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                                 EMPLOYMENT AGREEMENT

     THIS AGREEMENT, dated as of January 1, 1998, is by and between Pillowtex 
Management Services Company, a Delaware business trust ("EMPLOYER"), and 
Kevin M. Finlay ("EMPLOYEE").

                                     WITNESSETH:

     WHEREAS, Employee desires to enter into the employment of Employer and 
Employer desires to employ Employee in the capacity and on the terms set 
forth below.

     NOW, THEREFORE, in consideration of the foregoing recital and of the 
mutual agreements contained herein, and for other valuable consideration, 
receipt of which is hereby acknowledged, the parties hereto agree as follows:

     1.   EMPLOYMENT AND SCOPE.    

          (a)  Commencing as of January 1, 1998 (the "COMMENCEMENT DATE") and 
continuing throughout the Term of this Agreement, Employer agrees to employ 
Employee and Employee agrees to serve as the employee of Employer with the 
title and capacity of President of Employer's Sales and Marketing Division.  
As such, Employee's duties shall include responsibility for all sales and 
marketing functions of Employer and its affiliates, as well as such other 
responsibilities as are consistent with the office of President of Employer's 
Sales and Marketing Division and such other responsibilities as may be 
assigned from time to time by the Chief Executive Officer of Pillowtex 
Corporation, a Texas corporation ("PILLOWTEX").  Employee shall report to the 
Chief Executive Officer of Pillowtex.

          (b)  Employee's performance of services under this Agreement shall 
occur primarily at Employer's principle executive offices at 4111 Mint Way, 
Dallas, Texas, subject to such travel as is consistent with the office of 
President of Employer's Sales and Marketing Division.


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          (c)  During the Term of Employee's employment, Employee shall 
devote Employee's full business time (at least 40 hours per week) exclusively 
to the performance of Employee's duties as stated in this Agreement and to 
the furtherance of Employer's business.

     2.   TERM.

          (a)  The term of this Agreement (the "TERM") shall begin on the 
Commencement Date and shall continue through the third anniversary thereof, 
subject to automatic extension as provided below and unless terminated 
earlier in accordance with Section 4.

          (b)  Beginning with the second anniversary date of the Commencement 
Date and continuing with each anniversary date thereafter, the Term of this 
Agreement shall automatically be extended in additional, successive one-year 
increments, with the result that the Term will have a remaining duration of 
two years upon each and every anniversary.  Notwithstanding the foregoing 
sentence, the Term shall not be extended if either party has previously given 
the other party written notice of its intent not to extend the Agreement at 
least 15 months prior to the anniversary upon which the extension would 
otherwise occur.

     3.   COMPENSATION.  During the Term of this Agreement, Employer shall 
compensate Employee as set forth below:

          (a)  Employer has previously paid to Employee a signing bonus in 
the amount of $300,000.  If, prior to April 11, 1998, Employee terminates 
Employee's employment voluntarily (I.E., for reasons other than Permanent 
Disability Retirement or Good Reason) or is terminated by Employer for Cause 
(as defined in Section 4(g)(i) below), Employee shall pay Employer a pro-rata 
portion of this signing bonus equal to the number of weeks remaining in the 
period between the date of Employee's termination and April 11, 1998, divided 
by fifty-two, and multiplied by $300,000.

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          (b)  Employer shall pay to Employee a base salary of $400,000 per 
year, payable in accordance with Employer's payroll policies in effect from 
time to time for executive officers generally, subject to all appropriate 
withholdings.

          (c)  Employee shall be eligible to participate in Employer's 
incentive bonus plans as they may be amended from time to time to the same 
extent as executive officers generally.    During the period from April 11, 
1997 through April 10, 1999, Employer shall pay Employee bonuses under 
Employer's bonus plans aggregating at least $150,000 per year, excluding the 
signing bonus described in Section 3(a) above.

          (d)  Employee shall be entitled to the greater of three-weeks of 
paid vacation annually and that amount of vacation to which Employee would be 
entitled under Employer's vacation policy as it may be amended from time to 
time.

          (e)  Employee shall be entitled to participate in Employer's 
health, benefit and welfare plans offered by Employer as they may be amended 
from time to time to the same extent as executive officers of Employer 
generally.

          (f)  Employer shall provide Employee with a $500,000 term life 
insurance policy.

          (g)  Employer will provide Employee with a supplemental retirement 
benefit equal to the difference between (i) the monthly normal retirement 
benefit that would be paid to Employee at age 65 under the Pillowtex 
Corporation Pension Plan (the "PENSION PLAN") if there were added to 
Employee's years of benefit accrual service under the Pension Plan ten 
additional years of such service, and (ii) the monthly normal retirement 
benefit that is payable to Employee under the Pension Plan at age 65.  The 
supplemental retirement benefit will be paid to Employee in the same form, 
and at the same time, as Employee's retirement benefit is paid under the 
Pension Plan, subject to the same 

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reductions and other adjustments for optional forms and early commencement of 
benefits that are made to Employee's Pension Plan benefit.

          (h)  Employee shall also be eligible to participate in any 
supplemental executive retirement plan that Employer may adopt, and will be 
given credit for ten years of service for vesting purposes under any such 
supplemental executive retirement plan that Employer may adopt.

