O722OSDP (3).tXt IN THE UNITED STATES BANKRUPTCY COURT FOR THE MIDDLE DISTRICT OF TENNESSEE IN RE: O hapter 11 PILLOWTEX CORPORATION, Qt 31., Debtors. CASE NO. 03-12339 w w w xa /V DEPOSITION OF DAVID A. PERDUE Taken on BehaTf of the Unsecured Creditors JuTy 22, 2005 VOWELL & JENNINGS, INC. Court Reporting Services 328 Washington Square Bui1ding 222 Second Avenue North Nashvi1Te, Tennessee 37201 (615) 256-1935 1 APPEARANCES: 2 For the Unsecured Creditors: Page 1 072205DP (3).tXt ZACHARY G. NEWMAN JEFFREY ZAWADZKI Hahn & Hessen 488 Madison Avenue New York, New York 10022 212.736.1000 212.478.7400 For the witness: WILLIAM P. QUINN, JR. Morgan, Lewis & Bockius 1701 Market Street Phi1ade1phia, Pennsy1vania 19103-2921 215.963.5775 215.963.5299 STEPHEN B. SELBST McDermott, wi11 & Emery 50 Rockefe11er P1aza New York, New York 10020-1605 212.547.5362 212.547.5444 For the Debtors: TIMOTHY M. BOGEN Debevoise & P1impton 919 Third Avenue New York, New York 10022 212.909.6011 voweT1 & Jennings, Inc. (615) 256-1935 INDEX OF EXAMINATIONS Page/Line By Mr. Newman - - - - - u - - n n n - n - - tl 5 2 By Mr. Quinn - n - n I - u I - - - n u - - u n - - -- 192 6 By Mr. Newman . I I - - u - I - v u u - n - - u - I :- 202 6 Page 2 072205DP (3).tXt By Mr. Quinn . . . . . . . . . . . . . . . . . . . . . . .. 203 21 ' INDEX OF EXHIBITS Page/Line No. 51 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 41 11 No. 52 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 121 21 No. 53 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 122 24 No. 54 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 129 7 No. 55 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 141 12 No. 56 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 148 9 No. 57 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 151 11 No. 58 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 152 22 No. 59 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 162 24 No. 60 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 167 25 No. 61 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 171 19 No. 62 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 174 15 No. 63 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 189 16 No. 64 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 191 6 No. 65 . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 195 23 vowe11 & Jennings, Inc. (615) 256-1935 3 The deposition Of DAVID A. PERDUE, taken on behaTf of the unsecured Creditors, on the 22nd day of Ju1y, 2005, in the offices of Mi11er & Martin, 1200 One Nashvi11e P1ace, 150 Fourth Avenue North, Nashvi11e, Tennessee, For a11 purposes under the Bankruptcy Ru1es of Civi1 Procedure. The forma1ities as to notice, Page 3 072205DP (3).tXt caption, certificate, et cetera, are waived. A11 objections, except as to the form of the questions, are reserved to the hearing. It is agreed that Elisabeth A. Mi11er, being a Notary Pub1ic and Court Reporter for the State of Tennessee, may swear the witness, and that the reading and signing of the comp1eted deposition by the witness are reserved. Vowe11 & Jennings, Inc. (615) 256-1935 4 EXAMINATION BY MR. NEWMAN! Q. Good morning, Mr. Perdue. A. Good morning. Q. As I introduced myse1f to you ear1ier, my name is Zachary Newman. I am here with my co11eague, Jeffrey Zawadzki. we are attorneys with the Taw firm of Hahn & Hessen in New York. we represent the officia1 committee of the unsecured creditors of Pi11owtex Corporation. First, Tet me thank you for taking time out to come in today. we appreciate that. Page 4 O72ZO5DP (3).tXt A coupie of just basic ground ruies. If at any time you want to take a break, just Feei free to say so, and we wi11 do that. If at any time I ask you a question you don't understand, 1et me know. Most importantly, because we are transcribing today's deposition, I need you to verbaiize a11 answers as opposed to a nod of the head. A. Sure. Q. Let's get started. Have you ever been deposed before? A. NO. vowe11 & Jennings, Inc. (615) 256-1935 Q. If you cou1d p1ease just describe your educationai background starting with co11ege. A. I have a bache1or's degree in industriai engineering from Georgia Tech, Georgia Institute of Technoiogy. I have a Master's of Science degree in operations research a1so from the Georgia Institute of Technoiogy. Q. You received your Master's of science in 1976? A. Correct. Q. Any other schooiing after that? A. N0. Q. Can you describe your work background briefiy starting from your graduation with the Master's in Science? A. Let's see, Kurt Saimon Associates. Page 5 I'm 1X1'(E) dGSOZZ£0 072205DP (3).txt trying to get aii the chronoiogy here for you. 'noK J0} adau K5OLOUOJqD aul [Le 196 o1 6utAJ1 You just want lUBM 1sn§ now Professionai Pianning Associates. 'sa1eg3ossv 5UtUUELd LEUOtSSB}0Jd them in chronoiogy, just in order? gaapuo ug 1sn[ ‘K50LOUOJqD up maul leql SBL1L1 aul aw 9At5 ueo nofi }t ‘ueaw -0 Q. Yeah, if you can give me the tities that you heid at each company and approximate date alep alewtxoadde pue Auedwoo uoea 12 pLau nofi ranges. ‘S95UEJ Yeah, there were various tities. 'saL1;1 snogaew SJBM aaaul ‘ueaw Graduated palenpeag 'v consuiting untii '84, '72 to '84. I was in ut sem 1 A. '73, 01 Z4, ‘V3, Ltlun fiutlrnsuoa undergraduate in '72. '72 to '84, Kurt Saimon. voweii & Jennings, Inc. (615) 256-1935 'uowLes lanx ‘pg, 01 Z1, s26t—9sz (s19) ‘DUI ‘sfiuauuar Q LL9M°A ‘Z4, ug B1PHpEJ5JBpUn 9 6 I started p91JE1S 1 Ended up as partner after four years. -saeafi Jno; J81}? J8U1JEd se dn papua as a staff associate. 'e1e;aosse jjels e so Then I went to work with Professiona1 Leuotssajoad ultm qdom 01 luam 1 uaui Pianning Associates for approximate1y four Jnoj KL31BwtXOJdd2 J0} saletaossv 6utuueLd years -- three or four years as a partner. 'J8U1JEd 2 se SJQBK Jno; JO aaaul -- SJPBK Then I went to westar Ho1ding Company as se Auedwoj 6utpLoH JB1SBM 01 1uaM 1 uaui Then went to Gitano for a brief period p0tJ8d }9tJq 2 J0} oueltg 01 luam uaui president. -luaptsaud of time, probabiy one year, then Sara Lee. 'aai 2425 uaul ‘JPBK auo ALqeqoJd ‘amt; go Then uaui Sara Lee was probabiy two or three years. 's4eeK aaaul JO OM1 ALqeqoJd sem aai eaes Haggar Corporation, and that was in '94 to '98 36, 01 V5, ug sem 1eu1 pue ‘uogledoddop JE55EH Then Reebok, '98 to 2002. ‘Z993 01 95, ‘qoqaaa uaui -ALa1ew;xo4dde ‘E-. -ZOOZ ‘X91M°LLLd Piiiowtex, 2002- ‘-3. -— E002 ‘LPJBUBB JPLLQQ PUV approximateiy. And Do11ar Generai, 2003 -- or, yeah, 2003 to present. '1U8S9Jd 01 5003 ‘ueefi ‘JO The tities, going back, you want me to do op 01 aw 1UPM nofi ‘qoeq 6uto6 ‘saL1t1 aui I'm sorry. At Gitano, it was managing fiugfieuew sem 1; ‘oueltg 1v 'AJJos w,1 tities. -saL1;1 director, Asia sourcing; Sara Lee, it was managing fiutfieuew sem 1; ‘aaj 242$ f5Ut3JflOS etsv ‘JO138Jtp director of Asia operations; Haggar was senior VP dA J0tUBS sem JE55PH fsuotleaado etsv go JO1DBJtp of operations; Reebok was president of the Reebok xoqaau aul jo 1U8ptSBJd sem qoqaag isuoyledado jo brand; Piiiowtex was chairman; and Do11ar Genera1 Leaauag JELLOG pue iuewdteua sem X81MOLLLd ipuedq Page 6 9 afied is chairman/CEO. Q. 072205oP (3).txt Can you describe your experience with outsourcing? A. that. Yeah, I spent most of my career doing Kurt Saimon Sa1mon Associates, some of my experience there was heiping footwear companies vowe11 & Jennings, Inc. (615) 256-1935 7 deveiop the abiiity to import shoes from Asia, specificaiiy Taiwan, Korea, china, Indonesia, Maiaysia. Later with Haggar Corporation -— sorry, with Gitano and Sara Lee, having 1ived there, I iived in Singapore with Gitano and in Hong Kong with Sara Lee, sourcing was my primary responsibi1ity in both of those iocations. 1ocations. I dealt with companies from Japan westward a11 the way to Kenya and Lesotho in Africa, Dubai, Pakistan, Bangiadesh, India, Thai1and, Maiaysia, Myanmar, Indonesia, Vietnam, aii points west of Japan. Then at Reebok most of —— a11 of our production was sourced in Asia. Same thing, both apparei, textiie products, and footwear products. I couid cou1d go on with that. That's the summary. Q. You couid cou1d go on and -- A. No, it's pretty much that, and marketing were two of my backgrounds. Q. when you joined Reebok, was Reebok outsourcing a11 of its product to Asia? A. Yeah, predominantiy. We did a few Page 7 3 afied Page 8 9 6 5261-952 (s19) "DUI ‘sfiuyuuar w LL9M°A orders, interact with the buying divisions, put vowell & Jennings, Inc. (615) 256-1935 1nd 'SUOLSLALp fiutfinq aul qltm 1DEJ81UL ‘saapao aoeld 01 aLdoad LOJ1UOD K1LLenb pue SJBSLPUEQDJBW merchandisers and quality control people to place 5ULd0L8A9p BJ,HOK leul ut paleotldwoo complicated in that you're developing aaow aL11tL e st 142d puoaas aul The second part is a little more '6uI14odwI a4,noK uappns 2 Io [Le pue 'UOL13ESUEJ1 transaction, and all of a sudden you're importing. -u4n1 qatnb KJBA 2 st leui That is a very quick turn. e aqew now 'PJ8lB3 1a et cetera. You make a ‘saelqodwt ‘SJO1flqLJ1SLp ‘s1ua5e ‘satlaed pJLq1 third parties, agents, distributors, importers, -1; op 01 sflem OM1 aae adaui There are two ways to do it. Butsn st auo "v A. One is using 'aa1 242$ 12 ptp nofi aqIL like you did at Sara Lee. uanw Eugnunoslno 40; aanlandlsedjut ue 6uIpLInq building an infrastructure for outsourcing much ut PBALOAUL s,1eqM aqtqasap KLjaI4g -0 Q. Briefly describe what's involved in -xaLdwo3 aai 2425 aul the Sara Lee complex. aptsut suotstwtp {I awos 01 6uILLas 01 saaAoLdwa employees to selling to some 11 divisions inside 1SJL§ aql 6uI4Iu ‘dn punoafi au1 WOJ} 1Eq1 1LInq built that from the ground up, hiring the first am pue ‘etsv ut UOL1EJ3dO Butodnos pBZLLEJ1U8D centralized sourcing operation in Asia, and we 2 aweu lou ptp aai 2425 ‘aaq 2425 1v 'v Q. ‘D '1H5¥J LL? 5.1PHi A. At Sara Lee, Sara Lee did not have a That's all right. BY MR. NEWMAN! ZNVWMEIN "AW A8 I apologize. '9ZL50L0dP I You have to say yes. iSS3NiIM 3Hi :NN1nb ‘aw -- am aaj 2425 'unu-un Uh—huh. 'saA fies 01 aAeu now THE WITNESS: MR. QUINN: ‘v A. Sara Lee we -- gfiutoanoslno go adnlonalsedjut infrastructure of outsourcing? aul 6uIpLtnq ut LLB 12 PBALOAUL now aaam were you involved at all in building the 'XB1MOLLLd 01 JOLJG sqofl JHOK go flue 1v ‘D Q. At any of your jobs prior to Pillowtex, 'eLsv ut paaanos sem luaaqad QQI 'JLPd M9} few pair, 100 percent was sourced in Asia. K s 8 . SEGI-952 (S19) '3uI '55uPuu9E ? LL9M°A KJGA Jo; 1dBDX9 ‘Mouq nofi ‘1nq ‘uo1u6no1s ut aaaql there in Stoughton, but, you know, except for very vowell & Jennings, Inc. (615) 256-1935 JB1U83 1U8wdOLBA8p JHO ut s13a§o4d LLQM-aul-jjo off-the-wall projects in our development center 1X1'(£) dosozzzo O7ZZO5DP (3).txt 072205oP (3).txt people who are on -- responsible for human rights compliance as well as quality control compliance, and then, of course, the financial people to work the administration with regard to letters of credit, import paperwork, and all the administration therein. Q. And at Sara Lee, which of the two ways to outsource or a combination of both? A. The latter. Q. How long of a process did it take at Sara Lee to implement the infrastructure? A. We were sourcing within the first six months; that means importing product to Europe and the U.S. Q. what were the costs associated at sara Lee for building the outsourcing infrastructure? A. well, you had the -- without quantifying, which I couldn't do without some research, I think the costs were obviously the office space in the location, whether it be Hong Kong or inland. You had transportation costs; you had the overhead costs. That was it. In terms of the cost of goods, you know, you had significant advantages on cost of goods there compared to what Sara Lee was doing vowell & Jennings, Inc. (615) 256-1935 10 domestically. By domestically I mean in Europe and the U.S. Page 9 1X1'(s) dosozzzo 072205DP (3).txt when did you first learn that Pillowtex xa1MoLLLd 1Pql uJeaL 1sJL1 now pLp uaum Q. '0 was searching for a chairman of the board? ;pJeoq aul 10 uewdteua e Jo; EULQDJEBS sem A. In the spring of '02. "v '39, 10 6uL4ds aul u1 Q. And how did you come to hear that leul Jeau 01 awoa now pLp Mou puv ‘D Pillowtex was searching for a new chairman? LUEWJLEQD Mau e Jo; 6uLu3Jeas sem X91MOLLLd I got a phone call from Jim Carpenter at 12 Ja1uadJe3 wtg woqg LL23 auoud e 106 1 A. ‘v Russell Reynolds. 'spLouwa3 LLassnu And what is Russell Reynolds? '0 ;spLouwau LLassna sL leum puv A. -v An executive search firm. -wag; uoaeas BAL1fl39X9 uv Q. '0 And where are they located? ¢pa1e3oL waul aJe adaum puv A. They have multiple offices. I think their JLBQ1 qugul I Q. 'saoL;jo aLdL1Lnw aweu waut "v headquarters are in New York. 'xJow MBN uL sue sJa1Jenbpeau Had you known Jim Carpenter before he au adojaq JB1U9dJQ3 mgr umouq now pen Q. -o called you? gnow paLLe3 A. NO. Q. '5 .V LLLP3 PUPLQ 9 SEM 11 .0N A. .V YES. .59, Q. Did you actually speak to Jim Carpenter It was a blind call? J91U8dJP3 wtr 01 weeds wLLen13e now pLq '0 £P9LLP3 9H Bwll 15J!} BN1 the first time he called? I don't recall if the first phone call I I LL23 auoud 1sJL1 aul 1; LLe3aJ 1,uop I A. 'v talked to him, but within a day or two after Jalje OM1 JO wep 2 ULq1LM 1nq ‘wtu 01 paqLe1 receiving the phone call, he and I had a personal Leuosaad e peu I pue au ‘LL23 auoud aul fiutwtaoaa telephone conversation. vowell & Jennings, Inc. (615) 256-1935 SE61-9SZ (S19) '3uI ‘55uLu"9E Y LL9M°A 'UOL1ESJ8AUO3 auoudaLa1 IT 11 And what did -- what was the sum and pue wns aul sem 1euM -~ ptp 1euM puv Q. -0 substance of that telephone conversation? @uoL1esJaAuoa auoudaLa1 1eu1 go a3ue1sqns well, he had -- he was representing 5UL1UBSBJd8J sem au ~~ peu au ‘LLaM A. -v Pillowtex, but he was espousing that 1eu1 6uLsnodsa sem au 1nq 'X91MOLLLd oaktree Capital was the driving investment 1U9w1S8AUL 5ULALJp aul sem Le1Lde3 88J1flEQ 0I 959d Page 10 07220SDP (3).txt 072205DP partner, that they were looking for someone to come into a situation of a company that was in -he named the company, that they were in bankruptcy. He mentioned the brands. Of course, of I knew the brands. And he explained that they were looking for someone to come in and effect a turnaround strategy around sourcing and marketing for premier brands that Pillowtex owned. Q. what else was said during the initial phone call to Mr. Carpenter? A. well, I had questions about the -- the status of the bankruptcy, the status of the current manufacturing, the plans regarding that. This was a very preliminary conversation, but I do remember a brief conversation about that. It was mostly with Jim explaining what oaktree wanted to do in their turnaround in terms of the strategy. Q. What did Mr. Carpenter explain to you vowell & Jennings, Inc. (615) 256-1935 12 about Oaktree's view of the turnaround or their strategy? A. well, the strategy at that time was that they wanted to effect cost of goods sold, to apply the brands to U.S. retailers in a way that possibly had not been done in order to compete with imports and with other textile competitors, domestic and foreign, regarding some of the programs that they had now and that they wanted to Page 11 Page 12 ZI Bfiva guluom leqm Jaqmamau now on -D Q. '0 .v gleul sem uaum .59, A. -v Sometime in the mid to late spring in '02. '39, ut 5ULJdS a1eL 01 pLm aqg ug amggamos Q. Do you remember what month? A. when was that? Yes. ggaluadgeg mtg qltm uosgad person with Jim Carpenter? ug lam now geug amt; 2 amoa agaqg pgq -0 Q. Did there come a time that you met in BY MR . NEWMAN I INVWMHN ' HI/\ A8 'auop 1ou not done. peu SUOL1EJ1SLULwpE JOLJd aql leqg spuegq aql u1LM with the brands that the prior administrations had s6uLu1 op 01 paluem waul 1eu1 pue spoo6 go 1so3 cost of goods and that they wanted to do things 1DBgg8 01 auop aq 01 aweq pLnoM 1eq1 Butagnos aqg the sourcing that would have to be done to effect punoge pBJB1UBD sem wfiageggs au1 1eq1 pauotluam au he mentioned that the strategy was centered around 13 ET ssst-9sz (s19) "DUI ‘sfiuluuac Q LL9M°A But to go back to the conversation, vowell & Jennings, Inc. (615) 256-1935 'UOL1ESJ9AUOD aql 01 xoeq 05 01 lng 'wexo Okay. "wages :ssaNIIM 3H1 THE WITNESS: Sorry. 'ueo now lsaq aqg op gsnr Just do the best you can. 01 now 6uLqse 1ou s,aH 'ssan6 guess. :NN1no 'uw MR. QUINN: He's not asking you to don't think I did, but I don't recall. 'LL9394 1."°P I lnq ‘PEP I XULH1 1."°P I -uoggesgawuoa Jaulang 2 01 paagfie I LL23 auoqd phone call I agreed to a further conversation. I 1sJLg aqg u; ‘1oeg ut ‘gt LLPDBJ 1,uop 1 I don't recall if, in fact, in the first -egagao 1a et cetera. ‘egalaa 1a ‘1eq1 ut pB1S8JB1UL aq JBAB now pLnoM would you ever be interested in that, et cetera, iwltunggoddo ue aweu I ‘fiuguogegawo ue go agom more of an overarching, I have an opportunity; wLLeau sem uotgesgawuoa 1sJLg aqi ’UOL1ESJBAU03 conversation. The first conversation was really 1SJLg aul ut pauaddeq sLq1 go LLe gL Mouq 1,uop 1 I don't know if all of this happened in the first 'SUOL1ESJ8AUO3 aLdL1Lnm agam agaqg ‘LLam "v A. well, there were multiple conversations. igaguadgeg -Jw wq now 01 pawawuoa conveyed to you by Mr. Carpenter? se wfialegls 2 go asLa Bugqlwue agaul sem '0 Q. was there anything else of a strategy as -agngng aqg ut spuegq asoql q1LM aweq have with those brands in the future. 072205DP (3).txt 1X1‘(£) ao50ZZLO 072205DP (3).txt A. I don't. Q. I just want to go back to the telephone conversations that you were having with Mr. Carpenter. carpenter. Do you remember specifically what questions you asked of him concerning Pillowtex? A. In the first phone call? Q. Any of the phone calls leading up to the first meeting. A. I wanted an opportunity to do some due diligence on site. I had obvious concerns about their plan to exit bankruptcy. I had questions around the assets that they still had to -- the manufacturing capacity that they still had vowel & Jennings, Inc. (615) 256-1935 14 domestically. I had questions about their current state of the business; I wanted to know the organization; I wanted to meet Oaktree; I wanted to know what Oaktree's exit strategy was. Q. Anything else? A. Not that I recall. Q. what were your concerns about Pillowtex planning to exit bankruptcy? A. I'm sorry? Q. what concerns did you have about Pillowtex's plans to exit bankruptcy? A. well, once I —- this is after several -- multiple phone calls and a conversation with Oaktree in person. oaktree My concern was I wanted to encourage them to stay in bankruptcy until I got Page 13 1X1'(£) dGSOZZZO 072205DP (3).txt This was after we were negotiating on me am uo 6uL1eL1o6au agam am Jalge sem sgqi there. 'aJau1 becoming CEO. -033 6uLmoaaq My concern was that I wanted to be sure agns aq 01 paluem 1 geqg sem ugaauoa ww that all the assets had been rationalized that leql pazLLeuoL1eJ uaaq peq slasse aul LLB leul I I needed to be rationalized during bankruptcy. 'w31dn4queq 5ULJnp pazLLeuoL1e4 aq 01 papaau also wanted time to make sure that the financial Legaueugg aug geql agns aqem 01 amL1 paauem osLe status of the business was, in fact, showing up in ut dn fiutmoqs ‘laeg ut ‘sem ssautsnq aul go Sh1ElS the pro forma documents and in the plan of go ueLd aug uL pue sluamnaop emaog 0Jd aql reorganization. _ vowell & Jennings, Inc. (615) 256-1935 'UOL1EZLUE5JOBJ 5261-952 (519) "HUI ‘sfiusuuar Q LL9M°A SI 15 When you say to make sure that certain ULE1J83 1eu1 agns axem 01 wes now uaum Q. '0 assets were rationalized in the bankruptcy, what geqm ‘waldngxueq aug ut pBZLLEUOL1PJ agam slasse do you mean by that? gleqg wq ueam now op This company was —- one of the problems smaLqoJd aul go auo -- sem wuedmoa sgui A. ‘v this company had was overburdened with domestic atlsamop ultm pauapgnqgawo sem peu wuedmoa syql And those cost of goods spoo6 go 1503 asoql puv manufacturing capacity. 'w1Laedea 6uLJn1aegnuem out of those factories were significantly higher Jaqfigq wL1ue3LgLu6Ls agam satgogoeg asoql go gno than the costs or the prices coming in from mogg uL fiutmoa saaggd aul JO S1503 aug ueqg importers at that time. 'amL1 1eu1 1e sgalgodmg I wanted to know how many of those asoqg go wuem Moq Mouq 01 paguem I factors -- -- SJ01DEg He just asked you what leum now paxse 1sn[ an MR. QUINN: :NN1no 'uw you meant by rationalizing. '5ULZLLEUOL1EJ wq lueam now "wages w,I ‘qo ISSHNIIM EH1 THE WITNESS: Oh, I'm sorry. INVWMHN ‘EN A8 BY MR . NEWMAN 1 And rationalizing the assets meant dealing 6uLLeap 1UE8w slasse aql 5ULZLLEUOL1EJ puv Q. -0 with the costs? 551503 aql HlLM Well, dealing with the costs and the aul pue S1503 aug q1LM 6uLLeap ‘LLam A. 'v potential closing of assets and moving a e 5ULAOw pue slasse go 6uLsoL3 LELlUB10d Page 14 VI abed O72205DP (3).txt 072205DP production. Q. why, in your opinion, was it necessary to Why, consider rationalizing these assets while Pillowtex was still in bankruptcy? MR. QUINN: I think he's already answered that, but go ahead. vowell & Jennings, Inc. (615) 256-1935 16 THE WITNESS: It's easier to do that in a bankruptcy while you're under protection than outside. outside the -- the capital required is significant to close one of those large factories, and I wanted to know the starting point. I wanted to know how many of those factors and what the plans were for those -- you know, what the plans were. BY MR . NEWMAN: Q. Now, your concerns for making sure that the certain assets were rationalized while the company was still in bankruptcy and the financial status of the business with respect to what was reflected in the plan of reorganization, did you express those concerns to anybody? A. oh, absolutely. Q. who did you express those concerns to? Who A. Jim Carpenter; there was a man, I don't recall his name, who was the chairman at the time from Dallas; Bruce Karsh; Mariusz Mazurek. Q. Anyone else? A. No. There was another person involved, Bobbie Lenga from Russell Reynolds who was also Page 15 1X1'(€) dGSOZZLO 072205DP (3).txt involved in the dialogue at that time, but that's s,1eu1 1nq ‘amtg 1eq1 12 an6oLeLp aua uL pBALOAUL pretty much it. vowell & Jennings, Inc. (615) 256-1935 '1; uanm w11aJd 5261-952 (519) ‘DUI ‘sfiutuuat 9 LLBMQA LI 17 Who was more senior at Russell Reynolds, ‘spLouwau LLassnx 1e gotuas agom sem oum Q. ‘D Mr. Carpenter or -- -- JO JB1UBdJE) ‘JW A. Carpenter. ‘v ‘J81U9dJP3 Q. Did you ever have a chance to conclude apnLauo3 01 aaueqa e aweq JBA8 now pgq ‘D whether the financial state of the business as se ssautsnq aul go alels Letaueutg aul Jaulaum represented to you was what was reflected in the aul ut pa1aaLgaJ sem leqm sem now 01 pB1UBSBJdBJ plan of reorganization? guogleztuefigoag go ueLd I'm sorry? @wJJOS w,I :NNInD ‘aw THE WITNESS: Objection to form. -mgog o1 uoylaafqo MR. QUINN: ZSSBNLIM 3H1 INVWMHN ‘SW A8 BY MR . NEWMAN Z During your due diligence, did you have a e aweu now pLp ‘a3ua6LLLp anp Jnow fiutgnq Q. ‘D chance to take a look at the financial records at 19 SPJODBJ LPLDUPULJ 3H1 19 XOOL E 9381 01 aaueu: LX91M°LLPd Pillowtex? A. Yes. ‘V ‘SBA Q. ‘D And what did that due diligence entail? ¢LLe1ua aaua6LLLp anp leql ptp leum puv A. I was given a copy of the plan of go ueLd aql go wdoa e UBAL5 sem I ‘v reorganization, and I was told that that plan of go ueLd geug 1eu1 pLo1 sem I pue ‘uogleztuefigoag reorganization represented the current state of go a1e1s guaggna aqg paguasagdag uogleztuefigoag the business. ‘ssaugsnq aql And who told you that? ‘D ggeul now pLo1 ouM puv A. Tony, the prior president. That was in uL sem leqi Q. '1U8pLS8Jd JOLJG aqg ‘wuoi ‘v May of '02. ‘Z0, go wew What state of business questions did you now pgp suotlsanb ssautsnq go 81213 leqm Q. ‘D pose to anyone at Pillowtex or Oaktree concerning Butugaauoa aaggxeo JO X81MOLLLd 1e auowue 01 asod Pillowtex's financial statement? vowell & Jennings, Inc. (615) 256-1935 gguamalegs LeLaueuLg S,XBlMOLLLd 5261-952 (519) ‘Jul ‘sfiuiuuar 9 LL9M°A 81 9I 859a Page 16 18 O72205DP (3).tXt 072205DP MR. QUINN: Can you clarify what you mean by state of business questions? MR. NEWMAN: sure. Mr. Perdue listed a bunch of due diligence items. MR. QUINN: MR. NEWMAN: Right. One was that he stated various business questions. MR. QUINN: MR. NEWMAN: Right. So I'm basically asking Mr. Perdue to expound upon that prior answer. MR. QUINN: THE WITNESS: All right. First of all, they explained the assets that were still in place; they explained the organization; they explained the plan and the plan of reorganization to develop an outsourcing strategy; they explained the health of the backlog that was mirrored in the plan of reorganization and, under questioning, verified that the sales backlog was indeed consistent with what was in the plan of reorganization; That the ongoing programs that they were negotiating as we spoke were healthy in terms of the programs with the major customers; and that the retention of the senior staff was acceptable at that point. vowell & Jennings, Inc. (615) 256-1935 19 BY MR. Q. NEWMAN: And who or which persons were providing Page 17 1X1'(€) dGSOZZl0 072205DP (3).txt you the answers to the questions that you were agam now 1eu1 suot1sanb au1 o1 SJBMSUE aq1 now posing about -- -- 1noqe fiutsod A. Tony. 'v -wuoi Q. Did Oaktree provide any information to you now 01 uot1emJogut wue aptwogd aaJ1xeD ptq "D during your due diligence at Pillowtex? @xa1MoLLtd 1e aaua5tLtp anp gnow 6utJnp A. Yes. Q. "D .v LQSJPM BDHJS s,ouM puv .SaA A. I think he's -- Bruce Karsh is an employee And who's Bruce Karsh? aawoLdma ue st usgex aanga -- s,au xutq1 I "v of Oaktree Capital. ‘Le1tde3 aaJ1xe0 go I have heard a couple different spellings s6utLLads 1uaJaggtp aLdnoa e pgeau aweq I ‘D of this gentleman's name. I can't ever get it 1t 1a6 JBAB 1,uea I Q. ‘ameu s,uemaL1ua6 stu1 go right. '1u6tJ A. ‘v 'H—S—H—V-M Q. I'm referring to Mariusz Mazurek. K—A—R—S—H. Forgive awtfigog ‘qagnzew zsntgew o1 fiutddagag m,1 ‘D me if I butchering his name. 