<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
PILLOWTEX CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
PILLOWTEX CORPORATION
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
(5) Total fee paid:
------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PILLOWTEX CORPORATION
4111 MINT WAY
DALLAS, TEXAS 75237
------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 1998
------------------
To The Shareholders of
PILLOWTEX CORPORATION:
Notice is hereby given that the Annual Meeting of Shareholders of
Pillowtex Corporation, a Texas corporation (the "Company"), will be held on
Monday, May 4, 1998, beginning at 9:00 a.m., Dallas time, at the Hotel
Crescent Court, 2200 Cedar Springs, Dallas, Texas 75201, for the following
purposes:
1. To elect four directors to hold office until the 2001 Annual
Meeting of Shareholders and until their successors have been duly
elected and qualified;
2. To consider and vote upon a proposal to amend the Company's 1993 Stock
Option Plan to increase the number of shares of Common Stock available
for issuance thereunder from 1,500,000 shares to 2,000,000 shares; and
3. To transact any other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has fixed the close of business on March 20, 1998
as the record date for the determination of shareholders entitled to notice
of and to vote at the meeting or any adjournment thereof. Only shareholders
of record at the close of business on the record date are entitled to notice
of and to vote at the meeting. The list of shareholders entitled to vote at
the meeting will be available for inspection by any shareholder for any
purpose relating to the meeting during regular business hours at the
Company's corporate offices at 4111 Mint Way, Dallas, Texas 75237, for ten
days prior to the meeting.
All shareholders are cordially invited to attend the meeting.
SHAREHOLDERS ARE URGED, WHETHER OR NOT THEY PLAN TO ATTEND THE MEETING, TO
COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND TO RETURN IT PROMPTLY IN
THE POSTAGE-PAID RETURN ENVELOPE PROVIDED. If a shareholder who has returned
a proxy attends the meeting in person, such shareholder may revoke the proxy
by voting in person at the meeting.
By Order of the Board of Directors
Charles M. Hansen, Jr.
CHAIRMAN OF THE BOARD
Dallas, Texas
April 3, 1998
<PAGE>
PILLOWTEX CORPORATION
4111 MINT WAY
DALLAS, TEXAS 75237
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 4, 1998
This proxy statement is furnished to shareholders of Pillowtex
Corporation, a Texas corporation (the "Company"), in connection with the
solicitation of proxies on behalf of the Board of Directors of the Company
for use at the Annual Meeting of Shareholders to be held on May 4, 1998.
Proxies in the form enclosed will be voted at the meeting, if properly
executed, returned to the Company prior to the meeting and not revoked. A
proxy may be revoked at any time before it is voted by giving written notice
to the Secretary of the Company or by executing and delivering a proxy
bearing a later date. No revocation by written notice or by delivery of
another proxy shall be effective until such notice of revocation or other
proxy, as the case may be, has been received by the Company at or prior to
the meeting. A proxy may also be revoked by voting in person at the meeting.
Attendance at the meeting will not, in itself, constitute the revocation of
a proxy. The approximate date on which this proxy statement and the enclosed
proxy card will first be sent to shareholders is April 3, 1998.
OUTSTANDING CAPITAL STOCK
Only holders of record of the Company's Common Stock, $.01 par value per
share ("Common Stock"), at the close of business on March 20, 1998, the
record date for the meeting, are entitled to notice of and to vote at the
meeting. On the record date for the meeting, there were 14,016,422 shares of
Common Stock outstanding. In deciding all questions, a holder of Common
Stock is entitled to one vote, in person or by proxy, for each share held in
his or her name on the record date.
ACTION TO BE TAKEN AT THE MEETING
The accompanying proxy, unless the shareholder otherwise specifies in
the proxy, will be voted (i) for the election of each of the four nominees
named herein for election to the Board of Directors to hold office until the
2001 Annual Meeting of Shareholders and until his or her successor has been
duly elected and qualified, (ii) for the proposal to amend the Company's 1993
Stock Option Plan (the "Stock Option Plan') to increase the number of shares
of Common Stock available for issuance thereunder from 1,500,000 shares to
2,000,000 shares, and (iii) at the discretion of the proxy holders, on any
other matter that may properly come before the meeting or any adjournment
thereof.
Where shareholders have appropriately specified how their proxies are to
be voted, they will be voted accordingly. If any other matter of business is
brought before the meeting, the proxy holders may vote the proxies at their
discretion. The directors are unaware of any other matter of business to be
brought before the meeting.
VOTING PROCEDURES AND TABULATION
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of Common Stock entitled to vote at the meeting is
necessary to constitute a quorum at the meeting. Abstentions (I.E., properly
executed proxies marked "ABSTAIN") and broker non-votes (I.E., shares held
<PAGE>
by brokers or nominees which are represented at a meeting but with respect to
which the broker or nominee is not empowered to vote on a particular
proposal) will be included in the number of shares present at the meeting for
purposes of determining whether a quorum is present. If a quorum is not
present, the shareholders entitled to vote, present in person or represented
by proxy, at the meeting have power to adjourn the meeting, without notice
(other than announcement at the meeting), until a quorum is present. It is
the intention of the proxy holders to vote the shares represented by the
proxies held by them for such adjournment, if any. At any adjourned meeting
at which a quorum is present, any business may be transacted which might have
been transacted at the meeting as originally noticed.
Assuming the presence of a quorum, (i) a plurality of the votes cast by
the holders of shares of Common Stock entitled to vote at the meeting is
required for the election of directors and (ii) the affirmative vote of the
holders of a majority of the shares of Common Stock entitled to vote at the
meeting, present in person or represented by proxy, is required to approve
the proposal to amend the Stock Option Plan to increase the number of shares
of Common Stock available for issuance thereunder from 1,500,000 shares to
2,000,000 shares.
With respect to the election of directors, votes may be cast for or
withheld from each director nominee. Neither votes that are withheld nor
broker non-votes will have any effect on the outcome of the election of
directors.
With respect to the proposal to amend the Stock Option Plan to increase
the number of shares available for issuance thereunder from 1,500,000 to
2,000,000 shares, shares entitled to vote at the meeting may be voted for or
against such proposal, or an indication may be made that the holder of such
shares abstains from voting thereon. Abstentions will have the same effect
on such proposal as a vote against such proposal. Broker non-votes will have
no effect on the outcome of such proposal.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of the Company's Common Stock, as of March 20, 1998, by
each person known by the Company to own beneficially more than 5% of the
outstanding Common Stock, the executive officers whose names appear in the
Summary Compensation Table included elsewhere in this proxy statement, each
director of the Company, and all executive officers and directors as a group.
Except as otherwise indicated, the Company believes that the owners named
below have sole voting and investment power with respect to all shares of
Common Stock indicated.
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<TABLE>
NUMBER OF SHARES
NAME BENEFICIALLY OWNED PERCENT OF CLASS
- ---- ------------------ ----------------
<S> <C> <C>
Charles M. Hansen, Jr. (1) . . . . . . . 2,473,104 17.6%
John H. Silverthorne
Marital Trust B (2). . . . . . . . . . 2,268,893 16.2%
Mary R. Silverthorne (2) . . . . . . . . 534,241 3.8%
Paul G. Gillease (3) . . . . . . . . . . 10,371 *
Ralph W. La Rovere . . . . . . . . . . . 3,300 *
William B. Madden (3). . . . . . . . . . 9,547 *
M. Joseph McHugh (3) . . . . . . . . . . 9,447 *
Jeffrey D. Cordes (3). . . . . . . . . . 46,017 *
Christopher N. Baker (3) . . . . . . . . 18,100 *
Kevin M. Finlay (3). . . . . . . . . . . 11,900 *
Scott E. Shimizu (3) . . . . . . . . . . 16,200 *
Apollo Advisors II, L.P. (4) . . . . . . 2,708,333 19.3%
Palisade Capital Management,
L.L.C. (5) . . . . . . . . . . . . 1,103,898 7.9%
Schroder Capital Management
International, Inc.(6). . . . . . . 704,800 5.0%
All executive officers and directors
as a group (11 persons) (3). . . . . . 5,407,025 38.6%
</TABLE>
- --------------
* Less than 1%
(1) Mr. Hansen's address is 4111 Mint Way, Dallas, Texas 75237.
(2) The address of the John H. Silverthorne Marital Trust B and Mrs.
Silverthorne is 4111 Mint Way, Dallas, Texas, 75237. Under the rules and
regulations of the Securities and Exchange Commission (the "SEC"), Mrs.
Silverthorne may be deemed the beneficial owner of the shares held by the
John H. Silverthorne Marital Trust B because she is its independent
trustee. In addition, Mrs. Silverthorne, in her capacity as trustee, may
be deemed the beneficial owner of 42,857 shares held by the John H.
Silverthorne Family Trust A. Mrs. Silverthorne disclaims beneficial
ownership of any shares other than the 491,384 shares that she holds of
record.
(3) Includes options which are currently exercisable or become exercisable
within 60 days after March 20, 1998 to purchase the number of shares of
Common Stock indicated for the following persons: Mr. Gillease (4,447);
Mr. Madden (4,447); Mr. McHugh (4,447); Mr. Cordes (41,572); Mr. Baker
(13,000); Mr. Finlay (10,000); and Mr. Shimizu (14,250).
