Exhibit 10.15

 

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT, dated and effective as of the 1st day of October, 2002, is
entered into by and between PILLOWTEX CORPORATION, a Delaware corporation (the
“Company”), and MICHAEL T. GANNAWAY (“Employee”).

 

WHEREAS, the Company and Employee desire to provide for certain rights and
responsibilities of each party in connection with the employment of Employee.

 

NOW THEREFORE, in consideration of the mutual covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, it is agreed as follows:

 

ARTICLE 1

DEFINITIONS

 

The following terms will have the respective meanings set forth below, unless
the context clearly otherwise requires:

 

1.1 “Affiliate” shall mean, with respect to the Company, any person or entity
that directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company.

 

1.2 “Board” shall mean the Board of Directors of the Company.

 

1.3 “Cause” shall mean the occurrence of any of the following: (a) Employee
engaging in any personal misconduct involving willful dishonesty, illegality, or
moral turpitude that is detrimental or injurious to the business interests,
reputation or goodwill of the Company or its Affiliates; (b) Employee engaging
in any act involving willful dishonesty, disloyalty, or infidelity against the
Company or its Affiliates; (c) an act of fraud, embezzlement or theft in
connection with Employee’s duties or in the course of his employment with the
Company; (d) Employee’s material breach of or failure to substantially perform
under any of the material terms and covenants of this Agreement; or (e) the
death, disability or retirement of Employee. For purposes of this Section 1.3,
no act, or failure to act, on Employee’s part will be considered “willful”
unless done, or omitted to be done, by Employee without reasonable belief that
Employee’s action or omission was in the best interest of the Company. Prior to
asserting any action or failure to act as Cause for Employee’s termination as
set forth above, the Company will provide Employee a written notice referencing
this Section 1.3, setting out with specificity the conduct asserted to
constitute Cause and, if the conduct asserted to constitute Cause is described
in clause (d) of the first sentence of this Section 1.3, providing Employee with
a reasonable opportunity of not less than ten (10) days to cure or cease and
desist such conduct; provided, however, Employee will not be provided any
opportunity to cure such conduct more than twice while this Agreement is in
effect.

 

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1.4 “Change in Control” shall mean

 

(a) The Company is merged, acquired, re-capitalized, consolidated or reorganized
by, into or with another corporation or other legal entity by stock exchange or
other similar transaction, and as a result of such merger, acquisition,
re-capitalization, consolidation or reorganization less than a majority of the
combined voting power of the then outstanding securities of the Company or such
corporation or other legal entity immediately after such transaction are held in
the aggregate by the holders of Voting Stock immediately prior to such
transaction;

 

(b) The Company sells (directly or indirectly) all or substantially all of its
assets to any other corporation or other legal entity;

 

(c) Any person (as the term “person” is used in Section 13(d)(3) or Section
14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
becomes (subsequent to the Effective Date) the beneficial owner (as the term
“beneficial owner” is defined under Rule 13d-3 or any successor rule or
regulation promulgated under the Exchange Act) of securities representing fifty
percent (50%) or more of then issued and outstanding Voting Stock; or

 

(d) The Company contributes all or substantially all of the assets of the
Company to a joint venture with one or more third parties and the Company and/or
its Affiliates do not directly or indirectly hold at least a majority of the
voting interests of the resulting joint venture.

 

Notwithstanding the foregoing provisions of Section 1.4(c) hereof, a Change in
Control shall not be deemed to have occurred for purposes of this Agreement
solely because (i) the Company, (ii) a corporation or other legal entity in
which the Company directly or indirectly beneficially owns 100% of the voting
securities of such entity, and/or (iii) any employee stock ownership plan or any
other employee benefit plan of the Company or any wholly-owned subsidiary of the
Company, either files or becomes obligated to file a report or a proxy statement
under or in response to Schedule 13D, Schedule 14D-1, Form 8-K, Schedule 14A or
Schedule 14C (or any successor schedule, form or report or item therein) under
the Exchange Act, disclosing beneficial ownership by it of shares of Voting
Stock, whether in excess of fifty percent (50%) or otherwise, or because the
Company reports that a change in control of the Company has occurred by reason
of such beneficial ownership.

 

1.5 “Code” shall mean the Internal Revenue Code of 1986, as amended, including,
the Rules and Regulations issued thereunder.

 

1.6 “Commencement Date” shall mean the date of this Agreement.

