<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities and Exchange Act of 1934
Filed by the Registrant /X/
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)
Pay 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 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 5, 1999
-------------
TIME 9:00 a.m., C.D.T., on Wednesday, May 5, 1999
PLACE Hotel Crescent Court
2200 Cedar Springs
Dallas, Texas 75201
ITEMS OF BUSINESS 1) To elect four members of the Board of
Directors who will hold office until the
2002 Annual Meeting of Shareholders and
until their successors have been elected
and qualified;
2) To approve an amendment to the Restated
Articles of Incorporation to increase the
number of shares of authorized Common
Stock; and
3) To transact such other business that may
properly come before the meeting and any
adjournment thereof.
RECORD DATE Holders of Common Stock of record at the close
of business on March 22, 1999 are entitled to
notice of and to vote at the meeting.
ANNUAL REPORT The Company's 1998 Annual Report, which is not a
part of the proxy soliciting material, is
enclosed.
PROXY VOTING It is important that your shares be represented
and voted at the meeting. Shareholders are urged,
whether or not they plan to attend the meeting,
to mark, sign, date and promptly return the
enclosed proxy card in the postage-paid envelope
furnished for that purpose. If a shareholder who
has returned a proxy card attends the meeting in
person, that shareholder may revoke the proxy
by voting in person at the meeting.
CHARLES M. HANSEN, JR.
Chairman of the Board
Dallas, Texas
April 1, 1999
<PAGE>
TABLE OF CONTENTS
- ----------------------------------------------------------------------
Page
PROXY STATEMENT ------------------------------------------------- 1
Shareholders Entitled to Vote -------------------------------- 1
Actions to be Taken at the Meeting --------------------------- 2
Required Vote ------------------------------------------------ 2
Costs of Proxy Solicitation ---------------------------------- 3
Other Matters ------------------------------------------------ 3
Shareholder Account Maintenance ------------------------------ 3
STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS ------------------------------------- 4
Section 16(a) Beneficial Ownership Reporting Compliance ------ 6
DIRECTOR PROPOSALS ---------------------------------------------- 6
Election of Directors ---------------------------------------- 6
Nominees for Terms Expiring in 2002 ------------------------ 6
Directors Whose Terms Will Expire in 2000 ------------------ 7
Directors Whose Terms Will Expire in 2001 ------------------ 8
Amendment of the Restated Articles of Incorporation ---------- 9
INFORMATION CONCERNING THE BOARD OF DIRECTORS ------------------- 10
Board Meetings and Committees -------------------------------- 10
Compensation of Directors ------------------------------------ 11
EXECUTIVE OFFICERS ---------------------------------------------- 12
EXECUTIVE COMPENSATION ------------------------------------------ 13
Report of the Compensation Committee on Executive
Compensation --------------------------------------------- 13
Purpose ---------------------------------------------------- 13
Responsibilities of the Compensation Committee ------------- 13
Compensation Philosophy ------------------------------------ 13
Compensation Methodology ----------------------------------- 13
Components of the Compensation Program --------------------- 14
CEO Compensation ------------------------------------------- 16
Tax Deductibility of Executive Compensation ---------------- 16
Conclusion ------------------------------------------------- 17
Summary Compensation Table ----------------------------------- 18
Option Grants in 1998 ---------------------------------------- 19
Option Exercises and Year-End Values ------------------------- 20
Pension Plan ------------------------------------------------- 20
Supplemental Executive Retirement Plan ----------------------- 22
Executive Deferred Compensation Plan ------------------------- 23
Employment Agreements ---------------------------------------- 24
Restricted Stock Awards -------------------------------------- 25
ii
<PAGE>
TABLE OF CONTENTS - continued
- -----------------------------------------------------------------------
Page
Certain Transactions ----------------------------------------- 26
Compensation Committee Interlocks and Insider Participation -- 26
STOCK PERFORMANCE GRAPH ----------------------------------------- 27
INDEPENDENT AUDITORS -------------------------------------------- 28
SHAREHOLDER PROPOSALS ------------------------------------------- 28
AVAILABILITY OF FORM 10-K --------------------------------------- 28
iii
<PAGE>
PILLOWTEX CORPORATION
4111 Mint Way
Dallas, Texas 75237
PROXY STATEMENT
for
ANNUAL MEETING OF SHAREHOLDERS
To Be Held May 5, 1999
PILLOWTEX CORPORATION
4111 Mint Way
Dallas, Texas 75237
These proxy materials are furnished in connection with the
solicitation by the Board of Directors of Pillowtex Corporation (the
"Company" or "Pillowtex"), a Texas corporation, of proxies to be voted at
the Company's 1999 Annual Meeting of Shareholders and at any adjournment
thereof.
You are cordially invited to attend the Pillowtex Corporation Annual
Meeting of Shareholders to be held on Wednesday, May 5, 1999, beginning
at 9:00 a.m., Central Daylight Time, at the Hotel Crescent Court, 2200
Cedar Springs, Dallas, Texas 75201.
The Company's 1998 fiscal year began on January 4, 1998 and ended
January 2, 1999. All references in this Proxy Statement to the year 1998
or fiscal 1998 refer to the fifty-two week period from January 4, 1998
through January 2, 1999.
This Proxy Statement together with the enclosed proxy card and the
accompanying 1998 Annual Report are first being sent to shareholders on
or about April 1, 1999. 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, the
shareholder may revoke the proxy by voting in person at the meeting. 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 will be effective until the notice of
revocation or other proxy, as the case may be, has been received by the
Company at or prior to the meeting. Attendance at the meeting will not,
in itself, constitute the revocation of a proxy.
Shareholders Entitled to Vote
YOUR VOTE IS IMPORTANT. Because many shareholders cannot attend
the meeting in person, a large number must be represented by proxy. Only
holders of record of the Company's common stock, $0.01 par value per
share (the "Common Stock"), at the close of business on March 22, 1999,
the record date for the meeting, are entitled to notice of and to vote at
the meeting. On the record date, there were 14,183,852 shares of Common
1
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Stock outstanding. When voting on all matters presented at the meeting,
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.
