SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the thirteen week period ended September 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ______________________ to _____________________
Commission File No. 1-11368
PARAGON TRADE BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware 91-1554663
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
180 Technology Parkway
Norcross, Georgia 30092
(Address of principal executive offices)
(770) 300-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
The number of shares outstanding of the registrant's common stock was 11,948,170
shares ($.01 par value) as of September 28, 1997.
Page 1 of 22
Exhibit Index on Page 21
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PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
INDEX TO FORM 10-Q FILING
FOR THE THIRTEEN WEEK PERIOD ENDED SEPTEMBER 28, 1997
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Changes in Shareholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to Financial Statements 7-10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11-16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities (not applicable)
Item 3 Defaults in Senior Securities (not applicable)
Item 4. Submission of Matters to a Vote of Security Holders (not applicable)
Item 5. Other Information (not applicable)
Item 6. Exhibits and Reports on Form 8-K 18-19
Signature Page 20
Exhibit Index 21-22
Exhibits
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE DATA)
(NOTE 1)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
Sept. 28, 1997 Sept. 29, 1996 Sept. 28, 1997 Sept. 29, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Sales, net of discounts and allowances $ 154,066 $ 151,549 $ 425,570 $ 439,480
Cost of sales......................... 125,465 111,620 345,202 337,452
---------- ---------- ---------- -----------
Gross profit.......................... 28,601 39,929 80,368 102,028
Selling, general and administrative
expense....................... 20,175 22,796 58,557 73,968
Research and development expense...... 1,336 811 3,242 2,648
---------- ---------- ---------- -----------
Operating profit...................... 7,090 16,322 18,569 25,412
Equity in earnings of unconsolidated
subsidiaries.................. 800 304 859 445
Dividend income from unconsolidated
subsidiary.................... 1,055 - 1,055 -
Interest expense...................... 1,354 61 3,445 1,964
Other income ......................... 564 161 1,490 437
---------- ---------- ---------- -----------
Earnings before income taxes.......... 8,155 16,726 18,528 24,330
Provision for income taxes............ 2,394 6,240 6,313 9,076
---------- ---------- ---------- -----------
Net earnings.......................... $ 5,761 $ 10,486 $ 12,215 $ 15,254
========== ========== ========== ===========
Primary earnings per common share..... $ .48 $ .87 $ 1.03 $ 1.27
========== ========== ========== ===========
Dividends paid........................ $ - $ - $ - $ -
========== ========== ========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(NOTE 1)
<TABLE>
<CAPTION>
September 28, 1997 December 29, 1996
------------------ -----------------
<S> <C> <C>
ASSETS
Cash and short-term investments.............. $ 6,382 $ 8,297
Receivables.................................. 66,452 56,888
Inventories.................................. 43,229 44,055
Current portion of deferred income taxes..... 10,192 10,575
Prepaid expenses............................. 1,850 957
--------- ---------
Total current assets................. 128,105 120,772
Property and equipment....................... 112,824 116,338
Construction in progress..................... 26,280 10,117
Assets held for sale......................... 16,456 14,421
Patents and trademarks....................... 296 676
Deferred income taxes........................ 17,446 26,293
Investment in unconsolidated subsidiary, at
cost................................. 19,964 16,531
Investment in and advances to unconsolidated
subsidiaries, at equity.............. 45,974 29,484
Goodwill..................................... 35,219 36,658
Other assets................................. 9,588 1,800
--------- ---------
Total assets......................... $ 412,152 $ 373,090
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-term borrowings........................ $ 32,400 $ -
Checks issued but not cleared................ 10,142 10,233
Accounts payable............................. 48,236 37,067
Accrued liabilities.......................... 28,144 38,495
--------- ---------
Total current liabilities............ 118,922 85,795
Long-term debt............................... 60,000 70,000
Deferred income taxes........................ 1,023 2,260
Other long-term liabilities.................. 2,160 330
--------- ---------
Total liabilities.................... 182,105 158,385
Commitments and contingencies (Note 7)
Shareholders' equity:
Preferred stock: Authorized 10,000,000
shares, no shares issued,
$.01 par value....................... - -
Common stock: Authorized 25,000,000 shares,
issued 12,339,727 and 12,288,293
shares, $.01 par value............... 123 123
Capital surplus.............................. 144,301 143,205
Foreign currency translation adjustment...... (795) (614)
Retained earnings............................ 96,556 84,341
Less: Treasury stock, 391,557 and 535,250
shares, at cost...................... (10,138) (12,350)
--------- ---------
Total shareholders' equity........... 230,047 214,705
--------- ---------
Total liabilities and shareholders' $ 412,152 $ 373,090
equity............................... ========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLAR AMOUNTS IN THOUSANDS)
(NOTE 1)
<TABLE>
<CAPTION>
Foreign
Common Capital Currency Retained Treasury
Stock Surplus Translation Earnings Stock
--------- ---------- ----------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 29, 1996.... $ 123 $ 143,205 $ (614) $ 84,341 $ (12,350)
Net earnings.......... - - - 12,215 -
Issue common stock.... - 1,096 - - 2,212
Translation adjustment - - (181) - -
--------- ---------- ---------- --------- ------------
BALANCE, September 28, 1997... $ 123 $ 144,301 $ (795) $ 96,556 $ (10,138)
========= ========== ========== ========= ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(NOTE 1)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
-----------------------
Sept. 28, 1997 Sept. 29, 1996
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings................................... $ 12,215 $ 15,254
Non-cash charges (benefits) to earnings:
Depreciation and amortization.......... 26,381 29,937
Deferred income taxes.................. 9,130 (5,384)
Write-down of assets................... - 2
Changes in working capital:
Accounts receivable.................... (8,764) (7,212)
Inventories and prepaid expenses....... (67) 6,374
Accounts payable....................... 11,169 (254)
Checks issued but not cleared.......... (91) (2,133)
Accrued liabilities.................... (9,056) 13,048
Other ......................................... (1,174) (18)
--------- ---------
Net cash provided by operating
activities........................ 39,743 49,614
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment........ (40,472) (36,390)
Proceeds from sale of property and equipment... 891 55
Acquired assets - Pope & Talbot Disposable
Diaper Business........................ - (57,249)
Investment in unconsolidated subsidiary,
at cost................................ (3,433) (15,908)
Investment in and advances to unconsolidated
subsidiaries, at equity................ (14,587) (5,347)
Other ......................................... (6,668) (850)
--------- ---------
Net cash used by investing activities.. (64,269) (115,689)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in short-term borrowings.......... 32,400 15,359
Proceeds from U.S. bank credit facility........ 15,000 55,000
Repayments of U.S. bank credit facility........ (25,000) (15,000)
Sale of common stock........................... 211 -
--------- ---------
Net cash provided by financing activities...... 22,611 55,359
--------- ---------
NET INCREASE (DECREASE) IN CASH................ (1,915) (10,716)
Cash at beginning of period.................... 8,297 11,890
--------- ---------
Cash at end of period.......................... $ 6,382 $ 1,174
========= =========
Cash paid (refunded) during the period for:
Interest, net of amounts capitalized... $ 3,066 $ 1,972
========= =========
Income taxes........................... $ (117) $ 13,970
========= =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
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<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED
SEPTEMBER 28, 1997 AND SEPTEMBER 29, 1996
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT SHARE AND PER SHARE FIGURES)
NOTE 1: BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING AND
REPORTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Paragon Trade
Brands, Inc. ("Paragon" or the "Company") and its wholly-owned subsidiaries. All
significant intercompany transactions and accounts are eliminated.
The accompanying consolidated balance sheet as of December 29, 1996, which has
been derived from audited financial statements, and the unaudited interim
consolidated financial statements have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
note disclosures normally included in annual financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to those rules and regulations, although the Company believes
that the disclosures made are adequate to make the information presented not
misleading. It is suggested that these consolidated financial statements be read
in conjunction with the financial statements and the notes thereto included in
the Company's latest annual report on Form 10-K.
In the opinion of management, all adjustments necessary for a fair statement of
the results of the interim periods have been included. All such interim
adjustments, with the exception of the costs associated with the Pope & Talbot,
Inc. ("P&T") integration and the relocation of the Company's corporate offices
to Atlanta, are of a normal recurring nature. The charge for the P&T integration
and relocation of the corporate offices for the thirty-nine week period ending
September 29, 1996 was $9.6 million, net of the effect of income taxes. The
results of operations for the thirty-nine week period ending September 28, 1997
should not be regarded as necessarily indicative of the results that may be
expected for the full year.
INVESTMENTS
The Company owns a 15% interest in Grupo P. I. Mabe, S.A. de C.V. ("Mabesa")
and related companies. The investment is carried at cost in the accompanying
balance sheet.
The Company also owns a 49% interest in Paragon-Mabesa International, S.A. de
C.V. ("PMI"). The investment is accounted for using the equity method.
The Company completed the purchase of an interest in Serenity, S.A. ("Serenity")
on August 28, 1997. A 70% interest in Serenity was purchased by Stronger
Corporation, S.A. ("Stronger"), a joint venture of the Company and an affiliate
of Mabesa. The Company owns a 49% interest in the joint venture. The investment
is accounted for using the equity method.
The Company has announced an agreement to purchase a 100% interest in MPC
Hygenic Products, Ltda. ("MPC"), a subsidiary of Cremer, S.A., through Stronger.
The purchase of MPC is subject to the satisfactory completion of certain
contingencies and is anticipated to close during the fourth quarter of 1997.
There were no dividend distributions to the Company from PMI or Stronger for the
thirteen and thirty-nine week periods ended September 28, 1997 and September 29,
1996. The Company received a dividend distribution of $1,055 from Mabesa in the
thirteen week period ended September 28, 1997. There was no dividend
distribution from Mabesa for the thirteen and thirty-nine week period ending
September 29, 1996.
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<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," effective for fiscal years and interim periods ending
after December 15, 1997. The adoption of this statement will not have a
significant impact on the Company's results of operations. The Company's
historical primary earnings per share calculations are equivalent to the basic
earnings per share calculations called for by SFAS 128.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income," effective for fiscal years beginning after
December 15, 1997. The adoption of this statement will not have a significant
impact on the Company's results of operations.
NOTE 2: INCOME TAXES
The recognition of additional depreciation deductions in 1997 has increased
Paragon's current income tax receivable account by approximately $6.0 million,
while reducing the noncurrent deferred tax asset account by a like amount.
NOTE 3: RECEIVABLES
Receivables consist of the following:
<TABLE>
<CAPTION>
September 28, 1997 December 29, 1996
------------------ -----------------
<S> <C> <C>
Accounts receivable-trade.................... $ 59,430 $ 51,634
Other receivables............................ 14,598 12,891
---------- ----------
74,028 64,525
Less: allowance for doubtful accounts....... (7,576) (7,637)
---------- ----------
Net receivables.............................. $ 66,452 $ 56,888
========== ==========
</TABLE>
NOTE 4: INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
September 28, 1997 December 29, 1996
------------------ -----------------
<S> <C> <C>
LIFO:
Raw materials - pulp................. $ 362 $ 407
Finished goods....................... 21,219 21,090
FIFO:
Raw materials - other................ 8,865 9,131
Materials and supplies............... 21,485 21,230
------ ------
51,931 51,858
Reserve for excess and
obsolete items................... (8,702) (7,803)
------- ------
Net inventories.............................. $ 43,229 $ 44,055
====== ======
</TABLE>
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<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 5: ACCRUED LIABILITIES
Accrued liabilities are as follows:
<TABLE>
<CAPTION>
September 28, 1997 December 29, 1996
------------------ -----------------
<S> <C> <C>
Payroll-related.............................. $ 10,109 $ 14,975
Coupons outstanding.......................... 4,974 6,230
Integration/relocation reserves.............. 2,563 5,943
Income taxes payable-current ................ - 1,327
Other ....................................... 10,498 10,020
--------- ----------
$ 28,144 $ 38,495
========= ==========
</TABLE>
NOTE 6: NET EARNINGS PER COMMON SHARE
Net earnings per common share is based on the weighted average number of common
and common equivalent shares outstanding for each of the thirteen and
thirty-nine week periods ending September 28, 1997 and September 29, 1996. For
the thirty-nine week period ended September 29, 1996, the calculation assumes
that shares issued to P&T, pursuant to the purchase of P&T's disposable diaper
business assets, were issued and outstanding as of February 8, 1996.
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
Sept. 28, 1997 Sept. 29, 1996 Sept. 28, 1997 Sept. 29, 1996
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Primary
Net earnings.................. $ 5,761 $ 10,486 $ 12,215 $ 15,254
Weighted average common and
common equivalent
shares outstanding (000's).... 11,947 12,116 11,900 12,028
Net earnings per common share.
$ .48 $ .87 $ 1.03 $ 1.27
Fully diluted
Net earnings.................. $ 5,761 $ 10,486 $ 12,215 $ 15,254
Weighted average common and
common equivalent
shares outstanding (000's).... 12,007 12,251 11,960 12,164
Net earnings per
common share fully diluted.... $ .48 $ .86 $ 1.02 $ 1.25
</TABLE>
This calculation is submitted in accordance with Regulation S-K item 601(b)(11),
although not required by footnote 2 to paragraph 14 of APB Opinion No. 15,
because it results in dilution of less than 3 percent.
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<PAGE>
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS - (CONTINUED)
NOTE 7: LEGAL PROCEEDINGS
The Procter & Gamble Company ("P&G") filed a claim in the District Court for the
District of Delaware that the Company's disposable baby diaper products infringe
two of P&G's inner-leg gather patents. The lawsuit seeks injunctive relief, lost
profit and royalty damages totaling approximately $100 million, treble damages
and attorneys' fees and costs. The Company has denied liability under the
patents and has counterclaimed for patent infringement and violation of
antitrust laws by P&G. In March 1996, the District Court granted P&G's motion
for summary judgment to dismiss the Company's antitrust counterclaim. The
Company intends to appeal the District Court's decision at the appropriate time.
In September 1996, P&G filed two motions for summary judgment with respect to
the Company's patent infringement counterclaim. In December 1996, the District
Court denied both of P&G's motions for summary judgment. The trial has concluded
and the parties have completed post-trial briefing. Closing arguments were
conducted on October 22, 1997. The ultimate outcome cannot be predicted at this
time. Legal fees and costs for this litigation have been significant. If P&G
were to prevail on its claims, award of all or a substantial amount of the
relief requested by P&G could have a material adverse effect on the Company's
financial condition and its results of operations. Based on the advice of patent
counsel, the Company believes that P&G's claims are not well founded.
On October 26, 1995, Kimberly-Clark Corporation ("K-C") filed a lawsuit against
the Company in U.S. District Court in Dallas, Texas, alleging infringement by
the Company's products of two K-C patents relating to inner-leg gathers. The
lawsuit seeks injunctive relief, royalty damages, treble damages and attorneys'
fees and costs. The Company has denied liability under the patents and has
counterclaimed for patent infringement and violation of antitrust laws by K-C.
In October 1996, K-C filed a motion for summary judgment with respect to the
Company's antitrust counterclaim along with a motion to stay discovery pending
resolution of such motion for summary judgment. On April 18, 1997, K-C filed a
motion for summary judgment of noninfringement of two patents asserted by the
Company and a motion for partial summary judgment construing the claims of one
of the K-C patents-in-suit. The Company intends to vigorously defend each of its
claims. In addition, K-C has sued the Company on another patent issued to K-C
which is based upon further continuation of one of the K-C patents asserted in
the case. That action has been consolidated with the pending action. The Court
has appointed a special master to rule on the various pending motions. A trial
date has not been set. Legal fees and costs in connection with this litigation
will be significant. Should K-C prevail on its claims, award of all or a
substantial portion of the relief requested by K-C could have a material adverse
effect on the Company's financial condition and its results of operations. Based
on the advice of patent counsel, the Company has taken the position that the
patent coverage claimed by K-C is not applicable to the Company's products.
The Company is also a party to other legal activities generally incidental to
its activities. Although the final outcome of any legal proceeding or dispute is
subject to a great many variables and cannot be predicted with any degree of
certainty, the Company presently believes that any ultimate liability resulting
from any or all legal proceedings or disputes to which it is a party, except for
the P&G and K-C matters discussed above, will not have a material adverse effect
on its financial condition or results of operations.
NOTE 8: FINANCIAL INSTRUMENTS - FOREIGN CURRENCY FORWARD CONTRACTS
The Company occasionally enters into forward contracts to hedge certain foreign
currency denominated purchase commitments for periods consistent with the terms
of the underlying transactions. While the forward contracts affect the Company's
results of operations, they do so only in connection with the underlying
transactions. Gains and losses on these contracts are deferred and offset
exchange gains and losses on the transactions hedged. At September 28, 1997 and
December 29, 1996, the Company did not have any forward contracts outstanding.
-10-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
PARAGON TRADE BRANDS, INC. AND SUBSIDIARIES
THIRTEEN WEEKS ENDED SEPTEMBER 28, 1997 COMPARED TO THIRTEEN WEEKS
ENDED SEPTEMBER 29, 1996
RESULTS OF OPERATIONS
Net earnings were $5.8 million in the third quarter of 1997 compared with net
earnings of $10.5 million in the third quarter of 1996. Included in the results
in the third quarter of 1996 were charges of $1.2 million, net of the effect of
income taxes, associated with the relocation of the corporate headquarters to
Atlanta. Excluding these charges, net income in the third quarter of 1996 was
$11.7 million. The decrease in profits in the third quarter of 1997 compared to
the same period in 1996, excluding these charges, was primarily due to continued
price pressure in the baby diaper business, operating losses associated with the
start-up of the feminine care and adult businesses, increased packaging artwork
expenses associated with the introduction of the Company's new breathable baby
diaper product and legal costs associated with patent litigation with The
Procter & Gamble Company ("P&G") and Kimberly-Clark Corporation ("K-C"). See
"Legal Proceedings." These negative impacts were partially offset by increased
baby diaper unit volume, decreased trade merchandising expenses, a dividend
received from Grupo P. I. Mabe, S.A. de C.V. ("Mabesa"), lower packaging costs
and lower manufacturing overhead in the baby diaper business.
Net earnings per share in the third quarter of 1997 were $.48 compared to net
earnings per share of $.87 in the third quarter of 1996. Net earnings per share
were $.97 in the third quarter of 1996, excluding the relocation charges
described above.
The net earnings per share of $.48 in the third quarter of 1997 included a net
loss per share of $.22 related to the start-up of the feminine care and adult
businesses. These losses should be reduced during the fourth quarter of 1997 and
throughout 1998.
REVENUES
Net sales were $154.1 million in the third quarter of 1997, a 1.7 percent
increase from the $151.5 million reported in the third quarter of 1996. Diaper
unit sales increased 4.2 percent to a record 1,017 million diapers in the third
quarter of 1997 from 976 million diapers in the third quarter of 1996. Volume
was positively impacted by the rollout of an improved product during the third
quarter of 1997, which increased the competitiveness of the Company's products.
Volume, however, will continue to be impacted by increased discounts and
promotional allowances by the branded manufacturers and value segment
competitors, especially through the use of multiple packs. Multiple packs
represent a package configuration that provides the consumer 2, 3 or 4 times the
amount of diapers found in a standard convenience count package.
Excluding the effect of a slightly favorable product mix, average baby diaper
sales prices during the third quarter of 1997 decreased approximately 4.5
percent compared to the third quarter of 1996, despite price increases
associated with reduced count packages on some of the Company's products. The
decrease in prices was primarily due to the factors discussed above: increased
discounts and promotional allowances by the branded manufacturers and value
segment competitors, the use of multiple packs and the entrance of a new
competitor to the store brand diaper business. Prices were also negatively
impacted by promotions related to the rollout of the Company's new breathable
product during the third quarter. The negative trend in prices is expected to
continue during the fourth quarter of 1997 and throughout 1998. See "Risks and
Uncertainties."
COST OF SALES
Cost of sales in the third quarter of 1997 was $125.5 million compared
to $111.6 million in the third quarter of 1996, a 12.5 percent decrease. As
a percentage of net sales, cost of sales was 81.4 percent in 1997 compared to
73.7 percent in the comparable 1996 period. Costs, as a percentage of sales,
were higher in the third quarter of 1997 compared to the same period in 1996
primarily due to costs associated with the start-up of the feminine care
and adult businesses, increased pulp prices, sourcing of products from
Paragon-Mabesa International, S.A.
-11-
<PAGE>
de C.V. ("PMI") under a supply contract, a higher cost product mix and higher
product design costs associated with the breathable baby diaper product
introduction. These higher costs were partially offset by lower packaging costs,
and lower baby diaper labor and manufacturing overhead costs.
Pulp prices were approximately 2.5 percent higher in the third quarter of 1997
compared to the same period in 1996. Pulp prices are expected to increase
modestly during the fourth quarter of 1997 and throughout 1998. Other raw
material prices were generally at similar price levels in the third quarter of
1997 compared to 1996 and are expected to remain at similar levels through 1998.
Packaging costs, including bags and corrugated boxes, were lower during the
third quarter of 1997 compared to the third quarter of 1996.
Baby diaper labor costs were lower in the third quarter of 1997 compared to the
third quarter of 1996. These lower costs reflect improved operating efficiencies
following the rollout of the new breathable diaper product. Baby diaper overhead
costs were lower during the third quarter of 1997 compared to the same period in
1996 due to improved cost control efforts. Overall labor costs were higher in
the third quarter of 1997 due to the costs related to the start-up of the
feminine care and adult businesses.