(4) The address of Apollo Advisors II, L.P., a Delaware limited partnership
("Advisors"), is 2 Manhattanville Road, Purchase, New York 10577. Advisors
is the managing general partner of each of Apollo Investment Fund III,
L.P., a Delaware limited partnership ("Fund III"), Apollo Overseas Partners
III, L.P., a Delaware limited partnership ("Overseas Partners"), and Apollo
(U.K.) Partners III, L.P., a limited partnership organized under the laws
of the United Kingdom (together with Fund III and Overseas Partners, the
"Apollo Purchasers"). As reported in a Schedule 13D filed by Advisors and
the Apollo Purchasers with the SEC on January 21, 1998 (the "Apollo 13D"),
the Apollo Purchasers are the holders of 65,000 shares of the Company's
Series A Redeemable Convertible Preferred Stock (the "Series A Preferred
Stock"). The shares
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of Series A Preferred Stock held by the Apollo Purchasers are, as of the
date of this proxy statement, convertible into an aggregate of 2,708,333
shares of Common Stock. According to the Apollo 13D, Advisor and each
Apollo Purchaser may be deemed to have shared voting and dispositive power
with respect to all the shares held by the Apollo Purchasers.
(5) The address of Palisade Capital Management, L.L.C., is One Bridge Plaza,
Suite 695, Fort Lee, New Jersey 07024. According to a Schedule 13G and
Amendment No. 1 to Schedule 13G filed by Palisade Capital Management,
L.L.C. with the SEC on February 5, 1998 and March 10, 1998, respectively,
Palisade Capital Management, L.L.C. beneficially owned the number of shares
indicated as of February 28, 1998 and had sole voting and dispositive power
with respect thereto.
(6) The address of Schroder Capital Management International, Inc. is 787
Seventh Avenue, 34th Floor, New York, New York 10019. According to a
Schedule 13G filed by Schroder Capital Management International, Inc. with
the SEC on February 12, 1998, Schroder Capital Management International,
Inc. beneficially owned the number of shares indicated as of December 31,
1997 and had sole voting and dispositive power with respect thereto.
ELECTION OF DIRECTORS
The Board of Directors currently consists of ten members and is
classified into three classes. The term of one class of directors expires
each year. The persons whose names are listed below have been nominated for
election as directors by the Board of Directors to serve for a term of office
to expire at the Annual Meeting of Shareholders in 2001, with each to hold
office until his or her successor has been duly elected and qualified.
Proxy holders will not be able to vote the proxies held by them for more
than four persons. To be elected a director, each nominee must receive a
plurality of the votes cast at the meeting for the election of directors.
Should any nominee become unable or unwilling to accept nomination or
election, the proxy holders may vote the proxies for the election, in his or
her stead, of any other person the Board of Directors may recommend. Each
nominee has expressed his intention to serve the entire term for which
election is sought.
The Board of Directors' nominees for election to the Board of Directors
at the 1998 Annual Meeting of Shareholders are as follows:
NOMINEES FOR DIRECTOR
JEFFREY D. CORDES, AGE 40, has been a director of the Company since May
1995 and was appointed President and Chief Operating Officer in February
1997. Prior to February 1997, he served as Executive Vice President, Chief
Financial Officer and Assistant Secretary of the Company since May 1994.
From 1985 until May 1994, he served as Vice President - Administration and
Planning of the Company. Mr. Cordes is a member of the Executive Committee.
CHRISTOPHER N. BAKER, AGE 37, has been a director of the Company since
May 1995 and was appointed President of the Manufacturing Division of the
Company in February 1997. Prior to February 1997, he served the Company as
President - Pillowtex Division since February 1995 and as Senior Vice
President - Sales & Marketing from January 1993 to February 1995. From 1991
through January 1993, Mr. Baker served as Vice President of Operations of The
Company Store, Inc., an apparel and home furnishings catalog merchandiser.
From 1985 to 1991, Mr. Baker held various accounting and
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<PAGE>
manufacturing positions with the Company, including Executive Vice President -
Manufacturing from 1988 to 1991. Mr. Baker is a member of the Executive
Committee.
KEVIN M. FINLAY, AGE 48, became a director of the Company in May 1997.
Mr. Finlay joined Fieldcrest Cannon, Inc. in 1971 and served in a variety of
positions of increasing responsibility, including Executive Vice President of
Sales, beginning in 1989. He was promoted to Corporate Vice President in
1992 and in 1995 he served as President of the Bedding and Blanket Division.
He was further promoted to President of Fashion Sales and Marketing of
Fieldcrest Cannon, Inc. in 1997 before joining the Company in March 1997 as
President of the Sales & Marketing Division.
MARY R. SILVERTHORNE, AGE 62, has been a director of the Company since
December 1992. Mrs. Silverthorne has for many years been actively involved
in charitable and civic activities and is a director of the Retina Foundation
of the Southwest (Dallas), the Foundation Fighting Blindness, the North Texas
Taping for the Blind and the Assistance League of Dallas. She has not been
engaged in business activities during the past five years. Ms. Silverthorne
is a member of the Compensation Committee.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR EACH NOMINEE FOR THE BOARD OF DIRECTORS.
DIRECTORS SERVING TERMS TO EXPIRE AT THE 1999 ANNUAL MEETING OF SHAREHOLDERS:
PAUL G. GILLEASE, 65, became a director of the Company in October 1993.
From 1989 until retiring in late 1993, Mr. Gillease was Vice President and
General Manager of DuPont Textiles, a division of E.I. DuPont de Nemours &
Company ("DuPont"). Prior thereto, he served in a variety of marketing and
business management positions within DuPont. Mr. Gillease is also a director
of Galey & Lord, Inc. and Guilford Mills, Inc. Mr. Gillease is Chairman of
the Compensation Committee.
RALPH W. LA ROVERE, 62, was appointed a director in May 1997. He
recently retired from J.C. Penney Company, Inc. after a 36-year career in
various managerial positions in New York, Los Angeles and Dallas. He most
recently served as Vice President and Director of Merchandising for the Home
and Leisure Division of J.C. Penney Company, Inc. Mr. La Rovere is a member
of the Compensation Committee and the Audit Committee.
SCOTT E. SHIMIZU, 44, served as a member of the Board of Directors from
May 1994 to May 1995, and was appointed in February 1996 to fill a vacancy
thereon. He has been Executive Vice President - Sales & Marketing of the
Company since December 1992 and prior thereto served as Executive Vice
President since 1988.
DIRECTORS SERVING TERMS TO EXPIRE AT THE 2000 ANNUAL MEETING OF SHAREHOLDERS:
CHARLES M. HANSEN, JR., 57, has been a director of the Company since
September 1970. He has served as Chief Executive Officer and Chairman of the
Board of Directors of the Company since 1992. From 1973 through February
1997, he also served as President of the Company. He is also a director of
Triangle Pacific Corporation and the Southern Methodist University Cox School
of Business. Mr. Hansen is a member of the Executive Committee.
WILLIAM B. MADDEN, 59, became a director of the Company in February
1993. Mr. Madden has been the President of Madden Securities Corporation, a
general securities and investment banking firm located in Dallas, Texas,
since 1986. He is also Chairman of the Board of Mercantile Bank and Trust,
5
<PAGE>
and is a director of E. W. Blanch Holdings, Inc. Mr. Madden is Chairman of
the Audit Committee and a member of the Compensation Committee.
M. JOSEPH MCHUGH, 60, has been a director since February 1993. Mr.
McHugh has served as President and Chief Operating Officer of Triangle
Pacific Corp., a manufacturer and distributor of hardwood flooring and
kitchen and bathroom cabinets, since November 1994 and is a director of such
company. From 1981 until that time, he served as Senior Executive Vice
President and Chief Financial Officer of Triangle Pacific Corporation. Mr.
McHugh is a member of the Audit Committee.
Each director of the Company serves until the annual meeting of the
Company's shareholders for the year in which the term of such nominee's class
expires and until his or her successor is duly elected and qualified.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company or any of its subsidiaries
receive an annual fee of $35,000. For each committee meeting attended,
committee members are paid a fee of $1,000 and committee chairmen are paid a
fee of $2,500. The Company also reimburses directors for travel, lodging and
related expenses they incur in attending Board and committee meetings.
Directors who are also employees of the Company receive no additional
compensation for their services as directors.
The Stock Option Plan allows for the grant of nonqualified stock options
to nonemployee directors. Under the Stock Option Plan, the exercise price of
options granted thereunder may not be less than 100% of the fair market value
per share of Common Stock on the date such option is granted. As of March
20, 1998, each of Messrs. Gillease, Madden and McHugh had been granted under
the Stock Option Plan options to purchase a total of 9,572 shares of Common
Stock at option prices ranging from $12.75 to $33.50 per share. Mr. La
Rovere has been granted options to purchase a total of 6,072 shares of Common
Stock at option prices ranging from $21.875 to $33.50 per share. Options
granted to nonemployee directors vest 25% on each anniversary of the date
such option is granted, becoming fully vested on the fourth anniversary of
such date, and terminate 10 years from the date of grant. Mrs. Silverthorne
does not participate in the Stock Option Plan.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
The Executive Committee of the Board of Directors is composed of Messrs.
Hansen, Cordes and Baker. The Executive Committee is authorized to exercise
the powers of the Board of Directors between regular meetings. In fiscal
1997, the Executive Committee acted three times by unanimous consent.
The Audit Committee of the Board of Directors is composed of Messrs.
Madden, McHugh and La Rovere. The Audit Committee is responsible for
reviewing the scope of the independent auditors' examinations of the
Company's financial statements and receiving and reviewing their reports.
The Audit Committee also meets with the independent auditors, receives
recommendations or suggestions for changes in accounting procedures and
initiates and supervises any special investigations it may choose to
undertake. The Audit Committee met four times during fiscal 1997.
The Compensation Committee of the Board of Directors is composed of
Messrs. Gillease, Madden and La Rovere and Mrs. Silverthorne. The
Compensation Committee is principally responsible
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<PAGE>
for determining the nature and amount of compensation for executive officers
of the Company. In fiscal 1997, the Compensation Committee held three
meetings and acted once by unanimous consent.