          (i)  Employer has extended Employee an unsecured loan of $61,000 to 
cover certain relocation expenses incurred by Employee.  The loan will bear 
interest at Employer's incremental cost of funds and will be due and payable 
in full upon the earlier of the termination of Employee's employment or four 
years from the initial date of Employee's employment with Employer.  
Mandatory prepayments of the loan equal to 25% of the original principal 
amount of the loan will be due to the extent of bonuses otherwise payable to 
Employee under Employer's bonus incentive plans under Section 3(c).  Interest 
will be payable under the loan annually to the extent of bonuses otherwise 
payable to Employee under Employee's bonus incentive plans under Section 
3(c), less mandatory prepayments for the period.  Upon the termination of 
Employee's employment, the outstanding principal amount of and interest on 
the loan will be offset against all amounts otherwise payable to Employee.

          (j)  Employer will acquire a club membership at a country club of 
Employee's choice for the exclusive use of Employee during the Term at an 
initiation fee of up to $25,000.  The membership shall remain the property of 
Employer subject to Employee's right to acquire it upon termination of 
Employee's employment as set forth below.  Employer will pay Employee's 
membership dues and will reimburse Employee for all expenses and charges 
incurred at the club for business purposes.  Upon termination of Employee's 
employment, Employee's privileges with respect to the membership shall cease 
and Employee shall transfer and assign all rights in the membership 

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to Employer, PROVIDED, HOWEVER, that if Employee is terminated for any reason 
other than for Cause (as defined in Section 4(g)(i)), Employee shall be 
entitled to acquire the membership from Employer for an amount equal to the 
lesser of the original initiation fee or the then-prevailing market price of 
a comparable membership and Employee's assumption of all future monthly dues 
and other costs and expenses related to the membership.

          (k)  Employer will pay Employee a car allowance of $1,000 per month 
plus an additional amount equal to all federal and state income taxes arising 
with respect to any portion of the allowance taxable as income to Employee.

     4.   TERMINATION DURING TERM.  Notwithstanding anything to the contrary 
in Section 2 of this Agreement, Employee's employment under this Agreement 
may be terminated during the Term as set forth below:

          (a)  Employer may terminate Employee's employment for Cause, in 
which case the parties' rights and obligations shall be as set forth in 
Section 5(a) below.

          (b)  Employer may terminate Employee's employment in the absence of 
Cause and other than upon Employee's Retirement or Permanent Disability, in 
which case the parties' rights and obligations shall be as set forth in 
either Section 5(b) or (e) below, as applicable.

          (c)  Employee's employment shall be terminated upon Employee's 
Permanent Disability, in which case the parties' rights and obligations shall 
be as set forth in Section 5(c) below.

          (d)  Employee's employment shall be terminated upon Employee's 
Retirement, in which case the parties' rights and obligations shall be as set 
forth in Section 5(d) below.

          (e)  In the event of a Change in Control of Employer, Employee may 
terminate Employee's employment (i) for any reason, for up to six months 
after the Change in Control of 

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Employer, or (ii) for Good Reason, in which case the parties' rights and 
obligations shall be as set forth in Section 5(e) below.

          (f)  Employee may terminate Employee's employment at any time for 
any reason not heretofore enumerated, in which case the parties' rights and 
obligations shall be as set forth in Section 5(f) below.

          (g)  The following definitions shall apply for purposes of the 
early termination of the Term of this Agreement:

               (i)  "CAUSE" shall mean the occurrence of any of the 
following: (A) Employee's engagement in any personal misconduct involving 
willful dishonesty, illegality, or moral turpitude that is demonstrably and 
materially detrimental or injurious to the business interests, reputation or 
goodwill of Employer or its affiliates; (B) Employee's engagement in any act 
involving willful dishonesty, disloyalty, or infidelity against Employer or 
its affiliates; (C) Employee's willful and continued breach of or failure 
substantially to perform under any of the material terms and covenants of 
this Agreement; and (D) Employee's willful and continued breach of or failure 
substantially to perform under any material policy established by the Company 
with respect to the operation of the Company's business and affairs, or the 
conduct of the Company's employees.  For purposes of this Section 4(g)(i), no 
act, or failure to act, on Employee's part shall be considered "willful" 
unless done, or omitted to be done, by Employee in bad faith and without 
reasonable belief that Employee's action or omission was in the best interest 
of Employer. Prior to asserting any action or failure to act as Cause for 
Employee's termination as set forth above, Employer shall provide Employee a 
written notice referencing this Section 4(g)(i), setting out with specificity 
the conduct asserted to constitute Cause.  Any disputes arising as to whether 
Cause existed for Employee's 

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termination shall be resolved through binding arbitration in accordance with 
Section 9 of this Agreement.

               (ii) "CHANGE IN CONTROL OF EMPLOYER" means the occurrence 
during the Term of any of the following events:

                    (A)  Pillowtex is merged, consolidated or reorganized 
into or with another corporation or other legal person, and as a result of 
such merger, consolidation or reorganization less than a majority of the 
combined voting power of the then-outstanding securities entitled to vote 
generally in the election of directors ("VOTING STOCK") of such corporation 
or person immediately after such transaction are held in the aggregate by the 
holders of Voting Stock of Pillowtex immediately prior to such transaction;

                    (B)  Pillowtex sells or otherwise transfers all or 
substantially all of its assets to another corporation or other legal person, 
and as a result of such sale or transfer less than a majority of the combined 
voting power of the then-outstanding Voting Stock of such corporation or 
person immediately after such sale or transfer is held in the aggregate by 
the holders of Voting Stock of Pillowtex immediately prior to such sale or 
transfer;

