SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-11368
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
PARAGON RETIREMENT INVESTMENT SAVINGS MANAGEMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Page 1 of 19
Exhibit index at Page 17
<PAGE>
I. REPORT
Financial Statements and Schedules as of December 31, 1997 and December 31,
1996, Together With Auditors' Report, Prepared in Accordance With the Financial
Reporting Requirements of ERISA.
2
<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
FINANCIAL STATEMENTS AND SCHEDULES
AS OF DECEMBER 31, 1997 AND 1996
TOGETHER WITH
AUDITORS' REPORT
3
<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1997 AND 1996
TABLE OF CONTENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Statement of Net Assets Available for Benefits, With Fund Information--
December 31, 1997
Statement of Net Assets Available for Benefits, With Fund Information--
December 31, 1996
Statement of Changes in Net Assets Available for Benefits, With Fund
Information, for the Year Ended December 31, 1997
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
SCHEDULES SUPPORTING FINANCIAL STATEMENTS
Schedule I: Item 27a--Schedule of Assets Held for Investment Purposes--
December 31, 1997
Schedule II: Item 27d--Schedule of Reportable Transactions for the Year
Ended December 31, 1997
4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
Paragon Retirement Investment
Savings Management Plan:
We have audited the accompanying statements of net assets available for
benefits, with fund information, of the PARAGON RETIREMENT INVESTMENT SAVINGS
MANAGEMENT PLAN as of December 31, 1997 and 1996 and the related statement of
changes in net assets available for benefits, with fund information, for the
year ended December 31, 1997. These financial statements and the schedules
referred to below are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Paragon
Retirement Investment Savings Management Plan as of December 31, 1997 and 1996
and the changes in its net assets available for benefits for the year ended
December 31, 1997 in conformity with generally accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for purposes
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of Labor
Rules and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974. The fund information in the statements of net
assets available for benefits and the statement of changes in net assets
available for benefits is presented for purposes of additional analysis rather
than to present the net assets available for benefits and changes in net assets
available for benefits of each fund. The supplemental schedules and fund
information have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
As discussed in Note 6 to the accompanying financial statements, Paragon Trade
Brands, Inc., the plan sponsor, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. The accompanying financial statements
have been prepared assuming that the Paragon Retirement Investment Savings
Management Plan will continue as a going concern. However, because of the plan
sponsor's Chapter 11 filing, there is substantial doubt about whether the Plan
will continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Arthur Andersen LLP
Atlanta, Georgia
April 17, 1998
5
<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
-----------------------------------------------------------------------------------------------------
VANGUARD
INDEX VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD PARAGON
SMALL CAP WELLESLEY VANGUARD U.S. INTERNATIONAL BOND INVESTMENT COMMON
STOCK INCOME INDEX 500 VANGUARD GROWTH GROWTH INDEX CONTRACT STOCK
PORTFOLIO FUND PORTFOLIO WINDSOR II FUND FUND FUND TRUST FUND
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair
value:
Registered investment
companies $20,205 $2,062,099 $3,866,548 $3,608,548 $3,293,953 $444,531 $610,084 $725,215 $ 0
Company stock fund 0 0 0 0 0 0 0 0 3,839,594
Participant loans 0 0 0 0 0 0 0 0 0
------- ---------- ---------- ---------- ---------- -------- -------- -------- ---------
20,205 2,062,099 3,866,548 3,608,548 3,293,953 444,531 610,084 725,215 3,839,594
Employee contributions
receivable 410 24,380 34,349 34,122 33,688 8,803 6,932 6,510 8,676
