SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission file number 1-11368
A. Full title of the plan and the address of the plan, if different from
that of the issuer named below:
PARAGON RETIREMENT INVESTMENT SAVINGS MANAGEMENT PLAN
B. Name of issuer of the securities held pursuant to the plan and the
address of its principal executive office:
Paragon Trade Brands, Inc.
180 Technology Parkway
Norcross, Georgia 30092
Page 1 of 19
Exhibit Index at Page 17
<PAGE>
I. REPORT
Financial Statements and Schedules as of December 31, 1998 and December 31,
1997, Together With Auditors' Report, Prepared in Accordance With the Financial
Reporting Requirements of ERISA.
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<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
FINANCIAL STATEMENTS AND SCHEDULES
AS OF DECEMBER 31, 1998 AND 1997
TOGETHER WITH
AUDITORS' REPORT
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<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1998 AND 1997
TABLE OF CONTENTS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
FINANCIAL STATEMENTS
Statement of Net Assets Available for Benefits, With Fund Information
--December 31, 1998
Statement of Net Assets Available for Benefits, With Fund Information
--December 31, 1997
Statement of Changes in Net Assets Available for Benefits, With Fund
Information, for the Year Ended December 31, 1998
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
SCHEDULES SUPPORTING FINANCIAL STATEMENTS
Schedule I: Item 27a--Schedule of Assets Held for Investment
Purposes--December 31, 1998
Schedule II: Item 27d--Schedule of Reportable Transactions for the
Year Ended December 31, 1998
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<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Plan Administrator of the
Paragon Retirement Investment
Savings Management Plan:
We have audited the accompanying statements of net assets available for
benefits, with fund information, of the PARAGON RETIREMENT INVESTMENT SAVINGS
MANAGEMENT PLAN as of December 31, 1998 and 1997 and the related statement of
changes in net assets available for benefits, with fund information, for the
year ended December 31, 1998. These financial statements and the schedules
referred to below are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of the Plan as of
December 31, 1998 and 1997 and the changes in its net assets available for
benefits for the year ended December 31, 1998 in conformity with generally
accepted accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets held
for investment purposes and reportable transactions are presented for purposes
of additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of Labor
Rules and Regulations for Reporting and Disclosure under the Employee Retirement
Income Security Act of 1974. The fund information in the statements of net
assets available for benefits and the statement of changes in net assets
available for benefits is presented for purposes of additional analysis rather
than to present the net assets available for benefits and changes in net assets
available for benefits of each fund. The supplemental schedules and fund
information have been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.
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<PAGE>
As discussed in Note 6 to the accompanying financial statements, Paragon Trade
Brands, Inc., the plan sponsor, filed a voluntary petition for relief under
Chapter 11 of the U.S. Bankruptcy Code. The accompanying financial statements
have been prepared assuming that the Paragon Retirement Investment Savings
Management Plan will continue as a going concern. However, because of the plan
sponsor's Chapter 11 filing, there is substantial doubt about whether the Plan
will continue as a going concern. The accompanying financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/
Athur Andersen LLP
Atlanta, Georgia
June 11, 1999
(except with respect to the
matter discussed in the last
paragraph of Note 7, as to
which the date is June 22, 1999)
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<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