Baby diaper depreciation costs were lower in the third quarter of 1997 compared
to the same period of 1996. Depreciation costs were higher in 1996 due to
accelerated depreciation attributable to obsolescence caused by product
innovations. The decrease in baby diaper depreciation during the third quarter
of 1997 was partially offset by increased depreciation costs associated with the
feminine care business.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A expenses were $20.2 million in the third quarter of 1997 compared to $22.8
million in the third quarter of 1996. As a percentage of net sales, these
expenses were 13.1 percent in 1997 compared to 15.0 percent for the same period
in 1996. Included in the third quarter of 1996 were charges of $1.6 million
primarily for the relocation of the corporate headquarters to Atlanta.
Excluding the charges discussed above, SG&A expenses were $21.2 million in the
third quarter of 1996. As a percentage of net sales, these expenses, excluding
the charges, were 13.1 percent in the third quarter of 1997 compared to 14.0
percent in the third quarter of 1996. The decrease in costs is primarily
attributable to a decrease in trade merchandising expenses and incentive-based
compensation accruals. These lower costs were partially offset by increased
legal expenses, packaging artwork and design costs, and information system
costs. The lower trade merchandising expenses are primarily related to a
decrease in coupon-related expenses.
The increase in legal expenses is related to the P&G and K-C patent litigation.
While legal expenses are expected to decrease moderately in 1998 from 1997
levels, they are expected to continue at higher than normal levels until the
litigation is resolved. See "Legal Proceedings." Information system costs were
higher in the third quarter of 1997 compared to the same period of 1996 and are
expected to remain at higher levels for the foreseeable future. The Company will
begin design and testing of a new enterprise information system in the fourth
quarter of 1997. Packaging artwork and design costs were higher during the third
quarter of 1997 compared to the same period of 1996 as a result of product
rollouts and changes in package counts. These higher packaging artwork and
design costs are expected to decrease during the fourth quarter of 1997.
RESEARCH AND DEVELOPMENT
Research and development expenses were at $1.3 million in the third quarter of
1997 compared to $.8 million in the third quarter of 1996. The increase is
primarily attributable a general increase in baby diaper product development
activity and increased feminine care business activity.
INTEREST EXPENSE
Interest expense was $1.4 million in the third quarter of 1997 compared to $.1
million in the third quarter of 1996. The increase resulted from higher average
borrowings during the third quarter of 1997 and the lower capitalized interest
during the third quarter of 1997 compared to the same period of 1996.
-12-
<PAGE>
OTHER INCOME
Other income was $.6 million in the third quarter of 1997 compared to $.2
million in the third quarter of 1996. The increase in income reflects higher
interest income from loans to PMI, an unconsolidated subsidiary accounted for on
the equity method.
DIVIDEND INCOME
Dividend income was $1.1 million during the third quarter of 1997. The dividend
represented a distribution from Mabesa, an unconsolidated subsidiary accounted
for on the cost method.
THIRTY-NINE WEEKS ENDED SEPTEMBER 29, 1997 COMPARED TO THIRTY-NINE WEEKS
ENDED SEPTEMBER 28, 1996
RESULTS OF OPERATIONS
Net earnings were $12.2 million during the first three quarters of 1997 compared
with net earnings of $15.3 million for the same period of 1996. Included in the
results in the first three quarters of 1996 were charges of $9.6 million, net of
the effect of income taxes, associated with integrating the acquisition of Pope
& Talbot, Inc.'s ("P&T") disposable diaper business and costs to relocate the
corporate headquarters to Atlanta. Excluding these charges, net income in the
first three quarters of 1996 was $24.8 million. The decrease in profits in the
first three quarters of 1997 compared to the same period in 1996, excluding
these charges, was primarily due to operating losses associated with the
start-up of the feminine care and adult businesses, continued price pressure in
the baby diaper business, inefficiencies associated with the introduction of the
Company's new breathable baby diaper product and legal costs associated with
patent litigation with P&G and K-C. See "Legal Proceedings." These negative
impacts were partially offset by lower overall raw material prices, lower
trade merchandising expenses and lower manufacturing overhead in the baby
diaper business.
Net earnings per share in the first three quarters of 1997 were $1.03 compared
to net earnings per share of $1.27 in the first three quarters of 1996. Net
earnings per share were $2.06 in the first three quarters of 1996, excluding the
charges for the P&T disposable diaper business integration and the corporate
relocation.
The net earnings per share of $1.03 in the first three quarters of 1997 included
a net loss per share of $.70 related to the start-up of the feminine care and
adult businesses. These losses are expected to be reduced during the fourth
quarter of 1997 and throughout 1998.
REVENUES
Net sales were $425.6 million in the first three quarters of 1997, a 3.2 percent
decrease from the $439.5 million reported in the first three quarters of 1996.
Diaper unit sales were relatively flat at 2,821 million diapers in the first
three quarters of 1997 compared to 2,835 million diapers in the first three
quarters of 1996. Volume during the first half of 1997 was negatively impacted
by increased discounts and promotional allowances by the branded manufacturers
and value segment competitors, especially the use of multiple packs. Volume was
also further negatively impacted during the same period by product improvements
added by the branded manufacturers. Volume during the third quarter of 1997 was
positively impacted by the rollout of the Company's breathable baby diaper
product which increased the competitiveness of the Company's products. Volume,
however, will continue to be impacted by increased discounts and promotional
allowances by the branded manufacturers and value segment competitors,
especially through the use of multiple packs.
Excluding the effect of a favorable product mix, average baby diaper sales
prices during the first three quarters of 1997 decreased approximately 6.5
percent compared to the first three quarters of 1996. The decrease in prices was
primarily due to the increased discounts and promotional allowances discussed
above, the use of multiple packs by the branded manufacturers and value segment
competitors and the entrance of a new competitor to the store brand diaper
business. The negative trend in prices is expected to continue during the fourth
quarter and throughout 1998. See "Risks and Uncertainties."
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<PAGE>
COST OF SALES
Cost of sales in the first three quarters of 1997 was $345.2 million compared to
$337.5 million in the first three quarters of 1996, a 2.1 percent increase. As a
percentage of net sales, cost of sales was 81.1 percent in 1997 compared to 76.8
percent in the comparable 1996 period. Costs in the first three quarters of 1996
included $4.2 million in charges for costs associated with the integration of
the P&T disposable diaper business into the Company's existing business. As a
percentage of sales, excluding such charges, cost of sales was 75.8 percent in
the first three quarters of 1996. Costs were higher in the first three quarters
of 1997 compared to the same period of 1996 primarily due to costs associated
with the start-up of the feminine care and adult businesses and inefficiencies
associated with the rollout of the Company's new breathable baby diaper. These
higher costs were partially offset by lower overall raw material and packaging
costs. Baby diaper manufacturing costs, including depreciation, were also lower
in the first three quarters of 1997 compared to the same period of 1996.
Pulp prices were approximately 10 percent lower in the first three quarters of
1997 compared to the same period in 1996. Pulp prices are expected to increase
modestly during the fourth quarter of 1997 and increase throughout 1998.
Packaging costs, including bags and corrugated boxes, were also lower during the
first three quarters of 1997 compared to the first three quarters of 1996. Other
raw material prices were generally at similar price levels in the first three
quarters of 1997 compared to 1996.
Baby diaper labor costs were approximately the same in the first three quarters
of 1997 compared to the first three quarters of 1996. The higher costs of
inefficiencies related to the new product rollouts during the first half of 1997
were offset by improved operating results during the third quarter. Baby diaper
overhead costs, excluding the charges discussed below, were lower during the
first three quarters of 1997 compared to the same period in 1996 due to the
closure during 1996 of the manufacturing facilities acquired from P&T. Overall
labor and overhead costs were higher in the first three quarters of 1997 due to
the costs related to the start-up of the feminine care and adult businesses.
During the first three quarters of 1996, $2.6 million of charges were incurred
to support the integration of the P&T disposable diaper business.
Baby diaper depreciation costs, excluding charges discussed below, were lower in
the first three quarters of 1997 compared to the same period of 1996. The
decrease is partially due to the closure during 1996 of the acquired P&T
facilities. Depreciation costs were higher in 1996 due to accelerated
depreciation attributable to obsolescence caused by product innovations. The
decreased baby diaper depreciation during the first three quarters of 1997 was
partially offset by increased depreciation costs associated with the feminine
care business. During the first three quarters of 1996, $1.6 million of charges
were incurred due to the accelerated depreciation of existing company equipment
that was to be replaced by equipment acquired from P&T.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
SG&A expenses were $58.6 million in the first three quarters of 1997 compared to
$74.0 million for the first three quarters of 1996. As a percentage of net
sales, these expenses were 13.8 percent in 1997 compared to 16.8 percent for the
same period in 1996. Included in the first three quarters of 1996 were charges
of $11.2 million. These charges included $8.5 million for the corporate
headquarters relocation to Atlanta, primarily severance, outplacement and
relocation expenses, and $2.7 million in costs associated with the integration
of the P&T disposable diaper business.
Excluding the charges discussed above, SG&A expenses were $58.6 million in the
first three quarters of 1997 compared to $62.8 million for the first three
quarters of 1996. As a percentage of net sales these expenses, excluding the
charges, were 13.8 percent in the first three quarters of 1997 compared to 14.3
percent for the first three quarters of 1996. The decrease in costs is primarily
attributable to a decrease in trade merchandising expenses, lower
incentive-based compensation accruals and lower bad debt expenses. These
decreases were partially offset by an increase in legal expenses, packaging
artwork and design costs and information system costs. The lower trade
merchandising expenses are primarily related to a decrease in coupon-related
expenses.
The increase in legal expenses is related to the P&G and K-C patent litigation.
While legal expenses are expected to decrease moderately in 1998 from 1997
levels, they are expected to continue at higher than normal levels until the
litigation is resolved. See "Legal Proceedings." Information system costs were
higher in the first three quarters of 1997 compared to the same period of 1996
and are expected to remain at higher levels for the foreseeable future. The
Company will begin design and testing of a new enterprise information system in
the fourth quarter of 1997. Packaging artwork and design costs were higher
during the first three quarters of 1997 compared to the same period of 1996 as a
result of product rollouts and changes in package counts.
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<PAGE>
RESEARCH AND DEVELOPMENT
Research and development expenses were $3.2 million in the first three quarters
of 1997 compared to $2.6 million for the first three quarters of 1996. The
increase is primarily attributable a general increase in baby diaper product
development activity and increased feminine care business activity.
INTEREST EXPENSE
Interest expense was $3.4 million in the first three quarters of 1997 compared
to $2.0 million for first three quarters of 1996. The increase resulted from
higher average borrowings during the first three quarters of 1997.
OTHER INCOME
Other income was $1.5 million in the first three quarters of 1997 compared to
$.4 million for the first three quarters of 1996. The increase reflects higher
interest income from loans to PMI, an unconsolidated subsidiary accounted for on
the equity method.
DIVIDEND INCOME
Dividend income was $1.1 million during the third quarter of 1997. The dividend
represented a distribution from Mabesa, an unconsolidated subsidiary accounted
for on the cost method.
LIQUIDITY AND CAPITAL RESOURCES
During the first three quarters of 1997, cash flow from earnings and non-cash
charges to earnings was $47.7 million compared to $39.8 million in the same
period in 1996.
During the first three quarters of 1997, working capital, exclusive of cash,
short-term borrowings, and current deferred taxes, increased $8.0 million. This
was primarily due to an increase in accounts receivable and a decrease in
accrued liabilities which was partially offset by an increase in accounts
payable.
The increase in receivables reflects the increase in sales during the third
quarter and an increase in income taxes receivable. Cash flow was also favorably
impacted by $3.1 million as the Company issued treasury stock to settle certain
payroll liabilities.
The decrease in accrued liabilities primarily reflects a drop in coupon and
promotion-related liabilities while the increase in accounts payable reflects
the overall increase in business activity during the third quarter.
The cash produced from operations supported capital expenditures of $46.5
million, including computer software, in the first three quarters of 1997
compared to $36.4 million in the same period of 1996. The expenditures were
primarily in support of the baby diaper business, specifically new product
enhancements and diaper packaging technology and to support the entry into the
adult incontinence business. Capital spending is expected to total approximately
$60.0 million during 1997 and $40.0 million in 1998 and will include further
expenditures for auto-packaging technology, product enhancement and a
company-wide information system upgrade.
During the third quarter of 1997, the Company utilized its credit facilities
described below to acquire a 34 percent share of Serenity, S.A., the third
largest disposable diaper manufacturer in Argentina, for $5.6 million and
earn-out payments over the next three years which are partially based on
performance. The Company made an additional payment of $3.4 million to Mabesa as
an earn-out payment based on 1996 performance.
The Company has access to an unsecured, revolving bank credit facility of $150
million. The Company has an additional Cdn $5 million revolving credit facility
available in Canada. In addition to the revolving credit facilities, the Company
has $50 million in uncommitted lines of credit with various banks. Borrowings
against these lines bear interest at rates that vary with each lending bank's
base and LIBOR interest rates. As of the end of first three quarters there was
$60 million in debt outstanding against the credit facilities and $32.4 million
in debt outstanding under the uncommitted lines of credit. The Company had $6.4
million in cash and short-term investments at the end of the third quarter.
-15-
<PAGE>
The Company may utilize its credit facilities for expenditures to exercise its
option to acquire up to an additional 34% of Mabesa, to enter into other
international business ventures including the anticipated investment in MPC
Hygenic Products, Ltda., a subsidiary of Cremer, S.A. of Brazil, during the
fourth quarter of 1997 or to repurchase stock. The current credit facilities and
lines of credit in combination with internally generated funds are anticipated
to be adequate to finance these needs.
RISKS AND UNCERTAINTIES
P&G has recently announced a baby diaper product innovation involving skin care
ingredients. The Company is currently assessing its response to this product
innovation. P&G and K-C have also heavily promoted diapers in the multiple pack
configuration. These packages offer a lower unit price to the retailer and
consumer. It is possible that the Company may continue to realize lower selling
prices and/or lower volumes as a result of these initiatives.
A privately-held manufacturer of feminine sanitary products has entered the
store brand baby diaper business. Although the overall impact is hard to
predict, it is likely that the additional competition will continue to lead to
lower volumes and selling prices.
The Company is currently assessing the risk associated with programming
assumptions made in the development of the information systems which may prevent
existing systems from performing as originally designed with respect to data,
calculations and other processing for the year 2000 and beyond. It appears that
the majority of the risk associated with the issue will be addressed by the
enterprise-wide information system discussed above. The Company currently
anticipates that the system will be fully implemented by 1999 and that the
expenditures for this system are expected to be significant. There are other
internal applications that may be subject to the year 2000 issue which the
Company is currently assessing but is unable to predict how such applications
may be impacted.
FORWARD-LOOKING STATEMENTS
When used in this discussion, the words "believes," "anticipates," "expects" and
similar expressions are intended to identify forward-looking statements. Such
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those expressed in the Company's
forward-looking statements. Factors which could affect the Company's financial
results, including but not limited to: increasing raw material prices; new
product and packaging introductions by competitors; increased price and
promotion pressure from competitors; new competitors in the market; and patent
litigation, are described in the preceding paragraphs and in the Company's
latest Annual Report on Form 10-K filed with the Securities and Exchange
Commission. Readers are cautioned not to place undue reliance on the
forward-looking statements, which speak only as of the date hereof. The Company
undertakes no obligation to publicly release the result of any revisions to
these forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events.
NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board issued SFAS No. 128,
"Earnings per Share," effective for fiscal years ending after December 15, 1997.
The adoption of this statement will not have a significant impact on the
Company's results of operations. The Company's historical primary earnings per
share calculations are equivalent to the basic earnings per share calculations
called for by SFAS 128.
-16-
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
P&G filed a claim in the District Court for the District of Delaware that the
Company's disposable baby diaper products infringe two of P&G's inner-leg gather
patents. The lawsuit seeks injunctive relief, lost profit and royalty damages
totaling approximately $100 million, treble damages and attorneys' fees and
costs. The Company has denied liability under the patents and has counterclaimed
for patent infringement and violation of antitrust laws by P&G. In March 1996,
the District Court granted P&G's motion for summary judgment to dismiss the
Company's antitrust counterclaim. The Company intends to appeal the District
Court's decision at the appropriate time. In September 1996, P&G filed two
motions for summary judgment with respect to the Company's patent infringement
counterclaim. In December 1996, the District Court denied both of P&G's motions
for summary judgment. The trial has concluded and the parties have completed
post-trial briefing. Closing arguments were conducted on October 22, 1997. The
ultimate outcome cannot be predicted at this time. Legal fees and costs for this
litigation have been significant. If P&G were to prevail on its claims, award of
all or a substantial amount of the relief requested by P&G could have a material
adverse effect on the Company's financial condition and its results of
operations. Based on the advice of patent counsel, the Company believes that
P&G's claims are not well founded.
On October 26, 1995, K-C filed a lawsuit against the Company in U.S. District
Court in Dallas, Texas, alleging infringement by the Company's products of two
K-C patents relating to inner-leg gathers. The lawsuit seeks injunctive relief,
royalty damages, treble damages and attorneys' fees and costs. The Company has
denied liability under the patents and has counterclaimed for patent
infringement and violation of antitrust laws by K-C. In October 1996, K-C filed
a motion for summary judgment with respect to the Company's antitrust
counterclaim along with a motion to stay discovery pending resolution of such
motion for summary judgment. On April 18, 1997, K-C filed a motion for summary
judgment of noninfringement of two patents asserted by the Company and a motion
for partial summary judgment construing the claims of one of the K-C
patents-in-suit. The Company intends to vigorously defend each of its claims. In
addition, K-C has sued the Company on another patent issued to K-C which is
based upon further continuation of one of the K-C patents asserted in the case.
That action has been consolidated with the pending action. The Court has
appointed a special master to rule on the various pending motions. A trial date
has not been set. Legal fees and costs in connection with this litigation will
be significant. Should K-C prevail on its claims, award of all or a substantial
portion of the relief requested by K-C could have a material adverse effect on
the Company's financial condition and its results of operations. Based on the
advice of patent counsel, the Company has taken the position that the patent
coverage claimed by K-C is not applicable to the Company's products.
The Company is also a party to other legal activities generally incidental to
its activities. Although the final outcome of any legal proceeding or dispute is
subject to a great many variables and cannot be predicted with any degree of
certainty, the Company presently believes that any ultimate liability resulting
from any or all legal proceedings or disputes to which it is a party, except for
the P&G and K-C matters discussed above, will not have a material adverse effect
on its financial condition or results of operations.
-17-
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C> <C>
Exhibit 3.1 Certificate of Incorporation of Paragon Trade Brands, Inc.4
Exhibit 3.2 By-Laws of Paragon Trade Brands, Inc., as amended through July 31, 19955
Exhibit 4.1 Certificate of Incorporation of Paragon Trade Brands, Inc. (see Exhibit
3.1)
Exhibit 10.1 Asset Transfer Agreement, dated as of January 26, 1993, by and between
Weyerhaeuser and Paragon1
Exhibit 10.2 Intellectual Property Agreement, dated as of February 2, 1993, between
Weyerhaeuser and Paragon1
Exhibit 10.3 License, dated as of February 2, 1993, between Weyerhaeuser and Paragon1
Exhibit 10.4 Sublicense, dated as of February 2, 1993, between Weyerhaeuser and Paragon1
Exhibit 10.5 Technology Agreement, dated as of October 15, 1987, by and between
Weyerhaeuser and Johnson and Johnson, as amended1
Exhibit 10.6 Critical Supply Agreement, dated as of February 2, 1993, between
Weyerhaeuser and Paragon1
Exhibit 10.7* Stock Option Plan for Non-Employee Directors1
Exhibit 10.8* Annual Incentive Compensation Plan1
Exhibit 10.9* 1993 Long-Term Incentive Compensation Plan1
Exhibit 10.10* Amended and Restated Employment Agreement, dated as of August 5, 1997,
between Paragon and Bobby V. Abraham
Exhibit 10.11* Amended and Restated Employment Agreement, dated as of August 5, 1997,
between Paragon and David W. Cole
Exhibit 10.12* Employment Agreement, dated as of August 5, 1997, between Paragon and Alan
J. Cyron
Exhibit 10.13* Employment Agreement, dated as of August 5, 1997, between Paragon and
Catherine O. Hasbrouck
Exhibit 10.14* Employment Agreement, dated as of August 5, 1997, between Paragon and
Stanley L. Bulger
Exhibit 10.15* 1995 Incentive Compensation Plan5
Exhibit 10.16 Amended and Restated Credit Agreement, dated as of February 6, 19967
Exhibit 10.16.1 Amendment Agreement, dated December 13, 1996, to Amended and Restated Credit Agreement,
dated as of February 6, 19968
Exhibit 10.17 Revolving Canadian Credit Facility and Parent Guarantee2
Exhibit 10.18 Indemnification Agreements, dated as of February 2, 1993, between
Weyerhaeuser and Bobby V. Abraham and Gary M. Arnts1
-18-
<PAGE>
Exhibit 10.19 Rights Agreement dated December 14, 1994 between Paragon Trade Brands,
Inc. and Chemical Bank, as Rights Agent3
Exhibit 10.20 Asset Purchase Agreement dated December 11, 1995 by and among Paragon
Trade Brands, Inc., PTB Acquisition Sub, Inc., Pope & Talbot, Inc. and
Pope & Talbot, Wis., Inc. 6
Exhibit 10.21** Sales Contract, dated as of January 30, 1996, between Hoechst Celanese
Corporation and Paragon Trade Brands, Inc. 7
Exhibit 10.22 Lease Agreement between Cherokee County, South Carolina and Paragon Trade
Brands, Inc., dated as of October 1, 19968
Exhibit 11 Computation of Per Share Earnings (See Note 5 to Financial Statements)
Exhibit 27 Financial Data Schedule (for SEC use only)
*Management contract or compensatory plan or arrangement.