 

1.7 “Committee” shall have the meaning set forth in the Pillowtex Corporation
2002 Equity Incentive Plan.

 

1.8 “Company” shall have the meaning ascribed to such term in the first
paragraph of this Agreement.

 

1.9 “Confidential Information” shall mean any and all technical and
non-technical information disclosed by the Company pursuant to or in
contemplation of this Agreement,

 

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including Trade Secrets and proprietary information, techniques, sketches,
drawings, models, inventions, know-how, processes, apparatus, equipment,
algorithms, software programs, software source documents and formulae related to
the current, future and proposed products and services of the Company and/or the
Company’s parents, subsidiaries, customers and/or vendors, whether delivered in
written (or other tangible) form, and includes, without limitation, information
concerning design details and specifications, financial data, procurement
requirements, customer lists, business forecasts and purchasing, manufacturing,
sales, merchandising, development, engineering and marketing plans. Without
limiting the generality of the foregoing, the term “Confidential Information”
will also be deemed to include all analyses, compilations, forecasts, studies or
other documents prepared by Employee in connection with the performance by
Employee of Employee’s duties pursuant to this Agreement.

 

1.10 “Disability” shall mean a physical or mental disability which renders
Employee substantially incapable of performing his duties under this Agreement,
as determined by an independent physician selected by the Company and agreed to
by Employee, and which disability has existed for (a) at least thirteen (13)
consecutive weeks, or (b) one hundred twenty (120) days in any twelve- month
period.

 

1.11 “Employee” shall have the meaning ascribed to such term in the first
paragraph of this Agreement.

 

1.12 “Employee Benefits” shall mean all employee retirement income and welfare
benefit policies, plans, programs or arrangements in which senior executives of
the Company participate generally, including, without limitation, any stock
option, restricted stock, stock purchase, stock appreciation, savings, pension,
supplemental executive retirement or other retirement income or welfare benefit,
deferred compensation, incentive compensation, group and/or executive life,
accident, health, dental, medical/hospital or other insurance (whether funded by
actual insurance or self-funded by the Company), disability, salary
continuation, expense reimbursement and other employee benefit policies, plans,
programs or arrangements that may exist immediately prior to the termination of
Employee’s employment or any equivalent successor policies, plans, programs or
arrangements that may be adopted thereafter by the Company.

 

1.13 “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended,
and any successor to thereto.

 

1.14 “Good Reason” means the termination of Employee’s employment by Employee
upon the occurrence of any of the following, without Employee’s prior written
consent:

 

(a) a significant reduction or diminution in the nature or scope of the
authorities, title, powers, functions, responsibilities or duties attached to
the position(s) with the Company which Employee holds as of the Commencement
Date;

 

(b) the failure to elect or reelect Employee to the office(s) of the Company
which Employee holds as of the Commencement Date;

 

(c) any reduction by the Company in Employee’s Base Salary, or the termination
or reduction of Employee’s rights to any Employee Benefits required under this
Agreement or in effect for all senior executives, as in effect on the
Commencement Date or as

 

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such may be increased from time to time (other than a termination of Employee
Benefits which affects all senior executive officers of the Company in the same
manner); or

 

(d) any failure to pay Employee when due any material amount of his compensation
or any other amount payable under any plan, agreement or arrangement of or with
the Company or any other material breach of any material provision of this
Agreement by the Company; provided, however, the events described in this
Section 1.14(e) will only be deemed to constitute “Good Reason” if Employee has
given the Company written notice of such breach (describing the breach in
reasonable detail) and the Company has failed to cure such breach within ten
(10) days in the case of payment defaults and thirty (30) days in the case of
any other breach.

 

1.15 Intentionally Omitted.

 

1.16 “Market Value” shall mean, on any date, (i) the closing sale price per
share (regular way) of the Pillowtex Common Stock on the principal exchange on
which the Pillowtex Common Stock is then trading or, if applicable, on the
Nasdaq Stock Market or in the over-the-counter market or (ii) if clause (i) does
not apply, the fair market value of the Pillowtex Common Stock as determined by
the Board.

 

1.17 “Noncompetition Period” shall mean the period of Employee’s employment with
the Company and thereafter, a period equal to one (1.0) year.

 

1.18 “Post-Employment Payment” shall have the meaning ascribed to such term in
Section 3.1 of this Agreement.

 

1.19 “Protected Area” shall mean (a) the United States, (b) Canada, (c) Mexico,
(d) the states of the United States adjoining or east of the Mississippi River,
and (c) North Carolina.

