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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PARAGON TRADE BRANDS, INC.
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(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[PARAGON LOGO]
March 30, 1998
Dear Stockholder:
You are cordially invited to attend the 1998 Annual Meeting of Stockholders of
Paragon Trade Brands, Inc. (the "Company"), at 9:00 a.m. on Monday, May 11,
1998, at the Company's headquarters located at 180 Technology Parkway, Norcross,
Georgia.
The Notice of Annual Meeting of Stockholders and the Proxy Statement that
follow provide details of the business to be conducted at the Annual Meeting.
Whether or not you plan to attend the Annual Meeting, we hope that you will
have your stock represented by completing, signing, dating and returning your
proxy card in the enclosed envelope as soon as possible. Your stock will be
voted in accordance with the instructions you have given in your proxy.
Sincerely,
/s/ Bobby V. Abraham
Bobby V. Abraham
Chairman and Chief Executive Officer
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IMPORTANT
A proxy card is enclosed. All stockholders are urged to complete, sign, date
and mail the proxy card promptly. The enclosed envelope for return of the proxy
card requires no postage. Any stockholder attending the Annual Meeting may
personally vote on all matters that are considered, in which event the signed
proxy will be revoked.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 11, 1998
To the Stockholders:
The 1998 Annual Meeting of Stockholders of Paragon Trade Brands, Inc. (the
"Company") will be held at 9:00 a.m. on Monday, May 11, 1998, at the Company's
headquarters located at 180 Technology Parkway, Norcross, Georgia., for the
following purposes:
1. To elect one Class I director for a term expiring in 2001, and
2. To transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.
The nominee for election as director is named in the enclosed Proxy Statement.
The Record Date for the Annual Meeting is March 13, 1998. Only stockholders
of record at the close of business on that date are entitled to notice of and to
vote at the Annual Meeting.
ALL STOCKHOLDERS ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON, BUT, EVEN
IF YOU EXPECT TO BE PRESENT AT THE ANNUAL MEETING, YOU ARE REQUESTED TO
COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN
THE POSTAGE-PREPAID ENVELOPE PROVIDED TO ENSURE YOUR REPRESENTATION.
STOCKHOLDERS ATTENDING THE ANNUAL MEETING MAY VOTE IN PERSON EVEN IF THEY HAVE
PREVIOUSLY SENT IN A PROXY.
By Order of the Board of Directors
/s/ Catherine O. Hasbrouck
Catherine O. Hasbrouck
Secretary
Norcross, Georgia
March 30, 1998
THE 1997 ANNUAL REPORT OF PARAGON TRADE BRANDS, INC.
ACCOMPANIES THE PROXY STATEMENT.
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
To Be Held May 11, 1998
GENERAL
The enclosed proxy is solicited by the Board of Directors of Paragon Trade
Brands, Inc. (the "Company") for use at the 1998 Annual Meeting of Stockholders
to be held at 9:00 a.m. on Monday, May 11, 1998, at the Company's headquarters
located at 180 Technology Parkway, Norcross, Georgia., and at any postponement
or adjournment thereof (the "1998 Annual Meeting"). Only holders of record of
the Company's common stock, par value $.01 per share (the "Common Stock"), at
the close of business on March 13, 1998 (the "Record Date") will be entitled to
vote at the 1998 Annual Meeting. On that date, the Company had 11,921,956 shares
of Common Stock outstanding. Each share of Common Stock outstanding on the
Record Date is entitled to one vote.
The address of the Company's principal executive offices is 180 Technology
Parkway, Norcross, Georgia 30092. This Proxy Statement and the accompanying
proxy card are first being mailed to the Company's stockholders on or about
March 30, 1998.
VOTING
Shares of Common Stock for which proxies are properly executed and returned
(and not revoked) prior to the 1998 Annual Meeting will be voted in accordance
with the directions noted thereon or, in the absence of directions, will be
voted "FOR" the election of the nominee for the Board of Directors named herein,
provided that if the nominee should become unavailable for election for any
reason, such shares will be voted for the election of such substitute nominee as
the Board of Directors may propose. Any stockholder giving a proxy may revoke it
at any time before it is voted by delivering to the Company's Secretary a
written notice of revocation, executing a proxy bearing a later date, or by
attending the 1998 Annual Meeting and voting in person. The presence of a
majority of the outstanding shares of Common Stock, present in person or by
proxy, will constitute a quorum. Shares represented by proxies marked "withhold
authority" will be counted as shares present for purposes of establishing a
quorum. Under Delaware law, the Company's Certificate of Incorporation and the
Company's By-Laws, the nominee for the Board of Directors who receives the
greatest number of votes cast for the election of a director by the shares
present in person or represented by proxy at the 1998 Annual Meeting and
entitled to vote shall be elected director. In the election of a director,
withholding authority to vote with respect to the nominee will have no effect on
the outcome of the election.
BACKGROUND
The Company has previously disclosed that The Procter & Gamble Company ("P&G")
had filed a claim against it in the United States District Court for the
District of Delaware, alleging that the Company's "Ultra" disposable baby diaper
products infringe two of P&G's inner-leg gather patents. The lawsuit sought
injunctive relief, lost profit and royalty damages, treble damages and
attorneys' fees and costs. The Company denied liability under the patents and
counterclaimed for patent infringement and violation of antitrust laws by P&G.
The Company has also disclosed that 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
materially adverse effect on the Company's financial condition and results of
operations.
On December 30, 1997, the District Court issued a Judgment and Opinion which
found, in essence, two of P&G's diaper patents to be valid and infringed by the
Company's disposable diaper products, while also rejecting the Company's patent
infringement claims against P&G. The District Court had earlier dismissed the
Company's antitrust counterclaim on summary judgment. The Judgment entitles P&G
to damages based on sales of the Company's diapers containing the inner-leg
gather feature. While the final damages number has not been adjudicated by the
District Court, the Company estimates the liability to be
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approximately $200 million. The amount of the award resulted in a violation of
certain covenants under the Company's bank loan agreements. As a result, the
issuance of the Judgment and the uncertainty it created caused an immediate and
critical liquidity issue for the Company.
On January 6, 1998, the Judgment was entered on the docket in Delaware in such
a manner that P&G would have been able to begin placing liens on the Company's
assets. As a result, the Company filed for relief under Chapter 11 of the
Bankruptcy Code, 11 U.S.C. Section 101 et seq., in the United States Bankruptcy
Court for the Northern District of Georgia (Case No. 98-60390) on January 6,
1998 (the "Chapter 11 filing"). None of the Company's subsidiaries were
included in the Chapter 11 filing. The Chapter 11 filing was designed to avoid
P&G's placing liens on Company property, permit the Company to appeal the
Delaware District Court's decision on the P&G case in an orderly fashion and
give the Company the opportunity to resolve actual and potential claims against
the Company prior to the Chapter 11 filing and thereby protect all stakeholders'
interests. The Company is currently operating as a debtor-in-possession under
the Bankruptcy Code.
The Company is unable to predict at this time when it will emerge from Chapter
11 protection.