Employer contributions
receivable 146 9,363 12,794 13,185 12,488 2,991 2,875 2,564 4,463
Loan payments receivable 65 4,310 4,096 5,036 3,707 1,346 1,204 987 1,101
------- ---------- ---------- ---------- ---------- -------- -------- -------- ---------
Total assets 20,826 2,100,152 3,917,787 3,660,891 3,343,836 457,671 621,095 735,276 3,853,834
LIABILITIES:
Refunds payable to
participants 192 1,578 1,626 3,326 4,377 523 32 305 1,881
------- ---------- ---------- ---------- ---------- -------- -------- -------- ---------
NET ASSETS AVAILABLE FOR
BENEFITS $20,634 $2,098,574 $3,916,161 $3,657,565 $3,339,459 $457,148 $621,063 $734,971 $3,851,953
======= ========== ========== ========== ========== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
LOAN
FUND TOTAL
-------- ---------
<S> <C> <C>
ASSETS:
Investments, at fair
value:
Registered investment
companies $ 0 $14,631,183
Company stock fund 0 3,839,594
Participant loans 624,854 624,854
-------- -----------
624,854 19,095,631
Employee contributions
receivable 0 157,870
Employer contributions
receivable 0 60,869
Loan payments receivable (21,852) 0
-------- -----------
Total assets 603,002 19,314,370
LIABILITIES:
Refunds payable to
participants 0 13,840
-------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS $603,002 $19,300,530
======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1996
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
------------------------------------------------------------------------------------------
VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD PARAGON
WELLESLEY VANGUARD U.S. INTERNATIONAL BOND INVESTMENT COMMON
INCOME INDEX 500 VANGUARD GROWTH GROWTH INDEX CONTRACT STOCK
FUND PORTFOLIO WINDSOR II FUND FUND FUND TRUST FUND
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Registered investment
companies $1,589,138 $2,392,082 $2,578,130 $2,456,768 $447,328 $489,067 $703,973 $ 0
Company stock fund 0 0 0 0 0 0 0 6,584,701
Participant loans 0 0 0 0 0 0 0 0
---------- ---------- ---------- ---------- -------- -------- -------- ---------
1,589,138 2,392,082 2,578,130 2,456,768 447,328 489,067 703,973 6,584,701
Employee contributions
receivable 25,332 26,889 25,994 26,479 6,337 7,426 7,939 10,989
Employer contributions
receivable 0 0 0 0 0 0 0 2,043,863
Loan payments receivable 2,552 1,754 2,183 1,649 739 681 440 3,235
---------- ---------- ---------- ---------- -------- -------- -------- ---------
NET ASSETS AVAILABLE FOR
BENEFITS $1,617,022 $2,420,725 $2,606,307 $2,484,896 $454,404 $497,174 $712,352 $8,642,788
========== ========== ========== ========== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
LOAN
FUND TOTAL
------------------------
<S> <C> <C>
ASSETS:
Investments, at fair value:
Registered investment
companies $ 0 $10,656,486
Company stock fund 0 6,584,701
Participant loans 389,211 389,211
-------- -----------
389,211 17,630,398
Employee contributions
receivable 0 137,385
Employer contributions
receivable 0 2,043,863
Loan payments receivable (13,233) 0
-------- -----------
NET ASSETS AVAILABLE FOR
BENEFITS $375,978 $19,811,646
======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
7
<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS,
WITH FUND INFORMATION,
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
-----------------------------------------------------------------------------------------------------
VANGUARD
INDEX VANGUARD VANGUARD VANGUARD VANGUARD VANGUARD PARAGON
SMALL CAP WELLESLEY VANGUARD U.S. INTERNATIONAL BOND INVESTMENT COMMON
STOCK INCOME INDEX 500 VANGUARD GROWTH GROWTH INDEX CONTRACT STOCK
PORTFOLIO FUND PORTFOLIO WINDSOR II FUND FUND FUND TRUST FUND
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NET ASSETS, BEGINNING OF YEAR $ 0 $1,617,022 $2,420,725 $2,606,307 $2,484,896 $454,404 $497,174 $712,352 $8,642,788
------- ---------- ---------- ---------- ---------- -------- -------- -------- ----------
Sources:
Employee contributions 363 314,181 362,546 381,883 379,481 93,477 95,168 88,365 174,494
Employer contributions 185 18,858 14,638 21,742 24,996 6,381 5,861 5,291 461,220
Rollovers 0 2,951 49,644 27,323 23,226 6,169 6,807 2,098 21,330