During the fiscal year ended January 3, 1998, there were four regular
quarterly meetings, one special meeting and one telephonic meeting of the
Board of Directors. All directors of the Company attended at least 75% of
all meetings of the Board of Directors and each of the committees on which
they served.
The Board of Directors has not appointed a nominating committee.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, (the
"Exchange Act") requires the Company's directors, executive officers and
holders of more than 10% of the Company's Common Stock to file with the SEC
initial reports of ownership and reports of changes in ownership of Common
Stock of the Company. Based solely on the Company's review of the copies of
such forms it has received during the year, the Company believes that during
the fiscal year ended January 3, 1998 all of the Company's directors,
officers and holders of more than 10% of its Common Stock complied with all
Section 16(a) filing requirements, except that a timely Form 5 was not filed
for M. Joseph McHugh, a director of the Company, for the grants of options in
prior years to purchase a total of 7,072 shares of Common Stock. The grants
were reported on a Form 5 filed in February 1998.
EXECUTIVE OFFICERS
As of March 20, 1998, the following persons were the executive officers
of the Company.
<TABLE>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles M. Hansen, Jr. 57 Chairman of the Board and
Chief Executive Officer
Jeffrey D. Cordes 40 President and Chief Operating
Officer
Christopher N. Baker 37 President - Manufacturing Division
Kevin M. Finlay 48 President - Sales & Marketing Division
Scott E. Shimizu 44 Executive Vice President - Sales
& Marketing
Ronald M. Wehtje 36 Vice President - Corporate Controller
</TABLE>
Information concerning the business experience of each executive officer
other than Mr. Wehtje is provided under the caption "Election of Directors."
Mr. Wehtje has served as Vice President - Corporate Controller since March
1996. Previously, and since 1994, he held the position of Division
Controller. Mr. Wehtje joined the Company as an Internal Auditor in 1986 and
subsequently held positions of increasing responsibility.
7
<PAGE>
EXECUTIVE COMPENSATION
The following report of the Compensation Committee of the Board of
Directors and the information herein under "Performance Graph" shall not be
deemed to be "soliciting material" or to be "filed" with the SEC or subject
to the SEC's proxy rules, except for the required disclosure herein, or to
the liabilities of Section 18 of the Exchange Act, and such information shall
not be deemed to be incorporated by reference into any filing made by the
Company under the Securities Act of 1933 or the Exchange Act.
UNLESS THE CONTEXT OTHERWISE REQUIRES, REFERENCES HEREIN TO 1997, 1996,
1995 AND 1994 ARE REFERENCES TO THE COMPANY'S FISCAL YEARS ENDED JANUARY 3,
1998, DECEMBER 28, 1996, DECEMBER 30, 1995 AND DECEMBER 31, 1994,
RESPECTIVELY.
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
OVERVIEW
The Compensation Committee of the Board of Directors of the Company has
furnished the following report on the Company's executive compensation
program. The report describes the Compensation Committee's compensation
policies applicable to the Company's executive officers and provides specific
information regarding the compensation of the Company's Chief Executive
Officer.
The Compensation Committee, which consists entirely of non-employee
directors, administers and oversees all aspects of the Company's executive
compensation program and reports its determinations to the Board of
Directors. The Compensation Committee has ultimate responsibility for
aligning the Company's total compensation program with its business strategy
and for assuring that pay delivery programs are effective, responsible and
competitive when compared to similarly situated companies. The Compensation
Committee retained an executive compensation consultant to assist with the
design, implementation and communication of various pay plans and to develop
a program that provides a substantial connection between the performance of
the Company, increased shareholder value and incentive awards paid to the
Company's executives. The Compensation Committee has received and
implemented selected recommendations of the consultant.
Under the supervision of the Compensation Committee, the Company has
developed and implemented compensation policies, plans and programs that seek
to enhance the profitability of the Company, and thus shareholder value, by
aligning closely the financial interests of the Company's executives with
those of its shareholders. The objectives of the Company's executive
compensation program are to:
- Support the achievement of the Company's strategic operating
objectives;
- Provide compensation that will attract and retain superior talent and
reward the executives based upon Company and individual performance;
- Align the executives' financial interests with the success of the
Company by encouraging stock ownership; and
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<PAGE>
- Provide a strategic balance between short- and long-term incentive
compensation such that it encourages a balanced perspective on the
part of the executive between short-term profit goals and long-term
value creation.
The Company's executive compensation program consists of seven
components: (i) base salary; (ii) the Pillowtex Corporation Management
Incentive Plan (the "Management Incentive Plan"); (iii) the Stock Option
Plan; (iv) a defined benefit pension plan (the "Pension Plan"); (v) the
Pillowtex Corporation Supplemental Executive Retirement Plan (the "SERP");
(vi) the Pillowtex Corporation Executive Deferred Compensation Plan (the
"Deferred Compensation Plan"); (vii) and the Pillowtex Corporation 401(k)
Plan, which in combination address the objectives described above.
BASE SALARY. Base salary, the first element of executive compensation,
is intended to be competitive with that paid by comparable companies and is
also intended to reflect the Compensation Committee's consideration of an
officer's experience, business judgment and role in developing and
implementing the overall business strategy for the Company. The Compensation
Committee reviews the base salaries of all executive officers and determines
adjustments to those salaries based on the performance of each executive
officer and the comparison salaries of a group of peer companies.
MANAGEMENT INCENTIVE PLAN. At the 1997 Annual Meeting, shareholders of
the Company approved the Management Incentive Plan. The Management
Incentive Plan is intended to provide a more objective and structured
approach to awarding management performance bonuses, thereby providing more
effective incentives for extraordinary performance, as well as more clearly
correlating management's bonus compensation to tangible financial results.
At the same time, the Management Incentive Plan is intended to provide the
Company with the flexibility to tailor performance goals and to address each
year's specific financial or operational challenges and objectives.
Participation in the Management Incentive Plan is limited to those senior
executive officers and other key employees of the Company designated by the
Compensation Committee. Each of the individuals named in the Summary
Compensation Table included elsewhere in this proxy statement is eligible to
participate in the Management Incentive Plan.
On or before April 1 of each year, prescribed levels of participation
based on a percentage of each participant's base salary in effect on the
first day of the calendar years to which the bonus applies ("Bonus
Opportunity Levels") are established by a committee of the Board of Directors
composed entirely of "outside directors" within the meaning of Section 162(m)
of the Internal Revenue Code of 1986, as amended (the "Code"). These levels
can range from a minimum of 25% to a maximum of 75% of a participant's base
salary. Bonuses are based on management's level of achievement of
performance goals approved in advance by the committee of "outside directors"
and can range from zero, in the event management fails to achieve the minimum
target performance objective prescribed for the year, to a maximum of 200% of
the participant's Bonus Opportunity Level; except that no bonus will exceed
the lesser of (i) $750,000 or (ii) 200% of the applicable Bonus Opportunity
Level with respect to the participant's base salary in effect as of the first
day of the calendar year for which the bonus is granted. Performance goals
relate to one or more of the following criteria: (i) earnings; (ii) return on
equity; (iii) sales; (iv) cost reduction; (v) debt reduction; (vi) gross
margin; (vii) cash flow; or (viii) stock price appreciation.
All bonuses paid under the Management Incentive Plan are designed to be
"performance-based" within the meaning of Section 162(m) of the Code and to
be exempt from the limitations on deductibility under Section 162(m) of the
Code. The members of the Compensation Committee who qualify as "outside
directors" within the meaning of Section 162(m) of the Code serve as the
committee that establishes and administers performance goals under the
Management Incentive Plan and certifies as to their achievement.
9
<PAGE>
Performance goals set by management and approved by the committee of
"outside directors" under the Management Incentive Plan for 1997 were not
met. However, because of the extraordinary effort and dedication demonstrated
in the successful acquisition of Fieldcrest Cannon, Inc., discretionary
bonuses outside the Management Incentive Plan were approved for fiscal 1997
by the Compensation Committee and awarded as set forth in the Summary
Compensation Table included elsewhere in this proxy statement.
STOCK OPTION PLAN. The Company's long-term compensation philosophy
provides that long-term incentives should be related to improvement in
shareholder value, thereby creating a mutuality of interests between key
executives and shareholders. In furtherance of this objective, the Company
has in place the Stock Option Plan under which nonqualified and incentive
stock options can be awarded. Periodically, options have been awarded to
motivate and retain executives and key personnel, to maximize long-term
financial results and improve shareholder value and to encourage executives
and key personnel to build ownership interests in the Company.
PENSION PLAN. The Pension Plan provides retirement benefits to
executives and other employees of the Company. The Pension Plan furthers the
Company's objective of retaining quality executives by relating benefits
under the Pension Plan to the executive's length of service to the Company.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The SERP provides additional
retirement benefits to certain key employees and also furthers the Company's
objectives of retaining quality executives by relating its benefits to the
executives' length of service to the Company. The SERP is a
performance-based plan in which the amount of benefits received by a
participant is affected by the market price of the Common Stock.
DEFERRED COMPENSATION PLAN. On February 9, 1998, the Board of Directors
adopted the Deferred Compensation Plan to permit certain key employees and
nonemployee members of the Board of Directors to defer receipt of all or a
portion of his or her compensation for any calendar year. The Deferred
Compensation Plan is intended to further the Company's objectives of
retaining quality executives by permitting the accumulation of deferred
compensation accounts on a tax-deferred basis. Each of the individuals named
in the Summary Compensation Table included elsewhere in this proxy statement
is eligible to participate in the Deferred Compensation Plan.