ELECTION OF DIRECTOR AND DIRECTOR INFORMATION
It is intended that votes will be cast pursuant to the accompanying proxy for
the election of the nominee named below, who at present is a director of the
Company. If the nominee should become unavailable for any reason, it is
intended that votes will be cast for a substitute nominee designated by the
Board of Directors. The Board of Directors has no reason to believe that the
nominee named will be unable to serve if elected.
The Company's Certificate of Incorporation provides that the Company's
directors will be classified, with respect to the term for which they severally
hold office, into three classes, each class to be as nearly equal in number as
possible, and that at each annual meeting of stockholders of the Company the
successors to the class of directors whose terms expire at that meeting shall be
elected to hold office for terms expiring at the third annual meeting of
stockholders after their election by the stockholders. The Board of Directors
is authorized to fix the number of directors within the range of one to 15
members; the number currently is four. The nominee named immediately below
comprises the class to be elected at the 1998 Annual Meeting for a three-year
term expiring at the 2001 annual meeting of stockholders.
NOMINEE FOR ELECTION -- TERM EXPIRES IN 2001
Thomas B. Boklund. Mr. Boklund (age 58) has been a director of the Company
since April 1993 and served as Chairman of the Compensation Committee of the
Company's Board of Directors from May 1993 until November 1996. Mr. Boklund has
served as a member of the Company's Audit Committee since November 1996 and as
its Chairman since November 1996. Mr. Boklund has also served as a member of
the Governance Committee of the Company's Board of Directors since November
1996. Mr. Boklund has been the Chief Executive Officer of Oregon Steel Mills,
an industrial steel manufacturer, since 1985, and also serves as its Chairman of
the Board. Mr. Boklund also currently serves on the Board of Directors of
Oregon Metallurgical Corporation, a titanium products manufacturer.
Principal Occupation: Chief Executive Officer,
Oregon Steel Mills
CONTINUING DIRECTORS -- TERM EXPIRES IN 1999
Adrian D.P. Bellamy. Mr. Bellamy (age 56) has been a director of the Company
since February 1996 and has served as a member of the Compensation Committee of
the Company's Board of Directors since February 1996 and as its Chairman since
November 1996. Mr. Bellamy has also served as a member of the Governance
Committee of the Company's Board of Directors and as a member of the
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Company's Audit Committee since November 1996. Mr. Bellamy formerly served as
Chairman and Chief Executive Officer of DFS Group Limited, an international
specialty retailer, from 1983 to 1995. Mr. Bellamy currently serves on the
Boards of Directors of Airport Group International Holdings LLC, an airport
management company; The Gap, Inc., a clothing retailer; Gucci Group NV, a
manufacturer and retailer; The Body Shop International PLC., a skin and hair
care products manufacturer and retailer; Williams-Sonoma Inc., a home products
retailer; and Shaman Pharmaceuticals, Inc. a pharmaceutical developer. Mr.
Bellamy has served as Chairman of Gucci Group NV since January 1996, and Airport
Group International Holdings LLC since July 1995.
Principal Occupation: Nonexecutive Director of Companies
Robert L. Schuyler. Mr. Schuyler (age 62) has been a director of the Company
since April 1993 and served as Chairman of the Audit Committee of the Company's
Board of Directors from May 1993 until November 1996. Mr. Schuyler has also
served as a member of the Compensation Committee of the Company's Board of
Directors since February 1995, as Chairman of the Governance Committee of the
Company's Board of Directors since November 1996, and continues to serve as a
member of the Company's Audit Committee. Mr. Schuyler formerly served as the
President of Nisqually Partners, an investment company, from 1991 through 1997.
Mr. Schuyler currently serves on the Boards of Montrail, a manufacturer and
wholesaler of outdoor footwear; and Grande Alberta Paper, a Canadian pulp and
paper development company.
Principal Occupation: Retired
CONTINUING DIRECTOR -- TERM EXPIRES IN 2000
Bobby V. Abraham. Mr. Abraham (age 56) has been a director and the Chief
Executive Officer of the Company since its initial public offering in February
1993, has been Chairman of the Company's Board of Directors since August 1993
and served as President of the Company from its inception until November 1993.
Prior to the Company's initial public offering, Mr. Abraham had been President
of the Personal Care Products Division of Weyerhaeuser since February 1988.
From 1986 until February 1988, Mr. Abraham served as Vice President and General
Manager of the Personal Care Products Division of Weyerhaeuser.
Principal Occupation: Chairman and Chief Executive Officer,
Paragon Trade Brands, Inc.
Five meetings of the Board of Directors were held in fiscal 1997. All
incumbent directors were in attendance at all such meetings.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company has established standing committees of its Board of Directors,
including an Audit Committee, a Compensation Committee and a Governance
Committee. Each of these committees is responsible to the full Board of
Directors. The functions performed by these committees are summarized as
follows:
Audit Committee. The Audit Committee makes recommendations to the Board of
Directors with respect to the engagement of independent public accountants to
audit the Company's annual financial statements. In addition, the Audit
Committee reviews the Company's accounting and audit practices and procedures
and the reports of the independent public accountants. Members of the Audit
Committee are Mr. Boklund (Chairman), Mr. Bellamy and Mr. Schuyler. The Audit
Committee met twice in 1997, with all incumbent members in attendance.
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Compensation Committee. The Compensation Committee establishes salaries,
incentives and other forms of compensation for the Company's directors and
officers. The Compensation Committee also administers the Company's various
incentive compensation and benefit plans, and recommends the establishment of
policies relating to such plans. Members of the Compensation Committee are Mr.
Bellamy (Chairman), Mr. Boklund and Mr. Schuyler. The Compensation Committee
met three times in 1997, with all incumbent members in attendance.
Governance Committee. The Board also established a Governance Committee in
November 1996 to review and report to the full Board on various issues of Board
governance, such as Board performance and accountability, new directorships and
Board compensation matters. Members of the Governance Committee are Mr.
Schuyler (Chairman), Mr. Bellamy and Mr. Boklund. The Governance Committee met
twice in 1997, with all incumbent members in attendance.
DIRECTOR COMPENSATION
Fees. Directors who are employees of the Company do not receive any fees for
their services as directors. Directors who are not employees of the Company are
paid an annual retainer of $13,000 for serving on the Board of Directors and
$2,500 for serving on a committee of the Board of Directors. Each nonemployee
director receives an additional fee of $1,000 per day for attending each meeting
of the Board of Directors and $750 for attending each meeting of a committee of
the Board of Directors. A nonemployee director serving as a committee chairman
receives an additional $1,000 per annum. In 1997, the Directors had the
opportunity to participate in the Paragon Trade Brands, Inc. Deferred
Compensation Plan (the "Deferred Compensation Plan"). The Deferred Compensation
Plan enabled Directors to defer a portion or all of their fees for Board and
Committee service. Mr. Bellamy elected in April 1997 to defer all meeting fees
until further notice. Effective December 31, 1997, no further compensation
deferrals will be permitted under the Deferred Compensation Plan and, as such,
no director fees for Board or committee service will be deferred in 1998.