                    (C)  There is a report filed on Schedule 13D or Schedule 
14D-1 (or any successor schedule, form or report), each as promulgated 
pursuant to the Securities Exchange Act of 1934, as amended (the "EXCHANGE 
ACT"), disclosing that any person (as the term "person" is used in Section 
13(d)(3) or Section 14(d)(2) of the Exchange Act) other than an "Excluded 
Person" as defined below has become 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 35% 
or more of the combined voting power of the then-outstanding Voting Stock of 
Pillowtex; or

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                    (D)  If, during any period of 24 consecutive months, 
individuals who at the beginning of any such period constitute the Directors 
of Pillowtex cease for any reason to constitute at least a majority thereof; 
provided, however, that for purposes of this clause (D) each Director who is 
first elected, or first nominated for election by Pillowtex's stockholders, 
by a vote of at least two-thirds of the Directors of Pillowtex (or a 
committee thereof) then still in office who were Directors of Pillowtex at 
the beginning of any such period will be deemed to have been a Director of 
Pillowtex at the beginning of such period.

               (iii)     "EXCLUDED PERSON" shall mean any of (A) Charles M. 
Hansen, Jr., Mary R. Silverthorne or the John H. Silverthorne Estate or any 
person for which any of Charles M. Hansen, Jr., Mary R. Silverthorne or the 
John H. Silverthorne Estate are deemed to hold beneficial ownership of 
securities of Pillowtex registered in the name of such person; (B) Pillowtex; 
(C) any entity in which Pillowtex directly or indirectly owns 50% or more of 
the outstanding Voting Stock (a "SUBSIDIARY"); or (D) any employee benefit 
sponsored by Pillowtex or any Subsidiary.

               (iv) "GOOD REASON" shall mean termination of Employee's 
employment by Employee after a Change in Control of Pillowtex upon the 
occurrence of any of the following:

                    (A)  the assignment to Employee of any duties 
inconsistent with Employee's position, duties and status with Employer as 
existing immediately prior to a Change in Control of Employer; a substantial 
alteration in the nature or status of Employee's responsibilities from those 
in effect immediately prior to a Change in Control of Employer; the failure 
to provide Employee with substantially the same perquisites which Employee 
had immediately prior to a Change in Control of Employer, including but not 
limited to an office and appropriate support services; or a change in 
Employee's titles or offices as in effect immediately prior to a Change in 
Control of Employer, or any removal of Employee from or failure to re-elect 
Employee to any such positions;

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                    (B)  a reduction by Employer in Employee's base salary in 
effect immediately prior to a Change in Control of Employer;

                    (C)  the requirement by Employer that Employee be based 
anywhere other than the metropolitan area in which Employee's office is 
located immediately prior to a Change in Control of Employer, except for 
required travel on Employee's business to an extent substantially consistent 
with Employee's business travel obligations immediately prior to a Change in 
Control of Employer; or

                    (D)  the taking of any action by Employer which would (1) 
materially and adversely affect Employee's participation in or materially 
reduce Employee's benefits under any employee benefit or compensation plan in 
which Employee participates immediately prior to a Change in Control of 
Employer, or (2) deprive Employee of any material fringe benefit enjoyed by 
Employee, or to which Employee is entitled, as existing immediately prior to 
a Change in Control of Employer

               (v)  "PERMANENT DISABILITY" shall mean any physical or mental 
impairment rendering Employee unable to perform the essential functions of 
Employee's job (as determined by Employer), with or without reasonable 
accommodation that does not constitute undue hardship to Employer, and such 
impairment is permanent or is likely to continue for a period exceeding six 
consecutive months.  If Employee fails to notify Employer of Employee's need 
for accommodation, Employer is not required to accommodate Employee and may 
hold Employee to the same standards as persons without a disability.  The 
determination of whether Employee has a Permanent Disability shall be made as 
set forth below.  During any period in which the existence of a Permanent 
Disability is being determined, Employee shall continue to receive Employee's 
full base salary at the rate then in effect and all compensation and benefits 
paid during such period until a 

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Permanent Disability is conclusively determined and this Agreement is 
terminated in accordance with Section 8 hereof, provided Employee (and 
Employee's personal and legal representatives) act in good faith and with 
reasonable diligence in pursuing a determination.  This definition is not 
intended to either expand or limit any rights and protections granted to 
Employee by law.  Employer may require Employee to be examined by a 
physician, at Employee's own expense, in order to determine whether Employee 
has a Permanent Disability.  If Employer disagrees with the written opinion 
of this physician ("FIRST PHYSICIAN"), it may engage, at its own expense, 
another physician ("SECOND PHYSICIAN") to examine Employee.  If the First and 
Second Physicians agree in writing that Employee has not suffered a Permanent 
Disability, their written opinion shall, except as otherwise set forth in 
this Section 4(g)(v), be conclusive on the issue of Permanent Disability.  If 
the First and Second Physicians disagree on whether Employee has suffered a 
Permanent Disability, they shall choose a third consulting physician (whose 
expense shall be shared equally by Employer and Employee) and the written 
opinion of a majority of these three physicians shall be conclusive as to the 
issue of Permanent Disability.  In connection with a Permanent Disability 
determination, Employee hereby consents to any required medical examination 
and agrees to furnish any medical information requested by any examining 
physician and to waive any applicable physician-patient privilege that may 
arise because of such examination.  All physicians must be board-certified in 
the specialty most closely related to the nature of the Permanent Disability 
alleged to exist.