**Confidential treatment has been requested as to a portion of this document.
<FN>
1 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 26, 1993.
2 Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 26, 1994.
3 Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report on
Form 8-K, dated as of December 14, 1994.
4 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 25, 1994.
5 Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 25, 1995.
6 Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report
on Form 8-K, dated as of February 8, 1996.
7 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
8 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 29, 1996.
</FN>
</TABLE>
(b) Reports on Form 8-K.
No reports on Form 8-K were filed on behalf of the Company during the
thirteen week period ended September 28, 1997.
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<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PARAGON TRADE BRANDS, INC.
By /s/ Alan J. Cyron
---------------------
Alan J. Cyron
Chief Financial Officer
November 10, 1997
-20-
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Document
----------- --------
<S> <C>
Exhibit 3.1 Certificate of Incorporation of Paragon Trade Brands, Inc.4
Exhibit 3.2 By- Laws of Paragon Trade Brands, Inc., as amended through July 31, 19955
Exhibit 4.1 Certificate of Incorporation of Paragon Trade Brands, Inc. (see Exhibit
3.1)
Exhibit 10.1 Asset Transfer Agreement, dated as of January 26, 1993, by and between
Weyerhaeuser and Paragon1
Exhibit 10.2 Intellectual Property Agreement, dated as of February 2, 1993, between
Weyerhaeuser and Paragon1
Exhibit 10.3 License, dated as of February 2, 1993, between Weyerhaeuser and Paragon1
Exhibit 10.4 Sublicense, dated as of February 2, 1993, between Weyerhaeuser and Paragon1
Exhibit 10.5 Technology Agreement, dated as of October 15, 1987, by and between
Weyerhaeuser and Johnson and Johnson, as amended1
Exhibit 10.6 Critical Supply Agreement, dated as of February 2, 1993, between
Weyerhaeuser and Paragon1
Exhibit 10.7* Stock Option Plan for Non-Employee Directors1
Exhibit 10.8* Annual Incentive Compensation Plan1
Exhibit 10.9* 1993 Long-Term Incentive Compensation Plan1
Exhibit 10.10* Amended and Restated Employment Agreement, dated as of August 5, 1997,
between Paragon and Bobby V. Abraham
Exhibit 10.11* Amended and Restated Employment Agreement, dated as of August 5, 1997,
between Paragon and David W. Cole
Exhibit 10.12* Employment Agreement, dated as of August 5, 1997, between Paragon and Alan
J. Cyron
Exhibit 10.13* Employment Agreement, dated as of August 5, 1997, between Paragon and
Catherine O. Hasbrouck
Exhibit 10.14* Employment Agreement, dated as of August 5, 1997, between Paragon and
Stanley L. Bulger
Exhibit 10.15* 1995 Incentive Compensation Plan5
Exhibit 10.16 Amended and Restated Credit Agreement, dated as of February 6, 19967
Exhibit 10.16.1 Amendment Agreement, dated December 13, 1996, to Amended and Restated Credit Agreement, dated as of
February 6, 19968
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<PAGE>
Exhibit No. Document
----------- --------
Exhibit 10.17 Revolving Canadian Credit Facility and Parent Guarantee2
Exhibit 10.18 Indemnification Agreements, dated as of February 2, 1993, between
Weyerhaeuser and Bobby V. Abraham and Gary M. Arnts1
Exhibit 10.19 Rights Agreement dated December 14, 1994 between Paragon Trade Brands,
Inc. and Chemical Bank, as Rights Agent3
Exhibit 10.20 Asset Purchase Agreement dated December 11, 1995 by and among Paragon
Trade Brands, Inc., PTB Acquisition Sub, Inc., Pope & Talbot, Inc. and
Pope & Talbot, Wis., Inc. 6
Exhibit 10.21** Sales Contract, dated as of January 30, 1996, between Hoechst Celanese
Corporation and Paragon Trade Brands, Inc. 7
Exhibit 10.22 Lease Agreement between Cherokee County, South Carolina and Paragon Trade
Brands, Inc., dated as of October 1, 19968
Exhibit 11 Computation of Per Share Earnings (See Note 5 to Financial Statements)
Exhibit 27 Financial Data Schedule (for SEC use only)
*Management contract or compensatory plan or arrangement.
**Confidential treatment has been requested as to a portion of this document.
<FN>
1 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 26, 1993.
2 Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 26, 1994.
3 Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report
on Form 8-K, dated as of December 14, 1994.
4 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 25, 1994.
5 Incorporated by reference from Paragon Trade Brands, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended June 25, 1995.
6 Incorporated by reference from Paragon Trade Brands, Inc.'s Current Report
on Form 8-K, dated as of February 8, 1996.
7 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 31, 1995.
8 Incorporated by reference from Paragon Trade Brands, Inc.'s Annual Report on
Form 10-K for the fiscal year ended December 29, 1996.
</FN>
</TABLE>
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<PAGE>
PARAGON TRADE BRANDS, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
CHIEF EXECUTIVE OFFICER
This Agreement, made as of the 5th day of August, 1997, by and between
Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), and Bobby V.
Abraham ("Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to continue to employ Employee and Employee
desires to continue to be employed by the Company upon the terms and conditions
set forth herein; and
WHEREAS, the Company desires to amend and restate the provisions of that
certain Employment Agreement made as of the 2nd day of February 1993 (the
"Original Agreement"), by and between the Company and Employee;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. EMPLOYMENT. The Company hereby employs Employee as chief
executive officer of the Company and Employee hereby accepts such employment,
upon the terms and conditions set forth herein.
2. TERM. Except as otherwise noted in this Agreement or the Schedules
attached hereto, the term of this Agreement shall commence on the Effective Date
and shall expire on the date which the Employee's employment by the Company
terminates. For purposes of this Agreement, the term "Effective Date" means the
date first written above.
3. DUTIES. Employee will, during the term hereof: (a) faithfully,
diligently and capably do and perform all such acts and duties, and furnish such
services, as the board of directors of the Company shall direct or as is
customary for the chief executive officer of a publicly held company, and do and
perform all acts in the ordinary course of the Company's business (subject to
such limitations as the board of directors of the Company may prescribe)
necessary and conducive to the Company's best interests; (b) devote such time,
energy and skill to the business of the Company and to the promotion of the
Company's best interests as is reasonably required of an individual whose
employment as the chief executive officer of the Company is the individual's
principal occupation and employment; and (c) comply with any and all Company
announced policies and procedures governing conduct in the workplace.
4. COMPENSATION.
(a) The Company shall compensate Employee for all services to be performed
by Employee during the term of this Agreement as follows:
(i) pay salary at a salary rate to be determined annually
by the compensation committee of the board of directors of the Company
("Salary Rate") in
1
<PAGE>
periodic installments in accordance with Company practices for other
executive employees; and
(ii) grant awards of stock options and restricted stock ("stock
awards") to be determined annually by the compensation committee of the
board of directors of the Company;
(iii) provide a deferred compensation plan as set forth on
Schedule A hereto;
(iv) provide a supplemental severance plan as set forth on
Schedule B hereto; and
(v) provide such additional or special compensation as the board of
directors of the Company shall approve after receipt of recommendations
from the compensation committee of the board of directors, it being
understood by Employee that except with respect to compensation
contemplated by Schedules A and B, Employee's compensation by the Company
shall be only such compensation as shall have been approved by the board
of directors of the Company.
(b) In addition to compensation as provided for in Section 4(a), the
Company agrees that Employee shall be entitled to participate in such life
insurance, medical, dental, pension, retirement and other benefits plans as are
made available from time to time by the Company for the benefit of its salaried
employees generally.
5. TERMINATION OF EMPLOYMENT.
(a) For purposes of this Agreement (1) Employee's employment by the
Company shall terminate (A) by reason of Employee's death, voluntary
resignation, retirement or disability (as the terms "retirement" and
"disability" are defined in Article 1 of the Paragon Trade Brands, Inc. Deferred
Compensation Plan adopted effective April 1, 1997), or (B) at the request of the
Company's board of directors ("Board Requested Termination"); or (C) for cause;
and (2) "cause" shall be deemed to exist if (i) Employee engages in acts of
dishonesty or fraud in connection with his services hereunder; or (ii) during
his employment, Employee is in breach of his obligations under Sections 3, 6 or
7, or the confidentiality agreement contemplated by Section 7;
(b) If Employee's employment with the Company is terminated by reason of
Employee's death, retirement or disability, the Company's obligations hereunder
shall be satisfied by providing the benefits provided for under the Company's
other benefits plans applicable in the case of an employee's death, retirement
or permanent disability;
(c) If Employee's employment with the Company is terminated (i) for cause
or (ii) by Employee's voluntary resignation for a reason other than one
enumerated in Section 5(d), all obligations of the Company under this Agreement
shall terminate with such termination of employment, and Employee shall not be
entitled to any compensation under this Agreement except for compensation fully
earned and unpaid, and vested benefits under stock options and restricted stock
granted Employee, as of the date of termination of employment.
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(d) If Employee's employment with the Company is terminated as a result of
a Board Requested Termination, Employee shall be entitled to payment of a sum
equal to two times the Employee's annualized Salary Rate in effect at the time
of notification of termination, in addition to all compensation earned but
unpaid and benefits vested unconditionally to the date of termination, which
cash sum shall be payable in twenty-four (24) equal monthly installments, as
applicable, subject to such deductions as may be required by law, beginning on
the 15th day of the month following the month in which termination of employment
occurs. Payment of the appropriate amount in cash shall be deemed to be
liquidated damages for purposes of any suit brought by or on behalf of Employee
for damages for breach of this Agreement.
6. RESTRICTIVE COVENANT. During Employee's employment with the
Company, and for a period of two (2) years following termination of
Employee's employment with the Company for any reason, as long as the Company
meets its obligations under this Agreement, Employee shall not,
(a) directly or indirectly be employed or retained by, serve as an officer
or director of, act as a consultant or advisor to, engage in, or be financially
interested in, any person or persons, firm, association, venture, entity,
partnership, corporation or sole proprietorship that competes, directly or
indirectly, with the Company, or any business of the Company, as the Company is
conducting its business at the time of termination of his employment; or
(b) assist financially or in any other manner, directly or through any
other person or persons, firm, association, venture, entity, partnership,
corporation or sole proprietorship, whether as a partner, shareholder in excess
of 5% of the issued and outstanding shares, agent, owner, advisor or material
financial backer, any person or entity to enter into, develop, or carry on any
business that competes with the Company, or any business of the Company, as the
Company is conducting its business at the time of termination of his employment;
or
(c) recruit or hire, or attempt to recruit or hire, directly or
indirectly, any member of the key management team who is employed by the Company
at the time of termination of Employee's employment (for purposes of this
Section 6(c), the Company's key management team shall include those employees
eligible to receive either stock option grants or awards of stock appreciation
rights under any of the Company's incentive compensation plans); or
(d) directly or indirectly, orally or in writing, disparage the Company,
its products or employees in any way or interfere to the detriment of the
Company with any existing business relationship of the Company and any of its
employees, agents or representatives; or
(e) directly or indirectly divert or attempt to divert from the Company
any business in which the Company is engaged.
Any breach of this restrictive covenant by Employee shall effect a
forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this Agreement, whether or not earned or vested as
of the date of termination of the Company's obligations under this Agreement.
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7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee agrees to enter into a confidentiality agreement, in the form
attached as Schedule C (the "Confidentiality Agreement"), concurrently with the
execution of this agreement.
(b) Any breach by Employee of the Confidentiality Agreement shall effect a
forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this Agreement, whether or not earned or vested as
of the date of termination of the Company's obligations under this Agreement.
8. ADDITIONAL REMEDIES. Employee recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Employee of any of the provisions of Section 6 or the Confidentiality
Agreement and that Employee's continued employment is predicated on the
covenants made by him pursuant thereto. In the event of any breach by Employee
of his obligations under Section 6 or the Confidentiality Agreement, the Company
shall be entitled, in addition to any other remedies and damages available, to
injunctive relief to restrain any such breach by Employee or by any person or
persons acting for or with Employee in any capacity whatsoever.
9. NONASSIGNMENT. This Agreement is personal to Employee and shall
not be assigned by him. Employee shall not hypothecate, delegate, encumber,
alienate, transfer or otherwise dispose of his rights and duties hereunder.
This Agreement shall not be assigned by the Company without the prior written
consent of Employee.
10. WAIVER. The waiver by a party of a breach by the other party of
any provision of this Agreement shall not be construed as a waiver by such
party of any subsequent breach by the other party.
11. SEVERABILITY. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision or portion hereof to other
persons or circumstances.
12. BENEFIT. The provisions of this Agreement shall inure to the benefit
of the Company, its successors and assigns, and shall be binding upon the
Company and Employee, its and his heirs, personal representatives and
successors, including without limitation Employee's estate and the executors,
administrators, or trustees of such estate.
13. RELEVANT LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
14. NOTICES. All notices, requests, demands and other communications
in connection with this Agreement shall be made in writing and shall be
deemed to have been given when delivered by hand or facsimile transmission,
or 48 hours after mailing at any general or branch United States Post Office,
by registered or certified mail, postage prepaid,
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addressed as follows, or to such other address as shall have been designated
in writing by the addressee:
(a) If to the Company:
Paragon Trade Brands, Inc.
Attn: Corporate Secretary
180 Technology Parkway
Norcross, Georgia 30092
Facsimile: (770) 300-3959
(b) If to Employee:
Bobby V. Abraham
435 River Glen Trace
Atlanta, Georgia
15. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the subject matter
hereof, and this Agreement shall not be modified or amended except by written
agreement of the Company and Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set-forth above.
PARAGON TRADE BRANDS, INC.
Attest:
/S/ MELANIE Y. ZELLER By: /S/ DAVID W. COLE
- --------------------- -----------------------
EMPLOYEE:
/S/ BOBBY V. ABRAHAM
--------------------
Bobby V. Abraham
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SCHEDULE A
DEFERRED COMPENSATION PLAN
PARAGON TRADE BRANDS, INC.
CHIEF EXECUTIVE OFFICER
1. GENERAL TERMS
A. AWARDS UNSECURED. The Company will pay Awards granted under this
Agreement ("Awards") from its general assets and will not set
aside any funds to pay or secure Awards at any time prior to
payment.
B. INTEREST. Interest will not be paid on Awards prior to the date
each Award becomes effective. Interest on Awards after they
become effective will accrue as described in Section 3C below.
C. TERMINATION OF EMPLOYMENT. If Employee is terminated by the
Company for willful violation of the Company rules or for gross
negligence in job performance, no portion of any Award will be
paid. In the event of Employee's death or disability, or if
Employee is terminated for reasons other than those listed above,
prior to the date an Award becomes effective, Employee (or
Employee's surviving spouse if any and, if not, Employee's legal
representative) will be paid the total amount of all Awards which
have become effective plus a pro rata portion of the current
year's Award which is not yet effective. Such pro rata portion
shall be determined by multiplying the amount of the Award by a
fraction the numerator of which is the number of months Employee
was employed by the Company during that year and the denominator
of which is twelve.
D. OTHER PLANS NOT AFFECTED. Awards under this Agreement will be in
addition to amounts paid to Employee under any other compensation
or benefit program of the Company.
E. DEFINITION OF TERMS. Capitalized terms not otherwise defined
herein are used as defined in the Amended and Restated Employment
Agreement between Paragon Trade Brands, Inc. and Bobby V. Abraham
dated August 5, 1997.
F. OWNERSHIP OF ASSETS. Nothing contained herein shall be deemed to
create a trust of any kind or create any fiduciary relationship.
Funds in the Deferred Compensation Account shall continue for all
purposes to be a part of the general funds of the Company, and no
person other than the Company shall have any interest in such
funds. Employee's (or Employee's beneficiaries') right to
receive payments from the Company under this Agreement shall be
no greater than the right of any unsecured general creditor of
the Company.
2. ANNUAL AWARDS
A. AMOUNT. There will be seven annual Awards, one each year
commencing in 1993. The amount of each annual Award will be 20%
of Employee's base
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Schedule A (CONT)
salary plus any incentive compensation earned by Employee in the
year prior to the Award.
B. EFFECTIVE DATE AND PAYMENT OF AWARDS. The effective date for
each year's Award will be December 31, with the effective date of
the first award to be December 31, 1993. As soon as practicable
after June 30, 1997, the obligation of the Company under this
Agreement to pay Employee the aggregate Awards earned through
December 31, 1996, and all earnings thereon, shall be transferred
to Employee's Company Contribution Account under the Paragon
Trade Brands, Inc. Deferred Compensation Plan, adopted effective
April 1, 1997 (the "Deferred Compensation Plan"). The Company
shall transfer this obligation by making a cash contribution in
the amount of such obligation to Employee's Company Contribution
Account under the Master Trust Agreement for the Paragon Trade
Brands, Inc. Deferred Compensation Plan (the "Trust"); and upon
the date such contribution is received by the Trust, the
Company's obligation to pay such deferred compensation and
earnings thereon under this Agreement shall be fully
extinguished. Upon the transfer of such funds to the Trust, such
obligation shall be governed solely by the terms of the Deferred
Compensation Plan, provided, however, that Employee shall at all
times be 100% vested in all amounts in his Company Contribution
Account under the Deferred Compensation Plan.
Awards made for the year commencing January 1, 1997 and thereafter
will not become an obligation under this Agreement. Instead, when an
Award is credited the Company shall as soon as practicable
thereafter transfer cash in the amount of such Award to Employee's
Company Contribution Account under the Trust. Such contribution to
the Employee's Company Contribution Account under the Deferred
Compensation Plan shall be governed solely by the terms of the
Deferred Compensation Plan, provided, however, that Employee shall
at all times be 100% vested in all amounts in his Company
Contribution Account under the Deferred Compensation Plan."
3. INTEREST ON AWARDS
A. DEFERRED COMPENSATION ACCOUNT. As of the date each Award becomes
effective, the Company shall credit to a reserve account the
Employee's name (the "Deferred Compensation Account") the amount
of each Award.
C. INTEREST. The balance (including principal and interest) in the
Deferred Compensation Account shall earn interest at an annual
rate equal to the three-month Treasury Bill rate as of each
January 15 converted to an interest-bearing equivalent plus two
percent (2%) as determined from time to time by the Compensation
Committee of the Board of Directors of the Company.
Employee may designate beneficiaries to succeed to Employee's right to
receive future payments of Deferred Awards in the event of Employee's
death. If no designation is made or the designated beneficiary predeceases
Employee, designation shall be made to Employee's estate.
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SCHEDULE B
PARAGON TRADE BRANDS, INC.
SEVERANCE PROTECTION PLAN
(CHIEF EXECUTIVE OFFICER)
WHEREAS, the Board of Directors of Paragon Trade Brands, Inc. (the
"Company") recognizes that the threat of an unsolicited takeover of the Company
may occur which can result in significant distractions to its key executive
personnel because of the uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of its chief
executive officer in the event of a threat of a change in control of the Company
and to ensure his continued dedication and efforts in such event without undue
concern for his personal financial and employment security.
NOW, THEREFORE, in order to fulfill the above purposes, the following plan
has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the Paragon Trade Brands, Inc. Severance Protection
Plan (Chief Executive Officer) as set forth in this document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise.
2.1 BOARD. The Board of Directors of Paragon Trade Brands, Inc.
2.2 BASE SALARY. The amount Executive is entitled to receive as
wages or salary on an annualized basis.
2.3 CAUSE. The Company may terminate the Executive's employment for
"Cause." "Cause" is defined as (i) a material breach by Executive of the terms
of the Amended and Restated Employment Agreement between Executive and the
Company dated August 5, 1997, (ii) the conviction of Executive of any criminal
act that two thirds (2/3) of the Board shall, in its sole and absolute
discretion, deem to constitute Cause, or (iii) conduct by Executive in his
office with the Company that is grossly inappropriate and demonstrably likely to
lead to material injury to the Company, as determined by two-thirds (2/3) of the
Board acting reasonably and in good faith; provided, however, that in the case
of (iii) above, such conduct
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Schedule B (CONT)
shall not constitute Cause unless the Board shall have delivered to Executive
notice setting forth with specificity (x) the conduct deemed to qualify as
Cause, (y) reasonable action that would remedy such objection, and (z) a
reasonable time (not less than thirty (30) days) within which Executive may
take such remedial action, and Executive shall not have taken such specified
remedial action within such specified reasonable time.
2.4 CHANGE IN CONTROL. A "Change in Control" shall be deemed to occur:
(a) if any person (as such term is used in sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of the securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities,
(b) upon the first purchase of the Company's Common Stock pursuant
to a tender or exchange offer (other than a tender or exchange offer made by the
Company),
(c) upon the approval by the Company's stockholders of a merger or
consolidation, a sale or disposition of all or substantially all of the
Company's assets or a plan of liquidation or dissolution of the Company, or
(d) if, during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for the election by the Company's stockholders of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
2.5 COMPANY. Paragon Trade Brands, Inc.
2.6 EFFECTIVE DATE. The effective date of the Amended and Restated
Employment Agreement between Bobby V. Abraham and the Company dated as of
August 5,1997.