Options. Directors who are not employees of the Company receive grants of
options to purchase Common Stock under the Company's Stock Option Plan for Non-
Employee Directors (the "Director Plan"). Under the Director Plan, each
nonemployee director automatically receives an option to purchase 5,000 shares
of Common Stock on the first business day following his or her initial election
as a director of the Company and thereafter receives annually, on the first
business day following the date of each annual meeting of stockholders of the
Company, an option to purchase 2,000 shares of Common Stock, at an exercise
price for all grants equal to the fair market value of the Common Stock on the
date of grant.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock as
of February 28, 1998, by (a) each stockholder known by the Company to be the
beneficial owner of more than 5 percent of the Common Stock, (b) the Company's
directors, (c) the Company's named executive officers, as defined herein, and
(d) all the Company's directors and executive officers, as a group. Each of the
named persons and members of the group has sole voting and investment power with
respect to the shares shown, except as otherwise stated.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
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AMOUNT AND NATURE OF PERCENTAGE
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OUTSTANDING
------------------------------------ -------------------- -----------
<S> <C> <C>
Wellington Management Company, LLP............................... 1,624,200(1) 13.62%
75 State Street
Boston, MA 02109
ICM Asset Management, Inc........................................ 1,449,475(2) 12.16%
601 West Main Avenue, Suite 600
Spokane, WA 99201
Vanguard Specialized Portfolios
Health Care Portfolio.......................................... 1,124,000(3) 9.43%
P.O. Box 2600
Valley Forge, PA 19482-2600
The Capital Group Companies, Inc./
Capital Research and Management Company........................ 649,800(4) 5.45%
333 South Hope Street
Los Angeles, CA 90071
The Capital Group Companies, Inc./
SMALLCAP World Fund, Inc....................................... 649,800(5) 5.45%
333 South Hope Street
Los Angeles, CA 90071
The Capital Group Companies, Inc................................. 611,500(6) 5.13%
333 South Hope Street
Los Angeles, CA 90071
Bobby V. Abraham................................................. 265,505(7) 2.19%
Adrian D.P. Bellamy.............................................. 12,000(8) *
Thomas B. Boklund................................................ 14,000(9) *
Robert L. Schuyler............................................... 13,100(9) *
David W. Cole.................................................... 135,010(10) 1.12%
Alan J. Cyron.................................................... 49,326(11) *
Stanley L. Bulger................................................ 18,204(12) *
Arrigo D. Jezzi.................................................. 30,320(13) *
All directors and executive officers as a group (11 persons)..... 559,567(14) 4.53%
</TABLE>
__________
* Represents holdings of less than 1%.
(1) Wellington Management Company, LLP has shared power to vote 500,100 shares
and shared power to dispose of 1,624,200 shares of Common Stock, based on
publicly available information reported as of January 14, 1998.
(2) ICM Asset Management, Inc. has sole power to vote 1,105,225 shares and sole
power to dispose of 1,449,475 shares of Common Stock, based on publicly
available information reported as of February 10, 1998.
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(3) Vanguard Specialized Portfolios - Health Care Portfolio has sole power to
vote 1,124,100 shares and shared power to dispose of 1,124,100 shares of
Common Stock, based on publicly available information reported as of
February 9, 1998.
(4) Capital Research and Management Company, an investment advisor and wholly-
owned operating subsidiary of The Capital Group Companies, Inc., exercises
investment discretion with respect to 649,800 shares of Common Stock that
were owned by various institutional investors, based on publicly available
information reported as of February 10, 1998.
(5) SMALLCAP World Fund, Inc, an advisee of Capital Research Management
Company, an investment company and wholly-owned operating subsidiary of The
Capital Group Companies, Inc., has sole power to vote 649,800 shares of
Common Stock, based on publicly available information reported as of
February 10, 1998.
(6) The Capital Group Companies, Inc., as the parent holding company of a group
of wholly-owned subsidiary investment management companies, reports on
behalf of several of such investment management companies, none of which by
itself exercises investment discretion over 5 percent or more of the
outstanding securities of the Company, and has sole power to vote 611,500
shares and sole power to dispose of 611,500 shares of Common Stock, based
on publicly available information reported as of February 10, 1998.
(7) Includes options to purchase 204,577 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement, and 7,387 shares of
Common Stock subject to restriction.
(8) Includes options to purchase 9,000 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement.
(9) Includes options to purchase 13,000 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement.
(10) Includes options to purchase 116,250 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement, and 1,666 shares of
Common Stock subject to restriction.
(11) Includes options to purchase 26,250 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement, and 666 shares of
Common Stock subject to restriction.
(12) Includes options to purchase 10,750 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement, and stock appreciation
rights on 2,000 shares of Common Stock, exercisable within 60 days of the
date of this Proxy Statement.
(13) Includes options to purchase 20,000 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement and stock appreciation
rights on 7,500 shares of Common Stock exercisable within 60 days of the
date of this Proxy Statement.
(14) Includes options to purchase 426,904 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement, stock appreciation
rights on 14,500 shares of Common Stock exercisable within 60 days of the
date of this Proxy Statement, and 9,719 shares of Common Stock subject to
restriction.
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EXECUTIVE COMPENSATION
REPORT OF COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board of Directors (the "Committee") is
composed entirely of nonemployee directors. The Committee is responsible for
establishing and administering the Company's executive compensation programs.
COMPENSATION POLICIES
The Committee establishes compensation according to the following guiding
principles:
(a) Compensation should be directly linked to the Company's operating and
financial performance.
(b) Total compensation should be competitive when compared to compensation
levels of executives of companies against which the Company competes for
management.
(c) Performance-related pay should be a significant component of total
compensation, placing a substantial portion of an executive's compensation at
risk.
(d) Stock ownership guidelines and programs should encourage significant
stock ownership in the Company by its executives to align their interests with
the interests of stockholders.
COMPENSATION PRACTICES
Compensation for executives includes base salary, annual bonuses and long-term
incentive awards. Consistent with the above principles, a substantial proportion
of executive compensation depends on Company performance and on enhancing
stockholder value.
Base Salary. The Company uses externally-developed compensation surveys to
assign a competitive salary range to each salaried position, including executive
positions. The companies included in the survey are selected by the Company's
outside compensation consultants and include companies engaged in nondurable
manufacturing with annual revenues of between $400 million and $1 billion.
The Committee sets actual base salary levels for the Company's executives
based on recommendations by management. The Committee bases its decisions on
the executive's performance, the executive's position in the salary range, the
executive's experience and the Company's salary budget.
Annual Bonus. The Company employs a formal system for developing measures of
and evaluating executive performance. Bonuses are determined with reference to
quantitative measures established by the Committee each year. Each of these
factors is weighted. At the beginning of each year, the Committee also approves
performance targets relating to the quantitative measures that, if achieved,
will establish a bonus pool equal to the sum of the individual target bonuses
for all executives. The Committee also establishes performance targets that
could result in a range of bonus payouts from a minimum of zero to a maximum
bonus payout of 200% of target bonus. At the end of the year, Company
performance, as compared to the quantitative measures described above,
determines the bonus pool for the executive group. Target bonuses for
individual executives are in the range of 25% to 60% of base salary. The
Committee retains the discretion to adjust any individual bonus if deemed
appropriate.
