[OBJECT OMITTED: PARAGON TRADE BRANDS, INC. LOGO]
October 29, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Stockholders
of Paragon Trade Brands, Inc. (the "Company"), at 9:00 a.m. on Monday, November
29, 1999, at the Hotel Inter-Continental New York, located at 111 East 48th
Street, New York, New York.
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.
The Company has been notified pursuant to its By-laws that a stockholder of
the Company intends to make a proposal at the Annual Meeting that the entire
Board of Directors be removed and replaced by himself and two other individuals
nominated by such shareholder For the reasons outlined in the Proxy Statement,
the Company plans to oppose any such proposal and the election of such
individuals.
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.
Sincerely,
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 revoke his
or her signed proxy and personally vote on all matters that are considered.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 29, 1999
To the Stockholders:
The 1999 Annual Meeting of Stockholders of Paragon Trade Brands, Inc. (the
"Company") will be held at 9:00 a.m. on Monday, November 29, 1999, at the Hotel
Inter-Continental New York located at 111 East 48th Street, New York, New York,
for the following purposes:
1. To elect two Class III directors for terms expiring in 2002, and
2. To transact such other business as may properly come before the Annual
Meeting or any postponement or adjournment thereof.
The nominees for election as directors are named in the enclosed Proxy
Statement.
The Record Date for the Annual Meeting is October 1, 1999. 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
Catherine O. Hasbrouck
SECRETARY
Norcross, Georgia
October 29, 1999
THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED
DECEMBER 27, 1998 ACCOMPANIES THIS PROXY STATEMENT.
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PROXY STATEMENT FOR ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD NOVEMBER 29, 1999
GENERAL
The enclosed proxy is solicited by the Board of Directors of Paragon Trade
Brands, Inc. (the "Company") for use at the 1999 Annual Meeting of Stockholders
to be held at 9:00 a.m. on Monday, November 29, 1999, at the Hotel
Inter-Continental New York, located at 111 East 48th Street, New York, New York,
and at any postponement or adjournment thereof (the "1999 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 October 1, 1999 (the "Record Date")
will be entitled to vote at the 1999 Annual Meeting. On that date, the Company
had 11,949,715 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
October 18, 1999.
VOTING
The purpose of the 1999 Annual Meeting is to elect two Class III directors
for terms expiring in 2002 and to transact such other business as may properly
come before the Annual Meeting or any postponement or adjournment thereof.
The Company has been notified pursuant to its By-laws that Robin E. Winslow,
a stockholder of the Company and Chairman of the Official Committee of Security
Holders (the "Equity Committee") in the Company's Chapter 11 case, intends to
propose, at the Annual Meeting, a motion calling for the removal of the
Company's entire Board of Directors and the election of himself and two other
individuals nominated by Mr. Winslow to the Board of Directors (any such motion
the "Stockholder Proposal"). Mr. Winslow has indicated that he intends to
nominate Matthew S. Metcalfe and Frank E. Williams, Jr., both of whom are also
members of the Equity Committee. Messrs. Winslow, Metcalfe and Williams have
formed the Committee to Enhance the Value of Paragon for such purpose. If the
Stockholder proposal is, in fact, brought before the Annual Meeting in
accordance with the Company's By-laws, it will be proper business at the Annual
Meeting or any postponement or adjournment thereof.
For the reasons described below, the Company recommends a vote "FOR" the
election of each of the nominees for the Board of Directors named herein and
"AGAINST" the Stockholder Proposal. The Company also recommends that
stockholders not vote in favor of any nominee for the Board of Directors
proposed in connection with the Stockholder Proposal.
Shares of Common Stock for which proxies are properly executed and returned
(and not revoked) prior to the 1999 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 each of the nominees for the Board of Directors
named herein, provided that if any of such nominees 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, and "AGAINST" the
Stockholder Proposal. 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 1999
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.
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Under Delaware law and the Company's Certificate of Incorporation, the
Directors may be removed with or without cause by the holders of a majority of
the shares then entitled to vote at an election of Directors. Accordingly, in
the vote on the Stockholder Proposal, withholding authority or abstaining will
have the same effect as a vote AGAINST the Stockholder Proposal.
The nominees for the Board of Directors who receive the greatest number of
votes cast for the election of directors by the shares present in person or
represented by proxy at the 1999 Annual Meeting and entitled to vote shall be
elected directors. Therefore, in the election of directors, withholding
authority to vote with respect to the nominees 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 lawsuit against it in the United States District Court for
the District of Delaware alleging that the Company's "Ultra" disposable baby
diaper products infringed two of P&G's dual cuff diaper 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 also disclosed that if P&G were to prevail on its claims, an award
of all or a substantial amount of the relief requested by P&G could have a
material adverse effect on the Company's financial condition and results of
operations.
On December 30, 1997, the District Court issued a Judgment and Opinion (the
"Judgment") which found, in essence, two of P&G's dual cuff diaper patents to be
valid and infringed by certain of 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 entitled P&G to damages based on sales of the
Company's diapers containing the "inner-leg gather" feature. While the final
damages amount of approximately $178.4 million was not entered by the District
Court until June 2, 1998, the Company originally estimated the liability and
associated litigation costs to be approximately $200 million. The amount of the
award resulted in violation of certain covenants under the Company's
then-existing 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
prevent P&G from 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 liquidated and unliquidated claims
against the Company, which arose prior to the Chapter 11 filing. The Company is
currently operating as a debtor in possession under the Bankruptcy Code.
On February 2, 1999, the Company entered into a Settlement Agreement with
P&G which fully and finally settles all matters related to the Judgment, the
Company's appeal of the Judgment, P&G's motion to find the Company in contempt
of the Judgment and P&G's proof of claim filed in the Company's Chapter 11
reorganization case. The P&G Settlement Agreement was approved by the Bankruptcy
Court on August 6, 1999. As a part of the P&G settlement, Paragon grants P&G an
allowed unsecured prepetition claim of $158.5 million and an allowed
administrative claim of $5 million. As a part of the settlement, the Company has
entered into License Agreements for the U.S. and Canada, which are exhibits to
the Settlement Agreement, with respect to certain of the patents asserted by P&G
in its proof of claim, including those asserted in the Delaware Action. The U.S.
and Canadian patent rights licensed by the Company permitted the Company to
convert to a dual cuff baby diaper design. The product conversion is
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complete. In exchange for these rights, the Company pays P&G running royalties
on net sales of the licensed products equal to 2 percent through October 2005,
.75 percent thereafter through October 2006 and .375 percent thereafter through
March 2007 in the U.S.; and 2 percent through October 2008 and 1.25 percent
thereafter through December 2009 in Canada. The Settlement Agreement also
provides, among other things, that P&G will grant the Company and/or its
affiliates "most favored licensee" status with respect to patents owned by P&G
on the date of the Settlement Agreement or for which an application was pending
on that date. In addition, the Company has agreed with P&G that prior to
litigating any future patent dispute, the parties will engage in good faith
negotiations and will consider arbitrating the dispute before resorting to
litigation.