----------------------------------------------------------------------------
VANGUARD VANGUARD VANGUARD VANGUARD
SMALL-CAP WELLESLEY VANGUARD VANGUARD U.S. INTERNATIONAL
INDEX INCOME 500 INDEX WINDSOR II GROWTH GROWTH
FUND FUND FUND FUND FUND FUND
-------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Registered investment companies $ 92,750 $2,354,094 $5,024,933 $4,151,471 $4,839,677 $554,372
Company stock fund 0 0 0 0 0 0
Participant loans 0 0 0 0 0 0
-------- ---------- ---------- ---------- ---------- --------
92,750 2,354,094 5,024,933 4,151,471 4,839,677 554,372
Employee contributions receivable 2,020 30,627 49,809 44,711 43,280 10,258
Employer contributions receivable 40,583 334,392 506,196 487,320 440,464 104,418
-------- ---------- ---------- ---------- ---------- --------
Total assets 135,353 2,719,113 5,580,938 4,683,502 5,323,421 669,048
LIABILITIES:
Refunds payable to participants 1,257 13,075 21,218 19,166 18,631 4,294
-------- ---------- ---------- ---------- ---------- --------
NET ASSETS AVAILABLE FOR BENEFITS $134,096 $2,706,038 $5,559,720 $4,664,336 $5,304,790 $664,754
======== ========== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
---------------------------------
VANGUARD
TOTAL BOND VANGUARD PARAGON
MARKET RETIREMENT COMMON
INDEX SAVINGS STOCK LOAN
FUND TRUST FUND FUND TOTAL
-------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Registered investment companies $820,216 $ 785,656 $ 0 $ 0 $18,623,169
Company stock fund 0 0 561,261 0 561,261
Participant loans 0 0 0 665,303 665,303
-------- ---------- -------- -------- -----------
820,216 785,656 561,261 665,303 19,849,733
Employee contributions receivable 8,289 10,904 6,113 0 206,011
Employer contributions receivable 103,948 484,847 2,761 0 2,504,929
-------- ---------- -------- -------- -----------
Total assets 932,453 1,281,407 570,135 665,303 22,560,673
LIABILITIES:
Refunds payable to participants 3,715 3,875 4,451 0 89,682
-------- ---------- -------- -------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $928,738 $1,277,532 $565,684 $665,303 $22,470,991
======== ========== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS, WITH FUND INFORMATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
----------------------------------------------------------------------------
VANGUARD VANGUARD VANGUARD VANGUARD
SMALL-CAP WELLESLEY VANGUARD VANGUARD U.S. INTERNATIONAL
INDEX INCOME 500 INDEX WINDSOR II GROWTH GROWTH
FUND FUND FUND FUND FUND FUND
-------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Registered investment companies $20,205 $2,062,099 $3,866,548 $3,608,548 $3,293,953 $444,531
Company stock fund 0 0 0 0 0 0
Participant loans 0 0 0 0 0 0
------- ---------- ---------- ---------- ---------- --------
20,205 2,062,099 3,866,548 3,608,548 3,293,953 444,531
Employee contributions receivable 410 24,380 34,349 34,122 33,688 8,803
Employer contributions receivable 146 9,363 12,794 13,185 12,488 2,991
Loan payments receivable 65 4,310 4,096 5,036 3,707 1,346
------- ---------- ---------- ---------- ---------- --------
Total assets 20,826 2,100,152 3,917,787 3,660,891 3,343,836 457,671
LIABILITIES:
Refunds payable to participants 192 1,578 1,626 3,326 4,377 523
------- ---------- ---------- ---------- ---------- --------
NET ASSETS AVAILABLE FOR BENEFITS $20,634 $2,098,574 $3,916,161 $3,657,565 $3,339,459 $457,148
======= ========== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
----------------------------------
VANGUARD
TOTAL BOND VANGUARD PARAGON
MARKET RETIREMENT COMMON
INDEX SAVINGS STOCK LOAN
FUND TRUST FUND FUND TOTAL
-------- ---------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Investments, at fair value:
Registered investment companies $610,084 $725,215 $ 0 $ 0 $14,631,183
Company stock fund 0 0 3,839,594 0 3,839,594
Participant loans 0 0 0 624,854 624,854
-------- -------- ----------- -------- -----------
610,084 725,215 3,839,594 624,854 19,095,631
Employee contributions receivable 6,932 6,510 8,676 0 157,870
Employer contributions receivable 2,875 2,564 4,463 0 60,869