'ameu stq 6utJaqa1nq I gt am What position at Oaktree did he have? LBAPH EH PLP 39J1XPO 12 uotltsod 1EqM He was an employee of oaktree, but he was seM au 1nq ‘aaJ1qeo go aawoLdma ue sem an "v the project manager. In my term, he was the guy wn6 au1 sem au ‘mJa1 wm u1 A. ‘dafieuem 1aa§oJd au1 responsible for the Pillowtex account. ‘1unoaae xa1MoLLtd au1 dog aLqtsuodsa1 You also mentioned during your due anp Jnow fiutgnp pauot1uam osLe now Q. 'D diligence you had certain questions for Oaktree aaJ1qeD Jog suot1sanb ULB1JB3 peq now aaua6tLtp and in particular with respect to Oaktree's exit 1txa s,aaJ1xeD o1 133dSBJ u1tM JPLn3t1JBd ut pue strategy. Tell me what types of questions you vowell & Jennings, Inc. (615) 256-1935 SE61-952 (SI9) ‘DUI ‘55"¥""9f 9 LLBMOA now suot1sanb go sadw1 1euM am LLaI 'w691PJ1S OZ 20 posed to Oaktree. 'aaJ1qeD o1 pasod I wanted to know if they had the stomach qaemo1s aq1 peu waq1 gt Mouq 01 pa1ueM I A. "v for a turnaround or if this were a financial play. -weLd Letoueutg e agam stq1 gt JO punodeuJn1 2 Jog I was sem I I wanted to know how much debt they owned. 'pauMo waq1 1qap uanm Moq Moux o1 pa1ueM 1 concerned about their position both as a creditor JO1tpBJ3 e se u1oq uot1tsod 1taq1 1noqe paugaauoa Page 18 gt afied and as a shareholder. O72205DP (3).txt 072205DP I wanted to know in all of the due diligence that they had done during the bankruptcy, was there anything that I needed to know in terms of the state of the business. And I wanted to know if -- what their commitment was with regard to any future cash cause that we might have with regard to the funding of any marketing and sourcing strategy. Q. When you say you wanted to find out if Oaktree had stomach for turnaround, what do you mean? A. Turnarounds are not easy. through one at Reebok. I had just been I wanted to know that they were committed to the implementation of the strategies that were being laid out in the plan of reorganization that would, in effect, effect the turnaround. Q. What were those strategies that were laid out in the plan of reorganization, as best you vowell & Jennings, Inc. (615) 256-1935 21 recall? A. As I recall, it was market the brands, and second, improve cost of goods sold. Q. Was it part of the strategy as expressed was to you by Oaktree to outsource all domestic production? A. Not all. Q. How much of the production was -- A. They didn't know. They felt like Page 19 DZ afied Page 20 ‘1dflJJB1Ut 01 ueam 1,uptp I ‘wexo okay. I didn't mean to interrupt. aseaLd ‘D Q. Please ‘1eq1 1noqe qsgex BDHJQ o1 paqLe1 talked to Bruce Karsh about that. I fi1eu1 1noqe wuoi 01 paxLe1 I ‘LLaM ‘v A. Well, I talked to Tony about that; I ;sansst asaq1 these issues? 1noqe u1tM fiutxeads now BJBM oum ‘pLo1 agam now you were told, who were you speaking with about 1euM am LLa1 now adogaq ‘putm 1,uop now g1 If you don't mind, before you tell me what ~- 1eq1 pLo1 sem I ‘D Q. ‘fiutagnos etsv wL1ueutmopagd predominantly Asia sourcing. I was told that -- go -- PLJOM pdtqi o1 sat1o1aeg atlsamop mogg from domestic factories to Third World —- or UOt13flpOJd ute1ga3 1J3AUO3 o1 pagtnbag aq pLnoM would be required to convert certain production Le1tdea 1eqM pue s11ogga 6ut1aqdem aq1 1doddns support the marketing efforts and what capital 01 PBJLHDBJ aq pLnoM 1euM 'UOL1E2tUP5J08J go of reorganization, what would be required to ueLd au1 ut -- aq1 Moux o1 pa1ueM I ‘ueaw . ‘v A. Yeah, I wanted to know the -- in the plan 22 ZZ had and with who? vowell & Jennings, Inc. (615) 256-1935 SE61-9SZ (S19) '3uI '55uLu“9E W LL9M°A L°qM H1?“ PUP PEN now suot1esgawuoa 1euM aqtgasap now ueg ‘D A. ‘v ‘wLa1nLosqv Q. Can you describe what conversations you Absolutely. ;w5a1eJ1s strategy? 6ut1aq1em pue 6Ut3JflOS aq1 1uamaLdmt 01 xa1MoLLtd Pillowtex to implement the sourcing and marketing Jog agtnbag pLnom 1t 1uam1tmmo3 Letaueutg financial commitment it would require for go adw1 1euM 01 se ssaaogd 5UL1tflJ39J au1 fiutgnp during the recruiting process as to what type of auowue u1tM SUOt1PSJBAUOD wue aweq now ptq ‘D Q. Did you have any conversations with anyone 'UOt1EZLUE5JO9J go ueLd S,XB1MOLLtd Butwes ALLEBJ really saying Pillowtex's plan of reorganization. ‘pgeoq aq1 uo sem B9J1XEO ‘LLaM Well, Oaktree was on the board. m,1 ‘v A. I'm -- J0 ‘aaJ1qe0 ‘X81MOLLtd 01 to Pillowtex, Oaktree, or -- 5UtJJBg8J 9J,hOK ‘Jtaq1 was now uaqm puv ‘D Q. And when you say their, you're referring 'UOL1BZtUQ5JO9J go ueLd 1taq1 their plan of reorganization. go S9UO1SJ8UJOD au1 agam S8t581EJ1S 6ut1aqJem au1 the marketing strategies were the cornerstones of pue fiutagnos aq1 1ng ‘qanm Mou Moux 1ou ptp waqi They did not know how much. But the sourcing and ‘1no paagnos aq o1 aweq pLnoM w1tJo[em e KLUtE1JBD certainly a majority would have to be sourced out. 072205DP (3).txt 1X1'(E) dGSOZZLO continue. A. O72205DP (3).txt 072205DP No, I'm sorry. I was just told that the plan of reorganization adequately had capital provided to accomplish both those strategies. Q. Had both Tony and Mr. Karsh told you that? A. Yes. Q. What else did Tony and Bruce Karsh tell you with respect to Pillowtex's finances during the recruiting process? A. Nothing that I recall. Q. Did you conduct any due diligence yourself to determine whether the plan of reorganization for Pillowtex adequately had capital available to vowell & Jennings, Inc. (615) 256-1935 23 accomplish the marketing sourcing strategy? A. YES. Q. And what did that due diligence entail? A. A visit to Kannapolis. Q. What did you do during that visit to Kannapolis? A. It was a Saturday morning. I met with Tony and Mike Harmon. Q. And who is Mike Harmon? A. CFO. Q. And what was discussed at that meeting with Tony and Mike Harmon? A. As I recall, it was purposefully brief because I think Tony scheduled that morning. We predominantly looked at the assumptions that went into the plan of reorganization with regard to Page 21 ZZ afied Page 22 ‘wJo126oJap aq o1 1t aq21 1,uptp I I didn't take it to be derogatory. I ‘D Q. I ‘KJOlP5OJ9p 12q1 punos sound that derogatory. ‘BJHS 1ou m,I I'm not sure. o1 1t ueam 1,uop 1 ;u2Ld Letaueutg financial plan? I don't mean it to I don't think I said -— did I say ‘P5 I PPP -- P195 I WUPH1 1."°P I A. ‘V that? wq ueam now ptp 12qM 21991 ‘u2Ld L2tau2utg 2 fiutxem making a financial plan. What did you mean by sem aa11q2D Jau1auM 12u1 s2M ssaaogd 5Ut1LflJD8J recruiting process was that whether oaktree was au1 butgnp aaJ1q20 u1tM pBStEJ now 12u1 sJa112m matters that you raised with oaktree during the 1aatqns au1 go auo 12q1 pauot1uam now ‘D A. ‘V ‘BU!-J 5,lE'l-Ll. Q. You mentioned that one of the subject That's fine. ‘a1nutm 2 ut atdo1 topic in a minute. ‘wexo Okay. 12u1 01 xaeq amoa o1 6uto6 aJ,aM ‘D Q. We're going to come back to that ‘wLn[ go 142d 1sgtg au1 the first part of July. ut J0 -- I wLn[ p81JE1S I ‘amedg amt1 1sn6nv/wLn[ July/August time frame. I started July 1 -- or in 12q1 ut s2M 1t 1nq '5UtStJE pB1JE1S wLL2a4 really started arising, but it was in that SUJBDUOD -- s2M I 12u1 1sn6nv ut BJOW wLq2qoJd probably more in August that I was -- concerns ‘1sn6nv JO wLng ut amt1amo§ ‘v ‘V ‘SBA Q. ‘D And when was that? ;12u1 52M uaqm puv A. Sometime in July or August. s2M 11 A. It was YES. 24 VZ had adequate means to effect a turnaround? vowell & Jennings, Inc. (615) 256-1935 S€6T"9SZ (ST9) '3uI '55u!uu9C ? LLQMOA ;punoJ2uJn1 2 13agga o1 sueam a12nbap2 peu UOt1PZtUE5JOBJ go u2Ld au1 12q1 patgst12s Ja5uoL longer satisfied that the plan of reorganization ou BJBM now 12q1 amt1 2 amoa 9J9q1 pto ‘D Q. Did there come a time that you were no 'pUfl0JEUJfl1 turnaround. aq1 1aagga o1 su2am a12nbap2 p2q pa1e1s 52M was stated had adequate means to effect the 1t s2 UOL1EZtUE5JO9J go u2Ld aq1 12u1 patgst12s satisfied that the plan of reorganization as it sem 1 ‘w2p 12u1 1ndut 12q1 uo paseq puv And based on that input that day, I was ‘6ut1axd2m marketing. Jog pagtnbag aq pLnoM 12q1 wauom au1 '5UtDJfl0S1nO outsourcing, the money that would be required for 1X1'(s) aosozzzo 072205DP (3).txt O72205DP (3).txt 072205DP thought that's what you said. In any event -A. Yeah -MR. QUINN: one at a time. only take down one at a time. she can So out of compassion for the reporter, try to keep it to one at a time. vowell & Jennings, Inc. (615) 256-1935 25 THE WITNESS: Sorry, Elisabeth. BY MR. NEWMAN: NEWMAN! Q. Let me reask the question, Mr. Perdue. You mentioned that you raised a couple of issues with Oaktree, whether they have a stomach for a turnaround or they had some other intent with respect to Pillowtex. A. Right. Q. What did you mean by that? A. I asked the question, was there a -— was this a true commitment to the long-term viability of Pillowtex as an ongoing corporation. Q. And who did you ask that of? A. Bruce Karsh primarily, but it was part of the conversation with Tony as well. Q. And what type of responses, if any, did you receive? A. They both consistently gave the same response, and that is that the shareholder value could be best taken care of with a long-term viability strategy and that the risk would be lower for the credit holders under a restructuring strategy. Page 23 1X1'(€) dUSOZZ£0 072205DP (3).txt Do those answers mean to you that Oaktree aaJ1x20 12q1 now 01 ueam SJBMSUE asou1 on Q. ‘D was essentially saying they had a stomach for the vowell & Jennings, Inc. (615) 256-1935 aq1 dog ua2mo1s 2 p2q wau1 6utw2s wLL2t1uassa s2M 5261-952 (519) ‘vul ‘sfiuiuuar 9 LLBMOA 92 26 turnaround? ;punoJ2u4n1 A. Yes. .v .SaA Q. You mentioned that you had some concerns SUJBDUOD amos p2q now 12q1 pauot1uam now ‘D during the recruiting process about Oaktree having 6utw2u aa11x20 1noq2 ssaaogd 5Ut1tflJDBJ au1 5UtJflp positions as both the shareholder and the creditor JO1LpBJ3 Bql PUP JSPLOQBJEQS Bql q10q Can you explain what —— can you now uea -- leum ut2Ldxa now U?) SE SUOt1tSOd of Pillowtex. 'XB1MOLLtd JO explain, please, first what you meant by that? ;12u1 wq 1u2am now 12qM 1sJtg ‘as2aLd ‘ut2Ldxa I was told during the interviewing process ssaaodd 5UtMBtAJ8lUt aq1 6utdnp pLo1 sem I A. ‘v that they had bought some of Pillowtex's debt and pu2 1qap s,xa1MoLLtd go amos 1u6noq p2u wau1 12u1 Not being 6utaq 1oN that they were a shareholder. ‘dapLouag2us 2 BJBM wau1 12q1 experienced in bankruptcies, I wanted to o1 pa1u2M I ‘sata1dnJxu2q ut paauatgadxa understand, was there —- A, was there potential L2t1ua1od aJau1 s2M ‘v -- aJau1 SEM ‘pu21sJapun conflict of interest; B, what impact did that 12u1 ptp 1a2dmt 12qM ‘Q €1sa4a1ut go 1atLguoa have, if any, on my decision to go. ‘o6 01 uotstaap wm uo ‘wu2 gt ‘aweu Those were the concerns that you had with q1tM peq now 12u1 SUJBDUOD aql BJBM asoui Q. ‘D respect to Oaktree serving as both a creditor and pue JO1tpBJ3 2 q1oq s2 6utAJas aag1x2o o1 lD8dS9J a shareholder? ¢1apLouaJ2us 2 A. ‘v ‘lufitu ‘D ‘1sJtg UJBDUOD puoaas aq1 9> '€1 5,131 Q. Right. Let's take the second concern first. s2 pBAJ9S aaJ1g2D 12u1 132g 991 P1P M09 -- M°H How -- how did the fact that Oaktree served as both a shareholder and a creditor affect your Jnow 1aagg2 J01tp8JD 2 pue 1apLouad2qs 2 u1oq decision—making process or recruiting process? '1.uPLP 11 'V gssaaodd 5Ut1LflJDBJ JO ssaaogd 6utx2m-uotstaap A. It didn't. ‘D 659“ PUV I was given the information -- based on vowell & Jennings, Inc. (615) 256-1935 AZ Page 24 pg a62d A. And why? SE61-952 (S19) '3uI '55uLU"9E 9 LLBMQA uo pas2q -- uot12mJogut aul uawt6 s2M I Q. 27 ‘v O72205DP (3).txt 072205DP the information I was given, I didn't see any conflicts. I didn't see any risks to the best interest of both those stakeholders. Q. Did at any time you perceive a conflict of interest with the fact that oaktree was serving as both —- as shareholder and a creditor? A. NO. Q. Did you ever perceive any conflict of interest with the fact that Oaktree was a shareholder and a creditor and at the same time had two of its representatives serving on the board of Pillowtex? A. No. In my —- no. Q. What were you about to say? A. As CEO, I don't -—- there was no conflict that I was aware of in terms of how -- of their demeanor and their actions. Q. You served as a board member of Pillowtex? A. Right. Q. During your tenure at Pillowtex? A. Right. Q. Did -— withdrawn. Are you familiar with the name of Scott Graves? A. I am. vowell & Jennings, Inc. (615) 256-1935 28 Q. Who is he? A. He's an employee of Oaktree Capital and Page 25 93 a62d Page 26 -- 6ut1aam pdeoq wu2 12 p9StEJ 6utaq JBAB ever being raised at any board meeting -- 1saga1ut go 13tLguoa wu2 LL2aa4 now on ‘D Q. Do you recall any conflict of interest ‘wggos sorry. I missed the first part of that. I'm U. ,I '1l2L 1 5.0 1..l'EC 1SJ BL 1 pBSS_Ll1l I A. ‘V Mr. Graves or Mr. Liang? ¢',5UE!."I IIJW JO SGAEJD '..lW 29 6Z ever being raised at any board meeting concerning vowell & Jennings, Inc. (615) 256-1935 SE61-9SZ (S19) '3uI '55uL"u9E 6 LL9M°A 5UtUJ8DUOD 6ut1aam pJ2oq wue 12 pBSt2J 6utaq Jawa 1saga1ut go 1atLguoa wu2 LLEDBJ now on ‘D Q. Do you recall any conflict of interest ‘LLEDBJ 1,uop don't recall. '1t aweu pLnoM PJODBJ aq1 agns m,I ‘v I'm sure the record would have it. I A. I ;1saJa1ut go 1atLguo3 2 go asneaaq because of a conflict of interest? XB1MOLLtd go LaAaL p42oq aul 12 a1oA wu2 mogg from any vote at the board level of Pillowtex ut21sq2 JBAB 6u2t1 ‘aw JO SBAEJD ‘JW ptq ‘D Q. Did Mr. Graves or Mr. Liang ever abstain ‘L21td23 aaJ1x2o Oaktree Capital. go aawoLdma u2 s,au pue ‘wauJo112 ue s,aH ‘v Q. ‘D .v ;6u2t1 uax st oum .0N A. He's an attorney, and he's an employee of Who is Ken Liang? A. N0. board? gpgeoq aq1 ggo 1uaM usgex BDHJS wqm Mouq now oq ‘D Q. Do you know why Bruce Karsh went off the ‘potgad amt1 12u1 ut amt1amos pJ2oq au1 ggo am2a came off the board sometime in that time period. usdex aangg awatLaq I ‘aAatLaq 1 ‘usdex BDHJS Bruce Karsh, I believe. I believe Bruce Karsh go aa2Ld ut pgeoq aq1 01 pameu osL2 s2M aH ‘v A. ‘v ‘1D9JJOj Q. ‘D Are you familiar -- -~ J2tLtm2g now BJV A. He was also named to the board in place of Correct. ¢aa41x2o pu2 xa1MoLLtd uaam1aq uost2tL liaison between Pillowtex and Oaktree? aq1 12u1 st ‘uost2tL au1 w2s now uaqm ‘D Q. When you say the liaison, is that the project. '1aa§o1d xa1MoLLtd aq1 Jog ‘LLtM now gt ‘uost2tL 'UOSJ8d person, liaison, if you will, for the Pillowtex w2p-o1-w2p p2aL aq1 aq o1 JBqO13O ut pau6tss2 s2M was assigned in October to be the lead day-to—day 1X1‘(£) ao50ZZLO 072205DP (3).txt O72205DP (3).txt 072205DP A. NO. Q. —- concerning the fact that Mr. Graves and -- Mr. Liang served on the board? A. NO. Q. And you don't have any recollection of Mr. Graves or Mr. Liang ever abstaining from a vote because of Oaktree's interest as either a shareholder or a creditor? MR. QUINN: recall, let him know. Don't guess. If you You appear to be straining -THE WITNESS: I have one issue where they —— I know they abstained because it is in the record. But I was not in there because I was -- I recused myself from —-- it was a conversation about my particular situation. BY MR. NEWMAN: Q. And do you know what the subject of that conversation was? A. No, no. I have no knowledge of them vowell & Jennings, Inc. (615) 256-1935 30 abstaining from any vote. Q. Well, what's the basis of your knowledge that they -A. Just what's in the record. Q. Did you review any documents in preparation for today's deposition? A. I did. Q. And what documents did you review? A. I reviewed the subpoena for information, Page 27 32 a6ed Page 28 51eu1 wq ueam now ptp 1eum 'Kfi91EJ1S strategy. What did you mean by that? 6uta4nos pue 6ut1axgem au1 1uamaLdmt o1 JBPJO order to implement the marketing and sourcing ut sLL2a uses aJn1ng Jog 1uam1tmmo3 2 sem SSBDOJG process was a commitment for future cash calls in 5Ut1tflJD9J au1 5UtJHp 99J1XEO q1tM passnastp discussed with Oaktree during the recruiting now satdo1 aq1 go auo pauot1uam now ‘D A. ‘V ‘P1125 BA,I lE'L M UPL 1 ..l9 .1lO Q. You mentioned one of the topics you other than what I've said, no. 'OU gssaaodd 5Ut1tHJ3BJ au1 the recruiting process? 6utJnp ssautsnq s,xa1MoLLtd go a121s aq1 1noq2 now you about the state of Pillowtex's business during o1 uot1em1ogut Jau1o wue aptwogd aadlxeo ptp ‘o1 to, did Oaktree provide any other information to patgt1sa1 wp2aJLe aA,now 12qM u2q1 Jaq1D ‘D Q. Other than what you've already testified ‘euaodqns subpoena. au1 q1tM 1ua1stsuo3 sem 12q1 peu I 1eq1 euaodqns subpoena that I had that was consistent with the 31 1E Mr. Quinn. It was just what was requested in the vowell & Jennings, Inc. (615) 256-1935 SE61-9SZ (S19) '3uI ‘55uLuu9E Q LL9M°A au1 ut pa1sanbaJ sem 1euM 1snt s2M 11 ‘uutnD ‘JW 01 maq1 paptwogd I I provided them to ‘LLe mau1 ameu 1,upLno3 ‘s1uamn3op snotgew age aJau1 ‘LLaM Well, there are various documents. 1 couldn't name them all. ‘v A. I guotltsodap s,w2po1 today's deposition? Jog UOt1EJPd9Jd ut pBDU8J9g8J now JPLfl3t1JEd particular you referenced in preparation for ut s1uamn3op qatqm LLPDBJ now op puv ‘D Q. And do you recall which documents in BY MR. NEWMAN: INVINMHN ‘HI/\ A9 Sure. "9JnS Thank you. ‘F10/1 >111?!- J_ MR. QUINN: INNIFID ‘HI/ll MR. NEWMAN: 1NVWMElN ‘Ell/\l ‘1u2M now suot1sanb questions you want. J3AB1EqM mtq xse pue xeagq uaunL aq1 Jawo over the lunch break and ask him whatever mau1 MBtABJ uea now pue ‘xeagq 2 uo now 01 aAt6 give to you on a break, and you can review them LL,1 qatum 'JBdEd go saaatd L2uot1tpp2 go aLdnoa couple of additional pieces of paper, which I'll 2 putg ptp am -- aweu op am 1eq1 UOt138LLO38J recollection that we do have -- we did find a wm sausaggad 1eui :NN1nD ‘aw MR. QUINN: That refreshes my ‘saLtg Leuosgad wm pamatwag 1 pue and I reviewed my personal files. 1X1‘(2) aosozzzo 072205DP (3).txt A. O72205DP (3).txt 072205DP If there were situations that might arise, you know, what was their commitment to the project in terms of supporting it if cash were required. Q. And how did Oaktree respond? A. Bruce Karsh was supportive, but ——— he was very supportive of —- based on their current position that they were optimistic about the long-term outcome of this investment and that if they needed to support it with cash, they would do so if it were a meaningful -- or if it were appropriate from all standpoints. Q. Did Oaktree commit to provide Pillowtex with any type of funding at any time? vowell & Jennings, Inc. (615) 256-1935 32 A. There was no formal commitment, no. Q. Besides a formal commitment, Mr. Perdue, did Oaktree ever commit to provide any kind of funding to Pillowtex? A. verbally? Q. In any form. A. Yes. Q. And when did Oaktree commit to provide funding to Pillowtex? A. In a one-on-one conversation that I had with Bruce Karsh in New York prior to my joining the company. Q. Was that the same conversation where you were discussing what Oaktree's commitment was to the company? A. Right. Page 29 Q5 a6ed Page 30 ‘wL13aJJo3 correctly. now Jamsue 1 agns aq 01 1u2M 1snt 1 ‘azt6oLode apologize. I just want to be sure I answer you 1 -- 1sgtg aul leadag pLno3 now g1 ‘v Q. ‘D ‘gamsue 12u1 S2tLBqJ8A 01 now paau 1sn§ 1 A. If you could repeat the first -- I I just need you to verbalize that answer. BY MR. NEWMAN: CNVIAIMEIN ‘Ell/\l AS 'm.lOg 01 U0!-139_[qO 11.58135 ‘BIN MR. SELBST: Objection to form. Uh—huh. 'H"H-Hfi A. ‘V ;w6a12J1s 6utaJnos pue and sourcing strategy? 6ut1axdem aq1 1uamaLdmt 01 spung aLqeLt2A2 aweq have available funds to implement the marketing pLnoM p3Jfl13flJ1SBJ s2 XB1MOLLtd Jaq1aqM 5UtUJ9DU03 concerning whether Pillowtex as restructured would ssaaogd 5Ut1tHJ38J au1 5UtJhp asLa auowue anyone else during the recruiting process go now u1tM suotssnastp wu2 a1aq1 agam Were there any discussions with you or ‘umegpq1tM -- 1t sem ‘D Q. Was it -- withdrawn. BY MR. NEWMAN: INVWMHN ‘til/\l AS ‘u6no1q1 1aatoJd au1 aas o1 1ua1ut intent to see the project through. KJBA3 peu waq1 ‘a612L wdaw sem 1t £aLqtstA KJQA very visible; it was very large. They had every s2M 1t ‘Matw go lutod a62mt u2 mogg From an image point of view, it was ‘aaJ1qe0 o1 1ue1Jodmt wLamag1xa extremely important to Oaktree. sem 13a1oJd au1 1eq1 GDUEJHSSEBJ uaAt6 sem was given reassurance that the project was 33 EE 5261-952 (519) ‘DUI ‘$5u!u"9E 2 LLDMDA emphasized the size of the project. It was —— I vowell & Jennings, Inc. (615) 256-1935 1 -- s2M 11 waui ‘1aa[odd au1 go azts au1 paztseqdma ‘1aatoJd stq1 uo aLqeJow2g KJBA qooL look very favorable on this project. They pLnoM waq1 12q1 aouegnsseag 2 wLLeats2q s2M 11 It was basically a reassurance that they would ‘atgtaads 1ou BJBM waui They were not specific. ‘wL1DeX3 :$53N11M 3H1 THE WITNESS: :NvwMaN ‘aw MR. NEWMAN: Exactly. ;1unom2 ‘adn1an11s structure, amount? ueam now op ‘adw1 we :NN1nD ‘aw MR. QUINN: By type, do you mean ;xa1MoLLtd 01 aptwogd 01 ltmmoa aaJ1q2D Oaktree commit to provide to Pillowtex? ptp 6ut3ueutg J0 6utpung go adw1 12uM puv ‘D Q. And what type of funding or financing did 1X1'(E) ao50ZZLO 072205DP (3).txt 072205DP (3).txt MR. NEWMAN: If the record couid refiect that he did nod his head up and down. THE WITNESS: understand the question. I want to make sure I I was not saying yes or no to your question. MR. NEWMAN: Fair enough. vowe11 & Jennings, Inc. (615) 256-1935 34 why don't we have the iast question read back so we can get it on the record. (Reporter read back requested materia1.) THE WITNESS: YGS. BY MR. NEWMAN: Q. where was Pi11owtex as far as you knew during the recruiting process going to get the funds to impiement the marketing and restructuring strategy? A. Cash f10w. Q. Did there come a time when Piiiowtex needed to iook to Oaktree to provide the iiquidity that Mr. Karsh provided during the meeting? A. YES. Q. And when was that? A. we had a meeting in eariy September in L.A., and in that meeting, this topic was raised. Q. where was —- where was the meeting heid in L.A.? A. In the Oaktree Capitai offices. Q. That meeting in September in Oaktree's offices, was that the first time you met Page 31 zg afied 95 seer-952 (s19) "Jul ‘sfiusuuar W LLBMQA ‘KLl3PX8 Jaqwawaa 1,uop 1 -- ut ALqeqoJd "v ;xa1MoLLtd 12 uewateqa "v "op I '0 se uotltsod aul ldaaae nofi ptp uaum LLe3au nofl on Lleql '4a1uadue3 wt: qltm peq nofi fiutlaaw 1SJt§ aul 01 ltq aL11tL 2 qaeq 06 s_1a1 "o 2NVWM3N ‘MW A8 '6ut1aaw 1s4;; aul lnoqe uteldaa 1ou w_1 pue ‘sfiutlaaw OM1 peq am '6ut1aaw 1sJt; 1eq1 up SBAEJ5 11035 lnoqe U§PlJB3 lou w,I ZSSHNLIM HHL —- 1sn§ ‘uyeluaa lou a4,noA 51 :NNIn0 "aw '6ueL1 uax ‘aAatLaq I ‘aaaql sem SBAEJD 11035 '6ut1aaw 154;; aql ut sem an 'azt50Lode I '6ut1aaw 154;; aql ut sem aq ‘qo -- fiutlaaw lsatg leql ut 10u sem zsntaew ‘KJJOS w,I -— zsntaew ‘qsaex aanag ‘;LasAw seM 11 'aaqwawaJ 1 1eu1 MBUX I 1eq1 aLdoad aql aweu ueo 1 1nq ‘1UBSBJd BJBM leql aldoad aul Lre aweu uea I xutql 1,uop I ‘V gaaqwaldas up aaulqeo 12 fiutlaaw 1eq1 12 luasaad sem oqm puv ‘D SE ssst~9sz (ste) ‘Jul ‘sfiuyuuac Q LLBMQA ‘SEM ll ‘V gsaAeJ5 11035 1X1'(€) dGS0ZZZ0 O7ZZO5DP (3).txt but it was in the June time frame. Q. Before we turn to the Oaktree meeting, I want to ta1k a iittie bit about the negotiations between you and the company concerning your compensation. So can you generaiiy describe what negotiation -— what the sum and substance of the negotiations you had with Piiiowtex or Oaktree during the recruiting process with respect to your compensation? A. Yes. I was concerned -— I was not iooking for a job at Reebok. I answered a phone ca11, and I was concerned that I was being asked to waik away from an in-the—money, unvested stock position at Reebok, at that time approximate1y $5 mi11ion of current vaiue. The contract negotiations center around the usua1 things of compensation, bonus. And their proposai had an equity position and a back end four—year fioor guarantee for potentiai equity gain during that four—year tenure, and that was backed by a ietter of credit -- or was to be backed by a 1etter of credit. Q. A. Issued by which entity? I don't reca11. voweii & Jennings, Inc. (615) 256-1935 37 Q. Do you reca11 anything e1se concerning the sum and substance of the negotiations about your Page 33 75 afied ;1uawaaJ6e 1uawfloLdwa Jnofl ;o uotluod flue -v '1DBJJO3 slleqi -0 B31UEJPfl5 01 9aJ1HPO lS8nbaJ aafla nofl ptq LX91MO[Ltd qltm paufits nofl 1eq1 1U3W89J6P asata aq1 ut J0} paptfload sem 1eq1 puv -0 8E SE61-9SZ (SI9) '3"I ‘55"¥uu9f Q LLQMOA '138JJO3 s,1eqi ;1tpaJ3 Io J911BL aql flq paqoeq sem 1Pqi am 1eqM LLEDBJ 1,uop I "v '0 '1? PQLLPD -peq flaql 1eq1 wstueqaaw aooL; pua xaeq 1eq1 s,1eq1 puv 'flLaflt1tsod palnagga sem punoaeuanl aql It aw peluaout 1eq1 apps dn ue qltm otdeuaos ase: 1SJOM e paalueaenfi 1eu1 4ooL; wnwtutw e peq 1eu1 qaozs xa1MoLLtd go aauewuoqaad aql uo paseq ELHWJO} e sem aaaql -- pua qaeq aql -- aqa paluem I ‘qeafl -v gafieqoed uotlesuadwoo aql Io UOt1JOd flue fiutaalueuenfi lnoqe ssanoad Butltnaaau aql fiutunp auoflue qltm "v 'ou ‘oN ‘b afleu nofl ptp ‘flue It ‘suotssnastp leqm gxa1MoLLtd 01 qoqaau woag 06 01 flaeies -v 'LLe3a4 1_uop I 'b go swaal ut 1n: fled e fiutqel nofl aaam ;1;aL nofl aaoaaq qoqaaa 1e Butuaea nofl aaam 1euM ‘flJeLes 01 lD9dSaJ q1tM -_ Moq puv "o 's3tdo1 1uatLes Joflew sq; saafloa 1eq1 qutql I ‘oN -v @ssa3oJd fiutltnunaa eql fiutanp uoylesuadwon 1X1'(£) aosozzzo O7ZZO5DP (3).txt A. YES. Q. And why did you request that? A. It was just —— I don't recaii. Q. And what was 0aktree's response to your request that Oaktree guarantee aii or a portion of your compensation package? A. It was -— the response was negative. Q. Did Oaktree expiain to you why they wouid not agree to that? MR. QUINN: MR. NEWMAN: Don't guess, piease. Mr. Quinn, I appreciate -MR. QUINN: You know perfectiy we11 he is sitting there staring off into space struggiing to answer your question. I don't have a probiem with him answering your question if he knows it. But