While the Company believes that the royalty rates being charged by P&G are
the same royalties that will be paid by the Company's major store brand
competitors for similar patent rights, these royalties, together with royalties
to be paid to Kimberly-Clark Corporation ("K-C") described below, have had, and
will continue to have, a material adverse impact on the Company's future
financial condition and results of operations. While these royalty costs are
expected to be partially offset by projected raw material cost savings related
to the conversion to a dual cuff design, the Company's overall product costs are
expected to increase.
Under the terms of the P&G Settlement Agreement, once the Bankruptcy Court's
August 6, 1999 order becomes a "Final Order," as defined in the Settlement
Agreement, the Company will withdraw with prejudice its appeal of the Judgment
to the Federal Circuit, and P&G will withdraw with prejudice its motion in
Delaware District Court to find the Company in contempt of the Judgment. Because
the Bankruptcy Court's August 6, 1999 order has not yet become a Final Order, as
defined in the Settlement Agreement, the P&G License Agreements described above
are terminable at P&G's option. If the P&G License Agreements are terminated,
the Company could be faced with having to convert to a diaper design other than
the dual cuff design covered by the licenses. At this time, the Company's only
viable alternative product design is the single cuff product which is the
subject of P&G's Contempt Motion in Delaware. P&G has informed the Company that
it is P&G's present intention, while not waiving any contractual or other legal
rights P&G might have, to continue to operate as if the Settlement Agreement has
been approved by a Final Order, as defined therein, and not to terminate the
licenses.
The Equity Committee has filed with the United States Federal District Court
for the Northern District of Georgia, Atlanta Division (the "Georgia District
Court") a notice of appeal of the Bankruptcy Court's approval of the P&G
settlement and a motion to expedite briefing on the appeal. On October 14, 1999,
the Georgia District Court denied the Equity Committee's motion. In doing so,
the Georgia District Court found that the Bankruptcy Court's order approving the
P&G settlement was thorough and that the Bankruptcy Court did not abuse its
discretion in approving the P&G settlement. The Georgia District Court has
offered the Equity Committee the option of consenting to the Georgia District
Court's adoption of the Bankruptcy Court's approval order as its own, thereby
permitting the Equity Committee to take its appeal of the P&G settlement
directly to the 11th Circuit Court of Appeals. The Equity Committee has until
October 29, 1999 to inform the Georgia District Court of its decision.
On October 26, 1995, K-C filed a lawsuit against the Company in U.S.
District Court in Dallas, Texas, alleging infringement by the Company's products
of two K-C patents relating to dual cuffs. The lawsuit sought injunctive relief,
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 K-C. In addition, K-C subsequently sued the
Company on another patent issued to K-C which is based upon a further
continuation of one of the K-C dual cuff patents asserted in the case.
On March 19, 1999, the Company entered into a Settlement Agreement with K-C
which fully and finally settles all matters related to the Texas action,
including the Company's counterclaims, and K-C's proof of claim filed in the
Company's Chapter 11 reorganization proceeding. The K-C Settlement Agreement was
approved by the Bankruptcy Court on August 6, 1999. Under the terms of the K-C
Settlement Agreement, the Company grants K-C an allowed unsecured prepetition
claim of $110 million
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and an allowed administrative claim of $5 million. As a part of the settlement,
the Company has entered into License Agreements for the U.S. and Canada, which
are exhibits to the Settlement Agreement, with respect to the patents asserted
by K-C in the Texas action. The patent rights licensed by the Company from K-C
permitted the Company to convert to a dual cuff diaper design. The product
conversion is complete. In exchange for these patent rights, the Company pays
K-C annual running royalties on net sales of the licensed products in the U.S.
and Canada equal to: 2.5 percent of the first $200 million of net sales of the
covered diaper products and 1.5 percent of such net sales in excess of $200
million in each calendar year commencing January 1999 through November 2004. The
Company has agreed to pay a minimum annual royalty for diaper sales of $5
million, but amounts due on the running royalties will be offset against this
minimum. The Company also pays K-C running royalties of 5 percent of net sales
of covered training pant products for the same period, but there is no minimum
royalty for training pants. As part of the settlement, the Company has granted a
royalty-free license to K-C for three patents which the Company claimed in the
Texas action K-C infringed.
While the Company believes that, based on its projected level of sales, the
overall effective royalty rate that the Company will pay to K-C is less than the
royalty rate that will be paid by the Company's major store brand competitors
for similar patent rights, these royalties have had, and will continue to have,
together with royalties to be paid to P&G described above, a material adverse
impact on the Company's future financial condition and results of operations.
While these royalty costs are expected to be partially offset by projected raw
material cost savings related to the conversion to a dual cuff product, the
Company's overall product costs are expected to increase.
As a part of the K-C License Agreement, K-C has agreed not to sue the
Company on two of K-C's patents related to the use of super-absorbent polymers
("SAP") in diapers and training pants, so long as the Company uses SAP which
exhibits certain performance characteristics (the "SAP Safe Harbor"). The
Company experienced certain product performance issues the Company believes may
have been related to the SAP the Company initially converted to in December of
1998. In February 1999, the Company converted to a new SAP. The Company is
encountering increased product costs due to the increased price and usage of the
new SAP. While the Company is working diligently with its SAP suppliers to
develop a more cost-effective alternative which is still within the SAP Safe
Harbor, the Company cannot predict at this time whether or when the added costs,
as well as increased promotional and marketing spending, will be fully offset.
The Company expects that these increased costs will have a material adverse
impact on its financial condition and results of operations for at least 1999
and potentially beyond.
On August 16, 1999, the Equity Committee filed an emergency motion with the
Bankruptcy Court seeking an 80-day stay of the K-C Settlement Agreement pending
an appeal by the Equity Committee to the Georgia District Court. The Bankruptcy
Court denied the Equity Committee's request, but granted a limited stay through
August 25, 1999 to permit the Georgia District Court to consider the matter. On
August 24, 1999, the Georgia District Court heard arguments on the Equity
Committee's motion for an emergency 80-day stay. At that time, the limited stay
was extended to September 3, 1999 by agreement of the parties in order to allow
the Georgia District Court to further consider the matter. On September 2, 1999,
the Georgia District Court issued an order denying the Equity Committee's motion
for an emergency stay. In denying the Equity Committee's request, the Georgia
District Court found, among other things, that the Equity Committee had failed
to show that it has a substantial likelihood of success on its appeal of the K-C
settlement. The Georgia District Court also found that the Bankruptcy Court's
order approving the K-C settlement was thorough and that the Bankruptcy Court
did not abuse its discretion in approving the K-C settlement. The Georgia
District Court offered the Equity Committee the option of consenting to the
Georgia District Court's adoption of the Bankruptcy Court's approval order to
permit the Equity Committee to take its appeal of the K-C settlement directly to
the 11th Circuit Court of Appeals, in which event, the Georgia District Court
stated that it would enter a limited stay through October 28, 1999. On September
8, 1999, the Equity Committee consented to the procedure proposed by the Georgia
District Court.