Loan payments receivable 1,204 987 1,101 (21,852) 0
-------- -------- ----------- -------- -----------
Total assets 621,095 735,276 3,853,834 603,002 19,314,370
LIABILITIES:
Refunds payable to participants 32 305 1,881 0 13,840
-------- -------- ----------- -------- -----------
NET ASSETS AVAILABLE FOR BENEFITS $621,063 $734,971 $3,851,953 $603,002 $19,300,530
======== ======== ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
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<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS,
WITH FUND INFORMATION,
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
----------------------------------------------------------------------------
VANGUARD VANGUARD VANGUARD VANGUARD
SMALL-CAP WELLESLEY VANGUARD VANGUARD U.S. INTERNATIONAL
INDEX INCOME 500 INDEX WINDSOR II GROWTH GROWTH
FUND FUND FUND FUND FUND FUND
-------- ---------- ---------- ---------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSETS, BEGINNING OF YEAR $ 20,634 $2,098,574 $3,916,161 $3,657,565 $3,339,459 $457,148
-------- ---------- ---------- ---------- ---------- --------
Sources:
Employee contributions 28,056 295,604 496,085 437,181 426,495 98,820
Employer contributions 51,259 429,990 647,665 625,406 575,400 134,223
Loan repayments 1,997 59,501 59,290 74,786 48,813 16,229
Investment income 7,099 222,907 75,485 417,545 301,749 11,057
Appreciation (depreciation) in fair value of
assets (9,932) 21,277 1,022,893 168,388 1,039,984 63,703
-------- ---------- ---------- ---------- ---------- --------
Total sources 78,479 1,029,279 2,301,418 1,723,306 2,392,441 324,032
-------- ---------- ---------- ---------- ---------- --------
Uses:
Benefit withdrawals 114 238,309 621,438 511,036 383,615 41,224
New loans taken 522 74,551 87,056 123,184 68,651 15,284
Fees and expenses 421 1,460 110 350 190 80
-------- ---------- ---------- ---------- ---------- --------
Total uses 1,057 314,320 708,604 634,570 452,456 56,588
-------- ---------- ---------- ---------- ---------- --------
INTERFUND TRANSFERS 36,040 (107,495) 50,745 (81,965) 25,346 (59,838)
-------- ---------- ---------- ---------- ---------- --------
NET ASSETS, END OF YEAR $134,096 $2,706,038 $5,559,720 $4,664,336 $5,304,790 $664,754
======== ========== ========== ========== ========== ========
</TABLE>
<TABLE>
<CAPTION>
PARTICIPANT-DIRECTED
----------------------------------
VANGUARD
TOTAL BOND VANGUARD PARAGON
MARKET RETIREMENT COMMON
INDEX SAVINGS STOCK LOAN
FUND TRUST FUND FUND TOTAL
-------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSETS, BEGINNING OF YEAR $621,063 $ 734,971 $3,851,953 $603,002 $19,300,530
-------- ---------- ---------- -------- -----------
Sources:
Employee contributions 80,850 86,583 94,954 0 2,044,628
Employer contributions 133,505 513,561 42,270 0 3,153,279
Loan repayments 16,200 13,360 11,681 (301,857) 0
Investment income 46,255 44,418 0 52,420 1,178,935
Appreciation (depreciation) in fair value of
assets 12,041 0 (3,209,521) 0 (891,167)
-------- ---------- ---------- -------- -----------
Total sources 288,851 657,922 (3,060,616) (249,437) 5,485,675
-------- ---------- ---------- -------- -----------
Uses:
Benefit withdrawals 107,964 137,090 186,287 84,806 2,311,883
New loans taken 15,319 10,624 1,353 (396,544) 0
Fees and expenses 0 650 70 0 3,331
-------- ---------- ---------- -------- -----------
Total uses 123,283 148,364 187,710 (311,738) 2,315,214
-------- ---------- ---------- -------- -----------
INTERFUND TRANSFERS 142,107 33,003 (37,943) 0 0
-------- ---------- ---------- -------- -----------
NET ASSETS, END OF YEAR $928,738 $1,277,532 $ 565,684 $665,303 $22,470,991
======== ========== ========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
-9-
<PAGE>
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
NOTES TO FINANCIAL STATEMENTS AND SCHEDULES
DECEMBER 31, 1998 AND 1997
1. PLAN DESCRIPTION
The following description of the Paragon Retirement Investment Savings
Management Plan (the "Plan") is provided for general information
purposes only. Participants should refer to the plan agreement for a
more comprehensive description of the Plan's provisions.