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In the event Company performance exceeds the performance targets established
for the maximum 200% bonus payout, the bonus pool is funded in excess of such
200% payout. Such excess bonus funding is retained by the Company and may be
paid out, at the Committee's discretion, in any year in which performance
targets are not achieved, if the Committee determines such event to be the
result of factors unrelated to management performance.
In 1997, the quantitative measures for bonus payments were sales revenue and
earnings per share. The maximum possible bonus payout was 200% of target. The
Company's performance in fiscal 1997, with sales revenue and earnings per share
below the minimum payout level, did not warrant a bonus payment for 1997.
As a result of the Chapter 11 filing, the Committee has reevaluated the
incentive compensation plans of the Company. In recognition of the need to
drive the operating performance of the Company and to incent employees to remain
with the Company throughout the course of the Chapter 11 proceeding, the
Committee has adopted a proposal which would alter the Company's existing
incentive compensation plans. The revised plans would include (i) a retention
incentive for employees of the Company following the Chapter 11 filing, (ii) a
revised 1998 incentive compensation plan, described below, (iii) a confirmation
incentive payable to certain members of top management upon the successful
emergence from Chapter 11, and (iv) a revised severance policy. The proposal
adopted by the Committee will be submitted to the Official Committee of
Unsecured Creditors (the "Creditors' Committee") as well as the Bankruptcy Court
for approval. It is possible that either the Creditors' Committee or the
Bankruptcy Court could alter the proposal adopted by the Committee. The Company
cannot predict at this time when and in what form it will receive approval of
the Committee's proposal from the Creditors' Committee and the Bankruptcy Court.
For 1998, the Committee has determined, as part of the proposal described
above, that the quantitative measure for bonus payments under the revised 1998
incentive compensation plan will be EBITDA. The plan will provide minimum,
maximum and target payout levels. The maximum payout level could be two times
the target payout.
Long-Term Incentives. Long-term incentives are designed to link management
reward with the long-term interests of the Company's stockholders. Currently,
the Committee grants stock options, stock appreciation rights ("SARs") and
restricted stock as long-term incentives. Individual stock option awards and
SARs are based on level of responsibility, the Company's stock ownership
objectives for management and upon the Company's performance versus certain
financial performance objectives. Currently, the Committee anticipates annual
option grants or grants of SARs to the eligible employee group of less than 1%
of the outstanding Common Stock. The Company's long-term performance ultimately
determines the level of compensation resulting from stock options and SARs,
since stock option and SAR value is entirely dependent on the long-term growth
of the Common Stock price.
The Committee has agreed in its proposal, described above, that in light of
the uncertainties associated with the Chapter 11 process, the Company should
discontinue future stock option and SAR grants until its emergence from Chapter
11. Given the Company's performance in fiscal 1997, no options or SARs were
granted for 1997.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), limits the Company's ability to deduct compensation in excess of $1
million paid during a tax year to the Chief Executive Officer and the four other
highest paid executive officers of the Company. Certain performance-based
compensation is not subject to such deduction limit. No executive officer of
the Company was compensated in excess of $1 million in 1997; consequently, the
Section 162(m) limits did not apply. The Company intends, at the appropriate
time, to qualify stock option and SAR awards for the "performance-based"
exception to the $1 million limitation on deductibility and otherwise to
maximize the deductibility of executive compensation while retaining the
discretion necessary to compensate
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executive officers in a manner commensurate with performance and the competitive
market of executive talent.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Abraham has served as the Company's Chief Executive Officer since its
initial public offering in February 1993. Prior to such time, Mr. Abraham was
in charge of the Company's operations as a division of Weyerhaeuser. Mr.
Abraham's base salary was realigned in 1996 from prior year levels to $500,000.
Pursuant to an employment agreement entered into at the time of the Company's
initial public offering, and amended and restated in 1997, Mr. Abraham is
entitled to receive, in addition to his base salary, deferred compensation for
the first seven years of service as Chief Executive Officer equal to 20% of his
base salary and incentive awards.
As stated above, based upon the Company's performance in fiscal 1997, Mr.
Abraham received no 1997 bonus payout. Mr. Abraham will be entitled, however,
to participate in the revised 1998 incentive plan, described above, any
confirmation incentive payable under the Committee's proposal and the revised
severance plan included in the Committee's proposal to be submitted to the
Creditors' Committee and the Bankruptcy Court for approval.
The Committee has discontinued the use of annual grants of stock options as
incentive compensation for Mr. Abraham until the Company emerges from Chapter 11
protection. In the past, levels of awards were determined by reference to the
external compensation survey data discussed above, as well as the Company's
performance versus certain financial performance objectives. Based on the
Company's performance in fiscal 1997, Mr. Abraham did not receive an option
award for 1997.
The Committee, as part of its proposal discussed above, did approve a
deferred compensation payment for Mr. Abraham of $100,000 for 1997, which
represents 20% of Mr. Abraham's 1997 base salary, as provided in his employment
agreement with the Company. This payment, as part of the Committee's proposal,
is subject to further approval by the Creditors' Committee and the Bankruptcy
Court. See "--Employment Agreements; Change-in-Control Arrangements."
STOCK OWNERSHIP AND RETENTION
It is the Company's policy to encourage the ownership of Common Stock by all
employees. To encourage significant stock ownership by executives, the
Committee has established target levels of ownership (excluding stock options).
These target ownership levels are expressed as a percentage of salary and apply
to approximately 45 employees. In addition, certain employees may receive a
right to purchase Common Stock in lieu of all or a portion of their cash bonus
at up to a 20% discount to the then-market value of such stock with the
stipulation that the stock may not be sold for at least two years.
COMPENSATION COMMITTEE
Adrian D.P. Bellamy, Chairman
Thomas B. Boklund
Robert L. Schuyler
-9-
<PAGE>
STOCK PRICE PERFORMANCE
Set forth below is a line graph comparing the cumulative total return on the
Common Stock during the period beginning on January 26, 1993, the first day that
the Common Stock was publicly traded, and ending on December 28, 1997, the last
day of the Company's 1997 fiscal year, with the cumulative total return on the
Standard & Poor's 500 Index and the combined Value Line Household Products and
Toiletries/Cosmetics Indices (weighted equally). The comparison assumes $100
was invested on January 26, 1993 in the Common Stock, the Standard & Poor's 500
Index and the combined Value Line Household Products and Toiletries/Cosmetics
Indices and assumes reinvestment of dividends. The stock price performance
shown on the graph is not necessarily indicative of future price performance.
[PEFORMANCE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
Performance Graph Data Points
-----------------------------
Cumulative Total Return as of:
------------------------------
Name 26-Jan-93 26-Dec-93 25-Dec-94 31-Dec-95 29-Dec-96 28-Dec-97
- ---- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PARAGON TRADE BRANDS, INC. 100.00 135.63 60.92 107.47 137.93 59.20
Standard & Poor's 500 100.00 110.09 111.85 153.80 189.54 252.82
Combined Value Line 100.00 104.82 115.02 153.77 204.51 284.45(1)
Household Products and
Toiletries/Cosmetics Indices
</TABLE>
______________
(1) Tambrands, Inc. ("Tambrands") was a member of the Combined Value Line
Household Products and Toiletries/Cosmetics Indices ("Peer Group") for the
years 1993-1996. Tambrands was acquired by The Procter & Gamble Company
during 1997 and total return data for 1997 is not available. Tambrands has
been removed from the Value Line Household Products and Toiletries/Cosmetics
Indices.