 

1.20 “Trade Secrets” shall mean proprietary and confidential information of the
Company or any Affiliate consisting of, but not limited to, financial
statements, processes, computer programs, compilations of information, records,
sales procedures, customer requirements, pricing techniques, customer lists,
methods of doing business and other confidential information used in the
operation of their businesses, that (a) the Company and its Affiliates have
taken steps to keep secret, and (b) is not generally known to others, and (c)
gives the Company or any such Affiliate a competitive business advantage. If any
Trade Secret is found by an arbitrator or a court of competent jurisdiction to
not be a Trade Secret for the purposes of this Agreement, such information will
in any event be considered Confidential Information for purposes of this
Agreement; provided such Trade Secret otherwise is included within the scope of
the definition set forth in Section 1.9.

 

1.21 “Termination Date” shall have the meaning ascribed to such term in Section
3.1 (a).

 

1.22 “Voting Stock” shall mean any outstanding securities entitled to vote
generally in the election of directors of the Company.

 

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ARTICLE 2

EMPLOYMENT, COMPENSATION AND DUTIES

 

2.1 Employment. Subject to the terms of this Agreement, the Company agrees to
employ Employee as its President. Employee will report to the Chief Executive
Officer of the Company or, in the absence or disability of the Chief Executive
Officer, to the Chief Operating Officer or to the Board. Employee’s initial
principal place of work will be at the Company’s offices in Kannapolis, North
Carolina. Employee and the Company agree that Employee is an at-will employee,
and nothing contained in this Agreement will prevent Employee from terminating
employment with the Company for any reason or for no reason or will prevent the
Company from terminating Employee’s employment with the Company for any reason
or for no reason, subject to satisfaction of any applicable severance pay
obligations under Section 3.1.

 

2.2 Compensation.

 

(a) Base Salary. Employee’s annual base salary (the “Base Salary”) will be
$400,000 payable in accordance with the Company’s customary payroll practices,
and subject to such increases as may be determined from time to time thereafter
by the Board or the Compensation Committee thereof in its sole discretion.

 

(b) Annual Bonus. During each year of this Agreement, Employee shall be paid an
annual performance bonus (“Annual Bonus”) equal to a percentage of Employee’s
Base Salary for such period upon achievement of annual incentive goals to be
determined annually by the Board, the Committee and the Chief Executive Officer.
The Annual Bonus opportunity shall allow for a bonus of sixty percent (60%) of
Employee’s Base Salary upon achieving one hundred percent (100%) of the targeted
incentive goals, with bonus opportunities for up to two hundred percent (200%)
of the targeted incentive goals. The Annual Bonus for the year 2002, if any,
shall be paid on a pro-rated basis based upon actual Base Salary for the year
2002. The Annual Bonus will be paid within ninety (90) days following the end of
each calendar year.

 

(c) Signing Bonus. As soon as practicable following the Commencement Date, as
consideration for signing this Agreement, Employee will be paid a signing bonus
of One Hundred Seventy Five Thousand and 00/100 Dollars ($175,000.00). The
Company shall be entitled to withhold any amounts owed to Employee in
satisfaction or partial satisfaction of any amounts owed by Employee to the
Company under this provision.

 

(d) Stock Options. As soon as practicable following the Commencement Date, the
Committee will grant to Employee non-qualified stock options to purchase One
Hundred Thousand (100,000) shares of Pillowtex Common Stock at a purchase price
equal to the Market Value of such shares of Pillowtex Common Stock at the time
of grant. The options will be for a seven (7) year term and will vest in four
equal annual installments commencing upon the first anniversary of the date of
grant, provided Employee is employed by the Company on such anniversary dates.
The vesting of the options will accelerate upon the occurrence of a Change in
Control or termination of Employee’s employment with the Company without “Cause”
or for “Good Reason” and, in those circumstances will remain exercisable for a
period of ninety (90) days following termination of employment.

 

(e) Restricted Stock. On or before January 31, 2003, the Committee will grant to
Employee a restricted stock award in the amount of Sixty Thousand (60,000)
shares of

 

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Pillowtex Common Stock. The restricted stock award shall be granted under, and
be subject to the terms and conditions of, the Pillowtex Corporation 2002 Equity
Incentive Plan. The restricted stock will vest in three equal annual
installments, with the first one-third vesting on the date of issue.