Loan payments 123 42,732 38,846 44,952 37,581 13,771 11,965 9,326 53,299
Investment income 807 226,312 76,806 323,025 126,957 18,943 35,258 39,630 0
Appreciation (depreciation)
in fair value of assets (744) 114,150 807,098 538,718 530,724 (5,503) 14,898 0 (4,031,949)
Interfund transfers 20,001 127,975 830,807 328,748 239,991 91,793 53,342 134,074 350,236
------- ---------- ---------- ---------- ---------- -------- -------- -------- ----------
20,735 847,159 2,180,385 1,666,391 1,362,956 225,031 223,299 278,784 (2,971,370)
------- ---------- ---------- ---------- ---------- -------- -------- -------- ----------
Uses:
Benefit withdrawals 0 178,598 444,772 338,538 271,866 71,351 45,677 122,871 381,130
Loan withdrawals 0 103,042 77,643 100,712 79,033 21,345 20,081 34,932 63,727
Fees and expenses 101 1,976 3,304 4,636 7,363 2,445 190 988 18,222
Interfund transfers 0 81,991 159,230 171,247 150,131 127,146 33,462 97,374 1,356,386
------- ---------- ---------- ---------- ---------- -------- -------- -------- ----------
101 365,607 684,949 615,133 508,393 222,287 99,410 256,165 1,819,465
------- ---------- ---------- ---------- ---------- -------- -------- -------- ----------
NET ASSETS, END OF YEAR $20,634 $2,098,574 $3,916,161 $3,657,565 $3,339,459 $457,148 $621,063 $734,971 $3,851,953
======= ========== ========== ========== ========== ======== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
LOAN
FUND TOTAL
-----------------------
<S> <C> <C>
NET ASSETS, BEGINNING OF YEAR $375,978 $19,811,646
-------- -----------
Sources:
Employee contributions 0 1,889,958
Employer contributions 0 559,172
Rollovers 0 139,548
Loan payments (252,595) 0
Investment income 41,720 889,458
Appreciation (depreciation)
in fair value of assets 0 (2,032,608)
Interfund transfers 0 2,176,967
-------- -----------
(210,875) 3,622,495
-------- -----------
Uses:
Benefit withdrawals 62,616 1,917,419
Loan withdrawals (500,515) 0
Fees and expenses 0 39,225
Interfund transfers 0 2,176,967
-------- -----------
(437,899) 4,133,611
-------- -----------
NET ASSETS, END OF YEAR $603,002 $19,300,530
======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
8
<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1997 AND 1996
1. PLAN DESCRIPTION
The following description of the Paragon Retirement Investment Savings
Management Plan (the "Plan") is provided for general information
purposes only. Participants should refer to the plan agreement for a
more comprehensive description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan established by Paragon Trade
Brands, Inc. (the "Company"), under the provisions of Sections 401(a)
and 401(k) of the Internal Revenue Code ("IRC"), for the benefit of
eligible employees of the Company. The Plan is subject to the provisions
of the Employee Retirement Income Security Act of 1974 ("ERISA"), as
amended.
The Paragon Profit Sharing Plan ("Profit Sharing Plan") was originally
adopted effective the closing date of the initial public offering of the
shares of common stock of the Company in January 1993 by Weyerhaeuser
Company. The Paragon 401(k) Savings Plan ("401(k) Plan") was originally
adopted effective February 2, 1993 by the Company. Effective October 1,
1993, the Profit Sharing Plan and the 401(k) Plan were merged and
restated as the Plan. Effective January 1, 1995, the plan was renamed
the Paragon Retirement Investment Savings Management Plan.
ELIGIBILITY
All regular employees of the Company who have completed one year of
service are eligible to participate in the Plan, except for employees
covered by a collective bargaining agreement that does not provide for
participation in the Plan, employees who are nonresident aliens and earn
no U.S.-source income, employees classified as bag stickering, and
hourly paid administrative employees. Effective January 1, 1996, former
employees of Pope & Talbot, Inc. received credit for years of service
with Pope & Talbot, Inc. or any of its subsidiaries.
PLAN ADMINISTRATION
The Plan is administered by the plan administrative committee (the
"Committee"), which is appointed by the board of directors of the
Company. The Plan's investments are held under a trust agreement with
Vanguard Fiduciary Trust Company.