2.7 EXECUTIVE. Bobby V. Abraham.
2.8 GOOD REASON. "Good Reason" shall mean the occurrence of any of
the following events or conditions:
(a) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents a substantial reduction of the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for Cause, Permanent
Disability, as a result of his death, or by the Executive other than for Good
Reason;
(b) a reduction in the Executive's annual base salary;
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Schedule B (CONT)
(c) the Company's requiring the Executive (without the consent of
the Executive) to be based at any place outside a thirty-five (35) mile radius
of his place of employment prior to a Change in Control, except for reasonably
required travel on the Company's business which is not materially greater than
such travel requirements prior the Change in Control;
(d) the failure by the Company to (A) continue in effect any
material compensation or benefit plan in which the Executive was participating
at the time of the Change in Control, or (B) provide the Executive with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit plan,
program and practice as in effect immediately prior to the Change in Control (or
as in effect following the Change in Control, if greater);
(e) any material breach by the Company of any provisions of
this Plan;
(f) any purported termination of the Executive's employment for
Cause by the Company which does not otherwise comply with the terms of this
Plan.
2.9 NOTICE OF TERMINATION. "Notice of Termination" shall mean a notice
which indicates the specific provisions in this Plan relied upon as the basis
for any termination of employment and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. No purported
termination of employment shall be effective without such Notice of Termination.
2.10 PERMANENT DISABILITY. The Executive shall be deemed to have become
permanently disabled for purposes of this Plan if the Board of Directors of the
Company finds, upon the basis of medical evidence satisfactory to it, that the
Executive is totally disabled, whether due to physical or mental condition, so
as to be prevented from engaging in further employment by the Company and that
such disability will be permanent and continuous during the remainder of his
life.
2.11 SEVERANCE BENEFIT. The benefit payable in accordance with
Article IV of the Plan.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION. Executive shall automatically be entitled to be a
Participant in the Plan as of the Effective Date.
3.2 DURATION OF PARTICIPATION. Executive shall cease to be a Participant
in the Plan if he ceases to be an employee of the Company at any time prior to a
Change in Control or, if his employment is terminated following a Change in
Control under circumstances where he is not entitled to severance benefits under
the terms of this Plan. If Executive is entitled to payment of a Severance
Benefit, he shall remain a Participant in the Plan until the full amount of the
Severance Benefit has been paid to him.
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Schedule B (CONT)
ARTICLE IV
SEVERANCE BENEFITS
4.1 RIGHT TO SEVERANCE BENEFIT. Executive shall be entitled to receive
from the Company a Severance Benefit in the amount provided in Section 4.2 if
(i) a Change in Control has occurred and (ii) within one year thereafter,
Executive's employment with the Company terminates for any reason, except (b),
that notwithstanding the provisions of subparagraph (1), no benefits under this
Plan will be payable should the Participant's termination of employment be (i)
for Cause, (ii) by reason of Permanent Disability, (iii) initiated by the
Participant for other than Good Reason, or (iv) by reason of the Participant's
death.
4.2 AMOUNT OF SEVERANCE BENEFITS. If Executive's employment is terminated
in circumstances entitling him to a Severance Benefit as provided in Section
4.1, Executive shall be entitled to the following benefits:
(a) the Company shall pay to the Executive, as severance pay and in
lieu of any further salary for periods subsequent to the Termination Date (as
specified in Section 5.2), in a single payment (without any discount for
accelerated payment), an amount in cash equal to 2.9 times the Executive's Base
Salary immediately prior to the Change in Control, less any amounts paid to
Executive under the Paragon Trade Brands Salaried Severance Plan;
(b) for a period of eighteen (18) months subsequent to the
Executive's termination of employment, the Company shall at its expense continue
on behalf of the Executive and his dependents and beneficiaries, the life
insurance, disability, medical dental and hospitalization benefits which were
being provided to the Executive at the time of termination of employment. The
benefits provided in this Subsection 4.2(b) shall be no less favorable to the
Executive, in terms of amounts and deductibles and costs to him, than the
coverage provided the Executive under the plans providing such benefits at the
time Notice of Termination is given. The Executive shall notify the Company if
he obtains employment with another entity or individual during the eighteen (18)
months subsequent to his termination and in doing so shall inform the Company
whether the Executive has been provided all or some of the foregoing benefits by
his new employer. The Company's obligation hereunder with respect to the
foregoing benefits shall be limited to the extent that the Executive obtains any
such benefits pursuant to a subsequent employer's benefit plans, in which case
the Company may reduce the coverage of any benefits it is required to provide
the Executive hereunder as long as the aggregate coverage of the combined
benefit plans is no less favorable to the Executive, in terms of amounts and
deductibles and costs to him, than the coverage required to be provided
hereunder. This subsection (b) shall not be interpreted so as to limit any
benefits to which the Executive or his dependents may be entitled under any of
the Company's employee benefit plans, programs or practices following the
Executive's termination of employment. The provision of continued benefits to
the Executive under this subsection (b) shall not deprive the Executive of any
independent statutory right to continue benefits coverage pursuant to Sections
601 through 606 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(c) the Executive shall not be required to mitigate the amount
of any payment provided for in this Agreement by seeking other employment
or otherwise and no
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Schedule B (CONT)
such payment shall be offset or reduced by the amount of any compensation or
benefits provided to the Executive in any subsequent employment.
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 WRITTEN NOTICE REQUIRED. Any purported termination of
employment, either by the Company or by the Executive, shall be communicated
by written Notice of Termination to the other.
5.2 TERMINATION DATE. In the case of the Executive's death, the
Executive's Termination Date shall be his date of death. In all other cases, the
Executive's Termination Date shall be the date specified in the Notice of
Termination subject to the following:
(a) If the Executive's employment is terminated by the Employer for
Cause or due to Permanent Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date the Notice of
Termination is given to the Executive, provided that in the case of Disability
the Executive shall not have returned to the full-time performance of his duties
during such period of at least thirty (30) days; and
(b) If the Executive terminates his employment for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.
ARTICLE VI
SUCCESSORS TO CORPORATION
6.1 SUCCESSORS. This Plan shall bind any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, in the same
manner and to the same extent that the Company would be obligated under this
Plan if no succession had taken place. In the case of any transaction in which a
successor would not by the foregoing provision or by operation of law be bound
by the Plan, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
ARTICLE VII
DURATION, AMENDMENT AND PLAN TERMINATION
7.1 DURATION. This Plan shall continue in effect until terminated in
accordance with Section 7.2. If a Change in Control occurs, this Plan shall
continue in full force and effect, and shall not terminate or expire until after
all Executives who have become entitled to Severance Benefits hereunder shall
have received such payments in full.
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Schedule B (CONT)
7.2 AMENDMENT AND TERMINATION. The Plan may be terminated or amended in
any respect by resolution adopted by two-thirds of the Board, provided, however,
that no such amendment or termination of the Plan may be made if such amendment
or termination would adversely affect any right of an Executive and provided
further, that the Plan no longer shall be subject to amendment, change,
substitution, deletion, revocation or termination in any respect whatsoever
following a Change in Control.
7.3 FORM OF AMENDMENT. The form of amendment or termination of the Plan
shall be a written instrument signed by a duly authorized officer or officers of
the Corporation, certifying that the amendment or termination has been approved
by the Board.
ARTICLE VIII
ADDITIONAL PAYMENTS BY THE EMPLOYER
8.1 In the event it shall be determined that any payment or distribution
of any type by the Company to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this Plan or
otherwise (the "Total Payments"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments. Payment of the Gross-Up Payment shall be made
in accordance with Section 7.3.
8.2 DETERMINATION BY ACCOUNTANT. All determinations required to be made
under this Section 8, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall be made by the independent accounting
firm retained by the Company on the date of a Change in Control (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the date of termination, if
applicable, or such earlier time as is requested by the Company. If the
Accounting Firm determines that no Excise Tax is payable by the Company, it
shall furnish the Executive with an opinion that he has substantial authority
not to report any Excise Tax on his federal income tax return. Any determination
by the Accounting Firm shall be binding upon the Company and the Participant. As
a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8.3 and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
8.3 NOTIFICATION REQUIRED. The Executive shall notify the Company
in writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the
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Schedule B (CONT)
Company of the Gross-Up Payment. Such notification shall be given as soon as
practicable but no later than ten business days after the Executive knows of
such claim and shall apprise the Company of the nature of such claim and
the date on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty-day period following
the date of which it gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is due).
If the Company notifies the Executive in writing prior to the expiration of
such period that it desires to contest such claim, the Executive shall:
(a) give the Company any information reasonably requested by
the Company relating to such claim,
(b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(c) cooperate with the Company in good faith in order to
effectively contest such claim,
(d) permit the Company to participate in any proceedings relating to
such claim, provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment provisions of this Section 8.3, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax claimed and
sue for a refund, or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issued raised by the Internal Revenue Service or any other taxing
authority.
8.4 REPAYMENT. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8.3, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 8.3) promptly pay to
the Company the amount of such refund
7
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Schedule B (CONT)
(together with any interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 8.3, a determination is made that the
Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to
contest such denial of refund prior to the expiration of thirty days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid.
ARTICLE IX
MISCELLANEOUS
9.1 INDEMNIFICATION. If the Executive institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Company will pay for all actual legal fees and expenses incurred by the
Executive.
9.2 EMPLOYMENT STATUS. This Plan does not constitute a contract of
employment or impose on the Company any obligation to retain the Executive as an
employee, to change the status of the Executive's employment or to change any
employment policies of the Company.
9.3 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.4 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of the
State of Georgia.
9.5 CHOICE OF FORUM. Executive shall be entitled to enforce the provisions
of this Plan, or to assert any claim for benefits under the terms of this Plan,
in any state or federal court located in the State of Georgia, in addition to
any other appropriate forum.
8
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SCHEDULE C
PARAGON TRADE BRANDS, INC.
EMPLOYEE CONFIDENTIALITY AGREEMENT
In consideration of the compensation paid to me by my employer (my employer can
be Paragon Trade Brands, inc. or any of its majority owned subsidiaries) and my
continued employment as an employee in a position where my duties include the
possession of or access to my employer's trade secrets*, such duties being
assigned as of August 5, 1997, I hereby agree on behalf of myself, my executors,
legal representatives and assigns that:
1. I will not at any time, either during or after my employment by my
employer, disclose to those not confidentially bound to my employer,
or use for their or my own benefit any of my employer's trade
secrets without written consent from my employer;
2. I will, upon termination of my employment with my employer or upon
prior request, deliver to my employer any and all objects,
materials, devices or substances including any writing recording,
drawing, sample specimen, prototype model, photography, blueprint or
map which describes depicts, contains, constitutes, reflects or
records my employer's trade secrets, and all copies thereof in my
possession; and
3. I consent to my employer's notification to any future employer
that I may have of the existence of this agreement.
/S/ MELANIE Y. ZELLER /S/ BOBBY V. ABRAHAM
- --------------------- --------------------
Witness Employee
PARAGON TRADE BRANDS, INC.
Accepted: AUGUST 5, 1997 By: /S/ DAVID W. COLE
------------------------- -----------------
*"Trade Secret" means the whole or any portion or phase of any scientific or
technical or business information, design, process, procedure, formula or
improvement, any future plans, customer lists, market studies, cost and price
studies or similar business information which is secret and of value. A "trade
secret" shall be presumed to be secret when the employer takes measures to
prevent it from becoming available to persons other than those selected by the
employer to have access thereto for limited purposes. It shall be presumed to be
of value if money has been spent in its development, if it gives the employer an
opportunity to obtain an advantage over competitors who do not know or use it,
or if it is salable.
PARAGON TRADE BRANDS, INC.
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
CHIEF OPERATING OFFICER
This Agreement, made as of the 5th day of August, 1997, by and between
Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), and David W.
Cole ("Employee").
W I T N E S S E T H :
WHEREAS, the Company desires to continue to employ Employee and Employee
desires to continue to be employed by the Company upon the terms and conditions
set forth herein;
WHEREAS, the Company desires to amend and restate the provisions of that
certain employment agreement made as of the 2nd day of February 1993 (the
"Original Agreement"), by and between the Company and Employee;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed as follows:
1. EMPLOYMENT. The Company hereby employs Employee as chief operating
officer of the Company and Employee hereby accepts such employment, upon the
terms and conditions set forth herein.
2. TERM. Except as otherwise noted in this Agreement or the Schedules
attached hereto, the term of this Agreement shall commence on the Effective Date
and shall expire on the date which the Employee's employment by the Company
terminates. For purposes of this Agreement, the term "Effective Date" means the
date first written above.
3. DUTIES. Employee will, during the term hereof: (a) faithfully,
diligently and capably do and perform all such acts and duties, and furnish such
services, as the board of directors of the Company shall direct or as is
customary for the chief operating officer of a publicly held company, and do and
perform all acts in the ordinary course of the Company's business (subject to
such limitations as the board of directors of the Company may prescribe)
necessary and conducive to the Company's best interests; (b) devote such time,
energy and skill to the business of the Company and to the promotion of the
Company's best interests as is reasonably required of an individual whose
employment as the chief operating officer of the Company is the individual's
principal occupation and employment; and (c) comply with any and all Company
announced policies and procedures governing conduct in the workplace.
4. COMPENSATION.
(a) The Company shall compensate Employee for all services to be performed
by Employee during the term of this Agreement as follows:
(i) pay salary at a salary rate to be determined annually by the
compensation committee of the board of directors of the Company ("Salary
Rate") in periodic installments in accordance with Company practices for
other executive employees; and
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(ii) grant awards of stock options and restricted stock ("stock
awards") to be determined annually by the compensation committee of the
board of directors of the Company;
(iii) provide a supplemental severance plan as set forth on
Schedule A hereto; and
(iv) provide such additional or special compensation as the board of
directors of the Company shall approve after receipt of recommendations
from the compensation committee of the board of directors, it being
understood by Employee that except with respect to compensation
contemplated by Schedule A, Employee's compensation by the Company shall
be only such compensation as shall have been approved by the board of
directors of the Company.
(b) In addition to compensation as provided for in Section 4(a), the
Company agrees that Employee shall be entitled to participate in such life
insurance, medical, dental, pension, retirement and other benefits plans as are
made available from time to time by the Company for the benefit of its salaried
employees generally.
5. TERMINATION OF EMPLOYMENT.
(a) For purposes of this Agreement (1) Employee's employment by the
Company shall terminate (A) by reason of Employee's death, voluntary
resignation, retirement or disability (as the terms "retirement" and
"disability" are defined in Article 1 of the Paragon Trade Brands, Inc. Deferred
Compensation Plan adopted effective April 1, 1997), or (B) at the request of the
Company's board of directors ("Board Requested Termination"); or (C) for cause;
and (2) "cause" shall be deemed to exist if (i) Employee engages in acts of
dishonesty or fraud in connection with his services hereunder; or (ii) during
his employment, Employee is in breach of his obligations under Sections 3, 6 or
7, or the confidentiality agreement contemplated by Section 7;
(b) If Employee's employment with the Company is terminated by reason of
Employee's death, retirement or disability, the Company's obligations hereunder
shall be satisfied by providing the benefits provided for under the Company's
other benefits plans applicable in the case of an employee's death, retirement
or permanent disability;
(c) If Employee's employment with the Company is terminated (i) for cause
or (ii) by Employee's voluntary resignation for a reason other than one
enumerated in Section 5(d), all obligations of the Company under this Agreement
shall terminate with such termination of employment, and Employee shall not be
entitled to any compensation under this Agreement except for compensation fully
earned and unpaid, and vested benefits under stock options and restricted stock
granted Employee, as of the date of termination of employment.
(d) If Employee's employment with the Company is terminated as a result
of a Board Requested Termination, Employee shall be entitled to payment
of a sum equal to two times the Employee's annualized Salary Rate in effect
at the time of notification of termination, in addition to all compensation
earned but unpaid and benefits vested unconditionally to the date of
termination, which cash sum shall be payable in twenty-four (24) equal
monthly installments, as applicable, subject to such deductions as may be
required by law, beginning on the 15th day of the month following the
month in which termination of employment occurs.
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<PAGE>
Payment of the appropriate amount in cash shall be deemed to be liquidated
damages for purposes of any suit brought by or on behalf of Employee for damages
for breach of this Agreement.
6. RESTRICTIVE COVENANT. During Employee's employment with the
Company, and for a period of two (2) years following termination of
Employee's employment with the Company for any reason, as long as the Company
meets its obligations under this Agreement, Employee shall not,
(a) directly or indirectly be employed or retained by, serve as an officer
or director of, act as a consultant or advisor to, engage in, or be financially
interested in, any person or persons, firm, association, venture, entity,
partnership, corporation or sole proprietorship that competes, directly or
indirectly, with the Company, or any business of the Company, as the Company is
conducting its business at the time of termination of his employment; or
(b) assist financially or in any other manner, directly or through any
other person or persons, firm, association, venture, entity, partnership,
corporation or sole proprietorship, whether as a partner, shareholder in excess
of 5% of the issued and outstanding shares, agent, owner, advisor or material
financial backer, any person or entity to enter into, develop, or carry on any
business that competes with the Company, or any business of the Company, as the
Company is conducting its business at the time of termination of his employment;
or
(c) recruit or hire, or attempt to recruit or hire, directly or
indirectly, any member of the key management team who is employed by the Company
at the time of termination of Employee's employment (for purposes of this
Section 6(c), the Company's key management team shall include those employees
eligible to receive either stock option grants or awards of stock appreciation
rights under any of the Company's incentive compensation plans); or
(d) directly or indirectly, orally or in writing, disparage the Company,
its products or employees in any way or interfere to the detriment of the
Company with any existing business relationship of the Company and any of its
employees, agents or representatives; or
(e) directly or indirectly divert or attempt to divert from the Company
any business in which the Company is engaged.
Any breach of this restrictive covenant by Employee shall effect a
forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this Agreement, whether or not earned or vested as
of the date of termination of the Company's obligations under this Agreement.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee agrees to enter into a confidentiality agreement, in the form
attached as Schedule B (the "Confidentiality Agreement"), concurrently with the
execution of this agreement.
(b) Any breach by Employee of the Confidentiality Agreement shall effect
a forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this
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<PAGE>
Agreement, whether or not earned or vested as of the date of termination of the
Company's obligations under this Agreement.
8. ADDITIONAL REMEDIES. Employee recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Employee of any of the provisions of Section 6 or the Confidentiality
Agreement and that Employee's continued employment is predicated on the
covenants made by him pursuant thereto. In the event of any breach by Employee
of his obligations under Section 6 or the Confidentiality Agreement, the Company
shall be entitled, in addition to any other remedies and damages available, to
injunctive relief to restrain any such breach by Employee or by any person or
persons acting for or with Employee in any capacity whatsoever.
9. NONASSIGNMENT. This Agreement is personal to Employee and shall
not be assigned by him. Employee shall not hypothecate, delegate, encumber,
alienate, transfer or otherwise dispose of his rights and duties hereunder.
This Agreement shall not be assigned by the Company without the prior written
consent of Employee.
10. WAIVER. The waiver by a party of a breach by the other party of
any provision of this Agreement shall not be construed as a waiver by such
party of any subsequent breach by the other party.
11. SEVERABILITY. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision or portion hereof to other
persons or circumstances.
12. BENEFIT. The provisions of this Agreement shall inure to the benefit
of the Company, its successors and assigns, and shall be binding upon the
Company and Employee, its and his heirs, personal representatives and
successors, including without limitation Employee's estate and the executors,
administrators, or trustees of such estate.
13. RELEVANT LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
14. NOTICES. All notices, requests, demands and other communications in
connection with this Agreement shall be made in writing and shall be deemed to
have been given when delivered by hand or facsimile transmission, or 48 hours
after mailing at any general or branch United States Post Office, by registered
or certified mail, postage prepaid, addressed as follows, or to such other
address as shall have been designated in writing by the addressee:
(a) If to the Company:
Paragon Trade Brands, Inc.
Attn: Corporate Secretary
180 Technology Parkway
Norcross, Georgia 30092
Facsimile: (770) 300-3959
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<PAGE>
(b) If to Employee:
David W. Cole
1152 Brookgate Way
Atlanta, Georgia 30319
15. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the subject matter
hereof, and this Agreement shall not be modified or amended except by written
agreement of the Company and Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
PARAGON TRADE BRANDS, INC.
Attest:
/S/ MELANIE Y. ZELLER By: /S/ BOBBY V. ABRAHAM
- --------------------- --------------------------
EMPLOYEE:
/S/ DAVID W. COLE
-----------------
David W. Cole
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<PAGE>
SCHEDULE A
PARAGON TRADE BRANDS, INC.
SEVERANCE PROTECTION PLAN
CHIEF OPERATING OFFICER
WHEREAS, the Board of Directors of Paragon Trade Brands, Inc. (the
"Company") recognizes that the threat of an unsolicited takeover of the Company
may occur which can result in significant distractions to its key executive
personnel because of the uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of its chief
operating officer in the event of a threat of a change in control of the Company
and to ensure his continued dedication and efforts in such event without undue
concern for his personal financial and employment security.
NOW, THEREFORE, in order to fulfill the above purposes, the following plan
has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the Paragon Trade Brands, Inc. Severance Protection
Plan (Chief Operating Officer) as set forth in this document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise.
2.1 BOARD. The Board of Directors of Paragon Trade Brands, Inc.
2.2 BASE SALARY. The amount Executive is entitled to receive as
wages or salary on an annualized basis.