I do want to caution the witness against reconstructing or guessing. MR. NEWMAN: I appreciate that. He may be thinking about how to formuiate his answer. vowe11 & Jennings, Inc. (615) 256-1935 39 You and I both can't read his mind, so -- MR. QUINN: guess. A11 I said was don't You disagree with that advice? MR. NEWMAN: N0, but I think he understands that advice. MR. QUINN: THE WITNESS: Wei], I don't know that. I don't recaii the reason specificaiiy. BY MR. NEWMAN: Page 35 9g afied INVINIVEIN ' BIN AS (‘IS ‘ON 1LqLHX3 PQXJPW) 'LLP38J Iluop 1 "v Lfluedwoa aul up Isaualut slt pLos aaalqeo asea ut uot13a1oJd J01 6utqooL osLe nofl BJBM ‘D 'pLos BJBM fluedwoa Bql 1eu1 1UBA9 aul ut uotlaaloqd paluem I Inq ‘1! u°!luaw 01 auo 154;; aul seM I aqns 1ou w_1 ‘V ‘ SBA '0 ¢suotssn3stp asoql aaam Ieum puv -v -flLLen13e pJepue1s flaafl s_1t -- paluem I gluawaaafie OV sset-952 (S19) "Jul ‘sfiutuuar e LL°M°A 1uawfloLdwa aql ut uotstfload Loaauoa pue afiueqa aql 10 3Jn13flJ1S sq; Butuaaauoa ssaaoad Butltnuaad aql fiutanp aaalqeo JO spLouflau LLassnu u1tM ‘v 'oN '0 ¢uot1esuedwo3 Jnofl 01 loadsaa qltm .v .0N '0 peq nofl suotssnnstp leum LLEDBJ nofl oq 'flJJos w,1 -- uo suotstnap a1ewt1Ln aul fiutqew seM 1eu1 X91MOLL1d JO aaalxeo sem It Jaqlaqm Mouq nofl op puv '0 'flLtJewtJd e5ua1 atqqog pue JB1UBdJB3 mtg seM 11 ‘v LX91MOLLtd ultm 13EJ1UOD Jnofl '0 gsuoseaa aul LLPDBJ nofl op ALLEJBUGQ .v .oN -0 10 swqal uotlesuadwoa aql pa1et1o5au oqm 1X1'(£) aos0ZZz0 072205DP (3).txt Mr. Perdue, I show you what's been marked Q. as Committee Exhibit 51, and I wou1d iike you to focus on this second e—mai1 of the two e—mai1s that are -- appears in this document. A. Second what? Q. Second e-maii that's dated May 29, 2002. And in particuiar, I wou1d 1ike you to read the fourth paragraph of the e-maii. you are done. Let me know when You are free to read the who1e e—mai1 if you iike. MR. QUINN: Read as much of the context as is necessary for you to understand what he is pointing you to. vowe11 & Jennings, Inc. (615) 256-1935 41 THE WITNESS: okay. BY MR. NEWMAN! Q. Mr. Perdue, does -- the fourth paragraph of the e—mai1 discussing change in controi, does that refresh your memory as to what discussions you may have had with Oaktree about change in controi? A. Yes. Q. And what discussions did you have with Oaktree about the change in controi provisions of your empioyment agreement as it pertained to oaktree's interest in the company? A. I didn't have a conversation with Oaktree about that. Q. Who was Jim Cox? A. He was my attorney in Boston. Page 37 gg afied -v 'uot1tsod Iueutwop e peq flaqa qutua I '0 ¢1eu1 flq ueaw nofl op Ieum "v 'pLo1 seM 1 ‘dolsaflut peaL aul auam flaui -0 qltm aouauagatp e axew It PLHOM flqm puv ;1ou J0 uot1tsod s1; pLos aaulxeo Jaqlaum ‘u6nou1 ‘uallew It PLHOM flum '0 'LOJ1U03 ut afiueuo ‘V "sax -D gpalsanbau Ieul sem flum puv "v e paanltlsuoo 1eu1 1eu1 sem uotltsod JHO gauaodad 5; ueul auow flq uotltsod JapLoqaJeus JO Joltpauo s11 paanpau aaulxeo 11 paJa66tJ1 aq Iuawaaufie Jnofl 10 suotltpuoo Louluoa ut afiueqa aul 1eu1 Isanbau nofl ptp JO -- st ‘anpuad ‘aw ‘nofl 01 uotasanb flw puv 'suot1tppe go aLdnoo e aq 01 spaau auaul ‘Louzuoa ut afiueuo Japun ‘sfles 1; ‘udeufieued stul u1 '5UOJM ut It padfll lsnf x03 "um ssan6 1 Ina 'flLLen13e ZV SE61-9SZ (ST9) '3"I ‘55"¥"u9C W LL9M°A ‘aweu palladsstw e peu 1eu1 Iunoooe 10v ue 6utsn auam nofl flum nofl use 01 6uto6 Ilusem 1 Inq ‘snotuno sem 1 ;1u6tu ‘1eq1 suteldxa Ieui 'paLL6dSStw st eweu flw "D '1aa4Joout st SSBJPPE 1Eq1 asnefiaq Spql ue1106 afleu lou PLHOM I ‘Llam 'v gefiuai atqqoa 01 x03 wtr mod; Ltew-a ‘Z903 ‘5Z flew 'v 'Moux 1,uop 1 '0 aql 10 fldoo e Butfltaoad daqwawau nofl oq '1eu1 126 ueo am gultm aq st wag; 1euM ‘D 1X1'(€) dflSOZZLO 072205DP (3).txt respect to your duties as chairman and your compensation package if the 1ead investor changed? A. The commitment for the iong-term -- the 1ong—term commitment to the project was represented by Oaktree. If they 1eft the deai, I was concerned. vowe11 & Jennings, Inc. (615) 256-1935 43 Q. What discussion did you have with anyone during the bankruptcy -- during the recruiting process as to what protections you wou1d receive if Pi11owtex had to fi1e for a second bankruptcy? A. I don't reca11 any. MR. QUINN: Wou1d you read the question back, p1ease. (Reporter read back requested materiai.) THE WITNESS: I'm sorry. The contract stipu1ated the protections that I wanted. That was why the LC was in piace, and that's why the end -- the $2 mi11ion back end minimum fioor. BY MR. NEWMAN: Q. I'm not sure if you said you can reca11, so Tet me just ask you again. Do you reca11 why you requested that Oaktree guarantee the severance benefits? A. Point of ciarification? Q. Sure. A. I'm not sure —- the severance benefits, I -— we haven't -— I'm not sure —- is that reiated to the same document? Page 39 Q7 afied St S£6T-952 (S19) '3uI ‘$5uLUU9E Q LLQMQA aseo ut nofl fiutlaaloud Inoqe ssaooud fiutltnuoau -v 'ou ‘loeuluoo aq1 ut sasneo aql ueq1 Jaqao 'b aq1 fiutunp suotssnostp auaql auam gflaadnuqueq puooas e J01 pelt; xalmolrtd aseo ut paauem nofl suotlaaloud 1eqM Inoqe xa1MoLLtd J0 aaalqeo Jaqlta q1tM suotssnostp auaqa auam ‘luawaaufie 1uawfloLdwa aqa 10 uot1et1o6au eql Butunq '0 'pa1sanbaJ awtl 10 q16uaL uafltfi e sem auaql 1eq1 Mouq 1 'sat1toads aq1 LLEDBJ 1_uop I Lp81S9HbBJ sem Ieqm -v '0 -1uawaaJ6e aql ut asne: aoueuaflas "v 'aJeM 8J9ql ‘sax '0 gsuotssnastp asoqa BJBM Ieqm puv 'v e Jo; JB1UBdJE3 wtg q5noJq1 paasanbau I -- qatm satgauaq aoueuaflas Butuuaouoo suotssnastp flue auaql auam '1uawaaJ6e 1uawfloLdwa aql ‘v '1q6tu '0 Japun paa1ueJen6 flLLet1uassa BJBM nofl -- -- uotaesuedwoo 10 JooL; uteluao e Inoqe paxLe1 nox '0 INVWMEIN ‘MW AS 'aoueJaflas 10 ansst aql 01 pauunl uotlsanb JHOA -Inoqe Butqgea uaaq seq aq 1eq1 9B1U€JEH5 pua xaeq aql uo pasn3o1 V7 S£6T*9SZ (S19) '3uI ‘55u¥uu9E Q LLBMOA st uotssnostp aql xutql I Inoqe nofl paqse 1_useq an 's1t1auaq BDUPJBABS :NN1no 'uw 1X1'(£) dGSOZZ£0 07Z205DP (3).txt Pi11owtex had to fi1e for a second bankruptcy? A. Not that I reca11. Q. If you take a iook at the second page of Committee's Exhibit 51, the first fuii paragraph that starts on severance, if you couid just take a read of that paragraph, and iet me know when you're done. Does that paragraph refresh your memory? A. It does. Q. What discussions did you have during the recruiting process concerning what protections were avaiiabie to you if Piiiowtex had to fiie for a second bankruptcy? A. Honestiy, I don't reca11 ta1king to my attorney about this particu1ar issue. Q. But do you recaii what discussion -- 1et me -- before I finish the question, I'm not asking you to disciose what conversations you had with Mr. Cox, who was your attorney at the time. A. I understand. Q. But what I'm trying to find out is if there were any discussions between your side of the tab1e and Oaktree's side of the tabie concerning what protections were avaiiabie to Mr. Perdue in case of a second bankruptcy fiiing, vowe11 & Jennings, Inc. (615) 256-1935 46 if any. 2 A. Yes, this intimates that -Page 41 Z7 a6ed ut awoq uno 10 aseqoundau aql pted flaql faouemogle uotleoolau snoaueLLa3stw e pted flaqi ‘v gnofl Jo; .v .SaA -0 fled XB1MOLL1d ptp sasuadxa uotleoolau Ieqm LV S861-9SZ (ste) "Jul ‘sfiusuuat e LL9M°A ;nofl Jo; sasuadxa -v 'LLQ38J 1_uop 1 ‘b uot1e3oLaJ flue J01 fled X81MOLLtd ptq 4eutLoJe3 q1JoN o1 sllasnqoessew mod; Butflow ut slsoo uotleoogaq Jnofl asdnqwtad prnom xa1MoLLtd JBq13qM 6utuJa3uo3 ssaaoud Butltndoad aq1 Butunp aadaqeo J0 xaIMoLLtd qatm efleq nofl ptp suotssnastp 1eqM ‘UMEJpq11M -- Inoqe fluedwoo .v .0N '0 aq1 q1tM afleq nofl ptp suotssnastp 1eqM LB31UPJEn5 ‘v 'aa1ueJen6 e q1tM "o e qltm nofl aptfloud aauaqeo ptp puv gdn aoueuaflas Ieqa xoeq 01 6uto6 aaulqeo sem Moq puv '0 INVWMBN ‘MW A8 'dn aoueuaflas 1eq1 qoeq PLHOM aadaqeo 1eq1 ‘pue 1eq1 01 Isanbau e sem adaqa Ieql sa1e1s It adaqm Iuawnaop Bql 01 EULJJBJBJ w,I 3SS3N1IM 3H1 L1U8wn30p aql 01 fiutuuajau BJ HOA :NN1no -aw 1X1'(£) dqsozzzo 072205DP (3).txt Boston. MR. QUINN: reiocation expenses. He was just asking about I guess you can consider that one. THE WITNESS: It was part of the reiocation package. MR. QUINN: Right. BY MR. NEWMAN: Q. Anything eise? A. No, not that I reca11. Q. Do you reca11 how much the misceiianeous reiocation a11owance was? A. Approximateiy $100,000. Q. And was the misceiianeous re1ocation aiiowance provided for in your contract to the best of your knowiedge? A. To my know1edge, no. MR. QUINN: When you say contract, do you mean the originai -MR. NEWMAN: The originai agreement. voweii & Jennings, Inc. (615) 256-1935 48 Thank you. THE WITNESS: Not in the originai contract, not to my knowiedge, no. BY MR. NEWMAN: Q. Was there any contract with Pi11owtex that both you and Piiiowtex both signed that provided for the misceiianeous reiocation a11owance? A. NO. Q. And when you say that Piiiowtex purchased Page 43 pp afied uotlenats 13PJlUO3 flw punoue uotlesuafluoo 6uto6uo ‘v ‘op I '0 guoseau aql s,1eqM 'v ue up s6utq1 Leuaflas 10 uotleuaptsuoo J0j LO00‘00I$ 10 BDUEMOLLP uot1eaoLaJ snoauertaostw e nofl .v .ON '0 pted xalmorrtd flqm uoseau eql Moux nofl oq gasnoq Sl19ShqDESSEW Jnofl aseqodnd 01 xalmorltd ‘a6paLMouq Jnofl 10 Isaq aql 01 ‘sa1e6tLqo 1eq1 xa1MoLLtd pue nofl q1oq flq paufits XS1MOLL1d qltm 13EJ1U03 flue aqaql s1 '0 67 ssst-9sz Csts) ‘Jul ‘sfiusuuar e LL@M0A 'ou ‘afipalmouq flw 01 Iou ‘loeuluoo Leutfitdo aqa uI 'v @1uawaaJ6e 1uawfloLdwa Leutfituo aql ut asnoq Jnofl aseqadnd 01 aotfluas UO11E3OL9J e utelqo 01 palefitrqo sem xa1MoLLtd Jaqaaqm Mouq nofl on 'v 'LLED8J Iluop I ‘D ‘UMEJpq11M -- seM gsaotfluag uot1eooLau snrd 1eq1 sem 'v 'a6paLMouq flw 01 1oN '0 ‘pautelaq X81MOL[Ld 1Pql fluedwoo aq1 puv gasnoq Jnofl 10 aLes aql 01 139dSBJ qltm pted xa1M0[[1d 'v 'asnoq aqa paseqound fluedwoo uot1e3oLaJ v '0 1eq1 sasuadxa J8q1O flue auaql GJGM ;1eq1 flq ueaw nofl op Ieqm ‘asnoq Jnofl 1X1'(£) dosozzzo O72205DP (3).txt _ with regard to the company. The company was in breach of my contract, and this was one of the considerations that was invoived. MR. NEWMAN: MR. QUINN: Take a iittie break? Sure. (Brief recess observed.) BY MR. NEWMAN: Q. Let's turn back for the moment to the financiai state of Piiiowtex. You mentioned that there was a point in time that you were no longer satisfied that the financiais in the pian of reorganization had -- withdrawn. You mentioned eariier this morning that voweii & Jennings, Inc. (615) 256-1935 S0 there came a point in time when you were no ionger satisfied that the p1an of reorganization forecasted adequate means to effect a turnaround. You aiso said that that was in or about Ju1y or August. And I ask you, what ied to you becoming no ionger satisfied? A. Upon investigation, the backiog -- whiie the top iine revenue number appeared heaithy, upon investigation, the profit -- projected profit off those transactions in the backiog were not consistent with the pro forma P&Ls that had been put together in the POR. Q. And what do you mean by that? A. The profit projected on the back1og was not at the same Tevei as a percent of saies that Page 45 97 afied :NVWM3N '8W A8 'uot1sanb BH1 pU91SJBpun 1,UOP I 'w40; 01 uotlaaiqo ISSHNLIM 3H1 :1ssi3s "aw gueLd aq1 ut 1L§OJd paloafioud ewuog Odd aq1 q1tM Iualstsuoo 1ou sem Itjoud paloafodd aq1 1eq1 Ive; aqa ueqa Jaqao uotleztuefiuoau 10 uetd aqa qatm S1SBDBJO} Letoueut; aql 01 lD9dSBJ q1tM sansst Jaqao flue adaql auam -- nofl uaqm puv '0 'nztwtq§ 11035 'v 'aLdoad snotuefl '0 ¢se qons 'v ‘uowueu aqtw ‘uaql auaql LLt1s seM fluoi iwOJ} uotaewuojut stqa fiutunaas nofl auam oqm '0 'asoq1 q1oq 110 1L§0Jd palaafoud -- qloq 110 1L}OJd aql pue ‘fiotqoeq aql '6utpuad auam 1eq1 suotloesueul pB13B(OJd aql ‘sates eql lnoqe paqse I ‘V TS SE61-9SZ (S19) '3uI ‘55u!uU9E 9 LLBMQA gsuotlsanb asoql aqam Ieqm -~ 1eq1 ptp Ieqm puv '0 'Jeafl aq1 10 1S8J aql J01 uetd Letoueutj aql fiutleptgefl Inoqe suotlsanb qse 01 ue6aq I ‘Q33 se satlnp '0 L01 5ULJJB}8J nofl aue uotaefitasaflut Ieqm 'v flw pawnsse I uaqm ‘auaql JBWWHS aqI u1 'pa13a§oJd peq UOL1PZLUE5JO9J 10 uetd aql ut igd aqa Ieq1 -- qoeq aq1 1X1'(2) dosozzzo Q. 0722OSDP (3).txt What other -- withdrawn. With respect to the projected profit issue, how did you beiieve that was going to affect the forecast for Pi11owtex? A. It wou1d not generate the cash fiow necessary for the investment needed over the next vowe11 & Jennings, Inc. (615) 256-1935 S2 18 months. Q. And the investment that was needed over the 18 months, that wou1d be used to impiement the marketing strategy that we chatted about? A. Yes. Q. During -- withdrawn. As a resu1t of the investigation that you conducted into the financiai state of Pi11owtex in Ju1y or August 2002, did you come up with any other findings other than the issue with the projected profit? A. Yes. Q. What findings were those? A. A defined benefit -— underfunded defined benefit issue. Q. Can you exp1ain what that is? A. The company had a retirement pian, and depending on the vaiuation, which, of course, is a derivative of market fiuctuations, the company wou1d have a -- wouid incur a 1iabi1ity to bring that back up to the required ievei. Q. Did you have an understanding as a resuit of the investigation that you did as to the amount Page 47 gv afied VS seat-9sz (S19) "Jul ‘sfiutuuer W LLBMOA 'oN ‘v gueld uotsued aq1 ut flItLtqetL Letlualod 10 uotluaw flue auaql sem ‘ssaooud fiutltnuoau aq1 fiutunq 'nofl queqi 'fleq0 'J91EBJ5 sem 11 '0 'v 'nofl 459 LL.I 9u° 15PL EH1 5.1PHi iU°LtLPw 07$ "EH1 'v 'JB1EBJ5 '0 ssaL J0 uaaeaufi sem It It LLEDBJ nofl on Lu°PLLLW 02$ "EH1 ssat J0 J81E8J5 sem It It Lleoau nofl oq '0 'JB1P9J5 'v guotLLtw 03$ ueqa ssaL J0 ualeaufi sem flItLtqetL ‘v 'JB1EBJ5 seM 11 '0 Itjauaq pautjap aql It Llenau nofl on LUQPLLPW 01$ "EH1 SSQL 4° J81EBJ5 seM fl1tLtqetL aql It Lleoau nofl oq '0 .0N .v &41¥LPqP¥L 1PJ9u9q pautjap aq1 fled 01 spun; 10 fl1tLtqeLteAe aqa afleq xa1MoLLtd ptp ‘awtl ut Iutod Ieql Iv '0 '1ue3t1tu6ts sem It Mouq 1 '1unowe aq1 LLPDBJ 1,uop I ;1unowe aq1 sem Ieqm 'v '0 ES SE61-9SZ (S19) '3"I '55"L“u3E B LLBMQA .SaA .v £41¥L!qP¥L leql 3° 1X1'(£) 40502220 O7ZZO5DP (3).txt Q. Once you Tearned about the cash f1ow issue and the defined benefit issue, what did you do? A. I ca11ed Oaktree. I ca11ed the board. Q. Which did you do first? A. I cailed -(Ce11u1ar phone interruption.) MR. NEWMAN: interruption. Sorry about that Why don't we have the court reporter read it back. (Reporter read back requested materia1.) BY MR . NEWMAN: Q. In reference to speaking to the -- A. I ca11ed Oaktree. Q. Before we speak about the ca11 with Oaktree, what conversations did you have with Mike Harmon, the CFO of the company, once the defined benefit issue and the profit issue was rea1ized? MR. QUINN: MR. NEWMAN: On that particuiar issue? With respect to those issues or the profit issue, with respect to those two issues. THE WITNESS: with respect to the profit projections for the back ha1f of the year, vowe11 & Jennings, Inc. (615) 256-1935 55 Mike actua11y offered those, so he and I were in direct conversation before I ca11ed Oaktree with (Page 49 05 a6ed 'ZSflLJEW 'v @aaJ1xe0 1e 01 [Lea aql aqew nofl ptp oqM puv .SaA '0 .v jfiutlaaw e J01 1SBnbBJ Jnofl 9S sset-ssz (S19) 'JuI ‘sfiusuuac e LL9M°A 10 1LflS8J aql 1eq1 seM ‘a3t11o s_aaJ1qe0 1e 'v'j ut Jaqwaadas ut peq nofl 1Eq1 6ut1aaw aqi '0 '6ut1aaw e palsanbau I 'LLeo auoqdaLa1 e sem 11 'v gLLeo auoqdatal e JO 6ut1aaw uosuad-ut ue 1eq1 sem '0 'UOL1EZLUE5JOBJ 10 ueLd aq1 q1tM Iuaastsuoout seM Jeafl aql Jo; Iseaauog Iuauuno aqa a6paLMouq uno 10 Isaq aql 01 1eq1 pautetdxa I 'v 'sansst ueLd Itgauaq pautjap pue sansst 1L}OJd auam aueqa Ieqa fiutztleau J81}? peq nofl 1eq1 aaulqeo q1tM Lrea aql Inoqe aw [Lat .oN '0 .v ;fl3uaflLosut 10 auoz wuaa aql qItM JetLtwe; nofl BJV '0 INVIAIMEIN ‘HW A8 'ou ‘afipalmouq flw oi ‘U1-J0} BLI1 01 U0!-131->§qO :553Nl1M 3H1 INNIHD “dW ‘ON "v 42002 1sn6nv 10 se 1uaflLosut eq 01 XB1MOLL1d Japtsuoo nofl pto ‘D INVIAIMEIN ‘HW A8 'S1LflS8J aql 01 pJe6aJ 1X1'(E) dGSOZZLO Q. 072205DP (3).txt Was Bruce Karsh on that ca11? A. N0. Q. other than exp1aining that the current foreciosure for the year was inconsistent with the p1an, what e1se did you discuss with Mariusz in that phone ca11 with Oaktree? A. That's a11 that I reca11. Q. How did Mariusz respond to you? A. I don't reca11. Q. Did you have any other conversations with Oaktree prior to the September meeting -A. N0. Q. -- concerning these issues? A. N0. Q. Did you provide any documents or information to Oaktree to support your be1ief that the forecast for Pi11owtex was not consistent with the p1an? A. Q. Yes, we provided a forecast. What effect, if any, did the forecast that vowe11 & Jennings, Inc. (615) 256-1935 57 Mike Harmon prepared have on the company's responsibiiities to its Tenders under the ioan documents? MR. QUINN: Wou1d you read that back, MR. NEWMAN: Let me ask a coup1e of p1ease? preiiminary questions first. BY MR. Q. NEWMAN: Mr. Perdue, can you expiain what the debt Page 51 Z5 a6ed Itpada 5UtALOABJ aq1 dapun lLnE1Bp 01 palaadxa sem fluedwoo aqa daqlaqm o1 se xaIMoLLtd 1e auoflue q1tM suotssnastp flue aAeq nofl ptp ‘padafloastp nofl 1eq1 sansst OM1 aq1 Inoqe waql LLa1 01 aadlqeo paLLea nofl Ieql awtl ut Iutod aql Iv '0 :NV AlM3N ‘HW A9 'MOLl) 1,l-IOP I ISSElN.LIM 3H1 :1ssi3s 'uw LBflPJBd 'JW fls iNVWM3N ‘aw 'Xa1MOLLtd fle ¢fl1tLtoe1 Itpado 6utALoAad aqa dapun 1Lne}Bp flue ut 1LnS8J PLHOM X31MOLLLd do; Iseoadod Mau aqa daqlaqm 01 se UJBDUOD flue adaql sem puv '0 8S ssst-esz (S19) 'JuI ‘sfiusuuac 9 LLBMQA ' ABA LO/\9.. BH1 SEM ssad6uo3 It Mouq 1,uop I ‘JBALOABJ e peq am Mouq 1 -- -ad aql adam flaq1 It LLEDBJ 1,uop 1 'v ¢xa1MoLLtd 01 fl1tLt3e1 Itpada 5utALoAad e BPLAOJG LEL3UBU1j ssad5uo3 ptq 'fleq0 '0 'v 'do11pada e adam flaqi '0 ;dapuaL e osle flaq1 adam 'v 'J8pU9L e se JO11pBJ3 6utsn w_1 @xa1MoLLtd q1tM aAeq Letaueutg ssad6uo3 'v 'safl ‘aweu 1eq1 LLQDBJ op I '0 ptp dLqSUO1lELBJ Ieqm puv @LE1DUBU1j ssad6uo3 q1tM JE1LLwE} nofl adv 'v 'Mouq 1,uop I -- Iluop I '0 'uMedpq1tM -- afleq XB1MOLLtd ptq LZOOZ 10 dawwns aql ut qoeq sem xa1MoLLtd do adn13nd1s 1X1'(E) dGSOZZ£0 f _1_ 7 O7ZZO5DP (3).txt aci ity. A. No, I don't reca11. Q. Fo11owing the initiai ca11 with Mariusz, you said that you contacted the board of directors of Pi11owtex? A. We11, that's the —- Mariusz and Bruce was on the board, and Ken Lenga was on the board. Q. Who e1se was on the board of Pi11owtex at that time? A. Jeffrey Keenan, Brad Dietz, and myse1f. Q. And did you a1so contact Mr. Keenan concerning these issues? A. I don't reca11 if I did. voweii & Jennings, Inc. (615) 256-1935 59 Q. Do you reca11 contacting Brad Dietz about these issues? A. I don't reca11 if I did. Q. Do you reca11 when the first board meeting of Pi11owtex was after you became its chairman? A. I don't reca11 when the first one was. I'm sorry. Q. Do you remember if you had any board meetings in the summer of 2002? A. I don't reca11. Q. Between the teiephone ca11 with Mariusz and the September meeting, what conversations or communications did you have, if any, with Oaktree? MR. SELBST: THE WITNESS: Asked and answered. I think I've answered that, yeah. Page 53 pg a6ed aq; lnoqe pBXLE1 am -- 1uada;;tp aq; 01 pde6ad '0 ;aouetdeA aq; sem ;ue9t;tu6ts MOH ‘v ';ue3t;tu6ts fldafl '0 ;;eq; ;noqe passnostp sem ;eqM puv 'v q;tM axe; am plnoqs SBAL1PUJ31LE ;eqM '1seoado; ,aq; ut puno; peq am ;eqM pue uot;eztue6doad ;o ueLd aq; uaaM;aq BDUELJEA e pamoqs am 'v ;;seaado; 'v ';seoado; aq; pamatflad am '0 aq; fiutudaouoo passnostp sem ;eqM puv guaddeq asta 6utq;awos ptp do ‘6ut;aaw aq; 6utpua;;e asoq; 0; UOL1E1UBS8Jd e aqew nofl ptp ‘spdom daq;o uI Lp39DOJd 6ut;aaw aq; ptp Moq puv '0 '0 @6ut;aaw ;eq; do; epuafie ue adaql sem '0 .v iepuafie aq; seM ;eqM puv .59, 'v ';seaado; xa;MoLLtd aq; ;noqe qLe; oi 09 5261-952 (S19) 'JuI ‘sfiutuuer e LL9M°A do adaq; sem UOWJEH aqtw ;t LLEDBJ ;,uop I '10u 'v @3903 daqwa;das ut aot;;o 'v'1 s;t ut aad;qe0 ;e fiutlaaw aq; papua;;e e6uai uax pue saAed9 ;;oa5 flLqtssod se qons sdaqwaw pdeoq aq; pue nofl 'v 'pJOD8J aq; uo s_;t 'LLBM '0 ueq; daq;o X91MOLLLd wod; ‘auoflue 11 ‘oqm 'ou padamsue 1 gdamsue aq; sem ;eqM '0 :NVWM3N ‘HW A8 1X1'(£) dGSOZZLO O7ZZO5DP (3).txt possibiiities for options. Q. Was Oaktree surprised when you revea1ed there was a very significant variance between the p1anned forecast and the actua1 forecast prepared by Mike Harmon? A. I don't know. I don't know if there were vowe11 & Jennings, Inc. (615) 256-1935 61 or not. MR. QUINN: When I d0 that, it usuaiiy means I have something to say. THE WITNESS: MR. QUINN: Sorry. That's a11 right. You have answered the question. BY MR. NEWMAN: Q. What was Oaktree's reaction to Tearning there was a very significant difference between the forecast in the pian and the forecast recent1y prepared by Mike Harmon? A. They were very concerned. Q. What did they say with respect to that? A. They wanted to eva1uate the different options. They instructed me to deveiop what we wouid need for a revised restructuring. And at that meeting, Bain Consuiting -— or the need for an outside consu1tant was discussed and the need for the potentiai —- the potentiai need for some accounting he1p to investigate some of the interna1 forecasts, assumptions. Q. Did Oaktree at that September meeting agree with the numbers that you and Mike Harmon Page 55 95 afied £9 S£61-952 (S19) ‘QUI ‘55uLuu9f Q LLBMQA 'uetd Itjauaq pautjap papunjdapun aq; 'v ;s;seaado; aq; uaaM;aq aouetdefl aq; ut pafltoflut adam sdo;ae; daq;o ;eqM '0 'uot;eztue6doad 10 uetd aq; o;ut ;Ltnq sem ;eq; fl;tLtqe;t;odd aq; afleq l0U ptp sdapdo do fiotqoeq aq; sem a3uada;;tp ;sa66tq aqt 'saA 'v 530, do dawwns aq; ut J81EL sq;uow atdnoo e ;sn1 ptp UOWJEH aqtw ;eq; Iseoado; aq; pue ;se3ado; uetd aq; uaaM;aq aauetdefl ;ueat;tu6ts e sem adaq; flqm 0; se 6utpue;sdapun ue afleq nofl oq '0 ';seoado; aq; 0; pat ;eq; stte;ap aq; Mouq 0; pa;ueM flaq; -- 0; '0 gLte;ua uotssnastp ;eq; ptp ;eqM puv 'v pat ;eq; -- Moux nofl ‘jo s5utput; aqt INVWMHN ‘HW A9 'uotssnostp e da;;e s;seaado; aq; P9ld933P flaq1 =ssaN1IM 3H1 'ptes flaq; ;eqM 10 s;oe; aq; Mouq o; s;ueM ;snt aH 'adaM suot;oead dtaq; ;eqM ;noqe suotssaddwt aAt6 do sputw pead 0; nofl fiutqse ;ou st an ';uawaad6e passaddxa sqtoj aad;qe0 aq; daq;aqM Butqse ade nofl qutq; I ‘aad6e flaq; ptp ‘aqtt suot;sanb nofl sxse aq uaqm -- aq qutq; I ‘uot;euetdxa 10 fleM flq 150C =NNIno "aw guowden aqtw Z9 SE61-952 (S19) ‘3uI ‘55uLuU9E Q LLQMQA flq auop Iseoado; aq; pue ;seaado; uetd aq; uaaM;aq 83UEtJEA 1ueot;tu6ts aq; fiutmoqs daq;a6o; ;nd 1x1'(£) aosozzzo O7ZZO5DP (3).txt Q. Any other factors? A. Those are the major factors. Q. Did you ever question as to why the company did —- wasn't aware that the backiog of orders didn't have the profitabi1ity? MR. QUINN: MR. NEWMAN: Objection to form. Withdrawn. BY MR. NEWMAN: Q. Did Oaktree ever expiain to you how the forecasts were prepared in the p1an of reorganization? A. NO. Q. Do you know what due di1igence was done by Oaktree in order to determine what the profitabiiity of the orders that were inciuded in the forecasts in the p1an were? A. NO. MR. QUINN: MR. NEWMAN: When? Did Oaktree ever exp1ain at any time. THE WITNESS: N0. BY MR. NEWMAN: Q. What a1ternatives were discussed for Pi11owtex at the September meeting? A. September meeting, the primary discussion vowe11 & Jennings, Inc. (615) 256-1935 64 was centered around preparing a revision to the restructuring p1an and the need to get outside Page 57 85 B694 '0 gapew seM ;eq; ;sanbad aq; sem ;eqM puv 'v 'uot;en;ts aq; ;e xoot o; papaau flaq; ;eq1 INVWMHN ‘EW A9 ‘SBA ZSSHNLIM 3H1 ('LEtJB1Ew S9 SE61-9SZ (S19) ‘3"I ‘55uL"u9f 0 LLBMOA pa;sanbad qaeq pead da;dodau) gqaeq ;eq; pead nofl ptnom :NN1n0 "aw ;5ut;aaw daqwa;das aq; ;e X31MOLLtd 0; 6utpun; Leuot;tppe aptflodd ptnom aad;qeo daq;aqM o; se aad;qe0 0; apew ;sanbad e sem '0 ';t ;aeua 01 adaq; ;,useM fiutpun; aq; asneaaq ptoq uo sem ;I 'v ;6ut;aaw daqwa;das aq; 10 se fl6a;ed;s Butadnos pue 6ut;aqdew ‘V 'LLP3BJ I 1PHl 10N '0 ¢pauot;uaw uot;eptnbtL sem ‘V 'LL939J I lPH1 10N '0 s_xa;MoLLtd 10 a;ep aq; sem ;eqM puv ;uetd 6utdn;3nd;sad pastflad e fiutdedadd ueq; daq;o ‘6ut;aaw daqwa;da5 stq; ;e XB1MOLLtd 0; atqettefle adam ;eq; passnastp saAt;euda;te flue adam '0 'ute6e uot;en;ts aq; B1EflLEA9 o; dtaq apts;no awos 6ut;;a5 punode uot;esdaAuoo e seM adaqi '6ut;aaw ;sdt; ;eq; ut aweu flq pauot;uaw sem utea adns ;ou w,1 'v gfiutfletd aq 0; 6uto6 UtE9 sem QLOJ ;eqM 'paAtoAut 6utaq utea pauot;uaw nofl ‘MON '0 'dtaq 1x1'(£) 40502220 Q. 072205DP (3).txt And what was Oaktree's response? A. Oaktree's response was that they needed to Took at the situation, evaTuate it. Q. Was there a specific amount that PiTTowtex asked Oaktree to fund? A. There were ranges discussed that were derivatives of the forecast. Q. And what was your understanding as to whether —- withdrawn. Do you remember what the ranges were? A. I remember 70 to $80 miTTion being one of the first numbers mentioned in that meeting, and there were many others Tater. Q. And did you have an understanding as to whether Oaktree ever committed to providing the 70 to $80 miTTion to PiTTowtex? A. They did not. Q. And did Oaktree communicate that fact to you at some point? A. Yes. voweTT & Jennings, Inc. (615) 256-1935 66 Q. When? A. Sometime Tater that year before Christmas. Q. And was that an in-person meeting or a teTephone caTT? A. I don't recaTT. Q. What did Oaktree say? A. That they wouTd not -- they wouTd not put a cash infusion. Q. Did they expTain why? Page 59 Q9 a6ed 'nofl queqi ‘1eq1 91EL3BJddP I :NvWM3N ‘aw 'adaq; snonastwodd :NvwM3N 'uN '1q6tu 1158135 "aw 911111 P 105 Sflaql Bq1 LUPPE ;noqe sem asuodsad Iset stq pue uot;sanb ;set dnofl -- suot;sanb om; ;set aqt SEM I 190M 5,1201 ';noqe Butqte; 1159135 ‘MW 'ute9 01 padda;ad flaq; aq; ssan6 I