Actions 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 2002 Annual Meeting of Shareholders and until his
successor has been duly elected and qualified, (ii) for the proposal to
amend the Restated Articles of Incorporation to increase the number of
shares of authorized Common Stock from 30,000,000 shares to 55,000,000
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.
Required Vote
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 (properly
executed proxies marked "ABSTAIN") and broker non-votes (shares held 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 two-thirds 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 Restated Articles of
Incorporation to increase the number of shares of authorized Common
Stock from 30,000,000 shares to 55,000,000 shares.
2
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 Restated Articles of
Incorporation to increase the number of shares of authorized Common Stock
from 30,000,000 shares to 55,000,000 shares, shares entitled to vote at
the meeting may be voted for or against the proposal, or an indication
may be made that the holder of the shares abstains from voting.
Abstentions and broker non-votes will have the same effect as a vote
against the proposal.
Costs of Proxy Solicitation
The accompanying proxy is being solicited on behalf of the Board of
Directors of the Company. Costs of solicitation will be paid by the
Company. Proxies may be solicited on behalf of the Company by directors,
officers or employees of the Company in person or by telephone, facsimile
or other electronic means. The Company has engaged the firm of Innisfree
M&A Incorporated to assist in the distribution and solicitation of
proxies. The Company has agreed to pay Innisfree M&A Incorporated a fee
of $7,500 plus expenses for these services.
In compliance with the regulations of the Securities and Exchange
Commission (SEC) and the New York Stock Exchange (NYSE), the Company will
reimburse brokerage firms and other custodians, nominees and fiduciaries
for their expenses in sending proxies and proxy materials to beneficial
owners of Common Stock.
Other Matters
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 on 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 on information contained
in reports filed with the SEC by the owner.
Shareholder Account Maintenance
The Company's Transfer Agent is ChaseMellon Shareholder Services
L.L.P. All communications concerning accounts of shareholders of record,
including address changes, name changes, inquiries as to requirements to
transfer Common Stock and similar issues may be addressed by calling
their toll-free number, 1-800-635-9270. For other Company information,
shareholders can visit the Pillowtex Corporation internet website at
http://www.pillowtex.com. Such information is not part of the proxy
soliciting material.
3
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STOCK OWNERSHIP OF MANAGEMENT AND
CERTAIN BENEFICIAL OWNERS
The following table lists certain information concerning the
beneficial ownership of the Company's Common Stock, as of March 22,
1999, by the following persons:
(1) Each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock;
(2) The executive officers whose names appear in the Summary
Compensation table on page 18;
(3) Each director of the Company, and;
(4) 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 of the shares of
Common Stock listed.
<TABLE>
Number of Shares
Name Beneficially Owned Percent of Class
- ---------------------------- ------------------ ----------------
<S> <C> <C>
Charles M. Hansen, Jr.(1)(4)---- 2,476,815 17.5%
John H. Silverthorne
Marital Trust B(2)------------ 2,268,893 16.0%
Mary R. Silverthorne(2)--------- 534,241 3.8%
Paul G. Gillease(3)------------- 11,071 *
Ralph W. La Rovere(3)----------- 7,818 *
William B. Madden(3)------------ 13,047 *
M. Joseph McHugh(3)------------- 11,947 *
Mark A. Petricoff(3)------------ 40 *
Jeffrey D. Cordes(3)(4)--------- 60,523 *
Kevin M. Finlay(3)(4)----------- 31,009 *
Scott E. Shimizu(3)(4)---------- 33,833 *
Ronald M. Wehtje(3)(4)---------- 12,859 *
Apollo Advisors II, L.P.(5)----- 2,708,333 16.0%
Palisade Capital Management,
L.L.C.(6)--------------------- 1,258,648 8.9%
All executive officers and
directors as a group
(12 persons)(3)(4)------------ 5,468,248 38.2%
</TABLE>
- ------------
* Less than 1%
(1) Mr. Hansen's address is 4111 Mint Way, Dallas, Texas 75237.
(2) The address of the John Silverthorne Marital Trust B and Mrs.
Silverthorne is 4111 Mint Way, Dallas, Texas 75237. Under the
rules and regulations of the SEC, Mrs. Silverthorne may be deemed the
4
<PAGE>
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 22, 1999 to purchase the number of
shares of Common Stock indicated for the following persons: Mr. Gillease
(5,947); Mr. Madden (5,947); Mr. McHugh (5,947); Mr. La Rovere (1,518);
Mr. Cordes (40,072); Mr. Finlay (26,000); Mr. Shimizu (29,000) and Mr.
Wehtje (9,250).
(4) Includes restricted stock awarded in February 1999 to the following
persons: Mr. Hansen (10,811); Mr. Cordes (6,006); Mr. Finlay (2,883);
Mr. Shimizu (2,883); Mr. Wehtje (3,604); and to one other executive
officer (2,402). During the restriction period, holders of the awards
are entitled to receive dividends declared on the Common Stock and have
voting rights but they may not sell or transfer the Common Stock. The
restrictions lapse with respect to one-half of the shares on each of the
first and second anniversary dates of the award.
(5) 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 of Series A
Preferred Stock held by the Apollo Purchasers are, as of the date of this
Proxy Statement, convertible into a total of 2,708,333 shares of Common
Stock. According to the Apollo 13D, Advisors 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.
(6) The address of Palisade Capital Management, L.L.C. is One Bridge
Plaza, Suite 695, Fort Lee, New Jersey 07024. According to Amendment No.
2 to Schedule 13G filed by Palisade Capital Management, L.L.C. with the
SEC on February 12, 1999, Palisade Capital Management, L.L.C.
beneficially owned the number of shares indicated as of December 31, 1998
and had sole voting and dispositive power.
5
<PAGE>
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers to file reports of holdings
and transactions in the Common Stock of the Company with the SEC and the
NYSE. Based on Company records and other applicable information, the
Company believes that all Section 16(a) filing requirements with respect
to the directors and executive officers were met in fiscal 1998.