In accordance with the terms of the K-C Settlement Agreement, once the
limited stay expires on October 28, 1999, and unless otherwise stayed by the
11th Circuit Court of Appeals, K-C will dismiss with
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prejudice its complaint in the Texas action, as well as its related filings in
the District Court in Georgia, and the Company will simultaneously dismiss with
prejudice its counterclaims in the Texas action.
On August 25, 1999, with the support of the Official Committee of Unsecured
Creditors (the "Creditors' Committee"), the Company filed a stand-alone plan of
reorganization (the "Plan") with the Bankruptcy Court. The Plan provides an
alternative to a proposal by Wellspring Capital Management LLC ("Wellspring"), a
private investment company, to acquire the Company as part of a plan of
reorganization (the "Wellspring Proposal."). In accordance with Bankruptcy
Court-approved auction procedures, an alternative transaction competing with the
Wellspring Proposal was proposed to the Company on September 15, 1999. An
auction was commenced on September 21, 1999. The auction continued thereafter
until the Company, after consultation with the Creditors' Committee, the Equity
Committee, P&G and K-C, determined to conclude the auction on October 4, 1999.
At the conclusion of the auction, the Company, after consultation with the
Creditors' Committee, the Equity Committee, P&G and K-C, determined that
Wellspring had submitted the best bid. On October 15, 1999, the Company and the
Creditors' Committee, as co-proponents, jointly filed an amendment to the Plan
(the "Amended Plan") which incorporates the Wellspring Proposal, as modified by
the Company after consultation with its various creditor constituencies. The
Amended Plan also provides that, in the event the proposed Wellspring
transaction is not consummated, the proponents may pursue confirmation of a
stand-alone plan of reorganization. The Amended Plan specifies, among other
things, the type and amount of value to be distributed under either the
Wellspring or the stand-alone alternative, as the case may be. The Bankruptcy
Court has set a hearing date of November 17, 1999 to consider approval of the
Disclosure Statement.
The Company believes that it is positioned to emerge from Chapter 11
protection in the first quarter of 2000.
As noted above, the Company has received notice pursuant to its By-laws that
Robin E. Winslow, a stockholder and Chairman of the Equity Committee, intends to
propose at the Annual Meeting that the entire Board of Directors be removed and
replaced by himself and his two nominees: Matthew S. Metcalfe and Frank E.
Williams, Jr., both of whom are also members of the Equity Committee. In his
notice to the Company, Mr. Winslow indicated that the reason he and Messrs.
Metcalfe and Williams wish to replace the current Board is that they question
the business judgment of the Board of Directors in managing the operations of
the Company and that they object to the Board's approval of the P&G and K-C
Settlements.
The Company intends to oppose the Stockholder Proposal for several reasons.
The Company believes that the Board has exercised reasonable business judgment
in managing the business and in approving the P&G and K-C Settlements. The
Board's reasonable judgment in approving the P&G and K-C Settlements has been
upheld by the Bankruptcy Court in its August 6, 1999 approval order and, as
described herein, by the Georgia District Court. The Company is confident that
once it has heard the Equity Committee's appeals of the P&G and K-C Settlements,
the 11th Circuit Court of Appeals will uphold the settlements as a reasonable
exercise of the Board's business judgment, as well. Further, the Company is
concerned about the conflict of interest inherent in electing three members of
the Equity Committee to serve as a new Board of Directors. Given the Company's
Chapter 11 case, the Company's Directors owe a fiduciary duty not only to the
Company's stockholders, but also to its creditors. The Board of Directors has
worked diligently throughout the Chapter 11 case to represent the interests of
both constituencies. Placing members of the Equity Committee, who by law have a
fiduciary duty only to the Company's stockholders, on the Board of Directors,
who by law must represent the interests of stockholders and creditors alike,
creates an unavoidable conflict of interest that should disqualify Messrs.
Winslow, Metcalfe and Williams, as well as any other member of the Equity
Committee, from standing for election. Finally, the Company believes that with
the support and guidance of the Board of Directors it has made real progress
toward emerging from Chapter 11. As discussed above, the Plan has been filed and
a transaction with Wellspring has been accepted. To remove the Board of
Directors and replace them with members of the Equity Committee who, at this
time are objecting to the Plan and the Wellspring transaction, will only serve
to delay the Company's exit from Chapter 11. The Company believes that a delay
in emerging from Chapter 11 will further erode the enterprise value of the
business and jeopardize the Company's future viability.
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For these reasons, the Company recommends a vote "FOR" each of the Company
nominees for the Board of Directors named herein and "AGAINST" the Stockholder
Proposal. The Company also recommends that stockholders not vote in favor of any
nominee for the Board of Directors nominated in connection with the Stockholder
Proposal.
ELECTION OF DIRECTORS AND DIRECTOR INFORMATION
It is intended that votes will be cast pursuant to the accompanying proxy
for the election of the nominees named below, who at present are directors of
the Company. If any 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 any of
the nominees 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 nominees named immediately below comprise the
class to be elected at the 1999 Annual Meeting for a three-year term expiring at
the 2002 annual meeting of stockholders.
NOMINEES FOR ELECTION -- TERM EXPIRES IN 2002
ADRIAN D.P. BELLAMY. Mr. Bellamy (age 57) 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
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, and as Chairman and a Director of Airport
Group International Holdings LLC, an airport management company, from July 1995
to September 1999. Mr. Bellamy currently serves on the Boards of Directors of
The Gap, Inc., a clothing retailer; Gucci Group NV, a manufacturer and retailer;
The Body Shop International PLC and its USA subsidiary, Buth-Na-Bodhaige Inc., a
skin and hair care products manufacturer and retailer; Williams-Sonoma Inc., a
home products retailer; Shaman Pharmaceuticals, Inc., a pharmaceutical
developer; and Benckiser N.V., a home products company. Mr. Bellamy has served
as Chairman of Gucci Group NV since January 1996.
Principal Occupation: Nonexecutive Director of Companies
ROBERT L. SCHUYLER. Mr. Schuyler (age 63) 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, and as Chairman of the Governance Committee of
the Company's Board of Directors from November 1996 to February 1999. Mr.