uaqi p91PJtpu1 Bu xutql I 'papuawwooad uteg INVWMHN ‘uw L9 SE61-9SZ (S19) ‘3uI ‘55uLU"9f 0 LL9M°A 'aad;xeo :NvwM3N 'uw o; padda;ad flaqt :1§9135 'uw o; paddadad flaqi 'aad;qeo gutea o; da;ad flaq; aq; ptp ‘a6ueq3xa ;set ;eq; ut ‘pdoaad aq; fl;tdeto ;snt am ue3 zisgigs 'uw 'awt; ut ;utod stq; ;e 5Ut3tJd uo s;dodwt mod; uot;t;adwoa aq; o; anp -- amt; ut ;utod stq; ;e s;dodwt 0; anp fld;snput '0 ;flqM 0; se 6utpue;sdapun ue afleq nofl oq 'v 'ptes flaq; ;eqM Mouq I '0 @fles flaq; ptp ;eqM 'v aq; ut qstd qanw oo; sem adaq; ptes flaqi ';t ;sute6e papuawwoaad ‘uteg fiutaq dn papua qatqm ‘wdt; aptslno aq1 ‘v 1X1'(E) aos02ZLO BY MR. NEWMAN: Q. 07Z205DP (3).txt Do you have an understanding as to whether Oaktree -- withdrawn. Did you beTieve or have an understanding as to whether Oaktree was committed to provide the funding to PiTTowtex to address the avaiTabiTity probTems PiTTowtex was having because of the defined benefit pTan TiabiTity and the profitabiTity of the orders? MR. SELBST: objection to form. MR. QUINN: Object to the form. You can answer. MR. SELBST: If you understand the voweTT & Jennings, Inc. (615) 256-1935 68 question. THE WITNESS: I didn't understand the objection to form. MR. QUINN: It just means we are preserving that for the record. THE wITNEss: I had an understanding that Oaktree wouTd provide capitaT, if needed, in the project. BY MR. NEWMAN: Q. When Oaktree communicated the fact that it wouTd not provide funding, did you view that as a breach of Oaktree's commitment -A. YES. Q. —— to provide funding to PiTTowtex? A. YES. Q. Did you ever communicate the fact that you Page 61 Z9 a6ed .ON .V g;uaw;twmo: fiutpun; s;t 10 qaeadq s_aad;qeo passnostp dafla xa;Motttd 10 pdeoq aq; daq;aqM Mouq nofl oq '0 '3LqEtA sem ;eq; 8At1EUJ81LP ue q;tM dn awoa o; sq;uow LEJBAQS do; pat66nd;s am -- ptnom ;eq; uetd 6utdn;and;sad aq; uo qdom 0; ;o6 1 'v ;xa;MotLtd 0; fiutpun; aptflodd 01 ;uaw;twwoo s;t 10 qaeadq s,aad;qe0 'v 'sot;toads aq; LLBDBJ ;,uop I '0 ssadppe 0; ‘6utq;flue 1t ‘op nofl ptp ;eqm gtteo auoqdata; '0 @qSJEX 'dw pue nofl ;sn[ '0 .v ;uot;esdaAuoa uosdad-ut ue ;t sem .53, ‘V ‘SBA '0 geuttodeo q;doN do 'v'1 ut ;eq; sem ‘v 'Lteo auoqdata; e sem ;t ‘flddos w,I '0 aq; fiutdnp passnastp sem ;eqM puv 69 §E6IT9SZ (ST9) '3uI ‘SEUPUUBC @ LLBMOA 'qsdeN BDHJS '0 ¢Lte;ua uotssnastp ;eq; ptp ;eqM ‘v q;tM uot;esdaAuo3 a;eAtdd e sem 11 'pun; ;ou ptnom do -- pun; '0 .v ;;eq; op nofl ptp uaqM puv .59, 'v 0; 5uto6 ;ou adam flaq; p9ZtLEBJ I da;;v ¢aad;xe0 0; X91MOLLtd 0; 5utpun; aptflodd 01 luawltwwoo s;t paqoeadq aad;xe0 paflattaq 1x1‘(£) dGSOZZLO Q. O7Z205DP (3).txt Did PiTTowtex ever discuss Oaktree's breach of its funding commitment? A. No. That commitment was made to me. Q. When you say that commitment was made to you -A. In the recruiting process. voweTT & Jennings, Inc. (615) 256-1935 70 Q. In the recruiting process? A. Right. Q. Did Oaktree ever make a commitment to PiTTowtex Corporation to provide it -A. NO . Q. -- with any type of funding? A. No. Sorry. MR. SELBST: the question. Just wait for the end of You don't have to apoTogize to me. We just need it for the record. BY MR. NEWMAN: Q. When you were saying Oaktree breached its commitment, you were saying that Oaktree breached its commitment that was made to you personaTTy? A. Correct. Q. And was a revised restructuring pTan performed for PiTTowtex? A. Yes . Q. And what was the revised restructuring pTan? A. WeTT, it showed an aTternate sourcing methodoTogy and a marketing pTan, and we discussed the requirements of that with the board. Page 63 ZL I9 959d seat-952 (S19) ‘JuI ‘sfiutuuar 0 LL9M°A fiutdedadd ut X81MOLLtd ;stsse ‘QjS3 se ;t 0; da;ad tt,aM J0 ‘uo;so9 1SJtj asstns ;tpad3 ptq '0 'awt; Ieq; 6utdnp suot;aatodd tetaueut; ;uada;;tp ut ;tas;t pa;sa;tuew ;t -~ Letoueut; LEJBABS adam adaqt 'qans se ;oN 'v ;;uawnoop ua;;tdM e ;t sem -- ua;;tdM e 10 ;ded ;t seM ‘SPJOM daq;o uI gpatjtpoa uetd 6utdn;3nd;sad pastflad aq; sem Moq -- ptq '0 'fltteat;taads 1JEW—LQM 0; aqe; o; ‘N-0-N-N-v-3 ‘puedq uouueg q;tM qdom awos auop peq am 'v guetd 6utdn;and;sad pastflad aq; 10 ;ded se ;eq; seM ;eqM ‘uetd 6ut;aqdew aq; puv '0 'spoo6 10 ;soa ;sn§pe 0; dapdo ut aadnos 0; utfiaq pue satdo;oe; ute;daa mod; uotlanpodd UtE1JBD axe; ptnom aM ‘V guetd 6utdn;and;sad pastflad aq; 10 ;ded sem ;eq; ‘V 'oN '0 fl6oLopoq;aw fiutadnos a;ewt;Ln aq; sem ;eqM LUOTLLTW SZ$ 'v '6utpun; papaau 11 '0 gfiutpun; qanw MOH ‘v 'LLE3BJ ;_uop I '0 guottttw 05$ ueq; ssat do adow ;t sem 'v ‘LLQDBJ ;,uop I '0 ueq; ssat do adow sem ;t It LLPDBJ nofl oq IL SE61*9SZ (S19) ‘Jul ‘sfiutuuar e LLBMOA asoq; do; s;uawadtnbad aq; adam ;eqM puv gsuetd '0 1X1‘(2) aos022L0 072205DP (3).txt a revised restructuring pian? A. They were invoived. I don't recaii if they specificaiiy heiped in the restructuring pian. Q. Now, how did your duties and responsibiiities as chairman of the board and chief executive officer change, if at aii, once the defined benefit iiabiiities and the eroding saies margin issues were discovered? A. I was instructed in the September/October time frame to work on the restructuring aiternative and to a1so begin working with CSFB with regard to the potentiai aiternative of finding a buyer for the company, and to work with the forensic accountants to he1p understand and measure these aiternatives in a iittie more detaii. Q. who were the forensic accountants that were being used? A. I don't know the name of the firm. Mo Meghji was the key principai. Q. The firm -— if I said the firm name was Loughiin Meghji, wouid that refresh your memory? A. Q. Thank you. That's correct. So when was the first revised voweii & Jennings, Inc. (615) 256-1935 73 restructuring pian formuiated? 2 A. we11, there were severai. Page 65 It was a 072205DP (3).txt process of options that were drawn and discussed. Q. The -- the revised restructuring pian that took the form of the aiternate sourcing methodoiogy and the marketing pian, you mentioned that that needed funding. Did Piiiowtex have the avaiiabie funding to accompiish that revised restructuring pian? A. N0. Q. And was any request made to Oaktree to provide the additionai funding required to accompiish the revised restructuring plan that consisted of the aiternate sourcing methodoiogy and the marketing pian? A. I think we -- I think that question has been asked. Q. we11, before you toid me that a request was made at the September meeting for Oaktree to cover -A. Okay. I see the difference. I see. Q. SO -- A. Yes. Q. what was Oak -— did you make the request on behaif of Piiiowtex to Oaktree? voweii & Jennings, Inc. (615) 256-1935 74 A. I don't recaii specificaiiy if I did. Q. And what was 0aktree's response to the request to provide the additionai funding? A. They took it under advisement with Bain management consuitants to evaiuate. Page 66 Q. O7ZZO5DP (3).txt And was there ever a decision made on whether Oaktree wouid provide the funding for the aiternate sourcing methodoiogy in the revised marketing pian? A. I don't know. Q. Oaktree never provided any additionai funding to Piiiowtex? A. N0. Q. Now, do you know whether Oaktree was -- withdrawn. Did you ever have any discussions during the recruiting process about whether Oaktree wouid purchase any creditor positions with respect to Piiiowtex? A. There was a comment made in my meeting with Mariusz Mazurek and Bruce Karsh in New York in passing that if I decided to do this dea1 they might buy a deeper position in the company -- take a deeper position in the company, is the way it was characterized. voweii & Jennings, Inc. (615) 256-1935 75 Q. Did Oaktree ever commit to take a deeper position in Piiiowtex? A. N0. Q. Do you know whether Oaktree ever iooked to take the deeper position in Piiiowtex? A. I don't know. Q. Do you know whether Oaktree ever iooked to seii its bank debt position with respect to Piiiowtex? Page 67 O7ZZO5DP (3).txt A. During my time? Q. During your tenure. A. N0. Q. Now, you said to me in September or October you were instructed to work with CSFB on potentiai aiternatives with the company, which was mainiy providing a buyer for the company. who provided that instruction to you? A. The board. Q. Did you consider Oaktree to controi the Piiiowtex board of directors at any time? MR. QUINN: THE WITNESS: Objection to form. N0. BY MR. NEWMAN: Q. Now, when you were instructed by the board to work with CSFB to find a potentiai buyer for vowe11 & Jennings, Inc. (615) 256-1935 76 the company, did you understand at that point that Piiiowtex was not going to be pursuing any type of sourcing strategy? A. It was a compendium. I think in the initiai meeting with -- or the discussions when CSFB got invoived, aii of the options were sti11 on the tabie. So it wasn't iike a decision was made and then we investigated it; it was iike a11 of these possibiiities were being evaiuated. Q. But without —— without a source of funding in addition to what was avai1ab1e to Piiiowtex at that time, sourcing was not a possibiiity for Page 68 Piiiowtex, correct? A. O72205DP (3).txt Not to the degree that we had originaiiy drawn up, no. Q. what discussions, if any, did Piiiowtex have with -- withdrawn. what discussions, if any, did Piiiowtex have with Congress Financiai during the summer of 2002 concerning the investigation that you did of Pi11owtex's finances? A. I don't recaii. Q. Do you recaii having any discussions with -- withdrawn. Do you know whether Piiiowtex reveaied to voweii & Jennings, Inc. (615) 256-1935 77 Congress Financiai the defined benefit iiabiiity? A. I don't reca11. Q. were you invoived in any of the discussions between Piiiowtex and Congress Financiai? MR. QUINN: At any time? MR. NEWMAN: THE WITNESS: YES. At any time, yes. BY MR. NEWMAN: Q. when did you first become invoived in discussions with Congress Financiai? A. I don't recaii any specific date. Q. Do you recaii any specific meetings with Congress Financiai? A. we had a teieconference with the ienders. Q. And when was that? Page 69 072205DP (3).txt A. I don't remember. Q. was that in 2002? A. I know we had mu1tip1e ca11s. There were some in '03, and I just don't reca11 if there were any in '02. Q. And when you say the ienders, are you referring to oniy Congress Financiai or to other ienders as we11? A. To the other ienders. Mike Harmon deait Voweii & Jennings, Inc. (615) 256-1935 78 with the revoiving —— revoiver credit. Q. And you're aware that Pi11owtex had a term ioan in addition to the revoiving credit faciiity? A. Right. Q. And that the agent for the term ioan ienders was Bank of America? A. I don't reca11 that. Q. Just so I'm ciear, when you say teieconference with the ienders, does that refer to just Congress Financiai or Congress Financiai and the term 1oan ienders? A. I think it was the term 1oan 1enders. Q. Now, did there come a time when you began speaking to Piiiowtex about revising your initiai employment agreement? A. YES. Q. And when did that -- when did that first occur? A. In Ju1y of '02. Page 70 Q. 072205DP (3).txt And how did that come about? A. John Steriing, our generai counsei, came to me and said that the ioan agreement that was in the contract, that there was new -- new Tegisiation, I think it was Sarbanes that made those improper, and that we needed —- the current vowe 1 & Jennings, Inc. (615) 256-1935 79 contract was inexecutabie. Q. when he said that the ioan and the agreement, that was the miiiion doiiar Toan that was going to be made to you by Piiiowtex? A. I don't remember the amount, but there was an initiai 1oan in the contract. Q. what was the purpose for the ioan to be made to you by Piiiowtex? A. weii, the amount initiaiiy was intended to cover the tax on the stock grant -— the up-front stock grant. Q. Do you recaii how many shares of stock you were granted? A. It was the equivaient of $750,000. It was 800 -- I do remember, it was 800,000 shares of options —— I'm sorry. MR. QUINN: we're taiking about the sign—up bonus. THE WITNESS: I'm sorry. I don't remember the -- I don't remember the number of shares of stock. It was about 100,000 shares of stock. BY MR. NEWMAN: Page 71 072205DP (3).txt Q. And were the -- did John Steriing mention any other revisions that were necessary to the voweii & Jennings, Inc. (615) 256-1935 80 ioan agreement —— I mean to the empioyment agreement? A. N0. Q. And did you agree to modify the empioyment agreement? A. we had conversations about that, and, yes, we uitimateiy in August revised that. Q. what conversations did you have concerning the revisions of the initiai empioyment agreement before August? A. weii, that there was no consideration on my side in good faith. we taiked about what that might mean, and I agreed in good faith to amend the contract. Q. And as far as that, the oniy amendment to the contract was the iead in the provision of the CEO ioan? MR. QUINN: MR. NEWMAN: THE WITNESS: At that point? At that pO'il’lt. YES. BY MR. NEWMAN: Q. when is the next time, if any, that you had conversations with anyone about making additionai revisions to the empioyment agreement? A. I was taiking to the comp committee in vowe11 & Jennings, Inc. (615) 256-1935 Page 72 81 O7ZZO5DP (3).txt that September time frame based on the meeting that we had in Los Angeies with Oaktree about the fact that my contract was inexecutabie for a coupie of reasons: One, the 1oan; two, the options I had been toid couid not be granted -the 800,000 options couid not be granted under the current, I guess, by1aws of the company in accordance with the contract. So what they were saying was -- what the generai counsei was saying was that we had a probiem executing my contract, so I started taiking to Jeffrey Keenan and the compensation committee about how to amend the contract. Q. And what did those conversations entai1? A. weii, there was consideration that we wouid potentiaiiy change the granting of the options, that we wouid -— at that point in time, there was some consideration for me staying in the situation even though the situation had changed dramaticaiiy and that there was some consideration inciuding purchasing the home, the reiocation aiiowance at that point in time were discussed. Q. when you say consideration to stay in the situation -A. Right. voweii & Jennings, Inc. (615) 256-1935 82 Q. —- you understood that you had an empioyment agreement for a four-year term, right? Page 73 O7ZZO5DP (3).txt A. Right, that the company was in breach of. Q. Did you consider the company to be in breach of your contract in September 2002? A. It wouid be, and I was giving them notice that they were going to be. Q. What do you mean that they wouid be in breach? A. They had to issue these options after I was with the company. They couid not issue those options in that year. They had to issue them the next year, in vioiation of the contract. Q. Didn't the company amend its stock option pian to -A. As part of the -- Q. -- accommodate the 800,000 grant of the shares? MR. QUINN: mean by accommodated? Ho1d on. What do you Do you mean by that to put the company in a position to pay him the 800 when due? MR. NEWMAN: THE WITNESS: Yes. They made the change in order to get the 600 in '02 and 200 in '03, which Vowe11 & Jennings, Inc. (615) 256-1935 83 was my concession as part of the ongoing negotiation with regard to restructuring my contract. BY MR. NEWMAN: Q. In September 2002, do you recaii what the Page 74 07ZZO5DP (3).txt Piiiowtex stock was trading at? A. NO. Q. Do you reca11 what the strike price was for the options that were granted to you? A. No. Q. Do you have an understanding as to whether the stock options had any vaiue in September 2002? A. I don't recaii. Q. So is it fair to say that you advised the Piiiowtex board in or about September 2002 that Piiiowtex wouid be in breach of your empioyment agreement -A. It was probabiy -- Q. -— if it didn't issue the options for 800,000 shares of Piiiowtex? A. I think the 800,000 stock conversation was about the same time as the 1oan actuaiiy, because when the generai counsei who inherited the contract reaiized that we had a probiem with the ioan and that we had a probiem with the options, voweii & Jennings, Inc. (615) 256-1935 84 that conversation was ongoing during that period of time. So it was contemporaneous with the 1oan conversation. Q. Did you ever teii the Piiiowtex board that it wouid be in breach of your empioyment agreement? A. The generai counsei did. Q. How do you know that? A. I was in his presence when he did. Page 75 072205oP (3).txt Q. What did he say? A. He said that the company couid not issue the stock in accordance with my contract. Q. Did anyone ever use the terms that Piiiowtex Corporation is in breach of its contract with David Perdue? A. With the word is in there, no. MR. QUINN: No, he means the word breached. BY MR . NEWMAN: Q. I mean the word breached. Did anyone ever use the word breach to describe -A. I don't recaii. Q. How did the board respond to John Steriing? A. They wanted to end the -— for us to modify vowe11 & Jennings, Inc. (615) 256-1935 85 the agreement. That wouid a11ow the company to issue some of the shares in '02, some of the shares in '03, and to begin taiking about renegotiating the contract with regard to my situation. Q. What situation was that? A. We11, the -— the entire contract was buiit on buiiding an attractive contract that wouid encourage me to 1eave the situation that I was in at Reebok, invested in the money. It had the fioor guarantee we taiked about in the back end that in this situation there was a good Page 76 072205DP (3).txt possibility that that was going to go away. Q. You understood, didn't you, that when you left Reebok that there was a possibility that Pillowtex would not be able to complete its restructuring? A. There's always that possibility. But I had in there a guarantee backed by a letter of credit. So I thought even in that event -— and I had been assured that that would be protected. Q. What was your concerns that a letter of credit wouldn't pay to you? A. When I signed the contract, no one disclosed -- well, the contract stipulated an vowell & Jennings, Inc. (615) 256-1935 86 open-ended letter of credit. The company could not do but one year letter of credit with its current lender. That would expire in the summer of '03. Q. What was the concern with respect to that? A. That they couldn't replace the letter of credit. Q. The company's modification of its stock option plan that permitted the payment of the options for the 800,000 shares of Pillowtex, did that satisfy your concern as to whether Pillowtex would be in breach of the agreement for -MR. QUINN: MR. NEWMAN: THE WITNESS: As to that issue or -- AS to that issue. As to that single issue, yes. Page 77 072205DP (3).txt BY MR . NEWMAN: Q. What, if anything, was discussed with -- withdrawn. What, if anything, was discussed with the Pillowtex board about paying your tax liability for the shares that were granted to you as part of your signing bonus? A. That was also discussed at the same time that the repurchase of the home and the relocation vowe l & Jennings, Inc. (615) 256-1935 87 allowance was discussed. Q. It was all discussed at the same -- A. Absolutely. Q. Was it at a meeting? A. I don't recall if it was a meeting. Q. Who was present for that discussion other than John Sterling? A. I don't recall. Q. What, if anything, did the board offer to you to offset the loss of the CEO loan? A. The -- there were various conversations that went on. It wasn't that any conversation was discussed specifically only for the loan. The loan, the stock, the situation, the back end guarantee, all of that was being discussed at various times in that three— to six—month period of time. And there were various alternatives that the board discussed -- that we discussed together Page 78 072205DP (3).txt with regard to amending the contract. Q. What were the various alternatives that were discussed? A. Well, what we discussed was that they would provide a gross up on the tax payment, they would pay the -— for the purchase of the home, vowell & Jennings, Inc. (615) 256-1935 88 they would pay the loan amount, and we were negotiating —- we were continuing negotiating different forms of back end protection that would incent me to stay involved and help with what other alternative we had with the company. But it was also direct -- at that point, they were trying to incent me to amend the contract, primarily because of the loan. Q. So it's your position that the board was -- that the board offered to provide you with additional consideration above and beyond what was provided in the initial contract? A. YES. MR. QUINN: sorry. Objection to form. I'm I didn't hear the answer. THE WITNESS: YES. BY MR. NEWMAN: Q. Let's take the gross up tax payment. Did Pillowtex -A. Can I amend that question? Q. Yes, sir. A. Or the answer. ' MR. QUINN: First, before you do, if Page 79 072205DP (3).txt we could have the question and answer read back. (Reporter read back requested vowell & Jennings, Inc. (615) 256-1935 89 material.) THE WITNESS: The answer is, yes, pending an amended contract. They wanted to amend the contract because the current contract was inexecutable. BY MR. NEWMAN: Q. When you say inexecutable, I'm not sure what you mean. A. We could not grant the stock options in that year. MR. QUINN: THE WITNESS: MR. QUINN: They couldn't do it. They couldn't perform. Inexecutable means didn't sign it. THE WITNESS: layman's term. I'm sorry. That's a They could not perform under the terms of the contract. MR. SELBST: And they had withdrawn the loan. THE WITNESS: MR. NEWMAN: Right. Thank you. BY MR. NEWMAN: Q. The company ultimately agreed to pay you a $700,000 payment to offset the tax liabilities for the shares that were granted to you as part of the vowell & Jennings, Inc. (615) 256-1935 Page 80 90 072205DP (3).txt sign-up bonus, correct? A. That was a gross up for the liability of about 360,000. MR. QUINN: MR. NEWMAN: Take a break. SUFE. (Brief recess observed.) BY MR. NEWMAN: Q. Did you have any personal liability for -- in connection with the grant of the shares as part of your sign-up bonus? A. Yes. Q. What was that? A. It was the tax on the stock. Q. Did Pillowtex's payment of $700,000, did that fully cover the -- the payment -A. Yes, it did. Q. -- that's required for the taxes? A. YES. Q. So you didn't have to go into your pocket at all for any payment with respect to the sign-up bonus, correct? A. With respect to the sign-up bonus, no, but there was another piece that I did. Q. A. What piece was that? The withholding taxes were not paid by the vowell & Jennings, Inc. (615) 256-1935 91 company in March or whenever it was, April. my W—2 and realized there was an error. Page 81 I got 072205DP (3).txt Of the three components that were made -the payments that were made in January, the 700,000, there was a bonus that was paid that was under the contract, there was also a relocation. The company advised the creditor committee, the creditor committee okayed payment of the tax on the -- withholding on the 700,000, the withholding on the bonus. They did not pay the withholding on the 100,000, so that was a shortfall of 93,000. MR. QUINN: which you never got paid? THE WITNESS: I l'\EVEl" got. BY MR. NEWMAN: Q. The 93,000 -- you had to pay 93,000 in taxes? A. Right, out of my pocket. Q. On the $100,000 payment? A. Well, I don't know -- the gross up amount on the 100,000 including tax on tax and everything else was 93,000. Q. How much bonus did you receive from Pillowtex in 2002 -A. So by the way, let me explain that. So Vowel & Jennings, Inc. (615) 256-1935 92 the cash payment should have been 193,000 on that. That's what was agreed to. Q. When the company paid you 700,000, they were paying you the grossed up amount on -- for -with respect to the shares, correct? Page 82 A. 072205DP (3).txt That's correct, to the tax liability on the shares. Q. Why, if you know, did the company not pay you the gross up amount of $100,000 when it made the $100,000 payment to you? A. There was a technicality that after the fact -- there was an error in the company that they didn't pay the withholding. After the fact, the creditor committee did not agree with paying that. They agreed with the first two; they did not agree with the third. Q. I don't know why. But as far as you understood, the company agreed to pay a gross up figure on the $100,000 relocation expense? A. That's correct. Q. How much bonus did you receive in 2002? MR. QUINN: THE WITNESS: You mean regular bonus? Regular bonus on the contract was approximately 300,000 -- 300-plus thousand. vowell & Jennings, Inc. (615) 256-1935 93 BY MR. NEWMAN: Q. Did you ever declare Pillowtex Corporation to be in breach of your employment agreement? MR. QUINN: clarification? Can I ask a Do you mean -- I mean, declare a breach is sort of something that lawyers do. Do you mean —- are you asking him whether he said such a thing, or are you asking whether he in some fashion communicated to Page 83 072205DP (3).txt Pillowtex that he did regard Pillowtex as not performing its end of the bargain? MR. NEWMAN: I think either way would answer the question. THE WITNESS: The answer to that is yes. BY MR. NEWMAN: Q. And how did you declare that Pillowtex Corporation was in breach of the contract other then what you have already testified to? A. In various conversations with the comp committee. Q. Brad Dietz, Jeffrey Keenan made up the comp committee? A. That's correct. vowell & Jennings, Inc. (615) 256-1935 94 Q. And when -- when you would express to the compensation committee of Pillowtex Corporation that either the company was in breach of your employment agreement or not able to perform the employment agreement, what was the comp committee's response