DIRECTOR PROPOSALS
1. Election of Directors
In compliance with the Texas Business Corporation Act and the Bylaws
of the Company, the business, property and affairs of the Company are
managed under the direction of the Board of Directors. Members of the
Board of Directors are kept informed of the Company's business through
discussions with the Chairman and officers, by reviewing materials
provided to them and participating in meetings of the Board and its
committees. The Board of Directors are elected by the shareholders. The
Board currently consists of ten members and is classified into three
classes. The term of one class of directors expires each year. Four
directors will be elected at the meeting to serve for a three-year term
expiring at the Company's annual meeting in the year 2002.
The persons named in the enclosed proxy intend to vote for the
election of each of the four nominees named below, unless you indicate
that your vote should be withheld from any or all of them. Each nominee
elected as a director will continue in office until his successor has
been properly elected and qualified, or until the earliest of his death,
resignation or retirement. The Company expects each nominee for election
as a director at the Meeting to be able to serve if elected. If any
nominee is unable to serve if elected, proxy holders may vote for any
other person recommended by the Board of Directors in his stead. Each
nominee has expressed his intention to serve the entire term for which
election is sought.
The Board of Directors has proposed the following nominees for
election as directors at the 1999 Annual Meeting of Shareholders:
Nominees for Terms Expiring in 2002
Paul G. Gillease, 66 Mr. Gillease 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"). He also
served in a variety of marketing and
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business management positions within DuPont.
Mr. Gillease is a director of Galey & Lord,
Inc. and Guilford Mills, Inc. Mr. Gillease
is Chairman of the Compensation Committee
Ralph W. La Rovere, 63 Mr. La Rovere was appointed a director in
May 1997. He retired from J. C. Penney
Company, Inc. after a 36-year career having
most recently served as Vice President and
Director of Merchandising for the Home and
Leisure Division. He also served in various
management positions in New York, Los
Angeles and Dallas. Mr. La Rovere is a
member of the Compensation Committee and the
Audit Committee.
Scott E. Shimizu, 45 Mr. Shimizu served as a member of the Board
of Directors from May 1994 to May 1995, and
was re-elected in February 1996 to fill a
vacancy. He has been Executive Vice
President - Sales & Marketing of the Company
since December 1992 and served as Executive
Vice President from 1988 until December
1992.
Mark A. Petricoff, 60 Mr. Petricoff was elected a director by the
Board in November 1998 to fill a vacancy.
Mr. Petricoff was a 39-year employee and
former President and Chief Executive Officer
of The Leshner Corporation, a towel
manufacturer acquired by the Company in July
1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS
VOTE FOR EACH NOMINEE FOR THE BOARD OF DIRECTORS.
Directors Whose Terms Will Expire in 2000
Charles M. Hansen, Jr., 58 Mr. Hansen 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 the Southern Methodist
University Cox School of Business. Mr.
Hansen is a member of the Executive
Committee.
William B. Madden, 60 Mr. Madden became a director of the Company
in February 1993. Mr. Madden has been the
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<PAGE>
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, 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, 61 Mr. McHugh has been a director since
February 1993. Mr. McHugh retired in
December 1998 from Triangle Pacific Corp., a
manufacturer and distributor of hardwood
flooring and kitchen and bathroom cabinets,
where he served as a Director and as Chief
Operating Officer since November 1994 until
his retirement. From 1981 until November
1994, he served as Senior Executive Vice
President and Chief Financial Officer of
Triangle Pacific Corp. Mr. McHugh is a
member of the Audit Committee.
Directors Whose Terms Will Expire in 2001
Jeffrey D. Cordes, 41 Mr. Cordes has been a director of the
Company since May 1995 and was appointed
President and Chief Operating Officer in
February 1997. In addition to serving as
Chief Financial Officer from May 1994 to
February 1997, he served as Executive Vice
President and Assistant Secretary of the
Company since 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.
Kevin M. Finlay, 49 Mr. Finlay joined the Company in March 1997
as President of the Sales & Marketing
Division and became a director in May 1997.
He 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 & Marketing of
Fieldcrest Cannon, Inc. in 1997. Mr. Finlay
is a member of the Executive Committee.
Mary R. Silverthorne, 63 Mrs. Silverthorne has been a director of the
Company since December 1992. Mrs.
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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. Mrs. Silverthorne is a
member of the Compensation Committee.
2. Amendment of the Restated Articles of Incorporation
The Restated Articles of Incorporation of the Company limits the
number of shares of Common Stock available for issuance to 30 million
shares. The number of shares currently issued and outstanding or
reserved for issuance is near that limit. As of March 22, 1999,
9,070,672 shares of Common Stock were not issued or reserved for
issuance. The Board has approved, subject to shareholder adoption, an
amendment to the Restated Articles of Incorporation to increase the
number of authorized shares of Common Stock to 55 million shares. No
change is being proposed to the par value or the number of authorized
shares of preferred stock.
If this amendment is approved by the shareholders, paragraph one of
Article V of the Restated Articles of Incorporation of the Company would
be amended and restated to read as follows:
"The aggregate number of shares which the
corporation is authorized to issue is 75,000,000 shares
consisting of 55,000,000 shares of Common Stock,
having a par value of $0.01 per share, and 20,000,000
shares of Preferred Stock, having a par value of $0.01
per share".
Although the Company has no present plan, arrangement or
understanding to issue additional shares of Common Stock, other than
shares previously reserved for issuance, the Board believes that the
availability of an increased number of shares of Common Stock will
provide the Company the needed flexibility to conduct its business and
plan for future events such as sales for cash, acquisitions, stock
splits, stock dividends or similar occurrences.
The rights of additional authorized shares of Common Stock would be
identical to the shares of Common Stock currently authorized. Although
the additional shares would not have any effect on the rights of
shareholders, issuance of additional shares of Common Stock for other
than a stock split or dividend could have a dilutive effect on the amount
of earnings per share. This proposal is not in response to any known
effort to accumulate Common Stock or to gain control of the Company.
9
<PAGE>
The increase in the number of authorized shares of Common Stock
could also have an anti-takeover effect, although that is not the
Company's intention. The additional authorized but unissued shares of
Common Stock could be issued without shareholder approval, in
transactions that might dilute the percentage ownership of current
shareholders, thereby increasing the cost or difficulty of obtaining control
of the Company.