Schuyler continues to serve as a member of the Governance Committee, and was
reappointed as Chairman of the Audit Committee in February 1999. 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
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CONTINUING DIRECTOR -- TERM EXPIRES IN 2000
BOBBY V. ABRAHAM. Mr. Abraham (age 58) 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.
Principal Occupation: Chairman and Chief Executive Officer,
Paragon Trade Brands, Inc.
CONTINUING DIRECTOR -- TERM EXPIRES IN 2001
THOMAS B. BOKLUND. Mr. Boklund (age 60) 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 from November 1996 to February 1999. Mr. Boklund has also served as
a member of the Governance Committee of the Company's Board of Directors since
November 1996, and was appointed its Chairman in February of 1999. Mr. Boklund
continues to serve as a member of the Compensation Committee. 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 has announced that he intends to resign as Chief Executive Officer of
Oregon Steel Mills effective December 31, 1999. He will remain Chairman of the
Board of Oregon Steel Mills.
Principal Occupation: Chief Executive Officer,
Oregon Steel Mills
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
Four regularly scheduled and twenty (20) special meetings of the Board of
Directors were held in fiscal 1998. Each incumbent member of the Board attended
at least 75 percent of the Board of Directors and Committee meetings that he was
eligible to attend.
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, Mr. Bellamy and Mr. Schuyler. Mr. Boklund served as
Chairman of the Audit Committee in 1998, and until February of 1999, at which
time Mr. Schuyler was appointed Chairman of the Audit Committee. The Audit
Committee met two times in fiscal 1998 with all incumbent members in attendance.
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
one time in fiscal 1998 with all incumbent members in attendance.
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GOVERNANCE COMMITTEE. The Governance Committee reviews and reports 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, Mr. Bellamy and Mr. Boklund. Mr. Schuyler
served as Chairman of the Governance Committee in 1998, and until February 1999,
at which time Mr. Boklund was appointed Chairman of the Governance Committee.
The Governance Committee did not meet in fiscal 1998.
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.
OPTIONS. Directors who are not employees of the Company are eligible to
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 is eligible to automatically receive 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 is eligible
to receive 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. The Board has suspended the Director
Plan until the Company emerges from Chapter 11 protection and, as such, no
options were granted to directors in 1998.
EXECUTIVE OFFICERS
BOBBY V. ABRAHAM. Mr. Abraham (age 58) has been a director and the Chief
Executive Officer of the Company since its initial public offering in February
1993 and has been the Chairman of the Company's Board of Directors since August
1993.
DAVID W. COLE. Mr. Cole (age 52) was appointed President of the Company in
September 1999. Prior to that time, Mr. Cole served the Company as President,
Sales and Marketing from March 1998, as President and Chief Operating Officer
from November 1993 to March 1998, and as Executive Vice President and Chief
Operating Officer from February 1993 to November 1993.
ALAN J. CYRON. Mr. Cyron (age 46) has been the Executive Vice President,
Chief Financial Officer and Assistant Secretary of the Company since February
1997. Prior to assuming his current responsibilities, Mr. Cyron had served as
Vice President since April 1995 and as Treasurer from May through July 1995.
Prior to joining the Company, Mr. Cyron served as Managing Director of Chemical
Securities, Inc., a subsidiary of Chemical Banking Corp., from January 1992
through March 1995.
ROBERT E. MCCLAIN. Mr. McClain (age 50) has been Executive Vice President -
Sales and Marketing of the Company since March 1997. Prior to that time, Mr.
McClain served the Company as Vice President - Business Development from
September 1996 to March 1997. Before joining the Company, Mr. McClain was the
Senior Vice President, Sales and Marketing for Nice Pak Products from 1992 to
1996.
JOHN R. COOK. Mr. Cook (age 57) has been Vice President - Technical Support
of the Company since 1998. Prior to that time, Mr. Cook served the Company as
Vice President - Quality Management from 1994 to 1998, and as Vice President -
R&D from 1992 to 1994.
-8-
<PAGE>
KATHY L. EVENSON. Ms. Evenson (age 39) has been Director, Human Resources of
the Company since April 1998. Prior to that time, Ms. Evenson served the Company
as Director, Compensation and Benefits from February 1998 to April 1998, as
Compensation and Benefits Manager from June 1995 to February 1998, and as
Supervisor, Compensation and Benefits from June 1994 to June 1995.
CATHERINE O. HASBROUCK. Ms. Hasbrouck (age 35) has been the Vice President,
General Counsel and Secretary of the Company since June 1996. Prior to joining
the Company, Ms. Hasbrouck practiced law as an associate with the law firm of
Troutman Sanders LLP from January 1992 to June 1996.
STANLEY LITTMAN. Mr. Littman (age 58) has been Vice President - Technology
and Materials of the Company since September 1998. Prior to that time, Mr.
Littman served the Company as Vice President - Supply Management from November
1997 to September 1998 and Director, Supply Management from April 1996 through
October 1997. Prior to joining the Company, Mr. Littman was employed by
Fiberweb, a nonwovens manufacturing company, as Research Director, Medical
Fabrics, from 1992 to 1996.
CHRISTINE I. OLIVER. Ms. Oliver (age 42) has been Executive Vice President
- - Customer Management of the Company since June 1999. Ms. Oliver also currently
serves as President of Paragon Trade Brands (Canada) Inc., a wholly owned
subsidiary of the Company, and has served in that position since October 1995.
From February 1993 to 1995, Ms. Oliver served as Vice President - Manufacturing
for Paragon Trade Brands (Canada) Inc.
JEFFREY S. SCHOEN. Mr. Schoen (age 39) has been Vice President -
Manufacturing of the Company since March 1999. Prior to that time, Mr. Schoen
served the Company as a Plant Manager at two of its manufacturing facilities
from 1994 to 1998, and as a plant Operations Manager from 1993 to 1994.
-9-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock
as of September 30, 1999 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
--------------------
AMOUNT AND NATURE OF PERCENT
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
------------------------------------ -------------------- --------
<S> <C> <C>
Wellington Management Company, LLP..... 1,637,800 (1) 13.71%
75 State Street
Boston, MA 02109
Vanguard Specialized Portfolios -
Health Care Portfolio................ 1,124,100 (2) 9.41%
P.O. Box 2600
Valley Forge, PA 19482-2600
Capital Guardian Trust Company......... 1,042,700 (3) 8.73%
333 South Hope Street, 55th Floor
Los Angeles, CA 90071
The Committee to Enhance the Value of 636,692 (4) 5.33%
Paragon
c/o Robin E. Winslow
440 South LaSalle Street, Suite 1208
Chicago, IL 60605
Bobby V. Abraham....................... 282,151 (5) 2.32%
Adrian D.P. Bellamy.................... 12,000 (6) *
Thomas B. Boklund...................... 14,000 (7) *
Robert L. Schuyler..................... 13,100 (7) *
David W. Cole.......................... 149,158 (8) 1.23%
Alan J. Cyron.......................... 61,860 (9) *
Arrigo D. Jezzi........................ 1,500 (10) *
Robert E. McClain...................... 12,514 (11) *
All directors and executive officers
as a group (15 persons)................ 496,820 (12) 4.76%
- ----------
<FN>
* Represents holdings of less than 1%.