9
<PAGE>
CONTRIBUTIONS
Eligible employees can contribute up to 15% of compensation, as defined
by the Plan, subject to certain limitations under the IRC. The Company
provides a matching contribution equal to 50% of each participant's
contribution that does not exceed 6% of compensation. The Company may,
at its discretion, make profit-sharing contributions to the Plan in
amounts to be determined by the board of directors. No profit-sharing
contributions were made for the year ended December 31, 1997.
Forfeitures are used to reduce future matching and profit-sharing
contributions. The balance of unutilized forfeitures as of December 31,
1997 and 1996 was $2,448 and $55,668, respectively.
VESTING
Participants are immediately vested in their contributions and the
actual earnings thereon. Participants become fully vested in matching
and profit-sharing contributions when they attain normal retirement age,
as defined by the Plan, or after completing five years of service,
whichever occurs first. Upon a participant's death or disability,
account balances become fully vested.
BENEFITS
Upon termination of service, a participant may elect to receive
currently or defer receipt of an amount equal to the value of the vested
interest in his or her account, if the vested interest is greater than
$3,500. For vested interests not exceeding $3,500, a distribution will
be made to the participant within 60 days after the last day of the plan
year in which the termination occurs. All benefit payments are made in
lump-sum distributions. Special distribution rules apply to benefit
payments upon attainment of age 70 1/2 and in-service withdrawals. In
these cases, the plan document should be consulted.
PARTICIPANT ACCOUNTS
Individual accounts are maintained for each of the Plan's participants
to reflect the participant's contributions, matching and profit-sharing
contributions, as well as the participant's share of the Plan's income
or loss and any related administrative expenses. The trust funds are
valued on each business day. Participant accounts are adjusted as of
each valuation date to reflect any distributions made and contributions
received, including income or loss on trust fund investments.
Allocations of earnings, gains, and losses are based on the proportion
of each participant's account invested in a particular fund to the total
of all participant account balances invested in such fund.
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct employee
contributions in 10% increments in any of the following investment
options:
o Vanguard Wellesley Income Fund--seeks current income consistent
with reasonable risk by investing in a portfolio of high-quality
bonds and stocks. The fund also seeks the potential for moderate
growth of capital.
10
<PAGE>
o Vanguard Index 500 Portfolio--seeks to provide investment results
that correspond to the price and yield performance of publicly
traded stocks, in the aggregate, as represented by the Standard &
Poor's 500 Composite Stock Price Index.
o Vanguard Windsor II--seeks to provide long-term capital
appreciation and dividend income by investing in common stocks.
As a secondary objective, the fund also seeks a reasonable level
of current income.
o Vanguard U.S. Growth Fund--seeks long-term capital appreciation
by investing in a diversified portfolio of common stocks with
above-average growth potential.
o Vanguard International Growth Fund--seeks long-term capital
growth by investing in the common stocks of companies based
outside of the United States.
o Vanguard Bond Index Fund--seeks to match the total return of the
Lehman Brothers Aggregate Bond Index.
o Vanguard Investment Contract Trust--seeks to provide an
attractive rate of interest and safety of principal.
o Paragon Common Stock Fund--invests primarily in Company common
stock. Prior to December 1, 1997, profit sharing and matching
contributions were made to this account and could be transferred
to the other investment options at the discretion of the
participant. Effective December 1, 1997, profit sharing and
matching contributions are now allocated according to the
participant's investment elections.
Effective December 1, 1997, the following investment option was added:
o Vanguard Index Small Capitalization Stock Portfolio--seeks
to provide long-term growth of capital.
A participant may change his or her investment directions daily.
Investments in the Paragon Common Stock Fund are assigned units of
participation. The unit value of the Paragon Common Stock Fund is
determined daily based on the fair market value of the underlying net
assets. The total units assigned to participants at December 31, 1997
and 1996 were 1,090,794 and 800,085, respectively. The unit value at
December 31, 1997 and 1996 was $3.52 and $8.23, respectively.