401(k) PLAN. The Company's 401(k) Plan also helps the Company to
attract and retain highly qualified individuals by allowing participants to
defer taxes on portions of their compensation, as well as income from such
amounts. Under the 401(k) Plan, the Company, at its discretion, may make
contributions on behalf of participating executives. A participant's
percentage ownership in amounts contributed by the Company increases over the
participant's period of service to the Company, so that a participant becomes
fully vested after six years. For the plan year beginning January 1, 1997,
executives of the Company, including all executives whose names appear in the
Summary Compensation Table, who constitute highly compensated employees, were
not eligible to receive Company matching contributions.
CEO COMPENSATION
Throughout most of fiscal 1997, the annual base salary for Mr. Hansen,
the Company's Chairman and Chief Executive Officer, was $750,000 pursuant to
an employment agreement, effective January 1, 1993 (prior to the
establishment of the Compensation Committee). Effective January 1, 1998, the
Compensation Committee increased Mr. Hansen's annual base salary to $900,000
based on the
10
<PAGE>
recommendation of the outside consulting firm retained by the Compensation
Committee to assist in compensation matters. As a result of this increase,
Mr. Hansen's base salary is at the 75th percentile for base salary of chief
executive officers of comparable companies.
In consideration of Mr. Hansen's contribution to and strong leadership
in connection with the Company's successful completion of the acquisition of
Fieldcrest Cannon, Inc. on December 19, 1997, the Compensation Committee
elected to award Mr. Hansen a discretionary bonus for fiscal 1997 of $75,000.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION
Section 162(m) of the Code limits the deductibility of annual
compensation paid to the Company's chief executive officer and the four other
most highly compensated executive officers to $1 million, subject to an
exception for qualified "performance-based" compensation. It is the policy
of the Compensation Committee to attempt to preserve the deductibility of all
executive compensation by structuring all compensation that could exceed $1
million as performance-based compensation to the extent practicable and in
the best interests of the Company's shareholders. However, the Compensation
Committee could in the future determine, taking into consideration the
relevant factors then in existence, to approve compensation that does not
qualify for a compensation deduction for tax purposes, if the Compensation
Committee believes it is in the best interests of the Company's shareholders
to do so.
CONCLUSION
The Compensation Committee believes that these executive compensation
policies serve the interests of the shareholders and the Company effectively.
The Compensation Committee believes that the various pay vehicles offered are
appropriately balanced to provide increased motivation for executives to
contribute to the Company's overall future successes, thereby enhancing the
value of the Company for the shareholders' benefit.
The Compensation Committee
Paul G. Gillease
Ralph W. La Rovere
William B. Madden
Mary R. Silverthorne
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<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth certain summary information concerning
the compensation awarded to, earned by, or paid to the Chief Executive
Officer of the Company and each of the four most highly compensated executive
officers of the Company other than the Chief Executive Officer (collectively,
the "named executive officers") for the years indicated.
<TABLE>
Long Term
Compensation
Annual Compensation --------------
--------------------------------------------- Securities
Other Annual Underlying All Other
Name and Principal Position Year Salary($) Bonus($) Compensation($)(1) Options/SARs(#) Compensation(2)
--------------------------- ---- --------- -------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Hansen, Jr.
Chairman of the Board of 1997 $750,000 $ 75,000 $ 76,632 - $2,250
Directors and Chief 1996 750,000 206,054 107,389 - 2,250
Executive Officer 1995 750,000 - 71,331 - 450
Jeffrey D. Cordes 1997 384,375 75,000 - 22,000 330
President and Chief 1996 275,000 75,553 - 10,000 330
Operating Officer 1995 265,000 27,500 - 5,000 66
Christopher N. Baker 1997 275,000 75,000 - 22,000 330
President - 1996 275,000 113,330 - 10,000 330
Manufacturing Division 1995 265,000 27,500 - 5,000 66
Kevin M. Finlay 1997 250,000 150,000 48,776 40,000 653
President - Sales & 1996 - - - - -
Marketing Division 1995 - - - - -
Scott E. Shimizu 1997 275,000 75,000 - 22,000 510
Executive Vice President - 1996 275,000 75,553 - 10,000 510
Sales & Marketing 1995 245,000 27,500 - 5,000 102
</TABLE>
(1) Certain of the Company's executive officers receive personal
benefits in addition to salary and cash bonuses. The amount of such personal
benefits paid to Mr. Hansen included $24,593 and $20,972 for reimbursement of
income taxes paid by Mr. Hansen as a result of certain benefits paid in 1997
and 1995, respectively. In 1996, the amount of such personal benefits paid
to Mr. Hansen included $28,339 and $24,071 for reimbursement of income taxes
incurred by Mr. Hansen due as a result of certain benefits received in 1994
and 1996, respectively. In 1997, the amount of such personal benefits paid
to Mr. Finlay included $35,875 for moving expenses and $12,901 for car
allowances. Consistent with rules and regulations promulgated by the SEC,
(i) the amount of personal benefits has been omitted from the table for each
named executive officer for whom the aggregate amount of such compensation
did not exceed the lesser of $50,000 or 10% of the total of the annual salary
and bonus reported for such named executive officers and (ii) detail
regarding individual amounts paid to Mr. Hansen and Mr. Finlay that do not
exceed 25% of the total personal benefits received by him has been omitted
from this footnote.
(2) For Messrs. Hansen, Cordes, Baker, Finlay and Shimizu, these
amounts were paid for the years indicated for group term life insurance.
12
<PAGE>
GRANTS OF STOCK OPTIONS
The following table sets forth information concerning stock options granted
during fiscal 1997 by the Company to the named executive officers. The present
values of stock options granted in 1997 are calculated under a Black-Scholes
options pricing model, a mathematical formula used to value options. The actual
amount, if any, realized upon the exercise of stock options will depend upon the
amount by which the market price of the Common Stock (NYSE) on the date of
exercise exceeds the exercise price. There is no assurance that the present
values of stock options reflected in this table will actually be realized.
<TABLE>
OPTION GRANTS IN 1997
Number of
Securities % of Total
Underlying Options Exercise
Options Granted to Price Expiration Present Value
Name Granted(#)(1) Employees ($/Sh) Date at Date of Grant (2)
---- ------------- ---------- --------- ---------- --------------------
<S> <C> <C> <C> <C> <C>
Charles M. Hansen, Jr. - - - - -
Jeffrey D. Cordes 22,000 4.1 15.875 02/27/07 135,960
Christopher N. Baker 22,000 4.1 15.875 02/27/07 135,960
Scott E. Shimizu 22,000 4.1 15.875 02/27/07 135,960
Kevin M. Finlay 40,000 7.5 16.000 03/02/07 249,200
</TABLE>
(1) 25% of the option award vests on each of the first four anniversaries
of the date of the grant.
(2) The Black-Scholes options pricing model used to calculate the values
at date of grant considers a number of factors to estimate the option's present
value, including the stock's historic volatility calculated using the daily
closing market price of the Common Stock, the expected term of the option,
interest rates and the stock's expected dividend yield. The assumptions used in
the valuation of the options were: stock price volatility - 38.94 %, expected
term - 5 years, interest rate - 6.15% and dividend yield - 1.41%.
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<PAGE>
STOCK OPTION EXERCISES AND FISCAL YEAR END STOCK OPTION VALUE
Set forth in the table below is information concerning the exercise of
stock options during 1997 and the amount held and the value thereof as of
January 3, 1998 by each named executive officer.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND
OPTION VALUES AT JANUARY 3, 1998
<TABLE>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at in-the-Money Options
January 3, 1998(#) at January 3, 1998($)
Shares Acquired Value -------------------------- --------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- --------------- ------------ ----------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Hansen, Jr. - - - - - -
Jeffrey D. Cordes - - 32,322 33,250 668,083 1,138,813
Christopher N. Baker 28,572 313,565 3,750 33,250 79,525 1,138,813
Kevin M. Finlay - - 40,000 - - 1,370,000
Scott E. Shimizu 28,572 286,754 5,000 32,000 119,050 1,096,000
</TABLE>
PENSION PLAN
The Company maintains a defined benefit pension plan covering substantially
all of its employees, other than employees of the Company's Canadian subsidiary,
Torfeaco Industries Limited, and other employees subject to collective
bargaining agreements. The Company funds the Pension Plan through annual
contributions in an amount between the minimum required and the maximum amount
that can be deducted for federal income taxes.
The following table presents certain information concerning annual benefits
provided under the Pension Plan.
PENSION PLAN TABLE
<TABLE>
YEARS OF SERVICE (1)
TOTAL ---------------------------------------------
AVERAGE COMPENSATION(2) 15 20 25 30 35
------------------------
<C> <C> <C> <C> <C> <C>
$125,000 16,552 22,070 27,587 33,104 38,622
$150,000 20,302 27,070 33,837 40,604 47,372
$175,000 21,802 29,070 36,337 43,604 50,872
$200,000 21,802 29,070 36,337 43,604 50,872
$225,000 21,802 29,070 36,337 43,604 50,872
$250,000 21,802 29,070 36,337 43,604 50,872
$300,000 21,802 29,070 36,337 43,604 50,872
</TABLE>
(1) Estimated credited years of service as of January 3, 1998 for the
named executive officers are as follows: Charles M. Hansen, Jr. - 33 years;
Scott E. Shimizu - 16 years; Jeffrey D. Cordes - 14 years; Christopher N. Baker
- - 11 years; and Kevin M. Finlay - one year.