(1) Wellington Management Company, LLP has shared power to vote 513,700
shares and shared power to dispose of 1,637,800 shares of Common Stock,
based on publicly available information reported as of January 29, 1999.
(2) 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 10, 1999.
(3) Capital Guardian Trust Company has sole power to vote 1,042,700 shares and
sole power to dispose of 1,042,700 shares of Common Stock, based on
publicly available information reported as of February 8, 1999.
-10-
<PAGE>
(4) Based on publicly available information reported as of September 27, 1999,
the Committee to Enhance the Value of Paragon consists of Robin E. Winslow,
Matthew S. Metcalfe and Frank E. Williams, Jr. Mr. Winslow and his wife, as
joint tenants, own 422,050 shares of common stock, with shared power to
vote and dispose of such shares. Mr. Winslow is the direct owner of and has
sole power to vote and dispose of 25,000 shares of common stock. Mr.
Winslow is the beneficial owner of and has sole power to vote and dispose
of 12,278 shares of common stock held in a simplified employee pension plan
and of 64 shares of common stock in an IRA. Dempsey & Company, of which Mr.
Winslow is a principal, owns 126,300 shares of common stock, over which Mr.
Winslow has shared powers of voting and of disposition but is not otherwise
the beneficial owner. Mr. Metcalfe owns directly 10,000 shares of common
stock and 15,000 shares of common stock through Airland Corporation, of
which Mr. Metcalfe is the principal. Mr. Metcalfe has sole power to vote
and dispose of all 25,000 shares of common stock. Mr. Williams has sole
power to vote and dispose of 26,000 shares of common stock owned by his
father. (5) Includes options to purchase 229,160 shares of Common Stock,
exercisable within 60 days of the date of this Proxy Statement.
(6) Includes options to purchase 9,000 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement.
(7) Includes options to purchase 13,000 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement.
(8) Includes options to purchase 132,500 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement.
(9) Includes options to purchase 38,750 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement.
(10) Mr. Jezzi resigned his position with the Company effective April 15, 1999.
All outstanding options to purchase common stock granted and stock
appreciation rights awarded to Mr. Jezzi were terminated in accordance with
their terms on July 15, 1999.
(11) Includes stock appreciation rights on 12,500 shares of Common Stock
exercisable within 60 days of the date of this Proxy Statement.
(12) Includes options to purchase 475,320 shares of Common Stock, exercisable
within 60 days of the date of this Proxy Statement, and stock appreciation
rights on 21,500 shares of Common Stock exercisable within 60 days of the
date of this Proxy Statement.
</FN>
</TABLE>
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, as noted above, is composed entirely of nonemployee
directors. The Committee is responsible for establishing and administering the
Company's executive compensation programs. The Committee establishes
compensation according to the following guiding principles:
(a) Compensation should be directly linked to the Company's operating
and financial performance.
-11-
<PAGE>
(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.
COMPENSATION PRACTICES
Compensation for executives includes base salary, annual bonuses and
long-term incentive awards, including stock options, SARs and restricted stock
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. 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 percent 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
percent to 60 percent of base salary. The Committee retains the discretion to
adjust any individual bonus if deemed appropriate.
In the event Company performance exceeds the performance targets
established for the maximum 200 percent bonus payout, the bonus pool is funded
in excess of such 200 percent 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 1998, the quantitative measure for bonus payments was earnings before
interest, taxes, depreciation and amortization ("EBITDA"). The maximum possible
bonus payout was 200 percent of target. The Company's performance in fiscal
1998, with EBITDA of $58.4 million, satisfied the quantitative measures designed
to fund bonuses at 187 percent of target, and the Committee accordingly awarded
such bonuses.
As a result of the Chapter 11 filing, and 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 altered the Company's existing incentive compensation plans. The
revised plans include (i) a retention incentive for employees of the Company,
other than the top eight executives, following the Chapter 11 filing and (ii) a
Confirmation Retention Plan for Top Eight Executives (the "Confirmation
Retention Plan") described herein. See "--Employment Agreements; Change in
Control Arrangements: CONFIRMATIOn RETENTION PLAN FOR TOP EIGHT EXECUTIVES."
These revised plans were approved by the Bankruptcy Court in August 1998.
-12-
<PAGE>
For 1999, the Committee had determined that the quantitative measure for
bonus payments would again be EBITDA. The plan provided minimum and target
payout levels. There is no upward limit on the maximum payout level.
Given the Company's financial performance to date in 1999, it has become
apparent that there will likely be no bonus payout for 1999. As a result, the
Committee has approached the Creditors' Committee seeking its support for a
retention plan designed to incent employees to remain with the Company through
confirmation of a plan of reorganization and some reasonable transition period
thereafter. None of the executives eligible to participate in the Confirmation
Retention Plan described herein will be eligible to participate in this new
retention plan. Any such retention plan would require Bankruptcy Court approval.
LONG-TERM INCENTIVES. Long-term incentives are designed to link management
reward with the long-term interests of the Company's stockholders. Through 1997,
the Committee granted stock options, stock appreciation rights ("SARs") and
restricted stock as long-term incentives. Individual stock option awards and
SARs were based on level of responsibility, the Company's stock ownership
objectives for management and upon the Company's performance versus the
financial performance objectives set each year for the annual bonus plan
described above. 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.
In 1998, the Committee determined, in connection with the adoption of the
Confirmation Retention Plan, that in light of the uncertainties associated with
the Chapter 11 process, the Company should discontinue future stock option, SAR
grants and restricted stock awards until its emergence from Chapter 11 and, as
such, no options, SARs or restricted stock awards were granted to employees for
1998.
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. Total 1998 compensation for
Mr. Abraham exceeded $1 million. 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 executive officers in a manner commensurate with performance and
the competitive market for 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 Mr. Abraham's previous employment agreement entered into at the time of the
Company's initial public offering, as amended and restated in 1997, and pursuant
to the discretion afforded the Board and the Committee pursuant to Mr. Abraham's
current Employment Agreement described below (see "--Employment Agreements;
Change in Control Arrangements: CONFIRMATION RETENTION PLAN FOR TOP EIGHT
EXECUTIVES"), Mr. Abraham is entitled to receive additional deferred
compensation for the first seven years of service as Chief Executive Officer
equal to 20 percent of his base salary and incentive awards. As such, a reserve
of $216,048 was taken by the Company which represents Mr. Abraham's deferred
compensation award for 1998.