               (vi) "RETIREMENT" shall mean termination by Employer or 
Employee in accordance with Employer's retirement policy (including early 
retirement, if included in such policy and elected by Employee in writing) 
generally applicable to its senior executive employees, or in accordance with 
any other retirement agreement entered into by and between Employee and 
Employer.

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     5.   COMPENSATION UPON TERMINATION.  If Employee's employment is 
terminated during the Term of this Agreement, Employee shall be entitled to 
compensation as set forth below:

          (a)  If Employer terminates Employee's employment for Cause, 
Employer shall pay Employee's undiscounted base salary through the date of 
Employee's termination at the rate then in effect and all amounts to which 
Employee is entitled upon termination of employment under Employer's employee 
benefit plans.

          (b)  If Employer terminates Employee's employment without Cause, 
then Employer shall pay Employee, not later than the fifth day following the 
date of termination, a lump sum severance payment equal to the sum of (i) 
Employee's undiscounted base salary through the date of Employee's 
termination at the rate then in effect and all amounts to which Employee is 
entitled upon termination of employment under Employer's employee benefit 
plans; (ii) Employee's undiscounted base salary through the remaining 
duration of the Term or, if greater, for a period of 24 months, at the 
highest rate in effect during the 12 months immediately preceding the date of 
Employee's termination; and (iii) the product obtained by multiplying the 
greater of (A) (1) the highest annual amount paid to Employee (or awarded to 
Employee, if such amount has not yet been paid) as bonus compensation during 
or in respect of any of the three calendar years preceding the year in which 
the termination occurs and (2) Employee's Bonus Opportunity Level under the 
Pillowtex Corporation Management Incentive Plan (or functionally similar 
target award level under any successor plan or program) as of the date of 
Employee's termination by (B) a proration factor (the "BONUS PRORATION 
FACTOR") equal to the quotient obtained by dividing the number of months (but 
in no event less than 24 months) in the period from the beginning of the most 
recent plan year for which a bonus has not been paid (but is anticipated to 
be paid as of the date of the Employee's termination) to the expiration of 
the Term, by 12.  Notwithstanding the foregoing, the provisions of 

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this Section 5(b) shall not apply if Employer terminates Employee's 
employment without Cause subsequent to a Change in Control of Employer.

          (c)  If Employee's employment is terminated upon Employee's 
Permanent Disability, Employer shall pay Employee's undiscounted base salary 
through the date of Employee's termination at the rate then in effect and all 
amounts to which Employee is entitled upon termination of employment under 
Employer's employee benefit plans.  Employee's additional compensation and 
benefits, if any, shall be determined in accordance with Employer's employee 
benefit plans or other insurance programs then in effect.

          (d)  If Employee's employment is terminated upon Employee's 
Retirement, Employer shall pay Employee's undiscounted base salary through 
the date of Employee's termination at the rate then in effect and all amounts 
to which Employee is entitled upon termination of employment under Employer's 
employee benefit plans.  Employee's additional compensation and benefits 
shall be determined in accordance with Employer's retirement policy 
applicable to its senior executive employees or in accordance with any other 
retirement agreement entered into by and between Employee and Employer.

          (e)  If, after a Change in Control of Employer, Employee's 
employment (x) is terminated by Employee for any reason during a period of 
six months beginning on the date of the Change in Control of Employer, or if 
less, during the remaining duration of the Term; (y) is terminated by 
Employee for Good Reason; or (z) is terminated by Employer without Cause (and 
not by reason of Employee's Permanent Disability Retirement, or death), 
Employee shall be entitled to the compensation and benefits provided below:

               (i)  Employer shall pay Employee's undiscounted base salary 
through the date of Employee's termination at the rate then in effect;

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               (ii) Employer shall pay all amounts to which Employee is 
entitled upon termination of employment under Employer's employee benefit 
plans;

               (iii) Employer shall pay as severance pay to Employee, not 
later than the fifth day following Employee's termination, a lump sum 
severance payment (together with the payments described in Sections 5(e)(iv) 
and (v), the "SEVERANCE PAYMENTS") equal to the sum of (A) the product 
obtained by multiplying Employee's undiscounted annual base salary at the 
highest rate in effect during the 12 months immediately preceding Employee's 
termination by the number of years or fractions thereof (but in no event less 
than two years) remaining in the Term and (B) the product obtained by 
multiplying the greater of (1) the highest annual amount paid to Employee (or 
awarded to Employee, if such amount has not yet been paid) as bonus 
compensation during or in respect of any of the three calendar years 
preceding the year in which the termination occurs and (2) Employee's Bonus 
Opportunity Level under the Pillowtex Corporation Management Incentive Plan 
(or functionally similar target aware level under any successor plan or 
program) based upon Employee's annual salary at the highest rate in effect 
during the 12 months immediately preceding Employee's termination, by the 
Bonus Proration Factor (as defined in Section 5(b) above);

               (iv) in lieu of shares of common stock, $0.01 par value, of 
Pillowtex (the "SHARES") issuable upon the exercise of options ("OPTIONS"), 
if any, granted to Employee under any stock option plan of Pillowtex (which 
Options shall be canceled upon the making of the payment referred to below), 
Employer shall pay Employee in one sum in cash, not later than the fifth day 
following the date of Employee's termination, an aggregate amount equal to 
the product of (A) the difference (to the extent that such differences are a 
positive number) obtained by subtracting the per Share exercise price of each 
Option held by Employee, whether or not then fully exercisable, from the 
higher of (1) the closing price of the Shares, as reported on the New York 
Stock Exchange on the