 

(f) Special Change in Control Provision. If prior to the grant of the stock
options contemplated by Section 2.2(d), a Change in Control occurs and such
stock options are subsequently granted to Employee, such stock options will be
fully vested and immediately exercisable upon grant, notwithstanding any
contrary provision of this Agreement.

 

2.3 Duties. Employee will perform the customary duties of his position as
President, plus such other duties, consistent with his position, as may
reasonably be assigned to him from time to time by the Board or the Chief
Executive Officer.

 

ARTICLE 3

BENEFITS

 

3.1 Severance Benefits.

 

(a) If Employee is terminated by the Company without Cause or the Employee
terminates his employment with the Company for Good Reason (within four (4)
months following the occurrence of the event constituting Good Reason), the
Company shall pay to the Employee the amount specified below in Section
3.1(a)(i) within fifteen (15) business days after the date the Employee’s
employment is terminated (the “Termination Date”):

 

(i) In lieu of any further payments to the Employee for periods subsequent to
the Termination Date, but without affecting the rights of the Employee referred
to in Section 3.1(b) hereof, a lump sum payment (the “Post-Employment Payment”),
less any withholdings required by applicable law, in an amount equal to the sum
of (i) all earned and accrued but unpaid Base Salary, bonus payments and
vacation pay, and (ii) Employee’s then current Base Salary.

 

(ii) Upon written notice given by the Employee to the Company prior to the
receipt of any payment pursuant to Section 3.1(a)(i) hereof, the Employee, at
Employee’s sole option, may elect to have all or any of the Post-Employment
Payment paid to the Employee on a quarterly or monthly basis during the time
period specified in such written notice.

 

(b) In addition to all other compensation due to Employee, if Employee is
terminated by the Company without Cause or Employee terminates his employment
with the Company for Good Reason (within four (4) months following the
occurrence of the event constituting Good Reason):

 

(i) Any Company stock options held by Employee that have not previously
terminated or been exercised shall be deemed vested and exercisable, regardless
of whether or not the vesting/performance conditions set forth in the relevant
agreements shall have been satisfied; and

 

(ii) All restrictions on any restricted securities granted by the Company to the
Employee that have not previously been forfeited shall be removed and

 

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the securities shall be fully vested and freely transferable without
restrictions (unless otherwise restricted pursuant to applicable securities
laws), regardless of whether the vesting/performance conditions set forth in the
relevant agreements shall have been satisfied;

 

(c) Death or Disability. If Employee’s employment is terminated by reason of his
Disability, Employee shall continue to receive his then current annual Base
Salary, a prorated Annual Bonus based upon the number of months of employment
during the year of termination and all Employee Benefits for six (6) months
after his termination for such Disability, and such payments will be in addition
to any insurance payments Employee is entitled to receive. If Employee’s
employment is terminated by reason of Employee’s death, the Company agrees to
pay to the legal representative of his estate, (i) for a period of six (6)
months after the date of death an amount equal to and payable at the same rate
as his then current annual Base Salary, (ii) any payment Employee’s
beneficiaries may be entitled to receive pursuant to any Employee Benefits then
maintained by the Company and (iii) a prorated Annual Bonus based upon the
number of months of employment during the year of termination. In the event of
death or Disability, the estate or Employee, as the case may be, will have the
right to receive all earned and accrued but unpaid Base Salary, bonus and
vacation payments.

 

(d) Excise Tax.

 

(i) In the event that it is determined that any payment or benefit provided by
the Company to or for the benefit of Employee (the “Payments”), either under
this Agreement or otherwise, will be subject to the excise tax (the “Excise
Tax”) imposed by section 4999 of the Internal Revenue Code or any successor
provision (“section 4999”), the Company will, prior to the date on which any
amount of the Excise Tax must be paid or withheld, make an additional lump-sum
payment (the “Gross-up Payment”) to Employee. The Gross-up Payment will be
sufficient, after giving effect to all federal, state and other taxes and
charges (including interest and penalties, if any) with respect to the Gross-up
Payment, to make Employee whole for all taxes (including withholding taxes) and
any associated interest and penalties, imposed under or as a result of section
4999. The Gross-up Payment provided for above will be paid on the thirtieth
(30th) day (or such earlier date as the Excise Tax becomes due and payable to
the taxing authorities) after it has been determined that the Payments are
subject to the Excise Tax, but in no event later than sixty (60) days following
termination of employment of Employee. If the Excise Tax is subsequently
determined to be less than the amount taken into account hereunder at the time
the Gross-Up Payment is made, Employee will repay to the Company, at the time
that the amount of such reduction in Excise Tax is finally determined, the
portion of the Gross-Up Payment attributable to such reduction plus interest on
the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of
the Code. If the Excise Tax is determined to exceed the amount taken into
account hereunder at the time the Gross-Up Payment is made (including by reason
of any payment the existence or amount of which cannot be determined at the time
of the Gross-Up Payment), the Company will make an additional Gross-Up Payment
in respect of such excess (plus any interest, penalties or additions payable by
Employee with respect to such excess) at the time that the amount of such excess
is finally determined. Employee and the Company will each reasonably cooperate
with the other in connection with any administrative or judicial proceedings
concerning the existence or amount of liability for Excise Tax with respect to
the Payments.