-10-
<PAGE>
COMPENSATION OF EXECUTIVES
The following table discloses information concerning the annual and long-term
compensation received by those persons who were, at December 28, 1997, the last
day of the Company's 1997 fiscal year, the Company's Chief Executive Officer and
four other most highly compensated executive officers on that date (the "named
executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION AWARDS
---------------------------------------- -------------------------------
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING ALL OTHER
NAME AND FISCAL BONUS COMPENSATION AWARD(S) OPTIONS/ COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) ($)(1)(2) ($)(3) ($)(4) SARS(#) ($)(5)
- ------------------------------ ---- -------- --------- ------------ ---------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Bobby V. Abraham.............. 1997 500,006 0 0 0 30,000 104,885
Chief Executive Officer 1996 472,151 525,000 186,590 186,562 30,000 215,382
and Chairman of the Board 1995 322,376 0 0 260,171 38,330 103,201
David W. Cole................. 1997 304,954 0 13,985 0 20,000 3,146
President and Chief 1996 290,658 221,265 97,244 124,375 20,000 14,459
Operating Officer 1995 234,624 0 0 145,935 25,000 8,246
Alan J. Cyron................. 1997 206,612 0 4,615 0 15,000 3,158
Vice President and 1996 193,865 156,450 212,626 49,750 15,000 12,614
Chief Financial Officer(6) 1995 116,448 0 0 42,486 20,000 0
Stanley L. Bulger............. 1997 128,585 0 0 0 5,000 3,858
Vice President 1996 123,293 86,949 150,099 45,000 4,000 12,397
Human Resources(7)
Arrigo D. Jezzi............... 1997 173,679 0 32,179 0 10,000 4,250
Executive Vice President,
International Business
Development
</TABLE>
__________
(1) As a result of the Company's performance in fiscal 1997, there was no annual
bonus payment for 1997.
(2) Mr. Bulger received an annual bonus in the amount of $71,949 and a special
recognition award in the amount of $15,000 for work in connection with the
acquisition by the Company of the Pope & Talbot baby diaper business.
(3) Messrs. Cole and Cyron received tax gross-up payments in 1997 for
reimbursements by the Company of taxable relocation expenses incurred in
connection with their relocation in 1996 from Washington to Georgia.
Amounts paid to Mr. Jezzi include $14,365, $6,904 and $10,910 for
reimbursement of taxable and nontaxable relocation expenses and tax gross-up
payments, respectively, in connection with his relocation in 1997 from
Pennsylvania to Georgia. Included in such taxable and nontaxable relocation
expenses reported above for Mr. Jezzi were $6,583 and $9,872.89 in payment
of moving expenses and loss on the sale of his Pennsylvania residence,
respectively. Messrs. Abraham, Cole, Cyron and Bulger recognized income in
1997 in the amounts of $84,721, $13,748, $24,825 and $4,998, respectively,
on the difference between the price paid for shares of the Company's common
stock purchased in lieu of the 1996 bonus and the fair market value of those
shares on the date of
-11-
<PAGE>
purchase. Additional amounts paid in 1996 to Mr. Abraham were $64,358.52,
$12,724.95 and $24,785.61; to Mr. Cole were $37,035.05, $20,732.87 and
$25,728.05; to Mr. Cyron were $118,249.86, $5,579.45 and $63,971.33; and to
Mr. Bulger were $75,143.10, $29,823.68 and $40,134.43; in each case, for
reimbursement of taxable and nontaxable relocation expenses, and tax gross-
up payments, respectively. Payments to Messrs. Abraham, Cole and Bulger were
made in 1996 in connection with relocation of the Company's corporate
headquarters from Washington to Georgia. Payments to Mr. Cyron were made in
1996 in connection with his relocation from New York to Washington as a
result of joining the Company in 1995, and with his subsequent relocation
from Washington to Georgia. Included in such taxable and nontaxable
relocation expenses reported above for Mr. Abraham were $29,000 and
$57,190.57 in payment of a home sale bonus and closing costs on the sale of
his Washington residence, respectively; for Mr. Cole were $21,497.50,
$42,726.20 and $20,230.23 in payment of a home sale bonus, closing costs on
the sale of his Washington residence and moving expenses, respectively; for
Mr. Cyron were $41,662 and $40,707.15 in payment for loss on the sale of his
Washington residence and closing costs on the sale of his Washington
residence, respectively; and for Mr. Bulger was $41,500 in payment for loss
on the sale of his Washington residence.
(4) Restricted stock is valued at the closing price of the Common Stock as
reported on the New York Stock Exchange, Inc. (the "NYSE") on the date of
grant. Restricted stock awards are forfeitable and vest, generally, in
either two or three equal annual installments from the date of grant,
subject to acceleration in the event of certain mergers or consolidations
involving the Company, a sale, lease, exchange or other transfer of all or
substantially all of the Company's assets, or a liquidation or dissolution
of the Company. Such awards may or may not be granted at up to a 20%
discount to the market price of the Common stock on the date of award.
Restricted stock awards in 1996 in recognition of their respective efforts
relating to the Pope & Talbot disposable diaper business and the investment
in Mabesa in the amounts of $186,562 to Mr. Abraham and $49,750 to Mr.
Cyron, respectively, will vest 33.3% on February 19, 1999 for Mr. Abraham,
and vested 33.4% on February 19, 1997 and 33.3% on February 19, 1998 and
will vest 33.3% on February 19, 1999 for Mr. Cyron. A restricted stock
award in 1996 in recognition of his efforts in connection with the
integration of the Pope & Talbot disposable diaper business in the amount of
$124,375 to Mr. Cole will vest 33.3% on February 19, 1999. A restricted
stock award in recognition of coordination and oversight of the relocation
of the Company's headquarters to Norcross, Georgia in the amount of $45,000
to Mr. Bulger vested 50% on August 6, 1997. Under terms of this award, the
remaining 50% was forfeited upon Mr. Bulger's resignation from the Company
on February 6, 1998. A restricted stock award in lieu of a cash bonus in
1995 to Mr. Cyron in the amount of $42,486, with shares issued at a 20%
discount from fair market value, vested 50% on February 19, 1997 and 50% on
February 19, 1998. Restricted stock awarded to Messrs. Abraham and Cole for
fiscal 1995 in the amounts of $95,175 and $63,450, respectively, vested
33.3% on February 14, 1996. Restricted stock awards in lieu of cash bonuses
in 1994 to Messrs. Abraham and Cole in the amounts of $148,268 and $88,956,
respectively, with shares issued at a 20% discount from fair market value,
vested 50% on February 14, 1996. Restricted stock awarded to Messrs.
Abraham and Cole for fiscal 1994 in the amounts of $237,188 and $158,125,
respectively, vested 33.3% on February 1, 1995, 33.3% on February 1, 1996
and 33.4% on February 1, 1998. The restricted stock awarded to Mr. Abraham
for fiscal 1993 will vest 50% on February 1, 1999.