If the proposed amendment is approved, no further shareholder
approval would be required for the issuance of the authorized shares of
Common Stock, except as may be required by applicable laws and
regulations, including stock exchange rules. The availability of
additional authorized but unissued shares of Common Stock would provide
the Company with greater flexibility by allowing additional shares to be
issued without the expense and delay of a shareholder meeting, unless
shareholder approval is otherwise required.
The affirmative vote of the holders of two-thirds of the outstanding
shares of Common Stock entitled to vote at the meeting will be necessary
for the approval of the amendment to Article V of the Restated Articles
of Incorporation.
THE BOARD BELIEVES THAT A VOTE TO APPROVE THE AMENDMENT
OF THE RESTATED ARTICLES OF INCORPORATION IS IN THE
BEST INTERESTS OF THE COMPANY AND ITS SHAREHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE
FOR THE PROPOSAL.
INFORMATION CONCERNING THE
BOARD OF DIRECTORS
Board Meetings and Committees
During fiscal 1998, the Board held four regular quarterly meetings,
one telephonic meeting and acted by unanimous written consent two times.
In addition to meetings of the full Board, directors attended meetings of
individual Board committees. Due to extraordinary circumstances, Mr.
McHugh attended 25% of the Board meetings and 50% of applicable committee
meetings. All other directors attended at least 75% of all Board and
applicable committee meetings.
The Board has three standing committees:
(1) The EXECUTIVE COMMITTEE can act on behalf of the full
Board between regular meetings. Executive Committee members
are Mr. Hansen (Chairman), Mr. Cordes and Mr. Finlay. During
1998, they acted by unanimous written consent six times.
(2) 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
10
<PAGE>
recommendations for changes in accounting procedures and initiates
and supervises any special investigations it may choose to
undertake. Audit Committee members are Mr. Madden (Chairman),
Mr. McHugh and Mr. La Rovere. The Audit Committee met four
times and acted by unanimous written consent one time during
fiscal 1998.
(3) The COMPENSATION COMMITTEE reviews and approves
the nature and amount of salaries and bonuses for executive officers
of the Company and administers the 1993 Pillowtex Corporation
Stock Option Plan, the Management Incentive Plan, the Pillowtex
Corporation Supplemental Executive Retirement Plan and the
Pillowtex Corporation Executive Deferred Compensation Plan.
Compensation Committee members are Mr. Gillease (Chairman),
Mrs. Silverthorne, Mr. La Rovere and Mr. Madden. The
Compensation Committee met one time during fiscal 1998 and acted
by unanimous written consent nine times.
The Board of Directors has not appointed a nominating committee.
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 1993 Pillowtex Corporation Stock Option Plan (the "Stock Option
Plan"') allows for the grant of nonqualified stock options to directors
who are not employees. 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 the option is granted.
As of March 22, 1999, Messrs. Gillease, Madden and McHugh had each been
granted options to purchase a total of 12,072 shares of Common Stock at
prices ranging from $12.75 to $33.50 per share. Mr. La Rovere has been
granted options to purchase a total of 8,572 shares of Common Stock at
prices ranging from $21.875 to $33.50 per share and Mr. Petricoff has
been granted options to purchase a total of 2,500 shares of Common Stock
at the option price of $22.00 per share. All options granted under the
Stock Option Plan, including those granted to directors who are not
employees, vest 25% on the first through the fourth anniversary date of
the grant and terminate on the tenth anniversary date. Mrs. Silverthorne
and Mr. Hansen do not participate in the Stock Option Plan.
All directors are eligible to participate in the Executive Deferred
Compensation Plan. Participants may elect to defer all or a portion of
his or her compensation for any calendar year. Deferred compensation is
11
<PAGE>
treated as if it were set aside in an account and, unless otherwise set
by the Compensation Committee, earns interest at the prime rate,
according to The Wall Street Journal, plus one percent. See page 23 for
a more detailed description of the Executive Deferred Compensation Plan.
EXECUTIVE OFFICERS
As of March 22, 1999, the following persons were the executive
officers of the Company.
<TABLE>
Name Age Position
- ---- --- --------
<S> <C> <C>
Charles W. Hansen, Jr. 58 Chairman of the Board and
Chief Executive Officer
Jeffrey D. Cordes 41 President and Chief Operating
Officer
Kevin M. Finlay 49 President - Sales & Marketing
Division
Scott E. Shimizu 45 Executive Vice President - Sales
& Marketing
Ronald M. Wehtje 37 Senior Vice President and
Chief Financial Officer
A. Allen Oakley 45 Senior Vice President -
Manufacturing
</TABLE>
Information concerning the business experience of each executive officer
other than Mr. Wehtje and Mr. Oakley is provided under the
caption "Election of Directors" beginning on page 6. Mr. Wehtje joined
the Company as an internal auditor in 1986. He served as Vice President
and Corporate Controller since March 1996 and was elected Senior Vice
President and Chief Financial Officer in November 1998. Mr. Oakley
joined Fieldcrest Mills in May 1976 in the Sheeting Division as a
management trainee. Following promotions to plant manager of various
facilities, he was further promoted to Division Vice President in 1990
and on November 9, 1998 he was elected Senior Vice President -
Manufacturing of the Company.
12
<PAGE>
EXECUTIVE COMPENSATION
The following report of the Compensation Committee of the Board of
Directors and the information 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.
Report of the Compensation Committee on Executive Compensation
Purpose: The purpose of this report is to summarize the philosophical
principles, specific program objectives and other factors considered by
the Compensation Committee of the Board of Directors in determining
executive compensation of the Company's executive officers, including the
Chief Executive Officer.
Responsibilities of the Compensation Committee: The Compensation
Committee of the Board (the "Committee") is responsible for setting and
administering the policies which govern executive compensation. The
Committee's main objective is to match the Company's total compensation
program with its business strategy and to assure that pay programs are
effective, responsible and competitive when related to comparable
companies. The Committee is composed entirely of outside directors.