2.3 CAUSE. The Company may terminate the Executive's employment for
"Cause." "Cause" is defined as (i) a material breach by Executive of the
terms of the Amended and Restated Employment Agreement between Executive and
the Company dated August 5, 1997, (ii) the conviction of Executive of any
criminal act that two thirds (2/3) of the Board shall, in its sole and
absolute discretion, deem to constitute Cause, or (iii) conduct by Executive
in his office with the Company that is grossly inappropriate and demonstrablY
likely to lead to material injury to the Company, as determined by two-thirds
(2/3) of the Board acting reasonably and in good faith; provided, however,
that in the case of (iii) above, such conduct shall not constitute Cause unless
the Board shall have delivered to Executive notice setting
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SCHEDULE A (CONT)
forth with specificity (x) the conduct deemed to qualify as Cause,(y) reasonable
action that would remedy such objection, and (z) a reasonable time (not less
than thirty (30) days) within which Executive may take such remedial action,
and Executive shall not have taken such specified remedial action within such
specified reasonable time.
2.4 CHANGE IN CONTROL. A "Change in Control" shall be deemed to
occur:
(a) if any person (as such term is used in sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of the securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities,
(b) upon the first purchase of the Company's Common Stock pursuant
to a tender or exchange offer (other than a tender or exchange offer made by the
Company),
(c) upon the approval by the Company's stockholders of a merger or
consolidation, a sale or disposition of all or substantially all of the
Company's assets or a plan of liquidation or dissolution of the Company, or
(d) if, during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for the election by the Company's stockholders of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
2.5 COMPANY. Paragon Trade Brands, Inc.
2.6 EFFECTIVE DATE. The effective date of the Amended and Restated
Employment Agreement between David W. Cole and the Company dated as of August
5, 1997.
2.7 EXECUTIVE. David W. Cole.
2.8 GOOD REASON. "Good Reason" shall mean the occurrence of any of the
following events or conditions:
(a) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents a substantial reduction of the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for Cause, Permanent
Disability, as a result of his death, or by the Executive other than for Good
Reason;
(b) a reduction in the Executive's annual base salary;
(c) the Company's requiring the Executive (without the consent
of the Executive) to be based at any place outside a thirty-five (35) mile
radius of his place of employment prior to a Change in Control, except for
reasonably required travel on the
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SCHEDULE A (CONT)
Company's business which is not materially greater than such travel requirements
prior the Change in Control;
(d) the failure by the Company to (A) continue in effect any
material compensation or benefit plan in which the Executive was participating
at the time of the Change in Control, or (B) provide the Executive with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit plan,
program and practice as in effect immediately prior to the Change in Control (or
as in effect following the Change in Control, if greater);
(e) any material breach by the Company of any provisions of
this Plan;
(f) any purported termination of the Executive's employment for
Cause by the Company which does not otherwise comply with the terms of this
Plan.
2.9 NOTICE OF TERMINATION. "Notice of Termination" shall mean a notice
which indicates the specific provisions in this Plan relied upon as the basis
for any termination of employment and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. No purported
termination of employment shall be effective without such Notice of Termination.
2.10 PERMANENT DISABILITY. The Executive shall be deemed to have become
permanently disabled for purposes of this Plan if the Board of Directors of the
Company finds, upon the basis of medical evidence satisfactory to it, that the
Executive is totally disabled, whether due to physical or mental condition, so
as to be prevented from engaging in further employment by the Company and that
such disability will be permanent and continuous during the remainder of his
life.
2.11 SEVERANCE BENEFIT. The benefit payable in accordance with
Article IV of the Plan.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION. Executive shall automatically be entitled to be a
Participant in the Plan as of the Effective Date.
3.2 DURATION OF PARTICIPATION. Executive shall cease to be a Participant
in the Plan if he ceases to be an employee of the Company at any time prior to a
Change in Control or, if his employment is terminated following a Change in
Control under circumstances where he is not entitled to severance benefits under
the terms of this Plan. If executive is entitled to payment of a Severance
Benefit, he shall remain a Participant in the Plan until the full amount of the
Severance Benefit has been paid to him.
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SCHEDULE A (CONT)
ARTICLE IV
SEVERANCE BENEFITS
4.1 RIGHT TO SEVERANCE BENEFIT. Executive shall be entitled to receive
from the Company a Severance Benefit in the amount provided in Section 4.2 if
(i) a Change in Control has occurred and (ii) within one year thereafter,
Executive's employment with the Company terminates for any reason, except (b),
that notwithstanding the provisions of subparagraph (1), no benefits under this
Plan will be payable should the Participant's termination of employment be (i)
for Cause, (ii) by reason of Permanent Disability, (iii) initiated by the
Participant for other than Good Reason, or (iv) by reason of the Participant's
death.
4.2 AMOUNT OF SEVERANCE BENEFITS. If Executive's employment is terminated
in circumstances entitling him to a Severance Benefit as provided in Section
4.1, Executive shall be entitled to the following benefits:
(a) the Company shall pay to the Executive, as severance pay and in
lieu of any further salary for periods subsequent to the Termination Date (as
specified in Section 5.2), in a single payment (without any discount for
accelerated payment), an amount in cash equal to 2.9 times the Executive's Base
Salary immediately prior to the Change in Control, less any amounts paid to
Executive under the Paragon Trade Brands Salaried Severance Plan;
(b) for a period of eighteen (18) months subsequent to the
Executive's termination of employment, the Company shall at its expense continue
on behalf of the Executive and his dependents and beneficiaries, the life
insurance, disability, medical dental and hospitalization benefits which were
being provided to the Executive at the time of termination of employment. The
benefits provided in this Subsection 4.2(b) shall be no less favorable to the
Executive, in terms of amounts and deductibles and costs to him, than the
coverage provided the Executive under the plans providing such benefits at the
time Notice of Termination is given. The Executive shall notify the Company if
he obtains employment with another entity or individual during the eighteen (18)
months subsequent to his termination and in doing so shall inform the Company
whether the Executive has been provided all or some of the foregoing benefits by
his new employer. The Company's obligation hereunder with respect to the
foregoing benefits shall be limited to the extent that the Executive obtains any
such benefits pursuant to a subsequent employer's benefit plans, in which case
the Company may reduce the coverage of any benefits it is required to provide
the Executive hereunder as long as the aggregate coverage of the combined
benefit plans is no less favorable to the Executive, in terms of amounts and
deductibles and costs to him, than the coverage required to be provided
hereunder. This subsection (b) shall not be interpreted so as to limit any
benefits to which the Executive or his dependents may be entitled under any of
the Company's employee benefit plans, programs or practices following the
Executive's termination of employment. The provision of continued benefits to
the Executive under this subsection (b) shall not deprive the Executive of any
independent statutory right to continue benefits coverage pursuant to Sections
601 through 606 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(c) the Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
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SCHEDULE A (CONT)
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 WRITTEN NOTICE REQUIRED. Any purported termination of
employment, either by the Company or by the Executive, shall be communicated
by written Notice of Termination to the other.
5.2 TERMINATION DATE. In the case of the Executive's death, the
Executive's Termination Date shall be his date of death. In all other cases, the
Executive's Termination Date shall be the date specified in the Notice of
Termination subject to the following:
(a) If the Executive's employment is terminated by the Employer for
Cause or due to Permanent Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date the Notice of
Termination is given to the Executive, provided that in the case of Disability
the Executive shall not have returned to the full time performance of his duties
during such period of at least thirty (30) days; and
(b) If the Executive terminates his employment for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.
ARTICLE VI
SUCCESSORS TO CORPORATION
6.1 SUCCESSORS. This Plan shall bind any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, in the same
manner and to the same extent that the Company would be obligated under this
Plan if no succession had taken place. In the case of any transaction in which a
successor would not by the foregoing provision or by operation of law be bound
by the Plan, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
ARTICLE VII
DURATION, AMENDMENT AND PLAN TERMINATION
7.1 DURATION. This Plan shall continue in effect until terminated in
accordance with Section 7.2. If a Change in Control occurs, this Plan shall
continue in full force and effect, and shall not terminate or expire until after
all Executives who have become entitled to Severance Benefits hereunder shall
have received such payments in full.
7.2 AMENDMENT AND TERMINATION. The Plan may be terminated or amended
in any respect by resolution adopted by two-thirds of the Board, provided,
however, that no such amendment or termination of the Plan may be made if such
amendment or termination would adversely affect any right of an Executive
and provided further, that the Plan no longer shall be
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SCHEDULE A (CONT)
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever following a Change in Control.
7.3 FORM OF AMENDMENT. The form of amendment or termination of the Plan
shall be a written instrument signed by a duly authorized officer or officers of
the Corporation, certifying that the amendment or termination has been approved
by the Board.
ARTICLE VIII
ADDITIONAL PAYMENTS BY THE EMPLOYER
8.1 In the event it shall be determined that any payment or distribution
of any type by the Company to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this Plan or
otherwise (the "Total Payments"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments. Payment of the Gross-Up Payment shall be made
in accordance with Section 7.3.
8.2 DETERMINATION BY ACCOUNTANT. All determinations required to be made
under this Section 8, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall be made by the independent accounting
firm retained by the Company on the date of Change in Control (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the date of termination, if
applicable, or such earlier time as is requested by the Company. If the
Accounting Firm determines that no Excise Tax is payable by the Company, it
shall furnish the Executive with an opinion that he has substantial authority
not to report any Excise Tax on his federal income tax return. Any determination
by the Accounting Firm shall be binding upon the Company and the Participant. As
a result. of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8.3 and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
8.3 NOTIFICATION REQUIRED. The Executive shall notify the Company
in writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after the Executive knows of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to the
expiration of the thirty-day period following the date of which it gives such
notice to the Company (or such shorter period ending
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SCHEDULE A (CONT)
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such
period that it desires to contest such claim, the Executive shall:
(a) give the Company any information reasonably requested by
the Company relating to such claim,
(b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(c) cooperate with the Company in good faith in order to
effectively contest such claim,
(d) permit the Company to participate in any proceedings relating to
such claim, provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment provisions of this Section 8.3, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax claimed and
sue for a refund, or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issued raised by the Internal Revenue Service or any other taxing
authority.
8.4 REPAYMENT. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8.3, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 8.3)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 8.3, a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior
to the expiration of thirty days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
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SCHEDULE A (CONT)
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
ARTICLE IX
MISCELLANEOUS
9.1 INDEMNIFICATION. If the Executive institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Company will pay for all actual legal fees and expenses incurred by the
Executive.
9.2 EMPLOYMENT Status. This Plan does not constitute a contract of
employment or impose on the Company any obligation to retain the Executive as an
employee, to change the status of the Executive's employment or to change any
employment policies of the Company.
9.3 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.4 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of the
State of Georgia.
9.5 CHOICE OF FORUM. Executive shall be entitled to enforce the provisions
of this Plan, or to assert any claim for benefits under the terms of this Plan,
in any state or federal court located in the State of Georgia, in addition to
any other appropriate forum.
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SCHEDULE B
PARAGON TRADE BRANDS, INC.
EMPLOYEE CONFIDENTIALITY AGREEMENT
In consideration of the compensation paid to me by my employer (my
employer can be Paragon Trade Brands, Inc. or any of its majority owned
subsidiaries) and my continued employment as an employee in a position where my
duties include the possession of or access to my employer's trade secrets*, such
duties being assigned as of August 5, 1997, I hereby agree on behalf of myself,
my executors, legal representatives, and assigns that:
1. I will not at any time, either during or after my employment by my
employer, disclose to those not confidentially bound to my employer,
or use for their or my own benefit, any of my employer's trade
secrets without written consent from my employer.
2. I will, upon termination of my employment with my employer or upon
prior request, deliver to my employer any and all objects,
materials, devices, or substances including any writing, recording,
drawing, sample, specimen, prototype model, photography, blueprint
or map which describes, depicts, contains, constitutes, reflects or
records my employer's trade secrets, and all copies thereof in my
possession; and
3. I consent to my employer's notification to any future employer that
I may have of the existence of this agreement.
/S/ MELANIE Y. ZELLER /S/ DAVID W. COLE
- --------------------- -----------------
Witness Employee
PARAGON TRADE BRANDS, INC.
Accepted: AUGUST 5, 1997 By: /S/ BOBBY V. ABRAHAM
--------------------- -----------------------
(Date)
*"Trade Secret" means the whole or any portion or phase of any scientific or
technical or business information, design, process, procedure, formula or
improvement, any future plans, customer lists, market studies, cost and price
studies, or similar business information which is secret and of value. A "trade
secret" shall be presumed to be secret when the employer takes measures to
prevent it from becoming available to persons other than those selected by the
employer to have access thereto for limited purposes. It shall be presumed to be
of value if money has been spent in its development, if it gives the employer an
opportunity to obtain an advantage over competitors who do not know or use it,
or if it is salable.
PARAGON TRADE BRANDS, INC.
EMPLOYMENT AGREEMENT
CHIEF FINANCIAL OFFICER
This Agreement, made as of the 5th day of August, 1997, by and between
Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), and Alan J.
Cyron ("Employee").
W I T N E S S E T H :
WHEREAS, the Company and the Employee have previously entered into an
employment relationship with the other, and whereas, the Company and the
Employee each deem it necessary and desirable, for their mutual protection, to
execute a written document setting forth certain terms and conditions of said
relationship;
NOW, THEREFORE, in consideration of continued employment of Employee by
the Company, of the premises and mutual covenants contained herein, and of other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. EMPLOYMENT. The Company hereby employs Employee as chief financial
officer of the Company with the title of Executive Vice President and Chief
Financial Officer, and Employee hereby accepts such employment, upon the terms
and conditions set forth herein.
2. TERM. Except as otherwise noted in this Agreement or the Schedules
attached hereto, the term of this Agreement shall commence on the Effective Date
and shall expire on the date which the Employee's employment by the Company
terminates. For purposes of this Agreement, the term "Effective Date" means the
date first written above.
3. DUTIES. Employee will, during the term hereof: (a) faithfully,
diligently and capably do and perform all such acts and duties, and furnish such
services, as the board of directors of the Company shall direct or as is
customary for the chief financial officer of a publicly held company, and do and
perform all acts in the ordinary course of the Company's business (subject to
such limitations as the board of directors of the Company may prescribe)
necessary and conducive to the Company's best interests; (b) devote such time,
energy and skill to the business of the Company and to the promotion of the
Company's best interests as is reasonably required of an individual whose
employment as the chief financial officer of the Company is the individual's
principal occupation and employment; and (c) comply with any and all Company
announced policies and procedures governing conduct in the workplace.
4. COMPENSATION.
(a) The Company shall compensate Employee for all services to be performed
by Employee during the term of this Agreement as follows:
(i) pay salary at a salary rate to be determined annually by the
compensation committee of the board of directors of the Company ("Salary
Rate") in periodic installments in accordance with Company practices for
other executive employees; and
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<PAGE>
(ii) grant awards of stock options and restricted stock ("stock
awards") to be determined annually by the compensation committee of the
board of directors of the Company;
(iii) provide a supplemental severance plan as set forth on
Schedule A hereto; and
(iv) provide such additional or special compensation as the board of
directors of the Company shall approve after receipt of recommendations
from the compensation committee of the board of directors, it being
understood by Employee that except with respect to compensation
contemplated by Schedule A, Employee's compensation by the Company shall
be only such compensation as shall have been approved by the board of
directors of the Company.
(b) In addition to compensation as provided for in Section 4(a), the
Company agrees that Employee shall be entitled to participate in such life
insurance, medical, dental, pension, retirement and other benefits plans as are
made available from time to time by the Company for the benefit of its salaried
employees generally.
5. TERMINATION OF EMPLOYMENT.
(a) For purposes of this Agreement (1) Employee's employment by the
Company shall terminate (A) by reason of Employee's death, voluntary
resignation, retirement or disability (as the terms "retirement" and
"disability" are defined in Article 1 of the Paragon Trade Brands, Inc. Deferred
Compensation Plan adopted effective April 1, 1997), or (B) at the request of the
Company's board of directors ("Board Requested Termination"); or (C) for cause;
and (2) "cause" shall be deemed to exist if (i) Employee engages in acts of
dishonesty or fraud in connection with his services hereunder; or (ii) during
his employment, Employee is in breach of his obligations under Sections 3, 6 or
7, or the confidentiality agreement contemplated by Section 7;
(b) If Employee's employment with the Company is terminated by reason of
Employee's death, retirement or disability, the Company's obligations hereunder
shall be satisfied by providing the benefits provided for under the Company's
other benefits;
(c) If Employee's employment with the Company is terminated (i) for cause
or (ii) by Employee's voluntary resignation for a reason other than one
enumerated in Section 5(d), all obligations of the Company under this Agreement
shall terminate with such termination of employment, and Employee shall not be
entitled to any compensation under this Agreement except for compensation fully
earned and unpaid, and vested benefits under stock options and restricted stock
granted Employee, as of the date of termination of employment.
(d) If Employee's employment with the Company is terminated as a result of
a Board Requested Termination, Employee shall be entitled to payment of a sum
equal to two (2) times the Employee's annualized Salary Rate in effect at the
time of notification of termination, in addition to all compensation earned but
unpaid and benefits vested unconditionally to the date of termination, which
cash sum shall be payable in twenty-four (24) equal monthly installments, as
applicable, subject to such deductions as may be required by law, beginning on
the 15th day of the month following the month in which termination of employment
occurs. Payment of the appropriate amount in cash shall be deemed to be
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<PAGE>
liquidated damages for purposes of any suit brought by or on behalf of Employee
for damages for breach of this Agreement.
6. RESTRICTIVE COVENANT. During Employee's employment with the
Company, and for a period of two (2) years following termination of
Employee's employment with the Company for any reason, as long as the Company
meets its obligations under this Agreement, Employee shall not,
(a) directly or indirectly be employed or retained by, serve as an officer
or director of, act as a consultant or advisor to, engage in, or be financially
interested in, any person or persons, firm, association, venture, entity,
partnership, corporation or sole proprietorship that competes, directly or
indirectly, with the Company, or any business of the Company, as the Company is
conducting its business at the time of termination of his employment; or
(b) assist financially or in any other manner, directly or through any
other person or persons, firm, association, venture, entity, partnership,
corporation or sole proprietorship, whether as a partner, shareholder in excess
of 5% of the issued and outstanding shares, agent, owner, advisor or material
financial backer, any person or entity to enter into, develop, or carry on any
business that competes with the Company, or any business of the Company, as the
Company is conducting its business at the time of termination of his employment;
or
(c) recruit or hire, or attempt to recruit or hire, directly or
indirectly, any member of the key management team who is employed by the Company
at the time of termination of Employee's employment (for purposes of this
Section 6(c), the Company's key management team shall include those employees
eligible to receive either stock option grants or awards of stock appreciation
rights under any of the Company's incentive compensation plans); or
(d) directly or indirectly, orally or in writing, disparage the Company,
its products or employees in any way or interfere to the detriment of the
Company with any existing business relationship of the Company and any of its
employees, agents or representatives; or
(e) directly or indirectly divert or attempt to divert from the Company
any business in which the Company is engaged.
Any breach of this restrictive covenant by Employee shall effect a
forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this Agreement, whether or not earned or vested as
of the date of termination of the Company's obligations under this Agreement.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee agrees to enter into a confidentiality agreement, in the form
attached as Schedule B (the "Confidentiality Agreement"), concurrently with
execution of this Agreement.
(b) Any breach by Employee of the Confidentiality Agreement shall
effect a forfeiture of Employee's rights hereunder and terminate the
Company's obligations under this Agreement, and Employee shall not be
entitled to any compensation contemplated by this
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<PAGE>
Agreement, whether or not earned or vested as of the date of termination of the
Company's obligations under this Agreement.
8. ADDITIONAL REMEDIES. Employee recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Employee of any of the provisions of Section 6 or the Confidentiality
Agreement and that Employee's continued employment is predicated on the
covenants made by him pursuant thereto. In the event of any breach by Employee
of his obligations under Section 6 or the Confidentiality Agreement, the Company
shall be entitled, in addition to any other remedies and damages available, to
injunctive relief to restrain any such breach by Employee or by any person or
persons acting for or with Employee in any capacity whatsoever.
9. NONASSIGNMENT. This Agreement is personal to Employee and shall
not be assigned by him. Employee shall not hypothecate, delegate, encumber,
alienate, transfer or otherwise dispose of his rights and duties hereunder.
This Agreement shall not be assigned by the Company without the prior written
consent of Employee.
10. WAIVER. The waiver by a party of a breach by the other party of
any provision of this Agreement shall not be construed as a waiver by such
party of any subsequent breach by the other party.
11. SEVERABILITY. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision or portion hereof to other
persons or circumstances.
12. BENEFIT. The provisions of this Agreement shall inure to the benefit
of the Company, its successors and assigns, and shall be binding upon the
Company and Employee, its and his heirs, personal representatives and
successors, including without limitation Employee's estate and the executors,
administrators, or trustees of such estate.
13. RELEVANT LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
14. NOTICES. All notices, requests, demands and other communications in
connection with this Agreement shall be made in writing and shall be deemed to
have been given when delivered by hand or facsimile transmission, or 48 hours
after mailing at any general or branch United States Post Office, by registered
or certified mail, postage prepaid, addressed as follows, or to such other
address as shall have been designated in writing by the addressee:
(a) If to the Company:
Paragon Trade Brands, Inc.
Attn: Corporate Secretary
180 Technology Parkway
Norcross, Georgia 30092
Facsimile: (770) 300-3959
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<PAGE>
(b) If to Employee:
Alan J. Cyron
4770 Paran Valley NW
Atlanta, Georgia 30327
15. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the subject matter
hereof, and this Agreement shall not be modified or amended except by written
agreement of the Company and Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
PARAGON TRADE BRANDS, INC.
Attest:
/S/ MELANIE Y. ZELLER By: /S/ DAVID W. COLE
- --------------------- -----------------------
EMPLOYEE:
/S/ ALAN J. CYRON
-----------------
Alan J. Cyron
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SCHEDULE A
PARAGON TRADE BRANDS, INC.