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Date of Termination (or the last trading date prior thereto) or (2) the 
highest price per Share actually paid in connection with any Change in 
Control of Employer, and (B) the number of shares covered by each such Option;

               (v)  Employer shall pay Employee the retirement benefits to 
which Employee is entitled under Employee's retirement policy or other 
retirement agreement;

               (vi) Employer shall reimburse Employee for all legal fees and 
expenses incurred by Employee as a result of such termination (including all 
such fees and expenses, if any, incurred in successfully contesting or 
disputing any such termination or seeking to obtain or enforce any right or 
benefit provided by this Agreement); and

              (vii) if Severance Payments become subject to the excise 
tax (the "EXCISE TAX") imposed under section 4999 of the Internal Revenue 
Code of 1986, as amended (the "CODE"), Employer shall pay to Employee an 
additional amount (the "GROSS-UP PAYMENT") such that the net amount retained 
by Employee, after deduction of any Excise Tax on the Severance Payments (and 
any federal, state and local income tax and Excise Tax upon the payment 
provided for in this Section 5(e)(vii)), shall be equal to the Severance 
Payments.  For purposes of determining whether any of the Severance Payments 
will be subject to the Excise Tax and the amount of such Excise Tax, (A) any 
other payment or benefit received or to be received by Employee in connection 
with a Change in Control of Employer and Employee's subsequent termination of 
employment (whether pursuant to the terms of this Agreement or any other 
plan, arrangement or agreement with Employer, any person whose actions 
resulted in the Change in Control of Employer or any person affiliated with 
Employer or such person) shall be treated as a "parachute payment" within the 
meaning of section 280G(b)(2) of the Code, and all "excess parachute 
payments" within the meaning of section 280G(b)(1) of the Code shall be 
treated as subject to the Excise Tax, unless in the opinion of tax 

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counsel selected by Employer's independent auditors and reasonably acceptable 
to Employee such other payments or benefits (in whole or in part) do not 
constitute parachute payments, (B) the amount of the Severance Payments which 
shall be treated as subject to the Excise Tax shall be equal to the lesser of 
(1) the total amount of the Severance Payments and (2) the amount of excess 
parachute payments within the meaning of section 280(G)(b)(1) of the Code 
(after applying clause (A) above), and (C) the value of any non-cash benefit, 
deferred payment or other benefit shall be determined by Employer's 
independent auditors in accordance with the principles of sections 
280(G)(d)(3) and (4) of the Code and the applicable Treasury Regulations.  
For purposes of determining the amount of the Gross-Up Payment, Employee 
shall be deemed to pay federal income taxes at the highest marginal rate of 
federal income taxation in the calendar year in which the Gross-Up Payment is 
to be made and state and local income taxes at the highest marginal rate of 
taxation in the state and locality of Employee's residence on the date of 
Employee's termination, net of the maximum reduction in federal income taxes 
which could be obtained from deduction of such state and local taxes.  If the 
Excise Tax is subsequently determined to be less than the amount taken into 
account hereunder at the time of Employee's termination of employment, 
Employee shall repay to Employer, 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 that portion of the Gross-Up 
Payment attributable to the Excise Tax and federal, state and local income 
tax imposed on the Gross-Up Payment being repaid by Employee to the extent 
that such repayment results in a reduction in Excise Tax and/or a federal, 
state or local income tax deduction) 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 of the termination of Employee's employment (including by reason of 
any payment the existence or amount of which cannot be determined at the time 
of the Gross-Up 

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Payment), Employer shall 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 Employer shall 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 Severance Payments.

          (f)  If Employee terminates Employee's employment under 
circumstances in which Section 5(e) does not apply, or if Employee's 
employment is terminated by reason of his death, Employer shall pay 
Employee's full base salary through the date of Employee's termination at the 
rate then in effect and all amounts to which Employee is entitled upon 
termination of employment under Employer's employee benefit plans.

     6.   INSURANCE.  If Employee's employment is terminated under the 
provisions of Section 4(e) of this Agreement, Employee shall participate, for 
a period of two years from the date of Employee's termination, in all 
employee benefit plans providing health and dental benefits in which Employee 
participated or was entitled to participate immediately prior to Employee's 
termination, provided that such participation is permitted under the general 
terms and provisions of such plans and under applicable law.  If Employee's 
participation in any such plan is not permitted for any reason, Employer 
shall arrange to provide Employee, at Employer's sole cost and expense, with 
benefits substantially similar to those which Employee is entitled to receive 
under such plans.  At the end of such two-year period, Employee will be 
entitled to take advantage of any conversion privileges applicable to the 
benefits available under any such plans.

     7.   FUTURE EMPLOYMENT.  Employee shall not be required to mitigate the 
amount of any payment provided for in Section 5 hereof by seeking other 
employment or otherwise, nor shall the amount of any payment provided for in 
Section 5 hereof be reduced by any compensation earned by 

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Employee as a result of employment by another employer after the date of 
Employee's termination, or otherwise.

     8.   NOTICE OF TERMINATION.

          (a)  Any purported termination by Employer or by Employee shall 
be communicated by a written "Notice of Termination" to the other party.  
A Notice of Termination shall mean a notice indicating the specific 
termination provision in this Agreement relied upon and setting forth in 
reasonable detail the facts and circumstances claimed to provide a basis 
for termination of Employee's employment under the provision so indicated.