Given the challenges presented by the Company's Chapter 11 filing, the
Committee determined to pay all 1998 bonuses based on the corporate EBITDA
performance factor, with no adjustment for personal performance. Mr. Abraham's
target bonus was $300,000. Based on the Company's EBITDA performance, Mr.
Abraham received a 1998 bonus payout of $561,004. Mr. Abraham will also
participate in any Confirmation Bonus payable under the Confirmation Retention
Plan. See "--Employment Agreements; Change in Control Arrangements:
CONFIRMATION RETENTION PLAN FOR TOP EIGHT EXECUTIVES."
-13-
<PAGE>
The Committee has discontinued the use of annual grants of stock options,
SARs and restricted stock as incentive compensation for Mr. Abraham until the
Company emerges from Chapter 11 protection. In the past, annual stock option
grants were determined by reference to the external compensation survey data
discussed above, as well as the Company's performance versus the financial
performance objectives set each year for the annual bonus plan described above.
COMPENSATION COMMITTEE
Adrian D.P. Bellamy, Chairman
Thomas B. Boklund
Robert L. Schuyler
-14-
<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 December 26, 1993 and ending on
December 27, 1998, the last day of the Company's 1998 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 December 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.
[OBJECT OMITTED: STOCK PRICE PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
PERFORMANCE GRAPH DATA POINTS
CUMULATIVE TOTAL RETURN AS OF:
NAME 26-DEC-93 25-DEC-94 31-DEC-95 29-DEC-96 28-DEC-97 27-DEC-98
- ---- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
PARAGON TRADE BRANDS, INC. $ 100.00 $ 44.92 $ 79.24 $ 101.70 $ 43.64 $ 7.20
Standard & Poor's 500 100.00 101.60 139.71 172.18 229.65 294.87
Combined Value Line 100.00 109.45 147.08 196.16 269.10(1) 305.20
Household Products and
Toiletries/Cosmetics Indices
- --------------
<FN>
(1) Tambrands, Inc. ("Tambrands") was a member of the Combined Value Line
Household Products and Toiletries/Cosmetics Indices 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 as of 1997.
</FN>
</TABLE>
-15-
<PAGE>
COMPENSATION OF EXECUTIVES
The following table discloses information concerning the annual and
long-term compensation received by those persons who were, at December 27, 1998,
the last day of the Company's 1998 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) SARS(#) ($)(4)
------------------ ---- --------- ------ ---------- -------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Bobby V. Abraham...... 1998 519,237 561,004 0 0 0 234,191
Chief Executive Officer 1997 500,006 0 0 0 30,000 104,885
and Chairman of the 1996 472,151 525,000 186,590 186,562 30,000 215,382
Board
David W. Cole(5)...... 1998 269,537 224,400 9,230 0 0 18,143
President 1997 304,954 0 13,985 0 20,000 3,146
1996 290,658 221,265 97,244 124,375 20,000 14,459
Alan J. Cyron......... 1998 228,422 210,375 0 0 0 16,318
Executive Vice 1997 206,612 0 4,615 0 15,000 3,158
President and 1996 193,865 156,450 212,626 49,750 15,000 12,614
Chief Financial Officer
Arrigo D. Jezzi(6).... 1998 224,423 210,375 0 0 0 18,289
Executive Vice 1997 173,679 0 32,179 0 10,000 4,250
President, Operations,
Technology and
International
Robert E. McClain .... 1998 177,355 196,350(7) 0 0 0 12,974
Executive Vice
President, Sales and
Marketing
- ----------
<FN>
(1) As a result of the Company's performance in fiscal 1997, no annual bonus
payment was made to any of the named executive officers for 1997.
(2) 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 for reimbursement of taxable
relocation expenses, $6,904 for reimbursement of nontaxable relocation
expenses and $10,190 for tax gross-up payments, each made 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 in payment of moving expenses and $9,873 reimbursement for loss
on the sale of his Pennsylvania residence. Messrs. Abraham, Cole and Cyron
recognized income in 1997 in the amounts of $84,721, $13,748 and $24,825,
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 purchase. Additional amounts
paid in 1996 to Mr. Abraham were $64,359, $12,725 and $24,786; to Mr. Cole
were $37,035, $20,733 and $25,728; and to Mr. Cyron were $118,250, $5,579
and $63,971; in each case, for reimbursement of taxable and nontaxable
relocation expenses, and tax gross-up payments, respectively. Payments to
Messrs. Abraham and Cole 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
-16-
<PAGE>
relocation from Washington to Georgia. Included in such taxable and
nontaxable relocation expenses reported above for Mr. Abraham were $29,000
in payment of a home sale bonus and $57,101 in closing costs on the sale of
his Washington residence; for Mr. Cole were $21,498 in payment of a home
sale bonus, $42,726 in closing costs on the sale of his Washington
residence and $20,231 in moving expenses; and for Mr. Cyron were $41,662 in
payment for loss on the sale of his Washington residence and $40,707 in
closing costs on the sale of his Washington residence.
(3) 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 be granted at up to a 20% discount to the
market price of the Common Stock on the date of award. A restricted stock
award in the amount of $186,562 was made to Mr. Abraham in 1996 in
recognition of his efforts relating to the Company's acquisition of the
Pope & Talbot disposable diaper business and the investment in Mabesa. A
restricted stock award in the amount of $49,750 was made to Mr. Cyron in
1996 in recognition of his efforts in connection with the investment in
Mabesa, and such award vested 33.4% on February 19, 1997, 33.3% on February
19, 1998 and 33.3% on February 19, 1999. A restricted stock award in the
amount of $124,375 was made to Mr. Cole in 1996 in recognition of his
efforts in connection with the integration of the Pope & Talbot disposable
diaper business.
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 Common Stock subject to the award. Since the filing of the Company's
Chapter 11 proceeding, however, certain corporate insiders have been unable
to trade in the Common Stock. As a result, on January 31, 1999 and February
18, 1999, in order to avoid incurring a tax liability in connection with
the vesting of certain restricted stock awards, Mr. Abraham forfeited 4,887
shares awarded February 1, 1994 and scheduled to vest on February 1, 1999,
and 2,500 shares awarded February 19, 1996 and scheduled to vest on
February 19, 1999; and on February 18, 1999, Mr. Cole forfeited 1,666
shares awarded February 19, 1996 and scheduled to vest on February 19,
1999. In addition, on February 13, 1998, 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.
On December 27, 1998, Messrs. Abraham, Cole and Cyron held 7,387 shares,
1,666 shares and 666 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 $17,544, $3,957 and $1,582, respectively.
Dividends are payable on restricted stock at the same rate payable to all
stockholders.