 

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(ii) In the event Employee would be entitled to the Payments which would be
subject to the Excise Tax, Employee may, at his option, elect to reduce the
Payments he would receive to such an amount as would not be subject to the
Excise Tax. To exercise this option, Employee must provide written notice (the
“Cap Notice”) to the Company of such election within ten (10) business days of
the Termination Date and such Cap Notice must specify the manner and amount in
which Employee elects to reduce the Payments. Upon receipt of the Cap Notice by
the Company, Employee’s election will be considered irrevocable and the Company
shall have no liability whatsoever for complying with Employee’s instructions
contained in the Cap Notice.

 

(iii) Determinations under this Section 3.1 will be made by a certified public
accounting firm mutually agreed upon by Employee and the Company (the
“Accounting Firm”). The determinations of the Accounting Firm will be binding
upon the Company and Employee except as the determinations are established in
resolution (including by settlement) of a controversy with the Internal Revenue
Service to have been incorrect. All fees and expenses of the Accounting Firm
will be paid by the Company.

 

3.2 Stock Options and Restricted Stock. Employee will be eligible to participate
in any stock option plan and restricted stock plan adopted by the Company and
made available generally to its senior executives.

 

3.3 Vacation. Employee will be entitled to paid vacation in accordance with
Company policy in effect from time to time for senior executive officers of the
Company, or if greater, four (4) weeks’ vacation.

 

3.4 Auto Expense. The Company will pay Employee One Thousand Dollars ($1,000)
per month as his automobile allowance, plus an additional amount equal to any
taxes incurred by Employee for such automobile allowance.

 

3.5 Moving Expenses. If the Company shall require Employee to relocate, the
Company will reimburse Employee for reasonable and customary moving expenses
directly related to Employee’s relocation from Winston-Salem, North Carolina to
the required area, including (i) fees and charges customarily paid by a seller
with respect to the sale of Employee’s current home in Winston-Salem, including,
without limitation, real estate brokerage fees, attorneys’ fees, closing costs
and transfer taxes and (ii) fees and charges customarily paid by a purchaser
with respect to the purchase by Employee of a new home in the required area,
including, without limitation, attorneys’ fees, closing costs and transfer taxes
(it is understood and agreed that real estate brokerage fees are not customarily
paid by a purchaser), and up to six (6) months temporary living expenses in the
required area. In addition, the Company will “gross up” the moving expense
reimbursements paid by it to Employee to offset the federal income taxes of
Employee with respect to such payments. Employee must submit proper
documentation of moving expenses incurred in order to receive reimbursement of
such expenses.

 

3.6 Legal Fees. The Company shall reimburse Employee for customary and
reasonable legal fees and expenses incurred, in good faith, by Employee in
connection with efforts to obtain or enforce any benefit or right provided by
this Agreement; provided that Employee obtains or recovers any sum from the
Company, whether by settlement or award.

 

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3.7 Business Expenses. The Company will reimburse Employee for the reasonable
and necessary business expenses incurred by Employee in the performance of the
duties of Employee under this Agreement. Such reimbursement will be made in
accordance with the Company’s customary practices and policies applicable to
senior executive officers.