GENERAL
The Plan is a defined contribution plan established by Paragon Trade
Brands, Inc. (the "Company"), under the provisions of Sections 401(a)
and 401(k) of the Internal Revenue Code ("IRC"), for the benefit of
eligible employees of the Company. The Plan is subject to the
provisions of the Employee Retirement Income Security Act of 1974
("ERISA"), as amended.
The Paragon Profit Sharing Plan ("Profit Sharing Plan") was originally
adopted effective the closing date of the initial public offering of
the shares of common stock of the Company in January 1993 by
Weyerhaeuser Company. The Paragon 401(k) Savings Plan ("401(k) Plan")
was originally adopted effective February 2, 1993 by the Company.
Effective October 1, 1993, the Profit Sharing Plan and the 401(k) Plan
were merged and restated as the Plan. Effective January 1, 1995, the
Plan was renamed the Paragon Retirement Investment Savings Management
Plan.
ELIGIBILITY
Effective April 1, 1998, regular employees of the Company who have
completed six months of service are eligible to participate in the
Plan, except for employees covered by a collective bargaining agreement
that does not provide for participation in the Plan, employees who are
nonresident aliens and earn no U.S.-source income, employees classified
as bag stickering, and hourly paid administrative employees. Prior to
April 1, 1998, employees had to have completed one year of service to
be eligible.
PLAN ADMINISTRATION
The Plan is administered by the plan administrative committee (the
"Committee"), which is appointed by the board of directors of the
Company. The Plan's investments are held under a trust agreement with
Vanguard Fiduciary Trust Company.
CONTRIBUTIONS
Eligible employees can contribute up to 15% of compensation, as defined
by the Plan, subject to certain limitations under the IRC. The Company
provides a matching contribution equal to 50% of each participant's
contribution that does not exceed 6% of compensation. The Company may,
at its discretion, make profit-sharing contributions to the Plan in
amounts to be determined by the board of directors. Forfeitures are
used to reduce future matching and profit-sharing contributions. The
balance of unutilized forfeitures as of December 31, 1998 and 1997 was
$35,980 and $55,668, respectively.
VESTING
Participants are immediately vested in their contributions and the
actual earnings thereon. Participants become fully vested in matching
and profit-sharing contributions when they attain normal retirement
age, as defined by the Plan, or after completing five years of service,
whichever occurs first. Plan participants terminating after April 1,
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<PAGE>
1998 with three or more years of service are fully vested in matching
and profit-sharing contributions. Upon a participant's death or
disability, account balances become fully vested.
BENEFITS
Upon termination of service, a participant may elect to receive
currently or defer receipt of an amount equal to the value of the
vested interest in his/her account, if the vested interest is greater
than $5,000. For vested interests not exceeding $5,000, a distribution
will be made to the participant within 60 days after the last day of
the plan year in which the termination occurs. All benefit payments are
made in lump-sum distributions. Special distribution rules apply to
benefit payments upon attainment of age 70 1/2 and in-service
withdrawals. In these cases, the plan document should be consulted.
PARTICIPANT ACCOUNTS
Individual accounts are maintained for each of the Plan's participants
to reflect the participant's contributions, matching and profit-sharing
contributions, as well as the participant's share of the Plan's income
or loss and any related administrative expenses. The trust funds are
valued on each business day. Participant accounts are adjusted as of
each valuation date to reflect any distributions made and contributions
received, including income or loss on trust fund investments.
Allocations of earnings, gains, and losses are based on the proportion
of each participant's account invested in a particular fund to the
total of all participant account balances invested in such fund.
INVESTMENT OPTIONS
Upon enrollment in the Plan, a participant may direct employee
contributions in 10% increments into any of the following investment
options:
o Vanguard Wellesley Income Fund--seeks a high level of
income and long-term growth of income by investing in a
portfolio of corporate bonds and dividend-paying stocks.