LOANS TO PARTICIPANTS
A participant may borrow up to the lesser of 50% of his or her vested
account balance, excluding profit-sharing contributions, or $50,000,
reduced by the highest loan amount outstanding during the preceding
12-month period, with a minimum loan amount of $1,000. Loans are
repayable through payroll deductions over periods ranging up to 60
11
<PAGE>
months, except for loans used to purchase the participant's primary
residence, which can be repaid over a longer period. All loans bear
interest at rates set by the Committee, based on the rates charged by
commercial lenders for similar loans. As of December 31, 1997, there
were no loans in default with respect to interest and principal
payments.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis
of accounting.
INCOME RECOGNITION
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are recorded
on the ex-dividend date. Net appreciation (depreciation) in the fair
value of assets includes both realized and unrealized appreciation
(depreciation) and is computed using the average cost method, based on
the beginning-of-year market value, or the cost of the security if it is
acquired during the year.
INVESTMENT VALUATION
The Plan's investments are stated at fair value. Shares of registered
investment companies are valued at quoted market prices, which represent
the net asset value of shares held for the Plan at year-end. The value
for the Paragon Common Stock Fund is based on the closing share price of
the Company's common stock.
Investments in the Paragon Common Stock Fund are assigned units of
participation. The unit value of the fund is determined daily based on
the fair market value of the underlying net assets. The total units
assigned to participants at December 31, 1997 and 1996 were 1,090,794
and 800,085, respectively. The unit value at December 31, 1997 and 1996
was $3.52 and $8.23, respectively.
ADMINISTRATIVE EXPENSES
Investment advisory fees for portfolio management by Vanguard Group,
Inc. are paid directly from fund earnings. Other administrative expenses
are paid by the Company.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires the Plan's management to use
estimates and assumptions that affect the net assets available for
benefits and the changes therein. Actual results could differ from those
estimates.
12
<PAGE>
3. TAX STATUS
The Internal Revenue Service has determined and informed the Company by
a letter dated September 18, 1995 that the Plan is designed in
accordance with applicable sections of the IRC. The Plan has been
amended since receiving the determination letter. However, the Committee
believes that the Plan is designed and is currently being operated in
compliance with the applicable requirements of the IRC. Therefore, the
plan administrator believes that the Plan was qualified and that the
related trust was tax-exempt as of December 31, 1997 and 1996.
4. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. In the event of
plan termination, participants will become fully vested in their account
balances and distributions will be made to participants as soon as
administratively feasible.
5. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits
according to the financial statements to the net assets available for
benefits as reported on the Plan's Form 5500 as of December 31, 1996:
Net assets available for benefits per the financial
statements $19,811,646
Amounts allocated to withdrawing participants (56,643)
------------
Net assets available for benefits per Form 5500 $19,755,003
============
The following is a reconciliation of benefits paid to participants
according to the financial statements to benefits paid to participants
as reported on the Plan's Form 5500 for the year ended December 31,
1997:
Benefits paid to participants per the financial
statements $1,917,419
Less amounts allocated to withdrawing participants
at December 31, 1996 (56,643)
------------
Benefits paid to participants per Form 5500 $1,860,776
============
Amounts allocated to withdrawing participants are recorded on the Form
5500 for benefit claims that have been processed and approved for
payment prior to December 31 but not paid as of that date.
6. CHAPTER 11 BANKRUPTCY OF PLAN SPONSOR
Paragon Trade Brands, Inc., the plan sponsor, filed a voluntary petition
for relief under Chapter 11 of the U.S. Bankruptcy Code due to the fact
that the District Court for the
13
<PAGE>
District of Delaware issued a judgment and opinion finding that the
Company's diaper products infringe certain patents held by the Proctor &
Gamble Company. The Company intends to appeal the judgment and intends
to file a plan of reorganization that will be acceptable to the
Bankruptcy Court and the Company's creditors. In the event a plan of
reorganization is accepted, continuation of the business thereafter is
dependent on the Company's ability to achieve successful future
operations. The accompanying financial statements have been prepared
assuming that the Paragon Retirement Investment Savings Management Plan
will continue as a going concern. However, should the Plan be
terminated, the assets of the Plan would be liquidated at their then
fair value and distributed to participants. All assets of the Plan are
held in trust and are protected from the creditors of the Company.