Under ordinary circumstances, recipients of restricted stock are able to pay
the tax liability arising upon vesting out of the proceeds of the sale of
Company stock. Since the filing of the Company's Chapter 11 proceeding,
however, certain corporate insiders have been unable to trade in the
Company's stock. As a result, on February 13, 1998, in order to avoid
incurring a tax liability in connection with the vesting of certain
restricted stock awards, Messrs. Abraham and Cole forfeited 22,505 and
13,506 shares of restricted stock, respectively, awarded February 14, 1995
and February 19, 1996 and scheduled to vest on February 16, 1998 and
February 19, 1998, respectively.
-12-
<PAGE>
On December 28, 1997, Messrs. Abraham, Cole, Cyron and Bulger held 37,280
shares, 16,839 shares, 2,187 shares and 1,000 shares, respectively, of
restricted Common Stock, with market values, based on the closing price of
the Common Stock as reported on the NYSE on such date, of $743,289,
$335,736, $43,604 and $19,938, respectively. Dividends are payable on
restricted stock at the same rate payable to all stockholders.
(5) The amounts shown for fiscal 1997 represent: (i) matching 401(k)
contributions under the Paragon Retirement Savings Investment Management
Program (the "PRISM Plan") in the amounts of $4,885, $3,146, $3,158, $3,858
and $4,250 for Messrs. Abraham, Cole, Cyron, Bulger and Jezzi, respectively,
and (ii) a $100,000 deferred compensation award for Mr. Abraham under the
terms of his employment agreement and as approved by the Committee in their
proposal described above. This deferred compensation payment for Mr.
Abraham, although included in the table above for disclosure purposes, will
not actually be made until the Committee's proposal is approved by both the
Creditors' Committee and the Bankruptcy Court. See "--Report of
Compensation Committee on Executive Compensation" and "--Employment
Agreements; Change-in-Control Arrangements."
(6) Mr. Cyron joined the Company in April 1995. The 1995 salary and bonus
amounts represent compensation for a partial year's employment.
(7) Mr. Bulger resigned as an officer of the Company on February 6, 1998.
1997 OPTION GRANTS AND EXERCISES
The following table provides information on option grants in fiscal 1997 to
the named executive officers.
OPTION GRANTS IN FISCAL 1997
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF TOTAL
SECURITIES OPTIONS/SARS GRANT DATE VALUE
UNDERLYING GRANTED TO EXERCISE GRANT DATE
OPTIONS/SARS EMPLOYEES IN PRICE EXPIRATION PRESENT
NAME GRANTED(#)(1) FISCAL YEAR ($/SH)(2) DATE VALUE($)(3)
- ---- ------------- ------------ --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Bobby V. Abraham................... 30,000 14.47 $16.4375 2/18/07 $270,596
David W. Cole...................... 20,000 9.65 16.4375 2/18/07 180,397
Alan J. Cyron...................... 15,000 7.23 16.4375 2/18/07 135,298
Arrigo D. Jezzi.................... 10,000 4.82 16.4375 2/18/97 90,199
Stanley L. Bulger.................. 5,000 2.41 16.4375 2/18/07 45,099
</TABLE>
__________
(1) Each option or SAR becomes exercisable in four equal annual installments
beginning on the first anniversary of the date of grant. The Committee has
the authority to accelerate exercisability before the originally designated
exercise date(s). The exercise price may be paid with the delivery of
already-owned shares, and tax-withholding obligations relating to exercise
may be paid by offsetting the underlying shares, subject to certain
conditions. In the event of certain events resulting in a change in control
of the Company, the Committee may take such actions as it deems necessary or
advisable, and fair and equitable to participants, with respect to
outstanding stock options and SARs. See "-- Employment Agreements; Change-
in-Control Arrangements."
(2) The exercise price is the average of the high and low sales prices per share
of the Common Stock as quoted on the NYSE on the date of grant.
-13-
<PAGE>
(3) The dollar amounts under this column represent the result of calculations
using the Black-Scholes-based multiple option valuation model. The
valuation assumes an expected volatility of .40%, a 0% dividend yield, a
five-year exercise term, a risk-free interest rate ranging from 5.54% to
6.56% reflecting the yield on a zero coupon U.S. Treasury security for the
term of the option, and a grant price and exercise price of $16.4375. No
adjustments have been made for nontransferability or risk of forfeiture.
The actual value of the options, if any, will depend on the extent to which
the market value of the Common Stock exceeds the price of the option on the
date of exercise.
The following table provides information on the aggregated option/SAR
exercises by executive officers in 1997 and the value of the named executive
officers' unexercised options/SARs at December 28, 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
Option/SAR Exercises UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
-------------------- OPTIONS/SARS AT MONEY OPTIONS/SARS AT
Shares Acquired Fiscal Year-End(#) Fiscal Year-End($)(1)
--------------------------- ---------------------------- --------------------------------
NAME ON EXERCISE VALUE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bobby V. Abraham.............. 0 0 170,411 81,249 255,089 246,978
David W. Cole................. 0 0 93,750 53,750 148,875 162,625
Alan J. Cyron................. 0 0 13,750 36,250 43,700 97,137
Stanley L. .Bulger............ 0 0 9,500 9,500 7,310 25,122
Arrigo D. Jezzi............... 0 0 22,500 17,500 93,800 35,625
</TABLE>
__________
(1) The value of the options/SARs on December 28, 1997 is based on the average
of the high and low sales prices per share of the Common Stock as reported
on the NYSE on December 26, 1997 ($20.00).
EMPLOYMENT AGREEMENTS; CHANGE-IN-CONTROL ARRANGEMENTS
Employment Agreements. The Company entered into an employment agreement with
Bobby V. Abraham on February 2, 1993. This agreement was amended and restated on
August 5, 1997 and provides that he will be employed as the Company's Chief
Executive Officer. Mr. Abraham's employment agreement provides that if his
employment is terminated for cause (as defined therein) or as a result of his
voluntary resignation, Mr. Abraham will be entitled to receive his accrued
salary and benefits, vested stock options and restricted stock awards. If Mr.
Abraham's employment is terminated at the request of the Board of Directors, Mr.
Abraham will be entitled to receive a sum equal to two times the sum of his
annual salary in addition to all compensation earned but unpaid and benefits
vested unconditionally to the date of termination. In addition, if, during the
year following a change in control, Mr. Abraham's employment is terminated by
the Company (other than for cause) or Mr. Abraham terminates his employment for
good reason, he will be entitled to receive a payment equal to 2.9 times his
annual salary immediately preceding the change in control (less any amounts paid
under the Paragon Trade Brands Salaried Severance Plan), plus continuation of
certain benefits for a period of 18 months and, in the event an excise tax is
imposed under the Internal Revenue Code of 1986, as amended, a tax gross-up
payment.
In addition, Mr. Abraham's employment agreement contains a noncompetition
covenant that prohibits him, for a period of two years following termination of
his employment with the Company, from, among other things, advising or having a
significant financial interest in any business that competes with the Company,
interfering with any existing business relationship of the Company or offering
employment to any of the Company's key employees at the time Mr. Abraham's
employment is terminated.