to you? A. In January, because I had agreed in good faith back in October to amend the contract, we had not amended the contract yet because the comp committee and the board had not come to terms -we had not come to terms on the back end protection. Page 84 072205DP (3).txt And I had in good faith marketed the company, worked on the restructuring alternative, worked on the outside people, and maintained a front image -— an up-front image, rather, with our customers to protect the backlog, which was at -it was paramount to the company in October that we not let the backlog go away. Therefore, my presence was termed to be very important. And because of that, they decided in January to go ahead and pay while we were negotiating -— still renegotiating the back end, which was a full consideration to go ahead and pay the consideration on the loan and the repurchase vowell & Jennings, Inc. (615) 256-1935 95 of the home and the relocation allowance. MR. NEWMAN: Can I have the last answer read back, please? (Reporter read back requested material.) BY MR. NEWMAN: Q. What kind of back end protection were you seeking from the company? A. I Wanted the realization of the $2 million, which at that point in time in looking at the options that were out there was not going to be in place in accordance with the contract -original contract. Q. When you say the realization of the $2 million, are you talking about the issue with the letter of credit expiring each year? Page 85 072205DP (3).txt A. Right. Q. And what -- what were the negotiations with Pillowtex concerning the back end protection that you were seeking? A. Well, there were various positions taken from January all the way through March with regard to getting that protected. And at the end day, we couldn't come to terms, and I left the company. Q. What couldn't you come to terms on? vowell & Jennings, Inc. (615) 256-1935 96 A. The form of that back end protection. The company at that time, we had a potential buyer in Springs signed up with terms, et cetera, et cetera. They were really in the final days of going to a transaction potentially, and we Wanted to get that -- or I wanted to get the contract amended so that that back end was protected. We never came to terms on that. Q. Now, the relocation expense, was that something you asked for in the negotiations of the original employment agreement? A. Well, it's not that I asked for it. It was offered as consideration for -— at that point in time back in October or actually a little before then when we were talking about it in September, in order to execute the options that the board was asking me to do during that period of time. So from my perspective, I was operating in Page 86 072205DP (3).txt good faith while we were negotiating on restructuring that contract to reflect the current situation. Q. So you never asked the company to pay you a relocation expense? MR. QUINN: You mean in those -- ask vowell & Jennings, Inc. (615) 256-1935 97 that type of consideration? Is that what you mean? MR. NEWMAN: THE WITNESS: Any relocation expense. The negotiation went -- I don't recall asking specifically for any of the issues. The stock was a common conversation because of the tax on that in giving up the loan, and the loan proceeds were intended to pay the tax on that liability. So it was an evolving issue. I'm not -— it wasn't like when I was hired I sat down and said, here are the three things I want. These are the three things that the comp committee was looking at and saying, okay, we want you to market the company. Let's get your house purchased, let's get you down here, and let's get you taken care of. We want you to take care of the customers and also manage this marketing effort. BY MR . NEWMAN: Q. Do you recall ever going to anyone and requesting that the company cover all of your relocation expenses from Massachusetts? Page 87 072205DP (3).txt A. Q. In specific terms, no. Do you recall who first raised the notion vowell & Jennings, Inc. (615) 256-1935 98 of paying you a relocation expense cash payment and to hire a relocation firm? A. NO. Q. When did —- withdrawn. When was your house in Massachusetts purchased by the relocation company? A. I don't recall the date. It's in the file. Q. Do you recall whether that occurred before or after you left Pillowtex? A. I don't recall. Q. Did you ever intend to move down to the North Carolina area? A. YES. Q. After being told in September or October that your work with CSFB was dependent upon a potential purchase of the company, did you intend at that point to move to North Carolina? A. There was still that possibility because the restructuring option was still out there. We were still showing different alternatives during that period of time as to viable possibilities of working out viability, you know, of the company in some form without selling the company. It was one of several options that We continued to evaluate. vowell & Jennings, Inc. (615) 256-1935 Page 88 99 O7ZZOSDP (3).txt Q. Did you ever 100k for homes in North Carolina? A. Yes. Q. what did that entaii? A. My wife came down. We retained a reai estate professiona1. We did house hunting. I iooked at houses constantiy in that '02 time period, '03 time period. That's a1]. Q. Did you ever make an offer on a house in North Caroiina? A. No. Q. when did you First consider Weaving the empioy of A. when did I first consider it? Q. Yes. A. I would say that in the February/March time Frame. Q. That wouid be February/March of '03? A. of yes. Q. You didn't consider 1eaving at any time in '02? A. Seriousiy, no. Q. what do you mean by when you say seriousiy? A. Wei}, I asked the question -- I mean, I Voweii Jennings, Inc. (615) 256-1935 100 made that comment because in October my deai had expioded in my face. From my perspective, this Page 89 0722050P (3).txt thing had totaiiy biown up in my face. The equity that I waiked away from, the stock at Reebok continued to go up. This thing was not what it had been represented to me to be. The assertions of support were not there, and I was being asked in good faith to hang in there and heip market the company, heip deveiop aiternatives, protect the saies that were there. And I'm sitting here with a contract that's not they couidn't perform. Yeah, there was a thought at that point in time that says, what are our aiternatives. I had made a commitment there. This team was rea11y trying to find out what was the best thing to do. There were some 5,000 empioyees there. Some of those peopie had been empioyed there 45, 50 years. If there was any way at a11 we couid make this a viabie company iong-term, we were showing those alternatives to everybody that was iooking. Q. You mentioned in that answer that that situation was not as it was represented to you. what do you mean by that? Voweii Jennings, Inc. (615) 256?1935 101 A. Wei], the the Forecast, which was based on the backiog and the projected profit on that backiog was not at a1] what the pian of reorganization represented. Q. Did Oaktree ever represent to you that the Page 90 0722050? (3).txt company wou1d meet certain EBITDAR 1eve15 in 2002? A. Yes. Q. what did Oaktree represent to you with respect to what EBITDAR 1eve15 Pi11owtex wou1d achieve in 2002? A. It was represented that that EBITDAR wouid be $7 mi11ion. Q. In 2002? A. Yes. Q. Did Oaktree make any representations as to what Pi11owtex's EBITDAR 1eve1s wouid be in 2003? A. Yes. Q. what representations were those? A. 90 mi11ion. Q. Were those representations both made at the same conversation or meeting? A. Yes. who made those representations? A. Mariusz Mazurek. who was present for that conversation VoweTT Jennings, Inc. (615) 256?1935 102 other than you and Mr. Mazurek? A. I think that was it. Q. Was anything e1se said with respect to at that meeting? A. That was the interview in New York, so there were a iot of things discussed in that meeting. Q. Do you remember specifica11y what Mr. Mazurek said with respect to the EBITDAR Page 91 0722050P (3).txt ieve1s with PiiIowtex? A. Just that the POR they had in there they were projecting a 70 mi11ion and $90 number for both of those years. MR. QUINN: POR is pian of reorganization. THE WITNESS: I'm sorry. BY MR. NEWMAN: Q. what, if anything, did you do to 100k for empioyment outside of after the summer of 2002? A. I did not look for empioyment outside of Pi11owtex. I answered a phone caii and met Cai Turner, who was the then chairman/CEO of Doiiar Genera? in December. Q. of 2002? Voweii Jennings, Inc. (615) 256?1935 103 A. 2002. Q. And he was the then CEO and president of Doiiar Generai? A. He was the chairman/CEO of Doiiar Genera]. Q. what is Doiiar Genera}? A. It's a retai1er. Q. How many stores does it have? A. Over 7500 stores. Q. what types of products does it seii? A. Branded commodity consumab1e products. Q. Cai Turner just caiied you out of the biue in 2002? Page 92 mmwaT?IO 07ZZOSDP (3).txt A. There was a search firm invoived, and they had an active search for some time, and he was 1ooking for a repiacement. Q. Did the search firm contact you first, or did Mr. Turner A. Yes, they contacted me first. Q. The search firm? A. Yes. Q. Do you recail who the search firm was? A. Yes, it was Korn Ferry. Q. Are they iocated in New York? A. Among yes, I think that's their headquarters. Voweii Jennings, Inc. (615) 256?1935 104 Q. And do you remember when you received the ca11 from Korn Ferry? A. I don't, but I know it was prior to the meeting in December with Ca? Turner. Q. Do you remember if it was in December 2002? A. I don't. Q. what was what was discussed during that call? A. That there was a retai1er that was iooking for a CEO. They needed someone with an operations background. My name had been given to them. That was the gist of it. Q. Did you indicate during that teiephone caii that you were interested in the position? A. No. Page 93 07ZZOSDP (3).txt Q. Okay. Did you what did you indicate to the recruiter concerning your interest, if any, in the position? A. I said my response was, I know nothing of the company. They said, 1et me send you the information. They sent the information. Q. And what information was that? A. It was just there was a summary on the background of the company, there were 1imited Voweii Jennings, Inc. (615) 256?1935 105 financiais on a brief on the organization. Just a fairiy standard package. Q. And over did you have any other further contacts with the recruiter? A. After December, yes. Q. How did the meeting with Cai Turner come about in December 2002? A. They caiied and wanted to know if I wou1d be to meet him. At that point, my response, I remember, was I thought it was preiiminary. It was premature. I wou1d be happy to make you know, to meet him, but that I was fui1y engrossed in what I was doing. Q. But then you met with Mr. Turner anyway in December 2002? A. Yeah. Q. why? A. We11, with the of the company, I had the prospects of being Page 94 OO?qmm-thl-lo 19 0722050P (3).txt unempioyed with no severance protection at that point in time because of the 363 prospect of that was being inc1uded in these potentiai or envisioned transactions. Not on1y did I not have the background guarantee on the minimum I had no back end Voweii Jennings, Inc. (615) 256?1935 106 protection under the severance agreement because there was going to be a 363 fiied. Q. So you decided to meet with Cai Turner in December 2002 for those reasons? A. No, I decided to meet with him to meet him to see if to see who this guy was and 1earn a littie bit more about the situation, but I was not appiying for the job in December. where did you meet I'm sorry. A In December. Q. where did you meet Mr. Turner? A In New York. Did you meet during the week or on the weekend? A. During the week. Q. who paid for your trip to New York when you met Ca] Turner? A. I had an office in New York. I was in New York that week, a office. Q. where did that meeting take piace? A. when? Q. where? A. In a restaurant on the upper west side Page 95 24 25 07ZZOSDP (3).txt near his apartment. Q. And what was discussed during that meeting Vowe11 Jennings, Inc. (615) 256~1935 107 with Mr. Turner in December 2002? A. He reiated why they were iooking for a CEO, what his vision for the company was, what his ethicai, morai structure was, and just a generai background of the company. Q. Were you interested in the position foiiowing the meeting with Mr. Turner? A. No. Q. why not? A. I wasn't a retaiier, and, frankiy, he and I were two totaiiy different individuais. Q. In what sense? A. His styie of management was different than mine. Q. what's your styie of management? A. Weii, I'm -- I had been invoived in turnarounds. I have my styie is very performance oriented with based on strong individuais. I feit 1ike that his focus at that point in time after that meeting, I feit 1ike his focus was more on training and deveiopment and HR deveiopment and that sort of thing and that what they needed was some serious in their performance. Voweii Jennings, Inc. (615) 256-1935 108 Page 96 0722050? (3).txt Q. when did you next communicate with anyone on behaif of Doiiar Generai after the December meeting with Ca] Turner? A. I don't remember the next contact. I do recai] taiking to my wife about the situation, and at a iater date, I remember her encouragement to caii the headhunter and talk to them a 1ittie bit more about the specifics. Q. And when did you next cai] the headhunter? A. I don't reca11, but it was it was obviousiy I don't recaii. Q. Was it after was it in 2003? A. Yes, it was in 2003. Q. Do you remember if it was in January 2003? A. I don't. Q. And ww I'm sorry. A. I know I resigned in March, so obviousiy it was between January and March. Q. Fair enough. what did you say to the recruiter when you caiied him or her the next time you spoke A. Weii, I just toid him that at this point in time I'd given it some thought, and I wouid iike to know a 1itt1e bit more about the opportunity. Voweii Jennings, Inc. (615) 256?1935 109 Q. And what happened from there? A. They I think there was a weii, I'm Page 97 mngI?i 0722050P (3).txt guessing. But I know I taiked to the headhunter two or three times. They set a meeting up in where I went down and met with ca1 and a selection committee of the board. Q. And do you know when that meeting was? A. I don't. Q. who paid for your trip to -- to to meet Cai Turner and meet with seiect members of the Doiiar Generai board? A. It was a three-1egged trip. paid for Boston to Char10tte; Doiiar Generai paid from Chariotte to and from back to Boston. Q. How em withdrawn. After that meeting, what was the next contact with Doiiar Genera1? A. I don't recaii specificaiiy. Q. Do you recaii when Doiiar Generai offered you the position of chairman? A. In March of '03. Q. who, if anyone, at Pi110wtex was aware that you were in any communications with Vowei] Jennings, Inc. (615) 256*1935 110 Doiiar Generai in connection with its search for a chairman? A. I don't recaii. Q. Did you teii anyone at that you were considering 1eaving empioy? Page 98 0722050P (3).txt A. I don't reca11. Q. Did you te11 anyone at Oaktree that you were in communications with Doiiar Genera? in connection with its search for a chairman? A. In March at about the time I resigned, I think I had a phone conversation. Do you reca11 with whom? I think it was Scott Graves. And what did you teii him? That I was resigning. what did he say? I don't reca11. And after that meeting in with Ca] Turner and selected board members of Doiiar Genera], did you have any other meetings with Doiiar Generai or the recruiter afterwards? A. NO. Q. Did you explore any empioyment opportunities other than Do11ar Generai during your tenure at Pi110wtex? Voweii Jennings, Inc. (615) 256-1935 111 A. No. Q. You never reiocated to the North Caroiina area; is that correct? A. No. That's correct. Q. what?s the reason behind that? A. The uncertainty of the opportunity, of the situation. Q. where did you reside when you were in the North Caroiina area? Page 99 072205DP (3).txt A. I 1ived in a company?owned house caiied the white House. Traveiing saiesmen use that house instead of staying in the hote1s. So we had various w~ four or five peopie at different times wouid use that house. It was ca11ed the white House. Q. There were times you were in the white House when other representatives of Pi1iowtex a1so stayed there? A. That's correct. Q. And Pi110wtex carried the operating costs for the white House? A. That's correct. Q. Did you ever request Pi11owtex to share information with Doiiar Genera1? A. There was a noncompete I'm sorry, there Vowe1] Jennings, Inc. (615) 256~1935 112 was a nondisciosure agreement that was executed. Q. And what was the purpose for that agreement? A. It was to protect both Doiiar Generai and Pi1iowtex from premature disc1osure of my situation. Q. what information was provided to Doi1ar Genera1, if any, under the confidentiaiity and nondisc1osure agreement? A. I'm not aware of any information provided. Q. Did you ever show your an emp1oyment um withdrawn. Page 100 O72205DP (3).txt Did you ever show any version of your emp]oyment agreement to Do]]ar Genera]? A. NO. Q. Did you discuss your emp]oyment agreement with Do]]ar Genera]? A. Not that I reca]]. Q. Did Do]]ar Genera] ever ask you whether you were under contract with Pi]]owtex? A. Not that I reca]]. Q. Did you have any discussions with Do]]ar Genera] about whether you were ab]e to come work for Do]]ar Genera] given your contract with Pi]]owtex? Vowe]] Jennings, Inc. (615) 256~1935 113 A. I don't reca]] the conversation. Q. Did you ever consider bringing any c]aims against Pi]]owtex? A. Yes. Q. And when did you first consider bringing c]aims against Pi]]owtex? A. Upon my departure. Q. And what c]aims were you considering bringing against Pi]]owtex? MR. SELBST: I want to caution you not to divu]ge any advice you might have gotten from counse]. THE WITNESS: Can you repeat the question? I'm sorry. BY MR. NEWMAN: Q. Sure. I just asked you what c]aims you Page 101 072205DP (3).txt considered bringing against A. I considered the issue of the misrepresentations on the front end and iater the prepetition ciaim reiating to the gross up or the tax mm the withho1ding tax that was not paid. Q. Did you ever pursue those ciaims? A I had a meeting with counsei, yes. Q. Your own counsei? A Yes. Voweii Jennings, Inc. (615) 256-1935 114 Q. I'm not asking for the substance. I just want to know who that counsei was. A. There were -- there were more than one. One was Steven Seibst, and the other I don't recaii. Q. Was there any demand ever made on concerning misrepresentations that were made at the front end or the prepetition ciaim of the gross up? A. NO. Q. Did you have any conversations concerning these potentia1 ciaims with anyone other than counsei w- your own counsei? A. NO. Q. Did you ever consider bringing any ciaims against Oaktree or any of its representatives? A. Yes. Q. And when did you first consider bringing claims against Oaktree or any of its Page 102 1??l c) 0722050P (3).txt representatives? A. The first I considered was in Juiy/August time Frame of '02. Q. And who, if anyone, did you discuss potentia] ciaims that you may have against oaktree or Oaktree's representatives in or about Juiy of Voweii Jennings, Inc. (615) 256-1935 115 August 2002? A. At that point in time, I did not discuss it with anybody. Q. And can you expiain what types of cTaims you were considering bringing against Oaktree withdrawn. Can you expiain what ciaims you beiieve you had against Oaktree or its representatives back in Juiy or August of 2002? A. The rea1ization in the summer of ?02 that the p1an of reorganization or that the actua1 financiai forecasts of the business were different than the pTan of reorganization compieteiy changed the understandings I had about the turnaround at Q. Any other ciaims that you considered bringing against oaktree or its representatives? A. NO. Q. Did you ever speak to anybody about your cTaims or potentia1 c1aims against oaktree or its representatives? A. Yes -- MR. QUINN: Other than his attorney. Page 103 0722050P (3).txt MR. NEWMAN: I've MR. QUINN: He's aiready said he's Vowe11 Jennings, Inc. (615) 256-1935 116 taiked to counsei about these things. MR. NEWMAN: That was taiking about MR. QUINN: Right. MR. NEWMAN: I'm not asking for the substance; just overa11. THE WITNESS: Yes, I did talk to outside counse1 about the Qaktree situation. BY MR . NEWMAN: Q. And when did you first speak to outside counsei about the Oaktree situation? A. I don't recai] the First time. Q. when was the 1ast time? A. I don't recaii. Sorry. Q. Did you ever make any demand upon Oaktree or any of its representatives for potentiai misrepresentation ciaims? A. No. Q. Do you have any understanding as to whether Oaktree intentiona11y misrepresented the forecast of the business to you? A. No. Q. Do you have an understanding as to why the pian of reorganization forecasts were so off from the actuai forecasts? Voweii Jennings, Inc. (615) 117 Page 104 O722050P (3).txt MR. QUINN: We've covered that in considerabie detaii, but go ahead. MR. NEWMAN: I'm not for sure if we covered that, that particuiar. THE WITNESS: We11, the pian of reorganization had in there a projection of based on a certain 1eve1 of sales. The forecast we had was consistent and in general terms with the saies forecast in the pian of reorganization. However, the of those sales was dramaticaiiy different. BY MR. NEWMAN: Q. Do you have any understanding as to why the was so misrepresented in the pian of reorganization? A. Yes. Q. And what's that understanding? A. Wei], that the backiog of work ?w of saies that existed in Juiy when I got there did not have the embedded in it. Q. Were those saies that the company knew about when they prepared the pian of reorganization forecast, to the best of your knowiedge? A. I don't know. It's not as easy as Voweii Jennings, Inc. (615) 256~1935 118 everything being biack and white. It took us weeks and weeks to get at the specifics of that, Page 105 m-wai?l 072205DP (3).txt so it's not 1ike it was readi1y avai1ab1e. Q. How 1ong did that investigation take that you and Mike Harmon worked on? A. We11, we I was there I got there in eariy Juiy, and we went to Oaktree the first of September, so it was in that, you know, four? to six?week time period that we were rea11y intense1y 1ooking at this. Q. Eariier this morning, you mentioned that you suggested to Oaktree that Pi110wtex not emerge from bankruptcy untii the financiais cou1d get appropriately ana1yzed and unti] a determination cou1d be made as to whether a1] the assets that cou1d be rationa1ized coqu be rationa1ized. How did Oaktree respond to that request you made? A. Oaktree didn't rea11y respond to that. They said they wouid consider it. That was in New York in the interview, and I mentioned that it was important have some opportunity after I got there before we actua11y exited bankruptcy. Q. And that didn't concern you enough not to take the position, though, correct? Vowei] Jennings, Inc. (615) 256?1935 119 A. We11, I had aiready resigned, and it might my future was cast. I mean, that was done. Q. At that meeting, you had a1ready submitted your resignation to Reebok? Page 106 ?0me LocowcnmiszH 072205DP (3).txt A. No, no, when I reaiized they had brought it out of bankruptcy. At that meeting, there was no decision made about bringing it out of bankruptcy. Nobody had said to me, we are going to go in and bring it out of bankruptcy. It was not a serious point of conversation. I didn't put it in the contract, but I had assumed at that point that there was no way they cou1d be ready to exit bankruptcy before I cou1d get there. Q. Do you think that rushed emergence from the first bankruptcy fi1ing? A. Yes, in my with perspective we with respect to my desire, yes. Q. what do you mean with respect to your desire? A. Wei}, I have personally as I said, I wou1d prefer to have gotten there prior to the exit from bankruptcy; therefore, I wou1d have had a chance to take a deep 100k at that pian and the Vowe11 Jennings, Inc. (615) 256-1935 120 timing and a11 of the assets that needed to have something done with them. Q. Do you have an understanding as to why Pi11owtex rushed to emerge from the first bankruptcy? A. Yes, I think it was costing a 1ot of money, and it was represented to me that the position was taken because it was financiaiiy a burden to the company to continue on in Page 107 NHO 07ZZOSDP (3).txt bankruptcy. Q. what were the financiai pressures that Pii1owtex was experiencing at the time of the first bankruptcy, if you know? A. Wei], it was -- I don't know. Q. Was it ever discussed with Oaktree about what those financiai pressures were? A. Not in my presence. MR. NEWMAN: Let's take a iunch break now. (Luncheon recess observed.) (Marked Exhibit No. 52.) BY MR . EQEWMAN: Q. Mr. Perdue, I have asked you to take a iook at Committee's Exhibit 52 and ask if this is a confidentiaiity and nondisciosure agreement Voweii Jennings, Inc. (615) 256?1935 121 between Doiiar Genera] and that you testified to about eariier today? A. Yes, it is. Q. At the date that this was signed on March 12, 2003, had Doiiar Generai aiready offered the chairman position to you? A. I don't recaii. Q. Now, I see that Michaei Harmon, CFO, signed this agreement on behaif of A. Right. Q. what conversations did you have with Page 108 mmAka-IO O7ZZOSDP (3).txt Mike Harmon concerning the Doiiar Generai position, if any, before you resigned? A. In reiation to confidentiaiity? Q. In reiation to Doiiar Generai. A. I don't recaii any conversations. Q. And what conversations, if any, did you have with Susan Lanigan, the VP