SEVERANCE PROTECTION PLAN
CHIEF FINANCIAL OFFICER
WHEREAS, the Board of Directors of Paragon Trade Brands, Inc. (the
"Company") recognizes that the threat of an unsolicited takeover of the Company
may occur which can result in significant distractions to its key executive
personnel because of the uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of its chief
financial officer in the event of a threat of a change in control of the Company
and to ensure his continued dedication and efforts in such event without undue
concern for his personal financial and employment security.
NOW, THEREFORE, in order to fulfill the above purposes, the following plan
has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the Paragon Trade Brands, Inc. Severance Protection
Plan (Chief Financial Officer) as set forth in this document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise.
2.1 BOARD. The Board of Directors of Paragon Trade Brands, Inc.
2.2 BASE SALARY. The amount Executive is entitled to receive as
wages or salary on an annualized basis.
2.3 CAUSE. The Company may terminate the Executive's employment for
"Cause." "Cause" is defined as (i) a material breach by Executive of the
terms of the Employment Agreement between Executive and the Company dated
August 5, 1997, (ii) the conviction of Executive of any criminal act that
two thirds (2/3) of the Board shall, in its sole and absolute discretion,
deem to constitute Cause, or (iii) conduct by Executive in his office with
the Company that is grossly inappropriate and demonstrably likely to lead to
material injury to the Company, as determined by two-thirds (2/3) of the Board
acting reasonably and in good faith; provided, however, that in the case of
(iii) above, such conduct shall not constitute Cause unless the Board shall
have delivered to Executive notice setting forth with specificity (x) the
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SCHEDULE A (CONT)
conduct deemed to qualify as Cause, (y) reasonable action that would remedy such
objection, and (z) a reasonable time (not less than thirty (30) days) within
which Executive may take such remedial action, and Executive shall not have
taken such specified remedial action within such specified reasonable time.
2.4 CHANGE IN CONTROL. A "Change in Control" shall be deemed to
occur:
(a) if any person (as such term is used in sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of the securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities,
(b) upon the first purchase of the Company's Common Stock pursuant
to a tender or exchange offer (other than a tender or exchange offer made by the
Company),
(c) upon the approval by the Company's stockholders of a merger or
consolidation, a sale or disposition of all or substantially all of the
Company's assets or a plan of liquidation or dissolution of the Company, or
(d) if, during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for the election by the Company's stockholders of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
2.5 COMPANY. Paragon Trade Brands, Inc.
2.6 EFFECTIVE DATE. The effective date of the Employment Agreement
between Alan J. Cyron and the Company dated as of August 5, 1997.
2.7 EXECUTIVE. Alan J. Cyron.
2.8 GOOD REASON. "Good Reason" shall mean the occurrence of any of
the following events or conditions:
(a) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents a substantial reduction of the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for Cause, Permanent
Disability, as a result of his death, or by the Executive other than for Good
Reason;
(b) a reduction in the Executive's annual base salary;
(c) the Company's requiring the Executive (without the consent of
the Executive) to be based at any place outside a thirty-five (35) mile radius
of his place of employment prior to a Change in Control, except for reasonably
required travel on the
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SCHEDULE A (CONT)
Company's business which is not materially greater than such travel requirements
prior the Change in Control;
(d) the failure by the Company to (A) continue in effect any
material compensation or benefit plan in which the Executive was participating
at the time of the Change in Control, or (B) provide the Executive with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit plan,
program and practice as in effect immediately prior to the Change in Control (or
as in effect following the Change in Control, if greater);
(e) any material breach by the Company of any provisions of
this Plan;
(f) any purported termination of the Executive's employment for
Cause by the Company which does not otherwise comply with the terms of this
Plan.
2.9 NOTICE OF TERMINATION. "Notice of Termination" shall mean a notice
which indicates the specific provisions in this Plan relied upon as the basis
for any termination of employment and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. No purported
termination of employment shall be effective without such Notice of Termination.
2.10 PERMANENT DISABILITY. The Executive shall be deemed to have become
permanently disabled for purposes of this Plan if the Board of Directors of the
Company finds, upon the basis of medical evidence satisfactory to it, that the
Executive is totally disabled, whether due to physical or mental condition, so
as to be prevented from engaging in further employment by the Company and that
such disability will be permanent and continuous during the remainder of his
life.
2.11 SEVERANCE BENEFIT. The benefit payable in accordance with
Article IV of the Plan.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION. Executive shall automatically be entitled to be a
Participant in the Plan as of the Effective Date.
3.2 DURATION OF PARTICIPATION. Executive shall cease to be a Participant
in the Plan if he ceases to be an employee of the Company at any time prior to a
Change in Control or, if his employment is terminated following a Change in
Control under circumstances where he is not entitled to severance benefits under
the terms of this Plan. If executive is entitled to payment of a Severance
Benefit, he shall remain a Participant in the Plan until the full amount of the
Severance Benefit has been paid to him.
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SCHEDULE A (CONT)
ARTICLE IV
SEVERANCE BENEFITS
4.1 RIGHT TO SEVERANCE BENEFIT. Executive shall be entitled to receive
from the Company a Severance Benefit in the amount provided in Section 4.2 if
(i) a Change in Control has occurred and (ii) within one year thereafter,
Executive's employment with the Company terminates for any reason, except (b),
that notwithstanding the provisions of subparagraph (1), no benefits under this
Plan will be payable should the Participant's termination of employment be (i)
for Cause, (ii) by reason of Permanent Disability, (iii) initiated by the
Participant for other than Good Reason, or (iv) by reason of the Participant's
death.
4.2 AMOUNT OF SEVERANCE BENEFITS. If Executive's employment is terminated
in circumstances entitling him to a Severance Benefit as provided in Section
4.1, Executive shall be entitled to the following benefits:
(a) the Company shall pay to the Executive, as severance pay and in
lieu of any further salary for periods subsequent to the Termination Date (as
specified in Section 5.2), in a single payment (without any discount for
accelerated payment), an amount in cash equal to 2 times the Executive's Base
Salary immediately prior to the Change in Control, less any amounts paid to
Executive under the Paragon Trade Brands Salaried Severance Plan;
(b) for a period of eighteen (18) months subsequent to the
Executive's termination of employment, the Company shall at its expense continue
on behalf of the Executive and his dependents and beneficiaries, the life
insurance, disability, medical dental and hospitalization benefits which were
being provided to the Executive at the time of termination of employment. The
benefits provided in this Subsection 4.2(b) shall be no less favorable to the
Executive, in terms of amounts and deductibles and costs to him, than the
coverage provided the Executive under the plans providing such benefits at the
time Notice of Termination is given. The Executive shall notify the Company if
he obtains employment with another entity or individual during the eighteen (18)
months subsequent to his termination and in doing so shall inform the Company
whether the Executive has been provided all or some of the foregoing benefits by
his new employer. The Company's obligation hereunder with respect to the
foregoing benefits shall be limited to the extent that the Executive obtains any
such benefits pursuant to a subsequent employer's benefit plans, in which case
the Company may reduce the coverage of any benefits it is required to provide
the Executive hereunder as long as the aggregate coverage of the combined
benefit plans is no less favorable to the Executive, in terms of amounts and
deductibles and costs to him, than the coverage required to be provided
hereunder. This subsection (b) shall not be interpreted so as to limit any
benefits to which the Executive or his dependents may be entitled under any of
the Company's employee benefit plans, programs or practices following the
Executive's termination of employment. The provision of continued benefits to
the Executive under this subsection (b) shall not deprive the Executive of any
independent statutory right to continue benefits coverage pursuant to Sections
601 through 606 of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(c) the Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
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SCHEDULE A (CONT)
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 WRITTEN NOTICE REQUIRED. Any purported termination of
employment, either by the Company or by the Executive, shall be communicated
by written Notice of Termination to the other.
5.2 TERMINATION DATE. In the case of the Executive's death, the
Executive's Termination Date shall be his date of death. In all other cases, the
Executive's Termination Date shall be the date specified in the Notice of
Termination subject to the following:
(a) If the Executive's employment is terminated by the Employer for
Cause or due to Permanent Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date the Notice of
Termination is given to the Executive, provided that in the case of Disability
the Executive shall not have returned to the full time performance of his duties
during such period of at least thirty (30) days; and
(b) If the Executive terminates his employment for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.
ARTICLE VI
SUCCESSORS TO CORPORATION
6.1 SUCCESSORS. This Plan shall bind any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, in the same
manner and to the same extent that the Company would be obligated under this
Plan if no succession had taken place. In the case of any transaction in which a
successor would not by the foregoing provision or by operation of law be bound
by the Plan, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
ARTICLE VII
DURATION, AMENDMENT AND PLAN TERMINATION
7.1 DURATION. This Plan shall continue in effect until terminated in
accordance with Section 7.2. If a Change in Control occurs, this Plan shall
continue in full force and effect, and shall not terminate or expire until after
all Executives who have become entitled to Severance Benefits hereunder shall
have received such payments in full.
7.2 AMENDMENT AND TERMINATION. The Plan may be terminated or amended
in any respect by resolution adopted by two-thirds of the Board, provided,
however, that no such amendment or termination of the Plan may be made if such
amendment or termination would adversely affect any right of an Executive
And provided further, that the Plan no longer shall be
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<PAGE>
SCHEDULE A (CONT)
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever following a Change in Control.
7.3 FORM OF AMENDMENT. The form of amendment or termination of the Plan
shall be a written instrument signed by a duly authorized officer or officers of
the Corporation, certifying that the amendment or termination has been approved
by the Board.
ARTICLE VIII
ADDITIONAL PAYMENTS BY THE EMPLOYER
8.1 In the event it shall be determined that any payment or distribution
of any type by the Company to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this Plan or
otherwise (the "Total Payments"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments. Payment of the Gross-Up Payment shall be made
in accordance with Section 7.3.
8.2 DETERMINATION BY ACCOUNTANT. All determinations required to be made
under this Section 8, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall be made by the independent accounting
firm retained by the Company on the date of Change in Control (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the date of termination, if
applicable, or such earlier time as is requested by the Company. If the
Accounting Firm determines that no Excise Tax is payable by the Company, it
shall furnish the Executive with an opinion that he has substantial authority
not to report any Excise Tax on his federal income tax return. Any determination
by the Accounting Firm shall be binding upon the Company and the Participant. As
a result. of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8.3 and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
8.3 NOTIFICATION REQUIRED. The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after the Executive knows of such claim and shall apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid. The Executive shall not pay such claim prior to
the expiration of the thirty-day period following the date of which it
gives such notice to the Company (or such shorter period ending
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<PAGE>
SCHEDULE A (CONT)
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(a) give the Company any information reasonably requested by the
Company relating to such claim,
(b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(c) cooperate with the Company in good faith in order to
effectively contest such claim,
(d) permit the Company to participate in any proceedings relating to
such claim, provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment provisions of this Section 8.3, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax claimed and
sue for a refund, or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issued raised by the Internal Revenue Service or any other taxing
authority.
8.4 REPAYMENT. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8.3, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
8.3) promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after the
receipt by the Executive of an amount advanced by the Company pursuant to
Section 8.3, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify notify the
Executive in writing of its intent to contest such denial of refund prior to the
expiration of thirty days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such
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<PAGE>
SCHEDULE A (CONT)
Advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
ARTICLE IX
MISCELLANEOUS
9.1 INDEMNIFICATION. If the Executive institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Company will pay for all actual legal fees and expenses incurred by the
Executive.
9.2 EMPLOYMENT Status. This Plan does not constitute a contract of
employment or impose on the Company any obligation to retain the Executive as an
employee, to change the status of the Executive's employment or to change any
employment policies of the Company.
9.3 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.4 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of the
State of Georgia.
9.5 CHOICE OF FORUM. Executive shall be entitled to enforce the provisions
of this Plan, or to assert any claim for benefits under the terms of this Plan,
in any state or federal court located in the State of Georgia, in addition to
any other appropriate forum.
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SCHEDULE B
PARAGON TRADE BRANDS, INC.
EMPLOYEE CONFIDENTIALITY AGREEMENT
In consideration of the compensation paid to me by my employer (my
employer can be Paragon Trade Brands, Inc. or any of its majority owned
subsidiaries) and my continued employment as an employee in a position where my
duties include the possession of or access to my employer's trade secrets*, such
duties being assigned on August 5, 1997, I hereby agree on behalf of myself, my
executors, legal representatives, and assigns that:
1. I will not at any time, either during or after my employment by my
employer, disclose to those not confidentially bound to my employer,
or use for their or my own benefit, any of my employer's trade
secrets without written consent from my employer.
2. I will, upon termination of my employment with my employer or upon
prior request, deliver to my employer any and all objects,
materials, devices, or substances including any writing, recording,
drawing, sample, specimen, prototype model, photography, blueprint
or map which describes, depicts, contains, constitutes, reflects or
records my employer's trade secrets, and all copies thereof in my
possession; and
3. I consent to my employer's notification to any future employer
that I may have of the existence of this agreement.
/S/ MELANIE Y. ZELLER /S/ ALAN J. CYRON
- --------------------- -----------------
Witness Employee
PARAGON TRADE BRANDS, INC.
Accepted: AUGUST 5, 1997 By: /S/ DAVID W. COLE
--------------------- --------------------
(Date)
*"Trade Secret" means the whole or any portion or phase of any scientific or
technical or business information, design, process, procedure, formula or
improvement, any future plans, customer lists, market studies, cost and price
studies, or similar business information which is secret and of value. A "trade
secret" shall be presumed to be secret when the employer takes measures to
prevent it from becoming available to persons other than those selected by the
employer to have access thereto for limited purposes. It shall be presumed to be
of value if money has been spent in its development, if it gives the employer an
opportunity to obtain an advantage over competitors who do not know or use it,
or if it is salable.
PARAGON TRADE BRANDS, INC.
EMPLOYMENT AGREEMENT
VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
This Agreement, made as of the 5th day of August, 1997, by and between
Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), and
Catherine O. Hasbrouck ("Employee").
W I T N E S S E T H :
WHEREAS, the Company and the Employee have previously entered into an
employment relationship with the other, and whereas, the Company and the
Employee each deem it necessary and desirable, for their mutual protection, to
execute a written document setting forth certain terms and conditions of said
relationship;
NOW, THEREFORE, in consideration of continued employment of Employee by
the Company, of the premises and mutual covenants contained herein, and of other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. EMPLOYMENT. The Company hereby employs Employee as Vice President,
General Counsel and Secretary of the Company and Employee hereby accepts such
employment, upon the terms and conditions set forth herein.
2. TERM. Except as otherwise noted in this Agreement or the Schedules
attached hereto, the term of this Agreement shall commence on the Effective Date
and shall expire on the date which the Employee's employment by the Company
terminates. For purposes of this Agreement, the term "Effective Date" means the
date first written above.
3. DUTIES. Employee will, during the term hereof: (a) faithfully,
diligently and capably do and perform all such acts and duties, and furnish such
services, as the board of directors of the Company shall direct or as is
customary for the vice president, general counsel and secretary of a publicly
held company, and do and perform all acts in the ordinary course of the
Company's business (subject to such limitations as the board of directors of the
Company may prescribe) necessary and conducive to the Company's best interests;
(b) devote such time, energy and skill to the business of the Company and to the
promotion of the Company's best interests as is reasonably required of an
individual whose employment as the vice president, general counsel and secretary
of the Company is the individual's principal occupation and employment; and (c)
comply with any and all Company announced policies and procedures governing
conduct in the workplace.
4. COMPENSATION.
(a) The Company shall compensate Employee for all services to be performed
by Employee during the term of this Agreement as follows:
(i) pay salary at a salary rate to be determined annually by the
Chief Executive Officer and approved by the board of directors of the
Company ("Salary Rate") in periodic installments in accordance with
Company practices for other executive employees; and
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<PAGE>
(ii) grant awards of stock options and restricted stock ("stock
awards") to be determined annually by the Chief Executive Officer and
approved by the board of directors of the Company;
(iii) provide a supplemental severance plan as set forth on
Schedule A hereto; and
(iv) provide such additional or special compensation as the board of
directors of the Company shall approve after receipt of recommendations
from the compensation committee of the board of directors, it being
understood by Employee that except with respect to compensation
contemplated by Schedule A, Employee's compensation by the Company shall
be only such compensation as shall have been determined by the Chief
Executive Officer and approved by the board of directors of the Company.
(b) In addition to compensation as provided for in Section 4(a), the
Company agrees that Employee shall be entitled to participate in such life
insurance, medical, dental, pension, retirement and other benefits plans as are
made available from time to time by the Company for the benefit of its salaried
employees generally.
5. TERMINATION OF EMPLOYMENT.
(a) For purposes of this Agreement (1) Employee's employment by the
Company shall terminate (A) by reason of Employee's death, voluntary
resignation, retirement or disability (as the terms "retirement" and
"disability" are defined in Article 1 of the Paragon Trade Brands, Inc. Deferred
Compensation Plan adopted effective April 1, 1997), or (B) at the request of the
Company's board of directors ("Board Requested Termination"); or (C) for cause;
and (2) "cause" shall be deemed to exist if (i) Employee engages in acts of
dishonesty or fraud in connection with her services hereunder; or (ii) during
her employment, Employee is in breach of her obligations under Sections 3, 6 or
7, or the confidentiality agreement contemplated by Section 7;
(b) If Employee's employment with the Company is terminated by reason of
Employee's death, retirement or disability, the Company's obligations hereunder
shall be satisfied by providing the benefits provided for under the Company's
other benefits plans applicable in the case of an employee's death, retirement
or permanent disability;
(c) If Employee's employment with the Company is terminated (i) for cause
or (ii) by Employee's voluntary resignation for a reason other than one
enumerated in Section 5(d), all obligations of the Company under this Agreement
shall terminate with such termination of employment, and Employee shall not be
entitled to any compensation under this Agreement except for compensation fully
earned and unpaid, and vested benefits under stock options and restricted stock
granted Employee, as of the date of termination of employment.
(d) If Employee's employment with the Company is terminated as a result of
a Board Requested Termination, Employee shall be entitled to payment of a sum
equal to one (1) times the Employee's annualized Salary Rate in effect at the
time of notification of termination, in addition to all compensation earned but
unpaid and benefits vested unconditionally to the date of termination, which
cash sum shall be payable in twelve (12)
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<PAGE>
equal monthly installments, as applicable, subject to such deductions as may be
required by law, beginning on the 15th day of the month following the month in
which termination of employment occurs. Payment of the appropriate amount in
cash shall be deemed to be liquidated damages for purposes of any suit brought
by or on behalf of Employee for damages for breach of this Agreement.
6. RESTRICTIVE COVENANT. During Employee's employment with the
Company, and for a period of two (2) years following termination of
Employee's employment with the Company for any reason, as long as the Company
meets its obligations under this Agreement, Employee shall not,
(a) directly or indirectly be employed or retained by, serve as an officer
or director of, act as a consultant or advisor to, engage in, or be financially
interested in, any person or persons, firm, association, venture, entity,
partnership, corporation or sole proprietorship that competes, directly or
indirectly, with the Company, or any business of the Company, as the Company is
conducting its business at the time of termination of her employment; or
(b) assist financially or in any other manner, directly or through any
other person or persons, firm, association, venture, entity, partnership,
corporation or sole proprietorship, whether as a partner, shareholder in excess
of 5% of the issued and outstanding shares, agent, owner, advisor or material
financial backer, any person or entity to enter into, develop, or carry on any
business that competes with the Company, or any business of the Company, as the
Company is conducting its business at the time of termination of her employment;
or
(c) recruit or hire, or attempt to recruit or hire, directly or
indirectly, any member of the key management team who is employed by the Company
at the time of termination of Employee's employment (for purposes of this
Section 6(c), the Company's key management team shall include those employees
eligible to receive either stock option grants or awards of stock appreciation
rights under any of the Company's incentive compensation plans); or
(d) directly or indirectly, orally or in writing, disparage the Company,
its products or employees in any way or interfere to the detriment of the
Company with any existing business relationship of the Company and any of its
employees, agents or representatives; or
(e) directly or indirectly divert or attempt to divert from the Company
any business in which the Company is engaged.
Any breach of this restrictive covenant by Employee shall effect a
forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this Agreement, whether or not earned or vested as
of the date of termination of the Company's obligations under this Agreement.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee agrees to enter into a confidentiality agreement, in the form
attached as Schedule B (the "Confidentiality Agreement"), concurrently with
execution of this Agreement.
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<PAGE>
(b) Any breach by Employee of the Confidentiality Agreement shall effect a
forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this Agreement, whether or not earned or vested as
of the date of termination of the Company's obligations under this Agreement.
8. ADDITIONAL REMEDIES. Employee recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Employee of any of the provisions of Section 6 or the Confidentiality
Agreement and that Employee's continued employment is predicated on the
covenants made by her pursuant thereto. In the event of any breach by Employee
of her obligations under Section 6 or the Confidentiality Agreement, the Company
shall be entitled, in addition to any other remedies and damages available, to
injunctive relief to restrain any such breach by Employee or by any person or
persons acting for or with Employee in any capacity whatsoever.
9. NONASSIGNMENT. This Agreement is personal to Employee and shall
not be assigned by her. Employee shall not hypothecate, delegate, encumber,
alienate, transfer or otherwise dispose of her rights and duties hereunder.
This Agreement shall not be assigned by the Company without the prior written
consent of Employee.
10. WAIVER. The waiver by a party of a breach by the other party of
any provision of this Agreement shall not be construed as a waiver by such
party of any subsequent breach by the other party.
11. SEVERABILITY. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision or portion hereof to other
persons or circumstances.
