Sealy (ZZ)

Commitments

        On December 1, 2008, the Company completed a sale-leaseback transaction of its South Gate, California facility, including the land, building and improvements affixed to the properties. The facility is being leased back over a seven year term and is classified as an operating lease. The net proceeds from the sale were $8.4 million and were reinvested in the business. The sale of this facility resulted in a gain of approximately $4.9 million. This gain has been deferred and is being amortized over the lease term. During the three and six months ended May 31, 2009, the Company has recognized $0.2 million and $0.3 million of this gain, respectively. The remaining deferred gain was $4.6 million at May 31, 2009. Amounts recorded as a component of other accrued liabilities and other noncurrent liabilities

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SEALY CORPORATION

Notes to Condensed Consolidated Financial Statements (Continued)

(unaudited)

Note 19: Commitments and Contingencies (Continued)

within the accompanying Condensed Consolidated Balance Sheets as of May 31, 2009 are $0.4 million and $4.2 million, respectively. The future minimum payments associated with this lease for the next five years, from the date of the sale, are as follows (in thousands):

        The Company has employment agreements with certain of its executive officers and key employees which, among other things, provide severance benefits to those employees. For the three and six months ended May 31, 2009, severance costs of an insignificant amount and $1.2 million, respectively, were recorded as a component of operating income within the accompanying Condensed Consolidated Statements of Operations. For the three and six months ended June 1, 2008, severance costs of $3.4 million and $4.3 million, respectively, were recorded as a component of operating income within the accompanying Condensed Consolidated Statements of Operations. These charges are inclusive of the $0.7 million of compensation cost that was recognized in connection with a modification of the terms of certain stock options in connection with the employee's resignation. Severance benefits of $2.4 million and $3.2 million have been accrued as of May 31, 2009 and November 30, 2008, respectively. Of this amount, $2.4 million and $2.2 million is included as a component of accrued liabilities and $0.0 million and $1.0 million is included as a component of other noncurrent liabilities within the accompanying Condensed Consolidated Balance Sheet as of May 31, 2009 and November 30, 2008, respectively.

Commitments

        On December 1, 2008, the Company completed a sale-leaseback transaction of its Southgate, California facility, including the land, building and improvements affixed to the properties. The facility is being leased back over a 7 year term and is classified as an operating lease. The net proceeds from the sale were $8.4 million and were reinvested in the business. The sale of this facility resulted in a gain of approximately $4.9 million. This gain has been deferred and is being amortized over the lease term. During the three months ended March 1, 2009, the Company has recognized $0.2 million of this gain. The remaining deferred gain was $4.7 million at March 1, 2009. Amounts recorded as a component of other accrued expenses and other noncurrent liabilities within the accompanying Condensed Consolidated Balance Sheets as of March 1, 2009 are $0.5 million and $4.2 million, respectively. The future minimum payments associated with this lease for the next five years are as follows (in thousands):

        The Company has employment agreements with certain of its executive officers and key employees which, among other things, provide severance benefits to those employees. For the three months ended March 1, 2009 and March 2, 2008, severance costs of $1.2 million and $0.9 million, respectively, were recorded as a component of operating income within the accompanying Condensed Consolidated Statements of Operations. Severance benefits of $3.9 million and $3.2 million have been accrued as of March 1, 2009 and November 30, 2008, respectively. Of this amount, $3.2 million and $2.2 million is included as a component of accrued liabilities and $0.7 million and $1.0 million is included as a component of other noncurrent liabilities within the accompanying Condensed Consolidated Balance Sheet as of March 1, 2009 and November 30, 2008, respectively.

Note 10: Commitments

Leases

        The Company leases certain operating facilities, offices and equipment. The following is a schedule of future minimum annual operating lease commitments at November 30, 2008.

        Rental expense charged to operations is as follows:

        The Company has the option to renew certain plant operating leases, with the longest renewal period extending through 2043. Most of the operating leases provide for increased rent through increases in general price levels. The Company recognizes rent expense in these situations on a straight-line basis over the lease term. Additionally, some of the leases provide for contingent rental payments based on the use of the leased assets or adjustments to future payments based on specified indices. Contingent payments directly related to the use of the assets and future adjustments of payments based on indices are expensed in the period in which the use of the asset occurs and are not included in the schedule of future minimum annual operating lease commitments.

Severance Obligations

        The Company has employment agreements with certain of its executive officers and key employees which, among other things, provide severance benefits to those employees. During fiscal 2008, certain Executive Officers of the Company resigned. In accordance with their employment agreements and Company policy, certain benefits are to be paid to these Executive Officers in connection with their resignation. Additionally, during the year, the Company terminated other employees who were also entitled to severance benefits. In connection with the resignation of Executive Officers and the termination of the other employees, the Company recorded charges related to severance obligations due to these individuals. For fiscal 2008, severance costs of $6.4 million were recorded as a component of operating income within the accompanying Consolidated Statements of Operations. These amounts are inclusive of the $0.9 million of compensation cost that was recognized in connection with the

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SEALY CORPORATION

Notes To Consolidated Financial Statements (Continued)

Note 10: Commitments (Continued)

modification of the terms of the former Executive Officers' stock options made in connection with their resignation (Note 3). Severance benefits of $3.2 million have been accrued as of November 30, 2008. Of this amount, $2.2 million is included as a component of accrued compensation and $1.0 million is included as a component of other noncurrent liabilities within the accompanying Consolidated Balance Sheet as of November 30, 2008.

Other Purchase Commitments

        In connection with equipment ordered by the Company's components division related to a new product line, the Company has firm purchase commitments of approximately 1.1 million Swiss Francs (approximately $0.9 million) outstanding at November 30, 2008.

Note 9: Commitments

Leases

        The Company leases certain operating facilities, offices and equipment. The following is a schedule of future minimum annual operating lease commitments at December 2, 2007.

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SEALY CORPORATION
Notes To Consolidated Financial Statements (Continued)

Note 9: Commitments (Continued)

        Rental expense charged to operations is as follows:

        The Company has the option to renew certain plant operating leases, with the longest renewal period extending through 2033. Most of the operating leases provide for increased rent through increases in general price levels.

Other Purchase Commitments

        In connection with the installation of a second production line at a facility in the U.S and equipment ordered by the Company's components division, the Company has firm purchase commitments of approximately $3.4 million outstanding at December 2, 2007.