and genera] counsei at Doiiar Genera], at any point prior to you going to work at Doiiar Generai? A. I don't remember having a conversation with her. (Marked Exhibit No. 53.) Voweii Jennings, Inc. (615) 256?1935 122 BY MR. NEWMAN: Q. Do you recognize the handwriting on Committee Exhibit 53? A. Yes, I do. Q. Is that your handwriting? A. Yes, it is. Q. Do you routineiy take notes of teiephone caiis that you're involved in, Mr. Perdue? A. NO. Q. And teii me what Committee Exhibit 53 is. A. what what is? Q. what this document is. I mean, what is it? A. It's in my handwriting, it's notes of a phone caii with Scott Graves in 2002. Q. Is there any reason why you decided to Page 109 O7ZZOSDP (3).txt take notes of a December 2, 2002, phone caii with Scott Graves? A. I was concerned that the negotiations were not going weli with regard to my personai situation, and I feit 1ike that what was discussed in there I wanted to know for my own memory. Q. Did you take notes of any other conversation that you had with Oaktree or that you stii] have in your personai Vowe11 Jennings, Inc. (615) 256?1935 123 files? A. No, I'm not aware of anything. Q. Was this the on1y document that you found transcribing a teiephone ca11 you had whiie during your tenure? A. That's correct. Q. Now, the first bu11et point you wrote, "Scott caiied and among other things confided that we wou1d probabiy fiie Chapter 11 by mid January 2003, assuming no success with activity." what was the basis for Scott saying that wouid A. I don't Q. Let me finish. He may know? A. I don't know. Q. Did Scott teii you why wouid be filing a Chapter 11? A. NO. Page 110 072205DP (3).txt Q. Do you have an understanding as to why Pi1iowtex wouid probabiy fiie Chapter 11 by mid January 2003? A. I don't remember the detaiis. I know that that was an ongoing conversation that if were not to work out, that that was one of the options Vowe11 Jennings, Inc. (615) 256?1935 124 that was before the board. Q. Wouid you say at this point in December 2002 that Oaktree was primari1y responsibie for the pursuit of the strategy? A. I wouid say that the board was, you know, making the decisions. Oaktree had two seats on the board. Q. And what roie did you p1ay in the processthe ground coordinating CSFB with potentiai candidates. CSFB was going through a iot of modeiing, and I was the front man who wouid heip companies do due diligence, understand and aiso discuss the with these candidates. Q. Now, what was discussed on this teiephone cai] as to whether you wouid be staying with the company? A. Wei], it was just what it says here. Scott mentioned that we needed to taik about my future. It seemed 1ike there was an option, whether, you know, I was going to stay during any potentia] second or whether it wou1d be Page 111 24 25 072205DP (3).txt better for the company to get a speciaTist since I had no expertise in that. Vowe11 Jennings, Inc. (615) 256-1935 125 Q. Did Scott expTain why he said that one of the options was for you to execute your contract first and then hire a 1iquidation speciaiist? A. No. There's no importance to the wording of that sentence with regard to the timing. Q. And when you when it was discussed whether wouid hire a 1iquidation speciaiist, wouid that specia1ist be the chairman of the board? A. Oh, I don't know. Q. when you had a te1ephone ca11 with Scott Graves about potentiaiiy hiring a iiquidation speciaiist, was it your understanding that you wou1d -- that one of the options was that you wou1d remain with the company whiie it was 1iquidated? A. No, it was an either?or proposition that you know, one option was that I stay during 1iquidation, which I had very 1itt1e interest in candid1y. And the second was whether they it wouid be better for the company to hire someone who was a specia1ist in 1iquidation. Q. Now, if you were not going to stay, do you have any understanding why the company would want you to execute a contract before the liquidation Voweii Jennings, Inc. (615) 256-1935 126 Page 112 0722050P (3).txt specialist wouid A. Yeah, this was just one of the options that was being discussed. In this time, there were ongoing conversations with Springs and West Point and Dan River. There were some buyers in there. We had ongoing discussions with our existing customer base. Things were very fragiie. This was just one of those that was documented here. Q. Did you take an impression from the phone caii that Oaktree was to end your contract prior to bankruptcy A. NO. Q. what is the basis for you writing in this document that "this impiied Oaktree wouid be to end my current contract prior to bankruptcy A. He said we needed to discuss whether I wanted to stay with the company during the filing or come to an agreement execute my contract is reaiiy relating to the back end of the contract. And the impiication was that there was that option. now, there was no commitment made, but the impiication I wrote this because he impiied to Voweii Jennings, Inc. (615) 256w1935 127 me that they were seriousiy considering the two aiternatives. Page 113 O722059P (3).txt Q. Did you have an understanding as to whether oaktree was abie to end your current contract with Pi110wtexunderstanding or A. I didn't know. Q. who on behaif of the board deait with you on compensation issues? A. The comp committee and the comp committee chairman, Jeffrey Keenan. Q. Was Scott Graves invoived in any of those negotiations? A. Peripheraiiy. Q. And I beiieve earlier you mentioned that Scott Graves and Ken Lenga may have abstained from certain discussions concerning your compensation? A. Yeah, I don't know that. I said they may have. I certainiy abstained from severai things. I think toward I remember that toward the end of this they did abstain from some some votes or MR. SELBST: I don't think he ever testified that they abstained concerning his Vowe11 Jennings, Inc. (615) 256?1935 128 compensation. THE WITNESS: No. If I did, I didn't mean to. That's not what was intimated. MR. QUINN: Again, I think he's said a coupie of times he's not sure whether they did Page 114 LDOONON O72205DP (3).txt on any issue. (Marked Exhibit NO. 54.) BY MR. NEWMAN: Q. what discussions did you have with Jeffrey Keenan about your desire to pursue opportunities outside A. we11, I think this documents what I said eariier. I think that Jeffrey and I I don't remember the specific conversation, but this impiies that we did. Q. But you don't remember any of the conversations with Jeffrey Keenan? A. I reaiiy don't, no. I mean, we were having conversations on an ongoing basis reiative to the aiternatives for the business; my compensation package; the activity; and in the iatter stages here, you know, what my future was going to be, either a saie or and that aiso came up as we11 or in a liquidation. Q. And you didn't consider any opportunities Vowe11 Jennings, Inc. (615) 129 outside of other than to Do11ar Generai, right? A. That's correct. Q. The document marked as Committee Exhibit 54, Mr. Perdue, does that refresh your recoiiection at a1] as to who you may have spoken to about the Doiiar Generai opportunity? A. I don't remember speaking to Jeffrey specificaiiy about Doiiar Genera], but I very weii Page 115 0722050? (3).txt may have. Q. What impiications em withdrawn. what impiication did you understand that your departure wouid have on Teaving MR. SELBST: Objection to form. THE WITNESS: I reaiiy didn't have any ciear understanding. We had a deai with Springs on the tabie. I didn't have any ciear picture of the impiications of my ieaving. BY MR. NEWMAN: Q. In Committee Exhibit 54, it says, "David, Jeffrey has communicated your growing desire to pursue other opportunities outside PTEX and your to work with the board to address the muitipie impiications that your departure may create consistent with the very sensitive piace we Voweii Jennings, Inc. (615) 256-1935 130 find ourseives in ongoing strategic discussions. We appreciate your sensitivity toward these issues.? Do you know what issues he's referring to? A. I think the negotiations; I think the situation with regard to the customers that we had been taiking about since October. Those are the oniy ones I can surmise that he's reiating to there, but I have no firm knowiedge of what he means there. Q. Do you know whether there was any concern as to what effect your departure may have on the Page 116 072205DP (3).txt company's customers? A. No. Q. Do you know of any Concerns that anyone had as to what effect your departure may have on the company's vendors? A. No. Q. I'm going to show you what is marked as a copy of Committee Exhibit 44. Our court reporter from the Oaktree deposition has the originai, but this is a copy. Mr. Perdue, on what occasion did you hear the term money grab used to characterize your position? Voweii Jennings, Inc. (615) 256~1935 131 A. It was reiated to me that certain individuais had used that term in reiation to this ongoing conversation that I was having with the board and with Oaktree with regard to my contract. Q. And who toid you that they heard the term money grab? A. I don't remember. Q. what individuals used the term money grab? A. I don't think it was reaiiy reiated to me the names of the peopie. Q. In your e?maii, it says, "On three occasions I have heard the term money grab.? Do you remember hearing the term money grab? A. Not specificaiiy, no. I think I'm referring to what was reiated to me. Q. And you don't know who reiated that to Page 117 0722050P (3).txt you? A. No. Q. You were not pieased with hearing that term, though; is that right? A. NO. Q. why was that? A. It was not a fair characterization. This was November 19. I had been in good faith operating on a11 the options and directives that Vowe11 Jennings, Inc. (615) 256?1935 132 the board had given me. And the back end of this contract had not been reso1ved. And I wanted I just didn't Fee1 Tike the board and Oaktree were sensitive to the vuTnerabi1ity that I was in. The back end had gone away; the search was going away. So this was particuiariy misrepresentative of the current situation, particuiariy in 1ight of what I had just iost wa1king out of Reebok. Q. If we were to 100k at the second to 1ast paragraph of the m- of your e-maii, which appears on the second page, that starts with "understand my perspective"? A. Yes. Q. when was it represented to you that the pension 1iabi1ity was not more than $10.8 mi11ion? A. During my due di1igence process. Q. And who represented to you that the pension 1iabi1ity was not more than $10.8 mi11ion? A. Tony. Page 118 07ZZOSDP (3).txt Q. Do you have any understanding as to what the pension 1iabi1ity was at the time that Tony represented to you that was not more than 10.8 A. NO. Q. what does it mean when you said here Vowel] Jennings, Inc. (615) 256?1935 133 that withdrawn. what does it mean when one says, baiance sheet has been fuiiy scrubbed"? A. where are you? Q. Third Tine of the "understand my perspective" paragraph. A. Okay. Q. Not what the representation was. I'm just asking for what that term means according to you. A. Yeah, that the assets the iong?term rationaiization of the existing assets had been fuiiy evaiuated. Q. who made that representation to you? A. We11, that comment was w- I mean, that particuiar issue was in the due at the company but aiso in my conversation with Bruce Karsh and Mariusz Mazurek. Q. Now, I remember you te11ing me that during one of the conversations that you had with the oaktree representatives you were suggesting that the balance sheet be fuiiy scrubbed whiie the company was in bankruptcy, correct? A. I'm not sure I characterized it that way. Page 119 07ZZOSDP (3).txt what I intended to say, if I said it differentiy, was that I wou1d 1ike for the company to not exit Vowe11 Jennings, Inc. (615) 256?1935 134 bankruptcy prior to my getting there. Q. And then you weren't consuited after that fact A. NO. Q. about whether Pi11owtex wouid emerge from bankruptcy? A. That's correct. Q. So your reference here that it was represented to you that the baiance sheet had been fuiiy scrubbed was more to the point that you made a request that the company not exit bankruptcy, and the company chose to do so on the premise that a1] the assets that were ration that shouid have been rationaiized were? A. NO. MR. SELBST: objection to form. THE WITNESS: No, that's an incorrect characterization. This was represented before I actuaiiy requested that the company stay in bankruptcy unti] I got there. MR. NEWMAN: Can I have that 1ast answer read back, pTease? (Reporter read back requested materiai.) Vowe11 Jennings, Inc. (615) 256?1935 135 Page 120 072205DP (3).txt BY MR. NEWMAN: Q. You wrote here in the 1ast paragraph, "Lastiy, we need to get this done now. My contract weakens the cioser we get to a what did you mean by that? A. My negotiating position with regard to my usefuiness wouid have gone away by then. They knew, as evidenced by their eariier document, that I'm not a bankruptcy expert, that my reai vaiue to is in, A, finding a buyer; B, operating the turnaround, and that I was operating under good faith. The ionger we went without getting this done the weaker my position wouid be. Q. Do you recaii in what context you were toid that the term money grab was used? A. In the negotiating process, vis-a?vis the demeanor of Oaktree or the receptiveness of Oaktree with regard to the issue. Q. Do you recaii that the company amended its indemnification agreement for its directors in 2002? A. I don't recaii. Q. what roie, if any, did Debevoise Voweii Jennings, Inc. (615) 256?1935 136 Piimpton piay in the negotiations over your compensation issues foiiowing the execution of Page 121 0722050P (3).txt your first emp1oyment contract? A. They were the outside counse] of Pi11owtex. Q. And what roTe did they piay in the negotiation of your compensation terms after your first contract was signed? MR. BOGEN: Isn't that getting into privi1eged communications? MR. NEWMAN: I guess that's for you to te11 me. I'm asking him what role MR. BOGEN: It's hard to imagine an answer to that that wou1d not be priviieged. THE WITNESS: We13, the truth is, I don't know what Debevoise was advising the company, being the board, because I recused myse1f from those conversations. BY MR. NEWMAN: Q. Did Oaktree re1y upon any outside counse] other than Debevoise P1impton in connection with PiiTowtex that you?re aware of? A. I'm not aware of any. MR. SELBST: Objection, form. Vowe11 Jennings, Inc. (615) 256?1935 137 BY MR. NEWMAN: Q. Mr. Perdue, I'm going to show you what's been marked as Committee Exhibit 46. MR. SELBST: 46? MR. NEWMAN: 46. This is a document Page 122 0722050? (3).txt that was previousiy marked. MR. SELBST: Okay. BY MR . NEWMAN Q. Did ever request that you Sign a reiease of ciaims? A. Not to my reco11ection. Q. Did Oaktree ever request that you sign a reiease of ciaims? A. Not to my reco11ection. Q. Do you know whether the board was considering paying you any cash payments in excess of the reiocation expense of $100,000 and the $700,000 for the tax on the shares? A. Yes. As I said before, of this -- of these new payments that were not inciuded in the original contract were in consideration of things I was either giving up or providing to the company that were not in the originai contract. As part of that is the $2 fioor guarantee on the back end that was we were Voweii Jennings, Inc. (615) 256-1935 138 negotiating that for severai months. At the end of the day, the comp committee offered a $500,000 stipend in order to stay through a certain period of time re1ated to one of the acquisition deais that was potentia11y pending. Q. Before we get to the stipend, can you expiain what you were giving to the company that you beiieve you did not have to give to the Page 123 0722050P (3).txt company as part of your initiai contract? A. Yeah. I think what I couid have walked in Ju1y and August as I began to reaiize that the p1an of reorganization did not refiect the state of the business and that the decisions I had made had totaiiy biown up in my face. Staying invo1ved with the dea] was of paramount importance to the board reiative to the ongoing saies of the company. We had repeated conversations with vendors in the faii of '02 reiative to programs, pricing, repricing. It was a very, very tender time. We aiso had these conversations going on with That was never part of the originaT contract conversation, that in the first six Vowe11 Jennings, Inc. (615) 256?1935 139 months of my tenure with PiTiowtex we wou1d be sitting here trying to negotiate a saie in which I had no severance protection and in which I had to give up this $2 back end. So, yes, I think there were p1enty of things I was giving the company that were never considered in the first contract. Q. Now, the stipend, who offered you the $500,000 stipend? A. The comp committee. Q. And that was to stay unti1 what period of time? Page 124 07ZZOSDP (3).txt A. I don't remember the speCifics, but it was in reiation to one of the potentiai transactions that was pending at that time. Q. Do you remember what transaction? A. I don't. There were severa? pending at the time. None of them, to my reco11ection, had been ruied out at that point in time on the date of this offer. Q. And the $500,000 stipend, did it have any other conditions, other than that you wouid have to stay untii a certain date? A. It never rea11y got there were when they said they were to do that, there was Voweii Jennings, Inc. (615) 256?1935 140 never any, but here are the conditions; we want to know what your receptiveness wouid be if we offered that. So it wasn't 1ike a formal written offer. So, no, that was the oniy one that I remember. Q. You never got paid on the Tetter of credit, correct? A. That's correct. Q. You returned the 1etter of credit? A. It expired. (Marked Exhibit No. 55.) BY MR . NEWMAN: Q. Do you reca11 receiving a ca]? concerning Sun Capitai? A. I don't recaii it, no. Page 125 meowmmuwaI?I 072205DP (3).txt Q. Taking a 100k at Committee's Exhibit 55, does that refresh your recoiiection? A. NO. Q. Do you reca11 any entity ever expressing an interest in buying out the term 1enders and equity hoiders of A. I other than the specific acquisition by other textiTe companies, no. Q. The second sentence of your ewmaii dated Voweii Jennings, Inc. (615) 256?1935 141 October 30, 2002, says, can't imagine why your 1enders wouid do this, considering the 1iquidation figures, but this may be another rock to turn over. Let's discuss.? Do you have an understanding of why you didn't beiieve that the 1enders wouid consider their position considering the 1iquidation figures? MR. SELBST: objection, form. THE WITNESS: I don't know why they wouid have a probiem with that. BY MR. NEWMAN: Q. what were the 1iquidation figures at showing as of October 2002? A. I don't recaii. I know there was an issue that moved around with CSFB and with the Loughiin Meghji group in running estimates of what that 1iquidation was at different points in time. I don't recaii what it was on October 30. Page 126 0722050P (3).txt Q. That issue between Loughiin Meghji and CSFB concerning the iiquidation figures had been upon the brand vaiues; isn?t that right? A. At that point in time, brand vaiue was only one piece of it. It was the asset vaiues of the equipment, the piant, et cetera, et cetera. Vowei] Jennings, Inc. (615) 256?1935 142 Q. what was the issue between Loughiin Meghji and CSFB in or about October 2002 over the 1iquidation figures? A. There was no issue. It was just they were working together to continuaiiy provide an estimate to the board, as I recall, of what that 1iquidation amount wouid be under a under a hypotheticai Tiquidation at different points in time. Q. I thought, though, you just testified that there was an issue between Loughiin Meghji and A. No, I didn't mean to intimate that if that's the way it sounded. I don't remember any disagreement between Loughiin Meghji and CSFB over 1iquidation vaiues. Q. what is the reason, if any, that the board scaied down the retention of Loughiin Meghji in favor of A. I don't recaii. Q. Do you reca11 who recommended LoughTin Meghji to the company? A. Oaktree. Page 127 0722050P (3).txt Q. Do you reca11 who recommended CSFB to the company? Voweii Jennings, Inc. (615) 256?1935 143 A. Oaktree. Q. Do you remember there being any issue at the board ievei concerning how the Pi11owtex brands shouid be vaiued? MR. QUINN: At? MR. SELBST: At any time? MR. NEWMAN: At any time. THE WITNESS: Yes, I do. BY MR. NEWMAN: Q. And what do you remember with respect to the vaiues? A. I just remember there were various conversations about comparabie saies of brands absent assets. And we tried to get -- through these outside consuitants tried to get an idea of what those vaiues might be either coiiectiveiy or individuaiiy during that faii period of time. Q. Did you ever beiieve that PiiTowtex was undervaiuing the brands? MR. QUINN: when you say he said that they consuited with others in order to get some notion of what the brands were worth. BY MR. NEWMAN: Q. Did they A. Pi11owtex, per se, did not vaiue the Voweii Jennings, Inc. (615) 256*1935 144 Page 128 0722050? (3).txt brand. We didn't have that expertise. We were reiying on outside peopie to heip us heip the board with that. Q. And who did the board reiy upon to vaiue the brands? A. I think the w? between Bain Consu1ting, CSFB, and Loughiin Meghji. Q. And did the board ever believe that its outside advisers were undervaiuing the brands? A. If they did, they never voiced that to me. Q. Did you ever have that beiief? A. I didn't have an opinion. Q. Is it true, Mr. Perdue, that when you resigned you when you issued your resignation you took two weeks of vacation after your resignation? A. I don't recaii two weeks, but, yes, I took vacation. Q. Had you taken any vacation prior to that? A. Not that I recaii, other than maybe a day at Christmas. Q. Other than wanting to take the time off, is there any reason why you took vacation from the date of your resignation to the date of your Vowei] Jennings, Inc. (615) 14S 1eaving A. No. Page 129 O722050P (3).txt Q. Did anyone on the board express concern that you were taking two weeks' vacation after the date of your resignation? A. No. The resignation was effective at the end of that vacation period, if I remember correctiy. Q. Can you describe for me mm withdrawn. what discussions did the board have concerning whether it was in the best interest for the company to 1iquidate as opposed to further pursuing the process? MR. SELBST: At any time? MR. NEWMAN: Yes, at any time. THE WITNESS: I remember the conversations after -- even in the faii of '02 that intimated that the board was concerned with the at various points in time we needed to iook at the 1iquidation vaiue of the company reiative to the potentiai for damaging that vaiue for the creditors and so forth as we went forward. I remember those conversations. I don't remember the quantifications around that, but I do remember there being more Voweii Jennings, Inc. (615) 256~1935 146 than one estimate as to what that 1iquidating vaiue was at a particuiar point in time. BY MR. NEWMAN: Q. what was the criteria that the board foiiowed to determine whether they shouid Page 130 1iquidate the company at any given p01nt in time based upon those vaiues? A. I think the proposition and why CSFB was brought in was whether or not the sa1e potentiai saTe of the company couid provide better stakehoider vaiues for creditors and sharehoiders than just the a 1iquidating proposition. Q. Do you recaii at any point in time where the 1iquidation vaiues exceeded what offers the company had aiready received? A. I don't remember that. Q. Did Congress Financiai ever express a concern about the company proceeding with the process as opposed to 1iquidating it? MR. SELBST: To him? MR. NEWMAN: Yes. THE WITNESS: Not that I recai]. BY MR. NEWMAN: Q. Did the term loan ienders ever express to you or in your presence that they were concerned Voweii Jennings, Inc. (615) 256?1935 147 with proceeding with the process instead of 1iquidating the m? A. Not that I recaii. Q. Did the term Toan ienders ever express a concern that pursuit of the strategy wouid run up fees that wouid have to be paid to Congress Financiai before they saw a recovery? A. Not to my recoiiection, no. (Marked Exhibit No. 56.) Page 131 07ZZOSDP (3).txt BY MR. NEWMAN: Q. Taking a 100k at Committee's Exhibit 56, Mr. Perdue, does this refresh your recoiiection as to whether the term ioan 1enders ever expressed a concern over fees that wouid be run up and be paid before the term ioan 1enders received the recovery? A. I see the document, but I sti11 have no reco11ection of that. Q. Do you recaii being at a bank meeting with in or about December 2002? A. Yes, I do. Q. And do you recai] the meeting being heid on December S, 2002? A. I don't remember the date, but I do seem to remember there were 1enders who came down to Vowe11 Jennings, Inc. (615) 256~1935 148 Kannapo1is and the term 1enders. And I do remember that meeting, and there were subsequent phone ca11 meetings with the term 1enders that I do recaii. Q. what do you recai] of the December 5 meeting with term ioan 1enders? A. I rea11y don't remember much about that conversation at a1}. Q. Do you remember who attended the meeting? A. No. Q. In this e?maii from Scott Graves to you and others on December 6, it says, among other Page 132 0722050P (3).tkt things, "Net pOSitive but concern ex1sts over potentiai risk of running up Congress faci1ity in front of the banks, and they are worried about the go Forward business pian and want to hear from David directiy.? A. Uh~huh. Q. Did you