Reports of the Committee's actions and decisions are presented to the
full Board.
Compensation Philosophy: The Committee has approved principles for the
management compensation program which:
(1) Encourage strong financial and operational performance of the
Company;
(2) Provide compensation that will attract and retain superior
talent and reward the executives based upon Company and individual
performance;
(3) Link compensation to the interests of shareholders by
providing stock incentives and encouraging stock ownership; and
(4) Emphasize performance-based compensation which balances
rewards for short-term and long-term results.
Compensation Methodology: Pillowtex strives to provide a comprehensive
executive compensation program that is competitive and performance-based
13
<PAGE>
in order to attract and retain superior executive talent. The 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 performance of the
Company, increased shareholder value and incentive awards paid to the
Company's executives. The Committee has received and implemented
selected recommendations of the consultant.
Components of the Compensation Program: The seven components of the total
compensation program are:
1. Base Salary
2. The Pillowtex Corporation Management Incentive Plan
3. The 1993 Pillowtex Corporation Stock Option Plan
4. Pension Plan for Qualified Employees of Pillowtex Corporation
5. The Pillowtex Corporation Supplemental Executive Retirement
Plan
6. The Pillowtex Corporation Executive Deferred Compensation
Plan
7. The Pillowtex Corporation 401(k) Plan
1. Base Salary. Base salary is intended to be competitive with that
paid by comparable companies and is also intended to reflect the
Committee's consideration of an executive's experience, business judgment
and role in developing and implementing the overall business strategy for
the Company. The 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.
2. 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 Committee. Each of the individuals named in the
Summary Compensation Table on page 18 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 year 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
14
<PAGE>
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 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.
Although the Company's performance satisfied the minimum target
performance objective for the year, the Committee, based on the Company's
overall performance in 1998, decided not to pay out any amounts under the
Management Incentive Plan for 1998.
3. 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 mutual interest
between key executives and shareholders. In furtherance of this
objective, the Company has in place the 1993 Pillowtex Corporation 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.
4. Pension Plan for Qualified Employees of Pillowtex Corporation.
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.
5. Supplemental Executive Retirement Plan. The Supplemental
Executive Retirement Plan (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. Each of the named individuals
listed in the Summary Compensation Table on page 18 is eligible to
participate in the Supplemental Executive Retirement Plan.
15
<PAGE>
6. Deferred Compensation Plan. The Deferred Compensation Plan
permits 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 on page 18 is eligible to participate in the
Deferred Compensation Plan.
7. 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 length of service to the
Company, so that a participant becomes fully vested after six years. For
the plan year beginning January 1, 1998, 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: Effective January 1, 1998, the Committee increased
Mr. Hansen's annual base salary to $900,000 based on the recommendation
of the outside consulting firm retained by the Committee to assist in
compensation matters. As a result of this increase, Mr. Hansen's base
salary was, at the time, at the 75th percentile for base salaries of
chief executive officers of comparable companies.
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 Committee to
attempt to preserve the deductibility of all executive compensation by
structuring all compensation that could exceed $1 million as performance-
based compensation to the extent practicable and in the best interests of
the Company's shareholders. However, the Committee could in the future
determine, taking into consideration the relevant factors then in
existence, to approve compensation that does not qualify for a
compensation deduction for tax purposes, if the Committee believes it is
in the best interests of the Company's shareholders to do so.
16
<PAGE>
Conclusion: The Committee believes that these executive compensation
policies serve the interests of the shareholders and the Company. The
Committee believes that the various pay programs offered are
appropriately balanced to provide increased motivation for executives to
contribute to the Company's overall future successes, thereby enhancing
the value of the Company for the shareholders' benefit.
The Compensation Committee
Paul G. Gillease
Ralph W. La Rovere
William B. Madden
Mary R. Silverthorne
17
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid or accrued by
the Company to the Chief Executive Officer and each of the four most
highly compensated executive officers for their services in 1998, 1997
and 1996.
<TABLE>
Long Term
Annual Compensation Compensation
----------------------------- ----------
Other Securities All
Name and Annual Underlying Other
Principal Position Compen- Options/ Compensa
Year Salary($) Bonus($) sation($)(1) SARs(#) -tion(2)
------------------ ---- --------- -------- ----------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Charles M. Hansen, Jr. 1998 $900,000 $ - $155,114 - $7,100
Chairman of the Board 1997 750,000 75,000 76,632 - 2,250
of Directors and 1996 750,000 206,054 107,389 - 2,250
Chief Executive
Officer
Jeffrey D. Cordes 1998 500,000 - 59,274 30,000 2,178
President and Chief 1997 384,375 75,000 - 22,000 330
Operating Officer 1996 275,000 75,553 - 10,000 330
Kevin M. Finlay 1998 400,000 - - 24,000 27,906
President - Sales & 1997 250,000 150,000 48,776 40,000 653
Marketing Division 1996 - - - - -
Scott E. Shimizu 1998 375,000 - - 22,000 5,139
Executive Vice 1997 275,000 75,000 - 22,000 510
President - Sales 1996 275,000 75,553 - 10,000 510
& Marketing
Ronald M. Wehtje 1998 233,333 - - 23,000 2,131
Senior Vice President 1997 142,500 25,000 - 10,000 330
and Chief Financial 1996 111,042 20,000 - 12,000 251
Officer
</TABLE>
(1) Certain of the Company's executive officers receive personal
benefits in addition to salary and cash bonuses. In 1998, the amount
includes the payment of $23,724 to Mr. Hansen as a tax reimbursement payment
and $103,429 for expenses incurred by Mrs. Hansen on commercial and chartered
aircraft while accompanying Mr. Hansen on business travel. Payments to
Mr. Hansen in 1996 and 1997 include $52,140 and $24,593, respectively, for
tax reimbursement and certain other benefits. The amounts paid to
Mr. Cordes in 1998 includes $41,976 for use of the Company aircraft and
$17,298 for car allowance. The amounts paid to Mr. Finlay in 1997 represent
the payment of $35,875 for moving expenses and $12,901 for car allowance.