The fund also seeks the potential for moderate long-term
growth of capital.
o Vanguard 500 Index Fund--seeks to match the performance of
publicly traded stocks, in the aggregate, as represented
by the Standard & Poor's 500 Composite Stock Price Index.
o Vanguard Windsor II Fund--seeks to provide long-term
growth of capital and income from dividends by investing
in out-of-favor stocks of large capitalization companies.
o Vanguard U.S. Growth Fund--seeks long-term growth of
capital by investing in a diversified portfolio of common
stocks of large U.S. companies with above-average growth
potential.
o Vanguard International Growth Fund--seeks long-term growth
of capital by investing in the common stocks of companies
based outside the United States.
o Vanguard Total Bond Market Index Fund--seeks to match
the performance of the Lehman Brothers Aggregate Bond
Index.
o Vanguard Retirement Savings Trust (formerly, the Vanguard
Investment Contract Trust)--seeks to provide a high rate
of interest and a stable share price.
o Vanguard Small-Cap Index Fund--seeks to match the
performance of the Russell 2000 Index.
o Paragon Common Stock Fund--invests primarily in the
Company's common stock.
A participant may change his or her investment directions daily.
Investments in the Paragon Common Stock Fund are assigned units of
participation. The unit value of the Paragon Common Stock Fund is
determined daily based on the fair market value of the underlying net
assets. The total units assigned to participants at December 31, 1998
and 1997 were 1,002,252 and 1,090,794, respectively. The unit value at
December 31, 1998 and 1997 was $0.56 and $3.52, respectively.
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<PAGE>
LOANS TO PARTICIPANTS
A participant may borrow up to the lesser of 50% of his/her vested
account balance, excluding profit-sharing contributions, or $50,000,
reduced by the highest loan amount outstanding during the preceding
12-month period, with a minimum loan amount of $1,000. Loans are
repayable through payroll deductions over periods ranging up to 60
months, except for loans used to purchase the participant's primary
residence, which can be repaid over a longer period. All loans bear
interest at rates set by the Committee based on the rates charged by
commercial lenders for similar loans.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The accompanying financial statements are prepared on the accrual basis
of accounting.
INCOME RECOGNITION
Purchases and sales of securities are recorded on a trade-date basis.
Interest income is recorded on the accrual basis. Dividends are
recorded on the ex-dividend date. Net appreciation (depreciation) in
the fair value of assets includes both realized and unrealized
appreciation (depreciation) and is computed using the average cost
method, based on the beginning-of-year market value, or the cost of the
security if it is acquired during the year.
INVESTMENT VALUATION
The Plan's investments are stated at fair value. Shares of registered
investment companies are valued at quoted market prices, which
represent the net asset value of shares held for the Plan at year-end.
The value for the Paragon Common Stock Fund is based on the closing
share price of the Company's common stock.
ADMINISTRATIVE EXPENSES
Investment advisory fees for portfolio management by Vanguard Group,
Inc. are paid directly from fund earnings. Other administrative
expenses are paid by the Company.
USE OF ESTIMATES
The preparation of the financial statements in conformity with
generally accepted accounting principles requires the Plan's management
to use estimates and assumptions that affect the net assets available
for benefits and the changes therein. Actual results could differ from
those estimates.
3. TAX STATUS
The Internal Revenue Service has determined and informed the Company by
a letter dated September 18, 1995 that the Plan is designed in
accordance with applicable sections of the IRC. The Plan has been
amended since receiving the determination letter. However, the
Committee believes that the Plan is designed and is currently being
operated in compliance with the applicable requirements of the IRC.
Therefore, the plan administrator believes that the Plan was qualified
and that the related trust was tax-exempt as of December 31, 1998 and
1997.
4. PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the
right under the Plan to discontinue its contributions at any time and
to terminate the Plan subject to the provisions of ERISA. In the event
of plan termination, participants will become fully vested in their
account balances and distributions will be made to participants as soon
as administratively feasible.