ever respond to this e-maii? A. Not that I recaii. I mean, we were in daiiy telephone conversations, so em Q. You and Scott Graves? A. Yes. Q. Did you ever speak direct1y to the term ioan about their concerns over potentiai risks of VoweTT Jennings, Inc. (615) 256-1935 149 running up the Congress from the term ioan lenders? MR. QUINN: Notwithstanding the Tanguage of that, can we be a 1itt1e bit c1earer for purposes of the record by what we mean by the term running up the term ioan? MR. NEWMAN: Sure. BY MR. NEWMAN: Q. Do you have an understanding of what Mr. Graves was referring to when he said what the risk of running up the Congress is? A. NO. Q. Were you involved in any discussions that that concerning withdrawn. Did the board ever discuss a concern whether the term ioan ienders wouid support the Page 133 07ZZOSDP (3).txt process because of the cash being used by to get to that cTose date was being taken from the Congress revoiving credit A. It's 1ogica1. My rec011ection is simp1y over mm and obvious1y we had conversations with the term ienders to apprise them of the situation and with the activity. I don't remember the specifics of the board being concerned about any particuiar aspect Vowe11 Jennings, Inc. (615) 256?1935 150 of that other than trying to present an air of transparency to the term lenders with regard to what was being considered. Q. Did you have any communications with Credit Lyonnais concerning A. I'm not sure. I don't reca11 specificaiiy. Q. Is Credit Lyonnais one of the term ioan 1enders? A. I'm not sure. (Marked Exhibit No. 57.) BY MR. NEWMAN: Q. Does Committee Exhibit 57 refresh your recoiiection as to whether you had a meeting with Credit Lyonnais? A. Yes, it does. 3C Vanessche is the name that I do remember. I couidn't connect it with Credit Lyonnais, but I do remember JC. Q. why did you meet with Mr. Vanessche? Page 134 0722050P (3).txt A. I don't remember the purpose of that meeting. Q. Just reading through the e?mai1, does that refresh your memory as to the purpose of the meeting? A. No. This is_a meeting between Mo Meghji Vowe11 Jennings, Inc. (615) 256*1935 151 and 3C. Q. Right. But it seems to reference the iunch that you had with the gentiemen. A. I don't recaii that 1unch. MR. SELBST: If you don't reca11 it, you don't reca11 it. MR. QUINN: That's it. MR. SELBST: Yeah. MR. QUINN: You 1eave it at that. BY MR. NEWMAN: Q. Do you know what Mr. Vanessche expressed to M0 Meghji that he was not happy with the situation? A. NO. MR. SELBST: You have a witness, not MR. NEWMAN: If he was to1d, he was toid. Mo Meghji may have told him. BY MR. NEWMAN: Q. But Mo Meghji didn't tel? you, did he? A. NO. (Marked Exhibit No. 58.) BY MR. NEWMAN: Page 135 0722050P (3).txt Q. Do you reca11 sending this e-maii, David Perdue to Scott Graves on November 13, 2002? Voweii Jennings, Inc. (615) 256?1935 152 A. I don't recaii specificaiiy sending it, no. Q. In the ewmaii in the third paragraph in the second to iast 1ine, you say, am prepared to stay on and work with you to make this situation work without the back end potential, but we need to ensure that the other terms are put into piace." what are you referring to? A. The back end potentia1 is the tota] runup, the $9 mi11ion thresho1d we were trying to get to. The back end formuiation had severe] break points. One was, be1ow 3 mi11ion I was guaranteed a $2 mi11ion forum. Between 3 and 9 it was formuia. Above 9 it was what it was. I was referring to the 9 mi11ion cap, that I was to give up the back end potentiai equity gain. MR. NEWMAN: Let's take a short bathroom break. BY MR .. NEWMAN: Q. Mr. Perdue, do you remember how many times you visited Tennessee, whiie you were sti11 Pi11owtex's chairman? A. No, I don't remember specificaiiy. Vowe11 Jennings, Inc. (615) 256~1935 153 Page 136 0722050P (3).txt Q. Did you ever expense for any trips to A. Not that I remember, no. Q. Did you ever intend to expense trips to NashviiTe, Tennessee, through A. No. Q. Did have any customers in the Nashvi11e, Tennessee, area? A. Yes. Q. which customers are those? A. I don't reca11. Q. Were you reimbursed for your moving expenses from Massachusetts by A. I was given a relocation aiiowance. Q. You used A. I'm sorry, yes, and the moving of the househoid goods, yes, I was reimbursed for an equivaient portion of Boston to Char1otte. Q. Do you recaii how much that was? A. no, I don't. Q. where did you say you moved from? A. Boston. Q. To? A. actuaiiy. Q. And when was that move? Voweii Jennings, Inc. (615) 256?1935 154 A. I don't remember the specific date. Q. Was it before or after you 1eft Page 137 ?114:me 072205DP (3).txt Pi11owtex's emp1oy? A. I don't remember. I think it was before. Q. It was before? A. Yeah. Q. Before we were ta1king about certain meetings with Do1iar Genera] or its representatives. You spoke about a December meeting that you had with Mr. Turner in New York. Did you have any other in?person meetings with Do11ar Generai between we I'm sorry. You aiso spoke about a meeting where you went to Nashvi11e and met with Mr. Turner and other seiected board members? A. Correct. Q. Did you have any other meetings other than those with Do]1ar Genera}? A. Not to my rec011ection. Q. And did you have any other meetings with D011ar Genera1?s recruiter other than what you've a1ready testified to? A. Not to my rec011ection, no. Q. Do you have any reco1iection do you reca11 visiting Nashyi11e, Tennessee, other than Vowe11 Jennings, Inc. (615) 256-1935 155 that one meeting with Mr. Turner and with the seiected board members whi1e you were chairman? A. Not to my recoTIection. Q. I wou1d just Tike to show you what's been Page 138 0722050? (3).txt marked as Committee Exhibit 1. MR. NEWMAN: I'm oniy going to be asking him if he identifies the handwriting, so I'm not going to hand out copies, if that's right. BY MR. NEWMAN: Q. Do you recognize the handwriting that's on Committee Exhibit 1? A. NO. MR. QUINN: Stili haven't gotten to the bottom of that one yet? MR. NEWMAN: I te11 you what, the 1ist is dwindiing fast. MR. SELBST: Co1one1 Mustard in the drawing room with the MR. NEWMAN: It seems that way. BY MR. NEWMAN: Q. What about the handwriting on Exhibit 2? A. No. It iooks iike Exhibit 1. Q. Did you receive any type of communication Voweii Jennings, Inc. (615) 256~1935 156 from Doiiar Generai offering you the position of chairman? A. I think I got the no, I don't recaii we I don't recaii a written document. Q. Do you have any documents that wouid indicate what date the offer was made from Doiiar Genera] to you? A. NO. 0 Do you recognize the handwriting on Page 139 0722050? (3).txt Exhibit 13? A. NO. Q. Wouid you recognize John Steriing's handwriting? A. No, I wouid not. Q. Wouid you recognize Richard Hahn's handwriting? A. No. Q. what roie did you piay in the hiring of Mike Gannaway? A. I recruited Mike. Q. And why did you recruit Mike Gannaway? A. The prior president departed the company, and we needed a president and C00, and I was given direction by the board to do so. Q. Was Mike Gannaway brought on primariiy to Voweii Jennings, Inc. (615) 256-1935 157 impiement the marketing and sourcing strategy? A. Primariiy the marketing strategy. Q. And not the sourcing strategy? A. Weii, he was more of an expert on the marketing side, but, yes, as president/chief operating officer, both wouid have been under his purview. Q. Was there any consideration as to whether withdrawn. There was an offer made to Mike Gannaway for the president position? A. YES. Page 140 0722050? (3).txt Q. Do you know ?w withdrawn. Was there any consideration by the board as to whether the offer shouid be rescinded to Mike Gannaway, given the change in circumstances at the company discovered by you in August 2002? A. Not to my know1edge. Q. Are you familiar with the Warren Act? A. I am. Q. And what's your understanding of what the Warren Act is? A. There are requirements of notification that the federai government requires at certain Voweii Jennings, Inc. (615) 256-1935 158 times with regard to emp1oyees. Q. And during your tenure at did the issue of the Warren Act ever was it ever discussed? A. Not to my reco11ection. MR. SELBST: I just want to caution the witness again not to reveal any advice you may have gotten concerning the Warren Act. MR. QUINN: They actua11y have waived this priviiege. MR. BOGEN: It's been waived but on1y as to this issue. MR. SELBST: Okay. BY MR. NEWMAN: Q. You don't have any reco11ection of ever discussing the Warren Act? Page 141 0722050P (3).txt A. NO. Q. Do you have any recoiiection of ever discussing the Warren Act with Don Ma11o? A. No. Q. I reca11 you testified something about the timing of the payment of the reiocation expense and the $700,000 to offset your tax 1iabi1ity with respect to when an amended contract was signed. what discussions did you have with anyone Voweii Jennings, Inc. (615) 256?1935 159 at and Oaktree as to whether those payments shouid be paid before or after a new contract is prepared and executed? A. Yeah, in October, it was made very piain that the agreedwupon consideration, the payments, were a part of getting the contract amended. The company the board was concerned about me staying engaged during that criticai time period and aiso about the company's to execute or to perform under the originai contract. So at that point in time, it was c1eariy contingent on getting an amended contract. Q. And you said that you do you know when the meeting was with the se1ective board members and Mr. Turner in A. I don't reca11 a specific date. Q. Did you say that you thought it was in 2003? Page 142 0722050P (3).txt A. I think it is, yeah. I think it was. Q. From that point in time untii you accepted the position sometime in March 2003, what communications did you have with anyone about Doiiar Genera]? A. I oke with a search firm when the offer Vowe 1 Jennings, Inc. (615) 256~1935 160 came in, and I taiked to Jeffrey Keenan at some point in '03 about that conversation or about a conversation with Doiiar Generai. Q. Do you have an understanding why it took from the initiai meetings with Doiiar Generai untii March 2003 to communicate the offer to you? A. Yeah. Q. And what's that understanding? A. It was first off, when m? as I said eariier, I wasn't initiaiiy that interested in it for the reasons stated. It came up again, and we, through time, were negotiating the contract or the potentiai package at some point in time, which cuiminated in an offer. And I said I wasn't sure, but I think it was in the March time period. Q. when did you first start discussing compensation components with Doiiar Genera]? A. I don't recaii a specific date. Q. Do you remember what month? A. No. Q. Do you have any documents that wouid show when you were discussing compensation components with Doiiar Generai? Page 143 0722050P (3).txt A. No, it was a11 teiephone conversation. Q. when did you receive the $100,000 Voweii Jennings, Inc. (615) 256~1935 161 reiocation expense? A. From Q. Yes. A. In January, I beiieve. Q. At the time you received the $100,000 reiocation expense, were you engaged in discussions with Doiiar Generai over compensation components? A. Not to my knowiedge. Q. And when did you receive the $700,000 to offset the tax 1iabi1ity for the shares? A. To my recoiiection, it was at the same time in January. Q. when did you make up your mind that you were going to take the Doiiar Genera1 position? A. It probabiy wasn't untii March. Q. And even whiie you were negotiating compensation terms with Doiiar Genera], you hadn't made up your mind that you were going to take that offer? A. Sure. Q. Sure? I'm not sure what you mean. A. Yes, I wasn't sure. (Marked Exhibit No. 59.) Voweii Jennings, Inc. (615) 256~1935 162 Page 144 O7ZZOSDP (3).txt BY MR. NEWMAN: Q. I show you what's been marked as Committee Exhibit 59, Mr. Perdue. A. Yes. Q. who was Barbara Richards? A. She was my administrative assistant at Q. And is this one of the documents you maintained in your private fiies? A. Yes, I did. Q. How did you come to receive a copy of this e?maii? A. I don't remember. Q. Were you invoived in any discussions with Oak Hi1}? A. Yes. Q. Who was Oak Hi1]? A. Oak Hi1] was another another private equity firm that was deaiing with West Point in terms of their offer for the company. Q. Was it fair to say that Oak Hi1] was going to be providing the financing for West Point to compiete the financing of the acquisition of the A. It was more compiicated than that, but Voweii Jennings, Inc. (615) 256?1935 163 they were a financia] partner with West Point in the potentiai acquisition of Page 145 m-waH O7ZZOSDP (3).txt Q. Was Oak interested withdrawn. Do you know whether Oak Hi1} withdrawn. Did Oak Hi1] express any interest in acquiring a term ioan? A. I don't remember the specifics of that. Q. Do you remember that at aii? A. NO. O. This second e?maii in this emmaii chain that?s on Page 3 of 4, it's from Brad Dietz to what appears to be Jeffrey Keenan's e?maii address. It says, among other things, reviewed the proposai for David. Quite frankiy, I think it's a iot of money to pay a guy to seii a company and get par for the ienders." Did Brad Dietz ever express his beiief to you that he thinks that the proposai is a iot of money to pay you? A. NO. Q. Did you ever have conversations with Brad Dietz about the your proposai for payment? A. It wasn't necessariiy my proposai. It was what was being worked out with the committee, and, no, I don't recaii any direct oneeon~one Voweii Jennings, Inc. (615) 256-1935 164 conversation with Brad. O. Other than one-on~one directions, did Brad Dietz ever express his beiief that the proposai was was paying a iot of money to you to seii the company? Page 146 LDOONOW 0722050P (3).txt A. Not to me he didn't. Q. Did you ever hear that he expressed it other than in this e?maii? A. No. Q. Did you ever have any conversation with anyone concerning what Mr. Dietz said in this e?maii? A. I had a conversation with Jeffrey Keenan about that. Q. what did Mr. Keenan say? A. He said that Brad had a point of view and that he and Brad had taiked about the giobai perspective within which the proposa1 was being made in Wight of my recruitment, the changes in the process, the good faith contributions that I had made since October, and the ongoing need to get this transacted so that we had a ciear comp1etion to this, whether it be an or whatever the compietion turned out to be. Q. Now, the comp committee was oniy comprised Vowe11 Jennings, Inc. (615) 256-1935 165 of Mr. Keenan and Mr. Dietz, right? A. That's correct. Q. Do you know whether Mr. Dietz's concerns were u~ withdrawn. Was it ever expressed to you that Mr. Dietz approved the proposal? A. I wouid have no knowiedge of that. Q. what didn't Pi110wtex or Oaktree agree to in terms of your revised empioyment agreement that Page 147 NHO 072205DP (3).txt 1ed you to ieave the company? A. Wei}, the -- they never did. The back end was never done. I feei iike that, you know, I got a 1.8 round numbers, 1.8 or a .8 payment in January. I waiked away from a 2 guarantee because of the circumstances, and I couid never get the board to deai with how to take care of this back end. So nothing ever happened there, and a11 of the conversation I gave the company from October the way through March, that back end never got done. Q. And that consideration was serving as the company's chairman? A. Absoiuteiy, and executing the revised pian that had nothing to do with any potentiai up side Voweii Jennings, Inc. (615) 256-1935 166 for me individuaiiy. Remember, I came here to try to drive this stock to gain personaiiy financiaiiy but oniy through the gain of the stock. when that disappeared, a11 this you can see the 1egacy here through the documents that it was an ongoing conversation that the back end was part of a1] the things that needed to get taken care of. The revision in my duties or directives from the board were stark in that September/October time frame. In Juiy/August, no mention was made of mergers and acquisitions. In Page 148 l??l??Hl?ll??HH mmAle?IO 9722050? (3).txt my recruiting, no mention was made of mergers and acquisitions, certain1y not in the First four years. I had a contract that after four years there was some minima] ca1cu1ation that intimated that we were in this thing for the duration, so it was a change in environment which required, you know, a change in direction from the CEO. MR. I'm going to just take a minute to read this, so if anyone wants to step out for a second, p1ease fee] free to do 50. (Discussion off the record.) (Marked Exhibit No. 60.) Vowe11 Jennings, Inc. (615) 256?1935 167 BY MR . NEWMAN: Q. Mr. Perdue, Committee's Exhibit 60, can you te11 me what it is? A. It's a working paper, a resignation that I never sent, but it was in the working fiie. Q. And there's a date on top, 3-13*03, what is the significance of that date? I don't reca11. who was this 1etter addressed to? To the board at Pi11owtex. why didn't you send this 1etter? I decided it served no purpose. Did you draft Committee's Exhibit 60? Yes, I did. Did you show Committee's Exhibit 60 to your counse] back in March of '03? Page 149 0722050P (3).txt A. Not that I recai]. Q. In the iast sentence of the first paragraph, you say, "The company is in breach of my contract since it did not issue my 800,000 options by 12-31w02." By the time you wrote this 1etter, were the 800,000 options issued to you? A. No. Q. Were the 800,000 options ever issued to Vowei] Jennings, Inc. (615) 256-1935 168 you? A. No. Q. As of the date ?e withdrawn. As of March 2003, what was the va1ue of the 800,000 options? A. I don't know. Q. In the first sentence of the second paragraph, it indicates that you requested in October of 2002 that your contract be restructured after 1earning that Oaktree did not intend to provide the capitai infusion needed to impiement the pian for which you were recruited? A. Right. Q. I remember from this morning we had a coupie of questions about who initiated the discussions over restructuring your contract. Is it a fact that you did request in October 2002 that restructure your contract? Page 150 072205DP (3).txt A. It says here that Q. Is that what happened, though? A. Sitting here today, I don't know if it was in October or whenever. Q. How did drag out the contract issue? Vowel} Jennings, Inc. (615) 256~1935 169 A. We11, we em we wouid get to preiiminary agreement on a structure, and then they wouid back away from that. This happened severai times, I think, as this rather heated document might intimate. MR. QUINN: You haven't seen heated if you think that's heated. BY MR. NEWMAN: Q. Te11 me each agreement that you and reached with respect to your empioyment agreement. A. I don't remember the detaiis, but they had to do with the back end guarantee and the 1ength of service and the ongoing ro1e that I wouid or wouid not piay with regard to this acquisition or these acquisitions that were potentiaiiy on the tabie. Q. And you recaii that on severai occasions had agreed to what you proposed oniy to then back out of that agreement? A. Yes. when we when I say Piilowtex, that there was a structure that generaiiy was acceptabie within the board, oniy to find that Page 151 072205DP (3).txt there was some reservation or some concern that that couid not be executed and that there was Voweii Jennings, Inc. (615) 256?1935 170 there were changes. Q. Was it ever expiained to you why did not accept your proposai to stay untii Aprii 15, 2003, and in exchange receive $500,000? A. No. Q. In the penuitimate paragraph, you say, "In December, I notified you that I had been contacted to interview for the CEO position at Doiiar Generai." who did you notify in December that you interviewed for the CEO position of Doiiar Generai? A. Like I said, I'm not exactiy sure when I taiked to Jeffrey, but Jeffrey was the individuai that I discussed this with, as chairman of the comp committee. Q. So the you there refers to Jeffrey Keenan? A. As a representative of the board, yes. (Marked Exhibit No. 6i.) BY MR. NEWMAN: Q. Let's take a iook at what's been marked as Committee Exhibit 61. Did you said you decided not to send Exhibit 60, but I trust you did send Exhibit 61? A. Yeah, that's correct. vowe11 Jennings, Inc. (615) 256-1935 171 Page 152 072205DP (3).txt Q. when you decided Exhibit 60 wouid serve no purpose, is that why you prepared Exhibit 61? A. Yes. Q. Were there any other drafts of the 1etter to the board resigning your position as chairman/CEO? A. No. MR. NEWMAN: Let's take a break. BY MR. NEWMAN: Q. Mr. Perdue, do you recai? any aiiegations being made by a company ca11ed Scion Capitai? A. No. Q. I'm going to ask you to take a 100k at what's been previousiy marked as Committee's Exhibit 30. In the binder you have before you, it's been tabbed 4, and it's the January 9, 2003, board minutes. A. Uh~huh. Q. 1'11 just teii you em there's a coupie of copies of set of board minutes in here. We are going to go by the Bates number in the bottom right. PTX 9105 is where I want you to turn first. A. Okay. Q. I'm going to ask you to read the paragraph Voweii Jennings, Inc. (615) 256~1935 172 that starts with "Mr. Perdue next reported," and give me a nod when you are done. Page 153 07ZZOSDP (3).txt A. Okay. Q. Does that refresh your rec011ection as to an aiiegation made by Scion Capitai? A. I vagueiy remember this, but I reaiiy don't recai] the detaiis of what the compiaint was. MR. NEWMAN: I wou1d Jike to go off the record for a minute. (Discussion off the record.) MR. BOGEN: Weii, there's certainiy part of this that is priviieged. I see it's got a redacted stamp. MR. NEWMAN: We took that in reference to John Steriing. MR. BOGEN: Weii, this hasn't been sufficientiy redacted to it hasn't been sufficientiy redacted. It contains privi1eged materiai. MR. NEWMAN: what about if we just use the e? you know What, 1et's just do this, Jeff. MR . ZAWADZKI: Sure . MR. NEWMAN: Ms. Waxman reviewed the Voweii Jennings, Inc. (615) 256?1935 173 document and said it was abie to be used, but if you have a different View, we can address that. MR. BOGEN: I don't know what to say other than it contains priviieged materiai. MR. NEWMAN: Tim, where is the Page 154 072205DP (3).txt concern? The concern is at the top of Page 2? MR. BOGEN: Yeah. MR. NEWMAN: If he is concerned about it even though cut this page, stap1e it to the second page, and then we'11 introduce the exhibit. Is that a11 right? MR. BOGEN: Yeah. MR. NEWMAN: we won't use it if you don't want us to. (Marked Exhibit No. 62.) MR. QUINN: This document was a1ready marked, wasn't it? MR. NEWMAN: Yes, it was. It was marked as Committee's Exhibit 8. Based upon a discussion with Mr. Bogen; is that right, Tim? MR. Yes. MR. NEWMAN: Mr. Bogen, concerning this document, we have agreed to further redact the document, so we have remarked it as Committee Exhibit 62. We are ready to proceed if the Vowel] Jennings, Inc. (615) 256~1935 174 witness is finished reading the document. BY MR. NEWMAN: Q. Have you had a chance to read it, Mr. Perdue? A. Yes, I have. Q. Do you want more time? A. I have read it. Q. Does this document, Exhibit 62, refresh your reco11ection as to a11egations made by a Page 155 07ZZOSDP (3).txt company ca11ed Scion Capita]? A. Weii, I'm not sure I seen an aiiegation in there. His compiaint, as I read it, was about the discontinuing of providing pub1ic information to sharehoiders. MR. QUINN: Wait a minute. The first question was, does this refresh your recoiiection? Do you have do you reca11 this other than simply reading this document? THE WITNESS: No, I don't. MR. QUINN: So you were just interpreting the document? THE WITNESS: Yes. BY MR. NEWMAN: Q. Do you reca11 having any communications back and Forth with a Dr. Michae1 Burry of Voweii Jennings, Inc. (615) 256-1935 175 Scion Capitai? A. I do not. Q. If we couid go back to the binder, Mr. Perdue. Take a 100k at Page PTX 801. Under 3? Yes u? no, under Tab 4. Tab 4? Tab 4. what was the number? PTX 801. Okay. Do you recaii this document? Page 156 mm-wai??O 072205DP (3).txt A. I do not. Q. Do you recai] having discussions at the January 9, 2003, board meeting where it was discussed what incrementai funding required to impiement its outsourcing strategy? A. These were ongoing conversations. Mo Meghji or Loughiin Meghji, CSFB, others were invoived. I don't remember the specific conversation in January. Q. 0n PTX 801 entitied Incrementai Funding Required, it indicates that the funding required for 2003 wouid be $26 A. For the Kannapoiis Towei Corporation. Vowe11 Jennings, Inc. (615) 256?1935 176 Q. For Kannapoiis Towei? A. Right. Q. So that wouid be withdrawn. So that incrementai funding required figure oniy was with respect to outsourcing the toweis manufactured at Kannapoiis? A. That's correct. Q. So there may very weii have been additional funding requirements for the company in 2003? A. This iooks iike aiternatives for consideration for and it's what I said eariier. It wasn't or nothing; there were various combinations that were being evaiuated. This document mereiy shows it iooks Tike three different phases there, that in '03 Page 157 072205DP (3).txt Kannapo1is wouid go out, '04 bedding wou1d go out, and Fie1da1e wouid go out in '05. Q. And as of January 2003, did Pi11owtex have availab1e funding to outsource to KannapoIis Towe1s? A. Not to my reco11ection. Q. As of January 2003, did PiTTowtex have the avaiiabie funding to outsource its bedding products? Vowe11 Jennings, Inc. (615) 256-1935 177 A. Not to my rec011ection. Q. And when it says outsource Fieida1e, what was manufactured at the Fiera1e p1ant? A. High end product. It was a high end factory that made