          (b)  The "date of Employee's termination" shall be:  (i) if 
Employee's employment is terminated by reason of Employee's Permanent 
Disability, the date that is 30 days after the determination of Permanent 
Disability pursuant to Section 4(g)(v) of this Agreement, (ii) if Employee's 
employment is terminated for Cause, the date specified in the Notice of 
Termination, or (iii) if Employee's employment is terminated for any other 
reason, the date specified in the Notice of Termination, provided such date 
is not more than 60 days from the date such Notice of Termination is given.

     9.   ARBITRATION.  All disputes or claims arising under this Agreement 
or in connection with Employee's employment with Employer (including any 
claims under any federal, state, or local law or ordinance), except for any 
dispute or claim arising under Sections 10, 11, 12, 13, and 16 of this 
Agreement, shall be subject to binding arbitration pursuant to the Commercial 
Arbitration Rules of the American Arbitration Association, the cost of which 
shall be borne by the party against whom an arbitration award is entered.

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     10.  NONDISCLOSURE AGREEMENT.  Employer, during the term of Employee's 
employment under this Agreement, shall provide Employee access to, and 
Employee shall have access to and become familiar with, various trade secrets 
and proprietary and confidential information 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 (collectively referred to herein as the "TRADE SECRETS"), which 
are owned by Employer and its affiliates and are regularly used in the 
operation of their businesses, but in connection with which Employer and its 
affiliates take precautions to prevent dissemination to persons other than 
certain directors, officers and employees.  Employee acknowledges and agrees 
that the Trade Secrets (a) are secret and not known in Employer's industry; 
(b) are entrusted to Employee after being informed of their confidential and 
secret status by Employer or its affiliates and because of the fiduciary 
position occupied by Employee with Employer; (c) have been developed by 
Employer and its affiliates for and on behalf of Employer and its affiliates 
through substantial expenditures of time, effort and money and are used in 
their businesses; (d) give Employer and its affiliates an advantage over 
competitors who do not know or use the Trade Secrets; (e) are of such value 
and nature as to make it reasonable and necessary to protect and preserve the 
confidentiality and secrecy of the Trade Secrets; and (f) are valuable, 
special and unique assets of Employer and its affiliates, the disclosure of 
which could cause substantial injury and loss of profits and goodwill to 
Employer and its affiliates. Employee shall not use in any way or disclose 
any of the Trade Secrets, directly or indirectly, either during the Term of 
this Agreement or at any time thereafter, except as required in the course of 
Employee's employment under this Agreement.  All files, records, documents, 
information, data and similar items relating to the business of Employer and 
its affiliates, whether prepared by Employee or otherwise coming into 
Employee's 

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<PAGE>

possession, shall remain the exclusive property of Employer and its 
affiliates and shall not be removed from the premises of Employer and its 
affiliates under any circumstances without the prior written consent of the 
Board of Directors of Employer (except in the ordinary course of business 
during Employee's period of active employment under this Agreement), and in 
any event shall be promptly delivered to Employer upon termination of this 
Agreement.  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 shall 
timely notify and promptly hand deliver a copy of the subpoena, process or 
other request to the Chief Executive Officer of Pillowtex.  For this purpose, 
Employee irrevocably nominates and appoints Employer (including any attorney 
retained by Employer), as Employee's true and lawful attorney-in-fact, to act 
in Employee's name, place and stead to perform any act that Employee might 
perform to defend and protect against any disclosure of any Trade Secrets.

     As used in this Agreement, "affiliates" shall mean persons or entities 
that directly, or indirectly through one or more intermediaries, control or 
are controlled by, or are under common control with, Employer.

     11.  NON-COMPETITION AGREEMENT.  Employee acknowledges and agrees that 
the training Employee will receive, the experience Employee will gain and the 
information Employee will acquire regarding the Trade Secrets while employed 
hereunder will enable Employee to injure Employer if Employee should compete 
with Employer in a business that is competitive with the business conducted 
or to be conducted by Employer and its affiliates.  For these reasons, 
Employee hereby agrees that, without the prior written consent of Employer, 
Employee shall not, during the period of employment with Employer, 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 

                                       19

<PAGE>

which constitute not more than 1% of the voting securities of any such 
company) in any business that is competitive with that of Employer or its 
affiliates, (b) accept employment with or render services to a competitor of 
Employer or any of its affiliates as a director, officer, manager or 
executive, (c) engage, for Employee's self or any other person or entity in 
the sales, marketing, design or manufacture of products competitive with any 
product sold, marketed, designed or manufactured by Employer or its 
affiliates, (d) contact, solicit or attempt to solicit or accept business 
from any customers of Employer or its affiliates or any person or entity 
whose business Employer or its affiliates is soliciting, or (e) take any 
action inconsistent with the fiduciary relationship of an employee to 
Employee's employer.  For purposes of this Agreement, a "competitor" 
specifically includes persons, firms, sole proprietorships, partnerships, 
companies, corporations, or other entities that market products and/or 
perform services in direct or indirect competition with those marketed and/or 
performed by Employer or its affiliates within the United States, Canada and 
Mexico.

     12.  NONEMPLOYMENT AGREEMENT.  During the period of employment with 
Employer and for a period of 24 months thereafter, Employee shall not, on 
Employee's own behalf or on behalf of any other person, partnership, 
association, corporation or other entity, hire or solicit or in any manner 
attempt to influence or induce any employee of Employer or its affiliates to 
leave the employment of Employer or its affiliates, nor shall Employee use or 
disclose to any person, partnership, association, corporation or other entity 
any information obtained while an employee of Employer concerning the names 
and addresses of the employees of Employer or its affiliates.