However, because of the plan sponsor's Chapter 11 filing, there is
substantial doubt about whether the Plan will continue as a going
concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
7. SUBSEQUENT EVENTS
Effective January 1, 1998, the Plan was amended to permit the Company to
automatically distribute the account balances of terminated participants
whose vested account balances do not exceed $5,000 in accordance with
the Taxpayer Relief Act of 1997.
Effective April 1, 1998, the one year of service requirement for
eligibility to participate in the Plan was reduced to six months of
service. Additionally, participants will become fully vested in their
account balances after completing three years of service.
The Company's common stock was valued at $12.875 per share at December
31, 1997, representing approximately 20% of the Plan's net assets.
However, the Company's stock closed at $4.375 per share on April 18,
1998.
14
<PAGE>
SCHEDULE I
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
ITEM 27A--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1997
SHARES/ CURRENT
ISSUER/DESCRIPTION UNITS COST VALUE
------------------------------------------------------------------------
* VANGUARD--WELLESLEY INCOME FUND 94,332 $ 1,893,255 $ 2,062,099
* VANGUARD--INDEX 500 PORTFOLIO 42,928 2,712,422 3,866,548
* VANGUARD--INDEX TRUST SMALL CAP
STOCK PORTFOLIO 851 20,950 20,205
* VANGUARD--WINDSOR II 126,085 2,815,432 3,608,548
* VANGUARD--U.S. GROWTH FUND 114,772 2,429,631 3,293,953
* VANGUARD--INTERNATIONAL GROWTH FUND 27,122 433,597 444,531
* VANGUARD--BOND INDEX FUND 60,464 593,781 610,084
* VANGUARD--INVESTMENT CONTRACT TRUST 725,215 725,215 725,215
* PARAGON COMMON STOCK FUND 1,090,794 5,674,257 3,839,594
PARTICIPANT LOANS (INTEREST RATES
FROM 8% TO 11%) 0 603,002 603,002
----------- -----------
$17,901,542 $19,073,779
=========== ===========
*Represents a party in interest.
The accompanying notes are an integral part of this schedule.
15
<PAGE>
SCHEDULE II
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
ITEM 27D--SCHEDULE OF REPORTABLE TRANSACTIONS (A)
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
NUMBER NUMBER NET
OF PURCHASE PURCHASE OF SALE SELLING GAIN
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS PRICE TRANSACTIONS PRICE COST (LOSS)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
* VANGUARD GROUP, INC. Wellesley Income Fund 67 $ 724,419 122 $ 365,998 $ 333,101 $ 32,897
* VANGUARD GROUP, INC. Vanguard Index 500 Portfolio 126 1,362,817 114 700,328 523,792 176,536
* VANGUARD GROUP, INC. Vanguard Windsor II 97 1,111,165 114 636,734 492,304 144,430
* VANGUARD GROUP, INC. Vanguard U.S. Growth Fund 82 814,856 104 526,318 399,708 126,610
* PARAGON TRADE BRANDS, INC. Paragon Common Stock Fund 67 3,263,976 177 2,153,874 2,173,057 (19,183)
</TABLE>
*Represents a party in interest.
(a) Represents a transaction or a series of transactions in excess of 5%
of the current value of plan assets as of the beginning of the year.
The accompanying notes are an integral part of this schedule.
16
<PAGE>
EXHIBIT PAGE
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23.1 Consent of Accountants 19
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrative Committee has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
PARAGON TRADE BRANDS, INC.
PARAGON RETIREMENT INVESTMENT SAVINGS
MANAGEMENT PLAN
By: /s/
------------------------------
Catherine O. Hasbrouck
Plan Administrator
June 29, 1998
18
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated April 17, 1998 on the financial statements of the
Paragon Retirement Investment Savings Management Plan, included in the Paragon
Retirement Investment Savings Management Plan annual report on Form 11-K for the
year ended December 31, 1997, into the Company's previously filed Registration
Statement File No. 33-73726 on
Form S-8.
Arthur Andersen LLP
Atlanta, Georgia
June 26, 1998
19