The amount of personal benefits has been omitted from the table for each
named executive officer for whom the aggregate amount of any benefits did
not exceed the lesser of $50,000 or 10% of the total of the annual salary
and bonus reported for the named executive officer. Personal benefit
amounts paid to Mr. Hansen and Mr. Finlay that do not exceed 25% of
the total personal benefits received have been omitted from this footnote.
18
<PAGE>
(2) For Messrs. Hansen, Cordes, Shimizu and Wehtje, these amounts
were paid for group term life insurance. The amounts paid in 1998 also
include medical insurance. For Mr. Finlay, the amount includes $636 for
medical insurance, $870 for group term life insurance and $26,400 for a
special payment to replace benefits from his former employer which he
forfeited upon his employment with the Company.
OPTION GRANTS IN 1998
The following table sets forth information concerning stock options
granted during fiscal 1998 by the Company to the named executive officers.
<TABLE>
Number of
Securities % of Total Present
Underlying Options Exercise Value at
Options Granted to Price Expiration Date of
Name Granted(#)(1) Employees ($/Sh) Date Grant(2)
---- ------------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Charles M. Hansen, Jr. - - - - -
Jeffrey D. Cordes 30,000 5.3 33.50 2/09/98 375,000
Kevin M. Finlay 24,000 4.3 33.50 2/09/98 300,000
Scott E. Shimizu 22,000 3.9 33.50 2/09/98 275,000
Ronald M. Wehtje 15,000 2.7 33.50 2/09/98 187,500
Ronald M. Wehtje 8,000 1.4 31.8125 11/09/98 96,960
</TABLE>
(1) 25% of the option award vests on each of the first four anniversaries
of the date of the grant. If a "change of control" of the Company occurs,
the options become exercisable in full. The definition of "change in control"
for this purpose is the same as in the Company's SERP and is more fully
described under the description of the SERP on page 22 of this Proxy
Statement.
(2) These amounts were calculated using the Black-Scholes Option
Pricing Model, a complex mathematical formula that uses six different
market-related factors to estimate the value of stock options. The Black-
Scholes Option Pricing Model generates an estimate of the value of the right
to purchase a share of stock at a fixed price over a fixed period. The
actual value, if any, an executive realizes will depend on whether the stock
price at exercise is greater than the grant price, as well as the executive's
continued employment through the vesting period. The following weighted-
average assumptions were used to calculate the Black-Scholes Option Pricing
Model value:
Stock price at date of grant = $33.36
Option exercise price = $33.36
Expected option term = 5 years
19
<PAGE>
Interest rate = 5.50%
Company stock = 36.78%
Company dividend yield = 1.05%
Calculated Black-Scholes Value = $12.47 per option
There is no assurance that the value received by the named executive officers
or Pillowtex shareholders will be at or near the estimated value derived
from the Black-Scholes Option Pricing Model.
Option Exercises and Year-End Values
The following table shows exercises of stock options during 1998 and
the amounts and values of unexercised stock options as of January 2, 1999
for the named executive officers.
Aggregated Option Exercises in Fiscal 1998 and
Option Values at January 2, 1999
<TABLE>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at in-the-Money Options
January 2, 1999(#) at January 2, 1999($)
Shares Acquired Value -------------------------- --------------------------
Name on Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
- ----- -------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Charles M. Hansen, Jr. - - - - - -
Jeffrey D. Cordes 19,500 689,812 23,322 52,750 310,618 275,825
Kevin M. Finlay - - 10,000 54,000 107,500 322,500
Scott E. Shimizu - - 14,250 44,750 200,575 275,525
Ronald M. Wehtje 5,500 184,875 - 36,500 - 170,062
</TABLE>
(1) Value realized is equal to the difference between the option
exercise price and the fair market value of Pillowtex Common Stock on the
date of exercise multiplied by the number of options.
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, Pillowtex Canada Inc. (f/k/a 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.
20
<PAGE>
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 16,415 21,887 27,359 32,831 38,303
$150,000 20,165 26,887 33,609 40,331 47,053
$175,000 21,665 28,887 36,109 43,331 50,553
$200,000 21,665 28,887 36,109 43,331 50,553
$225,000 21,665 28,887 36,109 43,331 50,553
$250,000 21,665 28,887 36,109 43,331 50,553
$275,000 21,665 28,887 36,109 43,331 50,553
$300,000 21,665 28,887 36,109 43,331 50,553
</TABLE>
(1) Estimated credited years of service as of January 2, 1999 for the
named executive officers are as follows: Charles M. Hansen, Jr. - 34 years;
Scott E. Shimizu - 17 years; Jeffrey D. Cordes - 15 years; Kevin M. Finlay
- - 12 years and Ronald M. Wehtje - 13 years.
(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 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 1998 plan year is $160,000. Therefore, fiscal 1998 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.
21
<PAGE>
Supplemental Executive Retirement Plan
The Supplemental Executive Retirement Plan (SERP) provides supplemental
retirement income to executive employees of the Company who are selected by
the Compensation Committee.
Each of the named executive officers and one other corporate officer are
covered by the SERP. When combined with the pension plan and social security
benefits, the SERP is designed to provide a targeted retirement benefit equal
to 50% of an executive's final average compensation. However, the
executive's actual benefit will be determined solely by the vested balance
of the Executive's account balance under the SERP. Final average
compensation is the projected total cash compensation for the five
consecutive years of service with the Company ending at age 65.
An amount is credited each year to a retirement account that will
accumulate a balance sufficient to pay the supplemental retirement benefit
when the participant reaches age 65, assuming each credited amount earns
12% per year compounded. On the date of the contribution each year, the
annual accrual amount is divided by the market value per share of Common
Stock on that date to produce a number of hypothetical shares. Each
participant's supplemental retirement account is deemed to be invested solely in
hypothetical shares of Common Stock and the balance of a participant's
account as of any date can be determined by multiplying the number of
hypothetical shares credited to the participant's account by the market
value of Common Stock on that date. In the event of a change in control of
the Company, the balance of each participant's account will be converted
from hypothetical shares to a hypothetical fixed-income investment earning
12% per annum. In general, a "change in control" occurs when (i) the
Company is no longer an independent publicly owned corporation or sells or
disposes of all or substantially all of its assets, (ii) a person becomes
the beneficial owner of 35% or more of the Company's voting stock,
(iii) the Company does not survive a merger or consolidation; or
(iv) during any consecutive two-year period, at least a majority of the
incumbent directors are not directors who have served continuously since the
beginning of the two-year period unless the election of directors, or
nomination by the Company's shareholders, was approved by a vote of at
least two-thirds of the incumbent directors who have been in office
continuously since the beginning of the two-year period.