     13.  NONDISPARAGEMENT AGREEMENT.  Employee shall not, either during the 
Term of this Agreement or at any time thereafter, make statements, whether 
orally or in writing, concerning Employer, any of its directors, officers, 
employees or affiliates or any of its business strategies, policies or 
practices, that shall be in any way disparaging, derogatory or critical, or 
in any way 

                                       20

<PAGE>

harmful to the reputation of Employer, any such persons or entities or 
business strategies, policies or practices.

     14.  SUCCESSORS; BINDING AGREEMENT.

          (a)  Employer will require any successor (whether direct or 
indirect, by purchase, merger, consolidation or otherwise) to all or 
substantially all of the business and/or assets of Employer, by agreement in 
form and substance satisfactory to Employee, to expressly assume and agree to 
perform this Agreement in the same manner and to the same extent that 
Employer would be required to perform it if no such succession had taken 
place.  Failure of Employer to obtain such agreement prior to the 
effectiveness of any succession shall be a breach of this Agreement and shall 
entitle Employee to compensation from Employer in the same amount and on the 
same terms as Employee would be entitled hereunder if Employee terminated 
Employee's employment for Good Reason, except that for purposes of 
implementing the foregoing, the date on which any such succession becomes 
effective shall be deemed the date of Employee's termination.  As used in 
this Agreement, "Employer" shall mean Employer as hereinbefore defined and 
any successor to its business and/or assets as aforesaid which executes and 
delivers the agreement provided for in this Section 14 or which otherwise 
becomes bound by all the terms and provisions of this Agreement by operation 
of law or otherwise.

          (b)  This Agreement shall inure to the benefit of and be 
enforceable by Employee's personal or legal representatives, executors, 
administrators, successors, heirs, distributees, devisees and legatees.  In 
the event of Employee's death, any amounts owed to Employer under this 
Agreement shall be paid to Employee's surviving spouse, if any, and if none, 
to  Employee's estate.

     15.  SEVERABILITY.  The parties hereto intend all provisions of Sections 
10, 11, 12, 13 and 16 hereof to be enforced to the fullest extent permitted 
by law.  Accordingly, should a court of 

                                       21

<PAGE>

competent jurisdiction determine that the scope of any provision of Sections 
10, 11, 12, 13 and 16 hereof is too broad to be enforced as written, the 
parties intend that the court reform the provision to such narrower scope as 
it determines to be reasonable and enforceable.  In addition, however, 
Employee agrees that the provisions of each of the foregoing sections 
constitute separate agreements independently supported by good and adequate 
consideration and shall be severable from the other provisions of, and shall 
survive, this Agreement.  The existence of any claim or cause of action of 
Employee against Employer, whether predicated on this Agreement or otherwise, 
shall not constitute a defense to the enforcement by Employer of the 
covenants and agreements of Employee contained in the non-competition, 
nondisclosure, nonemployment or nondisparagement agreements.  If any 
provision of this Agreement is held to be illegal, invalid or unenforceable 
under present or future laws effective during the term hereof, such provision 
shall be fully severable and this Agreement shall be construed and enforced 
as if such illegal, invalid or unenforceable provision never comprised a part 
of this Agreement; and the remaining provisions of this Agreement shall 
remain in full force and effect and shall not be affected by the illegal, 
invalid or unenforceable provision or by its severance therefrom.  
Furthermore, in lieu of such illegal, invalid or unenforceable provision, 
there shall be added automatically as part of this Agreement, a provision as 
similar in its terms to such illegal, invalid or unenforceable provision as 
may be possible and be legal, valid and enforceable.

     16.  INVENTIONS.  Employee shall promptly disclose, grant and assign to 
Employer for its sole use and benefit any and all inventions, improvements, 
technical information and suggestions relating in any way to the products of 
Employer or any of its affiliates or capable of beneficial use by Employer or 
any of its affiliates, which Employee has in the past conceived, developed or 
acquired, or may conceive, develop or acquire during the term hereof (whether 
or not during usual working hours), together with all patent applications, 
letters patent, copyrights and reissues thereof 

                                       22

<PAGE>

that may at any time be granted upon any such invention, improvement or 
technical information.  In connection therewith, Employee shall promptly at 
all times during and after the term hereof:

          (a)  execute and deliver such applications, assignments, 
descriptions and other instruments as may be necessary or proper in the 
opinion of Employer to vest title to such inventions, improvements, technical 
information, patent applications and patents or reissues thereof in Employer 
and to enable it to obtain and maintain the entire right and title thereto 
throughout the world; and

          (b)  render to Employer, at its expense, all such assistance as it 
may require in the prosecution of applications for said patents or reissues 
thereof, in the prosecution or defense of interferences which may be declared 
involving any said application or patents and in any litigation in which 
Employer or its affiliates may be involved relating to any such patents, 
inventions, improvements or technical information.

     17.  AFFILIATES.  Employee will use Employee's best efforts to ensure 
that no relative of his or corporation of which Employee is an officer, 
director or shareholder, or other affiliate of his, shall take any action 
that Employee could not take without violating any provision of this 
Agreement.

     18.  REMEDIES.  Employee recognizes and acknowledges that the 
ascertainment of damages in the event of his breach of any provision of this 
Agreement would be difficult, and Employee agrees that Employer, in addition 
to all other remedies it may have, shall have the right to injunctive relief 
if there is such a breach.

