or enforcement of any provision should be restrained by such tribunal
pending final determination as to its validity, the

31
<PAGE> 32

remainder of this Agreement shall not be affected. In the event that any
law or decision described above affecting any provision of this Agreement is
later reversed, or declared invalid, the affected provision shall again be
considered a part of this Agreement.

ARTICLE XXVI

PLANT CLOSING OR RELOCATION

In the event the Employer permanently closes the production facility
covered by this Agreement, or relocates it outside the greater Cincinnati area
during the term of this Agreement, the Employer agrees that it will meet with
the Union for the purpose of negotiating an Agreement relating to the details
incident to such plant closing or relocation.

32
<PAGE> 33

ARTICLE XXVII

DURATION OF CONTRACT

This Agreement shall be in full force and effect for the period from
December 20, 1998, to and including December 20, 2001, and shall continue in
full force and effect from year to year thereafter unless written notice of
desire to modify or terminate this Agreement is served by either party upon the
other at least sixty (60) days prior to date of expiration.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed this _____________ day of ___________________, 19___, at Cincinnati,
Ohio.

ADAM WUEST, INC. UNION LOCAL NO. 156-U

By: By:
- ----------------------- --------------------------
Representative
- -----------------------
LOCAL UNION COMMITTEE
- -----------------------
By:
--------------------------

--------------------------

33
<PAGE> 34

SIGNATURE PAGE

Company Name

By:
--------------------------

--------------------------

United Steelworkers of America,
AFL-CIO-CLC, through its' agent
Local _______U

By:
--------------------------

United Steelworkers of America

AFL-CIO, CLC

By:
---------------------------------
International President

--------------------------
Committee

By:
---------------------------------
International Secretary/Treasurer

--------------------------

Committee

By:
---------------------------------
Int'l. Vice Pres. - Administration

--------------------------

Committee

By:
---------------------------------
Int'l. Vice Pres. - Human Affairs

--------------------------

Committee

By:
---------------------------------
Division Director

--------------------------
Committee

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