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<PAGE>
5. RECONCILIATION OF FINANCIAL STATEMENTS TO FORM 5500
The following is a reconciliation of net assets available for benefits
according to the financial statements to the net assets available for
benefits as reported on the Plan's Form 5500 as of December 31, 1998:
<TABLE>
<S> <C>
Net assets available for benefits per the financial statements $22,470,991
Amounts allocated to withdrawing participants (46,515)
-----------
Net assets available for benefits per Form 5500 $22,424,476
===========
</TABLE>
The following is a reconciliation of benefits paid to participants
according to the financial statements to benefits paid to participants
as reported on the Plan's Form 5500 for the year ended December 31,
1998:
<TABLE>
<S> <C>
Benefits paid to participants per the financial statements $2,311,883
Amounts allocated to withdrawing participants at December 31, 1998 46,515
----------
Benefits paid to participants per Form 5500 $2,358,398
==========
</TABLE>
Amounts allocated to withdrawing participants are recorded on the Form
5500 for benefit claims that have been processed and approved for
payment prior to December 31 but not paid as of that date.
6. CHAPTER 11 BANKRUPTCY OF PLAN SPONSOR
Paragon Trade Brands, Inc., the plan sponsor, filed a voluntary
petition on January 6, 1998 for relief under Chapter 11 of the U.S.
Bankruptcy Code due to the fact that the District Court for the
District of Delaware issued a judgment and opinion finding that the
Company's diaper products infringe certain patents held by the Proctor
& Gamble Company ("P&G"). Kimberly Clark Corporation ("K-C") had also
filed a similar patent infringement lawsuit against the Company. During
the first quarter of 1999, the Company entered into settlement
agreements with P&G and K-C which, if approved by the Bankruptcy Court,
will fully and finally settle all matters related to these actions. In
the event these settlement agreements are approved and a plan of
reorganization is approved by the Bankruptcy Court, continuation of the
business thereafter is dependent on the Company's ability to achieve
successful future operations. The accompanying financial statements
have been prepared assuming that the Paragon Retirement Investment
Savings Management Plan will continue as a going concern. However,
should the Plan be terminated, the assets of the Plan would be
liquidated at their then fair value and distributed to participants.
All assets of the Plan are held in trust and are protected from the
creditors of the Company. However, because of the plan sponsor's
Chapter 11 filing, there is substantial doubt about whether the Plan
will continue as a going concern. The accompanying financial statements
do not include any adjustments that might result from the outcome of
this uncertainty.
7. SUBSEQUENT EVENTS
The Company's common stock was valued at $2.125 per share at December
31, 1998, representing approximately 3% of the Plan's net assets.
However, the Company's stock closed at $1.8125 per share on June 11,
1999.
Effective March 1, 1999, the Plan was amended to discontinue the
Company matching contribution. The Company contributes 3% of
compensation to the Plan for all eligible plan participants regardless
whether or not they are actively contributing.
Effective May 15, 1999, employee contributions, employer contributions,
and interfund transfers to Paragon Common Stock Fund are prohibited.
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<PAGE>
On June 11, 1999, the Company filed a motion with the bankruptcy court
seeking approval of bidding procedures, an expense reimbursement, and a
termination fee relating to a proposed investment by Wellspring Capital
Management LLC, to acquire the Company as part of reorganization (the
"Wellspring Proposal"). The bidding procedures provide for the
consideration of competing investment proposals from other interested
parties. The Company intends to simultaneously prepare and file a
stand-alone plan of reorganization so that the plan process and the
Company's emergence from Chapter 11 will not be delayed in the event
that the Wellspring Proposal is not consummated, or a higher or
otherwise better alternative transaction is not approved or accepted.
On June 22, 1999, the Company in conjunction with the New York Stock
Exchange announced that trading in the common stock of the Company will
be suspended prior to opening of trading on July 8, 1999, or such
earlier date as i) the Company commences trading in another securities
marketplace, ii) information is received that the Company does not meet
the listing requirements of the other securities marketplace; or iii)
the Company makes a material adverse news announcement. The Company
intends to apply to list its shares by the National Quotation Bureau
and on the OTC Bulletin Board.