     19.  NOTICES.  Any notices, consents, demands, requests, approvals and 
other communications to be given under this Agreement by either party to the 
other shall be in writing and shall be either (i) delivered in person, (ii) 
mailed by registered or certified mail, return receipt requested, postage 
prepaid, (iii) delivered by overnight express delivery service or same-day 
local courier service or (iv) delivered by facsimile transmission, to the 
addresses set forth below.

                                       23

<PAGE>

          If to Employer:     Pillowtex Management Services Company
                              4111 Mint Way
                              Dallas, Texas  75237
                              Attention:  Chief Executive Officer
                              Facsimile No. (214) 333-2244

          If to Employee:     Kevin M. Finlay
                              908 Turnberry Lane
                              Southlake, Texas  76092

Notices delivered personally, by overnight express delivery, local courier or 
facsimile shall be deemed communicated as of actual receipt; mailed notices 
shall be deemed communicated as of three days after mailing.

     20.  ENTIRE AGREEMENT.  This Agreement supersedes any and all other 
agreements, either oral or written, between the parties hereto with respect 
to the subject matter hereof, including without limitation the Employment 
Agreement in effect between Employee and Employer on December 31, 1997, and 
contains all of the covenants and agreements between the parties with respect 
thereto.

     21.  MODIFICATION.  No change or modification of this Agreement shall be 
valid or binding upon the parties hereto, nor shall any waiver of any term or 
condition in the future be so binding, unless such change or modification or 
waiver shall be in writing and signed by the parties hereto.

     22.  GOVERNING LAW AND VENUE.  THE PARTIES ACKNOWLEDGE AND AGREE THAT 
THIS AGREEMENT AND THE OBLIGATIONS AND UNDERTAKINGS OF THE PARTIES HEREUNDER 
WILL BE PERFORMABLE IN DALLAS, DALLAS COUNTY, TEXAS.  THIS AGREEMENT SHALL BE 
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF 
TEXAS.  IF ANY ACTION IS BROUGHT TO ENFORCE OR INTERPRET THIS AGREEMENT, 
VENUE FOR SUCH ACTION SHALL BE IN DALLAS COUNTY, TEXAS.  EACH OF THE PARTIES 
HERETO HEREBY AGREES IRREVOCABLY AND UNCONDITIONALLY TO CONSENT TO SUBMIT TO 
THE EXCLUSIVE JURISDICTION 

                                       24

<PAGE>

OF THE COURTS OF THE STATE OF TEXAS AND OF THE UNITED STATES OF AMERICA 
LOCATED IN DALLAS, TEXAS FOR ANY ACTIONS, SUITS OR PROCEEDINGS ARISING OUT OF 
OR RELATING TO THIS AGREEMENT AND FURTHER AGREES THAT SERVICE OF PROCESS, 
SUMMONS OR NOTICE BY U.S. REGISTERED MAIL TO THE APPLICABLE ADDRESSES SET 
FORTH IN SECTION 19 HEREIN SHALL BE EFFECTIVE SERVICE OF PROCESS OF ANY 
ACTION, SUIT OR PROCEEDING BROUGHT AGAINST SUCH PARTY IN ANY SUCH COURT.

     23.  COUNTERPARTS.  This Agreement may be executed in counterparts, each 
of which shall constitute an original, but all of which shall constitute one 
document.

     24.  COSTS.  If any action or law or in equity is necessary to enforce 
or interpret the terms of this Agreement, the prevailing party shall be 
entitled to reasonable attorneys' fees, costs and necessary disbursements in 
addition to any other relief to which Employee or it may be entitled.

     25.  ASSIGNMENT.  Employer shall have the right to assign this Agreement 
to its successors or assigns.  The terms "successors" and "assigns" shall 
include any person, corporation, partnership or other entity that buys all or 
substantially all of Employer's assets or all of its stock, or with which 
Employer merges or consolidates.  The rights, duties and benefits to Employee 
hereunder are personal to Employee, and no such right or benefit may be 
assigned by Employee.

     26.  BINDING EFFECT.  This Agreement shall be binding upon the parties 
hereto, together with their respective executors, administrators, successors, 
personal representatives, heirs and assigns.

     27.  NO WAIVER.  The failure by Employer to enforce at any time any of 
the provisions of this Agreement or to require at any time performance by 
Employee of any of the provisions hereof shall in no way be construed to be a 
waiver of such provisions or to affect the validity of this 

                                       25

<PAGE>

Agreement, or any part hereof, or the right of Employer thereafter to enforce 
each and every such provision in accordance with the terms of this Agreement.

                                  *       *       *

                                       26

<PAGE>

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


                                       PILLOWTEX MANAGEMENT SERVICES COMPANY


                                       By: /s/ Charles M. Hansen, Jr.
                                           ------------------------------------
                                           Charles M. Hansen, Jr.
                                           Chairman of the Board and
                                           Chief Executive Officer


                                       EMPLOYEE

                                           /s/ Kevin M. Finlay
                                           ------------------------------------
                                           Kevin M. Finlay


                                       GUARANTEE

     Pillowtex Corporation unconditionally guarantees all obligations of 
Pillowtex Management Services Company to Employee as set forth in the 
foregoing Employment Agreement.


                                       PILLOWTEX CORPORATION


                                       By: /s/ Charles M. Hansen, Jr.
                                           ------------------------------------
                                           Charles M. Hansen, Jr.
                                           Chairman of the Board and
                                           Chief Executive Officer


                                       27