(4) The amounts shown for fiscal 1998 represent: (i) matching 401(k)
contributions under the Paragon Retirement Savings Investment Management
Program (the "PRISM Plan") in the amounts of $4,250, $4,250, $4,276, $4,396
and $932 for Messrs. Abraham, Cole, Cyron, Jezzi and McClain, respectively;
(ii) profit sharing contributions under the PRISM Plan in the amounts of
$13,893, $13,893, $12,042, $13,893 and $12,042 for Messrs. Abraham, Cole,
Cyron, Jezzi and McClain, respectively; and (iii) a $216,048 deferred
compensation award for Mr. Abraham under the terms of his employment
agreement and as approved by the Creditors' Committee and the Bankruptcy
Court.
(5) Mr. Cole's title from March 1998 to September 1999 was "President, Sales
and Marketing." The Company's Board of Directors elected Mr. Cole
"President" in September 1999.
(6) Mr. Jezzi resigned effective as of April 15, 1999.
(7) In addition to amounts earned under the Company's Annual Bonus program, Mr.
McClain earned a sales bonus in the amount of $71,210.
</FN>
</TABLE>
-17-
<PAGE>
1998 OPTION GRANTS AND EXERCISES
There were no option grants under any of the Company's incentive
compensation plans in 1998. See "Report of Compensation Committee on Executive
Compensation: Long-Term Incentives" above.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND
FISCAL YEAR-END OPTION VALUES
The following table provides information on the aggregated option/SAR
exercises by named executive officers in 1998 and the value of the named
executive officers' unexercised options/SARs at December 27, 1998. No stock
options or SARs were exercised by the named executive officers during fiscal
1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS/SARS
OPTIONS AT FISCAL YEAR END(#) SARS AT FISCAL YEAR-END(#) AT FISCAL YEAR-END ($)(1)
----------------------------- -------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Bobby V. Abraham...........204,577 47,083 0 0 0 0
David W. Cole..............116,250 31,250 0 0 0 0
Alan J. Cyron.............. 26,250 23,750 0 0 0 0
Arrigo D. Jezzi(2)......... 20,000 0 7,500 12,500 0 0
Robert E. McClain.......... 0 0 7,500 12,500 0 0
- ----------
<FN>
(1) The value of the options/SARs on December 27, 1998 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 24, 1998 ($2.375). None of the outstanding options
or SARs were in the money at December 27, 1998. The number of securities
underlying unexercised options and SARs at fiscal year end reported above
are corrected from information reported in error in the Company's Annual
Report on Form 10-K for the fiscal year ended December 27, 1998.
(2) Mr. Jezzi resigned his position with the Company effective April 15, 1999.
All outstanding options to purchase common stock granted and stock
appreciation rights awarded to Mr. Jezzi were terminated in accordance with
their terms on July 15, 1999.
</FN>
</TABLE>
EMPLOYMENT AGREEMENTS; CHANGE-IN-CONTROL ARRANGEMENTS
CONFIRMATION RETENTION PLAN FOR TOP EIGHT EXECUTIVES. In August 1998, the
Company received Bankruptcy Court approval of its Confirmation Retention Plan,
which had previously been adopted by the Committee. The Confirmation Retention
Plan is designed to provide additional incentive for the Company's top eight
executives to remain with the Company through the conclusion of the Company's
Chapter 11 reorganization proceeding and to ensure their continued dedication
and efforts without undue concern for their personal financial and employment
security in order to expedite the Company's emergence from Chapter 11. In
particular, the Confirmation Retention Plan includes a bonus payable to the top
eight executives upon emergence from Chapter 11 (the "Confirmation Bonus") and
enhanced severance protection, as described below.
In conjunction with the Confirmation Retention Plan, each of the top eight
executives of the Company, including Mr. Abraham and the other named executive
officers, entered into Employment Agreements with the Company which provide,
among other things, that the executives are eligible to participate in the
Confirmation Retention Plan. These Employment Agreements supersede any prior
employment agreement that any of the top eight executives had with the Company.
-18-
<PAGE>
Under the Confirmation Retention Plan, the Company shall be obligated to
pay the Confirmation Bonus to the eligible executives upon confirmation of a
plan of reorganization by the Bankruptcy Court. In order to receive a
Confirmation Bonus, an executive must (i) be an active employee of the Company
on the date of confirmation of a plan by the Bankruptcy Court, and (ii) must not
have been terminated for Cause, as defined in the Confirmation Retention Plan,
or have voluntarily resigned from employment on or before the date such
Confirmation Bonus is paid. Notwithstanding the foregoing, if an executive's
employment with the Company is terminated by reason of death, retirement or
disability, or if the executive is terminated for any reason other than Cause,
as defined in the Confirmation Retention Plan, the Executive shall receive the
Confirmation Bonus if such termination occurs no earlier than three (3) months
before the confirmation of a plan of reorganization. If such termination occurs
more than three (3) moths before the confirmation of a plan of reorganization,
the Board, as defined in the Confirmation Retention Plan, shall have the
discretion to award the executive a pro-rata portion of his or her Confirmation
Bonus.
The Confirmation Bonus for each eligible executive shall be equal to the
executive's then base salary plus any amounts for which the executive qualified
under the Company's 1998 Bonus Plan, subject to a potential enhancement based on
the date the Bankruptcy Court confirms a plan of reorganization. Because no plan
was confirmed prior to July 15, 1999, there will be no enhancement of the
Confirmation Bonus. A minimum aggregate Confirmation Bonus of $2 million shall
be immediately paid in cash upon consummation of the plan of reorganization. If
the aggregate of all the executives' Confirmation Bonuses exceeds $2 million,
the Board shall pay any or all of the excess in common stock of the Company
unless the Board determines, in its complete discretion, to pay such amount in
cash. Any stock received as part of the Confirmation Bonus shall be fully
vested, and the Company shall provide a loan program, secured solely by the
shares of stock issued, to assist recipients of the stock with any tax
liabilities arising from the receipt of the stock.
The Confirmation Retention Plan also contains a severance program pursuant
to which an eligible executive shall be entitled to receive severance benefits
from the Company equal to two times base salary, plus a continuation of benefits
for two years, upon a Board Requested Termination, Resignation for Good Reason,
or upon a termination based on Permanent Disability or death (each such
capitalized term as defined in the Confirmation Retention Plan). In general,
severance benefits shall be paid in a lump sum on the last day of employment. No
severance benefits shall be paid upon a termination for Cause or upon voluntary
termination of employment for any reason other than very limited circumstances
specified in the Confirmation Retention Plan. Under the Confirmation Retention
Plan, an executive may voluntarily resign and still receive severance benefits
if (i) the Company does not make an offer to the executive of continued
employment of at least one additional year during the tenth month after
confirmation of a plan of reorganization; (ii) the Company does make such an
offer, but such offer contains terms that would provide the executive with the
option to Resign for Good Reason; or (iii) the executive Resigns for Good
Reason. Should the Company make an offer to the executive of continued
employment of at least one additional year during the tenth month after
confirmation of a plan, which offer does not contain terms that would provide
the executive with the option to Resign for Good Reason, and the executive
resigns anyway, then the executive shall receive a lump sum equal to only one
times the executive's base salary upon termination of employment. The remainder
of the severance benefits shall be paid in 12 monthly installments and shall be
reduced in an amount equal to the salary compensation received by the executive
due to other employment, including fees from consulting services.