(2) An employee's compensation for purposes of determining pension
benefits is calculated on substantially the same basis as the employee's cash
compensation set forth in the Summary Compensation Table, excluding commissions,
overtime, bonuses and other compensation disclosed therein. The final average
compensation (equal to the highest consecutive five-year average of the
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<PAGE>
participant's compensation in the ten-year period before retirement or
termination) of any participant may not exceed $250,000. In addition, the
Internal Revenue Service maximum compensation allowed for benefits for the 1997
plan year is $160,000. Therefore, fiscal 1997 covered compensation for all
employees would be limited to $160,000.
Benefits under the Pension Plan are integrated with Social Security and are
computed as straight life annuities. The benefits shown are not offset by any
other Company benefits or by Social Security.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Effective January 1, 1997, the Board of Directors of the Company adopted
the Pillowtex Corporation Supplemental Executive Retirement Plan for the purpose
of providing, to selected executive employees of the Company, retirement income
as a supplement to compensation otherwise payable. The participants are those
persons selected by the Compensation Committee of the Board of Directors. Only
officers and other key employees who are expected to contribute materially to
the success of the Company's business by their ability, ingenuity and industry,
are eligible to participate. The SERP was designed as a performance-based plan,
and, as described below, the amount of benefits to be received by a participant
under the SERP is affected by the market price of the Common Stock.
Each of the named executive officers and two other corporate officers are
covered by the SERP, which, when combined with the Pension Plan and Social
Security benefits, is designed to provide a targeted retirement benefit equal to
50% of final average compensation. However, the actual benefit to be received
by any participant will be determined solely by the vested balance in such
participant's SERP account at the time of retirement or other termination of
employment. A participant's targeted benefit will be reduced proportionately if
the participant will have fewer than 30 years of service with the Company at age
65. For purposes of calculating a participant's targeted benefit under the
SERP, final average compensation is the projected total cash compensation for
the five consecutive years of employment ending at age 65. For each
participant, there will be credited each year, to a supplemental retirement
account, an amount (the "scheduled annual accrual") necessary to accumulate an
account balance sufficient to pay the participant's retirement benefit beginning
at age 65, assuming each credited accrual earned 12% per year compounded. The
Compensation Committee of the Board of Directors has the authority to establish
and revise the discount rates and other assumptions used to calculate a
participant's scheduled annual accrual (subject to certain limitations following
a "change in control"). Each scheduled annual accrual will be expressed as a
number of phantom shares (I.E., a hypothetical measurement unit equivalent to
one share of Common Stock, subject to certain adjustments) determined by
dividing the amount of the scheduled annual accrual by the market value per
share of Common Stock on the date of such contribution. Each participant's
supplemental retirement account will be deemed to be invested solely in phantom
shares, and the balance of a participant's account as of any date will be
determined by multiplying (i) the number of phantom shares credited to such
participant's account at the time of determination by (ii) the market value per
share of Common Stock on such date.
A participant will be vested in such participant's supplemental retirement
account to the same extent that such participant has a vested interest in such
participant's employer-provided benefit under the Pension Plan, subject to
immediate vesting in the event such participant becomes disabled or in the event
of a "change in control." In addition, a participant will be given credit for
additional years of service for purposes of vesting under the SERP (but not for
purposes of calculating the amount of a participant's supplemental retirement
benefit) if required under the terms of a participant's employment agreement
with the Company.
15
<PAGE>
A participant's SERP account will be paid upon the participant's retirement
or other termination of employment. SERP accounts will be paid in the form of a
single lump sum cash payment unless the participant elects to receive
installment payments. Upon the death of a participant who is receiving a
supplemental retirement benefit, such participant's SERP account balance will
continue to be paid in accordance with the form of payment elected by the
participant prior to death. If a participant who is entitled to receive a
benefit under the SERP dies before payment begins, the SERP account balance will
be paid as a death benefit to the beneficiary designated by the participant or,
if none has been designated, to the participant's surviving spouse, or to the
participant's estate if there is no surviving spouse. The death benefit will be
paid to the beneficiary in a single lump sum payment unless the beneficiary
elects otherwise in accordance with the terms of the SERP.
In the event of a "change in control," (i) the balance of such
participant's account as of the date of the "change in control" will be
determined (based on the number of phantom shares credited to such participant's
account as of such date) and (ii) such participant's account will thereupon be
converted into a hypothetical fixed-income investment earning 12% per annum
(subject to reduction to 8% per annum upon commencement of installment payments
of the balance of a participant's supplemental retirement account) and will no
longer be deemed to be invested in phantom shares. In addition, in the event of
a "change in control," a participant's scheduled annual accrual will be stated
as a dollar amount, and will no longer be expressed as a number of phantom
shares.
The SERP may be amended or discontinued by the Compensation Committee of
the Board of Directors or by the full Board at any time. Any such amendment may
reduce prospectively the earnings factor to be applied to a participant's
supplemental retirement account, or may change the hypothetical investment of
account balances from phantom shares to any other hypothetical investment, but
no amendment or termination may have the effect of decreasing a participant's
account balance as of the date of such action. Moreover, in the event of a
"change in control," the SERP may not be amended with respect to any participant
in any manner that would adversely affect such participant's existing or future
benefit under the SERP without such participant's written consent.
The estimated annual supplemental benefit for the named executive officers,
assuming retirement at age 65, are as follows: Charles M. Hansen, Jr. $217,193;
Jeffrey D. Cordes $24,922; Christopher N. Baker $13,157; Kevin M. Finlay
$22,200; and Scott E. Shimizu $15,833.
The SERP is unfunded. All benefits payable to a participant under the SERP
will be paid from the general assets of the Company. Each participant will have
the status of a general unsecured creditor with respect to the obligation of the
Company to make payments under the SERP in the event of the Company's insolvency
or bankruptcy.
EXECUTIVE DEFERRED COMPENSATION PLAN
On February 9, 1998, the Board of Directors adopted the Pillowtex
Corporation Executive Deferred Compensation Plan. The Deferred Compensation
Plan is administered by the Compensation Committee of the Board of Directors and
participation in the Deferred Compensation Plan is limited to those key
executives and nonemployee members of the Board of Directors designated by the
Compensation Committee. The Deferred Compensation Plan offers participants the
ability to defer receipt of all or a portion of his or her compensation for any
calendar year by specifying dollar amounts or percentages which may be applied
to different sources of compensation. Any cash compensation that would not be
deductible because of the $1 million limitation of Section 162(m) of the Code
will automatically be deferred under the Deferred Compensation Plan until the
first year that payment of such amount would not be subject to the deduction
limitation of Section 162(m). Deferred compensation will
16
<PAGE>
be treated as if it were set aside in an account and will earn interest in
such manner as determined from time to time by the Compensation Committee.
Unless otherwise determined by the Compensation Committee, interest will be
credited at the prime rate in effect according to the Wall Street Journal
plus one percent, adjusted as of the first day of each calendar quarter.
Benefits will generally be payable upon retirement, disability, termination
of employment (or in the case of a nonemployee member of the Board of
Directors, termination of service on the Board of Directors) or death. Each
of the named executive officers is eligible to participant in the Deferred
Compensation Plan.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with Mr. Hansen, effective
January 1, 1993 including amendments dated July 26, 1993 and January 20, 1998,
pursuant to which the Company agreed to employ Mr. Hansen as its Chairman of the
Board and Chief Executive Officer until June 20, 2005. Pursuant to the
agreement, Mr. Hansen receives, effective January 1, 1998, a base salary of
$900,000 per year, subject to such increases as the Compensation Committee of
the Board of Directors may determine. In addition, Mr. Hansen is entitled to
bonuses at the discretion of the Compensation Committee, life insurance
benefiting his designees in the amount of $3 million and disability payments
equal to 60% of his base salary at the time of disability for the longer of five
years or the remaining term of his employment agreement. If Mr. Hansen is
terminated other than as permitted by the employment agreement, he will be
entitled to an immediate payment equal to his compensation for the remainder of
the term on a "grossed up" basis to reimburse him for the income taxes on such
payment. Mr. Hansen is also entitled to an annual "gross up" payment to
reimburse him for income taxes due arising out of certain fringe benefits
received from the Company.
The employment agreement permits the Company to terminate Mr. Hansen
without further compensation for, among other things, courses of conduct that
demonstrably affect the Company's reputation in a materially adverse manner,
provided Mr. Hansen first has the opportunity to terminate the conduct after
receiving notice. Mr. Hansen may also terminate his employment with the Company
at any time. The employment agreement also contains a provision prohibiting
Mr. Hansen from competing with the Company during the term of the employment and
for a period of one year after termination.
Pursuant to an amendment to the employment agreement, dated July 26, 1993,
the $3 million term life insurance coverage provided to Mr. Hansen was changed
to an equal amount of split dollar life insurance. Under the terms of a Split
Dollar Life Insurance Agreement between the Company and Mr. Hansen, dated July
26, 1993, the Company agreed to maintain the premium payments that would have
been payable by the Company had the term life insurance remained in effect, and
to loan to Mr. Hansen the balance of the premiums as they become due. Amounts
loaned to Mr. Hansen in connection with these premium payments are evidenced by
Mr. Hansen's promissory note to the Company, and bear interest quarterly, at a
floating annual interest rate equal to the greater of the federal mid-term
interest rate as published by the Internal Revenue Service or the lowest rate at
which the Company could borrow funds under its bank loan agreements. In a
further amendment to Mr. Hansen's employment contract, dated January 20, 1998,
the Company agreed to also pay the interest, on a "grossed up" basis, on the
amount loaned. As of January 3, 1998, the amount outstanding under the
promissory note was $225,400. The promissory note is due August 5, 2003, or such
earlier date as may be required pursuant to the terms of the Split Dollar Life
Insurance Agreement. Mr. Hansen has executed an assignment of the split dollar
life insurance policy in favor of the Company as security for payment of amounts
that have been loaned to Mr. Hansen in connection therewith.