12. BENEFIT. The provisions of this Agreement shall inure to the benefit
of the Company, its successors and assigns, and shall be binding upon the
Company and Employee, its and her heirs, personal representatives and
successors, including without limitation Employee's estate and the executors,
administrators, or trustees of such estate.
13. RELEVANT LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
14. NOTICES. All notices, requests, demands and other communications in
connection with this Agreement shall be made in writing and shall be deemed to
have been given when delivered by hand or facsimile transmission, or 48 hours
after mailing at any general or branch United States Post Office, by registered
or certified mail, postage prepaid, addressed as follows, or to such other
address as shall have been designated in writing by the addressee:
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<PAGE>
(a) If to the Company:
Paragon Trade Brands, Inc.
Attn: Corporate Secretary
180 Technology Parkway
Norcross, Georgia 30092
Facsimile: (770) 300-3959
(b) If to Employee:
Catherine O. Hasbrouck
1034 Ashbury Drive
Decatur, Georgia 30030
15. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the subject matter
hereof, and this Agreement shall not be modified or amended except by written
agreement of the Company and Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
PARAGON TRADE BRANDS, INC.
Attest:
/S/ MELANIE Y. ZELLER By: /S/ DAVID W. COLE
- --------------------- -----------------------
EMPLOYEE:
/S/ CATHERINE O. HASBROUCK
--------------------------
Catherine O. Hasbrouck
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<PAGE>
SCHEDULE A
PARAGON TRADE BRANDS, INC.
SEVERANCE PROTECTION PLAN
(VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY)
WHEREAS, the Board of Directors of Paragon Trade Brands, Inc. (the
"Company") recognizes that the threat of an unsolicited takeover of the Company
may occur which can result in significant distractions to its key executive
personnel because of the uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of its vice
president, general counsel and secretary in the event of a threat of a change in
control of the Company and to ensure her continued dedication and efforts in
such event without undue concern for her personal financial and employment
security.
NOW, THEREFORE, in order to fulfill the above purposes, the following plan
has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the Paragon Trade Brands, Inc. Severance Protection
Plan (Vice President, General Counsel and Secretary) as set forth in this
document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise.
2.1 BOARD. The Board of Directors of Paragon Trade Brands, Inc.
2.2 BASE SALARY. The amount Executive is entitled to receive as
wages or salary on an annualized basis.
2.3 CAUSE. The Company may terminate the Executive's employment for
"Cause." "Cause" is defined as (i) a material breach by Executive of the terms
of the Employment Agreement between Executive and the Company dated August
5, 1997, (ii) the conviction of Executive of any criminal act that two thirds
(2/3) of the Board shall, in its sole and absolute discretion, deem to
constitute Cause, or (iii) conduct by Executive in her office with the
Company that is grossly inappropriate and demonstrably likely to lead to
material injury to the Company, as determined by two-thirds (2/3) of the
Board acting reasonably and in good faith; provided, however, that in the
case of (iii) above, such conduct shall not constitute Cause unless the Board
shall have delivered to Executive notice setting forth with specificity (x) the
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SCHEDULE A (CONT)
conduct deemed to qualify as Cause, (y) reasonable action that would remedy such
objection, and (z) a reasonable time (not less than thirty (30) days) within
which Executive may take such remedial action, and Executive shall not have
taken such specified remedial action within such specified reasonable time.
2.4 CHANGE IN CONTROL. A "Change in Control" shall be deemed to
occur:
(a) if any person (as such term is used in sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of the securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities,
(b) upon the first purchase of the Company's Common Stock pursuant
to a tender or exchange offer (other than a tender or exchange offer made by the
Company),
(c) upon the approval by the Company's stockholders of a merger or
consolidation, a sale or disposition of all or substantially all of the
Company's assets or a plan of liquidation or dissolution of the Company, or
(d) if, during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for the election by the Company's stockholders of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
2.5 COMPANY. Paragon Trade Brands, Inc.
2.6 EFFECTIVE DATE. The effective date of the Employment Agreement
between Catherine O. Hasbrouck and the Company dated as of August 5, 1997.
2.7 EXECUTIVE. Catherine O. Hasbrouck.
2.8 GOOD REASON. "Good Reason" shall mean the occurrence of any of
the following events or conditions:
(a) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents a substantial reduction of the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect her to any of such positions, except in
connection with the termination of her employment for Cause, Permanent
Disability, as a result of her death, or by the Executive other than for Good
Reason;
(b) a reduction in the Executive's annual base salary;
(c) the Company's requiring the Executive (without the consent of
the Executive) to be based at any place outside a thirty-five (35) mile radius
of her place of
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SCHEDULE A (CONT)
employment prior to a Change in Control, except for reasonably required travel
on the Company's business which is not materially greater than such travel
requirements prior the Change in Control;
(d) the failure by the Company to (A) continue in effect any
material compensation or benefit plan in which the Executive was participating
at the time of the Change in Control, or (B) provide the Executive with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit plan,
program and practice as in effect immediately prior to the Change in Control (or
as in effect following the Change in Control, if greater);
(e) any material breach by the Company of any provisions of
this Plan;
(f) any purported termination of the Executive's employment for
Cause by the Company which does not otherwise comply with the terms of this
Plan.
2.9 NOTICE OF TERMINATION. "Notice of Termination" shall mean a notice
which indicates the specific provisions in this Plan relied upon as the basis
for any termination of employment and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. No purported
termination of employment shall be effective without such Notice of Termination.
2.10 PERMANENT DISABILITY. The Executive shall be deemed to have become
permanently disabled for purposes of this Plan if the Board of Directors of the
Company finds, upon the basis of medical evidence satisfactory to it, that the
Executive is totally disabled, whether due to physical or mental condition, so
as to be prevented from engaging in further employment by the Company and that
such disability will be permanent and continuous during the remainder of her
life.
2.11 SEVERANCE BENEFIT. The benefit payable in accordance with
Article IV of the Plan.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION. Executive shall automatically be entitled to be a
Participant in the Plan as of the Effective Date.
3.2 DURATION OF PARTICIPATION. Executive shall cease to be a Participant
in the Plan if she ceases to be an employee of the Company at any time prior to
a Change in Control or, if her employment is terminated following a Change in
Control under circumstances where she is not entitled to severance benefits
under the terms of this Plan. If executive is entitled to payment of a Severance
Benefit, she shall remain a Participant in the Plan until the full amount of the
Severance Benefit has been paid to her.
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SCHEDULE A (CONT)
ARTICLE IV
SEVERANCE BENEFITS
4.1 RIGHT TO SEVERANCE BENEFIT. Executive shall be entitled to receive
from the Company a Severance Benefit in the amount provided in Section 4.2 if
(i) a Change in Control has occurred and (ii) within one year thereafter,
Executive's employment with the Company terminates for any reason, except (b),
that notwithstanding the provisions of subparagraph (1), no benefits under this
Plan will be payable should the Participant's termination of employment be (i)
for Cause, (ii) by reason of Permanent Disability, (iii) initiated by the
Participant for other than Good Reason, or (iv) by reason of the Participant's
death.
4.2 AMOUNT OF SEVERANCE BENEFITS. If Executive's employment is terminated
in circumstances entitling her to a Severance Benefit as provided in Section
4.1, Executive shall be entitled to the following benefits:
(a) the Company shall pay to the Executive, as severance pay and in
lieu of any further salary for periods subsequent to the Termination Date (as
specified in Section 5.2), in a single payment (without any discount for
accelerated payment), an amount in cash equal to one (1) times the Executive's
Base Salary immediately prior to the Change in Control, less any amounts paid to
Executive under the Paragon Trade Brands Salaried Severance Plan;
(b) for a period of twelve (12) months subsequent to the Executive's
termination of employment, the Company shall at its expense continue on behalf
of the Executive and her dependents and beneficiaries, the life insurance,
disability, medical dental and hospitalization benefits which were being
provided to the Executive at the time of termination of employment. The benefits
provided in this Subsection 4.2(b) shall be no less favorable to the Executive,
in terms of amounts and deductibles and costs to her, than the coverage provided
the Executive under the plans providing such benefits at the time Notice of
Termination is given. The Executive shall notify the Company if she obtains
employment with another entity or individual during the twelve (12) months
subsequent to her termination and in doing so shall inform the Company whether
the Executive has been provided all or some of the foregoing benefits by her new
employer. The Company's obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that the Executive obtains any such
benefits pursuant to a subsequent employer's benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to provide the
Executive hereunder as long as the aggregate coverage of the combined benefit
plans is no less favorable to the Executive, in terms of amounts and deductibles
and costs to her, than the coverage required to be provided hereunder. This
subsection (b) shall not be interpreted so as to limit any benefits to which the
Executive or her dependents may be entitled under any of the Company's employee
benefit plans, programs or practices following the Executive's termination of
employment. The provision of continued benefits to the Executive under this
subsection (b) shall not deprive the Executive of any independent statutory
right to continue benefits coverage pursuant to Sections 601 through 606 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(c) the Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
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SCHEDULE A (CONT)
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 WRITTEN NOTICE REQUIRED. Any purported termination of
employment, either by the Company or by the Executive, shall be communicated
by written Notice of Termination to the other.
5.2 TERMINATION DATE. In the case of the Executive's death, the
Executive's Termination Date shall be her date of death. In all other cases, the
Executive's Termination Date shall be the date specified in the Notice of
Termination subject to the following:
(a) If the Executive's employment is terminated by the Employer for
Cause or due to Permanent Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date the Notice of
Termination is given to the Executive, provided that in the case of Disability
the Executive shall not have returned to the full time performance of her duties
during such period of at least thirty (30) days; and
(b) If the Executive terminates her employment for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.
ARTICLE VI
SUCCESSORS TO CORPORATION
6.1 SUCCESSORS. This Plan shall bind any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, in the same
manner and to the same extent that the Company would be obligated under this
Plan if no succession had taken place. In the case of any transaction in which a
successor would not by the foregoing provision or by operation of law be bound
by the Plan, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
ARTICLE VII
DURATION, AMENDMENT AND PLAN TERMINATION
7.1 DURATION. This Plan shall continue in effect until terminated in
accordance with Section 7.2. If a Change in Control occurs, this Plan shall
continue in full force and effect, and shall not terminate or expire until after
all Executives who have become entitled to Severance Benefits hereunder shall
have received such payments in full.
7.2 AMENDMENT AND TERMINATION. The Plan may be terminated or amended
in any respect by resolution adopted by two-thirds of the Board, provided,
however, that no such amendment or termination of the Plan may be made
if such amendment or termination would adversely affect any right of an
Executive and provided further, that the Plan no longer shall be
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<PAGE>
SCHEDULE A (CONT)
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever following a Change in Control.
7.3 FORM OF AMENDMENT. The form of amendment or termination of the Plan
shall be a written instrument signed by a duly authorized officer or officers of
the Corporation, certifying that the amendment or termination has been approved
by the Board.
ARTICLE VIII
ADDITIONAL PAYMENTS BY THE EMPLOYER
8.1 In the event it shall be determined that any payment or distribution
of any type by the Company to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this Plan or
otherwise (the "Total Payments"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments. Payment of the Gross-Up Payment shall be made
in accordance with Section 7.3.
8.2 DETERMINATION BY ACCOUNTANT. All determinations required to be made
under this Section 8, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall be made by the independent accounting
firm retained by the Company on the date of Change in Control (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the date of termination, if
applicable, or such earlier time as is requested by the Company. If the
Accounting Firm determines that no Excise Tax is payable by the Company, it
shall furnish the Executive with an opinion that she has substantial authority
not to report any Excise Tax on her federal income tax return. Any determination
by the Accounting Firm shall be binding upon the Company and the Participant. As
a result. of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8.3 and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
8.3 NOTIFICATION REQUIRED. The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful,
would require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later than ten
business days after the Executive knows of such claim and shall apprise
the Company of the nature of such claim and the date on which such claim
is requested to be paid. The Executive shall not pay such claim prior to
the expiration of the thirty-day period following the date of which it
gives such notice to the Company (or such shorter period ending
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<PAGE>
SCHEDULE A (CONT)
on the date that any payment of taxes with respect to such claim is due). If the
Company notifies the Executive in writing prior to the expiration of such period
that it desires to contest such claim, the Executive shall:
(a) give the Company any information reasonably requested by
the Company relating to such claim,
(b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(c) cooperate with the Company in good faith in order to
effectively contest such claim,
(d) permit the Company to participate in any proceedings relating to
such claim, provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment provisions of this Section 8.3, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax claimed and
sue for a refund, or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issued raised by the Internal Revenue Service or any other taxing
authority.
8.4 REPAYMENT. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8.3, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 8.3) promptly pay to
the Company the amount of such refund (together with any interest paid
or credited thereon after taxes applicable thereto). If, after the receipt
by the Executive of an amount advanced by the Company pursuant to Section
8.3, a determination is made that the Executive shall not be entitled to
any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior
to the expiration of thirty days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of such
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<PAGE>
SCHEDULE A (CONT)
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
ARTICLE IX
MISCELLANEOUS
9.1 INDEMNIFICATION. If the Executive institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Company will pay for all actual legal fees and expenses incurred by the
Executive.
9.2 EMPLOYMENT Status. This Plan does not constitute a contract of
employment or impose on the Company any obligation to retain the Executive as an
employee, to change the status of the Executive's employment or to change any
employment policies of the Company.
9.3 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.4 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of the
State of Georgia.
9.5 CHOICE OF FORUM. Executive shall be entitled to enforce the provisions
of this Plan, or to assert any claim for benefits under the terms of this Plan,
in any state or federal court located in the State of Georgia, in addition to
any other appropriate forum.
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<PAGE>
SCHEDULE B
PARAGON TRADE BRANDS, INC.
EMPLOYEE CONFIDENTIALITY AGREEMENT
In consideration of the compensation paid to me by my employer (my
employer can be Paragon Trade Brands, Inc. or any of its majority owned
subsidiaries) and my continued employment as an employee in a position where my
duties include the possession of or access to my employer's trade secrets*, such
duties being assigned on August 5, 1997, I hereby agree on behalf of myself, my
executors, legal representatives, and assigns that:
1. I will not at any time, either during or after my employment by my
employer, disclose to those not confidentially bound to my employer,
or use for their or my own benefit, any of my employer's trade
secrets without written consent from my employer.
2. I will, upon termination of my employment with my employer or upon
prior request, deliver to my employer any and all objects,
materials, devices, or substances including any writing, recording,
drawing, sample, specimen, prototype model, photography, blueprint
or map which describes, depicts, contains, constitutes, reflects or
records my employer's trade secrets, and all copies thereof in my
possession; and
3. I consent to my employer's notification to any future employer
that I may have of the existence of this agreement.
/S/ MELANIE Y. ZELLER /S/ CATHERINE O. HASBROUCK
- --------------------- --------------------------
Witness Employee
PARAGON TRADE BRANDS, INC.
Accepted: AUGUST 5, 1997 By: /S/ DAVID W. COLE
--------------------- --------------------
(Date)
*"Trade Secret" means the whole or any portion or phase of any scientific or
technical or business information, design, process, procedure, formula or
improvement, any future plans, customer lists, market studies, cost and price
studies, or similar business information which is secret and of value. A "trade
secret" shall be presumed to be secret when the employer takes measures to
prevent it from becoming available to persons other than those selected by the
employer to have access thereto for limited purposes. It shall be presumed to be
of value if money has been spent in its development, if it gives the employer an
opportunity to obtain an advantage over competitors who do not know or use it,
or if it is salable.
PARAGON TRADE BRANDS, INC.
EMPLOYMENT AGREEMENT
VICE PRESIDENT - HUMAN RESOURCES
This Agreement, made as of the 5th day of August, 1997, by and between
Paragon Trade Brands, Inc., a Delaware corporation (the "Company"), and Stanley
L. Bulger ("Employee").
W I T N E S S E T H :
WHEREAS, the Company and the Employee have previously entered into an
employment relationship with the other, and whereas, the Company and the
Employee each deem it necessary and desirable, for their mutual protection, to
execute a written document setting forth certain terms and conditions of said
relationship;
NOW, THEREFORE, in consideration of continued employment of Employee by
the Company, of the premises and mutual covenants contained herein, and of other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. EMPLOYMENT. The Company hereby employs Employee as Vice
President - Human Resources of the Company and Employee hereby accepts such
employment, upon the terms and conditions set forth herein.
2. TERM. Except as otherwise noted in this Agreement or the Schedules
attached hereto, the term of this Agreement shall commence on the Effective Date
and shall expire on the date which the Employee's employment by the Company
terminates. For purposes of this Agreement, the term "Effective Date" means the
date first written above.
3. DUTIES. Employee will, during the term hereof: (a) faithfully,
diligently and capably do and perform all such acts and duties, and furnish such
services, as the board of directors of the Company shall direct or as is
customary for the vice president - human resources of a publicly held company,
and do and perform all acts in the ordinary course of the Company's business
(subject to such limitations as the board of directors of the Company may
prescribe) necessary and conducive to the Company's best interests; (b) devote
such time, energy and skill to the business of the Company and to the promotion
of the Company's best interests as is reasonably required of an individual whose
employment as the vice president - human resources of the Company is the
individual's principal occupation and employment; and (c) comply with any and
all Company announced policies and procedures governing conduct in the
workplace.
4. COMPENSATION.
(a) The Company shall compensate Employee for all services to be performed
by Employee during the term of this Agreement as follows:
(i) pay salary at a salary rate to be determined annually by the
Chief Executive Officer and approved by the board of directors of the
Company ("Salary Rate") in periodic installments in accordance with
Company practices for other executive employees; and
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<PAGE>
(ii) grant awards of stock options and restricted stock ("stock
awards") to be determined annually by the Chief Executive Officer and
approved by the board of directors of the Company;
(iii) provide a supplemental severance plan as set forth on
Schedule A hereto; and
(iv) provide such additional or special compensation as the board of
directors of the Company shall approve after receipt of recommendations
from the compensation committee of the board of directors, it being
understood by Employee that except with respect tocompensationcontemplated
by Schedule A, Employee's compensation by the Company shall be only such
compensation as shall have been determined by the Chief Executive Officer
and approved by the board of directors of the Company.
(b) In addition to compensation as provided for in Section 4(a), the
Company agrees that Employee shall be entitled to participate in such life
insurance, medical, dental, pension, retirement and other benefits plans as are
made available from time to time by the Company for the benefit of its salaried
employees generally.
5. TERMINATION OF EMPLOYMENT.
(a) For purposes of this Agreement (1) Employee's employment by the
Company shall terminate (A) by reason of Employee's death, voluntary
resignation, retirement or disability (as the terms "retirement" and
"disability" are defined in Article 1 of the Paragon Trade Brands, Inc. Deferred
Compensation Plan adopted effective April 1, 1997), or (B) at the request of the
Company's board of directors ("Board Requested Termination"); or (C) for cause;
and (2) "cause" shall be deemed to exist if (i) Employee engages in acts of
dishonesty or fraud in connection with his services hereunder; or (ii) during
his employment, Employee is in breach of his obligations under Sections 3, 6 or
7, or the confidentiality agreement contemplated by Section 7;
(b) If Employee's employment with the Company is terminated by reason of
Employee's death, retirement or disability, the Company's obligations hereunder
shall be satisfied by providing the benefits provided for under the Company's
other benefits plans applicable in the case of an employee's death, retirement
or permanent disability;
(c) If Employee's employment with the Company is terminated (i) for cause
or (ii) by Employee's voluntary resignation for a reason other than one
enumerated in Section 5(d), all obligations of the Company under this Agreement
shall terminate with such termination of employment, and Employee shall not be
entitled to any compensation under this Agreement except for compensation fully
earned and unpaid, and vested benefits under stock options and restricted stock
granted Employee, as of the date of termination of employment.
(d) If Employee's employment with the Company is terminated as a result of
a Board Requested Termination, Employee shall be entitled to payment of a sum
equal to one (1) times the Employee's annualized Salary Rate in effect at the
time of notification of termination, in addition to all compensation earned but
unpaid and benefits vested unconditionally to the date of termination, which
cash sum shall be payable in twelve (12)
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<PAGE>
equal monthly installments, as applicable, subject to such deductions as may
be required by law, beginning on the 15th day of the month following the month
in which termination of employment occurs. Payment of the appropriate amount
in cash shall be deemed to be liquidated damages for purposes of any suit
brought by or on behalf of Employee for damages for breach of this Agreement.
6. RESTRICTIVE COVENANT. During Employee's employment with the
Company, and for a period of two (2) years following termination of
Employee's employment with the Company for any reason, as long as the Company
meets its obligations under this Agreement, Employee shall not,
(a) directly or indirectly be employed or retained by, serve as an officer
or director of, act as a consultant or advisor to, engage in, or be financially
interested in, any person or persons, firm, association, venture, entity,
partnership, corporation or sole proprietorship that competes, directly or
indirectly, with the Company, or any business of the Company, as the Company is
conducting its business at the time of termination of his employment; or
(b) assist financially or in any other manner, directly or through any
other person or persons, firm, association, venture, entity, partnership,
corporation or sole proprietorship, whether as a partner, shareholder in excess
of 5% of the issued and outstanding shares, agent, owner, advisor or material
financial backer, any person or entity to enter into, develop, or carry on any
business that competes with the Company, or any business of the Company, as the
Company is conducting its business at the time of termination of his employment;
or
(c) recruit or hire, or attempt to recruit or hire, directly or
indirectly, any member of the key management team who is employed by the Company
at the time of termination of Employee's employment (for purposes of this
Section 6(c), the Company's key management team shall include those employees
eligible to receive either stock option grants or awards of stock appreciation
rights under any of the Company's incentive compensation plans); or
(d) directly or indirectly, orally or in writing, disparage the Company,
its products or employees in any way or interfere to the detriment of the
Company with any existing business relationship of the Company and any of its
employees, agents or representatives; or
(e) directly or indirectly divert or attempt to divert from the Company
any business in which the Company is engaged.