 

ARTICLE 4

CERTAIN OBLIGATIONS OF EMPLOYEE

 

4.1 Trade Secrets. During the term of Employee’s employment, the Company will
provide Employee access to, and Employee will have access to and become familiar
with, various Trade Secrets. Employee will not use in any way or disclose any of
the Trade Secrets, directly or indirectly, either during the term of Employee’s
employment or at any time thereafter, except as required in the course of
Employee’s employment with the Company. Employee agrees that upon Employee’s
receipt of any subpoena, process or other request to produce or divulge,
directly or indirectly, any Trade Secrets to any entity, agency, tribunal or
person, Employee will, prior to any such disclosure, notify and deliver a copy
of the subpoena, process or other request to the Company. The obligations of
non-disclosure of Trade Secrets will not apply to any Trade Secret which
Employee can demonstrate any of the following: (i) is or becomes available to
the public through no breach of this Agreement; (ii) was previously learned by
Employee from a source other than the Company or an agent of the Company without
any obligation to hold it in confidence; (iii) is received from a third party
free to disclose such information without restriction; (iv) is independently
developed by Employee without the use of or reference to the Trade Secret; or
(v) is approved for release by written authorization of the Company, but only to
the extent of such authorization. Disclosure of Trade Secrets in response to a
valid order of a court or other governmental body will not be deemed to be a
breach of this Agreement.

 

4.2 No Removal of Records and Return of Property. All files, records, documents,
information, data and similar items relating to the business of the Company and
its Affiliates, whether prepared by Employee or otherwise coming into Employee’s
possession, will remain the exclusive property of the Company and its Affiliates
and will not be removed from the premises of the Company and its Affiliates
under any circumstances (except in the ordinary course of business during
Employee’s period of employment), and in any event will be promptly delivered to
the Company upon termination of Employee’s employment with the Company and its
Affiliates. Employee agrees that, upon termination of Employee’s employment with
the Company and its Affiliates for any reason, Employee will return to the
Company, in good condition (reasonable wear and tear excepted), all property of
the Company, including without limitation, the originals and all copies of all
management, training, marketing and selling manuals; promotional materials;
other training and instructional materials; financial information; vendor,
owner, manager and product information; customer lists; other customer
information; and all other selling, service and trade information and equipment.
If such items are not returned, the Company will have the right to charge
Employee for all reasonable damages, costs, attorneys’ fees and other expenses
incurred in searching for, taking, removing and/or recovering such property, and
Employee hereby authorizes Company to deduct any such amounts from any sum due
from Company to Employee under this Agreement, consistent with applicable law.
In the event of a dispute between Employee and the Company regarding the amount
of any such deductions, the parties agree to submit such dispute to arbitration
in accordance with Section 5.3.

 

4.3 Noncompetition. Employee acknowledges and agrees that by virtue of
Employee’s position with the Company, Employee will be exposed to the Company’s
valuable

 

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Trade Secrets and Confidential Information and will have access to the Company’s
customers and suppliers at the highest level and that, if used in competition
with the Company, such contacts and information would enable Employee to
irreparably injure the Company and its Affiliates if Employee should compete
with the Company in a business that is competitive with the business conducted
by the Company and its Affiliates during the continuation of Employee’s
employment with the Company or which the Company proposes to conduct as of the
termination of the employment of Employee (and of which Employee has knowledge).
For these reasons, Employee hereby agrees that Employee will not, during the
Noncompetition Period and within the Protected Area, directly or indirectly,
either as an individual, a partner or a joint venturer, or in any other
capacity, (a) invest (other than investments in publicly-owned companies which
constitute not more than one percent (1%) of the voting securities of any such
company) in any business that is directly competitive with that of the Company
or its Affiliates, (b) accept employment with or render services to a direct
competitor of the Company as a director, officer, manager, consultant, executive
or other employee, (c) engage, for Employee’s self or any other person or entity
in the sales, marketing, design, offer or manufacture of products or services
directly competitive with any product and/or services sold, marketed, designed,
offered or manufactured by the Company or its Affiliates, or (d) solicit or
accept business with respect to products or services that are directly
competitive with the products and/or services sold, marketed, designed, offered
or manufactured by the Company or its Affiliates from any customers of the
Company or its Affiliates or any person or entity whose business the Company or
its Affiliates is soliciting or solicited during Employee’s employment. For
purposes of this Agreement, a “competitor” or a business that is competitive
with the Company means only those persons, firms, sole proprietorships,
partnerships, companies, corporations, or other entities that manufacture and/or
market textile related bed, bath, pillow and pad products and/or perform
services in direct competition with those marketed and/or performed by the
Company or its Affiliates within the Protected Area; provided, however, the term
“competitor” (i) expressly excludes any entity where the foregoing definition
would apply to ten percent (10%) or less of such entity’s annual sales, and (ii)
expressly includes Westpoint Stevens, Inc., Springs Industries, Inc. and Dan
River, Inc.