In addition to the above, the terms of the individual employment agreements
with the top eight executives also require that each executive diligently
perform all acts and duties and furnish such services as are customary for the
position that such executive holds. Each of the top eight executives must also
comply with a noncompete provision contained in their respective employment
agreements which runs during the tenure of the executive's employment and for a
period of two years thereafter. Each of the top eight executives was also
required, as part of their respective employment agreements, to enter into a
confidentiality agreement with the Company. A breach by an executive of his or
her obligations under either the employment agreement or the confidentiality
agreement will result in a forfeiture of the
-19-
<PAGE>
executive's rights under his or her employment agreement and will make the
executive ineligible to participate in the Confirmation Retention Plan.
Effective April 15, 1999, Arrigo D. Jezzi resigned his position as
Executive Vice President - Operations, Technology and International. As a result
of his Resignation for Good Reason under his Employment Agreement, Mr. Jezzi is
entitled to receive his accrued salary and benefits, vested stock options and
restricted stock awards and severance benefits as specified under the
Confirmation Retention Plan.
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.
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 1999 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.
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 1998 fiscal year. The Company knows of no
Forms 3 or 4 untimely filed during and with regard to the 1998 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
-20-
<PAGE>
regard to the 1998 fiscal year. Further, the Company has confirmed with each of
its directors and designated officers that no form 5 filings are due by them
with regard to the 1998 fiscal year.
OTHER MATTERS
The Company knows of no other matters that are likely to be brought before
the 1999 Annual Meeting. If, however, other matters not now known or determined
come before the 1999 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 2000 Annual Meeting of Stockholders
must be received by the Secretary of the Company by January 15, 2000. Under the
Company's By-Laws, the Company must receive notice of any stockholder proposal
no later than the later of the 60th day prior to the 2000 Annual Meeting, or the
10th day following the day on which public announcement of the date of the 2000
Annual Meeting is made in order for the notice to be timely. If the Company does
not receive notice of a stockholder proposal prior to the date specified in the
foregoing sentence, the Company will retain discretionary voting authority over
the proxies returned by stockholders for the 2000 Annual Meeting with respect to
such stockholder proposal. Discretionary voting authority is the ability to vote
proxies that stockholders have executed and returned to the Company on matters
not specifically reflected on the proxy card, and on which stockholders have not
had an opportunity to vote by proxy.
ANNUAL REPORT
A copy of the Company's Annual Report on Form 10-K for the Fiscal Year
Ended December 27, 1998 is being mailed with this Proxy Statement to each
stockholder of record. Additional copies of such report may be obtained by
writing or calling Investor Relations at (678) 969-5200.
By Order of the Board of Directors
Catherine O. Hasbrouck
SECRETARY
Norcross, Georgia
October 29, 1999
PARAGON TRADE BRANDS, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS FOR THE
ANNUAL MEETING OF STOCKHOLDERS TO BE HELD NOVEMBER 29, 1999
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 October 1, 1999, at the Annual Meeting of
Stockholders to be held on November 29, 1999, or any adjournment or postponement
thereof.
(Continued and to be dated and signed on the other side)
<PAGE>
<TABLE>
<CAPTION>
Please mark [OBJECT OMITTED:
your vote as CHECK BOX]
indicated in this
example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR THE NOMINEE" AND "AGAINST THE PROPOSAL"
<S> <C> <C> <C>
FOR the WITHHOLD AUTHORITY In their discretion, the Proxies are
ELECTION OF DIRECTORS nominee to vote for nominee authorized to vote upon such other
business as may properly come before
the meeting. This Proxy, when
Election of Adrian D.P. Bellamy to serve _ _ properly executed and delivered,
as a Class III Director for a three-year term will be voted in the manner directed
herein by the undersigned. IF NO
Election of Robert L. Schuyler to serve as - - DIRECTION IS MADE, THIS PROXY WILL
a Class III Director for a three-year term BE VOTED "FOR" EACH NOMINEE AND
"AGAINST" THE STOCKHOLDER PROPOSAL.
AGAINST the FOR the
STOCKHOLDER PROPOSAL proposal proposal YOUR VOTE IS IMPORTANT. PROMPT
Proposed that the current Board of RETURN OF THIS PROXY WILL HELP SAVE
Directors of the Corporation be removed from _ _ THE EXPENSE OF ADDITIONAL
office, in accordance with the By-Laws of the SOLICITATION EFFORTS
Corporation
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.
</TABLE>
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 October 1, 1999, at the Annual Meeting of Stockholders to be held on
November 29, 1999, or any adjournment or postponemenet thereof.
Voting rights will be exercised by the Trustee as directed, provided
instructions are received by the Trustee by November 22, 1999. If this voting
instruction card is not received by November 22, 1999, 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" EACH NOMINEE AND "AGAINST" THE STOCKHOLDER PROPOSAL.
This voting instruction card is continued on the reverse side.
Please mark, sign and date on the reverse side and return promptly.
<PAGE>
<TABLE>
<CAPTION>
Please mark [OBJECT OMITTED:
your vote as CHECK BOX]
indicated in this
example
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR THE NOMINEE" AND "AGAINST THE PROPOSAL"
<S> <C> <C> <C>
FOR the WITHHOLD AUTHORITY In their discretion, the Proxies are
ELECTION OF DIRECTORS nominee to vote for nominee authorized to vote upon such other
business as may properly come before
the meeting. This Proxy, when
Election of Adrian D.P. Bellamy to serve _ _ properly executed and delivered,
as a Class III Director for a three-year term will be voted in the manner directed
herein by the undersigned. IF NO
Election of Robert L. Schuyler to serve as - - DIRECTION IS MADE, THIS PROXY WILL
a Class III Director for a three-year term BE VOTED "FOR" EACH NOMINEE AND
"AGAINST" THE STOCKHOLDER PROPOSAL.
AGAINST the FOR the
STOCKHOLDER PROPOSAL proposal proposal YOUR VOTE IS IMPORTANT. PROMPT
Proposed that the current Board of RETURN OF THIS PROXY WILL HELP SAVE
Directors of the Corporation be removed from _ _ THE EXPENSE OF ADDITIONAL
office, in accordance with the By-Laws of the SOLICITATION EFFORTS
Corporation
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.
</TABLE>