Any breach of this restrictive covenant by Employee shall effect a
forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this Agreement, whether or not earned or vested as
of the date of termination of the Company's obligations under this Agreement.
7. NONDISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) Employee agrees to enter into a confidentiality agreement, in the form
attached as Schedule B (the "Confidentiality Agreement"), concurrently with
execution of this Agreement.
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<PAGE>
(b) Any breach by Employee of the Confidentiality Agreement shall effect a
forfeiture of Employee's rights hereunder and terminate the Company's
obligations under this Agreement, and Employee shall not be entitled to any
compensation contemplated by this Agreement, whether or not earned or vested as
of the date of termination of the Company's obligations under this Agreement.
8. ADDITIONAL REMEDIES. Employee recognizes that irreparable injury will
result to the Company and to its business and properties in the event of any
breach by Employee of any of the provisions of Section 6 or the Confidentiality
Agreement and that Employee's continued employment is predicated on the
covenants made by him pursuant thereto. In the event of any breach by Employee
of his obligations under Section 6 or the Confidentiality Agreement, the Company
shall be entitled, in addition to any other remedies and damages available, to
injunctive relief to restrain any such breach by Employee or by any person or
persons acting for or with Employee in any capacity whatsoever.
9. NONASSIGNMENT. This Agreement is personal to Employee and shall
not be assigned by him. Employee shall not hypothecate, delegate, encumber,
alienate, transfer or otherwise dispose of his rights and duties hereunder.
This Agreement shall not be assigned by the Company without the prior written
consent of Employee.
10. WAIVER. The waiver by a party of a breach by the other party of
any provision of this Agreement shall not be construed as a waiver by such
party of any subsequent breach by the other party.
11. SEVERABILITY. If any clause, phrase, provision or portion of this
Agreement or the application thereof to any person or circumstance shall be
invalid or unenforceable under any applicable law, such event shall not affect
or render invalid or unenforceable the remainder of this Agreement and shall not
affect the application of any clause, provision or portion hereof to other
persons or circumstances.
12. BENEFIT. The provisions of this Agreement shall inure to the benefit
of the Company, its successors and assigns, and shall be binding upon the
Company and Employee, its and his heirs, personal representatives and
successors, including without limitation Employee's estate and the executors,
administrators, or trustees of such estate.
13. RELEVANT LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Georgia.
14. NOTICES. All notices, requests, demands and other communications in
connection with this Agreement shall be made in writing and shall be deemed to
have been given when delivered by hand or facsimile transmission, or 48 hours
after mailing at any general or branch United States Post Office, by registered
or certified mail, postage prepaid, addressed as follows, or to such other
address as shall have been designated in writing by the addressee:
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<PAGE>
(a) If to the Company:
Paragon Trade Brands, Inc.
Attn: Corporate Secretary
180 Technology Parkway
Norcross, Georgia 30092
Facsimile: (770) 300-3959
(b) If to Employee:
Stanley L. Bulger
10640 Montclair Way
Duluth, Georgia 30155
15. ENTIRE AGREEMENT. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements, arrangements, and
communications, whether oral or written, pertaining to the subject matter
hereof, and this Agreement shall not be modified or amended except by written
agreement of the Company and Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first set forth above.
PARAGON TRADE BRANDS, INC.
Attest:
/S/ MELANIE Y. ZELLER By: /S/ DAVID W. COLE
- --------------------- -----------------------
EMPLOYEE:
/S/ STANLEY L. BULGER
---------------------
Stanley L. Bulger
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<PAGE>
SCHEDULE A
PARAGON TRADE BRANDS, INC.
SEVERANCE PROTECTION PLAN
(VICE PRESIDENT - HUMAN RESOURCES)
WHEREAS, the Board of Directors of Paragon Trade Brands, Inc. (the
"Company") recognizes that the threat of an unsolicited takeover of the Company
may occur which can result in significant distractions to its key executive
personnel because of the uncertainties inherent in such a situation; and
WHEREAS, the Board has determined that it is essential and in the best
interest of the Company and its stockholders to retain the services of its vice
president - human resources in the event of a threat of a change in control of
the Company and to ensure his continued dedication and efforts in such event
without undue concern for his personal financial and employment security.
NOW, THEREFORE, in order to fulfill the above purposes, the following plan
has been developed and is hereby adopted.
ARTICLE I
ESTABLISHMENT OF PLAN
As of the Effective Date, the Company hereby establishes a severance
compensation plan known as the Paragon Trade Brands, Inc. Severance Protection
Plan (Vice President - Human Resources) as set forth in this document.
ARTICLE II
DEFINITIONS
As used herein the following words and phrases shall have the following
respective meanings unless the context clearly indicates otherwise.
2.1 BOARD. The Board of Directors of Paragon Trade Brands, Inc.
2.2 BASE SALARY. The amount Executive is entitled to receive as
wages or salary on an annualized basis.
2.3 CAUSE. The Company may terminate the Executive's employment for
"Cause." "Cause" is defined as (i) a material breach by Executive of the terms
of the Employment Agreement between Executive and the Company dated August 5,
1997, (ii) the conviction of Executive of any criminal act that two thirds (2/3)
of the Board shall, in its sole and absolute discretion, deem to constitute
Cause, or (iii) conduct by Executive in his office with the Company that is
grossly inappropriate and demonstrably likely to lead to material injury to the
Company, as determined by two-thirds (2/3) of the Board acting reasonably and in
good faith; provided, however, that in the case of (iii) above, such conduct
shall not constitute Cause unless the Board shall have delivered to Executive
notice setting forth with specificity (x) the
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<PAGE>
SCHEDULE A (CONT)
conduct deemed to qualify as Cause, (y) reasonable action that would remedy
such objection, and (z) a reasonable time (not less than thirty (30) days)
within which Executive may take such remedial action, and Executive shall not
have taken such specified remedial action within such specified reasonable time.
2.4 CHANGE IN CONTROL. A "Change in Control" shall be deemed to
occur:
(a) if any person (as such term is used in sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the "beneficial owner" (as defined
in Rule 13d-3 of the Exchange Act), directly or indirectly, of the securities of
the Company representing 50% or more of the combined voting power of the
Company's then outstanding securities,
(b) upon the first purchase of the Company's Common Stock pursuant
to a tender or exchange offer (other than a tender or exchange offer made by the
Company),
(c) upon the approval by the Company's stockholders of a merger or
consolidation, a sale or disposition of all or substantially all of the
Company's assets or a plan of liquidation or dissolution of the Company, or
(d) if, during any period of two consecutive years, individuals who
at the beginning of such period constitute the Board of Directors of the Company
cease for any reason to constitute at least a majority thereof, unless the
election or nomination for the election by the Company's stockholders of each
new director was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of the period.
2.5 COMPANY. Paragon Trade Brands, Inc.
2.6 EFFECTIVE DATE. The effective date of the Employment Agreement
between Stanley L. Bulger and the Company dated as of August 5, 1997.
2.7 EXECUTIVE. Stanley L. Bulger.
2.8 GOOD REASON. "Good Reason" shall mean the occurrence of any of
the following events or conditions:
(a) a change in the Executive's status, title, position or
responsibilities (including reporting responsibilities) which, in the
Executive's reasonable judgment, represents a substantial reduction of the
status, title, position or responsibilities as in effect immediately prior
thereto; the assignment to the Executive of any duties or responsibilities
which, in the Executive's reasonable judgment, are inconsistent with such
status, title, position or responsibilities; or any removal of the Executive
from or failure to reappoint or reelect him to any of such positions, except in
connection with the termination of his employment for Cause, Permanent
Disability, as a result of his death, or by the Executive other than for Good
Reason;
(b) a reduction in the Executive's annual base salary;
(c) the Company's requiring the Executive (without the consent of
the Executive) to be based at any place outside a thirty-five (35) mile radius
of his place of employment prior to a Change in Control, except for reasonably
required travel on the
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<PAGE>
SCHEDULE A (CONT)
Company's business which is not materially greater than such travel requirements
prior the Change in Control;
(d) the failure by the Company to (A) continue in effect any
material compensation or benefit plan in which the Executive was participating
at the time of the Change in Control, or (B) provide the Executive with
compensation and benefits at least equal (in terms of benefit levels and/or
reward opportunities) to those provided for under each employee benefit plan,
program and practice as in effect immediately prior to the Change in Control (or
as in effect following the Change in Control, if greater);
(e) any material breach by the Company of any provisions of
this Plan;
(f) any purported termination of the Executive's employment for
Cause by the Company which does not otherwise comply with the terms of this
Plan.
2.9 NOTICE OF TERMINATION. "Notice of Termination" shall mean a notice
which indicates the specific provisions in this Plan relied upon as the basis
for any termination of employment and shall set forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Executive's employment under the provision so indicated. No purported
termination of employment shall be effective without such Notice of Termination.
2.10 PERMANENT DISABILITY. The Executive shall be deemed to have become
permanently disabled for purposes of this Plan if the Board of Directors of the
Company finds, upon the basis of medical evidence satisfactory to it, that the
Executive is totally disabled, whether due to physical or mental condition, so
as to be prevented from engaging in further employment by the Company and that
such disability will be permanent and continuous during the remainder of his
life.
2.11 SEVERANCE BENEFIT. The benefit payable in accordance with
Article IV of the Plan.
ARTICLE III
ELIGIBILITY
3.1 PARTICIPATION. Executive shall automatically be entitled to be a
Participant in the Plan as of the Effective Date.
3.2 DURATION OF PARTICIPATION. Executive shall cease to be a Participant
in the Plan if he ceases to be an employee of the Company at any time prior to a
Change in Control or, if his employment is terminated following a Change in
Control under circumstances where he is not entitled to severance benefits under
the terms of this Plan. If Executive is entitled to payment of a Severance
Benefit, he shall remain a Participant in the Plan until the full amount of the
Severance Benefit has been paid to him.
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<PAGE>
SCHEDULE A (CONT)
ARTICLE IV
SEVERANCE BENEFITS
4.1 RIGHT TO SEVERANCE BENEFIT. Executive shall be entitled to receive
from the Company a Severance Benefit in the amount provided in Section 4.2 if
(i) a Change in Control has occurred and (ii) within one year thereafter,
Executive's employment with the Company terminates for any reason, except (b),
that notwithstanding the provisions of subparagraph (1), no benefits under this
Plan will be payable should the Participant's termination of employment be (i)
for Cause, (ii) by reason of Permanent Disability, (iii) initiated by the
Participant for other than Good Reason, or (iv) by reason of the Participant's
death.
4.2 AMOUNT OF SEVERANCE BENEFITS. If Executive's employment is terminated
in circumstances entitling him to a Severance Benefit as provided in Section
4.1, Executive shall be entitled to the following benefits:
(a) the Company shall pay to the Executive, as severance pay and in
lieu of any further salary for periods subsequent to the Termination Date (as
specified in Section 5.2), in a single payment (without any discount for
accelerated payment), an amount in cash equal to one (1) times the Executive's
Base Salary immediately prior to the Change in Control, less any amounts paid to
Executive under the Paragon Trade Brands Salaried Severance Plan;
(b) for a period of twelve (12) months subsequent to the Executive's
termination of employment, the Company shall at its expense continue on behalf
of the Executive and his dependents and beneficiaries, the life insurance,
disability, medical dental and hospitalization benefits which were being
provided to the Executive at the time of termination of employment. The benefits
provided in this Subsection 4.2(b) shall be no less favorable to the Executive,
in terms of amounts and deductibles and costs to him, than the coverage provided
the Executive under the plans providing such benefits at the time Notice of
Termination is given. The Executive shall notify the Company if he obtains
employment with another entity or individual during the twelve (12) months
subsequent to his termination and in doing so shall inform the Company whether
the Executive has been provided all or some of the foregoing benefits by his new
employer. The Company's obligation hereunder with respect to the foregoing
benefits shall be limited to the extent that the Executive obtains any such
benefits pursuant to a subsequent employer's benefit plans, in which case the
Company may reduce the coverage of any benefits it is required to provide the
Executive hereunder as long as the aggregate coverage of the combined benefit
plans is no less favorable to the Executive, in terms of amounts and deductibles
and costs to him, than the coverage required to be provided hereunder. This
subsection (b) shall not be interpreted so as to limit any benefits to which the
Executive or his dependents may be entitled under any of the Company's employee
benefit plans, programs or practices following the Executive's termination of
employment. The provision of continued benefits to the Executive under this
subsection (b) shall not deprive the Executive of any independent statutory
right to continue benefits coverage pursuant to Sections 601 through 606 of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA").
(c) the Executive shall not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to the Executive in any subsequent employment.
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<PAGE>
SCHEDULE A (CONT)
ARTICLE V
TERMINATION OF EMPLOYMENT
5.1 WRITTEN NOTICE REQUIRED. Any purported termination of
employment, either by the Company or by the Executive, shall be communicated
by written Notice of Termination to the other.
5.2 TERMINATION DATE. In the case of the Executive's death, the
Executive's Termination Date shall be his date of death. In all other cases, the
Executive's Termination Date shall be the date specified in the Notice of
Termination subject to the following:
(a) If the Executive's employment is terminated by the Employer for
Cause or due to Permanent Disability, the date specified in the Notice of
Termination shall be at least thirty (30) days from the date the Notice of
Termination is given to the Executive, provided that in the case of Disability
the Executive shall not have returned to the full time performance of his duties
during such period of at least thirty (30) days; and
(b) If the Executive terminates his employment for Good Reason, the
date specified in the Notice of Termination shall not be more than sixty (60)
days from the date the Notice of Termination is given to the Company.
ARTICLE VI
SUCCESSORS TO CORPORATION
6.1 SUCCESSORS. This Plan shall bind any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, in the same
manner and to the same extent that the Company would be obligated under this
Plan if no succession had taken place. In the case of any transaction in which a
successor would not by the foregoing provision or by operation of law be bound
by the Plan, the Company shall require such successor expressly and
unconditionally to assume and agree to perform the Company's obligations under
this Plan, in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place.
ARTICLE VII
DURATION, AMENDMENT AND PLAN TERMINATION
7.1 DURATION. This Plan shall continue in effect until terminated in
accordance with Section 7.2. If a Change in Control occurs, this Plan shall
continue in full force and effect, and shall not terminate or expire until after
all Executives who have become entitled to Severance Benefits hereunder shall
have received such payments in full.
7.2 AMENDMENT AND TERMINATION. The Plan may be terminated or amended in
any respect by resolution adopted by two-thirds of the Board, provided, however,
that no such amendment or termination of the Plan may be made if such amendment
or termination would adversely affect any right of an Executive and provided
further, that the Plan no longer shall be
-5-
<PAGE>
SCHEDULE A (CONT)
subject to amendment, change, substitution, deletion, revocation or termination
in any respect whatsoever following a Change in Control.
7.3 FORM OF AMENDMENT. The form of amendment or termination of the Plan
shall be a written instrument signed by a duly authorized officer or officers of
the Corporation, certifying that the amendment or termination has been approved
by the Board.
ARTICLE VIII
ADDITIONAL PAYMENTS BY THE EMPLOYER
8.1 In the event it shall be determined that any payment or distribution
of any type by the Company to or for the benefit of the Executive, whether paid
or payable or distributed or distributable pursuant to the terms of this Plan or
otherwise (the "Total Payments"), would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code") or
any interest or penalties with respect to such excise tax (such excise tax,
together with any such interest and penalties, are collectively referred to as
the "Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes (including any interest or penalties imposed with respect
to such taxes), including any Excise Tax imposed upon the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Total Payments. Payment of the Gross-Up Payment shall be made
in accordance with Section 7.3.
8.2 DETERMINATION BY ACCOUNTANT. All determinations required to be made
under this Section 8, including whether a Gross-Up Payment is required and the
amount of such Gross-Up Payment, shall be made by the independent accounting
firm retained by the Company on the date of Change in Control (the "Accounting
Firm"), which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the date of termination, if
applicable, or such earlier time as is requested by the Company. If the
Accounting Firm determines that no Excise Tax is payable by the Company, it
shall furnish the Executive with an opinion that he has substantial authority
not to report any Excise Tax on his federal income tax return. Any determination
by the Accounting Firm shall be binding upon the Company and the Participant. As
a result. of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8.3 and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the amount
of the Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Executive.
8.3 NOTIFICATION REQUIRED. The Executive shall notify the Company in
writing of any claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such notification
shall be given as soon as practicable but no later than ten business days after
the Executive knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the thirty-day
period following the date of which it gives such notice to the Company (or such
shorter period ending
-6-
<PAGE>
SCHEDULE A (CONT)
on the date that any payment of taxes with respect to such
claim is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(a) give the Company any information reasonably requested by
the Company relating to such claim,
(b) take such action in connection with contesting such claim as the
Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim by
an attorney reasonably selected by the Company,
(c) cooperate with the Company in good faith in order to
effectively contest such claim,
(d) permit the Company to participate in any proceedings relating to
such claim, provided, however, that the Company shall bear and pay directly all
costs and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Participant
harmless, on an after-tax basis, for any Excise Tax or income tax, including
interest and penalties with respect thereto, imposed as a result of such
representation and payment provisions of this Section 8.3, the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forego any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim and
may, at its sole option, either direct the Executive to pay the tax claimed and
sue for a refund, or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Participant, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax, including interest or
penalties with respect thereto, imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Participant shall be entitled to settle or contest, as the case may be, any
other issued raised by the Internal Revenue Service or any other taxing
authority.
8.4 REPAYMENT. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8.3, the Executive becomes
entitled to receive any refund with respect to such claim, the Executive
shall (subject to the Company's complying with the requirements of Section
8.3) promptly pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 8.3, a determination is made that the Executive shall
not be entitled to any refund with respect to such claim and the Company
does not notify the Executive in writing of its intent to contest such
denial of refund prior to the expiration of thirty days after such
determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of such
-7-
<PAGE>
SCHEDULE A (CONT)
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid.
ARTICLE IX
MISCELLANEOUS
9.1 INDEMNIFICATION. If the Executive institutes any legal action in
seeking to obtain or enforce, or is required to defend in any legal action the
validity or enforceability of, any right or benefit provided by this Plan, the
Company will pay for all actual legal fees and expenses incurred by the
Executive.
9.2 EMPLOYMENT Status. This Plan does not constitute a contract of
employment or impose on the Company any obligation to retain the Executive as an
employee, to change the status of the Executive's employment or to change any
employment policies of the Company.
9.3 VALIDITY AND SEVERABILITY. The invalidity or unenforceability of any
provision of the Plan shall not affect the validity or enforceability of any
other provision of the Plan, which shall remain in full force and effect, and
any prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
9.4 GOVERNING LAW. The validity, interpretation, construction and
performance of the Plan shall in all respects be governed by the laws of the
State of Georgia.
9.5 CHOICE OF FORUM. Executive shall be entitled to enforce the provisions
of this Plan, or to assert any claim for benefits under the terms of this Plan,
in any state or federal court located in the State of Georgia, in addition to
any other appropriate forum.
-8-
<PAGE>
SCHEDULE B
PARAGON TRADE BRANDS, INC.
EMPLOYEE CONFIDENTIALITY AGREEMENT
In consideration of the compensation paid to me by my employer (my
employer can be Paragon Trade Brands, Inc. or any of its majority owned
subsidiaries) and my continued employment as an employee in a position where my
duties include the possession of or access to my employer's trade secrets*, such
duties being assigned on August 5, 1997, I hereby agree on behalf of myself, my
executors, legal representatives, and assigns that:
1. I will not at any time, either during or after my employment by my
employer, disclose to those not confidentially bound to my employer,
or use for their or my own benefit, any of my employer's trade
secrets without written consent from my employer.
2. I will, upon termination of my employment with my employer or upon
prior request, deliver to my employer any and all objects,
materials, devices, or substances including any writing, recording,
drawing, sample, specimen, prototype model, photography, blueprint
or map which describes, depicts, contains, constitutes, reflects or
records my employer's trade secrets, and all copies thereof in my
possession; and
3. I consent to my employer's notification to any future employer
that I may have of the existence of this agreement.
/S/ MELANIE Y. ZELLER /S/ STANLEY L. BULGER
- --------------------- ---------------------
Witness Employee
PARAGON TRADE BRANDS, INC.
Accepted: AUGUST 5, 1997 By: /S/ DAVID W. COLE
--------------------- --------------------
(Date)
*"Trade Secret" means the whole or any portion or phase of any scientific or
technical or business information, design, process, procedure, formula or
improvement, any future plans, customer lists, market studies, cost and price
studies, or similar business information which is secret and of value. A "trade
secret" shall be presumed to be secret when the employer takes measures to
prevent it from becoming available to persons other than those selected by the
employer to have access thereto for limited purposes. It shall be presumed to be
of value if money has been spent in its development, if it gives the employer an
opportunity to obtain an advantage over competitors who do not know or use it,
or if it is salable.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM FORM 10Q FOR THE QUARTER ENDED SEPTEMBER 28, 1997 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-END> SEP-28-1997
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<CURRENT-ASSETS> 128,105
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<DEPRECIATION> 165,684
<TOTAL-ASSETS> 412,152
<CURRENT-LIABILITIES> 118,922
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0
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<TOTAL-LIABILITY-AND-EQUITY> 412,152
<SALES> 425,570
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