 

4.4 Nonsolicitation. During the period of employment with the Company and the
Noncompetition Period, Employee will not, on Employee’s own behalf or on behalf
of any other person, partnership, association, corporation or other entity,
directly or indirectly, hire or solicit or in any manner attempt to influence or
induce any employee of the Company or its Affiliates to leave the employment of
the Company or its Affiliates, nor will Employee, directly or indirectly,
disclose to any person, partnership, association, corporation or other entity
any information obtained while an employee of the Company concerning the names
and addresses of the employees of the Company or its Affiliates.

 

4.5 Acknowledgement. The parties acknowledge and agree that all benefits to be
received, or available to be received by Employee pursuant to this Agreement are
consideration for all covenants and obligations of Employee hereunder,
including, without limitation, those contained in Section 4.3 and Section 4.4.
The parties will use commercially reasonable efforts to agree, within ten (10)
business days of the Termination Date, to the dollar value attributable to the
covenants contained in Section 4.3 and the amount of any Post-Employment Payment
attributable to such covenants.

 

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4.6 Confidential Information. During the course of this Agreement, Employee may
receive or have access to Confidential Information. Employee acknowledges the
economic value to the Company of the Confidential Information. Employee agrees
that Employee:

 

(i) shall use the Confidential Information only in connection with Employee’s
performance of his obligations under this Agreement;

 

(ii) shall not disclose such Confidential Information to any other person or
entity without the prior written consent of the Company; and

 

(iii) shall copy the Confidential Information only as necessary for the
performance of Employee’s obligations under this Agreement, and ensure that all
confidentiality notices are reproduced in full on such copies.

 

The obligations of confidentiality shall not apply to any Confidential
Information which Employee can demonstrate:

 

(i) is or becomes available to the public through no breach of this Agreement;

 

(ii) was previously learned by Employee from a source other than the Company
without any obligation to hold it in confidence;

 

(iii) is received from a third party free to disclose such information without
restriction;

 

(iv) is independently developed by Employee without the use of or reference to
the Confidential Information; or

 

(v) is approved for release by written authorization of the Company, but only to
the extent of such authorization.

 

Disclosure of Confidential Information in response to a valid order of a court
or other governmental body will not be deemed to be a breach of this Agreement.
Confidential Information, including permitted copies, shall be deemed the
property of the Company. Employee shall, within thirty (30) days of a written
request by the Company, return all Confidential Information (or any designated
portion thereof) recorded in a tangible form, including all copies thereof, to
the Company, or if so directed by the Company, destroy such Confidential
Information and all other Confidential Information that is within the control of
Employee.

 

4.7 Damages.

 

(a) Notwithstanding anything in this Agreement to the contrary, if Employee
breaches the covenants contained in this ARTICLE 4, the Company will have no
further obligations to Employee pursuant to this Agreement and may recover from
Employee all such damages to which it may be entitled at law or in equity.
Employee acknowledges any breach of this Agreement may result in immediate and
irreparable harm to the Company for which money damages are likely to be
inadequate. Accordingly, the Company may seek whatever relief it determines to
be appropriate to protect the Company’s rights under this Agreement, including,

 

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without limitation, an injunction (without the requirement of posting a bond or
other security) to prevent Employee from disclosing any Trade Secrets or
Confidential Information concerning the Company to any person or entity, to
prevent any person or entity from receiving from Employee or using any such
Trade Secrets or Confidential Information, and/or to prevent any person or
entity from retaining or seeking to retain any other employees of the Company.
Employee acknowledges good and sufficient consideration for the noncompetition
and nonsolicitation covenants of this ARTICLE 4.

 

(b) The parties acknowledge and agree that if Employee’s employment is
terminated by the Company without Cause or Employee terminates his employment
for Good Reason, (i) the amount of contractual damages that would be suffered by
Employee would be speculative and difficult to determine, (ii) the consideration
to be provided to Employee pursuant to this Agreement as a result of such
contingencies are a good faith reasonable estimate of the amount of damages
which Employee will suffer, and (iii) the delivery of such consideration
constitutes liquidated damages (and not a penalty). In the event Employee’s
employment is terminated by the Company without Cause or Employee terminates his
employment for Good Reason, the consideration to be provided to Employee
pursuant to this Agreement as a result of such contingencies shall be Employee’s
exclusive contractual remedy and the Company’s sole obligation for payments
under this Agreement.