Vesting under the SERP occurs at the same rate as vesting under the
Company's pension plan. Immediate vesting in both plans occurs in the event
of a participant's disability or a change in control of the Company.
Payments under the SERP will be made in a single lump-sum cash payment
unless the participant elects in advance to receive installment payments. If a
participant dies before benefits are scheduled to begin, benefits will be paid
to the beneficiary designated by the participant, or, if no beneficiary was
designated, to the surviving spouse or to the participant's estate if there is
no surviving spouse.
22
<PAGE>
The SERP may be amended or discontinued at any time by the Compensation
Committee of the Board of Directors or by the full Board. Any amendment may
reduce prospectively the earnings factor to be applied to a participant's
account, or may change the hypothetical investment of account balances from
hypothetical shares of Common Stock to any other hypothetical investment but
may not decrease a participant's account balance as of the date of the
amendment. In the event of a change in control, the SERP may not be amended
in a way that would adversely affect a participant's existing or future
benefit without the participant's written consent.
Assuming retirement at age 65, the estimated annual accrual amounts for
the named executive officers are as follows:
Charles M. Hansen, Jr. $241,555
Jeffrey D. Cordes 25,089
Kevin M. Finlay 22,919
Scott E. Shimizu 21,472
Ronald M. Wehtje 9,143
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. The Compensation Committee also
may change the discount rates and actuarial assumptions that are used
to calculate credits and targeted benefits under the SERP.
Executive Deferred Compensation Plan
The Executive Deferred Compensation Plan offers participants the ability
to defer all or a portion of his or her compensation for any calendar year.
Compensation deferred by a participant is treated as if it were set aside in an
account and earns interest at a rate determined by the Compensation Committee
of the Board of Directors. Unless otherwise determined by the Compensation
Committee, interest will be earned at the prime rate, according to The Wall
Street Journal, plus one percent.
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 the amount would not be subject to the deduction limitation.
Benefits will be paid upon retirement, disability, termination of
employment or death. In the case of nonemployee members of the Board of
Directors, benefits will be paid on termination of service as a member of the
Board of Directors.
The Executive Deferred Compensation Plan is administered by the
Compensation Committee of the Board of Directors. Key executives and
23
<PAGE>
nonemployee members of the Board of Directors designated by the Compensation
Committee are eligible to participate in the Deferred Compensation Plan. Each
of the named executive officers is eligible to participate.
Employment Agreements
Charles M. Hansen, Jr. entered into an employment contract with the
Company on January 1, 1993 which includes amendments dated July 26, 1993 and
January 20, 1998. The basic terms of the agreement provide for the following:
Employment of Mr. Hansen as Chairman of the Board and Chief
Executive Officer until June 20, 2005;
Base salary of $900,000 per year, subject to increases
determined by the Compensation Committee;
Bonuses at the discretion of the Compensation Committee;
A $3 million life insurance policy benefiting his designees; and
Disability payments equal to 60% of his base salary at the
time of disability for five years or the remainder of his
employment term, whichever is longer.
The Company may terminate Mr. Hansen without further compensation for
conduct that demonstrably affects the Company's reputation in a substantial
adverse manner if Mr. Hansen does not 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 his employment
and for one year after termination.
If Mr. Hansen is terminated other than as permitted by the employment
agreement, he will receive an immediate payment equal to his compensation for
the remainder of the term of his employment agreement on a "grossed-up" basis
to reimburse him for income taxes on the payment. Mr. Hansen also receives
an annual grossed-up payment to reimburse him for income taxes due to certain
fringe benefits received from the Company.
On July 26, 1993, Mr. Hansen and the Company entered into a Split Dollar
Life Insurance Agreement that changed the $3 million term life insurance
coverage to an equal amount of split dollar life insurance. 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
Mr. Hansen the balance of the premiums as they become due. The loan is
evidenced by Mr. Hansen's promissory note to the Company that bears
interest quarterly at a floating annual interest rate equal to the greater
of the federal mid-term interest rate as published by the Internal
24
<PAGE>
Revenue Service or the lowest rate that hte Company can borrow funds under
its bank loan agreements. In a further amendment to Mr. Hansen's employment
agreement, dated January 20, 1998, the Company agreed to also pay the
interest, on a grossed-up basis, on the amount loaned. As of
January 2, 1999, the amount outstanding under the promissory note was
$276,680. The promissory note is due August 5, 2003, or an earlier date
as may be required by the terms of the Split Dollar Life Insurance Agreement.
Mr. Hansen has assigned the split dollar life insurance policy to the
Company as security for payment of the amounts covered under the
promissory note.
On January 1, 1998, the Company entered into new employment agreements
with Jeffrey D. Cordes, Kevin M. Finlay and Scott E. Shimizu. These employment
agreements replaced previously existing agreements and provide for an initial
base salary of $500,000, $400,000 and $375,000, respectively. On November 9,
1998, the Company entered into an employment agreement with Ronald M. Wehtje
as Senior Vice President and Chief Financial Officer for an initial base
salary of $300,000.
Each employment agreement contains the following provisions:
Participation in the incentive bonus plans of the Company,
as well as the Supplemental Executive Retirement Plan;
An initial employment term of three years with an automatic
extension of one year on each anniversary date beginning with
the second anniversary date so that the term will have a
remaining duration of two years upon each and every anniversary.
The automatic extensions will terminate if either party gives
the other written notice at least 15 months prior to the
anniversary date of its intent not to extend the agreement.