Effective January 1, 1998, the Company entered into new employment
agreements with the following four executive officers: Jeffrey D. Cordes;
Christopher N. Baker; Kevin M. Finlay; and Scott
17
<PAGE>
E. Shimizu. These employment agreements replaced previously existing
agreements with such individuals and provide for an initial base salary of
$500,000, $400,000, $400,000 and $375,000, respectively. In addition, the
employment agreements provide that each executive is entitled to participate in
the Company's incentive bonus plans established for executive officers, as well
as the SERP. Mr. Finlay's agreement further provides that through April 11,
1999, he will receive bonuses aggregating at least $150,000 per year.
Each employment agreement provides for an initial employment term of three
years with an automatic extension of one year each anniversary date beginning
with the second anniversary date, with the result being that the term will have
a remaining duration of two years upon each and every anniversary; except that
no such extension shall occur if either party gives 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. If the Company
terminates the executive's employment without "cause," the Company is required
to pay the executive certain amounts, including the executive's base salary
through the remaining employment term but not more than for a 24-month period,
and certain benefits under the incentive bonus plans. If, after a "change in
control," the executive's employment is terminated by the executive for "good
reason" or is terminated by the Company without "cause," or, in certain
circumstances, if, after the occurrence of a "potential change of control," the
executive's employment is either voluntarily terminated by the executive other
than for "good reason" or terminated by the Company without "cause," such
executive shall be entitled to receive certain amounts, including a severance
payment determined in accordance with the provisions of the employment
agreement. Each employment agreement also includes certain noncompetition,
nondisclosure and nonsolicitation provisions.
CERTAIN TRANSACTIONS
Pursuant to the employment agreement between the Company and Kevin M.
Finlay, the Company agreed to make an unsecured loan to Mr. Finlay in the amount
of $61,000 to cover certain relocation expenses. The loan bears interest at the
Company's incremental cost of funds and will become due and payable in full upon
the earlier of Mr. Finlay's termination of employment or four years from the
date of his initial employment. Mandatory prepayments equal to 25% of the
principal amount along with annual interest payments will be due to the extent
of bonuses otherwise payable to Mr. Finlay under the Company's bonus incentive
plans. On January 3, 1998, principal and interest on the loan totaled
$63,162.34. On March 6, 1998, Mr. Finlay paid the Company $23,282.19 in
principal and accrued interest thereby reducing the principal amount of the loan
to $41,000.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee consists entirely of non-employee directors.
The members of the Board of Directors who served on the Compensation Committee
during fiscal 1997 were Messrs. Gillease, Madden and La Rovere and
Mrs. Silverthorne.
Charles M. Hansen, Jr. has served on the board of directors of Triangle
Pacific Corp. since 1992 and currently serves on its compensation committee.
M. Joseph McHugh is a director and executive officer of Triangle Pacific Corp.
and was elected as a director of the Company in February 1993. Except as
described above, no executive officer of the Company serves as a member of the
compensation committee or other board committee performing similar functions of
any other entity.
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<PAGE>
In February 1996, the Company entered into an agreement with Paul G.
Gillease, a director of the Company, to provide management consulting services
to the Company. The agreement provides for a monthly consulting fee of $9,000
and reimbursement of travel expenses, and is cancelable by the Company or Mr.
Gillease upon 90 days' notice.
STOCK PRICE PERFORMANCE GRAPH
The Stock Price Performance Graph set forth below compares the cumulative
total shareholder return on the Common Stock for the period from March 17, 1993,
the date of the Company's initial public offering, to December 31, 1997, with
the cumulative total return on the Standard and Poor's 500 Stock Index and a
peer group over the same period. The comparison assumes that $100 was invested
on March 17, 1993 in Common Stock, the Standard & Poor's 500 Index and the peer
group, and assumes reinvestment of dividends and distributions.
COMPARISON OF CUMULATIVE TOTAL RETURN
AMONG PILLOWTEX CORPORATION,
STANDARD & POOR'S 500 STOCK INDEX
AND A PEER GROUP(1)
[GRAPH]
PILLOWTEX CORPORATION
1998 Proxy Graph
Plot Points
<TABLE>
MARCH DECEMBER DECEMBER DECEMBER DECEMBER DECEMBER
1993 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Pillowtex Corporation 100.00 136.13 65.55 78.76 123.30 241.40
S&P 500 100.00 105.47 106.87 147.02 180.78 241.10
Peer Group 100.00 112.31 80.35 83.55 83.04 106.56
</TABLE>
(1) The peer group selected by the Company includes Shaw Industries, Inc.,
Fieldcrest Cannon, Inc., Springs Industries, Inc., Thomaston Mills, Inc.,
Kellwood Company, Guilford Mills, Inc., Burlington Industries, Inc.,
WestPoint Stevens Inc., Crown Crafts, Inc., Culp, Inc., Cone Mills
Corporation, Delta Woodside Industries, Inc. and Dixie Yarns, Inc.
19
<PAGE>
APPROVAL OF THE PROPOSAL TO AMEND THE STOCK OPTION PLAN
TO INCREASE THE NUMBER OF SHARES
AVAILABLE FOR ISSUANCE THEREUNDER
BACKGROUND
The purpose of the Stock Option Plan, which was originally adopted by the
Company and approved by its shareholders in 1993, is to provide key employees
and nonemployee directors with a proprietary interest in the Company through the
granting of options in order to (i) increase the interest of the key employees
and nonemployee directors in the Company's welfare, (ii) furnish an incentive to
the key employees and nonemployee directors to continue their services for the
Company, and (iii) attract the best available talent for the Company.
DESCRIPTION OF AMENDMENT
To further the objectives of the Stock Option Plan, approval is being
sought by the Company's shareholders to increase the maximum number of shares of
Common Stock available for issuance thereunder by 500,000, to an aggregate limit
of 2,000,000 shares.
SUMMARY OF THE PILLOWTEX CORPORATION 1993 STOCK OPTION PLAN
Under the Stock Option Plan, options to purchase shares of Common Stock
("Options") may be granted to key employees and nonemployee directors of the
Company and its subsidiaries (approximately 78 persons in the aggregate at the
date of this proxy statement). No participant may be granted Options to
purchase more than 100,000 shares in any fiscal year of the Company, subject to
adjustment in certain circumstances to prevent dilution or enlargement of the
participant's rights. Options may not be transferred other than by will or by
the laws of descent and distribution.
As of March 20, 1998, 292,015 shares of Common Stock that were not the
subject of outstanding Options remained available for issuance under the Stock
Option Plan. Upon the effectiveness of the amendment described herein, the
total number of shares of Common Stock available for issuance under the Stock
Option Plan will be increased by 500,000.
Stock Appreciation Rights ("SARs") may be issued under the Stock Option
Plan in connection with grants of Options. A SAR entitles the optionee to
receive, without payment to the Company, the aggregate fair market value per
share of Common Stock with respect to which such SAR is being exercised, less
the aggregate exercise price of such shares as provided in the related Option.
To date, no SARs have been granted under the Stock Option Plan.
Option grants may provide for the exercise of Options in installments and
upon such terms, conditions and restrictions as set forth therein. However, the
exercise price of Options may not be less than 100% of the fair market value per
share of Common Stock on the date the Option is granted, and no Option may
terminate later than 10 years from the date it is granted.
Options granted under the Stock Option Plan may be incentive options
("ISOs") or nonqualified stock options, except that no ISO may be granted to an
employee who owns more than 10% of the voting power of all classes of stock of
the Company or its parent or subsidiaries unless the exercise price is at
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<PAGE>
least 110% of the fair market value of the Common Stock at the time of grant
and the ISO is not exercisable for more than five years from the date of grant.
In the event more than $100,000 in value of Options which were intended to
be ISOs becomes exercisable for the first time during any calendar year
(determined by multiplying the number of shares by the market price of the stock
on the date the Option was granted), the Code requires that the excess be
treated as nonqualified options. An ISO (or an installment thereof) counts
against the annual ISO limitation only in the year it first becomes exercisable.
ISOs may not be granted to nonemployee directors.
Full payment for shares purchased upon exercising an Option may be made in
cash or by check or, if so provided in the applicable grant, by tendering shares
of Common Stock at the fair market value per share at the time of exercise, or
on such other terms as are provided in the applicable grant. The Stock Option
Plan does not require that a participant hold shares received upon the exercise
of an Option with the exercise price therefor being paid in shares of Common
Stock, including shares acquired as a result of prior exercised Options. In the
event of a stock dividend, stock split, recapitalization, merger, reorganization
or similar event, the committee that administers the Stock Option Plan may
equitably adjust the aggregate number and price of shares subject to outstanding
Options.
Unless sooner terminated by action of the Board of Directors, the Stock
Option Plan will terminate in February 2003, and no options may thereafter be
granted under the plan.
Except to the extent the Board of Directors by resolution exercises any
administrative authority under the Stock Option Plan, the Stock Option Plan will
be administered by a committee of the Board of Directors. As to any award under
the Stock Option Plan that is intended to qualify as "performance-based"
compensation for purposes of Section 162(m) of the Code, such award will be made
and administered by a committee of the Board of Directors composed exclusively
of "outside directors" within the meaning of Section 162(m). Other grants or
awards under the Stock Option Plan may be made and administered by the Board of
Directors. The committee which administers the Stock Option Plan has the
authority and discretion to interpret the plan and to prescribe rules and
regulations for the operation of the plan.