 

4.8 Mitigation. There will be no requirement that Employee seek other employment
or otherwise mitigate damages in order to recover any payments or benefits under
this Agreement, and the amount of any such payment or, except as otherwise
expressly provided herein, benefit will not be reduced by any compensation
earned by Employee as the result of employment by another employer, by
retirement benefits, or otherwise.

 

ARTICLE 5

MISCELLANEOUS

 

5.1 Assignment. This Agreement is personal in nature and neither of the parties
hereto will, without the written consent of the other, assign, transfer or
delegate this Agreement or any rights or obligations contained in this Agreement
except as expressly provided in this Section 5.1. Without limiting the
generality or effect of the foregoing, Employee’s rights and obligations
provided for in this Agreement may not be assigned, transferred or delegated,
whether by pledge, creation of a security interest, or otherwise, other than by
a transfer by Employee’s will or by the laws of descent and distribution, and if
Employee attempts any assignment or transfer contrary to this Section 5.1, such
assignment or transfer will be void and the Company will have no liability to
any purported assignee or delegatee.

 

5.2 Successors and Binding Agreement.

 

(a) In addition to any obligations imposed by law upon any successor to the
Company, the Company will require any successor to all or substantially all of
the businesses or assets of the Company (whether direct or indirect, by
purchase, merger, consolidation, reorganization, confirmed reorganization plan
or otherwise) expressly to assume and agree to perform this Agreement in the
same manner and to the same extent the Company would be required to perform if
no such succession had taken place. Failure of the Company to obtain such
assumption and agreement prior to the effectiveness of any such succession will
be a breach of this Agreement and will entitle Employee to compensation from the
Company in the same

 

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amount and on the same terms as if Employee would be entitled to hereunder if
Employee were to terminate his employment for Good Reason. This Agreement will
be binding upon and inure to the benefit of the Company and any successor to the
Company, including without limitation any persons acquiring directly or
indirectly all or substantially all of the businesses or assets of the Company
whether by purchase, merger, consolidation, reorganization, confirmed
reorganization plan or otherwise (and such successor will thereafter be deemed
“the Company” for the purposes of this Agreement).

 

(b) This Agreement will inure to the benefit of and be enforceable by Employee’s
personal or legal representatives, executors, administrators, heirs,
distributees and legatees. If Employee dies while any amount would still be
payable to Employee hereunder (other than amounts which, by their terms,
terminate upon the death of Employee) if Employee continued to live, all such
amounts, unless otherwise provided herein, will be paid in accordance with the
terms of this Agreement to the executors, personal representatives or
administrators of Employee’s estate.

 

5.3 Governing Law; Arbitration. This Agreement and all questions arising in
connection with it will be governed by and construed in accordance with the laws
of the State of North Carolina. Subject to the following sentence, all disputes
arising out of, or in connection with this Agreement, which are not promptly
settled by mutual agreement of the parties hereto, will be finally settled by
arbitration in accordance with the Commercial Rules of the American Arbitration
Association. Notwithstanding anything herein to the contrary, the Company may,
at its option, seek injunctive relief as contemplated in ARTICLE 4 either in
lieu of or in addition to the arbitration remedies provided for in this Section
5.3.

 

5.4 Severability. If any portion of this Agreement is held to be invalid or
unenforceable, such holding will not affect any other portion of this Agreement.

 

5.5 Entire Agreement. This Agreement comprises the entire agreement between the
parties hereto with respect to the subject matter hereof and, as of the
Commencement Date, supersedes any prior written or oral agreements between the
parties with respect to the subject matter hereof. This Agreement may not be
modified, renewed or extended except by a written instrument referring to this
Agreement and executed by the parties hereto.

 

5.6 Notices. Any notice or consent required or permitted to be given under this
Agreement will be in writing and will be effective (a) when given by personal
delivery, (b) one business day after being sent by overnight delivery service or
(c) five business days after being sent by certified or registered mail, return
receipt requested, to the Secretary of the Company at the Company’s principal
place of business or to Employee at the last known address of Employee as shown
on the records of the Company.

 

5.7 Withholding Taxes. The Company may withhold from any amounts payable under
this Agreement all federal, state, provincial, city or other taxes or other
amounts as will be required pursuant to any law or governmental regulation or
ruling.

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement
as of the date and year first above written.

 

PILLOWTEX CORPORATION

By:

 

/S/    DAVID A. PERDUE

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Name: David A. Perdue

Title: Chief Executive Officer

EMPLOYEE

/S/    MICHAEL T. GANNAWAY        

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Printed Name: Michael T. Gannaway

 

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