-14-
<PAGE>
SCHEDULE 1
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
ITEM 27A--SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1998
<TABLE>
<CAPTION>
SHARES/ CURRENT
ISSUER/DESCRIPTION UNITS COST VALUE
------------------ --------- ----------- -----------
<S> <C> <C> <C>
* VANGUARD--WELLESLEY INCOME FUND 106,424 $ 2,210,492 $ 2,354,094
* VANGUARD--500 INDEX FUND 44,098 3,121,340 5,024,933
* VANGUARD--SMALL-CAP INDEX FUND 4,375 103,396 92,750
* VANGUARD--WINDSOR II FUND 139,078 3,406,536 4,151,471
* VANGUARD--U.S. GROWTH FUND 129,092 3,134,637 4,839,677
* VANGUARD--INTERNATIONAL GROWTH FUND 29,535 486,446 554,372
* VANGUARD--TOTAL BOND MARKET INDEX FUND 79,865 796,994 820,216
* VANGUARD--RETIREMENT SAVINGS TRUST 785,656 785,656 785,656
* PARAGON COMMON STOCK FUND 1,002,252 3,924,887 561,261
* PARTICIPANT LOANS
(INTEREST RATES FROM 8% TO 11%) 0 665,303 665,303
----------- -----------
$18,635,687 $19,849,733
=========== ===========
</TABLE>
*Represents a party in interest.
The accompanying notes are an integral part of this schedule.
-15-
<PAGE>
SCHEDULE II
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
ITEM 27D--SCHEDULE OF REPORTABLE TRANSACTIONS (A)
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER NUMBER
OF PURCHASE PURCHASE OF SALES
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET TRANSACTIONS PRICE TRANSACTIONS
-------------------------- -------------------- ------------ ----- ------------
<S> <C> <C> <C> <C>
* VANGUARD GROUP, INC. Wellesley Income Fund 68 $ 833,078 107
Vanguard 500 Index Fund 92 1,373,287 126
Vanguard Windsor II Fund 84 1,434,737 134
Vanguard U.S. Growth Fund 89 1,288,224 113
* PARAGON TRADE BRANDS, INC. Paragon Common Stock Fund 86 1,145,487 141
</TABLE>
<TABLE>
<CAPTION>
SELLING GAIN
IDENTITY OF PARTY INVOLVED DESCRIPTION OF ASSET PRICE COST (LOSS)
-------------------------- -------------------- ------------ ----- -----------
<S> <C> <C> <C> <C>
* VANGUARD GROUP, INC. Wellesley Income Fund $ 568,627 $ 522,108 $ 46,519
Vanguard 500 Index Fund 1,240,729 967,302 273,427
Vanguard Windsor II Fund 1,065,576 849,628 215,948
Vanguard U.S. Growth Fund 785,760 586,789 198,971
* PARAGON TRADE BRANDS, INC. Paragon Common Stock Fund 1,232,117 2,911,299 (1,679,182)
</TABLE>
*Represents a party in interest.
(a) Represents a transaction or a series of transactions in
excess of 5% of the current value of plan assets as of the
beginning of the year.
The accompanying notes are an integral part of this schedule.
-16-
<PAGE>
II. EXHIBITS
EXHIBIT PAGE
23.1 Consent of Accountants 19
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Administrative Committee has duly caused this annual report to be signed on its
behalf by the undersigned hereunto duly authorized.
PARAGON TRADE BRANDS, INC.
PARAGON RETIREMENT INVESTMENT
SAVINGS MANAGEMENT PLAN
By: /S/ KATHY L. EVENSON
---------------------------------
Kathy L. Evenson
Plan Administrator
June 29, 1999
-18-
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated June 11, 1999 (except with respect to the matter
discussed in the last paragraph of Note 7, as to which the date is June 22,
1999) on the financial statements of the Paragon Retirement Investment Savings
Management Plan, included in the Paragon Retirement Investment Savings
Management Plan annual report on Form 11-K for the year ended December 31, 1998,
into the Company's previously filed Registration Statement File No. 33-73726 on
Form S-8.
/s/ Arthur Andersen LLP
Atlanta, Georgia
June 24, 1999
-19-
