**Exhibit 10.15**

 

**EMPLOYMENT AGREEMENT**

 

**THIS AGREEMENT**, dated and effective as of the 1st day of October, 2002, is entered into by and betweenPILLOWTEX 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 theemployment of Employee. 

 

**NOW THEREFORE**, inconsideration 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 ormore 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 involvingwillful 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, orinfidelity 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 tosubstantially 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 beconsidered “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 forEmployee’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 constituteCause 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 beprovided any opportunity to cure such conduct more than twice while this Agreement is in effect. 

 

1 

 

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 theaggregate 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 theSecurities 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 regulationpromulgated 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 andthe 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 forpurposes 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 ownershipplan 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, Schedule14A 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 Companyreports 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 issuedthereunder. 

 

1.6 “CommencementDate” 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 anyand all technical and non-technical information disclosed by the Company pursuant to or in contemplation of this Agreement, 

 

2 

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, whetherdelivered 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 orother 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 performinghis 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 inany 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 orarrangements 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 otherretirement 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 theoccurrence 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 Employeeholds as of the Commencement Date; 

 

(b) thefailure 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 EmployeeBenefits required under this Agreement or in effect for all senior executives, as in effect on the Commencement Date or as 

 

3 

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

 

(d) any failureto 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 theCompany 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 CommonStock 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 CommonStock 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” shallmean (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 informationused 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 anyTrade 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 anyoutstanding securities entitled to vote generally in the election of directors of the Company. 

 

4 

 

**ARTICLE 2**

**EMPLOYMENT, COMPENSATION AND DUTIES**

 

2.1 Employment. Subject to the terms of this Agreement, the Company agrees to employ Employee as itsPresident. 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 atthe 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 reasonor 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 CompensationCommittee 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 incentivegoals 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 thetargeted 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 Thousandand 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 theCommencement 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 atthe 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. Thevesting 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 remainexercisable 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 

 

5 

Pillowtex Common Stock. The restricted stock award shall be granted under, and be subject to the terms and conditions of, the PillowtexCorporation 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 bySection 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 thecustomary 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 theEmployee’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 affectingthe 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 andaccrued 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 Section3.1(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 toEmployee, 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 Employeethat 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 restrictedsecurities granted by the Company to the Employee that have not previously been forfeited shall be removed and 

 

6 

the securities shall be fully vested and freely transferable without restrictions (unless otherwise restricted pursuant to applicablesecurities 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 toreceive 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 suchpayments 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 aperiod 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 thenmaintained 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 receiveall 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 theExcise 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 (includinginterest 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 Paymentprovided for above will be paid on the thirtieth (30th) day (or such earlier date as the Excise Tax becomes due andpayable 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 determinedto 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-UpPayment 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 theGross-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 anyinterest, 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 anyadministrative or judicial proceedings concerning the existence or amount of liability for Excise Tax with respect to the Payments. 

 

7 

 

(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 ExciseTax. 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 inwhich 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 instructionscontained 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 willbe 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 Firmwill be paid by the Company. 

 

3.2 StockOptions 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 paidvacation 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 hisautomobile 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 andcustomary 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 inWinston-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 therequired 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 livingexpenses 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 properdocumentation 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 anybenefit or right provided by this Agreement; provided that Employee obtains or recovers any sum from the Company, whether by settlement or award. 

 

8 

 

3.7Business 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 accordancewith 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’semployment, 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 duringthe 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 produceor 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 ofnon-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 asource 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 withoutthe 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 othergovernmental 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 orotherwise 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 courseof 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 ofEmployee’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 andall 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 customerinformation; 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 incurredin 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 adispute 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 withthe Company, Employee will be exposed to the Company’s valuable 

 

9 

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 businessconducted 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) acceptemployment 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 orservices 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 businessthe 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, soleproprietorships, 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 theCompany 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 orits Affiliates. 

 

4.5 Acknowledgement. Theparties 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, thosecontained 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 Section4.3 and the amount of any Post-Employment Payment attributable to such covenants. 

 

10 

 

4.6Confidential 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 thatEmployee: 

 

(i) shall use theConfidential 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 ofthe Company; and 

 

(iii) shallcopy 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 ConfidentialInformation 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 inconfidence; 

 

(iii) is receivedfrom 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 validorder 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 writtenrequest 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 andall 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 andmay 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 beinadequate. Accordingly, the Company may seek whatever relief it determines to be appropriate to protect the Company’s rights under this Agreement, including, 

 

11 

without limitation, an injunction (without the requirement of posting a bond or other security) to prevent Employee from disclosing any TradeSecrets 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 fromretaining 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’semployment 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) theconsideration 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 constitutesliquidated 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 Agreementas 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 mitigatedamages 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 ofemployment 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, withoutthe 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 theforegoing, 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 bythe 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 bylaw 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, confirmedreorganization 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 suchassumption 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 

 

12 

amount and on the same terms as if Employee would be entitled to hereunder if Employee were to terminate his employment for Good Reason. ThisAgreement 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 Companywhether 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 beenforceable 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 ofEmployee’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 inconnection 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. Notwithstandinganything 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 isheld 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 matterhereof 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 referringto 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 overnightdelivery 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 ofEmployee 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 governmentalregulation or ruling. 

 

[SIGNATURE PAGE FOLLOWS]

 

13 

 

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

 

**PILLOWTEX CORPORATION**

By:
 
/S/    DAVID A. PERDUE
  
Name: David A. Perdue

Title: Chief Executive Officer

**EMPLOYEE**

/S/    MICHAEL T.GANNAWAY        

Printed Name: Michael T. Gannaway

 

14