Charisma brand primari1y. Q. And did Pi110wtex in January 2003 have the cash or funding avai1abi1ity to outsource the products manufactured at the Fie1da1e p1ant? A. We11, when I say the pieces 1ike that, I don't recaiT if we had 22 mi11ion to fund that. But certain1y in this premise here of this strategy, we did not have the funding for this program here. Q. And that fact didn't change at any point between January 2003 and the point you 1eft correct? A. Not to my reco11ection, no, it didn't change. Q. Is it fair to say that uniess Oaktree Page 158 0722050P (3).txt infused the additionai capita] needed into that had no to secure the funding it required to compiete the outsourcing p1an? A. Wei}, not entireiy. There were potentiai outside piayers that cou1d come in and infuse Vowe 1 Jennings, Inc. (615) 178 capitai for a certain position in the company. There were other aiternatives discussed. None seemed to show up except these other textiie company options. Q. Were there any textiie companies that expressed an interest in investing in or infusing capita1 to Pi110wtex? A. In terms of keeping it under the Pi11owtex name? Q. Yes. A. No, not to my memory. Q. If we're to turn to PTX 803, do you know what this page refiects? A. It looks iike a projected 1iquidation worksheet. Q. Do you have any independent reco11ection of the projected ?w this page other than what you're iooking at right nowyou have an understanding as to why when certain Tiquidation analyses were prepared for the company no recovery was assumed for the brands? Page 159 0722050? (3).txt MR. QUINN: Objection to form. THE WITNESS: I don't know why. Vowe11 Jennings, Inc. (615) 256?1935 That 179 wasn't ciear. BY MR . NEWMAN: Q. If you Took at PTX 816, do you recai] that on January 9, 2003, at a board meeting, Credit Suisse First Boston to1d the board that parties were uniike1y to make a offer to because of various financia] and poiiticai strategic reasons? A. I don't remember that. Q. Do you remember what CSFB was representing was the status of the process as of January 2003? A. I don't remember specificaiiy what representation was in January. Q. Do you have any generai recoiiection? A. I have a genera] reco11ection of what the process was; I don't have a genera} reco11ection of how CSFB might have characterized it. Q. Do you have a rec011ection of what the status of the process was in January A. Yes, there were ongoing conversations with West Point, with Springs, and Dan River at that point in addition to peopie who were interested in the pi110ws and pads division. Q. Did those discussions ever resuit in a Vowe11 Jennings, Inc. (615) 256?1935 180 Page 160 (0722050P (3).txt offer? A. We have a document from Springs that was an offer. Was it a finai signed offer, I don't reca11. But it was a structure for an agreement. Q. Was Scott Graves opposed to 1iquidating the company? MR. SELBST: If you know. THE WITNESS: I don't know. BY MR. NEWMAN: Q. Do you know whether Ken Lenga was opposed to iiquidating the company? A. No. Q. Do you know whether Oaktree was opposed to 1iquidating the company? A. I don't know. Q. Do you have an understanding as to whether Oaktree wouid benefit more if the process withdrawn. Do you have an understanding as to whether Oaktree wouid benefit more from the process or from 1iquidation? MR. QUINN: Objection. THE WITNESS: I don't know. BY MR. NEWMAN: Q. Do you remember what the cash burden of Vowel] Jennings, Inc. (615) 256-1935 181 the company was in January 2003? A. No. Page 161 0722050? (3).txt Q. Do you remember having concerns that given the cash burden that it was imperative to find a purchaser of the company as quickiy as possib1e in January 2003? A. I wouid answer this way. There was an intense effort even back in the fa11 of '02 to make every effort to seek an a1ternative. That didn't 1essen during the four? or five?month period unti1 March. Q. I wou1d Iike you to turn the document that I wouid 1ike you to take a 100k at. A. Okay. Q. Do you reca11 reviewing the presentation to the board of directors that starts at PTX 967? A. No, I don't. Q. We are going to turn to PTX 973. Do you reca11 seeing this page entitied Overview of ProposaTS? A. Not specifica11y, no, I don't recai] this page. Q. Can you te11 me what the status did you want to add something to it? Voweii Jennings, Inc. (615) 256?1935 182 A. No, I don't. Thank you. Q. Can you te11 me what the status of the process was as of the March 4, 2003, board meeting? A. I'm not sure specificaiiy. I do remember Page 162 0722050P (3).txt that Springs, with their peopie, were I remember having conversations with them as iate as March, but I don't remember the specifics. Q. Does PTX 973 refresh your recoiiection as to what the status of the proposais were as of the March 4, 2003, board meeting? A. Yes. Q. what was the status of the process as of the March 4, 2003, board meeting? A. Wei], we had peopie in varying degrees of process with regard to getting to a proposai. The ones mentioned here, West Point, Springs, and Dan River ?w I can't read the other one out here. But that was probabiy for the piTiows it was, and pads. Those are consistent with the memory of my effort. Q. Now, if we turn to PTX 997, whiie keeping a Finger stiiyou reca11 what the 1iquidation vaiue VoweiT Jennings, Inc. (615) 256?1935 183 anaiysis was as of December 28, 2002? A. No. Q. By taking a iook at PTX 997, does that refresh your recoiiection? A. It does. Q. My question to you, Mr. Perdue, is that if the Tiquidation vaiue anaiysis as prepared by Credit Suisse First Boston showed a totai proceeds range between $250 mi11ion and $303,400,000, why Page 163 072205DP (3).txt does -- why did the board not decide to iiquidate the company? A. Weii, it was first of a11, the net number was not that sma11 of a difference. But to answer your question, I don't recaii why the company wasn't iiquidated in -- at this time period. Q. Do you reca11 what discussions you had at board meetings in January, February, or March concerning whether the proposais from the potentiai acquirers were not expected to yieid as much as the 1iquidation va1ues? MR. SELBST: Objection to form. THE WITNESS: No, I don't remember that they wouid not. I remember that we were trying to get offers in c011ective1y, and we Voweii Jennings, Inc. (615) 256-1935 184 decided at some point in time that we potentiaiiy couid 5e}? pieces of it. There were combinations we were evaiuating, and that was something that was a1ways iooked at even back in the fa11 was, what are the prospects for versus the 1iquidation. That's why the outside consultants were -w part of the reason the outside consuitants were retained was to heip us evaiuate that issue. In retrospect, it iooks easy to make this, you know, either make sense or not make sense. But reaiize this was an extremeiy fTuid Page 164 mmwat?IO 0722050P (3).txt environment. I mean, day to day things change dramaticaiiy. The whipsaw impact here was profound, and every day brought either comp1ications to an existing or confirmations. So, you know, it was the activity in December was sti11 very active and very hopefui. BY MR. NEWMABE: Q. Can you give me some exampies of how the situation was changing so dramatica11y day to day? A. Wei}, the propositions with the potentiai acquisition candidates. You know, everyone had Voweii Jennings, Inc. (615) 256?1935 185 different views of the company and wanted different they cou1d envision different structures for acquiring the company. Springs had one way of iooking at it; West Point had another, and that was a very dynamic had a very dynamic impact of what a potentiai merger or success situation or divestiture wouid 100k 1ike. I might a1so add that the 1iquidation vaiue anaiysis changed month to month. You had various things in those estimates that were aiso dynamic that caused this to not be a static comparison at any one point in time. Q. Is it fair to say that the 1iquidation vaiues degraded month to month? A. I don't remember that. Q. Was it ever a concern of the board that Page 165 O7ZZOSDP (3).txt the 1iquidation vaiues in September/October 2002 may not be as strong come February or March of 2003? A. Yes, there was aiways a consideration of a ciock ticking on this situation, and it was aiways a sense of urgency communicating with the outside peopie. That's why we had so many advisors, and we tried to be very sensitive to the time issues. of course, in the that's very Vowe11 Jennings, Inc. (615) 256?1935 186 difficuit when you have outside peopie who have every incentive to drag their feet obviousiy. Q. If we are to 100k at PTX 993 -- A. 993? Q. Right. Do you know what the basis is for Credit Suisse's statement underneath the brand's subtitie as to what the 1iquidation vaiues are? A. NO. Q. Do you agree with those iiquidation vaiues? A. I don't remember we as I said eariier, I don't remember having an opinion. Q. You mentioned about off parts of the business. can you describe for me what efforts were made, if any, to seii the and pads division separate and apart from the Pii1owtex assets? A. Wei], the piayer that I can't identify on PTX 973, we did engage them eariy in the process, Page 166 O7ZZOSDP (3).txt and they were engaged in active conversation about the of carving out the and pads division as a one off divestiture. Q. Is that Vitaiia or Pacific Coast? A. There was more that, you know, one. I think this particu1ar one might be Pacific Coast. Vowe 1 Jennings, Inc. (615) 256?1935 187 I can?t read it, but that wouid be my memory. Q. And what ended up happening with Pacific Coast with respect to the pi11ows and pads division? A. I don't recaii the specifics of how they they obviousiy didn't buy anything. Q. We can put this binder away. Going back to Exhibit 60, do you have that in front of you? It was your draft Wetter that was never sent. A. I have it. Q. In 60 in the third paragraph in the second sentence, you indicate that you made an offer at the board meeting to stay untii Aprii 15. what was the purpose of making that offer to the board? A. At that point in time, we had a potentiai transaction that iooked very, very promising. As I recaii, they had made they had some interest in or there was some concern that I stay in that I stay engaged through the cuimination of that process. Q. Do you remember who that who the potentiai acquirer was? Page 167 07ZZOSDP (3).txt A. There were two at that point. If I remember correctiy, one was certainiy it was Voweii Jennings, Inc. (615) 256?1935 188 Springs. The other one was West Point was engaged. Q. Did you aiready make up your mind on March as of March 4 -- withdrawn. Did you aiready make up your mind on March 4, 2003, that you were going to 1eave A. I don't recaii. Q. Do you recaii when it was that you decided you were going to 1eave empioy? A. No. MR. NEWMAN: why don't we take that break that I referenced eariier. It iooks 1ike we'ii be abie to end eariy. (Brief recess observed.) (Marked Exhibit No. 63.) BY MR. NEWMAN: Q. Exhibit 63, Mr. Perdue, did that come from your persona] fiies? A. Yes. Q. The e?maii beiow from John Steriing to Jeffrey Keenan says that "Jeffrey, I spoke with Dave, and he has informed me that both him and his attorney, Steven Seibst, are signed off on the 1ast draft of the revised empioyment agreement." Voweii Jennings, Inc. (615) 256?1935 189 Page 168 072205DP (3).txt We were taking a Took at Exhibit 60. You in your testimony eariier, you mentioned there were various times that you and agreed to different agreements. Can you tel] me the -- what the circumstances were with the agreement referenced in Exhibit 63? A. I don't remember the specifics. This is a though, 1ike you said, another exampie of where we were with the comp committee and Jeffrey Keenan being the chairman of the comp committee. We had reached an agreement with the comp committee that satisfied me and my counse]. This never got executed. Q. Do you have an understanding as to why? A. I don't remember exactiy why. Q. You were prepared, though, to execute that agreement as of January 30, 2003? A. If I read that correctiy. I have no recoiiection of what this what was invoived in the January contract. Q. Separate and apart from the exhibit, do you have any reco11ection that you were prepared to sign an agreement that had been debted through your counsei in January 2003? Voweii Jennings, Inc. (615) 256?1935 190 A. In yes, ieading up to February, I do have a reco11ection of that. Page 169 Ui-EthH 072205DP (3).txt Q. Were there any subsequent drafts of the agreement that you had agreed to execute? A. Not to my know1edge. (Marked Exhibit No. 64.) BY MR. NEWMAN: Q. Do you recognize Exhibit 64? A. Yes. Q. what is Exhibit 64? A. It iooks Tike a summary of we11, I know who P1us is. As we said ear1ier, I think they were the reiocation services company. And these are numbers reiating to the purchase of the fami1y home. Q. Do you know how the saies price for your Massachusetts home was arrived at? A. No. I know there was we this reiocation service had this protocoi and processes. Q. Do you know if anybody appraised the Massachusetts home? A. I be1ieve they did, yes. MR. NEWMAN: Mr. Perdue, I have no further questions at this time, and I just want to thank you for taking the time out of your position Voweii Jennings, Inc. (615) 256?1935 191 and for joining us today. MR. QUINN: I have I have there's a few questions I wouid 1ike to ask, 1arge1y to ciarify some of what's been said. A I A I Page 170 072205DP (3).txt BY MR. QUINN: Q. Before the relocation company bought your house in Massachusetts, had you put the house on the market yourseif? A. No oh, yes. Q. And what were you asking? what was the asking price? A. 1.8. Q. So you 501d it to the reiocation company for $100,000 1ess than you were asking, right? A. Right. Q. Take a look at Exhibit 60. That is the Tetter that you never sent out. It is addressed to gentiemen. what gentlemen were you referring to? A. The board of directors. Q. of A. Q. In the second to the 1ast paragraph, you say you had notified the board that you had been Vowei] Jennings, Inc. (615) 256?1935 192 contacted to interview for the CEO position at Doiiar Generai in December? Uh?huh. Do you see that? Yes. That's December of 2002, correct? Correct. Now, you were asked eariier whether you remembered when you first toid about Page 171 072205DP (3).txt that empioyment opportunity, and you said you didn't know. Does this refresh your recoiiection? MR. NEWMAN: objection. BY MR. QUINN: Q. Go ahead. A. Yes, but I don't recaii the conversation with them either in December or January. Q. So you don't know when it was? A. NO. Q. A11 right. But you wrote this thing, what, in March of 2003? A. Correct. Q. Your recoiiection was presumab1y a whoie iot fresher then, right? MR. NEWMAN: Objection. THE WITNESS: Correct. Voweii Jennings, Inc. (615) 256*1935 193 BY MR. QUINN: Q. You wouidn't have said that if you didn't beiieve it to be, correct? MR. NEWMAN: objection. THE WITNESS: Right. BY MR. QUINN: Q. Very good. Now, this process got kicked off when the creditors' committee, Mr. Newman's ciient, fiied what we ca11 a motion, a document with the court asking permission to take your deposition and some others. It was a motion for 1eave to conduct 2004 Page 172 memm-bWNH #O7ZZOSDP (3).txt Did you ever see that document? depositions. A. I have seen a document I have seen severai 1ega} documents. I?m not sure if it's that particuiar document. Q. Did you see a document that described what issues the committee wanted to investigate? A. Yes. Q. And do you recai] reading what issues that they wanted to pursue with respect to you? A. Yes. Q. A11 right. Do you recail there being a suggestion that they wanted to pursue the that you took money from VoweTi Jennings, Inc. (615) 256~1935 194 that you were not 1ega11y entitied to? A. Yes. Q. So that's your understanding of the purpose of this exercise? A. Yes. MR. NEWMAN: Objection. BY MR. QUINN: Q. Let's 100k at what we got under your contract as opposed to what you were actuaiiy entitled to. MR. QUINN: Have you marked the contract by chance? MR. NEWMAN: NO. MR. QUINN: Do you have a copy of it? MR. NEWMAN: Yes. MR. QUINN: It hasn't been marked as Page 173 0722050P (3).txt an exhibit at a1]? MR. NEWMAN: Correct. MR. QUINN: Can we mark it? THE WITNESS: The originai contract? BY MR. QUINN: Q. The originai contract. (Marked Exhibit No. 65.) BY MR. QUINN: Q. A11 right. Take a 100k at Exhibit 65, and Voweii Jennings, Inc. (615) 256-1935 195 tei] me whether that, in fact, is a copy of the originai written contract that you entered into with A. It is. Q. right. Now, did anyone ever suggest to you that that contract did not represent a 1ega11y binding obiigation on Pi11owtexyou know, has never suggested to you in fact, no one has ever suggested to you that that's not an enforceabie agreement, correct? A. Correct. Q. Now, there's been some testimony about the fact that when you arrived at after signing this contract that there were prob1ems. There were prob1ems with the of the back1og; there were probiems with the underfunding of the pension. Page 174 072205DP (3).txt And as a resuit of those probTems, it was pretty cTear to you and everybody e1se that the EBITDAR projections that were a part of the p1an of reorganization were not going to be achieved; is that correct? A. That's correct. Voweii Jennings, Inc. (615) 256?1935 196 Q. Had you known of those probiems wou1d you have signed that contract? A. Absoiuteiy not. Q. A11 right. You negotiated the compensation provisions in this contract on an arm's 1ength basis, correct? A. Right. Q. Wou1d you have entered into that contract if you had not gotten that economic dea1? A. No. Q. Wouid you have ever entered into that contract if you knew you were never going to get the back end $2 guarantee? MR. NEWMAN: Objection. THE WITNESS: NO. BY MR. QUINN: Q. Now, I want to see who got the better end of that contract. There are a number of cash payments to which you were entitied under that contract, right? A. Right. Q. You were entitied to an up~front bonus, cash? Page 175 24 25 072205DP (3).txt A. Right. Q. You were entit1ed to a saiary and bonus, Vowe11 Jennings, Inc. (615) 256-1935 197 right? A. Right. Q. You got those? A. Right. Q. There were certain things you didn't get under the contract. You didn't get a 1oan? A. Correct. Q. Were m- was that 1oan to be on commerciaiiy avaiiabie terms? A. Yes. Q. You didn't get the A. Correct. Q. At 1east you didn't get an LC that was to remain through the end the term of the contract? A. Right. Q. You aiso didn't get the $2 that was guaranteed to you under that contract, correct? A. Correct. Q. Isn't it true that the reason you didn't get that is because the company breached its obiigation to provide in place 1etter of credit that wouid be avaiiabTe to you in the event of bankruptcy? Voweii Jennings, Inc. (615) 256-1935 198 Page 176 0722050P (3).txt MR. NEWMAN: Objection. THE WITNESS: Yeah. BY MR. QUINN: Q. There's a direct resu1t between that faiTure and the fact that you 1ost $2 mi11ion, correct? A. Right. MR. NEWMAN: Objection. BY MR. QUINN: Q. A11 right. Did you ever suggest did you ever say to anyone at Pi110wtex that it was okay with you that you didn't get that 1etter of credit? A. NO. Q. Let's put aside the fact that you didn't get the 10am. Let's put aside the fact that you didn't get the stock options that you were entit1ed to. Let?s put aside the fact that because of the true condition of the business, not the condition it was represented to you, the stock that you got and the options you wou1d have gotten were essentia11y worth1ess or at 1east that you didn't have anything 1ike the up side potentia1 that you wou1d have had. Let's put that aside for a moment. A11 tight. Vowe11 Jennings, Inc. (615) 256~1935 199 You got at 1east $2 mi11ion in cash 1ess than you were abso1ute1y entit1ed to under that Page 177 072205DP (3).txt contract; is that correct? A. Correct. Q. Now, you aiso got some things that you were not entitled to under the terms of the contract as originaiiy written? A. Right. Q. You got a $700,000 payment? A. Right. Q. In in order for you to deai with your tax in the stock? A. Correct. Q. Stock that turned out to be worthiess? A. Right. Q. You aiso got a $100,000 payment with respect to reiocation expenses? A. Correct. Q. You weren't entitied to either of those things under the terms of the contract nu A. That's correct. Q. -- is that right? So you got $800,000 more than was under the terms you were entitied to under the terms of the originai contract and $2 1ess? Voweii Jennings, Inc. (615) 256?1935 200 A. Right. Q. By my account, that means that you at the end of the day were paid at 1east $1.2 1ess than you were absoiuteiy entitied to on a noncontingent basis that was guaranteed to you Page 178 LDOONION 0722050P (3).txt under that contract; is that right? A. That's correct. MR. NEWMAN: Objection. BY MR. QUINN: Q. We just covered the fact that this process got kicked off by the suggestion it wasn't an accusation but the suggestion of the possibility by the committee that you had taken money you were not entitied to. MR. NEWMAN: objection. I don't know if that is a correct characterization either. MR. QUINN: Let me finish my question, if I may. BY MR. QUINN: Q. This process got started off by that suggestion? A. thhuh. Q. Before you read that document, had anybody within or out of Pi11owtex ever suggested to you that you took anything that you Voweii Jennings, Inc. (615) 256~1935 201 were not entitied to? A. Not once. MR. QUINN: That's a11 I have. Thanks. A I A I BY MR. NEWMAN: Q. Mr. Perdue, the conversation where you were to1d that the term money grab was used in reference to you, do you reca]? anything do you Page 179 0722050? (3).txt recaii the conversation withdrawn. when the term money grab was used in reference to you, when you were to1d that, what e1se were you to1d with respect to your compensation issues? A. Nothing. Q. You don't reca11 that conversation other than that somebody to1d you that they heard the term money grab used with your name; is that right? A. As it reiates to the revision in the the amendment in the contract that we were trying to make in the ear1y part of '03. Q. And that amendment incTuded a money guarantee, correct? A. The back end, try to dea1 with the 1055 of Vowe11 Jennings, Inc. (615) 256?1935 202 that back end. Q. And that amended agreement was a1so going to indicate the payment of the $700,000 to you, correct? A. Potentia11y, yes. Q. And that amended agreement was a1so going to inciude the 100,000 reTocation payment to you? A. Yes. Q. And that amended agreement was a1so going to inc1ude the retention of a re1ocation company, correct? A. Correct. Page 180 0722050P (3).txt MR. NEWMAN: Thank you. MR. QUINN: There is one question I forgot to ask, actua11y two. The amended agreement you were just ta1king about was the amended agreement that was never consummated, correct? MR. NEWMAN: Yes. A I A I BY MR. QUINN: Q. I forgot to ask you this, the November 11, 2002, board minutes ref1ect that the board had reso1ved that the company wou1d be authorized to pay you the $700,000 tax money and the $100,000 Vowe11 Jennings, Inc. (615) 256?1935 203 re10cation money? A. And the repurchase of the home. Q. Right. Now, the 700,000 and 100,000, as I understand it, were not paid to you unti] January of A. That's correct. Q. why the de1ay? A. We11, as I said ear1ier, in the October time frame, it was tied to the compTetion of the amended contract, and that amended contract never got done. Q. I see. So that your the right you didn't actua11y have a right to receive that money unti] January when the board said, weii, we?re going to go ahead and give it to you anyway, even though the contract hasn't been fi1ed? Page 181 0722050? (3).txt A. That's correct. Q. Your right to that money didn't ripen unti] January? A. That's correct. MR. QUINN: Thanks. MR. NEWMAN: Can I have the 1ast question and answer read back? (Reporter read back requested materia1.) VoweTI Jennings, Inc. (615) 256?1935 204 MR. QUINN: If you are 1ooking at the board minutes? MR. NEWMAN: Yeah. MR. QUINN: There's a reso1ution attached that authorizes to enter into the agreement. MR. NEWMAN: In January? MR. QUINN: No, no, no. MR. SELBST: In October. MR. NEWMAN: I have no further questions. FURTHER DEPONENT SAITH NOT. SWORN to before me when taken, JuTy 22, 2005. ELISABETH A. MILLER, RPR, CRR Notary Pub1ic, Tennessee My Commission Expires: 3/31/2007 Page 182 0722050P (3).txt VoweIT Jennings, Inc. (615) 256~1935 205 REPORTER CERTI FICATE I, E1isabeth A. Mi11er, Notary Pubiic, Registered Professiona1 Reporter, and Certified Rea1time Reporter, do hereby certify that I recorded to the best of my ski11 and by machine shorthand a11 the proceedings in the Foregoing transcript, and that said transcript is a true, accurate, and comp1ete transcript to the best of my I further certify that I am not an attorney or counsel of any of the parties, nor a reiative or empioyee of any attorney or counse1 connected with the action, nor financia11y interested in the action. Signed this 25th day of Ju1y, 2005. E1isabeth A. Mi13er, RPR, CRR My commission expires: 3/31/2007 Page 183 07220509 (3).txt 24 25 Vowe11 Jennings, Inc. (615) 256-1935 206 A A I, DAVID A. PERDUE, having read the foregoing deposition, Pages 1 through 207, taken Ju1y 22, 2005, do hereby certify said testimony is a true and accurate transcript, with the fo110wing changes, if any: PAGE LINE SHOULD HAVE BEEN DAVID A. PERDUE 21 22 23 Notary PubTic My commissuon expires: 24 25 Vowe11 Jennings, Inc. (615) 256?1935 207 Page 184 O7ZZOSDP (3).txt Page 185