-14-
<PAGE>
The Company also entered into an employment agreement with David W. Cole on
February 2, 1993 which was amended and restated as of August 5, 1997. Mr.
Cole's employment agreement contains the same terms as the foregoing, except
that his position is Chief Operating Officer.
The Company entered into an employment agreement with Alan J. Cyron in March
1995, which agreement was amended and restated as of August 5, 1997. Mr.
Cyron's Employment Agreement contains the same terms as the foregoing, except
that his position is Chief Financial Officer and his severance benefit in the
event of a change in control is equal to two times his annual salary immediately
preceding the change in control.
The Company entered into an Employment Agreement with Stanley L. Bulger dated
August 5, 1997. Mr. Bulger's Employment Agreement contains the same terms as
the foregoing, except that his position is Vice President - Human Resources and
his severance benefit in the event of a change in control is equal to one time
his annual salary immediately preceding the change in control, plus continuation
of certain benefits for a period of 12 months. Effective February 6, 1998, Mr.
Bulger resigned his position as Vice President - Human Resources. As a result
of his voluntary resignation, Mr. Bulger is entitled to receive his accrued
salary and benefits, vested stock options and restricted stock awards.
Notwithstanding his resignation, Mr. Bulger is bound by the noncompetition and
confidentiality provisions contained in his Employment Agreement.
Mr. Abraham's employment agreement also provides that he will be entitled to
receive a deferred compensation award for each of the first seven years of his
employment as the Company's Chief Executive Officer equal to 20% of (a) his base
salary for such year plus (b) his incentive compensation for such year. The
amount of the deferred compensation awards plus accrued interest thereon are
payable to his Company contribution account under the Paragon Trade Brands, Inc.
Deferred Compensation Plan, adopted effective April 1, 1997. In connection with
the Chapter 11 filing, Mr. Abraham may have a claim against the Company in
excess of $600,000 for compensation deferred by him pursuant to his employment
agreement under the Deferred Compensation Plan.
The Committee's proposal, described above, upon approval by the Creditors'
Committee and the Bankruptcy Court, will amend and supersede the employment
agreements described above for Mr. Abraham, Mr. Cole and Mr. Cyron. See "--
Report of Compensation Committee on Executive Compensation." The Company cannot
predict when and in what form it will receive approval of the Committee's
proposal from the Creditors' Committee and the Bankruptcy Court.
1993 Long-Term Plan. In the event of a merger, consolidation or acquisition
of the Company, a sale or transfer of all or substantially all of the Company's
assets, a tender or exchange offer for shares of Common Stock (other than offers
by the Company) or other reorganization, as a result of which the Company is not
likely to continue as an independent, publicly owned corporation, the 1993 Long-
Term Plan provides that the Committee may take such action as it determines
necessary or advisable, and fair and equitable to participants, with respect to
stock options, SARs and other awards under the 1993 Long-Term Plan. In
addition, shares of restricted stock awarded for 1995 in lieu of cash bonuses
will become fully exercisable, subject to certain exceptions, in the event of
certain mergers or consolidations involving the Company, a sale, lease, exchange
or other transfer of all or substantially all of the Company's assets or a
liquidation or dissolution of the Company.
1995 Incentive Plan. In the event of certain mergers or consolidations
involving the Company, a sale, lease, exchange or other transfer of all or
substantially all of the Company's assets or a liquidation or dissolution of the
Company, outstanding options, SARs and restricted stock under the 1995 Incentive
Plan will become fully exercisable, subject to certain exceptions. In addition,
the Committee may take such further action as it deems necessary or advisable,
and fair to participants, with respect to outstanding awards under the 1995
Incentive Plan.
-15-
<PAGE>
Paragon Trade Brands, Inc. Deferred Compensation Plan. On April 1, 1997, the
Company adopted the Paragon Trade Brands, Inc. Deferred Compensation Plan (the
"Plan"), an unfunded, non-qualified deferred compensation plan under which
eligible employees of the Company and members of the Board may elect on a
voluntary basis to defer compensation until retirement or termination from the
Company or the Board. Eligible participants are employees of the Company or its
subsidiaries or members of the Board who are selected for participation by a
Committee (the "Plan Committee") which consists of the Board of Directors of the
Company or a committee appointed by the Board.
Eligible participants may elect to defer up to 50% of their base annual
salary, up to 100% of their annual bonus, or, in the case of directors, up to
100% of their director fees. A participant shall at all times be 100% vested in
his elective deferrals (and earnings thereon).
In addition, if a participant is employed by the Company at the end of a
calendar year, the Company shall credit to a participant's Company Contribution
account 50% of the participant's annual elective deferrals made during such
calendar year, provided that such Company credit shall not exceed 25% of the
participant's combined base annual salary and annual bonus for such calendar
year. A participant shall be 0% vested in his Company Contribution account (and
earnings thereon) until the participant has accrued five (5) years of service
with the Company, including prior service with Weyerhaeuser Company or any 80%
or more owned subsidiary of Weyerhaeuser Company.
Finally, the Company may in its sole discretion make a credit to any
participant's Company Contribution account. The Company has made no such
contributions, other than transferring to Mr. Abraham's Company Contribution
account under the Plan $555,604 in deferred compensation credits from the
employment agreement with Bobby V. Abraham dated August 5, 1997.
A participant may request that the funds in his accounts under the Plan be
invested in one or more Measurement Funds, which are chosen by the Plan
Committee, and are based on one or more mutual funds. To the extent such
request is approved by the Plan Committee, the funds credited to a participant's
account shall generally be adjusted to reflect gain, loss, income and expense as
though the account had actually been invested in such Measurement Funds. In
this regard, the Company also adopted on April 1, 1997, a so-called "rabbi
trust" known as the Paragon Trade Brands, Inc. Deferred Compensation Plan Master
Trust Agreement (the "Trust Agreement"), with Wachovia Bank, N.A. as Trustee,
and which is intended to serve as a funding vehicle for the Plan. However, to
date the Company has not transferred any funds to the Trustee under the Trust
Agreement.
A participant may elect that the participant's deferrals be paid to him as of
a date selected by the participant which is at least three calendar years after
the end of the calendar year in which a give deferral election is made. In
addition, if a participant experiences an unforseeable financial emergency (as
defined in the Plan), then the Plan Committee may approve a payout to the
participant of an amount necessary to satisfy such emergency. Finally, a
participant may elect at any time to withdraw all or any part of his vested
account balance, provided that (i) there shall be deducted from the
participant's account a penalty of 10% of the value of his account; and (ii) the
participant shall not be permitted to participate in the Plan in the future.
A participant who terminates employment shall be entitled to receive his
account balance under the Plan (i.e., participant deferrals, Company
contribution credits, and earnings thereon). If the participant retires (as
defined in the Plan), such amount shall be paid in a lump sum or installments
over five, ten, or fifteen years (as elected by the participant at least three
years prior to retirement). If a participant terminates employment other than
by reason of retirement, his account balance shall be paid in a lump sum. If a
participant terminates employment by reason of death, his account generally
shall be paid to his beneficiary in a lump sum or installments over five, ten,
or fifteen years (as elected by the participant prior to death).