The foregoing discussion of the material provisions of the Stock Option
Plan does not purport to be complete and is qualified in its entirety by
reference to the full text thereof (as proposed to be amended), which is
attached as Appendix A to this proxy statement and incorporated herein by
reference. The Stock Option Plan is subject to further amendment from time to
time by the Board of Directors, except that no amendment that would (i)
materially increase the benefits accruing to participants under the Stock Option
Plan, (ii) materially increase the number of shares of Common Stock that may be
issued under the Stock Option Plan, or (iii) materially modify the requirements
of eligibility for participation in the Stock Option Plan may be affected
without the approval of the shareholders of the Company.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the Stock Option Plan may be Options that are
intended to qualify as ISOs or nonqualified stock options that are not intended
to so qualify. Nonqualified stock options generally will not result in any
taxable income to the optionee at the time of the grant, but the holder thereof
will realize ordinary income at the time of exercise of the Options if the
shares are not subject to any substantial risk of forfeiture (as defined in
Section 83 of the Code). Under such circumstances, the amount of ordinary
income is measured by the excess of the fair market value of the optioned shares
at the time of exercise over the exercise price of the Option. If the exercise
price of a nonqualified stock
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<PAGE>
option is paid for, in whole or in part, by the delivery of shares of Common
Stock previously owned by the optionee, no gain or loss will be recognized to
the extent that the shares of Common Stock received are equal in fair market
value to the shares of Common Stock surrendered. An optionee's tax basis in
shares acquired upon the exercise of nonqualified stock options is equal to
the exercise price plus any amount treated as ordinary income.
ISOs normally will not result in any taxable income to the optionee at the
time of grant. If certain requirements are met, the excess of the net selling
price over the adjusted basis of the shares of Common Stock received upon
exercise (the "ISO Shares") will be characterized as a capital gain rather than
as ordinary income, and will not be taxed at the time of exercise but only upon
the sale of such shares. However, the excess of the fair market value of ISO
Shares over the amount paid upon the exercise of the related ISO is a tax
preference item that is potentially subject to the alternative minimum tax. No
deduction is available to the employer of an optionee upon the optionee's
exercise of an ISO or upon the sale or exchange of ISO Shares if the holding
period requirements for ISO Shares and the statutory employment requirement are
satisfied by the holder of the ISO Shares.
In general, the grant of a SAR will not produce taxable income to the
recipient. When a participant exercises a SAR, the participant recognizes
ordinary income in an amount equal to any cash received plus the fair market
value at the exercise date of any shares of Common Stock received.
To the extent that a participant in the Stock Option Plan recognizes
ordinary income in the circumstances described above, the Company or a
subsidiary, as the case may be, would be entitled to a corresponding deduction,
provided in general that (i) the amount is an ordinary and necessary business
expense and such income meets the test of reasonableness, (ii) the deduction is
allowed pursuant to Section 162(m) of the Code, and (iii) certain statutory
provisions relating to so-called "excess parachute payments" do not apply.
The foregoing summary of the federal income tax consequences of the Stock
Option Plan is not comprehensive and is based on current income tax laws,
regulations and rulings.
GRANTS UNDER THE 1993 STOCK OPTION PLAN
The following table sets forth the number of shares of Common Stock
underlying Options granted to certain persons under the Stock Option Plan from
the date of the original adoption of the plan through the date of this proxy
statement. No determination has been made with respect to any specific Options
that may be granted under the Stock Option Plan after the date of this proxy
statement. As of March 20, 1998, the per share closing price of the Common
Stock as reported by the New York Stock Exchange was $44 3/4.
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<TABLE>
NUMBER OF SHARES
NAME AND POSITION UNDERLYING OPTIONS
- ----------------- ------------------
<S> <C>
Charles M. Hansen, Jr. - 0 -
Chairman and Chief Executive Officer
Mary R. Silverthorne - 0 -
Director Nominee
Jeffrey D. Cordes 95,572
President and Chief Operating Officer
Director Nominee
Christopher N. Baker 89,572
President - Manufacturing Division
Director Nominee
Kevin M. Finlay 64,000
President - Sales & Marketing Division
Director Nominee
Scott E. Shimizu 87,572
Executive Vice President - Sales & Marketing
Current executive officers as a group 373,716
Current directors that are not executive
officers as a group 34,788
All employees, including all current
officers who are not executive officers, as a group 1,434,743
</TABLE>
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Common
Stock entitled to vote at the meeting, present in person or by proxy, is
required to approve the proposal to amend the Stock Option Plan to increase the
number of shares of Common Stock available for issuance thereunder from
1,500,000 shares to 2,000,000 shares.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL OF
THE PROPOSAL TO AMEND THE STOCK OPTION PLAN TO INCREASE THE NUMBER OF SHARES
AVAILABLE FOR ISSUANCE THEREUNDER.
INDEPENDENT AUDITORS
The Board of Directors has selected the firm of KPMG Peat Marwick LLP as
the Company's independent auditors for 1998. KPMG Peat Marwick LLP has served
as the Company's independent auditors since 1986. A representative of such firm
is expected to be present at the Annual Meeting of
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Shareholders and will be available to answer questions and will be afforded an
opportunity to make a statement if desired.
SHAREHOLDER PROPOSALS
Any proposals from shareholders to be presented for consideration for
inclusion in the proxy material in connection with the 1999 Annual Meeting of
Shareholders of the Company must be submitted in accordance with the rules of
the SEC and received by the Secretary of the Company at the Company's principal
executive offices no later than the close of business on December 4, 1998.
OTHER MATTERS
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. Costs of solicitation will be borne by the Company.
In addition to the use of the mails, proxies may be solicited by personal
interview and telephone by directors, officers and employees of the Company.
Arrangements have also been made with brokerage houses, banks and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of Common Stock held of record by such persons, and the
Company will reimburse them for reasonable out-of-pocket expenses incurred by
them in connection therewith. To aid in the solicitation of proxies, the
Company has employed the firm of Innisfree M&A Incorporated, which will receive
a fee of approximately $7,500 plus out-of-pocket expenses.
All information contained in this proxy statement relating to the
occupations, affiliations and securities holdings of directors and officers of
the Company and their relationships and transactions with the Company is based
upon information received from the individual directors and officers. All
information relating to any beneficial owner of more than 5% of the Company's
Common Stock is based upon information contained in reports filed by such owner
with the SEC.
AVAILABILITY OF FORM 10-K
The Company will provide to any shareholder, without charge, upon written
request of such shareholder, a copy of the Annual Report on Form 10-K for the
fiscal year ended January 3, 1998, as filed with the SEC. Such requests should
be addressed to Pillowtex Corporation, 4111 Mint Way, Dallas, TX 75237,
Attention: Investor Relations.
The foregoing notice and proxy statement are sent by order of the Board of
Directors.
BRENDA A. SANDERS
Secretary
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APPENDIX A
PILLOWTEX CORPORATION
1993 STOCK OPTION PLAN
INTRODUCTION
Pillowtex Corporation, a Texas corporation (the "Company"), established
the Pillowtex Corporation 1993 Stock Option Plan (the "Plan") effective
February 17, 1993, and has restated the Plan to incorporate amendments
through February 9, 1998, subject to shareholder approval.
1. PURPOSE. The purpose of the Plan is to provide key employees and
non-employee directors with a proprietary interest in the Company through the
granting of options which will:
(a) increase the interest of the key employees and non-employee
directors in the Company's welfare;
(b) furnish an incentive to the key employees and non-employee
directors to continue their services for the Company; and
(c) provide a means through which the Company may attract able
persons to enter its employ or serve on its Board of Directors.
2. ADMINISTRATION. The Plan shall be administered by the Committee.
3. PARTICIPANTS. The Committee shall, from time to time, select the
particular key employees or non-employee directors of the Company and its
Subsidiaries to whom options are to be granted, and who will, upon such
grant, become participants in the Plan. For purposes of the Plan, "key
employees" are those officers and employees whose performance and
responsibilities are determined by the Committee to be influential to the
success of the Company.
4. STOCK OWNERSHIP LIMITATION. No Incentive Option may be granted to
an employee who owns more than 10% of the voting power of all classes of
stock of the Company or its Parent or Subsidiaries. This limitation will not
apply if the option price is at least 110% of the fair market value of the
stock at the time the Incentive Option is granted and the Incentive Option is
not exercisable more than five years from the date it is granted.
5. SHARES SUBJECT TO PLAN. The shares of Common Stock of the Company
which may be issued under the Plan will not exceed in the aggregate 2,000,000
shares of Common Stock of the Company, but this number may be adjusted to
reflect, if deemed appropriate by the Committee, any stock dividend, stock
split, share combination, recapitalization or the like, of or by the Company.
Shares to be optioned and sold may be made available from either authorized
but unissued Common Stock or Common Stock held by the Company in its
treasury. Shares that by reason of the expiration of an option or otherwise
are no longer subject to purchase pursuant to an option granted under the
Plan may be re-offered under the Plan.
6. LIMITATION ON AMOUNT. The aggregate fair market value (determined
at the time of grant) of the shares of Common Stock which any employee is
first eligible to purchase in any calendar year
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by exercise of Incentive Options granted under this Plan and all incentive
stock option plans of the Company or its Parent or Subsidiaries shall not
exceed $100,000. For this purpose, the fair market value (determined at the
respective date of grant of each option) of the stock purchasable by exercise
of an Incentive Option (or an installment thereof) shall be counted against
the $100,000 annual limitation for an employee only for the calendar year
such stock is first purchasable under the terms of the option. No
participant under this Plan shall be issued in any calendar year options to
acquire in excess of 100,000 shares of Common Stock, as such number may be
adjusted to reflect any stock dividend, stock split, share combination,
recapitalization or the like, of or by the Company.