Payment of base salary through the remaining employment term,
but not more than for a two-year period, and certain benefits
under the incentive bonus plans if the Company terminates the
executive's employment without cause.
Payment of certain amounts, including severance payments, on the
occurrence of termination of employment by the executive for "good
reason" or termination by the Company without "cause" following a
"change in control".
Each employment agreement also includes certain noncompetition,
nondisclosure and nonsolicitation provisions. Mr. Finlay's agreement further
provides that through April 11, 1999 he will receive bonuses totaling at least
$150,000 per year.
Restricted Stock Awards
In February 1999, the Board, on the recommendation of the Compensation
Committee, approved the grant of restricted stock awards to certain key
25
<PAGE>
employees of the Company. All of the named executive officers, including the
Chief Executive Officer, received restricted stock awards. In a restricted
award, the Company makes an immediate transfer to the executive of a specific
number of shares, and no payment from the executive is required. Restricted
stock will be forfeited by the executive if the executive voluntarily
terminates employment during the restriction period, or if the executive
is terminated for poor performance or other "cause." Restrictions on the
awards lapse with respect to one-half of the shares on each of the first
and second anniversary dates of the awards. Stock representing the award
is issued and held in custody by the Company or an agent until the
restrictions lapse. During the restriction period, holders of the awards
are entitled to receive dividends declared on the Common Stock and have
voting rights but they may not sell or transfer the Common Stock.
In the event of a change in control of the Company (as such term is used
in the Company's SERP), all restrictions lapse. The restrictions also lapse
if the executive's employment is involuntarily terminated for a reason
other than poor performance or other "cause."
Certain Transactions
On May 21, 1997, the Company agreed to make an unsecured loan to
Kevin M. Finlay in the amount of $61,000 to cover certain relocation expenses.
The loan bears interest at the average interest rate that the Company pays for
borrowed funds. The loan becomes due on the earlier of Mr. Finlay's
termination of employment or four years from the date he was hired.
Mr. Finlay is required to make prepayments equal to 25% of the principal
amount along with annual interest payments from any bonus received under
any of the Company's incentive bonus plans. On January 2, 1999, principal
and interest on the loan totaled $43,707.58.
Compensation Committee Interlock 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 1998 were Messrs. Gillease, Madden and La Rovere and
Mrs. Silverthorne.
Charles M. Hansen, Jr. served on the board of directors of Triangle
Pacific Corp. from 1992 through 1998 and served on its compensation
committee. M. Joseph McHugh served as a director and executive officer
of Triangle Pacific Corp. from 1994 until December 1998 when he retired.
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.
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. Under the terms of the agreement, Mr. Gillease is paid a
consulting fee of $9,000 per month and reimbursement of travel expenses. The
agreement with Mr. Gillease was terminated as of December 31, 1998.
26
<PAGE>
STOCK PERFORMANCE GRAPH
Assuming that the value of the investment in Pillowtex Common Stock, the
S&P 500 and a peer group of textile manufacturers was $100 on December 31,
1993, and that all dividends were reinvested, this graph compares the
cumulative shareholder return, plotted on an annual basis, for a five-year
period beginning December 31, 1993 and ending December 31, 1998.
[GRAPH]
PILLOWTEX CORPORATION
1999 Proxy Graph
Plot Points
<TABLE>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Pillowtex Corporation $100.00 $ 48.15 $ 57.64 $ 90.57 $177.32 $136.97
S&P 500 Index 100.00 101.32 139.40 171.40 228.59 293.91
Peer Group 100.00 70.72 74.64 74.25 93.57 108.39
</TABLE>
Peer Group
Burlington Industries, Inc. Guilford Mills, Inc.
Cone Mills Corporation Kellwood Company
Crown Crafts, Inc. Shaw Industries, Inc.
Culp, Inc. Springs Industries, Inc.
Delta Woodside Industries,Inc. Thomaston Mills, Inc.
Dixie Yarns, Inc. WestPoint Stevens, Inc.
27
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors has selected the firm of KPMG Peat Marwick LLP as
the Company's independent auditors for 1999. KPMG Peat Marwick LLP has
served as the Company's independent auditors since 1986. A representative of
the firm is expected to be present at the meeting and will be available to
answer questions and will be given the opportunity to make a statement, if
desired.
SHAREHOLDER PROPOSALS
Shareholders may submit proposals on matters appropriate for shareholder
action at subsequent annual meetings of the Company consistent with Rule
14a-8 promulgated under the Exchange Act, which in certain circumstances
may require the inclusion of qualifying proposals in the Company's Proxy
Statement. For such proposals to be considered for inclusion in the
Proxy Statement and proxy relating to the Company's 2000 Annual Meeting
of Shareholders, all applicable requirements of Rule 14a-8 must be
satisfied and such proposals must be received by the Company no later
than December 3, 1999. Such proposals should be directed to Pillowtex
Corporation, Attention: Secretary, at 4111 Mint Way, Dallas, Texas 75237.
AVAILABILITY OF FORM 10-K
The Company will provide without charge to any shareholder, upon written
request, a copy of the Annual Report on Form 10-K for the fiscal year ended
January 2, 1999, as filed with the SEC. Requests should be addressed to
Pillowtex Corporation, 4111 Mint Way, Dallas, Texas 75237, Attention:
Investor Relations.
The foregoing notice and proxy statement are sent by order of the Board
of Directors.
BRENDA A. SANDERS
Secretary
28
<PAGE>
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
22, 1999 at the Annual Meeting of Shareholders to be held on May 5, 1999
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 1, 1999, 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 nominees
to the contrary) listed below
---------------- -----------------
For terms to expire at the 2002 Annual Meeting of Shareholders (except
as marked to the contrary): Paul G. Gillease, Ralph W. La Rovere, Scott
E. Shimizu and Mark A. Petricoff.
(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 Restated Articles of Incorporation to
increase the number of shares of authorized Common Stock from 30,000,000
shares to 55,000,000 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 action that said proxies,
their substitutes, or any of them, might
lawfully take in accordance with the
terms hereof.
Dated: 1999
--------------------------------
--------------------------------
--------------------------------
Signature(s) of Shareholder(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.