-16-
<PAGE>
If the Company undergoes a change in control (as defined in the Plan), then
(i) all participants shall become 100% vested in their accounts; and (ii) if it
appears that the Company or its successor has failed to comply with its
obligations under the Plan or takes action to deny or diminish the benefits
intended under the Plan, then a participant may retain counsel of his choice at
the expense of the Company to enforce the participant's rights in connection
with the Plan. Effective December 31, 1997, no further compensation deferrals
will be permitted under the Plan.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In accordance with Rule 405 of Regulation S-K of the Securities and
Exchange Act of 1934, as amended, the Company has reviewed the Forms 3 and 4
submitted to the Company by and on behalf of its directors and designated
officers during and with regard to the 1997 fiscal year. Mr. Adrian D.P.
Bellamy, a director of the Company, filed with the Securities and Exchange
Commission on March 14, 1997 a Form 4 reporting his purchase on February 14,
1997 of 3,000 shares of Paragon Trade Brands, Inc. common stock in an open
market transaction. Such Form 4 filing was due to be filed with the Securities
and Exchange Commission no later than March 10, 1997 and, therefore, was not
timely filed. The Company knows of no other Forms 3 or 4 untimely filed during
and with regard to the 1997 fiscal year, nor is the Company aware of failure on
the part of any of its directors or designated officers to file a required form
during and with regard to the 1997 fiscal year. The Company has confirmed that
no Form 5 filings are due by its designated officers or directors with regard to
1997 fiscal year.
INDEPENDENT AUDITORS
Arthur Andersen LLP, which audited the Company's accounts for the last fiscal
year, has been selected to continue as the company's independent auditor for the
current fiscal year. Representatives of Arthur Andersen LLP are expected to
attend the 1998 Annual Meeting and to have an opportunity to make a statement
and/or respond to appropriate questions from stockholders.
SOLICITATION OF PROXIES
The proxy card accompanying this Proxy Statement is solicited by the Board of
Directors. Proxies may be solicited by officers, directors and regular
supervisory and executive employees of the Company, none of whom will receive
any additional compensation for their services. The Company has retained
Georgeson & Company, Inc. to solicit proxies at an approximate cost of $5,500,
plus reasonable expenses. Such solicitations may be made personally, or by
mail, facsimile, telephone, telegraph or messenger. The Company will reimburse
persons holding shares of Common Stock in their names or in the names of
nominees, but not owning such shares beneficially, such as brokerage houses,
banks and other fiduciaries, for the expense of forwarding solicitation
materials to their principals. All costs of soliciting proxies will be paid by
the Company.
OTHER MATTERS
The Company knows of no other matters that are likely to be brought before the
1998 Annual Meeting. If, however, other matters not now known or determined
come before the 1998 Annual Meeting, the persons named in the enclosed proxy or
their substitutes will vote such proxy in accordance with their judgment in such
matters.
PROPOSALS OF STOCKHOLDERS
Proposals of Stockholders to be considered for inclusion in the Proxy
Statement and proxy card for the Company's 1998 Annual Meeting of Stockholders
must be received by the Secretary of the Company by December 1, 1998.
-17-
<PAGE>
ANNUAL REPORT
A copy of the Company's 1997 Annual Report is being mailed with this Proxy
Statement to each stockholder of record. Additional copies of such annual
report may be obtained by writing or calling Investor Relations at (770) 300-
4200.
By Order of the Board Of Directors
/s/ Catherine. O. Hasbrouck
Catherine O. Hasbrouck
Secretary
Norcross, Georgia
March 30, 1998
-18-
<PAGE>
PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD
OF DIRECTORS FOR
THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD
MAY 11, 1998
PARAGON TRADE BRANDS, INC.
The undersigned hereby appoints Bobby V. Abraham, Alan J. Cyron and
Catherine O. Hasbrouck, and each of them, as Proxies, with full power of
substitution, and hereby authorizes them to represent and to vote, as
designated on the reverse side, all the shares of Common Stock of Paragon
Trade Brands, Inc. held of record by the undersigned on March 13, 1998,
at the Annual Meeting of Stockholders to be held on May 11, 1998, or any
adjournment or postponement thereof.
(CONTINUED AND TO BE DATED AND SIGNED ON THE OTHER SIDE)
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FOLD AND DETACH HERE
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR THE NOMINEE"
Please mark
your votes [X]
as in this
example.
Election of
Director
FOR WITHHOLD
the AUTHORITY In their discretion, the Proxies are
nominee to vote for nominee authorized to vote upon such other
business as may properly come before
[ ] [ ] the meeting. This Proxy, when properly
executed and delivered, will be voted
Election of Thomas B. Boklund to in the manner directed herein by the
serve as a director for a undersigned. IF NO DIRECTION IS MADE,
three-year term THIS PROXY WILL BE VOTED "FOR THE
NOMINEE."
YOUR VOTE IS IMPORTANT. PROMPT RETURN OF THIS PROXY WILL HELP SAVE THE EXPENSE
OF ADDITIONAL SOLICITATION EFFORTS
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Signature(s) _________________________________________ Date
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH.
<PAGE>
PROXY
PARAGON TRADE BRANDS, INC.
PARAGON RETIREMENT INVESTMENT SAVINGS MANAGEMENT PLAN
"PRISM"
VOTING INSTRUCTION CARD
Vanguard Fiduciary Trust Company (the "Trustee") is hereby instructed
to vote (in person by limited or general power of attorney or by proxy)
all the shares or fractional shares thereof of Common Stock of Paragon
Trade Brands, Inc. which are allocated to the undersigned's PRISM account
and held of record by the Trustee on March 13, 1998, at the Annual
Meeting of Stockholders to be held on May 11, 1998, or any adjournment or
postponement thereof.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by the Trustee by May 7, 1998. If this voting
instruction card is not received by May 7, 1998, the shares represented
herein will not be voted.
THE SHARES REPRESENTED BY THIS VOTING INSTRUCTION CARD WILL BE VOTED AS
DIRECTED BY THE MEMBER (OR DESIGNATED BENEFICIARY OF DECEASED MEMBER). IF
NO DIRECTION IS GIVEN WHEN THE DULY EXECUTED VOTING INSTRUCTION CARD IS
RETURNED, SUCH SHARES WILL BE VOTED "FOR THE NOMINEE."
THIS VOTING INSTRUCTION CARD IS CONTINUED ON THE REVERSE SIDE.
Please mark, sign and date on the reverse side and return promptly.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR THE NOMINEE"
Please mark
your votes [X]
as in this
example.
Election of
Director
FOR WITHHOLD
the AUTHORITY The undersigned instructs the Trustee
nominee to vote for nominee to vote in accordance with the voting
instructions indicated above and
[ ] [ ] hereby acknowledges receipt of the
Notice of Annual Meeting of
Election of Thomas B. Boklund to Stockholders and Proxy Statement.
serve as a director for a
three-year term
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Signature(s) Date
--------------------------------------------- ---------------
NOTE: PLEASE SIGN AS NAME APPEARS HEREON. JOINT OWNERS SHOULD EACH SIGN. WHEN
SIGNING AS ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE
FULL TITLE AS SUCH.