7. ALLOTMENT OF SHARES. The Committee shall determine the number of
shares of Common Stock to be offered from time to time by grant of options to
employees and non-employee directors of the Company or its Subsidiaries. The
grant of an option to an employee or non-employee director shall not be
deemed either to entitle the employee or non-employee director to, or to
disqualify the employee or non-employee director from, participation in any
other grant of options under the Plan.
8. GRANT OF OPTIONS/SARs. The Committee is authorized to grant
Incentive Options and Nonqualified Options under the Plan. The grant of
options shall be evidenced by stock option agreements containing such terms
and provisions as are approved by the Committee, but not inconsistent with
the Plan, including provisions that may be necessary to assure that any
option that is intended to be an Incentive Option will comply with Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"). The
Company shall execute stock option agreements upon instructions from the
Committee. A stock option agreement may provide that the optionholder may
request approval from the Committee to exercise an option or a portion
thereof by tendering shares of Common Stock at the fair market value per
share on the date of exercise in lieu of cash payment of the exercise price.
The Committee may also from time to time authorize grants to any
participant of stock appreciation rights ("SARs") in tandem with stock
options upon such terms and conditions as it may determine in accordance with
this Section 8. A SAR will be a right of the participant to receive from the
Company upon exercise an amount which will be determined by the Committee at
the date of grant and will be expressed as a percentage (not exceeding 100%)
of the spread. For purposes of the Plan, the term "spread" means the excess
of the fair market value per share on the date the SAR is exercised over the
option price provided for in the related stock option. Each grant of SARs
will specify any required period of continuous service by the participant
with the Company or any Subsidiary before the SARs or installments thereof
will become exercisable, and will provide that no SAR may be exercised except
at a time when the spread is positive and the related stock option is also
exercisable. Each grant of an SAR will be evidenced by an agreement which
will describe the SAR, identify the stock option granted in tandem with such
SAR, state that such SAR is subject to all the terms and conditions of the
Plan, and contain such other terms and provisions, consistent with the Plan,
as the Committee may approve.
9. OPTION PRICE. The option price of each option granted under the
Plan shall not be less than 100% of the fair market value per share of the
Common Stock on the date the option is granted.
10. OPTION PERIOD. The Option Period for options will begin on the
date the option is granted, which will be the date the Committee authorizes
the option unless the Committee specifies a later date. No option may
terminate later than ten years from the date the option is granted. The
Committee may provide for the exercise of options in installments and upon
such terms, conditions and restrictions as it may determine. The Committee
may provide for termination of the option in the case of termination of
employment or directorship or any other reason.
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11. RIGHTS IN EVENT OF DEATH OR DISABILITY. If a participant dies or
becomes disabled prior to termination of his right to exercise an option in
accordance with the provisions of his stock option agreement without having
totally exercised the option, the option may be exercised, to the extent of
the shares with respect to which the option could have been exercised by the
participant on the date of the participant's death or disability, (i) in the
case of death, by the participant's estate or by the person who acquired the
right to exercise the option by bequest or inheritance or by reason of the
death of the participant, or (ii) in the case of disability, by participant
or his personal representative, provided the option is exercised prior to the
date of its expiration or 180 days from the date of the participant's death
or disability, whichever first occurs.
12. PAYMENT. Full payment for shares purchased upon exercising an
option shall be made in cash or by check or, if the option agreement so
permits, by tendering shares of Common Stock at the fair market value per
share at the time of exercise, or on such other terms as are set forth in the
applicable option agreement. No shares may be issued until full payment of
the purchase price therefor has been made, and a participant will have none
of the rights of a shareholder until shares are issued to him.
13. EXERCISE OF OPTION. Options granted under the Plan may be
exercised during the Option Period, at such times, in such amounts, in
accordance with such terms and subject to such restrictions as are set forth
in the applicable stock option agreements. In no event may an option be
exercised or shares be issued pursuant to an option if any requisite action,
approval or consent of any governmental authority of any kind having
jurisdiction over the exercise of options shall not have been taken or
secured.
14. CAPITAL ADJUSTMENTS AND REORGANIZATIONS. The number of shares of
Common Stock covered by each outstanding option granted under the Plan and
the option price may be adjusted to reflect, as deemed appropriate by the
Committee, any stock dividend, stock split, share combination, exchange of
shares, recapitalization, merger, consolidation, separation, reorganization,
liquidation or the like, of or by the Company.
15. NON-ASSIGNABILITY. Options may not be transferred other than by
will or by the laws of descent and distribution. During a participant's
lifetime, options granted to a participant may be exercised only by the
participant.
16. INTERPRETATION. The Committee shall interpret the Plan and shall
prescribe such rules and regulations in connection with the operation of the
Plan as it determines to be advisable for the administration of the Plan.
The Committee may rescind and amend its rules and regulations.
17. AMENDMENT OR DISCONTINUANCE. The Plan may be amended or
discontinued by the Board without the approval of the shareholders of the
Company, except that any amendment that would (a) materially increase the
benefits accruing to participants under the Plan, (b) materially increase the
number of securities that may be issued under the Plan, or (c) materially
modify the requirements of eligibility for participation in the Plan must be
approved by the shareholders of the Company.
18. EFFECT OF PLAN. Neither the adoption of the Plan nor any action of
the Committee shall be deemed to give any officer, employee or non-employee
director any right to be granted an option to purchase Common Stock of the
Company or any other rights except as may be evidenced by the stock option
agreement, or any amendment thereto, duly authorized by the Committee and
executed on behalf of the Company and then only to the extent and on the
terms and conditions expressly set forth therein.
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<PAGE>
19. TERM. Unless sooner terminated by action of the Board, this Plan
will terminate on February 16, 2003. The Committee may not grant options
under the Plan after that date, but options granted before that date will
continue to be effective in accordance with their terms.
20. DEFINITIONS. For the purpose of this Plan, unless the context
requires otherwise, the following terms shall have the meanings indicated:
(a) "Board" means the Board of Directors of the Company.
(b) "Committee" means the committee of the Board appointed by the
Board to administer the Plan. In addition, to the extent that
the Board by resolution exercises powers or duties allocated
under the Plan to the Committee, the term "Committee" means the
Board. Notwithstanding any provision of the Plan to the
contrary, all actions with respect to awards under the Plan that
are intended to comply with the requirements of Section 162(m) of
the Internal Revenue Code of 1986, as amended, shall be taken by
the committee appointed by the Board satisfying the requirements
of Section 162(m).
(c) "Common Stock" means the Common Stock which the Company is
currently authorized to issue or may in the future be authorized
to issue (as long as the common stock varies from that currently
authorized, if at all, only in amount of par value).
(d) "Company" means Pillowtex Corporation, a Texas corporation.
(e) "Incentive Option" means an option granted under the Plan which
meets the requirements of Section 422 of the Internal Revenue
Code of 1986, as amended.
(f) "Nonqualified Option" means an option granted under the Plan
which is not intended to be an Incentive Option.
(g) "Option Period" means the period during which an option may be
exercised.
(h) "Parent" means any entity with respect to which the Company is a
Subsidiary.
(i) "Plan" means this Stock Option Plan, as amended from time to
time.
(j) "Subsidiary" means any entity (i) which is taxable as a
corporation for federal income taxes and (ii) in which the
Company owns directly or indirectly through one or more
intermediate subsidiaries 50% or more of the total combined
voting power of all classes of stock with respect to the election
of directors.
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PILLOWTEX CORPORATION
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints Charles M. Hansen, Jr., Jeffrey D.
Cordes and John F. Sterling, or either of them, proxies with power of
substitution in each, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all shares of Common Stock of Pillowtex
Corporation standing in the name of the undersigned on March 20, 1998 at the
annual meeting of shareholders to be held on May 4, 1998 at Dallas, Texas,
and at any adjournment thereof and especially to vote on the items of
business specified on the reverse side, as more fully described in the notice
of the meeting dated April 3, 1998, and the proxy statement accompanying the
same, the receipt of which is hereby acknowledged.
(CONTINUED ON REVERSE SIDE)
<PAGE>
------
COMMON
1. ELECTION OF DIRECTORS
FOR each nominee WITHHOLD
listed below AUTHORITY
(except as marked to vote for all nominee
to the contrary) listed below
------------ -------------
For terms to expire at the 2001 Annual Meeting of Shareholders (except
as marked to the contrary): Jeffrey D. Cordes, Christopher N. Baker, Kevin
M. Finlay and Mary R. Silverthorne.
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
- -------------------------------------------------------------------------------
2. Approval of the amendment to the Company's 1993 Stock Option Plan to
increase the number of shares of Common Stock available for issuance
thereunder from 1,500,000 to 2,000,000 shares.
FOR AGAINST ABSTAIN
-------- -------- --------
3. In their discretion, the proxies are authorized to vote upon such other
business or matters as may properly come before the meeting or any
adjournment thereof.
The undersigned hereby revokes any proxy or
proxies heretofore given to represent or vote
such Common Stock and hereby ratifies and
confirms all actions that said proxies, their
substitutes, or any of them, might lawfully
take in accordance with the terms hereof.
Dated: 1998
-------------------------------
-------------------------------
-------------------------------
Signature(s) of Shareholders(s)
This proxy should be signed exactly as your
name appears hereon. Joint owners should
both sign. If signed as attorney, executor,
guardian, or in some other representative
capacity, or as an officer of a corporation,
please indicate your capacity or title.
Please complete, date and sign this proxy and
return it in the enclosed envelope, which
requires no postage if mailed in the United
States.
ii
